brainiac conspiracy

Christmas Gifts

Mustn't leave our job creators off our holiday gift list:

Amid the wrangling over the so-called fiscal cliff , President Obama and congressional Republicans can agree on something: They want to lower the corporate tax rate. The U.S. has the highest overall rate of any of the world's developed economies [...]

"In the name of global competitiveness, I think that has largely been agreed to," Jim McNerney, chief executive of Boeing Co. , said about how both parties view the need for major corporate tax changes.

Because oppressive taxation sure has taken a bite out of their bottom line:

Also too, oppressive taxation:

This is why, of course, we need to take money away from the poor, sick and elderly and hand it over to people who've profited from putting millions of Americans out of work while extorting taxpayer handouts to cover their own bad bets. If the administration really green-lights this deal, a lump of coal in their stocking next year will be much too good for them. Meanwhile, on the home front, it's time to stick a ham in the oven.

---Baron V

Postponing The Inevitable

Dodd-Frank or no, our leaders will eventually need to come to grips with the increasingly unavoidable reality that terms like "entrepreneurial creativity" and "financial innovation" are code words meant to conceal business practices that have enabled our financier class to steal billions of dollars from literally all of us for years. If they're too big to jail, they need to be chopped into bits and parted out like a junked car. Otherwise, all these monthly asset purchases and quantitative easings---no matter how well-intentioned or beneficial for the short term---are simply feeding an organized crime cartel that relies on swindling borrowers, bondholders, mutual funds and yes, taxpayers as an integral part of its business model. Regulations alone won't put a stop to it, nor will the system ever fix itself. As it's currently constituted, it's structurally incapable of behaving any other way.

So the choice is simple---either we keep dumping money into an unreliable vehicle that we know will break down again, or we tear it down to the frame and rebuild it from bare metal. It's not a terribly difficult choice to make, save for the fact that a number of rich people will lose lots of money if we opt for the latter. But that's the true "tough choice" that really needs to be made, not quibbling over how much grandma's monthly Medicare premium needs to be raised to restore fiscal sanity to Washington. So let's get to it!

---Baron V

The Cure For What Ails Us

It isn't difficult to divine. For the millions of us around the world who are still mired in various liquidity traps (underwater mortgage, downsized from work, student-loan debt, etc.), we're not buying stuff because we can't afford it the way we used to before the markets crashed and we lost lots of money. If someone can figure out a way to get us some more money, however, we can use it to buy more stuff and stimulate the economy as job creators ramp up production and hire people to build the stuff. Take more money away from us, however, and we'll spend even less money on stuff, and job creators will respond by shuttering production and laying off workers. It's really simple economics, and easily grasped by everyone except the technocrats who have been tasked with solving the problem:

"Domestic demand will only turn around when uncertainty among the companies about the fate of the euro has been dispelled, prompting them to increase investment again," Ralph Solveen, an economist at Commerzbank, wrote in a research note.

---Baron V

Celtic Tiger

It truly was a miracle of the last two decades: A poor and backward nation transformed overnight into a thriving economic powerhouse with low taxes, generous incentives for foreign investment, and a business-friendly environment that allowed entrepreneurs to innovate new wealth-creation strategies unhindered by intrusive and burdensome regulations. It was the poster child for dynamic, growth-oriented capitalism in the late 1990s, and it still is now:

A fifth of all households in Ireland are jobless with the rate double the average across Europe, a new report released in Dublin reveals today.

The Republic's Economic and Social Research Institute has found that 22% of Irish citizens are living in a jobless household.

It reports that there has been a huge leap in jobless households from 15% in 2007 to 22% in 2010 as the recession began to bite in Ireland. It says the high rate was partly due to the level of unemployment, but jobless adults in Ireland were more likely to live with children.

---Baron V

Protection Racket

They're not even trying to pretend they care about the public interest anymore:

US authorities defended their decision not to prosecute HSBC for accepting the tainted money of rogue states and drug lords on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the "collateral consequences" of taking the bank to court.

Announcing the record fine at a press conference in New York, assistant attorney general Lanny Breuer said that despite HSBC"s "blatant failure" to implement anti-money laundering controls and its wilful flouting of US sanctions, the consequences of a criminal prosecution would have been dire.

Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.

