THE SUPER RICH HAVE NOT EARNED THEIR MONEY ...

Those of you who read this blog regularly (or my book) won't find anything new in this piece, which I synopsize below. It says in plain English that favorable legislation, industry bailouts, market subsidies, wealth extraction, and simple greed are now the backbone behind modern markets in America. It just says it in another way.  

From Paul Buchheit at Common Dreams.org, we get five reasons that help explain how the super rich have not earned their money.


1. They've Taken All the Middle Class Wage Increases
In 1980 the richest 1% of America took one of every fifteen post-tax income dollars. Now, according to IRS figures, they take THREE of every fifteen (doc) post-tax income dollars. They've tripled their cut of America's income pie. That's a trillion extra dollars a year ...

2. They've Mismanaged Key American Industries
We have the most expensive health care system in the world. Failing banks have survived because of taxpayer bailouts. Management-approved shortcuts have led to workplace deaths and chemical leak disasters. Companies lobby for cap and trade laws so their profits can pay for their pollution ...

3. They've Benefited from 50 Years of Public Research
The very rich have made their fortunes in good part because of taxpayer-funded research at the Defense Advanced Research Projects Agency (the Internet), the National Institute of Health, the National Science Foundation, and numerous other government agencies ...

4. They've Increased Their Incomes By Not Paying Taxes
The richest 10% own 80% of the stock market, providing billions in "unearned income" that is taxed at less than half the rate of income earned through real work ...

5. They've Contributed Little to Society
The richest individuals and corporations have shown little regard for the majority of Americans who depend on sound financial management for their economic security. According to sources such as the New York Times and ProPublica, Wall Street firms including JPMorgan, Citigroup, Bank of America, and Goldman Sachs have been repeatedly charged with fraud only to avoid punishment by paying a fraction of their profits in fines ...


What all of this points to is that many of our modern "rugged individualists" do NOT represent the go-it-alone market entrepreneur many like to believe exists and dominate our market system. When it comes to making the magic of the market work, there are numerous (and I mean numerous) factors at work.

You can read Bruchheit's entire piece, with links, here.

- Mark

ONE SOURCE OF CORPORATE PROFITS ...

"... every shilling with which they overburden the inferior number, is a shilling saved to their own pockets."

- James Madison, Federalist #10.

- Mark

In the FYI Department: Corporate taxes as a percentage of government revenue actually started dropping (to 27.3%) by 1955. Corporate taxes as a percentage of GDP (yes, there's a difference) dropped from 6.1% in 1952  to about 1.3% in 2011. Guess who gets to make up the difference?

UPDATE: And let's not forget this ... 26 corporations paid no federal taxes between 2008 and 2010 in spite of $205 billion in pretax profits.

UPDATE II: For your friends who don't believe anything unless it's on Fox News, here's the amount of revenue by source since 1934. Be sure to have them explain to you why corporate tax receipts have effectively dropped (collapsed?) as a source of revenue while individual income tax receipts and social insurance/retirement receipts  have climbed over the years. Then ask them what affect this might have on corporate profits. Better yet, ask them how this might impact yearly budgets, and our national debt.

ROMNEY'S AMERICA

If you didn't watch Clint Eastwood's "Halftime in America" piece for Chrysler you can watch it below, or here. But be sure to watch it before you scroll down to the comic below ...





Romney's America, if he were to win ...

- Mark

WALL STREET'S GET OUT OF JAIL FREE CARD ... "INTENT"

If you ever wanted to know why no one from the financial sector and Wall Street is behind bars look no further than this 60 Minutes piece on mortgage fraud and Countrywide. Simply put, committing fraud isn't enough to get you prosecuted. You have to show that fraud was also intended (can you imagine a criminal defendant saying, "I didn't mean to kill him, he just happened to be in the way of my bullets"?).

Also, in the FYI category, none of this was confined simply to Countrywide either. It was prevalent and encouraged throughout the industry (and by Wall Street), and is indicative of corporate entitlements and protections that you and I don't get.

I've said it before, and I'll say it again, we can fix a lot of this if we understood Bill Black's "control fraud" better, and used RICO statutes to go after our financial institutions as criminal enterprises ...

- Mark

QUANTITATIVE EASING III (a.k.a. "Corporate Welfare") HAS BEGUN (again)

My God, this is getting way too easy. I said it would happen back in 2010. This past summer I said it would happen, again. So, what happened? Simply put, the Federal Reserve is dumping more cheap money into the markets. This time it's down a European rat hole.

Here's the problem. The Fed's action won't accelerate recovery. It also won't fix Europe's debt woes. And it certainly doesn't make market players any smarter. But it keeps many market players solvent (and arrogant) because it's a bailout that maintains market confidence.

While the Federal Reserve doesn't want to anyone to think it amounts to another market bailout (it is), the sudden availability of cheap cash in Europe allows European banks and market players around the world to continue pretending that our market environment is sound (it isn't). Here's how the bailout plan works.

HOW IT WORKS
In real simple terms America's central bank, the Federal Reserve, is lending dollars to European central banks. European banks need dollars because European banks lend significant amount of dollars (about $3 trillion) to investors and other market players. Dollars are getting harder to find in Europe (which drives up the price). In exchange European central banks send us other currencies (as "collateral"), which include Euros (these are called Fed Swap Lines).

