Category Archives: Current Affairs

Fleecing the Financiers

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How bad are the reputations of bankers and financiers these days? Bad enough that when you see news stories about bad things happening to them you experience a level of schadenfreude that almost can't be described. To wit:

Case 1: Banks desperate for money falling for scams that used to only work on people who believed a prince in Africa would reach out to them for help.

Case 2: A large trading firm almost bankrupting itself in one day thanks to some faulty computer code.

Here's a fun game: see if you can find one person who actually sympathizes with these folks. 

What Came First, Chicken or Jelly?

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Once, when I was a kid, I was in the grocery store with my mother and we were picking out jelly.  I picked out a jar of Welch's grape jelly and she told me to put it back and replace it with a jar of the store brand. Now, you have to understand that this was long enough ago that generic brands weren't just less expensive, they were lower in quality and I was just a tad unhappy that we'd have to suffer through weeks of PBJs with inferior jelly. I asked Mom why we couldn't get the (superior) Welch's and she said she couldn't support a company that treated its workers the way Welch's did. Of course I hadn't a clue what she was talking about, but I couldn't believe I was going to have to suffer through crappy jelly because some company apparently was mean to its people.

After thinking the situation through I had a thought and said to Mom, "Welch's must sell a ton of their jelly and make a lot of money, they aren't going to even notice if we don't buy a jar. It just doesn't seem worth the all the effort to me." I'll never forget her reply: "Jon, I'm sure they won't notice, but I'm also sure I'll feel better every time I make a peanut butter and jelly sandwich if I'm not making it with their jelly." How do you argue with that?

That's a story I think about every time I see one of these "product protests", the latest of which is the so-called boycott of Chick-Fil-A being called for by folks who are incensed by the company president's statement against same-sex marriage. Whether or not the boycott causes Chick-Fil-A financial distress (I doubt it will since there's now a counter-boycott being staged by conservative Christian organizations), at a minimum the people doing the boycotting can feel better about where they're jacking up their cholestorol.  

For what it's worth people really shouldn't have a problem with Chick-Fil-A taking a financial hit for their conservative stance, mainly because they've made a ton of money from broadcasting their conservative Christian values. There are a LOT of people who frequent the chain not just because they like its chicken – they also feel good being able to support a business that reflects their own values. This is definitely one of those "live by the sword-die by they sword" situations.

As for me the boycott is a non-issue since I'm probably the only person south of Boston who thinks Chick-Fil-A is overrated, and they might have the worst coffee on the planet. Bland chicken and crappy coffee equals a permanent boycott that has nothing to do with the company's politics, but for the record if I did like Chick-Fil-A I'd be taking a break from visiting their restaurants. They wouldn't notice, but I'd feel a lot better about my jacked-up cholestorol.

Update: The "Support Chick-Fil-A" counter-protest today was quite popular in towns around NC and apparently a North Carolina based Wendy's franchisee showed support for its competitor as well. Although it's the kind of thing that the local news has to carry, is it really a surprise to anyone? After all this is a state that recently passed, overwhelmingly,  a state amendment against gay marriage. It's also firmly esconced in the Bible belt, clerks routinely wish you a "blessed" day and the first question you're asked upon introduction isn't "What do you do?" but "Where do you go to church?"

All in all I'd say this is totally predictable – what would be more interesting to know is the net effect on Chick-Fil-A's business around the country. It'll probably make a good case study for the Harvard Business Review in the near future.

Armed and Witless

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A gun rights group here in North Carolina is upset that a reporter with WRAL did a story about gun owners with concealed carry permits and put a searchable database of the owners' street locations online. Never mind the fact that its public information and anyone can get it from the state, or the fact that the database doesn't provide permit holders' names or address – it simply shows the street the permit holder lives on. So how did the organization react to what they feel is an invasion of its members' privacy rights? It published the name and address of the reporter AND the names of his wife and children:

When their effort to have the site taken down failed, Valone turned to his organization’s email alert network, urging more than 50,000 people on the list to deliver a message to Mark Binker, the multimedia investigative reporter who posted the information, his bosses and the station’s advertisers.

“In an apparent attempt to shame gun owners, some media outlets have a history of publishing the names of gun purchasers.” Valone said in one alert. “But that was many years ago, before the advent of the Internet. Things are now far more reciprocal. So let’s talk a bit about reporter Mark Binker, the apparent engineer of the piece to reveal concealed handgun permit-holders.”

Valone posted lots of information about Binker culled from websites and social media sites, including photos of the reporter’s wife and children.

Valone cautioned people not to harass Binker. “BE POLITE, DO NOT THREATEN, and CALL OR EMAIL ONLY ONCE!” the alert states with capital letters for emphasis.

