(Billionaire Bloomie Lays His Divine Bets) Happy Tax Day! Why the Top 1% Pay a Much Lower Tax Rate Than You (How the Global Banking Game Is Rigged: FDIC Suing) Piketty's Rich Reveal

Thomas Frank (one of the most far-sighted - and my favorite - journalists of today) lights the fire that should put the put-upon (lazy, profligate, worthless - according to their betters) classes aflame.

And Thomas Piketty conducts the flame to a bright light. (Did I mention I love Thomases?)

Here's the reason why it's currently so blameless to accuse the hungry of being lazy and improvident.

I'll bet you haven't thought of Mugwumps since 11th-grade history class. If then.

Why Elite, Billionaire Liberalism Always Backfires

Apr 20, 2014

Liberal righteousness is a road to nowhere. Bloomberg and the Koch brothers have same contempt for working people

Thomas Frank

Liberals rejoice. The former mayor of New York City, megabillionaire Michael Bloomberg, recently announced to the New York Times that he will spend some $50 million dollars on an effort to confront the National Rifle Association and advance background-check legislation for gun buyers. I’m a strong supporter of gun control, so hooray, I guess.

What made the story worth noting was when the paper asked Bloomberg, one of the wealthiest men in the world, how much he planned to spend on the matter:

…he tossed the $50 million figure out as if he were describing the tip he left on a restaurant check.

“I put $50 million this year, last year into coal, $53 million into oceans,” he said with a shrug, describing his clean energy and sustainable fishing initiatives.

This sounds remarkably nonchalant, even indifferent. The reader naturally wonders what motivates a man who has dumped so many millions over the years with so little concern about results.

Thankfully, Bloomberg gives the answer a few paragraphs later. It seems he has been moved of late to contemplate mortality, and his political deeds — including, I suppose, his push for school “reform” and his wars on soda pop and cigarettes — are all undertaken with this problem in mind.

“I am telling you if there is a God, when I get to heaven I’m not stopping to be interviewed. I am heading straight in. I have earned my place in heaven. It’s not even close.”

It’s Pascal’s Wager updated for the age of Citizens United. If God exists, Bloomberg naturally wants to be prepared, and so he has put his money on the most glaringly virtuous politics available.

He will advertise his goodness not as lesser men do — with hemp tote bags and locally made condiments and yoga in public places — but by overwhelming force of political spending, just as he did when persuading the people of New York City to give him a third term as mayor.

His victory there in 2009 was probably a little too narrow for his taste, but this time around it will not even be close. He will spend more. He will be sure he gets premier status with this airline. And when the time comes he will flash his platinum card at the attendant with “St. Peter” on his nametag, and he will proceed directly to enjoy the rewards of a lifetime collecting righteousness miles.

The Times hints that Bloomberg may have meant his theological remark as a joke, but even so it reminds us of something about the patrician strain of reform he represents ­– that we have seen politicians like Bloomberg before. During the nineteenth century, a long string of saintly aristocrats fought to reform the state and also to adjust the habits and culture of working-class people.

These two causes were the distinctive obsessions of the wealthy liberals of the day: government must be purified, and working people must learn to behave. They had to be coerced into giving up bad habits. They had to learn the ways of thrift and hard work. There had to be sin taxes. Temperance. Maybe even prohibition.

On the single greatest issue of the time, however, these sanctimonious reformers were of no use at all.

They were in favor of clean government, to be sure, but when it came to organized money’s war on the world, which was then bringing impoverishment and industrial combat and dislocations of every description, they were indistinguishable from the most stalwart conservatives.

Describing the patrician “Mugwump type,” the historian Richard Hofstadter writes,

[T]he most serious abuses of the unfolding economic order of the Gilded Age he either resolutely ignored or accepted complacently as an inevitable result of the struggle for existence or the improvidence and laziness of the masses. As a rule, he was dogmatically committed to the prevailing theoretical economics of laissez faire. . . . He imagined that most of the economic ills that were remediable at all could be remedied by free trade, just as he believed that the essence of government lay in honest dealing by honest and competent men.

