Democrats & Liberals Archives

Bailout Time

According to Republican wisdom, Bush’s tax cuts gave us prosperity, and the Iraq war cost us nothing. I did not see the prosperity. Most of us in the middle class did not see it. The only ones who saw it - and enjoyed it in a big way - were the rich, the fellows who had financial “dealings” in the stock market. Now that financial markets are in turmoil, the talk is about a bailout.

I was under the impression that fatcats make their money because they take a risk. In fact that is the idea with all of capitalism. Entrepreneurs make millions, even billions, because they take a risk. The rest of us who work for a living take no risks - that's the way the story goes - so we must take what the risk-takers like to give us.

Who were the big risk takers behind today's recession? Bankers and all the sophisticated financial manipulators. These guys know risk so well, they managed to take a highly risky loan - the kind that no banker would give under normal rules - and converted it into "valuable" securities. Why were they so "valuable"? Because nobody knew about the risky loans behind them.

All these hugely-paid financial guys took the risk. They knew the system would collapse in the end. Now that it has collapsed, they are looking for a bailout. What sort of risk is this. Yes, I'l take the risk if you bail me out when I guess wrong. And according to Paul Krugman the big bailout is on its way:

As Bear [Stearns] goes, so will go the rest of the financial system. And if history is any guide, the coming taxpayer-financed bailout will end up costing a lot of money.

The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States.

The officers of all these financial organizations made so much money, they can't count it. Still, our Republican government says that we must bail them out, that they are too big to be allowed to fail. Why not? The owner of a bookstore is elbowed out of business by a big bookseller - they allow him to fail. A worker who risked forty years on a job and was dropped without a pension - they allow him to fail. A woman who gets seriously ill and exhausts her savings for healthcare costs - they allow her to fail.

The rich guys get the bailout and the poor guys get nothing. Worse than nothing: they see their taxes used to enrich the rich further. After all, who pays for the bailout? Not the rich guys who are getting tax cuts.

It all comes down to trickle down theory. There is trickle down of the pain, but a trickle up for the bailout. Yes, it is bailout time. But why not bailout those who are really suffering, the ones roped into unwise mortgages they cannot afford?

Posted by Paul Siegel at March 17, 2008 6:03 PM
Comments
Comment #248282

Paul:

And what is great is that both of your candidates are leading the charge.

http://www.marketwatch.com/news/story/democrats-call-more-fed-action/story.aspx?guid=%7B6374D59A%2D9D83%2D4EEC%2D95E4%2D7906E8AE173E%7D

Posted by: Craig Holmes at March 17, 2008 7:01 PM
Comment #248286

Paul, I believe you have forgotten about all the small investors in the equity market. Millions of Americans have pension funds invested in the equity market through their employers retirement plans. A public corporation is owned by its stockholders, that’s us. The world is not quite so simple as you imagine.

Posted by: Jim M at March 17, 2008 7:13 PM
Comment #248304

My wife and I saved many years to have a 20% deposit for our home. We got a FIXED loan and we had to put in a lot of second rate fixtures to make it completely affordable to us and our situation.

Over the years our salaries increased as they tend to do in life. We have upgraded in the house and should be able to recover the extras if ever forced to sell, we have upgraded carefully. Things that improve “curb appeal” on the outside. Inside such things as Oak stairs, hardwood floors, solid wood doors, so forth.

Rates have fallen over the years and we have locked in LOWER fixed rates. And we have taken 10 years off our payout time by shortening our loan period rather then taking the money into our pockets for lower rates. And of course we NEVER did a CASH OUT.

So now you want me to pay extra to finance those who never should have bought a house in the first place and did not properly prepare? NO, that’s wrong. They NEVER SHOULD HAVE BOUGHT THE HOUSE. I shouldn’t have to buy it for them.

Do I lack sympathy or empathy? No. I might agree to a temporary extension by a year or so at most of their present rates…then the mortgage must adjust and they must go if they can’t pay. Give them a year to prepare for the move and then, they go, I don’t pay any more.


Larger questions at work here. Today, we may have just missed out on a global bank meltdown. The democratic party idea of punishing big business may be a LOSER if it creates a global depression.


Perhaps we need to RE-Regulate the industry. The people in these banks have shown they will not manage well or manage risk well. They play at the edges with no understanding of what risks they are running. They pursue massive bonus dollars with little care for what it does to the business down the line or the stock holders. It may be time to take away their ability to play. It may be time to re-regulate.

Posted by: Stephen at March 17, 2008 9:07 PM
Comment #248311

Stephen

Perhaps we need to RE-Regulate the industry. The people in these banks have shown they will not manage well or manage risk well. They play at the edges with no understanding of what risks they are running.

I do not agree entirely with all that Paul says but he does have a valid point. Continued bailout by the government with yours and my money insures that there is no risk for those who get to keep the massive wealth they have pocketed as a result of all that risk. Those who suffer will be the masses of stockholders who put their faith in the institution.

