A pet theory of mine has been lurking in the back of my mind. As middle class jobs erode and are replaced by jobs that pay a great deal less, the middle class is evaporating into a disgruntled mass of out of work auto workers and other blue collar employees. Let's not forget the white collar workers whose jobs have also been outsourced because of the ease provided by e-commerce. Why pay for an engineer here when you can get someone for one-tenth the price in another country where they speak pidgin English?
I figure it takes 3 days for people to get used to the most horrendous things, including auto accidents and automated telephone trees. Aren't you surprised to speak to an actual human being? It gives you the impression that corporations don't really want to hear from you. Private health insurance plans will do anything to keep from paying out a claim.
Ah! I just read a story in the WSJ that confirmed my belief that someday, soon, we will all be working for the very rich. This article about the UK Royal Navy indicates that the Navy is being trained to care for, not the schooners and the pride of the Armada, but for oil-rich Russian billionaires and their ilk. The Navy will supply butlers, servants, limeys et al. When asked why the proud Brits were doing this, a spokesman shrugged his shoulders and said, "We need the money."
Henry Paulson refuses to admit there is a housing crisis that must be tackled right away in a more vigorous fashion than suggesting that banks get together to discuss mortgage modification. Anything else would be bailing out the financial institutions and speculators. Meanwhile, some 2.3 million people are already in foreclosure at the end of 2007 and more are in delinquency. Housing prices are going down but Paulson says bah humbug, the prices are self-correcting. Vultures are circling.
Thursday, February 28, 2008
Monday, February 11, 2008
Capitalism Is Immoral, Not Amoral
If you believe the hype, profligate, lying homeowners are the ones to blame for the mortgage crisis, especially minority homeowners. People lied to get mortgages for homes that were unaffordable. They were greedy, taking advantage of loose credit requirements to buy houses that their incomes couldn't justify. Housing prices were exorbitantly inflated (a "bubble") premised on the idea that prices would never go down. People justified their borrowing by thinking (or saying, whatever) that they could constantly refinance for a larger mortgage to pay off the previous one. Then prices collapsed and their mortgages were more costly than any money they could borrow by refinancing. the party line spewing from Wall Street is that minority homeowners lied to steal money to buy homes they couldn't afford. Of course, conservatives parrot that line.
But according to The Wall Street article Speculators May Have Accelerated Housing Downturn, it was really speculators in the bubble defaulting on their homes who caused the problem:
Lenders didn't do simple things such as check to see if a borrower listed different addresses than the locations of their homes:
The exalted "free market" theory underlies the hands-off attitude of any regulatory agency toward the housing bubble that is now undermining some $2 trillion dollars in housing value. Defaults on mortgages have led to skittish investors avoiding debt instruments involving a mortgage-backed securities. This has led to a burgeoning credit crisis where investors are leery of many previously rock solid investments including municipal bonds, which has caused the price of borrowed money to rise significantly. The bundled (or structured) debt is going down, down, down in value. In some cases corporate bonds (what are they called, corporate leveraged obligations--man, what fucking euphemisms the "free market" uses to cover their fraud) have to marked down to 80 cents on the dollar, which is usually the sign of imminent default.
The brilliant Alan Greenspan, acolyte of Ayn Rand, who made credit easy and cheap by lowering the fed fund rate to negative cost during 2003-04 and derided fixed-rate mortgages in favor of adjustable rate mortgages, is a criminal. If you ask me, they are all criminals. But being a criminal never stopped anyone, including Michael Milken, Henry Blodget, or that guy who pretended to be a Rockefeller to make a lot of money on the lecture circuit. Jerome Kerviel, who is turning out to be a person who deliberately sought to rip off SoGen with accomplices as opposed to being a meek cog in the machinery, will probably also be sought out as a public speaker after he serves minimal time. Serving time in prison is merely the cost of doing business for these guys.
But according to The Wall Street article Speculators May Have Accelerated Housing Downturn, it was really speculators in the bubble defaulting on their homes who caused the problem:
Roughly 20% of mortgage fraud involved "occupancy fraud", or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, California. Another study, by Fitch ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in.
Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.
Investors tend to be more likely than borrowers who live in the homes to walk away from their purchases when home prices fall.
