Tag: economics

links for 2011-04-14

swanksalot0 comment
  • When Alan Met Ayn: “Atlas Shrugged” And Our Tanked Economy
    (tags: economics ayn_rand history)

    • That pill-popping, boy-crazy nincompoop Ayn Rand has got a lot to answer for. Indeed, it’s not too much of a stretch to say that we owe at least part of the recent economic crisis to her and her philosophy of Objectivism, since former Fed chief Alan Greenspan was a lifelong disciple of both. The two first met in the ’50s. Back then, a gang of acolytes, calling themselves the Collective, used to gather at Rand’s apartment on East 36th Street every Saturday night so they could tell each other how smart they all were. Along came Greenspan one evening, shy and somber.

  • The Real Housewives of Wall Streetlwa14.jpg
    (tags: finance economics wall_street corruption)

    • America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we’re broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year’s retirees from the IRS, the SEC and the Department of Energy.

    Why Isn’t Wall Street in Jail?

    Most Americans know about that budget. What they don’t know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the “official” budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.

  • Ryan’s plan to devastate the US economy
    (tags: economics united_states deficit us_economy )

    • The budget plan that Budget Committee Chair Rep. Paul Ryan (R-WI) has put forward for the House Republicans is truly stunning. It takes the war on America’s middle class not to the next level but about three levels down the road.

    There’s something we should start with, though, when we think about this budget. And that’s where we are now. Mark Sumner points us to this graph:

    That’s the deficit, and that big orange stripe, the one getting wider by the year, is how much of the deficit the Bush tax cuts are creating.

    8c52104u.jpg

  • Apple Adds Do-Not-Track Tool to New Browser
    (tags: privacy browsers )

    • Apple Inc. has added a do-not-track privacy tool to a test version of its latest Web browser for keeping customers’ online activities from being monitored by marketers.

    The tool is included within the latest test release of Lion, a version of Apple’s Mac OS X operating system that is currently available only to developers. The final version of the operating system is scheduled to be released to the public this summer. Mentions of the do-not-track feature in Apple’s Safari browser began to appear recently in online discussion forums and on Twitter.

    The move by the Cupertino, Calif., company leaves Google Inc. as the only major browser provider that hasn’t yet committed to supporting a do-no-track capability in its browser, called Chrome. Microsoft Corp. and Mozilla Corp. both offer do-not-track features in their latest browsers.

  • The Huffington Post lawsuit, explained
    (tags: law )

    • The Other Writers: “We did all of that writing for free, and now that you made a bunch of money, we’re entitled to some of it!”

    AOLHuffPo: “LOL!”

    1496-2.jpg

Why Isn’t Wall Street in Jail?

Seth Anderson0 comment

Symbolic

Matt Taibbi wonders, as do we all, why teachers in Wisconsin have to give up their pensions, and Wall Street crooks get to sleep on1 bags of krugerands without consequence.

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

Invasion of the Home Snatchers

Instead, 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. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”

 

To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”

But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

 

(click here to continue reading Why Isn’t Wall Street in Jail? | Rolling Stone Politics.)

The chairman of Goldman Sachs isn’t going to a pound-me-in-the-ass prison for one six-month term, nor is any CEO. Unfortunately. Not that anyone should be raped, even Jamie Dimon, but you get the idea. A little bit of actual penalty would be good for these assholes.

Looks like Matt Taibbi has written a book on the subject:

Taibbi eviscerates Wall Street for what he considers frauds perpetrated on the American people over the last ten years. Deftly delving deeply into complicated financial history and lingo, Taibbi deftly lays the subject bare, rendering heretofore-dense subject matter simple without being simplistic. Blame for the recent mortgage collapse, commodities bubble, and tech bubble are laid at the feet of a relatively small number of bankers and traders who, in the author’s opinion, act without fear of reciprocity from a U.S. government no longer representative of the American people. He begins by awarding the title “Biggest Asshole In The Universe” to former-Fed Chief Alan Greenspan, taking him to task for willfully or stupidly disemboweling what little regulation the financial markets may have had before his tenure. This theme resounds throughout, and Taibbi asserts that the collusion between Wall Street and the White House has effectively turned the United States into a massive casino, in which working Americans are regularly bilked out of their savings and homes while the wealthy are repeatedly rewarded for their graft. It’s an important and worthy read, but not for the Randian disciple or Goldman-Sachs alum

But if you are too cheap to buy Taibbi’s book, at least read his article.

