Tag Archives: Social Security

Demolition Days On End

The television talking heads are talking about today’s sound and fury from the White House as “Demolition Day;” as if every day the mullet-maned moron occupying the Oval Office hasn’t been doing this from day one.

What is buttressing my sanity for the moment is the fact that MMM had a 49.4% approval rating in Nevada as of January 2017 (38.9% disapproval) and dropped to an approval rating of 43.6% in September 2017 and a disapproval rating of 51.2% in the Silver State.  [CNBC]

Much more love from the Republican Congress and the President and Nevada’s going to find itself in a world of hurt.   Case in point:  If the Republicans get their way in the FY 2018 budget 56,044 Nevada families will lose food assistance as of 2023, and 52,613 will lose them as of 2027.   But wait, there’s even more fun … another grand idea in this budget fiasco is to shift $100 billion of SNAP costs to the states.  So, Nevada would have to come up with 10% of the costs by 2020 and this increases to 25% in 2023 and beyond. Just in case lower income, mostly working, families in Nevada aren’t punished enough the GOP plan says states will have more “flexibility” to cut benefit levels to “manage costs.”  Of course Nevada will have to figure out how to get lower income working families basic food items at the local groceries, at state expense.  In case someone’s thinking this makes economic sense (that tired old canard about welfare queens on food stamps with waste and fraud) the actual numbers indicate that for every $5.00 spent on food stamps $9.00 is generated in economic activity. [CBPP] [MJ]

Case in point: The FY 2018 budget calls for cuts in fire-fighting operations.  As if the fires in California weren’t headline news at the moment.  The IAFC isn’t happy  seeing an FY 2017 budget of $2,833,000 for wildland fire management cut to $2,495,058 in FY 2018; or cuts to State Fire Assistance from $78 million down to $69.4 million, and Volunteer Fire Assistance from $15 million to $11.6 million.  And, by the way, the FLAME program (pdf) funding (wildfire reserve suppression fund, large fires) would be eliminated in the GOP budget.  Supposedly, the FY 2018 would sustain current 10 year average costs for fire suppression. [ECO]  The word “supposedly” is used with some caution, because as we experience climate change effects, the cost of fire suppression can be reasonably expected to increase, with a coterminous effect on budgets.   Meanwhile, there’s the matter of expensive fires in Napa and Sonoma counties.

And, then there’s the not-so-small matter of FEMA:

“The president’s budget blueprint calls for FEMA’s budget for state and local grants to be cut by $667 million, saying that these grants are unauthorized or ineffective. The program it explicitly calls out as lacking congressional authorization is the Pre-Disaster Mitigation Grant Program, and a second proposed change would require all preparedness grants to be matched in part by non-federal funds. All of FEMA’s pre-disaster grants are meant to reduce federal spending after disasters, and according to the agency’s website, there’s evidence that $1 in mitigation spending saves $4 in later damages.”  [Newsweek]

There are two points to highlight in this paragraph.  First, the budget cuts are made to grants for disaster mitigation efforts, without saying why the grants are “ineffective,” and we should note that any program can be declared “ineffective” if the standards aren’t reasonable. Secondly, as in the case of food stamps, there’s an upfront economic benefit — for every $1 spent on mitigation we save $4 in subsequent damage costs.   Once more we have a grand example of being penny wise and pound foolish.

Nor are the Republicans keeping their promises not to mess with Social Security and Medicare.

“Not only would it (the FY 2018 budget) cut Medicaid by $1 trillion, it would also cut Medicare by more than $470 billion in order to pay for hundreds of billions in tax breaks to the wealthiest people and most profitable corporations in America. Further, the Republican tax plan this budget calls for would increase the federal deficit by $1.5 trillion over the next decade, which will likely pave the way for savage cuts to Social  Security.”  [SenDem]

Oh, and by the way… let’s sabotage the NAFTA talks, scrap the only treaty containing Iran’s arms aspirations (and tick off all the other European allies who signed on), send a signal to North Korea that our word’s not worth paper on which it’s written, let the health insurance market destabilize into chaos, and withdraw from UNESCO.

And here we sit, not a shining beacon on a hill, but a flickering flame bent to whatever winds happen to be blowing through the head of MMM in the White House.  Not only are programs and services in peril within our own state, but the nation and the world are facing similar dangers emanating from an unraveling White House.

