FedUpUSA

Archive for May 2nd, 2010

No, It’s Not A Done Deal (Greece)

Posted by Karl Denninger

Retraining and Rehabilitation of Financial Sector Employees May Be a Daunting Task

Prospero: Mark but the badges of these men, my lords,
Then say if they be true…
These three have robb’d me, and this demi-devil—
For he’s a bastard one, had plotted with them
To take my life. Two of these fellows you
Must know and own; this thing of darkness I
Acknowledge mine.

Caliban: I shall be pinch’d to death.

The Tempest Act 5, scene 1

According to the email below there is some concern among employees in the financial services sector about their future employment prospects if reform legislation should be enacted, and some tentative, but perhaps unrealistic plans, of coping with it if it happens are expressed.

I can always use a little help around the kitchen and the yard, cleaning up and minor repairs, and I would gladly pay a fair wage based on effort, moderated by experience and capability. My son and helper is leaving for university soon to begin his studies in engineering, which is the manipulation of real things for practical purposes with benefit to the customer. So it might be unfamiliar to you. And I am not getting any younger.

By the way, since most of the suburban teaching jobs are filled, have you considered going back to school to learn to be a Registered Nurse? There will be plenty of openings in nursing homes and hospices, and your selfless dedication to hard and sometimes distasteful work will be most useful and appreciated.

I suspect there will be a lot of cheap labor available from dislocated FIRE sector workers in the years to come, as well as from those serving out community service judgements. At least the highways will be cleaned of litter. Perhaps exposure to the common people and honest labor will do them some good.

I am a little concerned that this type of person probably has little or no practical skills, but they do claim to bring high energy and a willing spirit, so it could be put to work on the cleaning up of America and Europe, and the rebuilding of their infrastructure. They make themselves sound like teachers, firefighters, policemen, or even soldiers, but there are dimensions of duty and honor and self-sacrifice and service to others in those callings far beyond any monetary recompense of which they probably have little experience or even a vaguely realistic expectation.

His or her description of what it is like to teach elementary school is good for a laugh. Someone is in for a rude awakening.

All things considered, we can surmise that there is no excess of common sense in their portfolio, or an ability to listen well and learn about things which they think they know, but really do not understand at all. That speaks to the main question which is, ‘are they educable’ or will they be prone to recidivism?

I find it hard to believe, however, that this letter is anything but a hoax. But considering the imputed source of these sentiments is the “derivative of a human being,” it could be genuine. I am a bit undecided, but will allow for it.

So grab a pair of gloves, my boy, and I will be glad to teach you how to prune a tree and clear some brush. But although you might be willing to do it more cheaply, don’t expect to displace the little girls of their job of walking the dog to earn money to purchase new dollies. They can be more ruthless and determined than the most hardened union boss. And the nine year old tells me she is still the strongest person in her class, but boasts of it less of late, owing to a nascent attraction to a classmate known only as ‘Will.’ But you might be able to help them with the clean up.

And if you should happen to play any card or board games with them, I warn you beforehand, they cheat, obviously, clumsily and shamelessly, to win, with a somewhat cavalier regard for the written rules. Ah, but I forget, that has long been your raison d’etre, your hallmark, and a particular area of specialization and expertise.

Time, life and a benevolent and orderly society tend to teach children to be better, to be human, essere umano. But apparently it does not always at first succeed, and must try, try again.

The Reformed Broker
An Email Purported to be Making the Rounds of Wall Street

“We are Wall Street. It’s our job to make money. Whether it’s a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn’t matter. We would trade baseball cards if it were profitable. I didn’t hear America complaining when the market was roaring to 14,000 and everyone’s 401k doubled every 3 years. Just like gambling, its not a problem until you lose. I’ve never heard of anyone going to Gamblers Anonymous because they won too much in Vegas.

Well now the market crapped out, & even though it has come back somewhat, the government and the average Joes are still looking for a scapegoat. God knows there has to be one for everything. Well, here we are.

Go ahead and continue to take us down, but you’re only going to hurt yourselves.

What’s going to happen when we can’t find jobs on the Street anymore? Guess what: We’re going to take yours. We get up at 5am & work till 10pm or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we’ll eat that.

For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We’re going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I’ll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much. (Note: How many moons are there on this guy’s planet?)

So now that we’re going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we’re going to stop buying the new 80k car, we aren’t going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We’re going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.

The difference is, you lived off of it, we rejoiced in it. The Obama administration and the Democratic National Committee might get their way and knock us off the top of the pyramid, but it’s really going to hurt like hell for them when our fat a**es land directly on the middle class of America and knock them to the bottom. (I would pay to watch that. There are a lot of former customers named ‘Bubba’ who would like to make your acquaintance.)