The idea is to put enough cheap dollars into European central banks so that they will lend to domestic banks throughout Europe. What's the goal? To prevent U.S. markets from tanking. How would this happen, you ask? Glad you asked.

If European banks, who need dollars, can't borrow dollars they will begin dumping (selling) U.S.-denominated assets, like U.S. stocks, mortgages, and corporate loans (among others). They do this because they need dollars to cover their losses elsewhere. If the European banks can borrow dollars cheaply, the thinking goes, they don't have to sell U.S. assets. Ergo, if the Fed makes more dollars available to Europe, we don't get a sudden market dump of stocks and bonds out of Europe, which might lead to a wholesale fire sale, and the sudden collapse of the U.S. stock market (again).

Seriously, lending money to Europe on the cheap is our way of keeping Wall Street and our financial markets afloat. But opening the money gates for European banks is really corporate welfare. By not having European banks dump U.S. assets into the market (in order to generate dollars in Europe) the Federal Reserves money dump helps maintain, or artificially inflates, the value of U.S. assets around the world. Portfolio managers win. Wealth managers win. Wall Street wins, again.

You and I, however, foot the bill if (when) it all blows up. We're also told to be quiet when market players cash out their bonus-laden contracts, which have been made whole by these money dumps. No Fed-Funded bailout tax. No "QE Tax." No taxes on taxpayer backed money dumps, period. Nada. Zilch.

Finally, because it sounds better than corporate welfare the Federal Reserve likes to call making cheap money available quantitative easing. Quantitative easing has been done twice since the market began it's crash in 2007. But they're not calling it quantitative easing (QE) this time because, according to the Fed, it isn't. Huh? [head scratch]

BUT "QUANTITATIVE EASING III" IT ISN'T ... HUH?
The Federal Reserve - and everyone who benefits financially from the money dump - don't like to see what's happening (the money dump) as the opening of QE, Round III. They don't like to call it QE III because they know it's corporate welfare, and it kind of hurts market confidence (and their feelings).

As such, global money managers are making a point of letting everyone know that (1) this is for Europe only (it's actually to prop up U.S. assets), (2) the cost of money's not getting cheaper in the U.S. (it's also not available unless you give up your first born), and (3) they haven't restarted 2007-08 crisis programs, like the Term Auction Facility (which would signal a real mess).

Great. In plain speak, this is like saying your recovering alcoholic in-laws are doing fine because you're only giving them beer instead of the hard stuff. Oh, and you're limiting them to drinking until midnight. You get the point.

QE III has begun. But don't call it QE III because it's really corporate welfare, which hurts market player feelings. Shhhh ...

- Mark

ADDENDUM: Almost forgot, here's a humorous but surprisingly well-informed look at quantitative easing and the Fed. Enjoy ...

TODAY'S MARKET MESS IS NOT ABOUT LAST WEEK

There are a few posts that I'll post later today, but I wanted to comment first on what's been happening in the markets today. Simply put, all of this is very predictable.

Back in April of 2010 market players (and Washington) were going "goo-goo, ga-ga" over the stock market because it hit 11,000. At this time (a little before 10:30 am PST) "the market" appears to be in a state of panic because the Dow is heading downward towards 11,000 in part because Standard & Poor's down graded America's credit rating from AAA to AA+ after last week's GOP-led debt ceiling clown show.

As I pointed out back in April, if you don't fix what caused the market to collapse in the first place (deregulation, a culture of debt, and unabated speculation and gambling on Wall Street), and even encourage more of the same, "the sh*t will hit the fan." Guess what? Today, it's hitting the fan.

But there's more. And it should give everyone who cares about America cause for concern.

Over the past three years Washington has tried desperately to fix our market mess by putting a band-aid over the problem. Specifically, we've engaged in a money drop on Wall Street. As I pointed out when I discussed how the banks don't trust one another, and then explained why "I'm a Market Guru," what's actually been propping up our markets has been legislative gifts and the federal government's trillion dollar money dump (which market players like to call Quantitative Easing because Bailout-Plus sounds too welfarish).

In essence, we've been papering over the cracks with tax payer backed bailouts and favorable legislation, and it's starting to show. If we had dealt with the real causes behind the market collapse in 2008, what we saw in Washington last week would have been just another side show. Instead, the GOP-led stupidity we've been watching the past few months is accelerating the beginning of the end of America's exorbitant privilege.

What this tells me - and should tell every American - is that America's fortunes are being held hostage by political ideologues and financial terrorists who don't understand the difference between policy (i.e. Keynesian) tinkering and corporate welfare. And it's killing our economic paradigm.

But wait. It gets worse. We've seen this before. All of it. History is whispering in our ear, and it's not pretty ... as I wrote in this post last year.

I'll have more to say about this later, but President Obama is going to speak about the mess any time now.

 - Mark  

HAPPY TAX CUT ANNIVERSARY!

Happy Anniversary! Almost 10 years ago today, on August 1, 2001, the Associated Press reported that the Treasury Department began borrowing $51 billion in order to pay for the first round of Bush tax cuts’ rebate checks.

While Democrats consider cutting entitlements and other programs, the GOP plans on celebrating by convincing each other that keeping the Bush tax cuts (especially for the rich) will fix what's ailing our country. Read about it here.

