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by 82_28 » Tue Mar 01, 2011 4:59 pm
by Nordic » Tue Mar 01, 2011 5:04 pm
by Canadian_watcher » Tue Mar 01, 2011 5:19 pm
82_28 wrote:That buddy of mine that I started a thread about a month ago or so (re: getting him turned on to the "RI way of things") has been sending me link after link about this silver bullshit. He called me the other day.
"What have you been up to?"
"Buying silver bro."
What does this "resistance" in the silver market mean for the layman, btw? It all seems like incomprehensible bullshit to me. Jack, can you explain this perhaps?
by Nordic » Tue Mar 01, 2011 5:40 pm
The Pentagon is paying contractors to claim that it was foreign financial terrorists - instead of fraud by American financial executives - which caused the 2008 financial crisis.
While a Pentagon contractor said, “This is the equivalent of box cutters on an airplane,” Paul Backen - a Yale University professor who has studied economic warfare - said he saw “no convincing evidence that ‘outside forces’ colluded to bring about the 2008 crisis.”
Indeed, the claim that terrorism caused the financial crisis is about as believable as Gaddafi trying to blame the Libyan protests on Osama Bin Laden, or al-Maliki blaming Al Qaeda for the Iraqi protests.
But it's not an isolated incident. In fact, the government is trying in many ways to convince us that financial fraud is isolated, not systemic, and - most of all - not important to rein in.
For example, the U.S State Department's website says (click on link entitled "economic")"
Economic conspiracy theories are often based on the false, but popular, idea that powerful individuals are motivated overwhelmingly by their desire for wealth, rather than the wide variety of human motivations we all experience.
This one-dimensional, cartoonish view of human nature is at the heart of Marxist ideology, which once held hundreds of millions under its sway.)
If I didn't know better, I would say that the State Department is implying that anyone that questions the intent behind even one particular powerful individual's actions is a conspiracy theorist or a Marxist.
Similarly, Obama's current head of the Office of Information and Regulatory Affairs - and a favored pick for the Supreme Court (Cass Sunstein) - previously:
Defined a conspiracy theory as "an effort to explain some event or practice by reference to the machinations of powerful people, who have also managed to conceal their role."
William K. Black - professor of economics and law, and the senior regulator who put 1,000 top executives in jail during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are: "the entire strategy is to keep people from getting the facts".
Similarly , 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.
So powerful people have conspired to try to downplay the severity of various economic crises.
And - as Matt Taibbi notes that the government is doing more to protect them than to prosecute them:
Federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice.
***
A veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.
A wild conspiracy theory?
Kansas City Fed President Thomas Hoenig doesn't think so. He recommends Taibbi's article.
Indeed, Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky, the Wall Street Journal and Bernie Madoff all say that the U.S. economy is a giant Ponzi scheme.
They Didn't MEAN to Cause a Depression
Sunstein argues:
Many social effects, including large movements in the economy, occur as a result of the acts and omissions of many people, none of whom intended to cause those effects. The Great Depression of the 1930s was not self-consciously engineered by anyone; increases in the unemployment or inflation rate, or in the price of gasoline, may reflect market pressures rather than intentional action.
However, Sunstein is neither an economist nor a criminologist, and - as such - is completely out of his depth.
Whether or not anyone intended to cause the Great Depression, top economists - including Robert Shiller, Robert Kuttner, William Black and John Kenneth Galbraith, and the former chief accountant of the S.E.C. ( Lynn Turner) - have said that criminal fraud led to the Great Depression (and to the current crisis). Even Alan Greenspan says fraud caused the current crisis.
Economics professor James K. Galbraith testified as follows to the Senate Judiciary Committee's Subcommittee on Crime:
I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. ... Economists [argued that] widespread fraud therefore could not occur. Not all economists believed this – but most did.
Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word “naughtiness.” This was on the day that the SEC charged Goldman Sachs with fraud. ..."
***
An older strand of institutional economics understood that a security is a contract in law. It can only be as good as the legal system that stands behind it. Some fraud is inevitable, but in a functioning system it must be rare. It must be considered – and rightly – a minor problem. If fraud – or even the perception of fraud – comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply, so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.
***
Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice – growth and profitability – suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: “liars’ loans,” “ninja loans,” “neutron loans,” and “toxic waste,” tells you that people knew. I have also heard the expression, “IBG,YBG;” the meaning of that bit of code was: “I’ll be gone, you’ll be gone.”
***
Some appear to believe that “confidence in the banks” can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.
But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.
In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case.
William K. Black has made the same points.
Sunstein is Using the Wrong Standard
Of course, "intent to cause" harm is not the standard. If two criminals disable the power to a nuclear power plant in order to steal a computer containing valuable information (to sell it to a foreign country), and if the lack of power to the cooling systems causes a core meltdown which releases radioactivity into the surrounding town, they are guilty of mass murder, even if they didn't intentionally try to expose anyone to radioactivity.
Similarly, if two robbers unplug an old tycoon's dialysis machine so that they can steal his wallet, ring and watch, and don't bother to plug it back in, they are guilty of murder even if they didn't actually intend to kill him.
Likewise, as Nobel prize winning economist George Akerloff demonstrated in 1993, big financial players intentionally loot the economy time and again, knowing that could very well lead to an economic crisis.
This is not rocket science. It is a dynamic which has been understood for "hundreds of years".
Therefore, Sunstein's argument that - because the heads of the giant financial companies probably didn't intend to cause a depression - that shows that there was no conspiracy to commit fraud makes as little sense as saying that the criminals who caused a nuclear meltdown or killed the old tycoon couldn't have engaged in a conspiracy.
In fact, nobel prize winning economist Joseph Stiglitz, PhD economists Dean Baker, Michael Hudson, Paul Craig Roberts and Michel Chossudovsky and Time Magazine's Justin Fox all say that financial conspiracies have been committed by big American financial players. Leading Austrian economist Murray Rothbard agreed.
The REAL Conspiracy
Indeed, the real conspiracy is that the government is trying to hide the fact that massive conspiracy to commit fraud by Wall Street's biggest players is a prime cause of the financial crisis.
As I noted a year ago:
The label "conspiracy theory" is commonly used to try to discredit criticism of the powerful in government or business.
***
Acceptable Versus Unacceptable Conspiracy Theories
Bernie Madoff's Ponzi scheme was a conspiracy. The heads of Enron were found guilty of conspiracy, as was the head of Adelphia. Numerous lower-level government officials have been found guilty of conspiracy. See this, this, this, this and this.
Time Magazine's financial columnist Justin Fox writes:
Some financial market conspiracies are real ...
Most good investigative reporters are conspiracy theorists, by the way.
Indeed, conspiracies are so common that judges are trained to look at conspiracy allegations as just another legal claim to be disproven or proven by the evidence.
But - while people might admit that corporate executives and low-level government officials might have engaged in conspiracies - they may be strongly opposed to considering that the wealthiest or most powerful might possibly have done so.
Indeed, those who most loudly attempt to ridicule and discredit conspiracy theories tend to focus on defending against criticism involving the powerful.
This may be partly due to psychology: it is scary for people to admit that those who are supposed to be their "leaders" protecting them may in fact be human beings with complicated motives who may not always have their best interests in mind. And see this.
***
Similarly:
Michael Kelly, a Washington Post journalist and neoconservative critic of anti-war movements on both the left and right, coined the term "fusion paranoia" to refer to a political convergence of left-wing and right-wing activists around anti-war issues and civil liberties, which he claimed were motivated by a shared belief in conspiracism or anti-government views.
In other words, prominent neocon writer Kelly believes that everyone who is not a booster for government power and war is a crazy conspiracy theorist.
Similarly, psychologists who serve the government eagerly label anyone "taking a cynical stance toward politics, mistrusting authority, endorsing democratic practices, ... and displaying an inquisitive, imaginative outlook" as crazy conspiracy theorists.
This is not really new. In Stalinist Russia, anyone who criticized the government was labeled crazy, and many were sent to insane asylums.
Using the Power of the State to Crush Criticism of the Government
The bottom line is that the power of the state is used to crush criticism of major government policies and actions (or failures to act) and high-level government officials.
Pay attention, and you'll notice that criticism of "conspiracy theories" is usually aimed at attempting to protect the state and key government players. The power of the state is seldom used to crush conspiracy theories regarding people who are not powerful . . . at least to the extent that they are not important to the government.
Sunstein has called for the use of state power to crush conspiracy allegations of state wrongdoing. See this, this and this.
And as I've previously noted, the government is using massive state power to try to redirect people away from even questioning the financial system. See this, this, this and this. Indeed, claims of "national security" are being used to keep criminal fraud hidden and out of public view.
