Free Markets, Free People

Daily Archives: March 4, 2009


Math is Hard

Idon’t make any claim to being a math whiz, Michael’s kind comments of earlier today notwithstanding.  Throw calculus at me, for instance, and I’m just lost.  But, I do have a rather decent grasp of basic addition and subtraction, so I’m wondering how to parse this sentence from a Politico story on the Obama Administration and immigration.

Of all the students in 2005 who spoke a language other than English at home, 69 percent were Hispanic, 64 percent were Asian, and 31 percent were Pacific Islanders, according to the National Center for Education Statistics.

I think that comes out to 164%, doesn’t it?


The “Deregulation” Bogeyman

As Dale has mentioned before, ginning up support for massive federal expenditures and deepening deficits was much easier for FDR because he had Nazis. Obama does not have any such luxury, so he has to invent an equivalent enemy. Luckily for him, decades of propaganda have cemented the idea into many heads that capitalism=rightwing=nazi, leading to the inexorable conclusion that anyone or thing whose primary purpose is to make profit is dangerous and must be controlled.

Dovetailing nicely with that need is the meme that deregulation is to blame for the current financial mess. Although it’s a fairly ridiculous claim (as I’ve pointed out before), that won’t stop “studies” like this from being published and reported on:

$5 BILLION IN POLITICAL CONTRIBUTIONS BOUGHT WALL STREET FREEDOM FROM REGULATION, RESTRAINT, REPORT FINDS

Steps to Financial Cataclysm Paved with Industry Dollars

March 4 – The financial sector invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse, according to a 231-page report issued today by Essential Information and the Consumer Education Foundation.

The report, “Sold Out: How Wall Street and Washington Betrayed America,” shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation. Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. The report documents a dozen distinct deregulatory moves that, together, led to the financial meltdown. These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.

The quote above comes directly from the report’s financial backers, Essential Information and the Consumer Education Foundation. The former is a non-profit that was created by Harvey Rosenfield, a lawyer who also controls the advocacy group Consumer Watchdog, formerly known as the Foundation for Taxpayer and Consumer Rights. The latter is an entity created by Ralph Nader. None of that information is found either in the press release, or in the news stories reporting on (i.e. quoting) the release.

The Hill reports:

The organizations are a nonpartisan, nonprofit advocacy groups which push for stronger consumer protection laws and to curb “excessive corporate power.”

The report alleges that excessive deregulation of the financial sector combined with undue influence from the billions spent in lobbying and political contributions resulted in the current financial crisis.

And CBS’ Political Hotsheet finds:

The two men behind the report are California lawyer Harvey Rosenfield of the nonprofit Consumer Education Foundation and Robert Weissman of Essential Information, a Washington nonprofit “that seeks to curb excessive corporate power.”

The report argues that the lobbying and contributions kept financial derivatives from being regulated, led to the repeal of regulatory barriers between commercial banks and investment banks and kept the government from stepping into halt predatory subprime lending.

The remainder of the reporting is merely quoting and paraphrasing the press release. Absolutely zero analysis of the actual report is offered. Why would they report anything else? Well, just looking at the press release provides one clue:

Financial deregulation led directly to the current economic meltdown. For the last three decades, government regulators, Congress and the executive branch, on a bipartisan basis, steadily eroded the regulatory system that restrained the financial sector from acting on its own worst tendencies. “Sold Out” details a dozen key steps to financial meltdown, revealing how industry pressure led to these deregulatory moves and their consequences:

1. 1. In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
2. Regulatory rules permitted off-balance sheet accounting — tricks that enabled banks to hide their liabilities.
3. The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives — which became the basis for massive speculation.
4. Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
5. The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
6. Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal “risk-assessment models.”
7. Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.
8. Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.
9. Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.
10. Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
11. The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
12. Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms.

The damning list offers only one instance of actual deregulation (the Glass-Steagall Act), at least seven instances of regulation that the authors simply disagree with (nos. 2-5, and 8-10), one claim each of “global regulators” and ratings agencies failing to do their respective duties (nos. 6 and 12), and two allegations that federal regulators didn’t pursue their jobs aggressively enough (7 and 11). So, despite the bold claim that “Financial deregulation led directly to the current economic meltdown,” the authors produce almost no evidence to support their conclusion.