The really incredible thing is that if the rich and corporations paid taxes at the same level they did in the 1960s our budget debt would disappear.

- Mark

HOW BANKS ARE RIPPING OFF THE AMERICAN TAXPAYER

I can't see how this is a surprise to anyone ...

In a recently released study from the Congressional Research Service we learn that the nation's largest banks profited off of our nation's financial crisis-era programs by borrowing cash for almost-zero percent interest. Then they lent it back to the federal government at substantially higher interest rates.

Yeah, that's right, deliberately low interest rate programs - designed and justified with the idea of getting money into the hands of ordinary middle-class Americans - were hijacked by banks who borrowed cheap money from Uncle Sam (a.k.a. the American taxpayer). They then showed their appreciation by hoarding it (for their rainy days).

And when it suited their interests they lent it back to Uncle Sam and the American taxpayer at higher rates.

Let's see, where I have seen this before ...

Oh, yeah. I've been writing about these dynamics for years now. So have others, like one of my favorites, Barry Ritholtz.

The worst part is that trillions - perhaps as much as $9 trillion - was spent, lent, credited, or guaranteed ("encumbered") by the Federal Reserve over the past years, but no one really knew where the money was going. Yeah, that's right, the people who are supposed to be following and tracking where our money goes are about as clueless as Chief Wiggins.

But nobody pays attention to this stuff because getting people to take a look at how America's economy really works (especially with Maiden Lane, TALF, and other trillion dollar corporate welfare giveaways) is akin to getting Americans to line up for a root canal. It might be good for them, but they simply won't do it.

So, we continue to live a lie, believing in the myth that the banks do the right thing and that "free markets work best."

Sigh ...

- Mark

THE GOP ISN'T SERIOUS ...

In the "I told you so" department ...

Last month I posted on the "Ten Myths About Our Budget Mess (And Why the GOP Isn't Serious About Solving It)". In a few words I wrote that rather than pursuing a balanced approach, and going after wasteful corporate subsidies, write-offs, deductions and other unnecessary corporate welfare giveaways, that the Republicans simply wants to cut programs they don't like. Their budget priorities have nothing to do with saving money as much as it does with forcing their failed ideology down America's collective throat.

A political force-feeding, as it were ...

I wrote that it doesn't matter that we can find at least $1 trillion in savings by going after unnecessary tax breaks, subsidies, and deductions, the GOP simply is not serious about fixing our budget mess. Period.

Well, guess what? With a $1.5 trillion budget deficit staring us in the face the GOP voted yesterday to keep and extend billions in tax breaks for America's biggest oil companies - even though they're making record profits, and don't need them. 

Think about this the next time the GOP says they're serious about the deficit.

- Mark

PRIVATIZING SOCIAL SECURITY ... QUANTITATIVE EASING IN PERPETUITY?

Have you ever wondered why the stock market never seems down for long, and then makes sudden and even convenient rallies? Even the 2008 market crash and recovery seems strangely managed, and is now taken for granted. What we're seeing is the virtual elimination of volatility and risk in the stock market (which Zero Hedge discusses here).  And it's all being done on the backs of the American taxpayer.

How has this happened? While the process may seem complex, it's all tied to a bailout and stimulus addicted market where cheap taxpayer-backed money is made available (in Washington-speak it's called Quantitative Easing, or QE). Simply put, the federal government, through the Federal Reserve, is doing it's level best to pump taxpayer money into a gambling den that used to be a competitive market system.

This money pump makes it very difficult for firms to fail, and for their stock prices to collapse, when they do stupid things.

While the goal is to get the economy back on it's feet and to instill confidence in reality it subsidizes and props up a crippled market environment. This helps the Mafia of Mediocrity that runs Wall Street feel good about the crappy decisions they've made. It also encourages Wall Street and other market players to continue doing business as usual, in the process ignoring how their taxpayer subsidized profits make them the super star investors they see in the mirror.

And why not? The government through the Federal Reserve simply won't let the biggest and most foolish market players collapse.

Why is this important? Because as Tyler Durden at Zero Hedge points out there is no longer "normalcy" in the market. The integrity of the market suffers because bad management is no longer weeded out. This is a problem because once Treasury purchases, trillion dollar guarantees, or future stimulus programs get cut, or fail to produce results, our Mafia of Mediocrity on Wall Street will still be there.
 
Worse, the only people who will win in this environment are the money barons who are rolling the dice today, betting on the market's collapse (i.e. those who "short" the market).

This is one of the reasons market players and their Republican errand boys want to privatize social security (which is currently generating cash surpluses). They're going to need a flood of money to cover the bets they've made in the market. A steady stream of Social Security payments from you and me will guarantee payoffs for those who bet against America.

Think of it as a Quantitative Easing, in perpetuity.

To be sure, a steady stream of social security payments will help to stimulate the market, at first. But it's real effect will be to lock the American taxpayer into Wall Street's casino for generations. Can you imagine Wall Street with trillions in taxpayer guaranteed funds, in perpetuity?

Viva Las Vegas!

If you want a road map into how this looks in real life check out how the Bush administration transferred $64 billion in carefully managed public pension funds to their market buddies right before the market collapse here. While big fees and bonuses went to those who made big bets on Wall Street, the big losers were the retirees who depended on the government to protect their pension funds, only to see it siphoned off by Wall Street's biggest players.