If that description hits uncomfortably close to home, well, good. We’ve returned to the Gilded Age, laissez-faire is common sense again, and Victorian levels of inequality are back.

The single greatest issue of then is the single greatest issue of now, and once again people like Bloomberg — a modern-day Mugwump if ever there was one — have nothing useful to say about it, other than to remind us when it’s time to bow before the mighty.

Oh, Bloomberg could be relentless in his mayoral days in his quest for sin taxes, for random police authority, for campaigns against sugary soda and trans fats. But put a “living wage” proposal on his desk, and he would denounce it as a Soviet-style interference in private affairs.

During the Occupy Wall Street protests, he declared that we should stop criticizing investment banks; it would cost us jobs: “If you want jobs you have to assist companies and give them confidence to go and hire people.”

Later on, when confronted with a successor who didn’t share his views, he graduated to straight-up trickle-down: “The way to help those who are less fortunate is, number one, to attract more very fortunate people.”

Only by helping the rich, and helping them more, and then helping them even more, can we ever hope to do something for the poor.

And consider the enlightened views of the nation’s other neo-Mugwumps as they address us from the charitable foundations, the NPR airwaves, or the city hall of the burg you live in.

Listen to their endless plans for reforming education, for example, by which they always seem to mean either that we must unleash market forces in the schools or that students must make themselves more desirable to employers by studying one of the STEM fields.

We get rules and more tests, the entrepreneurs get freedom. And I have yet to hear of a liberal billionaire who feels doubts about “free trade” with, well, anyplace.

To say that there is no solidarity in this form of liberalism is to state the obvious. This is not about standing with you, it is about disciplining you: moving you out of the desirable neighborhoods, stopping and frisking you, prodding you to study the right things.

Or, at its very noblest, it is about enlisting you in some fake “grassroots” effort whose primary purpose is to demonstrate the supreme moral virtue of the neo-Mugwump who’s funding the thing — to foam the runway for him as he makes his final approach to Heaven International Airport.

In this new political world, it often feels as though we non-billionaires have been reduced to spectators. Between the Koch brothers of the right and the neo-Mugwumps of the center, we seem to have no choice anymore.  Yes, the final decision on Election Day is still up to us, same as it is on “American Idol,” but the spectacle itself is arranged by exalted people who are as distant from us as Zeus was from the ancient Greeks.

And yet. Every now and then something comes up to remind us that there are ways to make our will felt even without the help of some heaven-minded billionaire.

For example, it feels appropriate to note that there was recently a strike by some 2,000 workers at Johns Hopkins Hospital in Baltimore, a world-famous establishment that happens to be attached to the university from which Michael Bloomberg graduated and to which Bloomberg has reportedly donated more money than any living alum has given to any university, anywhere.

The strike was a tactical affair that lasted only three days (I originally heard about it because a friend of mine is an organizer working with the hospital employees’ union), and it is far too early to predict how the matter will turn out.

Still, the situation it was meant to publicize reminds one of the situation in Michael Bloomberg’s New York: Wages for certain classes of workers that are allegedly so low that many of them must rely on food stamps, a top executive who earned compensation amounting to more than $3 million dollars in 2012, and in the background, a controversial public-private gentrification scheme that is transforming the surrounding neighborhood.

Now, maybe this whole thing is wrong-headed. Maybe those striking workers are the kind of people who drink Big Gulps, and maybe the only way to help them is by helping their employer, or by somehow making Baltimore attractive to the wealthy. But I can’t help but suspect that the Bloombergs of the world have the whole thing upside down.

That the way to improve a place — or to get folks to eat better food — actually starts with proper pay for the people who live there. And that this antiquated form of organizing, in which the disenfranchised come together to help one another, is the only truly promising way to avoid the disasters of the last Gilded Age.

(Thomas Frank is a Salon politics and culture columnist. His many books include What's The Matter With Kansas, Pity the Billionaire and One Market Under God. He is the founding editor of The Baffler magazine.)