At this point, none of these outcomes seems terribly undesirable, considering that this very same banking system has already destabilized the lives, and stolen the fortunes, of tens of millions of people in this country and millions more overseas, and it continues to require massive balance-sheet expansions from the world's central banks to simply stay operational: in other words, as currently constituted, an enormous net drag on the global economy. Just a crazy thought here, but perhaps if one of these criminal enterprises lost its license to conduct commerce, had its assets broken up and its executives sentenced to lengthy prison terms, it might serve as an example to the other criminal enterprises to, you know, clean up their act before prosecutors decide to do their jobs, which last I heard was to prosecute people, not make up excuses for dereliction of duty by trying to scare people.

Personally, I'd be willing to bet that if they actually allowed a bank like HSBC to fail, most people in this country would stand up and cheer, even if it cost them some money from their portfolios. I know I would.

Cyrus Vance, the Manhattan district attorney, said: "New York is the centre of international finance, and those who use our banks as a vehicle for international crime will not be tolerated."

But they are being tolerated because they are being allowed to remain in business on our fair shores in exchange for money they can make up in half a fiscal quarter. Don't insult our intelligence with this "Crime doesn't pay" crap, because absent prosecution and imprisonment, it quite clearly does:

Despite the size of the fine, HSBC's shares on the London stock exchange rose by 2.8p to 644p. Last month HSBC announced third-quarter pre-tax profits to $3.5bn (£2.2bn).

---Baron V

Do-Nothing Congress

Yet another reason why they should adjourn now and not return to work until January:

The cost of taxing the rich has become the central debate in the "fiscal cliff" talks.

But the costs of not getting a deal might be even worse for the country---including the wealthy, according to a new study.

The population of millionaires in the United States would fall by 315,000, or 6 percent, next year if the country goes over the fiscal cliff and the economy goes into recession as a result, according to a new study from WealthInsight. The total fortunes of millionaires would fall by $240 billion if the cliff's combination of tax cuts and automatic reductions in government-spending were to take effect.

If the United States can solve the cliff deal and chalk up 2 percent growth next year, the number of millionaires would grow by 230,000, and their combined fortunes would soar to by over $1 trillion, WealthInsight's study said.

"Worse for the country"? Jesus, when did CNBC become the TV equivalent of the Journal op-ed page? You won't even find this plutocratic crap at Forbes, or Fortune, or Bloomberg anymore. But yes, Virginia, downsizing the number of millionaires and billionaires in America and redistributing their money to the grumbling masses would be a very productive endeavor. Perhaps not for the Walton family, but for, like, the rest of us. Why? Because we will use the extra money to pay down our bills, refurbish our homes, and buy lots of stuff that will stimulate demand so job creators can create more jobs, which will expand the tax base and help . . . pay down the deficit. This really isn't difficult at all to understand.

---Baron V

Speculation Bubbles

It doesn't really matter what sector of the economy we are talking about---stocks, securities, real estate, precious metals, antique cars, baseball cards, whatever---but whenever too many rich people who lack good judgment get together in a venue that allows them to flaunt their money with little apparent consequence, and there's no adult supervision in the room to inhibit their bad behavior, you'll find this insane herd mentality setting in that will cause them to mindlessly bid up prices of all manner of equities/commodities/stuff to levels that are far beyond any rational justification. Then, one day, a few of them wake up, realize they've been on a bad bender, and dump their holdings onto some convenient sucker who's late to the party and who finds out in short order that he's been sold a cheap counterfeit. It's pretty much the same anywhere the wealthy compete against each other with huge sums of money, and in the end it doesn't much matter whether they're investing in gold, oil futures, or sharks suspended in formaldehyde.

---Baron V

Rolling Jubilee

It's a great idea in theory---buying up bad debt from banks for pennies on the dollar, then forgiving it, and presto! no more debt---but in reality it's a lot more complicated due to potential tax liabilities that may arise from such transactions. The bigger problem for me, however, would seem to be ethical---specifically, the ethics, or even the wisdom, of giving money to people who made poor investment decisions for debts that they have no realistic hope of collecting (which is why they're peddling it so cheaply). It's well-intentioned, sure, but in the end it only incentivizes bad behavior:

I’m puzzled at the lack of instinctive revulsion to a plan that perpetuates and enriches the participants in abusive practices. I don’t think you’d see such enthusiasm, say, for a plan to deal with trafficking in women by raising funds to buy a few of the victims from the sex slave traders and free them. But the economic relationship to a predatory system is similar.

