Archive for category Economics

The Rich Make Majority of Strategic Mortgage Defaults

So you think it’s all those ”immoral” people who got sub-prime mortgages on a house that they could not afford who are mailing the keys back to the  bank?

WRONG!

Statistically speaking, it is the wealthiest people who are making “business decisions” to walk away from mortgages when what is owed on the loan is greater than the value of the house.    And the rich are doing so at almost twice the rate of the sub-prime and owners of lower-cost homes, according to data compiled by the real estate analytics firm CoreLogic

In other words, sub-prime borrowers generally cannot make the payments, and involuntarily have to walk away; rich people can make the payments and voluntarily choose to walk away!

These are called “strategic mortgage defaults”, because the individuals do a complete cost/benefit analysis in order to determine if it makes financial sense to keep the home when it will likely never appreciate in value enough in the long run to pay for itself.

It’s not dissimilar to what health insurance companies do when denying coverage for that little bout of cancer your spouse is battling, or what BP did when deciding to take shortcuts while drilling on that rig in the Gulf of Mexico.  Hey, it might cost them more in the long run, but they are willing to take that chance given that it will certainly save them money in the short-run.  Thus giving them a better opportunity to make more money in the long run.

Amoral Capitalism. Risk/reward analysis.  It’s just business, partner; you know, it’s all about ”the bottom line.”

Sam Khater, CoreLogic’s senior economist, said it best:

“The rich are different: they are more ruthless.”

, , , , , , , , , , , , , , , , , , , , , ,

No Comments

Republican Mitch McConnell’s Twisted Logic on Taxes, Economics and Deficits

PARALLEL UNIVERSE by Steve Hester

Remember how “vibrant” the economy was at the end of the Bush Era? 

Recall that when Bush left office in January of 2009, the U.S. budget deficit was at an historical all-time high, roughly $1.3 Trillion .

So now Republican Senate Minority Leader Mitch McConnell claims that the Bush Tax Cuts increased revenue, because of the vibrancy of these tax cuts in the economy.”

What an inexplicable disconnect between his statement and the foregoing facts regarding the economic collapse brought on by the Global Financial Crisis in 2008, and the deficits a majority of Americans agree that Bush hung around Obama’s neck; deficits that were unprecedented in relation to previous Administrations.  It’s patently obvious that McConnell operates from a parallel universe where the laws of basic math and logic don’t apply.  

As Ezra Klein of the Washington Post so kindly put it, “it’s enough to make you very, very sad.”

What’s even more unbelievable is how McConnell and the Republicans attempt to blister Obama and the Democrats on taxes, spending and deficits, all while ignoring the most blatant evidence of what the Republicans did after inheriting Clinton’s budget surplus.  To describe this behavior in terms of an hypocrisy is an understatement.

So now the country seems inclined to put these guys back in power?

That is utterly terrifying.

NOTE: the sublime painting by Steve Hester is an original watercolor for sale at this link.

, , , , , , , , , , , ,

No Comments

Wellpoint Health Insurance is in Danger of Not Being Competitive?

Could have fooled me.

According to a business website sponsored by the state of Indiana - the home state of Wellpoint Health - the company is going to suffer an 11% decline in revenue this year as a result of widespread unemployment in the U.S., which causes the company to lose enrollment in it’s health insurance programs.  As a result, Wellpoint has no choice but to increase health insurance rates since there are less people participating in it’s risk pools.

So what’s a company to do?  For starters, raise medical insurance rates by 20% in California.  That should bring things back in line. 

After all, compensation in 2009 for Chief Executive Angela F. Braly rose to $13.1million, a 51% increase from the previous year, according to a company filing. 

Ever consider the correlation between her 50% rise in annual salary and the $150,000 the company had to spend in 2009 for her personal security?  Did the fact that this is public information even occur to the company lackeys before they claimed that Wellpoint needs substantial rate increases in order to stay competitive?  And stay competitive in what?  Corporate America CEO salaries?

$6.5 Million would have bought a lot of health care for your customers, Angela.  You best be paying your security guards a competitive wage to stay on their toes, and watch out for those crazy unemployed, skin cancer-ridden bald guys you stopped treating because they failed to report they had a pre-existing acne condition years ago.  Now they are all cranked up on painkillers, with nothing left to lose, and probably driving around your neighborhood tonight.  And they are some pissed-off, mean looking dudes.

Hope you sleep well tonight Angela. 

Sweet Dreams!