Lenders didn't do simple things such as check to see if a borrower listed different addresses than the locations of their homes:
Lenders typically allowed investors to finance no more than 90% of the home's value, but if borrowers said they planned to live in the property, they could buy a home with no money down, even if they had scuffed credit and didn't document their income, said Pete Ogilvie, a mortgage broker in Santa Cruz, CA, and president of the California Association of Mortgage Brokers.
While it is true that occupancy fraud can sometimes be difficult to detect, fraud experts said lenders and builders could have vetted their borrowers more closely. Pulling a borrower's credit report, for instance, may reveal multiple mortgages.
The exalted "free market" theory underlies the hands-off attitude of any regulatory agency toward the housing bubble that is now undermining some $2 trillion dollars in housing value. Defaults on mortgages have led to skittish investors avoiding debt instruments involving a mortgage-backed securities. This has led to a burgeoning credit crisis where investors are leery of many previously rock solid investments including municipal bonds, which has caused the price of borrowed money to rise significantly. The bundled (or structured) debt is going down, down, down in value. In some cases corporate bonds (what are they called, corporate leveraged obligations--man, what fucking euphemisms the "free market" uses to cover their fraud) have to marked down to 80 cents on the dollar, which is usually the sign of imminent default.
The brilliant Alan Greenspan, acolyte of Ayn Rand, who made credit easy and cheap by lowering the fed fund rate to negative cost during 2003-04 and derided fixed-rate mortgages in favor of adjustable rate mortgages, is a criminal. If you ask me, they are all criminals. But being a criminal never stopped anyone, including Michael Milken, Henry Blodget, or that guy who pretended to be a Rockefeller to make a lot of money on the lecture circuit. Jerome Kerviel, who is turning out to be a person who deliberately sought to rip off SoGen with accomplices as opposed to being a meek cog in the machinery, will probably also be sought out as a public speaker after he serves minimal time. Serving time in prison is merely the cost of doing business for these guys.
Thursday, January 24, 2008
Branding is Witchcraft
I just ate some Bumble Bee salmon (premium-priced) and Madam crabmeat (gushily priced at a very stinky Asian grocery store on Broadway in Elmhurst). In this world of uncertainty, how can one be sure that one is not getting poisoned? It's great, the Bush Dystopia. It used to be that food poisoning was an aberration, something untoward that of course the government was set up to protect us from (the FDA). Now it's a great big casino out there, where you pays your money and you takes your chances. The Bumble Bee salmon is actually from Thailand, although the cute big-eyed sweeping lashed cartoon bee is smiling at me as American as apple pie. The Madam crab meat is from Vietnam (didn't we lose to them?). All the other brands were from China and I am versed in Chinese quality control. But what about Thailand? Or Vietnam? We suck at keeping our food safe but excel in marketing. Why not extend brands all the way? I know this isn't a new idea but maybe it can provide some reassurance while we gorge on toxins.
The old brands are still juicy (Mr. Clean, Uncle Bens, Aunt Jemima). Let's squeeze them like cow's milk (or soy milk).
The old brands are still juicy (Mr. Clean, Uncle Bens, Aunt Jemima). Let's squeeze them like cow's milk (or soy milk).
It's The Economy, Pendejo!
Overseas stock market indices fell precipitously on Monday. Hong Kong went down 7.2% India went down. Germany went down. It was as though gravity was pulling the strings. The United States stock market was off on its dutiful Martin Luther King murder day. American stock traders et al watched in horror. Ben Bernarke convened a teleconference with the other 17 Fed governors and they decided collectively to cut the fed funds rate 75 basis points, the largest cut ever. Did this panicked move (after all, there was a scheduled Fed meeting next week) calm the markets? God knows. The market fell on Tuesday, then swung wildly on Wednesday descending 300 points only to close up 300 points (approximately).
Some in the global economic discourse decry Bernarke's actions. Perhaps lower interest rates are not the answer. After all, didn't they cause the housing bubble by throwing money at everyone with a pulse? Also, doesn't this kind of move make it look like Bernarke is responding only to equity investors, in a sense, rewarding risk-taking? Moral hazard, anyone?
In Davos, Switzerland where the great minds are meeting (wedged in between Alpish skiing) Bill Gates works on his speech about how capitalism doesn't seem to solve the problems of the very, very many more poor people there are in the world other than billionaires. He of course is the very pillar of the modern lethal capitalist. Now that he has all the money, he wants the moral high water mark as well. He even quotes from the crazy Adam Smith's book written prior to "The Wealth of Nations" (something like the Moral Sentiment of the Sentient?) where not only naked self-interest drives altruism(?) but where it's self-enriching to help others! What about that invisible hand? Is that only for pornographic web sites or counting the spoils as one exits as ex-CEO from a demolished financial institution, now a wholly owned subsidiary of Bahrain?