Any one who expects Wall Street to treat trillions of dollars in social security funds any different is simply living in a fantasy world.

- Mark

P.S. This helps to explain Quantitative Easing ...

WHY THE BANKS ARE STILL IN TROUBLE

I've been saying this for some time now. In spite of trillions in aid the banks are still in trouble and the Federal Reserve is doing their level best to cover for the banks.

Specifically, the Federal Reserve is flooding Wall Street's biggest market players with money by keeping interest rates low. But, instead of being called Wall Street's Trillion Dollar Money Flood, or Wall Street's Bailout in Perpetuity Program (BPP), like it should be, the media is going along with the Federal Reserve's misleading and mind-numbingly opaque "quantitative easing" (QE) terminology.

They're doing this because, you know, Wall Street hates it when they get money virtually for free and we call it what it is - Corporate Welfare.

Interestingly, even though we are deep into the second phase of the Federal Reserve's trillion dollar QE/Money Flood for Wall Street, the Fed knows full well that their first two QE programs aren't working. How do they know this? Because the economy stinks and, in spite of having trillions of dollars dumped in their laps (a process that actually began in 2007), the banks still aren't lending because they don't trust one another.

As a result, the Federal Reserve is moving beyond QE II and is now preparing to push through QE III - or, more appropriately, they're preparing another money dump for Wall Street.

There are four reasons that the banks are in trouble. I've been blogging on these reasons for some time now, but Shah Gilani, contributing editor for Money Morning, has done us all a favor and put them into a nice little list.

Banks Still Carrying Toxic Assets: In spite of being able to dump hundreds of billions in toxic assets on the American taxpayer Federal Reserve the banks still have toxic assets on their balance sheets - for starters, $2.4 trillion in mortgages and more than $1 trillion in mortgage-backed-securities.


Industry Accounting Gimmicks: The banks have been able to juggle accounting rules to make their books look better than they really are.

Bank Smoke & Mirror Profits: The banks have made their recent profitability look robust by moving loan-loss reserves back over into the revenue columns of their income statements - booking that as top-line growth.

Banks Facing Lawsuits: And the onslaught of litigation banks now face that could force them to mark down their assets at the same time that they will have to buy back tens of billions of dollars of non-performing mortgages they originated and securitized.

There you have it. Trillions of dollars handed over Wall Street's biggest banks. Still, in spite of using dishonest accounting standards, and dumping hundreds of billions of their toxic assets on the American taxpayer, the banks are still in trouble. They know it ... The Fed knows it ... The Obama administration knows it. Yet, we're going to do it all over again with QE III.

For what we've gotten in return I'd say this is like dumping money down a drain.

- Mark

THIS IS WHY PENSIONS ARE UNDERFUNDED ...

Want to know why many public pension funds are sucking wind these days? While the right wing blogosphere wants you to think it's due to spiraling costs and overly generous pension plans this simply is not true. Corporate arrogance, market fraud, and our recent market collapse have done more to underfund and rob pensions of their market value than anything else.

Here's how it happened ...

Take My Pensions, Please
In the area of corporate theft - what William C. Black might call "control fraud" - we need to begin by understanding that when large firms file for bankruptcy protection they can, and they will, dump their pension obligations on the federal government, through the Pension Benefit Guaranty Corporation (PBGC). 

But dumping private obligations on the American taxpayer isn't necessarily the problem. The PBGC has traditionally been a conservative investor and trustee of pensions (more on this below). What we've learned is that in an effort to boost their bottom line corporate chieftains would deliberately pay less into their employee's pension plans.

This tactic boosted profits, allowed corporate executives to pay themselves more in the short-term, and helped keep stock prices artificially high. But it also left the federal government with big financial holes to fill when "private" pension plans were dumped on to the American taxpayer during corporate bankruptcy proceedings (as I pointed out last year).

These financial holes - again, made possible because the private sector deliberately underfunded pensions - now make it appear that underfunded government guaranteed pensions are out of control. In fact, many of these once private plans were underfunded to begin with, and became a burden for the federal government American taxpayer only after companies like Bethlehem Steel, U.S. Air, Nortel Networks, etc. declared bankruptcy and dumped them on us.

I'm From Wall Street & I'm Smart ... Seriously
Today the federal government is now left trying to fill in shortfalls with new investment strategies that don't always pan out. Apart from the general risk of market collapse, the American taxpayer has to deal with overly zealous market players in key government positions who make extremely dumb investment decisions, as the following makes abundantly clear.

If ever there was a story that should put an end to the "Public-Pensions-Are-Too-Expensive/Let's-Cut-Benefits" crowd, this is it.

WASHINGTON - Just months before the [2008] stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

Got that? Believing in the magic of the market - in spite of red flags that were going up all around him - Bush administration PBGC director, Charles E.F. Millard, implemented a new aggressive market strategy. He began directing billions of dollars in public retirement funds away from safe government bonds and into the stock market, right before the market collapsed.

Guess who has to live with the consequences of this decision after 2008? Not Mr. Millard.

On the bright side, for Wall Street and the institutional players who were able to get their hands on these retirement funds, many of Wall Street's fat cats and investment firms won big fees and, no doubt, even bigger bonuses for bringing in these accounts.

