Posted on 08-05-2013
Filed Under (Economics) by Rashtrakut

Jon Stewart yesterday tackled the mortgage lenders who created the mortgage clusterfuck.  They took an archaic but effective system where mortgages were recorded on paper with local county recorders of deed and came up with their own private online mechanism – MERS.  There was no paper trail, the laws of mortgage assignment were not followed (good luck if you as a debtor who did the same) and they ended up with a situation where the people foreclosing on mortgages cannot prove they have the right to do so.  Video below:

None of these assholes have gone to jail and the fines that the feckless regulators have assessed are a drop in the bucket for the amount of money they made.  And having demonstrated the perils of unregulated banking and derivatives trading these pricks have been whining at the limited regulations that have been implemented since then.  The people in charge of MERS may have been merely incompetent.  But other cases of fraud like manipulating the LIBOR rate have seen almost no individuals go to jail.  That is a real scandal. Preet Bharara where are you?

Subscribe to Rashtrakut by Email

Follow Rashtrakut on Twitter

Share
(0) Comments    Read More   
Posted on 28-03-2012
Filed Under (Current Affairs, Economics) by Rashtrakut

 

Like the fictional King Louis in the video above, it is good to be the CEO of an American public corporation too.

  • Stock price drops 58%
  • Lay off 30,000 employees
  • Your company faces potential liability from a number of lawsuits
  • Compensation package quadruples

Welcome to the life of Bank of America CEO Brian Moynihan.  Now to be fair (and it is hard for for this blogger when the compensation of public company plutarchs…I mean CEOs is concerned), the bulk of the award is based on is based on performance related stock.  I do not know the terms of the stock award before Mr. Moynihan gets to cash out.  But at this juncture the optics are of another fat cat feeding at the trough at the expense of the working stiff.

A recent column by Steven Rattner points out just how obscene this inequality is becoming.

In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households.

Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent.

The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income.

This new data, derived by the French economists Thomas Piketty and Emmanuel Saez from American tax returns, also suggests that those at the top were more likely to earn than inherit their riches. That’s not completely surprising: the rapid growth of new American industries — from technology to financial services — has increased the need for highly educated and skilled workers. At the same time, old industries like manufacturing are employing fewer blue-collar workers.

The result? Pay for college graduates has risen by 15.7 percent over the past 32 years (after adjustment for inflation) while the income of a worker without a high school diploma has plummeted by 25.7 percent over the same period.

It was very easy to mock the Occupy Wall Street movement for its incoherence and share of marxist loons.  But they highlighted the fact that the social contract in this country has gone horribly awry.  The last 30 years have advanced the notion that stock holders are the only stakeholders that matter for a corporation, short term fluctuations in stock price are the key to measuring corporate success and managing this short term fluctuation gives license for the executives of the Corporation (whose compensation is selected not by the shareholders but by cartels) to loot corporate assets with reckless abandon.  And should these bean counters wreck the business they are supposed to manage, they still walk away with millions.  And to reward them further, we will rejigger the tax system to reduce their tax burden and create ridiculous giveaways like the carried interest loophole for private equity managers.

As a result few large companies innovate, engage in long term research which would not boost short term stock price or engage in long term strategic planning.  It is far easier to pay an excessive premium to buy a start-up that actually innovated and pass the strategic planning buck to external consultants rather than in-grown talent.

I highlighted Mr. Moynihan because his pay package triggered this long overdue rant.  But he is hardly the worst CEO offender.  The system is broken and is slowly strangling the middle class.  But right now our CEOs are too happy to be hogs feeding off the corporate asset trough while the rest of us deal with economic uncertainty.

Subscribe to Rashtrakut by Email

Follow Rashtrakut on Twitter

Share
(0) Comments    Read More   
Posted on 28-06-2011
Filed Under (Economics, Politics) by Rashtrakut

The American economic hostage crisis continues as the Republicans continue to balk at letting the government pay its bills, consequences to global economic stability be damned.  Commentators like Matt Yglesias have previously commented how absurd it its to de-link the budget apportionment process from the debt ceiling.  If Congress does not apportion sufficient funds to pay for the expenses it authorizes, the government has only two options: risk hyperinflation by printing money or borrow the difference.  The irony is that even though the rising US debt is a long-term concern, there is little interest rate pressure at present to pay down the debt right now, i.e. the United States could defer this until revenues recover from the drop in tax receipts due to the great recession and the disastrous fiscal effect of the soon to expire Bush tax cuts.