Gack the brain dead walk among us like the stunned wounded middle class, darkly drinking in the ineptitude of our so-called elected representatives. Representatives? What the fuck does that mean? Who do they represent, anyway? The NY Times briefly sketches the horrendous band aid stimulus package cooked up by Congress with Bush's eager pen floating above it--give a few hundred dollars to the great unwashed (Republicans--none to those who pay no taxes because they don't make enough to pay taxes); extend the length of unemployment compensation (Republicans--let's have unemployment drop to Depression-era levels before we do that) and other pittances, bones to throw at the barely rabid rabble.
People are gloomy. They see their children inheriting a world where they will do worse than the generation before them. They feel America's stock has fallen in the world. A landlord has to work an hourly job at Home Depot to help pay the mortgage on his building. At least he gets some health insurance. My insurance premium jumped from $55.50 to $98.50. Jesus Christ that's $43.00, a leap of almost 80%. What the fuck! At least the economic powers-that-be don't talk about core inflation so much anymore. Inflation is everywhere I look for "regular" folks. Gas prices will not recede. My Con Ed bill is sky high. Oil may have declined on the market, retreating from a brief flirtation with $100-a-barrel to about $86 but we will not feel it in our wallets. I shop out of my way to get less expensive eggs. Milk is high. In Davos they deride the U.S. as an "emerging market" economy:
In the gloomy article the Times ran today about how the average person sees their prospects, one man says when he travels he doesn't tell anyone he's an American. "I tell them I'm a Canadian. I get a much better response that way."
Some in the global economic discourse decry Bernarke's actions. Perhaps lower interest rates are not the answer. After all, didn't they cause the housing bubble by throwing money at everyone with a pulse? Also, doesn't this kind of move make it look like Bernarke is responding only to equity investors, in a sense, rewarding risk-taking? Moral hazard, anyone?
In Davos, Switzerland where the great minds are meeting (wedged in between Alpish skiing) Bill Gates works on his speech about how capitalism doesn't seem to solve the problems of the very, very many more poor people there are in the world other than billionaires. He of course is the very pillar of the modern lethal capitalist. Now that he has all the money, he wants the moral high water mark as well. He even quotes from the crazy Adam Smith's book written prior to "The Wealth of Nations" (something like the Moral Sentiment of the Sentient?) where not only naked self-interest drives altruism(?) but where it's self-enriching to help others! What about that invisible hand? Is that only for pornographic web sites or counting the spoils as one exits as ex-CEO from a demolished financial institution, now a wholly owned subsidiary of Bahrain?
Gack the brain dead walk among us like the stunned wounded middle class, darkly drinking in the ineptitude of our so-called elected representatives. Representatives? What the fuck does that mean? Who do they represent, anyway? The NY Times briefly sketches the horrendous band aid stimulus package cooked up by Congress with Bush's eager pen floating above it--give a few hundred dollars to the great unwashed (Republicans--none to those who pay no taxes because they don't make enough to pay taxes); extend the length of unemployment compensation (Republicans--let's have unemployment drop to Depression-era levels before we do that) and other pittances, bones to throw at the barely rabid rabble.
People are gloomy. They see their children inheriting a world where they will do worse than the generation before them. They feel America's stock has fallen in the world. A landlord has to work an hourly job at Home Depot to help pay the mortgage on his building. At least he gets some health insurance. My insurance premium jumped from $55.50 to $98.50. Jesus Christ that's $43.00, a leap of almost 80%. What the fuck! At least the economic powers-that-be don't talk about core inflation so much anymore. Inflation is everywhere I look for "regular" folks. Gas prices will not recede. My Con Ed bill is sky high. Oil may have declined on the market, retreating from a brief flirtation with $100-a-barrel to about $86 but we will not feel it in our wallets. I shop out of my way to get less expensive eggs. Milk is high. In Davos they deride the U.S. as an "emerging market" economy:
[A]n American economist, Nouriel Roubini, said bluntly, "The United States looks like an emerging market," with large deficits and a weak currency. Brazil, an actual emerging market, had done a better job overhauling its economy, he said.
