Wednesday, November 16, 2011

Every American Should Occupy the Hell Out of Wall Street!

Listen. The bastards screwed us. I'm not kidding. It's a disgrace. They are not just unethical -- we expect that by now, don't we? They are crooks. If you don't understand that these bankers and brokers are crooks, you haven't been doing your due diligence -- shame on you. Furthermore, if you believe that the various government and private regulatory agencies charged with oversight and enforcement of our financial institutions are actually doing their job, unimpeded by the influence of revolving doors or money, then I have a bridge to sell you.

Look, corporate capitalism is, on the whole, amoral. Corporations and their CEOs aren't in business to "... form a more perfect union, establish justice, ensure domestic tranquility, provide for the common defense, or promote the general welfare," especially not to promote the general welfare (consider tobacco companies). Corporations are in business to make a profit. As long as they do this more or less honestly, good for them. I mean, caveat emptor, to some extent, right?

But when corporations (which, despite what five members of the Supreme Court tell us, are not people) and their executive officers (who are people) lie, cheat, and steal, we object, don't we? I do. All those people in the Occupy Wall Street (OWS) movement do (and good for them).

Every American should occupy the hell out of Wall Street any way we can. I've written about Goldman Sachs' approach to the idea of an "honest broker" elsewhere, so I'll go on to describe a personal experience with my former broker. I closed my Merrill Lynch account, and I wrote a rather lengthy letter to Merrill's regional director of "wealth management" and detailed the many and varied egregious Merrill activities that led me to my decision. Here's my letter.

March 6, 2009
James P. Hughes
Managing Director, Greater Northwest
1201 Pacific Ave.
Wells Fargo Plaza
Tacoma, WA 98402
Dear Mr. Hughes;
In your letter of November 12, 2008, your requested that I complete subject survey. Forgive me for taking so long to respond. Developments in Merrill Lynch’s fortunes and conditions in global markets as a whole demanded my attention. Merrill Lynch has been in the news a lot, and the news hasn’t been good.
Today’s news on your firm is that one Merrill trader, Alexis Stenfors, apparently gambled away more than $120 million in the currency markets. Others seemingly lost hundreds of millions on tricky credit derivatives. And it has come to light that Merrill Lynch hemorrhaged $13.8 billion during the final three months of 2008 alone.
Bank of America's shareholders did not learn of the gaping hole until after they approved the merger of the two companies on December 5, 2008. Nor was the extent of the loss fully known when Merrill paid out $3.6 billion in bonuses, which were based on estimates of the firm's performance as of December 8, 2008. Thomas Montag, who headed up Merrill's markets operations, was alone paid a bonus of $39M. When the problems at Merrill became clear, Bank of America was forced to seek a second, multibillion-dollar rescue from Washington. 
Before he was forced to resign in January of this year, ex Merrill CEO John Thain, brought in to right the Merrill ship, spent over $1.2M to redecorate his office, while it was coming to light that the firm had actually lost some $27 billion in 2008. Thain accelerated approximately $4B in bonus payments to employees at Merrill just prior to the close of the deal with Bank of America.
Merrill’s true loses appear to have been concealed from Bank of America. BoA, subject to its own lack of due diligence, lowered its dividend after buying Merrill, its stock subsequently dropped from 45 to 5, and Moody’s lowered BoA’s rating. After the BoA takeover, Peter Krause left Merrill and received a $25M “golden parachute” after just 3 months with the company.
In late 2007, Merrill’s CEO, Stanley O’Neal, who was largely responsible for “reinventing” Merrill to be the aggressive, high risk-taking company it became, was forced to resign after the firm suffered its biggest loss in its history (up to that time). O’Neal left with a $160M severance package.
Because I was concerned by what I was reading recently about Merrill Lynch, I did some background research on the firm and found many other examples of Merrill’s lack of values-based leadership. For example:
In January 2007, Merrill Lynch analyst Stanislav Shpigelman was sentenced to 37 months in jail for his part in an insider-trading scheme, following on the heels of ML broker Peter Bacanovic in another, highly publicized insider-trading scandal involving Martha Stewart.
In 2002, the New York State Attorney General’s Office accused Merrill Lynch, and its analyst, Henry Blodget of regularly issuing false or misleading recommendations about Internet-based stocks in an effort to increase the firm’s underwriting business. Merrill Lynch settled the allegations with a $100 million fine.
One of your firm’s most egregious actions was in aiding the massive Enron fraud by creating the false appearance of profits and cash flow. For example, Merrill Lynch purchased Nigerian barges from Enron on the last day of 1999 only because Enron secretly promised to buy the barges back within six months, guaranteeing Merrill Lynch a profit of more than 20%. As a result of this fraud, Merrill Lynch ultimately paid $80 million to settle with the SEC.
In an eerie preview of today, Merrill Lynch lost $377M trading mortgage-backed securities as far back as 1986, helping bankrupt Orange County, California, which sued Merrill.
Merrill Lynch has been fined by the Commodities Futures Trading Commission, and charged by the SEC with overcharging its mutual fund clients.
Mr. Hughes, the positive feelings I have for my financial advisor are, I’m afraid, overwhelmed by the negative feelings I’ve developed for Merrill Lynch. That’s why, after having had a relationship with Merrill Lynch for over 25 years, I am leaving your firm, and why I am not completing the subject client survey.

and etc., etc.

Does it surprise you to learn that I never heard back from Mr. Hughes? No? My you are cynical.

