Category: Politics

Bankers Gotta Bank

The Daily Escape:

Drake Hooded Mergansers with a female Common Merganser tagging along. Housatonic River, Litchfield County CT – January 9, 2018 photo by JH Clery

You missed it. During the Christmas holiday week, the Trump Administration published a notice in the federal register announcing that it would waive the outstanding criminal sanctions against some of the world’s largest banks: Citigroup, JPMorgan, Barclays, UBS and Deutsche Bank.

The banks were facing sanctions stemming from a variety of wrongdoing, including the trillions’ worth of fraud in the LIBOR scandal, and Deutsche Bank’s role in laundering $10B for Russian oligarchs.

The LIBOR fraud effected every interest rate in the world.

Four of the banks receiving waivers, Citigroup, JPMorgan, Barclays and UBS, received temporary waivers from the Obama administration late in 2016 for one year. Now, the Trump administration has offered five-year waivers to Citigroup, JPMorgan and Barclays, and three-year waivers to UBS and Deutsche Bank.

By laws that protect retirement savings, financial firms with affiliates convicted of violating securities statutes are barred from the lucrative business of managing those savings. But, a special exemption will allow these banks to keep their status as “qualified professional asset managers”.

It makes you wonder what a bank has to do to get punished, or for a bank president to go to jail, when laundering money for drug dealers and manipulating global interest rates aren’t serious enough crimes. We’ve entered a period of extreme social stratification in this country, one that is similar to India’s: The bankers and politicians are the Brahmins and the rest of us are the untouchables.

These interactions with the Trump administration and the federal government are transpiring as Deutsche remains a key creditor for Donald Trump’s businesses. From David Sirota:

Donald Trump owes the German bank at least $130 million in loans, according to the president’s most recent financial disclosure form. Sources have told the Financial Times the total amount of money Trump owes Deutsche is likely around $300 million. The president’s relationship with the bank dates back to the late 1990s, when it was the one major Wall Street bank willing to extend him credit after a series of bankruptcies. In 2016, the Wall Street Journal reported Trump and his companies have received at least $2.5 billion in loans from Deutsche Bank and co-lenders since 1998.

In the year leading up to the new waiver for Deutsche Bank, Trump’s financial relationship with the firm prompted allegations of a conflict of interest. The bank also faced Justice Department scrutiny by five separate government-appointed independent monitors.

Meanwhile, the NYT recently reported that federal prosecutors subpoenaed Deutsche for:

Bank records about entities associated with the family company of Jared Kushner, President Trump’s son-in-law and senior adviser.

Not enough for you? The just-appointed number two in the DOJ’s office of the US Attorney for the Southern District of New York, is Robert Khuzami, formerly director of the SEC’s Enforcement Division. And before that, he was Deutsche Bank’s General Counsel.

Nothing to see here. Conflicts of interest are all over this case. Trump’s waiver is a clear conflict of interest. And both his son-in-law Jared and the new US Attorney have more than incidental relationships with Deutsche.

First Obama went easy on the banksters, and now, so does Kaiser Tweeto.

Republicans are happy to see Der Trump helping the banking industry and not pursuing them. And thanks to President Clinton, they no longer suffer under the restrictions of the Glass/Steagall act.

But, what about the conflicts of interest?

Who in this rogue’s gallery is working for us?

Facebooklinkedinrss

Sunday Cartoon Blogging – January 7, 2018

Via the NYT comes proof that satire is dead:

Trump, in an extraordinary defense of his mental capacity and fitness for office, described himself on Saturday as a ‘genius’ and ‘a very stable genius at that.’

Very Stable Genius has the Biggest Button. Very Stable Genius could probably solve the opioid crisis on his first try, if only he would try. This is Trump’s version of Nixon’s “I am not a crook.” The fact that he has to say he’s smart says he has a really big problem. And if America doesn’t believe him, it could be enough to cripple him.

If he could read, shit would really hit the fan:

The vaudeville act ends:

Trump is the best negotiator:

The two Koreas are taking about NorKo participating in the Winter Olympics. What could go wrong?

