Quick Hits and Updates

**  Welcome to the advent of Political Hunting Season in Nevada, the Las Vegas Sun reports Senator “By Appointment Only” Dean Heller (R-NV) and Rep. Shelley Berkley (D-NV1) have comparable war chests.  What Rep. Berkley does not have is the assistance of Karl Rove’s shadowy anonymous donors protected by Citizens United.

** Think the Patient Protection and Affordable Care Act won’t help women in the Silver State?   Look at the Map:

Nevada’s rate of uninsured women would still be higher than most of the nation, but the ACA provisions would be a welcome improvement.

**  The Bain of Romney’s Existence:  Best reads so far — Crooks & Liars, “Boston Globe Reporter Stands By Their Article.”   Talking Points Memo, “Cutting Through the Bain Bamboozlement.”  Glenn Kessler takes a narrow and focused look at the legality of Romney’s Bain associations. See also, “50 Shades of Bain,” Bloomberg.   Don’t miss: “Here’s One of the Clever Financial Tricks Mitt Romney Used to Become Dynastically Rich,” Business Insider. (Warning: Don’t try this at home.)

** Oh, those silly little bankers, they just keep doing mischievous things: “JPMorgan Fears Traders Obscured Losses,” New York Times. “JPMorgan trade loss now up to $5.8 billion”, Washington Post. For those counting such things the losses are now 3X the original estimates.   “Dimon saw $1 billion potential loss when he made Teapot Remark,” Bloomberg.  “JPMorgan traders may have hidden losses,” Reuters.

Peregrine: “CEO of collapsed futures brokerage — I embezzled millions of dollars from customers accounts,”  Business Insider. Wow, what you can do with Excel + an ink jet printer — “PFGBest Chief arrested, admits 20 year fraud,” Reuters. (Warning: don’t try this at home either.)

“Hedge fund investors are running for the exits,” Business Insider.

The week’s events have brought some trenchant responses:

“The big banks are worlds unto themselves, and you’re a temporary citizen. Their logos are your country flag, their motto your national anthem.”   Business Insider.

“One of the most revealing exchanges in the Barclays documents came when a bank official tried to describe why Barclays’s improper postings were not as problematic as those of other banks. “We’re clean but we’re dirty-clean, rather than clean-clean,” an executive said in a phone conversation. Talk about defining deviancy down.

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.” [New York Times]

Something to think about.

Overnight Express: News and Views Roundup

Not quite together with Heller (R-NV): “Heller, through his statements and votes in Congress, has consistently supported limiting or eliminating the ability to conduct government business in any language other than English. Heller has sponsored legislation to limit election ballots to English-only, to mandate that the Free Application for Federal Student Aid only be filled out in English and to make English the official national language. Heller also supported a bill to end birthright citizenship.”  [LVSun]   There appears to be just one little problem with Senator Heller’s “outreach” to voters in the Latino/Hispanic community — his proposals don’t exactly match his record.

However, his “no new taxes” allegiance to Grover Norquist et. al. is pleasing to the ears of members of the business community who’ve not yet figured out that in order to support the Republican economic policies to which Governor Romney and Senator Heller adhere, you have to believe that giving the big tax cuts to the top 0.5% of income earners in the U.S. will magically trickle down to local economies.  Small business owners who rightly see themselves as “job creators” seem to have conflated their interests (increasing demand) with the “job cremators” in the ethereal upper reaches of the Wall Street casino who are essentially Financialists for whom actual job creation isn’t a priority.

Not quite a birther?  Republican hopeful Willard M. Romney will be in Las Vegas, NV for a fund raiser ($2500 per) at the Trump International Tower, with The Birther Donald Himself. [RGJ]  It seems Mr. Romney isn’t concerned by The Donald’s foray into the realms of irrationality. “The standard the Romney campaign seems to be advancing here is that it’s OK for the candidate to appear on the same stage as a loon, as long as that loon doesn’t say the thing that makes him loony in the candidate’s presence. And if he does, the candidate can merely disavow it later.” [Salon]  The disappointed birthers may now be busying themselves questioning the President’s college transcripts. [LAT]

Listen Up, and get connected: “None of that matters. Not one whit. The only thing that is going to matter is whether or not Republican astroturf organizations like TruetheVote, Republican governors like John Kasich, Rick Scott and Scott Walker, and Republican True Believers will team up to suppress the vote in enough states to guarantee a stolen election.”  [More at Crooks & Liars] Think this really isn’t happening: Try this egregious example from Ohio.  Governor Rick Scott (FL) has a plan to purge individuals from that state’s rolls. [Think Progress] There’s a lovely example of a inexplicably purged voter in that state as well.