Footnotes:
  1. metaphoric [↩]

Out of Control in the House

Seth Anderson0 comment

Lights Out

The Teabaggers don’t really care about reality, logic, or established practice, or the economic health of the nation. They just want to crow about kicking ass.

Are there any adults in charge of the House? Watching this week’s frenzied slash-and-burn budget contest, we had to conclude the answer to that is no.

…

Some members want to go still further. On Tuesday, the House began debating the list of proposed cuts, and more than 500 amendments were filed, mostly from Republicans trying to cut still more out of — or end — programs they dislike. One would stop paying dues to the United Nations. Others would cut all financing for the health care reform law, or Planned Parenthood, or any foreign aid to a country that regularly disagrees with the United States at the United Nations.

If the Republicans got their way, it would wreak havoc on Americans’ lives and national security. This blood sport also has nothing to do with the programs that are driving up the long-term deficit: Medicare, Medicaid and, to a lesser extent, Social Security.

…

The House freshmen seemed even less concerned about the effect of their budget slashing. “A lot of us freshmen don’t have a whole lot of knowledge about how Washington, D.C., is operated,” Representative Kristi Noem, a Republican of South Dakota, told the Conservative Political Action Conference last week. “And, frankly, we don’t really care.”

In all of their posturing, Republican lawmakers have studiously avoided making clear to voters what vital government services would be slashed or disappear if they got their way — like investment in cancer research or a sharp reduction in federal meat inspections, or the number of police on the street, or agents that keep the borders secure, or the number of teachers in your kids’ schools. Those cuts will never get past the Senate, and, on Tuesday, Mr. Obama said he would veto such job-killing cuts if they arrive at his desk.

That puts the House leadership on notice. Will they follow the mob and allow the government to shut down if the cuts are not enacted? Or will they take back control of the House and steer it toward reality?

 

(click here to continue reading Out of Control in the House – NYTimes.com.)

Pink Light Over Boeing

Seth Anderson0 comment

Pink Light Over Boeing

Boeing, one of our corporate overlords.

Behold, 2007’s expenditures, estimated. These numbers have gone up several percentage points since then:

Total Purchases: $306,521,269,483

Rank Parent Company Total Air Force Army Navy
1 Lockheed Martin Corp. $27,320,616,068 $13,134,039,297 $4,129,352,342 $9,368,161,063
2 Boeing Co. 20,861,418,122 9,066,016,130 4,571,754,905 5,047,577,486

(click here to continue reading Top 100 Defense Contractors (8/15/07) — GovExec.com.)

And for a little perspective:

Top Ten Miliitary Spending 2009

2009 defense budgets, by nation, showing just the top ten. Notice how much bigger the U.S.’s percentage is…

This is a list of countries by military expenditures. The list is based on the Stockholm International Peace Research Institute (SIPRI) database which calculates military expenditures in 2009 (in constant 2008 US$)

Rank↓ ↓ Country↓ Military expenditure, 2009[2]↓ % of GDP, 2008↓
1 United States United States 663,255,000,000 4.3%
2 People's Republic of China China 98,800,000,000 2.0%
3 United Kingdom United Kingdom 69,271,000,000 2.5%
4 France France 67,316,000,000 2.3%
5 Russia Russian Federation 61,000,000,000 3.5%
6 Germany Germany 48,022,000,000 1.3%
7 Japan Japan 46,859,000,000 0.9%
8 Saudi Arabia Saudi Arabia 39,257,000,000 8.2%
9 Italy Italy 37,427,000,000 1.7%
10 India India 36,600,000,000 2.6%

 

Even in these lean economic times, the right of Boeing, Lockheed Martin and similar companies to make obscene profits is sacrosanct, and Obama’s 2012 Budget gives Defense a 5% increase. Domestic programs must be sliced to balance the federal budget, but defense contractors remain fat.

Defense Secretary Robert Gates already has revealed the Pentagon will seek $553 billion in its 2012 Pentagon budget plan — the largest request ever — and slower growth than planned over the next four years. He also has revealed proposals to end several major weapons programs, including the Marine Corps’ Expeditionary Fighting Vehicle (EFV).

