Monday Reads: Malefactors of Great Wealth EditionPosted: July 23, 2012 Filed under: morning reads | Tags: Accidents of Birth, Donald Trump, malefactors of great wealth, Mitt Romney, Parasites, plutocrats, Privateers 42 Comments
One of the things that really peeves me about a certain kind of ‘businessman’ is how they spin the tale of their success and forget that they were born having already passed go several thousand times while in utero with the help of their father’s success. There are two men that come to mind right now that act like they made it on their own like some kind of Mary Tyler Moore figure. One of them is Donald Trump. He likes to dance around lower Manhattan tossing his badly done hair up in the air. He didn’t have to make it after all. He had it made from the moment he gasped his first breath.
You probably need about one guess to figure who else I’m speaking about. The Donald inherited a lot of money and managed to screw things up badly. Government largess bailed out Donald Trump’s mismanagement of his vast inheritance. He’s about as self made as an iPad. Dubya Bush has a similar story. The Trump story is just one of many documented in a new book called “The Self-Made Myth: The Truth About How Government Helps Individuals and Businesses Succeed”.
Despite what Trump may espouse, his success would have been in no way possible without his father, the general public, and the US government. Unfortunately, Trump decided to forget or selectively ignore these truths while forming his political philosophy, a sentiment made particularly clear during his brief bid for the 2012 Republican presidential nomination.
Trump was born in New York City in 1946, the son of real estate tycoon Fred Trump. Fred Trump’s business success not only provided Donald Trump with a posh youth of private schools and economic security but eventually blessed him with an inheritance worth an estimated $40 million to $200 million. It is critical to note, however, that his father’s success, which granted Donald Trump such a great advantage, was enabled and buffered by governmental financing programs. In 1934, while struggling during the Great Depression, financing from the Federal Housing Administration (FHA) allowed Fred Trump to revive his business and begin building a multitude of homes in Brooklyn, selling at $6,000 apiece. Furthermore, throughout World War II, Fred Trump constructed FHA-backed housing for US naval personnel near major shipyards along the East Coast.
In 1974 Donald Trump became president of his father’s organization. During the 15 years following his ascension, he expanded and innovated the corporation, buying and branding buildings, golf courses, hotels, casinos, and other recreational facilities. In 1980 he established The Trump Organization to oversee all of his real estate operations.
Trump eventually found himself in serious financial trouble. In 1990, due to excessive leveraging, The Trump Organization revealed that it was $5 billion in debt ($8.8 billion by some estimates), with $1 billion personally guaranteed by Trump himself. The survival of the company was made possible only by a bailout pact agreed upon in August of that same year by some 70 banks, allowing Trump to defer on nearly $1 billion in debt, as well as to take out second and third mortgages on almost all of his properties. If it were not for the collective effort of all banks and parties involved in that 1990 deal, Trump’s business would have gone bankrupt and failed.
This is just one more example of an extremely wealthy person that basically caught all the breaks in the world–including being spit out of the right VAGINA–that wants every one to believe he did it all on his own and that he owes nothing to any on else. It’s as much of a lie as the current twisting of the “you didn’t do that” speech by Obama. Just like ecosystems, a country’s economy is a grand experiment in obligate mutualism. Romney’s vast wealth is as much of an interplay between his job and our warped tax system and his father’s millions than just about anything else. He had access to tax shelters and tax rates that not even his father–as the CEO of a major car company–would’ve received. Yet, he insists he did it all on his own. Legacy be damned, I’m a self-made man!
Steve Rattner–an Obama surrogate and Private Equity Lord of the Universe himself–was on GPS on Sunday talking about the kind of tax dodges available to this business that are unavailable to every one else. Tax Dodging isn’t exactly one of those pull-yourself-up-by-your bootstraps kind of effort. Our two species in this country are definitely the uberrich and every one else. The uberrich financier is a subspecies all to himself. Hang with me on my mutualism metaphor because I’m about to introduce the idea of the parasite into our economic system.