In the gloomy article the Times ran today about how the average person sees their prospects, one man says when he travels he doesn't tell anyone he's an American. "I tell them I'm a Canadian. I get a much better response that way."
Saturday, December 15, 2007
I love Wikipedia.org
I believe in truth, justice and the American way. I also believe in Wikipedia. Where else would I get the information I need at my fingertips? You can't take everything written there as gospel, but it's a good start.
I also believe in sourcing. Giving credit where credit is due. I do not believe in waving your opinions around wildly. I believe in facts. Just the facts, ma'am, as Joe Friday said. If you want to tell me something is going on tell me: where you heard about it, and what exactly was said, written or established. If you tell me you read about the results of an opinion poll done by The New York Times, that's fine. If you tell me about the results of an opinion poll done by Fox News, that's fine too, as long as I know that it comes from Fox News.
I don't want your unvarnished opinions without facts. I can rant all by myself.
I also believe in sourcing. Giving credit where credit is due. I do not believe in waving your opinions around wildly. I believe in facts. Just the facts, ma'am, as Joe Friday said. If you want to tell me something is going on tell me: where you heard about it, and what exactly was said, written or established. If you tell me you read about the results of an opinion poll done by The New York Times, that's fine. If you tell me about the results of an opinion poll done by Fox News, that's fine too, as long as I know that it comes from Fox News.
I don't want your unvarnished opinions without facts. I can rant all by myself.
Friday, August 24, 2007
The Lighter Side of the Republican Party: Roger Stone
Roger Stone is a top Republican strategist. He costs some $20,000 per month. He is what Republicans love: a dirty fighter who (supposedly) leaves no fingerprints. He cut his teeth on Richard Nixon's Committee to Re-Elect the President (or CREEP) and later was a partner of the legendary Lee Atwater.
New York State Republican legislators hired Roger near the end of the legislative session in June. As the N.Y. Times put it on 8/23/07 in their story, "Political Consultant Resigns After Allegations of Threatening Spitzer's Father":
In a closed-door meeting last month, Mr. Stone presented a road map for agressively defending and rebuilding the party. Coinciding with Roger's emergence in Albany were web sites dotting the horizon with harsh accusations against Governor Spitzer. Reporters and others around the capital began receiving e-mail messages from addresses like SpitzerFile.com and NYFacts.net, most of them reprinting newspaper stories critical of Mr. Spitzer or containing political cartoons about him. Those two services are run by Michael Caputo, a Buffalo-area Republican who has worked for Mr. Stone in the past.
The mainstream media (if you called the New York Post "media") then featured stories about how Eliot Spitzer used the entire New York apparatus at his disposal to hound and stalk Senate Majority Leader Joseph Bruno. Roger must have been pleased as punch. Then something strange happened, which can either be attributed to temporary insanity, being drunk with power or just plain being drunk: Roger decided to call up Eliot's father, an 83-year old man with Parkinson's Disease, and threaten him (anonymously). Just before 10 P.M. on August 6th, a message was left at Bernard Spitzer's Manhattan office that he would be "compelled by the Senate sergeant at arms" to testify about "shady campaign loans" he made to his son during Eliot Spitzer's unsuccessful campaign for attorney general in 1994.
"If you resist this subpoena, you will be arrested and brought to Albany," the message says, according to a transcript given to the New York Times. Bernard Spitzer hired Kroll Associates, the private investigative firm, to trace the message. They found that the number on Bernard's caller ID system linked it to listings under the name of Mr. Stone's wife, Nydia.
Has Roger Stone never heard of Caller ID? Even six-year-olds understand how Caller ID works and that everyone has it. The message continues in a rather uncouth vein: "There is not a goddamn thing your phony, psycho, piece-of-shit son can do about it. Bernie, your phony loans are about to catch up to you. You will be forced to tell the truth and the fact that your son's a pathological liar will be known to all."
Forget about the fact that the Times printed the phrase, "piece-of-shit". Just listen to how Roger tries to repair the damage. Caught with his pants down, he admitted yes it was his number and it was also shared by a Florida law firm for which he does public relations work, Rothstein Rosenfeldt Adler. But he denied making the call. He says his apartment building is owned by a prominent Spitzer fundraiser, and suggests that allies of the governor may have given access to his apartment to someone who made the threatening call. As Roger says, "They have unfettered access to my apartment. I am on television constantly. As Gore Vidal said, never pass up the chance to have sex or be on television."