We aren’t dinosaurs. We are smarter and more vicious than that, and we are going to survive. The question is, now that Obama & his administration are making Joe Mainstreet our food supply…will he? and will they?”

1099 Mandate from Hell Slipped into Health Bill; Global Warming Profiteering; Fannie Mae Owns Cap and Trade Patents; Shock and Pain Coming to UK, US

With news on Goldman Sachs and Greece dominating the news let’s take a look at some other significant stories the past week you may have missed.

1099 Mandate From Hell Slipped into Health Bill

The CATO Organization is noting Costly IRS Mandate Slipped into Health Bill

In a recent summary, tax information firm RIA notes the types of transactions covered by the new 1099 rules…

Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS. Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.

Tax CPA Chris Hesse of LeMaster Daniels tells me:

Under the health legislation, the IRS could be receiving billions of more documents. Under current law, businesses send Forms 1099 for payments of rent, interest, dividends, and non-employee services when such payments are to entities other than corporations. Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases. And for the first time, 1099s are to be sent to corporations. This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result.

The Air Conditioner Contractors of America said:

The House bill would extend the Form 1099 filing requirement to ALL vendors (including corporate) to which they pay more than $600 annually for services or property. Consider all the payments a small business makes in the course of business, paying for things such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services.

In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.

Clearly this is insanity. If enacted, it will be the most widely ignored IRS regulation in history.

Obama Administration Global Warming Profiteering

Pajamas Media is highlighting More Global Warming Profiteering by Obama Energy Official

Surprising documents made available to this author reveal that Assistant Secretary of Energy Cathy Zoi has a huge financial stake in companies likely to profit from the Obama administration’s “green” policies.

Zoi, who left her position as CEO of the Alliance for Climate Protection — founded by Al Gore — to serve as assistant secretary for energy efficiency and renewable energy, now manages billions in “green jobs” funding. But the disclosure documents show that Zoi not only is in a position to affect the fortunes of her previous employer, ex-Vice President Al Gore, but that she herself has large holdings in two firms that could directly profit from policies proposed by the Department of Energy.

Among Zoi’s holdings are shares in Serious Materials, Inc., the previously sleepy, now bustling, friend of the Obama White House whose public policy operation is headed by her husband. Between them, Zoi and her husband hold 120,000 shares in Serious Materials, as well as stock options. Reporter John Stossel has already explored what he sees as the “crony capitalism” implied by Zoi being so able to influence the fortunes of a company to which she is so closely associated.

In addition, the disclosure forms reflect that Zoi holds between $250,000 and $500,000 in “founders shares” in Landis+Gyr, a Swiss “smart meter” firm. She also still owns between $15,000 and $50,000 in ordinary shares.

“Smart meters,” put simply, are electric meters that return information about customer power usage to the power company immediately and allow a power company to control the amount of power a customer can consume. These smart meters are a central component of the Obama administration’s plans to reduce electricity consumption as part of the “smart grid.”

Conflict of interest anyone?

Fannie Mae owns patent on residential ‘cap and trade’ exchange

The Washington Examiner reports Fannie Mae owns patent on residential ‘cap and trade’ exchange

When he wasn’t busy helping create a $127 billion mess for taxpayers to clean up, former Fannie Mae Chief Executive Officer Franklin Raines, two of his top underlings and select individuals in the “green” movement were inventing a patented system to trade residential carbon credits.

The patent, which Fannie Mae confirmed it still owns with Cantor Fitzgerald subsidiary CO2e.com, gives the mortgage giant a lock on the fledgling carbon trading market, thus also giving it a major financial stake in the success of cap-and-trade legislation.

The patent, which covers both the “cap” and “trade” parts of Obama’s top domestic energy initiation, gives Fannie Mae proprietary control over an automated trading system that pools and sells credits for hard-to-quantify residential carbon reduction efforts (such as solar panels and high-efficiency appliances) to companies and utilities that don’t meet emission reduction targets. Depending on where the Environmental Protection Agency sets arbitrary CO2 standards, that could be every company in America.

So Fannie Mae, a quasi-governmental entity whose congressionally mandated mission is to make housing more affordable, has been a behind-the-scenes participant in a carbon trading scheme that would do just the opposite.

Layoffs at casino in Bethlehem

Philly.com is discussing Layoffs at casino in Bethlehem

Less than a year after a grand opening that rivaled the glitz and glamour of a Las Vegas revue, Sands Casino Resort in Bethlehem is laying off 80 employees.

The 9 percent reduction brings the casino’s workforce to 780, down from its current 860, and nearly 200 fewer than when it opened last May 22 with 3,000 slot machines.