Surely it's comforting to Binker that capital letters were used to emphasize the need to be polite to people who are armed, but are apparently too chicken to let the world know it. He's also probably comforted by this quote from the organization's leader:
Valone said, “GRNC has uniformly instructed respondents to be civil and nonthreatening to all WRAL representatives. With respect to reporter Mark Binker, however, I would note that if you shake the hornets’ nest, you should expect to get stung.”

The fact that these people have chosen a leader who appears to have the intellectual bandwidth of the average six year old is truly frightening.

The Sanctimonious NCAA

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There have been innumerable stories and opinion pieces written about the scanctions the NCAA dropped on the Penn State football program, but two of the strongest paragraphs come from Joe Nocera's opinion piece in the New York Times:

What was most galling about Emmert’s news conference (Note: Emmert is the current president of the NCAA) was its sanctimony. He kept talking about the “values” that athletics was supposed to embody, about how college sports is supposed to be an integral part of academic life, and how it should never overwhelm the mission of the university. “Football will never again be placed ahead of educating, nurturing and protecting young people,” he said.

But at big-time sports schools, football is always placed ahead of everything else. The essential hypocrisy of college sports is that too many athletes are not real students — and no one cares. Coaches make millions and lose their jobs if they fail to win. Universities reap millions by filling stadiums and making attractive television deals. They serve as the minor leagues for the pros. Everybody knows this — including the N.C.A.A. The notion that the Penn State case is going to change all of college sports is absurd. College football almost can’t help but corrode academic values. Nothing that happened on Monday is going to change any of that.

 

No Man is an Island

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Thanks to this year's presidential campaign there's been a rather intense discussion on how much the "self made" success stories in this country owe to help from others. Without getting into the politics of the day it's still interesting to read how some people view their own success, and it's also a great opportunity to share these views with kids who are just getting started on their own journey. In that vein is this essay from writer John Scalzi:

My parents’ marriage did not last particularly long and in the early seventies — and off and on for the next several years — my mother found herself in the position of having to rely on the social net of welfare and food stamps to make sure that when she couldn’t find work (or alternately, could find it but it didn’t pay enough), she was able to feed her children and herself. Once again, I owe thanks to America’s taxpayers for making sure I had enough to eat at various times when I was a child.

Not having to wonder how I was going to eat meant my attention could be given to other things, like reading wonderful books. As a child, many of the books I read and loved came from the local libraries where I lived. I can still remember going into a library for the first time and being amazed — utterly amazed — that I could read any book I wanted and that I could even take some of them home, as long as I promised to give each of them back in time. I learned my love of science and story in libraries. I know now that each of those libraries were paid for by the people who lived in the cities the libraries were in, and sometimes by the states they were in as well. I owe the taxpayers of each for the love of books and words…

I know what I have been given and what I have taken. I know to whom I owe. I know that what work I have done and what I have achieved doesn’t exist in a vacuum or outside of a larger context, or without the work and investment of other people, both within the immediate scope of my life and outside of it. I like the idea that I pay it forward, both with the people I can help personally and with those who will never know that some small portion of their own hopefully good fortune is made possible by me.

So much of how their lives will be depends on them, of course, just as so much of how my life is has depended on my own actions. We all have to be the primary actors in our own lives. But so much of their lives will depend on others, too, people near and far. We all have to ask ourselves what role we play in the lives of others — in the lives of loved ones, in the lives of our community, in the life of our nation and in the life of our world. I know my own answer for this. It echoes the answer of those before me, who helped to get me where I am.

 

 

Foreclosing the AARP Crowd

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The economic meltdown this country has been living through for the last four or five years has been especially cruel to those citizens who probably won't have time to make up for their losses once the economic recovery begins to pick up steam. If life's hard for those who are in their 30s and 40s, imagine what it's like for someone in his 50s or 60s, trying to figure out how to rebuild the nest egg that was obliterated by the market crash, long term unemployment, an underwater mortgage or all of the above. That's what makes this item so disheartening:

According to AARP:

  • About 600,000 people who are 50 years or older are in foreclosure.
  • About 625,000 in the same age group are at least three months behind on their mortgages.
  • About 3.5 million — 16 percent — are underwater, meaning their home values have gone down and they now owe more than their homes are worth.

AARP said that over the past five years, the proportion of seriously delinquent loans held by older Americans grew more than 450 percent.

If We Only Knew

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Four years after the economy melted down there's still a serious lack of understanding among the general populace as to the root causes of the collapse. It's not that the causes aren't well documented, they're just complex and opaque, and that's probably just as well as far as those driving the economic train are concerned. 