It seems like that may have been a little more newsworthy than simply regurgitating the press release.

Then there is the fact that a Ralph Nader organization is partly responsible for the funding. Not only has the man run for president four times, one of those times perhaps leading to the election of George W. Bush, he’s notorious for his left-wing politics, including having a serious distaste for corporate America and capitalism.

Could be relevant, no?

But the real failure of journalism here was to take anything that Harvey Rosenfield has to say at face value.

The Foundation for Taxpayer and Consumer Rights (FTCR) [owned by Essential Information creator, Harvey Rosenfield] has decided to re-brand itself as “Consumer Watchdog.” Will a simple name change help shore-up the eroding reputation of this “consumer group?”

Few days pass without someone from FTCR pontificating in a newspaper story or TV report. Agents of this organization often are quoted — without explanation of their credentials — about auto, fire or health insurance, gasoline pricing, stem-cell research, or just about any public policy debate on the FTCR’s mind.

[...]

Behind the pithy quotes from FTCR’s leaders lies an organization with too much to hide and too many faults to be taken seriously anymore. It has survived by quietly pocketing millions of dollars in fees stemming from an initiative it wrote and sponsored nearly two decades ago. Along the way, it has engaged in hypocritical and speculative stock trading, enjoyed the secret patronage of wealthy trial donors, and either cozied up to or bullied politicians. All of this came despite operating under IRS rules as a “public-benefit” charity.

[...]

Of course, the public has no idea what is really motivating FTCR because its agents refuse to disclose their financial backers. Their reasons for hiding the facts are insulting to the average Californian’s intelligence.

FTCR declined to release a list of donors on its website by ludicrously equating their work to the civil rights movement in the South. It’s refusal to list details about its financial backers is particularly galling since FTCR spends a lot of time lambasting politicians for alleged corruption surrounding their own political donations.

One source of income is clear, thanks to some available public disclosure forms. Following the disastrous 1994 Northridge earthquake, founder Rosenfield extracted $5 million in a consumer-protection settlement with Allstate Insurance. The money was placed in a new group he controls, the Consumer Education Foundation, which was supposed to prevent the kinds of insurance disasters that followed the Northridge quake.

But nearly a decade after the group was formed, its biggest accomplishment appears to be paying Rosenfield a $100,000 salary and writing a few grant checks … including to Rosenfield’s own FTCR, to fund its operations. One wonders what the judge in the Allstate settlement would think about this cozy relationship, let alone why Northridge consumers have yet to see much benefit from the $5 million that was paid out supposedly for the public good.

It gets even more absurd.

Rosenfield’s Consumer Education Foundation invested some of its Northridge windfall in Enron stock — the Texas company that bilked California consumers out of billions of dollars. This laughable investment, which the CEF was forced to reveal in disclosure statements, is almost too incredible to believe. The “consumer” foundation put its money in one of the biggest consumer ripoff companies in U.S. history.

Enron wasn’t the only hypocritical stock purchase made by the Rosenfield’s Consumer Education Foundation. The group purchased stock in Abbott Labs, Amgen, Merck, Pfizer, Idec Pharmaceuticals, Johnson and Johnson, and Proctor and Gamble. Meanwhile, FTCR would soon get busy lambasting politicians for accepting campaign donations from these same companies. And while FTCR has lashed out at automobile and chemical companies, the “consumer” foundation has invested in Clorox, DuPont, General Motors, Ford Motors, and Toyota Motor Credit.

There’s more on Rosenfield’s endeavors here (scroll through the comments to the ftcrfollies.org stuff), but the original site is now defunct, so caution is warranted.

In any case, it seems that Rosenfield’s alleged background as an agent provocateur should raise enough red flags to warrant at least a mention that perhaps the report he’s funded (written?) should be taken with a grain of salt. Instead, we get news stories that basically repeat exactly little more than the juiciest allegations from the press release, absolutely zero analysis of the actual report (or the press release for that matter), and nothing more than the bare bones information regarding the provenance of the report.

With apologies to Mike Judge, “What would you say ya do here, MSM?”


Tax the Rich and What Do You Get?

Another day older and deeper in debt. Of course, that’s because you plan to spend $3.6 Trillion on budget over the next year.

