Monday, September 20, 2010

Last Call

Pareto's 80-20 rule states that in a capitalist society, the model for sustainable societal "greed" is that the wealthiest 20% of the population will control 80% of the total wealth.  If you subdivide the wealth up again and again, you'll keep finding that 80-20 ratio wherever you go.  If you go upwards, for instance, and subdivide the top 20% again by the 80-20 rule, that leaves 64% of the wealth (80% of 80%) in the hands of the top 4% of the people (20% of 20%).  We're not quite to that level of Pareto distribution yet, but we're very, very close.

Wealth    Population
------    ----------
80%       20%
64%       4%
51.2%     0.8%
40.96%    0.16%
32.96%    0.032%

Let's keep in mind that the total net worth of the US is about 55 trillion dollars last time I checked, and about 310 million people.  That means in a Pareto distribution, the top 100,000 Americans control $18.1 trillion, or about 181 million a piece in net worth.

Run that the other direction...

Wealth    Population
------    ----------
20%       80%
4%        64%
0.8%      51.2%
0.16%     40.96%
0.032%    32.96%

And you see why this sucks.  The bottom 155 million of us are fighting over 0.8% of the total net worth in this country, or 160 million people fighting over out measly $275 bucks a piece.  No wonder we're raging and letting the Tea Party control us.  Better yet, the bottom 40% of have $69 bucks a piece on average.  And the lowest third of us have a whopping $17.60 a piece.

The richest Americans are worth billions.  The poorest of us, millions of us, are literally worth less than twenty bucks.  Lots of us are so far in debt we're in negative net worth...we owe more than we're worth.  Again, we're not quite to the Pareto boundary, but we're damn, damn close in America.

So if you're wondering why going from 36% to 39.6% on the top marginal tax rate is being so vigorously opposed by the rich, well, to be fair, that 3% really is worth billions of dollars.  They can afford it, of course.  The alternative is to take it out of the rest of us.

How's your $287 holding up?

Hard Days Ahead

She's tired of defending the Obama administration, she says.  The economy is collapsing faster than we can fix it.

"I'm one of your middle class Americans. And quite frankly, I'm exhausted. Exhausted of defending you, defending your administration, defending the mantle of change that I voted for," she says.

I understand people are exhausted. But what's the alternative? The Republicans who got us into this mess? The Tea Party who wants to dismantle everything? What?

Zandar's Thought Of The Day

Even if you make ten million dollars a year, the Bush tax cuts expiring means your additional tax liability is...wait for it...$351,000.

If you're making ten million dollars a year, you can swing it.  Pro sports players and CEOs, you're safe.

Just saying.

Epic The Reports Of White House Spinage Are Greatly Exaggerated Fail

Even worse than the whole "White House ponders going after Tea Party" stuff from yesterday is now that the White House is completely denying going after the Tea Party.

The White House is pushing back hard against a New York Times report that the president's political team is considering a national ad campaign that would cast the GOP as taken over by tea party extremists.

The story is “100 percent inaccurate,” a White House official told POLITICO.

Times Washington Bureau Chief Dean Baquet counters that the "piece is accurate.”

But White House complaints have had some effect. Although the Times has not posted a correction or otherwise acknowledged making changes to the piece, it dialed back its claims overnight, changing the headline and the lead sentence of the story to de-emphasize the notion that the White House is weighing an anti-GOP ad campaign.

The initial headline read, “Obama Advisers Weigh Ad Assault Against the GOP,” and the first sentence reported that “President Obama’s political advisers, looking for ways to help Democrats and alter the course of the midterm elections in the final weeks, are considering a national advertising campaign that would cast the Republican Party as all but taken over by Tea Party extremists, people involved in the discussion said.”

The Times subsequently changed the headline to: “Obama Aides Weigh Bid to Tie the GOP to the Tea Party.”

And the opening sentence now says that the White House is considering a “range of ideas, including national advertisements." 

The fail is coalescing into individual fail blocks that are being used to construct larger, more robust failures.  Can we get a more competent political/communication shop in the White House, like...anybody?  Please?  Look guys, if even somebody reporting that you are considering the notion that you are maybe, possibly contemplating whether or not you should go on the attack against the Tea Party has got you pissing yourselves at 1600 Pennsylvania Avenue, this one's already done.  My response:

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The Unbearable Lightness Of Being Filthy Rich

Hi America.  Meet your class war betters from the NY Times magazine.

It is difficult to sympathize with these people, their comments laced with snobbery and petulance. But you can understand their shock: Their world has been turned on its head. After years of enjoying favorable tax rates, they are facing an administration that wants to redistribute their wealth. Their industry is being reordered—no one knows what Wall Street will look like in a few years. They are anxious, and their anxiety is making them mad.

