Putting Savings In A Smug Account

“The United States must increase its national saving rate. Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.”

The quote came from Fed Chairman Ben Bernanke while giving a speech at the Conference on Asia and the Global Financial Crisis on October 19, hosted by the Federal Reserve of San Francisco. Bernanke also stated, “We were smug”, referring to the years of feckless lending practices when the U.S. economy was bubbling over with easy money from cash-rich countries. I imagine the statement was said rather smugly.

It’s a mystery as to how Bernanke expects consumer saving rates to increase given the lack of jobs and a questionable revival of pre-recession wages for the still-employed considering their sizable pay cuts and reduced hours.

Personal savings of disposable personal income was 3% in August, down from 4% in July and significantly lower than the peak rate of 6.9% in May. Fueled by income tax refunds and stimulus package disbursements, critics at the time suggested consumers were slighting the system by saving rather than spending the money to get the economy moving.

Whatever savings people have managed to accumulate will soon be spent to pay winter heating bills, higher gas prices, medical bills, credit card debt, etc., and quickly consumed during the holiday season to give families a temporary, but desperately needed, good-time feeling.

The sole means by which large numbers of consumers will have the ability to add to their savings is through working. The only way the President could possibly deliver on a promise to create or save 3.5 million jobs by the end of 2010 will be by out-of-focus hocus-pocus employment figures. Obama is not a magician.

Much of the blame to shame goes to Henry Paulson, Ben Bernanke and Timothy Geithner. These overlords of taxpayer moneys squandered their opportunities to leverage the recipients of TARP funds to allocate the handouts where they were intended. Rather than renegotiate home mortgages, banks deliberately refused to accept their part in correcting the fallout from the their historic lax lending practices, which led to millions of residential and commercial toxic loans and a near global collapse of financial markets.

Rather than use relief funds as intended, banks have hoarded the bailouts, denying credit lending to American consumers and restricting lending to small businesses to invest in future growth to create jobs. Wall Street is doing one heck of good job of staying on track for self-propelled titanic gains, assured that Bernanke and Geithner will not allow banking markets to sink, as they had infused banks with the $700B Troubled Asset Relief Program. America is essentially frozen in a void of economic stagnation.

Instead, investment bankers are on another unhealthy round of risky bets that have catapulted the DJIA to over 10,000 points from a low of 6,470 in March as they care more about their own interests than propelling economic growth. The Oganisation for Economic Co-operation and Development leading indicators don’t jibe with the worldwide numbers of unemployed, homeless and destitute citizens.

Thus far this year, banks are so comfortable with the status quo that they have supplied lobbyists with over $220M in a concerted effort to thwart meaningful financial reform.

Be rest assured, our economic whizzers, Ben Bernanke and Timothy Geithner, are on the same scripted page of advising world financial markets that the United States has targeted American consumer savings as a strategy to offset the imbalance of global trading.

"Everyone is going to have to come to terms with the fact that we are going to save more in the United States," Geithner chimed during an interview on October 6 with German weekly newspaper Die Zeit. In other words, don’t count on American consumption to fuel worldwide economic recovery.

“China will carry out the exchange rate regime reform and the United States will increase saving rates so as to promote balanced and strong growth and prosperity in the two nations," read a fact sheet released after the China-U.S.A. Strategic Economic Dialogue held in Beijing where the ‘special representative’ of President George W. Bush was then-Treasury Secretary Henry Paulson, That goes way back to December 15, 2006.

Of lesser importance and with a great amount of vanity, on June 2, 2009, prior to addressing graduates of his alma mater, Harriton High School in Rosemont, PA, Economic Advisor Larry Summers said, “…a higher savings rate can still go with a rising standard of living as long as income is growing.”

C’mon, Larry, you must realize that it’ll be quite some time before “income is growing”. The only things growing are the undeserved Wall Street bonuses and the egos of you and your fellow economists.

