John Murtha treats the US taxpayers as his personal bank

And John “Tough Shit!” Murtha (D-PA) doesn’t even bother to hide it.  Why bother?  He’s a high-ranking Congressman, former Marine, and a Democrat to boot.  Who would suspect him of using his authority over public funds to distribute wealth to his family members?

Committed Democrats may wish to stop reading.  Republicans and any open-minded members of no party or any party, please visit Bill Moyers Journal’s blog here.

The author of the blog post, Michael Winship, provides all you need to see in the opening quote:

”Murtha: If I’m Corrupt, It’s Because I Care”

Well, I certainly wouldn’t accuse Murtha of not caring…

And to do your own little investigative journalism about Uncle Moneybags, check out The Seattle Times’ The Favor Factory: A most awesome source of information about our nation’s leading corruption artists.

How can he be so shameless?  There isn’t even an effort to conceal his nepotistic distribution of money that, last I checked, isn’t his.   Please read the Moyers blog post.  The post is nothing short of damning.

… and the cow goes moo

The Public-Private Investment Program (PPIP) as a Grade 10 math problem

See The Big Picture’s short post for the wonderful breakdown of the apparent function of Geithner’s PPIP.

It’s a fantastic way of explaining the program to a layperson.  And to give you an idea of the conclusion, here is the poster’s final comment:

“As a money manager for our clients, the Cumberland firm [Cumberland Advisors] will look at PPIP and may use it on behalf of clients after we have reviewed an official form of an offering document. As a private citizen concerned about my country and its policy direction, I think this reeks and stinks.”

That’s very honest of him and it is exactly the way it should be looked at:  A goose for the investment community and a delayed robbery of  taxpayers (as taxpayers won’t know how much they’ve lost until the TRUE market values for these toxic assets are revealed months or years down the road, and that’s assuming that the government exits the market-creation business by then.  Or, I suppose, the government could maintain it’s role as the very visible hand of the market indefinitely, and we can each take time and resources robbing ourselves at the expense of the few people who decide not to participate in the raid on taxpayer coffers)

Damn, it feels good to be a bankster.

… and the cow goes moo

Matt Taibbi responds to AIG Executive, Jake DeSantis’s NYT Op-Ed

Following up his immensely popular, well-researched, very easy to comprehend dissection and summary of the banking crisis (The Big Takeover: How Wall Street Insiders are Using the Bailout to Stage a Revolution), Rolling Stone’s Matt Taibbi takes time to respond in his usual off-the-cuff manner (compared to his occasional highly-researched articles like The Big Takeover) to Wednesday’s revealing New York Times op-ed written by an AIG Financial Products (yes, that AIGFP) executive VP Jake DeSantis… Or, perhaps, former executive VP if their is truth to his op-ed/resignation e-mail.

When I read the op-ed earlier this week, I had a response similar to Barry Ritholtz’s (of The Big Picture):

“DeSantis argues that anyone not involved in the CDS side of FP was entitled to their contractual bonus, and that penalizing those people with nothing to do with bringing down AIG is counter-productive. He makes a very persuasive argument”

Well, I didn’t feel quite as strongly as Mr. Ritholtz, but I was leaning in that direction.

After reading Taibbi’s angry screed, and reviewing DeSantis’ argument once more, I have to admit I am solidly on Taibbi’s side (Taibbi’s rebuttal to DeSantis’ plumber/electrician analogy is especially poignant).

As someone who is doing very well (performance-wise) in a banking sector with diminishing profits, I am unhappy that the failures of others within my company and my industry will adversely effect my annual bonus (and even has an appreciable impact on my performance bonus), but I understand it.  A company cannot realistically pay an employee a negative income when his or her department loses absurd amounts of money.  But if one department negates all other department’s profits, I’m shit out of luck and I understand that.  I don’t expect my company to pay me out of profits that no longer exist just because I have expectations of receiving a big fat hairy bonus.  It is my misfortune to have selected a poor company or poor industry to work for, if that were the case.

And that seems to be the case for Mr. DeSantis (except he seems to imply he had a contractual guarantee for that bonus).

Taibbi does an excellent job of responding to DeSantis’ woe-is-me national guilt-trip with an appropriate amount of vitriol and shock at the hubris of claiming, in a manner, that AIG’s promises it cannot afford that it made to the employees who benefited from years of phantom profits and have, at best, worked adjacent to those that sent the insurance giant into the arms of the national ownership, should not be made whole in payment by funds derived directly from the taxpayers.

