Obama calls for Taxing Millionaires at Middle Class Rates; Republicans Panic

Posted: September 18, 2011 | Author: | Filed under: Team Obama, The Bonus Class, U.S. Politics | Tags: , | 4 Comments

In yet another move messaged as “bold” but actually typically spineless as far as returning policy from the Bush years to reality goes, Obama has called for taxing millionaires. The problem is that this doesn’t return our tax system to even the Reagan concept of a progressive tax system.  Obama wants millionaires to pay taxes at the same level as median tax earners. How friggin’ bold is that?  That means, millionaires would get taxed at the same rate as people that make about $50,000 a year which is around 20%. The problem is that’s lower than tax tables in the law now enacted by Ronald Reagan.  The “Buffet Rule” makes Ronald Reagan’s tax reform look downright socialist.

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday.

Mr. Obama’s proposal is certain to draw opposition from Republicans, who have staunchly opposed raising taxes on the affluent because, they say, it would discourage investment. It could also invite scrutiny from some economists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments.

In a speech on Thursday, Speaker John A. Boehner, Republican of Ohio, agreed with Mr. Obama that the deficit-reduction committee “can tackle tax reform, and it should,” to get rid of many tax breaks and allow for lower marginal rates.

“Tax increases, however, are not a viable option for the joint committee,” Mr. Boehner said. Instead, he emphasized that meeting the deficit-reduction target should come largely from overhauling benefit programs like Medicare, Medicaid and Social Security.

So, we’re getting this packaged as the “Buffet Rule”.  Score one for attempted messaging. Subtract major points for substance.  Let me just quote a turn of phrase from Robert Reich which is the QOTY as far as I’m concerned.

So when the President refers to his new initiative to raise taxes on millionaires as the “Buffett rule” we might expect he’d start the bargaining from a tough position.

But this is Barack Obama, whose idea of negotiating is to give away half the house before he’s even asked the other side for the bathroom sink.

But, let me get back to the idea that Ronald Reagan was a socialist using Reich’s analysis.  I’m really glad he crunched the numbers so I don’t have to.

America’s median income is about $50,000. The typical taxpayer at that level pays approximately 20 percent in taxes.

Granted, that’s a higher rate than most of today’s super rich pay because of countless deductions, credits, and loopholes – including, especially, their ability to take their incomes in the form of capital gains, taxed at 15 percent. That’s a big reason Buffett’s hundreds of millions a year are taxed at just over 17 percent — a lower rate than his secretary faces, as Buffett often says.

But a 20 percent rate is still ridiculously low compared to what millionaires and billionaires ought to be paying. Officially, income over $379,150 is supposed to be taxed at 35%.

And even 35 percent is a pittance compared to the first three decades after World War II. Before Ronald Reagan slashed taxes on the rich in 1981, the highest marginal tax rate was over 70 percent. Under Dwight Eisenhower it was 91 percent. Even if you include deductions and credits, the rich are now paying a far lower share of their incomes in taxes than at any time since World War II.

The estate tax (which only hits the top 2 percent) has also been slashed. In 2000 it was 55 percent and kicked in after $1 million. Today it’s 35 percent and kicks in at $5 million. Capital gains – comprising most of the income of the super-rich – were taxed at 35 percent in the late 1980s. They’re now taxed at 15 percent.

Meanwhile, the top 1 percent’s share of national income has doubled over the past three decades (from 10 percent in 1981 to well over 20 percent now). The richest one-tenth of 1 percent’s share has tripled. And they’re doing better than ever. The last time the top 1 percent got that much was in the roaring 1920s.

So much money is now concentrated at the top that what we really need are more tax brackets at the high end, higher marginal rates in each bracket, and a tax code that treats all sources of income – whether ordinary or capital gains – the same.

I hate to say this again and again, but here we go.  That last sentence is important.  Buffet, Soros, and friends live off of capital gains income.  Unless you deal with the capital gains tax, you’re not really going to impact the really really rich dudes.  If they make it from a salary, they’re paying a 35% percent marginal tax rate.  Their stock options with appreciation only get taxed at 15%. You have to apply the tax rate to capital gains to really get at their revenues.  So, how is this plan going to attack the major source of income for the richest of the rich?  It’s not! But that’s not stopping the morality-impaired Republicans from screaming class warfare.

Republicans Sunday criticized President Obama’s plan to call for a new minimum tax rate on millionaires as “class warfare” that would do little to create new jobs and instead would hurt the small businesses that drive the economy.

“Class warfare. . .may make for good politics, but it makes a rotten economics,” Rep. Paul Ryan (R-Wisc.), chairman of the House budget committee, said on “Fox News Sunday.” “We don’t need a system that seeks to divide people. . .We need a system that creates jobs and innovation.”