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Filed under Economy, FEMA, Health Care, health insurance, Nevada, Nevada budget, Nevada economy, Nevada politics, Politics, public health, Republicans, Social Security, tax revenue, Taxation

Shuffling the Deck and Hiding the Cards: House Guts Buy American rules

Just in case we all missed it, and I suspect we were supposed to, the House of Representatives recently gutted the rules for Buying American products for federal projects.  [DWT] What was all that palaver about ‘saving American jobs,’ and ‘promoting American manufacturing?’  Evidently it’s meaningless to Nevada Representatives Amodei, Hardy (happily on his way out) and Heck (happily on his way out) – all of whom voted in favor of the Water and Energy bill (H.R. 2028) from which the HOUSE REPUBLICAN LEADERSHIP  had stripped the “Buy American” provisions.

It might also be interesting to hear from Senator Dean Heller on the Russian interference with the 2016 presidential election?  Yes, 17 US intelligence agencies – not just the CIA – said Russia was behind the hacking. [USAT]  There’s no “confusion” over this conclusion. There’s no “false flag” operation – that’s the province of fake news and conspiracy theorists.  There’s just no question – and yet Senator Dean Heller (R-NV) has yet to join the bipartisan call for Congressional investigation of this important matter?   If a foreign country can hack in and seek to manipulate a U.S. election, what’s to say it can’t gather blackmail-bait on the Republicans as well as Democrats?

And, what’s the Senator’s stance on GOP plans to cut Social Security? Here’s the first draft of that plan.   The basics:

Those measures include gradually raising the retirement age for receiving full benefits from 67 to 69 and adopting a less generous cost of living index than the current one. The proposal would also inaugurate means testing by changing the benefits formula to reduce payments to wealthier retirees. It would also eliminate the annual COLA adjustments for wealthier individuals and their families. [Financial Times]

It would be easier to sit back and pretend this is a normal political season but it isn’t, and when Teen Vogue does a better job of explaining the Gaslighting of America than the D.C. press, then we ought to figure we’re in trouble – from lies about manufacturing jobs to lies about election hacking to lies about Social Security —

“To gas light is to psychologically manipulate a person to the point where they question their own sanity, and that’s precisely what Trump is doing to this country. He gained traction in the election by swearing off the lies of politicians, while constantly contradicting himself, often without bothering to conceal the conflicts within his own sound bites. He lied to us over and over again, then took all accusations of his falsehoods and spun them into evidence of bias.”  [Teen Vogue]

And that sums up the beginnings of the Trumpster’s administration.

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Filed under Amodei, Economy, elections, Heck, Heller, Nevada politics, Politics

Friday Didjah Know?

Didja Hear Maybe “I Regret” wasn’t enough?MGM Resorts CEO Jim Murren announced on Monday that, despite being a lifelong Republican, he is backing Democrat Hillary Clinton for president. Murren has never publicly endorsed a candidate before but said that he felt he needed to lend his voice to “some of the bigger issues” this election cycle after an “accumulation of vitriol” from Trump.” Full article at the Las Vegas Sun.

Those Naked Truth Statues are products of a Las Vegas artist.  Well done sir! And, a hand clap to the now famous line from the NYC Parks Department: “NYC Parks stands firmly against any unpermitted erection in city parks, no matter how small,” parks spokesman Sam Biederman joked.”

The Nevada Board of Examiners has approved another $125,000 to an outside law firm (Bancroft Associates – Paul Clement) to defend the public school fund gutting voucher education program. The firm has already gotten $420,000 from Nevada and the recent increase will mean a $545,000 total payout. [LVSun]  This would be the same Paul Clement whose firm has been tapped by North Carolina Republican leadership to appeal the NC Voter ID law targeting African Americans.

Former solicitor general during the Bush administration, and current professor at Georgetown Law School, Clement has spent much of the Obama administration working with conservatives on several prominent Supreme Court cases, including arguing in favor of overturning the Affordable Care Act (Obamacare), fighting to preserve the Defense of Marriage Act (DOMA), and helping Arizona defend its controversial immigration law. Clement won the Hobby Lobby case at the Supreme Court for religious conservatives. [TNCRM]

The Smoking Gun Memo from North Carolina Republicans isn’t going to make Clement’s task any easier.

Yes, Donald Trump is now running adsa new Dog Whistle to the Far Right. Did we expect anything else?  Thus much for the pivot, unless by “pivot” means a 360 degree turn. By the way, the ad offers up an Old Hoary GOP line about undocumented immigrants soaking up Social Security Benefits – they don’t. This talking point has been floating around since at least the 2006 mid term elections.  Ten years of the same lie is enough! [factcheck]

An Hispanic couple’s truck was vandalized in northwest Reno (can you guess what happened?) “A Hispanic couple’s truck was vandalized Wednesday night in Northwest Reno with graffiti including Republican presidential candidate Donald Trump’s name, in what one of the victims said was a hate crime.”