Those who irresponsibly oversee the operations of the failed institutions go home as still very wealthy men when all is said and done. There is no real accountability. Just a slap on the hand and we will provide you with enough liquidity to make your business attractive enough for consolidation with another main street institution. The fat cats take care of the fat cats because well, they are fat cats after all.

The problem with re-regulation is that the fat cats will be the ones making the regulations. It is a no lose situation for them. Just more indication of an ever widening gap in the classes and respectively an ever changing set of standards.


Posted by: RickIL at March 17, 2008 9:39 PM
Comment #248313

Rick, unless you are advocating a revolution we must look at what needs to be done and attempt to do it. If we stand around and say “yes that’s a good idea but all roads lead to disaster, nothing can be accomplished” then we never get anything done ever.

Allowing Bear Sterns to collapse completely might has ignited a global run on banks that could lead to a massive recession or depression. The feds are starting to toss the kitchen sink at this thing to try and save us from a very bad situation. Can they do it? I don’t know.

I think re-regulation is a given. And I think your party will ride that horse all the way and soon you will all be supporting it! I suspect I’m mostly for it because deregulation has caused too many problems as money corrupted the system.


My wife and I have sent half our money overseas via the overseas funds available to us in our IRA’s and company 401K and 403B. Foreign index funds and foreign bond funds. A little over half the globes economy is OUTSIDE the US and it makes sense to be invested in it.


And if I see US taxes rising, government getting larger, big businesses being punished….I’ll move more money overseas in anticipation that the US economy will shrink under such punishment and the place to be will be OUTSIDE the US.

Posted by: Stephen at March 17, 2008 9:52 PM
Comment #248318

Right on Jim M! The people who are being hurt in this is not the millionaires, any more than the people being helped by the “outrageous profits” of the oil companies are only millionaires.

Of course Paul’s answer to the instability of markets (which through all the ups and downs manage to remain generally about 7% annually profitable for the diversified investor) is to stuff their money into Social “Security”, promise only a TWO PERCENT return, and then fritter the principle away on vote-buying schemes so that our children will have to be taxed at rates nearing 70% just to keep the now retired politicians’ promises.

That is SO much better, don’t you think?

Posted by: Lee Jamison at March 17, 2008 10:17 PM
Comment #248320

Stephen,

I agree, the “bailout” isn’t for the fatcats it’s for the stability of the banking system and markets. The Fed’s doing the right thing.

BTW, If you hold Bear Stearns stock, I doubt you feel bailed out. It closed at $30 friday and opened at $2 monday. That’s down from $170 a year ago.

Posted by: googlumpugus at March 17, 2008 10:33 PM
Comment #248344

The Fed should increase liquidity, as it has been doing. Some “bailouts” are probably wise, but must be done very carefully.

People who made bad investments should lose money. Since the fat-cats have more invested (otherwise they would be skinny cats) they will lose relatively more, but if you made bad investments you should suffer the consequences. Even good investors will get stuck a little, but all investment is risky. If you invested regualarly over 20 years you still are well ahead.

Posted by: Jack at March 18, 2008 1:03 AM
Comment #248358

Paul, your article is considerably under informed.

First, 238 financial organizations have failed since late 2006.

The rapidity of the failures is escalating, which threatens a domino effect which could send millions of average Americans out of work.

The bailout of our financial institutions is a defense of working American jobs. Protracted recession or worse, a depression, would not benefit those you seek assistance for. Failure to insure the continuation of America’s financial institutions could prolong and worsen the current economic downturn.

Now, I am with you 100% on insisting our government NOT bail out executives of financial institutions nor their shareholders (who failed due diligence as opposed to being deceived), but, the survival of the institutions are paramount to preserving jobs and quality of life for 100’s of millions of American workers and their families.

Rescuing America’s financial institutions at this time, as in the case of Bear-Stearns, is not only appropriate, but, necessary to preserving the viability of our debt laden and heavily leveraged economy.

Also, be careful, there are different sources for bailouts. The FED can utilize funding resources created by the banking system, whereas the Congress utilizes tax payer dollars. I frankly don’t have a problem with the banking system bailing out their own in order to preserve the system.

I do have a problem with the exec’s of these failing institutions receiving one cent of American taxpayer money. I insist their be prosecutions as well for criminal conduct and new legislation that would give the courts the power to exempt fired executives from their contractual golden parachutes where clear violations of fiduciary duty or gross incompetence led to entirely preventable shareholder losses.

That would be legislation LONG over due.