And as Glenn Greenwald points out, the government is already implementing Sunstein's program (starting around 20 minutes into video):
And the government is gaming many of the economic indicators - such as unemployment - and allowing the big financial players to use ipse dixit accounting and sleights of hand, in order to try to convince everyone that things are not that bad, that everything is returning to normal, that the fraud isn't really that widespread. As Warren Buffet noted, when the water level drops, the rocks at the bottom of the river are exposed. In other words, if the true financial conditions of the big financial players - and the U.S. economy - were reported, the massive fraud would be exposed.
by DevilYouKnow » Tue Mar 01, 2011 6:16 pm
The State Department wrote:Economic conspiracy theories are often based on the false, but popular, idea that powerful individuals are motivated overwhelmingly by their desire for wealth, rather than the wide variety of human motivations we all experience.
This one-dimensional, cartoonish view of human nature is at the heart of Marxist ideology, which once held hundreds of millions under its sway.
by 2012 Countdown » Wed Mar 02, 2011 12:11 am
Nordic wrote:2012 Countdown wrote:
Gee, thanks, RUB IT IN why dontchya!?
I saw this coming a few years ago, bought a lot of it, had to sell ALL OF IT last year.
by JackRiddler » Thu Mar 03, 2011 11:12 am
Places to Intervene in a System
(in increasing order of effectiveness)
9. Constants, parameters, numbers (subsidies, taxes, standards)
8. Regulating negative feedback loops
7. Driving positive feedback loops
6. Material flows and nodes of material intersection
5. Information flows
4. The rules of the system (incentives, punishments, constraints)
3. The distribution of power over the rules of the system
2. The goals of the system
1. The mindset or paradigm out of which the system - its goals, power structure, rules, its culture - arises.
Places to Intervene in a System
12. Constants, parameters, numbers (such as subsidies, taxes, standards)
11. The sizes of buffers and other stabilizing stocks, relative to their flows.
10. The structure of material stocks and flows (such as transport networks, population age structures)
9. The lengths of delays, relative to the rate of systems change
8. The strength of negative feedback loops, relative to the impacts they are trying to correct against
7. The gain around driving positive feedback loops
6. The structure of infromation flows (who does and does not have access to what kinds of information)
5. The rules of the system (such as incentives, punishments, constraints)
4. The power to add, change, evolve, or self-organize system structure
3. The goals of the system
2. The mindset or paradigm out of which the system - its goals, structure, rules, delays, parameters - arises
1. The power to transcend paradigms
by JackRiddler » Fri Mar 04, 2011 1:56 am
From http://counterpunch.org/whitney03032011.html
March 3, 2011
More Trouble in Squanderville
Wall Street Trash
By MIKE WHITNEY
Bob, Frank and Freddie all bought identical houses in the same neighborhood in 2004. Each man paid $300,000 for his home.
Bob paid the whole $300,000 in cash. Frank put down 10% (or $30,000) and took out a $270,000 mortgage. Freddie paid $0-down on a 100% mortgage.
In 2005, home prices rose by 10% which means that Bob made 10% (or $30,000) on his original investment. Frank made 100% on the $30,000 he put down. Freddie made the biggest windfall of all--he made $30,000 in "pure profit".
Question: Which one these three men is most likely to be the banker?
If you guessed "Freddie", you're right. Banks don't like committing capital because it limits profitability. This is why the big banks have fought so ferociously for deregulation, so they're not constrained in the amount of money they can make (via credit creation) with little capital. Of course, when the banking system is propped atop tiny specks of capital, it becomes more wobbly and crisis prone. And, if asset prices suddenly nosedive--as they did when the subprimes exploded--the whole shebang can come crashing down.
The real root of the financial crisis was leverage. The banks were massively over-leveraged (some of them 40 to 1) just like our friend Freddie. This is no longer a matter of dispute. In testimony he gave to the Financial Crisis Investigation Commission (FCIC), Ben Bernanke admitted that 12 of the country's 13 largest banks were underwater.
"If you look at the firms that came under pressure in that period... only one... was not at serious risk of failure," Bernanke told the commission.
So, the banks borrowed too much and were gravely under-capitalized. So when asset prices fell, they were wiped out and the financial system crashed. It was not "the perfect storm" as Wall Street cheerleaders like to say. It was the inevitable outcome of risky behavior. There's nothing unusual about a bank run, especially when the banks are capital-depleted and acting like lunatics.
The housing market would not have collapsed if everyone had acted like Bob. (and paid in cash) In fact, things probably would have been fine if people merely put 10%-down, like Frank. The problem is Freddie. 0-down loans are inherently unsafe because they give the borrower an option to "walk away" if the market tumbles. If housing prices drop 15%, for example, the best business decision for Freddie is to leave the keys on the kitchen counter and find a cheap place to rent. In other words, 0-down creates an incentive to default. And, that's exactly what's happened.
When banks act like Freddie (over-leveraged), the situation is even more dangerous, because a run on the banks can crash the financial system and lead to a Depression. When subprime blew up, institutional investors tried to dump their mortgage-backed securities (MBS) at the same time. Trading stopped as everyone ran for the exits. The secondary market froze and the global financial system suffered a massive heart. Nearly three years later, and the patient is still in ICU on a drip-feed of zero-rates and QE2-nitro.
So, what did the banks learn from that near-death experience?
Nothing. In fact, they've rebuilt the same exact system that blew up less than 3 years ago. And, Ben Bernanke, Timothy Geithner and Barack Obama have helped them every step of the way. This is from Bloomberg:"Bankers are fiercely resisting the suggestion that they use more equity (capital) and less debt in funding, even though this would reduce their dangerous degree of leverage...
Fixation with return on equity (ROE) also contributes to bankers' love of leverage because higher leverage mechanically increases ROE, whether or not true value is generated. This is because higher leverage increases the risk of equity, and thus its required return. Focus on ROE is also a reason bankers find hybrid securities, such as debt that converts to equity under some conditions, more attractive than equity....
...the structure of current capital requirements distorts banks' decisions. The structure, which is focused on the ratio of equity to so-called risk- weighted assets, might induce banks to choose investments in securities over lending, because securities with high credit ratings require less capital and thus allow more debt funding...
The proposed solutions that regulators in the U.S. are focused on, such as resolution mechanisms, bail-ins, contingent capital and living wills, are based on false hopes. They can't be relied on to prevent a crisis. Increasing equity funding is simpler and better than these pie-in-the-sky ideas." ("-Fed Runs Scared With Boost to Bank Dividends", Bloomberg)
What does this mean? It means that there are strong incentives for the banks to maximize borrowing and put the system at greater risk. It means that banks can't be as profitable by issuing loans to small businesses and homeowners. It means they would rather dabble in all manner of complex paper assets (so they can skim off huge salaries and bonuses) then provide money for productive activity that that creates jobs and revitalizes the country. It means that the financial system in its present configuration is just as dodgy and unstable as before. It means that we are headed for another meltdown.
Wall Street has a word for all of this. It's called "regulatory arbitrage", a fancy expression that means avoiding the rules and doing whatever-the-hell you want. This explains the widespread use of off-balance sheet operations, SIVs (structured investment vehicles), securitization, exotic derivatives contracts, and all of the other opaque debt-instruments that fall under the cheery rubric of "innovation."
All of these so-called innovations have one goal in mind, to maximize leverage so that profits can be derived from infinitesimal specks capital. The problem is, that when financial institutions are highly-geared (leveraged), it only takes the smallest downturn in the market to wipe them out. (Bloomberg: "If 95 percent of a bank's assets are funded with debt, even a 3 percent decline in the asset value raises concerns about solvency and can lead to disruption".)
And, guess what? The banks are still up to their old tricks. Take this for example (from the New York Times):"When the mortgage securitization market collapsed amid a flood of defaults and foreclosures — many of them on loans that should not have been made — the cry arose for lenders to have "skin in the game." To properly align incentives, the argument went, those who make loans must suffer if the loan goes bad.
That principle was enacted by Congress last year in the Dodd-Frank law, but the mortgage industry managed to persuade legislators to insert an ill-defined loophole that would allow at least some mortgage loans — and perhaps nearly all of them — to escape the requirement that banks retain at least 5 percent of the risk....
Much of the banking industry has been pushing for an expansive definition that would leave few, if any, conventional loans subject to the skin-in-the-game requirement. To hear them tell it, there is virtually no way that any bank would make a mortgage loan at a reasonable rate if it had to share in any losses."
("Looks Like Banks Lose on Risk Plea", Floyd Norris, New York Times)
Got that? The banks still do not want to put one stinking dime behind the garbage paper they are creating. They are still fighting to securitize loans with no skin-in-the-game. See? They're all Freddies.
After the trillions in bail outs, one would think that the banks would be grateful. But, no. In fact, if the capital requirements are implemented, many of the banks may just pack up and leave. Here's the story in the Wall Street Journal:"Some foreign banks are moving to restructure their U.S. operations to avoid one of the most-burdensome requirements of the new Dodd-Frank law.