WASHINGTON – President Obama laid out his first budget plan, a bold $3.6 trillion proposal that would transfer wealth from rich taxpayers to the middle class and the poor, and predicts a stunning federal deficit of $1.75 trillion this year – nearly four times last year’s record.

Obama blamed the expected federal deficit explosion on a “deep and destructive” recession and recent efforts to battle it, including the Wall Street bailout and the $787 billion stimulus plan.

[...]

Among the budget proposals, the plan would:

extend a $400 tax credit for most workers while letting expire former President George W. Bush’s tax cuts for couples making more than $250,000 a year. The budget contains almost $1 trillion in tax hikes over 10 years on individuals making more than $200,000 and couples earning more than $250,000;

close tax loopholes for the wealthy to raise $318 billion toward a down payment on Obama’s universal health care plan;

clamp down on the Pentagon budget, which would get a 4 percent boost next year, but would then get increases of 2 percent or less over the next several years;

make permanent the expanded $2,500 tax credit for college expenses;

spend more than $6 billion on cancer research at the National Institutes of Health next year, a 15 percent hike;

spend $3.9 billion to improve the nation’s sewage treatment plants and drinking water systems; and

raise $15 billion a year, beginning in 2012, from auctioning off carbon pollution permits to help develop clean-energy and renewable-energy technologies. The administration “will work expeditiously” to get Congress to approve an 83 percent reduction in global warming emissions by mid-century. There’s also more money at NASA for space-based monitoring of greenhouse gases.

sisyphus
After reviewing some of the comments from those intended to be taxed, as well as some of the criticisms of those taxpayers’ intelligence [as an aside, I think the liberals denouncing both the story and the interviewees are playing a little fast and loose with the assumptions, since the taxpayers displayed no misunderstanding of marginal rates, and voiced concerns solely based on principles], I got to thinking about how much money will this proposed tax hike really raise. This seems important, not only because of the size of proposed budget, but also since a common refrain from those in favor of letting the top rate snap back to 39.6% (from the current 35%) is that it will only cost those taxpayers 5 cents on the marginal dollar, which is very little to worry about much less enough to change behavior, or so the argument goes.

Before looking at the actual numbers, let’s get something straight first. While it is accurate to say that raising the top rate only costs these taxpayers a nickel per extra dollar earned, that is not all that is being proposed. These taxpayers will also be losing deductions and credits that they would otherwise have, as well as paying extra taxes on anything subject to cap-and-trade taxes, should that lovely piece of legislation be passed. Moreover, if you truly believe Obama when he says that those with incomes less than $250,000 per year will receive a tax cut, then it seems ludicrous to pretend that at least some, if not virtually all, of those taxpayers near the margin will change their working behavior so as to be in the benefit group rather than the extra-taxed one.

Nevertheless, for purposes of calculating the expected tax revenues generated under this plan, I’m going to assume that nobody changes their behavior in the slightest (i.e. everyone earns as much taxable income as possible), and that the number of taxpayers and the amount of taxes paid largely mirrors the 2006 numbers (which is the most recent data available).

According to IRS figures [xls], about 50% of all taxable income came from the $200,000 and above earners in 2006. By my calculations that came to $2.056 Trillion dollars in taxable income from 3,847,241 taxpayers (about 9% of all returns). This cohort paid approximately $522 Billion in taxes, or about 62.4% of the total $837 Billion in tax receipts. These are the people upon whom the new burden will be placed according to President Obama.

In order to figure out how much taxable income is above $200K (there is no breakout for $250K and above), I took all of the taxpayers in the $200K to infinity range (3,847,241) and multiplied it by 200,000 (= 769,448,200,000).

I then subtracted that number from the (rounded) total of taxable income for the same range (@ $2.056 Trillion), and got $1,286,551,800,000. If I thought about it correctly, then that should be the amount of taxable income above $200K.

I then took my above-$200K number and multiplied it by 5 cents, figuring that the increase in marginal rate of 4.6% would lead to about a nickel per taxable dollar earned in new revenues, if everything were to remain static.

From all of that I figured that approximately $64.3 Billion in new taxes would be raised by the new tax hike … to cover a $3.6 Trillion budget.