Posted by: David R. Remer at March 18, 2008 6:03 AM
Comment #248362

Because of deregulation the banking system is broke. A friend of mine is very poor with money. He has a checking account and a credit card with U.S. Bank. The credit card is always close to the limit, so when he has an over-draft (about once a month) they hit him with an over-draft fee . Then since he has over-draft protection they dip into his credit card to cover his checking account. Since it’s close to the limit that pushes it over the limit. This means about once a month he gets hit with a $35 over-draft fee and a $50 over limit fee at the same time!
Where as I’m a poor man with excellent credit. I use my charge card a lot, but I pay it off in time almost every month. Not only that, but I have a 0% interest loan from them till next fall. Just to get me to apply for the card. I tell my friend that’s nothing. Rich people actually get paid to borrow interest free money through awards. (What’s in your wallet?) What we have here is poor people subsidizing rich people.
What we have with Bear Stearns is a little different. There should be regulations to keep them from making loans to people that can never pay them back. But even more so the board should be watching what the chief officers are doing. not kissing up to them. I wonder what kind of bonus the CEO got out of the deal. I’ll bet it wasn’t Bear Stearns stock. Either way I’ll bet he’s got more money than me and 1,000 of my closest friends put together. Republicans talk about personal responsibility, but it would seem the higher you go up that ladder the less responsibility or accountability you find

Posted by: Mike the Cynic at March 18, 2008 8:40 AM
Comment #248368

Stephen, Googleumpugus

By fat cats I am referring to the executives that David mentions in his response. It does not seem right to me that these people who mismanage funds can simply walk away as very wealthy people. There is no risk for them, no real incentive to succeed. They can gamble recklessly with the stockholders money and if they have massive failure, well so what the only ones who will lose are the stock holders.

I am not attempting to be a doom and gloom person. I am merely looking at the whole picture as best I know how. What I see is a country and a people that have borrowed themselves into a downward spiral of seemingly irrecoverable debt. For a few decades the markets have thrived on a frivolous carefree spending spree based largely on the availability of more and more credit to the consumer regardless of their ability to repay. I do not think it can be fairly denied that the financial institutions played a crucial role in the perpetuation of this careless and possibly disastrous practice. This raises valid concerns with regards to questionable practices and just how much insight and real control our money managers have in the total scheme of things.

I do think regulation is necessary. I also would like to see some accountability within the system to those who seem to be able to write their own rules and manipulate them as they see fit.

It is obvious that nobody knows for sure where or when this is going to end. Considering the rapidity and unexpected nature of this decline, if I were a market player I would be very nervous and moving all my risk to safe areas. But then that is part of the problem isn’t it.

Posted by: RickIL at March 18, 2008 9:53 AM
Comment #248369

Mike

Republicans talk about personal responsibility, but it would seem the higher you go up that ladder the less responsibility or accountability you find

You are so right Mike.

Posted by: RickIL at March 18, 2008 9:59 AM
Comment #248373

Here’s some information on Paul’s point-of-view. Of which I do agree:

http://www.cbpp.org/3-11-08tax.htm

Quote from above article:
The same CBO data cited by the tax cuts’ supporters show that the top 1 percent of households pay almost 5 percent less of their income in federal personal income taxes than they did in 2000, before the tax cuts. No other group got a tax cut nearly as large.
The CBO finding cited by the tax cuts’ supporters does not change these facts. High-income households now pay a modestly larger share of federal income taxes not because the tax cuts are somehow tilted against them — to the contrary, the tax cuts are tilted decisively in their favor — but instead because (1) their incomes have risen much faster than other households,’ and (2) the tax cuts have significantly shrunk the total revenue “pie.”

And I don’t believe bailing out these institutions should be in order, as stated in a previous comment:
“First, 238 financial organizations have failed since late 2006.”
And to believe that banking institutions will take care of this crisis for the people when the government bails them out is absurd. We have been warned about this and noone seems to care about it’s implications.

“I believe that banking institutions are more dangerous to liberty than standing armies. If the American people ever allowed the banks to control the issuance of currency, the institutions that would grow up around them would deprive them of their lands until their sons and daughters wake up pennyless and hungry on the continent their fathers conquered.”

Don’t remember the authors name readily.

Posted by: dobropet at March 18, 2008 10:22 AM
Comment #248374

Oh yeah! Forgot about this little piece of information:

http://www.counterpunch.org/martens03172008.html

Enjoy.

Posted by: dobropet at March 18, 2008 10:37 AM
Comment #248384

From Jon Stewart last night:

“stocks before whores, everybody’s poor”

He also said something about the Swiss Franc being worth more than the U.S. dollar. If that is true, Bush should be lynched.

Posted by: ohrealy at March 18, 2008 1:36 PM
Comment #248385

As a couple of other commenters have pointed out, regulations are coming, whether you call it added regulations or re-regulation or what have you.

But there is a question about regulation that will not be asked, I can almost guarantee you, and that question is, will this regulation prevent the need for another bailout? The chances are that no regulation will prevent the need for a future bailout. I don’t suggest that bailouts are good, because I don’t think they are (and not for the reasons espoused in the main article). But a regulatory answer is not likely to find even part of a solution.

