Tag Archives: Wall Street

The Great Pension Swipe Coming to a State Near You

Burglar

“Elections have consequences” and this time the results may be a disaster for public employee pensions.  The rationale underpinning this contention is simple.  Wall Street is running out of Big Pots of Money.  They’ve already run through the money which flowed in from the earnings of more women in the work force – the Wall Street Casino used up the proceeds from the increasing number of two income families by 2000, when the number of women in the work force increased from 18,389,000 in 1950 to 65,616,000 in 2000.  To add a bit of context here:  In 1950 there were 43,819,000 men in the work force, and 18,389,000 women.  By 2000 there were 75,247,000 men working and 65,616,000 women. [BLS pdf]   Some families were induced to join in the new Money Market Accounts made possible by the Garn-St. Germain Depository Institutions Act of 1982.  This new form of “savings” account allowed the banks to get and keep the deposits.

“Banks are required to discourage customers from exceeding these limits (on withdrawals), either by imposing high fees on customers who do so, or by closing their accounts. Banks are free to impose additional restrictions (for instance: some banks limit their customers to six total transactions). ATM, teller, and bank-by-mail transactions are not counted towards the total.”  [link]

And so, Wall Street had a big pot of money to play with. But enough is never enough.   Wall Street invented more money pots – using securitized assets. These were non-existent before the 1970s.  For review, a securitized asset is something done to create “debt securities, or bonds, whose payment of principal and interest derive from cash flows generated by separate pools of assets.”  [ HFS pdf 2003]  In plainer English this means that Wall Street can use securitization to immediately (and that’s a key word – immediately) make money on any “cash-producing asset” – like trade receivables, leases, auto loans, credit card lines, and, of course, mortgages.

Now the Money Mad Denizens of Wall Street have run through the addition of women’s earnings, the accumulation of funds in money market accounts created thereby, and they mis-managed their money in securitized assets such that the Housing Bubble of the early 2000’s burst and splattered all over their operations.  But enough is never enough.  One former Wall Street trader described the Wealth Addiction rampant in the firms:

“But in the end, it was actually my absurdly wealthy bosses who helped me see the limitations of unlimited wealth. I was in a meeting with one of them, and a few other traders, and they were talking about the new hedge-fund regulations. Most everyone on Wall Street thought they were a bad idea. “But isn’t it better for the system as a whole?” I asked. The room went quiet, and my boss shot me a withering look. I remember his saying, “I don’t have the brain capacity to think about the system as a whole. All I’m concerned with is how this affects our company.” [...]

“From that moment on, I started to see Wall Street with new eyes. I noticed the vitriol that traders directed at the government for limiting bonuses after the crash. I heard the fury in their voices at the mention of higher taxes. These traders despised anything or anyone that threatened their bonuses.” [NYT]

What might threaten those bonuses? Not having Big Pots of Money to play with.   There are some money pots out there – and more and more of them are being “touched” by the Wall Street bankers who see them as ways to enhance those precious bonuses.  Pension funds.

How to unlock that next Big Money Pot for the Wealth Addicts of Wall Street?  The strategy has been alarmingly simple.

First, bash public employee unions – the organizations which negotiated defined benefit plans for retiring public employees.  Union bashing has been a staple of Republican politics since time out of mind, so it makes perfect sense to incorporate it into the strategy for raiding public pension funds. Public employees are no longer to be seen as the helpful librarian, or the firefighter who saves the kittens, or the police officer who donates time to direct traffic at the high school football game.  He or she is no longer the person willing to work in frigid temperatures clearing snow from highways at 3:00 A.M. Nor is the public employee to be thought of as the bookkeeper who diligently keeps track of taxes paid, fees assessed, or paper-work properly filled out to prevent fraud.  No! These people are to be seen as “greedy teachers” who think only of job security, “lazy” bureaucrats who create paperwork, and “leagues of over-paid shovel leaners” who don’t care about the snow on the roads…. The cynicism of this is excruciating.  The result is little else than a contemptuous, divisive, misanthropic perspective which divides private sector employees earning $45,000 per year from public sector employees earning $45,000 per year.

Secondly, once the bashing begins the misanthropes add in a measure of jealousy.   Publish the retirement incomes of Everyone, because surely someone is making more money in retirement income than the targeted population of disaffected voters.  Cover this in the banner of Right to Know. “You,” meaning the disenchanted audience, have a “right” to know what “each and every public employee is making” because, “you know” they have been “feeding at the public trough.”  The argument is predicated on the jealousy factor – who else would care what a firefighter, police officer, highway department employee, teacher, librarian, public health nurse, etc. would receive in a year?

That the release of this information would allow personal identity thieves to thrive is of little consequence to the advocates of total transparency – so much transparency that the former public employees have no right to any financial privacy whatsoever.

Third, flat out lie about the sustainability of defined benefits pension plans.  There are three major advantages of a defined benefit plan.  It provides security.  The person who has paid into the plan knows exactly want the financial benefits will be and can do some financial planning accordingly. The person also know exactly how long he or she has to work to be eligible for the benefits.  And, finally, the person knows that the pension is covered by the Pension Benefit Guaranty Corporation.

We know that some public employee pension plans are better administered than others, but the opponents of defined benefit plans are eager, enthusiastic even, about publicizing the problems of some as the characteristics of all.  This is evident in the ALEC assault on public pension funds, all 45 pages of it which blatantly calls for defined benefit plans to be morphed  into “properly defined alternatives, such as defined contribution, cash balance, and hybrid plans.”  Read: The Next Big Money Pot for Wall Street.

Creeping Financialism

The ALEC advocates and associates are only too pleased to discuss the delights of the defined contribution plans.  Most often they are couched in friendly wording such as “you can manage your own plan,” which sounds like “freedom.”  It also sounds like a 401(k).   What they aren’t anxious to publicize is that 401(k) plans have been a bust.