Banking Executives vs Football Players

“Why is it we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs and NFL football players?”

On September 14, President Obama posed the question as he addressed Wall Street from Federal Hall on the anniversary of the collapse of Lehman Brothers. Obama also stated that "we will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses." He continued, “And, of course, to embrace serious financial reform, not fight it."

The President had already set up a game plan months before. I should note that, although he wisely commented about excessive executive compensation during his campaign, Obama’s messages were all about “regulation”.

With little fanfare, Kenneth Feinberg, appointed by the Treasury Department in June and dubbed “pay czar” with the official title of Special Master, the same post he was given to distribute aid to victims after 9/11, has remained a behind-the-scenes administrator, which indicates he’s little more than an Obama implant to promote oversight of financial institutions by means of some regulatory scheme rather than by putting ceilings on executive compensation.

On September 25, Feinberg stated that, when he releases a report next month on the executive compensations of bail-out companies, “ We don’t want specific names next to dollars.” And that, "Avoiding excessive risk means different things to different people in different situations." The wording indicates a degree of coaching from Treasury Secreaty Timothy Geithner who, in turn, may have been teleprompted by Team Obama.

Unlike German Chancellor Angela Merkel and French President Nicolas Sarkoz, both of whom prefer strict governance over banking bonuses, The Administration seems to be treading lightly toward a resolution with Wall Street egos and their troves of lobbyists to relegate satisfactory action to Congress.

Obama’s apparent disdain of Simi Valley entrepreneurs who provide innovation and evolutionary advancements in e-commerce technologies is misplaced as displayed by the Forbes list of the top 10 CEOs and their levels of compensation.

Although Oracle CEO Lawrence Ellison tops the list in compensation ($556M), petroleum CEOs of Occidental ($222M), Hess ($154M), Ultra Petroleum ($116M), and EOG Resources ($90M) round up the top remaining five companies that handsomely reward their CEOs with fortunes. Of course, the President dare not rile the money-mongering emissaries of greenhouse gases.

Nor should Obama attempt to tackle the salaries of football players.

In 2008, Ben Roethlisberger of the NFL Pittsburgh Steelers made $27M. Of other sports figures, Kevin Garnett of the NBA Boston Celtics was paid $27M; Alex Rodriguez of the MLB New York Yankees received $33M; in the NHL Dany Heatley of the Ottawa Senators earned $10M. Not too shabby by any measure of success.

Which takes me back to the interests of Wall Street. When the dot-com bubble burst at the turn of the century, an estimated $7-trillion were lost to investors, primarily in tech stocks. When Wall Street got burned, it was quick to regain its fortunes in the housing market.

In 2005, Yale economist Robert Shiller said, “Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors.”

Over these past two years, it’s estimated that U.S. households have lost $7-trillion in home equity, $2-trillion in retirement funds, and $8-trillion in the stock market. But to this day Wall Street shows no shame.

Lawrence White, a professor at New York University's Stern School of Business, said Wall Street believes its pay is justified and that, “The big Wall Street view is 'Hey, we work hard, we achieve a lot, and we deserve what we get paid.” Recent articles and Op-Ed columns in The New York Times shows that many Lehman Brothers ex-employees are remorseful of only one thing: the loss of the jobs that had brought them such riches they may never see again.

According to Challenger, Gray & Christmas, an outplacement company, only slightly more than 300,000 jobs were lost in the finance industry since the beginning of 2008, as compared to all the other 7.4M jobs lost since the beginning of the recession.

It should be no surprise that, according to an Ipsos Public Affairs survey conducted September 11-14 of 1,000 adults, 60% of Americans are angry about excessive compensation to investment executives.

President Obama should leave Simi Valley alone, let sports fans judge the worth of football players and address the concerns that Americans have about the fortunes that Wall Street executives have reaped at the expense of present day and future taxpayers.