In November, Barclays PLC quietly changed the legal classification of the U.K. bank's main subsidiary in the U.S. so that the unit would no longer be subject to federal bank-capital requirements. Several other banks based outside the U.S. are considering similar moves, according to people familiar with the matter.
The maneuver allows them to escape a provision of the financial-overhaul law that forces the pumping of billions of dollars of new capital into the U.S. entities, known as bank-holding companies.
"It's just not worth it to have all that capital trapped" in the holding company, said a New York lawyer who is advising banks on how to restructure....
Policy makers are demanding banks hold more capital and cash to help prevent a repeat of the financial crisis. But bank executives are worried that all the changes will crimp profits without making the financial system safer." ("Banks Find Loophole on Capital Rule", Wall Street Journal)
"Ingratitude, the marble-hearted beast!". Shakespeare must have known a few bankers in his day, too.
And, here's the corker; the banks are still broke. Aside from the fact that housing prices are falling sharply (increasing the banks loan losses) and that there will another 2 million foreclosures in 2011, the real condition of the banks books are still hidden from public view. Here's a glimpse from the WSJ's Michael Rapoport:"During the financial crisis, investors fretted over "toxic," hard-to-value assets that banks were carrying. Those fears have faded as bank profits have rebounded, loan delinquencies have declined, and bank stocks have soared 25% in the past five months.
But banks still hold plenty of the bad assets that once spooked investors: mortgage-backed securities, collateralized debt obligations and other risky instruments. Their potential impact concerns some accounting and banking observers.
In part due to those bad assets, the top 10 U.S.-owned banks had $13.8 billion in "unrealized losses" that have lasted at least a year in their investment portfolios as of Sept. 30, according to a Wall Street Journal analysis. Such losses are baked into banks' book value, but don't get counted against earnings as long as the banks believe the investments will later rebound. If those losses were assessed against earnings, it would have reduced the banks' pretax income for the first nine months of 2010 by 21%, according to the Journal analysis.
Unrealized losses are just one way in which the troubled assets obscure banks' true financial condition, accounting experts say....Another problem: Even when banks do take real charges because of their securities losses, accounting rules allow them to keep some of those charges from hurting their bottom line.
Making the picture even murkier, the value of many risky assets are based solely on the banks' own estimates—leaving valuations uncertain and, some critics say, overstated....
One problem centers largely on "Level 3" securities, illiquid investments that can't be easily valued using market prices. According to the Journal analysis, as of Sept. 30, the top 10 banks had $360.7 billion in "Level 3" securities. That amounts to 42.6% of the banks' shareholder equity, a pile of assets whose value is hard to verify." ("Toxic' Assets Still Lurking at Banks", Michael Rapoport, Wall Street Journal)
"$360.7 billion" in garbage assets and financial stocks are still in the stratosphere?!? No wonder Bernie Madoff called the whole thing a "Ponzi scheme".
No one knows the true condition of the banks books because the accounting fraud is so thick that's it's impossible to see through it. Here's the scoop from the WSJ on how the Financial Accounting Standards Board (FASB) caved in to Wall Street and gave them the go-ahead to lie as much as they want:"The banks got what they wanted. Accounting rule makers on Tuesday dropped a plan to require banks to value loans using market prices.
That means investors will remain reliant on banks' own views of the worth of their assets. Those judgments proved seriously flawed during the financial crisis and left many with insufficient capital. Taxpayers, who as a result were called upon to bail out numerous institutions, also are left more vulnerable.
The Financial Accounting Standards Board's original proposal, put forward last spring, had called for banks to reflect market values in the total worth of their assets, which would affect their equity....Banks generally oppose the use of market prices because, they say, it makes their results more volatile. Their intense lobbying efforts against the proposal likely got a leg up after FASB Chairman Robert Herz, who had supported the plan, unexpectedly departed in August. FASB cited strong opposition it received in public comments in changing course.
Its decision means banks largely will continue to value loans as they do today, basing values on their original cost less a reserve to reflect the possibility of loss. FASB has yet to decide if the market value for loans will be disclosed on the balance sheet or buried in the footnotes, as they are now." ("Banks get the green-light to cook the books", Wall Street Journal)
So, imagine that you, dear reader, took out a loan at the bank by posting your $2.5 million dollar home in Beverly Hills and your custom Maserati for collateral. Now imagine that the banker decided to check up on your claim and found that you actually rode a rusty Schwinn bike to your job of collecting cans by the side of the freeway and lived in a cardboard lean-to next to the sewage-treatment plant. How long do you think it would take before the bank recalled your loan? Of course, if you were a banker and had an army of lobbyists working for you, you could lie to your heart's content and no one would be the wiser. But the truth remains: the banks are broke. The rest is smoke and mirrors.
One last thing: Along with the accounting shenanigans, the toxic assets, the non performing loans and the gigantic leverage, the banks are also hiding millions of REOs "off market" to keep housing prices from plunging even further. This "shadow inventory" will continue to be a drain on bank resources while keeping house prices "bouncing along the bottom" for years to come. Here's a clip from an article by Mark Whitehouse:"Banks' vast pile of foreclosed homes doesn't appear to be diminishing. That's a troubling sign for the future of the housing market.
Back in April, this column tallied up all the foreclosed homes sitting in banks' inventory, as well as the "shadow" inventory of homes in the foreclosure process or on which owners had missed at least two mortgage payments. At the time, we reported that at the current rate of sales, it would take 103 months to unload it all.
Over the past six months, that number has actually risen. Banks managed to pare down the shadow inventory, but largely by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.
The numbers aren't exactly comparable to the April analysis, as the providers of data have changed. The inventory data now come from RealtyTrac, the shadow inventory data from LPS Applied Analytics, and the sales data from Core Logic. But no matter how you slice it, the housing market faces almost nine years of foreclosure hangover.....
The mountain of foreclosed homes casts a long shadow." ("Number of the Week: 107 Months to Clear Banks' Housing Backlog", Mark Whitehouse, Wall Street Journal)
The dismal plight of the housing market hasn't changed much since Whitehouse wrote this article a couple months ago. The bleeding continues and prices are falling fast. If Obama doesn't come up with a remedy soon, the banks will be back on the front steps of the US Treasury with their begging bowls in hand. You can bet on it.
Botton line: The people who caused the financial crisis have reassembled the same system piece by piece paving the way for another massive meltdown.
Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com
by JackRiddler » Tue Mar 08, 2011 7:18 pm
[/quote]Infographic: Tax Breaks vs. Budget Cuts
By Donna Cooper | February 22, 2011
Print Email Text-size: A A A Share:
House leaders are unfortunately restricting their proposed budget cuts for the remainder of fiscal year 2011 to nonsecurity discretionary spending in an attempt to tame a $1.3 trillion deficit. This approach is especially shortsighted since the Federal Treasury loses twice as much revenue due to tax breaks than Congress appropriates on all nonsecurity discretionary spending.
The chart below compares the 10 safety-net programs slated for deep cuts with the cost of the tax breaks that should also be considered for reduction or elimination to bring the budget into balance. The column on the left is a list of safety-net programs that have already been targets of the House leadership’s budget ax. The column on the right is the cost to specified tax breaks (see bottom of page for sources).
Most Americans would be surprised to learn that tax breaks are not on the table during any budget negotiations. In fact, Congress has the Congressional Budget Office prepare an official spending estimate for the cost of all programs or their expansions. Meanwhile, Congress enacts and continues tax breaks without any requirement that the cost of tax breaks be calculated and shared with members before a vote.
That’s why, over the last 16 years, the cost to the Treasury of the mortgage interest tax deduction, for example, doubled from $48 billion in 1995 to nearly $100 billion this year and no one made a peep about getting control of this loss in revenue. The stunning growth in this tax break is unchecked and unquestioned.
This tax break is also increasingly benefiting individuals who don’t need any federal incentives to purchase a home. In 2011 the mortgage interest deduction will help families who purchase a vacation home avoid taxes to the tune of $800 million. Meanwhile, the House Budget Committee chairman’s 2011 budget bill included $730 million in cuts to housing programs for the elderly and disabled.
There are many other examples where the cost of tax breaks are skyrocketing and disproportionately benefiting companies and people who don’t need them (see chart above):
Congress should rein in the $4.6 billion in tax breaks given to companies who move jobs offshore instead of making cuts to the $4 billion in job-training programs.
Oil companies get more than $2 billion in tax write-offs for drilling expenses yet Congress is considering cutting the Low Income Home Energy Assistance Program, the $2 billion federal program that helps poor families pay their winter heating bills.
Large biofuels companies, such as Archer Daniels Midland, benefit from the ethanol tax break that now costs nearly $5 billion a year. And oil companies such as ExxonMobil benefit from more than $9 billion in tax breaks for oil exploration.
Some tax breaks make sense. Those that stimulate economic activity that otherwise wouldn’t happen without the tax incentive may be worth the lost revenue, especially if that economic activity creates American jobs and provides assistance in sectors of the economy that show potential for growth.
