Tag Archives: Occupy Wall Street

The New Gospel? He who has the gold rules?

During this holiday season, when Christians are grateful for the birth of Jesus, and Jews celebrate the miracle of the oil and the lamp that refused to go dark, there seems to be too much illumination of a new gospel of wealth.

The New Gospel: Bankers and billionaires are pushing back against the proposition highlighted by the Occupy Movement that their compensation is disproportionate to their social usefulness, and their individual efforts.  [ThinkProgress]

They are unapologetic. They are self-proclaimed “Fat Cats.” They are deserving of preferential tax policies. [Bloomberg]  They are rich, and they are proud of it.

The Old Gospel: “Do not lay up for yourselves treasures upon Earth, where rust and moth consume, and where thieves break in and steal; but lay up for yourselves treasures in heaven, where neither rust nor moth consumes, nor thieves break in and steal.”  [Matthew 6:19+]

The New Gospel: “If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.  “Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?” [Bloomberg]

The Old Gospel: “And, whoever exalts himself shall be humbled, and whoever humbles himself shall be exalted.”  [Matthew 23:12]

The New Gospel: “Schiff, 48, disclosed assets of at least $64.7 million before losing the 2010 Republican primary for a Connecticut U.S. Senate seat, according to filings. He’s wealthier now, even though his taxes are “more than a medieval lord would have taken from a serf,” he said. ” [Bloomberg]

The message becomes, since we pay 40% of the federal income tax collections, we deserve a 16.62% rate of taxation while the rest of American tax payers face a 35% maximum rate. It is apparently of little or no concern to the advocates of this new gospel that many Americans don’t earn enough during any year to be liable for federal income taxes, but they do pay state and local taxes in addition to payroll taxes.

The Old Gospel:  “Therefore all that you wish men to do you you, even so do you also to them…”  [Matthew 7:12]

Conservatives are known for calling our attention to America as a “Christian Nation.”  This new ‘gospel’ of wealth, this rationale for avarice, this condescension and patronizing of America’s working people, may remind us of a dilemma posed by the origin of the ‘old gospels:’

“No man can serve two masters; for either he will hate the one and love the other, or else he will stand by the one and despise the other. You cannot serve God and mammon.”  [Matthew 6:24]

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Filed under conservatism, Economy

Nothing Wrong With Being Rich, Nothing Right With Keeping Everyone Else Poor

One of the now familiar complaints from the upper strata of the economic elite is that they are feeling oppressed by the negative lights being trained on them as a result of the Occupy Movement.  Perhaps the lament comes down to this, that they are:

“…arguing for the merits of a Hobbesian world where the fittest, many from below, struggle, survive and prosper in a kind of zero-sum war of all against all. It’s natural; it’s the way it is.” [HuffPo]

This might be a little hard on Hobbes.  Even in Hobbesian terms there were rungs on the social and economic ladder.  Additionally, no one inside the Beltway has reverted to calling the Wall Street bankers “malefactors of great wealth,” as did Theodore Roosevelt.  [TR.org]

“These men are equally careless of the working men, whom they oppress, and of the State, whose existence they imperil. There are not very many of them, but there is a very great number of men who approach more or less closely to the type, and, just in so far as they do so approach, they are curses to the country. (Forum, February 1895.) Mem. Ed. XV, 10; Nat. Ed. XIII, 9.”

No malefactors of great wealth, no “curses to the country,” however there is something to be said for the notion that if a person can’t reach back to give others a hand up, one can still insure that the ladder is still available.

Many of the more powerful men on Wall Street came from modest backgrounds.  Lloyd Blankfein (Goldman Sachs) was the son of working class parents, and grew up in the Linden Houses project in East New York.  His scholarship to Harvard launched his career. John Thain (formerly of Merrill) grew up in Antioch, Illinois, the son of a small town doctor.  Ken Lewis (former BoA) was raised in Columbus, GA and worked his way through college at Georgia State doing accounting and working as an airline ticket agent.  Their stories aren’t all that uncommon.

However, the rungs on the ladders used to climb up the economic ranks have been weakened over the past three decades by a “Me First Before You” attitude which has contaminated our social and economic discourse.  Could the son of a small town doctor, the son of a postal worker, and a child of Walnut Grove, MS expect the same opportunities today?  The objective answer is “yes,” but that doesn’t disguise the fact that the rungs are now weaker.

Those part-time jobs young people used to find to support their college aspirations are harder to find.   Jobs for 16-19 year old young people have been declining since at least 2001. [Cleveland.com] The BLS reported last April:

“In October 2010, college students continued to be more likely to participate in the labor force than high school students (51.3 percent compared with 22.1 percent). About 85 percent of college students were enrolled full time. Those attending college full time had a much lower labor force participation rate than did part-time students.  Asian college students were less likely to participate in the labor force than black, white, or Hispanic college students. Female college students were more likely to be in the labor force (53.5 percent) than their male counterparts (48.8 percent). Female  high school students were also somewhat more likely to be in the labor force (24.2 percent) than were males (20.1 percent).”