“If you say to your tax people, as he seems to have done, ‘I want every trick in the book. I want to push this to the edge,'” Rattner said during an appearance on “Fareed Zakaria GPS” on CNN. “I will tell you that as a private equity guy, I’m familiar with many of the things that he did. And I know many people who have done many of the things that he did. I do not know anyone who did everything that he did.”
“Some of what he did, like the IRA, I have asked fellow private equity guys,” Rattner said, referencing the account in which Romney has stored up to $100 million tax-free. “None of us had even known this was a possible trick, if you will. He has pushed the envelope all the way to the edge, to his benefit, and I think that Americans would find that pretty distasteful.”
Romney has declined to release multiple years’ worth of tax returns, disclosing only those from 2010 and estimates from 2011. Rattner called Romney overly secretive Sunday, speculating that he was attempting to hide more instances of using innovative and questionable accounting tricks.
Indeed, all you have to do is look at the incredible amounts of money hidden from the taxing bodies of governments in the offshore banking centers of the world to realize the amount of lost possibilities and futures. No amount of books bought for the BYU library can offset the lost multiplying impact of buying power spinning through a domestic economy that hides, instead, in a bank in some offshore haven. It is the modern version of the plague in every economy of the world. It’s destructive.
A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.
James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.
He shows that at least £13tn – perhaps up to £20tn – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy“. According to Henry’s research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.
The detailed analysis in the report, compiled using data from a range of sources, including the Bank of International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world.
Oil-rich states with an internationally mobile elite have been especially prone to watching their wealth disappear into offshore bank accounts instead of being invested at home, the research suggests. Once the returns on investing the hidden assets is included, almost £500bn has left Russia since the early 1990s when its economy was opened up. Saudi Arabia has seen £197bn flood out since the mid-1970s, and Nigeria £196bn.
“The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments,” the report says.
The sheer size of the cash pile sitting out of reach of tax authorities is so great that it suggests standard measures of inequality radically underestimate the true gap between rich and poor. According to Henry’s calculations, £6.3tn of assets is owned by only 92,000 people, or 0.001% of the world’s population – a tiny class of the mega-rich who have more in common with each other than those at the bottom of the income scale in their own societies.
“These estimates reveal a staggering failure: inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people,” said John Christensen of the Tax Justice Network. “People on the street have no illusions about how unfair the situation has become.”
The fathers of Mitt Romney and Donald Trump did not have the ability to drain funds from the government while simultaneously hiding their personal fortunes on foreign shores all the while using obscene tax loopholes to dodge the responsibilities that each of us has to fund basic public goods in this country. Basic goods that every one uses. Looting vast amounts of economic welfare leads to concentration of wealth towards those who can game the system. Meanwhile, more and more of the country’s people no longer experience the benefit of the multiplying effect of having that wealth and money circulate through the domestic economy and, of course, provide tax revenues to fix roads, pay for defense and public safety, and provide for basic things like public education and public health services. It’s a major drain on an economy. It leaves every one worse off.
The ranks of America’s poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net.
Census figures for 2011 will be released this fall in the weeks ahead of the November elections.
The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest since 1965.Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth.
What all of this should do is cause us to question the last 30 years of governance. What is it that causes the government we have now to continue to provide vast amounts of benefits and subsidies to people that really don’t need it? Every study shows the same impact. Entire economies are worse off. Yet, these people feel entitled and sneer at any mention of actually making money based on something other than preferential tax treatment and inheritance. Legacy admittance to good schools and jobs is just the first step in our country’s funding of men that inherit money and go on to drain more of it from the public coffers.
I don’t know if you managed to read this bit from Krugman last week but it’s worth a posting even if you did.
“Let me tell you about the very rich. They are different from you and me.” So wrote F. Scott Fitzgerald — and he didn’t just mean that they have more money. What he meant instead, at least in part, was that many of the very rich expect a level of deference that the rest of us never experience and are deeply distressed when they don’t get the special treatment they consider their birthright; their wealth “makes them soft where we are hard.”