Iran takes up Trump’s mantra:

Mitt looks for his principles. They seem to be missing:

Trump gives Congress a message about the 2018 legislative agenda:

Facebooklinkedinrss

Wrongo’s 2018 Predictions

The Daily Escape:

Snowy Landscape with Arles in the background – Vincent Van Gogh, 1888

A tradition at the Mansion of Wrong is to attend the annual New Year’s Day Concert at the First Congregational Church of Washington CT, built in 1801. The concert is always by the New Baroque Soloists. This year, the church was packed, and among the guests were Tia Leoni and Tim Daly, the leads in the CBS series “Madam Secretary”.  For the sixth year in a row, it was another inspiring performance by the New Baroque Soloists.

Now it is time for a few Wrong predictions about 2018, most of which will probably will be wrong:

  1. The US economy as measured by GDP will grow at greater than 2% for 2018.
    1. The US stock market as measured by the S&P 500 index will end 2018 with little or no growth over year-end 2017.
    2. The Trump tax cuts will increase the deficit, and despite Paul Ryan’s best (or worst) efforts to push the country into austerity, that can will be kicked down the road for a few more years.
  2. The Democrats will not take control of either the House or the Senate in the 2018 mid-term elections. The still-growing economy, and the pittance that increases paychecks from the Trump tax cut will help incumbents enough to forestall a wave election.
    1. The Democrats will remain without real leadership or vision in 2018.
  3. Cyber and other forms of meddling by people who wish our democracy harm will continue in the 2018 elections, to broader effect than in 2016.
    1. Facebook and Google will be held to account for their failure to tamp down disinformation.
  4. Trump will continue to flounder as the leader of the Free World, while his “frenemies” in the GOP will continue to try to thwart him on domestic economic legislation.
    1. There will be some form of bi-partisan accommodation on DACA.
    2. Trump’s public-private infrastructure deal will not pass the Senate.
    3. The House will pass legislation that messes with Medicaid, but the Senate will not.
    4. Trump will have the opportunity to appoint another Supreme Court Justice.
  5. Trump will have a serious medical issue in 2018, but will not leave office, or be temporarily replaced by Pence.
  6. Mueller: By March, MAGA will mean “Mueller Ain’t Going Away”. The storm will crest, a Russiagate conspiracy will be exposed, and crud will fly everywhere. This could lead to the Democrats taking control of one or both Houses.
    1. A few additional Trumpets will go to jail, or be tied up in court. Trump will not be impeached by the 2018 Republicans. 2019 might bring a different calculus.
  7. Tillerson and possibly other cabinet members will resign to “spend more time with family”.
  8. #metoo will continue to dog politicians, Hollywood and the media.
  9. Middle East:
    1. Syria – by this time next year, the war will be essentially over. Assad will still be in power, and the US will be out of the picture. The Syrian Kurds will switch sides, and collaborate with the Assad regime.
    2. Iran – the current protest movement will fizzle out. Neo-cons in Trump’s administration will try to bring us close to war with Iran, but cooler heads at the Pentagon will prevail.
    3. Famine and death in Yemen will continue to be ignored by everyone in the US.
  10. Russia: Russia, China, and Iran will have a “come together” moment, possibly resulting in an agreement for mutual economic cooperation.
    1. Russia will continue to face ongoing battles with the US, but Putin will persist.
    2. Ukraine: The US delivery of anti-tank missiles to the Ukrainian army will not cause them to begin military operations in the east.
  11. Europe: The right-wing authoritarian movements in the Eurozone and England will become a larger factor in their domestic politics. Brexit will occur, and no one in the UK will be happy about the outcome.
  12. Will there be a war or “incident” with North Korea? Despite the scary politics, the Seoul Winter Olympics will keep the situation from escalating through June. The second half of 2018 could lead to some kind of incident between the US and NorKo, but will not be a nuclear incident.

A “black swan” event (an event that comes as a surprise, has a major effect), could change everything for the President, the country and the world. Let’s hope that none occur in 2018.