“The 401(k) plan was never meant to be a mainstream pension plan and is a poor substitute for one. It’s a voluntary program that was intended to supplement retirement savings –  one of those quirky little options in the byzantine tax code that employers seized upon as a way to save money while pretending that they were doing the right thing by their employees.” [Forbes]

That’s putting it about as bluntly as possible.  Oops! The 401(k) was never intended to be the main source of retirement funds, and it’s a poor substitute for a defined benefit plan.

“Authors like Helaine Olen have been right on the mark in saying that the financial services industry and employers are all too eager to tell us how little we’re saving, yet don’t serve as honest brokers in maximizing our retirement savings. That would require cutting fees, eliminating middlemen, increasing employer contributions and getting rid of the fee structure that is based on assets under management. And above all, the most dangerous part of this equation: Educating employees on how to invest cost- and risk effectively.”  [Forbes]

And for all this – while the fund administrators collect the fees, hire middlemen, and thrive under the fee structure – the public employee is asked to give up any and all financial privacy, learn to be a financial manager, and forget about the security a defined benefits plan offers. All this so that Wall Street will secure the next Big Money Pot.  And it’s already started.

Creepy Financialists

The unease felt by public employees about their future financial security isn’t merely the result of escalating fiscal paranoia; it’s very real. The Rhode Island Case describes what happens when crony capitalism merges with Wall Street wealth addiction when state treasurer Gina Raimondo issued forth :

“Nor did anyone know that part of Raimondo’s strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb’s Third Point Capital was given $66 million, Ken Garschina’s Mason Capital got $64 million and $70 million went to Paul Singer’s Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. Felicitously, Loeb, Garschina and Singer serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms. The institute named Raimondo its 2011 “Urban Innovator” of the year.

The state’s workers, in other words, were being forced to subsidize their own political disenfranchisement, coughing up at least $200 million to members of a group that had supported anti-labor laws.” [Rolling Stone]

Worse still, the states that were supposed to be making defined contributions didn’t seem to be taking the process very seriously.

Chris Tobe, a former trustee of the Kentucky Retirement Systems who blew the whistle to the SEC on public-fund improprieties in his state and wrote a book called Kentucky Fried Pensions, did a careful study of states and their ARCs. While some states pay 100 percent (or even more) of their required bills, Tobe concluded that in just the past decade, at least 14 states have regularly failed to make their Annual Required Contributions. In 2011, an industry website called 24/7 Wall St. compiled a list of the 10 brokest, most busted public pensions in America. “Eight of those 10 were on my list,” says Tobe.

Among the worst of these offenders are Massachusetts (made just 27 percent of its payments), New Jersey (33 percent, with the teachers’ pension getting just 10 percent of required payments) and Illinois (68 percent). In Kentucky, the state pension fund, the Kentucky Employee Retirement System (KERS), has paid less than 50 percent of its ARCs over the past 10 years, and is now basically butt-broke – the fund is 27 percent funded, which makes bankrupt Detroit, whose city pension is 77 percent full, look like the sultanate of Brunei by comparison.” [Rolling Stone]

However, nothing stops the administrators of the Annual Required Contribution plans from drawing their salaries. Nothing stops the hedge fund managers and wealth managers from earning their money, and nothing stops the hedge funds, wealth funds, and bankers from getting nice bonuses from playing with these new Big Money Pots.

2013 also brought the disclosure of other pension swindles.  A report on North Carolina’s pension plan yielded the most opaque atmosphere surrounding a supposedly transparent pension system, with the Wall Street characters benefiting from the opacity:

“Today, TSERS assets are directly invested in approximately 300 funds and indirectly in hundreds more underlying funds, the names, investment practices, portfolio holdings, investment performances, fees, expenses, regulation, trading and custodian banking arrangements of which are largely unknown to stakeholders, the State Auditor and, indeed, to even the (State) Treasurer and her staff,” he reports. “As a result of the lack of transparency and accountability at TSERS, it is virtually impossible for stakeholders to know the answers to questions as fundamental as who is managing the money, what is it invested in and where is it?” [Salon]

How are the investors in the system (the state, the locality, the employees) supposed to act as “free” administrators of their own pension plans when they can’t discover who is managing the money, what investments have been made, and where the money is?  Much less ask what fees are being paid to the money managers of the new Big Pot?  In the initial example above, Rhode Island, state treasurer Raimondo couldn’t answer the question about the amount paid in fees.

President George W. Bush famously tread on the third rail of American politics, privatizing Social Security in 2005, and just as famously backed away from the precipice.  It seems that Americans have not forgotten what is supposed to be a “mainstream pension plan.”   If continued symbolic acts continue to be promoted by the Cato Institute and if there continue to be the likes of Iowa senator-elect Ernst who call for a hybrid plan in which younger workers are allowed to put a portion of their Social Security into a Retirement Savings Account (read: Wall Street Money Pot) we can’t declare the nation free of schemes to privatize Social Security.  If a state treasurer in Rhode Island who promoted the defined contribution plan in her jurisdiction can’t find out how much is being raked in by money managers, then how do we expect our average “younger worker” to effectively track his or her retirement account.

Thus we can look forward to more proposals for Hybrid Plans – which augment the Big Money Pot, and Defined Contribution Plans – which can’t be tracked and make a mockery of the entire concept of transparency, and more assaults on public employees who might be victims of the latest Great Burglary of their pension systems.  Elections do have consequences, and the last mid term election put more than $100 billion in public pension funds in the hands of financialists turned politicians.