Yet the Republicans are refusing to budge unless medicare and medicaid are slashed (insulating them from the negative effects of the Ryan plan to privatize medicare) and tax loopholes for big-oil and other profitable corporate fat cats are retained.  With some Republicans departing from reality that a default would not be so bad (congrats Chamber of Commerce you helped elect these guys), some commentators like Bruce Bartlett have opined that President Obama can simply ignore the debt limit – because it is unconstitutional.

The argument stems from two sources.  First, is the text of Section 4 of the Constitutional Amendment most hated and ignored by Republicans – the 14th Amendment:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

On its face, the text refers to the suppression of insurrection.  Which brings up the second leg of the argument – the 1935 Supreme Court case (before the “activist liberal court” derided by conservatives) of Perry v. United States, 294 U.S. 330 at 350, 351, 354 interpreting the clause above as follows:

The government’s contention thus raises a question of far greater importance than the particular claim of the plaintiff. On that reasoning, if the terms of the government’s bond as to the standard of payment can be repudiated, it inevitably follows that the obligation as to the amount to be paid may also be repudiated. The contention necessarily imports that the Congress can disregard the obligations of the government at its discretion, and that, when the government borrows money, the credit of the United States is an illusory pledge.

We do not so read the Constitution. There is a clear distinction between the power of the Congress to control or interdict the contracts of private parties when they interfere with the exercise of its constitutional authority and the power of the Congress to alter or repudiate the substance of its own engagements when it has borrowed money under the authority which the Constitution confers. In authorizing the Congress to borrow money, the Constitution empowers the Congress to fix the amount to be borrowed and the terms of payment. By virtue of the power to borrow money ‘on the credit of the United States,’ the Congress is authorized to pledge that credit as an assurance of payment as stipulated, as the highest assurance the government can give, its plighted faith. To say that the Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise; a pledge having no other sanction than the pleasure and convenience of the pledgor. This Court has given no sanction to such a conception of the obligations of our government…

…The Fourteenth Amendment, in its fourth section, explicitly declares: ‘The validity of the public debt of the United States, authorized by law , … shall not be questioned.’ While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the government issued during the Civil War, its language indicates a broader connotation. We regard it as confirmatory of a fundamental principle which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the amendment was adopted. Nor can we perceive any reason for not considering the expression ‘the validity of the public debt’ as embracing whatever concerns the integrity of the public obligations.

The decision is old enough (and unrelated to gun rights or election funding restrictions on corporations) to possibly draw stare decisis protection from the current conservatives on the Supreme Court.  However, even such an assertion followed by the predictable Republican and tea party hyperventilation could still spook the markets.  However, in addition to holding the Democrats and the economy hostage the Republicans are caught between their own Scylla and Charybdis.  On one side are the tea partiers and a bunch of their presidential candidates adamantly opposed to raising the debt ceiling, though it is hard to envision a legitimate scenario where the government can cut enough expenditure to avoid raising the ceiling.  On the other side is the Chamber of Commerce which is sweating bullets at the Russian roulette played on with economy.

The fragile economic recovery (already buffeted by a series of global weather disasters, the European debt crises, the global food price hike, etc.) hangs in the balance.  Please, please, please let sanity win the day.

 

Subscribe to Rashtrakut by Email

Follow Rashtrakut on Twitter

Share
(0) Comments    Read More   
Posted on 08-10-2010
Filed Under (Economics) by Rashtrakut

With Bank of America now suspending home foreclosures in all 50 states, Ann Lowery identifies the winners and losers in this fiasco.  The scale of the incompetence will keep the housing market down and delay the recovery from the great recession.  In the midst of this someone tried to slip through a bill that could have given the banks a get out of jail free card, until the President refused to sign it.  To complete the picture of a legal free for all are the stories of banks trying to change the locks on properties before the foreclosure process is completed and sometimes when the resident is still in the house.  This mess is not over yet.  To complete the mood of frustration at this mess is the dark humor from Jon Stewart below:

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
Foreclosure Crisis
www.thedailyshow.com
Daily Show Full Episodes Political Humor Rally to Restore Sanity

Subscribe to Rashtrakut by Email

Follow Rashtrakut on Twitter

Share
(0) Comments    Read More   
Posted on 19-01-2010
Filed Under (Current Affairs, Economics) by Rashtrakut

It is not a pleasant start to the new year for Venezuela’s populist strongman Hugo Chavez.  With oil prices in decline there simply is not enough money for him to toss around for his pet domestic projects and to fund his rogues gallery abroad.  Economic trouble at home and rising crime are denting his popularity.