Actually, that part about sex is pretty funny and makes a lovely sidebar. Back in about 1996 Roger was working for Bob Dole as the presidential nominee. The National Enquirer published a salacious expose of Roger and his wife Nydia. It seems they are both swingers and advertise themselves in swingers' magazines and on the internet. Huge headline: "Top Dole Aide In Group Sex Ring". Even though a chunk of his expensive advice urges Republicans to emphasize family values and integrity, he and his ex-model wife Nydia, aka as Nikki, posted an ad on their Internet web site featuring a vavavoom picture of Nikki ("Hot insatiable babe, 40DD-24-36 seeks exceptional [threesomes] with her and her bodybuilder husband...Prefer athletes, bodybuilders, jocks and military.") The Stones solicited sex partners in as many as 70 swingers' magazines across the country. Nikki invited men in uniform to take part in sex games with her and Roger during the Republican convention in San Diego. The web site has been accessed thousands of times.
Nikki (I mean Nydia) was very helpful during the 2000 Florida recount. GWB enlisted her to rally support among Cuban exiles in Miami (she is of Cuban ancestry). During that jolly time, Roger was also instrumental in organizing the so-called Brooks Brothers Riot (according to Jeffrey Toobin's book "Too Close To Call", about the recount), when hundreds of Republican activist stormed a county election office in Miami and demanded that workers there cease recounting presidential ballots.
Anyway, the day the story about the "anonymous" phone call came out, Bruno fired Roger. Roger continues to insist that H. Dale Hemmerdinger, who owns the building on Central Park South where Roger and "Nikki" live, let unauthorized persons into his apartment. Mr. Hemmerdinger responded, "Roger's off his rocker." No actually he issued a statement, "Stone's allegations about me are untrue."
Roger also said that he had attended a performance of the Broadway play "Frost/Nixon" on the night of the alleged call and could "highly recommend it to Governor Spitzer. It shows you what hubris and lying brings you."
However, a blogger for New York magazine pointed out that the play (like most plays) had no Monday night performances.
Roger's response? "Well, then, I'm mistaken. My wife already reminded me I actually saw the play on a Wednesday. I still recommend the play to the governor."
Although he fired him, Bruno still pays homage to Roger's elaborations: "Roger's statement is that he didn't do it and that somebody got into his apartment and that someone who owns his apartment is a big contributor to Eliot Spitzer."
Case closed!
New York State Republican legislators hired Roger near the end of the legislative session in June. As the N.Y. Times put it on 8/23/07 in their story, "Political Consultant Resigns After Allegations of Threatening Spitzer's Father":
Mr. Stone's reputation for hard-edged political tactics appeared to be a selling point for the Senate Republicans, who after Mr. Spitzer's election last fall were facing an aggressive Democratic governor eager to wipe out the state's last redoubt of Republican strength.
In a closed-door meeting last month, Mr. Stone presented a road map for agressively defending and rebuilding the party. Coinciding with Roger's emergence in Albany were web sites dotting the horizon with harsh accusations against Governor Spitzer. Reporters and others around the capital began receiving e-mail messages from addresses like SpitzerFile.com and NYFacts.net, most of them reprinting newspaper stories critical of Mr. Spitzer or containing political cartoons about him. Those two services are run by Michael Caputo, a Buffalo-area Republican who has worked for Mr. Stone in the past.
The mainstream media (if you called the New York Post "media") then featured stories about how Eliot Spitzer used the entire New York apparatus at his disposal to hound and stalk Senate Majority Leader Joseph Bruno. Roger must have been pleased as punch. Then something strange happened, which can either be attributed to temporary insanity, being drunk with power or just plain being drunk: Roger decided to call up Eliot's father, an 83-year old man with Parkinson's Disease, and threaten him (anonymously). Just before 10 P.M. on August 6th, a message was left at Bernard Spitzer's Manhattan office that he would be "compelled by the Senate sergeant at arms" to testify about "shady campaign loans" he made to his son during Eliot Spitzer's unsuccessful campaign for attorney general in 1994.
"If you resist this subpoena, you will be arrested and brought to Albany," the message says, according to a transcript given to the New York Times. Bernard Spitzer hired Kroll Associates, the private investigative firm, to trace the message. They found that the number on Bernard's caller ID system linked it to listings under the name of Mr. Stone's wife, Nydia.
