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Disdain for Workers

By PAUL KRUGMAN
Published: September 20, 2012

By now everyone knows how Mitt Romney, speaking to donors in Boca Raton, washed his hands of almost half the country — the 47 percent who don’t pay income taxes — declaring, “My job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.” By now, also, many people are aware that the great bulk of the 47 percent are hardly moochers; most are working families who pay payroll taxes, and elderly or disabled Americans make up a majority of the rest.

But here’s the question: Should we imagine that Mr. Romney and his party would think better of the 47 percent on learning that the great majority of them actually are or were hard workers, who very much have taken personal responsibility for their lives? And the answer is no.

For the fact is that the modern Republican Party just doesn’t have much respect for people who work for other people, no matter how faithfully and well they do their jobs. All the party’s affection is reserved for “job creators,” a k a employers and investors. Leading figures in the party find it hard even to pretend to have any regard for ordinary working families — who, it goes without saying, make up the vast majority of Americans.

Am I exaggerating? Consider the Twitter message sent out by Eric Cantor, the Republican House majority leader, on Labor Day — a holiday that specifically celebrates America’s workers. Here’s what it said, in its entirety: “Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.” Yes, on a day set aside to honor workers, all Mr. Cantor could bring himself to do was praise their bosses.

Lest you think that this was just a personal slip, consider Mr. Romney’s acceptance speech at the Republican National Convention. What did he have to say about American workers? Actually, nothing: the words “worker” or “workers” never passed his lips. This was in strong contrast to President Obama’s convention speech a week later, which put a lot of emphasis on workers — especially, of course, but not only, workers who benefited from the auto bailout.

And when Mr. Romney waxed rhapsodic about the opportunities America offered to immigrants, he declared that they came in pursuit of “freedom to build a business.” What about those who came here not to found businesses, but simply to make an honest living? Not worth mentioning.

Needless to say, the G.O.P.’s disdain for workers goes deeper than rhetoric. It’s deeply embedded in the party’s policy priorities. Mr. Romney’s remarks spoke to a widespread belief on the right that taxes on working Americans are, if anything, too low. Indeed, The Wall Street Journal famously described low-income workers whose wages fall below the income-tax threshold as “lucky duckies.”

What really needs cutting, the right believes, are taxes on corporate profits, capital gains, dividends, and very high salaries — that is, taxes that fall on investors and executives, not ordinary workers. This despite the fact that people who derive their income from investments, not wages — people like, say, Willard Mitt Romney — already pay remarkably little in taxes.

Where does this disdain for workers come from? Some of it, obviously, reflects the influence of money in politics: big-money donors, like the ones Mr. Romney was speaking to when he went off on half the nation, don’t live paycheck to paycheck. But it also reflects the extent to which the G.O.P. has been taken over by an Ayn Rand-type vision of society, in which a handful of heroic businessmen are responsible for all economic good, while the rest of us are just along for the ride.

In the eyes of those who share this vision, the wealthy deserve special treatment, and not just in the form of low taxes. They must also receive respect, indeed deference, at all times. That’s why even the slightest hint from the president that the rich might not be all that — that, say, some bankers may have behaved badly, or that even “job creators” depend on government-built infrastructure — elicits frantic cries that Mr. Obama is a socialist.

Now, such sentiments aren’t new; “Atlas Shrugged” was, after all, published in 1957. In the past, however, even Republican politicians who privately shared the elite’s contempt for the masses knew enough to keep it to themselves and managed to fake some appreciation for ordinary workers. At this point, however, the party’s contempt for the working class is apparently too complete, too pervasive to hide.

The point is that what people are now calling the Boca Moment wasn’t some trivial gaffe. It was a window into the true attitudes of what has become a party of the wealthy, by the wealthy, and for the wealthy, a party that considers the rest of us unworthy of even a pretense of respect.

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Related in Opinion

Campaign Stops: I Know Why the Caged Bird Shrieks (September 19, 2012)
http://campaignstops.blogs.nytimes.com/2012/09/19/blow-i-know-why-the-caged-bird-shrieks/

Times Topic: Economy
http://topics.nytimes.com/top/opinion/economy/index.html

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© 2012 The New York Times Company

http://www.nytimes.com/2012/09/21/opinion/krugman-disdain-for-workers.html [with comments]


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I Was a Welfare Mother


Gigi Rose Gray

By LARKIN WARREN
Published: September 21, 2012

Bethel, Conn.

I WAS a welfare mother, “dependent upon government,” as Mitt Romney so bluntly put it [ http://www.motherjones.com/politics/2012/09/full-transcript-mitt-romney-secret-video ({linked in} http://investorshub.advfn.com/boards/read_msg.aspx?message_id=79652529 and following)] in a video that has gone viral. “My job is not to worry about those people,” he said. “I’ll never convince them that they should take personal responsibility and care for their lives.” But for me, applying for government benefits was exactly that — a way of taking responsibility for myself and my son during a difficult time in our lives. Those resources kept us going for four years. Anyone waiting for me to apologize shouldn’t hold his breath.

Almost 40 years ago, working two jobs, with an ex-husband who was doing little to help, I came home late one night to my parents’ house, where I was living at the time. My mother was sitting at the card table, furiously filling out forms. It was my application for readmission to college, and she’d done nearly everything. She said she’d write the essay, too, if I wouldn’t. You have to get back on track, she told me. I sat down with her and began writing.

And so, eight years after I’d flunked out, gotten pregnant, eloped, had a child, divorced and then fumbled my first few do-overs of jobs and relationships, I was readmitted to the University of New Hampshire as a full-time undergraduate. I received a Basic Educational Opportunity Grant, a work-study grant and the first in a series of college loans. I found an apartment — subsidized, Section 8 — about two miles from campus. Within days, I met other single-mom students. We’d each arrived there by a different route, some falling out of the middle class, others fighting to get up into it, but we shared the same goal: to make a better future.

By the end of the first semester, I knew that my savings and work-study earnings wouldn’t be enough. My parents could help a little, but at that point they had big life problems of their own. If I dropped to a part-time schedule, I’d lose my work-study job and grants; if I dropped out, I’d be back to zero, with student-loan debt. That’s when a friend suggested food stamps and A.F.D.C. — Aid to Families With Dependent Children.

Me, a welfare mother? I’d been earning paychecks since the seventh grade. My parents were Great Depression children, both ex-Marines. They’d always taught self-reliance. And I had grown up hearing that anyone “on the dole” was scum. But my friend pointed out I was below the poverty line and sliding. I had a small child. Tuition was due.

So I went to my dad. He listened, did the calculations with me, and finally said: “I never used the G.I. Bill. I wish I had. Go ahead, do this.” My mother had already voted. “Do not quit. Do. Not.”

My initial allotment (which edged up slightly over the next three years) was a little more than $250 a month. Rent was around $150. We qualified for $75 in food stamps, which couldn’t be used for toilet paper, bathroom cleanser, Band-Aids, tampons, soap, shampoo, aspirin, toothpaste or, of course, the phone bill, or gas, insurance or snow tires for the car.

At the end of the day, my son and I came home to my homework, his homework, leftover spaghetti, generic food in dusty white boxes. The mac-and-cheese in particular looked like nuclear waste and tasted like feet. “Let’s have scrambled eggs again!” chirped my game kid. We always ran out of food and supplies before we ran out of month. There were nights I was so blind from books and deadlines and worry that I put my head on my desk and wept while my boy slept his boy dreams. I hoped he didn’t hear me, but of course he did.

The college-loan folks knew about the work-study grants, the welfare office knew about the college loans, and each application form was a sworn form, my signature attesting to the truth of the numbers. Still, I constantly worried that I’d lose our benefits. More than once, the state sent “inspectors” — a knock at the door, someone insisting he had a right to inspect the premises. One inspector, fixating on my closet, fingered a navy blue Brooks Brothers blazer that I wore to work. “I’d be interested to know how you can afford this,” she said.

It was from a yard sale. “Take your hands off my clothing,” I said. My benefits were promptly suspended pending status clarification. I had to borrow from friends for food and rent, not to mention toilet paper.

That’s not to say we didn’t have angels: work-study supervisors, academic advisers and a social worker assigned to “nontraditional” students, which, in addition to women like me, increasingly included military veterans and older people coming in to retrofit their careers. Faculty members were used to panicked students whose kids had the flu during finals. Every semester, I had at least one incomplete course, with petitions for extensions. One literature professor, seeing my desperation, gave me a copy of “The Awakening” by Kate Chopin to read and critique for extra credit. “But it’s not a primer,” he cautioned. (Spoiler: she walks into the ocean and dies.)

With help, I graduated. That day, over the heads of the crowd, my 11-year-old’s voice rang out like an All Clear: “Yay, Mom!” Two weeks later, I was off welfare and in an administrative job in the English department. Part of my work included advising other nontraditional students, guiding them through the same maze I’d just completed, one course, one semester, at a time.

In the years since, the programs that helped me have changed. In the ’80s, the Basic Educational Opportunity Grant became the Pell Grant (which Paul D. Ryan’s budget [ http://www.usnews.com/education/blogs/student-loan-ranger/2012/09/05/how-might-pell-grants-fare-under-obama-and-romney ] would cut). In the ’90s, A.F.D.C. was replaced by block grants to the states, a program called Temporary Assistance for Needy Families [ http://aspe.hhs.gov/hsp/abbrev/afdc-tanf.htm ]. States can and do divert [ http://www.cbpp.org/cms/index.cfm?fa=view&id=3808 ] that money for other programs, and to plug holes in the state budget. And a single mother applying for aid today would face time limits and eligibility requirements that I did not. Thanks to budget cuts, she would also have a smaller base of the invaluable human resources — social workers, faculty members, university facilities — that were so important to me.

Since then, I’ve remarried, co-written books, worked as a magazine editor and finally paid off my college loans. My husband and I have paid big taxes and raised a hard-working son who pays a chunk of change as well. We pay for sidewalks, streetlights, sanitation trucks, the military (we have three nephews in uniform, two deployed), police and fire departments, open emergency rooms, teachers, bus drivers, museums, libraries and campuses where people’s lives are saved, enriched and raised up every day. My country gave me the chance to rebuild my life — paying my tax tab is the only thing it’s asked of me in return.

I was not an exception in that little Section 8 neighborhood. Among those welfare moms were future teachers, nurses, scientists, business owners, health and safety advocates. We never believed we were “victims” or felt “entitled”; if anything, we felt determined. Wouldn’t any decent person throw a rope to a drowning person? Wouldn’t any drowning person take it?

Judge-and-punish-the-poor is not a demonstration of American values. It is, simply, mean. My parents saved me and then — on the dole, in the classroom or crying deep in the night, in love with a little boy who needed everything I could give him — I learned to save myself. I do not apologize. I was not ashamed then; I am not ashamed now. I was, and will always be, profoundly grateful.

A writer [ http://www.harpercollins.com/author/microsite/about.aspx?authorid=36112 ] who was the co-author of Carissa Phelps’s “Runaway Girl: Escaping Life on the Streets, One Helping Hand at a Time [ http://www.amazon.com/Runaway-Girl-Escaping-Streets-Helping/dp/0670023728 ],” and is at work on her own memoir.

© 2012 The New York Times Company

http://www.nytimes.com/2012/09/23/opinion/sunday/taking-responsibility-on-welfare.html [ http://www.nytimes.com/2012/09/23/opinion/sunday/taking-responsibility-on-welfare.html?pagewanted=all ]


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What Mitt Romney Really Represents

By Robert Reich
Posted: 09/21/2012 4:06 pm

It's not just his giant income or the low tax rates he pays on it. And it's not just the videotape of him berating almost half of America, or his endless gaffes, or his regressive budget policies.

It's something that unites all of this, and connects it to the biggest underlying problem America faces -- the unprecedented concentration of wealth and power at the very top that's undermining our economy and destroying our democracy.

Romney just released his 2011 tax returns, showing he paid $1.9 million in taxes on more than $13 million of income last year -- for an effective tax rate of 14.1 percent. (He released his 2010 return in January, showing he paid an effective tax rate of 13.9 percent.)

American has had hugely wealthy presidents before -- think of Teddy Roosevelt and his distant cousin, Franklin D. Roosevelt; or John F. Kennedy, beneficiary of father Joe's fortune.

But here's the difference. These men were champions of the working class and the poor, and were considered traitors to their own class. Teddy Roosevelt railed against the "malefactors of great wealth," and he busted up the oil and railroad trusts.

FDR thundered against the "economic royalists," raised taxes on the wealthy, and gave average working people the right to form unions -- along with Social Security, unemployment insurance, a minimum wage, and a 40-hour workweek.

But Mitt Romney is not a traitor to his class. He is a sponsor of his class. He wants to cut their taxes by $3.7 trillion over the next decade, and hasn't even specified what "loopholes" he'd close to make up for this gigantic giveaway.

And he wants to cut benefits that almost everyone else relies on -- Medicare, Medicaid, Social Security, food stamps, unemployment insurance, and housing assistance.

He's even a warrior for his class, telling his wealthy followers his job isn't to worry about the "47 percent" of Americans who won't vote for him, whom he calls "victims" and he berates for not paying federal incomes taxes and taking federal handouts.

(He mangles these facts, of course. Almost all working Americans pay federal taxes -- and the federal taxes that have been rising fastest for most people are Social Security payroll taxes, which aren't collected on a penny of income over $110,100. Moreover, most of the "47 percent" whom he accuses of taking handouts are on Medicare or Social Security -- the biggest "entitlement" programs -- which, not incidentally, they paid into during their working lives.)

Money means power. Concentrated wealth at the top means extraordinary power at the top. The reason Romney pays a rate of only 14 percent on $13 million of income in 2011 -- a lower rate than many in the middle class -- is because he exploits a loophole that allows private equity managers to treat their income as capital gains, taxed at only 15 percent.

And that loophole exists solely because private equity and hedge fund managers have so much political clout -- as a result of their huge fortunes and the money they've donated to political candidates -- that neither party will remove it.

In other words, everything America is learning about Mitt Romney -- his tax returns, his years at Bain Capital, the video of his speech to high-end donors in which he belittles half of America, his gaffes, the budget policies he promotes -- repeat and reenforce the same underlying reality.

So much wealth and power have accumulated at the top of America that our economy and our democracy are seriously threatened. Romney not only represents this problem. He is the living embodiment of it.

Copyright © 2012 TheHuffingtonPost.com, Inc.

http://www.huffingtonpost.com/robert-reich/what-mitt-romney-really-r_b_1904630.html [with comments]


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Intangible Dividend of Antipoverty Effort: Happiness

By SABRINA TAVERNISE
Published: September 20, 2012

When thousands of poor families were given federal housing subsidies in the early 1990s to move out of impoverished neighborhoods, social scientists expected the experience of living in more prosperous communities would pay off in better jobs, higher incomes and more education.