Returning the underlying article, why is it that when we talk about “taxpayers” funding a bailout we only assume that middle class and poor people will fund the bailout. Last time I checked, the top five percent of the income distribution paid something like 40 percent of the tax revenue in this country. It seems like the rich will be bearing more than their personal fair share for the bailout.

I think a more relevant question to be “what caused Bear Stearns to lose $168 dollars in stock value in a little over a year?” Because if I owned Bear Stearns stock, I certainly would not consider myself lucky to lose 95% of current value in my stock during a time when the stock market was closed.

Posted by: Matt Johnston at March 18, 2008 1:42 PM
Comment #248395
Still, our Republican government says that we must bail them out, that they are too big to be allowed to fail. Why not?
This has been going on for decades.

It took years of abuses to get here, and it will take years to resolve.
And BOTH Republican and Democrat incumbent politicians allowed it (even created most of it), yet BOTH continue to blame the OTHER for everything (despite BOTH having significant party majorities at one time or another, and never saw the need to address the nation’s problems growing in number and severity).

One of the root causes started long ago, but it is not politically correct to speak of it (i.e. the fractional 9-to-1 lending system, where money is created as debt; where up to 90% of each Federal Reserve Loan is new money created out of thin air, which is mathematically flawed, since DEBT = PRINCIPAL + INTEREST, but the INTEREST doe not yet exist). It is a pyramid-scheme that will collapse when the nation has no more capacity to carry more debt. The $53 Trillion nation-wide debt is about half of the nation’s net-worth, but 80% of Americans own ONLY 17% of all wealth.

So, where will the money come from?
The larger question perhaps should be:

    What happens when we finally can’t carry any more additional debt?

The ratio of nation-wide debt -to- GDP (see below) continues to grow larger and larger, no matter how hard Americans work; never decreasing.
Since year 1978, real median household incomes (in 2004 dollars) only increased barely from $40,000 in year 1978 to $43,066 in year 2007 (by $3,066 ; e.g. a tiny 7.7% over 30 years).
And it is actually worse when you consider that there are more workers per household, more regressive taxation now, and the disappearing 40-hour work-week.

Yet, despite productivity increases, the nation-wide debt -to- GDP ratio (in 2007 dollars) still increased drastically (see below; almost quadrupled).

So, it will take years to get out of it this mess; especially when no one can yet tell us WHERE the money to pay the INTEREST on $53 Trillion of nation-wide debt will come from, much less the money to reduce the PRINCIPAL debt of $53 Trillion (and prevent the debt from growing ever larger), when that money does not yet exist?

The tax payers will get the bill (again), as the $53 Trillion nation-wide debt grows ever larger (non-stop, along with incessant positive inflation, since year 1956), to record levels that have never been larger in both magnitude and relative to the $13.86 Trillion GDP.

But, the voters don’t yet seem to mind the painful consequences too much, since the voters continue to repeatedly reward the irresponsible incumbent politicians for all of the abuses, with 93%-to-99% re-election rates?

Where will the money come from to pay the INTEREST on the $53 Trillion of nation-wide debt, much less the money to reduce the PRINCIPAL $53 Trillion of nation-wide debt?
The Nation-Wide Debt -to- GDP ratio as grown drastically larger since year 1956:

  • TOTAL U.S. Debt and GDP (in 2007 Dollar$):
  • T=Trillion

  • $55.0T | - - - - - - - - - - - - - D (Debt=$53T)

  • $50.0T | - - - - - - - - - - - - - D

  • $47.5T | - - - - - - - - - - - - - D

  • $45.0T | - - - - - - - - - - - - -D-

  • $42.5T | - - - - - - - - - - - - -D-

  • $40.0T | - - - - - - - - - - - - -D-

  • $37.5T | - - - - - - - - - - - - D -

  • $35.0T | - - - - - - - - - - - -D- -

  • $32.5T | - - - - - - - - - - - D - -

  • $30.0T | - - - - - - - - - - -D- - -

  • $27.5T | - - - - - - - - - - D - - -

  • $25.0T | - - - - - - - - - -D- - - -

  • $22.5T | - - - - - - - - - D - - - -

  • $20.0T | - - - - - - - - -D- - - - -

  • $17.5T | - - - - - - - - D - - - - -

  • $15.0T | - - - - - - - -D- - - - - -

  • $12.5T | - - - - - - -D- - - - - - G (GDP=$13.9T)

  • $10.0T | - - - - - D - - - - -G
  • - - -
  • $07.5T | - - - D - - - -G
  • - - - - - -
  • $05.0T | D - - G
  • - - - - - - - - - -
  • $02.5T | G
  • - - - - - - - - - - - - -
  • $00.0T + - - - - - - - - - - - - - - - - YEAR

  • _______1 1 1 1 1 1 1 1 1 1 1 2 22

  • _______9 9 9 9 9 9 9 9 9 9 9 0 00

  • _______5 6 6 6 7 7 8 8 8 9 9 0 00

  • _______7 1 5 9 3 7 1 5 9 3 7 1 57

  • The Nation-Wide Debt-to-GDP ratio in year 1956 was 167% ($5.0T/$3.0T)

  • The Nation-Wide Debt-to-GDP ratio in year 2007 was 381% ($53T/$13.9T)

  • Year 1976: 1% of the wealthiest owned 20% of all wealth in the U.S.