Facebooklinkedinrss

Trump Signs Bill Containing Warning on Climate Change

The Daily Escape:

The Fuego Volcano in Guatemala erupts under the Milky Way, Antigua, Guatemala – photo by Albert Dros

While we were all focused on the Alabama senate election, on Tuesday, Donald Trump signed the National Defense Authorization Act (NDAA), a bill that sets spending limits for the US military in the coming fiscal year.

Buried in the bill is a discussion of climate change. The NDAA contains a provision making clear that “the sense of Congress” is that:

Climate change is a direct threat to the national security of the United States.

The provision cites statements from Defense Secretary Jim Mattis, former defense secretary Robert Gates, Chairman of the Joint Chiefs of Staff Gen. Joseph F. Dunford Jr. and the Office of the Director of National Intelligence (DNI).

This creates an interesting moment for Trump, who signed the bill knowing this was in its language. He did not add a signing statement disavowing the provision, so he’s placing the climate change provisions of the NDAA directly opposite his stance on climate change, and his disavowal of the Paris Agreement.

By signing the bill, Trump also ordered a report on “vulnerabilities to military installations” that climate change could cause in the next 20 years. More from the bill:

As global temperatures rise, droughts and famines can lead to more failed states, which are breeding grounds of extremist and terrorist organizations…In the Marshall Islands, an Air Force radar installation built on an atoll at a cost of $1 billion, is projected to be underwater within two decades. A three-foot rise in sea levels will threaten the operations of more than 128 United States military sites, and it is possible that many of these at-risk bases could be submerged in the coming years…

Lawfare reports that the bill’s climate change provision is as important for what it doesn’t require as for what it does. The bill doesn’t require that Gen. Mattis develop a policy to solve the problems that it acknowledges climate change poses. Instead, it merely requires that he provide an explanation of its “effects.”

This was Congress’s way of dealing with an earlier contentious debate about including the climate provision at all. The amendment to deny its inclusion failed by 185-234. Also, the military is not the agency responsible for regulating carbon emissions, so the impact of its requirements on policy may be small.

While the requirement that Mattis produce a report on the “mitigations” that will ensure “resiliency” could be construed as creating a policy response, the fact remains that there is no explicit direction that he implement any of the mitigations on which he’ll be reporting.

More from Lawfare: (brackets and emphasis by the Wrongologist)

According to the Congressional Research Service, as of 2012, the Department of Defense was ‘the largest organizational user of petroleum in the world.’…And the thousands of [military] aircraft…accounted for 22% of all jet fuel used by the US as of 2008.

The bill includes money to buy 30 more planes than the military asked for (24 reliable old F/A-18s instead of 14, and 90 of the newer lemon, the F-35, instead of 70). The US Navy asked for one new Littoral Combat Ship. The NDAA budgets for three.

Translation: $Billions for the aerospace and ship-building government contractors. This year, the Defense expenditures tab will come to about $2,160 for every man, woman and child in the US.

Feel like you’re getting your money’s worth?

 

A quick note about Rock and Roll Hall of Fame nominee Sister Rosetta Tharpe. Most haven’t heard of her, but she was an innovator on the electric guitar. She preferred to play a Gibson SG, and she was among the first to use heavy distortion. In 1947, Sister Rosetta put the then 14-year-old Little Richard on stage. Johnny Cash said that she was his favorite singer, and biggest inspiration. When she plays, you understand where Chuck Berry got his big guitar ideas. Here is Sister Rosetta Tharpe doing “That’s All” from 1964’s “Live in Paris “album:

https://www.youtube.com/watch?v=l9bX5mzdihs

Those who read the Wrongologist in email can view the video here.

Facebooklinkedinrss

You Say You Want a Revolution

The Daily Escape:

Waimea Canyon, Kauai Hawaii

Wrongo has suggested many times that America needs a revolution. He thinks that the US political process has been so captured by large corporations and the very rich that the average person no longer can have any impact on policy. In many states, the average person isn’t even totally confident that he/she will be permitted to vote the next time they go to their local precinct.

We are in the midst of a political crisis: The people have lost faith in systems which they feel don’t respond to real people and in representatives that won’t represent us, or the society at large. Rather than debate issues thoughtfully, we are whipsawed by the appeals to emotion launched daily into the ether by the tweeter-in-chief.

