The 1% Whisperer on Poor Countries: It's Their Fault

The graphic comes courtesy of the Planet Monkeys. Thanks!

 Seems like the stupider you are, the more willing your are to shill for the uber-wealthy, the more you praise exploitation and income inequality, the more you attack social welfare programs and ignore war spending, then the more likely you are to get air-time on NPR.

So, of course, I was suspicious when on Friday afternoon, Mr. Davidson, the intrepid "journalist" who always seems to put his mouth where the money is, emerged from his Planet O' Money to sing the praises of a book which Davidson claims answers a question that has supposedly stymied economists for "centuries": "Why are some nations rich, while others are poor?"

The book, Why Nations Fail, actually appears to have some very interesting things to say about "extractive institutions," which anyone - except for a total Wall Street sycophant - might think would apply to dynamics in the US, especially given that the finance industry essentially controls the US government.  Furthermore, anyone with the even the slightest historical sense would look at some of the poorest nations in the world and have to admit that European and US colonialism/imperialism has "blessed" them with just those vile "extractive institutions" which guarantee endemic poverty.  Apparently Mr. Davidson is bereft of any such historical awareness, since the role of Europe and the US in imposing misery on Africa and Central and South America respectively is never mentioned.

So just what does NPR's 1% lovin' Planet Monkey have to say about the book?  Here it is:

"The key difference between rich countries and poor ones is the degree to which a country has institutions that keep a small elite from grabbing all the wealth." (I wonder where one could find "a small elite...grabbing all the wealth"?)

And Davidson continues,

"This can seem discouraging but their message does offer hope. Poverty is not the inevitable result of bad geography, bad culture, bad history. It's the result of us: of the ways that people choose to organize their societies. And that means we can change things." (Seems like I recall someone else selling HOPE and CHANGE under the banner of not looking backwards.)

Yes we can!

Planet Money counts to a TRILLION!

I'm sure that readers of this blog don't need me to point out how increasingly vacuous and self-indulgent NPR's Planet Money has become, but the latest installment on this Friday's ME was particularly pointless and lame.

Channa Joffe-Walt and David Kestenbaum set out to provide some perspective for understanding the scale of the recent federal bailouts of financial institutions. However, to do this they decided to recreate a 5th grade math exercise. They considered how long it would take to count to 165 million (the AIG executive bonuses), 45 billion (Bank of America's bailout so far), and 1.2 trillion (total estimated federal bailouts of banks so far). The exciting answer: It takes approximatley 39,000 years to count to 1.2 trillion.

Remarkably, ME gave them five LONG minutes for this. It was infuriating after a long week of severely deficient coverage of actual financial news, such as the superficial coverage ATC gave to credit card legislation, or the 40 seconds ME spent pararaphrasing a New York Times article on the looming Chrysler bankruptcy.

The sad thing is that it actually might have been helpful to provide some real context for the scale of the federal bailouts. However, rather than counting to 1.2 trillion, it would be much more useful to place the bailout figures into contexts that matter, such as comparing the AIG bonuses to the median U.S. household income ($50.2 K in 2007); comparing the $45 B to BOA's ownership equity ($146 B); or comparing the $1.2 T in bailout funds to the U.S GDP ($14.3 T) or the annual U.S. federal spending (approximately $3 T).

Still not exciting, to be sure, but perhaps a little more meaningful than counting for 39,000 years.

FDIC is funded by banks

Putting aside the nauseating condescension and Montagne's childish lead-in, there was something weird about the way Planet Money's Chana Joffe-Walt started her story on Friday's ME:

"One quick thing to clear up and then we can get to this weird banking drama that's playing out right now. Banking drama. You know you want to know. Okay, here's the one thing, the FDIC, the agency that insures our bank deposits...it's funded by banks. Maybe it's a name problem, the "Federal Deposit Insurance Corporation," but lots of people seem to think it's funded by taxpayers. It's not. Every bank that's FDIC-insured has to pay a fee for that insurance, and all those fees put them all together, they go into a deposit insurance fund that pays for bank failures.

"John Bovenzi is the chief operating officer of the FDIC. 'If you put a hundred dollars in a checking account in a bank, what the bank has to do is pay the FDIC an insurance premium.'

"Just like you pay a fee to get your car insured, the banks pay a fee to get their deposits insured. Now that we've cleared that up...banking drama."

To her credit, Joffe-Walt did point out that the banks will pay those premiums by increasing the fees you and I pay on our bank accounts. Also, she did mention that while the FDIC is funded by fees from banks, it also has asked Congress for an increased line of credit of up to $500 billion of U.S. Treasury funds (otherwise known as taxpayer money).

However, she failed to mention that the S&L crisis of the 1980s and 90s ended up costing U.S. taxpayers approximately $124 billion dollars, much of it through increased fees on our bank accounts, but also in large part through federal bailouts of federally insured deposits.

In the current financial crisis, with Citibank alone carrying over a trillion dollars in liabilities, it seems pretty clear that a single failed mega-bank would force the FDIC to call on its credit with the U.S. Treasury. Considering that the FDIC had only about 19 billion in funds by the end of 2008, and is expected to collect only about 12-13 billion in FDIC premiums this year, it seems far from certain that the FDIC would ever be able to pay back $500 billion in federal loans.

Much more likely, despite the assurances made by Joffe-Walt or by FDIC's Bovenzi (whose incentive to downplay this nasty possibility is glaring), such a "loan" would end as yet another gigantic bailout to the banks.