That means the spending plan “will be anti-climactic in the broad sense,” according to one senior House defense aide.

Indeed, while Gates promised to cut $78 billion over five years, most of that reduction would take place in 2014 and 2015. As Center for American Progress senior fellow and President Reagan’s former assistant secretary of defense Larry Korb points out, Obama’s request is “5% higher than what the Defense Department plans to spend this year. In inflation-adjusted dollars, this figure is higher than at any time during the Bush years or during the Cold War.” In fact, the total military budget this year “comes in at a thumping $750 billion — an annual tax of more than $7,000 on every household in the country.” And while there are clear ways to cut $1 trillion from the Pentagon budget, it seems that many in the GOP have no intention of doing so.

(click here to continue reading ThinkProgress » Pentagon’s 2012 Spending Proposal Is ‘The Largest Request Ever’ Since World War II.)

These are only the budgeted amounts, the Pentagon manages to go over budget nearly every year since General Eisenhower was in office.

So are you willing to give $7,000 to the military this year? and more the year after? and more the year after that?

Evading Corporate Taxes in America

Seth Anderson1 Comment

Sketchy ATM Inside

We’ve discussed this before, but the bottom line is that corporations in the U.S. mostly don’t pay much tax because there are all sorts of clever loopholes and tax credits, and legal ways to evade taxation, and of course corporations take full advantage of them.

Of the 500 big companies in the well-known Standard & Poor’s stock index, 115 paid a total corporate tax rate — both federal and otherwise — of less than 20 percent over the last five years, according to an analysis of company reports done for The New York Times by Capital IQ, a research firm. Thirty-nine of those companies paid a rate less than 10 percent.

Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.

“A dirty little secret,” Richard Clarida, a Columbia University economist and former official in the Treasury Department under President George W. Bush, has said, “is that the corporate income tax used to raise a fair amount of revenue.”

Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.

Economists have long pleaded for an overhaul of the corporate tax code, and both President Obama and Republicans now say they favor one, too. But it won’t be easy. Companies that use loopholes to avoid taxes don’t mind the current system, of course, and they have more than a few lobbyists at their disposal.

 

(click here to continue reading The Paradox of Corporate Taxes in America – NYTimes.com.)

Goldman Vs. Apple

Seth Anderson0 comment

Apple Blues

John Cassidy, of The New Yorker, writes:

Contrary to appearances, I’m not obsessed with Goldman Sachs, and this will be my last post on the subject for a while. But the Wall Street firm issued its latest profit report today, and I thought it would be interesting to compare its results to those of Apple, another iconic American business, which yesterday published its own profit figures.

Many people are put off by financial accounts, but they provide an invaluable window into what is really going on in a given corporation, and to how much it is contributing to society. I may be weird, but sometimes I actually like poking around in 10-Qs, 8-Ks, and other disclosure forms that public companies have to file with the Securities and Exchange Commission. One word of warning, though. What follows should be considered a process of me thinking out loud, and pointing out some things that strike me, rather than reaching any definitive conclusions.

As everybody knows, Goldman and Apple are both making tons of money (although Goldman’s latest results disappointed investors somewhat). In the final quarter of 2010, the bank generated net profits of $2.39 billion on revenues of $8.64 billion. Apple, which has a much bigger turnover, made profits of $6 billion on revenues of $26.4 billion.

…

Another way to gauge a firm’s performance is to take everything it possesses—its buildings, its machinery and other equipment, its product designs, and its financial holdings—and look at how much profit it generates for each dollar of assets on its books. In my opinion, this measure, which is known as return on assets (ROA), is the best way to judge a business, because it excludes the amplifying effect of leverage. Now let’s apply it to Goldman and Apple.

According to its latest filing with the S.E.C., Goldman ended 2010 with assets of $911 billion, which means its ROA for the year was roughly .91 per cent. (Yes, that is less than one per cent.) Apple ended 2010 with total assets of $86.7 billion, which means it generated an ROA of about 20.3 per cent.

To summarize: Apple isn’t merely generating a higher return on the capital it employs than Goldman; it is more than twenty times as profitable! How can this be?

(click to continue reading Rational Irrationality: Goldman Vs. Apple: Who Generates the Highest Economic Return? : The New Yorker.)