There’s some excellent analysis over at WAPO on the tax loopholes that have evolved over the last 25 years since the last time the tax code was reformed.  It shows how much tax breaks really go out to all levels of incomes already.  Many of them benefit middle income earners as much as wealthier individuals.  Upper middle class families–those earning in the $100,000 – $300,000 level–get an incredible amount of tax largess right now. By not limiting some of the more pedestrian tax breaks to lower income families and by giving special consideration to capital gains, we lose a lot of revenues from truly well-off individuals. These ideas have not been put on the table by the President.

The number of tax breaks has nearly doubled since the last major tax overhaul 25 years ago, with lawmakers adding new benefits for children, college tuition, retirement savings and investment. At the same time, some long-standing breaks have exploded in value, such as the deduction for mortgage interest and the tax-free treatment of health-insurance premiums paid by employers.

All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks while paying $1.09 trillion in income taxes, according to government estimates.

Only about 8 percent of those benefits went to corporations. (The write-off for corporate jets equals about .03 percent of the total.) The bulk went to private households, primarily upper-middle-class families that Obama has vowed to protect from new taxes.

“The big money is in the middle-class subsidies,” said Syracuse University economist Leonard Burman, former director of the nonpartisan Tax Policy Center. “You’re not going to balance the budget by eliminating ethanol credits. You have to go after things that really matter to a lot of people.”

I’ve just basically come to the conclusion that the Bush tax cuts should expire for every one at this point.  But, if the president is truly interested in going after the big money–which is a fine idea–he needs to quit coming to the table with piddling suggestions.  Capital gains need to be taxed like normal income, for one.  Giving them preferential treatment has just subsidized Wall Street Gambling as far as I’m concerned and provided a huge tax benefit for the richest of the rich.  Again, this Obama plan makes the Reagan Tax reform look socialist.  The fact that Republicans are screaming about it on the Sunday New Shows demonstrates just how extreme our policies have gotten in terms of benefiting the donor class these days.  What a mess!!!

Joblessness

Posted: September 17, 2011 | Author: | Filed under: 2012 presidential campaign, Surreality, Team Obama, The Bonus Class, The Great Recession, the villagers, unemployment | Tags: , , , | 9 Comments

There’s been a lot of right wing attacks on the Obama Jobs Act.  I continue my befuddlement.  In this looking glass reality of ours, a Democratic President has put forth an unimaginative ‘job creation’ act representing fairly conventional republican thinking.  However, there’s so much Obama Derangement Syndrome among the Republicans–especially the rabid right wing teabots–that a plan that would have been perfectly acceptable under either of the Bushes or Reagan to deal with jobless is being held up as an extravaganza of tax and spend. Eric Cantor has released a memo that basically guts this tepid response to the high level of unemployment and unacceptable level of long term unemployment plaguing this country. There is something seriously wrong with that man.  He’s listed the areas of agreement and they are all the parts of the bill that really aren’t going to create jobs at all.  These are items like passing the free trade agreements negotiated during the Dubya years or patent reform and regulations reform or programs that aren’t going to be very effective like  the ‘bridge to work’ program which is likely to create a revolving door of unpaid internships.

David Dayen has an analysis up at FDL so I don’t need to recreate that.  He’s basically calculated that the House Republicans have taken the $447 billion Act to about a $11 billion blip.  It may have started out a tepid, conventional plan but  Cantor’s basically turned it into a give away to a few select groups. The only remaining portion that’s not disagreeable is help for returning veterans.  The rest won’t do a damned bit of good.

As you may know, the AJA is comprised of about 57% tax cuts and 43% spending initiatives. So in the main, House Republican leaders tossed out the spending and embraced a few of the tax cuts. They also rejected the tax hikes on corporations and the wealthy to pay for the bill.

Grok that?  It’s 57% more worthless tax cuts that haven’t done a damned thing for the last 11 years but undermined the Federal Budget.  I’ve heard a lot of Democrats think it’s wonderful just because Obama put it out there.  Again, this is a conventional republican republican policy that probably would’ve come from some one like Bob Dole in the past.   This is getting old.   The republicans will say no to anything Obama puts out there and Obama is putting their kind of policy out there and the democrats won’t say no to it.

Meanwhile, there’s a number of really bad things that result from persistent jobless happening as we speak to millions of Americans.  Here’s some examples from Sarah Murray at the WSJ who reviewed an academic paper on long term salaries of folks laid off during recessions.  The bottom line is that their incomes will remained depressed for a huge period of time when they finally get jobs.  That’s just the monetary impact.

When a worker was laid off, his earnings dropped steeply at the time of the layoff and eventually experienced a kind of recovery. But “The earnings losses do not completely fade even after 20 years,” the paper states. That’s true even when the economy is doing well. When the economy is performing poorly, the initial earnings loss is steeper.

Workers who were laid off in recessions experienced, on average, $112,095 in income losses — three years of pre-layoff earnings. Those laid off in expansionary times experienced a $65,424 loss.

