As tax day passes us by, many in the public are realizing that the extremely wealthy especially in the financial industry know something they don’t. What they are finding is that the financial industry has access to massive government bailouts and in many cases does not pay their fair share of taxes. Like Atlas holding the world up some are carrying a heavier burden and it doesn’t appear to be the financial sector. Reports out from the secretive Federal Reserve show for example a $220 million loan to the wives of Wall Street executives merely for speculative purposes. A win-win gift from our central bank as a thank you for leading the nation into this economic ditch. Do you have access to cheap and plentiful loans? There is also this absurd notion that people don’t pay taxes and much of the ire has been on the poor. When you hear this in the media, they mean federal income tax. People need to take account of their lives and figure that they pay for Social Security tax, Medicare tax, sales tax, property tax, and automotive registration fees so this idea that average Americans don’t pay tax is a complete misnomer. In fact, it seems like the extremely wealthy in this country have designed a tax system that has shifted the burden to the majority. The media narrative revolves around the fact that you should shoulder the brunt of the economic problems caused by the financial industry while bailouts and handouts increase the bottom line at the top. The income inequality in our nation has never been so high.
Redistributing wealth to the top
Source: Center on Budget and Policy Priorities
As the nation struggles with financial challenges not faced in generations the share of the burden is not being evenly distributed. I think Americans at their core vale success and hard work. This goes back to the roots of Benjamin Franklin and the inherent frugality and ingenuity of our country. Yet there is nothing genius about having a financial industry that simply exists to rob the wallets of the American people and adds absolutely no value to the bottom line of our economy. Take for example the housing market. Wall Street in the late 1990s threw aside the Glass-Steagall act with the aid of key politicians and managed to turn housing into one giant casino. Over this time, the argument was, with more liquidity Americans would have more options for housing making it more affordable and accessible. The opposite occurred. Instead, we are actually now behind the curve from when this snake oil pitch was sold. Homeownership has erased all those gains and millions more will lose their home in foreclosure as income has gone stagnant for over a decade for most American households. While the narrative is that everyone is feeling the pain the too big to fail banks have actually grown thanks to government handouts:
In the midst of the deepest banking recession since the Great Depression the too big to fail banks got even bigger. This is how lopsided our current system has gotten. It does seem however, that the public is now waking up to this. Our nation is as wealthy as it has ever been and income inequality continues to grow because that is how the system is setup. For small businesses and hardworking Americans there are no Cayman Island accounts or creative tax loopholes in Ireland for sheltering taxes. The common person does not have the ability to setup tax shelters that understate income or even have access to the Federal Reserve’s easy money window. This is where things have gotten:
“(Rolling Stone) But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.
The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called “giving already stinking rich people gobs of money for no fucking reason at all.” If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.”
And that is the core of the problem. The notion that these people “earned” this money is like saying a bank robber “earned” money by stealing it from the bank. Just because you can get your hands on money through a convoluted system doesn’t mean you are nothing more than stealing the wealth of average Americans. It just isn’t so obvious. The pain occurs through inflation (i.e., college, food, energy, etc) because your dollar gets worth less by this kind of rewards to bad players. Capital is not being allocated to the best sources for economic growth and is arbitrarily disbursed by which lobbyist screamed the loudest and paid off a politician. Not only are profits made on the scam, they are then sheltered through archaic tax breaks not available to most Americans.
The above scenario shows this clearly where low interest rate loans are made to those in the financial industry (or associated with it). You have connected oligarchs placing win-win bets so if they win, they make out like bandits and if they lose, it is the taxpayer that will shoulder the pain (sound familiar?). By the way, 75 percent of the $220 million loan hasn’t been paid back because parts of it is invested in commercial real estate and student loan debt. Not exactly prime markets to be in right now.
The top marginal tax rate has been falling for the top 1 percent:
Source: Visual Economics
The problem still remains that the financial industry has gotten too big not because the market demands it, but because money buys political power. In fact, in 2008 as the too big to fail banks neared extinction the actual free market was purging these bad players. The free market was working because rewarding suited up bank robbers is not exactly healthy for the economy. The biggest bank robbery occurred outside of the bank. You would think that the biggest crisis since the Great Depression would cause some serious reform. It didn’t. In fact, it pushed these same banks to become even bigger and more powerful. It has gotten so upside down that in the recent debate regarding our deficit, some are pushing for a lowering of taxes for the most wealthy yet again! In other words, we need to get our debt down and you are telling your richest family member that he needs to pay even less after all their tax shelters and gimmicks. At times you feel like you are living in the novel Brave New World as people simply ignore the obvious truth.
And the distribution is getting even more skewed:
Keep in mind that many of the CEOs of the banks that led us to this financial mess are doing very well:
“The CEO of JP Morgan, one of the big beneficiaries of the bailouts, received in his total compensation 843 times the median household income of the United States. This is where things stand. And how many people is JP Morgan kicking out of homes this year? How about the WaMu portfolio with all those toxic loans. What about the service fees now charged to customers in onerous ways? This is what we reward in America. There is nothing wrong with rewarding say Apple for providing iPods or iPhones that people choose to buy without governmental coercion. But here we have a bank that is largely benefitting simply by its connections to Washington D.C. and their service is gouging average Americans even further. Where is the benefit of the too big to fail for the public?”
So when you pay sales taxes for purchasing that toy for your kid, remember that you pay no taxes. When you send in your annual property tax bill, remember that you pay no taxes. When you see your paycheck yank out funds for Social Security and Medicare, remember that you pay no taxes. I think people are waking up to the reality that we have two financial systems going on; one that is supposedly broke for the average and working class and one that has abundant money and hands out cash like candy to the financial class.