Maybe I’m irrational, but I have less than zero interest in working for Goldman Sachs, and would love to even be an outside vendor for Apple, Inc., even though Goldman employees are paid much, much more than Apple employees:

Another thing that differentiates Goldman from Apple is how much it pays its employees. In 2010, Goldman’s 35,700 employees took home an average of $430,700. Apple doesn’t publish much information about its labor costs. According to the jobs Web site Simply Hired, the average salary at Apple is $46,000. Another Web site, Salary List, quotes a substantially higher figure—$107,719—but that doesn’t appear to include people working at Apple’s more than three hundred retail stores. Whichever number is more accurate, the basic message is the same. Apple employees earn a lot less than their counterparts at Goldman despite the fact they generate a much higher return—private and social—on the capital they use.

 

Texas as Ireland

Seth Anderson1 Comment

Austin Capitol From The East Side

Ru-oh, sounds like Texas is in the same sort of fiscal trouble as California and Illinois, and wherever else is teetering on the edge of insolvency.1 Plus I don’t think Texas can blame their troubles on public employees, because there aren’t many (if any) unions even available to targeted as punching bags…

there’s one state, which is fairly high up on the list of troubled states that nobody is talking about, and there’s a reason for it.

The state is Texas.

This month the state’s part-time legislature goes back into session, and the state is starting at potentially a $25 billion deficit on a two-year budget of around $95 billion. That’s enormous. And there’s not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn’t do the trick. And though raising this kind of money would be easy on an economy of $1.2 trillion, the new GOP mega-majority in Congress is firmly against raising any revenue.

So the bi-ennial legislature, which convenes this month, faces some hard cuts. Some in the Texas GDP have advocated dropping Medicaid altogether to save money.

So why haven’t we heard more about Texas, one of the most important economy’s in America? Well, it’s because it doesn’t fit the script. It’s a pro-business, lean-spending, no-union state. You can’t fit it into a nice storyline, so it’s ignored.

But if you want to make comparisons between US states and ailing European countries, think of Texas as being like America’s Ireland. Ireland was once praised as a model for economic growth: conservatives loved it for its pro-business, anti-tax, low-spending strategy, and hailed it as the way forward for all of Europe. Then it blew up.

(click to continue reading Hullabaloo – Austerity, Democrat Style.)

Of course, if Texas were to follow Gov Good Hair’s advice, and secede from the Union, well, everything would just be peachy, right?

Footnotes:
  1. the link nominates these 16 states as economic trouble spots: Colorado, Virginia, North Carolina, Arizona, Oregon, Louisiana, Connecticut, Texas, Minnesota, South Carolina, Mississippi, California, Nevada, New Jersey, and Illinois [↩]

State Budgets and Public Unions

Seth Anderson2 Comments

Add Drums to the Tumult

Seems to be an obvious focus for the upcoming Republican Congress to focus upon – starve the beast, drown it in a bathtub, right?1

There’s no question that Republicans have introduced a bill which would require more transparency on state public pensions, and that they hope this would provide a road map in the states for where they can cut budgets; namely, on the backs of public employees. That doesn’t mean it will happen in exactly that way, however. And the idea that the next Congress will overhaul the 30s-era law allowing states to go bankrupt seems fanciful to me.

But I don’t think states or municipalities need much help from the federal government in their desire to rewrite public employee union contracts. There has been a concerted effort for years to demonize and delegitimize public employee unions, from both Republican pols and the media in general. This has left a distorted impression about greedy union contracts and well-paid government functionaries. So the new class of Republican governors would certainly want to capitalize on that by pleasing the public, who now favor things like wage freezes (which Obama just instituted at the federal level) and furloughs and bigger pension contributions, punishing those workers. And they are animated by a general hatred of unions, which have maintained their strength in the public sector while fading away in the private sector.

Alongside that, there are legitimate budget problems in the states. The National Conference of State Legislatures estimates a $118 billion dollar shortfall in state and municipal budgets in 2011. And there are certainly some states and municipalities with currently unfunded pension liabilities. While federal aid could offset some of that, there’s no chance it will happen – expect the House to pass, early next year, a resolution basically forbidding “bailouts” of the states. At that point, state governments will either have to cut spending or raise taxes to balance their budgets, which almost all of them are constitutionally required to do. With public employees – or rather, cops, firefighters, nurses, teachers, the people who prepare your state tax refund, the people who get you your driver’s license, the people who get the roads and bridges fixed and basically secure your safe passage through the commons – seen in a negative light, they will in many states be lined up for cuts.