That did not happen. But more than 10 years later, the families’ lives had improved in another way: They reported being much happier [ http://www.sciencemag.org/lookup/doi/10.1126/science.1224648 ] than a comparison group of poor families who were not offered subsidies to move, a finding that was published on Thursday in the journal Science.

And using the gold standard of social surveys — the General Social Survey [ http://www3.norc.org/gss+website/ ], in which researchers have questioned thousands of Americans of all income levels going back to the 1970s — researchers even quantified how much happier the families were. The improvement was equal to the level of life satisfaction of someone whose annual income was $13,000 more a year, said Jens Ludwig, a professor of public policy at the University of Chicago and the lead author of the study.

This vast social experiment, involving 4,600 families in Los Angeles, New York, Baltimore, Chicago and Boston, tested a long-held theory that neighborhood is an important determinant of an individual’s success.

But there was little evidence that the new neighborhoods made much of a difference in either income or education, a disappointment for social scientists, who had hoped that the experiment would lead to new ways of combating poverty.

What researchers did find were substantial improvements in the physical and mental health of the people who moved. Researchers reported last year [ http://www.nejm.org/doi/full/10.1056/NEJMsa1103216 ] in The New England Journal of Medicine that the participants who moved to new neighborhoods had lower rates of obesity and diabetes than those not offered the chance to move. Beyond the increase in happiness, the new study found lower levels of depression among those who moved.

“Mental health and subjective well-being are very important,” said William Julius Wilson, a sociology professor at Harvard whose 1987 book “The Truly Disadvantaged” pioneered theory about concentrated poverty. “If you are not feeling well, it’s going to affect everything — your employment, relations with your family.”

The researchers measured quality of life using participants’ reports of their own well-being. Researchers asked: “Taken all together, how would you say things are these days? Would you say you are very happy, pretty happy or not too happy?”

A year after they entered the program, the families who had made the move were living in neighborhoods where about a third of the residents lived in poverty. In contrast, those who were not offered the chance to move lived in neighborhoods where half of the residents lived in poverty.

Professor Wilson said it was not surprising that education levels did not change significantly because many of the children who moved remained in the same school districts. And Lawrence Katz, an economics professor at Harvard and one of the study authors, said that the preference for educated workers was so strong that changing neighborhoods did not do much to improve job options for the participants, who were mostly African-American women without college educations.

Researchers said that though they did not know why people felt happier after moving, it probably had to do with feeling safer and less stressed. Nearly three-quarters of the families who signed up for the program said they had done so to get away from violence in dangerous neighborhoods.

Moving to a neighborhood that was less poor caused families that were making $20,000 a year to feel as happy as families making $33,000 a year, Professor Ludwig said.

Even more startling, researchers said, was the finding that families who moved into new neighborhoods that were just as racially segregated as the ones they came from, but were much less poor, reported much larger gains in feelings of well-being than those who moved to much more racially integrated neighborhoods that were nearly as impoverished.

That finding, Professor Katz said, is troubling for the future because economic segregation has grown steadily in the United States, since the 1970s, while racial segregation has been declining.

“The increased geographic isolation of the poor appears to have a pure adverse effect on health and well-being,” he said.

Improvements in health and well-being caused by moving to areas with less concentrated poverty “is not a magic bullet to eliminate poverty itself,” Professor Katz said. That would require major changes in the American economy. But he said it would improve lives for the families that experience it, and reduce the costs to taxpayers of medical care for them.

© 2012 The New York Times Company

http://www.nytimes.com/2012/09/21/health/intangible-dividend-in-an-anti-poverty-experiment-happiness.html [with comments]


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Mitt Romney 2011 Tax Return Includes Massive Gain From Controversial Bain Deal


Mitt Romney's 2011 tax return shows a big tax bill saving as a result of his Bain Capital retirement package.
(AP Photo/Al Behrman)

By Zach Carter
Posted: 09/25/2012 9:22 pm EDT Updated: 09/26/2012 11:05 am EDT

WASHINGTON -- Mitt Romney saved about $$850,000 on his 2011 taxes, thanks to the Republican presidential candidate's controversial retirement package with Bain Capital that decreased his overall tax bill by a third.

According to the tax return released on Friday [ http://www.huffingtonpost.com/2012/09/21/mitt-romney-tax-returns-released_n_1904242.html ], Romney paid about $1.9 million in taxes on income of $13.7 million in 2011. Romney's income includes $6.8 million in capital gains, $3.6 million in dividends, $260,390 in directors fees, and $190,350 in speaking fees. He listed no income from wages, salaries or tips.

But much of Romney's capital gains income flowed from his retirement package at Bain Capital, the private equity giant he founded, which granted him an extremely lucrative and unconventional deal upon his departure. Although most former financiers must pay ordinary income taxes on retirement income, Bain allowed Romney to receive his payments as "carried interest" -- a special tax category reserved for those who actively manage investment funds.

Romney's 2011 return does not detail the amount of income he received in carried interest, but his campaign told HuffPost the amount is $5.5 million. When Romney released his 2010 tax return in January of this year, his campaign noted that the candidate reaped $7.4 million in carried interest income during 2010.

Carried interest income qualifies as a capital gain, making it eligible for a 15 percent tax rate -- far more favorable than the 35 percent rate that the wealthiest American taxpayers must pony up on ordinary income. Capital gains are one of the most lucrative tax breaks in the tax code for the rich -- 50 percent of all capital gains go to the wealthiest 0.1 percent of taxpayers, according to The Washington Post [ http://www.huffingtonpost.com/2012/09/21/mitt-romney-tax-returns-released_n_1904242.html ].

Recording this $5.5 million as carried interest rather than ordinary income saved Romney $147,000 in self-employment taxes including Medicare and Social Security, plus additional savings of more than $700,000 in income taxes.

"He followed the law, and paid 100 percent of what he owes under the law," a Romney spokesman said.

While the special treatment the tax code affords to capital gains is a subject of heated debate among economists, carried interest is even more aggressively disputed. Under the carried interest scheme, fund managers receive a cut of an investment portfolio's gains as their compensation, rather than a simple cash fee for overseeing trades. Although advocates for this lucrative tax arrangement insist that it rewards investment companies for taking risks, managers may put little capital -- if any -- into the investment fund, making many experts question why managers should receive the same tax benefits as those who have actually put their own money at risk.

None of the arguments that apply to fund managers are relevant to Romney's retirement package, however. Romney has repeatedly stated that he is not playing any active role in Bain's current investment strategies.

"One of the justifications for the lower capital gains rate is that they encourage people to take risks," noted Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice [ http://ctj.org/ ]. "But he only has the upside on these deals. If he walks away, he hasn't lost any money. Even if you buy the arguments about why there should be a lower capital gains rate, there's really no justification for this compensation being taxed as capital gains. This is just payment for their services. They haven't taken any risk, they haven't put up any capital."

Copyright © 2012 TheHuffingtonPost.com, Inc.

http://www.huffingtonpost.com/2012/09/25/mitt-romney-2011-tax-return-bain_n_1914587.html [with comments]


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Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit

By Jesse Drucker - Sep 27, 2012 11:41 AM CT

In January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc.

If Romney had given the cash directly, he could have owed a gift tax at a rate as high as 55 percent. He avoided gift and estate taxes by using a type of generation-skipping trust known to tax planners by the nickname: “I Dig It.”

The sale of DoubleClick shares received before the company went public, detailed in previously unreported securities filings reviewed by Bloomberg News, sheds new light on Romney’s estate planning -- the art of leaving assets for heirs while avoiding taxes. The Republican presidential candidate used a trust considered one of the most effective techniques for the wealthy to bypass estate and gift taxes. The Obama administration proposed cracking down on the tax benefits in February.

While Romney’s tax avoidance is both legal and common among high-net-worth individuals, it has become increasingly awkward for his candidacy since the disclosure of his remarks at a May fundraiser. He said that the nearly one-half of Americans who pay no income taxes are “dependent upon government” and “believe that they are victims.”

Trust’s Funds

Romney’s effective income tax rate in 2011 was about 14 percent. He has also enhanced his family’s wealth by moving assets worth $100 million into a trust while taking steps to avoid paying any gift taxes. The trust’s value isn’t counted in the $250 million that his campaign cites as Romney’s net worth.

The bulk of the trust’s income comes from Romney’s interests in Bain Capital funds, hedge funds and other investments, according to his 2011 tax return. The return doesn’t show how much Romney paid for these holdings, nor the value assigned to them when he gave them to the trust, so it’s unclear how much in total the trust has saved in gift and estate taxes.

“People like Mitt Romney make a lot of money, but they pay very little income tax,” said Victor Fleischer, a tax law professor at the University of Colorado who has written extensively about private equity and taxes. “Then by dodging the estate and gift tax, they are able to build dynastic wealth. These DoubleClick documents really show that tax planning in action.”

The Obama administration estimates that closing the loophole Romney used would bring the federal government almost $1 billion in the coming decade.

‘Laughable’ Estimate

That’s a “laughable” under-estimate, said Stephen Breitstone, co-head of the taxation and wealth preservation group at law firm Meltzer, Lippe, Goldstein & Breitstone LLP. A single billionaire could pay $500 million more in estate taxes if these trusts are shut down by the Obama administration, Breitstone said.

Romney or his trust received shares in DoubleClick eight months before the company went public in 1998. The trust sold them less than a year after the IPO. The trust’s sale of the DoubleClick stake made it possible to save hundreds of thousands of dollars in estate and gift taxes.

Multimillionaires use such trusts to avoid those taxes in three ways. First, they can assign a low value to assets they donate to the trust. Second, when the trust sells assets at a profit, the donors can pay the relatively low capital gains taxes on behalf of the trust. By doing so, they leave more money in the trust, untouched by the much higher gift tax. Third, by paying those taxes, they can reduce the pile of wealth eventually subject to an estate tax when they die.

Giving Money

High net-worth individuals often use trusts as a legal means of giving money to their children while incurring the least possible taxes. In 2010, about 3 million U.S. trusts and estates reported more than $91 billion in income.

The type of trust used by Romney is so important to the wealthy that ending its tax benefits “would put an end to much of estate planning as we know it,” Breitstone said.

Romney has vowed as president to cut the gift tax rate and repeal the federal estate tax altogether -- calling it the “Death Tax.” In its “Believe in America [ http://www.mittromney.com/sites/default/files/shared/BelieveInAmerica-PlanForJobsAndEconomicGrowth-Full.pdf ]” jobs plan released last year, the Romney campaign said that this tax “creates a series of perverse incentives that encourages the most complicated and convoluted tax-avoidance schemes at tremendous cost to all involved.”

The Romney campaign did not respond to a list of questions about the tax avoidance transactions.

‘Scrupulously Complied’

When it released his 2011 tax returns last week, the Romney campaign said in a statement that the Republican nominee “has scrupulously complied with the U.S. tax code, and his income is reported and taxed at the applicable rates, and he has paid 100 percent of what he has owed.”

Use of these types of trusts has grown as the wealthy employ increasingly sophisticated techniques to avoid both estate and gift taxes [ http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-and-Gift-Taxes ] on money they transfer to their families.

A longtime target of Republicans, the estate tax currently imposes a 35 percent rate on estates greater than $10.24 million for a married couple. The gift tax -- intended to prevent individuals from avoiding the estate tax by giving away assets before death -- imposes a 35 percent tax on a married couple’s transfers above $26,000 in a year or $10.24 million over a lifetime. The top estate and gift tax rates were 55 percent during the 1990s, when Romney’s trust was established, and they are scheduled to rise to 55 percent again next year.

Romney Trust

The formal name for Romney’s shelter is the Ann and Mitt Romney 1995 Family Trust. Capital gains, interest and dividends from its holdings accounted for about a quarter of Romney’s 2011 income of $13.7 million.

Romney set up his trust in 1995 when he was chief executive officer of Bain Capital. At the time, trusts were a common estate planning device at the buyout firm, securities filings show. Other executives establishing trusts that same year included Joshua Bekenstein, one of the original Bain Capital directors, and Robert F. White, one of Romney’s closest political advisers, who described himself as the nominee’s “wingman” in a speech at the Republican National Convention last month.

Bain Capital directed questions for Bekenstein and White to a spokesman who didn’t respond to them.

Digging It

Romney’s vehicle is known as an “intentionally defective grantor trust” or by the acronym IDGT -- hence the nickname: “I Dig It.” Such trusts permit donors to give potentially unlimited amounts to children free of estate and gift taxes.

Here’s how they work: the person setting up the trust, like Romney, contributes assets such as an interest in a fund or shares in a company. If he makes that contribution before those assets appreciate -- particularly when they are privately held and difficult to value -- he can claim the gift tax obligation is low or non-existent since the declared value is low or zero.

If the trust generates any income -- such as by selling stock -- the eventual tax bill is the responsibility of Romney, not the trust. By paying the capital gains tax [ http://www.irs.gov/uac/Ten-Important-Facts-About-Capital-Gains-and-Losses ], which was 20 percent in the late 1990s and is now 15 percent, he can avoid depleting the funds in the trust -- in essence making an additional donation that’s free of gift taxes.

That benefit in particular makes this type of trust “a more powerful driver of wealth transfer in estate planning than almost anything else,” said Breitstone, the wealth preservation attorney.

Wealth Transfer

In 2008, a presentation by an attorney at Boston law firm Ropes & Gray LLP, which represents Bain and Romney, laid out a strategy for avoiding gift taxes by conservatively stating the value of assets put into a trust. The firm’s chairman, R. Bradford Malt, is the manager of Romney’s family trusts.

In the 2008 presentation at a legal education conference in Boston, a partner at the firm, Marc J. Bloostein, outlined various strategies to minimize the estate and gift tax bills for private-equity executives.

Bloostein, who didn’t respond to a request for comment, said it was common during the 1990s for lawyers to advise clients to value their stake in a fund’s future profits -- called carried interest in the private equity world -- at zero for gift tax purposes, according to his presentation reviewed by Bloomberg News. This could permit the donors to avoid a gift tax on the contribution, even if that compensation became very valuable. In 2005, proposed regulations from the IRS discouraged the practice.

Big Profit

Romney, Bekenstein, and White all had DoubleClick shares wind up in trusts. In June 1997, DoubleClick announced a $40 million investment by a group including Bain Capital, eventually giving the buyout firm a 17.7 percent stake in the Internet marketing company.

Like at other private-equity firms, Bain managers were permitted to co-invest personally in the firm’s deals. Romney’s DoubleClick filings with the Securities and Exchange Commission inidcate that he or his trust received some of the company’s shares as a co-investor, and others as his stake in Bain’s future profits, or carried interest.

Romney did make a big profit for his heirs. Romney, or his trust, received the first batch of DoubleClick shares in June of 1997, when Bain made its initial investment in DoubleClick.

In February of 1998, DoubleClick went public. Its shares nearly quintupled over the next 12 months.