, , , , ,

No Comments

Wall Street’s Likely Strategy for Financial Reform

 

Citigroup – another Wall Street financial behemoth – has just released estimates regarding how hard financial reform might negatively effect Wall Street banks’ earnings.

I have news for Citigroup.  One of your own – a Wall Street investment banker – seems to think differently. 

If you recall back in January of this year, Goldman Sachs CEO, Lloyd Blankfein, and several of his fellow Wall Street CEO’s testified before the Financial Crisis Inquiry Commission regarding their complicity in the global financial crisis. First, Lloyd “Doing God’s Work” Blankfein had the audacity to claim that these events will not happen again in my lifetime.” 

So Lloyd, we can disregard the Long Term Capital Management hedge fund financial collapse in 1998 that almost resulted in a global economic meltdown – click here, here, here, or here.  Or how about the dot.com bubble of 2000 – click here or here.  And now this more recent Global Financial Crisis?  Even though they all three occurred over the course of a mere 10 years? 

Lloyd, are you saying you only have a couple of years to live?  Has Hell been put on notice to reserve a room?

After that self-serving testimony, the closest any one of them came to admitting that they completely screwed-up the financial system was the statement of Morgan Stanley CEO, John Mack:  “We did our own cooking and we choked on it.”  Well not exactly John; you did your own cooking, the American public choked on it, all while you and Blankfein continue to dine on caviar, Oysters Rockefeller, Fillet Mignon and lobster.

So while doing the usual “deep research” into that day’s Congressional hearing, I stumbled upon an investment banker’s blog, and referenced some of his brash and flippant statements in this post - Inside the Mind of an Unapologetic Wall Street Investment Banker.  Let’s revisit some of his comments:

Investment bankers “have absolutely no interest whatsoever in the whys and wherefores of the financial crisis, the proper size and role of banks and investment banks in the domestic economy, or the moral imperatives inherent in stewarding the financial plumbing under-girding the daily lives and livelihoods of six billion people . . . [i]nvestment bankers have almost no interest in why things are the way they are. Rather, they spend all their considerable intellectual and psychological resources on understanding how they can take advantage of the way things are.”

Moreover, “their obvious lack of intellectual curiosity about the sources of the crisis  . . . [explains] their resistance to any major change in the way the industry or the markets are regulated . . .  changing regulations will [not]necessarily make the industry less profitable . . . [since they] have well-justified confidence in their ability to turn new regulations to their advantage.”

He goes on to conclude, “Don’t look to investment bankers for answers on how we got here. We don’t know and we don’t care [emphasis added]. We take the world as we find it and try to make money.”

After reading that, you should know beyond a shadow of a doubt that nothing will change after financial reform.  Absolutely nothing.  Except Wall Street investment bankers will become even richer, while they unapologetically watch the rest of us slowly go to Hell in a hand-basket.

If that is ”doing God’s work”, Hell is fine with me.

, , , , , , , , , , , , , , , ,

No Comments

Message to British Regarding American Criticism of BP’s Monumental Screw Up . . .

 

 

 

 

 

 

 

 

 

 

ENGLAND vs. U.S.A – WORLD CUP SOCCER or BP OIL FIASCO?

Help Americans understand this:

So you are distressed over the fact that Americans are extremely outraged at BP’s (formerly called British Petroleum) environmental disaster which is wrecking havoc on our Gulf Coast region; that our fury over this corporation’s massive blunder is somehow to blame for the precipitous drop in it’s stock price; that this drop in the value of BP’s stock has effected the value of many of your citizens’ pensions; therefore Americans need to “ratchet down” criticism of the company so that the stock price can go up again?

Interesting.

So when our Wall Street banks screwed up the world economy, thereby effecting the value of your citizens’ pension funds because they bought some of the over-rated collateralized debt obligations (CDO’s) these financial terrorists were selling, it was OK for you to whip them like the worthless dogs they are.  However, when one of your energy corporations screws up, effecting the lives of millions of Americans living on the Gulf coast, we have to bite our tongues because that too negatively affects your retirement accounts?

Locke, HobbesBentham, John Stewart Mills, Bertrand Russell - all great British philosphers.  Men of extraordinary reason and intelligence.  Did present day British citizens skip the class in Logic and Critical Thinking?  These great British philosophers must be rolling over in their graves.

My ancestors left England (and Scotland) in order to come to the United States over 300 years ago. 

Maybe for good reason . . . no pun intended.