“Esmeralda Estrada, 31, of Reno, said the truck, which is only about two months old, was fine when she and her husband went to sleep around 10 p.m. Wednesday. When they woke up Thursday, it was keyed several times, including the word “Trump” scratched into the side. The tailgate was also spray-painted with “VOTE TRUMP.” [RGJ]

The Estrada’s are the only Hispanic couple in the neighborhood.

Trump and Entourage arrived in Baton Rouge, LA and was met by GOP office holders. They met with volunteers at a church which had been cooking meals for displaced persons.  [AP] The GOP has slammed the President for not appearing, however “Louisiana’s Democratic governor defended the administration’s response Thursday, saying he has spoken daily with the White House and would prefer Obama hold off on visiting because such stops pull local police and first responders into providing security.” [AP]  Nothing like barging in?

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Filed under education, Edwards, nevada education, Nevada politics, Politics, presidential race, racism, Republicans, Vote Suppression

Bits and Pieces: Misleading headlines, and other matters in Nevada Politics

Jig Saw Puzzle Sometimes the headline doesn’t quite fit the story. Here’s an example: “Millions in the red an Obamacare insurer has failed” compliments of the Las Vegas Review Journal.   You have to read a few paragraphs down to get the basics of the story.  In addition to poor administration and long repayment waiting periods, “the co-op made a critical mistake: Only Nevada allows enrollment in non-exchange plans outside of the federal sign-up period, which runs from Nov. 1 to Jan. 31. Most insurers require a 90-day wait to discourage people from going without a plan until they get sick, but the co-op started with no waiting period, then added a 30-day window in late 2014. That created a sicker — and pricier — member pool,..”  [LVRJ]  These aren’t issues with the Affordable Care Act, nor is this indicative of any flaws in the overall system. What this illustrates is that the reason most firms go under is poor administration and management.

Speaking of management:  Is Waste Management Inc. living up to the terms of the contract it signed with Washoe County?  The Reno Gazette Journal reports on a crucial point: “One central issue is whether Waste Management has fulfilled the requirement to build an Eco-Center in Reno to sort its single-stream recycling and provide other services to customers. The city allowed Waste Management to raise rates, in part, to finance the construction of the Eco-Center.”  Back in March, 2013, The RGJ reported that the Eco-Center was supposed to streamline recycling in the area, noting that there were still some “kinks” to be worked out. Evidently, the kinks are winning?

The Washoe County Democrats have a quiz for us.  How do you score on a test of Rep. Joe Heck’s statements on Medicare? Social Security? Immigration?  I’ll give you one – yes, he’s called Social Security a “pyramid scheme,” and called for it to be privatized.  By July 2012 he’d called the basic social safety net program a Pyramid Scheme at least four times. [NVDems]

One win for Solar Power:  Perhaps not a long term one, but for now the efforts of NV Energy Inc to slap down the solar power industry in Nevada have been thwarted in the short term. [LVSun]  The power company is all for solar, except: “NV Energy’s proposed plan would reduce the value of credits paid to consumers and add a new fees. In filings with the PUC, the company said that the current structure unfairly shifts costs to customers without solar. The rooftop solar industry expects that the utility-backed proposal would reduce the rate of adoption of solar power.”  Original NV Energy filing here (warning: slow loading PDF)  and here (warning: slow loading PDF).  There’s the Solar Energy’s proponent statement to the PUC August 18, 2015 which makes interesting reading – again a warning: slow loading PDF.

All this in time for the Valley Electric Association to build a 15 mega-watt solar project in the northern part of Pahrump. [PVT]

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Filed under ecology, energy, energy policy, health insurance, Heck, Nevada energy, Nevada politics, Social Security

From Deep in the Dark Heart of Texas: GOP Scheme to Cut Social Security Foiled

Deep in the Dark Heart of Texas Representative Sam Johnson (R-TX3) had a great idea to find some offset money for the government to use for highway construction – or as the Congressman was pleased to say “fight crime and save taxpayer dollars.” [Johnson]  The idea is to cut Social Security benefits from those who have outstanding warrants for felonies, and superficially this might sound like a good idea. It isn’t a good idea and it was quashed when Senate Democrats put a spotlight on the notion and threatened to pull support from the Federal highway bill. [HuffPo]

Now why would someone go and crunch this crime fighting taxpayer dollar saving idea?

#1. It’s not like we’re paying benefits to Jack the Ripper: “Large numbers of those who will lose benefits had warrants routinely issued when they were unable to pay a fine or court fee or probation supervision fee. Eliminating what may be their only source of income does not help resolve these issues.”

