Category Archives: Finance & Economics

Workers Get Lowest Share Of Corporate Income Since 1950 | ThinkProgress

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Worker productivity is up but worker share of profits is at an all time low.

Workers aren’t earning less because they’re slacking off — just the opposite. Their productivity increased 8 percent between 2007 and 2012 while their wages actually fell, a trend that has been going on since at least 1979. And they’ve been speeding up since the recession, increasing their productivity last summer at the fastest pace since 2009.

The productivity has helped out corporations. They saw record high profits last year, rising to $1.68 trillion, and they have been rising steadily for some time, more than fully recovering what they lost to the financial crisis. Yet workers are getting little of that money. Profits have risen nearly 20 times faster than workers’ incomes since 2008, and on the whole workers have seen a lost decade of stagnant wage growth.

 

 

Workers Get Lowest Share Of Corporate Income Since 1950 | ThinkProgress.

Crony Capitalism or Government Doing Its Job

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Since Adam Smith, capitalist economists (for the most part) have agreed that government (or other social institutions) should fill the gaps that the private sector can not address or would not do so as efficiently and/or effectively as the public sector. The Ex-Im Bank is a government agency that provides credit support to U.S. exporters. A major beneficiary is Boeing – airplanes being one of the U.S.’s largest export industry. Supporters argue that the Ex-Im Bank supports jobs, economic growth, helps the U.S. trade balance, and actually generates a profit to the Treasury while doing so.

While critics are correct that the program may create trade distortions, other countries have similar programs so a unilateral disarmament by the U.S. wouldn’t level the playing field but simply tilt in more in favor of non-U.S. producers such as Airbus.

In addition part of the Ex-Im Bank’s role is to help small companies enter the international market and I would argue that there is a gradient between trade promotion and trade distortion.

Legitimate criticisms include one by Delta that the U.S. government is providing a subsidy via Boeing/Ex-Im Bank to foreign airlines who then have a competitive advantage over U.S. airlines causing economic harm (including job losses) in that industry. Thus the impact of the Ex-Im Bank needs to be measured not just on the primary effects but also on the secondary effects. An also interesting issues is raised in the Comments section of the Bernstein column by Roger Anderson who points out that in recent years Boeing has had a negative federal income tax rate while competitor General Dynamics has paid at a 29% tax rate. So just how large is the real subsidy of Boeing and is it fair to its U.S. competitors?

So will Congress address this complicated issue with the intelligent nuanced analysis that it deserves? Probably not. Joe Nocera of the NY Times reports on Rep. Hensarling’s view of the Ex-Im Bank:

Representative Jeb Hensarling, a Republican from Texas who is chairman of the House Financial Services Committee, gave a speech to the Heritage Foundation. Hensarling is a Tea Party favorite. His core view is that better government is less government, and that there is nothing government can do that the private sector can’t do better.

Hensarling’s speech was about economics, which, of course, meant it was about wasteful government subsidies and “crony capitalism.” He tossed off what he felt were examples of each — the failure of Solyndra; the continued existence of Fannie Mae; the bailouts of Wall Street and the auto industry — before landing on a government organization that he described as being the “poster child of the Washington insider economy and corporate welfare.”

“Its demise,” he went on, “would clearly be one of the few achievable victories for the Main Street competitive economy left in this Congress. I believe it is a defining issue for our party and our movement.

The Latest Tea Party Piñata

As if there are Mom & Pop stores selling jetliners and jet fighters in the local strip mall.

Cantor and Crony Capitalism | Jared Bernstein | On the Economy.

Here’s a Quick, Smart Way Obama Could Raise Worker Wages

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A new Demos study finds that federally-supported firms, defined as companies that receive 10 percent or more of the yearly revenue from contracting,employ 6.6 million people. Of these workers, 3.5 million of these workers earn wages at or below 150 percent of the poverty line for a family four (disproportionally minorities and women). And they frequently get lousy treatment from their employers.

A 2010 GAO investigation found that the government frequently awards contracts to companies with wage, safety, environmental, immigration and Medicare violations. Meanwhile, according to a Senate Health Education Labor and Pensions Committee report, firms that do federal contracting made up 30 percent of the companies with the largest penalties for health, safety and wage violations between 2007 and 2012.

Sean McElwee | Thoughts on Economics, Current Events and Philosophy.

Americans: Poorer But Not Wiser

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Americans’ median wealth is a mere $44,900 per adult… only good enough for 19th place, below Japan, Canada, Australia and much of Western Europe. ‘Americans tend to think of their middle class as being the richest in the world, but it turns out, in terms of wealth, they rank fairly low among major industrialized countries,” said Edward Wolff…. Super-rich Americans skew average wealth upwards. The U.S. has… 49% of those with more than $50 million in assets…. This schism secures us the top rank in one net worth measure–wealth inequality…. Americans… are having trouble building wealth because wages have stagnated for more than a decade.

Tahmi Luhby: America’s Middle Class: Poorer than You Think

Remember, the median household income rose 20% over those ten years (the Perpetual’s net income rose from $100,000 to $120,000), so the official CPI puts the Perpetual’s household at a $6,500 annual deficit! By using the reality-based CPI, the deficit is truly staggering by a factor of 5x.

Finally…A Reality Based Cost Of Living Index – Seeking Alpha

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The Typical Household, Now Worth a Third Less – NYTimes.com.

