Nel's New Day

January 19, 2023

‘D Day’ on Confederate Heroes Day

January 19 is Confederate Heroes Day in Alabama, Mississippi, Texas, Louisiana, and Florida where the population celebrates the insurrectionists who attempt to separate seditionist states from the United States. It’s also “D Day” or debt ceiling day, the date marking when the U.S. can no longer borrow money for its debts by issuing bonds. Treasury Secretary Janet Yellen said that the administration will be forced to take “extraordinary measures” to keep the U.S. government from breaching its debt limit and going into default within five or six months.

Yellen said officials will now change some federal investments through technical maneuvers to buy time for congressional members who need to raise the debt limit, $31.4 trillion, in order to save the country’s economy. One measure is suspending new investments in the new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund until June 5, 2023, allowing the government to pay its other bills until then.

Although the U.S. has never defaulted on the debt and increased the ceiling 78 times, extremist Republicans from the Tea Party did come close to default in 2011. Republicans already have instructions for the Treasury Department if Biden doesn’t agree with their wishes, listing what debts will and won’t be paid. These are part of the agreement Speaker Kevin McCarthy (R-CA) made with the hard-right House Freedom Caucus to get their votes for the speakership. Some Republicans also consider lowering Medicare and Social Security benefits, possibly part of McCarthy’s deal. 

Republicans raised the debt limit three times for then-Dictator Donald Trump (DDT) who increased the debt by $7.8 trillion with GOP approval, the third-largest in history with only George W. Bush and Abraham Lincoln having larger increases while they paid for wars. The GOP also vastly lowered taxes for the wealthy and big business, $2 trillion loss of the $7.8 trillion addition to the debt limit. Now the current House GOP leaders plan to hold the country hostage until Democrats agree to lower spending for the safety net. Jacob Bogage explained:

“Federally backed debt is the backbone of domestic and global markets. A failure to make good on U.S. borrowing could set off panic on Wall Street and spark millions of job losses.”

If McCarthy sticks to the far-right Freedom Caucus policies, the situation could end up in court in a constitutional crisis. The U.S. Constitution states, “The validity of the public debt of the United States … shall not be questioned.” Some experts argue that the U.S. cannot default on debts already created and Congress cannot establish a debt limit. In an extreme solution, Biden could tell the U.S. Mint to create a $1 trillion platinum coin and deposit it into the Federal Reserve, making credit payments from this sum. The idea was considered during the 1921 debt ceiling but decided against it. Yellow called the idea a “gimmick.”

Republicans insist that Biden negotiate with them so they can get what they want; Biden refuses. DDT, responsible for almost one-fourth of the national debt, told Republicans to play “tough” and not budge on their demands. His reasoning is to reverse “almost everything” that Biden and the Democrats have accomplished—”a beautiful and joyous thing.”

Republicans cling to a false metaphor to justify their behavior, and McCarthy has repeated it for at least three months:

“If you gave your child a credit card and they kept hitting the limit, you wouldn’t just keep increasing it. You would sit down with them to identify where they are overspending and where they can change their behavior. It’s time for the federal government to do the same thing.”

His faulty rhetoric has caught on; House Majority Leader Steve Scalise (R-LA) follows McCarthy’s lead. Yet at no time during DDT’s four years in the White House did any Republican mention credit cards. Or not raising the debt ceiling. Not increasing a credit card limit doesn’t mean that people can just default on current debts. Steve Benen wrote:

“The family that received the bill doesn’t get to tell the credit card company, ‘We’ll refuse to pay this bill unless you meet our demands and pay us a ransom.’”

In addition, not raising the debt limit doesn’t stop Republicans from introducing legislation to cut spending they don’t like. Republicans’ goal of not raising the debt limit largely occurs when the president is a Democrat; under a GOP president, the GOP has almost no problem with spending.

Robert Reich wrote about his involvement in raising the debt ceiling 28 years ago when Republicans refused to increase it until Bill Clinton agreed to sweeping spending cuts, welfare overhaul, restrictions on Medicare, and a balanced budget within seven years. Clinton agreed with his advisers to not negotiate, to not permit Republicans to hold the economy hostage. He called it “economic blackmail.” The result was a government shutdown, causing Republicans to suffer in the next midterm elections, and the downgrading of U.S. Treasury bonds rating. In 2011 and 2013, Barack Obama negotiated, but an ensuing government shutdown again hurt the Republicans, and the negotiated agreement hurt the economy.