Mr. DeSantis may be honestly not responsible for AIGFP’s destruction.  Perhaps he was a surprisingly powerless executive VP receiving million dollar bonuses but having no real impact on the direction or practices of the unit.  Perhaps.  If so, he should feel goddamn lucky he’s been paid millions for being an empty suit.

So if, assuming Mr. DeSantis is truthful in his resignation letter — and who ever is truthful in a resignation letter let alone a self-serving letter-to-the-public op-ed? — and assuming the truth does not reveal a greater level of negligience and malfeasance on his part… big assumptions both, he had no responsible for hte failure of AIGFP and, ultimately, AIG, I can understand his argument that he deserves the bonuses promised to him still.  To a degree.

But I absolutely cannot understand how taxpayers, who paid all their insurance premiums to State Farm, bought houses they could afford, and were paid the same inflation-adjusted wages that their mothers and fathers were paid in the ’70s, should be more responsible and liable to foot the bill for the deadbeat fraudsters that ran AIG and made promises based on pie-in-the-sky money tree projections.

Hell, by conclusions that might be drawn from DeSantis’ own omissions, he seems hardly deserving of the paltry base executive’s salary and bonuses he received over the eleven years of custodial work he put in at history’s greatest financial failure.  He should feel damn lucky that clawback provisions are anathema to American thinking.

[Note:  Please read Taibbi's response.  His reaction is far more ably written and convincing than mine.  It is short and to the point.  The best three minutes you're likely to spend today.]

… and the cow goes moo

NYT: “Inquiry Asks Why A.I.G. Paid Banks “

Umm. Because AIG owed them money?

Read this article at the New York Times and explain something to me: Does AIG have the option to renege on the terms of credit default swap protection it sold just because it didn’t collect as much in premiums as it will need to pay out in protection?  I think it’d need to be in bankruptcy protection to do that, and I thought the whole point of the AIG bailout was to keep it out of bankruptcy?

And so what if it used TARP and bailout funds to fill commitments to major banks, American and foreign.  Wasn’t the whole point of the TARP to keep those major American banks from failing and taking down our financial system with it?  And wasn’t the whole point of the AIG bailout to keep AIG out of bankruptcy, which we feared would risk bringing down the entire weakened financial system?

I wasn’t against the furor over the AIG bonuses, as I thought the hysteria actually functioned as a proper check against outlandish compensation in the face of failure in general (not just at AIG, but to the executives that have been compensated in the manner of royalty in the past decade).  But this new lawmaker consternation about the bailouts they authorized performing the exact function that the bailouts were purportedly meant to do is just ridiculous.

These lawmakers are attempting to appear both prudent financial stewards — pawns to their corporate donors in finance — and outraged leaders of men, leading the crest of populist outrage against the parasitic institutions that survive entirely off the vitality of the government.

This is getting overwhelmingly stupid.  Are lawmakers so incompetent as to not know (or understand) what they asked for just a few months ago?  Or are all of these grandstanding douchebags in on the joke, understanding full well that AIG’s answer will be: “… because you asked us to.”

… and the cow goes moo

Prof. William Black on the AIG-Treasury lover’s quarrel

… can be found at everyone’s favorite econoblog, Naked Capitalism (even though Yves Smith seems to be posting in a part-time capacity, at best, as she works on her book.  I’m a bit disappointed now, but am very excited for the book).

It’s a short read, so I’d recommend jumping over to NC and reading the full post (it’s an excerpt from an e-mail sent from current professor of law and economics at the University of Missouriand former bank regulator William Black.

Prof. Black quickly runs off a list of the major failings of the Treasury in their bailing out of the big FIs so far.  The list of failures isn’t necessarily going to surprise anyone following the ongoing AIG failure – bailout – bailout – bonus – bonus – bailout (in that order, I believe) scandal, but it means a lot to see that those who are clearly qualified to be a major player in regulation feels the same way most of us humble defrauded bystanders feels, and is willing to state so publicly and unequivocally (apparently).

Yves summary of Prof. Black’s point is the kicker though, and something I feel is sorely misunderstood (and it surprises me that Yves doesn’t feel the same way I do, since much of my understanding of the situation comes straight from her blog):

“And to Black’s point, the real issue is fraud. Why is no one at Treasury willing to use the F word? Who would it embarrass? There is not reason for NOT pursuing that angle…”

Actually, I think there is one big, fat, hairy reason not to pursue it as fraud:  It opens the floodgates for every other bonus-paying failed (or near-failed) institution, it adds a Lehman’s-sized free radical into the financial system as every single major FI is probably guilty of similar fraudulent behaviour to some extent (think Merril’s $3.6 billion pre-marital bonus tryst) and could become a target by regulators and a commie socialist ‘Bama presidency, should they have the inclination to bring the hammer and sickle down.