  • Year 2007: 1% of the wealthiest owned 40% of all wealth in the U.S. (gap never larger since year 1930)
How is it possible that most people that work, invent, design, build, create, service, and produce are all in debt to the banks that create money out of thin air?

ohrealy wrote: He also said something about the Swiss Franc being worth more than the U.S. dollar. If that is true, Bush should be lynched
True. The U.S. Dollar has fallen against all major international currencies since year 1999. ALSO, almost all (if not all) of the foreign currencies also have considerable inflation too! That means the fall is more than it appears against those other currencies that are also falling.
  • Posted by: d.a.n at March 18, 2008 3:57 PM
    Comment #248398

    Matt uttered this tired deceptive sophistry: “Last time I checked, the top five percent of the income distribution paid something like 40 percent of the tax revenue in this country. It seems like the rich will be bearing more than their personal fair share for the bailout.”

    They pay something like 40% Matt because they earn more than 40% of all the wealth created in this country. Very FAIR that those who gain the most from our nation and systems pay a fair relative share to preserve that nation and those systems granting and protecting such enormous wealth.

    Fact is, they don’t pay a fair share, they pay a smaller percentage of their income in taxes than a middle class single worker does. Warren Buffet demonstrated this when he compared his tax rate to that of the secretaries and mail clerks in his office. They paid a higher percentage of their income in taxes than Warren Buffet did, and Buffet does not seek tax loopholes.

    Thankfully, that will be corrected over the next 2 years after the American people issue orders to clean out the White House in November and make it the American people’s House again. Certainly won’t guarantee a brighter future for America given the deep holes Republicans dug us into, but, at least Democrats will fill Republican holes as they create new ones, hopefully less in number than the one’s they fill. But that is up to the voters to mandate by replacing Democrat and Republican incumbents in the Congress while electing a new president.

    Posted by: David R. Remer at March 18, 2008 4:33 PM
    Comment #248400

    Mike the cynic said: “Because of deregulation the banking system is broke.”

    Man, are your patently wrong. First, the banking system has continued to be very well regulated. Second, it was the mortgage brokers and non-bank mortgage lenders who were not regulated and have never been. Third, our banking system is very healthy. Of all the banks in America, only 700 have questionable balance sheets. That is like 2 to 3 percent. Historically, that is a low percentage during times of economic contraction.

    You can verify all these corrections I have made to your comment easily on the internet, or you may elect to remain ignorant of which you speak. But, if you have the goal of becoming an informed voter and educated citizen, I highly recommend taking the 10 to 15 minutes to verify what I have written and take some pride in having elevated your knowledge about the subject.

    It is important to distinguish between banks and other financial institutions. Credit Unions are riding through all this almost completely unaffected as their regulation requirements and non-profit status have insured the highest possible fiduciary duty and balance sheet standards. Non-bank - non CU mortgage lenders and brokers are the prime mover of the current mess, and banks are caught up in it only to the extent that they invested in mortgage backed securities which were bundled and not transparent as to the real value of the assets underlying the promissory notes.

    The investment brokers have a far higher liability as they are not primarily banking (depository) concerns but, investment brokers who elected to buy and sell huge short term mortgage backed securities over a protracted period of time that extended into a housing bubble of highly inflated housing pricing, which burst. Leaving them holding 10’s of billions of dollars in over priced mortgages whose real asset value was plummeting, leaving them with no buyers and increasing foreclosures on those mortgages. They got caught, as did Bear Stearns, holding highly inflated mortgage bundles and no buyers to take them off their hands as the underlying value of those bundles plummeted. From what I am hearing, Bear Stearns was the worst in terms of insufficient cash available to continue operations.

    There are many types of financial institutions, and to understand the current situation, one must distinguish between them and assess their respective exposure to falling value assets caused by the sub-prime and housing price bubbles bursting. Our banks are in very strong shape, though it must be said that, if the entire financial industry were to be allowed to flounder, many of the banks would eventually go down with the industry. Hence, the rather unprecedented moves by the FED and Henry Paulson of the Bush Administration to head this downward spiral off before it can deteriorate much further.

    Posted by: David R. Remer at March 18, 2008 4:58 PM
    Comment #248407
    Matt Johnston wrote: Last time I checked, the top five percent of the income distribution paid something like 40 percent of the tax revenue in this country. It seems like the rich will be bearing more than their personal fair share for the bailout.
    Matt Johnston wrote: Matt uttered this tired deceptive sophistry: [see above]

    True, it is very deceptive.
    As demonstrated by Warren Buffet, he paid 17.7% in federal taxes on his $46 Million of income from year 2006, but his secretary paid 30% of a $60K annual salary to federal taxes.