Has Roger Stone never heard of Caller ID? Even six-year-olds understand how Caller ID works and that everyone has it. The message continues in a rather uncouth vein: "There is not a goddamn thing your phony, psycho, piece-of-shit son can do about it. Bernie, your phony loans are about to catch up to you. You will be forced to tell the truth and the fact that your son's a pathological liar will be known to all."
Forget about the fact that the Times printed the phrase, "piece-of-shit". Just listen to how Roger tries to repair the damage. Caught with his pants down, he admitted yes it was his number and it was also shared by a Florida law firm for which he does public relations work, Rothstein Rosenfeldt Adler. But he denied making the call. He says his apartment building is owned by a prominent Spitzer fundraiser, and suggests that allies of the governor may have given access to his apartment to someone who made the threatening call. As Roger says, "They have unfettered access to my apartment. I am on television constantly. As Gore Vidal said, never pass up the chance to have sex or be on television."
Actually, that part about sex is pretty funny and makes a lovely sidebar. Back in about 1996 Roger was working for Bob Dole as the presidential nominee. The National Enquirer published a salacious expose of Roger and his wife Nydia. It seems they are both swingers and advertise themselves in swingers' magazines and on the internet. Huge headline: "Top Dole Aide In Group Sex Ring". Even though a chunk of his expensive advice urges Republicans to emphasize family values and integrity, he and his ex-model wife Nydia, aka as Nikki, posted an ad on their Internet web site featuring a vavavoom picture of Nikki ("Hot insatiable babe, 40DD-24-36 seeks exceptional [threesomes] with her and her bodybuilder husband...Prefer athletes, bodybuilders, jocks and military.") The Stones solicited sex partners in as many as 70 swingers' magazines across the country. Nikki invited men in uniform to take part in sex games with her and Roger during the Republican convention in San Diego. The web site has been accessed thousands of times.
Nikki (I mean Nydia) was very helpful during the 2000 Florida recount. GWB enlisted her to rally support among Cuban exiles in Miami (she is of Cuban ancestry). During that jolly time, Roger was also instrumental in organizing the so-called Brooks Brothers Riot (according to Jeffrey Toobin's book "Too Close To Call", about the recount), when hundreds of Republican activist stormed a county election office in Miami and demanded that workers there cease recounting presidential ballots.
Anyway, the day the story about the "anonymous" phone call came out, Bruno fired Roger. Roger continues to insist that H. Dale Hemmerdinger, who owns the building on Central Park South where Roger and "Nikki" live, let unauthorized persons into his apartment. Mr. Hemmerdinger responded, "Roger's off his rocker." No actually he issued a statement, "Stone's allegations about me are untrue."
Roger also said that he had attended a performance of the Broadway play "Frost/Nixon" on the night of the alleged call and could "highly recommend it to Governor Spitzer. It shows you what hubris and lying brings you."
However, a blogger for New York magazine pointed out that the play (like most plays) had no Monday night performances.
Roger's response? "Well, then, I'm mistaken. My wife already reminded me I actually saw the play on a Wednesday. I still recommend the play to the governor."
Although he fired him, Bruno still pays homage to Roger's elaborations: "Roger's statement is that he didn't do it and that somebody got into his apartment and that someone who owns his apartment is a big contributor to Eliot Spitzer."
Case closed!
Thursday, July 12, 2007
The Private Equity Industry--Billionaire Vultures Strip Your Bones
Some of you may have read my post on how Wall Street is destroying the value of pension funds by investing their money in mortgage-backed securities based on subprime mortgages, which are mortgages granted to people with lousy or no credit. To make a long story short, many pension funds for middle class workers such as teachers and policemen invested in these securities, which are now looking like the German mark during the Weimar Republic, where 1 million marks couldn't buy you a loaf of bread.
Private equity firms use these kinds of bonds to buy public companies, strip them to the bone by firing everyone, then resell the companies at a handsome profit. These deals are known as leveraged buyouts, leverage meaning debt. In other words, in order for a private equity firm such as Blackstone or Kravis Kohlberg to buy, for instance, Chrysler for $65 billion dollars, they borrow $2000 for every $100 they put in, then use the combined $2100 to buy Chrysler. (Not all of Chrysler. Just giving this as an example of how they operate.) Private equity firms don't risk any of their own money, they use Other People's Money (OPM) to make these deals, collect the profits, and pay capital gains tax rates on them (15%). Everyone else including the secretaries at their firms pay 35% on their income.