(click to continue reading In Unfolding War on Public Employees, State Lawmakers and Media Likely to Do the Work Themselves | FDL News Desk.)

PCBs

Especially when you read about cities like Hamtramck, MI, or Prichard, AL, or Central Falls, RI, or even Bell, CA

HAMTRAMCK, Mich. — Leaders of this city met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over. This time they slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank money for trimming trees and cutting grass on hundreds of lots that have been left to the city. And Mr. Cooper is hoping that predictions of a ferocious snow season prove false; once state road money runs out, the city has set nothing aside to plow streets.

“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.

“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. “But anything else is just a stop gap. We’re going to continue to pursue bankruptcy until the door is shut, locked, barricaded, bolted.”

(click to continue reading In Michigan, Hamtramck Pleads for a Bankruptcy Option – NYTimes.com.)

and in Hamtramck, MI, the city certainly wants to focus cutting the budget on public employees:

Here, the urgent search for services to cut has turned all attention to a realm that is also emerging at the center of budget debates in cities and states around the country: the costs of salaries, benefits and pensions of public workers.

Mr. Cooper, the city manager, says that everything else that could be cut already has been, while the city goes on spending 60 percent of its total general fund to pay for its police and firefighting forces — 75 current police officers and firefighters and about 240 former workers and spouses now on pensions. Mr. Cooper said that an entry-level police officer costs the city about $75,000 a year in salary and benefits, and yet repeated efforts to renegotiate contracts have failed.

“They kind of have the Cadillac plan,” Mr. Cooper said, “and we’d kind of like the Chevy.”

The police and firefighters question whether the city’s bankruptcy talk is really just a scare tactic for negotiation. Earlier discussions with city officials, they say, have urged them to accept pay cuts, layoffs, increased worker payments to pensions and even a suggestion that officers might pay for part of their own bulletproof vests — all this while the city has opted not to increase taxes.

“Nobody likes the police until you need them,” said Jon Bondra, the incoming president of Hamtramck’s police union.

So we’ll see…

Footnotes:
  1. rough paraphrase of Grover Norquist’s infamous phrase: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” [↩]

Crisis Dominoes Start Falling With Lehman Audit

Seth Anderson0 comment

plus ça change…

I tweeted about this yesterday, but Matt Taibbi is a little more fiery, and amusing:

It took more than two years, but there might finally be some capital sentences handed out for crimes committed during the financial crisis. That’s metaphorically speaking, of course. Like the accounting firm Arthur Anderson, whose head was sacrificed during the Enron debacle, the once-proud financial auditing firm Ernst and Young now looks poised to take a spin down the toilet of history thanks to its role in the Lehman Brothers debacle.

New York State Attorney General Andrew Cuomo is about to file civil fraud charges against E&Y for the work it did helping Lehman cook its books during 2007 and 2008. The short version of what happened goes something like this. Lehman Brothers, like all the other big banks on Wall Street in those years, was nearing insolvency and desperate for cash. In advance of its quarterly reports in 2007, the firm executed a series of something called Repo 105 transactions in an attempt to make their balance sheet look healthier than it was.

These Repo 105 transactions are just loans that Ernst and Young and Lehman Brothers conspired to book as revenue from sales. If I go to you and I ask you to lend me a hundred bucks to pay for Knicks tickets, that’s a loan, and you and I and the SEC and every investor on Wall Street all know I’m in debt to you, that I owe you a hundred bucks.

Here’s how Lehman Brothers paid for their Knicks tickets: a week before the game, they went to you and offered to you “sell” you their worthless puke-stained lava lamp for a hundred bucks, with the understanding that two days after the Knicks game, it would come back and “buy” the lamp back for the same $100 (plus a small commission for your trouble). And when Lehman pocketed that $100 from the initial transaction, they decided to call that not borrowing but a true sale, i.e. they booked that hundred bucks as revenue from an honest sale of a worthless piece-of-shit lava lamp.