Slots revenue is taxed at 55 percent in Pennsylvania, compared with 9.25 percent in New Jersey. Pennsylvania uses the gambling proceeds toward property-tax relief (wage-tax relief in Philadelphia) and aiding the horse-racing industry.

Look at the insanity of it all. Imagine using slot revenue to prop horse betting. What’s next, using internet bingo to prop up casinos?

There are only so many consumer entertainment dollars out there. What people spend at the casino does not go to the horse track or to movies or to eating out elsewhere. No jobs are created out of these maneuvers although there may be some slight shifting of jobs from one community to the next.

Harrisburg, Pennsylvania, Council Told to Consider Bankruptcy

Bloomberg is reporting Harrisburg, Pennsylvania, Council Told to Consider Bankruptcy

Harrisburg, Pennsylvania, which has missed $6 million in debt payments since Jan. 1, should consider seeking Chapter 9 bankruptcy protection, City Controller Dan Miller told a three-hour special committee hearing.

Harrisburg, the capital of Pennsylvania, the sixth-most populous U.S. state, has guaranteed payments on $282 million in bonds on the incinerator, run by the Harrisburg Authority. The payments on the bonds and on a working-capital loan this year add up to four times the amount the city collects in property taxes each year, budget documents show.

The city this month skipped a $637,500 payment due on a loan to Fairfield, New Jersey-based Covanta Holding Corp., operator of the incinerator.

On April 23, the Harrisburg Authority told the city that it won’t make a $425,282 payment due May 1 on a $17 million bond issue the city has guaranteed, said Robert Kroboth, interim finance manager. Kroboth said it isn’t likely that the city will honor its guarantee, meaning the payment will fall to the bond’s insurer, Hamilton, Bermuda-based Assured Guaranty Municipal Corp.

A decision other than bankruptcy is lunacy. The sooner Harrisburg files the better. Los Angeles and Houston ought to do the same.

Union Prohibits Weekend Volunteer Work Party To Fix Elementary School

The News Tribune reports Union squelches Tacoma school volunteers at weekend work party

Volunteers at a weekend work party at Fawcett Elementary School in East Tacoma came prepared to get their hands dirty.

But some say they felt like they were working with one grubby hand tied behind their backs last weekend due to school district and union rules.

“There was a lot of work that could have been done, but wasn’t,” said Ron Joslin, whose daughter is a third-grader at the school.

Tacoma Public Schools spokesman Dan Voelpel said the district appreciates volunteer efforts to help make schools better, but there’s a protocol for volunteer cleanups. First, volunteers must fill out a form detailing what the work party plans to do.

“Our buildings and grounds supervisory staff need to review it to make sure that what people want to do is safe and up to school standards,” Voelpel said. “And we have to, by union contract, notify the unions affected. They can determine if the work being performed substantially takes away from union labor. They can object to the work proposed.”

Mark Martinez, executive secretary for the Pierce County Building and Construction Trades Council, put it this way: “Sometimes people don’t appreciate our craft.” His union represents an estimated 60 Tacoma schools employees.

Parents say one of the vetoed Fawcett projects would have removed overgrown bushes that block views of the street from the school. Other proposed projects that didn’t happen include painting a Fawcett Falcons mascot on a school wall and spreading 40 yards of beauty bark on school playgrounds and elsewhere.

No, Mark Martinez, I do not appreciate your craft because your “craft” is nothing but bloodsucking.

Taxing Trip

Please consider KCTV5 INVESTIGATION: Taxing Trip

In 2001, Congress passed a law mandating every school district in America provide its homeless kids with a ride to and from school. For example, a school could be required to pick up a child at a shelter in Kansas City and drive them to an Olathe school every day.

While it seemed like a good idea in sound economic times, the recession has exploded the number of homeless students who need help.

But transporting kids to their original schools comes at a staggering cost. In Olathe, the district will pay $44,000 to transport kids this year. In Shawnee Mission, the tab is $150,000. The Kansas City, Mo., district will spend $194,000. And in Kansas City, Kan., the district served 471 homeless students and spent $295,000 transporting the kids.

Here is a 6 minute video that shows what the kids have to endure.

Mervyn King Warns UK Will Hate The Next Government, No Matter Who Wins

The Times Online reports Austerity Britain will hate its new Government, says King

The Governor of the Bank of England was at the centre of an electoral storm last night after saying that the austerity measures needed to tackle Britain’s budget deficit would be so unpopular that whoever wins next week would not get back into government for a generation.

The Governor’s prediction was made to the American economist David Hale, who passed on the remarks in an Australian television interview. Mr Hale, who has known Mr King for many years, was commenting on debt levels in major economies when he turned to the British election. “I saw the Governor of the Bank of England last week when I was in London, and he told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be,” he said.