Why is this important? Because Congress is trying to bring the private equity tax rate in line with ordinary income and tax it at 35% instead of 15%. This makes the private equity firms very upset. Right now, Henry R. Kravis, billionaire founder of the corporate buyout movement, is roaming the halls of Congress, hoping to kill the legislation that would raise his taxes and those of other investment firm executives.
He sees private equity enterprises as good for the little guy, citing examples of how his firm produced many jobs by turning around troubled businesses. The lower tax rate benefits all Americans, he insists, and the increase in tax rates would harm American competitiveness abroad. When asked if the higher tax rates would affect pension fund returns, first he said no, then an adviser to KK said he believed the legislation could have an adverse effect on pension fund returns.
$15 billion per month of tax payer money goes to pay for the wars in Iraq and Afghanistan. The Democrats are looking for additional revenue to help finance educational tax credits, broaden health programs for lower-income families and other initiatives to improve the lot of the American people.
The Big Moment for this tax legislation will come when the Joint Committe on Taxation in Congress estimates how much money the proposals would raise if they became law.
Henry Kravis has some good connections, though.
Who the hell is Steve Schwarzman and what about his birthday party? As reported in the Times and on Page Six of the Post on 2/14/07, glittering guests such as John Thain, the Chief Executive of the New York Stock Exchange Group which operates the NYSE, Donald & Melania Trump, Barbara Walters and Vernon Jordan were there. It was held at the Seventh Regiment Armory, which is a huge space on Park Avenue, decorated like the Hall of Mirrors at Versailles. There were non-stop gourmet meals, free flowing wine and a $1,000,000 concert by Rod Stewart. The party was estimated to cost $3 million.
Steve Schwarzman, is the Chairman of Blackstone, a prominent private equity firm. The party celebrated his 60th birthday like a coronation. He is an active Republican donor with tentacles into the worlds of finance, politics and the arts. Maybe he's not too much like the little guy. As Damon Silvers, associate general counsel at the AFL-CIO, which has been lobbying in support of increasing the tax rates, said:
An article in the Times blog Dealbook from 3/11/07 mentions the pending legislation introduced by Charles Grassley (R-IA), the ranking Republican on the Senate Finance Comittee, which will tax the enormous fees that the private equity firms take on the profit of investments as ordinary income instead of as a capital gain. The question is, should the 20% fees that private equity firms collect from the profits of its investments be considered capital gains or as regular income? The writer says of course, no doubt about it:
Let's be honest: it is a charade that private equity firms have claimed their 20% performance fees at the lower capital gains rate. To qualify, they invest a nominal amount of their own money to demonstrate that they have put something at risk, but it's a ruse. They are paying capital gains rates for doing their job, which should be taxed at the regular income rate.
The reason I bring up this lengthy explanation is that I want this tax legislation passed. Unfortunately, private equity firms are swimming in cash. They have strong connections with both parties. They gave millions to presidential and Congressional campaigns. They are counting on the support of powerful Democratic lawmakers who rely on Wall Street as a major source of political contributions. They include Senators Chuck Shumer and Chris Dodd, and Representative Rahm Emanuel. The Congressmen have not taken a public position on the bills.
Let them know we know which way the wind blows. If Congress sells us out on this golden opportunity to fund our programs, then money does buy influence (duh!).
Private equity firms use these kinds of bonds to buy public companies, strip them to the bone by firing everyone, then resell the companies at a handsome profit. These deals are known as leveraged buyouts, leverage meaning debt. In other words, in order for a private equity firm such as Blackstone or Kravis Kohlberg to buy, for instance, Chrysler for $65 billion dollars, they borrow $2000 for every $100 they put in, then use the combined $2100 to buy Chrysler. (Not all of Chrysler. Just giving this as an example of how they operate.) Private equity firms don't risk any of their own money, they use Other People's Money (OPM) to make these deals, collect the profits, and pay capital gains tax rates on them (15%). Everyone else including the secretaries at their firms pay 35% on their income.
Why is this important? Because Congress is trying to bring the private equity tax rate in line with ordinary income and tax it at 35% instead of 15%. This makes the private equity firms very upset. Right now, Henry R. Kravis, billionaire founder of the corporate buyout movement, is roaming the halls of Congress, hoping to kill the legislation that would raise his taxes and those of other investment firm executives.