And: “Many people never know that a warrant has been issued for them as warrants are often not served on the individual.”

And: “These warrants are often not easily resolved since many of those who lose benefits live far from the issuing jurisdiction.”  [JIA]

The aforementioned problems mean that the stage is set for the withdrawal of benefits from some elderly or disabled person who was in poverty in the first place (witness the unpaid fees or fines), who may not even know there is an outstanding warrant, and may not be able to resolve the warrant because it could have been issued years ago and miles away.

#2. The Social Security Administration’s gotten itself in trouble with the complexities of this situations before.  See: Martinez v. Astrue and Clark v. Astrue. [Proskauer]

The order is the culmination of more than five years of litigation in Clark v. Astrue – Docket No. 06-15521 (S.D.N.Y.) – a case brought against the U.S. Social Security Administration (SSA) challenging its practice of relying exclusively on outstanding probation and parole warrants as sufficient evidence that individuals are in fact violating a condition of probation or parole as a basis for denying them benefits. Rather than check the facts of a case, SSA merely matched warrant databases against its records. When it found a probation or parole warrant in the name of someone who was receiving benefits, SSA checked with law enforcement and, if the law enforcement agency was not actively pursuing the individual, SSA would cut off that individual’s benefits.

In March 2010, the U.S. Court of Appeals for the Second Circuit ruled that the agency’s practice of relying solely on outstanding probation or parole violation arrest warrants to suspend or deny benefits conflicted with the plain meaning of the Social Security Act. Under Judge Stein’s order, the SSA is enjoined from denying or suspending benefits in this manner and must reinstate all previously suspended benefits retroactive to the date the benefits were suspended. The SSA has until June 12, 2012, to submit a plan setting forth its anticipated time frames for implementing the terms of the order. […]

“The unlawful policy caused widespread suffering while it was in effect. Elaine Clark, one of the lead plaintiffs, had her benefits stopped in the beginning of 2006 because of a warrant from Santa Clara County, CA, where she had been sentenced to probation and ordered to pay restitution as a result of an embezzlement charge. During that time, she was diagnosed with end-stage renal disease on top of other ailments and was no longer able to work. Unable to get a kidney transplant in California, she returned to her hometown of Buffalo, NY, when she learned the waiting time there would be far less. Although she obtained the transplant, she was still in need of extensive medical care and unable to work. Her modest Social Security benefit was barely enough to pay the rent at the long-term care facility and not sufficient to pay the required restitution. Ms. Clark died in 2008 at the age of 65. All the while, law enforcement officials in California knew where she was and knew of her condition, and had no interest in pursuing her.” (emphasis added)

Information from the Social Security Administration concerning the cases and the settlement is as follows:

“If your Social Security, Supplemental Security Income (SSI), or Special Veterans Benefits (SVB) were suspended due to a felony arrest warrant, the Martinez settlement might offer you relief and reinstatement. On September 24, 2009, the United States District Court in the Northern District of California approved a nationwide class action settlement agreement in the case of Martinez v. Astrue. The Martinez settlement changes the types of felony arrest warrants that we will use to prohibit payment of Social Security, SSI, and Special Veterans benefits. This settlement does not apply to persons whose benefits we denied or stopped because of an arrest warrant due to a parole or probation violation.”

Thus, the SSA is already doing what the CUFF bill specified (proscribing benefits from those with parole and probation violations) and the remainder who would be affected are those individuals who are in that nebulous category of non-payment of fines and fees category.

#3. The amendment implies that Social Security benefits are paid from “taxpayers,” and in a sense they are, those benefits are paid by working people who paid for those benefits in payroll taxes, including those who have those outstanding warrants for non-payment of fines and fees.  Further, the amendment is a vehicle for moving payroll tax dollars out of Social Security and into general appropriations – and here I thought all along that the Republicans were all for “saving” Social Security?   The point was emphasized by an organization formed to protect the Social Security program:

“The National Committee to Preserve Social Security & Medicare hailed the decision to drop the provision. “Dropping the Social Security cuts from the Highway bill is the first encouraging sign we’ve seen from this Congress, when it comes to Social Security & Medicare, this year,” coalition spokeswoman Kim Wright said in an email. “We certainly hope they’ve finally realized using these programs as an ATM for everything else under the sun simple won’t fly with seniors who’ve paid into these programs their entire working lives.” [HuffPo]

It was a bad idea, but it’s not one which may stay out of sight and mind.  The CUFFS bill is part of the old “law and order” stable of increasingly outmoded nags hauled out for a periodic run by Republican jockeys.   It bears watching.