That’s exactly what the Research and Development Tax Incentives or the Renewable Energy Tax Credits provide. Income tax breaks that help keep working families afloat, such as the Earned Income Tax Credit, use the tax code effectively to stabilize the economy.
It’s regrettable that the congressional budget process doesn’t permit a robust debate about the choices we can and must make to bring the budget into balance. The Center for American Progress is thus pushing for a process where tax breaks are “scored” so members of Congress know and consider the cost of tax breaks as part of the annual congressional process to pass a budget.
A transparent budget process approach should be instituted now given the enormity of the budget challenge. It makes no sense to eviscerate safety-net supports when billions in unnecessary tax entitlements can be cut to preserve these important and socially responsible federal expenditures. Congress must face up to the cold hard fact that it’s time to make the tough choice to end tax entitlements—such as the one for “NASCAR racing facilities”—so federal funding for critical items such as child-nutrition programs are spared.
Donna Cooper is a Senior Fellow at American Progress.
Sources for tax breaks
Row 1: Figure represents half of the estimated $23 billion cost of weakening the estate tax for 2011 and 2012. See: Gillian Brunet and Chuck Marr, “Unpacking the Tax Cut-Unemployment Compromise,” Center on Budget and Policy Priorities, December 10, 2010, available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3342.
Row 2: Figure represents 1 percent of the fiscal year 2011 tax expenditure estimate for the mortgage interest deduction, over 10 years. The vacation home deduction accounts for at least one percent of the tax expenditure cost. See: Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012 (Executive Office of the President, 2011), table 17-1; Congressional Budget Office, “Budget Options” (2000), REV-02.
Row 3 (now re: estate planning): General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011).
Row 4 (now re: itemized deduction limit): General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals (Department of Treasury, 2010).
Row 5: Joint Committee on Taxation, Estimated Budget Effects of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” JCX-54-10, December 10, 2010 (subpart F active financing exception).
Row 6: General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011).
Row 7: Joint Committee on Taxation, Estimated Budget Effects of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” JCX-54-10, December 10, 2010 (half of total cost of two-year extension).
Row 8: General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011).
Row 9: General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (Department of Treasury, 2011) (10-year cost).
Row 10: Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012, (Executive Office of the President, 2011), table 17-1 (expensing of multiperiod timber growing costs and capital gains treatment of certain timber income).
Row 11: Joint Committee on Taxation, Estimated Budget Effects of the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” JCX-54-10, December 10, 2010 (half of total cost of recent two-year extension).
See also:
Government Spending Undercover by Lily Batchelder and Eric Toder
by JackRiddler » Tue Mar 08, 2011 7:23 pm
eyeno wrote:Let it rip, #MakeWallstPay 600 homeowners have shut down DC Bank of America branch
Activists Hold Wall Street Accountable for Economic Crisis
Monday 07 March 2011
by: Mike Ludwig, t r u t h o u t | Report
Progressive groups threw a one-two punch at the nation's richest banks on Monday. A coalition of watchdogs and activists released a new report revealing how the wealthiest bailed-out banks have caused the current economic crisis by dodging taxes, and hundreds of demonstrators rallied in Washington, DC, to demand the attorneys general of all 50 states file criminal charges against banks that are suspected of committing foreclosure fraud during the nation's housing crisis.
At least 600 demonstrators gathered outside the National Association of Attorneys General (NAAG) spring meeting to demand tough settlements on foreclosure fraud cases resulting from a NAAG investigation into several banks' practice of signing foreclosure documents without checking for accuracy - a practice the NAAG calls "robo-signing."
The demonstrators - many of them homeowners - also occupied and successfully shut down a Bank of America branch before occupying the offices of Sen. Mitch McConnell (R-Kentucky) and House Speaker John Boehner (R-Ohio). Click here for scenes from the protests.
NAAG launched the investigation in October 2010, but has yet to take action against banks like Bank of America and JP Morgan Chase that were suspected of systematically robo-signing foreclosure documents before the scandal made headlines.
Iowa Attorney General Tom Miller led the investigation, and the National Peoples Action (NPA) and other groups have since met with Miller to demand state attorneys general file criminal charges against banks guilty of robo-signing foreclosure documents and secure restitution for Americans who have already lost their homes in illegal foreclosures.
NPA affiliated activist Keya Hicks said that, in earlier meetings with activists, Miller agreed to file criminal charges against banks that issued illegal foreclosure documents. During the rally, Hicks and other community activists entered the NAAG spring meeting in hopes of talking with Miller about the results of the robo-signing investigation, but the activists were told several times that Miller was not available.
A NAAG spokesperson did not respond to an inquiry from Truthout, but Hicks said NAAG representatives have signaled that the results of the investigation should be available soon.
Independent journalism is important. Click here to get Truthout stories sent to your email.
The rallies outside of the NAAG meeting and outside nearby bank branches coincided with the launch of the Make Wall Street Pay campaign. The campaign released a new report detailing how the nation's richest banks dodged taxes and caused $300 billion in tax revenue shortfalls in federal and state governments that could have helped average Americans during a time when politicians are aggressively cutting funding to the public sector.
The report, released on Monday by the NPA and the watchdog group the Public Accountability Initiative, reveals startling figures on the same super-rich Wall Street firms that received billions in federal stimulus monies when the economic crisis began.
Among the report's key findings:
Bank of America operates 371 tax-sheltered subsidiaries, more than any other big bank studied, and 204 subsidiaries in the Cayman Islands alone, according to its latest regulatory filings. Seventy-five percent of Goldman Sachs's foreign subsidiaries are incorporated in offshore tax havens.
This year, Bank of America is receiving the "income tax refund from hell" - $666 million for 2010, according to its annual report filed in late February 2011. This is following a $3.5 billion refund reported in 2009. Bank of America's federal income tax benefit this year is roughly two times the Obama administration's proposed cuts to the Community Development Block Grant program ($299 million).
Wells Fargo reportedly received a $4 billion federal income tax refund on $18 billion in pre-tax income in 2009, and paid 7.5 percent of its pre-tax income of $19 billion in 2010 in federal taxes. Its net federal income tax benefit for 2009 and 2010 combined, $2.5 billion, is equal to the Obama administration's proposed cuts of 50 percent to the Low-Income Home Energy Assistance Program.
http://www.truth-out.org/activists-hold ... risis68286
Six banks - Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley together paid income tax at an approximate rate of 11 percent of their pre-tax US earnings in 2009 and 2010. Had they paid at 35 percent, what they are legally mandated to pay, the federal government would have received an additional $13 billion in tax revenue. This would cover more than two years of salaries for the 132,000 teacher jobs lost since the economic crisis began in 2008.
The banks' private banking arms protect the wealth of rich clients from taxation through offshore investment strategies. Bank of America's wealth management arm encourages clients to register their yachts in foreign jurisdictions for tax reasons.
Closing special tax loopholes on the financial sector and implementing sensible revenue-raising initiatives such as the Financial Speculation Tax could generate over $150 billion in federal tax revenue each year.
by JackRiddler » Tue Mar 08, 2011 8:14 pm
From http://www.nytimes.com/2011/03/06/business/06mers.html
March 5, 2011
MERS? It May Have Swallowed Your Loan
By MICHAEL POWELL and GRETCHEN MORGENSON
FOR more than a decade, the American real estate market resembled an overstuffed novel, which is to say, it was an engrossing piece of fiction.
Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes. Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods.
That world largely collapsed under the weight of its improbabilities in 2008.
But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.
Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.
Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:
How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan?
And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?
The answers have implications for all American homeowners, but particularly the millions struggling to save their homes from foreclosure. How the MERS story plays out could deal another blow to an ailing real estate market, even as the spring buying season gets under way.
MERS has distanced itself from the dubious behavior of some of its members, and the company itself has not been accused of wrongdoing. But the legal challenges to MERS, its practices and its records are mounting.
The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.
“The state court is attracted like a moth to the flame to the legal owner, and that isn’t MERS,” says Walter T. Keane, the Salt Lake City lawyer who represented the homeowner in that case.
And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.
But this, Judge Robert E Grossman said, was not his fault.
“This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country,” he wrote, “that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”
With MERS under scrutiny, its chief executive, R. K. Arnold, who had been with the company since its founding in 1995, resigned earlier this year.
A BIRTH certificate, a marriage license, a death certificate: these public documents note many life milestones.
For generations of Americans, public mortgage documents, often logged in longhand down at the county records office, provided a clear indication of homeownership.
But by the 1990s, the centuries-old system of land records was showing its age. Many county clerk’s offices looked like something out of Dickens, with mortgage papers stacked high. Some clerks had fallen two years behind in recording mortgages.
For a mortgage banking industry in a hurry, this represented money lost. Most banks no longer hold onto mortgages until loans are paid off. Instead, they sell the loans to Wall Street, which bundles them into investments through a process known as securitization.
MERS, industry executives hoped, would pull record-keeping into the Internet age, even as it privatized it. Streamlining record-keeping, the banks argued, would make mortgages more affordable.