The latest example of this disconnect between economic cause and effect is the movement to blame seemingly every municipal deficit on public employees, their benefits and their unions. Obviously exploding pension obligations play a role in putting stress on the cities' or states' coffers, but those obligations were far from the only reason the municipalities started to bleed red ink. Thomas Ferguson explains in his article on AlterNet (h/t to Fec for the pointer):

What has driven cities and towns to the brink is not demands from their workforce but the collapse of national income and the ensuing fall in tax collections. Or, in other words, the Great Recession itself, for which Wall Street and the financial sector are principally to blame. But many powerful interests have jumped at the opportunity to use the crisis to eviscerate what’s left of the welfare state, roll back unionization to pre-New Deal levels, and keep cutting taxes on the wealthy. The litany of horror stories that now fills the media is ideal for their purposes…

At a time when cities and states are taking hatchets to services and manically raising fees and fares, the group’s analysis merits a closer look and a much, much wider audience.

Its starting point will be familiar to anyone who recalls the debate over financial “reform” of the last few years. In the bad old days of pre-2008 deregulated finance, bankers started pedaling hot new “structured finance” products that they claimed were perfect for the needs of clients who had thrived for decades using cheaper, plain vanilla bonds and loans. The new marvels – swaps and other forms of so-called “derivatives” whose values changed as other securities they referenced fluctuated in value – were often complex and frequently not priced in any actual market. Their buyers thus had difficulty understanding how they really worked or how they might be hurt by purchasing them...

The result, for years now, has been literally billions of dollars of losses for cities, states, and other local authorities, including school boards and state college loan agencies. Locked in by the termination fees, they can stay in the swaps and pay and pay as the banks’ payments to them dwindle. Or they can buy their way out of the swaps at preposterous prices – Morgenson indicated that New York State recently paid $243 million dollars to get out of some swaps, of which $191 million had to be borrowed.

One of the common themes found in almost every accounting of the financial meltdown has been the complexity of the financial products that Wall Street used, without oversight, to reap billions, if not trillions, of dollars in profits while setting the economy up for a massive fall. Who really knew what mortgage backed securities and credit default swaps were before the crisis? Very few people knew what they were, and even fewer understood how they worked, and that's why when it came time to start assessing blame it became a whole lot easier to point the finger at moderate-to-low income homeowners who took a too-good-to-be-true deal on their mortgages and then failed to make good. It was easy to blame them, the first dominoes, because the average person could understand what they did wrong. On the other hand the financial Masters of the Universe were happy to let the little guys take the fall while they hid behind the opaque curtain of financial shenanigans they'd hung around the rest of us.

And the banks' shenanigans were quite possibly intentional and coordinated. From Matt Taibbi at Rolling Stone (again h/t to Fec):

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime…

USA v. Carollo involved classic cartel activity: not just one corrupt bank, but many, all acting in careful concert against the public interest. In the years since the economic crash of 2008, we've seen numerous hints that such orchestrated corruption exists. The collapses of Bear Stearns and Lehman Brothers, for instance, both pointed to coordi­nated attacks by powerful banks and hedge funds determined to speed the demise of those firms. In the bankruptcy of Jefferson County, Alabama, we learned that Goldman Sachs accepted a $3 million bribe from J.P. Morgan Chase to permit Chase to serve as the sole provider of toxic swap deals to the rubes running metropolitan Birmingham – "an open-and-shut case of anti-competitive behavior," as one former regulator described it.

Now let's be clear – if the banks' actions and the extent of their screwing of us were more easily understood we would probably have such a huge popular outcry against them that even our Wall Street-coddling Congress and Obama administration would be forced to go after their friends. As it is the average Joe is too busy trying to keep food on the table to pay much attention to this stuff, and quite frankly it's just easier to blame the deadbeat down the street than to try and figure out how guys in the pink ties and cuff links took him and the rest of us to the cleaners. Sadly the denizens of Wall Street continue to reap the rewards of their corrupt system while the rest of us get to eat cake.

If we only knew.

Taxing the Middle Class

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It doesn't matter which party sponsors it or which party fights it tooth and nail – any tax package that causes taxes to rise significantly on the middle class should prompt a "throw the bums out" campaign that will jolt Congress indiscriminately. It should, but given America's private history it probably won't even if some of the numbers in this Washington Post story end up becoming reality.

So although households earning $100,000 to $200,000 a year would save about $7,000 from the lower tax rates in the GOP plan, those savings would be swamped by eliminating major deductions, according to the report by the Democratically controlled congressional Joint Economic Committee.

The net result: Married couples in that income range would pay an additional $2,700 annually to the Internal Revenue Service, on top of the tax increases that are scheduled to hit every American household when the George W. Bush-era cuts expire at the end of the year.

Households earning more than $1 million a year, meanwhile, could see a net tax cut of about $300,000 annually.