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Filed under Economy, financial regulation, Politics, public employees, Republicans

Bankers Bank On Economic Amnesia

Occupy Wall Street bankers Zillow reports that the current median home value in Nevada is $189,700, up some 16.4% over the past year, and another increase of 6.2% is predicted. The median listed price of a home in Nevada is now $215,000, and the median selling price is now $198,475.  [Zillow] This is good news for Nevadans in Clark County because the median list price as of July 2011 was $118,500. [Movoto]  Bankrate posts mortgage interest rates ranging from 4.1% to $.4% in the Reno area, and a range of 4.05% to 4.4% in the Las Vegas metropolitan region.  [Bankrate]  There’s another factor to consider, especially in southern Nevada, home resale inventories have stabilized, and there’s been no major increases in distress sales (foreclosures and short sales) as a percentage of the total housing market in September. [Movoto]

Mortgage interest rate trends are also interesting because there’s been a decline since January 2005.  The interest rate for a 30 year fixed rate mortgage was about 5.71% in January 2005, 6.15% in January 2006, and 6.22% in January 2007 as the Housing Bubble was about to burst all over everyone.  As the Bubble started to splatter in January 2008 the interest rate was 5.76%, dropping to 5.05% in January 2009. Fast forward to January 2012 and the interest rate had dropped to 3.92%, going down to 3.41% in 2013, and then increasing again in January 2014 back up to 4.43%. [FredMac]

Why are these numbers of any interest?

(1) When homebuyers can get credit they are able to pay prices closer to the original asking price. (2) It’s no longer a buyers’ market when sellers are getting better prices. (3) Someone must be doing a bit better because there seems to be more competition for mortgage money, given that in a free market commodities (in this instance mortgage money) are slightly more costly the higher the demand.  (4) These numbers also highlight the Big Lie that the Wall Street casino operators are trying to sell across the country.

David Dayen, writing for Salon caught the Big Fib and described it as follows:

This is part of a larger myth, blaming government’s efforts to clean up the mortgage market for the slow housing recovery and sluggish economy. This idea that banks are so petrified about burdensome regulations that they’ve decided to scale back their business model of lending to people seems far-fetched.

That’s because it is far fetched.  We can see the whole picture simply by sitting here in one of the states most hard hit by the collapse of Wall Street’s Housing Bubble, and looking at our own numbers.

First, if bankers were so insecure about lending then why have interest rates rebounded since the Bubble burst?  When no one is buying homes rates go down because there simply aren’t enough customers clamoring for loans.  However, in this ‘sand state’ the interest rates have gone up by about 1%.

Secondly, it’s obvious someone is buying something because  the Las Vegas housing market, almost obliterated when the Bubble Burst, has seen an increase in the median price of homes, up by an impressive 16.4%.

It’s a bit difficult to make the case that bankers aren’t lending (because of the icky government financial regulation reform) when median list prices and median selling prices have both increased.  If banks weren’t lending then we’d expect housing prices to flatten out because there weren’t enough bidders for the homes.  Again, Dayen sums up the bankers’ game: “The real motivation here is to roll back regulations and return to the go-go era where anyone who can fog a mirror can get a loan. We know how that turned out the last time.”

Just in case anyone catches the overt fibbing, spinning, and general mendacity of the bankers’ latest pronouncements, they’ve left themselves a bit of wiggle room.  The economic revival is “sluggish.” Translation: If you’d just let us get back to deregulated free for all casino operations we’d be richer. And, “the housing recovery has been slow.”  Translation: Want to get more, and more, and more, mortgages from ‘anyone who can fog a mirror’ to slice, dice, and tranche, into mortgage based securities – upon which we will get richer.

There’s a better reason to explain a sluggish economy and a slowly reviving housing market.  Ordinary people have to have incomes which support major purchases – like homes – and what has happened to the median income in Nevada since the Bubble Burst in 2007-2008 isn’t pretty.

The median HI for Nevadans in 2013 was $51,230, down 9.1% since the Housing Bubble burst in 2008.  The Mean HHI for the top 5% of Nevada income earners was $294,939, which dropped by 2% after the washout of 2007-2008. [Pew]

Given the precipitous drop in median earnings, the question might not be about how “sluggish” the recovery has been, but how we’d experienced any recovery at all.  We might dare to ask the same question about home sales.  Again, given the decrease in median household income it’s a wonder home sales have rebounded – especially if we consider that home values are now up 16.4% with more increases projected.

Once more, Wall Street has demonstrated very clearly it’s profound dependence on debt and volatility, while Main Street remains dependent on consumer spending and stability.   In this instance, as in so many others, it’s important not to conflate what’s good for Wall Street with what’s good for business in general.

It’s great for Wall Street to have bundles and bundles of unregulated mortgages, car loans, and lines of consumer credit to shovel into its deregulated  casino operations and Bubble Factories – it’s not so great for Main Street to have abandoned homes, foreclosures on every street, and too many unemployed construction workers in the community.

Caveat Emptor – the latest Big Lie would have us believe the investment bankers want the very best for all of us – after their last debacle the only way they’ll sell this notion is if the American public gets a bad case of economic amnesia.

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Filed under consumers, Economy, financial regulation, Nevada economy, Nevada politics

Who’s Happy Now?

DBeacon128E As of Friday, August 29, 2014 the S&P 500 stood at a healthy 2,003.37, increased by 6.63 from the day before.  This figure is good news since the S&P was a pathetic 676.53 on March 9, 2009. [WSJ]  S&P uses a weighted average market capitalization to calculate its index, so this must be the most accurate measure of the state of the economy?  Maybe.   Feeling all comfy right now?  Maybe not.  Not to be too much of a bear dancing through the bullishness of the stock market reports, but there’s something troubling about the numbers.  Perhaps we should begin at the beginning.