---Baron V

Buzzcuts For Thee But Not For Me

Swindle me once, shame on you. Swindle me twice . . .

Investors in US mortgage securities have been forced to absorb large writedowns in response to a deal between leading financial groups and government agencies over the “robosigning” scandal [...]

On Wednesday, BofA said that 60 per cent of the $4.75bn in first-lien mortgage principal it has thus far agreed to forgive would come from non-government guaranteed loans that were packaged into bonds and sold to investors.

Of JPMorgan’s $3bn in forgiven mortgage debt, slightly less than half has come from investors’ holdings, a person familiar with the matter said [...]

“Many of us expected a settlement to hold servicers responsible for their misconduct; not a bank bailout settling with other people’s money,” the Association of Mortgage Investors said.

The bondholders were going to take some kind of hit regardless, but you'd think the banks/servicers would've been required to write down toxic loans with their own money first before fleecing the rubes a second time. But of course, that's now things work in our American Meritocracy.

(Via.)

---Baron V

Tax Reform

Seems as though it's now the newest catch-phrase to find favor amongst the ruling elite, having replaced "top marginal rate" and/or the more vulgar "tax the rich" as the preferred policy goal. A good thing, really, since the objective in our upcoming fiscal cliff negotiations should be to make our system of taxation more equitable for everyone. So it was all for the best that our President met with some of the taxpayers' most ardent champions yesterday because, well, fairness:

The 63 Fix the Debt companies that are publicly held stand to gain as much as $134 billion in windfalls if Congress approves one of their main proposals---a “territorial tax system.” Under this system, companies would not have to pay U.S. federal income taxes on foreign earnings when they bring the profits back to the United States.

---Baron V

Do-Nothing Congress

Ideally, of course, we'd have a much more activist government committed to full employment, mortgage relief, massive infrastructure investments, a deeper social safety net, etc. Since we don't, however, the next best government many of us can hope for is one that simply allows existing policy mechanisms to run their course before jumping in to solve a problem which, if left alone, will largely solve itself:

[I]n the last year nominal spending on health care services, the sector that comprises almost two-thirds of health care costs, rose by just 1.7 percent. This is far below the rate of nominal GDP growth over this period, which was more than 4.0 percent. While at least some of this slowing in health care costs is undoubtedly due to the downturn, it is hard to believe that it is not at least partially attributable to a slower underlying rate of health care cost growth.

CBO and other budget forecasters can ignore economic reality for a period of time (they ignored the housing bubble until after its collapse wrecked the economy), but if it continues, at some point they will have to incorporate the trend of slower health care cost growth into their projections. When this happens, the really scary long-term deficit numbers will disappear.

A projection that assumes that health care costs will only rise as a result of the aging of the population, and otherwise move in step with per capita income, will lop tens of trillions of dollars off the most commonly cited long-term deficit projections. It would cost some deficit hawks, like National Public Radio, more than $100 trillion of their long-term deficit story. This would be a real disaster for the deficit hawk industry.

(Via.)

---Baron V

Probably Just a Coincidence

But it has always struck me as rather unusual that most of the Serious Persons who are pleading so urgently with our leaders to enact Smart & Sensible Entitlement Reform™ just happen to be the same people who stand to make the most money out of those "reforms" when they're finally rolled out:

Peter Orszag is vice chairman of corporate and investment banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration.

---Baron V

If Team Republican Loses

At least their standard-bearer can always go back to his day job:

The leveraged buyout---a deal structure made popular during the Wall Street boom of the 1980s and again in the wake of the tech bubble---could become much more common soon, according to a report from BofA Merrill Lynch.

BofA credit strategists Hans Mikkelson and Yuriy Shchuchinov write that current market conditions have become "unusually conductive for leveraging transactions for this stage in the typical cycle," and that as a result, "credit investors should be concerned about more extreme releveraging in the form of leveraged buyouts" [...]

Markets have QE3 to thank in part for the return of the LBO, according to the report. As the Federal Reserve continues to buy mortgage-backed securities, yields grind lower, and banks no longer see most fixed-income assets as attractive investments.

Thank you, Team Democrat, for fiscal policy that continues to incentivize these risky, debt-financed investments. I mean, if you hadn't taken trillions' worth of mortgage-backed securities off their hands, they might not have so much free money to lend to each other, or even be able to meet the new capital requirements. Oh well, guess they're assuming it's best not to talk to the invisible hand, for when acquisitions like these go bad---and they sometimes do----it's only the poor dumb suckers who get left holding the bag.