Two current issues demonstrate the danger. First, Jerusalem. It turns out that Tillerson and Mattis opposed the president’s decision to recognize Jerusalem as the capitol of Israel, and move our embassy there. You know from the headlines that Trump wouldn’t listen to anyone who told him this would be a very bad idea. The State Department’s response was to issue a worldwide travel alert for those Americans who think they’re still welcome around the world. The WaPo reported that a Trump confidant said:

It’s insane. We’re all resistant…He doesn’t realize what all he could trigger by doing this.

Second, North Korea. Maybe you read this headline: North Korea says war is inevitable as allies continue war games.

Martin Longman asks the pertinent question:

The so-called adults in the room utterly failed on the Jerusalem issue, so are we supposed to put our trust in them to steer a sane course on the Korean peninsula?

What are we talking about here? Can we wait out Trump, and just work like hell to replace him with a better president in 2020? Would nuclear war get him re-elected?

What about the GOP’s control of both houses of Congress? On Thursday, Speaker Ryan told us what we face next year: the GOP will tackle the budget deficit and national debt by cutting Medicare and possibly Social Security, now that the GOP’s donor class has their tax cuts.

Things have to change, and there are only two options, neither very good. First, we can try and excise the moneyed influence via the ballot box. That is the “democratic revolution” that Bernie championed in 2016. The definition of democratic revolution is:

A revolution in which a democracy is instituted, replacing a previous non-democratic government, or in which revolutionary change is brought about through democratic means, usually without violence.

Since we no longer have a functioning democracy, a “democratic revolution” to bring it back is what we require. Is it the only way to right the American ship of state?

The second option is a coup of some kind.

  • It could be via impeachment, assuming there were high crimes and misdemeanors that Trump had committed, and assuming a Republican House would impeach him, and a Republican Senate would convict him.
  • It could come via a 25th Amendment action, which might be marginally more acceptable to Republicans, but is as unlikely as impeachment.
  • Least desirable, and least likely would be a true coup, where the “adults in the room” (in the oval office, or the Pentagon) get leverage over the Commander-in-Chief. Could a real coup stay bloodless? That seems highly doubtful, and Wrongo would rather trust Trump than a junta.

Removing Trump won’t fix what’s wrong with the Republican Party. We need to prioritize and triage this situation, focusing first on taking back the House and Senate before 2020.

Who can we count on to right the ship?

Not today’s Democrats. They are led by Chuck Schumer who approves of Trump’s Jerusalem decision. The Democrats must fire Pelosi and Schumer, or die.

What about America’s largest voting bloc, Millennials? Can they step up to the challenge?

What about America’s women? In 2016, women supported Clinton over Trump by 54% to 42%, while Trump carried non-college educated white women 64% to 35%. The #metoo movement promises to become much more than the outing of bad guys: It could weaken both male privilege, and their power.

Firing a few slime balls isn’t revolutionary, but voting them out of office would be a paradigm shift.

The stock market is in the stratosphere, and consumers are happily clicking on Amazon’s “place order” tab.

Measly tax cuts will trickle down to rubes like us, while the plutocrats will die of laughter.

Can women and millennial voters look beyond the GOP’s messaging that the Muslims are always to blame, and Israelis suffer the most?

Will they care enough about whatever Mueller turns up on Trump to go out and vote?

Revolution is in the air. Why should the right have all the fun?

Facebooklinkedinrss

Reagan’s Tax Cuts Are No Model for Today’s GOP

The Daily Escape:

Colima Volcano, Mexico, December 2015 – photo by Sergio Tapiro, National Geographic 2017 photographer of the year

Republicans are patting themselves on the back about their coming tax cuts, comparing it to the famous (infamous?) Regan tax cuts, known as the Tax Reform Act of 1986. From the Economist:

During the three decades since its passage, Democrats and Republicans alike have hailed the law not only for overhauling the country’s tax system…but also for doing so with bipartisan support in both houses of Congress.