The negative impacts of job losses extended beyond the financial hit, affecting workers’ health, mortality outcomes, child achievement levels and happiness.

“The negative consequences of job displacement, and fears of job displacement, are among the main reasons that recessions and high levels of unemployment create so much concern in the general population and among politicians,” the paper states.

So, I guess in order to play out political games we’re going to embrace all these negative consequences for the large number of people that have been experiencing unemployment over the last few years.  It’s just really disgusting.  The jobs bridge plan–or as we liked to call it here the federal version of the Georgia Slave Act–brought to mind this program in Hungary where you have to go to a Labor Camp in order to collect unemployment.

Wielding scythes and pitchforks, about 30 men and women hack through brambles on a hillside above the Hungarian village of Gyöngyöspata. With the nearest road more than a half mile away, workers have to hike in with food and water for the day. For bathroom and lunch breaks, they duck into a thicket that offers the only shade in the 98F heat. “It’s degrading to work in these conditions,” says Károly Lakatos, a 38-year-old father of three who was laid off earlier this year from his forklift-operator job in an auto parts factory. When his unemployment benefits ran out, the government assigned him to a brigade clearing land owned by the village.

If Prime Minister Viktor Orbán has his way, hundreds of thousands of Hungarians will soon join similar squads. Under a plan approved by Parliament in July, by 2012 some 300,000 people will be working in community service jobs—doing everything from picking up trash to building stadiums—instead of drawing welfare or unemployment benefits. Hungary will no longer “give benefits to those capable of work, when there is much work to be done,” Orbán said in June. The effort is part of the ruling Fidesz Party’s 2010 election pledge to create 1 million jobs over the next decade.

Is this what the jobs act will become?  More tax cuts for the political donor class and labor camps for the folks that don’t work for them at depressed wages?

At the same time we get Obama’s second Republican style whack at our economy–in other words a big speech with a small stick–more news keeps coming out about how really, truly dysfunctional the Obama team of economists has been. Have you noticed how many have gotten out of the White House quickly as if they were really worried about their reputations or sanity?  One more sneak peak was granted for the Suskind book “Confidence Men” in New York Magazine prior to its Tuesday release.  It has me even less enthused about anything coming out of Obama policy advisers than before.  Read some of this back and forth between Andrew Moss and Frank Rich who read the book and conclude that that Obama has stuck himself and the US in an economic quagmire. It just doesn’t give one confidence in the policy process, the advisers or the president.  This one is from Frank Rich.

I guess I thought Geithner’s role was more shocking just because I have become inured to tales of Summers’s outrageousness, dating back to his ill-fated presidency of Harvard. Particularly damning in Suskind’s narrative is that when Summers says “there’s no adult in charge” in the White House, he’s actually right — and appoints himself as adult in charge, Alexander Haig–style. Summers was in charge, all right, but he behaved like a child and little got done except derailing the president’s initiatives — he even blocked Obama’s agenda of tough climate-change legislation.

But the buck stops with Obama. There’s a poignant moment of sorts in December 2008 when the North Dakota senator Byron Dorgan implores the president-elect not to go with his economic team. “I don’t understand how you could do this,” he tells him. “You’ve picked the wrong people!” As indeed Obama did, under the tutelage of Robert Rubin, who also tried to finagle a White House guru role for himself, not unlike the perch from which he helped wreak havoc at Citigroup during its subprime orgy. So Suskind’s book often reads like Halberstam’s “Best and the Brightest,” with Summers and Geithner as McNamara and Bundy. But the quagmire isn’t a neo-Vietnam like Afghanistan — it’s the economy, and the casualties are measured in lost jobs. After the stimulus bill passed in February 2009, Suskind writes, “little else happened on the jobs front for a year and a half,” with proposals being “talked to death without resolution.”

Take this response from Andrew Moss:

I kept flipping back and forth between fury at Obama and — I know I’m easy — sympathy. So much of the damage comes from the initial decision to hire these guys, a decision he had to make almost immediately after being elected. He was inexperienced, he needed help, they burned him, he let them — that’s the story in brief. The number of stupefyingly momentous decisions he had to make in those first few months put me in a vicarious panic. There was no obvious path, the way I read it — though in your view, I suspect, the choices were clearer. Though we’ll never know for sure what other solutions might have worked, the book is a litany of missed opportunities, particularly with respect to financial reform (one banker after another wonders incredulously — and anonymously — why Obama didn’t pin them when they were down). Would some other president have had more success?

One thing you’re struck with is how bizarre it is that Obama has this job in the first place. Obama feels that too — and it gives him a deluded sense of his own magical powers. “Look, I feel lucky,” he says. “Just look at me. My name is Barack Hussein Obama and I’m sitting here.” He’s cocky, but also kind of amazed. What an astonishing blend of good and bad luck the man has had — the unusual cocktail of circumstances that brought him to the White House, and the pretty much impossible situation he faced when he got there. Which is not to say it’s not agonizing to watch him, in the book, fail time after time to make the big, bold move — the book is a narrative after all, and passivity (or, to be fair, caution), does not become a protagonist.