I'm Not Just Ignorant, I'm Arrogant Too
We now know that corporate America deliberately underfunded private pension plans. We also know that they dumped their underfunded pensions on the American taxpayer when they declared bankruptcy. Then, in an effort to make up anticipated shortfalls, Mr. Millard - a former managing director of Lehman Brothers - took public funds and dumped them on to Wall Street right before the market collapsed (no word on whether Millard shoveled the money into Lehman Brothers, or toward other institutions where his buddies worked).

It was like throwing money down a drain.

Not only was this a classic case of "Heads you win, tails we lose", but it was a case of corporate welfare and public subsidies at its finest.

Incredibly, Mr. Millard isn't too concerned over the losses. As a former Wall Street genius, Millard said that his "new investment policy is not riskier than the old one." Asked whether the stock over bonds strategy was a mistake, especially given the subsequent decline in stock and real estate prices, Millard offered the classic sociopath's "Don't blame me" response,

Ask me in 20 years. The question is whether policymakers will have the fortitude to stick with it.

I don't know which is worse. Millard's arrogance or his ignorance.

Either way, putting more public money - like trillions of dollars in social security funds - into our current market environment would be little more than an undeserved market reward, and another bailout, for Wall Street.

At the end of the day, they don't deserve it. And we can't afford it.

- Mark

Update: Here's an update, which focuses on the implications of the market crash and total obligations as they compare to corporate pensions.

FINANCIAL TERRORISTS & FALSE PATRIOTS ARE THE REAL ENEMY?

If you want to understand how we're getting cheated out of hundreds of billions of dollars in tax revenue by our very own financial terrorists, the following is a primer. While I understand this may be conceptually difficult for the Country First, false patriot Tea Baggers, they need to pay attention to this one ...

******************************

It looks like Wall Street and other financial titans who have been playing in our financial mud pit are going to pay 2011 bonuses in late 2010. Their rationale? They want to help their executives avoid paying out more taxes anticipated because of changes to tax laws. In the case of Credit Suisse Group in London, they want to compensate their executives for the tax hit they took in 2009.

Got that? Companies that drove our economy into the ground, and who should have been forced into bankruptcy, believe that their incompetence deserves to be rewarded. Instead, after happily accepting the benefits of a U.S. government orchestrated bailout, which allowed them to guarantee profits and complete big payouts, the biggest financial institutions are thanking governments by turning their backs on them precisely when budget shortfalls demand a little help from all corners.

This is one of the reasons why I called for nationalizing our failing institutions (here, here, and here). I didn't want the same people who ran our economy into the ground recovering only to socialize the losses and then, later, privatize the profits.

Too late. It's now a done deal. Our financial terrorists have socialized the losses, and seem content to ride the American taxpayer into the ground for their own financial benefit.

The end result is that you and I are paying for the bailout - in the form of increased budget deficits, lost jobs, fewer legal rights, chopped salaries, greater uncertainty, etc. - while Wall Street and their Washington friends continue to find new ways to stick it to Main Street. Check out these evolving stories ...

* OFFSHORE THEFT: Goldman Sachs, which received government debt guarantees and $10 billion in taxpayer funded bailout money, saw it's effective tax rate drop to 1%. Why? Because it moved some of its money off shore to avoid paying taxes.

* LEGAL COVER: In order to get taxpayer funded bailout money, which propped up their company and the profits of other institutions, AIG gave up it's right to sue companies who misled them. This helped keep regulators and law enforcement officials away from the mess created by Wall Street.

* HUSH MONEY: After securing trillions in guarantees and loans during the bailout Wall Street's financial institutions began paying out million dollar fines for misleading investors, selling "made-to-fail" instruments, and "misstating" anticipated losses. In laymen terms, they paid fines for fraudulent behavior.

* SIMPLE COLLUSION: Goldman Sachs and Bank of America colluded with firms that sent school district (infrastructure) money their way. Once the money was secured these firms then paid out bribes, all of which cheated cities and towns of much needed funds. Making matters worse, those involved in directing money to Goldman and BofA then deliberately withheld information about higher paying financial programs from municipalities and other governments.

* OUTSOURCING WHITE COLLAR JOBS (but here in America): Banks who received the biggest rescue packages requested visas for more than 21,800 foreign workers, to do white collar jobs! The average annual salary for those jobs was $90,721. During the last three months of 2008 - when the market meltdown was at it's height - the largest banks that received taxpayer loans announced more than 100,000 layoffs (where's organized labor here?).

Can anyone say with a straight face that the real terrorists we need to worry about are right here in our country?

Think about it ... Wall Street's stupidity and greed collapses the economy ... Wall Street uses a taxpayer funded bailout to subsidize undeserved bonuses ... Wall Street shifts money offshore to avoid taxes ... Wall Street bribed convinced Washington to restrict the legal right to sue corporate incompetence ... Wall Street paid what amounts to hush money to avoid court cases ... Wall Street firms colluded to steal funds from local schools and cities ... Wall Street outsourced jobs by bringing foreign workers to America (at the same time they had their hand out to the American taxpayer) ...

Is putting America further in debt what Country First is all about? Where's the Tea Bag outrage over Wall Street's theft of American tax funds here? Why wasn't Mr. Tea Bag, Glenn Beck, discussing how all of this makes a travesty of patriotism at his white self-pity rally on Saturday?