Unlike the bi-partisan review of our tax system that occurred from 1984 to 1986, Donald Trump has promised to sign a bill by Christmas, just two months after the first legislative text was introduced.

Congressional Republicans originally promised that any reform would not reduce overall revenues. But they have flip-flopped: The current plan is expected to raise deficits by between $1.3 and $1.5 trillion over its 10-year life. And according to figures from the Joint Committee on Taxation, most of the benefits will go to the rich. Reagan’s reform did the opposite. The left hand chart below shows the Reagan tax cut in blue and the Trump tax cut in red. The x axis is annual income, while the y axis is the percentage of taxpayers receiving a tax cut:

Source: The Economist

The gaps in share of taxpayers receiving a cut are stunning. Between 35-55% of those under $40k in income will receive a benefit under the Trump plan, while between 70-80% of the same group received a cut under the Reagan tax plan.

It gets worse when we look at the right hand chart above. The x axis shows the percentage change in after-tax income by earnings level. Reagan’s cut gave those making between $10k-$50k an increase in take home pay by between 0.25% and 1.5%. Trump’s plan will leave them at ± 0% change in take-home income, while those who make from $50k to $200k will do significantly better under the Trump plan than under Reagan.

And an article of faith for the GOP is that the tax cut will stimulate the economy. Let’s unpack this a bit. The bill provides interim tax relief of about $1.38 trillion during 2018-2025 before the tax sunset provisions kick-in. That equals 4.2% of current tax revenue collections during the 8- year period, and only about 0.8% of GDP.

It’s hard to see how an 0.8% stimulus to GDP is going to bring on a growth tsunami, or add tons of new jobs.

Back to the Reagan tax cut, it had no measurable effect on the trend rate of economic growth, and when it was fully implemented, it amounted to 6.2% of GDP, not 0.8%, .

Finally, when the Tax Policy Center costed out the Senate Finance Committee bill, it showed that by year 10, not one of the 150 million individual filers will still be getting a tax benefit. And most importantly, the single tax cut item left in the statute, the 20% corporate rate, which stays in place permanently, costs America $171 billion in lost revenue in 2027. From David Stockman:

Likewise, the latest distributional analysis [probably from the Center on Budget and Policy Priorities] shows that in 2025, before the sunset,-the bottom 30 million tax filers would get an average “tax cut” which amounts to the grand sum of $1.15 per week….the next 30 million filers would only get $7 per week; and the middle quintile—-the 30 million tax filers between $55,000 and $95,000 per year and the heart of the middle class—– would get just $17 per week of tax relief in 2025.

Hardly seems worthy of Paul Ryan’s gloating about how he’s helping the middle class. The people know that they have no control over what happens, they just want to see how much more they will have to spend (pay?) when the dust settles.

And that’s why Paul Ryan and Donald Trump gloat. They show the rubes a dollar, and then send $1000 to their corporate benefactors.

This will be the GOP’s paradise after they enact the Trump tax plan:

 

Facebooklinkedinrss

Monday Wake Up Call – November 27, 2017

The Daily Escape:

Coyote, Housatonic River – Litchfield County, CT – photo by JH Clery

At the risk of sounding like the discredited Democrat John Edwards, we do live in two Americas. The top rungs of the ladder are living a good life, benefiting from the nine-year rebound from the Great Recession. The other 90% haven’t done well at all. Check out this chart of median household income:

Source

The chart shows median (not average) household income for the US, adjusted for inflation. Unlike average income, median income is not distorted by the enormous gains made by the one-percenters during the past decade.

The chart shows that for a household in the center of the US income distribution, 1999 was the best year ever. The housing bubble brought median household income almost back to its 1999 level in 2007, but not quite. Today, median household income (adjusted for inflation) is slightly lower than it was in 1989, in the first year of the George H.W. Bush administration.

How can this be? The economy is growing, and the US should have a squeaky-tight job market, since unemployment is at a 17-year low at 4.1%, a jobless figure that is near the definition of full employment. We’ve had seven straight years of job growth; job searches lasting 15 weeks or longer are now only 1.5% of the work force, down from 2% a year ago.