More importantly, I believe, is the political effect:  the public, and the play-to-the-public Congress, won’t discern AIG’s f-bomb from those of Merrill and Financial Institution X.  So next time ‘Bama, Bennie, or Dr. Strangelove wish to rally our esteemed legislators behind a bailout bill, we’ll have a slightly increased number of grandstanding legislators claiming that anything resembling a bailout or stimulus package in the future is further payola to f-bomb-ulent criminals that have brought our economy to the brink.

Really.  How do you propose a bill that might benefit financial institutions (and those are the only bills being offered at the moment) when those same institutions are basically called out by the President as being criminals?  And – at least in the minds of Obama’s team – how do you fix this mess without retaining the option to blow more money on stimulus and bailouts?

… and the cow goes moo

NYT Editorial: Why couldn’t the US financial system be more like it’s like Canadian brother’s?

Being that the World Economic Forum report from a few months back ranked Canada’s banking sector as the most stable in the world, the notion shouldn’t come as any surprise.  And since I’m working for a Canadian bank and am not either (a) jobless; (b) stealing taxpayer money to pad my annual bonus-but-don’t-call-it-a-bonus (… not to the same extent anyways); or (c) under investigation for the decades-long theft of billions, it seems that I should understand the appeal of emulating the Canadian system.

But in today’s New York Times editorial, Theresa Tedesco, a correspondent for the Canadian paper The National Post, comes to a mind-blowing conclusion:

“This would entail building a national banking system based on a small number of large, broadly held, centrally and rigorously regulated firms. Imitating the Canadian model would require sweeping consolidation of American banks. This would be a very good thing. Washington had difficulty figuring out the magnitude of the financial crisis because there are so many thousands of banks that it was impossible for regulators to get into all of them.”

Where the fuck did she get the idea that too many banks was the biggest problem with the US banking sector?  I believe toobigtofailitis was actually the biggest problem.  Last I checked, the FDIC wasn’t breaking too much of a sweat cleaning up two banks a week (including two yesterday) at a relatively-minor-but-adding-up loss, selling almost all of them to other small, regional banks.

Ms. Tedesco’s dream scenario is a nightmare to me:

“Washington is already on the path to achieving consolidation. Eventually, some of the larger banks into which the government is injecting taxpayer money will probably be deemed beyond help, and will either be allowed to die or be partnered with other banks. The market will take its cues from this stress-testing, and make its own bets on which banks will survive. It’s hard to predict how many will have survived when the dust settles, but the new landscape might consist of only 50 or 60 banking institutions”

We’re currently in the midst of a super-double-top-secret auditing of the top 19 banks’ books in the US (those with assets over $100 billion), largely to avoid another Lehman-like collapse (they had $600 billion in assets and their failure brought the global financial system to its knees).

In Ms. Tedesco’s fantasy solution, the US system would have 50-60 banks, all with hundreds of billions in assets (at $12 trillion in total US bank assets, according to this graph, that would leave roughly $200 billion in assets in each bank.  And that could be a massively underestimated value, as Google Finance indicated that just JP Morgan, Citigroup, and Bank of America combine for $6 trillion in assets).

So how are you Americans enjoying gambling your economy on the hope that your systemically-vital 19 largest financial institutions are healthy enough to survive on welfare without bringing down the whole US (and global) economy?  Ms. Tedesco recommends you triple-down.

… and the cow goes moo

NYT: IRS Grows a Pair

In today’s New York Times:

“In the criminal investigation that led to this week’s settlement, the Justice Department had zeroed in on about 19,000 wealthy Americans. Those UBS customers had a combined $20 billion in assets at the bank, and may have evaded $300 million a year in federal taxes through UBS’s undeclared offshore private banking services. But the I.R.S. has been conducting a parallel investigation, and on Thursday the Justice Department asked a federal judge to require UBS to disclose to the I.R.S. the identities and records of the 52,000 clients. In the past, UBS has suggested that the 19,000 accounts under investigation, which it is now closing, were the extent of its undeclared offshore banking services. UBS, the world’s largest private bank, said it would vigorously challenge the efforts.”

Ooooooowee! They’re taking this shit seriously!  Note to IRS auditors: I’ve heard the Cayman Islands and Bahamas are lovely this time of year.  Perhaps there are some institutions there worthy of investigation?