In short, there are many youngsters who want or need employment, and not all that many jobs available for them.

Could the son of a small town doctor reasonably expect to climb the first, educational, rung of the economic ladder.  Not if his father is still trying to pay off his own student loans.  A medical school graduate from Michigan State can expect to be about $188,873 in debt. Graduates of Drexel’s medical training program can expect about $205,502 which will need to be repaid. [USN]

And what of Georgia State U?  It is looking at cutting approximately $34 million from its upcoming budget. [AJC]

These numbers and concepts aren’t esoteric bits of uncommon trivia — the situation is well known: There aren’t enough jobs for college kids; Professional training is expensive; and, the educational rungs of the ladder are getting more tenuous.

However, we still hear from Leon Cooperman telling the President: “To frame the debate as one of rich-and-entitled versus poor-and-dispossessed is to both miss the point and further inflame an already incendiary environment.” [DealBook] [HuffPo]

First, the discussion really isn’t about the starkly rendered Rich vs. Poor, it is altogether more about the Ultra-Rich and the remaining 99% who after 30 years worth of being Trickled Down Upon find it ever more difficult to save for retirement, save for college educations for their children, and save for the possibility of unemployment.

Secondly, perhaps this chart will help explain the current environment:

If these trends continue there may not be a “middle class” to argue about.  Consider the following information from California: [via Digby]

“In a study released Wednesday, the nonpartisan Public Policy Institute of California reports that the proportion of households it defines as the middle class — those with annual incomes between $44,000 and $155,000 — has dropped below half, to 49.7 percent.

Households below that level account for 36.6 percent of Californians, and those above account for 13.7 percent.

The percentage of Californians in the middle class is the lowest in at least 30 years, the report says, and has consistently fallen since its peak of 60 percent in 1980.” (emphasis added)

While the expression “income inequality” is the short hand phrase to describe the discontent evidenced with our current economic situation, a more accurate rendition might be “continuing income disparity trends.”  No one has much of a case to make against the assertion that there will always be income inequality and income disparity, but there is support for the notion that economic policies which inequitably serve primarily the interests of our economic elite is destructive of our overall economic health.

It isn’t the income inequality that fans the flames, it’s the continuation of trends — exacerbated by uninformed public policy — that sparks the fires.

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Filed under conservatism, Economy, financial regulation

Coffee and the Papers: BBA Babble and Privatization Plans

– – How much more can one say about the symbolic (and rather stupid) idea of a federal Balanced Budget Amendment? (1)  However, that hasn’t stopped Rep. Mark Amodei (R-NV2) from jumping on the BBA Bandwagon.  [SPJ] Rep. Amodei is presently serving as a amplifier for the “42¢ claim” espoused by Rep. Paul Ryan which argues that $0.42 of every federal dollar spent is borrowed.  The number is in the ballpark [FactCheck] but the argument is still misleading.

The confusion comes from the definition of “debt,” are we talking about the total debt or that portion known as the public debt?  In the 42¢ Argument the basic reference is to the public debt.  [FactCheck] So, this excludes treasuries held by the Social Security trust funds and other government accounts.  The 42¢ claim gets a “half-true” from the Fact Checkers because:

It has long been widely reported that both the nation’s debt and its debt limit are $14.3 trillion. And that’s what the radio discussion was about. So when Ryan said that half of the nation’s borrowing comes from foreign countries — singling out China for emphasis — his listeners would assume he meant half of the $14.3 trillion in total debt, not the much smaller debt measure he now says he was referring to, even if that second measure has strong merit in the debt limit discussion. (emphasis added)

Those who would like to do their own calculations should refer to the Department of the Treasury’s Financial Management Service which issues the MTS, or “Monthly Treasury Statement.”

At the risk of redundancy, we’ve covered this Balanced Budget argument before, with predictable conclusions:

Thus, what we have in Congressional District 2 is a Republican candidate delighted to proclaim his support for a policy which:  (1) Protects the tax havens, loopholes, and special provisions for the ultra-wealthy, while (2) Further impacting the already precarious finances of and support for the American middle class, and which is (3) unenforceable without significant judicial activism.

Worse still, it is close to being (4)  false advertising.  No, it won’t make the national budgets like the state ones, because the state ones still allow debts incurred for capital project investment.  And, no, it’s not like the family budget either — unless we’re speaking of a family that doesn’t take out vehicle, student, or car loans, and pays cash for all medical and educational expenses, and doesn’t put anything on a credit card. [DB]

Someone in Amodei’s audience needed to have ask if it would be fiscally responsible to forbid the federal government from issuing bonds (like any local school district) for the construction of capital projects (like facilities for DoD installations)?  Or, if his 42¢ figure was (a) current or (b) based on total or  public indebtedness. (2)

– – If you thought “Moving Your Money” would put the brakes on increasing bank fees, please think again.  The New York Times reports on the new and newly increasing fees for retail banking. [TP] WealthInfoMatic$ has some good advice for those thinking of joining the Money Moving contingent.  The report from the Pew Charitable Trusts (April 2011) indicates the average bank applies approximately 49 fees for its retail services.  The full report (945K pdf) can be found here.