But for the mortgage industry, MERS was mostly about speed — and profits. MERS, founded 16 years ago by Fannie Mae, Freddie Mac and big banks like Bank of America and JPMorgan Chase, cut out the county clerks and became the owner of record, no matter how many times loans were transferred. MERS appears to sell loans to MERS ad infinitum.
This high-speed system made securitization easier and cheaper. But critics say the MERS system made it far more difficult for homeowners to contest foreclosures, as ownership was harder to ascertain.
MERS was flawed at conception, those critics say. The bankers who midwifed its birth hired Covington & Burling, a prominent Washington law firm, to research their proposal. Covington produced a memo that offered assurances that MERS could operate legally nationwide. No one, however, conducted a state-by-state study of real estate laws.
“They didn’t do the deep homework,” said an official involved in those discussions who spoke on condition of anonymity because he has clients involved with MERS. “So as far as anyone can tell their real theory was: ‘If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.’ ”
County officials appealed to Congress, arguing that MERS was of dubious legality. But this was the 1990s, an era of deregulation, and the mortgage industry won.
“We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property,” said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.
And so MERS took off. Its board gave its senior vice president, William Hultman, the rather extraordinary power to deputize an unlimited number of “vice presidents” and “assistant secretaries” drawn from the ranks of the mortgage industry.
The “nomination” process was near instantaneous. A bank entered a name into MERS’s Web site, and, in a blink, MERS produced a “certifying resolution,” signed by Mr. Hultman. The corporate seal was available to those deputies for $25.
As personnel policies go, this was a touch loose. Precisely how loose became clear when a lawyer questioned Mr. Hultman in April 2010 in a lawsuit related to its foreclosure against an Atlantic City cab driver.
How many vice presidents and assistant secretaries have you appointed? the lawyer asked.
“I don’t know that number,” Mr. Hultman replied.
Approximately?
“I wouldn’t even be able to tell you, right now.”
In the thousands?
“Yes.”
Each of those deputies could file loan transfers and foreclosures in MERS’s name. The goal, as with almost everything about the mortgage business at that time, was speed. Speed meant money.
ALAN GRAYSON has seen MERS’s record-keeping up close. From 2009 until this year, he served as the United States representative for Florida’s Eighth Congressional District — in the Orlando area, which was ravaged by foreclosures. Thousands of constituents poured through his office, hoping to fend off foreclosures. Almost all had papers bearing the MERS name.
“In many foreclosures, the MERS paperwork was squirrelly,” Mr. Grayson said. With no real legal authority, he says, Fannie and the banks eliminated the old system and replaced it with a privatized one that was unreliable.
A spokeswoman for MERS declined interview requests. In an e-mail, she noted that several state courts have ruled in MERS’s favor of late. She expressed confidence that MERS’s policies complied with state laws, even if MERS’s members occasionally strayed.
“At times, some MERS members have failed to follow those procedures and/or established state foreclosure rules,” the spokeswoman, Karmela Lejarde, wrote, “or to properly explain MERS and document MERS relationships in legal pleadings.”
Such cases, she said, “are outliers, reflecting case-specific problems in process, and did not repudiate the MERS business model.”
MERS’s legal troubles, however, aren’t going away. In August, the Ohio secretary of state referred to federal prosecutors in Cleveland accusations that notaries deputized by MERS were signing hundreds of documents without any personal knowledge of them. The attorney general of Massachusetts is examining a complaint by a county registrar that MERS owes the state tens of millions of dollars in unpaid fees.
As far back as 2001, Ed Romaine, the clerk for Suffolk County, on eastern Long Island, refused to register mortgages in MERS’s name, partly because of complaints that the company’s records didn’t square with public ones. The state Court of Appeals later ruled that he had overstepped his powers.
But Judith S. Kaye, the state’s chief judge at the time, filed a partial dissent. She worried that MERS, by speeding up property transfers, was pouring oil on the subprime fires. The MERS system, she wrote, ill serves “innocent purchasers.”
“I was trying to say something didn’t smell right, feel right or look right,” Ms. Kaye said in a recent interview.
Little about MERS was transparent. Asked as part of a lawsuit against MERS in September 2009 to produce minutes about the formation of the corporation, Mr. Arnold, the former C.E.O., testified that “writing was not one of the characteristics of our meetings.”
MERS officials say they conduct audits, but in testimony could not say how often or what these measured. In 2006, Mr. Arnold stated that original mortgage notes were held in a secure “custodial facility” with “stainless steel vaults.” MERS, he testified, could quickly produce every one of those files.
As for homeowners, Mr. Arnold said they could log on to the MERS system to identify their loan servicer, who, in turn, could identify the true owner of their mortgage note. “The servicer is really the best source for all that information,” Mr. Arnold said.
The reality turns out to be a lot messier. Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents.
The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.
Some experts in corporate governance say the legal furor over MERS is overstated. Others describe it as a useful corporation nearly drowning in a flood tide of mortgage foreclosures. But not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.
“We would never rely on it to find ownership,” says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.
Apparently with good reason. Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain.
The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership. They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”
THE Sarmientos are one of thousands of American families who have tried to pierce the MERS veil.
Several years back, they bought a two-family home in the Greenpoint section of Brooklyn for $723,000. They financed the purchase with two mortgages from Lend America, a subprime lender that is now defunct.
But when the recession blew in, Jose Sarmiento, a chef, saw his work hours get cut in half. He fell behind on his mortgages, and MERS later assigned the loans to U.S. Bank as a prelude to filing a foreclosure motion.
Then, with the help of a lawyer from South Brooklyn Legal Services, Mr. Sarmiento began turning over some stones. He found that MERS might have violated tax laws by waiting too long before transferring his mortgage. He also found that MERS could not prove that it had transferred both note and mortgage, as required by law.
One might argue that these are just legal nits. But Mr. Sarmiento, 59, shakes his head. He is trying to work out a payment plan through the federal government, but the roadblocks are many. “I’m tired; I’ve been fighting for two years already to save my house,” he says. “I feel like I never know who really owns this home.”
Officials at MERS appear to recognize that they are swimming in dangerous waters. Several federal agencies are investigating MERS, and, in response, the company recently sent a note laying out a raft of reforms. It advised members not to foreclose in MERS’s name. It also told them to record mortgage transfers in county records, even if state law does not require it.
MERS will no longer accept unverified new officers. If members ignore these rules, MERS says, it will revoke memberships.
That hasn’t stopped judges from asking questions of MERS. And few are doing so with more puckish vigor than Arthur M. Schack, a State Supreme Court judge in Brooklyn.
Judge Schack has twice rejected a foreclosure case brought by Countrywide Home Loans, now part of Bank of America. He had particular sport with Keri Selman, who in Countrywide’s court filings claimed to hold three jobs: as a foreclosure specialist for Countrywide Home Loans, as a servicing agent for Bank of New York and as an assistant vice president of MERS. Ms. Selman, the judge said, is a “milliner’s delight by virtue of the number of hats that she wears.”
At heart, Judge Schack is scratching at the notion that MERS is a legal fiction. If MERS owned nothing, how could it bounce mortgages around for more than a decade? And how could it file millions of foreclosure motions?
These cases, Judge Schack wrote in February 2009, “force the court to determine if MERS, as nominee, acted with the utmost good faith and loyalty in the performance of its duties.”
The answer, he strongly suggested, was no.
Mortgage Paper - They Did This On Purpose:
by JackRiddler » Tue Mar 08, 2011 9:07 pm
Democracy Now Transcript from March 3 wrote:http://www.democracynow.org/2011/3/3/really_bad_reporting_in_wisconsin_media
March 03, 2011
"Really Bad Reporting in Wisconsin": Media Parroting Walker’s False Claims of Taxpayer "Subsidies" for Workers’ Pensions
In their coverage of Wisconsin Gov. Scott Walker’s attempt to undermine public workers’ unions, many journalists have parroted Walker’s claim that unionized state workers get their pensions "subsidized" by the state. We speak with investigative reporter and Pulitzer Prize-winner David Cay Johnston, who counters the assertion that pensions are costing taxpayers by pointing out that the workers themselves contribute 100 percent in deferred compensation. Johnson’s latest article is called,
"Really Bad Reporting in Wisconsin: Who 'Contributes' to Public Workers’ Pensions?"
(http://tax.com/taxcom/taxblog.nsf/Perma ... enDocument)
JUAN GONZALEZ: Labor protests are continuing across the country as Republican lawmakers attempt to push through legislation aimed at crushing collective bargaining rights. While covering the unfolding events in Wisconsin over the last two weeks, many media outlets have repeatedly aired Governor Scott Walker’s claim that state workers should contribute more to healthcare and pension costs.