Time for those that made so much during the boom years to pay up.  Up until now, they have shirked their responsibilities to bear the costs of their government’s ‘functioning’, but now that the government’s sole purpose is to clean up their mess they made while partying, I think it’s time they open their wallets a bit.

I am so happy.

… and the cow goes moo

One Good Thing to Come Out of the Crisis: The End of Offshore Tax Shelters?

The New York Times has a, quite frankly, SHOCKING story about UBS’s offshore account business for Americans.  That the Swiss bank offers solutions that offer little purpose other than tax evasion is not the shocking part, of course.  I am blown away that not only is this tax sheltering tool used exclusively by the ultra-rich actually being attacked, but UBS is actually cooperating AND admitting guilt!

Holy cow!

Now initially, it all sounded well and good… but upon a closer reading of the article, I have a number of issues:

1. “Federal prosecutors have been examining about 19,000 accounts at the bank, but UBS ultimately may disclose the identities of only a few hundred customers.” – So USB has a choice? Or are prosecutors just investigating a hundred times more accounts than they need to?
2. “The Swiss are saying that this is the end of Swiss banking as they knew it,” said Jack Blum, an offshore tax specialist. “Nobody will trust the security of the Swiss bank account.”” – I hear a banker making cash register noises in the Cayman Islands right now.
3. “Under the terms of a so-called deferred prosecution agreement, the bank and its executives could be indicted if UBS didn’t identify the customers.” – See issue (1).  Threatening indictment still only gets you a few hundred of 19,000 accounts of interest?
4. “Prosecutors suspect that from late 2002 to 2007, UBS helped American clients illegally hide $20 billion, letting them evade $300 million a year in taxes.” – Over that six-year span, we would be looking at $1.8 billion in taxes evades.  Kinda feels like chump change by today’s standards, but I question the accuracy of the reporting.  The article indicates that UBS earns $200 million per year from the business.  Assuming that revenue comes from the clients (though perhaps it comes from gains on the deposits), the clients are then looking at a net-gain of $100 million per year collectively over just paying their taxes like the average sucker.  So for that six-year period, and $20 billion hidden, the clients manages a net-gain of $600 million.  So are UBS’s tax-evading clients parking their money in Switzerland to come ahead 3% points on their capital?  Or do Swiss accounts earn more money than plebian accounts as well?

Granted, I know nothing about Swiss banking (I’m not in their demographic) beyond what I picked up from David Cay Johnston’s ‘Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat Everybody Else’, but this sounds like a mere surface-level story.  Not only does this apparently successful investigation likely only scratch at the surface of UBS’s admitted misconduct, UBS is merely one of many businesses earning money by helping wealthy individuals avoid paying taxes (the Tax Justice Network indicates that “the world’s High Net Worth Individuals (HNWIs) held around $11.5 trillion of assets offshore, which would generate a return of about $860 billion a year at a 7.5% rate of return, and a consequent tax loss of $255 billion”).  Is this prosecution meant to placate those of us who have been disgusted by the ease with which the wealthy evade taxes in America?  Or is this the start of real change in the way the US government treats white collar crime?

While taxpaying Americans are being expected to pay a high price for the current crisis (through diminishing employment opportunities, decades of stagnating wages, the destruction of capital wealth, and lately the withholding of income tax returns), and doing so largely against their will, a real uproar could be created should the average American taxpayer be made aware of the amount of taxes rich individuals and corporations succeed in evading.  And certainly, the federal and state governments could use this income now more than any time in the recent past.

Let’s hope investigators continue to pursue the billions of taxes owed to our now-bankrupt governments on wealth generated during the good years.  And if not, well, maybe we’ll address them next economic-collapse.

… and the cow goes moo

Is anyone thinking about what happens after the recession?

With all this effort, newsprint, and bytes expended on the crafting of a stimulus plan to dampen the effects of the financial crisis, does it seem odd to anyone else that little thought is being applied to what will come after?

Granted there are good reasons to focus on the task at hand considering the enormity of it.  But there should be one very prominent factor in deciding which projects should survive the Congressional ‘negotiating’:  How much of what is spent now can help us save later.

Regardless of whether this stimulus package achieves its purported goals, or even if you believe that a government can spend a country (a world, in this case) out of a recession, it should be agreed that spending must reach a nadir afterwards to make up for the profligate spending of our recent past and likely future.

‘Shovel-ready’ has been a key criterion used by those who support a stimulus bill.

How about ‘return on investment’?  If spending now can help bring the country out of recession, then that sounds like a great idea to me.  And since the nation’s nominal debt grew by 50% during the Bush presidency (and he wasn’t even trying!), we can probably expect to sink even greater into debt.