In January 1999, Romney’s trust sold $746,000 worth of DoubleClick shares, for a gain of about $674,000, or an almost 1,000 percent return, according to an attachment to an April 30, 1999, filing by Romney with the SEC. The three-page attachment contains the details of trades by dozens of Bain investors that got DoubleClick shares.

No Tax

Because those shares were already in the trust before the sale, no gift or estate tax would be owed on the trust’s receipt of that cash. And according to the tax law governing an “I Dig It” trust, Romney, not the trust, would be responsible for paying any capital gains tax triggered by the sale, potentially as high as $140,000. Gains in the trust for Romney’s heirs remain free of gift taxes and potential estate taxes.

Romney sold additional DoubleClick shares in at least two other transactions, securities filings show.

DoubleClick was purchased by Google Inc. (GOOG) for $3.2 billion in 2008.

Public exposure of Romney’s various tax avoidance tactics may spur legislation cracking down on them, according to Breitstone.

Romney “uses every trick in the book,” Breitstone said. “It’s going to be harder to do tax planning in the future. He’s bringing attention to things that weren’t getting attention.”

To contact the reporter on this story: Jesse Drucker in Rome at [e-mail]
To contact the editor responsible for this story: Jonathan Kaufman at [e-mail]

©2012 BLOOMBERG L.P.

http://www.bloomberg.com/news/2012-09-27/romney-i-dig-it-trust-gives-heirs-triple-benefit.html [with comments]


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Romneys reported sharp gain in foreign income in 2011 tax return
* More than a quarter of income from sources abroad
* Investments in Bermuda, Cayman Islands, elsewhere
Sep 26, 2012
http://in.reuters.com/article/2012/09/25/usa-campaign-romney-offshore-idINL1E8KNAU720120925 [no comments yet]


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Chinese firm promoted its low-wage, low-tax liability to investors shortly before Mitt Romney made investment

By Matt Viser | Globe Staff
September 25, 2012

WASHINGTON – Less than two weeks before an investment firm controlled by Mitt Romney decided to invest in a China-based home appliance company, the company put out a detailed document to investors promoting itself as a low-wage, low-tax firm that would not be subject to taxes in the United States.

It used “inexpensive labor,” Global-Tech Appliances wrote in a prospectus meant to attract investors on April 8, 1998. Its location in China meant “an overall effective tax rate that may be less than that of US corporations.” It said its current operations would not be subject to “material US taxes because it should not be considered to have significant income effectively connected with a trade or business in the US.”

The company also noted its working conditions: peak production periods required six-day work weeks, and two 10-hour shifts per day in the case of the metal stamping department. The main manufacturing facility, located in Dongguan, China, included 14 buildings that served as dormitories accommodating up to 3,700 workers.

Nine days after the document was released – on April 17, 1998 -- an affiliate of Bain Capital called Brookside Capital Partners Fund acquired about 6 percent of Global Tech, according to Securities and Exchange Commission documents that were first reported by Mother Jones magazine.

Romney was listed as the “sole shareholder, sole director, President and Chief Executive Officer of Brookside Inc. and thus is the controlling person of Brookside Inc.”

Romney’s decision to invest in Global Tech has become of greater interest in the wake of a controversial fundraising video that shook the political world last week when it was released in full by Mother Jones. The Globe reported on a shorter clip of the video – and on some of Romney’s investments in China – on Sept. 15, before the full video emerged.

In the video, Romney is seen at a fundraiser in May describing how, “When I was back in my private sector days, we went to China to buy a factory there.”

“It employed about 20,000 people,” he said. “And they were almost all young women between the ages of about 18 and 22 or 23. They were saving for potentially becoming married, and they work at these huge factories.”

Romney said the women were packed into dormitories, 12 per room in bunk beds, and only earned a “pittance.” He said there was a large fence with barbed wire surrounding the factory – not to keep the women in, Romney said he was told, but to keep other eager workers away. During the Chinese New Year, the women went home and some didn’t return – not because they were afraid, Romney said, but because they had earned enough money. Long lines of hundreds of women would then wait outside the gates, hoping for work.

Romney’s campaign has refused to say whether or not it was Global Tech that Romney was referring to, and would not comment on the record for this story. Top campaign adviser Ed Gillespie last week referred questions about the factory to Bain. Alex Stanton, a Bain spokesman, didn’t have any comment on Tuesday and said he couldn’t shed light on what Romney’s activities in China involved.

Several news organizations – including ABC News and CNN – last week cited anonymous sources saying that Bain did not buy the Chinese factory that Romney refers to in the fundraising video. Romney in the video says he and a Bain partner “went to China to buy a factory there,” although what Bain ended up doing was investing in a Chinese company that runs factories -- rather than actually buying the factories themselves.

Around the same time that Bain was investing in Global Tech, it also purchased nearly 6 percent of the total shares in a competing company called the Holmes Products Corp., a Milford, Mass.-based company that operated its own factories in China, according to SEC documents filed March 13, 1998.

Global Tech has been controversial for some of its business practices. In a legal case that began in 1998 a French appliance manufacturer called SEB successfully sued the company in the United States for copying its patented deep-fat fryers. The case was ultimately decided by the Supreme Court.

Global Tech was also tied with a Florida company called Sunbeam, through a four-year agreement that required Sunbeam use Global Tech as its sole supplier for certain products. Sunbeam was run by Albert J. Dunlap, who was so controversial for outsourcing American jobs that his nickname was “Chainsaw Al.” Sunbeam announced at least 6,400 layoffs in 1998, putting it among the top 10 in the country.

Bain ended up selling its investment in Global Tech in August 2000. Romney took a leave of absence from Bain in February 1999, to run the Olympics.

Romney also described touring Chinese factories during a panel discussion held Feb. 11, 1998, at the Federal Reserve Bank in Boston. During that discussion -- which also featured Andrew Cuomo, who was then-secretary of Housing and Urban Development and is now governor of New York -- Romney didn’t discuss the images of the factories he toured.

Instead, he said that he had been struck by the hard-working Chinese and how the children in the United States “are not educated to compete in a worldwide marketplace.”

“I just came back from a trip to China, and I went to a factory of 5,000 workers making bread makers and mixers and so forth,” he said. “And 5,000 Chinese, all graduated from high school, 18 to 24 years old, were working, working, working, as hard as they could, at rates of roughly 50 cents an hour. They cared about their jobs; they wouldn’t even look up as we walked by.”

“We’re competing globally, and our kids aren’t ready, and we’re turning kids out who haven’t even got high school educations,” Romney added. “What are they going to do? How are we going to employ these people? We have massive concerns as we look at the future of the work force for our citizenry. And cities - our whole country -have to wake up, and wake up quickly and aggressively.”

While Romney discusses 20,000 workers in the May fundraising video, his citing of 5,000 workers in the Boston forum could mean that he was talking about two different Chinese factories. Global Tech employed about 5,700 during peak periods in 1998, according to its prospectus.

Matt Viser can be reached at [e-mail].

© 2012 The New York Times Company

http://bostonglobe.com/news/politics/2012/09/25/chinese-firm-promoted-its-low-wage-low-tax-liability-investors-shortly-before-mitt-romney-made-investment/7BqBkvSXJnFrpmn7PRIMzJ/story.html


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Obama blocks Chinese wind farms in Oregon over security
Sep 28, 2012
http://www.reuters.com/article/2012/09/28/us-usa-china-turbines-idUSBRE88R19220120928 [with comments]


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Harry Reid: Mitt Romney 'Sullied' Mormonism, Isn't The Face Of The Religion

09/25/2012
Senate Majority Leader Harry Reid (D-Nev.), the highest-ranking Mormon in Congress, told reporters this week that he agreed with a blogger who accused GOP presidential candidate Mitt Romney of having "sullied" Mormonism and misrepresenting the faith with comments made in a recently released hidden camera video.
[...]
http://www.huffingtonpost.com/2012/09/25/harry-reid-mitt-romney-mormonism_n_1913356.html [with comments]


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A Peek Into the Fantasy World of the Persecuted Rich



By Jonathan Chait
9/25/12 at 8:57 AM

Mitt Romney’s secretly recorded diatribe against the 47 percent of Americans who pay no income taxes revealed a lot of things about him, one of them being the degree to which he has come to share the paranoia of the rich that has flowered in the Obama era. The paranoia is very weird, not least because the rich have actually prospered under Obama while vast swaths of the populace have struggled, which is in character with the broader explosion of inequality over the last few decades. The recording also shows the degree to which Romney has joined the imaginary world of persecution inhabited by rich conservatives and undergirded by made-up facts.

Most of these myths take the form of wildly misleading statistics about the tax system. Taxes at all levels of government account for $4 trillion a year. Many of those taxes — most state and local taxes and federal payroll taxes — tax the poor and middle class at a higher rate than the rich. In part to compensate, the federal income tax does the opposite, hitting the rich at higher rates. The overall total is somewhat progressive:



Now, it is perfectly fair to argue that taxes should be less progressive or should not be progressive at all. But since that is not a popular position to advocate, and also because it fails to capture the feelings of persecution that have seized wealthy conservatives, the right has instead constructed its own pseudo-facts.

Reason has a new poll [ http://reason.com/poll/2012/09/21/september-reason-rupe-poll ] out showing that Americans think the rich pay too much in taxes. Well, it doesn’t really show that. What it shows, according to the poll, is that 57 percent of Americans think “the top 5 percent of earners shouldn’t have to contribute more than 40 percent of the total federal income taxes paid to government.” That is higher than the actual share of federal income taxes paid by the top 5 percent.

Of course, this is a trick. Even tiny changes in the wording of a question can swing the result of a poll, so advocacy groups periodically issue polls with questions designed to produce results congenial to their point of view. This particular poll does a couple familiar tricks. It asks about “federal income taxes,” which are one of the most progressive parts of the tax code, and ignores the effect of other taxes, which fall more heavily on the poor and middle class. Its question about what share of federal income taxes the richest 5 percent ought to pay also fails to note what percentage of the income they earn. Kind of hard to answer that question without knowing, isn’t it? And most Americans dramatically underestimate [ http://www.huffingtonpost.com/2010/09/23/americans-support-wealth-redistribution_n_736132.html ] the level of income inequality that exists. So, combine the trick of asking about “federal income taxes,” which most people don’t understand represents merely a quarter of the tax system that is unusually progressive, along with not informing them of the level of income earned by the rich, and you have, in effect, a pseudo-poll, a predetermined answer disguised as a question.

There are a few perennial statistical sleights of hand that make up the vast majority of the vast and growing literature of complaints that the rich are being overtaxed. The use of “federal income taxes” as a substitute for all taxes is the most common. That is the device that Romney repeated to his donors. It is literally true that nearly half of America is not paying federal income taxes. That is because the federal income tax is designed to carry the burden of progressivity in the tax system. If conservatives think there is some grand metaphysical difference between different types of taxes that makes it terribly unfair that this one kind of tax hits the affluent but spares the lower classes, then we could think of ways to make the income tax less progressive and other taxes more progressive. Or they could admit that they just object to progressive taxation. Failing that, the mere existence of a single kind of tax that happens to disproportionately hit the rich is not a sign of massive dependency or entitlement or class warfare. It’s a pseudo-fact plucked out of context to whip up class rage from the top down.

A runner-up is the trick used by the Tax Foundation here [ http://taxfoundation.org/slideshow/putting-face-americas-tax-returns ] and endorsed enthusiastically by James Pethokoukis here [ http://www.aei-ideas.org/2012/09/10-stunning-and-myth-busting-charts-on-the-u-s-tax-system/ ]. It involves presenting the proportion of taxes paid by the rich, which has risen, as evidence that their burden is rising. Here is the Tax Foundation’s chart:



Of course, the proportion of taxes paid by the rich is not just a function of their tax rate. It is also a function of their proportion of the income. If the rich were earning a growing proportion of the income, they would be paying a bigger share of the income taxes, even if their tax rate was constant (or even if it was falling, assuming their share of the total income grew faster than their rate fell.) And, in fact, the latter is what has occurred: The rich have earned a growing share of the income pie and enjoyed lower effective tax rates.

You want another chart, don’t you? Okay, here you go — the effective tax rates of different income strata over time, per the New York Times [ http://www.nytimes.com/2012/04/15/sunday-review/coming-soon-taxmageddon.html ]:



The rich are paying a higher share of the income tax burden entirely because they are making a higher share of the income. Not entirely — more than entirely, enough to compensate for their lower effective tax rate. This doesn’t prove that we can’t reduce taxes on the rich even more. But that is a hard, unpopular case for the right to make. Much simpler and more effective to craft a fantasy narrative of the persecuted rich.

Copyright © 2012, New York Media LLC (emphasis in original)

http://nymag.com/daily/intel/2012/09/fantasy-world-of-the-persecuted-rich.html [with comments]


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Stressful at the top? Not really, study finds


Those who lead have been shown to have less stress than their counterparts who have not reached the top professionally.
(Joe Raedle / Getty Images)

Harvard researchers find leaders in business, politics and the military report lower anxiety levels than others. The key to their serenity is control.

By Melissa Healy
September 24, 2012, 9:26 p.m.

Management consultants say 60% of senior executives experience high stress and anxiety on a regular basis, and a thriving industry of motivational speakers teaches business leaders how to manage their corrosive burden of stress. But just how uneasy lies the head that wears the crown?

Not so uneasy, it turns out.

A new study [ http://www.pnas.org/content/early/2012/09/19/1207042109.abstract ] reveals that those who sit atop the nation's political, military, business and nonprofit organizations are actually pretty chill. Compared with people of similar age, gender and ethnicity who haven't made it to the top, leaders pronounced themselves less stressed and anxious. And their levels of cortisol, a hormone that circulates at high levels in the chronically stressed, told the same story.

The source of the leaders' relative serenity was pretty simple: control.

Compared with workers who toil in lower echelons of the American economy, the leaders studied by a group of Harvard University researchers enjoyed control over their schedules, their daily living circumstances, their financial security, their enterprises and their lives.

"Leaders possess a particular psychological resource — a sense of control — that may buffer against stress," the research team reported Monday in Proceedings of the National Academies of Sciences.

Though the finding appeared to fly in the face of conventional wisdom, it came as no surprise to those who have studied the role that social status plays in the well-being of our primate relatives.

Baboons and monkeys who rise to positions of power in their social groups show lower levels of anxiety and stress, so long as their status is not under constant challenge. A recent study of female macaque monkeys demonstrated that rising and falling through the social ranks not only dialed their stress up and down, it turned genes on and off in ways that can powerfully influence health.

"It's clear that having a sense of control is protective against stress," said Nichole Lighthall, who researches stress and its effects at Duke University and was not involved in the new study.

"People in a company at all levels may be affected by the market and its unpredictability," she said. But while rank-and-file employees may worry about being laid off, chief executives can pretty much rest assured that "they'll keep their position in society, their superiority, their lifestyle and their income" even if the organization over which they preside suffers, she said.

