Relevant and even prescient commentary on news, politics and the economy.

## Defining Rich VII: Explaining Income inequality in pictures

I had my hair cut last week.  It’s a big event as it happens about twice per year.  While there I always get into political conversations with the lady cutting my hair.  This time, as often it was the economy.  Her position still is that the individual citizens collecting welfare are effecting her income.  We’ve discussed this before.  So, I used my simple math of \$100 dollars and 100 people and 9% to the 1 person and the remaining 99 splitting what remains.  I then note the current split of 24% to the 1 and the 99 splitting what is left.  Easy?

Unfortunately, it did not resolve the issue.  Her question was: You don’t think the welfare people are effecting this?  So, I asked her to explain to me just how someone collecting welfare (we are not talking corporate welfare) could be the cause of her lack of share of the overall income?  This is not a laughing matter.  It shows just how strongly the conflation has been made of associating the indigent population as the cause of ones financial condition, namely the money in their pocket.

This got me thinking.  Maybe numbers are just not enough.  Maybe using 100 dollars and the fact that after the 1 gets about \$9 as of 1978 the other 99 get \$0.92.  Shift the split and it’s \$24 vs \$0.77.   How is that relative to a median income of today?  And here I’ve been thinking I was keeping it simple.

So, I have upped the numbers.  \$10 million.  100 people.  This produces the following:

 \$10 Million 9% Share 24% Share The 1 Inc. \$900,000.00 \$2,400,000.00 The 99 Inc. \$91,919.00 \$76,768.00

That is quite the shift of the 1’s income.  In fact it is a 166.7% increase simply due to changing how the pie is cut.  The rest of the people, the 99 get 16.5% less.  No one worked harder, no one worked less.  We just cut the pie differently.

It is that simple.  It is that fundamental.

## The Tax Free Tour; a look at the offshore tax haven system

We’ve all talked and read about the idea and practice of offshore accounting to reduce taxation. Here is an article produced by a show called Backlight.  Backlight appears to be a news journal show in the idea of Frontline by a Dutch public broadcasting organization known as VPRO.

This episode is titled: The Tax FreeTour.  To date it has only just over 22 thousand hits.  Considering the effect offshoring plays in everyone’s life, I think more people need to see it.   It is about 1 hour long taking a look at the places of tax havens and the structures to get there. I found it very interesting and highly encourage you to watch the entire episode.  I have not seen another presentation as complete as this on the issue of off shore tax havens and the system.
They interview international experts including one who worked for KPMG: Richard Murphy, accountant. He notes you need 3 things, banks, accountants and lawyers to have a tax haven and thinks accounts have gotten off easy.  A past chief economist for the McKenzie Consultancy James S. Henry who quantified the amount of capital parked in the off shore industry, \$21 to \$32 trillion year end 2010.  Business Intelligence Investigator William Brittian Catlin who’s job is to sort out the offshore links for investors. Ava Joly, former French Judge, currently EU Parliamentarian investigating \$1 trillion in lost EU tax revenue.
I did not realize, but these big corporations have special deals with nations such as the Netherlands regarding their taxation that they are not allowed to talk about. How convenient.  The Netherlands has the most tax treaties in the world. Walmart has 6 entities there all with completely different unrelated names, yet does no physical business related to their core activity of retail sales in the Netherlands. Trust companies are the structures involved as they hold the mail boxes. \$11 Trillion is routed through the Netherlands every year. Up to 20 times the Dutch GDP.  0.14% of the world’s population controls about 95% of the offshore money.

Do watch the entire show to get the full appreciation. There is so much more in it than what I highlight here. If your time is short then: To get a quick overview of the game, watch starting at 9:35 through 14:48 of the show and 32:24 to 33:00. To know about the people watch 20:00 to 22:54. To understand tax free zone use watch 25:40 to 26:50 and 27:19 to 28:00.

Here are four cuts from the show. The first two are to let people know what our Senate Banking committee hearings would look and sound like if there were more than just Elizabeth Warren.

These two get at the effects on our ability to govern our self.