The Truism of Yesterday Transformed into A Corporate Facade Today

In those days of yesteryear, before the late 1970s, corporations retained most of their earnings and invested them in new technologies, expanded facilities, more employees, or even – pay increases. [WP]  Indeed, in those ancient times the argument worked: If corporations could hold on to more of their earnings then plants would expand, and more workers would be hired.  What our numbers keep telling us now is that this old line is being applied to a new and quite different reality.

Not to put too fine a point to it, but it is as though the Captains of Corporate America are asking us to cling to the old reality while they saw the props out from under average Americans, creating a more profitable system for themselves.   And they have been sawing away vigorously, fueled by the new corporate reality since 1980  which  holds that the primary purpose of a corporation is to maximize shareholder value.

It is one thing to seek to enhance corporate profitability if the  old line is true, and quite another when the goals have changed, and the new line is “Corporate profits are important because they make shareholders richer.”   The pre-1980 truism is now a corporate facade covering a structure which places the demands of shareholders above customers, workers, and almost everyone else.

In some instances the facade is a very real false front inadequately covering the hollowing out of American industry.  Remember  Endicott, NY, the home of IBM?  Some 10,000 employees of IBM worked there in the 1980s, by 2013 employment at IBM was down to 700, and the vacant storefronts in the community bore witness to the diminishment of the real American economy.  [WP]

Since, Ferguson, MO has been in the news of late it’s appropriate to look at the moves made by Emerson Electric  to enhance shareholder value by offshoring  its operations – with its $44.68 billion market cap, and return on equity of 24.38% [YahFin]  Emerson was praised in at least one financial journal for its long term strategy of “transferring costs to a basket of low-cost countries,” yielding the accolade: “Emerson is well known among its peers to have benefited considerably from being earlier and bolder in its pursuit of cost mitigation.”  

That cost mitigation came with a price, but not for Emerson’s shareholders.   On January 18, 2002 Emerson announced it was closing 50 of its plants and offices in the United States and moving the jobs to China, India, and the Philippines. No sooner was the announcement made than Emerson’s stock price increased by 3.4%.  [SunSent]  The Emerson plant in Kennett, MO closed in 2005.  [DDD]  Another plant, in Columbus, NE, closed in 2009. [WOWT]  If it seems counter-intuitive to have share prices increase as people (consumers) are laid off that’s because most people have missed the point: It’s not how many people a corporation employs or how much their wages bring to our economy – it’s how costs can be “mitigated” so that shareholders get an increased portion of the pie being served.

Keeping the Shareholder Satisfied

If a decreasing number of people are enjoying an increasing share of the American economic pie, then why wouldn’t current stock market reports be indicating weakness in the economy?

Same answer.   Shareholders are happy.  One of the reasons for their happiness is that corporations are “mitigating costs” and propping up stock values.  One way to prop up the old shareholder value is to engage in stock buybacks.  Does Corporation X have lots of cash on hand?  The best way to keep those shareholders happy is to use it in a stock buyback which results in a decrease in the number of outstanding shares and drives up the price of the ones which are on offer.   [Forbes]  Yes, that cash could have gone into research and development? Or, plant expansion? Or, even increased wages?  However, those don’t make the shareholders happy, and since 1980 it’s been the primary job of corporations to make the shareholders happy, happier, and happiest.

And who else loves making shareholders happy? Bain Capital Management, which extolled the virtues of corporations which do the hard work of making shareholders, like Bain Capital, happy:

“In studying the offshoring practices of major industrial companies, we’ve found that Continental’s highly modular approach is shared by other supply-chain leaders like General Electric, Honeywell, Siemens International, and Emerson Electric. Rather than think in terms of entire factories when they make offshoring decisions, these companies focus on individual functions and products. They optimize, in a coordinated fashion, the location of every module of their supply chain, capitalizing on regional differences not only in costs but also in skills. As a result, they’ve been able to move quickly and with great agility, shifting activities among a wide array of regions and countries in a way that optimizes the cost and effectiveness of their entire operating system.”  [BainInsights 2005]

It’s worth noting that when Bain speaks of “optimizing costs” it means reducing production and service costs, as in closing factories and offshoring jobs.   Hence, the formula continues: Shareholder Happiness = Cost Mitigation + Propping Up the Stock Price.

The danger in not heeding this formula is the dreaded Takeover.  Should some shareholders find their yields too low, the vultures begin swarming over the still warm victim.

There is a reminder of the perils of the dreaded  takeover in north St. Louis.   The old Rexall Drug Company plant stands at the corner of San Francisco St. and Kingshighway, now the site of an automobile auction company.   The quick part of the  demise began in 1977:

By 1977, Dart Industries had sold all of its Rexall business, including franchised drug stores. A group of investors, including Howard K. Vander Linden, president of Rexall at the time, formed the Rosshall Corporation and bought the manufacturing laboratories in St. Louis and other facilities. [NYT]

As part of the process the Rexall Drug Store franchises were spun off, a familiar drug story could retain the name but now had no affiliation with the parent company.  It didn’t take long for the scheme to fall apart.  The retailers were under pressure from chains like Eckerd, the manufacturing under pressure from various manufacturers, and the grand experiment failed. The St. Louis factory closed, and the Arlington neighborhood lost another industry. Rexall wasn’t the first, nor the last takeover victim, brands like Sunbeam and Singer also changed dramatically in the face of both friendly and hostile takeovers.  The brand most closely associated with recent takeovers which have decimated a corporation remains Hostess, which was destroyed, not by its employees, but by the vulture capitalists who plucked it. [Salon]

True, there are unresponsive companies which fail because of a lack of vision, firms that falter because of poor management, and corporations which are takeover targets because there are some few valuable assets among a conglomeration of acquired flotsam and jetsam.   However, the end game should be the improvement of a company such that it can be profitable, not merely the M&A gamesmanship which too often plays strip and run, leaving little but debris in its wake.   However, those games will continue as long as there is a profit to be made by the investors – how much greater the danger to U.S. corporations in the prospect of upsetting those private investors than of disappointing the shareholders? 