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Filed under Infrastructure, Social Security, Taxation

Great Retirement Scams: GOP pins hopes on Primerica Testimony?

GRANNY retirement As of 2013 the Census Bureau counts 13.7% of Nevada’s population as aged 65 or over.  The handy Plastic Brain tells us that amounts to 382,435 people.  Unfortunately, there’s a chunk of the 2,839,099 (2014) people in Nevada who have some silly and alarmingly self-serving ideas about how retirees should plan for those Sunset Years; and, more egregious ideas yet about how those under 65 should be planning for their retirement.  These would be the people in the “privatizer and opportunist” category. Let’s take a look at both. First, a quick review of the privatizers and Social Security (and by extension any public retirement program), and then a gander at the opportunists as exemplified by the unfortunate choice of champions brought to us by Senate Republicans.

The Great Scam

FALSE: “Social Security is Going Broke!”  Underpinning the Great GOP Retirement Scam shuffle is the notion that somehow Social Security “isn’t going to be there for young people…” and therefore younger Americans should pile their retirement funds into private sector wealth management schemes.  “But, but, but,” blubber the privatizers, “the Trustees Report and the CBO agree it will be b’b’b’..bankrupt by 2042 or 2052.” [CNNNo they didn’t.

They reported that in order to provide promised benefits for elderly people  the Social Security Administration will have to tap into the reserve fund – it is not – repeat not – going bankrupt. Nor, will those receiving benefits from the reserve funds live forever, thus at some point the system will stabilize. Tapping into the reserve fund – which was put in place to deal with the Baby Boomers – is not the same as “going bankrupt!”  There are some basic facts (of life) to deal with at this point.  The Census Bureau report, An Aging Nation, (2014) explains carefully: 

“In 2050, every age group is projected to be larger than it was in 2012. This is not the case between 2012 and 2030 or between 2030 and 2050. For instance, the number of men aged 48 to 58 and the number of women aged 47 to 58 in 2030 are projected to be smaller than those in the same age groups in 2012 (see Figure 2). This is because large cohorts of baby boomers were in these age groups in 2012, and smaller and younger cohorts will have replaced them by 2030. Similarly, the number of women aged 66 to 77 is projected to peak in 2030 and be smaller in 2050 than it was in 2030, as the smaller birth cohorts born in the late 1970s moves into these age groups.” [Census pdf]

A “smaller” cohort means that once the baby boomers die off, and they will do that because they are human beings, there will be less demand on the system for benefit payments.  That’s what the entire idea of the Trust Fund was based on, the knowledge that the system needed a “savings account” to get past the baby boomer generation.   “But, but, but..” sputter the privatizers, “there won’t be enough young people paying into they system..” Nonsense.  Take a look at this chart from the report on aging: (figure 2)

age structure us population chartSeriously, does anyone really think there are going to be more elderly retired people than younger workers in the foreseeable future?  If someone believes that then I guess I would try to sell them some scammy retirement savings plan!  I could also try to sell them an automatic kitchen gadget that “Cools your water in an instant! No Ice Cubes Required!”

FALSE: “Social Security won’t guarantee your retirement…”  this is right so far because Social Security was never meant to be an entire retirement program – it was meant to keep elderly people out of abject poverty.  However, the rest of the privatizers’ pitch gets more dicey, “therefore we should privatize the system and let people have a Choice…”  There’s a reason Social Security is called a Social Safety Net. It’s the safety net in case all else fails and an elderly person has little else to fall back on.  That we have a Social Security system to keep people from falling into an abyss of poverty doesn’t mean that people can’t choose to augment their retirement plans with pension plans, savings accounts, equity accounts, and all manner of other savings vehicles.  The privatizers would like for us to forget that we already have (and have had for decades) alternative savings plans for retirement!  The privatizers would be perfectly pleased to get all the money that’s paid into Social Security funneled into the hands of Wall Street traders… now there’s a thought that should lower one’s body temperature, or raise the blood pressure?

And now we get to the good part wherein the privatizers and scammers walk the halls of Congress to promote those alternative and supplemental retirement savings financial products.

retire savingsHowever, some of the plans are a dream for some and nightmares for others.  

The Smaller but Painful Scams

Consider:

“Sen. Elizabeth Warren (D-Mass.) on Tuesday embarrassed Primerica President Peter Schneider, who Senate Republicans had invited to testify against a new regulation designed to protect retirement savings from dodgy investment managers. The Obama administration estimates that Americans lose $17 billion a year from investment professionals who manage retirement accounts by prioritizing their own financial interests over those of their clients. It has proposed a simple solution: making that illegal.” [HuffPo]

Hmm, the Senate Republicans INVITED Primerica’s testimony against a fudiciary responsibility standard? And, what was Primerica testifying against?