– – The “clean” coal folks and the American Petroleum Institute would have us believe that those “onerous” regulations from the federal government are holding back economy recovery and job creation.  Not so. (3)

“…several major media outlets deserve credit for fact-checking the claim and making clear just how wrong the argument is. Recent analyses from CNN, the New York Times, the AP, the Economic Policy Institute, the Wall Street Journal, and McClatchy newspapers — relying on, among other things, BLS data, surveys from the National Federation of Independent Business, and Brookings Institution scholarship — all said the same thing: government regulations are not responsible for holding back the economy.” [WashMonthly]

– – Not everything said by the pundits on the television broadcast sets is really worth listening to, and the Booman Tribune provides a particularly effective skewering of David Brooks’ inane commentary on the Penn State child abuse scandal.

– – In case you missed it, reviewing former Michigan Governor Granholm’s commentary on jobs might be in order:

Among the lessons that hit home the hardest occurred back in 2003, when she tried to keep an Electrolux plant in Greenville, Mich. (the “Refrigerator Capital of the World”). Then-Gov. Granholm offered the company all sorts of incentives, including tax breaks and worker concessions, only to be told by Electrolux that “there is nothing you can do to compensate for the fact we can pay $1.17 an hour for labor in Mexico.” [SFgate] (emphasis in original)

Crooks and Liars updates this information with video from Granholm’s recent appearance on CNN.  More “free” trade agreements anyone?

– – Digby’s blog has some excellent advice for #OWS organizers in regard to dealing with the “A-hole problem.”  The advice is also pertinent to anyone doing community organizing for just about any issue on the political spectrum.

– – If you’ve not already bookmarked Perrspectives, the article on GOP candidate Mitt Romney’s proposal to privatize Medicare and Veterans Health Services should be reason enough.  See also: Romney Proposes to Privatize Medicare [WSJ] and Paul Krugman on Vouchers for Veterans. [NYT]

– – Finally, if you don’t have the time to click over to any other item referenced in this post PLEASE see “Penn State, my final loss of faith…” by Thomas Day, published by the Washington Post.

Notes and References: (1) A previous post, “Balanced Budget Amendment, or Bogus Blather for America?” appeared in DB on July 18, 2011, complete with a list of references and suggested resources.  See also: Talking Points Memo on current efforts by the GOP controlled House to bring up one of three versions of the Balanced Budget Amendment.

(2) A much more inclusive report of Rep. Amodei’s presentation in Winnemucca, NV can be found in the Silver Pinion Journal.

(3) There’s more from Politicsusa on EPA as “aliens.”

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Filed under Amodei, Medicare, Politics, Romney, Veterans

Get A Job! As If… Someone needs to get a clue?

As reported by Think Progress:  “Speaking at a Tea Party convention in Florida this weekend, GOP Senate candidate Craig Miller said Occupy Wall Street protesters should “get off your ass and go get a job.” [DaytonaBeachNJrnl]  Photocopied job applications were dumped on OWS protesters in Chicago. [HuffPo]  Someone isn’t getting the message.

Perhaps the message isn’t getting through because there’s a tendency in conservative quarters to cling to the imagery (if not the facts) of forty years ago.  The current protests aren’t about “sex, drugs, and rock ‘n roll.”  They’re more about mandatory health insurance coverage for sexually transmitted diseases, adequate access to prescription medication for cancer victims and the elderly, and families facing home foreclosures who are between a rock and a hard place.

Nor are the protesters “hippies” (Who uses that term anymore?) and drop-outs who are voluntarily unemployed.  Only about 12% of the Occupy Wall Street protesters are unemployed — the rest are from the 99% — employed, underemployed, underpaid for the employment they do have.

The individual who photocopied the McDonalds application probably didn’t know or remember that when the fast food chain announced it would be hiring 50,000 it received about 1,000,000 applications.  The ratio of jobs per applicant is still around 4:1 — four applicants for each job opening.  Employment ratios are better in 2011 for college graduations, but not by nearly enough. [USAT]

So, the 1% who’ve done quite well — thank you 99% very much — since 1979, might want to trim their Big Hair back a bit, hang up their leisure suits, put the polyester trousers back in the closet, lose the platform shoes, and chuck the bell bottoms.   This isn’t the same economy as 1979 — the Financialists have been winning — and these aren’t anti-draft protesters.

To those snidely calling out “get a job,” a good rejoinder might be “Get A Clue.”