This isn’t our parents (or grandparents) economy.  The days of cash allocation into research and development, plant expansion, higher wages, better facilities is as out of date as a Pontiac Firebird.   These are the days of the F-150, and the maxim: “If the shareholders ain’t happy, ain’t nobody happy” – unless you’re a taxpayer, consumer, salaried or wage worker? 

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Rep. Mark Amodei and the GOP Big Bank Pacification Program

Amodei 3Nevada Congressman Mark Amodei (R-NV2) is pleased with the Republican version of the House Financial Services Committee and Appropriations Committee 2015 version of a budget for the Department of Justice, the SEC, and the Department of the Treasury.   The Big Banks and Wall Street Players are pleased with it too.  They should be, part of the bill is straight out of the Financial Sector Playbook, one being implemented by Eugene Scalia’s law firm to gut the Dodd Frank Act for financial regulation.   A little background is in order.

The Back Story

The recovery from the latest Recession has been impressive, but perhaps not what it could have been had not some Austerianism crept into the mixture.  Public sector employment (teachers, social worker, firefighters, law enforcement….) is trailing or declining in some areas. Private sector employment has done well.

The Department of Labor issued its “employment situation report” six days ago, in which we discovered 288,000 jobs were created, and the unemployment rate is now 6.1%.  [DoL]

Private Sector Job Growth

About the same time, the St. Louis Federal Reserve tracked corporate profits (after tax) currently at $1,906.8 billion. [FRED] The graph looks like this:

Corporate ProfitsThe data points indicate a recovery for the private sector which took a pounding during the Recession but have bounced back quite nicely. Even during the Recession, corporate profits did not fall below levels seen during the period from 1980 to 2000.

The good news is, obviously, that the economy has generated private sector jobs in positive territory for the last 52 months, which should be tempered by watching corporate activities very closely — given the propensity of the financial sector to create booms/busts of increasingly volatile proportions.  There is also the no-so-small question of corporate hoarding. (A matter for another day.)

What’s happened since those days, not so long ago, when ‘irrational exuberance for asset classes and insane valuations” ran amok an crashed the U.S. economy?  When Wall Street creates new vocabulary like “Quantum Entanglement Trading,” some ears need to perk up.  The argument that faster trading combined with new technologies is nothing new under the Sun is perfectly plausible, what is less comprehensible are terms like Dark Pools, upon which some light cast upon Barclay’s transactions is less than pleasing. [BusWeek]

Even less pleasing was the moment when Goldman Sachs “lost control” of its Dark Pool, and Goldman “lost oversight of what was happening in their dark pool and it ended up that a number of people had trades settled at less than best national price.” [Forbes]

The Dodd Frank Act was supposed to rein in some of these excesses, and to give investors more power to insure they were trading “at the best national price.” It was also supposed to put the brakes on some of the more egregious activities in derivative trading.  The Wall Street boys figured out a way around that too:

“…traders have recently forged a path around these so-called margin requirements in order to allow them to harvest larger profits via larger bets: They are repackaging some derivatives known as swaps into another financial product known as futures. Futures are less stringently regulated, meaning investors can stake out larger positions while reserving smaller amounts of cash.” [HuffPo]

The GOP Big Bank Pacification Program

What do we know so far?  First, that the private sector recovery could be stronger (especially if we’d ever decide to DO something about our crumbling infrastructure and backlog of maintenance). Secondly, that Wall Street will be Wall Street, and with the advent of the financialists new ways to generate ‘wealth’ will be created even if these don’t actually add up to any real expansion of manufacturing or commercial activities.  On the corporate side there’s the stock buy back strategy which can be combined with the offshore parking ploy; on the financial end there’s the newly discovered joys of playing in dark pools and renaming your Swaps as Futures. What could possibly go wrong?

And now we come back to the point wherein Representative Amodei tells us how pleased he is with the House Financial Services Committee rendition of an FY 2015 budget providing for those departments and agencies which regulate financial behavior in this country.

Here’s Representative Amodei’s gush over the budget provisions for the Security and Exchange Commission:

“Included in the bill is $1.4 billion for the Securities and Exchange Commission (SEC), which is $50 million above the fiscal year 2014 enacted level and $300 million below the President’s budget request. The increase in funds is targeted specifically toward critical information technology initiatives. (1) The legislation also includes a prohibition on the SEC spending any money out of its “reserve fund” – essentially a slush fund for the SEC to use without any congressional oversight.  In addition, the legislation contains requirements for the (2) Administration to report to Congress on the cost and regulatory burdens of the Dodd-Frank Act, and a (3) prohibition on funding to require political donation information in SEC filings.”  (numbering, emphasis added)

Let us Parse: (1) What’s so wrong about that SEC Reserve Fund?  It was established in the Dodd Frank Act:

“The Dodd-Frank Act established a Reserve Fund for the SEC and gives the agency authority to use the Fund for expenses that are necessary to carry out the agency’s functions. Each year, starting with FY 2012, the SEC is required to deposit into the Fund up to $50 million a year in registration fees, while the remainder is deposited into the Treasury as general revenue. The balance of the Fund cannot exceed $100 million.” [SEC pdf]

And what will the Reserve Fund be used to do? We know that most of the FY 2013 Reserve Fund money went to upgrade EDGAR and other information technology, and then there was the remainder:

“The remainder of the Reserve Fund in FY 2013 will be used on a number of IT projects, including development of Market Oversight and Watch Systems that will provide the SEC with automated analytical tools to review and analyze market events, complex trading patterns, and relationships; development of fraud analysis and fraud prediction analytical models; and deployment of natural speech, text, and word search tools to assist our fraud detection efforts. Additionally, the SEC plans to develop analytical environment, databases, and intake systems for market data, mathematical algorithms, and financial data.” [SEC pdf]

Then the SEC added another project in its FY 2014 budget justification, the Consolidated Audit Trail.