To gather leaders for study, the Harvard team took advantage of the university's array of programs for mid-career and senior professionals. Such students — some at Harvard for just a week, others for as long as a year or two — are generally rising stars being groomed for promotion within their organizations. Members of Harvard's Decision Science Laboratory invited them to take part in their studies.

Social psychologist Gary Sherman and his colleagues recruited 148 people who managed others in military, government, business and nonprofit organizations. Each participant was asked to complete an inventory of psychological traits and a questionnaire that captures the extent to which a person feels a sense of power in general and in his relationships with others.

Participants also were asked to describe their jobs and count the workers below them in the hierarchy. Finally, the study members provided a sample of their saliva so the researchers could measure their level of cortisol.

For comparison, the study drew 65 people from the general community who did not exercise management control over others. Researcher had these participants complete the same inventories and measured their cortisol. They ensured that both groups — leaders and non-leaders — were identical in terms of their age, gender and ethnic composition.

The results showed that compared to non-leaders, leaders' sense of control and propensity toward anxiety were lower. So were their cortisol levels, providing physiological proof that they were less stressed.

When the researchers focused on differences within a group of 75 leaders, they found that the larger the pool of workers an individual managed, the lower he or she scored on measures of stress and anxiety.

Samuel Barondes, director of UC San Francisco's Center for Neurobiology and Psychiatry, said the study didn't reveal whether leaders became less stressed as they climbed toward the top or whether they were less prone to stress in the first place, facilitating their ascent. He suspects it's a combination of both, but either way, "once you've made it and are not at the whim of capricious meanies above you in the hierarchy, you are less stressed," said Barondes, author of "Making Sense of People: Decoding the Mysteries of Personality."

To Sherman, the study underscores that humans and their primate relatives are not so far apart when it comes to the exercise of power.

"Certainly, human hierarchies are more complex than those you see in nonhuman primates," he said. "But clearly, some of the same factors may be at play: Any time you get a hierarchical organization, you may get effects like this."

[e-mail]

*

Related

Stressful job? It could be worse
http://www.latimes.com/health/boostershots/la-heb-stressful-job-heart-20120913,0,6805537.story

Stress and depression, linked in the brain
http://www.latimes.com/news/science/sciencenow/lat-sci-sn-stress-and-depression-linked-in-the-brain-20120919,0,3877095.story

Scientists turn optimists into realists with a zap of a magnet
http://www.latimes.com/news/science/sciencenow/la-sci-sn-humans-are-biased-toward-good-news-20120924,0,1690699.story

Study says people are inclined to help others
http://www.latimes.com/news/science/la-sci-generous-or-selfish-20120920,0,4468031.story

*

Copyright © 2012, Los Angeles Times

http://www.latimes.com/news/science/la-sci-leadership-stress-20120925,0,524384.story [with comments]


--


CEOs May Find It Lonely At The Top, But Not Stressful
All Things Considered
September 26, 2012
It's lonely at the top — and we often assume it's stressful too. Golf outings and retreats are designed to help executives unwind, but it turns out their underlings may be far more stressed out. A new study has found that as leadership rank increases, stress levels decline. Melissa Block speaks with Jennifer Lerner of Harvard University, the study's lead author.
[...]
http://www.npr.org/2012/09/26/161836823/ceos-may-find-it-lonely-at-the-top-but-not-stressful [with embedded audio, transcript, and comments]


===


Super-Rich Irony


Leon Cooperman’s aggrieved open letter to the President quickly went viral.

Read more http://www.newyorker.com/reporting/2012/10/08/121008fa_fact_freeland#ixzz286tha8ll.

Why do billionaires feel victimized by Obama?

by Chrystia Freeland
October 8, 2012 [issue of]

One night last May, some twenty financiers and politicians met for dinner in the Tuscany private dining room at the Bellagio hotel in Las Vegas. The eight-course meal included blinis with caviar; a fennel, grapefruit, and pomegranate salad; cocoa-encrusted beef tenderloin; and blue-cheese panna cotta. The richest man in the room was Leon Cooperman, a Bronx-born, sixty-nine-year-old billionaire. Cooperman is the founder of a hedge fund called Omega Advisors, but he has gained notice beyond Wall Street over the past year for his outspoken criticism of President Obama. Cooperman formalized his critique in a letter to the President late last year which was widely circulated in the business community; in an interview and in a speech, he has gone so far as to draw a parallel between Obama’s election and the rise of the Third Reich.

The dinner was the highlight of the fourth annual SkyBridge Alternatives Conference, known as SALT, a convention orchestrated by the fund manager Anthony Scaramucci; it brings together fund managers with brand-name speakers and journalists for four days of talking and partying. The star guest at the dinner was Al Gore, who was flanked by Antonio Villaraigosa, the mayor of Los Angeles, and the New York hedge-fund investor Orin Kramer, a friend of Gore’s and a top Obama fund-raiser.

Discussion that night was wide-ranging. The group talked about Apple, on whose board Gore sits, and Google, where Gore is a senior adviser, as well as climate change and energy policy. The most electric moment of the evening, though, was an exchange between Cooperman and Gore. Heavyset, with a lumbering gait, Cooperman does not look like a hedge-fund plutocrat: Scaramucci affectionately describes him as “the worst-dressed billionaire on planet earth.” Cooperman’s business model isn’t flashy, either. He began his finance career as an analyst of consumer companies at Goldman Sachs, and went on to make his fortune at Omega as a traditional stock-picker. He searches for companies that are cheap and which he hopes to sell when they become dear. (In 1998, Cooperman made a foray into emerging markets, investing more than a hundred million dollars as part of a bid to take over Azerbaijan’s state oil company, but it went badly wrong. His firm lost most of its money and paid five hundred thousand dollars to settle a U.S.-government bribery investigation.) Cooperman had come to the dinner to give Gore a copy of the letter he’d written to President Obama. “I’d like you to read this,” he told the former Vice-President. “You owe me a small favor. I voted for you,” he said, referring to Gore’s Presidential run, in 2000.

In the letter, Cooperman argued that Obama has needlessly antagonized the rich by making comments that are hostile to economic success. The prose, rife with compound metaphors and righteous indignation, is a good reflection of Cooperman’s table talk. “The divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them,” Cooperman wrote. “It is a gulf that is at once counterproductive and freighted with dangerous historical precedents.”

At the dinner, Al Gore was diplomatic when presented with the letter, and asked Cooperman if he would accept higher taxes. Cooperman said that he would—if he was treated with respect, and the government didn’t squander his money. Cooperman asked Gore what he thought the top marginal tax rate should be. Gore’s reply was noncommittal, but he pleased the group by suggesting that no matter who wins in November the victor should surround himself with advisers with experience in the private sector.

Kramer, the hedge-fund manager and Obama fund-raiser, was quiet, but others in the room were enthusiastic. Villaraigosa gave Cooperman his direct phone number. Barry Sternlicht, the founder of the W hotel chain, and an Obama donor in 2008, said that he agreed totally with Cooperman. Scaramucci, the organizer of the dinner, told me the next day that the guests had witnessed the “activation” of a “sleeper cell” of hedge-fund managers against Obama. “That’s what you see happening in the hedge-fund community, because they now have the power, because of Citizens United, to aggregate capital into political-action committees and to influence the debate,” he said. “The President has a philosophy of disdain toward wealth creation. That’s just obvious, O.K.? We talked about it all night.” He later said, “If there’s a pope of this movement, it’s Lee Cooperman.”

The growing antagonism of the super-wealthy toward Obama can seem mystifying, since Obama has served the rich quite well. His Administration supported the seven-hundred-billion-dollar TARP rescue package for Wall Street, and resisted calls from the Nobel Prize winners Joseph Stiglitz and Paul Krugman, and others on the left, to nationalize the big banks in exchange for that largesse. At the end of September, the S. & P. 500, the benchmark U.S. stock index, had rebounded to just 6.9 per cent below its all-time pre-crisis high, on October 9, 2007. The economists Emmanuel Saez and Thomas Piketty have found that ninety-three per cent of the gains during the 2009-10 recovery went to the top one per cent of earners. Those seated around the table at dinner with Al Gore had done even better: the top 0.01 per cent captured thirty-seven per cent of the total recovery pie, with a rebound in their incomes of more than twenty per cent, which amounted to an additional $4.2 million each.

Notwithstanding Occupy Wall Street’s focus on the “one per cent,” or Obama’s choice of two hundred and fifty thousand dollars as the level at which taxes on family income should rise, the salient dividing line between rich and not rich is much higher up the income-distribution scale. Hostility toward the President is particularly strident among the ultra-rich.

This is the group that has benefitted most from the winner-take-all economy: the 0.1 per cent, whose share of the national income was 7.8 per cent in 2009, according to I.R.S. data. Moreover, even as the shifting tides of the global economy have rewarded the richest while squeezing the middle class, the U.S. tax system has favored the very top, as the tax returns of the Republican Presidential candidate, Mitt Romney, have illustrated. In 2011, Romney paid an effective tax rate of just 14.1 per cent, and his income of $13.7 million places him in the 0.01-per-cent group.

When Obama first ran for President, four years ago, Wall Street formed an important and lucrative part of his base: he raised about sixteen million dollars from the financial sector, compared with McCain, who raised about nine million. Employees of Goldman Sachs contributed more to Obama’s campaign than workers at any other firm, on Wall Street or beyond. Like many others in the financial-services industry, Leon Cooperman was impressed when he first saw Obama in action, at a Goldman Sachs event at the Museum of Modern Art, in New York, in May, 2007. Goldman had assembled a group of hedge-fund managers to meet the junior senator from Illinois who had the temerity to challenge Hillary Clinton for the Democratic nomination. Cooperman said he was impressed by Obama’s reply to a question about what he would do to taxes on the rich if he were elected. “ ‘Raise ’em.’ Just like that. ‘Raise ’em,’ ” Cooperman recalled Obama saying.

Although he voted for McCain in 2008, Cooperman was not compelled to enter the political debate until June, 2011, when he saw the President appear on TV during the debt-ceiling battle. Obama urged America’s “millionaires and billionaires” to pay their fair share, pointing out that they were doing well at a time when both the American middle class and the American federal treasury were under pressure. “If you are a wealthy C.E.O. or hedge-fund manager in America right now, your taxes are lower than they have ever been. They are lower than they have been since the nineteen-fifties,” the President said. “You can still ride on your corporate jet. You’re just going to have to pay a little more.”

Cooperman regarded the comments as a declaration of class warfare, and began to criticize Obama publicly. In September, at a CNBC conference in New York, he compared Hitler’s rise to power with Obama’s ascent to the Presidency, citing disaffected majorities in both countries who elected inexperienced leaders. A month before, Cooperman had written a mock, nine-point “Presidential platform,” outlining his political convictions, which he distributed to his investors. In it, he called for a freeze on entitlements, a jump in the retirement age to seventy for everyone except “those that work at hard labor,” and a temporary tax increase for the super-rich to help pay down the debt. He also called for significant spending cuts, so that the growth in government spending could be restricted to one per cent less than the increase in G.D.P. In November, he drafted the letter to the President. It was fifteen hundred words and took him two weeks to write. “I’m not a gifted writer,” Cooperman recalled. “I spent a lot of time using a dictionary and a thesaurus. I wanted to sound intelligent.” He got help from a friend, a former Omega employee. He also showed the letter to his wife, Toby.

The letter begins by acknowledging that Obama inherited an “economic mess,” but what Cooperman seems to object to most is not the President’s policies but the “highly politicized idiom” in which the debate surrounding them was being conducted:

You should endeavor to rise above the partisan fray and raise the level of discourse to one that is both more civil and more conciliatory.... Capitalism is not the source of our problems, as an economy or as a society, and capitalists are not the scourge that they are too often made out to be. As a group we employ many millions of taxpaying people, pay their salaries, provide them with healthcare coverage, start new companies, found new industries, create new products, fill store shelves at Christmas, and keep the wheels of commerce and progress (and indeed of government, by generating the income whose taxation funds it) moving. To frame the debate as one of rich-and-entitled versus poor-and-dispossessed is to both miss the point and further inflame an already incendiary environment.

Evident throughout the letter is a sense of victimization prevalent among so many of America’s wealthiest people. In an extreme version of this, the rich feel that they have become the new, vilified underclass. T. J. Rodgers, a libertarian and a Silicon Valley entrepreneur, has taken to comparing Barack Obama’s treatment of the rich to the oppression of ethnic minorities—an approach, he says, that the President, as an African-American, should be particularly sensitive to. Clifford S. Asness, the founding partner of the hedge fund AQR Capital Management, wrote an open letter to the President in 2009, after Obama blamed “a small group of speculators” for Chrysler’s bankruptcy. Asness suggested that “hedge funds really need a community organizer,” and accused the White House of “bullying” the financial sector. Dan Loeb, a hedge-fund manager who supported Obama in 2008, has compared his Wall Street peers who still support the President to “battered wives.” “He really loves us and when he beats us, he doesn’t mean it; he just gets a little angry,” Loeb wrote in an e-mail in December, 2010, to a group of Wall Street financiers.

The purported activation of the fund-manager “sleeper cell” is more than the self-aggrandizement of the super-rich. It is having a material and intellectual impact on the 2012 campaign. Historically, incumbent Presidents have enjoyed a strong fund-raising advantage. Going into this year’s race, President Obama had the further benefit of his record-breaking haul in 2008. Yet the Republican National Committee and Romney, a mechanical campaigner whose ability to inspire passion in the Republican base was widely questioned during the primaries, hold a huge cash advantage over Obama. The biggest shift has been among wealthy businesspeople, particularly in financial services. Romney’s advantage is compounded by the advent of Super PACs in this Presidential campaign, which are not subject to the same contribution limits as parties or candidates. The Republican-aligned Restore Our Future, for instance, has raised ninety-six million dollars this election season, and many of its top donors, who give a million dollars or more, work in finance.

The President, in Cooperman’s view, draws political support from those who are dependent on government. Last October, in a question-and-answer session at a Thomson Reuters event, Cooperman said, “Our problem, frankly, is as long as the President remains anti-wealth, anti-business, anti-energy, anti-private-aviation, he will never get the business community behind him. The problem and the complication is the forty or fifty per cent of the country on the dole that support him.”

Framing the political debate as job creators on one side and the President and the fifty per cent of Americans who are supported by the state on the other was striking at the time. It has become even more so since Mitt Romney was secretly recorded at a closed-door fund-raiser in Florida, in May, saying that forty-seven per cent of Americans don’t pay income taxes, are “dependent on the government,” and will vote for President Obama “no matter what.”

Romney’s comment has been widely criticized as a mistake that could cost him the election, with even Republicans accusing their candidate of incompetence. Cooperman’s statement six months earlier shows that Romney’s forty-seven-per-cent remark wasn’t an undisciplined slip by a gaffe-prone politician but, instead, the assertion of a view that is widely held by people of Romney’s class.

