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Article Artículo

They Didn't Think Anyone Was Watching

Erskine Bowles, who served as President Clinton’s chief of staff and president of the University of North Carolina, has made several million dollars serving on the boards of companies whose stock prices have plummeted. He was a director at General Motors at the time it went bankrupt and at Morgan Stanley when it was bailed out by the government. He was also a director of Facebook during the period when the value of its stock fell by close to 50 percent. 

This is not supposed to happen. While top executives can expect to be well-compensated when their actions substantially boost stock prices, they should not get large paychecks when they have failed. It is the job of directors on corporate boards to prevent this sort of fleecing of shareholders.

But they aren’t doing their job. They don’t think anyone is watching. Well, we are. 

The Huffington Post has agreed to partner with CEPR to host a new website called Director Watch. Director Watch will bring to light the names of directors who get large paychecks even as the companies they oversee are going down the tubes. 

CEPR and Dawn Lobell / April 04, 2013

Article Artículo

Robert Samuelson Calls Me Nobody

In his column today Robert Samuelson talks about the euro zone crisis and its latest manifestation in Cyprus in the context of the new book, The Alchemists, by his Washington Post colleague Neil Irwin. At one point he tells readers:

"The constant goal, as Irwin shows, has been to prevent a collapse of the global financial system, which could plunge the world economy into a genuine depression. Everyone embraces the goal..." (emphasis added)

Well not everyone shares the goal of preventing a financial collapse at all costs. That's in part because some of us know that there is no reason that such a collapse would plunge the world into a genuine depression.

The world has the tools to reverse the impact of a financial collapse and restore the economy back to a normal growth path. This was demonstrated a decade ago by Argentina. It defaulted on its debt and broke with the dollar in December of 2001. This led to a full-fledged financial collapse, which was followed by a sharp plunge in output in the first quarter of 2002.

By the second quarter its economy had stabilized. By the second half of 2002 its economy was growing rapidly and by the summer of 2003 it had made up all the ground lost from the financial collapse. It continued to growth rapidly until the world recession brought Argentina's economy to a standstill in 2009.

Source: International Monetary Fund.

Dean Baker / April 04, 2013

Article Artículo

Latin America and the Caribbean

Venezuela

World

So-Called ‘Civil Society’ in Post-Chávez Venezuela

There is a powerfully dangerous and condescending myth circulating about so-called ‘civil society’ in Venezuela, which goes something like this: as Daniel Levine put it on a recent radio program, “there’s just not independent groups as we conceive of civil society” in Venezuela. Focusing above all on the Communal Council phenomenon, Levine portrays these directly democratic institutions not as the radically participatory experiment they claim to be, but instead as little more than a cynical ruse by the late Hugo Chávez and his movement to enforce political objectives from above.

I can trace my interest in moving to Venezuela to this very question of civil society. As a young Ph.D student, I clearly remember reading a number of academic articles which attempted to clumsily impose the pre-established conceptual framework of civil society onto the development of participatory institutions in Venezuela. First with the nascent Bolivarian Circles and later with the Communal Councils formally established in 2006, U.S. academics have held up the template of civil society, scratched their heads as to why it doesn’t fit, and then concluded that since it does not, something must be wrong with Venezuela and not with their own concept. The Circles and the Councils, it was and continues to be argued, are not truly independent of the state, and therefore cannot be civil society “as we conceive.”

Firstly, the concept of civil society as we conceive it emerged and was cemented in struggles against dictatorship in the Southern Cone and against Soviet bureaucracy in Eastern Europe, displacing the far more critical variant associated with Gramsci. This new version privileges autonomy from the state as the criterion, systematically obscuring other crucial forces from which organizations might want to remain autonomous: imperial powers, the capitalist market, etc.

As a result, many accept as nominally ‘independent’ many forces that are nothing of the sort: private economic interests, NGOs with powerful funders, and foreign-backed political parties. Such forces constituted the bulk of the organized Venezuelan opposition, whose ‘civil’ credentials are questioned by few. Some have therefore described the 2002 coup against Chávez (which was reversed after 48 hours) as a “civil society coup,” and rightly so. It was this appropriation of an uncritical concept of civil society more than anything else that led many Venezuelan Chavistas to abandon the language of civil society at the same time that the anti-Chavistas seized upon it: this concept doesn’t describe what we’re doing, so let them have it.

CEPR and George Ciccariello-Maher (guest post) / April 03, 2013

Article Artículo

The Post is Badly Confused About Housing, Again

The Washington Post, which relied on David Lereah, the chief economist of the National Association of Realtors, as its main and often only source on the housing market, remains seriously confused about housing. An article on efforts by the Obama administration to push banks to increase lending implied that the situation of the bubble years were normal.

It told readers:

"Before the crisis, about 40 percent of home buyers were first-time purchasers. That’s down to 30 percent, according to the National Association of Realtors."

Of course in the bubble years many people were buying homes with zero or even less than zero down payments. (Many borrowers were able to borrow more than the sale price of the home.) It is bizarre that anyone would use this period as a basis of comparison. The current rate of new homebuyers is closer to the historic norm.

The piece later tells readers:

"One reason, according to policymakers [anyone with a name?], is that as young people move out of their parents’ homes and start their own households, they will be forced to rent rather than buy, meaning less construction and housing activity. Given housing’s role in building up a family’s wealth, that could have long-lasting consequences."

Actually renting also increases the demand for housing. Units switch back and forth all the time between being rental units and ownership units (30 percent of rental units are single-family homes). As a practical matter, the main factor depressing construction right now is the fact that the country continues to have a near record vacancy rate. The vacancy rate is the same whether a family is renting or owning.

Dean Baker / April 03, 2013

Article Artículo

Argentina

Latin America and the Caribbean

World

Argentina vs. the Vultures: What You Need to Know

Just ahead of the midnight deadline set out by the U.S. 2nd Circuit Court of Appeals’ three-judge panel, Argentina’s government submitted a letter (view document here) describing how it would go about paying holders of defaulted bonds. The payments would be for creditors who refused to take part in two previous debt exchanges, including the so-called “vulture fund” plaintiffs in this ongoing case, NML Capital, Ltd. V. Republic of Argentina.

Following the letter’s submission, a number of financial analysts quoted in the major media were unimpressed by Argentina’s latest move. The Wall Street Journal noted that one portfolio manager said “There was some hope they would have a more rational approach to this exercise, but that's definitely not the Argentina way.” Financial analyst Josh Rosner predicted to an AP reporter that "Monday morning is going to be a disaster." He also asked, "What if somebody took that new bond, and the Argentine government defaulted the next day?” Rosner may have momentarily forgotten that the South American government has made timely payments on all the bonds issued in the 2005 and 2010 settlements. The gist of the response in the media was “more shenanigans from Argentina.”

But what was lost in most reactions in the media is that Argentina has made significant concessions to creditors that until recently it had vowed, on principle, not to offer. (The plaintiffs, for their part, have shown no willingness to compromise.) Furthermore, the terms offered to NML would represent a sizeable return on the fund’s original investments in 2008 and would satisfy the requirement under the pari passu clause—which is at the heart of the case— that all bondholders are treated equally. Indeed, to offer a sweeter deal would appear to violate that clause at the expense of bondholders who took part in the 2005 and 2010 exchanges and accepted restructured bonds worth between 25 and 29 cents on the dollar.

Jake Johnston and Arthur Phillips / April 02, 2013