Then he commenced the year with a devaluation of the currency.   One suggested rationale was that it gave him more money to spend domestically to buy goodwill before the Presidential election (something his buddy Iran’s Ahmadinejad tried to do before rigging the elections).

But there are natural effects to such a move.  As Venezuelans worried that imports would double in price (and Venezuela is heavily reliant on them) they started shopping furiously.  So the next diktat went out to store owners warning them not to raise prices.  Now inevitably comes the next phase of nationalizing banks and supermarkets.

Venezuela is yet another country to be cursed with natural resources.  It makes it too easy for corrupt leaders to siphon off the money (Nigeria, Indonesia, Chad) or to blow it on populist largess (Saudi Arabia, Venezuela).  It is easy to sympathize with Chavez’s assertion that the oil wealth has been used to enrich a few, because it is true.  But rather than using the wealth to create sustainable avenues for growth in the future, he has squandered it on populist subsidies and quixotic support to Cuba and other dictatorships to tweak Uncle Sam’s nose.  Venezuela is now facing the effects of his mismanagement.  But with no viable opponent to his regime in sight yet, Venezuela’s caudillo is likely to be re-elected in the elections this fall.

Subscribe to Rashtrakut by Email

Follow Rashtrakut on Twitter

Share
(0) Comments    Read More   
Posted on 09-01-2010
Filed Under (Economics, Foreign Policy) by Rashtrakut

Tiny Iceland drew unflattering world attention last year when its overheated real estate bubble burst sending the nation perilously close to bankruptcy.  It was back in the news this week for a presidential veto that infuriated the United Kingdom and the Netherlands which is reflected in the pious declarations by the British papers.

The brouhaha started with the collapse of a subsidiary of an Iceland bank Landsbanki called Icesave that offered deposits in the Netherlands and the United Kingdom.  The key question is whether the government of Iceland was supposed to back all depositor funds beyond the amounts covered by the Icelandic Depositors’ and Investors’ Guarantee Fund set up under European Economic Area rules.  The legal case on whether Iceland’s tax payers are required to back up the deposit fund is shaky as well and not expressly required by the EU.  Even the Dutch have acknowledged that the deposit fund was not intended to cover a systemic collapse as happened with Iceland’s financial system.  Even in the United States where the FDIC covers only up to $100,000 of deposits, the deposit insurance fund simply does not have the wherewithal to bail out an entire banking system.

Then came the British overreaction that still has Iceland’s citizens seething.  When Iceland agreed to cover domestic depositors, it did not cover foreign deposits (it had not agreed to do so before the crisis in any case).  The British and Dutch stepped in to cover the deposits of their nationals.  Next Gordon Brown’s government misused anti-terrorism statutes to freeze all Iceland assets in the United Kingdom, probably the first time such action has been taken against a NATO ally, sending Iceland’s reeling economy into a tailspin and even bringing down another totally unrelated Iceland bank.  Next the IMF was used to bully Iceland to pay up.  British and Dutch grandstanding on the subject is weakened by the fact that their banks benefited from the same loose passporting rules to establish foreign subsidiaries that Icesave employed.  It is hard to imagine that they would have done what they are asking Iceland to do with respect to foreign accounts in the event of a systemic collapse.

The repayment plan forced down by the IMF is  about 5 billion dollars, chump change for Britain and the Netherlands but 40% of Iceland’s GDP and about $18,000 per citizen.  Iceland’s ability to pay is doubtful as well.  Seething from Gordon Brown’s use of terrorism statutes, the Icelandic public overwhelmingly oppose the plan and deluged the President with requests to veto it.  The President obliged and the veto now sends the plan to a public referendum where it is almost certain to fail.