America’s super-rich feel aggrieved in part because they believe themselves to be fundamentally different from a leisured, hereditary gentry. In his letter, Cooperman detailed a Horatio Alger biography that has made him an avatar for the new super-rich. “While I have been richly rewarded by a life of hard work (and a great deal of luck), I was not to-the-manor-born,” he wrote, going on to describe his humble beginnings in the South Bronx, as the son of working-class parents—his father was a plumber—who had emigrated from Poland. Cooperman makes it known that he gets up at 5:20 A.M. and is at his desk at Omega’s offices in lower Manhattan, on the thirty-first floor of a building overlooking the East River and Brooklyn, by 6:40 A.M. He rarely gets home before 9 P.M., and most evenings he has a business dinner after leaving the office. “I say that I date my wife on the weekends,” he told me one August afternoon at his office. The space is defiantly modest, furnished with nineteen-nineties-era glass coffee tables, unfashionable yellow couches, and family photographs.

Cooperman’s pride in his work ethic is one source of his disdain for Obama. “When he ran for President, he’d never worked a day in his life. Never held a job,” he said. Obama had, of course, worked—as a business researcher, a community organizer, a law professor, and an attorney at a law firm, not to mention an Illinois state legislator and a U.S. senator, before being elected President. But Cooperman was unimpressed. “He went into government service right out of Harvard,” he said. “He never made payroll. He’s never built anything.”

Cooperman differs from many of his fellow super-rich in one important regard. He understands that he isn’t just smart and hardworking but that he has also been lucky. “I joined the right firm in the right industry,” he said. “I started an investment partnership at the right time.” In the fall of 1963, he enrolled in dental school at the University of Pennsylvania, but within the first week he began to have doubts, and he dropped out soon afterward. “My father, may he rest in peace, was going to work saying, ‘My son, the dentist,’ ” Cooperman said. “It was a total embarrassment amongst his friends.”

Cooperman went on to make a series of fortunate choices. Chief among those was entering the financial markets, after graduating in 1967 from Columbia Business School. In the sixties, Wall Street wasn’t yet the obvious destination for the smart and ambitious, but it was on the verge of becoming the most lucrative industry in America. Cooperman became an analyst at Goldman Sachs, at the time a scrappy partnership that had nearly failed during the Great Depression. In 1976, Cooperman was named a partner. He went on to found Goldman’s asset-management business, but, after twenty-five years at the firm, he decided to start his own hedge fund. Between 1991, when Cooperman founded Omega, and the 2008 financial crisis was the best time in history to make a fortune in finance. Cooperman’s partners who stayed behind at Goldman Sachs are hardly paupers—and those who stuck around for the 1999 I.P.O. are probably multimillionaires—but the real windfalls on Wall Street have been made by the financiers who founded their own investment firms in the period that Cooperman did.

Toby Cooperman grew up five miles away from her husband, in the west Bronx. She asked Cooperman out after they met in French class at Hunter College. Toby has two graduate degrees, in education and as a reading specialist, and works three days a week at a special-needs school in Chatham, New Jersey.

“Growing up lower-middle-class Jewish in the Bronx, I never knew a Republican,” Toby Cooperman recalled. “Everybody loved Roosevelt.” She is still a liberal, a position that puts her in the minority in their social circle. “She can be a socialist because she’s married to a capitalist,” Cooperman says of his wife, who is strongly pro-choice and pro-gay marriage. She calls Todd Akin, Rick Santorum, and Rick Perry “morons,” and she worries about the underclass. “I care more about the disadvantaged people of America,” she said, comparing her politics with those of her husband. “I have friends who are very dependent on Medicare.”

Even so, Toby, who voted for Obama in 2008, defers to her husband when it comes to taxation, and she admires his letter to Obama. “He used a lot of good words,” she said.

The New York Post published an abridged version of the letter, and Cooperman e-mailed it to some of his friends and colleagues. It quickly went viral. Within a couple of weeks, Cooperman was being courted by everyone from CNBC and Fox to Al Jazeera. “I would say, unequivocally, I never got as much response in anything I’ve ever done, in business or outside of business, that I got in that letter,” Cooperman said.

Cooperman keeps a bulging manila folder of congratulatory notes in his office at Omega. He received “hundreds and hundreds of e-mails.” According to Cooperman, only one was nasty: “If I knew where you lived, I’d put a bomb in your car.” The folder includes a letter from a former chief of Goldman Sachs and another from a current boss of one of the nation’s top five banks. There are succinct letters of support from fellow Wall Street titans, typed on thick, embossed paper, and signed with a flourish, and long, angry screeds, which warn, as a ninety-two-year-old lawyer from Fort Worth, Texas, put it, that “Barack Obama is a Communist pure and simple, with a determined plan to convert America into a Communistic nation.”

Like his wife, Cooperman doesn’t approve of the right’s blurring of the line between church and state, or its stance on gay marriage and abortion. Romney, he told me, has got to “appease the conservative wing of his party. But I don’t think he’s nuts like all those guys are.” Like other plutocrats, Cooperman presents his complaint not as a selfish defense of his pocketbook but as a concern about the degradation of the American dream. Jamie Dimon, the C.E.O. of JP Morgan Chase, who was widely criticized this spring for the firm’s highly risky trade that has led to at least six billion dollars in losses, has echoed Cooperman’s view of the Obama Administration. Speaking on “Meet the Press” in May, Dimon said that he didn’t mind paying higher taxes and wanted “a more equitable society.” But the “anti-business behavior, the sentiment, the attacks on work ethic and successful people” by some Democrats had alienated Dimon so much that he said he would now call himself “a barely Democrat.”

“It’s a question of tone,” Cooperman said. “The President makes it sound like the problems of the ninety-nine per cent are caused by the one per cent, and that’s not the case.” Yet some of the harshest language of this election cycle has come from the super-rich. Comparing Hitler and Obama, as Cooperman did last year at the CNBC conference, is something of a meme. In 2010, the private-equity billionaire Stephen Schwarzman, of the Blackstone Group, compared the President’s as yet unsuccessful effort to eliminate some of the preferential tax treatment his sector receives to Hitler’s invasion of Poland. After Cooperman made his Hitler comment, he has said, his wife called him a “schmuck.” But he couldn’t resist repeating the analogy when we spoke in May of this year. “You know, the largest and greatest country in the free world put a forty-seven-year-old guy that never worked a day in his life and made him in charge of the free world,” Cooperman said. “Not totally different from taking Adolf Hitler in Germany and making him in charge of Germany because people were economically dissatisfied. Now, Obama’s not Hitler. I don’t even mean to say anything like that. But it is a question that the dissatisfaction of the populace was so great that they were willing to take a chance on an untested individual.”

It’s easy to see how even a resolutely unflashy billionaire like Cooperman can acquire a sense of entitlement. In a single hour at his desk one morning in April, the C.E.O.s of two well-known public companies were on the phone to Cooperman lobbying for his support. (He is a major investor in their firms.) Companies courting his investment dollars pick up Cooperman at Teterboro Airport in their private jets to give him a tour of their projects. The Coopermans have chosen an emphatically low-key life style, but when they went to visit a grandchild in Vermont one summer weekend they flew in a private plane.

Last July, before he had written the letter, Cooperman was invited to the White House for a reception to honor wealthy philanthropists who had signed Bill and Melinda Gates and Warren Buffett’s Giving Pledge, promising to donate at least fifty per cent of their net worth to charity. At the event, Cooperman handed the President two copies of “Inspired: My Life (So Far) in Poems,” a self-published book written by Courtney Cooperman, his fourteen-year-old granddaughter. Cooperman was surprised that the President didn’t send him a thank-you note or that Malia and Sasha Obama, for whom the books were intended as a gift and to whom Courtney wrote a separate letter, didn’t write to Courtney. (After Cooperman grumbled to a few friends, including Cory Booker, the mayor of Newark, Michelle Obama did write. Booker, who was also a recipient of Courtney’s book, promptly wrote her “a very nice note,” Cooperman said.)

When Cooperman told me the story of his lucky escape from dental school, he concluded, “I probably make more than a thousand dentists, summed up.” (A thousand dentists would need to work for a decade—and pay no taxes or living expenses—to collectively earn Cooperman’s net worth.) During another conversation, Cooperman mentioned that over the weekend an acquaintance had come by to get some friendly advice on managing his personal finances. He was a seventy-two-year-old world-renowned cardiologist; his wife was one of the country’s experts in women’s medicine. Together, they had a net worth of around ten million dollars. “It was shocking how tight he was going to be in retirement,” Cooperman said. “He needed four hundred thousand dollars a year to live on. He had a home in Florida, a home in New Jersey. He had certain habits he wanted to continue to pursue.

“I’m just saying that it’s not an impressive amount of capital for two people that were leading physicians for their entire work life,” Cooperman went on. “You know, I lost more today than they spent a lifetime accumulating.”

One billionaire who is not part of Cooperman’s “sleeper cell” is Warren Buffett. In 1982, Buffett sent Cooperman a note, praising one of the research reports he had written at Goldman Sachs. It hangs on Cooperman’s office wall. Cooperman clearly cherishes the opportunities that the Giving Pledge has given him to spend time with Buffett. He also admires Buffett’s life style, which is similar to his own. But Buffett’s embrace of the rule that bears his name—President Obama’s proposal that no millionaire should pay less than thirty per cent of his income in taxes—sets him apart from his peers.

Cooperman pointed out that Buffett had adroitly minimized his personal taxes for many years until his late-life star turn as the President’s favorite billionaire. “I’m more charitable to him than most, because I have enormously high regard for him,” Cooperman said. “There are a lot of people who think he’s become extraordinarily hypocritical. . . . If he thinks it’s so wrong, people say, ‘Well, why doesn’t he just give his money to the government?’”

Many billionaires have come to view charity as privatized taxation, paid at a level they determine, and to organizations they choose. “All things being equal, you’d rather have control of the money than the government,” Cooperman said. “Even if you’re giving it away, you’d rather give it away the way you want to give it away rather than the way the government gives it away.” Cooperman and his wife focus their giving on Jewish issues, education, and their local community in New Jersey, and he is also setting up a foundation that will allow his children and grandchildren to support their own chosen causes after he dies.

Foster Friess, a retired mutual-fund investor from Wyoming who was the backer of the main Super PAC supporting the Republican primary candidate Rick Santorum, expounded on this view in a video interview in February. “People don’t realize how wealthy people self-tax,” he said. “If you have a certain cause, an art museum or a symphony, and you want to support it, it would be nice if you had the choice.” The middle class anonymously and nervously pays its thirty-five per cent to the I.R.S., while the super-rich pay fourteen per cent, and are then praised for giving five or ten per cent more to pet causes, often with the perk of having their names engraved above the door.

Cooperman repeatedly emphasizes his willingness in principle to pay higher taxes, though he sees nothing wrong with paying at the lowest possible rate the law allows. Although Toby still lives in New Jersey, Cooperman told me that he has moved for most of the year to Florida, “because I had arthritis, and I just needed the warmer weather.” He added, “Not to say there’s no benefit of a zero state income tax versus ten.”

Nick Hanauer is a Seattle entrepreneur and venture capitalist who was one of the first investors in Amazon. In a book published this year, he argues that since the Reagan era American capitalists have enjoyed a uniquely supportive set of ideological, political, and economic conditions. Their personal enrichment came to be seen as a precondition for the enrichment of everyone else. Lower taxes for them were a social good, rather than a selfish perk.

“If you are a job creator, your fifteen-per-cent tax rate is righteous. If you aren’t, it is a con job,” Hanauer told me. “The idea that the rich deserve to be rich is a very comforting idea if you are rich.” Referring to Obama’s “You didn’t build that” remark, at a rally in Virginia in July, which became a flashpoint with the right, Hanauer said that “the notion that you built it yourself is what you need to believe to feel comfortable with yourself and your desire not to pay too much in taxes.”

I asked Cooperman whether Romney should disclose his tax returns. Beyond 2011 and 2010, he has not released any others. “Only a fool pays taxes that you don’t have to pay,” Cooperman said. “So what am I going to learn? He made a lot of money and he paid less taxes than the average person, but he did it from legal means. Does that make me think less of him? It’ll make me think more of him.” Cooperman observed that the smart reaction to Romney’s low effective tax rate would be to ask him for the name of his tax lawyer.

Cooperman prides himself both on not being partisan and on his streetwise Bronx kid’s suspicion of politicians in general. But he’s genuinely enthusiastic about Romney. He approves of Romney’s commitment to his family and he admires Romney’s private-sector experience. “He’s an accomplished businessman,” Cooperman said. “The fact that he’s wealthy and successful I think is good, not bad.”

Cooperman told me that he thought this was the most important election of his lifetime. In June, he made his biggest ever political contribution, when he wrote a fifty-thousand-dollar check supporting Mitt Romney’s Presidential bid after Romney’s brother, Scott, visited the Omega offices. Now Cooperman is planning another political volley. With his Omega partner Steven Einhorn and fellow-billionaire Ken Langone, the co-founder of Home Depot, he has drafted a second open letter, which he hopes will be co-signed by a large group of self-made billionaires, and published as a newspaper advertisement in some swing states. Cooperman estimates that it will cost around a million dollars, a sum he says the group will split. “It’s going to be, you know, ‘We are the one per cent that came from the ninety-nine per cent, and we want to see more of the ninety-nine per cent move in our direction, but we fear the President’s policies discourage that from happening,’ ” Cooperman said.

At the SALT conference in Las Vegas, there was no shortage of wealthy financiers who shared Cooperman’s view. At a “Titans of Wall Street” panel, Barry Sternlicht, the W hotel-chain founder, appeared with Dan Loeb, the hedge-fund manager who compared Wall Street supporters of Obama to “battered wives,” and who has given three hundred and fifty thousand dollars to Republican Super PACs and thousands more to Republican candidates this campaign cycle. Their session was off the record, but attendees said that the two investors inveighed passionately against the President’s “anti-business” attitude. Another panelist suggested that Sternlicht and Loeb form a pro-business ticket and make a run for the White House. The audience cheered.

On the final day, Cooperman delivered a presentation on his top stock picks. A few hours later, the conference concluded in the Bellagio’s grand ballroom, with the most billionaire-friendly speaker of all: Sarah Palin. She strode onto the stage and opened her talk with a rousing greeting, “Hello, one per cent! How y’all doing!”

*

Related

Leon Cooperman and Relative Wealth
October 1, 2012
http://nymag.com/daily/intel/2012/10/leon-cooperman-and-relative-wealth.html

*

© 2012 Condé Nast

http://www.newyorker.com/reporting/2012/10/08/121008fa_fact_freeland [ http://www.newyorker.com/reporting/2012/10/08/121008fa_fact_freeland?currentPage=all ] [Cooperman's letter to Obama embedded at
http://dealbook.nytimes.com/2011/12/05/a-rich-mans-grievance-with-obama/ (with comments)]


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Banks help GOP tie Dems to Wall Street

By ANNA PALMER | 10/1/12 1:55 PM EDT

House Republicans in several tight races want voters to know that Democrats are the party of Wall Street.