If we can spend a billion here to save a billion in the future, that seems like a great deal to me.

If we can spend $10 billion modernizing our infrastructure to reduce energy loss in transmissions for the next decade, great!

If we can spend another $10 billion creating an alternative-energy infrastructure for transportation, to save billions in oil imports as well as mitigate environmental damage, even better!

This is not to say that the recently passed stimulus bill does not include projects that meets this criterion, but the debate could have been much easier (and more relevant) if current spending was tied with greater future savings.

This recession has to end eventually, right?  And the US national debt has to be reduced eventually, right?

… right?

… and the cow goes moo

Latest Egregious Banker Compensation Scandal: Merrill Lynch and John Thain

You know that bank, Merrill Lynch, that needed all those bailouts before being bought by Bank of America (the bank, not the sarcastic description of the Federal Reserve and the Treasury)?  And that needed additional federal guarantees just to have the sale completed?  Well, they did such a great job running their bank into the ground at taxpayers’ expense that they’re getting early bonuses!!

At the Getting-Nakeder-and-Nakeder-Naked Capitalism where she excerpts from a Financial Times article:

“Let us remember the fact set: Merrill managed to get Bank of America to agree to buy it in September, elbowing aside Lehman. The deal is subject to shareholder approval, however. BofA, realizing it has acquired a garbage barge, threatens to scuttle the deal unless Uncle Sam lends a helping hand. Negotiations proceed behind closed doors (and neither Merrill nor BofA shareholders are told prior to the shareholder vote that BofA has agreed to do the deal subject to some form of government support).

Now we learn that after it was evident that the US taxpayer was going to subsidize the Merrill acquisition, the Merrill compensation committee accelerated bonus payments by a month to make sure they were paid out before the BofA deal closed.

…

Were Merrill bankrupt, the bonus payments could be deemed fraudulent conveyance and clawed back. But we don’t do either financial firm bankruptcies or clawbacks in this country.”

Awesome!  And what does Merrill Lynch’s John Thain have to do with any of this?

See this Bloomberg article linked to at Some Assembly Required:

“John Thain, who engineered the sale of 95-year-old Merrill Lynch & Co. to Bank of America Corp. in September, was ousted after Merrill’s $15.4 billion loss forced the lender to seek more money from the U.S. government.

…

Thain negotiated the sale with Bank of America Chief Executive Officer Kenneth Lewis, 61, whose credibility was undercut when the brokerage reported a record fourth-quarter deficit. Lewis, who considered backing out of the deal when he learned of the extent of Merrill’s losses last month, went ahead at the insistence of U.S. regulators who provided a new $138 billion aid package

While Thain agreed to forgo a bonus for 2008, New York Attorney General Andrew Cuomo is investigating bonuses paid to Merrill executives in late December, just before the deal closed, a person familiar with the probe said. Merrill normally paid bonuses in January or February.

…

Last month, Cuomo said a performance bonus for Merrill’s CEO and other top executives would be an “oxymoron” during such an “abysmal year.” Thain received a salary of $750,000 last year, according to Merrill’s securities filings.”

Cuomo is a bit old-fashioned in his analysis.  He seems to think bonuses should be based on the bank’s profits.  Youngsters like myself who grew up in this new environment of not-nationalized-but-the-taxpayers-will-take-those-losses-for-you banks know that bonuses are based upon how much taxpayer money you steal.  And Thain’s dick move of steering his bank into an iceberg, taking free money not to pull the throttle, getting the government to pressure Bank of America to buy Merrill at a ridiculous share price, and then running his bank into the iceberg anyways (and admitting that there are several iceberg-sized holes in the hull already) so that the government has to pony up even more money is worth every dollar in bonuses he’s getting and some.

But I’m sure this high-profile and unadulterated larceny will be the last.  Right?  … Right?

Again, let’s ask Naked Capitalism:

“But is this move a sign of a sea change in attitudes towards CEO and senior level prerogatives? Sadly, I doubt it. Yes, the worst excesses may be reined in, but so much unjustifiable behavior came to be seen as acceptable by boards (with compensation consultants providing a paper trail to boot) that it will take a long time to effect more fundamental change. Did anyone object to Sandy Weill putting working fireplaces into his offices (a vastly greater expense than Thain’s decorating?) Did GE shareholders know of all of Jack Welch’s perks until they came out in his divorce?”

We are going to run out of outrage long before we run out of money.

… and the cow goes moo