Friday, November 4, 2011

Oligarchy, American Style

By Paul Krugman
The New York Times, November 4, 2011

Can anyone seriously deny that our political system is being warped by the influence of big money, and that the warping is getting worse as the wealth of a few grows ever larger?

Inequality is back in the news, largely thanks to Occupy Wall Street, but with an assist from the Congressional Budget Office. And you know what that means: It’s time to roll out the obfuscators!

Anyone who has tracked this issue over time knows what I mean. Whenever growing income disparities threaten to come into focus, a reliable set of defenders tries to bring back the blur. Think tanks put out reports claiming that inequality isn’t really rising, or that it doesn’t matter. Pundits try to put a more benign face on the phenomenon, claiming that it’s not really the wealthy few versus the rest, it’s the educated versus the less educated.

IN 1985, THE FORBES 400 were worth $221 billion combined. Today, they’re worth $1.13 trillion—more than the GDP of Canada.

So what you need to know is that all of these claims are basically attempts to obscure the stark reality: We have a society in which money is increasingly concentrated in the hands of a few people, and in which that concentration of income and wealth threatens to make us a democracy in name only.

The budget office laid out some of that stark reality in a recent report, which documented a sharp decline in the share of total income going to lower- and middle-income Americans. We still like to think of ourselves as a middle-class country. But with the bottom 80 percent of households now receiving less than half of total income, that’s a vision increasingly at odds with reality.

In response, the usual suspects have rolled out some familiar arguments: the data are flawed (they aren’t); the rich are an ever-changing group (not so); and so on. The most popular argument right now seems, however, to be the claim that we may not be a middle-class society, but we’re still an upper-middle-class society, in which a broad class of highly educated workers, who have the skills to compete in the modern world, is doing very well.

It’s a nice story, and a lot less disturbing than the picture of a nation in which a much smaller group of rich people is becoming increasingly dominant. But it’s not true.

Workers with college degrees have indeed, on average, done better than workers without, and the gap has generally widened over time. But highly educated Americans have by no means been immune to income stagnation and growing economic insecurity. Wage gains for most college-educated workers have been unimpressive (and nonexistent since 2000), while even the well-educated can no longer count on getting jobs with good benefits. In particular, these days workers with a college degree but no further degrees are less likely to get workplace health coverage than workers with only a high school degree were in 1979.

So who is getting the big gains? A very small, wealthy minority.

The budget office report tells us that essentially all of the upward redistribution of income away from the bottom 80 percent has gone to the highest-income 1 percent of Americans. That is, the protesters who portray themselves as representing the interests of the 99 percent have it basically right, and the pundits solemnly assuring them that it’s really about education, not the gains of a small elite, have it completely wrong.

If anything, the protesters are setting the cutoff too low. The recent budget office report doesn’t look inside the top 1 percent, but an earlier report, which only went up to 2005, found that almost two-thirds of the rising share of the top percentile in income actually went to the top 0.1 percent — the richest thousandth of Americans, who saw their real incomes rise more than 400 percent over the period from 1979 to 2005.

Who’s in that top 0.1 percent? Are they heroic entrepreneurs creating jobs? No, for the most part, they’re corporate executives. Recent research shows that around 60 percent of the top 0.1 percent either are executives in nonfinancial companies or make their money in finance, i.e., Wall Street broadly defined. Add in lawyers and people in real estate, and we’re talking about more than 70 percent of the lucky one-thousandth.

AMONG THE FORBES 400 who gave to a 2004 presidential campaign, 72% gave to Bush.

But why does this growing concentration of income and wealth in a few hands matter? Part of the answer is that rising inequality has meant a nation in which most families don’t share fully in economic growth. Another part of the answer is that once you realize just how much richer the rich have become, the argument that higher taxes on high incomes should be part of any long-run budget deal becomes a lot more compelling.

BUSH’S TAX CUTS GIVE a 2-child family earning $1 million an extra $86,722, equivalent to Harvard tuition, room, board, and an iMac G5 for both kids.

The larger answer, however, is that extreme concentration of income is incompatible with real democracy. Can anyone seriously deny that our political system is being warped by the influence of big money, and that the warping is getting worse as the wealth of a few grows ever larger?

Some pundits are still trying to dismiss concerns about rising inequality as somehow foolish. But the truth is that the whole nature of our society is at stake.

"If a free society cannot help the many who are poor,
it cannot save the few who are rich" -  John F. Kennedy

Tuesday, November 1, 2011

Richard "Doc" Hastings Playing the Same Old Republican Saw

You have to hand it to Richard "Doc" Hastings (R-WA) -- he stays on message, no matter whether the message meshes with the facts. Republicans want you to believe that if we just cut taxes and eliminate “burdensome” government regulations, jobs will suddenly pop up like mushrooms in May. Never mind that Republicans have being playing the same old saw since time immemorial with the same results, i.e., the rich get richer, and the rest of America gets screwed.

Hastings went on Fox News recently to propose that environmental regulations be lifted so logging could resume in National Forests in Washington. The state is facing a 4 to 5 billion dollar budget shortfall in the next 2 years. Budgets for education, health care, and help for the state’s poor and disabled are being slashed, and Hastings is going on Fox to lament environmental regulations on slash and burn logging?

What's up Doc? Total Timber sales revenues in 2011 amounted to about 4% of the state’s deficit and money going into the State's coffers from that revenue stream is minuscule. How about spending a little time working on the other 99% of the problem and stop playing with that old Republican saw in our forests?

When it comes to the Washington State budget shortfall, thoughtful people (not you, Doc) have some difficult decisions to make. Decide what your priorities are on the League of Education Voters web site and see how you fare in cutting the deficit.