We Didn’t Start the Fire: And why the GOP can’t extinguish its War on Women.   Good litany and explanation here.

Another Romney Theme Another Chart Debunking It:  The GOP is hauling out the old chestnut about Democrats “hollowing out the military” with decreased defense spending.   This canard has worked for them before, but won’t now if this little chart gets enough attention.  Note that the Iraq/Afghanistan warfare spending is shown in red, and that the other chart elements do not decrease.

Financialism can be the cruelest form of capitalism:  Watch what’s happening with American Airlines.   “The parent company of American, AMR Corp., is seeking to cut labor costs by tossing employee contracts where no agreement has been reached. Closing arguments in U.S. bankruptcy court wrapped up Friday; a judge said he expects to rule by June 22.” [MiamiHerald] American has been told to cut labor costs by 20%, meaning a loss of some 13,000 jobs [HuffPo] From last January: “Airline giant AMR, the parent company of American Airlines and American Eagle. AMR, which filed for bankruptcy in November, last week announced plans to retain the advice of Bain & Co., the consulting firm where Romney worked before co-founding private equity firm Bain Capital in 1985.”  [ITTimes] Oh, and did we mention that the pension fund, once an industry gold standard, has come to grief, “the U.S. Pension Benefit Guaranty Corp. slapped liens on $91 million in AMR property after the company paid only $6.5 million of a required $100 million contribution to the plans.”  [HuffPo]

Financialism is often painful — for the financialists:  “JPMorgan dips into cookie jar to offset London Whale losses.” Gains from the sales could provide about 16 cents a share of earnings, about one-fifth of the bank’s second-quarter profit, analysts said. But rather than creating new value for investors, the transactions merely shift gains in securities from one part of the company’s financial statements to another.” [Reuters]  (emphasis added)  As one SEC consultant remarks — dumb move #1 playing with derivatives the company didn’t fully understand, dumb move #2 selling off high value securities they can’t replace….  Do these people really want us to believe they need “de-regulation?”

And, then there’s Citigroup “the biggest U.S. bank to have regulators reject its capital plan this year, dismantled a board committee created during the credit crisis to police the disposal of toxic and unwanted assets. ” [Bloomberg]   This, while it still has queasy mortgages, and loans to Spain and Greece on its books?   Even some big funds are getting bitten, Dewey &LeBoeuf has filed for bankruptcy… with more strain on the Pension Guarantee System.

Recommended Reading:  “How black WWII vets helped lead the Civil Rights Movement,”  The Grio;  unfortunately there’s this article in the same source — “KKK invites North Carolina town to a Whites Only cross burning.”   A semi-sweet ending to the story of a slave cemetery in Georgia in the AJC.

Who’s The Job Creator? The Answer Is No Surprise

“President Romney introduces tax cuts and reforms that reward job creators, not punish them,” the voice-over says as video of Romney’s speaking at various campaign events across the country plays.”  [ABC]

The Republican presidential candidate has a message, Day One, “introduce tax cuts and reforms that reward job creators…”  Really?  Who are those job creators?  Hint: They aren’t the Financialists of the private equity management firms.   If you happen to have stumbled on the DB post for December 2, 2011, then you’ve already guessed the answer. If you’ve been a reader since wayback times, like February 3, 2009, then you’re ahead of the game:

“For all intents and purposes, it seems as though the House Republicans have completely forgotten that there are two sides to the fundamental economic equation for an equilibrium price: Supply and Demand. For that matter, they don’t even appear to be taking the interests of the suppliers into consideration either. Evidently, they don’t understand that when you “spend, spend, spend” you are buying “things, things, things” manufactured by companies that make their livings from “orders, orders, orders.”

That’s right, in an economy predicated on consumer spending the real job creators are Consumers.  However, no one really needs a liberal blogger to tell them that, why not listen to someone in the financial sector who demonstrates comprehension of the whole Supply and Demand thing, fund manager Nick Hanauer:

“That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.”

But what of David Brooks’ rejoinder that without financiers there would be no manufacturing? [PBS]   There are a couple of holes in the fabric of this clichéd argument.   First, as Hanauer explains:

“It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.”