But wage growth is anemic. According to the law of supply and demand, employers should be sharply bidding up wages in order to capture increasingly scarce workers. But they aren’t. In October, they raised wages just a bit more than inflation, at an annual rate of 2.4%, down from September’s rate of 2.8%.

This is what imperial decay looks like to the middle class. Keep spending your seed corn tilting at windmills in the Middle East, and pretty soon some in the middle class are dumpster diving.

And consider this: Only a little more than half of America has a retirement account, such as a 401(k) or Individual Retirement Account, according to the Federal Reserve. And the typical household with a retirement account had a balance of $60,000 last year, but there are big variations. Among the top 10% of households by income, the typical amount of savings was $403,000. Middle-income households had a median of $25,000.

Everyone who isn’t in the top 10% knows just how bad things are, and those below the top 20% feel it every day.

But what can they do about it? They work, many working multiple jobs. They get home exhausted. They’re too poor to run for office in a rigged plutocracy. So they go to bed and get up and go to work again in the morning, either depressed and angry, or simply depressed.

That’s about all they can do, except to vote for politicians who have no intention of working to change their economic situation.

Each resulting government is worse than the last. Not to mention at this point in terms of power over people’s lives, even the government is dwarfed by the power of multinational corporations.

It’s long past time to wake up America! We’ve got to stop the hostile takeover of the middle class by plutocrats and corporations, but how to do it? We all have to get off the couch and work for local candidates who will be the bench strength of progressive politics down the road. We also must work to insure that our voting rights are not further eroded by polls that close early, or by efforts to prune the rolls of people who haven’t voted in a few years. This is particularly heinous when less than 55% of eligible people vote even in our presidential elections.

To help us wake up, here is the 1970’s British group XTC with their tune “Wake Up”:

Takeaway Lyric:

You put your cleanest dirty shirt on
Then you stagger down to meet the dawn
You take a ride upon a bus, it’s just a fuss
You know it keeps you born
You get to know a morning face
You get to join the human race
You get to know the world has passed you by

Facebooklinkedinrss

Saturday Soother – November 25, 2017

The Daily Escape:

Blue Mosque, Istanbul -2013 photo by Wrongo

Wrongo planned on taking the rest of the week off, but couldn’t resist this:

We live in a time when inequality of wealth, income and influence is thought to be greater than at any time in history. Inequality strengthens social injustice and with it the existence of The Privileged and The Disadvantaged. Of those who have influence and feel they are entitled to everything, and those who expect little, receive even less but need most. Government policies are fashioned by The Privileged for their own benefit. The Disadvantaged, having little or no voice, are ignored, allowing the Cycle of Containment to be maintained, change to be suppressed and social divisions to deepen.

This is from a post entitled What Price Humanity? at Dissident Voice, and it is a pretty accurate description of where we are in America. More:

Sitting at the center of this socio-economic tragedy is an economic ideology that is not simply unjust, it is inhumane. Compassion and human empathy are pushed into the shadows in the Neo-Liberal paradigm, selfishness, division and exploitation encouraged. The system promotes short-term materialistic values and works against mankind’s natural inclination towards unity, social responsibility and cooperation, inherent qualities that are consistently made manifest in times of crisis, individual hardship and collective need.

Graham Peebles is asking what are We the People entitled to in 2017 America? And his answer is grim.

Wrongo thinks nothing is more appropriate to this discussion than FDR’s Second Bill of Rights as stated January 11, 1944 in his message to the US Congress on the State of the Union:

  • The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
  • The right to earn enough to provide adequate food and clothing and recreation;
  • The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
  • The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
  • The right of every family to a decent home;
  • The right to adequate medical care and the opportunity to achieve and enjoy good health;
  • The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
  • The right to a good education.

FDR could foresee the end of WWII when he gave this speech. He concluded that: (emphasis by the Wrongologist)

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

Sadly, on this 2017 Thanksgiving weekend, we remain very far from these goals.

The inequality and sense of entitlement we see today won’t be turned around without work. Financialization is a poisonous monster. It dictates government policy, and makes the rules about how our businesses and governments at all levels engage with our people and our environment.