Banks Helped Hedge Funds Skirt Taxes

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Two giant global banks helped at least a dozen hedge funds skirt full tax payment on more than $100 billion worth of stock trades, according to a new congressional investigation made public Monday.

The probe by the Senate Permanent Subcommittee on Investigations will be the subject of a daylong hearing on Tuesday and also spells more trouble for the embattled Internal Revenue Service.

At issue is whether complex financial deals arranged by London-based Barclays Bank PLC and Germany’s Deutsche Bank AG deliberately helped hedge funds skirt U.S. tax laws for financial advantage and bend rules designed to protect the financial system from excessive borrowing to finance speculative bets.

The IRS in 2010 issued a warning against the financial instruments at question in the Senate probe, but roughly four years later, no additional tax money has been collected from the hedge funds involved, Senate investigators said…

The Senate report alleges that Deutsche Bank and Barclays conspired with the hedge funds to create a complex investment vehicle that gave the appearance of being a brokerage account like those used by ordinary Americans who play the stock market.

The difference, however, is that these accounts, called “basket options,” involved billions of dollars in rapid and constant computerized trading. The hedge funds, the report said, were taking short-term profits but being taxed as if they were ordinary investors holding stocks for a year or longer. They were taxed at a rate of 15 percent to 20 percent instead of the rate of ordinary income, which is as high as 39 percent….

Read more here: http://www.mcclatchydc.com/2014/07/21/233975/senate-panel-banks-helped-hedge.html#storylink=cpy

WASHINGTON: Senate panel: Banks helped hedge funds skirt taxes | Economy | McClatchy DC.

AG Holder – “ U.S. Announces the Indictment of Citigroup’s Senior Officers”

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by (www.nakedcapitalism.com)

….Why then did “endanger[ing] the company” become Citi’s controlling officers’ paramount mortgage strategy despite Bowen’s copious, dead-on accurate warnings?  Citi’s most senior managers, including former Treasury Secretary Robert Rubin, were personally put on written notice by Bowen that an extraordinary and growing percentage – eventually 80% – of Citi’s purchased mortgages were “toxic” and that it was reselling them through fraudulent “reps and warranties.”  Unlike Holder, there is no conceivable dispute that every Citi officer warned by Bowen instantly understood the implications.  There is only one logical answer – they knew that the accounting controlling fraud scheme Bowen described was a “sure thing” guaranteed to make them personally wealthy at the expense of Citi’s shareholders (and, absent a federal bailout, Citi’s creditors).

In response to these frauds Holder’s response is to fine the bank (Citi) – and to do nothing to the officers who grew wealthy by looting Citi’s shareholders.  The fine, of course, will be paid by Citi’s shareholders – who were one of the primary victims of the controlling officers’ “toxic mortgages” fraud schemes…..

AG Holder – “ U.S. Announces the Indictment of Citigroup’s Senior Officers”.

The Implosion Is Near: Signs Of The Bubble’s Last Days | Seeking Alpha

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Yes I confess, I agree with David Stockman.

The central banks of the world are massively and insouciantly pursuing financial instability. That’s the inherent result of the 68 straight months of zero money market rates that have been forced into the global financial system by the Fed and its confederates at the BOJ, ECB and BOE. ZIRP fuels endless carry trades and the harvesting of every manner of profit spread between negligible “funding” costs and positive yields and returns on a wide spectrum of risk assets.

Moreover, this central bank sponsored regime of ZIRP and money market pegging contains a built-in accelerator. As carry trade speculators drive asset prices steadily higher and fixed income spreads steadily thinner—- fear and short interest is driven out of the casino, making buying on the dips ever more profitable and less risky. Indeed, the explicit promise by central banks that the money market rate will remain frozen for the duration and that ample warning of any change in rate policy will be “transparently” announced is the single worst policy imaginable from the point of view of financial stability. It means that the speculator’s worst nightmare—–suddenly going “upside down” due to a sharp spike in funding costs—-is eliminated by central bank writ….

At the present time, for example, 40% of all syndicated loans are being taken down by sub-investment grade issuers. This is materially higher than the 2007 peak, and is accompanied by an even more virulent outbreak of “cov-lite” credit terms. Indeed, upwards of 60% of these junk loans have no protection against debt layering and cash stripping by equity holders—-notwithstanding their nominal “senior” status in the credit structure. The obvious implication, of course, is that the Fed “easy money” is being massively diverted into leveraged gambling and rent stripping by the LBO houses. Three times since 1988 this kind of financial deformation has led to a thundering bust in the junk credit market. Why would monetary central planners, who allegedly watch their so-called “dashboards” like a flock of hawks, think the outcome would be any different this time?…”

The Implosion Is Near: Signs Of The Bubble’s Last Days | Seeking Alpha.

Canadian homes 20 per cent overvalued: ratings agency | Toronto Star

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Fitch Ratings says Canada’s real estate market is as much as 20 per cent overpriced and cautions the government may need to take more measures to slow down borrowing on homes.

Fitch is the second U.S. financial agency to sound the alarm on Canadian home prices in the past week, with the Morningstar research firm predicting a 30 per cent correction was possible over the next few years.

The latest warning comes as the Teranet–National Bank composite house price index for June showed prices rose 0.9 per cent from May and were up 4.4 per cent from last year.

Canadian homes 20 per cent overvalued: ratings agency | Toronto Star.