Their anger takes many forms: There is rage at Obama for pushing to raise taxes (“The government wants me to be a slave!” says one hedge-fund analyst); rage at the masses who don’t understand that Wall Street’s high salaries fund New York’s budget (“We’re fucked,” says a former Lehman equities analyst, referring to the city); rage at the people who don’t “get” that Wall Street enables much of the rest of the economy to function (“JPMorgan and all these guys should go on strike—see what happens to the country without Wall Street,” says another hedge-funder).

A few weeks ago, I had drinks with a friend who used to work at Lehman Brothers. She had come to Wall Street in the mid-eighties, when the junk-bond boom spawned a new class of globe-trotting financiers. Over two decades, she had done stints at all the major banks—Chase, Goldman, Lehman—and had a thriving career directing giant streams of capital around the world and extracting a substantial percentage for herself. To her mind, extreme compensation is a fair trade for the compromises of such a career. “People just don’t get it,” she says. “I’m attached to my BlackBerry. I was at my doctor the other day, and my doctor said to me, ‘You know, I like that when I leave the office, I leave.’ I get calls at two in the morning, when the market moves. That costs money. If they keep compensation capped, I don’t know how the deals get done. They’re taking Wall Street and throwing it in the East River.”

Now, a lot of people in New York have BlackBerrys, and few of them expect to be paid $2 million to check their e-mail in the middle of the night. But embedded in her comment is the belief shared on Wall Street but which few have dared to articulate until now: Those who select careers in finance play an exceptional role in our society. They distribute capital to where it’s most effective, and by some Ayn Rand–ian logic, the virtue of efficient markets distributing capital to where it is most needed justifies extreme salaries—these are the wages of the meritocracy. They see themselves as the fighter pilots of capitalism.

The rest of us, you see, exist to serve them.  They get the big money because they deserve it, even though all they do is push digits from point A to point B.  But money is a great way to get both the Village media ad politicians to listen to you.

People talk about how Americans have a "sense of entitlement" when they need to be thinking about sacrifice instead.  I can't think of anybody -- politicians included, because they get fired -- who has a greater sense of entitlement than Wall Street's Big Casino players.  these are folks who honestly believe they should be getting every dime of their seven figure salaries and bonuses and don't understand why they should pay a dime more in taxes.

And yet, this article is filled with Galtian threats:  if you tax us more, then you little people will not benefit from our generosity.  You on the margins will suffer, not us, and then maybe you will learn your lessons about who runs this country.  You'd better keep our taxes low.  Our consumption is the only thing between you and oblivion.  Know your role, and shut your mouth.

It's infuriating.  We bailed these guys out to the tune of trillions, remember?

One guy understands, anyway.

It should come as no surprise that being a banker—indeed, simply being rich—is going to be a lot less fun under an Obama administration. In winter 2007, as the Democratic-primary contest got under way, Obama showed up at a Goldman Sachs client meeting to explain his economic agenda to a conference room full of potential campaign contributors. When he opened up the session to questions from the audience, one attendee lobbed the question that was surely on the mind of everyone in the room. “Are you going to raise my taxes?”

Obama looked out across the millionaires sitting around him. “Yes,” he answered, without a flicker of hesitation, according to a person familiar with the meeting.

And so the battle rages on.  Meanwhile, we should just keep throwing trillions at the banks while the rest of us should just "suck it and cope".

Turn On The Lights, Watch The Roaches Scatter

Tyler Durden flags down this story on the mortgage lenders in the age of securitization.  The question of standing, that is, "Who really owns the mortgage to be able to foreclose on it?" is complicated.  In many cases, it's patently incorrect.  The megabanks are facing big trouble right now.

As we pointed out last week, a certain judge in Florida set quite a precedent when he found that JPM, as servicer for a Fannie mortgage, had committed court fraud by foreclosing while not in possession of the actual mortgage. We then concluded that "The implications for the REO and foreclosures track for banks could be dire as a result of this ruling, as this could severely impact the ongoing attempt by banks to hide as much excess inventory in their books in the quietest way possible." Not a week has passed since, and we are already proven right. Today, Bloomberg discloses that GMAC Mortgage, a unit of the affectionately renamed Ally Bank, has halted all foreclosures in 23 states, including Florida, Connecticut and New York. Who would have thought that being caught with your pants down, doing something so blatantly illegal as collecting on something you do not own, would actually have adverse consequences. And GMAC is just the beginning - we expect many more mortgage servicers to scurry now that the light has been shone on their shell game. The silver lining - the permabull pundits will cheer this development now that foreclosures will plunge off a cliff as mortgage holders and servicers scramble to reconcile who owns what, and just on whose balance sheet the mortgage flows should show up.