      NOTE:
    • the top income tax bracket for $60K is about 20%

    • However, there is another 7.65% tax for Medicare () and Social Security (on the first $94,200 in year 2006)

    • Social Security tax is: 2 * 6.2% = 12.4%

    • Medicare tax is: 2 * 1.45% = 2.9%

    • Total S.S. and Medicare = 15.3%

    • The employer’s supposedly pays half of the Social Security and Medicare tax, but we all know really that money comes out of the employee’s salary; the self-employed pay the entire 15.3% ;

    • There is a $94,200 exemption cap on Social Security taxes (for year 2006);

    • There is no upper cap on Medicare;
    Therefore, the maximum percentage of federal taxes on $60K of payroll could be as high as 35.3% (e.g. 20% + 7.65% + 7.65%).

    Thus, Warren Buffet’s report that his secretary paid 30% in federal taxes on $60K annual salary is plausible. It could have been as high as 35.3%, but the secretary has one personal exemption, perhaps a mortgage interest deduction, or some other deduction.

    Warren Buffet’s $46 Million of income was largely capital gains and/or interest and dividend, or tax free capital gains and bonds.

    • Capital gains are taxed at 15% (in 2006).

    • Capital gains are not subject to Social Security and Medicare taxes.

    • Taxable income above $94,200 is not subject ot the Social Security tax (for year 2006).

    Thus, since capital gains are only taxed at 15%, that easily explains why Warren Buffet’s total federal taxes on $46 Million of income were only 17.7% .

    17.7% is a much smaller percentage than 30%.

    For those of us that think the fairest type of tax is at least a flat percentage, 17.7% on $46 Million versus 30% on $60K seems very unfair.

    And it is unfair.
    The U.S. tax system is regressive.
    But, perhaps it depends on what the definition of “isis ?

    So, while it is easy to say the wealthy pay more taxes, it is empty rhetoric since it has nothing to do with percentages.

    Matt Johnston wrote: Last time I checked, the top five percent of the income distribution paid something like 40 percent of the tax revenue in this country.
    The wealthiest 5% of the U.S. population has 60% of all wealth in the U.S.

    Using your logic, perhaps the wealthy should be paying more (e.g. 60% of all taxes in this country)?

    How about, at the very least, a flat 17% income tax on all income above the poverty level (eliminate all deductions and tax loop holes, corporate taxes, and taxes on medicare and social security benefits)?

    The wealth disparity gap has been growing worse since year 1976.

      • Year 1976: 1% of the wealthiest owned 20% of all wealth in the U.S.

      • Year 2007: 1% of the wealthiest owned 40% of all wealth in the U.S. (a gap never larger since year 1930)

    • The wealthiest 1% of the U.S. population has 40% of all wealth in the U.S. (up from 20% in year 1976; never worse since the Great Depression).

    • The wealthiest 2% of the U.S. population owns more than the remaining 98% of all Americans.

    • The wealthiest 5% of the U.S. population has 60% of all wealth in the U.S.

    • The wealthiest 10% of the U.S. population has 70% of all wealth in the U.S.

    • The wealthiest 20% of the U.S. population has 83% of all wealth in the U.S.

    • The poorest 20% of the U.S. population has negative net worth (i.e. debt)

    • 40% of the U.S. population has (on average) essentially zero net worth.

    • 80% of the U.S. population has a mere 17% of all wealth in the U.S.

    • Home equities are below 50% (the lowest level since year 1945)

    • The $53 Trillion nation-wide has never been larger in both magnitude and relative to the $13.86 Trillion GDP (year 2007).

    • $12.8 Trillion was borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching.

    David R. Remer wrote: Our banks are in very strong shape …
    Yes, compared to Bear Stearns.

    We’ve had this discussion before, but I think there’s also something fundamentally wrong with the current fractional 9-to-1 Fedearl Reserve banking system too.

    The best evidence of it is:

    • (1) Nation wide debt is $53 Trillion, and it grows larger every year in magnitude and as a percentage of GDP (from 167% in 1956 to 381% in 2007)

    • (2) We have had positive, non-zero, incessant inflation since year 1956.

    • (3) No one can yet tell us WHERE the money to pay the INTEREST on $53 Trillion of nation-wide debt will come from, much less the money to reduce the PRINCIPAL debt of $53 Trillion (and prevent the debt from growing ever larger), when that money does not yet exist?

    • (4) Debt and inflation appear to be inherent properties of the current monetary system, as evidenced by the debt growing ever larger than the nation’s income, and positive inflation since year 1956. In addition, there are many abuses and manifestations of unchecked greed, such as usurious credit cards rates as high as 39%, predatory lending practices, adjustable rate mortgages where rates are raised quickly and significantly in periods when foreclosures are already at record levels, etc. And what is a usurious INTEREST rate? It begs the question, if a lot of usury is bad, how is a little usury good? Likewise with the issue of inflation.