Frankly, the ones who should have every one’s sympathy are the vast number of people whose lives will be forever upended by this vast, deep unemployment.  They are the ones to whom the pranksters in the Republican party and the dumbstruck Democrats should think about but do not.  Again, Republicans are rejecting conventional, mild mannered, ineffective republican policy simply because it’s coming from a Democrat and Democrats are supporting it simply because that’s all the President and his team seem to be able to come up with and he’s a democrat.  They all may be democratically elected but they continue to prove that they represent no one but themselves and their corporate owners.  We’ve got a great history of what does and does not work to get the economy out of horrible places and they’re ignoring it all to force us to play political musical chairs.  It’s just not right.

Oh, and if you want to be flabbergasted at more villagers,  Steve Chapman at the Chicago Trib has basically written an op-ed that suggests Obama step down and Hillary Clinton step in and clean the place up. Now, he’s not exactly on my list of enlightened op-ed writers since he writes at Reason and the National Review too, but sheesh, he’s using Democrats words to support the argument so it’s worth a read.  I think every one feels we’re drowning in an economic quagmire now and we need the best person out there to guide us out.  I’ve skipped the first part but the last part is worthy of mention here.

Besides avoiding this indignity, Obama might do his party a big favor. In hard times, voters have a powerful urge to punish incumbents. He could slake this thirst by stepping aside and taking the blame. Then someone less reviled could replace him at the top of the ticket.

The ideal candidate would be a figure of stature and ability who can’t be blamed for the economy. That person should not be a member of Congress, since it has an even lower approval rating than the president’s.

It would also help to be conspicuously associated with prosperity. Given Obama’s reputation for being too quick to compromise, a reputation for toughness would be an asset.

As it happens, there is someone at hand who fits this description: Hillary Clinton. Her husband presided over a boom, she’s been busy deposing dictators instead of destroying jobs, and she’s never been accused of being a pushover.

Not only that, Clinton is a savvy political veteran who already knows how to run for president. Oh, and a new Bloomberg poll finds her to be merely “the most popular national political figure in America today.”

If he runs for re-election, Obama may find that the only fate worse than losing is winning. But he might arrange things so it will be Clinton who has the unenviable job of reviving the economy, balancing the budget, getting out of Afghanistan and grappling with House Majority Leader Eric Cantor. Obama, meanwhile, will be on a Hawaiian beach, wrestling the cap off a Corona.

Meanwhile, I’m on the job market AND wrestling the cap off of an Abita.  Frankly, the only people that deserve to be jobless in this country are all working in the beltway right now.

Occupy Wall Street Protest

Posted: September 17, 2011 | Author: | Filed under: The Bonus Class | Tags: | 17 Comments

GEN Y protests: maybe they'll be more engaged than Gen X, the so-called slackers

A protest of the influence of Wall Street organizations on US policy is being held today near Wall Street.  It aims to do create change in the same way that media savvy young people did in Egypt and union workers did in Wisconsin.

Occupy Wall Street is a “leaderless resistance movement” spearheaded by activist magazine Adbusters. Organizers want people to swarm into lower Manhattan on September 17 and set up camp for two months, then “incessantly repeat one simple demand.”

What’s that demand? They haven’t decided yet.

The plan is to crowdsource the decision. Protestors are set to meet and discuss the issue at the iconic Wall Street Bull statue at noon Saturday, as well as at a “people’s assembly” at One Chase Manhattan Plaza at 3 p.m.

The protestors’ demand will likely be focused on “taking to task the people who perpetrated the economic meltdown,” says Kalle Lasn, the editor-in-chief of Adbusters.

I’ve been following some tweets and it appears the NYC police are not letting any one but Wall Streeters get close the financial district. There is some interesting information on the plans, however, if they manage to get any where near the sphere of influence.

Saturday at noon, a group that calls itself “Occupy Wall Street” is going to try to live up to their name for as long as they can. But first, they’ll be meeting at Bowling Green Park for a program that includes yoga, a pillow fight, face-painting, small break-out groups to discuss topics like derivatives, and a lecture from an author. There’s an arts and culture committee. Plus, there’s yoga and a planned “Thriller” dance. It sounds a little bit like camp, or maybe one of those pre-college orientation bonding sessions. But as the group says on its website, it’s actually a “leaderless resistance movement” meant to protest the concentration of wealth at the top of society — the “99 percent” standing up against the “1 percent.”