At the end of the day, our financial terrorists are causing more problems for America than the terror babies the Glenn Becks of our world like to whine about. When the false patriot, Tea Bag Bunch, begins to figure this out (and adds a little color to their mob) maybe it will be time to take them seriously.

Until then, they're just perpetuating a debt-drenched, corporate welfare, system that increasingly makes us dependent on China. And, if I'm using my Glenn Beck-logic tin foil hat, that makes them all traitors.

- Mark

Note: Photo added after original post.

WE'RE SCREWED, II ... THE HOUSING MARKET VERSION

Remember this graph from Chicago mortgage broker Michael David White?

It shows us (red line) that housing values have fallen. But what's also true is that the amount of debt (blue line) tied to those homes have not collapsed, even with write-offs and renegotiations. There are a number of reasons for this. Among those include not enough homeowners qualifying for renegotiations and the fact that the biggest banks haven't had to mark down failing mortgage loans. This means our nation's financial institutions are carrying bad loans but they haven't been forced to mark them down to their actual market value.

And why should they?

When the market meltdown started in 2008 President Bush and Congress gave Wall Street and the banking industry a magnificent "deregulation" gift when they said financial institutions wouldn't have to mark down their toxic financial assets (and the instruments that they spawned). In essence they regulated market prices out of the market (by suspending mark-to-market accounting methods) and said to the banks, "You can attach any value you want to your toxic assets ... but don't worry, consumers and homeowners still have to abide by their contracts. If they don't, go ahead and attach fees and/or foreclose. Be happy."

Then we have President Obama's gift to Wall Street. His $75 billion Home Affordable Modification Program (HAMP) has turned into a significant market subsidy for the banks and Wall Street. This Huffington Post piece by Shahien Nasirpipour and Arthur Delaney helps explain why.

Here a few key points about HAMP:

* REJECTIONS DOMINATE: Of the 1.2 million distressed homeowners who entered HAMP (through June) more than 529,000 have been kicked out (though 389,000 have benefitted from permanent modifications).

* FINANCIAL INSTITUTIONS FIRST: Banks are using a "Net Present Value" test. This allows financial institutions to determine whether a loan modification will make "investors"  more money than a foreclosure. Put another way, even after dumping trillions of taxpayer funded bailout dollars on to Wall Stree, the needs of banks and investors dominate a $75 billion program that was designed for homeowners.

* UNICORN MATH: Extending a loan modification process to distressed homeowners has only served to allow banks to carry bad loans on their books at full value, delaying loss recognition.

* HOMEOWNER FORECLOSURES, BUT NO PENALTIES FOR BANK NON-COMPLIANCE: Companies like Countrywide - the beneficiary of billions in taxpayer funded loans and guarantees - have told applicants that they aren't participating in HAMP. Foreclosures continue. Yet, the Treasury Department has yet to fine a single servicer for noncompliance with HAMP.

* BLOATED FINANCES: Delays have allowed banks to tack on tens of thousands of dollars in additional interest and other fees, which they use to inflate the value of the mortgage contracts they hold.

There's more, but you get the point.

While many market analysts will tell you that HAMP has helped achieve stability for the housing market, it has done little to nothing for the majority of distressed homeowners who've applied to the program. Worse, it shows that in spite of creating trillion dollar loans, transfers, and other guarantees for Wall Street - in the process, creating the biggest bailout in human history - individual homeowners were never supposed to be the primary beneficiaries. The biggest financial institutions on Wall Street were the targeted group.

But wait. It gets better (or is that worse?). Mortgage broker Michael David White explains why our housing problems pale in comparison to what's going on around the world. As bloated as our housing bubble economy got, it's not as bad as other parts of the western world ...

In a few words, many of the key western countries (except Germany and Japan) are looking down the barrel of gun when it comes to housing. Greece may have been the first salvo in a much wider market mess facing Europe, and the world.

Stay tuned. Things will be getting worse.

- Mark

THIS IS WHY WALL STREET LIES ... AND WHY WE'RE SCREWED (again)

"The American Republic will endure until the day Congress

discovers that it can bribe the public with the public's money."

- Alexis de Tocqueville, in Democracy in America

Wall Street's biggest financial institutions deliberately lie and distort for one reason. Because it pays.

Today Bloomberg is reporting that Citibank left billions of dollars in toxic assets off of it's books, which helped mislead investors and regulators. Doing so allowed Citigroup - which received about $45 billion in taxpayer bailout funds - to continue selling their wares as if they were solid assets. They were not. They now have to pay a $75 million fine for misleading investors.

Count me a unimpressed by the punishment. To understand why let's play "What would you do?"

Let's say you need to dump sell billions of dollars in toxic assets on unsuspecting buyers (in this case pension funds, foreign institutions, etc.). This will help you earn billions over the long term. This will also net you and your other partners in crime hundreds of millions in bonuses (often done creatively to avoid public scrutiny). The only down side is that you have pay a $75 million as a penalty, if you get caught. What would you do?

Think hard about this one ...

I know, it's a tough one ... Do the right (and legal) thing, and tell everyone what you have is crap. Or "mistate" assets and let people buy the crap you have. Hmmm. What to do, what to do?

Well, on Wall Street, where ethics and morality get lost in some kind of giant Black Hole of corporate stupidity and greed, the answer is to deceive and mislead. Big time.