 “The SEC plans to invest Reserve Fund dollars to develop the SEC’s ability to intake CAT data and store it in the EDW, as well as to develop analytical tools and a single software platform that will allow the SEC to identify patterns, trends, and anomalies in the CAT data. The tools and platform will allow seamless searches of data sets to examine activity to reveal suspicious behavior in securities-related activities and quickly trace the origin.” [SEC pdf]

But what happened to these plans to monitor the financial markets with an eye toward reducing the instances of fraud and abuse?

H.R. 3547, the omnibus 2014 spending bill passed by Congress and signed into law by President Obama last week, contains more bad news for the SEC than just the meager 2% increase it provides for the SEC’s budget. A provision in the new law quietly strips away half of a $50,000,000 Reserve Fund that the SEC uses to improve its technology resources.” [Securities Docket]

Not too put too fine a point to it, but — the Congress of the United States found a way to defund the very activities of the SEC which might allow the agency to technologically keep up with the high frequency traders, the dark pools, and the latest Wall Street tech.  That should keep the Big Banks Pacified?

The Big Banks ought to be especially pleased by the label  “slush fund” attached by Representative Amodei to their funds to improve the technological capacity of the agency.  If Representative Amodei is displeased with the “lack of Congressional oversight” over the expenditures in the SEC Reserve Fund, then he may have missed the two documents readily available online wherein the SEC described for Congress precisely what they wanted the Reserve Fund to implement. See: SEC FY 2014 Budget Justification (pdf) the executive summary of the Reserve Fund is on page 10, and the SEC FY 2013 Budget Justification (pdf), the executive summary of the Reserve Fund is on page 9.

Why would anyone, facing the increasing speed and technicality of modern financial market operations, want to call the funds allocated to assist in the improvement of oversight and fraud detection a “slush fund?”  Perhaps because they don’t want the SEC to keep up with the Big Banks, high flying hedge funds, and wealth management groups?

(2) Oh, those regulatory costs and burdens!  This has a familiar ring to it.  Here’s where Eugene Scalia, son of Antonin,  enters the picture:

“Eugene Scalia is a lawyer of extraordinary skill. In less than five years, the 50-year-old son of Supreme Court Justice Antonin Scalia has become a one-man scourge to the reformers who won a hard-fought battle to pass the 2010 Dodd-Frank Act to rein in the out-of-control financial sector. So far, he’s prevailed in three of the six suits he’s filed against the law, single-handedly slowing its rollout to a snail’s pace. As of May, a little more than half of the nearly four-year-old law’s rules had been finalized and another 25 percent hadn’t even been drafted. Much of that breathing room for Wall Street is thanks to Scalia, who has deployed a hyperliteral, almost absurdist series of procedural challenges to unnerve the bureaucrats charged with giving the legislation teeth.” [MJ]

And what has the Scalia Scion done to create this successful stall ball strategy?

“Scalia’s legal challenges hinge on a simple, two-decade-old rule: Federal agencies monitoring financial markets must conduct a cost-benefit analysis whenever they write a new regulation. The idea is to weigh “efficiency, competition, and capital formation” so that businesses and investors can anticipate how their bottom line might be affected. Sounds reasonable. But by recognizing that the assumptions behind these hypothetical projections can be endlessly picked apart, Scalia has found a remarkably effective way to delay key parts of the law from going into effect.” [MJ]

So, when Representative Amodei says he wants the “Administration to report to Congress on the cost and regulatory burdens of the Dodd-Frank Act,” he’s chiming right in, cheerleading if you will, for the stall ball tactics of the Wall Street barons as practiced rather successfully  by their Scalia Scion lawyer.  That should help keep the Big Banks Pacified?

(3) And, Representative Amodei is only too pleased to help the corporations and Big Banks hide their political donations — because he doesn’t want the SEC to be able to require corporations and large banks to tell the  public and their shareholders about their political activities!

Representative Amodei gives every appearance of being a major cheerleader for Team Wall Street, and its efforts to avoid regulation, supervision, and monitoring by the Securities and Exchange Commission — no doubt he, and other Republicans in Congress, will be delighted to participate in the GOP’s Big Bank Pacification Program.

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Filed under Economy, financial regulation, Politics, Republicans

Questions and Answers

>Overnight Express News Round UpAggregation: Where’s the Gun Safety/Background Check bill in the Nevada Assembly? Answer here.  Who’s the big winner in the Nevada Legislative biennial lottery?  Answer here.  From which states is an undocumented worker most likely to be deported? Answer here.  Is a grazing permit a “revocable privilege” or a “property interest?” The answer so far, but there’s probably more litigation to come.

Dept. of No Surprises:  Now, who would have guessed that the beneficiaries of various and sundry tax breaks (hereinafter called Tax Expenditures) are those in the top brackets of U.S. income earners?  Answer: Everyone, including the non-partisan Congressional Budget Office.    What are the most “Cringeworthy” Quotes from Wall Street?  Let’s start with “That’s why I’m richer than you…

Contrary to the steady drum beat of radical assertions that the Social Security Administration won’t be around to help young workers when it’s time for them to retire, there’s “Social Security’s challenges continue to be modest and manageable.”  There’s more here from the CBPP.

