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Tuesday, December 20, 2011

When will Republicans listen to smart economists?

Robert Reich: "Under Newt Gingrich's tax plan the top .1 percent reaps an average tax cut of $2.3 million a year. Low-income households get an average tax cut of $63 per year...increasing the deficit by $850 billion in a single year."

Newt Gingrich wants to eliminate capitol gains and estate taxes completely. And he also wants to lower corporate taxes too. (Read Newt Gingrich: Just a Corporate Whore)

International Business Times: Many corporations paid more to lobby congress than in income taxes. Of 30 analyzed - such as General Electric, Verizon Communications, Wells Fargo, Mattel, and Boeing - 29 of them managed to pay no federal taxes from 2008 to 2010. Only FedEx, which raked in about $4.2 billion in profits during that period, paid a three-year tax rate of only 1 percent -- totaling $37 million -- far less than the statutory federal corporate tax rate of 35 percent. (Read Lobbyists on K Street paid like CEOs on Wall Street)

The Remarkable Political Stupidity of the Street
by Robert Reich - Friday, December 9, 2011

Wall Street is its own worst enemy. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it’s busily shredding new regulations and making the public more distrustful than ever.

The Street’s biggest lobbying groups have just filed a lawsuit against the Commodities Futures Trading Commission, seeking to overturn its new rule limiting speculative trading.

For years Wall Street has speculated like mad in futures markets – food, oil, other commodities – causing prices to fluctuate wildly. The Street makes bundles from these gyrations, but they have raised costs for consumers.

In other words, a small portion of what you and I pay for food and energy has been going into the pockets of Wall Street. It’s just another hidden redistribution from the middle class and poor to the rich.

The new Dodd-Frank law authorizes the Commodity Futures Trading Commission to limit such speculative trading. The commission considered 15,000 comments, largely from the Street. It did numerous economic and policy analyses, carefully weighing the benefits to the public of the new regulation against its costs to the Street. It even agreed to delay enforcement of the new rule for at least a year.

But this wasn’t enough for the Street. The new regulation would still put a crimp in Wall Street’s profits.

So the Street is going to court. What’s its argument? The commission’s cost-benefit analysis wasn’t adequate.

At first blush it’s a clever ploy. There’s no clear legal standard for an “adequate” weighing of costs and benefits of financial regulations, since both are so difficult to measure. And putting the question into the laps of federal judges gives the Street a huge tactical advantage because the Street has almost an infinite amount of money to hire so-called “experts” (some academics are not exactly prostitutes but they have their price) who will use elaborate methodologies to show benefits have been exaggerated and costs underestimated.

It’s not the first time the Street has used this ploy. Last year, when the Securities and Exchange Commission tried to implement a Dodd-Frank policy making it easier for shareholders to nominate company directors, Wall Street sued the SEC. It alleged the commission’s cost-benefit analysis for the new rule was inadequate.

Last July, a federal appeals court – inundated by Wall Street lawyers and hired-gun “experts” – agreed with the Street. So much for shareholders nominating company directors.

Obviously, government should weigh the costs against the benefits of anything it does. But when it comes to the regulation of Wall Street, one overriding cost doesn’t make it into any individual weighing: The public’s mounting distrust of the entire economic system, generated by the Street’s repeated abuse of the public’s trust.

Wall Street’s shenanigans have convinced a large portion of America that the economic game is rigged.

Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. They also begin trading in gray markets and black markets. They think that if the big guys cheat in big ways, they might as well begin cheating in small ways. And when they think the game is rigged, they’re easy prey for political demagogues with fast tongues and dumb ideas.

Tally up these costs and it’s a whopper.

Wall Street has blanketed America in a miasma of cynicism. Most Americans assume the reason the Street got its taxpayer-funded bailout without strings in the first place was because of its political clout. That must be why the banks didn’t have to renegotiate the mortgages of Americans – many of whom, because of the economic collapse brought on by the Street’s excesses, are still under water. Some are drowning.

That must be why taxpayers didn’t get equity stakes in the banks we bailed out – as Warren Buffet got when he bailed out Goldman Sachs. That means when the banks became profitable gain we didn’t get any of the upside gains; we just padded the Street’s downside risks.

The Street’s political clout must be why most top Wall Street executives who were bailed out by taxpayers still have their jobs, have still avoided prosecution, are still making vast fortunes – while tens of millions of average Americans continue to lose their jobs, their wages, their medical coverage, or their homes.

And why the Dodd-Frank bill was filled with loopholes big enough for Wall Street executives and traders to drive their ferrari’s through.

The cost of such cynicism has leeched deep into America, causing so much suspicion and anger that our politics has become a cauldron of rage. It’s found expression in Tea Partiers and Occupiers, and millions of others who think the people at the top have sold us out.

Every week, it seems, we learn something new about how Wall Street has screwed us. Last week we heard from Bloomberg News (that had to go to court for the information) that in 2009 the Street’s six largest banks borrowed almost half a trillion dollars from the Fed at nearly zero cost – but never disclosed it.

In early 2009, after Citigroup tapped the Fed for almost $100 billion, the bank’s CEO, Vikram Pandit, had the temerity to call Citi’s first quarter the “best since 2007.” Is there another word for fraud?

Finally, everyone knows the biggest banks are too big to fail — and yet, despite this, Congress won’t put a cap on the size of the banks. The assets of the four biggest – J.P. Morgan Chase, Bank of America, Citigroup, and Wells Fargo – now equal 62 percent of total commercial bank assets. That’s up from 54 percent five years ago. Throw in Goldman Sachs and Morgan Stanley, and these six leviathans preside over the American economy like Roman emperors.

Speaking of Rome, if Italy or Greece defaults and Europe’s major banks can’t make payments on their debts to Wall Street, another bailout will surely be required. And the politics won’t be pretty.

There you have it. A federal court will now weigh costs and benefits of a modest rule designed to limit speculative trading in food and energy.

But in coming months and years, the American public will weigh the social costs and social benefits of Wall Street itself. And it wouldn’t surprise me if they decide the costs of the Street as it is far outweigh the benefits.

The result will be caps on the size of banks. Some will be broken up. Glass-Steagall * will be resurrected. Some Wall Street bigwigs may even see in the insides of jails.

If so, the Street has only itself to blame.

* The Gramm-Leach-Bliley Act was a Republican-sponsored bill that was signed into law by President Bill Clinton in 1999 that repealed part of the Glass–Steagall Act of 1933, opening up the market among banking companies (i.e. Goldman Sachs), securities companies (i.e Enron) and insurance companies (i.e. AIG). The Glass–Steagall Act had prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.

How the wealthy are faring:

American Dream: Are you better off than your parents?
By Annalyn Censky | CNNMoney.com – Mon, Dec 12, 2011 12:22 PM EST

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