The only problem: big banks are helping foot the bill for the ads.

The National Republican Congressional Committee’s ads in New York and North Carolina blast Democratic candidates for supporting the Wall Street bailout and allowing executives to pocket big-time bonuses, and in one case feature a banker burning money with his lit cigar.

At the same time, the NRCC has taken in a record haul from investment, securities and commercial banks. So far this cycle, the industry has contributed $7.1 million — that’s up more than $2.7 million since the 2010 election, according to the Center for Responsive Politics.

Goldman Sachs and its employees are the top private-sector giver to the Republican Party committee, contributing $388,450 this cycle. Goldman Sachs declined to comment.

NRCC Communications Director Paul Lindsay defended the ads.

“We appreciate the support from donors in the financial services industry who share our goal of protecting the free enterprise system,” Lindsay said. "Their investments to the NRCC are made in the most strategic way possible in order to ensure that Maxine Waters never has the word ‘chairman’ next to her name.”

Waters is expected to become the top Democrat on the House Financial Services Committee next year.

The situation is not sitting well with banking lobbyists in Washington. In several conversations, industry insiders and lobbyists reactions ranged from appalled to unsurprised to resigned at being the whipping boy for both Democrats and Republicans on the campaign trail.

“They are probably the one industry more disliked than any other. These guys don’t have anywhere to turn,” said one Republican lobbyist. “The alternative is Elizabeth Warren gets elected and people like Elizabeth Warren, who view the world the same way she does … we’re roughing you up a little bit, but she thinks you are evil.”

Republicans are wading into tricky territory that has already backfired on Democrats. In October, the Democratic Congressional Campaign Committee caught major flak after the party committee sent out an email urging supporters to sign onto a petition supporting the Occupy Wall Street protests. At the time, DCCC Finance Chairman Joe Crowley heard from several financial services lobbyists telling the New York Democrat they couldn’t have it both ways — asking banks to cut campaign checks and then supporting causes that target them.

Of course, banks have hardly gotten a pass from Democrats.

President Barack Obama and congressional Democrats have tried to paint Republicans as representing just wealthy Americans and regularly hit Wall Street on the campaign trail. Mitt Romney's comments that surfaced recently about how 47 percent of Americans are on government aid have added more fuel to the fire.

The Republican attack ads are targeting North Carolina Democratic Reps. Mike McIntyre and Larry Kissell and New York Democratic Reps. Bill Owens, Chris Gibson and Kathy Hochul.

At issue is the Troubled Asset Relief Program, which put Kenneth Feinberg, known as the “pay czar” in charge of executive pay. In that role, Feinberg approved salary structures for top execs of TARP recipients and could also seek reimbursement for excessive bonuses.

In his final report, Feinberg said that the industry had paid $1.7 billion in excessive bonuses to top officials at banks that had received TARP money, but he did not ask for the money to be returned because by that time because the financial institutions had already repaid the government’s investment or had changed their compensation structure.

For many, the ads serve as another reminder of how bruised and battered the industry’s reputation has become.

It’s a far cry from the early 1990s where working downtown lobbying for a mega bank was considered a plumb, white-shoe job.

What added insult to injury to some in the industry is that the ads hitting the Wall Street bailout and bonuses don’t add up, according to lobbyists.

“The ads are a nonsequitor — companies with TARP were prohibited from paying bonuses until it was repaid,” one financial services executive said. “Plus, banks have repaid TARP with a $20 billion profit to the taxpayer.”

It also is awkward because many Republicans, including Speaker John Boehner voted for the package. And in some cases the lawmakers they are hitting didn't vote for the bailout. Hochul was elected in the 2011 special election, long after the 2008 TARP vote.

Hochul's spokesman Frank Thomas said the ads are indicative of Republican attacks across the board.

"They've found a way to attack their opponents for issues they themselves supported over the years," Thomas said.

Not everybody is upset though.

Anthony Scaramucci of the investment firm Skybridge Capital, who is supporting Romney and has given to the congressional Republicans, said that the tactic “doesn’t upset me at all.”

“I run my own business, never took a bailout and focus on my employees and customers,” Scaramucci said.

© 2012 POLITICO LLC

http://www.politico.com/news/stories/1012/81865.html [with comments]


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JPMorgan Unit Is Sued Over Mortgage Securities Pools


The suit was brought in New York State court by Eric T. Schneiderman, the state attorney general, who is also a co-chairman of the Residential Mortgage-Backed Securities Working Group.
Carolyn Kaster/Associated Press

By GRETCHEN MORGENSON
Published: October 1, 2012

The federal mortgage task force that was formed in January by the Justice Department filed its first complaint against a big bank on Monday, citing a broad pattern of misconduct in the packaging and sale of mortgage securities during the housing boom.

The civil suit [ http://graphics8.nytimes.com/packages/pdf/business/108632018-nyagvjpmc.pdf ] against Bear Stearns & Company [ http://topics.nytimes.com/top/news/business/companies/bear_stearns_companies/index.html ], now a unit of JPMorgan Chase [ http://topics.nytimes.com/top/news/business/companies/morgan_j_p_chase_and_company/index.html ], was brought in New York State Supreme Court by Eric T. Schneiderman, the attorney general who is also a co-chairman of the task force, known as the Residential Mortgage-Backed Securities Working Group.

The complaint contends that Bear Stearns and its lending unit, EMC Mortgage, defrauded investors who purchased mortgage securities packaged by the companies from 2005 through 2007.

The firms made material misrepresentations about the quality of the loans in the securities, the lawsuit said, and ignored evidence of broad defects among the loans that they pooled and sold to investors.

Moreover, when Bear Stearns identified problematic loans that it had agreed to purchase from a lender, it was required to make the originator buy them back. But Bear Stearns demanded cash payments from the lenders and kept the money, rather than passing it on to investors, the suit contends.

Unlike many of the other mortgage crisis cases brought by regulators such as the Securities and Exchange Commission [ http://topics.nytimes.com/top/reference/timestopics/organizations/s/securities_and_exchange_commission/index.html ], the task force’s action does not focus on a particular deal that harmed investors or an individual who was central to a specific transaction. Rather, the suit contends that the improper practices were institutionwide and affected numerous deals during the period.

A spokesman for Mr. Schneiderman declined to comment on the filing. A representative for JPMorgan, which acquired Bear Stearns in a fire sale in March 2008, said it would contest the allegations.

“We’re disappointed that the New York A.G. decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record — instead relying on recycled claims already made by private plaintiffs,” said Joseph Evangelisti, the bank’s spokesman. He added that the allegations predate JPMorgan’s acquisition.

The allegations in the suit against Bear and EMC are not new. The task force complaint closely echoes legal arguments made in recent years [ http://www.nytimes.com/2011/02/10/business/10mortgage.html?pagewanted=all ] by numerous private litigants trying to recover losses in mortgage securities. Most of these cases [ http://www.orrick.com/fileupload/4579.pdf ] continue to inch their way through the courts.

Late last week, for example, JPMorgan lost a round in one of these battles when Jed S. Rakoff, a federal judge in Manhattan, rejected the bank’s request to dismiss a complaint brought by Dexia, a Belgian-French bank. The European bank had bought $1.6 billion in mortgage securities issued by Bear Stearns and Washington Mutual, another institution taken over by JPMorgan during the credit crisis.

Nevertheless, some lawyers who are battling the large banks and investment firms on behalf of mortgage investors said they welcomed the action by the task force. Gerald H. Silk, a lawyer at Bernstein Litowitz Berger & Grossmann in New York, said: “The government’s action represents a complete validation of the cases brought by investors [ http://www.nytimes.com/2010/07/11/business/11gret.html ] who were duped by the fraudulent sale of mortgage-backed securities by JPMorgan, WaMu and Bear Stearns.”

The suit encompasses work begun by Mr. Schneiderman’s office in the spring of 2011, according to people briefed on the investigation. The attorney general subpoenaed documents from JPMorgan Chase and from large mortgage insurers that had also brought cases against the banks for failing to live up to their promises about the types and quality of mortgages placed in loan pools and sold.

New York investigators also capitalized on a cooperation agreement struck by Andrew M. Cuomo, the previous attorney general, with Clayton Holdings, a major firm in the business of evaluating mortgages. The firm provided documents and e-mails showing that Bear Stearns routinely ignored major defects on loans it was purchasing and pooling so that it could preserve its relationship with mortgage originators.

After the mortgage fraud task force was created in early 2012, Mr. Schneiderman’s office combined its efforts with the Housing and Urban Development Department, the S.E.C., the inspector general of the Federal Housing Finance Agency, the Federal Bureau of Investigation and the Justice Department.

The lawsuit’s filing, just days before the first presidential debate [ http://topics.nytimes.com/top/reference/timestopics/subjects/p/presidential_debates/index.html ] and a little over a month before the election, may be a way for the Obama administration to try to convince voters that it is working to hold mortgage miscreants accountable for wrongdoing. But, lawyers say, filing a case is not the hard part; winning it is.

The complaint contends that Bear Stearns defrauded investors when it assured them of the stringent reviews being made of the loans the firm was bundling. “Rather than carefully reviewing loans for compliance with underwriting guidelines,” it said, “defendants instead implemented and managed a fundamentally flawed due diligence process that often, and improperly, gave way to originators’ demands.”

Bear Stearns and EMC took other steps to keep mortgages flowing and their originators happy.

Even after the loans it was bundling began failing at monumental rates, the complaint said, Bear Stearns did not require originators to buy them back as they were obligated to do. Instead, the firm allowed the originators to settle the put-back claims confidentially “by making cash payments that were a fraction of the contractual repurchase price,” according to the lawsuit.

The suit was brought under New York’s Martin Act, the state law that gives the attorney general wide latitude to bring fraud cases without demonstrating a defendant intended to defraud. The suit does not seek specific damages but asks for restitution for investors victimized by the deceptive practices and disgorgement of money received in connection with the fraud.

© 2012 The New York Times Company

http://www.nytimes.com/2012/10/02/business/suit-accuses-jpmorgan-unit-of-broad-misconduct-on-mortgage-securities.html


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JPMorgan Sued by N.Y. for Fraud Over Mortgage Securities

By David McLaughlin and Chris Dolmetsch - Oct 1, 2012 11:01 PM CT

JPMorgan Chase & Co. (JPM), the biggest U.S. bank, was sued by New York Attorney General Eric Schneiderman, who alleged that the Bear Stearns business the bank took over in 2008 defrauded mortgage-bond investors.

Investors were deceived about the defective loans backing securities they bought, leading to “monumental losses,” Schneiderman said in a complaint filed yesterday in New York State Supreme Court.

“Defendants systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures and the defects in the underlying loans,” Schneiderman’s office said.

Schneiderman in January was named co-chairman of a state- federal group formed to investigate misconduct in bundling of mortgage loans into securities leading up to the financial crisis. The group includes officials from the U.S. Justice Department, the Securities and Exchange Commission, the FBI and other federal and state officials.

Joe Evangelisti, a JPMorgan spokesman, said the New York- based bank would contest the complaint, which is “entirely about” conduct by Bear Stearns. JPMorgan acquired Bear Stearns in 2008.

‘Recycled Claims’

“We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record -- instead relying on recycled claims already made by private plaintiffs,” Evangelisti said in an e-mail.

The state’s complaint names J.P. Morgan Securities, JPMorgan Chase Bank and JPMorgan’s EMC Mortgage unit as defendants.

Schneiderman said they failed to abide by claims that they were ensuring the quality of loans backing the securities and “routinely overlooked defective loans” identified during due diligence reviews. The misconduct in due diligence and quality control “constituted systemic fraud on thousands of investors,” the attorney general said.

According to the complaint, the current cumulative realized losses on more than 100 subprime and Alt-A securitizations that the defendants sponsored and underwrote in 2006 and 2007 total about $22.5 billion, or about 26 percent of the original balance of about $87 billion.

Schneiderman seeks an order for the bank to disgorge all money it obtained in connection with the fraud or as a result of it.

The case is People of the State of New York v. J.P. Morgan Securities, 451556-2012, New York State Supreme Court (Manhattan).

To contact the reporters on this story: David McLaughlin in New York at [e-mail]; Chris Dolmetsch in New York at [e-mail]
To contact the editors responsible for this story: Michael Hytha at [e-mail]; John Pickering at [e-mail]

©2012 BLOOMBERG L.P.

http://www.bloomberg.com/news/2012-10-01/jpmorgan-sued-by-n-y-for-fraud-over-mortgage-securities.html [with comments]


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Traders Find Libor Manipulation Hilarious, Instant Messages Show

A former Royal Bank of Scotland trader claims the bank knew all about Libor manipulation and says he has the instant messages to prove it.
09/26/2012
http://www.huffingtonpost.com/2012/09/26/traders-libor-manipulation-instant-messages_n_1916264.html [with comments]


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Amex to pay $112.5 million for violating consumer protection laws


American Express credit cards are arranged in New York, Monday, Jan. 22, 2007. American Express is refunding $85 million to about 250,000 customers and is paying $27.5 million in civil fines to settle charges of deceptive practices.
Andrew Harrer/Bloomberg News

By Danielle Douglas, Published: October 1, 2012

In the latest in a series of credit card industry settlements, American Express will pay $112.5 million to resolve allegations of abusive debt collection practices, late-fee charges and deceptive marketing, federal regulators announced Monday.

Customers, in some cases, were charged late fees based on a percentage of their debt in violation of federal law. Others were misled to believe that if they partially paid off their debts, the remaining balance would be forgiven.

In direct-mail offers, American Express promised customers $300 and bonus points when they signed up for its Blue Sky credit card program. Yet customers never received the advertised money. All of the alleged activity occurred between 2003 and the spring of 2012, regulators said in the enforcement order [ http://www.fdic.gov/news/news/press/2012/pr12114a.pdf ] against American Express.

The credit card company is refunding $85 million to about 250,000 customers, while paying a total of $27.5 million in civil fines to four federal agencies, including the Federal Deposit Insurance Fund and the Consumer Financial Protection Bureau.

“Several American Express companies violated consumer protection laws .?.?. at all stages of the game — from the moment a consumer shopped for a card to the moment the consumer got a phone call about long overdue debt,” said Richard Cordray, director of the CFPB.

American Express is not admitting any wrongdoing, but agreed to end the practices in question and conduct an independent audit.

“We’re cooperating fully with regulators, taking responsibility for correcting the issues and compensating customers where appropriate,” company spokeswoman Marina Norville said.