    • (5) Aside from the moral issue of usury, predatory lending, fraud, the system has a mathematical flaw. It is not possible to satisfy the DEBT=PRINCIPAL+INTEREST when the INTEREST does not yet exist. And the attempt to satisfy that equation only brings the system closer to the final mathematical result: collapse. It will collapse when the people no longer have a capacity for any more debt; a number we are getting closer to every day). As the debt grows ever larger, savings rates turn negative (since year 2005), home equities decline (now below 50%, the lowest level since year 1945), and foreclosures soar.

    • (6) Problems facing the Federal Reserve are getting worse; not better. It is going to take a lot of new money (from somewhere) to pay the INTEREST on $53 Trillion of nation-wide debt. Does any one find it odd in a way that the solution to a credit crunch is to make it easier to increase the debt larger? That smacks of a pyramid scheme in trouble.

    • (7) How most people that work, invent, design, build, create, service, and produce are all in debt to the Federal Reserve banks that create and earn INTEREST on money out of thin air (up to 90% of every Federal Reserve loan is new money)?
    Some regard all that about the monetary system as Chicken Little/Cult-Like rhetoric, but those are good questions. Especially the question: where will the money come from, when it doesn’t yet exist? That alone should be a dead give-away.

    P.S. I understand the arguments for the Federal Reserve Bailing out Bear Stearns, and it will soften the pain now, but make it worse later.
    And if Bear Stearns is only a high risk investment firm, should we be bailing it out?

    At any rate, the voters have the government that the voters deserve.

    Posted by: d.a.n at March 18, 2008 7:12 PM
    Comment #248455

    CORRECTION (first paragraph):

    Matt Johnston David wrote: Matt uttered this tired deceptive sophistry: [see above]

    Posted by: d.a.n at March 19, 2008 10:37 AM
    Comment #248468

    Ah, yes, the old Warren Buffet rebuttal. I too have seen it, but let me ask you this:

    What number (hard number, not percent) is greater, 17% of $46 million or 30% of $60,000. I think that is a no brainer. Warren Buffet probably paid more income tax ($7.82 million) than 90 percent of his employees did combined.

    You can play with percentagages all you want, but the hard fact and hard number is that the rich do pay the larger share of actual tax revenue and it will be (fact) their larger share of tax revenue that will fund the poorly conceived bailout.

    But let me ask you a somewhat unrelated question. What would all though employees of the very successful Warren Buffet be doing if that very rich man didn’t provide jobs? I know that question is off topic, but it is nonetheless relevant.

    I am not arguing that the tax system is fair, it clearly is not and it doesn’t take a Ph.D in economics to see it. However, the base complaint that the poor or middle class are going to see their tax money bailing out a bunch of greedy rich people is nothing but class warfare that ignores the reality of out tax revenue sources. Assuming for a moment that the bailout is good policy (and I am not convinced that it is), there are billions of dollars worth of other government boondoggles that expend far more money for far less impact. Why don’t the class warriors complain about those programs? Think market skewing agricultural subsidies which artificially inflate the price of food (and the cost is greater to the poor who spend a larger share of their income on the necessities) What about local smart growth or outright moratoria on new home construction, policies which artificially drive up the cost of housing? (which middle class families suffer from more) What about the incentives inherent in hundreds of government programs that keep people overly dependent upon the government istead of serving as a short term social safety net?

    The answer is that the moral relativism of class warriors tolerates these kinds of activities because they appear to “help” some group of individuals other than rich people. But the fact is that the cost of those programs (and things like sales taxes) directly burden the poor and middle class.

    I don’t think we should bailout Bear Stearns or any other bank or protect JP Morgan from the bad side of their buyout of Stearns. I have expressed my displeasure in a number of venues. But don’t sit there and say that the bailout will be borne primarily or even exclusively by the poor. Will they get screwed as taxpayers—sure—just like every taxpayer, whether they are Warren Buffett, David Remer, D.A.N. or me. It is bad policy that will be a collosal waste of taxpayer money.

    Posted by: Matt Johnston at March 19, 2008 1:00 PM
    Comment #248469
    Matt Johnston wrote: Ah, yes, the old Warren Buffet rebuttal. I too have seen it, but let me ask you this: What number (hard number, not percent) is greater, 17% of $46 million or 30% of $60,000.
    The magnitued is not the issue at all, unless you believe a flat percentage is NOT fair. However, you already wrote above that the tax system is not fair.
    Matt Johnston wrote: I think that is a no brainer. Warren Buffet probably paid more income tax ($7.82 million) than 90 percent of his employees did combined.
    Yes, but once again, he paid 17.7% in federal taxes on $46 Million, while his secretary paid 30% in federal taxes on $60K.
    Matt Johnston wrote: You can play with percentagages all you want, …
    It’s not about playing with percentages. It is about what is fair.