“In February, the President directed the Department of Labor to move forward with a proposed rulemaking to require retirement advisers to abide by a “fiduciary” standard—putting their clients’ best interest before their own profits. And today, the Department of Labor is taking the next step toward making that a reality, by issuing a Notice of Proposed Rulemaking (NPRM) to require that best interest standard across a broader range of retirement advice to protect more investors.” [DoL] (emphasis added)

Thus, we could assume that the Senate Republicans are in favor of allowing retirement advisers to put their own profits AHEAD of consideration for their client’s best interests?  Okay, so what can happen when an investment adviser steers a client into territory which is not in the best interest of the client but really bolsters the firm’s bottom line?

“A system where firms can benefit from backdoor payments and hidden fees often buried in fine print if they talk responsible Americans into buying bad retirement investments—with high costs and low returns—instead of recommending quality investments isn’t fair. A White House Council of Economic Advisers analysis found that these conflicts of interest result in annual losses of about 1 percentage point for affected investors—or about $17 billion per year in total. To demonstrate how small differences can add up: A 1 percentage point lower return could reduce your savings by more than a quarter over 35 years. In other words, instead of a $10,000 retirement investment growing to more than $38,000 over that period after adjusting for inflation, it would be just over $27,500.” [DoL]

Actually there was more bad news from the Council of Economic Advisers in its report on the Effects of Conflicted Investment Advice on Retirement Savings (2015 pdf).   There’s this conclusion: “A retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years. If a retiree receiving conflicted advice takes withdrawals at the rate possible absent conflicted advice, his or her savings would run out more than 5 years earlier.”  And, if this weren’t bad enough, there’s another item: “The average IRA rollover for individuals 55 to 64 in 2012 was more than $100,000; losing 12 percent from conflicted advice has the same effect on feasible future withdrawals as if $12,000 was lost in the transfer.”

Thus, in general terms, retirees are losing an aggregate of some $17 billion from conflicted financial advice, losing a potential of five years worth of retirement savings value, and dropping 12% “in transfer” because of conflicted advice in the process.

And, to dispute this the Senate Republicans hauled in the CEO of Primerica? Oh, what a tangled web we weave when first we practice to deceive?

Let’s begin our Primerica Story in Florida in 2002 with a classic case of privatization:  

“Primerica’s legal battles stem from a change to Florida’s retirement system in 2002. It gave employees the option to switch from a traditional pension plan, in which they would receive lifetime benefits based on their salaries and years of service, or convert the value of their pension to a lump sum payment which they could invest in mutual funds and other securities offered through the state retirement system.”

Primerica told potential investors that they could put their pension money into an account which could (note Could) earn more than their pension benefits, and could be inherited by family members unlike standard pension benefits.   What Primerica sort of forgot to tell the state employee  investors was that the market could also go down. South. Pear-shaped. In the commode… And thus it did in 2007-2008.  By July 2013 Primerica was fighting off lawsuits in Florida and allocating $3.9 million to defend its claims in court cases and arbitrations. [Reuters]  As of January 2014 the amount set aside to settle various and sundry complaints against the company climbed to $9.3 million. [BfH]  The 2015 figure for fighting off the litigation was up to $15.4 million. [HuffPo]  And THIS was the company Senate Republicans thought would be a good source of testimony against the fiduciary responsibility rule?

So, what did the Senate Republicans get for their efforts to include Primerica’s CEO Peter Schneider on the witness list?

bamboozalah The Big Bambooza-a-lah began with Schneider’s written testimony:

“We are believers in educating the households we serve about fundamental financial concepts. Our investment education and philosophy is geared toward the needs of middle‐income households, who often are new or less experienced investors.  In that regard, we produce easy to understand educational pieces teaching fundamental investing concepts including the critical importance of taking the steps needed to start along the path of financial security.”

Uh, if your investment education process is “easy to understand” then why the escalating amount of funds the company is plowing into defending the itself  in some 238 cases?  When your defense fund increases by 295% in two years it’s pretty clear someone didn’t have a solid grip on “investment education” or “the fundamental investment concepts.”

Having wailed on about how Primerica was serving the Middle Class, a reference tossed in at just about every possible location in the testimony, Schneider got down to his real complaint “Guv’mint Regulations,” and the favored GOP buzzword, “burdensome.”