In all these situations, Republicans offered to prioritize which bills to pay, claiming no technical default if they followed this procedure. The idea didn’t move forward because of the danger to stock markets’ plunging and a potential tanking economy. Yet Republicans pay no attention to history. The current agreement is to prioritize (1) first, debt service payments; (2) Social Security, Medicare and veterans benefits; and (3) military funding. Nothing else would be paid, including food safety inspections, border control, air traffic control, Medicaid, etc. Rep. Rick Allen (R-GA) justifies raising the Social Security retirement age to slash benefits because people tell him they “actually want to work longer.” He also claims his strategy isn’t cutting Social Security although recipients will get less money during their old age.

Sen. Joe Manchin (D-WV) has joined the GOP in cutting Social Security and Medicare. With Sen. Mitt Romney (R-UT), he has created legislation modeled after the Simpson-Bowles Commission that recommended deep cuts to Social Security in 2011. On Fox, Manchin said that this legislation could get a debt ceiling agreement from House Republicans and “really” thinks Biden will change his mind to negotiate with the GOP.  

Freedom Caucus chair Rep. Scott Perry (R-PA), who tried to overturn the government on January 6, 2021, expressed confusion with ABC News’ George Stephanopoulos about why Biden said he wouldn’t negotiate. More moderate Rep. Don Bacon (R-NE) said Biden “has to negotiate” and “can’t say he refuses to negotiate.” He claimed that voters gave the GOP a “mission” to cut spending although the House, which vastly underperformed in the most recent election, has a slim majority of five members at this time. The Senate also lost a Republican.

Bacon also said that the government “just does not work” if “parties say, ‘My way or the highway’”—exactly what the Republicans are saying. Instead of cooperation, the GOP demands a ransom in a hostage situation. Imagine if, in 2019, House Speaker Nancy Pelosi (D-CA) and her team told Republicans that the Democrats would crash the economy if the GOP wouldn’t drastically expand Affordable Care Act benefits. What would be the GOP response if a moderate House Democrat goes on television, explains that Democrats were elected to increase health care benefits (their “mission”), and says that “Donald Trump has to also negotiate. He can’t say he refuses to negotiate.” Would Bacon agree?

The conservative Hill listed five serious issues with not increasing the debt ceiling:

Rising recession risks: If Republicans block the ability to borrow money to fund stimulus, a recession from an economic showdown would be steep.

Global financial crisis: If the U.S. defaults on its debt for the first time and doesn’t stay solvent, the U.S. dollar and Treasury bonds would no longer be considered safe, and banks, financial firms, business and sovereign nations would lose backing from trillions of U.S. dollars and Treasury bonds.

Loss of crucial federal benefits for people in the U.S.: Millions of people would no longer be able to spend hundreds of billions of dollars for food, medical care, and basic necessities, crashing the economy in a domino effect with job losses, homelessness, hunger, closing small businesses, etc.

Higher interest rates: Anything making the government look less trusty increases rates by lenders both domestic and foreign—home mortgages, credit card debt, etc.  

Falling public trust: Polling with high disapproval of Congress will only get worse for the legislative body.

Conservative Charlie Sykes writes in his Bulwark that defaulting on debt obligations isn’t “conservative”—it’s reckless and irresponsible. He pointed out that the Freedom Caucus has taken “the economy hostage” with brinkmanship “a euphemism for this fiscal game of chicken,” and default would cause the Dow to plunge by thousands of points per day.”

The best solution for the national debt is to raise revenue—replacing the taxes for the wealthy and big business that were already about 30 percent of what they were in the 1950s before they were slashed in 2017. Republicans will never agree: they’d rather have a fiscal insurrection.   

November 13, 2022

Mistakes Were Made: FTX, Twitter

While the 2022 midterm elections released the majority of its results this past week, two financial disasters ran with a flood of breaking news in crypto currency and Elon Musk’s new toy, Twitter.