People are little more than sources of revenue: Their capacity to spend, to invest and consume determines how they are valued. Driving virtually every decision within the suffocating confines of the ideal is an addiction to profit.

FDR’s ideas seem quaint in 2017. The US cannot even ensure basic civil rights such as racial equality, much less “life, liberty, and the pursuit of happiness.” Most Americans have freely indentured themselves to the financial sector so that they can pretend to own a house in which to raise their kids, and a car to drive to work in order to earn income so they can make loan payments on the house and the pick-up.

Enough! Let’s forget about life for a while. Grab a cup of Climpson & Sons Signature Espresso that is 100% Adamo Sasaba from Ethiopia, and stay away from the turkey Tetrazzini at lunchtime.

Now, watch and listen to Narciso Yepes interpret Joaquin Rodrigo’s Concerto d’Aranjuez (Adagio) on his 10-string guitar. The 10-string was conceived in 1963 by Yepes, who ordered it from JosĂ© RamĂ­rez [III].

The conductor is Raphael FrĂŒbeck de Burgos with the Radio Symphony Orchestra of Frankfurt. It’s a lovely piece with a remarkable guitar:

Those who read the Wrongologist in email can view the video here.

Facebooklinkedinrss

Here Comes the Retail Apocalypse

The Daily Escape:

The Oberlausitzische Library of Science, Gorlitz Germany

There is a growing concern that the mall as we know it is in big trouble. RadioShack, The Limited, Payless, and Toys“R”Us were among 19 retail bankruptcies this year. From Dave Dayden: (brackets by the Wrongologist)

This story is at odds with the broader narrative about business in America: The economy is growing, unemployment is low, and consumer confidence is at a decade-long high. This would typically signal a retail boom, yet the [retail store] pain rivals the height of the Great Recession.

Many point to Amazon and other online retailers as taking away market share, but e-commerce sales in the second quarter of 2017 were 8.9% of total sales. There are three reasons for so many sick retailers.

First, while online sales are “only” 8.9% of total retail sales, these businesses have very high fixed costs and low net profit margins. The Stern School at NYU tracks net profit margins on thousands of businesses across many sectors, including retail. The margins for Specialty retail for the year ending January 2017 was 3.17%. It was 1.89% for Grocery and 2.60% for General retailers. If a high fixed cost business loses 9% of sales, it can easily wipe out the bottom line.

Second, many retail companies carry high debt levels. Bloomberg explains that private equity firms (PE’s) have purchased numerous retail chains over the past decade via leveraged buyouts, where debt is the primary source of the money used to buy the business. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder if interest rates rise.

Third, there are just too many stores in our cities and suburbs to sustain sales in a world where online shopping is growing rapidly.

Worse, billions of dollars of that PE-arranged debt come due in the next few years. More from Bloomberg:

If today is considered a retail apocalypse…then what’s coming next could truly be scary.

This chart shows what percentage of retail real estate loans are delinquent by area:

Source: Trepp

There are large areas of America where more than 20% of the loans are past due. More from Bloomberg: (emphasis by the Wrongologist)

Through the third quarter of this year, 6,752 locations were scheduled to shutter in the US, excluding grocery stores and restaurants, according to the International Council of Shopping Centers. That’s more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008…Apparel chains have by far taken the biggest hit, with 2,500 locations closing. Department stores were hammered, too, with Macy’s Inc., Sears Holdings Corp. and J.C. Penney Co. downsizing. In all, about 550 department stores closed, equating to 43 million square feet, or about half the total.

This threatens the retail sales staff and cashiers who make up 6% of the entire US workforce, a total of 8 million jobs. These workers are not located in any one region; the entire country will share in the pain.

These American retail workers could see their careers evaporate, largely due to the PE’s financial scheme. The PE’s, however, will likely walk away enriched, and policymakers will share the blame since they enabled the carnage.

Our tax code makes corporate interest payments tax-deductible. So the PE kingpins load up these companies with debt and when they walk away, they get tax credits for any write-offs, incentivizing them to borrow and play the game again. The PE firm might lose some or all of its equity, but in most cases, it already drew cash out via special dividends and fees, so it has made its money.