UBS, IRS and Swiss Cheese

Goody! Goody! Relishing in other peoples’ misfortune might seem a little devilish but with the unfolding battle between the U.S. Justice Department and Swiss bank UBS there’s a childish delight in me that wants the wealthy Americans who have gotten away with fraud and tax evasion for decades may get their just deserves.

The chapters that have taken place to identify those sly dogs of greed began in earnest in February when UBS agreed to pay the IRS $780M to avoid criminal charges for making it possible for a select class of Americans to avoid paying taxes on nearly $20B they have tucked away in offshore accounts. The initial 285 names provided by UBS were just the tip of the fraud claims as the U.S. sought to have nearly 52,000 Americans names divulged.

While negotiations were being held between UBS and the Justice Department, the Swiss government had been steadfast in swearing allegiance to hidden account holders, stating they wouldn’t allow the bank to hand over the names because Swiss secrecy laws specifically prohibits client disclosure. Since then, talks have been held to avoid the U.S. from filing suit against the Swiss government and taking the matter to court.

Earlier this year Jeffrey P. Chernick, owner of a New York-based company that represents toy manufacturers in China and Hong Kong, pleaded guilty to a charge of filing a fraudulent tax return in 2007 by concealing more than $8M in reportable income.
John McCarthy, who set up a manufacturing business in Hong Kong in 2003, funneled $1M in Swiss accounts. Both men face up to five years in prison, a $250,000 fine, back taxes, interest and penalties.

The Justice Dept. is clients the opportunity to “turn themselves in” by a Sept. 23 deadline to lessen the criminal charges against them. Penalties will be reduced to a maximum of 20% of their value while those who don’t disclose their assets by the deadline could face penalties of up to 50% of their average account balances held over the past three years. Fines are expected to be in the range of $4B.

The drama that befell Mr. Chernick unfolded when transactions were traced to a former UBS manager who had set up accounts with NZB, a smaller private bank in Zurich, with the belief that by doing so would subject clients to less scrutiny by the IRS. There was a tinge of espionage going on with many of the transactions done with bank officials traveling to the U.S. as tourists rather than consultants.

A Swiss lawyer and a director at NZB, who had worked as a private banker for UBS until 2002, have been indicted for conspiring to defraud the IRS. This will prove to be just the beginning of a long process to prosecute participants of the financial institutions that have taken part in tax evasion not only in the U.S. but many of the 27-country European Union. Italy and Germany have also initiated an amnesty program while the EU has negotiated a 35% tax rate to bank accounts in Swiss Banks.

In an agreement announced this past week, UBS will turn over to the Swiss Federal Tax Administration the names of 4,450 U.S. major accounts suspected of holding undeclared assets, giving the clients an opportunity to appeal to the Swiss courts before their names are released to the IRS, a process that may take years before full disclosure is realized.

The Organization for Economic Co-operation and Development website lists 38 ‘Jurisdictions Committed to Improving Transparency and Establishing Effective Exchange of Information in Tax Matters’. As of August 14 there are no longer any countries on the ‘Uncooperative List” although Costa Rica, Malaysia, the Philippines and Uruguay were recently removed from the list but have yet to pass legislation to achieve that status.

So, according to the OECD, there are longer any tax havens but the International Monetary Fund, Tax Research Org and the U.S. Stop Tax Havens Abuse Act have their own lists as does the Tax Justice Network and taxresearch.org, all of which are in dispute with the OECD claim. In 2005, estimates of offshore tax havens held $11.5 trillion in funds globally. Hit by the worldwide recession, the figure is now approximately $7 trillion socked away.

Still, smaller Swiss banks have been brash in an attempt to assure foreign clients that new strategies are being developed to keep their accounts hidden from future scrutiny. As thousands of account holders are moving huge amounts of funds out of Swiss banks and seeking legal representation from tax consultants.

As the IRS focuses on identifying tax evaders through a program called the Offshore Identification Unit, the names may not be well known but my spiteful joys will nonetheless be forthcoming.