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Filed under Economy, employment

Entangling Alliances: Wall Street’s Self Interested Self Strangulating Financialism

When the Housing Bubble burst, and took the Nevada (US/World) economy down with it we saw the skeleton of a financial system laid bare in which our capital investment institutions were entangled by self interest and strangled by their own hands.  At the risk of redundancy, what we have as a result of thirty or so years of Wall Street ascendancy is NOT capitalism, but financialism; and it’s distorting our free market capitalist economy.

Lesson One: People Are Human.

Human beings have institutions.  We have organized our lives by creating religious, social, political, and economic institutions.  The word to be emphasized is WE.  We H. Sapiens are social animals.  We’d be offended if the word Troupe (a group of baboons) was applied to us, but nonetheless we obviously do organize ourselves in groups.  It’s handier for survival if we are grouped.  However, for all the sophistication of our grouping systems, we are still creatures who may act and react both rationally and emotionally.

One of the Great Myths we’ve accepted concerning our economic institutions is that Man is a Rational Animal, and therefore can individually behave in ways that maximize his or her personal self interest.  Upon this bit of soft sandstone we’ve constructed a free market economic system.

The problem with this assumption is that it’s been extended to say that Man is Always a Rational Animal.  We could make this claim but for thousands of years worth of panics, riots, mob scenes, witch-burnings, fads, and free-for-alls.  There was, for example, absolutely no self-advancing or protecting reason for the purchase of a Pet Rock — the brainstorm of a Los Gatos, CA advertising executive in the 1970s.  We bought them anyway.

When we seek to explain our economic institutions, we  need to remember that we’re also the people who  bought those pet rocks, sat on flagpoles, swallowed goldfish, consulted Ouija Boards, wore Raccoon Skin Caps, stuffed Volkswagens and telephone booths, and may purchase any product or endure any treatment promising to reverse the effects of aging or male pattern baldness.

Not to prolong or belabor the point about those $3.98 Pet Rocks, but we do need to recall that such things illustrate our “human” side, our capacity to act not only for our own interest, but also our capacity to behave as part of the crowd — “crowd” being a word we like much better than “troupe.”  When we behave this way it messes up our economic models.

Lesson TwoWe can be hoisted on our own assumptions.

Our technological innovations of the late 20th century created the capacity for us to trade various kinds of financial products in great quantities, and far faster than any previous generation, in our economic institutions.  Enter the Quants, mathematicians and statisticians who believed that they could create “models” by which risk could be reduced and profits could be made in voluminous trading…IF only we could prescribe the correct formula. There was a catch:

In finance, you can never reduce risk outright; you can only try to set up a market in which people who don’t want risk sell it to those who do. But in the CDO market, people used the Gaussian copula model to convince themselves they didn’t have any risk at all, when in fact they just didn’t have any risk 99 percent of the time. The other 1 percent of the time they blew up. Those explosions may have been rare, but they could destroy all previous gains, and then some.  [Salmon, Wired]

Formulaic answers always come with assumptions.  “If an automobile traveled at a rate of 30 miles per hour how long would it take to go 60 miles…?”  Color in the answer bubble for Two hours with your Number Two pencil — IF the driver (a) doesn’t stop for fuel, (b) doesn’t take time out to eat, (c) doesn’t find a road on which he can drive faster, (d) doesn’t get involved in a traffic accident … and so on and on.

Unfortunately, our formulaic models combined with our “human” behavior and the result was predictable if not pleasant:

Everyone was pinning their hopes on house prices continuing to rise,” says Kai Gilkes of the credit research firm CreditSights, who spent 10 years working at ratings agencies. “When they stopped rising, pretty much everyone was caught on the wrong side, because the sensitivity to house prices was huge. And there was just no getting around it. Why didn’t rating agencies build in some cushion for this sensitivity to a house-price-depreciation scenario? Because if they had, they would have never rated a single mortgage-backed CDO.”

Bankers should have noted that very small changes in their underlying assumptions could result in very large changes in the correlation number. They also should have noticed that the results they were seeing were much less volatile than they should have been—which implied that the risk was being moved elsewhere. Where had the risk gone?   [Salmon, Wired](emphasis added)

The risk splattered all over our economic institutions.

Lesson Three: Human beings, as social animals, develop relationships.

The Rating Agency Relationships:

Why did “everyone” assume that housing prices would continue to rise? Why did no one question the statistical models?  Why didn’t the predictions that things could go wrong and go wrong very quickly resonate with decision makers in our economic institutions?

One perspective toward a response to these questions is that relationships formed which were self-serving if not self maximizing.

Why, for example, did the ratings agencies continue to rate CDO’s as “investment grade” after it became apparent in 2006 that the ratings were inaccurate?