American Express will submit a reimbursement plan to regulators, and then begin disbursing payments within 90 days. The majority of the refunds will be provided to customers who were charged high late fees. Eligible consumers who still have an American Express card will receive a direct credit; others will receive a refund in the mail.

The subsidiaries named in the agreement are American Express Travel Related Services Co., American Express Centurion Bank and American Express Bank FSB.

A number of the charges against American Express are similar to those leveled at Discover [ http://www.washingtonpost.com/business/economy/discover-to-pay-214-million-for-deceptive-credit-card-practices/2012/09/24/3aa9069a-0655-11e2-858a-5311df86ab04_story.html ] and Capital One [ http://www.washingtonpost.com/business/economy/capital-one-to-pay-210-million-for-deceptive-credit-card-practices/2012/07/18/gJQAcgVeuW_story.html ], which were both accused of using deceptive tactics to sell credit card services.

© 2012 The Washington Post

http://www.washingtonpost.com/business/economy/amex-to-pay-1125-million-for-violating-consumer-protection-laws/2012/10/01/fa064ae6-0bd4-11e2-a310-2363842b7057_story.html [with comments]


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Regulators slap Discover with penalty for deceptive credit card marketing

By Peter Schroeder - 09/24/12 10:46 AM ET

A pair of financial regulators is assessing a $214 million penalty on Discover Bank for employing deceptive telemarketing and sales tactics in pushing add-ons to credit cards.

Regulators declared Monday that Discover used language in pushing add-ons like credit score tracking and payment protection that did not make it entirely clear there was an added cost for the services, and some marketers even enrolled cardholders in these add-ons without their consent. It also found that marketers downplayed key terms or spoke quickly when disclosing the costs of these services.

The Federal Deposit Insurance Corporation (FDIC) initiated an investigation into Discover's marketing practices, and the Consumer Financial Protection Bureau (CFPB) joined the effort last year.

Under the penalty, Discover has agreed to refund roughly $200 million to more than 3.5 million credit card customers who were charged for these additional services from the end of 2007 through August 2011. It also agreed to end its deceptive marketing practices, and pay out a $14 million civil penalty to the government. The bank has also agreed to an independent audit of its practices, the regulators said.

“We have worked hard to earn the loyalty of our cardmembers, and we are committed to marketing our products responsibly,” said David Nelms, chairman and chief executive officer of Discover, in a statement. “As always, we will continue to strive to deliver the highest standards of customer service and satisfaction.”

In July, the CFPB, alongside the Office of the Comptroller of the Currency, levied a similar penalty against Capital One for its credit card marketing practices. For its deceptive marketing practices, Capital One had to pay $150 million to 2 million card customers, as well as pay a $60 million penalty.

© 2012 Capitol Hill Publishing Corp., a subsidiary of News Communications, Inc.

http://thehill.com/blogs/on-the-money/banking-financial-institutions/251219-regulators-slap-discover-with-penalty-for-deceptive-credit-card-marketing [with comments]


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How to Erase a Debt That Isn’t There

By GRETCHEN MORGENSON
Published: September 29, 2012

GREETINGS, unhappy homeowners! Here’s some wonderful news:

“We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase [ http://topics.nytimes.com/top/news/business/companies/morgan_j_p_chase_and_company/index.html ] sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America [ http://topics.nytimes.com/top/news/business/companies/bank_of_america_corporation/index.html ].

Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.

What’s going on?

Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion [ http://www.nytimes.com/2012/02/12/business/mortgage-settlement-leaves-much-to-be-desired-fair-game.html ] to settle state and federal claims over questionable mortgage [ http://topics.nytimes.com/your-money/loans/mortgages/index.html ] practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.

So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.

“When I got this letter that said they were going to relieve our debt, I just about fell over,” Ms. Esposito said last week. “You can’t forgive a debt that you’re legally unable to collect.”

Others have received similar letters about phantom debts. A borrower in Florida received word this month that Chase was erasing $190,065.10 of debt that had already been wiped out. Bank of America told a Virginia resident that a $231,767 home equity loan [ http://topics.nytimes.com/your-money/loans/home-equity-loans/index.html ] was being forgiven, even though the debt was discharged last May.

Neil Crane is a lawyer in Hamden, Conn., who represented Ms. Esposito and her husband in their bankruptcy. He says four of his other clients have recently received letters from banks claiming to forgive discharged debt.

“I never thought in my wildest dreams that the banks would do this properly,” Mr. Crane said last week. “But I think it’s really wrong to be foreclosing on mortgages you don’t own and relinquishing debt you don’t own.”

It’s bad enough that these letters are inaccurate. But even worse are the tax problems that they may create for people like Ms. Esposito. In most cases, the Internal Revenue Service considers debt that is forgiven to be taxable income. One exception occurs in bankruptcy; when a debt is discharged, it is not taxable.

But the letters sent by Chase and Bank of America clearly warn that the forgiveness will be reported to the I.R.S. If so, these borrowers may have to prove that the banks erred in claiming to have forgiven the debts.

I ASKED spokesmen for Chase and Bank of America how they could forgive debts that no longer existed. Both gave the same unsatisfying answer. Very similar letters had been sent, both banks said, to two very different types of borrowers. One set of borrowers has outstanding debt that the banks are offering to forgive. The other set has had their debts discharged in bankruptcy, but the bank still holds a lien against their properties. Releasing the liens provides a benefit to borrowers when they go to sell their homes, and both banks said the letters were intended to notify borrowers whose liens were being released.

Why not take care to write letters specifically tailored to each borrower’s situation?

Dan Frahm, a Bank of America spokesman, said the bank would work on clarifying what was in the letters to borrowers. And, late Friday, the bank put a more extensive description [ http://newsroom.bankofamerica.com/press-release/bank-america-notifies-eligible-mortgage-customers-second-lien-mortgage-debt-extinguish ] of the forgiveness and lien release program on its Web site. Not a bad idea, since nowhere does Bank of America’s letter discuss releasing the lien. Mr. Frahm estimated that 12,000 Bank of America customers whose debts had been discharged had received these letters.

Tom Kelly, a Chase spokesman, conceded that the bank “may have caused some confusion for customers.” Its letter does note that the bank is releasing the lien on the property.

But even this is incorrect in Ms. Esposito’s case, Mr. Crane said. Her lien was actually eliminated back in 2009, during her bankruptcy proceeding.

All of this made me wonder: are the banks’ forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no.

But Chase appears to be claiming to release a lien on Ms. Esposito’s property that it does not hold. And under the mortgage settlement [ http://topics.nytimes.com/top/reference/timestopics/subjects/f/foreclosures/index.html ], it could receive a credit.

So I asked Joseph A. Smith Jr., a former banking regulator in North Carolina who is monitoring the settlement, how he planned to vet the banks’ claims of relief provided and credit earned. For example, how will he ensure that institutions do not receive credit for releasing liens that have been eliminated?

“We will review compliance with this requirement as we will with all of the consumer relief requirements,” Mr. Smith said, “through review of the corporate records relating to such transactions.”

Good luck with that.

AS for Ms. Esposito, she said she found the bogus loan forgiveness letter from Chase especially upsetting because of the years she has spent trying to have the bank modify her first mortgage. She pays 9 percent on her loan and cannot refinance it into a lower-rate mortgage, given her recent bankruptcy.

Chase won’t help her modify her loan, Ms. Esposito said, but it is happy to help by forgiving a loan that has already been discharged and releasing a lien that is already gone.

“There is no chance that this group of institutions can help homeowners,” Mr. Crane said. “They should not be in charge of fixing problems they helped create.”

© 2012 The New York Times Company

http://www.nytimes.com/2012/09/30/business/when-banks-erase-a-debt-that-isnt-there.html


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New Jersey Foreclosures Crisis: Chris Christie Not Using $300 Million In Federal Funds To Help Distressed Homeowners, WABC Reports

09/25/2012
http://www.huffingtonpost.com/2012/09/25/new-jersey-foreclosures-chris-christie_n_1911599.html [with embedded video report, and comments]


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Obama: Congress should approve mortgage refinance plan to help struggling homeowners


President Barack Obama arrives to speak at a campaign event in Washington, Friday, Sept. 28, 2012.
Susan Walsh/Associated Press

By Associated Press, Published: September 28 | Updated: Saturday, September 29, 2012 5:16 AM

WASHINGTON — Citing historically low mortgages, President Barack Obama is pressing Republicans to back housing policies the White House says would help struggling homeowners refinance their debts and prevent foreclosures.

Obama is blaming congressional Republicans for not passing legislation he proposed in February that would lower lending rates for millions of borrowers who have not been able to get out from under burdensome mortgages. Republicans have objected, citing among other things the estimated $5 billion to $10 billion cost of the proposal.

“Here we are - seven months later - still waiting on Congress to act,” Obama said Saturday in his weekly radio and Internet address.

Congress has recessed and is not scheduled to return until after the November elections.

“Instead of worrying about you, they’d already gone home to worry about their campaigns,” the president said.

Obama’s push comes as home prices have been rising across the United States. National home prices increased 1.2 percent in July, compared with the same month last year, according to the Standard & Poor’s/Case Shiller index released Tuesday.

In the Republican weekly address, Arizona congressional candidate Vernon Parker said the U.S. corporate tax rate is pushing jobs overseas. He said he agrees with GOP presidential candidate Mitt Romney and his running mate, Paul Ryan, “that we need to stop all the looming tax hikes and develop a pro-growth tax code that brings jobs home and keeps jobs here.”

He also called for the repeal of Obama’s health care law.

Obama address [ http://www.youtube.com/watch?v=Eh4f3it89BU ]:

GOP address [ http://www.youtube.com/watch?v=OZyiJM-pcM4 ]:

Copyright 2012 The Associated Press

http://www.washingtonpost.com/politics/obama-gets-in-another-preparation-session-for-debate-with-romney-also-raises-campaign-money/2012/09/28/74b8c2cc-09e2-11e2-9eea-333857f6a7bd_story.html [with comments]


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The Real Referendum

By PAUL KRUGMAN
Published: September 30, 2012

Republicans came into this campaign believing that it would be a referendum on President Obama, and that still-high unemployment would hand them victory on a silver platter. But given the usual caveats — a month can be a long time in politics, it’s not over until the votes are actually counted, and so on — it doesn’t seem to be turning out that way.

Yet there is a sense in which the election is indeed a referendum, but of a different kind. Voters are, in effect, being asked to deliver a verdict on the legacy of the New Deal and the Great Society, on Social Security, Medicare and, yes, Obamacare, which represents an extension of that legacy. Will they vote for politicians who want to replace Medicare with Vouchercare, who denounce Social Security as “collectivist” (as Paul Ryan once did), who dismiss those who turn to social insurance programs as people unwilling to take responsibility for their lives?

If the polls are any indication, the result of that referendum will be a clear reassertion of support for the safety net, and a clear rejection of politicians who want to return us to the Gilded Age. But here’s the question: Will that election result be honored?

I ask that question because we already know what Mr. Obama will face if re-elected: a clamor from Beltway insiders demanding that he immediately return to his failed political strategy of 2011, in which he made a Grand Bargain over the budget deficit his overriding priority. Now is the time, he’ll be told, to fix America’s entitlement problem once and for all. There will be calls — as there were at the time of the Democratic National Convention — for him to officially endorse Simpson-Bowles, the budget proposal issued by the co-chairmen of his deficit commission (although never accepted by the commission as a whole).

And Mr. Obama should just say no, for three reasons.

First, despite years of dire warnings from people like, well, Alan Simpson and Erskine Bowles, we are not facing any kind of fiscal crisis. Indeed, U.S. borrowing costs are at historic lows, with investors actually willing to pay the government for the privilege of owning inflation-protected bonds. So reducing the budget deficit just isn’t the top priority for America at the moment; creating jobs is. For now, the administration’s political capital should be devoted to passing something like last year’s American Jobs Act and providing effective mortgage debt relief.

Second, contrary to Beltway conventional wisdom, America does not have an “entitlements problem.” Mainly, it has a health cost problem, private as well as public, which must be addressed (and which the Affordable Care Act at least starts to address). It’s true that there’s also, even aside from health care, a gap between the services we’re promising and the taxes we’re collecting — but to call that gap an “entitlements” issue is already to accept the very right-wing frame that voters appear to be in the process of rejecting.

Finally, despite the bizarre reverence it inspires in Beltway insiders — the same people, by the way, who assured us that Paul Ryan was a brave truth-teller — the fact is that Simpson-Bowles is a really bad plan, one that would undermine some key pieces of our safety net. And if a re-elected president were to endorse it, he would be betraying the trust of the voters who returned him to office.

Consider, in particular, the proposal to raise the Social Security retirement age, supposedly to reflect rising life expectancy. This is an idea Washington loves — but it’s also totally at odds with the reality of an America in which rising inequality is reflected not just in the quality of life but in its duration. For while average life expectancy has indeed risen, that increase is confined to the relatively well-off and well-educated — the very people who need Social Security least. Meanwhile, life expectancy is actually falling for a substantial part of the nation.

Now, there’s no mystery about why Simpson-Bowles looks the way it does. It was put together in a political environment in which progressives, and even supporters of the safety net as we know it, were very much on the defensive — an environment in which conservatives were presumed to be in the ascendant, and in which bipartisanship was effectively defined as the effort to broker deals between the center-right and the hard right.

Barring an upset, however, that environment will come to an end on Nov. 6. This election is, as I said, shaping up as a referendum on our social insurance system, and it looks as if Mr. Obama will emerge with a clear mandate for preserving and extending that system. It would be a terrible mistake, both politically and for the nation’s future, for him to let himself be talked into snatching defeat from the jaws of victory.

© 2012 The New York Times Company

http://www.nytimes.com/2012/10/01/opinion/krugman-the-real-referendum.html [with comments]


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Europe’s Austerity Madness


Patrick Chappatte: Editorial Cartoon (Sept. 28, 2012)
[ http://www.nytimes.com/2012/09/27/opinion/chappatte-cartoon-anti-austerity-protests-in-greece-and-spain.html ]

By PAUL KRUGMAN
Published: September 27, 2012

So much for complacency. Just a few days ago, the conventional wisdom was that Europe finally had things under control. The European Central Bank, by promising to buy the bonds of troubled governments if necessary, had soothed markets. All that debtor nations had to do, the story went, was agree to more and deeper austerity — the condition for central bank loans — and all would be well.

But the purveyors of conventional wisdom forgot that people were involved. Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit: With unemployment at Great Depression levels and with erstwhile middle-class workers reduced to picking through garbage in search of food [ http://www.nytimes.com/2012/09/25/world/europe/hunger-on-the-rise-in-spain.html (at {linked in} http://investorshub.advfn.com/boards/read_msg.aspx?message_id=79923759 and preceding and following)], austerity has already gone too far. And this means that there may not be a deal after all.

Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain.