, , , , , , , , , , , , , , , , , , , , , , , , , ,

No Comments

Rand Paul’s First Slip & Fall – Down the Rabbit Hole of the American Political Landscape

 

 

 

 

 

 

 

 

 

 

 

 

 

LIBERTARIAN DUALITY SYMBOL

Within 24 hours of getting the first Tea Party nomination for a major political office in the United States, Kentucky Senatorial candidate Rand Paul already committed his first political faux pas in his equivocation regarding a key component of the 1964 Civil Rights Act.

In an interview last night on MSNBC’s Rachel Maddow Show, Rand was pressed by Maddow to state whether or not he would oppose the key provision under the landmark legislation prohibiting private sector discrimination based on race.  Rand categorically denied that he was a racist and insisted that this position, based on Libertarian principles which philosophically oppose government intervention in the private sector, was the basis for his argument that this portion of the legislation was flawed and that he would not support it. 

Today, Rand backtracked from his political posture last night, now saying that he would not advocate for the repeal of the legislation, in whole or part.  He said that appearing on Maddow’s show was a “poor political decision” – inferring that her questioning was another Sarah Palin, liberal media “gotcha” moment.  He complained to Maddow about her line of questioning during the interview, claiming that the issue of private property owners’ rights under the law was “an abstract, obscure conversation from 1964 that you bring up … You bring up something that really is not an issue.”

I like Rand Paul.  I don’t believe for one moment that he is a racist.  Neither does Rachel Maddow, and her questioning was not a hatchet job.  She is sincerely interested in how Libertarian purists might dismantle 235 years of constitutional interpretation and legislation.  I watched the interview, and her questions were fair.  Moreover, I think both Rand and his father, Ron Paul, are well-intentioned, intelligent anti-establishment politicians.  There is ample room for men of their intellectual and philosophical stature under the tent of American politics.  But their positions on serious political and legislative matters must be explored.

Unfortunately for Rand, that is why his alignment with principles of Libertarianism, and the Tea Party’s deep criticism of prior legislation like the Civil Rights Act of 1964 does make it an issue.  If the Tea Party candidates are going to run on a platform that advocates for the dismantling of any and all government regulation affecting private property rights, they have to accept the fact that critics have good reason to question their intentions regarding repeal of prior legislation, and what those actions would mean for ten’s of millions of Americans.

Most people are not familiar with Libertarianism – a modern, free market philosophy – it eschews government interference in any aspect of private life, while advocating for freedom of speech and behavior, so long as it does not harm anyone.  Of course, in theory, it all sounds very enticing.  I personally considered myself to once be a Libertarian. 

However, that all began to change after recognizing that those among us who have more “freedom” – as in money or power - will utilize that advantage in order to quash or interfere with the freedom of others to pursue their own goals and dreams.  What I often hear in response is that “life isn’t fair” – inequities will always exist.

If that is so, we are headed back to a time when robber barons and monopolists are allowed to manipulate and “game the system” for their own devices.  Wall Street’s domination of the finanical landscape is a case in point.  Once they have wrested complete control or dominated an intolerable degree of economic and political life in America, social unrest and anarchy will inevitably rule the day.  Case in point:  the colonial revolt against England in 1776.  I would think Rand Paul and the Tea Party might see the irony in that.

Even Adam Smith – author of Wealth of Nations, and the father of free markets – recognized that government intervention was a necessary evil.  For those of you who doubt this, read the book (here is a free online edition).  I did over thirty years ago. And I have read it several times since then.  Smith was a closet “socialist” (with a small “s”).  The principle underlying his whole theory was the overall social good would be elevated by HARNESSING – as in placing a bridle on – greed.  When you harness a horse – you keep it under control.  You do not let it run completely free. 

Libertarians think the horse should never be bridled; under any circumstances.  The law of unintended consequences will always come into play when you let a horse run wild.

For that reason alone, Rand Paul must accept the reality of having to go down the rabbit hole of American politics. 

 Just go ask Alice . . . or Barry Goldwater.

, , , , , , , , , , , , , , , , , , , , , , , , , ,

No Comments

JP Morgan Apologizes for Saying What They Think, So You Don’t Think About What They Said

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YOU CAN’T UNRING THE BELL . . .

A top executive and economic analyst at mega-bank JP Morgan Chase trashed U.S. senators in a company memo to the bank’s clients - stating that they showed “an unnerving ignorance of fundamental principles of market economics” regarding the Goldman Sachs hearings, and said “it’s time for the grownups to step in” regarding financial reform.

Interesting . . .

These same banks showed an unnerving ignorance of fundamental principles of market economics when coming to the taxpayers for bailouts;  which suggests that it’s time for the grownups to step in, and teach them a lesson about what happens when you demonstrate an unnerving ignorance of fundamental principles of market economics – you lose the privilege to have such a powerful influence over OUR economy.