Those wonderful, admirable, Middle Class customers would be cheated of their opportunity to invest with Primerica because the rules for investment advice would be too “burdensome.”  Here comes the “Daze and Dizzy:”

“We draw this conclusion first and foremost because the Department’s expanded definition of fiduciary turns into a fiduciary act almost every conversation about an IRA that a financial professional might have. ERISA and the Internal Revenue Code prohibit fiduciaries from receiving commissions and other traditional forms of variable compensation in connection with a covered benefit plan such as an IRA unless what is known as a “prohibited transaction exemption” applies and provides relief.  Effectively, the DOL’s expanded definition of fiduciary makes an exemption from the prohibited transactions rules necessary to continue to effectively serve individuals investing in IRAs. Unfortunately, the exemption the Department has proposed to preserve the commission‐based services for IRAs – the Best Interest Contract Exemption (BIC) – is not operational.”

Translation: A conversation including investment advice for an IRA  would be covered unless there is an exemption, and the “best interest contract is not operational.”  We can take it that “not operational” means it won’t work.

This is followed by more “Daze and Dizzy” as Schneider attempts to explain, and at this point we need to parse the testimony carefully:

Instead, our primary concern is that the requirements and uncertainties of the BIC exemption are so complex and burdensome that the exemption is neither administratively nor operationally feasible. (1)  The trouble is that, from start to finish, the BIC exemption fails to offer certainty.  In operating our business, “certainty” with respect to regulatory compliance matters is critical because a failure to satisfy the proposed exemption may result in steep prohibited transaction penalties, including the forfeiture of compensation and excise taxes, as well as consumer lawsuits for breaches of contract, and potentially even class action lawsuits. (2)   Critically, the technical implementation of the exemption promises to be a substantial burden, and to cause a significant disruption of services to our clients, with no true added benefits in the way of investor protections. (3)

(1)Complex and burdensome,” could any phrase be more illustrative of any and all Republican complaints about consumer protection rules, product safety regulations, clean air and water standards?  This is standard GOP rhetoric, and no more probative because it is repetitive. Nor does this explain WHY the rule, and the exemption, would be a burden to a company intent on supervising its employees and representatives in such a way as to insure they properly represent the risks and rewards of their products.

(2)Creates uncertainty,” and again we have good old reliable Republican boiler-plate.  The well worn phrase has been applied often  to banking regulations (somehow the banks are still with us and doing quite well.) Once more the testimony doesn’t explain WHY anyone should be uncertain – IF the firm were providing the best financial advice it could in the most educational way possible.  If, however, the company was prone to, say, wrap backdoor payments and hidden fees in the fine print then they might be “uncertain” about how much they could get away with.   The fact sheet from the Department of Labor is really clear, for a technical document, about what constitutes investment advice.

(3) More boiler-plate. Now the implementation is a “substantial burden.” Not just any old regular garden variety burden, it’s substantial!  It’s interesting how many investment advisors there are in this country who don’t seem to have any trouble offering investment advice without selling products with hidden fees and backdoor payments.  In this instance old fashioned capitalism works, the firms sell products that people understand, and know both the rewards and the risks involved, then people recommend these firms to their friends and relatives – and so it goes.   If providing clear and honest investment advice without playing backdoor payment and hidden fee games is a “substantial burden,” then perhaps the business isn’t worthy of its clientele?

Then comes the “threat.” Consumers will lose their “freedom” to choose their investment advisers:

“This shift to advisory services is likely to cause millions of small balance IRA owners to lose access to the financial professional of their choice, or any at all. Those with enough investments to meet the account minimums will face higher costs and experience losses in retirement savings. These resulting losses by some estimates could be as high as $68‐$80 billion each year.”

Please. Let’s look at this from the consumer’s perspective – no one chooses to be ripped off. And, if one’s investment advisor is playing games for the firm’s bottom line at the expense of the retiree’s retirement savings then that future retiree should not be prey for the predators.   Is Mr. Schneider serious that NO brokerage firm will consider a small IRA or other investment?  That our little Middle Class man or women will be left shivering in the cold, facing the closed door of Merry, Berry, & Itch LLC, with $1,000 in hand?   Trust me, that money will go somewhere, and if it doesn’t meet Merry, Berry, & Itch’s minimum it will certainly find its way into a money market account at the local bank. If, the amounts do meet the minimum, would there be “higher costs?” Maybe, but they wouldn’t be hidden. Do private retirement accounts invested in equities lose money? Yes, again, but why shouldn’t the customer, the consumer, be made aware of this very fundamental fact?   However, we should observe in Mr. Schneider’s testimony that he presents no substantiation for his assertion that the costs will be higher and the losses any greater, other than his un-sourced “some estimates” phrase.

