Friday, January 22, 2010

Buying our Democracy

Is now legal and sanctioned by the Supreme Court.

Money has always corrupted the political system in this country. Now corporations don't even have to hide it.

"The government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress that speech altogether" -Justice Anthony Kennedy, writing for the majority.

Disclosure should look something like this:

Thursday, August 6, 2009


An interesting article on taxes. The money quote:
European powers collapsed from overtaxing their people for wealth they no longer had. The United States is headed for collapse for refusing to fairly tax existing concentrations of wealth.

Remember that companies, large and small only pay taxes on profits. No profit, no taxes. Payroll is tax deductible, so taking on an additional employee reduces tax burden. So don't let anyone ever tell you that reducing taxes will be an incentive for companies to hire more employees.

Thursday, July 16, 2009

The Great Vampire Squid Feeding on Society's Cash

From Matt Taibbi's article, "The Great American Bubble Machine".
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pumpanddump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumercredit rates, halfeaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

It's a fascinating look into a, if not the, major player in the lead up to our current financial debacle. Michael Lewis traces the root cause back even further. In an article called "The End" he takes us through the mortgage meltdown. But deep into the article, right at the end of it he talks about his lunch with John Gutfreund, the CEO of Salomon Brothers who turned it from a private partnership into Wall Street’s first public corporation. By doing this Gutfreund:
...and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn’t, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers.

From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.’s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.’s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

...[Gutfreund] agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game.

And the taxpayers were left, paying for it.

If you're not ready to read the entire article, Matt Taibbi did an excellent series of interviews with Sam Seder which covers the basics very well.

Cenk Uygur wonders what would happen if Goldman Sachs went under?

Here is what I mean. Goldman Sachs knows that they are too big too fail. And they already know what the government does when a financial company is too big to fail. They bail them out -- no matter what.

What if Goldman took too many risks in making the absurd amount of money they're making now (while we're told that the banks don't have any money to lend)? What if they crashed right now? What do you think would happen?

Everyone in the world knows that we would bail them out. The idea that Tim Geithner would let Goldman go under is so laughable that it makes me sick. Does anyone trust that guy's impartiality (other than Obama)? Does anyone believe there is even a 1% chance that Geithner and Summers would let Goldman go down?

So, if you knew that no matter what level risk you took the government would always come riding to the rescue -- and that more risk equals more money in the short term -- wouldn't you take more risk? Of course you would.

One way forward is to fix the economy by prosecuting Lloyd Blankfein. If may not make things better right now, but at least they won't get away with it. At least, not entirely.

Monday, July 6, 2009

A Concise Statement of the Problem - Health Care

In this brief blog post, Mark Kleiman makes the following concise, profound statement of why we are where we are today in the health care debate.
"The biggest miscalculation made by the Clinton health care team was their bet that corporate executives would act out of corporate self-interest rather than class solidarity. If GM and Chrysler execs, and the execs of the other rustbelt companies with big legacy health-care costs, had acted in the interest of their shareholders and employees rather than in the interests of their business-school classmates and fellow high-bracket taxpayers, those two firms might not be bankrupt today, and we'd have a halfway-civilized health care finance system."

Single payer, national heatlh care makes our industries (or what's left of them) more competitive. It's good for the workers and it's good for the employers. Why is this so hard to understand?

Thursday, June 18, 2009

We are %0.0507 Socialist

As the US takes stock in GM and AIG and some very large banks, we hear cries of "We are becoming a Socialist country" throughout the cable news land. But are we really? Do these large events skew our perceptions in the right or wrong way?

The Atlantic has one answer.

Thursday, May 28, 2009

This Problem's Going To Be With Us For a While

From the NY Times today:

About 12.07 percent of all mortgages were delinquent or in foreclosure, up from 11.93 percent at the end of 2008.

Housing specialists said the number of foreclosures would probably keep rising as more people lose their jobs or are forced to trade full-time work for part-time. Nearly six million jobs have been lost since the recession began a year and a half ago, and many economists expect the unemployment rate to rise to 10 percent from its current 8.9 percent.

“More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults,” Jay Brinkmann, chief economist of the Mortgage Bankers Association, said in a statement. “It does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve.”

We need a much stronger social safety net in this country to ease the pain of economic downturns so they don't become crises like this. If the price of such a safety net is a reduction in the height of economic booms then that is 1) a cost we should be willing to pay and (or) 2) probably a good thing.

Tuesday, May 26, 2009

No One Knows Nothing. Personal Finance Edition Part 2

Exhibit 3: New York Times Economics Reporter, Edmund Andrews, buys a house he clearly can't afford using a "Don’t Ask, Don’t Tell" loan. This is a guy who should have known better who was paying "over $4,000 a month in alimony and child-support payments" which left him with a "take-home pay of $2,777" and he was still able to buy a house for $460,000, financing $414,000 of it. Would it surprise you that his mortgage company was American Home Mortgage Corporation? In the past, this would be the time where a loan officer says that they are sorry, you just can't afford this house. Instead, The mortgage broker "simply move[d] down another step on the ladder of credibility."

Let's let Edmund tell us how this works:
"Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.

"Despite the obvious red flag of applying for a Don’t Ask, Don’t Tell loan, I wasn’t paying that much for the money. The rate on my primary mortgage of $333,700 was a remarkably low 5.625 percent for the first five years, though my monthly payments would probably jump substantially after the fifth year. On top of that, I was paying a much higher rate of 8.5 percent on my “piggyback” loan for $80,300. Even so, I would be paying slightly more than $2,500 a month for the first five years. It would get expensive eventually, but I could worry about that later."

Bubbles do that to people. Bubbles make smart people do stupid things.