TARP, ARRP and HARP

We Floridians are all too familiar with “tarp”, especially during summer months when hurricane force winds rip off shingles from rooftops and large sheets of the bright blue canvas are tacked over leaks to protect the inside of the home from additional damages. It takes weeks, even months, for an insurance company to assess the extent and dollar value of a loss.

Tarp is a makeshift remedy with no guarantee that there won’t still be scars on a structure, such as mold or mud-flooding, that aren’t covered by that hefty insurance premium. To make matters worse, if you’re like most people, your savings are pretty much nonexistent and your credit cards are maxed out and you don’t qualify for additional short-term loans. Tarp isn’t the answer to your troubles.

TARP (Troubled Assets Relief Program) has proven to be pretty much the same. The initial disbursement of the $700B government investment of taxpayer dollars was virtually wasted with the cash infusion to banks. The banking industry was given a blanket policy whereby their misdealing was covered by shoddy government workmanship.

The remaining $350B from TARP is being held in escrow with the Obama Administration in a quandary as to how to safely disburse the money without being snookered again by financial institutions. Instead of sparking up loans, banks want to be left alone to fan a smoke screen that will leave the economy smoldering for years and no assurance that in the end there won’t eventually be a raging firestorm of depressing proportions. This isn’t meant to discredit President Obama; it’s just a plain and simple belief that no one really knows what to do. It’s all guesswork.

Now we’re looking head-on at another program, ARRP (American Recovery and Reinvestment Plan), which is too much of a sound-alike to TARP. It’s not a bad omen though, with over $800B of funds to assist in resolving the somersaults of the worsening recession. Its effect on the economic meltdown isn’t likely to be enough to make an immediate difference to corporate or individual financial shortfalls.

For eight years, Democrats too easily played patsy to Bush politics. They had no backbone from the very start of the war in Iraq, doing their part to make billions of dollars available to keep the military ball rolling on foreign oil. Eventually, they tried to backtrack and admit it was a mistake but the alternative at the time was to confront a Republican-controlled Congress and be accused of being unpatriotic, even traitors.

To the very end, Democrats pledged taxpayer money by failing to properly earmark the initial $350B of TARP.

By the end of the Bush reign of errors, most Americans conceded Iraq was poorly planned and much too expensive. Heck, last year the Iraqi government had a surplus of $79B of what can be called as an American taxpayer relief fund. Iraq got a pretty darn good return on American monetary “investments” that cost us anywhere from $600B (Pentagon), $1T to $2T (Congressional Budget Office) or $3T (Joseph Stiglitz, Columbia University Professor, 2001 Nobel Prize in Economics, and 2007 Nobel Peace Prize). It’s kinda like what happened on the home front - trillions of dollars were lost to Wall Street.

The blame game is fairly pointless, although George “The Scourge” Bush is the primary culprit with his commandant-in-chief attitude, convincing every American that they too can become a homeowner. The resultant excesses of lackey lending institutions helped create the 10-digit budget deficit, a dollar figure that makes no sense.

And yet, Republicans in general are proving themselves to be afflicted with same-minded ideas with a rehash of the monetary policies of the past eight years. When the House passed the $819B stimulus package, Republicans in unison barked up the wrong money tree with their insistence that tax cuts and reduced spending would be an appropriate action to stimulate the economy. It was probably a token stance of solidarity – Senate Republicans will likely give passage to ARRP.

The National Republican Party is way out there in right field, no pitcher, no catcher, just a shortstop with Democrats hitting one left field hit after another. And yet, red and blue states alike are already making plans to spend their share of relief funds. Just how many friends (voters) do Republicans think they’ll make with such game plans?

Which leads me to suggest that any recovery package that Republicans might drum up would be labeled HARP (Hapless Anemic Republican Program). Let’s lay that idea to rest and canvas such a leaky premise with an oversized blanket of tarp.