GOV. SCOTT WALKER: But most importantly, there are five-and-a-half million people in this state, taxpayers who, by and large, are sacrificing in their own jobs in the private sector, paying much more than the 5.8 percent for pension and the 12.6 percent for healthcare I’m asking for, in fact, many cases two or three times that amount. They’ve made tough sacrifices to balance the budgets in their communities and their homes and in their businesses. I think it is realistic that we make—we need to make sure that, as loud as the voices are in the Capitol, we don’t let them overpower the voices of the taxpayers I was elected to represent and elected to get the job done, which is balancing this budget.
JUAN GONZALEZ: Many journalists have parroted Walker’s claim that unionized state workers get their pensions "subsidized" by the state. However, investigative reporter and Pulitzer Prize-winner David Cay Johnston recently exposed the deeply flawed media coverage of Walker’s bill by challenging his core assertion. Johnston’s piece for Tax.com is called "Really Bad Reporting in Wisconsin: Who 'Contributes' to Public Workers’ Pensions?" In the piece, Johnston counters the myth that workers’ pensions are costing taxpayers by pointing out that workers themselves contribute 100 percent in deferred compensation.
AMY GOODMAN: David Cay Johnston joins us now from Rochester, New York.
Welcome to Demcracy Now!, former New York Times reporter, Pulitzer Prize winner, author of several books, including Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). So, why don’t you demystify what the reporting has been? Where are the lies? Where are the untruths, the half-truths?
DAVID CAY JOHNSTON: Well, Amy, here’s the fundamental key point. And I have to tell you, from the hundreds and hundreds of emails I’ve gotten and the hundreds of blogs that have taken this up, many Americans don’t seem to get this. All of your compensation is earned. It’s not just your cash wage. If you work for a private employer and you get a paid vacation, that’s not a gift from your employer. You earned it. They don’t give that paid vacation to some Joe walking down the street. And what the Governor has done is confuse internal accounting, which has no economic substance to it, with the economic substance. These are negotiated contracts. And how the money flows, whether it goes through the worker’s paycheck and then to the pension and then to the insurance company or it goes directly to the medical insurance company or the pension plan, is irrelevant to the total cost.
Now, there’s a perfectly legitimate issue: are teachers and police detectives and fisheries biologists paid too much money in Wisconsin? I don’t know the answer to that, and I didn’t offer any insights onto that point. But the fundamental important point here is, the workers earned this. And so, the Governor really wants to cut their wages. And instead of saying, "I want to cut the wages of these people," he has used this false argument. And it’s let loose—my column has—an enormous amount of vitriol against teachers and police officers and how they’re all parasites. And it’s astonishing to me how successful he’s been in demagoguing this.
JUAN GONZALEZ: But yet, several polls that have come out in recent days—Wall Street Journal/NBC and New York Times/CBS—both say that at least the majority of Americans don’t believe that attacks on collective bargaining or that even that a large group of Americans, I think about 40 percent, don’t believe that public workers are overpaid. Yet, the minorities are ones—apparently are the ones that are raising the biggest ruckus over this issue.
DAVID CAY JOHNSTON: Exactly right, Juan. And, you know, we have settled the law that you have a right to collectively bargain. And to those people who pose as conservatives or libertarians and want to get rid of the unions, here’s what they’re arguing. And these are people, remember, who say they don’t like big government. They want each individual seeking a job with the state to negotiate with the big government. Somehow that just isn’t coherent philosophy. And I’m not the least bit surprised that, overwhelmingly, the public feels people should be able to bargain.
You know, it was when we had roughly a third of workers in the private sector in unions that people had higher pay. We’ve now got a 30-year period where 90 percent of Americans are making one penny more for every dollar they made in 1980. And in the last 10 years, my column at Tax.com this morning points out, average wages have fallen, median wages have fallen, government income tax revenues are down a third, one-third, from the end of the Clinton administration. So, we have lots of misinformation out there that’s upsetting people.
David Cay Johnston wrote:From http://tax.com/taxcom/taxblog.nsf/Perma ... enDocument
Breaking News: Tax Revenues Plummeted
David Cay Johnston | Mar. 3, 2011 08:43 AM EST
We take you now to the official data for important news. Federal tax revenues in 2010 were much smaller than in 2000. Total individual income tax receipts fell 30 percent in real terms. Because the population kept growing, income taxes per capita plummeted.
Individual income taxes came to just $2,900 per capita in 2010, down 36 percent from more than $4,500 in 2000. Total income taxes and income taxes per capita declined even though the economy grew 16 percent overall and 6 percent per capita from 2000 through 2010.
Corporate income tax receipts fell 27 percent and declined 34 percent per capita, even though profits boomed, rising 60 percent.
Payroll taxes increased slightly overall, but slipped per capita because the nation's population grew five times faster than the number of people with any work. The average wage also declined slightly.
You read it here first. Lowered tax rates did not result in increased tax revenues as promised by politician after pundit after professional economist. And even though this harsh truth has been obvious from the official data for some time, the same politicians and pundits keep prevaricating. Some of them even say it is irrelevant that as a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.
SNIP
DEMOCRACY NOW Transcript wrote:
JUAN GONZALEZ: I’d like to ask you also about this issue, the general assault on pensions that has been occurring across the country. Wisconsin is one example. You correctly point out that their pension fund is a not in bad shape, whereas others in other states are deeply troubled in terms of being able to meet their obligations. But the problem has been largely that over the last 20 years many of these—especially over the last 10 years—many of these pension funds have not increased in value as a result of the problems in the stock market, isn’t it? I mean, first the dotcom crash and then, obviously, the home mortgage and the economic crisis of '98, ’99, so that many of them have lost value, and that the root problem of the inability of some of these pension funds to pay their benefits is a result of the stock market more than anything else, isn't it?
DAVID CAY JOHNSTON: Well, yes. But the stock market being down, I contend, is a result of tax policy, that it is these tax cuts that are making us poor. But Juan, there’s a very interesting pattern here. Social Security has dedicated funding. It has a surplus of over $2 trillion in it. The Republicans keep trying to make people think it’s the cause of the deficit. The Wisconsin pension is 99.7 percent funded. By the alternative measure used, it’s more than 90 percent funded. And it’s under attack. How interesting that the best-financed government programs, the ones that provide benefits to ordinary working people, are the ones that are being attacked by creating this impression, this false impression, that they are the cause of the problem.
You know, in the U.S. last year, states and local governments gave a least $70 billion to corporations. Here in western New York, where I live, one of the counties gave Verizon, effectively, over $600 million to create 200 jobs that will pay, I expect, about $50,000 on average. That’s crazy! That’s just—that’s over $3 million per job. Yahoo! got a deal at over $2 million per job. Alcoa has a deal for cheap electricity from the public that’s way beyond the wages of the workers. These are massive transfers of money from you and me and the audience in this show to the already wealthy, because they’re not running their businesses well enough to make profits on their own. So why do we have massive subsidies and welfare for these very large corporations and attack well-funded government programs?
AMY GOODMAN: David Cay Johnston, I want to ask you about this issue of corporate taxes, in recent comments made by former Minnesota governor Tim Pawlenty, the likely 2012 Republican presidential contender. On Saturday, he was interviewed by Lee Fang of the website ThinkProgress.org.
LEE FANG: Governor, today liberals are demonstrating all over the country in what CBS has called a liberal version of the Tea Party. Their main complaint is that a lot of corporations aren’t paying their fair share. For example, Bank of America in 2009 paid nothing in corporate income taxes. Same with ExxonMobil, GE and a lot of other big corporations. Do you think corporations like Bank of America should pay their fair share? What are your thoughts on that?
TIM PAWLENTY: I think, actually, the corporate tax rate in Minnesota and in the country is too high. And one of the things, I think, we could and should do for our country—
LEE FANG: You think zero is too high, with Bank of America paying nothing?
TIM PAWLENTY: We have the highest corporate tax rate, or one of them, in the OECD nations—
LEE FANG: But they use loopholes and offshore bank accounts to pay nothing.
TIM PAWLENTY: Well, one of the things I’ve called for is reducing tax rates and looking at exemptions or special deals within the tax code that give certain companies privileges or benefits. I can’t speak to what any individual country—company would get in that regard, but I think one goal or direction for tax reform is to do a—simplify and reduce tax rates and clean out as many of the special deals as possible.
LEE FANG: To be clear, do you think Bank of America pays too much in taxes already?
PAWLENTY AIDE: I think he answered that question.
TIM PAWLENTY: I don’t know firsthand what Bank of America pays in taxes. But I will just say, setting aside Bank of America, the corporate tax rate in the United States of America is too high compared to our competitor nations.
AMY GOODMAN: Probable presidential contender Tim Pawlenty, interviewed by ThinkProgress.org. David Cay Johnston, your response?
DAVID CAY JOHNSTON: Well, corporate income taxes in this country are one-third lower than they were in 2000—that’s in my column this morning at Tax.com—even though corporate profits are up 60 percent and corporations have almost $2 trillion in cash. They’re approaching $7,000 of cash for every man, woman and child in the United States. They’re not investing this money. They’re not creating jobs. They are hoarding this money that they have pulled out of the economy. It’s one of the reasons we’re in so much trouble.