Women Where Daily?  Members of the Armed Services Committee are seeking answers from top military brass on issues related to acts of sexual assault (predominantly against women) in the U.S. military. More here.   The ladies of the Senate confronted military leadership concerning the problem, more here.  An ex-Army prosecutor reached out to Senator Gillibrand, more from the Buffalo News.  And, Senator Boxer has teamed up with a former Marine to push the issue to the foreground.

Women can say silly things — there’s this nugget:

“I think that more important than that is making certain that women are recognized by those companies. You know, I’ve always said that I didn’t want to be given a job because I was a female, I wanted it because I was the most well-qualified person for the job. And making certain that companies are going to move forward in that vein, that is what women want. They don’t want the decisions made in Washington. They want to be able to have the power and the control and the ability to make those decisions for themselves.” Rep. Marsha Blackburn [ HuffPo]

What’s “THAT?” The reference goes back to equal pay for equal work legislation.   And, what sort of “recognition” would the ladies like from corporate America?  Money would be nice?  No one is talking about women being employed — the pay question refers to those who are already in the workplace and already getting paid an overall average of 75 cents on every dollar a man can earn.   “They” don’t want the decisions made in Washington?  Let’s go to the next line “They want to be able to have power and control and the ability to make those decisions for themselves.”   The question was about what women will be paid for their work.  Exactly what “power, control, and ability” do they have when facing an employer who discriminates based on gender?  Dear me, is Rep. Blackburn suggesting the ladies unionize?   The entire point is that in discriminatory situations the women do NOT have the power, or the control, or the ability to obtain equal remuneration for equal work.  However, we have to remember that Rep. Blackburn voted against the Lily Ledbetter Act… and the Paycheck Fairness Act of 2009.

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Filed under financial regulation, Nevada legislature, Social Security, Taxation, Women's Issues

Late Night Recommended Reading Roundup

Newspapers glassesThe Nevada Progressive connects the dots in “The Secretive Climate Denial Campaign in Our Backyard.”  The AFP connected to the NPRI, the NPRI connected to the Tea Party, the Tea Party connected to the Republicans, now hear the Words of the Koch Brothers!  Highly recommended reading.

Stay tuned to the Sin City Siren for information about the upcoming Las Vegas, NV hate crime event.  Calendar marking information for those in the area here.

Talk about a business tax is waning in the Nevada Legislature; In case you missed it,  The Nevada View has a good summary, complete with a must see chart on taxation in the Silver State.  Buzzlzarownd discusses tax topics in the current session of the Assembled Wisdom.

L’Affaire Brooks  is covered in the Nevada State Employee Focus blog, and there’s more from Steve Sebelius at Slash/Politics.

Yes, there’s a big difference between deficit and indebtedness, and the Nevada Rural Democratic Caucus blog makes this clear while providing some ammunition with which to push back against the Republican’s Tocsin in regard to the Great Big Horrible Debt Which Will Consume Us Faster Than An A Speeding Meteor… or something.

Speaking of Things Financial:  Begin with the post on Crooks and Liars  about the depredations of HSBC; then proceed to “Call the Waaambulance!” for C&L’s observations on the bankers’ pearl clutching fainting couch landing after being assaulted, I say Assaulted, by Massachusetts Senior Senator Warren.  The Huffington Post describes the whining from Wall Street. Now, read the New York Times article concerning the $35 million settlement agreed to by a mortgage firm that was involved in a six year scheme to prepare and file perhaps a million (or more?) fraudulently signed documents.   Unsettling huh?  If you aren’t sufficiently annoyed by the corporate cavorting over the U.S. tax system — read “The Loophole Lobby.”

What is it that scares Republicans even more than the thought of increasing the minimum wage?  Politicususa has the answer.   And, then there’s the Tennessee Congressional Representative, who during a nostalgic tale of How I Grew Up Self Sufficient Making The Minimum Wage inadvertently made the President’s point for him.  Oh, and by the way, back in the days of the Bush Administration there were 65 Republicans pushing for an increase in the minimum wage. Who’da thunk it.

Then they went on vacation — The Congress is on vacation — again — meanwhile the Violence Against Women Act re-authorization sits awaiting action in the House.  Meanwhile, a prosecutor in Detroit is spearheading efforts to tackle the huge backlog of untested rape kits in police storage.

No, radical gun enthusiasts — Chicago is NOT proof that reasonable controls on guns don’t work.  Look at the Chart.

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A Capitol Crime? Tax on 1% Unacceptable, Tax on 99% OK?

The fight begins over the extension of the payroll tax cuts in the aftermath of the voting on December 1, 2011:

“Republicans proved tonight they are more interested in tax cuts for millionaires than tax cuts for the middle class. The legislation they blocked would have put $1,500 in the pockets of the average middle-class family in America and across Nevada next year. The bill was fully paid for by asking millionaires to pay just over three percent on their incomes above $1 million.

“Republicans spent this week trying to convince us that they support middle-class tax cuts, but tonight a majority of Senate Republicans voted against their own bill – calling into question whether they support middle-class tax cuts at all.

“I was encouraged to see one Republican join Democrats in asking millionaires to pay their fair share. But because every other Republican continues to insist on protecting millionaires, middle class families could face a $1,000 tax increase next year. Democrats will not stop fighting to avoid that outcome. I hope Republicans will decide that the economic security of hard-working Americans is more important than protecting the wealthiest one percent.”  — Senator Harry Reid (D-NV) December 1, 2011

One theme we’ve not heard from the broadcast media is “Republicans in Disarray,” although the commentary from House and Senate GOP leadership was calibrated to express support for the extension of the payroll tax cuts, but evidently not strong enough to secure the usual lock-step coordination seen in other Senate votes.