“The Senate report says Moody’s and S&P knew as early as 2006 that high-risk mortgages were incurring a great deal of delinquencies and default, but the agencies continued to issue “investment grade ratings” on RMBS and CDO securities tied to risky mortgages for the next six months.” [HousingWire]

It doesn’t take much cogitation to conclude that the nature of the relationship between the investment institutions and the ratings agencies was predicated on an “issuer pays” model — so, investment houses went “shopping” for the highest ratings they could find.  Ratings agencies were incentivized to provide higher ratings in exchange for firm revenue.

Section 939A of the Dodd Frank Act strips the credit rating agencies clout, and partially answers the question from the Wall Street Journal “Who Elected The Ratings Agencies?”  The Dodd Frank Act also subjects credit rating agencies to “expert liability,” i.e. they would have the same liability for mistakes as accountants and advisers in bond sales, but the House Banking Committee in the 112th Congress wants to repeal this part. [Slate]

A large part of the problem with the ratings agencies is that we have not developed any other “system” to replace the relatively cheap ratings agency stamps of approval.

The Analysts Relationships:

Consider the following excerpt from Mike Mayo’s recent publication:

Analysts are supposed to be a check on the financial system—people who can wade through a company’s financials and tell investors what’s really going on. There are about 5,000 so-called sell-side analysts, about 5% of whom track the financial sector, serving as watchdogs over U.S. companies with combined market value of more than $15 trillion.

Mike Mayo told the Senate Banking Committee in 2002 that financial analysts “are on the front lines of holding corporations accountable.” However, he says, they haven’t always upheld this trust with investors.

Unfortunately, some are little more than cheerleaders—afraid of rocking the boat at their firms, afraid of alienating the companies they cover and drawing the wrath of their superiors. The proportion of sell ratings on Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95% of the stocks cannot be winners. (emphasis added)

It wouldn’t take even a first year MBA student to figure out that 95% of all stocks won’t increase in value 100% of the time.  The following chart adds to the argument Mayo is making:

Only 4% of the total ratings indicate any reason to sell anything. Mayo’s area of expertise is in the banking sector, but his general observations might well be applied to any part of our financial realm when he describes what happened after he tried to warn investors about weaknesses in the financial sector:

After one meeting in New Jersey, one of the more senior portfolio managers offered to “advise” me about my views on the banking industry. The old-timer pulled me into a semidarkened room, just the two of us.

“I’ve been doing this a while,” he said, “and you’ve gotta know when to change your view. You can’t be so negative.” He probably meant it as kindly advice from someone who had been around the block, but it came across more like a disciplinarian father scolding his son. His argument seemed to be that as long as the stock prices were going up, the banks’ management and operating strategies didn’t matter.  [WSJ]

Lesson Four: The nature of relationships between and among our financial institutions is self-serving and not necessarily self-perpetuating.

We are human, and we’d like to survive.  Survival is sustained by being part of a group and groups form institutions for social, political, and economic purposes which help preserve US.  We are often rational, but sometimes we aren’t.  We make assumptions that can guide our behaviors, we can even make assumptions that allow us to make intelligent conjectures about the probability of future events.

However, when the financial system is so distorted that short term profits  become of greater importance than the overall viability of our economy we’re in trouble.

The relationships themselves are problematic.  The analyst who issues a “sell” recommendation will irk the Bond Division which is trying to get business from the corporation, and the Equities Division which is trying to get business for a IPO?  And, the CEOs whose compensation packages are well stuffed with stock options?  The ratings agency which calls attention to the fact that the CBO in question is a toxic mass of formulaic jibberish won’t get paid by the issuer. The current system provides motivation for short term gains at the expense of long term losses.

Not to put too fine a point to it, but we have a system in which individual short term gains take precedence over the elements and activities which produce long term stability and economic safety, i.e. Financialism.   Without independent analysis and individual/corporate accountability for performing the self-serving before the self-sustaining, we are asking for trouble in the shape of future excessive volatility and economic disasters.

The good news is that as human beings, we are quite often rational, and there is always the hope we can “figure a way out of this.”  We just have to find a way to clear the debris off the tracks.

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Filed under Economy

Lawful but Awful? Bankers Playing Without Their Helmets

Nevadans, still looking at 53,238 foreclosed properties, with an average $120, 529  foreclosure sales price, (realtytrac) and 7,942 new actions, which means about 1 out of every 183 housing units is in trouble — may at least be pleased to note that Bank of America has had its “NetFlix Moment” and will renege on its promise to gouge more fees from its account holders. [USAT]

Real outrage — as opposed to the manufactured variety — really works.  “We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” said David Darnell, co-chief operating officer. “Our customers’ voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.” [USAT]

The banking industry just might be getting the message that they are about as popular with  the American public as Fire Ants at a “Clothing Optional Resort.”  Their apologists are still attempting to divine the meaning of public dissatisfaction, most often falling back on the Green Monster Theory:  “They don’t like us because we’re rich.”