“According to this report, while millionaires will receive a huge tax break, earners making under $200,000 will see their taxes rise significantly,” said Sen. Robert P. Casey Jr. (D-Pa.), who chairs the Joint Economic Committee.

If you read the whole article you'll see that the analysis is based on some assumptions about likely tax breaks for the wealthy and the elimination, or reduction, of certain tax breaks for the middle class. That's why there's a healthy dose of the unknown tied to the story, but given the past history of the parties involved some of those assumptions are likely accurate, and given the proclivity of the powers-that-be to rob from the middle to pay the very-rich it's a safe bet that those making less than $200k a year are looking down the barrel at a healthy screwing.

Here's a nice table to drive that point home:

Middleclassscrew

People vs. People

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Fec points to a piece at Naked Capitalism that takes the unions and President Obama to task for creating the environment that led to voters in two California cities, San Jose and San Diego, voting overwhelmingly to cut city employees' pensions:

This is not a Republican initiative – the San Diego Mayor is a Democrat.  And pension cuts like this are happening nationally, mostly with full support from voters in the Republican Party and a good chunk of the Democratic Party as well.  The union representing city workers, of course, went to the courts rather than pursuing a strategy of engagement with the public.  These unions will probably end up losing the fight, because they have no ability to persuade voters that they represent anything but a self-interested group of insiders.

The states and localities suffering from budget crises are having problems because Wall Street blew up the economy, and in many cases, ensnared these municipalities in extremely bad deals.  The wealth of taxpayers was and is being transferred to banks.  In 2008, the choice before Bush, and then Obama, was clear.  They could hand taxpayer resources to Wall Street and oversee a series of budget crises in states and localities, with the opportunity for later privatization of public assets and the breaking of public sector unions.  Or Bush, and then Obama, could crack down on Wall Street, and make sure that bailout monies went to states and localities, and, with record low interest rates, spur tremendous investment in new energy, infrastructure, and education initiatives.  It was a choice.  Bush picked Wall Street.  Obama also picked Wall Street, with public sector unions supporting Obama like turkeys cheering on Thanksgiving.

Now voters are making their own choice.  Once again, this is a direct consequence of how Barack Obama has led the Democratic Party and redefined liberalism, into a party and an ideology that is defined by wage cuts, foreclosures, debt, and acceptance of dramatic political and economic inequality.  Voters don’t want to pay for a government and for government workers who they perceive as out of step with their interests.

Maybe. Another consideration is that people tend to not like seeing people that they perceive to be peers, or even worse, people lower in class benefiting at their own expense:

Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.

In keeping with the notion of “last-place aversion”, the people who were a spot away from the bottom were the most likely to give the money to the person above them: rewarding the “rich” but ensuring that someone remained poorer than themselves. Those not at risk of becoming the poorest did not seem to mind falling a notch in the distribution of income nearly as much. This idea is backed up by survey data from America collected by Pew, a polling company: those who earned just a bit more than the minimum wage were the most resistant to increasing it.

It's awfully hard for the average person not to be resentful of a public employee, someone who is ostensibly your employee, pulling in a livable wage and "Cadillac" benefits while everybody else has watched their IRA evaporate in the heat of the Great Recession. It's even harder to accept that their taxes might have to go up to cover deficits that are caused in part by those benefits, so it's not surprising at all that people would vote to cut those same benefits.

Sure, the "macro" politics described in the Naked Capitalism piece played a role in creating the environment that led to the recent votes curtailing public pensions, but it would a mistake to ignore the role of "micro" politics in these results. Let's face it – people don't like seeing their neighbors doing better than they are.

Voting in Churches

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It was only a matter of time until some group questioned the North Carolina practice of allowing polling places in churches:

The Appignani Humanist Legal Center says it has "serious legal concerns" with the use of churches as polling places and says the state violated the First Amendment's Establishment Clause that outlines the separation between church and state.

The group stops short of threatening legal action, but a spokesman says he hopes for a change in state policy.

A spokesman for the State Board of Elections said Monday it would be up to legislators to make any changes to polling locations, but that the use of churches is completely legal. Previous appellate court rulings have backed the practice of using places of worship.

The practice of voting in church is strange to someone who may be new to the area – in fact in all the places I lived in Northern Virginia I always voted in the nearest school. Upon moving to Lewisville I was stunned to find out my polling place was the church right down the street. Voting in church doesn't bother me, but I try to imagine how non-religious people feel about it by thinking about what it would be like to vote in a building being used for something I find mysterious or spooky like seances or girl talk. It would be off-putting to say the least.

With the current political environment in North Carolina this group's request will likely fall on deaf ears, but it's something state leaders will eventually have to consider as the state's demographics continue to shift away from its traditional "Bible-belt" roots.