There’s a second problem as well.  Brooks’ assertion that it’s the financial sector that floats all the manufacturing boats is true, but when he called out those who feel more regulation is necessary as “financial illiterates,” he’s gone a step too far.  The muck into which he’s stepped is that the Econ 101 textbook theory of financial operations upon which he’s basing his objection is outdated by at least 30 years.  Yes, once upon a time the financial sector did old fashioned “boring banking” in which the emphasis in the investment houses was geared toward underwriting capital accumulation plans for clients.   Not any more.

Brooks’ may have missed or forgotten the memo from May 1, 1975 when the old system of fixed commissions for trading securities were abolished, setting off a squeeze on brokering revenues.  Ye olde Broker-Dealer was going the way of the DoDo.  Then Salomon Brothers pioneered the Proprietary Trading Desk.  Salomon began betting on the market with its own money while buying and selling securities for its clients.  Remember Salomon Brothers?  It was the subject of Michael Lewis’s popular book, “Liar’s Poker.”   We also remember that Salomon Brothers became Salomon Smith Barney, and became extinct in 2003.

September 11, 2001– the day the towers went down and the Fed dropped a money bomb. The Fed decided to institute a sharp drop in interest rates and the housing boom was on.  Enter securitization, as a means by which the investment bankers could recoup profits lost or  squeezed by the decline in revenues from the old core securities sales businesses because their commissions had shrunk to fractions of a percentage point per trade.  So, how would more money roll in?

Investment banks also expanded into the underwriting and selling of complex financial securities, such as collateralised debt obligations. They were aided by the Federal Reserve’s decision to cut US interest rates sharply after September 11 2001. That set off a boom in housing and in mortgage-related securities.

The catch was that investment banks were taking what turned out to be life-threatening gambles. They did not have sufficient capital to cope with a severe setback in the housing market or markets generally. When it occurred, three (so far) of the five biggest banks ended up short of capital and confidence. [FTGapper]

By the end of the debacle there wasn’t a single old fashioned investment bank left on Wall Street.

In short, it doesn’t matter how much money Wall Street could infuse into a hypothetical Ultimate Frying Pan, Inc. if there is no demand for the product there will be no industrial expansion required.  Secondly, if underwriting Ultimate Frying Pan, Inc. is performed by Dewey, Grasp, & Grabbe we can be fairly certain that collateralized debt obligations and credit default swaps will not be far behind.

The “reward the job creators” argument falls apart in two directions so far: (1) the real job creators are middle class Americans who create demand for goods and services; and (2) the notion that financiers are the primary job creators requires that we ignore the last 37 years of Wall Street investment house history.   But, wait, there’s more.

The function of companies like Bain Capital and other alleged job-creators is NOT job creation.  The purpose of the $60 billion under management Bain operation is to maximize shareholder value.  Give Mr. Romney his due, he was a pioneer in revamping private equity management to the purposes of (1) growing earnings, (2) increasing dividends, and (3) increasing share prices.  [DB Romney & Shareholder Value]  If jobs are created in the process, fine, but if jobs are sent off shore or eliminated entirely that is of no particular concern to the Financialists.  Their bottom line is the shareholder value NOT the value of a trained workforce, an economically healthy community, or even an economically vibrant nation.

For the Wall Street investors who are supporting the Romney campaign, if the shareholders are happy, their proprietary trading desks are profitable, and the fees and commissions are rolling in All Is Well.  What happens on the factory floor, in the local restaurants, at the local car dealership, or in the local barber shop is of no particular concern.

As the arguments are refined we may see that in some cases Bain Capital was a venture proposition, in others a vulture, and in still others a combination of both.  The epithets will fly because this is a campaign season, but the political spiels should not gloss over the fact that the 2012 elections will highlight the very different economic perspectives of the GOP and its Wall Street financiers, and the Democrats who place more emphasis on the capacity of consumers to keep the demand side of the classic economic equation operational.

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References and Recommended Reading:  Benjamin Wallace-Wells, “The Romney Economy,” New York Magazine, Oct. 23, 2011.   “Romney The Revolutionary,” The Economist, Jan. 14, 2012. DB “Romney and Shareholder Value, May 15, 2012.   Pete Kotz, “Romney American Parasite,” Village Voice, April 18, 2012. Nick Hanauer, “Reward True Job Creators,”  Bloomberg, Nov. 30, 2011.   Ezra Klein, “Hanauer’s Talk On Taxes,” Washington Post, May 17, 2012.   CAP, “Middle Class, Inequality, and Economic Growth,” on-going issues, links.  Economic Policy Institute, “Romney Budget vs. the Budget For All,” May 17, 2012.