Quote of the Week: “We will bring an end to inequality in this city.” --- Bill de Blasio, New York mayor-elect, addresses the troops in a war on inequality ( November 6, 2013)
Analysts with the Harvard School of Public Health just published the latest research that links depression to income distribution. Residing in a state “with higher income inequality,” the researchers behind the new study find, “increases the risk for the development of depression among women.” Their research controlled for a wide range of other possible explanations, including prior family history of depression. Women in unequal states — like New York — turned out to be nearly twice as likely to experience depression as those in Utah, Alaska, and other much more equal states.
The American middle class is shrinking. According to a report released earlier this year, an estimated 51% of the population was in the middle class at the start of the decade, down from 61% 40 years earlier. Working off Census Bureau 2012 income data, 24/7 Wall St. has calculated America's ten most unequal metro areas. The NYC metropolitan area ranked #5 on the list:
New York-Northern New Jersey-Long Island, N.Y.-N.J.-Penn. (Median income: $63,982 -- Poverty rate: 14.8%) More than 19 million people reside in the New York metro area. The area is also home to many of the nation's wealthiest individuals, living in and around the city. Last year, over 11% of household incomes exceeded $200,000, nearly double the national rate. However, the lower 60% of households by income accounted for less than a quarter of the area's annual total, and together earned less than the top 5% of households. Even within New York City, there were large disparities. While the poverty rate in Manhattan was roughly 18% last year, 31% of all residents in the Bronx lived below the poverty line. The Bronx's median household income was $32,460, while in Manhattan, it was more than $67,000.
The latest Social Security figures, released last month, show annual wages for the typical American worker down $980 in 2012 from five years earlier. David Cay Johnston, the nation’s top analyst of Social Security's wage data, last week placed that total in a paycheck perspective: "Median wage falls to lowest level since 1998."
By contrast, the ranks of Americans making over $5 million a year grew 27 percent in 2012. The actual compensation this cohort collected soared 40 percent over what the $5 million-plus crowd pocketed in 2011.
According to a report by University of California economist Emmanuel Saez, taxpayers in America’s most affluent 0.01 percent grabbed 993 times more income in 2012 than taxpayers in America’s bottom 90 percent averaged. (In 1975, the top 0.01 percent only averaged 114 times the income of America’s bottom 90 percent.)
Do these numbers tell us everything? Not quite. The dramatic IRS figures on high incomes only count what America’s rich want the government to count. They don’t count all the income the wealthy harvest from secret tax havens overseas. But we’re slowly getting a better idea, thanks in part to a federal amnesty program for tax evaders.
Affluent tax evaders can currently avoid criminal prosecution if they pay up all their taxes overdue on their secret income, plus interest and penalties. With this amnesty program in effect, the Wall Street Journal reports, IRS officials are now seeing “a new rush by U.S. taxpayers to confess secret offshore accounts.”
What’s driving this rush? To a surprising degree, Swiss banks. Four years ago, the long-standing Swiss bank secrecy wall started cracking when officials at the Swiss banking giant UBS found themselves forced to admit they’d been helping Americans conceal assets. UBS had to pay out $780 million in penalties.
Other Swiss banks, eager to avoid a similar fate, are now pushing their secret American depositors to end the error of their tax-evading ways, and this banker pressure is apparently having an impact.
Just one New York attorney, Bryan Skarlatos, has already handled over a thousand confessions. Skarlatos used to receive just a couple confession calls a week. How he’s getting two to three a day. Many of the wealthy Skarlatos takes to the IRS have over $10 million in their secret stashes, a few over $100 million (Mitt Romney has that much in an IRA account).
As of last year, 38,000 U.S. taxpayers had revealed undeclared offshore assets. The declarations from these tax evaders, the IRS reports, figure to bring in $10.5 billion. But this total doesn't cover the recent "confession surge".
The Levin-Whitehouse-Begich-Shaheen Stop Tax Haven Abuse Act, S. 1533) would do several things, including, but not limited to:
- Stop offshore tax abuse by allowing Treasury to take steps against foreign jurisdictions or financial institutions that impede U.S. tax enforcement.
- Shift to the U.S. taxpayer, who takes advantage of loopholes, the burden of proving: who controls an offshore entity when money sent to or received from offshore is taxable income.
- Stop companies incorporated offshore but managed and controlled from the United States from claiming foreign status and avoiding U.S. taxes on their foreign income.
- Establish a penalty on corporate insiders who hide offshore holdings.
- Require anti-money laundering programs for private funds.
- Eliminate incentives for offshoring jobs and operations by deferring corporate tax deductions for expenses related to deferred income.
Meanwhile, back in NYC --- the U.S. Justice Department has just shut down a major NYC hedge fund. In a settlement announced last week, SAC Capital has pled guilty to insider trading and will shell out $1.8 billion in penalties. The settlement bans SAC Capital from managing money for outside investors. From now on, the fund will essentially manage only the $7 billion personal fortune of Steven Cohen, SAC Capital's owner and top exec. He will likely enjoy his fortune in peace. Prosecutors may still file criminal charges against him, but they've ruled out a long-jail-time racketeering case. The guilty plea from SAC they've extracted instead, complains New Yorker analyst John Cassidy, perpetuates the myth that "corporate abstractions rather than flesh-and-blood humans are responsible for financial wrongdoing.”
Mayor Bloomberg's Chat Rooms --- from Wall Street On Parade:
The Mayor of New York City, Michael Bloomberg, has functioned as public servant to the people of the boroughs of Manhattan for the past 12 years. Magically, while ostensibly dedicating himself to public service over this period, the Mayor’s net worth has skyrocketed from $3 billion to $31 billion according to Forbes.
Now we are learning that part of the Mayor’s business empire at Bloomberg LP was facilitating highly secure chat rooms for Wall Street traders, where the company vetted each trader before they could gain access, effectively keeping away the snooping eyes of the Feds.Wall Street traders had so much confidence in the security of these chat rooms that they turned them into market rigging mechanisms, openly engaging in collusion in their discussions, offering quid pro quo bribes, and turning the Libor interest rate benchmark and potentially foreign exchange and oil markets into a financial cesspool.
Wall Street On Parade first reported on the use of the Bloomberg chat room to facilitate crime on December 20 of last year. It’s almost a year later and the Justice Department has not shut down the chat rooms. This weekend, the Wall Street Journal reported that some of the largest Wall Street firms are now mulling over whether to bar their traders from using these chat rooms. After almost a year of prosecutors releasing chat room transcripts showing a level of corruption that would make the Mafia blush, Wall Street is still mulling things over.
The public, unfortunately, is too busy attempting to deal with the scorched earth economic landscape that Wall Street left in the wake of its 2008 collapse to pay close attention to the intricacies of the new round of insider shenanigans.
Here’s a quick lesson in the meaning of the term “distribution phase.” That’s when the stock market gets so frothy that rational minds become lemmings, companies like Twitter, without profits, go public and pop 73 percent on their first day of trading, and folks who lost their shirts in the dot.com bust of 2000 are now taking the proceeds of their maturing, insured certificates of deposit and seeking instant riches in the stock market. As this chart from Insider Monitor shows, over the past month a lot of big name insiders are heading in the other direction, to the tune of hundreds of millions of dollars.
Frothy markets, rigged markets and highly-leveraged derivatives-led markets can extend their upward trajectory for far longer than common sense would dictate. But that doesn’t make them any less dangerous.
And some Democrats are even joining the GOP in relaxing the rules for derivatives (credit default swaps) in the Dodd-Frank bill --- are these people crazy, or are they just bought and paid for? Read Alan Blinder's "After the Music Stopped" -- Insight on the economic collapse.