---Baron V

Joke's so Funny, Forgot to Laugh

Only from our best and brightest:

[T]he CEOs said they aren’t giving up their individual companies’ efforts to lobby Washington on fiscal policy, or their partisan political donations. But the hope from the grand bargainers is that their push for a big deficit deal will gain new credibility and visibility. President Obama has stressed that a deficit reduction package is a priority.

“It’s also an issue I’m very familiar with, having fixed a lot of debt in my career,” said JPMorgan vice chairman Jimmy Lee. ”And created it!” another member of the group interjected. “And created it,” he added, amid the laughter. “As Jamie [Dimon] would say, I got most of it back.”

Hardy har har.

Future historians attempting to chronicle our era will be at a loss to explain not only how these contemptuous little shitheads managed to avoid prison, but how they could still continue to be taken seriously by our governing and policy elites when, time and again, they had proven themselves to be miserably abject failures.

---Baron V

Blackmail

There's no other way to describe it:

The largest U.S. financial firms warned Thursday of dire consequences if Washington fails to head off year-end tax hikes and spending cuts, saying they could jolt the economy into recession and prompt a new and dangerous downgrade of the U.S. credit rating.

These projections come as U.S. business leaders have been escalating their lobbying on behalf of a bipartisan deal to avoid the “fiscal cliff,” pressing their case in a series of meetings with key members of Congress.

On Thursday, 15 of the nation’s largest financial companies warned President Obama and Congress in a letter that interest rates could spike significantly if policymakers do not agree to stop the series of automatic tax hikes and spending cuts and replace them with a long-term plan to tame the federal debt.

Whether he wins or loses two weeks from now, the President would be doing himself, his legacy, and his constituents a big favor if he told these venal incompetents at long last to fuck off. Let the tax cuts expire at the end of the year, let the sequester take effect, and let all the serious persons of official Washington run around for a week with their hair on fire. After a new Congress is sworn in, I am guessing we'll all be amazed at how quickly they cobble together a workable budget without the need for any Grand Bargaining.

And if not? Then the nation likely slides back into recession. Which obviously is not a desired outcome, but it's also one that would be scarcely noticed by the tens of millions of Americans who are still struggling to emerge from the last recession. Might be a good idea if somebody gave them a hand, no?

---Baron V

The Problem is Not The Solution

Right question, wrong answer:

At what point do the increasing costs of being a mega-bank, including dealing with new regulation and trying to manage a far-flung empire, become too burdensome to maintain? That is the question facing the boards and executives of those big banks, and their answers will shape Wall Street---and global finance---for decades to come. In the meantime, we can expect each quarter to bring a new round of boardroom drama and financial hand-wringing as they try to figure out what should come next.

No. Their "answers" will be what they have always been---fleece the investors, cover their losses by extorting money from the government, and vote themselves huge bonuses. They have already become "too burdensome to maintain" for taxpayers, who have coughed up annual trillion-dollar capital outlays at zero interest to keep their sorry asses in business. Until the T-men storm the casino with sledgehammers and start smashing the slot machines and demolishing the game tables, they will continue on their merry way. Only the rest of us will be wringing our hands at the prospect of another lost decade.

---Vitelius

Lies, Lying Liars, and Job Creators

One of these things:

Corporations, small businesses, consumer(s) and the housing market are all in better shape, Dimon said. The problem, he said, is the uncertainty around taxes, policy and (the) fiscal cliff is “a huge wet blanket” on an otherwise improving economy.

“We have this constant anti-business, not just sentiment, but regulatory, attorney generals... We’re shooting ourselves in the foot,” he said. “Get rid of that wet blanket and this thing will take off.”

Is not quite like the other:

JP Morgan Chase, the US's biggest bank by assets, reported a record quarterly profit Friday.

The bank said it made $5.3bn in earnings for common shareholders, a widely used measurement, from July through September, up 36% from the same period a year ago.

One of the most obvious things that goes overlooked in our discussion of economics and tax policy is the fact that many of our leading players and opinion-shapers are patently full of shit. Would be nice if someone actually acknowledged this instead of agreeing that they're in dire need of a tax cut. Might even be worth a mention in the next debate, no?