My thought after watching The Tax Free Tour? What we are experiencing here in the US when companies go shopping and pit one part of the nation, state or town against another is the same model including the government responses that is the off shore industry. Globalization is the scaling up of home developed systems that have proven successful in reducing taxation via government rule changes ultimately maximizing profit with no regard toward anything beyond the need of the one’s money. The “one” being an entity or an individual. Globalization means more than just out sourcing manufacturing. Globalization is the expansion to the globe of money management systems developed over time designed to segregate the rich in the major aspect of their lives from the rest of the people of the world; the wealthy’s connection with the rest of humanity via national identity.  The systems are designed to assure the wealthy are guiltless in the presence of harm. Kind of a plausible deniability?

## Social Security as you know it, it’s over, forget about it.

I caught a bit of Jennifer Granholm’s The War Room for 2/23/12.  She was talking gasoline prices and had Ron Klain on for his ideas. He is a past chief of staff for Gore and Biden as VP’s. Mr. Klain also published his thought at Bloomberg2/20/12.
This post is not about solving the rising gasoline costs. This post is about the further screwing of the 99% by further reducing their security from the risk of life and living.
Let’s cut to the chase:
One idea might be a “pocketbook protection” plan, which would work as follows: If the average price of gas exceeds \$4 a gallon, an additional, automatic payroll tax cut of 1 percent would kick in, as much as \$50 per month, per person. The cut would stay in place for at least 90 days; it would disappear when the price fell below \$4.00 per gallon.
There are three advantages to this approach. First, because the plan is of limited duration and is capped at \$50 a month, its cost is relatively modest — about \$5 billion a month, or \$20 billion total, assuming the usual four-month gas-price surge. Second, because it isn’t a reduction in gas taxes, it doesn’t weaken any incentives for fuel conservation or efficiency: All workers get \$50 to soften the blow of higher gas prices, but the less fuel they use, the more money they save. And third, the relief provides the greatest relative help to lower-income workers who need gas to commute and feel the price pinch the hardest.
I have to assume our Colberly’s head has just popped. What Mr. Klain has proposed is the exact danger many have warned about regarding the use of SS as a means to make up for what is a major functional problem of our current economy: lack of share of income to the masses.

I have pointed out many times that we can not make up for the \$1.1 to \$1.4 trillion per year of income no longer in the hands of the 99% that is in the hands of the 1% with tax reductions. It can not be done. With that fact, considering taxation reduction in any form as a method to address this specific issue is nothing more than the continuation of the false economy that financialization created as observed from the position of those in the labor part of the economy. It quite literally is the government now using the mathematical gymnastics pioneered by Wall Street to trick the masses into believing that home equity was the same as earned income. Getting a tax cut anywhere is not the same as receiving a greater share of the nation’s income.  It is money, by the way, that you are more than justified to receive because you helped to create it. The rich used to have an opportunity to relearn this lesson every time there was a major strike, say the NY City trash collectors going on strike.
People, I hope we have learned that one’s home, your house has a more important roll to play in your life other than that of asset appreciation. The home is one of the foundations used to reduce the risk of living, of having a life: shelter. Social Security is another one of those life’s risk reducing foundations: longevity. I have asked often here: How many times to do we have to relearn a lesson?
Using SS as a means to offset the results created over the long term from bad policy is the polluting of a very good policy. We can look at the housing crisis as another already experienced pollution. The good policy was promoting home ownership. The bad policy was setting up an economy that changed the perception of home ownership from a life risk reduction activity to an asset building activity. Now that SS has been used once as a solution to an unrelated problem and extended once in a manor that moves it further from the original purpose (reduction of risk of living), with Mr. Klain’s proposal, the use of SS as a back stop for non-related policy results has become an unquestioned and considered reasonable use.
Mr. Klain’s proposal so exemplifies what our politico’s now consider acceptable for SS’s use that he even proposes to pay for it via a general funding solution:
The plan could be almost entirely paid for with a modest, no-loopholes surcharge on corporate taxes on profit derived from the higher gas prices. The administration would be able to avoid pejorative terms such as “windfall” or “excess” profit tax, because the tax is neither confiscatory nor punitive. With higher gas prices, oil companies will make record profit — and a partial surcharge will still leave that profit at record high levels. In other words, the plan isn’t vulnerable to suggestions of creeping, soak-the-rich redistribution. It would leave in place all incentives for oil companies to increase production, do more research and development, and explore alternative fuels. But a modest surcharge would help fund at least a partial pocketbook protection program to make sure the cost of the oil companies’ gain isn’t excessive pain for the rest of us.
Just to be clear, that Mr. Klain proposes using SS for anything other than SS is the problem. The only difference in such action compared to the housing crisis which was tied to the removal of specific banking regulation is that it took us 10 year or so to experience the warning of Senator Byron Dorgan.