Essentially, says Marissa Holmes, a 25-year-old freelance documentarian who’s helped organize the event, it’s meant as a rebuke of “neoliberal economics,” and a youth-driven lefty answer to the tea party. Many of those involved, says Holmes, are young, overeducated, and underemployed. “How do you think we had time to organize this?” she laughed. Anonymous, the hacktivist group, has also released a video in support of the event, though their involvement isn’t official — Holmes told me she was simply waiting, curiously, to see what they might do.

The scenario of an unemployed-young-people uprising is exactly the one Mayor Bloomberg publicly worried about earlier today. The group explicitly cites the Tahrir Square demonstrators as an inspiration. And the critique of neoliberal economics also calls to mind the violent World Bank protests of the nineties in Seattle. But it’s a little unclear how many people will actually show up. The original goal — as proposed by AdBusters, where the event originated — was to gather 20,000 people, but the group’s Facebook page has less than 8,000 who’ve RSVPed.

I’m actually curious to see if any of the networks will even cover it.  The twitter channel to follow is: #TakeWallStreet.  You can watch some livestreams around 3 pm est at Global Revolution.  It will be interesting to see if some of the twitter generation here in the US are any more committed to nonviolent change than other places in the world.  Right now the associated chat channel looks to be spammed by Paultards.


Okay, caption contest: what do you say about police protecting THE bull?

Thursday Reads: S & P, the New Madrid Fault, the Gaddafis, and Obama in the Eye of Hurricane Irene

Posted: August 25, 2011 | Author: | Filed under: Foreign Affairs, Libya, MENA, morning reads, Stock Market, The Bonus Class, U.S. Economy, U.S. Politics | Tags: , , , , , , , , , , , , , , | 42 Comments

Good Morning!! I think I have some interesting reading for you today, so let’s get right to it.

Last night I wrote about Goldman CEO Lloyd Blankfein possibly being in trouble with the feds. Interestingly, on Monday another high-profile exec announced he’ll be stepping down. I’m referring to S&P president Deven Sharma. From The New York Times:

The ratings agency Standard & Poor’s said late on Monday that its president, Deven Sharma, who has become the public face of the firm in the wake of its historic downgrade on the United States’ long-term debt rating, will step down and leave the company by the end of the year….

The management change had been in the works for months and was unrelated to either the Justice Department’s inquiry or to the emergence of the activist investors, Jana Partners and the Ontario Teachers Pension Plan, according to people briefed on the matter.

Oh really? Kind of a strange coinky-dink, then, isn’t it?

The ratings agency’s decision to downgrade the United States’ long-term credit rating to AA+ from AAA on Aug. 5 set off a storm of controversy, including criticism by President Obama and Treasury Secretary Timothy F. Geithner. The decision contributed heavily to the worst drop in American stocks since the financial crisis three years ago, as well as volatility that continues to whipsaw the markets weeks later. The other big ratings agencies, Moody’s and Fitch, maintained their top-tier rating on United States debt.

At the same time, the agency is being investigated over whether it improperly rated mortgage securities in the years leading up to the financial crisis. Standard & Poor’s, along with the other major ratings agencies, gave their highest ratings to bundles of troubled loans that appeared less risky during the housing boom, but have since collapsed in value.

Since the financial crisis, the agencies’ business practices and models have been scrutinized by Congress, and Standard & Poor’s is also being investigated by the Justice Department, people briefed on the matter have previously said. At issue is whether the agency’s independent analysis was driven by profits. The Justice Department inquiry, which began before the Standard & Poor’s downgrade of the United States’ debt, is centered on whether analysts’ decisions to assign securities a low credit rating on subprime mortgage loans were overruled by business managers.

Right. I’m sure none of that had anything to do with the president of the troubled company stepping down. /snark

The Financial Times has a piece on the incoming president, Douglas Peterson.

As head of Citigroup’s Japanese operations in 2004, Mr Peterson dramatically bowed in apology before Tokyo regulators after they shut down Citi’s private banking operations there.

Now, as he takes over the embattled ratings agency just weeks after its unprecedented downgrade of US credit, Mr Peterson is likely to find himself before regulators in the US, who are looking into the downgrade and reportedly investigating S&P’s ratings of mortgages before the financial crisis.

Yet, it is Mr Peterson’s experience in Japan, and his more recent turn running Citibank, the retail banking arm of Citigroup, that has given S&P’s owner McGraw-Hill confidence that he is the right man for the job.

Seven years ago, Mr Peterson was given the tricky task of mending relations with Japanese regulators and rebuilding Citi’s tarnished reputation after the US bank’s private banking unit was found to have illegally amassed large profits and was ordered to close down.

By all accounts, the affable Mr Peterson, who is widely described in Tokyo as “nice” and “sincere”, succeeded in reassuring the Financial Service Agency and the Japanese public alike that Citi could once again be trusted with the considerable financial assets of one of the largest economies in the world.

IOW, Peterson has been hired because of his pleasing personality and his ability to make friends and influence people.