I sent my calculations to Dale, who became so engrossed in the matter that he put together an entire spreadsheet figuring the numbers in not one, not two, not three, but in six different ways. I realized later that asking Dale to check out my math was rather like standing on one foot and excitedly calling attention to my “skill” while in the midst of an acrobat convention.

Anyhoo …

After Dale played with the numbers [xls] for awhile, he arrived generally at the conclusion that the absolute most that could be raised was in the neighborhood of $85 Billion, and at worst around $55 Billion. On average, Dale calculated that approximately $65 Billion was the likely amount of new tax revenue that could be expected if all payers in the 2006 cohort behave exactly as they did then. Sticking with the metaphor, “Yes, Michael, that’s a decent one-legged stand you have there.”

In short, a complete klutz has a better chance of joining the Flying Wallendas than the bottom 95% of taxpayers do of getting a tax cut. Instead, they will all see a significant tax hike, whether in their marginal rates, in excise taxes, corporate taxes, fuel taxes, or other forms of indirect taxation. And as those taxes begin to mount up, and the national debt does it’s best imitation of the Challenger, people will work and produce less and less, and tax revenues will dry up.

That is the plan for our recovery. Read it and weep.


Quote Of The Day

Who said:

“Over the next several months the President will propose a series of legislative and enforcement measures to reduce such U.S. tax evasion and avoidance.”

Why that would be tax cheat and now Treasury Secretary Timothy Geithner.

Heck, if they could just get half the Democrats in the administration to pay their taxes, they could probably put a big dent in the deficit.


Brits Not Happy With Obama’s Treatment Of Brown

And I have to wonder, given some of the comments, whether this isn’t an indication of his overall disinterest in foreign affairs.

Anyway, a raft of British writers are not happy with Obama’s treatment of them or of British PM Gordon Brown.  Some samples:

Tim Shipman, Telegraph:

A Washington Post colleague just called me and said that the White House press corps cannot think of a single previous occasion when a British Prime Minister was treated in this way.

British Embassy staff, irritated themselves, had to twist Robert Gibbs’ arm to get even two questions per side in a quick oval office doorstep.

Alex Massie, Spectator:

Indeed, for a President who wants to “renew” America’s relationship with the rest of the world, Obama is strikingly reluctant to actually, you know, speak to the rest of the world.

Benedict Brogan, Mail:

If Downing Street was expecting the kind of love-in that marked the first Blair-Clinton gala at the White House or the Blair-Bush Colgate and video moment at Camp David, this new administration has proved it wrong. There never was going to be a press conference, despite what No10 said. And there is no couple time planned. No Stevie Wonder, no Meet the Parents, no burgers.

Daniel Hannon, Telegraph, combines a couple of shots:

Incidentally, did you notice that the president silkily downgraded us? Britain, he said, was “one of our closest and strongest allies”. Well, fair enough. US Presidents have to be sparing with their superlatives lest they irk the Canadians or the Israelis or some other favoured people. Still, Dubya never had any problem with describing the United Kingdom as “our closest friend and strongest ally,” adding, on the day Baghdad fell: “America has no finer ally than Great Britain”.

Some will see Obama’s vocabulary as a calculated snub. The forty-fourth president, they will say, has never been keen on Britain. He’s resentful about the way our colonial officers treated his Kenyan grandfather. He was dismissive of us in his autobiography. But I think there is a simpler explanation: he just doesn’t think much of our Prime Minister. Neither do we, Mr President; neither do we.

One of the first things Obama did on taking office was send a Winston Churchill bust, given by the British to President Bush, back to the British. And now this bit of embarrassment.

I’m sure this will be remembered when the Obama administration asks the Brits, our most solid ally and contributor of troops in Afghanistan, to up their commitment.

Iain Martin of the Telegraph sums that sentiment up best:

We get the point, sunshine: we’re just one of many allies and you want fancy new friends. Well, the next time you need something doing, something which impinges on your national security, then try calling the French, or the Japanese, or best of all the Germans. The French will be able to offer you first rate support from their catering corps but beyond that you’ll be on your own.

When it comes to men, munitions and commitment you’ll soon find out why it pays to at least treat the Brits with some manners.