Now, as to the argument that our tax rate is too high, it is because of all these special favors. The reason the tax code has grown and grown and grown and grown and grown isn’t because of people like you and me and the audience; it’s because of all these favors being bought from politicians. At Tax.com, we have something called the Shelf Project, and eminent authorities in tax have shown how we could raise a trillion dollars a year—that would double the revenue we get, it’s equal to the revenue we get from the individual income tax—by shutting down loopholes and favors for businesses, particularly the oil and gas and pharmaceutical industries. The fact is, the very largest corporations, the ones who are the vast majority of wealth in America, they pay an effective tax rate of about 15 percent of their profits.
And one fundamental truth people need to know, Amy, you can’t have an individual income tax if you don’t have a corporate income tax, because otherwise, wealthy individuals who own businesses will simply live off their business, and the businesses will become storehouses of untaxed wealth. That’s one of the big problems in our tax system. You know, the hedge fund manager John Paulson made $9 billion in the last two years. Unless he chose to take money out of his plan, he pays no taxes on that money. You can make a billion dollars or $5 billion a year in a single year and pay no taxes for years or decades into the future, while working people have their taxes taken out every week.
JUAN GONZALEZ: And you mentioned that corporate taxes are down about 30 percent since 2000, but take us back a few decades—
DAVID CAY JOHNSTON: Revenue.
JUAN GONZALEZ:—further back. How has the tax rate, especially at the high income—personal income level and corporate tax rate, trended in the United States since the ’50s and ’60s?
DAVID CAY JOHNSTON: Well, there’s another column of mine at Tax.com—I’m sorry to sound like an advertising machine—that shows that in—since from 1961 to 2006, the very highest income taxpayers have had their tax burden reduced 60 percent, while everybody else has had a reduction of 20 percent. And it’s the incomes at the top that have exploded. The corporate tax rate used to be 50 percent, now it’s 35 percent...
From http://tax.com/taxcom/taxblog.nsf/Perma ... enDocument
Tax Rates for Top 400 Earners Fall as Income Soars
David Cay Johnston | Sep. 30, 2010 12:50 PM EDT
The incomes of the top 400 American households soared to a new record high in dollars and as a share of all income in 2007, while the income tax rates they paid fell to a record low, newly disclosed tax data show.
In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site without announcement that were discovered February 16. (For the report, see Tax Analysts Doc 2010-3372 .)
The figures came at the peak of the last economic cycle and show that widely published reports in major newspapers asserting that the richest Americans are losing relative ground and "becoming poorer" are not supported by the official income data.
The long-term data show that under current tax and economic rules, the incomes of the top earners rise when the economy expands and contract during recessions, only to rise again. Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006, the new data show. That rate is lower than the typical effective income tax rate paid by Americans with incomes in the low six figures, which is what each taxpayer in the top group earned in the first three hours of 2007.
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Democracy Now Transcript wrote:
DAVID CAY JOHNSTON: And let me make what I think is a very important counterintuitive argument. When tax rates are low, I believe there is a sound argument that it destroys jobs. The reason is, you—imagine for a moment you’re a plutocrat, that you’re very, very, very wealthy and you own a business and your spouse wants to buy a Modigliani painting to hang in your living room that costs $85 million. If the tax rate is 50 percent, it’s going to cost $170 million to get that painting. If the tax rate is 15 percent, it only costs $100 million. You’re far more likely to withdraw the $100 million than the $170 [million]. We used to have a high corporate tax rate as a way to coerce and encourage owners of businesses to reinvest in the business, which creates more jobs. We’ve now replaced it with a system that encourages them to withdraw money and not reinvest it. And that’s what the cash you’re seeing is about. It’s about the proliferation of corporate personal jets, not owned by the company, but by individuals, of people who own six and seven and eight and nine mansions. Remember, John McCain couldn’t remember how many homes his family had. And so, low tax rates destroy jobs. They encourage withdrawals from business instead of encouraging owners to keep reinvesting in the business.
AMY GOODMAN: David Cay Johnston, we want to thank you for being with us, Pulitzer Prize-winning investigative journalist. His most recent book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). Former New York Times reporter, now writes at Tax.com.
The original content of this program is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. Please attribute legal copies of this work to "democracynow.org".
http://tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8DMJ6A?OpenDocument
Tax Refunds: More for Taxpayers, Less for Bankers
David Cay Johnston | Jan. 31, 2011 09:23 AM EST
January 13 was an unusual day for tax policy in America, one of the few times that the poor, the desperate, and the innumerate won a victory over the increasingly powerful forces of corporate socialism in Washington. Only time -- and politics -- will tell whether this unusual victory is real or illusory.
For those not familiar with the term, corporate socialism is the de facto system by which big business uses campaign donations to buy rules that privatize gains and socialize risks, as seen most expensively with the 2008 bailout of Wall Street. It is not a new phenomenon. The Barbary Coast war was arguably a case of taxpayers bailing out maritime insurers by sending in troops with collars to protect their jugulars from cutlasses, which is how Marines became known as leathernecks.
The rare recent victory came in the form of Treasury's announcement of a pilot program to issue income tax refunds via prepaid cards to up to 600,000 people. The idea, partly developed by Prof. Michael S. Barr of the University of Michigan Law School during his time at Treasury, is to help the 17 million households without bank accounts escape high-cost check cashing services, refund anticipation checks (RACs), and refund anticipation loans.
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http://tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8EQP7F?OpenDocument
More on Taxpayer Burdens and Public Employee Pay
David Cay Johnston | Mar. 7, 2011 01:20 PM EST
I have reviewed a study by the Center for Governmental Research, which runs the NYS Data Center, a Census Bureau designated affiliate that is the primary repository of economic and demographic data on New York State. The study is not online, though many others are.
The study shows that public sector workers who are lawyers, executives, managers, software engineers -- that is to say, occupations requiring a lot of education and training -- tend to make less than private sector workers. For example, state and local government lawyers on average earn 49 percent less than lawyers working for private business, data from the 2000 Census publicly available microdata sample files shows.
On the other hand, low-skill jobs where government workers tend to be in unions make more. For example, janitors in 2000 made $21,000 if public employees, $16,250 if private. Library clerks averaged $11,500 as public employees to $8,300 in the private sector. However, childcare workers made more in the private sector ($10,200) than in government jobs ($9,800).
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by 2012 Countdown » Wed Mar 09, 2011 12:50 am
by vanlose kid » Thu Mar 10, 2011 11:48 pm
Guest Post: 2008 Financial Crisis The European Sequel
Submitted by Tyler Durden on 03/09/2011 20:30 -0500
Submitted by MacroStory.com
2008 Financial Crisis The European Sequel
The European Union is facing a similar set of events as those leading up to the 2008 US financial crisis. In 2007/08 the US economy was teetering on the brink of recession and the talk among many was that of a goldilocks soft landing. Economic data was still somewhat positive including job growth while equity markets were still holding up. The housing market was beginning to show signs of exhaustion. Manufacturers were confronting rising input costs while consumers were paying more at the pump. The Federal Reserve introduced a new chairman who tried to calm markets with his infamous quote on March 28, 2007, "the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."
Today Europe is faced with a subprime crisis of their own in terms of sovereign debt. Greece and Ireland have been bailed out and Portugal is only weeks from joining the esteemed list. Spain and Italy are a shock event away from joining as well. The EU also has their overconfident leadership as witnessed by the ECB Chief Economist Jurgen Stark on July 9, 2010 "The worst is over” (for Europe’s sovereign debt crisis).
According to a 2009 BIS report EU creditors had over 1.5 trillion euros in exposure to Spain, Ireland, Portugal and Greece. Of that amount, Germany and France accounted for 493 billion euros and 465 euros respectively. This is not a PIIGS "problem." In reality the debtors have equal or greater negotiating power over the creditors. TARP bailed out the insolvent banks at the expense of the taxpayer while the EFSF is bailing out the German and French banks at the expense of the PIIGS taxpayer. The similarities don't stop though.
The EU produced positive economic data in the latter part of 2010 while the euro was trading on average 1.28 (eur/usd). Over the past six months the euro has traded 6% higher at 1.36 which will reverse that positive trend. The impact of a rising euro on export driven economies like Germany which have been the only real source of growth in the EU will be negative. Rising input costs have been a worldwide phenomenon of late and the EU is not immune. Watch for shrinking corporate profits in the near future. The consumer is not immune either as record gas prices are now hitting the pumps across the EU. What will the shock event be though? In 2008 it was Lehman.