---Baron V

Elections Don't Matter

Don't like to think this, since I do take pride in never having missed one, but it's kinda hard to reach any other conclusion at this stage in our history when you realize that the people who are actually formulating policy and writing our laws aren't people who anyone voted for:

Both Romney and Obama are widely viewed in corporate America as likely to support a deal roughly along the lines of the Bowles-Simpson commission recommendations that will include trims to Social Security and Medicare and new revenues beyond just increased taxes for the wealthy. Corporate America would also like to see such a deal include a lower overall corporate rate and changes to the taxation of overseas profits. But those things are not viewed as prerequisites for widespread corporate support of a deficit reduction deal. The executives also want a mechanism put in place in the lame-duck session to extend current tax policy and delay the $1 trillion in sequester spending cuts scheduled to go into effect in January while forcing action on a sweeping plan next year.

“Based on conversations with both campaigns I’m very reassured they are both committed to getting a deal done and want to lead on making it happen,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. MacGuineas is leading an effort to corral CEOs to support the Fix the Debt campaign, which has so far raised $30 million to support a “grand bargain” deal on taxes and spending and hopes to raise $100 million. “You can’t implement any kind of agenda without getting this done first.”

---Vitelius

Forget $5 Gas, Enjoy $5 Bread

Because supply and demand:

A federal judge today threw out the Dodd-Frank provision that empowered the Commodity Futures Trading Commission to set position limits on commodity trading. Judge Robert Wilkins said in his ruling that the CFTC did not prove the necessity of position limits to curb runaway speculation, and that the law itself did not “constitute a clear and unambiguous mandate to set position limits, as the Commission argues.”

Here’s the punchline: Judge Wilkins was appointed by President Obama in 2010.

Now, "position limits" are limits to the amount of any deliverable commodity that any one trader or speculator can hold within a given time frame. The rationale behind this is to prevent any one party from either "cornering the market" which would allow them to rig prices that restrain trade and gouge consumers, and/or to prevent parties that never intend to take delivery of the commodities they've purchased to manipulate the futures markets. While these are certainly legitimate concerns, the problem is that they've never actually happened before in our history, so the judge's decision was clearly a fair and wise one.

---Vitelius

They Crashed the Global Economy

So we must raise future generations to emulate them:

I'm not suggesting we get rid of liberal arts departments---I'm suggesting we create more employable English and film majors. "Well-rounded" and "self-sufficient" shouldn't be mutually exclusive concepts, and combining experiential learning with access to business role models and public/private partnerships can fundamentally transform the way we think about workforce development.

Here's a thought: let's fire every college president with the means and resources to embrace entrepreneurship who doesn't explore, support or start an entrepreneurship education program or partnership of some kind. Sure, that idea is bound to ruffle some feathers, but forgive me if I don't shed a tear for those leaders whose outdated policies (and our tacit willingness to accept them) helped create the situation we're in today [...]

Nostalgia for yesterday is nice, but we need a new approach. As more and more "safe" jobs get automated, streamlined or downsized (remember when law grads were virtually guaranteed six-figure jobs?), let's start putting our money where our mouth is, and ask the people educating our children to graduate a new generation of self-sufficient, "well-rounded" thinkers and doers.

I've got another idea: let's fire every editor at The Atlantic who thought this piece of morally and intellectually bankrupt garbage was fit to publish.

Next, let's remind the greedy little shit who authored this piece that all of that automation, streamlining and downsizing he mentions is the creative handiwork of the same "entrepreneurs" whose virtues he extols. We should especially remind him of those entrepreneurs who innovated bold and exciting new products in the marketplace over the last two decades, such as the multi-tranche subprime mortgage-backed security, the collateralized debt obligation and the credit default swap, all of which vaporized $12 trillion out of the global economy when the market for them imploded. Finally, let's suggest to him and the editorial staff of The Atlantic that the optimal solution here is not to re-tool our public institutions around a corrupt and corrosive business model that's predicated on a small number of people profiting off the sickness and misery of millions but by discarding altogether the "entrepreneurial" vision in favor of one that works to the benefit of the commons, not a claque of privileged white assholes who can't wait to turn every available public institution into another ATM machine for their exclusive benefit.

One more thing: public universities already offer classes in "entrepreneurship" in their post-graduate business schools. And some of their most illustrious alumni---including the last President of the United States---did a super, stellar job of innovating and driving the market straight into into the worst economic calamity in the last 80 years. But by all means, let's graft their best practices across the entire core curricula, and that'll solve everything.

---Vitelius