    Are you arguing for regressive taxation (where tax rates increase as income decreases)?

    Matt Johnston wrote: … but the hard fact and hard number is that the rich do pay the larger share of actual tax revenue …
    That depends on how you define share.

    By magnitude (i.e. amount) or percentage.
    I think the percentage should at least be equal (on income above the poverty level, e.g. 17%).

    Matt Johnston wrote: … and it will be (fact) their larger share of tax revenue that will fund the poorly conceived bailout.
    Yes, but if taxes are still regressive, it is still unfair.
    Matt Johnston wrote: But let me ask you a somewhat unrelated question. What would all though employees of the very successful Warren Buffet be doing if that very rich man didn’t provide jobs? I know that question is off topic, but it is nonetheless relevant.
    Non-sequitur.

    Are you sure you want to go down that path?
    The issue is not about a very successful and wealthy person’s ability to provide jobs.
    There are plenty of wealthy people, and growing since year 1976 (i.e. 1% of all Americans owned 20% of all wealth in the U.S. in year 1976; now, 1% owns 40% of all wealth).
    Also, jobs are leaving the U.S. in droves, and being replaced with lower paying jobs.
    Real medain household incomes have fallen since 1978 (when including more workers per household, more regressive taxation, and the disappearing 40-hour work week).

    Matt Johnston wrote: I am not arguing that the tax system is fair, it clearly is not and it doesn’t take a Ph.D in economics to see it.
    Good. So, a flat rate (neutral) income percentage on all income (above the poverty level) would be more fair than what we have now?
    Matt Johnston wrote: However, the base complaint that the poor or middle class are going to see their tax money bailing out a bunch of greedy rich people is nothing but class warfare that ignores the reality of out tax revenue sources.
    Not true, if taxation is still regressive, not to mention these other abuses.
    Matt Johnston wrote: Assuming for a moment that the bailout is good policy (and I am not convinced that it is), …
    I do not think it is good policy either, since Bear Stearns was an INVESTMENT firm. Not a typical bank, or credit union, or other financial institution with much lower risks.
    Matt Johnston wrote: … there are billions of dollars worth of other government boondoggles that expend far more money for far less impact.
    Yes, but the Federal Reserve has committed $560 Billion to $800 Billion since Jan-2008 to provide liquidity (www.federalreserve.gov/newsevents/press/monetary/20080316a.htm).

    But yes, the pork-barrel, subsidies, and waste by the federal reserve is massive (hundreds of billions annually).

    Matt Johnston wrote: Why don’t the class warriors complain about those programs?
    It’s not meant to be about class warfare.

    The real problem are many abuses by certain people, regardless of wealth, race, ethnicity, etc.
    From a non-partisan point a view, the problem looks more like these two groups:

    • (1) one group of people that derive concentrated power from concentrated wealth. Some (not all) very wealthy people, who are cheaters and extremists, abuse their wealth to control and influence government. Those certain rich persons don’t want to work in Congress, but chooose to control and influence incumbent politicians with money, power, etc. Too many Congress persons (in BOTH parties) are FOR-SALE (as evidenced by 99.85% of all 200 million eligible voters who are vastly out-spent by a tiny 0.15% of all 200 million voters who make 83% of all federal campaign donations of $200 or more).

    • (2) The other group is the majority of Americans, that could have power by their numbers, but their power is largely ineffective due to their inability to mobilize through organization (such as merely not repeatedly rewading irresponsible, bought-and-paid-for incumbent politicians with 93%-to-99% re-election rates).

    Matt Johnston wrote: The answer is that the moral relativism of class warriors tolerates these kinds of activities because they appear to “help” some group of individuals other than rich people.
    Agreed. It goes both ways. There are some cheaters in BOTH (or all) groups.
    Matt Johnston wrote: But the fact is that the cost of those programs (and things like sales taxes) directly burden the poor and middle class.
    True. And look how poorly they have been managed. $12.8 Trillion was borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching.
    Matt Johnston wrote: I don’t think we should bailout Bear Stearns or any other bank or protect JP Morgan from the bad side of their buyout of Stearns.
    Me neither. It is only making the problem bigger (later).
    Matt Johnston wrote: I have expressed my displeasure in a number of venues. But don’t sit there and say that the bailout will be borne primarily or even exclusively by the poor. Will they get screwed as taxpayers—sure—just like every taxpayer, whether they are Warren Buffett, David Remer, D.A.N. or me. It is bad policy that will be a collosal waste of taxpayer money.
    I agree mostly, but the only caveat is that with regressive taxation today, it will shift a portion of the new tax burden for the bailout disproportionately to the middle income tax payers, and Bear Stearns. Posted by: d.a.n at March 19, 2008 1:36 PM
    Comment #248473

    CORRECTION (end of last sentence):

      … tax payers , and Bear Stearns.

    Posted by: d.a.n at March 19, 2008 2:36 PM
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