Time to break up the banks by Bernie Sanders

It’s time to break up the banks.
The greed, recklessness, and illegal behavior on Wall Street drove this country into the worst recession since the Great Depression. Their casino-style gambling has helped divert 99 percent of all new income to the top one percent. And it has contributed to the most unequal level of wealth and income distribution of any major country on earth.
In the midst of all of this grotesque inequality sits a handful of financial institutions that are still so large, the failure of any one would cause catastrophic risk to millions of Americans and send the world economy into crisis.
If it’s too big to fail, it’s too big to exist. That’s the bottom line. 
I introduced legislation in Congress that would break up banks that are too big to fail. Can you sign on as a citizen co-sponsor of my bill to show your support?
Banking should be boring. It shouldn’t be about making as much profit as possible by gambling on esoteric financial products. The goal of banking should be to provide affordable loans to small and medium-sized businesses in the productive economy, and to Americans who need to purchase homes and cars.
That is not what these financial institutions are doing. They’re instead creating an economy which is not sustainable from a moral, economic, or political perspective. It’s a rigged economy that must be changed in fundamental ways. 
Let’s be clear who we’re talking about: JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley, and other institutions; they’re all too big to fail. So they must be broken up.
Wall Street can’t be an island unto itself separate from the rest of the productive economy whose only goal is to make as much money as possible. I fear very much that the financial system is even more fragile than many people may perceive.
Millions of Americans are working longer hours for lower wages, while virtually all new income goes to the people who need it the least. In fact, the top 14 wealthiest people saw their wealth grow more last year than the bottom 130 million have in total.
We must break this cycle to save the middle class in America. Can you show your support for my bill to break up the banks?
I’m running for President of the United States because I believe that it is incumbent on us to try to take back our country from the billionaires and make it thrive again for the working and middle class. Breaking up the banks is a critical part to making that a reality.
Thank you for all of your support.
Senator Bernie Sanders
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A recession is when your neighbor loses his job and a depression is when you lose your job

The difference between the two terms is not very well understood for one simple reason: There is not a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you would get at least 100 different answers. I will try to summarize both terms and explain the differences between them in a way that almost all economists could agree with.

Recession: The Newspaper Definition

The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

Recession: The BCDC Definition

The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.

Depression

Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

The Difference

So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.

Now you should be able to determine the difference between a recession and a depression without resorting to the poor humor of the dismal scientists.

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A $9,000 lost by each American from the 2008 recession, by Rick Newman

The U.S. economy might finally bounce back for good in 2014, springboarding the nation out of five years of stagnation. So if you feel like we’re still in a recession, are you imagining things?

Not at all. In fact, some economists think we’re in a kind of faux recovery that masks deep harm still being done to the economic prospects of millions of Americans. Brad DeLong, an economist at the University of California, Berkeley, and a government policymaker during the Clinton administration, wrote recently that, “unless something returns the U.S. to its pre-2008 growth trajectory, future economic historians will not regard the Great Depression as the worst business-cycle disaster of the industrial age. It is we who are living in their worst case.”

Worse than the Depression? By most measures, the economy has been weak since 2008, but not nearly as ruinous as in the 1930s. But DeLong has crunched some numbers in a way that helps explain why many people still feel they’re falling behind, even with an economy that has supposedly been growing every year since 2010.

GDP began to decline in 2008, and it wasn’t until 2010 that it reclaimed the 2008 peak. Adjusted for inflation, GDP peaked in 2007 and didn’t reach that level again until 2011. DeLong goes one step further, adjusting GDP for both inflation and population growth, to capture the state of the economy most people actually feel. By that measure, real (inflation-adjusted) GDP growth per capita won’t reach the 2007 peak until sometime in 2014.

A lower output

The growth in real economic output per person has averaged about 2% per year for the past century. So if growth has been essentially zero for the past seven years, says DeLong, output is 14% lower than it would have been had the economy been growing at normal rates.

Such statements tend to leave ordinary people wondering, “So what?” But DeLong has addressed the so-what question. That output gap, he says, amounts to about $9,000 per person each year in terms of money not spent on goods and services that could have made people’s lives better. That’s roughly equal to a year’s worth of mortgage payments on a $200,000 home. For a family of four, the lost output adds up to about $36,000 per year — the equivalent of a fully loaded Ford Fusion sedan. And the per capita output gap is likely to get even bigger if growth continues on the current trendline.

That doesn’t mean everybody would have automatically become wealthier if not for the 2008 financial meltdown and corresponding recession. Median incomes had been stagnant for nearly a decade by the time the recession hit, on account of factors such as globalization and the digital revolution. The divide between haves and have-nots had been widening, too, with highly skilled technocrats generally prospering and lower-skilled workers in fading industries falling behind, perhaps never to catch up.

Even if that $9,000 in per capita output hadn’t disappeared, it wouldn’t have been divided evenly among all Americans. The wealthy probably would have captured more of it, the poor less. And it’s always tricky accounting for what didn’t happen, since it’s impossible to know what else might have occurred to make things better or worse.

But DeLong’s calculations help explain the sense of backsliding many Americans seem to feel. In 2007, during the prior peak for real GDP, the Conference Board’s consumer-confidence index was around 91. Today, with the total level of real GDP higher, it’s at 78. Back then, 27% of poll respondents told Gallup they were satisfied with the way things are going in the United States; in the latest poll, only 20% felt this way.

Still, it could be worse. A recent study by two prominent Harvard economists, Ken Rogoff and Carmen Reinhart, found financial crises such as the one that erupted in 2008 usually produce worse downturns than what we’ve experienced. Rogoff and Reinhart are controversial because of some mathematical errors in a previous study of debt-ridden nations, but they are still considered premier chroniclers of finanicial panics. And on average, they find, such panics cut per-capita real GDP by 9%, requiring 6.7 years for the economy to recover. The latest crisis, by their account, caused only a 5% decline in GDP, followed by a six-year recovery.

So take heart: Had the 2008 crisis been a more like a “normal” one, your family might have lost a Mercedes rather than a Ford.

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