Consider Spain’s woes. What is the real economic problem? Basically, Spain is suffering the hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe. When the bubble burst, Spain was left with the difficult problem of regaining competitiveness, a painful process that will take years. Unless Spain leaves the euro — a step nobody wants to take — it is condemned to years of high unemployment.

But this arguably inevitable suffering is being greatly magnified by harsh spending cuts; and these spending cuts are a case of inflicting pain for the sake of inflicting pain.

First of all, Spain didn’t get into trouble because its government was profligate. On the contrary, on the eve of the crisis, Spain actually had a budget surplus and low debt [ http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Spain-Inser-%20Deficit-Recovery-2010.pdf ]. Large deficits emerged when the economy tanked, taking revenues with it, but, even so, Spain doesn’t appear to have all that high a debt burden.

It’s true that Spain is now having trouble borrowing to finance its deficits. That trouble is, however, mainly because of fears about the nation’s broader difficulties — not least the fear of political turmoil in the face of very high unemployment. And shaving a few points off the budget deficit won’t resolve those fears. In fact, research by the International Monetary Fund suggests [ http://www.economist.com/blogs/freeexchange/2012/01/imfs-latest-forecast-3 ] that spending cuts in deeply depressed economies may actually reduce investor confidence because they accelerate the pace of economic decline.

In other words, the straight economics of the situation suggests that Spain doesn’t need more austerity. It shouldn’t throw a party, and, in fact, it probably has no alternative (short of euro exit) to a protracted period of hard times. But savage cuts to essential public services, to aid to the needy, and so on actually hurt the country’s prospects for successful adjustment.

Why, then, are there demands for ever more pain?

Part of the explanation is that in Europe, as in America, far too many Very Serious People have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are the clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess.

Beyond that, a significant part of public opinion in Europe’s core — above all, in Germany — is deeply committed to a false view of the situation. Talk to German officials and they will portray the euro crisis as a morality play, a tale of countries that lived high and now face the inevitable reckoning. Never mind the fact that this isn’t at all what happened — and the equally inconvenient fact that German banks played a large role in inflating Spain’s housing bubble. Sin and its consequences is their story, and they’re sticking to it.

Worse yet, this is also what many German voters believe, largely because it’s what politicians have told them. And fear of a backlash from voters who believe, wrongly, that they’re being put on the hook for the consequences of southern European irresponsibility leaves German politicians unwilling to approve essential emergency lending to Spain and other troubled nations unless the borrowers are punished first.

Of course, that’s not the way these demands are portrayed. But that’s what it really comes down to. And it’s long past time to put an end to this cruel nonsense.

If Germany really wants to save the euro, it should let the European Central Bank do what’s necessary to rescue the debtor nations — and it should do so without demanding more pointless pain.

*

Related

Despite Public Protests, Spain’s 2013 Budget Plan Includes More Austerity (September 28, 2012)
http://www.nytimes.com/2012/09/28/business/global/spain-unveils-sweeping-budget-cuts.html

Greece Agrees on New Package of Budget Cuts and Taxes (September 28, 2012)
http://www.nytimes.com/2012/09/28/world/europe/greece-agrees-on-new-austerity-package.html

Times Topic: European Debt Crisis
http://topics.nytimes.com/top/reference/timestopics/subjects/e/european_sovereign_debt_crisis/index.html

*

© 2012 The New York Times Company

http://www.nytimes.com/2012/09/28/opinion/krugman-europes-austerity-madness.html [with comments]


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NFIB Exposed: 'Voice Of Small Business' Is A Front, Group Charges


NFIB CEO Dan Danner

By Dan Froomkin
Posted: 09/26/2012 5:57 pm EDT Updated: 09/26/2012 6:24 pm EDT

WASHINGTON -- The same group that exposed the previously little-known American Legislative Exchange Council [ http://alecexposed.org/wiki/ALEC_Exposed ] (ALEC) as a dominant force advancing corporate interests at the state level has now turned its sights on exposing the National Federation of Independent Business [ http://nfibexposed.org/ ] (NFIB).

NFIB is hardly operating in near-secrecy, like ALEC was. The organization, which describes itself as "the voice of small business [ http://www.nfib.com/ ]," was the lead plaintiff [ http://www.nfib.com/advocacy/item/cmsid/51105 ] in the ultimately unsuccessful lawsuit against the Affordable Care Act, taking it to the Supreme Court.

The left-leaning Center for Media and Democracy [ http://www.prwatch.org/ ] has posted on NFIBexposed.org [ http://nfibexposed.org/ ], its new website, a study that reveals how consistently the NFIB lobbies on issues that favor large corporate interests rather than small-business interests; its thoroughly partisan agenda; and the millions it receives in secret contributions from groups associated with Karl Rove and the Koch Brothers.

"I think that this new site helps expose the fact that the National Federation of Independent Business is not so independent, and it certainly is not acting as the voice of small business," said Lisa Graves, the center's director.

But Jean Card, NFIB's vice president for communications, lashed out at the new website Wednesday. In an emailed statement to The Huffington Post, she wrote: "It is an insult to small-business owners across the country for another organization, with no connection to small business whatsoever, to imply that job creators don't know what's best for themselves."

"NFIB is a member-driven, issue-driven organization. All of our advocacy and legal efforts are based purely on the positions of our membership, whose views and priorities we monitor constantly … and its membership are not concerned with party affiliation; we focus on policies, not party."

The NFIBexposed.org [id.] website, however, chronicles how 98 percent [ http://www.opensecrets.org/orgs/recips.php?cycle=2012&id=D000000160 ] of NFIB's campaign contributions so far in the 2012 election cycle have gone to Republicans, and how 100 percent [ http://www.opensecrets.org/orgs/summary.php?id=D000000160&cycle=2012 ] of its advertising budget supported either Republicans or opposed Democrats.

Looking at all donations since 1989, the NFIB is ranked third highest [ http://www.opensecrets.org/orgs/list.php ] on Opensecrets.org's list of political "heavy hitters," based on the percentage of its contributions going to Republican candidates. NFIB's 93 percent is higher than Koch Industries with 90 percent; Exxon Mobil with 86 percent; and the National Rifle Association with 82 percent.

By contrast, small-business owners are not as partisan. In fact, a recent poll [ http://www.washingtonpost.com/business/on-small-business/obama-tops-romney-in-new-poll-of-small-business-owners/2012/09/18/6d430d40-01db-11e2-9367-4e1bafb958db_story.html ] showed that 47 percent of small-business owners plan to vote for President Barack Obama, compared to 39 percent who plan to vote for Mitt Romney.

The website also links to documents that detail NFIB's top executive Dan Danner's compensation package, totaling $743,676 in 2010. "That tells me that there's some big-money interests willing to pay a real big-business corporate salary for the head of this organization," Graves said. "That is not on par with a typical small-business owner's salary. It's a big-business salary."

Although NFIB doesn't disclose where it gets its money, some of its funders have to list their donations in public documents. The new website and other research shows [ http://www.opensecrets.org/outsidespending/contrib.php?cmte=National+Fedn+of+Independent+Business&cycle=2012 ] that a big chunk of its budget came from the Donors Trust, a secretive conservative group that also funnels money to groups like the Koch Brothers' Americans for Prosperity Foundation, and from Karl Rove-founded Crossroads GPS.

Ironically, Rove's Crossroads GPS gave NFIB $3.7 million as part of Rove's efforts [ http://www.huffingtonpost.com/2012/05/07/crossroads-gps-karl-rove_n_1477833.html ] to persuade the IRS that his group spends less than half of its money on overtly partisan activities. According to Crossroad's tax return, the donation was in the interest of "social welfare."

Wendell Potter, author of "Deadly Spin, An Insurance Company Insider Speaks Out on How Corporate PR Is Killing Health Care and Deceiving Americans [ http://www.amazon.com/dp/1608192814 ]," said he recalled from his days as an insurance company executive that NFIB was available for message-laundering.

"The industry has known that it can typically rely on the NFIB to carry its water," he said.

More than a dozen years ago, when the insurance industry was working to kill legislation that would have established a "Patients' Bill of Rights," Potter recalled, "they knew that messaging from them wouldn't work," so the industry partnered with NFIB.

"It was an organization that had the perception of representing small business and it really was representing the interests of the insurance industry," Potter said.

NFIB's opposition to the Affordable Care Act is the perfect example, he said. Obama's signature law "will enable more small business to offer coverage to their workers and get some tax exemptions for doing that," Potter noted. "In the past, small businesses have not enjoyed the same benefits from the tax point of view that the larger companies have."

So, in fact, NFIB was "working against the interests of small business," Potter said.

Mother Jones [ http://www.motherjones.com/politics/2012/07/national-federation-independent-businesses ] recently noted that the NFIB lobbied heavily against Obama's plan to increase taxes on the wealthy, even though "[o]nly 3 percent of small businesses net more than $250,000 a year, the lowest income that would be affected by Obama's tax plan."

"They're actually throwing the voice of big businesses," said Graves. "That has an impact on media coverage. The media will highlight the perspective of the NFIB as if it were representative of small business."

Copyright © 2012 TheHuffingtonPost.com, Inc.

http://www.huffingtonpost.com/2012/09/26/nfib-exposed_n_1917262.html [with comments]


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Senate conservatives may block sequester solution


Some conservative lawmakers view the cuts as money in the bank.

By JONATHAN ALLEN | 9/25/12 11:11 PM EDT

Not everyone in Washington is so desperate to avoid sequestration.

A handful of Senate conservatives have been gaming out ways to block a deal, if they consider it a bad one — even if it means letting billions in across-the-board cuts go through, according to GOP sources on Capitol Hill.

The issue: Republican budget hard-liners fear that the White House, congressional Democrats and their own party leaders will try to replace or forestall the cuts with budget gimmickry or new taxes. They worry that “fake” cuts — savings that would have happened anyway or other accounting tricks — will become increasingly popular, even for moderate Republicans, as the zero hour approaches for the Defense Department.

In private sessions, these Republicans have begun laying plans to block a big, bipartisan agreement, either by pressuring GOP leaders not to give ground or using the congressional rulebook to slow-walk the process.

It is too early to tell what will come down the pike, and the discussions are preliminary, Republican sources cautioned.

But the conservative lawmakers are “concerned” that leaders could “use the sequester as leverage to get a bad deal” through Congress, one senior GOP aide told POLITICO.

They view the cuts as money in the bank, the silver lining of an August 2011 Budget Control Act, the debt-limit deal that gave Congress the choice of coming up with $1.2 trillion in deficit reduction over 10 years or letting automatic cuts to defense and domestic programs take effect on Jan. 2, 2013.

“Whatever you say about the cuts, and we all opposed the BCA, it was a big victory for those wanting to cut spending,” said a Senate Republican source. “To then turn around and replace that with revenue” — or unrealistic future cuts — “is going to be a very hard thing to overcome on our side.”

For a variety of reasons, many fiscal conservatives voted against the budget control measure, which set up the sequestration process. The irony now, Republican sources say, is that folks who voted for the sequester are the most eager to get rid of it and lawmakers who voted no are more willing to let it take effect.

The official line from most conservatives is that the planned cuts to the Pentagon would devastate the nation’s defenses and they should be replaced by reductions to domestic programs or other budgetary offsets that don’t involve raising taxes.

Congressional Democrats and White House chief of staff Jack Lew, the point man in constructing the sequester, wanted a way to force Republicans into choosing between defense cuts and tax increases, sources said at the time. House Democrats tried to make that choice more stark for Republicans earlier this month by drafting legislation that would have replaced the defense cuts with tax increases. But the GOP blocked the measure from coming up for a vote.

“The holdout has been that Republicans are much more interested in protecting tax breaks for special interests, like tax breaks for big oil companies, than they are in protecting defense spending,” said Maryland Rep. Chris Van Hollen, the top Democrat on the House Budget Committee and a negotiator on the 2011 budget deal.

It’s not quite that cut and dried. Republicans are in a box — partly of their own making — that pits two cornerstones of their platform against each other: robust national defense and low taxes.

Rep. Trent Franks (R-Ariz.) recently told POLITICO that Republicans had been “outflanked” by Democrats when they signed off on the deal to raise the debt limit last August and put the Pentagon on the chopping block.

Some defense hawks are so worried about shrinking the Pentagon’s budget that they have floated the idea of offsetting the cuts with new revenue. Sen. John McCain (R-Ariz.), the GOP’s 2008 presidential nominee, raised that idea in June when he was working with Armed Services Committee Chairman Carl Levin (D-Mich.) to find a way to spare the Pentagon.

On Monday, McCain and Levin were among six senators who echoed Obama’s call for a “balanced” approach to replacing the sequester with another deficit-reduction package — Washington code for including tax revenue.

“[W]e are committed to working together to help forge a balanced bipartisan deficit reduction package to avoid damage to our national security, important domestic priorities, and our economy,” the senators wrote. Republicans Lindsey Graham of South Carolina and Kelly Ayotte of New Hampshire and Democrats Sheldon Whitehouse of Rhode Island and Jeanne Shaheen of New Hampshire joined McCain and Levin in signing the letter.

If Congress doesn’t act to stop it, the sequester will be triggered on Jan. 2. Across-the-board cuts will be applied to most defense and domestic programs. But Republicans see an imbalance in what was billed as an equal haircut for the Pentagon and nondefense programs. The big entitlements were mostly exempted from cuts. Social Security and Medicaid won’t be touched at all, and cuts to Medicare were limited to 2 percent.

While immediate war-fighting functions and military pay are also exempted from the sequester, most Pentagon programs are about to go under the knife. There is particular concern about the ability of DOD to acquire weapons and equipment, as well as the possibility that contractors, both large and small, will lay off employees in response to a reduction in the money they get from the government.

Because so many political sacred cows are in line to become hamburger meat, the conservatives realize they will be fighting a delicate and difficult battle if they end up taking the position that sequestration is better than whatever alternate deal has been cut. Moreover, there won’t be any real deal making until the post-election lame-duck session of Congress, and it’s not clear yet what they will be up against.

But history has taught them that Washington negotiations seldom lead to hard spending cuts, and they worry that they’ll lose the “dollar for dollar” deal that they got last year.

At the time, the government was bumping up against its borrowing cap, the so-called debt limit. Republicans insisted that for every dollar by which they agreed to raise the debt limit, Democrats agree to an equal dollar amount in cuts to government programs. For Republicans, that was the heart of the agreement.

Now conservatives are “frustrated about the willingness to walk away from the dollar-for-dollar commitment,” said an aide to a conservative member of the Senate. The aide said some senators may push to let the sequester take effect rather than “abrogating that commitment.”

As for making that happen, the Senate GOP source said, “The conservatives in the Senate are always prepared and looking for ways to utilize their leverage outside the chamber and inside the chamber to stop really bad stuff and also to help our House allies.”

© 2012 POLITICO LLC

http://www.politico.com/news/stories/0912/81668.html [with comments]


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