Could it be that banks are foreclosing on homes they don't own in order to get something out of nothing?  That big mortgage service providers are in fact ripping thousands, if not millions, of homeowners off and taking their homes in order to recover assets they lost gambling on the Big Casino wheel?

Gosh, who ever would have thunk it?

Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.

GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

Now things are going to get really, really interesting...if this story gets play.  If GMAC/Ally is playing fast and is everyone else...

But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.

Now why is this a big deal? Go reread the boldfaced sentence above. If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own. 

This is the big dirty secret of the mortgage industry right now.  Banks are selling properties they don't own and are throwing around their lobbying weight in order to force a Too Big To Fail solution when they get caught.

And they've been caught.  Red handed.  The roaches are scattering.  It's 2008 all over again.

[UPDATE]  Rep. Alan Grayson is all over this story and is taking this fight to the Florida Supreme Court.

Three foreclosure mills - the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern - constitute roughly 80% of all foreclosure proceedings in the state of Florida.  All are under investigation by Attorney General Bill McCollum.  If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities.  This is lawlessness.

I respectfully request that you abate all foreclosures involving these firms until the Attorney General of the state of Florida has finished his investigations of those firms for document fraud.

Once again Alan Grayson is leading the way for the Dems.  More Dems need to follow his lead.

Starving For Funds

We know what the GOP plan is for the economy and the American people are:  starve out the weak, liquidate the unnecessary, rebuild with what's left.

The emerging plan has been devised in part to highlight the policy differences between the two main parties, especially over legislative achievements of the Obama administration that have proven unpopular with voters.

Republican leaders acknowledge many of these salvos will fail. At best, the party will gain a majority in the House and a razor-thin hold in the Senate in November's elections—short of what's needed to overcome a presidential veto. Analysts give the GOP a better shot at taking the House than the Senate.

But Republican lawmakers portray the anticipated drama as foreshadowing the far bigger brawl of the 2012 presidential elections and a clash of visions with President Barack Obama. A vote in the House to repeal the health-care overhaul would be among the GOP's top priorities.

Republican leaders are also devising legislative maneuvers that might have a bigger impact, using appropriations bills and other tactics to try to undermine the administration's overhaul of health care and financial regulations and its plans to regulate greenhouse gases. GOP leaders also hope to trim spending, return unspent stimulus funds and restore sweeping tax cuts.

Business groups have compiled lists of impeding regulations they hope to see stopped under a GOP House majority.

"We need to establish the proverbial lines in the sand and show we are serious about limited government," said Wisconsin's Rep. Paul Ryan, a leading conservative who is in line to chair the House budget committee if Republicans take control.

"Liquidate the unnecessary" has a nice ring to it, don't you think?  Won't it be nice to have Paul Ryan make billions in social spending cuts in the middle of a consumption driven recession as he throws the poorest Americans under the bus and makes the rest of us sacrifice?

Oh, but not all of us remember, the wealthiest of us get nice tax breaks.  We'll need even more social cuts to pay for those.  Now put in a GOP President like Mike Pence or Sarah Palin, and you're beginning to see what would happen to the country, where the weak are culled and the rest exist to make the rich more wealthy.

Fun times ahead.  Boy, if there were only another party besides the Republicans to vote for...

Al And Christine

The TPM folks have dug up an episode of Bill Maher's Politically Incorrect talk show from 1997 featuring Christine O' Donnell...and Al Franken.

The first topic: A provision in then-President Bill Clinton's welfare reform bill that would fund sex ed, but only if the curriculum taught that extra-marital sex "will have harmful physical and psychological effects."

O'Donnell, who in May 1997 was the director of pro-abstinence SALT, argues that abstinence-only education was the only way to protect kids from HIV and other sexually transmitted diseases, because "condoms don't work. Condoms fail."

Franken responds, "I think hypocrisy will have harmful psychological and physical effects. Don't you?"

And don't miss Star Parker asking, "Where's the condom for your heart?"

It's good stuff.  Let's not forget that more than a dozen years later after O'Donnell proclaimed abstinence-only sex ed as the wave of the future (and Bush pushed just that) we have ample evidence that it fails miserably at preventing pregnancy and STD transmission, too.

Good to see Al sticking it to this goofball too.

The Austerity Hysteria Is Working

A new CNBC poll now shows that unlike just a few weeks ago, a majority of Americans are now convinced that the Bush tax cuts need to be extended to the wealthy.

Ninety percent of Americans are concerned about the economy, according to a new CNBC poll, and two-thirds of those surveryed think neither Democrats nor Republicans have a clear vision for improving it.

The poll by Public Opinion Strategies/Hart Research was conducted between September 9 and 12. 