But Sean Gregory at Time argues that “A New Leader Won’t Save S&P.”

It’s tempting to read the resignation of Deven Sharma, who stepped down as president of S&P Monday night, as an admission that the rating agency goofed in downgrading the United States’ sovereign rating from AAA to AA+, even as Fitch and Moody’s maintained America’s top grade. Warren Buffett said the U.S. should be rated “quadruple A.” The Treasury department complained that S&P overestimated the nation’s future debt by $2 trillion. Timothy Geithner said that the S&P decision shows “a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.”

Guess Sharma and Geithner won’t be hanging out at any holiday parties. If the S&P downgrade was indeed a mistake, it was an expensive one. In the week after the Aug. 5 S&P downgrade, according to Bloomberg, the market value of global stocks tumbled by $7.6 trillion. Sharma, a former Booz Allen Hamilton consultant who has headed S&P for the past four years, might not be trumping this fact on his newly-polished resume. So you’re the guy who cost the world $7.6 trillion in wealth? You’re hired!

Like FT, Gregory points out that S&P has been shopping for a new leader for months, mostly because Sharma has failed the company in a number of ways. So will a new president make a difference? No, because the ratings agencies simply aren’t qualified to evaluate the credit of sovereign states.

There’s a frightening earthquake story at The Daily Beast: The Quake We Should Fear. Apparently it’s the Midwest that is due for a big one–not the east coast.

Early in the morning of May 16, while most of America was being titillated and transfixed by the appearance in court of the then-suspect Dominique Strauss-Kahn, an urgent message was suddenly received at the headquarters of the Federal Emergency Management Agency (FEMA) in Washington, D.C.

Reports were streaming in of a catastrophic earthquake, magnitude 7.7, that had struck the Midwest near the town of Marked Tree, Ark. First reports were alarming: phenomenal property damage; casualty figures were unprecedented; transportation links were severed; and cities like St. Louis, Memphis, Little Rock, and Cincinnati had been thrown into utter turmoil. Eight states were believed to have been directly affected, and it was thought the death toll would be in the thousands.

A gigantic federal relief mission swung into action. Nine thousand National Guardsmen were ordered to be deployed. Triage centers were opened in all the affected cities—a list that grew longer as a secondary magnitude 6.0 earthquake struck close to the city of Mt. Carmel, Ill. The Red Cross deployed emergency teams. Power companies were given priority to restore electricity and gas supplies. Heavy equipment was sent in to clear highways and railway tracks.

Within 72 hours some kind of order was restored. Hospitals found themselves more able to cope with the vast number of patients suffering injuries. Refugees fleeing in panic were being assembled into special camps. Temporary tent cities were set up along the main refugee routes.

Huh? Oh wait. That was a FEMA exercise. But it was based on the real possibility of a major earthquake on the Madrid fault. It’s happened before and is due to happen again.

This year marks the bicentennial of the great swarm of earthquakes that afflicted New Madrid between December 1811 and February 1812—hundreds of them, day after day, but punctuated by four enormous ruptures, two occurring on Dec. 16, and one each on Jan. 23 and Feb. 7. These caused spectacular effects all across the then young, sparsely settled United States—toppling church steeples in South Carolina, ringing church bells in Boston, causing the Mississippi to reverse it course, and sinking numerous properties deep into the liquefied earths of the prairies.

Yikes! But I’m still worried that Boston hasn’t had a major earthquake since 1755–so we’re probably due also.

Yesterday I came across a couple of interesting stories on Muammar Gaddafi and his son Saif that you might want to check out.

From Scientific American: Egotist Rex: Are a Dictator’s Defiant Statements Indicative of Self-Delusion? It’s an interview with George Washington University Professor of Psychiatry Jerrold Post.

The interviewer asks Post about the many bizarre statements that Gaddafi has made since the rebellion began. He seems out of touch with reality. Is he delusional? Post discusses the circles of sycophants that surround every world leader–this may make it difficult for the leader to see what is really happening outside this protective bubble of supporters.

They can have a very unrealistic understanding and believe, as Qadhafi stated again and again, “My people, they all love me.”

I found this language of his quite remarkable. And with Qadhafi as an exaggerated example, this is true of any of the other leaders, too—namely, they believe they have widespread support. If there are public demonstrations against them, that must reflect outside agitators. This was true with [ousted Egyptian president Hosni] Mubarak as well. He spoke of outside conspiracies.

But it is particularly true of Qadhafi. There is an interesting kind of almost syllogism for him: “My people all love me, and therefore if there is anyone protesting against me, they are not really my people, and that must be a consequence of outside provocation.” And one of the points that he made early on was that this was crazed youth who were on hallucinogens with which their Nescafe had been laced, which I thought was rather creative, really.