The US was able to delay the inevitable after Bear Stearns and so did the EU with Greece. Will Ireland be the Lehman failure that forces a massive hit to creditor and not taxpayer balance sheets? If so it will force a similar credit contraction among various credit facilities from commercial paper, interbank lending and more as witnessed in the US in 2008. In July 2008 oil was moving up very quickly until topping at 147 on July 14 (Bastille day, another similarity), just months before Lehman failed. Today as the global economy faces rising oil prices, the impact on the EU are far greater with Ireland and Italy alone importing over 20% of oil from Libya. With Libyan oil production all but shutdown, it is arguable that $147 oil has already arrived.
The US economy will not be immune to a sovereign debt crisis as the EU was not immune to the subprime crisis. It is not a "Greek debt problem" nor is it a "Middle East problem." The world is more connected today than ever before in history. We have seen this movie before and as we all know the sequel is usually far worse than the original.
http://www.zerohedge.com/article/guest- ... ean-sequel
The fallout from the crash of 2008 has only just begun
Spiking oil prices risk derailing recovery, but politicians cling to the failed economic model that lies behind them
Seumas Milne guardian.co.uk, Wednesday 9 March 2011 21.45 GMT
To listen to government ministers and boardroom barons, you'd think that the economic crisis that erupted in 2008 was as good as over. Recovery might be weak and choppy, they'd have us believe, but it's nevertheless under way. Cuts might be painful, they insist, but they're essential for a rebalanced economy – and anyway they're all the fault of the previous government.
As elsewhere, there is a determined attempt in Britain to restore the economic model so comprehensively discredited in the crash of 2008. But the evidence is piling up that the full impact of the crisis is only starting to make itself felt – and that both the economy and politics will be transformed before it has run its course.
In Britain the loyalty to a failed past is most striking in the Tory-led government's resolute refusal to bring to heel the banks that delivered the economic meltdown. Bankers' greed might be the object of public revulsion and ritual political handwringing; and the banks' survival might depend on the greatest public handouts and guarantees in history. But once again, their executives have awarded themselves hundreds of millions of pounds in pay and bonuses, while real wages are being forced down across the workforce. Even Stephen Hester, the chief executive of state-owned RBS, is pocketing £7.7m while failing to carry out the bank's essential function of boosting lending to credit-squeezed businesses.
And instead of directing the banks they own or underwrite to ditch bonuses and drive recovery, George Osborne and his Liberal Democrat lieutenants have in effect cut Labour's bank levy, slashed corporation tax and signed a toothless agreement that will clearly achieve neither.
Given that over half the Conservative party's funding now comes from bankers, hedge fund managers and private equity moguls, perhaps that's not so surprising. But, combined with a scale of brutal and counter-productive spending cuts only matched in Europe's basket cases, the result for the British economy has already been disastrous.
Put to one side the arbitrary convention that two successive quarters of economic shrinkage are needed to qualify for a recession. Britain has in fact already had a double dip, as the economy shrank by 0.6% in the last quarter of 2010 – and that's before the effects of most cuts and tax increases have been felt.
Greece and Portugal are the only other European Union countries whose economies declined in the same period. But it has taken the Bank of England governor Mervyn King of all people to nail the endlessly repeated falsehood that the deficit is the result of Labour profligacy – rather than the breakdown of an unregulated and unreformed financial system enthusiastically endorsed by the entire political class.
King blamed the bankers for the cuts, and warned of the threat of further crises unless the financial behemoths were brought to book. And it was Richard Lambert, the outgoing head of the employers' CBI, who took the government to task for absurdly relying on the ruthlessness of its cuts to deliver growth.
David Cameron's response has been to promise more deregulation and blame civil servants for "loading costs on to business". That will be the theme of this month's budget. It's got all the makings of a 1980s revival, complete with the Thatcherite favourites of increased VAT, deep cuts in the poorest areas and mass privatisation.
Ministers seem determined to reinstate a neoliberal order that is beyond repair, while the conditions that eventually allowed economic recovery in the 80s after the destruction of 20% of the country's industrial base and the creation of 3 million unemployed under Margaret Thatcher – including a far more benign international economic environment – are simply not there.
The latest slow-motion aftershock of the 2008 crash is being felt in the oil market. The Arab uprisings of recent months have targeted dictatorship and had multiple causes. But the trigger for the Tunisian revolution, which sparked the wider revolt, was economic: rising food prices and unemployment in the IMF poster-boy state, combined with declining workers' remittances from recession-hit Europe.
Now that the upheaval has spread to oil-rich Libya and is echoing across the Gulf kingdoms, oil prices have started to spike. If the Libyan stalemate continues, or the revolution reaches the main oil producing states, the impact of sharply higher prices on global recovery is likely to be dramatic – a boomerang effect of the original crisis, which would further squeeze growth and fuel inflation.
Already European and British central bankers are preparing to make a renewed downturn more likely by threatening higher interest rates in response to rising energy and food prices. Add to that the continuing turmoil in the eurozone, and the damage of a new oil shock on a stagnant economy like Britain's – already bled white by market dogma – could be far-reaching.
The aftermath of the crash of 2008 demands a different kind of political economy. If Britain's coalition government carries on imagining it can cut and deregulate its way out of emerging stagflation, it will fail and its unpopularity deepen. But Labour also has to break with policies that helped generate the crisis in the first place.
David Miliband, the party's failed leadership contender, this week defended New Labour's record, arguing that European social democrats need to move away from reliance on high public spending and state power if they are to regain support in an era of economic crisis.
But it isn't public intervention that is behind the failure to invest or lend – it's the lack of it. And it wasn't New Labour's over-regulation of the City that made Britain especially vulnerable to the credit crash. It was the opposite. Right now, publicly owned banks and their cash mountains should be at the heart of an investment programme to propel recovery. But that would mean moving on from an economic model broken by its own excesses. Instead, they're being fattened for privatisation.
Mervyn King expressed surprise last week that the "degree of public anger has not been greater than it has" over the costs of the system's failure. But as those costs are rammed home, both in Britain and across the world, it will become clearer that the fallout has only just begun.
http://www.guardian.co.uk/commentisfree ... NTCMP=SRCH
by justdrew » Fri Mar 11, 2011 4:39 am
Last update 22/02/2011 01:15:00 PM (GMT+7)
Those, who shout out more bitterly, will be rescued?
VietNamNet Bridge – Economist Bui Van talks about the way commercial banks, state-owned enterprises and private enterprises shout for help and about the way the State responds to the cries.
A folk story has it that there is a shepherd boy who regularly tells lies. One day, he shouted out bitterly: “Wolf here! Save me”. People rushed to save him, but they discovered that the boy just made a joke. The same thing occurred a second time. And the third time, when he was really attacked by a wolf, no one came to rescue him, he was just “the boy who cried wolf.”
The story of commercial banks
Over the last three years, commercial banks continuously complained about the difficulties they faced. The input interest rates were described as overly high, the exchange rate reportedly fluctuated so suddenly, the Circular 13 on capital adequacy ratio posed big difficulties for banks’ operations, and new policies caused serious shortage of dong and dollar to banks.
The strange thing was that after banks wept at the beginning of the year about difficulties, they regularly reported big profits at the end of the year. The profits of the next years always far exceeded the profits of the previous years, and the ratios of returns on stockholder equity were surprisingly high.
At a conference, when asked why they do not ease the interest rates in order to ease the pressure on businesses, the profitable banks said that they are also businesses, and they have to make every effort to earn a profit.
The story of banks has reminded people about the story of the shepherd boy. If banks once again complain about difficulties and losses, no one will believe them, and no one will rush to rescue them.
The story of state-owned enterprises
The same is occurring with state-owned enterprises.
In the last few years, all state-owned economic groups voiced their complaints about the difficulties in the post-crisis period. They complained that they have to sell products at prices below the production costs, which have caused heavy losses to them. The state-owned economic groups insisted on raising retail prices and called on the State to compensate them.
The complaints once made people believe that state-owned economic groups were in distress. However, they then started at the report that 20 out of the 21 biggest economic groups and general corporations made profit.
The funny thing is that right after reporting profits, the state-owned corporations continue complaining about difficulties, calling for the support from the State. The same scenario is occurring with coal, electricity producers and petroleum distributors.
The story of private enterprises
Then there were the enterprises which really faced difficulties and dangers in the global economic crisis – private enterprises.
The problem is that the private enterprises are small businesses that could not raise their voice to be heard and were not powerful enough to lobby for the policies that would benefit them.
As the private enterprises did not know to whom they should cry and whom they should meet to lobby for policies, they did not think of crying for help any more. If they met a major difficulty, they only had one choice – shutting down their business.
The unlucky thing is that the enterprises, which cannot cry for help, create 85 percent of the total jobs in the national economy. Meanwhile, the biggest worry for all economies in crisis is unemployment, not the stock prices, or real estate prices.
The story of the state
All the complaints have been directed to the State, which, considering the situation of economic sectors, sets up policies or allocates preferences.
However, in this case, transparency is the most important factor. The people calling for help need to report the truth. Meanwhile, the State, needs to find who really need support, so that it can send support in the right direction.
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