A majority of the respondents believe the Bush tax cuts should be extended, even for people making more than $250,000 a year. 

Fifty-five percent think increasing taxes on any Americans will slow the economy and kill jobs. On the other hand, 40 percent believe those tax cuts should be cancelled for higher-income Americans. 

My guess is that this was literally the question:  "Do you believe that increasing taxes on the rich will slow the economy and kill jobs or help the economy?"  which is a lot like asking "Do you think this glass of water will kill you and your family or taste refreshing?" 

That is, you'd be surprised at the percentage of people who will answer that the glass of water is in fact the instrument of their impending demise. Good way to get a "majority of Americans want tax cuts for the rich" outcome.

What happens if you ask a more neutral question?  The polls indicate that yes, a majority or at least plurality do want to see the Bush tax cuts expire on the wealthy.   Here's your polling bias lesson for the day, and it certainly explains why it's the first poll I can remember seeing on the Bush tax cuts extension issue that supported tax cuts for the wealthy.

Big Casino Is Back

There's no better evidence that there's billions of dollars looking for a bubble niche to fill (and how worthless Wall Street reforms really are) than the rise over the last six weeks of junk bonds to 2007 Big Casino levels.

Strong investor demand for junk bonds has pushed the average price on such corporate debt to its highest level since June 2007, when companies could borrow with ease at the height of the credit boom.

The Bank of America Merrill Lynch index used by many investors to track the junk bond market – bonds sold by companies with credit ratings below investment grade – rose last week above 100 for the first time since the start of the credit crunch.

In the wake of the crisis, the price of many of these bonds collapsed as default rates soared.

However, the recent price rise above 100 assumes that, on average, bonds will be repaid in full.

“Money is coming into the sector, partly because many investors do not see great prospects for stocks,” said Martin Fridson, global credit strategist at BNP Paribas Asset Management. “Investors do not expect an economy that will be booming but are expecting slow growth.”

In other words, investors are putting big money into junk bonds expecting to get paid by government intervention when the junk bonds go sour, or even better expecting the government intervention to come in the form of Helicopter Ben's Magic Printing Press to throw money at the problem to prop these companies up as stable investments.  These guys are putting all the money on the roulette wheel on 00, the long shot bet, and expecting to win big time.

We're right back into the same level of economic insanity in 2007-2008 before the collapse.  All the signs are there another one is coming, it's just now a matter of when.

The Kroog Versus The Silver Spoon Squad

Paul Krugman's got a point:  the wealthiest Americans aren't even trying to justify their tax cuts as good for regular Americans, but as The Way It Has To Be in the age of Austerity Hysteria.

These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don’t really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class — the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.

And among the undeniably rich, a belligerent sense of entitlement has taken hold: it’s their money, and they have the right to keep it. “Taxes are what we pay for civilized society,” said Oliver Wendell Holmes — but that was a long time ago.

The spectacle of high-income Americans, the world’s luckiest people, wallowing in self-pity and self-righteousness would be funny, except for one thing: they may well get their way. Never mind the $700 billion price tag for extending the high-end tax breaks: virtually all Republicans and some Democrats are rushing to the aid of the oppressed affluent.

You see, the rich are different from you and me: they have more influence. It’s partly a matter of campaign contributions, but it’s also a matter of social pressure, since politicians spend a lot of time hanging out with the wealthy. So when the rich face the prospect of paying an extra 3 or 4 percent of their income in taxes, politicians feel their pain — feel it much more acutely, it’s clear, than they feel the pain of families who are losing their jobs, their houses, and their hopes.

And when the tax fight is over, one way or another, you can be sure that the people currently defending the incomes of the elite will go back to demanding cuts in Social Security and aid to the unemployed. America must make hard choices, they’ll say; we all have to be willing to make sacrifices.

But when they say “we,” they mean “you.” Sacrifice is for the little people. 

Funny how that works.  But The Kroog is right.  More and more we're being told that there's a moral component to cutting taxes for the rich.  It works like this:  You're a hard working Real American, right?   Because the rich are supposed to be rich for a reason (they work harder than you and therefore they are more moral) that the proper thing to do is to allow them to stay rich while the least among us (who are the least moral because they are poor clearly because they are lazy and shiftless) should be made to sacrifice and work harder, thus becoming more moral in the process.

If you were putting in 90 hours a week at the law firm, you'd be rich too.  Stop complaining and get to work.

The best part of this is that anyone who objects to this is clearly immoral and lazy.  This Galtian Puritanism (the rich are rich because they sacrificed and worked hard) has of course gone back centuries to the age of monarchs and feudal lords, the Divine Right of Kings, modified for the age of Tea Party Populism.

It's a scam that the wealthiest among us are more than happy to spread.


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