In 2007 and 2008 Lehman would do this before the end of every quarter. They would “sell” billions of dollars of assets, typically bonds, to various companies, and use that money to pay down debt before the quarter’s end, so that they didn’t look so flat-ass broke to investors. Then, a week or so after the end of the quarter, they would go out and borrow more money, and then “buy” the assets back. The reasons they did this were myriad, but in most cases the assets they were “selling” were depressed in value at the time and could not have been sold at anything like face value had they really gone out on the market and tried. So instead of really “selling” these items on their balance sheet, they worked together with other companies to jury-rig these “repurchase” agreements that looked like sales but were actually loans.

(click to continue reading Crisis Dominoes Start Falling With Lehman Auditor | Rolling Stone Politics | Taibblog | Matt Taibbi on Politics and the Economy.)

The WSJ article I linked to begins:

New York prosecutors are poised to file civil fraud charges against Ernst & Young for its alleged role in the collapse of Lehman Brothers, saying the Big Four accounting firm stood by while the investment bank misled investors about its financial health, people familiar with the matter said.

State Attorney General Andrew Cuomo is close to filing the case, which would mark the first time a major accounting firm was targeted for its role in the financial crisis. The suit stems from transactions Lehman allegedly carried out to make its risk appear lower than it actually was.

Lehman Brothers was long one of Ernst & Young’s biggest clients, and the accounting firm earned approximately $100 million in fees for its auditing work from 2001 through 2008, say people familiar with the matter.

The suit, led by Mr. Cuomo, New York’s governor-elect, could come as early as this week. It is part of a broader investigation into whether some banks misled investors by removing debt from their balance sheets before they reported their financial results to mask their true levels of risk-taking, a person familiar with the case said. The state may seek to impose fines and other penalties.

…

The transactions in question, known as “window dressing,” involve repurchase agreements, or repos, a form of short-term borrowing that allows banks to take bigger trading risks. Some banks have systematically lowered their repo debt at the ends of fiscal quarters, making it appear they were less risk-burdened than they actually were most of the time.

Lehman Brothers dubbed transactions of this type “Repo 105.” The maneuver came to light in March, when the bankruptcy examiner investigating the firm’s collapse more than two years ago found that it moved some $50 billion in assets off its balance sheet. Lehman labeled those transactions as securities sales instead of loans, which led investors to believe the firm was financially healthier than it really was.

The bankruptcy examiner’s report and the attorney general’s investigation found that Lehman Brothers carried out the Repo 105 transactions on a quarterly basis in 2007 and 2008 without telling investors. Mr. Cuomo’s investigation found that Repo 105 transactions started as far back as 2001, said the person familiar with the probe.

(click to continue reading Ernst & Young Faces Fraud Charges – WSJ.com.)

Assholes.

Democratic and Republican tax plans compared

Seth Anderson0 comment

(click graphic to embiggen)

Comparing Democratic and Republican tax plans. The Republicans’ plan to extend the Bush administration tax cuts for the wealthy would cost $36.6 billion more than the Democrats’ plan, which extends cuts only for families making less than $250,000 a year and individuals making less than $200,000.

(click to continue reading Comparing Democratic and Republican tax plans.)

Easy way to tell whose side each party is on, no? Republicans earnestly believe those downtrodden millionaires need more money, because somebody has to purchase all those luxuries…like Republicans in the House

A Republican plan to extend tax cuts for the rich would add more than $36 billion to the federal deficit next year — and transfer the bulk of that cash into the pockets of the nation’s millionaires, according to a congressional analysis released Wednesday.

GOP tax plan would add billions to deficit Comparing Democratic and Republican tax plans New data from the nonpartisan Joint Committee on Taxation show that households earning more than $1 million a year would reap nearly $31 billion in tax breaks under the GOP plan in 2011, for an average tax cut per household of about $100,000.

The analysis, requested by Democrats on the tax-writing House Ways and Means Committee, comes as debate heats up over tax cuts enacted during the Bush administration, most of which are scheduled to expire at the end of this year. Republicans want to extend all the cuts, which would cost the Treasury Department $238 billion in 2011, according to the taxation committee. President Obama and congressional Democrats have vowed to extend the cuts only for families making less than $250,000 a year and individuals making less than $200,000 — 98 percent of American taxpayers — in a plan that would add about $202 billion to next year’s deficit.