Acknowledging that Republican opposition to middle-class tax cuts was untenable, Republican leaders spent this week trying to convince the world that they supported middle-class tax cuts:

Cantor: “You Aren’t A Republican” If You Vote Against Payroll Tax Cut Extension. According to the Hill, “During the closed-door meeting Boehner and Majority Leader Eric Cantor (R-Va.) urged rank-and-file members to support the extension, saying it was necessary for a party that historically opposes tax increases, a leadership aide said. Cantor told members that ‘taxes are a Republican issue and you aren’t a Republican if you want to raise taxes on struggling families to fund bigger government,’ according to a source in the room.” [The Hill, 11/30/11]

Boehner: “If You Guys Think That Not Extending the Payroll Tax Cut Is Politically Advantageous, You’ve Got to Be Kidding Yourself.” According to Roll Call, “House Republican leaders bluntly warned their Members on Wednesday that opposing an extension to a popular payroll tax cut is politically unsustainable. According to a Republican source in the GOP’s weekly conference meeting Wednesday, Speaker John Boehner (Ohio) told his conference that ‘if you guys think that not extending the payroll tax cut is politically advantageous, you’ve got to be kidding yourself.’” [Roll Call, 11/30/11]

McConnell: “Republicans Are Going To Put Aside Their Misgivings And Support This Extension.” McConnell also said, “There’s a lot of sentiment in our conference, clearly a majority sentiment, for continuing the payroll tax relief that we enacted a year ago in these tough times.” [CQ, 11/28/11]

But last night, (December 1, 2011) a majority of Senate Republicans bucked McConnell, voting against the Republican plan and exposing their true colors: Republicans want to give tax breaks to millionaires, but not the middle class.

Washington Post: “In A Surprising Turn, More Republicans Voted Against The GOP Plan Than In Favor Of It.” “All but a handful of Democrats voted in favor of their party’s proposal, but in a surprising turn, more Republicans voted against the GOP plan than in favor of it. Senate Minority Leader Mitch McConnell (R-Ky.) predicted this week that a majority of his conference would vote for the party’s plan to extend the payroll tax cut. The vote suggests that rank-and-file Republicans remain divided on the merits of keeping the tax cut, leaving their party vulnerable to criticism from Democrats that they would raise taxes on the middle class as Americans are struggling economically.” [Washington Post, 12/2/11]

Politico: “Mass Defections Reflect The Payroll Extension’s Unpopularity Among Rank-And-File Republicans.” “The mass defections reflect the payroll extension’s unpopularity among rank-and-file Republicans, even as GOP leaders move to make the Obama proposal more palatable to their caucus and block Democrats from seizing the mantle of the tax-cutting party. The divided conference also portends how difficult it will be for Speaker John Boehner to move a payroll tax cut extension through his chamber without significant Democratic backing… [A] surprising number of Republicans defected from their party’s proposal – 26 in total, despite comments from Senate Minority Leader Mitch McConnell earlier this week that the GOP would support a payroll tax cut extension.” [Politico, 12/2/11]

Reuters: “Republican Ambivalence Toward Any Extension of the Payroll Tax Cut Was Evident” “Republican ambivalence toward any extension of the payroll tax cut was evident in the Senate as a majority of the party’s 47 senators voted against the Republican plan.” [Reuters, 12/2/11]

New York Times: Republicans Leaders “Struggle”, in “Political Bind” “Republican leaders’ struggle this week to find a strategy that could unite their party reflected the political bind it is in. Nearly 7 in 10 Americans said the policies of Republicans in Congress favored the rich, a New York Times/CBS News poll found in October.” [NY Times, 12/2/11]

Wall Street Journal: Republican Leaders “Fear The Politics Of Allowing A Tax Increase To Hit Virtually All Wage-Earners” “The vote suggests a disconnect between Republican leaders of both houses, who fear the politics of allowing a tax increase to hit virtually all wage-earners on Jan. 1, and many rank-and-file Republicans, who say the payroll-tax cut doesn’t create jobs and oppose short-term tweaks to the tax code.” [WSJ, 12/2/11]

Associated Press: Vote “Exposed Rare Divisions Among Senate Republicans” “But in a vote that exposed rare divisions among Senate Republicans, more than two dozen of the GOP’s 47 lawmakers also voted to kill an alternative plan backed by their leader, Mitch McConnell, R-Ky., to renew an existing 2 percentage point payroll tax cut.” [AP, 12/2/11]

Los Angeles Times: “Deep Resistance” Within GOP to Payroll Tax Cuts.  “Both bills met with GOP opposition, illustrating deep resistance within the ranks despite party leaders’ efforts to coalesce around the politically volatile issue.” [LA Times, 12/2/11]

The vote was a rejection of McConnnell’s effort to corral his caucus – Sen. Thune Called Republican Proposal “The Right Way” Minutes Before Voting Against It:

Thune Called The Republican Proposal “The Right Way” “There is a right way and wrong way to do this. This is the wrong way in the Democratic proposal. The Republican proposal is the right way.” [Floor Speech, 12/1/11]

…Minutes Before Thune Voted Against The Republican Plan. [Roll Call Vote 220, 12/1/11]

Part of the disconnect may stem from the anti-government’s high priest, Grover Norquist who told House Republicans that voting against extending the payroll tax holiday (usually interpreted by the GOP as “raising taxes” when discussed in the context of the expiration of the Bush Tax Cuts) is not really really really raising taxes.

OK, it’s clear now.  Allowing the Bush Tax Cuts, which predominantly benefit the 1%, to expire is “raising taxes,” but allowing for the extension of the payroll tax cuts, which benefits the other 99%,  is NOT.  [TP]

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Filed under Boehner, Heller, McConnell, Reid, Republicans