Analysts have said that without commitment to severe austerity in the first weeks of a new Government, Britain could be heading towards a sterling crisis and a boycott of the gilts market.

The National Institute for Economic and Social Research said yesterday that whoever was in power by 2015 would have to raise the basic rate of income tax by 6p to reduce the budget deficit down towards 3 per cent.

That would be on top of cutting spending by an extra £30 billion in spending cuts and raising taxes to meet current targets. NIESR thinks the further tightening, in addition to what are expected to be the deepest cuts for half a century, is needed because the Government has been too optimistic about its economic assumptions. Simon Kirby, one of the report’s authors, said: “It will be a shock and very painful for almost everyone.”

Shock and pain for nearly everyone sounds about right. The same holds true for the US.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Not all is well on the housing front. Housing still too expensive for middle class Americans – 9 Years of Housing Inventory and 7 Million Homes 30+ Days Late or in Foreclosure. How the government is keeping and encouraging expensive housing.

Posted by mybudget360

Since the recession started in December of 2007, over 7 million foreclosures have been initiated.  In no other time in history have we seen this magnitude of problems in the housing market.  And these problems still persist.  It is estimate that another 6 to 9 million homes are at risk of foreclosure in the upcoming years given the current economy and overhang from the housing bubble.  If we measure the health of the housing market through foreclosures, we are only half way through this housing calamity.  In many ways, the problem still stems from homes being too expensive relative to the income people make.

The Wall Street Journal had an interesting chart showing that the current housing market combining non-distress, distress, and shadow inventory would give us nearly 9 years of inventory:

Source:  WSJ

The irony behind most of the government programs in the housing market including the tax credit is they have forced demand forward and have pushed prices up making homes less affordable to millions.  And costs are a major factor in today’s economy because many households are dealing with weaker or stagnant wages:

On the one hand you have the government subsidizing housing and actually encouraging banks to hold off inventory artificially to boost up prices.  This is the reason the above inventory chart is so high.  Yet this is creating a price floor where the actual American middle class is unable to buy a home unless they are subsidized with tax credits and massive interest rate deductions.  On the other hand you have wages that have been stagnant and have actually gone down in real terms over the past decade.  So why would housing prices go up in this kind of environment?

The Center for Responsible Lending has some stunning facts on the housing bust since the recession started:

Source:  Center for Responsible Lending

Foreclosures initiated are actually over 7 million if we include the damage done in the first quarter of 2010.  So things are not necessarily getting any better in the housing market if we measure housing health by foreclosure starts.  In March we had 367,000 foreclosures initiated according to RealtyTrac, the largest number ever to be recorded in one month.  Yet this is somehow a good sign?

At least 1 out of 4 mortgage holders in the U.S. is underwater on their mortgage.  As we have seen through recent studies, being underwater on your mortgage is the number one predictor for future default.  Given that the U.S. currently has 51 million mortgages that would mean that 12 million homes are at risk for foreclosure.  And this in fact is already showing up in actual distress data:

Source:  Census, MBA

As of today, over 7 million current mortgage holders are 30+ days late or in some stage of foreclosure.  This is at peak levels.  And part of the reason why after 27 months of this recession and trillions in bailouts to Wall Street and banks, not much has changed on the housing front.  Wall Street and the banks are richer, but in terms of improving the housing market nothing has really changed.  And most middle class Americans have their net worth in housing values so is it any wonder why the middle class is questioning this recovery and more importantly, where all those trillions of dollars went?

This is why Americans have the lowest level of housing equity in nearly 60 years:

Source:  Calculated Risk

The government bought into the banks notion that bailout money was needed to support home prices for Americans.  Well look at the above charts.  The only real bottom line increase has occurred with banks:

Source:  Stock Charts

The financial sector is up 300%+ since that bottom in March of 2009.  Is your bottom line up 300% from last year?  Of course the middle class is wondering how in the world much of this could have occurred but part of it is the symbiotic relationship between Wall Street and the government.  The only way home prices can go up in a natural environment is if wages actually increase.  Tax breaks, easy money to banks, and other gimmicks don’t address the fundamental problem with housing.  They are approaching the issue from a perspective that housing values crashed because of a short-term liquidity problem.  Instead, they should be approaching it from the angle that home prices are too expensive because of a massive bubble brought on by Wall Street and massive government subsidies to homeownership.

The biggest contradiction is that for the above reasons, housing values have crashed in spite of all the money being thrown at the problem because they don’t focus on jobs or wages (how else do people pay their mortgage?).  In trying to support prices at certain levels we have lost focus on the fact that without solid income growth, no amount of government support will help.  The middle class is losing ground and housing is at the center of this issue.  The fact that we have 9 years of total inventory and have 7 million homes in foreclosure or are 30+ days late should tell you that not all is well on the housing front.