Perhaps of few more months of tent pitching in public spaces will get the message across that it’s NOT the Green Monster driving the movement, but a general disaffection with a political and economic system in which financialism is threatening both our economy and our government.  Matt Taibbi replies:

“When you take into consideration all the theft and fraud and market manipulation and other evil shit Wall Street bankers have been guilty of in the last ten-fifteen years, you have to have balls like church bells to trot out a propaganda line that says the protesters are just jealous of their hard-earned money.”

Taibbi’s article outlines the ways in which Wall Street (banking sector) has been winning at the expense of the American public.   However, there’s a glitch in the logic.  Most of the items on Wall Street’s “cheat sheet” are legal.  Self-serving, self-promoting, self-rewarding, but legal.  Then, he complains that Zero financial sector CEO’s are currently sitting in jail.  And, there is the core of the problem.  Actions that probably ought to be illegal aren’t.  We need to be careful about not confusing two categories of accountability.

Individuals may be held accountable for their actions in (1) the courts, or (2) in the court of public opinion; and, these are not necessarily the same thing. Bank of America, faced with protesters at the front doors and outraged customers leaving out the back, took notice that at least one of its policies was adding fuel to the fires of discontent; in other words, it was losing in the court of public opinion.   However, many of the financial sector manipulations which have accrued displeasure don’t have the immediacy of a debit card fee increase, and therefore aren’t easily addressed, much less resolved, in public discourse.

The abuses in the mortgage markets, which have created such economic agony in Nevada (and other ‘sand states’) were awful, but lawful.

Financial institutions took full advantage of the “free money” from the Federal Reserve, borrowing at essentially zero percent and crafting mortgage products which were fodder for the secondary market even as they were toxic in terms of the bank’s  liquidity and for the economy as a whole.

Yessir! Step right up and get your Sub-Prime, Alt-A, Option ARMS, and Pick-A-Payment mortgages right here from your friendly national too big to fail bank, supported by an easy money policy from the FED. (1)  Better still (for the bankers) selling those mortgages into the secondary market to be securitized into unfathomable financial “products” was even more lucrative.

In the Great Age of Deregulation there was nothing to put the brakes to the enthusiasm of bankers, who convinced by the Quants that the Housing Bubble was profitable territory (2), jammed as much of their resources as possible into the fray, thus earning high profits and inflated bonuses.   There was, and is, nothing illegal about selling highly questionable mortgage products.  There was nothing illegal about tranching those products into synthetic CDOs.  There was nothing illegal — at the time — about shopping these financial products among the ratings agencies to see which would give the banker the coveted AAA rating.  For the most part, the activity was awful, but lawful.

High Impact Plastic Helmets for Bankers?

What appears to gall the 99% at the moment is that while we are generally amenable to changing the rules of American football to secure a ‘level playing field’ for opponents and to address the safety of the participants, we are being told that any attempt to rein in that “irrational exuberance” of the bankers playing in our financial system is “A Government Take Over Of The Banks.”

Let’s digress a moment to recall that helmets weren’t required in American football until 1939 and the NFL didn’t adopt a rule requiring that a helmet be worn in competition until 1943.  A single bar face mask was added in 1955, and the energy absorbing helmet was introduced in 1971.  In 1976 the four point chin strap was made a requirement for keeping the helmets on the heads.   We regulate head gear because it is crucial to the safety of the players.  An individual player may find the helmet uncomfortable and confining, but we’ve decided that reducing concussions is more important than any single individual’s “freedom” to play unencumbered.

The American public, at least 99.5% of it, would be safer if bankers were required to put on their “helmets” to insure the safety of the financial game.  Bankers are lobbying long and hard to return to the Bad Old Days of bare-headed brawling.  (3)

Safety First

The American public, at least 99.5% of it, would be better served by a financial sector which:

(A) Regulated the banking industry such that the unprofitable proprietary actions taken by bankers would not require public bail-outs to reconstitute our financial system. In short, no more “privatized profits and socialized losses.”

(B) Regulated the derivatives markets such that trading did not imperil the safety of the American economy.

(C) Regulated the mortgage industry such that consumers could understand, and appreciate the implications of, the mortgage products being sold.

(D) Regulated  investment banking such that we might return to the days when the function of that sector was to channel capital from areas of shortage to areas of surplus — from investor to industry instead of from investors to other investors.

(E) Regulated speculation such that  transactions in which one party is unaware of the other party’s “bet”  or interest against the same transaction were criminalized.

The American public, or at least 99.5% of it, would benefit from policy changes which:

(A) Reverse the trend reducing the tax burden upon those in the upper income echelons and increasing it on the middle class.

(B) Reverse the trend in which we reward speculation more than long term capital investment.

(C) Reverse the trend toward economic de-regulation.  — Helmets should really be required when playing the “American Economy Game.”  When the awful becomes unlawful we’ll have made a start.

Notes:

(1) Dr. HousingBubble  “Truth about Option ARMS…” 2009. “Defective Product Liability Lawsuit Filed Against the Mortgage Industry as a Group. Mortgage Product Recall?, PR WEB, 3/14/11.