For those warning about the proverbial slippery slope phenomenon of using SS as a back stop for bad policy results leading to furthering the destruction of SS, it’s only been about 3 years since this application of SS first became a reality. This use is now acceptable. Social Security has now officially been changed from a purpose specific funded program to an general revenue program.  The establishment is so comfortable within this frame of use for SS we get a proposal such as Mr. Klain’s.   We also have on the record a warning in the vein of Senator Dorgan’s  from Senator Harkin:
“This Congress will be making a grave mistake — a grave mistake — and reinforcing a dangerous precedent,” Harkin said in a dramatic Senate floor speech late Thursday.
Mr. Klain freely proposing another application of a SS tax cut is proof of the truth to Senator Harkin’s warning.  The precedent stands.  It is “codified”.   And, with this precedent the conservative/monied movement has neutralized another barrier protecting SS and it’s status as the end-all be-all of the New Deal: the Democratic Party.
The Movement has also successfully completed the instillation of it’s virus known as Financialization into the nervous system of our government. Social Security no longer thinks as the mind of one living in a labor economy; as the 99%.  It thinks as the mind of one living in a money from money economy; as the 1%.

## It used to be "slightly left of center". The budget, taxes, economy from that other side.

By: Daniel Becker
HT: Digby

More people need to hear this perspective regarding the economy and the budget debate if only to remind them that there is another perspective…if only to hear what it sounds like when a congress person is actually fighting and working for you. You, the one without enough money to influence congress.
JUDY WOODRUFF: Well, the president has talked about corporate — corporate tax reform. And he said, in two years, in — for 2012, he’s going to propose letting all those tax cuts expire that were allowed to continue in December.
You spent, what, eight-and-a-half-hours on the floor of the Senate in December in a — in a protest against that. Are you confident the president is going to let the tax cuts expire?
SEN. BERNIE SANDERS: No, of course I’m not. I mean, that’s what the president said when he ran for president. And yet, when the Republicans stood up to him and said, we want to give more tax breaks, extend the Bush tax breaks, essentially, the president gave in.
When the Republicans said that, we want to lower the estate tax, Judy, which appeals — which only applies to the top three-tenths of 1 percent — these are not rich folks — these the very richest people in America — the president gave into that.
So, the president may tell us that he has this in mind, but I think the record is that he has not fought for those principles. The American people want him to fight for those principles.
And I think what this whole budget debate is about is do we stand up and say, no, we’re not going to cut programs for those who need it?
The other issue that I think we have to talk about is, in the president’s budget, he talks about Social Security. And he makes me a little bit nervous, because I think, as many of our listeners know, the Social Security trust fund today has a \$2.6 trillion surplus.
Social Security can pay out every benefit owed to every eligible American for the next 27 years. Social Security, because it is funded by the payroll tax, hasn’t contributed one nickel to the deficit.
See, there is another voice, and some are finally experiencing the results of ignoring it. Remember this! Remember what a congress person sounds like when they are for real about working and fight for you. No more excuses you did not know. This is what you will sound like once you decide to influence congress.

## TARP, Neil Barofsky, Rep. Alan Grayson and Transparency

by divorced one like Bush

Via Glenn Greenwald and his article The war being waged on the TARP watchdog’s independence comes an interview with Neil Barofsky the man charged with over seeing TARP. It appears the White House is not keeping true to the President’s campaign of a more transparent government.

…the Obama administration is now attempting to induce the Justice Department to issue a ruling that Barofsky’s office is not independent at all — but rather, is subject to, and under the supervision of, the authority of Treasury Secretary Tim Geithner.

Seems Mr. Barofsky’s latest report states that the grand total of all money currently paid out and pledged totals \$23.7 trillion.

This is the original article to go along with the interview.