He sees private equity enterprises as good for the little guy, citing examples of how his firm produced many jobs by turning around troubled businesses. The lower tax rate benefits all Americans, he insists, and the increase in tax rates would harm American competitiveness abroad. When asked if the higher tax rates would affect pension fund returns, first he said no, then an adviser to KK said he believed the legislation could have an adverse effect on pension fund returns.
$15 billion per month of tax payer money goes to pay for the wars in Iraq and Afghanistan. The Democrats are looking for additional revenue to help finance educational tax credits, broaden health programs for lower-income families and other initiatives to improve the lot of the American people.
The Big Moment for this tax legislation will come when the Joint Committe on Taxation in Congress estimates how much money the proposals would raise if they became law.
Henry Kravis has some good connections, though.
Kravis' ties to the Bush family go back decades, to the time when his father was friends with Senator Prescott Bush, the president's grandfather.The private equity firms have hired an army of lobbyists to fight this legislation. They call it unpatriotic. Wayne Berman, managing director at Ogilvy Government Relations and a major Republican fundraiser, said, "It will be ...a fight about the fairness of capital gains having a lower tax rate. It will be about rewarding risk and recognizing when you reward risk you create economic growth." Then he growses about capital's enemy, labor. "This is about politics. This is about the AFL-CIO's longstanding policy objectives of ending the beneficial tax treatment of risk versus the treatment of wages from work. It is not about Steve Schwarzman's birthday party."
Who the hell is Steve Schwarzman and what about his birthday party? As reported in the Times and on Page Six of the Post on 2/14/07, glittering guests such as John Thain, the Chief Executive of the New York Stock Exchange Group which operates the NYSE, Donald & Melania Trump, Barbara Walters and Vernon Jordan were there. It was held at the Seventh Regiment Armory, which is a huge space on Park Avenue, decorated like the Hall of Mirrors at Versailles. There were non-stop gourmet meals, free flowing wine and a $1,000,000 concert by Rod Stewart. The party was estimated to cost $3 million.
Steve Schwarzman, is the Chairman of Blackstone, a prominent private equity firm. The party celebrated his 60th birthday like a coronation. He is an active Republican donor with tentacles into the worlds of finance, politics and the arts. Maybe he's not too much like the little guy. As Damon Silvers, associate general counsel at the AFL-CIO, which has been lobbying in support of increasing the tax rates, said:
The tax subsidy to the wealthiest Americans created by these lower rates on equity funds is a significant drain on the ability to do important things for the good of the country. The top 25 individuals in the industry got paid over $10 billion taxed at 15%. These 25 people got paid 3 times the amount that was paid to all 80,000 people who teach in the New York City schools, and they paid roughly one-half to one-third taxes on a percentage basis.
An article in the Times blog Dealbook from 3/11/07 mentions the pending legislation introduced by Charles Grassley (R-IA), the ranking Republican on the Senate Finance Comittee, which will tax the enormous fees that the private equity firms take on the profit of investments as ordinary income instead of as a capital gain. The question is, should the 20% fees that private equity firms collect from the profits of its investments be considered capital gains or as regular income? The writer says of course, no doubt about it:
The Internal Revenue Service should clearly be considering it regular income. After all, [the private equity firms'] own money is not at risk--it's a fee. (By contrast, when they invest their own money in the funds, the profit is obviously a capital gain.)
Let's be honest: it is a charade that private equity firms have claimed their 20% performance fees at the lower capital gains rate. To qualify, they invest a nominal amount of their own money to demonstrate that they have put something at risk, but it's a ruse. They are paying capital gains rates for doing their job, which should be taxed at the regular income rate.
You would think that all the buyout kings who wear American flags on their suit lapels would be proud to pay a big tax bill.
The reason I bring up this lengthy explanation is that I want this tax legislation passed. Unfortunately, private equity firms are swimming in cash. They have strong connections with both parties. They gave millions to presidential and Congressional campaigns. They are counting on the support of powerful Democratic lawmakers who rely on Wall Street as a major source of political contributions. They include Senators Chuck Shumer and Chris Dodd, and Representative Rahm Emanuel. The Congressmen have not taken a public position on the bills.
Let them know we know which way the wind blows. If Congress sells us out on this golden opportunity to fund our programs, then money does buy influence (duh!).
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