(2) See “Recipe for Disaster: The Formula That Killed Wall Street,” Felix Salmon, Wired, 2/23/09.   “Who Played a Role in the Housing Bubble,” Michael Panzer, Daily Markets, 6/6/08.   James Case, “What Role Did Mathematical Models Play in the Financial Crisis,” SIAM, 9/29/09.

(3) Gary Rivlin, “The Billion Dollar Bank Heist: How the financial industry is buying off Washington and Killing Reform,” The Daily Beast, 7/11/11.  Edward Wyatt, “Dodd Frank Under Fire A Year Later,” NYT,  7/18/11.  Nathaniel Popper, “Dodd Frank Hasn’t Curtailed Banks Profits,” LA Times, 7/20/11.  Ira Teinowitz, “Volker Rule Draft Gets Little Respect,” Deal Pipeline, 10/10/11.  AFR, ” Attempts to Undermine Dodd Frank Mount, 5/12/11. (pdf)

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Filed under banking, consumers, Economy, financial regulation

The Message is the Message: Missing the point of the Occupy Wall Street movement

I had hoped that the news media, pundits included, had finally gotten the point of the Occupy Wall Street protests.  If what was happening when the radio/alarm came on this morning is any indication, then my hopes were deflated.  The chatter incorporated spinmeister-ing, horse-race philosophical categorizations, and assorted intellectually lazy exercises in pontification.

Yes, the movement is political —  the 99%’ers have concluded that the present political dialog doesn’t address issues of importance to them, and insofar as they believe the  current political system is so clogged with fundraising that politicians appear beholding to those who finance their campaigns at the expense of those whose votes are being sought.

Yes, the movement is economic —  the 99%’ers have observed that the top 1% of the income earners in this country have far outpaced the remaining population.  There’s no particular mystery about why it is “Wall Street” — the financial sector — that is “occupied.”

Yes, the movement is social — the 99%’ers displaying a variety of “causes” which have taken the hindquarter while political and economic elites have dominated the national discourse:  Environmental concerns, Educational reform and access, Human rights, Social justice…

What emerges from this variegated demonstration isn’t “made for television.”  At least it’s not made for TV in the expected format.  With the unfortunate exception of some pepper spray happy members of the NYPD and the incident in Oakland, the demonstrations haven’t been The Peasants With Pitchforks vs. The Police.  However will the broadcasters adhere to the maxim that If It Bleeds It Leads without some “action?”

Broadcasters, perhaps lulled into a routine of dueling press releases by a cooperative political establishment, appear not to know quite what to do when there isn’t a bullet point list of “demands.”   The pundits moan that the movement is “pointless,” or “confused,” or “unfocused,” without quite grasping that the population at large doesn’t play the Dueling Interview game with fixed reference points and tidy focus group tested talking points.

Having no press releases from which to fashion their punditry, the chatterati attempt to categorize the protests as “anti-capitalist,” or “anti-corporate,” which both miss the point.  It isn’t that most of the protesters are against the capitalist system — but that they feel they haven’t been included in the dialog about how our free market system will address their needs.  Few, if any, have seriously proposed yanking corporate charters, but most of the protesters might agree that corporate money in politics isn’t a good idea.

Perhaps, mused the punditry this morning, the movement represents their Classical Liberal versus Conservative framework?  It must be “Michael Moore Liberals versus Rush Limbaugh Conservatives?  Wrong again.  However convenient the business-as-usual framing might be for the chatterati, it may not apply to what is happening during the Occupy protests.  The larger point is that we have not, as a nation, been able to have a conversation about the implications of our health, educational, environmental, and human rights policies and issues without getting boxed in by the attendant partisan polarization which replaces policy discussions with political posturing.

Nationally, we may not have definitive proposals for coping with health, educational, environmental, financial, and human rights issues, but we would like to address them.  And try as they might, the pundits who continue to categorize, spinmeister, and polarize the discussions haven’t perceived that they are part of the problem not an element of the solutions.  Instead, they  act like The Mayor of Gary:

    “I asked the mayor of Gary about the 12-hour day and the 7-day week.
And the mayor of Gary answered more workmen steal time on the job in Gary than any other place in the United States.
“Go into the plants and you will see men sitting around doing nothing–machinery does everything,” said the mayor of Gary when I asked him about the 12-hour day and the 7-day week.
And he wore cool cream pants, the Mayor of Gary, and white shoes, and a barber had fixed him up with a shampoo and a shave and he was east and imperturbable though the government weather bureau thermometer said 96 and children were soaking their heads at bubbling fountains on the street corners.
And I said good-bye to the Mayor of Gary and I went out from the city hall and turned the corner into Broadway.
And I saw workmen wearing leather shoes scruffed with fire and cinders, and pitted with little holes from running molten steel,
And some had bunches of specialized muscles around their shoulder blades hard as pig iron, muscles of their forearms were sheet steel and they looked to me like men who had been somewhere. ”  Carl Sandburg “Smoke and Steel”

The pundits no more understand the nature of the protests than the Mayor understood the Poet’s question: The message is the message.