The grownups need to make TBTF (Too Big To Fail) = TSTM (Too Small To Matter) – break up these childish Big Banks.

P.S.  After a spokesperson for JP Morgan Chase issued an apology for the memorandum – stating that it “does not reflect the views of our firm” – you could here the collective chant from JP Morgan headquarters as they covered their ears . . . “THE BELLS, THE BELLS, THE BELLS.”

, , , , , , , , , , , , , , , ,

1 Comment

Goldman Sachs’ “Fabulous Fab’s” Fabulous Fraud

 

 

 

 

 

 

 

 

 

“THERE IS A SUCKER BORN EVERY MINUTE”

                                - David Hannum [no, it was not P.T. Barnum]

Confidence is the single most important element of any fraud.

That is why fraud schemes are called confidence games or confidence tricks

Ever heard of a “Three Card Monte“?  It is the most classic con game run on the streets.  This is a card game that initially inspires confidence in the “mark” – the person who is the target of the fraud - by showing them how easy it is to make money by making the correct bet.  Both the dealer and another person pretending to play the game conspire together in order to make the “mark” feel confident that he will win game.  In other words, the game is already rigged before the “mark” even plays.

Moreover, it preys on several elemental human flaws:  greed and ego.  That is why it works.  We always think we can do better than other people – that we are smarter than them; and, once we start we cannot stand to lose money, so we keep upping the bet to make up for our rising losses.  That’s why Vegas makes so much money.  They rely on our greed and ego to lead us to the tables.  As does Goldman Sachs (GS) down on Wall Street.

Except in Goldman Sachs’ case – just like a “3 Card Monte” - they create a fraud.  At least that’s what the SEC is now alleging.  And the allegations are not looking too good on paper.  Nor in the national business media, as numerous business journalists - here, here and here - weigh in on the matter, gleefully watching as GS twists in the firestorm of their own creation that appears to be developing.

The best response came from Dylan Ratigan, former business journalist for CNBC and current host of The Dylan Ratigan Show on MSNBC.  After GS posted its press release authored by company spokesman Lucas van Praag, Ratigan fired-off a serious of questions for Goldman Sachs to answer. If you want a preview of the cross-examination in this case, this will be as good a template as you will see.

What’s even worse are the emails that the young Goldman executive who was setting up these deals was sending when the parties were deep in the midst of putting this together;  deals designed to benefit his company – resulting in a very large bonus for him – and virtually ensuring that many of Goldman’s own clients were going to be left holding the bag, while one client profited handsomely .  Fabrice Tourre, the self-proclaimed “Fabulous Fab”, sent the following message to someone:

“Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrousities!!!”

So Goldman is circling the wagons, and denying any wrong-doing.  However, what Goldman is conveniently omitting – not ironically, given their business practices at issue - is that they failed to disclose to clients investing on one side of the “confidence game”, that Goldman was actively working for another client on the other side of the confidence game whose interests were diametrically opposed to the first parties’.  And they said nothing, while making huge fees off both clients.  It’s a classic conflict of interest scenario – which is tantamount to fraud if they breached a duty to disclose that fact – and the fact was a material issue central to the transaction.

Moreover, Goldman Sachs’ claim that they “lost money” on this deal may be tenuous, at best.  The fact that the value of the investment may have dropped over time does not account for the fact that GS had purchased huge insurance policies to mitigate those losses, as well as buying “shorts” in order to make money as the value dropped – which could actually result in a hefty profit.

Nevertheless, Goldman Sachs insinuates that it will never admit they have done anything wrong; that “it will be a cold day in Hell.  After all, it was Goldman Sachs’ CEO, Lloyd Blankfein, who was quoted in The Times :

“I’M DOING GOD’S WORK.”

Frankly, Lloyd, I think it was Satan’s work. 

And maybe Hell will freeze over . . .

UPDATE:  Here is a guide to the Goldman Sachs issue from U.S. News and World Report.

, , , , , , , , , , , , , , , , , , , , , , , ,

No Comments

Wonder Why President Obama Raised His Own Taxes?

 

In case you forgot – and I am almost certain you didn’t – today is April 15th.  Tax day.  Not that you needed or wanted any reminder.

But there are a few things you might not have considered, and a way to re-frame the notion of taxes in order to understand why we pay them – albeit reluctantly.

As was reported today in the Wall Street Journal, the Obamas just paid $1.8 MILLION in income taxes the year.  FYI:  that is NOT a typo. 