As a matter of policy, it is not really clear why a government should back all deposit accounts.  It seems an invitation to moral hazard and can cripple an economy in a financial crisis like Iceland’s, particularly when (as noted in the article linked earlier) the legal arguments are shaky.  Gordon Brown’s overreaction made it harder for Iceland to pay back this debt and it is not clear why the United Kingdom should not be penalized for its disgraceful misuse of anti-terrorism statutes and the collateral harm they caused to Iceland’s economy.  Given the small size of the loan by British standards and the financial stress a long term ally was under, Gordon Brown should have resisted the temptation to flex his muscles for domestic opinion and tried to work out a deal.  Instead he made a bad situation worse and now threatens Iceland with financial isolation.

The legal principle employed by the British and the Dutch is a dangerous one too.  Evidently now the taxpayers of the country of formation have to bear the burden of the obligations of a corporation abroad.  Its time for cooler heads to prevail and pull the British and Dutch back from their overreaction and threats to financially ruin a NATO ally.

Subscribe to Rashtrakut by Email

Share
(3) Comments    Read More   
Posted on 09-12-2009
Filed Under (Economics) by Rashtrakut

Former Fed chairman Paul Volcker chides the banking industry on their belief that financial innovation contributed to economic growth and their failure to come to grips with excessive pay packages.  Sage words that will probably fall on deaf years in the United States.  Meanwhile the British have gone ahead and passed a windfall bonus tax on its financial sector, probably under the theory that taxpayer largesse in the past year enabled these bonuses to begin with.

Subscribe to Rashtrakut by Email

Share
(0) Comments    Read More   
Posted on 02-12-2009
Filed Under (Current Affairs, Economics, History) by Rashtrakut
  • Christopher Hitchens complains about how the saga of the party crashers overshadowed the visit of Manmohan Singh to the United States and vents about the state of media coverage.  This is hardly a new phenomenon, though it seems to have got worse in the last 20 years.  From my viewpoint the O. J. Simpson circus, I mean trial, was the start of this nonsense.  It showed when the media cut away from Clinton’s state of the union address to announce the civil verdict against OJ.
  • The Economist’s Banyan on how North Korea in the finest traditions of bankrupt regimes “revalued” its currency and robbed its citizens.
  • More Afghan perceptions on Obama’s speech.
  • A depressing read on how the Taliban is wrecking the rich Buddhist heritage of the region and threatening museums in Pakistan.
  • The Economist cites a Stephen Walt column on how German unifier Otto von Bismarck’s realism may be a guide on a realistic foreign policy to ease tensions in the world and tackle Iran.  It is an interesting theory, but historical analogies don’t always fit.  Bismarck’s concert of powers was ultimately doomed because Russia and Austria-Hungary’s ambitions (along with their proxies Serbia and Bulgaria) clashed in the Balkans and an over-powerful Germany clashed with the traditional British agenda since the Spanish Armada of preventing any one power from dominating the European continent.  These tensions were already evident by the time of Bismarck’s unceremonious dismissal.
  • How far will Dubai’s woes rein in Sheikh Makhtoum’s ambitious agenda?  It gives conservative Abu Dhabi a lot more leverage.

Subscribe to Rashtrakut by Email

    Share
    (0) Comments    Read More   
    Posted on 27-11-2009
    Filed Under (Current Affairs, Economics, Foreign Policy) by Rashtrakut

    The request by Dubai World (the investment flagship for the emirate) for a debt standstill rocked global markets this week.  The latest fallout from the bursting of the real estate bubble brings with it contagion fears and questions about how deep the problems may go.

    Dubai World also raises questions regarding “quasi-sovereign debt.”  Investors who previously relied on an “implied sovereign guarantee” for debt issues by these government owned ventures may want a stronger government guarantee in the future.  Government owned entities from South Africa to Russia may find it harder to borrow funds without a risk premium unless their governments explicitly guarantee the debts (relying on the fact that essentially insolvent countries like Iceland have also not stopped paying their debts).

    In political terms this also strengthens the position of Abu Dhabi within the United Arab Emirates.  Until the real estate meltdown Dubai was positioning itself as the Hong Kong and Singapore (and with some of the ridiculous buildings coming up, Las Vegas) of the Middle East.  In the process it was upsetting the delicate power balance in the UAE.  With yet another bailout now needed, the more conservative Abu Dhabi will likely extract another pound of flesh to restrain the ambitions and presumptions of Dubai.

    If it were needed, Dubai World is just another example of how intertwined the global financial system is and how problems on the other side of the world can have immediate impacts at home.

    Share
    (0) Comments    Read More