Via Naked Capitalism comes Rep. Alan Grayson asking Ben Bernanke who got the 1/2 trillion in US dollars as part of a swap. He notes \$24 billion in 2007 is now \$553 billion yr end 2008. Who got the money? “I don’t know…the loans go to the centeral banks and they then put them out…We are lending to all US financial institutions in exactly the same way.” That is, the fed is making no distinction between our nation and the rest of the world. Bernanke notes the law gives them the right to do this. (Sec 14 of the Federal Reseve Act.) Rep. Grayson issue is; at what point is using this “power” to move 1/2 a trillion dollars is infringing on Congresses control of the Treasury.

(Rep. Grayson has further comment at the link regarding this video.)

Transparency. The Federal Reserve and the Treasury say this money can’t be traced after it passes to the first receiver. Mr. Barofsky has shown that it can be by simple sending out a questionnaire. Bernanke is treating the lending, regardless of recipient as all the same and thus none of it can be traced and that they have a right and authority to use the Peoples Money as they see fit. Rep. Grayson thinks they are overstepping Congress.

Who was it here that noted we had not bailed out the banks, but instead the banks just bought the Treasury?

## Why is Obama asking for new power for the Treasury?

By Divorced one like Bush

This past weekend I wrote about the OCC, Office of the Comptroller of the Currency and 4 rulings that this office has made over the last two presidencies.
1. Preventing state AG’s and the state banking departments from investigating and regulating national banks. 2004.
2. Allowing Banks to become real estate developers and managers to including wind mill operations. 2006
3. Asserting that credit card insurance via telemarketing was not insurance and thus again immune from state AG’s and the state insurance departments. 2002 This particular ruling being the result of the Gramm-Leach-Bliley Act of 1999. The act that is now pegged as THE deregulating action of the current economic mess.
4. Allowing banks to sell insurance. 1996.

All four are clearly rulings that can have lines drawn directly to the what we are hearing today as to why the alphabet soup of “financial products” created by “to big to fail” entities have required a combination of delivering funds and pledging funds to the tune of around \$9.5 trillion dollars. I googled the current number and could only find numbers dating from December 2008 such as this site suggesting then the total was \$8.5 trillion.

We really need to start talking about the OCC. It is a player, if not the behind the scene player of a lot of what has become our financial system. Note, I did not say banking system. That is key.

Ok, yesterday it was proposed that as part of the solution, our Treasury head needs some new power. Already leadership is say “Yes”.

This call for power with an already announced “Yes” immediately sets off my suspicion meter. After 8 years of power being concentrated into the hands of the one (Homeland Security), unitary executive powers still being exercised by Obama, lobbyist run wild, departments turned from working for the people to working for the industry (see labor, FDA, military), no bid contracts and their results, \$9 billion in bundled crisp new hundred dollar bills missing in Iraq, Paulson asking for \$750 billion, not strings attached (add yours here)…

ARE YOU FUCKING KIDDING ME!
You want to give the power to say “yeh” or “nay” on a financial institution to one person? Have we not learned?

Then it dawned on me. Think about the 1996 OCC ruling and the 2002. Think about the praise for the FDIC and the job it has been doing. Here is an entire entity congress created to take care of failed banks. Ah, you say entities like AIG are not banks, so there is no jurisdiction. At least that is what we are being told. However, being that the OCC has in it’s rulings merged the banking, real estate and insurance industries (specifically ruling what was and was not insurance) I will not accept that all those smart lawyers in congress and the one that heads the White House would not be able to produce a winning argument that by the actions of the OCC rulings, the FDIC already has the authority to do to AIG what it has currently been doing.

That lead me to look at the FDIC web site. In particular, it’s “About” page:

Mission
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress that maintains the stability and public confidence in the nation’s financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships.

It does not say “banks”. It says “financial systems” and “managing receiverships”.

Not enough for you. Consider there was an advisory committee created in 2002 by the then Chair Donald Powell.

Scope and Objectives: The Committee will provide advice and recommendations on a broad range of issues relating to the FDIC’s mission and activities, including, but not limited to: the delivery of services by the FDIC, its corporate infrastructure, and policy initiatives in the areas of deposit insurance, supervision of financial institutions, resolutions and management of failing and failed institutions, and other issues impacting the financial services industry.

It did not say “banking” or “banks” here either. And it specifically talks about exactly what we have here today: failed and failing institution. You can not get away from the all inclusive “financial services industry”.

Want more? Consider the bio of the current chair:

Before her appointment to the FDIC, Ms. Bair was the Dean’s Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of Massachusetts-Amherst since 2002.