Want to put that in perspective?  In 2008, George Bush paid just shy of $204,000 in income taxes;  and Dick Cheney paid approximately $600,000 in taxes that same year.  That means that President Obama paid over twice as much in income taxes his first year in office than George Bush and Dick Cheney did combined in their last year in office.

So when President Obama increased Medicare contributions on the top 1% of wage earners in this country in order to help fund health care reform, he raised his own taxes.  Not your taxes – unless you make in excess of $250,000 a year.  His taxes.  That is something only one President – George Bush I – has ever agreed to do in almost thirty years.

And the President may later propose to raise taxes again on himself and the very rich.  Why, you might ask?

Because this President understands that sublimating his own financial self-interests to that of the greater social good is something Americans have always expected from those who could most afford it – a notion that seems quaint and antiquated in this era of repacious greed and obscene self-interest.  Sacrificing a portion of one’s wealth for the good of America was one of the principle things that made this country so great. 

Want proof?  Read it and weep . . .

This chart from the Citizens for Tax Justice outlines the income tax rates for the top 1% of taxpayers in the United States since 1916.  Take note of several very salient facts:

1)  It may surprise you to learn that with the exception of 1916 (%15), 1925-31 (25%), and 1988-92 (30% +/-), the current tax rates for the wealthiest Americans has never been lower (35%);

2)  In the past, high tax rates on the very rich were able to offset severe economic conditions (The Great Depression), the high costs of war (WW II, Korea, and Vietnam), and helped financed the greatest economic expansion in this country’s history (The Go-Go Years of Wall Street – late 1950’s to mid 1960’s);

3)  The reason most Americans now pay a higher rate of taxes in relation to inflation-adjusted income is that the very rich have paid far less in taxes since 1988 – a policy that should not be lost on anyone, Republican or Democrat; the rich DO keep getting richer.  Unfortunately, political rhetoric and economic propoganda trumps truth virtually every time. 

Here is the reality, America:  If you want to reduce deficits, balance the budget for future generations, keep entitlements at their present levels (Social Security and Medicare), and reinforce the middle-class, taxes on the very wealthy are going to have to go up.  Significantly

Call it what you may – “transferring wealth”, Socialism, etc.  This is a zero-sum game.  Otherwise, many of us will go broke over time while they grow ever richer.  It’s that simple.  This is not class warfare.  This is not social engineering.  This is reality, people.

But based on some silly twisted philosophical perception that imposing disporportionately “higher” taxes on the rich is inherently unfair and “Socialist” in nature –  which even Warren Buffet, the richest man in America, agrees is nonsense -  we vote against our own self-interests, and vicariously support the ultra-rich getting richer.  Why?  Because we no longer recognize the fact that in the past, America always imposed a proportionally greater financial burden on it’s citizens who have prospered most from her bounty, and were blessed with the gift of wealth.

Against his own self-interest, President Obama readily accepts that duty, as well as the additional burden it imposes on his family, based on the time-honored American principle of self-sacrifice . . .

All for the good of the country.

NOTE:  The gentleman pictured at the top of this post is none other than the richest man in America – Warren Buffet.

, , , , , , , , , , , , , , , , , , , , , , , , ,

1 Comment

Obama and Democrats Played Republicans on Healthcare?

karma1

 

 

 

 

 

 

 

 

 

 

 

Now the blame game begins about how Health Care Reform got passed. 

You are just going to love this one . . .

William Saletan reports today in Slate.com that the Bipartisan Health Care Summit organized by the Whitehouse and attended by the President and party leaders on February 25, 2010 , was in fact a total ruse orchestrated by President Obama to set-up the Republicans; Saletan cites accounts from four different media outlets who quote anonymous Democratic aides that “paint a picture of deception” as follows:

“Obama never believed he could persuade Republicans. He had already decided the shape of the bill. He called the meeting to create an illusion of outreach, put Republicans on the spot, discredit their ideas, and embolden Democrats.”

Oh, Horror of Horrors!  How sinister of  President Obama.  You know they say he is one Hell of a poker player.  Republicans should have known just how shrewd and conniving this beast was when they sat down at the table with him.  Obama went “all in”, and the Repubs folded.  How could he do this to them?

 The Republicans spent over a year trying to play Obama and the Democrats like a fiddle, and in the end, it was the Republicans who got played?  Hee Hee Hee.

KARMA BABY.  KARMA. 

Hey Repubs:  I think God does have a sense of humor.

, , , , , , , , , ,

No Comments