And because money talks, this softness — call it the pathos of the plutocrats — has become a major factor in America’s political life.
It’s no secret that, at this point, many of America’s richest men — including some former Obama supporters — hate, just hate, President Obama. Why? Well, according to them, it’s because he “demonizes” business — or as Mitt Romney put it earlier this week, he “attacks success.” Listening to them, you’d think that the president was the second coming of Huey Long, preaching class hatred and the need to soak the rich.
Needless to say, this is crazy. In fact, Mr. Obama always bends over backward to declare his support for free enterprise and his belief that getting rich is perfectly fine. All that he has done is to suggest that sometimes businesses behave badly, and that this is one reason we need things like financial regulation. No matter: even this hint that sometimes the rich aren’t completely praiseworthy has been enough to drive plutocrats wild. For two years or more, Wall Street in particular has been crying: “Ma! He’s looking at me funny!”
Wait, there’s more. Not only do many of the superrich feel deeply aggrieved at the notion that anyone in their class might face criticism, they also insist that their perception that Mr. Obama doesn’t like them is at the root of our economic problems. Businesses aren’t investing, they say, because business leaders don’t feel valued. Mr. Romney repeated this line, too, arguing that because the president attacks success “we have less success.”
This, too, is crazy (and it’s disturbing that Mr. Romney appears to share this delusional view about what ails our economy).
What is really disturbing to me is the number of people that should really recognize all of this for what it is; complex privateering. There are a variety of species in an ecosystem with unique roles to fill. In economic systems, there also exists many institutions and people with unique roles. The one thing they both share besides that is their interdependence. Our economic system is a symbiotic system. Remember, there are three types of symbiotic relationships within both systems.
Mutualism-Both organisms benefit
Commensalism-One organism benefits, and the other is not affected in any manner.
Parasitism-One organism benefits, and the other is harmed.
Learn to recognize the parasites. Every time complex financiers rise to the top of the heap, the real economy suffers. They are not job creators.
In closing, here are a few thoughts from Teddy Roosevelt to give you a few hints. The last quote was written after the Panic of 1907. We’ve learned this lesson quite a few times in US history. Both times we had a Roosevelt who yanked us from the abyss. Funny that.
” Too much cannot be said against the men of wealth who sacrifice everything to getting wealth. There is not inthe world a more ignoble character than the mere money-getting American, insensible to every duty, regardless of every principle, bent only on amassing a fortune, and putting his fortune only to the basest uses —whether these uses be to speculate in stocks and wreck railroads himself, or to allow his son to lead a life of foolish and expensive idleness and gross debauchery, or to purchase some scoundrel of high social position, foreign or native, for his daughter. Such a man is only the more dangerous if he occasionally does some deed like founding a college or endowing a church, which makes those good people who are also foolish forget his real iniquity. These men are equally careless of the working men, whom they oppress, and of the State, whose existence they imperil. There are not very many of them, but there is a very great number of men who approach more or less closely to the type, and, just in so far as they do so approach, they are curses to the country. (Forum, February 1895.)
“It may well be that the determination of the government (in which, gentlemen,it will not waver) to punish certain malefactors of great wealth, has been responsible for something of the trouble; at least to the extent of having caused these men to combine to bring about as much financial stress as possible, in order to discredit the policy of the government and thereby secure a reversal of that policy, so that they may enjoy unmolested the fruits of their own evil-doing. . . . I regard this contest as one to determine who shall rule this free country—the people through their governmental agents, or a few ruthless and domineering men whose wealth makes them peculiarly formidable because they hide behind the breastworks of corporate organization.” (At Pilgrim Memorial Monument, Provincetown, Mass., August 20, 1907.)
Well, I ran a little long today and I didn’t even get to start in on Jamie Diamon and JPM. Oh, well what’s on your reading and blogging list?