The lenders, employees, state development authorities are the ones left holding the bag.

The GOP’s new tax plan proposes a cap on the deductibility of interest payments over 30% of a company’s earnings. But, the GOP left a loophole: Real estate companies are exempt from the cap.

Surprisingly, this benefits Donald Trump’s businesses! It also helps PE firms that split the operating side of the businesses they buy from the property side, as most do. They put the borrowing onto the property side, and continue to deduct the interest.

So financialization businesses like PE will continue to strip the value out of companies with hard assets.

Billions in asset-stripping and thousands of operations sent overseas. Labor participation rate is stagnant, yet we are assured that if we pass big corporate tax cuts, the US economy will grow fast enough to more than compensate for the losses.

What’s wrong with this picture?

Facebooklinkedinrss

Monday Wake Up Call – November 20, 2017

The Daily Escape:

El Ateneo Grand Splendid bookstore in Buenos Aires, which has more bookstores per person than any other city in the world – photo by Alamy

One of the arguments that Republicans use to support their tax bill is that it will unleash investment, but the data say otherwise. Currently, most US economic sectors are operating far below maximum capacity utilization. Here is a Federal Reserve chart showing current industrial utilization/capacity:

The left axis shows the percentage of utilization across both durable and non-durable goods. The US is currently tracking at about 75% utilization, which is about as low as it gets in non-recession times. What that implies is corporations have no need to invest in additional capacity in the US. They have plenty of spare capacity to meet any spike in demand, should it arise. So, today, it makes far more sense for companies to bring unused capacity back online rather than to buy new equipment.

So, what would corporations do with a windfall tax cut that they didn’t need to invest in the US? Won’t they just invest it outside the US in order to keep expanding their global markets? There would be no increased revenues or jobs from investment at home, so why would they keep the windfall at home? That wouldn’t be smart, and those guys and their tax lawyers are pretty smart.

What corporations might do with increased after-tax income:

  • Buy back more of their own stock
  • Update their factories in Mexico, China or elsewhere around the world
  • Invest in companies working on artificial intelligence or robots with human-like dexterity. You know, something on the bleeding edge!

The corporates will ask the question: What do Americans need that they do not have? More self-driving cars?

American consumers simply do not earn enough money to purchase the products that are already available. Total household debt now exceeds the previous peak in the 3rd quarter of 2008. You know, the peak driven by the housing bubble and the accompanying refinancing of debt.

So if a corporation does come up with some product for which there is a genuine need, who will have the money to buy it? What products (or services) would Americans stop purchasing so that they could use their borrowed money to buy this new product?

And given that the tax cuts will not accrue to anyone who makes under $75k the way the GOP has designed their tax cuts, there won’t be any more money in the pockets of the middle class to add jobs and GDP growth here at home. Here is a chart from David Leonhardt in the Sunday NYT, showing what everyone who will gain from their discredited trickle down tax plan, once it is fully implemented:

Notice that it doesn’t go to the people who really need it.

The Republican’s belief in tax cuts and supply side economics is a cult religion. They just don’t care about evidence.

So, time to wake up! We have broken subways, broken bridges, and stagnant wages. Why not spend the money on infrastructure instead of giving it away in tax cuts to be used offshore?

That might actually do some good. This could be the final opportunity for the Senate (the House is a lost cause) to do the right thing and actually represent the interests of the middle class in the US. It is way past time for this 100-member body to set aside the petty complaints of their corporate benefactors and the rich, and offer something real to the ordinary tax-paying citizens who try to pay their bills and put a little aside for retirement.

Time to wake up Senators! We need you to escape your cognitive dissonance, and think about what you are doing. To help you wake up, here is U2 with “Stuck in a Moment” from their 2000 album, “All That You Can’t Leave Behind”:

Takeaway Lyric:

You’ve got to get yourself together

You’ve got stuck in a moment

And now you can’t get out of it

Don’t say that later will be better

Now you’re stuck in a moment

And you can’t get out of it

Those who read the Wrongologist in email can view the video here.

Facebooklinkedinrss