Check this out.

Earlier this month Goldman Sachs agreed to pay $550 million to settle charges that it sold "made-to-fail" assets in 2007. They did so without disclosing that they knew the company (Paulson & Co.) that helped create the asset did so with the idea that it would fail. In fact, they bet on it. They actually went out and purchased insurance on the made-to-fail assets, which netted them huge profits. Nice.

Then, in February, Bank of America said it would pay $150 million for failing to tell shareholders about anticipated losses, and the $5.8 billion in bonuses that was set aside, which were part of the Merrill Lynch purchase. Shall we score another one for doing the right thing, and corporate transparency?

(Note: While BofA paid $33 billion for Merrill Lynch - which was loaded up with toxic assets - Bank of America was given more than $100 billion in taxpayer bailout aid and other guarantees to help it stave off more than $118 billion in losses, and possible bankruptcy. This is the essence of corporate welfare.)

Anyways, back to my original question: What would you do if you could secure money that's virtually "penalty free" by deliberately lying? I know. It's a tough one. Think hard, again ...

The moral of this story is that it's business as usual in America. And that's a bad thing.

Not much to say here except that we're screwed, again.

- Mark

OIL INDUSTRY AVOIDS TAXES, REAPS BILLIONS IN SUBSIDIES

From the NY Times ...

... an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

How bad does it get? According to a letter sent in June to the Senate Finance Committee, Transocean "used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began."

So, in essence, you and I are picking up 70% of the tab for Transocean's drilling expense. Nice. In return for subsidizing the company's activities, "Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008" which helped it avoid taxes here in the U.S.

But, of course, in the name of free market capitalism, the oil industry will always say it doesn't want the government involved in it's affairs. They are rugged individualists, after all ...

- Mark

WALL STREET: L'État, c'est moi

During his reign as the King of France (1643-1715) Louis XIV is said to have remarked, "L'État, c'est moi" ... or "I am the State." The implications were clear: Bestowed with the divine right to rule, as head of state Louis XIV could draw on the resources of the state (to go to war, for example) because his best interests, it was believed, served France's best interests.

There were no countervailing powers to speak of domestically. Merchants vied for royal favors. Commoners sought out the benefits of the royal touch. In many respects, whether he actually uttered the words "L'État, c'est moi" Louis XIV was the French state.

Fast forward almost 300 years and we find ourselves in a not too dissimilar - albeit twisted - situation. Today our Too Big To Fail (TBTF) financial institutions can draw on the resources of the state, almost at will. This has especially been the case when they make poor decisions. From legislated bailouts to long-standing subsidies, and trillion dollar market guarantees, we can no longer kid ourselves. Industry lobbyist have captured Congress; Wall Street owns the state.

The ability of our TBTF institutions to push Congress around, and to secure what they need after making a mess of things, is discussed at the end of chapter 10 in my book:

It’s at this point they have the power to “raise revenue” by imposing on the state ... taxing it's resources through credit extensions, bailouts, transfer payments, and favorable legislation, among others. This type of control and influence over the state ... is akin to the systematic poaching of state prerogatives. History and common sense tell us this should not happen. Recent developments, however, tell us it is now an accepted practice that raises few eyebrows.

Think about it. Wall Street now has the power to raise revenue (from bailouts), tax our resources (through subsidies & write-offs), and to secure favorable legislation (from legal protections to off-shore gimmicks and other market guarantees).

Worse, they can now scare off legislation designed to reign in their excesses because members of Congress are afraid of Wall Street's moneyed wrath. Campaign donations withheld, or sent to political opponents, is a powerful weapon.

It really doesn't matter how many times the President, or members of Congress, say "never again." We all know they're lying to themselves, and to America. Under the current mind-set, any TBTF financial institution will always be able to tax the resources of the state to serve it's interests. The threat of economic meltdown has become a politically accepted form of financial extortion.

This helps explain why we've embraced market subsidizing debt and other market activities that do little more than extract wealth from the economy, while putting the nation deeper into a debt-drenched mud pit.

The demands of Wall Street, and their TBTF financial institutions, have moved beyond the control of the modern nation-state. In many respects, Wall Street can now declare "L'État, c'est moi."

- Mark

OBAMA'S WALL ST. SPEECH ... A SWING AND A MISS

President Obama gave a speech in Manhattan on financial reform (text here) this morning. It was disappointing. In a few words, I got the sense that President Obama didn't want to piss off Wall Street.

To be sure, President Obama explained that we shouldn't have any more taxpayer bailouts (a no brainer after 2008), why we need greater transparency in markets (who's going to say no to this?), how proposed legislation brings us the strongest consumer financial protections ever (which isn't saying much given the size of the financial loopholes), and the need for a larger voice for shareholders (which, I'm sure, America's CEOs laughed at).

President Obama told us what we already know.

It appeared that President Obama is so confident that the lukewarm pieces of financial legislation currently making their way through Congress will pass that he didn't want to upset the "progress" being made. It was as if President Obama didn't want the Wall Street banksters to collectively get their feelings hurt, and then stand up and say, "We're going to take our ball and go home ... again."

And this is the crux of the problem.

There was absolutely nothing of substance said about banks being too big to fail ...