 

(click to continue reading GOP plan to extend tax cuts for rich adds $36 billion to deficit, panel finds.)

Two Dudes Deficit Commission

Seth Anderson1 Comment

(click to embiggen)

Kevin Drum has a good analysis of the Two Dudes1 deficit-reduction plan that the yammering class is discussing:

To put this more succinctly: any serious long-term deficit plan will spend about 1% of its time on the discretionary budget, 1% on Social Security, and 98% on healthcare. Any proposal that doesn’t maintain approximately that ratio shouldn’t be considered serious. The Simpson-Bowles plan, conversely, goes into loving detail about cuts to the discretionary budget and Social Security but turns suddenly vague and cramped when it gets to Medicare. That’s not serious.

There are other reasons the Simpson-Bowles plan isn’t serious. Capping revenue at 21% of GDP, for example. The plain fact is that over the next few decades Social Security will need a little more money and healthcare will need a lot more. That will be true even if we implement the greatest healthcare cost containment plan in the world. Pretending that we can nonetheless cap revenues at 2000 levels isn’t serious.

And their tax proposal? As part of a deficit reduction plan they want to cut taxes on the rich and make the federal tax system more regressive? That’s not serious either.

(click to continue reading Is the Deficit Commission Serious? | Mother Jones.)

Social Security is not the problem, health care costs is, especially as our population ages. However, the Republicans and their Wall Street buddies are salivating at the prospect of dismantling Social Security, and diverting the funds into the markets, so instead of talking about Medicare, they concentrate upon Social Security.

Footnotes:
  1. Alan Simpson and Erskine Bowles [↩]

links for 2010-11-08

swanksalot0 comment
  • DeMint Says No Lifting Debt Ceiling Without Cuts Then Can’t Name Any Specifics Besides Earmarks | Video Cafe
    Jim DeMint says he’d be willing to shut down the government, the country to go into default on our debt and probably throw us into a world wide great depression by refusing to raise the debt ceiling if we don’t do something to get the budget balanced. When asked by David Gregory on this weekend’s Meet the Press to name specifically what he’d cut DeMint can’t name any specifics other than earmarks. He does also cite Paul Ryan’s plan which includes privatizing Social Security and Medicare so Wall Street can get their hands on the Social Security Trust Fund.
    (tags: Rethuglicans retarded)
    Embalming+Chemical+Man-+Chicago-760662.jpg

Rest of World Worried About US

Seth Anderson0 comment

I used to be able to read this, mostly

Meanwhile, the rest of the world is a bit worried about the Tea Party/Rethuglican surge…

As Republicans prepare to assert new authority in Congress following the midterm elections Tuesday, the United States’ overseas trading partners worry that Washington’s political upheaval may pose fresh challenges to the global economy.

Despite pledges to curb government spending and the huge United States budget deficit, Republicans are expected to address anxiety over unemployment and flagging growth by pushing hardest for an extension of the income tax cuts that were passed during the presidency of George W. Bush — a move that would add to the deficit and, by extension, further weaken the dollar.

“The rest of the world, including Asia, is looking at the United States and seeing no real effective policy measures in bringing the economy back on track,” said Bart van Ark, the chief economist at the Conference Board, which measures American economic indicators. “That is making the U.S. lose its legitimacy in the global economic community as a leader in terms of providing solutions.”

(click to continue reading Shift in Washington Stirs Economic Jitters Abroad – NYTimes.com.)

and especially because the Republicans have no real plan for solving anything, their plan is simply helping the wealthy become more wealthy, valuing short term over long term. If the Tea Party Republicans have their way, the US will turn into Somalia or worse.

After the Obama administration pushed through changes to health care and to the financial system, voters signaled they want reductions in federal spending. Representative John A. Boehner, the Ohio Republican set to become the next speaker of the House, reiterated a pledge after the elections to reduce the size of government, create jobs and change the way that Congress does business.

But that is no easy task. Voters also want to keep expensive entitlements and are hoping Republicans can reverse cuts to the Medicare program and extend the Bush tax cuts set to expire at year’s end.

Those moves, if enacted into law, would make it harder — not easier — to keep Republican commitments to curb the national debt and the budget deficit. From the perspective of those outside the United States, “Republican claims to fiscal probity are a little difficult to buy into,” said Simon Tilford, the chief economist at the Center for European Reform in London. “What they’re advocating would probably increase the deficit rather than effect the dramatic reduction which they claim they want to bring about.”