I found Qadhafi’s language in general very striking. And what is most interesting about it is it is entirely in the first person singular: “My people all love me. They will support me. My people, they love me.” It was very “me” centered.

Next the interviewer asks whether narcissism is a characteristic of many national leaders? The response could perhaps be applied to someone a little closer to home, if you know what I mean. Check it out.

Vanity Fair has a new article up about Saif Al-Islam Gaddafi. It’s rather long, but here’s the introductory paragraph:

Saif al-Islam Qaddafi—son of Muammar, and long regarded as his heir—was subjected to an arrest warrant months ago by the Criminal Court for crimes against humanity. Libyan rebels in Tripoli reported that he was in custody, but Saif soon appeared in public, rallying what’s left of pro-Qaddafi forces. As NATO bombs fell on Libya, the distinguished international lawyer Philippe Sands sat down with those who know Saif Qaddafi best—a London professor, his Libyan mentor, and the prosecutor who may decide his fate. Saif Qaddafi may claim that he was merely an intermediary, or a force for moderation, or perhaps even a victim. But whatever the claims, according to the prosecutor, he was deeply complicit in his father’s crackdown this year.

Hurricane Irene could become a category 3 sometime today. It’s still predicted to go right up the coast to New England. States all along the east coast are preparing for the worst. Will it hit the Cape and islands? The LA Times suggests President Obama might have to be evacuated.

First, President Obama’s golf game was interrupted by an earthquake. Now, it appears that Hurricane Irene is beating a path toward Martha’s Vineyard, where the president is vacationing with his wife and two daughters.

The National Hurricane Center’s latest forecast shows Hurricane Irene reaching landfall in the Carolinas late Friday and early Saturday before raking its way up the East Coast and into New England. Coastal areas are urged to keep tabs on the storm’s path and remain alert for possible evacuation orders as the hurricane continues to grow in intensity.

It swelled to a Category 3 storm overnight with winds that could exceed 110 mph, and remains on track to gain in strength and ferocity to become a Category 4 hurricane.

Obama is supposed to be in Washington on Sunday to speak at the opening of the Martin Luther King Memorial and then return to the Vineyard. The storm is supposed to hit DC before moving up to Massachusetts.

The eye of the storm appears to be sticking to the coastal outlines, which could spell trouble for Martha’s Vineyard, an island accessible only by boat or plane. As it has done throughout the storm, the National Hurricane Center stresses that the projected path could change dramatically as weather projections come into sharper focus over the next several days.

Hmmm…. Perhaps Mother Nature is trying to send a message to our obtuse leader: Americans need jobs!! Or maybe not.

That’s all I’ve got for you today. What are you reading and blogging about?

Is Goldman CEO Lloyd Blankfein Facing Possible Prison Time?

Posted: August 24, 2011 | Author: | Filed under: Corporate Crime, Crime, The Bonus Class, U.S. Economy, U.S. Politics | Tags: , , , , , , | 4 Comments

Lloyd Blankfein

That’s the question Naomi Prins, a former managing director of Goldman Sachs and author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals From Washington to Wall Street, asked yesterday at The Daily Beast.

I posted in a comment yesterday that I’d heard Blankfein hired a well-known Washington criminal defense attorney. Since then, the business media has been buzzing about why Blankfein hired attorney Reid Weingarten.

Big-shot Washington defense attorney Reid Weingarten, of the firm Steptoe & Johnson LLC, has represented former Enron chief accounting officer Richard Causey (who pleaded out), former Rite Aid vice chairman and chief counsel Franklin Brown (found guilty by a jury on 10 counts of conspiring to falsely inflate his company’s value), and former WorldCom CEO Bernie Ebbers (convicted on nine felony counts by a jury). All three are in jail. Two of them, Ebbers and Causey, had undergone congressional panel investigations beforehand. Another of Weingarten’s clients, former Tyco counsel Mark Belnick, was acquitted, though Tyco CEO Dennis Kozlowski, who was not represented by Weingarten, was convicted and remains in jail.

Prins speculates that Blankfein may be in trouble for two possible reasons. The first is because of his own “loose lips,” when he testified before the Senate Permanent Subcommittee on Investigations in April.

Recall that Blankfein emphatically told the subcommittee, “We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.” The 650-page subcommittee report (PDF) presented on April 13, 2011, which cites Blankfein 79 times, begs to differ.

The report accused Goldman of trading against its clients by simultaneously shorting certain subprime mortgage securities (a.k.a. “cats and dogs”) while stuffing them into the collateralized debt obligations it sold. It also suggested that Goldman executives, including Blankfein, misled Congress in testimony surrounding the Abacus CDO, Hudson, Timberwolf, and other deals, by saying it didn’t have a big short.

The second possibility is that Blankfein’s colleagues are distancing themselves from him in order to protect themselves and Goldman Sachs. Prins writes:

The top lesson I learned before leaving Goldman in the wake of Enron was Goldman’s foremost internal policy is to protect Goldman. It’s also to protect the most powerful members. When cracks manifest in the corporate armor, those two policies are at odds.