Happy Tax Day, and Why the Top 1% Pay a Much Lower Tax Rate Than You

By Robert Reich, Robert Reich's Blog

15 April 14


t’s tax time again, April 15, when our minds turn toward paying the taxes we owe or possibly getting a tax refund. But what we don’t think about enough is whether our tax system is fair. The richest 1 percent of Americans are now getting the largest percent of total national income in almost a century. So you might think they’d pay a much higher tax rate than everyone else.

But you’d be wrong. Many millionaires pay a lower federal tax rate than many middle-class Americans.

Some don’t pay any federal taxes at all. That’s because they‘re allowed to deduct from their taxable income such things as large interest payments on mortgages for huge homes, also the costs of business entertainment and conferences (aka vacations at golf resorts), and gold plated health care plans.

Some also take advantage of tax loopholes that let them park some of their earnings in offshore tax havens like the Bahamas or the Netherlands Antilles.

And other loopholes that allow them to treat some income as capital gains – subject to a much lower tax rate than ordinary income.

If you happen to be a hedge-fund or private-equity manager, there’s a capital gains loophole designed especially for you.

Consider the Social Security payroll tax and the situation is even more lopsided. That tax applies to every dollar of income up to a cap — which this year is $117,000. Anything earned above the cap is not subject to Social Security taxes at all – meaning anyone with a high income pays a much smaller percentage of it in Social Security taxes than most people do.

Put these all together and you see why Warren Buffet, the second richest person in America, pays a lower tax rate than his secretary, as he readily admits.

State and local taxes are even more regressive. The poorest fifth of Americans pay an average state and local tax rate of over 11 percent, while the richest fifth pay only 5.6 percent.
This isn’t small change. State and local taxes account for about 40 percent of all government revenues.

Believe it or not, Republicans want to make all this worse by cutting taxes on the wealthy even more.

Paul Ryan’s new budget doesn’t just slice Medicare, education, and food stamps. It also lowers the top federal tax rate to 25 percent.

When the rich are let off the hook in all these ways, the rest of America has to pay more in taxes to make up the difference – or have services cut because government doesn’t have the funds.

Comments:

# Rockster 2014-04-16 06:22

Can we all agree that the huge majority of people have been victimized by a professionally executed long term class war. The real question seems; "What is the best course of action to start waking people up to their slowly boiling water rising on their friends and family before we are all cooked?" I've read that the only successful revolutions have been nonviolent . History seems to teach that directly attacking those with the really Big Guns is really close to mass suicide. There are brave people quietly standing for peace, justice and brotherly love and maybe they know something.

# Robbee 2014-04-16 08:36

To paraphrase Itt Romney, every sucker who runs a company, like I do, and takes his pay in anything but capital gains, is a dunce unqualified to be president."

We 99% have been carrying rich folks ever since capital gains. Income tax is not the only regressive tax, so are sales tax (and property tax that even renters pay in rent).

Is it any wonder that Congress can't find money to fund public services? Congress gives it to fellow millionaires. We carry 1% who never pay their fair share!

As you read the next essay, don't forget who was running the New York Fed (our boy Timmy Geithner). He did such a good job that he was due several promotions!

April 14, 2014

The Global Banking Game Is Rigged, and the FDIC Is Suing

By Ellen Brown

Taxpayers are paying billions of dollars for a swindle pulled off by the world's biggest banks, using a form of derivative called interest-rate swaps; and the Federal Deposit Insurance Corporation has now joined a chorus of litigants suing over it. . . It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below.

Rigging the game. by Pinerest

According to an SEIU report:

Derivatives . . . have turned into a windfall for banks and a nightmare for taxpayers. . . . While banks are still collecting fixed rates of 3 to 6 percent, they are now regularly paying public entities as little as a tenth of one percent on the outstanding bonds, with rates expected to remain low in the future. Over the life of the deals, banks are now projected to collect billions more than they pay state and local governments - an outcome which amounts to a second bailout for banks, this one paid directly out of state and local budgets.

It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below. The FDIC is now suing in civil court for damages and punitive damages, a lead that other injured local governments and agencies would be well-advised to follow. But they need to hurry, because time on the statute of limitations is running out.