Senator Warren was correct to make an example of Mr. Schneider and his business model.  It should be noted that (1) the privatizers with their claims of insolvency for both Social Security and state retirement programs are doing a national disservice with false claims intended to frighten people into putting both the social safety net and public pension programs into the hands of the players in the Wall Street Casino; (2) private firms which utilize questionable business practices which involve lots of fine print hiding fees and management charges and which engage in back-door payoffs are not functioning in the customer’s best interests; and (3) trying to pass off clichéd, stale, and trite boilerplate as Congressional Testimony is unhelpful in the legislative process.

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Filed under Economy, financial regulation, Nevada politics, privatization, public employees, Social Security

Nevada’s AB 196: The Wall Street Casino Protection Act

AB 196 Let’s talk Repos – since it’s a topic under discussion in the Nevada Legislature, specifically in AB 196 being heard by the Assembly Committee on Government Affairs today.  AB 196 is relatively straight forward:

There’s this part:

“Sections 1-3 of this bill authorize the investment of the money of this State, the State Permanent School Fund, the State Insurance Fund and the governing bodies of local governments in reverse-repurchase agreements if those agreements meet certain requirements, which are similar to the requirements on repurchase agreements, to avoid a violation of Section 3 of Article 9 of the Nevada Constitution. Sections 1-3 also impose additional requirements on reverse- repurchase agreements which depend upon the purpose for which the reverse- repurchase agreement is made.”

If the reaction to this verbiage is “Huh?” Let’s back up a step.  Repurchase agreements (repos) and reverse repurchase agreements are defined as:

“A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.”  [Investopedia]

Still baffled?  Here’s another way to explain the gamble:

“In a repo, borrowers agree to sell primarily government-backed bonds to another party for cash, with the promise to repurchase the bonds at a slightly higher price in the future. Borrowers are often hedge funds, and lenders are typically money-market funds. Banks stand in the middle, moving cash between the two.”  [WSJ]

That “future” is tomorrow morning (more or less) and those government backed bonds are municipal bonds, state bonds, and/or federal treasuries of some form.  If, say, the state insurance fund decided to buy securities of this type and sell them off almost immediately, that would be a “reverse repo” deal.  The next question, of course, is why on God’s Green Earth we’d want to do this?

We really need to ask this question in light of the divestment in “repos” by the major banks, and the instability “repos” tend to create in financial markets.   Gaze back in time, back to 2008, when Lehman Brothers was for all intents and purposes out of securities it could use as collateral to back up the short term loans it needed for its own survival.  Lehman’s mad scramble to stay alive put a spotlight on the Repo Market on Wall Street.  What lit up wasn’t pleasant.

Enter the Dodd Frank Act, which required banks to maintain more capital in order to absorb potential losses in the Repo Market.  The banks, in turn, have cut back on their participation in the Repo Market game. [WSJ]  However, the Repo Market at present isn’t all rose blossoms, there are still some thorns. As of August 2014, the Boston Fed chief was calling for still more capital reserves to maintain stability in the Repo Market. [NYT Dealbook] (see also: BFR pdf)

Thus we have a Repo Market which is still too volatile for the comfort of the Boston Federal Reserve, in which the major banks are diminishing their participation, and in which the sponsors of AB 196 would have our state and local governments dabble more vigorously.  And, then there’s this:

“Section 3 eliminates the requirement that, when the governing body of a local government purchases commercial paper issued by certain corporations or depository institutions as an investment of its money, the purchase must be made from a registered broker-dealer. Section 3 also eliminates the prohibition against investing the money of the governing body of a local government in a repurchase agreement which involves securities that have a term to maturity at the time of purchase in excess of 10 years.” [AB 196]

Get that? AB 195 eliminates the requirement that the purchases must be made from a registered broker-dealer.  Excuse me, but I get a bit nervous when state and local officials are informed that they can use unregistered broker dealers when those folks  have been under SEC scrutiny since 2013. [Dinsmore] [Kurth]  A registered broker-dealer has to submit to an SEC investigation, and oversight by the SEC and the Financial Industry Regulatory Authority – and yet AB 196 eliminates the need for such certification and oversight when state and local government funds are involved?

When a bill such as AB 196 allows such actions by county commissions, school boards, and county treasurers are invited to indulge in a bit of Wall Street Casino gaming without benefit of a certified, regulated, supervised broker-dealer – What could possibly go wrong? Other than Everything?

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