The executives running Goldman are exceedingly wealthy, not least because when the firm faced its darkest hour and lowest stock price in years during the bank-created crisis of fall 2008, the government provided it billions of dollars in the form of cheap loans, FDIC debt guarantees, TARP, AIG make-wholes, and a late-night moniker change from investment bank to bank holding company, giving the firm access to excessive Federal Reserve aid.

After the news came out that Blankfein had hired Weingarten, Goldman’s shares fell 6%, and according to Prins, that kind of thing is “frowned upon.” So Blankfein may be be trying to protect himself from being stabbed in the back by his co-workers in addition to fighting anything the Justice Department has planned for him.

I doubt if Obama and Geithner will let Blankfein go to prison, but it will be fun to watch him and the wealthy Goldman partners feeling a little bit of discomfort.

Two Reuters columnists speculated about this story today. Leigh Jones writes:

If you need to hire Reid Weingarten, your career has probably hit a rough patch.

The rule now applies to Goldman Sachs (GS.N) CEO Lloyd Blankfein, who Reuters reported on Monday has retained Weingarten, a partner at Steptoe & Johnson in Washington.

With that move, Blankfein becomes the latest in a long line of executives and high-profile people in trouble who have turned to Weingarten for help. They range from Tyco (TYC.N) corporate counsel Mark Belnick, for whom Weingarten won an acquittal, to ex-Enron accounting officer Richard Causey, who pleaded guilty to fraud and conspiracy, to film director Roman Polanski, who tapped Weingarten to fight extradition to the Unites States for sexually assaulting a 13-year-old girl in 1977.

Jones spends most of the piece providing background on Weingarten, but he also points out that Blankfein’s choice of attorney is telling, and like Prins he notes the market reaction:

Blankfein’s choice of Weingarten as his lawyer has raised questions about what kind of trouble the Goldman Sachs CEO might be in. The DOJ, where Weingarten once worked, is investigating the bank for mortgage-related investments it made.

While it is not unusual for company leaders to arm themselves with their own lawyers, Weingarten’s reputation as a litigator — as opposed to a lawyer who guides clients through investigations — is making Goldman investors nervous. The day that Blankfein’s hiring of Weingarten broke, the bank’s stock dropped nearly 5 percent to its lowest level since March 2009. By late Wednesday afternoon, the shares were at $109.92, up 3.2 percent from Monday’s close at $106.51.

Alison Frankel is more sanguine, arguing that Blankfein hiring an outside attorney is really no big deal.

The market assumed the worst on Monday after Reuters’ great scoop on Goldman Sachs (GS.N) CEO Lloyd Blankfein bringing in Reid Weingarten of Steptoe & Johnson to represent him in the Justice Department’s investigation of the bank. Goldman’s share price fell almost 5 percent on the fear that Weingarten’s entrance signals that DOJ is getting serious about its follow-up to the April 2011 Senate subcommittee report on the financial crisis.

In one sense, that’s reading way too much into the mere fact that Blankfein has brought in his own lawyer. It’s standard operating procedure for corporate executives at companies under investigation to have separate counsel. Consider the example of other alleged villains of the financial meltdown. Richard Fuld of Lehman (LEHKQ.PK), Joseph Cassano of AIG (AIG.N), Angelo Mozilo and David Sambol of Countrywide, John Thain of Merrill Lynch, Kenneth Lewis of Bank of America (BAC.N): They all have their own lawyers, and none of them have faced any criminal charges. Only Mozilo and Sambol even had to answer to the SEC.

She provides a number of examples of other executives doing just that. But…

Nevertheless, Blankfein’s choice of Weingarten is very intriguing. Weingarten is a great lawyer with close ties to the Justice Department, where he once worked in the Public Integrity section, and to Attorney General Eric Holder, whom he actually represented when Congress grilled Holder about President Bill Clinton’s eleven-hour pardon of financier Marc Rich. Weingarten is not, however, part of the club of white-collar defense counsel who typically get referrals from New York firms like S&C. (That group includes Andrew Levander of Dechert; Mary Jo White of Debevoise & Plimpton; Patricia Hynes of Allen & Overy; and Gary Naftalis of Kramer Levin Naftalis & Frankel, all of whom represent high-profile Wall Streeters in financial crisis cases.)

One white-collar defense lawyer who gets referrals from Wall Street firms told me it could be significant that Blankfein went outside the usual circle, turning to a lawyer best known for his trial work. “For many people, the choice of Reid Weingarten would be unusual to represent someone in a simple interview,” he said. “He’s often retained when an investigation is going to lead to a case that would go to trial.”

Hmmmm…. Okay, I’ll believe it when I see it, but I can dream, can’t I?

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