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Churning Rembrandt: Tax Breaks For the 1%

Yes, the U.S. tax code is complicated in some respects.  However, some of those “complications are nice tax policies for the Rich and perhaps not so  famous.  For example, if middling Americans inherit a Chippendale Desk, circa 1770, valued at about $16,000, and if the desk were sold for $20,000, the proceeds of the sale ($4,000) would probably be taxed at 28%.

Now, if our hypothetical Chippendale were to become the property of an “investor,” the taxes might be deferred if the desk were exchanged for a “like-kind” bit of property under the terms of IRC Section 1031.   Here’s how that works:

“Many works of art and collectibles have appreciated significantly in value. Internal Revenue Code (IRC) Section 1031 permits tax deferral on the sale of artwork provided the investor adheres to the Treasury Regulations and IRC rules and timelines. Investors with private art collections held primarily for investment or for use in their trade or business can defer 100% of their capital gain tax liability if they exchange one art collection or a single piece of artwork for another.

Examples of qualifying personal property may include many different types of art as long as the investor is able to substantiate that such property was purchased and held primarily for investment purposes or use in a trade or business. This is often the case with fine art and collectibles held for appreciation. The types of personal property that may qualify for a 1031 tax deferred exchange may include: fine art, sculptures, prints, collector coins, precious gems, antiques, classic automobiles and many other collectible investment assets.

The obvious benefit of exchanging artwork is that the investor does not have to pay the 28% capital gain tax that would otherwise be due on the sale of appreciated artwork. An investor who displays his collection in his place of business may be able to substantiate that it is held for use in a trade or business.  […]

Artwork and collectibles may qualify for tax deferral in a 1031 exchange if they are held primarily for investment and not for personal use.”  [Aristitle]

“Each of the above freedom of choices* are not tax induced and accomplished without paying a Federal and State (if applicable) capital gains tax. The tax is deferred and triggered when the replacement property closes or postponed with another tax deferred exchange. The tax is ultimately paid unless the property is gifted to their heirs or a charity.”   [Atlas1031] (emphasis added)

*Properties can be “replaced” because of “Cash flow, relocation appreciation, depreciation, consolidation, low basis to high basis, diversification, labor intensity.

Capital gains taxes must be paid when the “object” is sold, but can be deferred if the “object” keeps getting swapped for a similar item — a watercolor for a watercolor, an oil painting for an oil painting, a sculpture for a sculpture… a Bentley for a Rolls, a Rolls for a Buggati, a Buggati for a Duesenberg?

Middle income Americans might want to be cautious of members of the 1% who decry the “complexity of the tax codes” to promote so-called “fair” and “flat” taxes, all the while taking every advantage of the nooks and crannies offered by that self-same tax code which supports their life styles.

When those 1%’ers say they advocate “tax reform” they probably don’t mean they’d like to reform the capital gains provisions unless it would be to reduce capital gains taxes still further.  …even though some of them are avoiding such liabilities altogether by churning Rembrandt, Monet, and Van Gogh…

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Video Time: Bill Maher on Occupy Wall Street

(Warning: There are some Maherisms, aka “language” in this 4:11 excerpt)
“Maher’s comments are apt as a breakdown of people taking part in OWS shows that while two-thirds identified themselves as under the age of 35, 13% are aged between 35-45, and 20% are over the age of 45.  50% of protesters were in full employment, 20% were part-time workers, and the remaining 30%, just under half 13.1% said they were unemployed.  This is hardly the hippies the GOP is helping the media to portray.”   [Dangerous Ideas]

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Filed under banking, conservatism, Economy, financial regulation, Foreclosures, income inequality, labor, media

Financialist Cadet Choir: “Get A Job”

Our Financialist Cadet Choir from the Wharton School of Business seems to be missing some major points.

  • Roughly 15% of the Occupy Wall Street protesters are actually unemployed. [CFP]
  • Most unemployed individuals would love to find a job, however at present there are approximately 4.5 job seekers for every job opening. [EPI]
  • 44.6% (6.2 million) of those now unemployed have been jobless for 27 weeks or more. [BLS pdf]
  • “Government employment continued to trend down over the month (-34,000). The U.S. Postal Service continued to lose jobs (-5,000). Local government employment declined  by 35,000 and has fallen by 535,000 since September 2008.”  [BLS]

In short, the employment trends in the private sector have been weak, [Bloomberg] [InvestorsBusDaily] while public sector jobs have declined.  [PoliticalCorr]

Perhaps the appropriate rejoinder might be “Get A Clue?”

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Filed under Economy, employment, unemployment