Look, any time a company - or a group of companies in an industry - get so big that their collapse can threaten the stability of our nation, the claim that there will be no more taxpayer bailouts is simply nonsense (the $50 billion, bank funded, bailout fund in the legislation is for show, while the Volcker Rule reference is a sideshow). If the stability of the system is threatened it would be irresponsible for any government - Democrat or Republican - to allow the country to collapse because of simple stupidity and greed (though there are, no doubt, gun toting Tea Baggers who like sleeping in camouflage pajamas who might disagree).

But what really got me about President Obama's presentation today was how the tone of the speech suggested that, if we just keep playing along, the financial reform bills now making their ways through Congress will do do the job. They won't.

Consider the following.

WALL STREET'S DELUSIONS ...
Banks have been both duplicitous and confused about what needs to be done (depending on what's best for them). In a few words, after years of padding their profits through favorable legislation and very generous regulatory treatment the financial sector still depends on favorable treatment, and can't stand on their own two feet, as they like to claim. Banks of all sizes are still being subsidized in a variety of ways, and benefitting from wealth extracting deals (like computer driven, flash orders) that make the industry a ton of money.

But these innovations have done little to nothing for markets and America's middle class, unless you count the creation of a culture that feeds on gaming the system as a plus.

Then how about the deception and market delusions that continue to dominate Wall Street? These guys don't think they've done anything wrong, are still betting the house, and making a ton of government-escorted profits in the process. What this means is that the banking industry's recovery is little more than smoke & mirrors, built on a pile of hidden guarantees, that you and I underwrite. 

MAIN STREET'S FRUSTRATIONS ...
Then we have the even bigger issue of what's happened to Main Street. Main Street is pissed off and wants, and needs, things fixed on our side. If you're like me, you're pissed. And you probably want a pound of flesh too.

So, why didn't President Obama mention Wall Street's role in:

* Damaging state and municipal pensions?
* Contributing to state mandated furlough programs?
* Massive layoffs?
* Prolonging unemployment?
* The number of houses that are underwater?
* Working against homeowner mortgage negotiations?
* Pissing off middle America by giving undeserved bonuses? 

There was absolutely nothing said about any of this. Nor was there anything said about Wall Street's responsibility in helping to fix any of this.

How can you tame Wall Street when there's no consequences for bad behavior? How can you tame Wall Street when they don't fear you? How can you tame Wall Street when their size dictates your actions? Watch out. With the exception of the Brown-Kaufman SAFE Banking Act, the reform bills making their way through Congress are palliatives. The next market collapse is around the corner. The only question is when.

Stay tuned.

- Mark

CORPORATIONS BEHAVING BADLY

You have to wonder where the Tea Party has been over the past decade when you read stuff like this.

Talk about corporate welfare. When you have your hand out, and then turn your back financially on the nation that throws you a life line, there's something wrong.

- Mark

THE JOBS-KILLER LIE

In my book I wrote about Dead Peasant Insurance. In a few words Dead Peasant Insurance was a life insurance policy that corporate America took out on its lower level employees (hence the term, "Dead Peasant"), which they would cash out later. The interesting thing was that corporate America didn't have to pay for the insurance policy. They were able to get Congress to let them write off the expenses at the end of the year. So, in essence, the company "purchased" a life insurance policy with tax payer subsidized money, but then would receive a tax free sum of money (say, $300,000) upon the death of said employee.

Corporate America, however, would gleefully advertise that they were providing employees with free life insurance. But instead of stating they the policy was worth $300,000 (or so) they would only provide a relatively small amount (usually between $15-25,000) upon said employees death. If the employee left the firm there might not be any payout at all.

In a few words, corporate America essentially got money for nothing because Congress gave them a tax gift that allowed them to profit on death. This is one part of a system that makes it profitable to bank on death ...

I bring this up because Ryan Grimm is pointing to another, similar, corporate scam in the making. Though it doesn't involve death, corporate America - with their Republican friends in Congress - are starting to complain that some of their corporate subsidies will disappear under the new health care reform bill. Here's how it's happening according to Grimm:

Under the previous system, major corporations were subsidized by the government to provide prescription drug coverage to their retired employees. At the same time, corporations could claim on their tax returns that it was they -- not the taxpayers -- who paid for the drug coverage, and could write the expense off as a tax deduction.

Health care reform cuts out that fat. The corporations still get taxpayer money to help pay for their drug coverage, but they can no longer continue the fiction that they're using their own money to do it.

Got that? As was the case with Dead Peasant Insurance, corporate America gets a taxpayer funded subsidy to purchase something for employees. Corporate America claims credit for providing the product when it's actually taxpayer funded. Then corporate America gets a payout. In the case of Dead Peasant Insurance the payout was at the time of death. For corporate America and their prescription drug plan, the payout comes at the end of the year.

Either way, the American taxpayer funded the payout.

What's interesting is that instead of hailing the health care bill as an instrument for weeding out unwarranted, market skewing, corporate subsidies like this, Republicans and corporate America are doing their level best to muddy the waters, and make unsubstantiated claims about the bill. In this case, they're claiming that the health care reform law is a "jobs-killer."

In their world, by removing taxpayer funded subsidies, their bottom line is adversely affected. Ergo, they won't have enough money to hire new people, which makes the health care reform bill a jobs-killer.

My concern is that there are people actually stupid enough to believe this tripe. Sigh ...

- Mark