There is also the risk that Congress, divided between Republican control of the House and a fragile Democratic majority in the Senate, will dissolve into gridlock. That would leave the task of supporting a United States economic recovery almost entirely to the Federal Reserve.

Bank of China

Tax cuts aren’t going to miraculously fix everything, in fact they make matters worse…

Moreover, if the current income tax rates are extended for the wealthy as well as for middle class taxpayers for the next few years, the action could add an estimated one to two percentage points to the deficit as a share of overall economic activity, according to Klaus Günter Deutsch, a senior economist with Deutsche Bank Research in Berlin.

If Washington ends up adding to the deficit rather than reducing it, one result could be a further weakening of the dollar against the euro, the pound and other floating currencies.

Fast Track to Banana Republic

Seth Anderson0 comment

or Third World country, or whatever phrase you want to use. The US became the economic juggernaut it once was by having a healthy, wealthy middle class. If all the cash gets sucked up by the leeches in the upper bracket, there isn’t enough left for the rest of us.

The clearest explanation yet of the forces that converged over the past three decades or so to undermine the economic well-being of ordinary Americans is contained in the new book, ““Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class” (Paul Pierson, Jacob S. Hacker)”

The authors, political scientists Jacob Hacker of Yale and Paul Pierson of the University of California, Berkeley, argue persuasively that the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the very rich.

Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits.

“Over the last generation,” the authors write, “more and more of the rewards of growth have gone to the rich and supperrich. The rest of America, from the poor through the upper middle class, has fallen further and further behind.”

As if to underscore this theme, it was revealed last week (by David Cay Johnston, a Pulitzer Prize-winning former reporter for The New York Times), that the incomes of the very highest earners in the United States, a small group of individuals hauling in more than $50 million annually (sometimes much more), increased fivefold from 2008 to 2009, even as the nation was being rocked by the worst economic downturn since the Great Depression.

(click to continue reading Bob Herbert’s Fast Track to Inequality – NYTimes.com.)

Electricity comes from other planets

All the more reason to vote, if you haven’t already

Thomas Cox – hero of 2010

Seth Anderson0 comment

A Little to the Left

Perhaps hero too strong a word, but still, Thomas Cox should be feted by all those steam-rolled by bankers in pursuit of profits…

Mr. Cox1 vowed to a colleague that he would expose GMAC’s process and its limited signing officer, Jeffrey Stephan. A lawyer in another foreclosure case had already deposed Mr. Stephan, but Mr. Cox wanted to take the questioning much further. In June, he got his chance. A few weeks later, he spelled out in a court filing what he had learned from the robo-signer:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

GMAC’s reaction to the deposition was to hire two new law firms, including Mr. Aromando’s firm, among the most prominent in the state. They argued that what Mrs. Bradbury and her lawyers were doing was simply a “dodge”: she had not paid her mortgage and should be evicted.

They also said that Mr. Cox, despite working pro bono, had taken the deposition “to prejudice and influence the public” against GMAC for his own commercial benefit. They asked that the transcript be deleted from any blog that had posted it and that it be put under court seal.

In a ruling late last month, Judge Powers said that GMAC, despite its expensive legal talent and the fact that it got “a second bite of the apple” by filing amended foreclosure papers, still could not get this eviction right.

Even the amended documents did not bother to include the actual street address of the property it was trying to seize — reason enough, the judge wrote, to reject the request for immediate foreclosure without a trial.

But Judge Powers went further than that, saying that GMAC had been admonished in a Florida court for using robo-signers four years ago but had persisted. “It is well past the time for such practices to end,” he wrote, adding that GMAC had acted “in bad faith” by submitting Mr. Stephan’s material:

“Filing such a document without significant regard for its accuracy, which the court in ordinary circumstances may never be able to investigate or otherwise verify, is a serious and troubling matter.”

(click to continue reading Out of Maine, a National Foreclosure Freeze – NYTimes.com.)

You can read the Judge’s order here, and Jeffrey Stephan’s deposition here (both PDF files)

Footnotes:
  1. Thomas A. Cox, a retired lawyer who volunteers at Pine Tree [↩]