The Largest Cartel in World History

On March 14, 2014, the FDIC filed suit for LIBOR-rigging against sixteen of the world's largest banks - including the three largest US banks (JPMorgan Chase, Bank of America, and Citigroup), the three largest UK banks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks.

Bill Black, Professor of Law and Economics and a former bank fraud investigator,   calls them "the largest cartel in world history, by at least three and probably four orders of magnitude." 

LIBOR (the London Interbank Offering Rate) is the benchmark rate by which banks themselves can borrow. It is a crucial rate involved in hundreds of trillions of dollars in derivative trades, and it is set by these sixteen megabanks privately and in secret.

Interest rate swaps are now a $426 trillion business. That's trillion with a "t" -- about seven times the gross domestic product of all the countries in the world combined.

According to the Office of the Comptroller of the Currency, in 2012 US banks held $183.7 trillion in interest-rate contracts, with only four firms representing 93% of total derivative holdings; and three of the four were JPMorgan Chase, Citigroup, and Bank of America, the US banks being sued by the FDIC over manipulation of LIBOR.

Lawsuits over LIBOR-rigging have been in the works for years, and regulators have scored some very impressive regulatory settlements. But so far, civil actions for damages have been unproductive for the plaintiffs. The FDIC is therefore pursuing another tack.

But before getting into all that, we need to look at how interest-rate swaps work. It has been argued that the counterparties stung by these swaps got what they bargained for -- a fixed interest rate. But that is not actually what they got. The game was rigged from the start.

The Sting

Interest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR.

If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.

At least, that is how it's supposed to work. The catch is that the swap is a separate financial agreement -- essentially an ongoing bet on interest rates. The borrower owes both the interest on its variable rate loan and what it must pay out on this separate swap deal. And the benchmarks for the two rates don't necessarily track each other. As explained by Stephen Gandel on CNN Money:

The rates on the debt were based on something called the Sifma municipal bond index, which is named after the industry group that maintains the index and tracks muni bonds. And that's what municipalities should have bought swaps based on. Instead, Wall Street sold municipalities Libor swaps, which were easier to trade and [were] quickly becoming a gravy train for the banks.

Historically, Sifma and LIBOR moved together. But that was before the greatest-ever global banking cartel got into the game of manipulating LIBOR. Gandel writes:

In 2008 and 2009, Libor rates, in general, fell much faster than the Sifma rate. At times, the rates even went in different directions. During the height of the financial crisis, Sifma rates spiked. Libor rates, though, continued to drop. The result was that the cost of the swaps that municipalities had taken out jumped in price at the same time that their borrowing costs went up, which was exactly the opposite of how the swaps were supposed to work.

The two rates had decoupled, and it was chiefly due to manipulation. As noted in the SEUI report:/div>

[T]here is . . . mounting evidence that it is no accident that these deals have gone so badly, so quickly for state and local governments.

Ongoing investigations by the U.S. Department of Justice and the California, Florida, and Connecticut Attorneys General implicate nearly every major bank in a nationwide conspiracy to rig bids and drive up the fixed rates state and local governments pay on their derivative contracts.

Changing the Focus to Fraud

Suits to recover damages for collusion, antitrust violations and racketeering (RICO), however, have so far failed. In March 2013, SDNY Judge Naomi Reece Buchwald dismissed antitrust and RICO claims brought by investors and traders in actions consolidated in her court, on the ground that the plaintiffs lacked standing to bring the claims.

She held that the rate-setting banks' actions did not affect competition, because those banks were not in competition with one another with respect to LIBOR rate-setting; and that "the alleged collusion occurred in an arena in which defendants never did and never were intended to compete." 

Okay, the defendants weren't competing with each other. They were colluding with each other, in order to unfairly compete with the rest of the financial world - local banks, credit unions, and the state and local governments they lured into being counterparties to their rigged swaps. The SDNY ruling is on appeal to the Second Circuit. 

In the meantime, the FDIC is taking another approach. Its 24-count complaint does include antitrust claims, but the emphasis is on damages for fraud and conspiring to keep the LIBOR rate low to enrich the banks. The FDIC is not the first to bring such claims, but its massive suit adds considerable weight to the approach.