Last Wednesday, Dow Jones dropped about 1,000 points, alerting people to the collapse of FTX, a Bahama-based crypto currency exchange. FTX’s founder Sam Bankman-Fried, 30, lost 94 percent of his assets, going from net worth of $15.2 billion to $991.5 million, in one day of stock losses and resigned. He had secretly moved $10 billion of customer funds to his trading company Alameda Research with about 130 affiliated companies, and about $1-2 billion disappeared. A rescue deal with Binance collapsed, and the company filed for bankruptcy.

Major coins prices regained some of its lost value after the bankruptcy filing only to plummet after the discovery of a hack into FTX. Various tokens worth $663 million were drained from FTX’s crypto wallets, $477 million in the suspected theft, with the remainder believed to be put into secure storage by FTX. Those holding their own cryptocurrency can store it “hot,” “cold,” or a combination. “Hot” is attached to the internet permitting easy access; “cold” refers to wallets not internet connected. Many crypto start-ups used FTX because it paid high yields for assets on its platform. Before the collapse, Genesis locked up $175 million in funds with FTX; Pantera Capital, $135 million.

Crypto exchange Coinbase (COIN) fell nearly percent, and MicroStrategy dropped 10 percent. Crypto-focused bank Silvergate (SI) lost 14 percent. The two largest cryptocurrencies, bitcoin (BTC) and ether (ETH) both declined about 6 percent, similar to declines in the crypto sector. Blockchain and Tech ETF dropped 46 percent since their April debut. The wipeout for cryptocurrency was about $5 billion.

On November 11, Bitcoin’s price hovered around $17,000, down from above $20,000 on November 8 and well below the $68,000 a year ago. Except for supposed “stablecoins,” crypto’s value solely depends on what someone is willing to pay for it, like a lottery ticket.

The bankrupt FTX crypto exchange, according to its new CEO, is “in the process of removing trading and withdrawal functionality” and “moving as many digital assets as can be identified to a new cold wallet custodian.” FTX calls the hacking  “unauthorized transactions.” 

Bankman-Fried spent tens of millions of dollars to reconfigure the culture of finance in both the U.S. and the world. As recently as January, his FTX was worth $32 billion. The story of his rise—and fall—is here as he used his charm, trying to manipulate people into believing his company was a trustworthy investment. Money went into naming the Miami Heat arena and its logo on Major League Baseball umpires’ uniforms, Tom Brady and his wife Gisele Bündchen for spokespeople, and comedian Larry David starring in the FTX Super Bowl ad. Bankman-Fried’s partners are fleeing, Miami Heat is terminating its relationship to look for a new naming rights partner.

Having left the U.S., Bankman-Fried may be under supervision in a Bahamas resort with his co-founder, Gary Want, and FTX director of engineering Nishad Singh on his way to non-extradition haven Dubai. The resort is owned by Tiger Woods and Justin Timberlake

A way to avoid banks, cryptocurrency, which isn’t really “currency,” has been quite volatile, but risk-takers have used it in the hope of making a fortune. Melanie Trump used it for her business, and Elon Musk considered requiring bitcoins as payment for participation in his new company, Twitter.

Musk’s recent acquisition of the social media platform has kept the media busy following the constant shifts in what he is doing, starting out with the number of Twitter employees the wealthiest man in the world has fired. He started out with 25 percent of the 7,500 workers as well as almost all the top people in the business. Within a week, that figure expanded to 50 percent, which Jonathan Last called Twitter’s Red Wedding, comparing it to the massacre in The Game of Thrones. Layoffs were particularly extensive in Twitter’s “product trust and safety, policy, communications, tweet curation, ethical AI, data science, research, machine learning, social good, accessibility, and even certain core engineering teams.”

When Musk decided he needed some of them, he called them back, but many refused to return. They have three months salary but will be punished if they talk with any other former employees. (Library computers are probably very busy!) The ones he kept were told they had to report to offices instead of working remotely although that was not the deal when they were hired. Musk also dumped the board of directors and replaced them with his friends while making himself CEO. 