Ceremony and press availability are expected parts of these sorts of events. And precedent is very important as well. Any deviation which makes the event less than the last one is seen as a diplomatic snub. Diplomatic snubs are not well received and payback is indeed always calculated.

Much of what you’ll read is press hacks whining about not getting the expected and anticipated access. But they do have a point as Tim Shipman describes. True or not, these are now the leading meme’s emerging in the wake of yesterday’s decidedly fumbled diplomatic event:

Why does this matter? Three reasons:

- Major British hack involvement in a full blown press conference has always been regarded as useful by the White House press corps. We ask different questions from them, usually more aggressively and get answers they could not. There were several spiky and revealing moments between President Bush and the BBC political editor Nick Robinson. It is bizarre that Mr Obama is less willing to answer questions than Mr Bush. It reflects very poorly on his tendency towards control freakery, which has been in evidence since his campaign.

- It’s discourteous to Mr Brown, who was desperate for his big moment with the podiums. On his two set piece trips to see Bush there were proper pressers at Camp David and then in the Rose Garden. Why gratify him with the first European trip and then snub his big PR moment? There will be no private relaxation time for Mr Brown with Mr Obama, a given on previous prime ministerial trips. I know he’s busy but it shows that he is not really that interested, as my sources were telling me last week.

- Obama has been running scared of the international media and the British press in particular since the start of his campaign. He didn’t give a single interview to a British outlet even when he was in the UK. This is very unusual, particularly from a man who so desperately wants to be loved on the world stage. We know we’re not special, given Obama’s general contempt for beat reporters (as opposed to his schmoozing with editors), but it is still peculiar.

We’ll see how it goes the next time Obama shows up in the UK or asks for British cooperation and help. Given this little show, however, I’d say Obama’s diplomatic skills need some sharpening. Additionally, the British press is now going to be laying in wait for an opportunity to embarrass Obama. As you can tell, this really PO’d them and he’s not going to be able to avoid them forever. For someone who so masterfully manipulated the domestic press, this is a pretty ham-handed performance. And as we’ve all come to understand, the press will get its revenge.

~McQ


About Those Tax Cuts (Update)

So, 95% are going to get a tax cut are they?  Well, that’s great.  But what the government gives on the one hand, it will find a way of taking with the other.  It needs money folks, and it will get what it needs one way or the other:

A senior Senate Democrat said Tuesday he would consider taxing U.S. workers on their employer-sponsored health insurance to help pay for extending coverage to millions of uninsured Americans.

“I think that tax provision should be on the table,” said Senate Finance Committee Chairman Max Baucus, who will play a major role in writing the legislation to revamp the U.S. healthcare system as promised by President Barack Obama.

“It’s too aggressive. It skews the system,” he said of the tax benefit.

Most U.S. workers with health insurance get it through their employers — 160 million of them — although recent surveys have shown that number is declining as businesses try to cope with the rapidly rising cost of insurance.

The employer-provided benefit is not taxed as income and critics say the tax break encourages workers to seek a more generous benefit package than they might want if it was taxed.

You shouldn’t be getting as “generous” a benefit as you now have, you see – government decrees it and will remedy the “problem” with a tax. You skew their cobbled together system as if it is “the” system, not your welfare, which is most important.

Result – more money out of your pocket at the Doctor’s office (as you scale back the benefit to reduce the tax) and more money out of your pocket to the government.

And you wondered what you’d spend that $13 a week windfall on didn’t you?

This may never come to pass, but understand that when it comes to taxes, the “tax cut” promised is mostly smoke and mirrors – whatever income it preserves will be gotten some other way, mark my words.  The government wants revenue and there’s only one large pool available too it.  It may not be income, per se, that’s taxed, but government will manage to find a way to get what it needs from  you in the coming years.  It has bridges to build and signs to make.

UPDATE: If you need more proof of this, here it is:

Despite President Obama’s promise that “If your family earns less than $250,000 a year, you will not see your taxes increase a single dime. I repeat: not one single dime,” his new budget raises 45 percent of its revenue from energy taxes that will be paid by everyone who fills a gas tank, pays an electric bill, or buys anything that was grown, shipped, or manufactured.

Who in the world do you think will actually end up paying the “cap-and-trade” bills?  It’s the “excise tax” of the ’30s and will have the very same effect.  Read the whole article.

~McQ