The FDIC is already the entity with the power that Obama is now requesting for his surrogate. On the plus side in my book, it is an agency created from the destruction of the last time we were here. It is a New Deal institution and that makes it clean in my mind (at least cleaner than more recently created entities). So, even if I’m wrong, and I don’t think I am because this nation for 13 years now has been blurring the line between banks, insurance and recently real estate to the point that it is one big industry and that counts when you go in front of a judge, the correct request that we should have been hearing from Obama is to expand the definition of banking to clarify all these new mongrel banking entities such that the entity this nation created specifically to do what the Treasury is asking for can do the job without question of jurisdiction. Simple, neat, maintains separation of power and not bureaucracy expanding.

So why didn’t he?

## Still KISSING income inequality

by divorced one like Bush

Let’s talk jazz: Still cashing the income inequality
berries, clams, dough, heavy sugar, jack, kale, mazuma, rubes, simoelan, voot. It’s all money.

I started this series to develop a simple model of income inequality so that I wouldn’t sound like I was chewing gum and people wouldn’t get all balled up on the heavy sugar.

The first one presented the model. 100 people, \$1000 of total income. 1976: 8.7% of the dough to the One, all the rest of the jack to the Many. 2005: 23% of the sugar to the One, the rest of the voot to the Many. Basically, it showed why income inequality ain’t allowing the Many to by orchids. Also, maybe it’ll help you know one’s onions.

The second post addressed the concerns that the model was to simple. The sugar was heavier, the times were percolating I’m told. Except that the only real issue for my model was that the population would have to increase against the 1000 clams for the model to reflect the coffee made. There was less mazuma for everyone. Oh, and the total dollars to be made up with a tax cut to duplicate the take of 1976 is \$1.4 trillion dollars.

In the end, none of this bodes well for the concern about multiplier effects and money velocity. Yet here we are all these plans being put into action to get people spending ’cause that’s the problem and the issue still gets no respect. We want to get more kale into the hands of the many, but we aren’t taking about anything related to increasing the share of income to the many (which would include the trade issue as Stormy has been hammering it).

HELLO! The reason people have no money is not because their taxes are too high, their health care is too high, their interest rates are too high; THEY NEVER HAD IT TO BEGIN WITH!

So, let’s see how much the 99 people of the Many would need in 2005 to have stayed even with their position in 1976.

First here is what the \$1000 should be in 2005:
\$3,429.93 using the Consumer Price Index
\$2,811.66 using the GDP deflator
\$3,891.74 using the value of consumer bundle
\$3,296.90 using the unskilled wage
\$5,013.86 using the nominal GDP per capita
\$6,805.40 using the relative share of GDP
My model using actual income data came up with \$6940 total, but based on per capita, it was only \$5130.

Each of the 99 people had \$9.22. In 2005 they would need the following:
\$31.62 using the Consumer Price Index
\$25.92 using the GDP deflator
\$35.88 using the value of consumer bundle
\$30.40 using the unskilled wage
\$46.23 using the nominal GDP per capita
\$62.75 using the relative share of GDP
My model, using per capita income resulted in \$39.90.

Interesting No? The total personal income in the model comes out to be pretty close to the GDP per capita and relative share. So, the percolating of the economy did result in the same economic coffee in 2005 as in 1976. Unfortunately for the Many, the semoelan handled is less than the per capita and relative share of GDP. Can you say SCREWED?

My model also resulted in the number of \$47.31 for each of the 99. That is the number to make up for the share of income lost to the One. It is essentially the number calculated based on nominal GDP per capita. Or, the unscewed number.

But, these numbers just show that using the percentage split, the One stayed even with the percolating economy and the Many dropped down to something less. It does not show the loss of purchasing. For that, we need to reverse calculate.
For the Many, they have \$39.90 each in 2005. In 1976 it looks like this:
\$11.63 using the Consumer Price Index
\$14.19 using the GDP deflator
\$10.25 using the value of consumer bundle
\$12.10 using the unskilled wage
\$7.96 using the nominal GDP per capita
\$5.86 using the relative share of GDP

I think what we are seeing here by looking forward and then backward, is that the Many are earning more for their labor (wage went up), but they are not earning wages comparable to the contribution made to the rising GDP by their laboring. Who knew, Slave Wages is a real wage!