Most executives who weren’t fired walked out—top privacy, security, and safety executives. Axios reporter Sara Fischer tweeted, “Twitter is on life support.” Employees told her “it’s over” because “trust is gone.” According to a spokesperson for the Federal Trade Commission, agents were “tracking recent developments at Twitter with deep concern.” The agency is prepared to take action to require compliance with a consent order established earlier this year. Three of the resignations were part of the FTC mandated data handling practices. With greater restrictions, European countries are carefully watching Twitter problems.

Part of the investigation into Twitter is Saudi Arabia’s partial ownership because Musk said the company must follow the freedom of expression laws by the country in which it operates. Saudi Arabia has the eighth most Twitter users in the world with limited freedom of speech.  

The big tech moguls and financiers buying into Twitter, like Saudi Arabia, may suffer from buyers’ remorse, possibly losing much of their investment at $54.20 per share. The Saudi’s piece is almost $2 billion. Winners are those who bought shares at a lower price; privatizing stocks in the company forces Musk to reimburse shareholders at the buying cost.  Chief Twit, Musk’s self-identified nickname, is threatening bankruptcy after the company loses $4 million a day and could end up with hundreds of billions of dollars in fines. His financial situation worsened after advertisers, providing 90 percent of Twitter revenue, began to suspend their accounts. After losing at least nine major advertisers, Musk begged them to return on “Twitter Space,” an hour-long livestream, with promises of content moderation and account verification while blaming activists for their Twitter boycott.

For over a week, Twitter increasingly lost credibility, and tweeting comedians impersonated Musk in fake accounts. One of them, Kathy Griffin, encouraged encouraging people to vote Democratic before Musk told them to select GOP candidates. Musk tried to charge $19.95 for his verification accounts with a blue check. When people refused to pay the charge, he dropped the cost to $7.99. For this “Twitter Blue,” Musk didn’t even verify the accounts for accuracy, requiring only an Apple ID and phone number. The expedited timeline for Twitter Blue skipped the company’s internal risk evaluation and didn’t make key upgrades to flag problems. [Left: Musk’s tweet pleading for subscriptions.]

Musk paused the product which was flooded with misinformation and permitted neo-Nazi accounts. A fake account from Lilly, for example, announced free insulin. The expedited timeline for Twitter Blue skipped the company’s internal risk evaluation and didn’t make key upgrades to flag problems.  

Within the first week, Musk may have lost a million users, and many of them are going to Mastodon, a decentralized platform founded in 2016 which rose to 1 million users this month, doubling the past number. Users can set their own content moderation rules and uses hashtags, replies, and “boosting” (like retweeting). Unlike Twitter, Mastodon is a nonprofit and has no ads (#omg).

Musk bought Twitter for $44 billion, but its value dropped to $25 billion during its first week. He also has a $1 billion annual interest payment for the huge loan to help pay for the inflated price. In addition, fired workers are suing him for violating California and federal law because of his mass layoffs.

As Jonathan Last wrote, “Elon Musk has turned Twitter from a minimally-functioning company into a distressed asset. And he did it in a week.” Musk promised Twitter would not become “a free-for-all hellscape,” but that’s the perfect description of the social media site inundated with racist, sexist, and anti-Semitic posts accompanied by election disinformation and conspiracy theories—many of them promoted by Musk.

The end of Twitter would lose Rep. Marjorie Taylor Greene’s (R-GA) tweets. People may remember  “Nancy Pelosi’s gazpacho police” instead of Gestapo. There was “Bill Gates wants you to eat his fake meat that grows in a peach tree dish.” Most recently, Greene wrote, “I’m sure our enemies are quacking in their boots while we are still over here trying to count ballots.” Alex Bollinger wrote, “On Twitter, people were quacking up about Greene’s latest complaint.” Twitter provided many images, including this one. 

Over at Meta, parent of Facebook, Mark Zuckerberg may not being doing as well since his name change. The company’s $234 billion fall last February set the record for the biggest one-day value drop in stock market history, more than Apple’s one-day $182 billion loss in September 2020. Over 11,000 Meta employees, about 13 percent of the work force, were fired. Meta’s stock dropped over 50 percent from $200 six months ago before crawling back up to $113.02.

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