FedUpUSA

Archive for January 3rd, 2012

This is getting old…

It took a relatively obscure former British academic to propagate a theory of the financial crisis that would confirm what many people suspected all along: The “corporate psychopaths” at the helm of our financial institutions are to blame.

Clive R. Boddy, most recently a professor at the Nottingham Business School at Nottingham Trent University, says psychopaths are the 1 percent of “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.”

Bah.

Such people do exist, of course.  But that’s not the point.  This sort of behavior is self-defeating in any operable society because those who operate in that world quickly find themselves with few friends and fewer opportunities.  Word gets around.

Soon nobody will do business with you without donning a titanium butt-plate first, as they get tired of being violated.  That in turn drives up your cost of doing business and suddenly your competitors have an edge.  They exploit it, and now you’ve got trouble — if you don’t reform you’re soon out of business.

This is the usual dynamic.  It led those who were psychopaths to practice “quick hit” economic acts.  In the old West the huckster ripped off someone or robbed a stagecoach, but never showed up in town and plied a trade for any length of time, because they’d never get away with it — soon the lynch mob would appear and give you a permanent necktie.  In the more-modern era you were simply run out of business and then run out of town.

But something happened in the 1990s and into the 2000s.  The Government became infested with the same sort of game, and started to embrace and even sleep with some of these monsters — sometimes literally!  Government found that it could run the same game that was plied in the old days of “snake oil” and use it to buy votes, and so long as they made more and more outrageous claims the voters would suspend their disbelief and continue to buy into their games at the ballot box.

Now the psychopaths in the business world had a partner who would shield them — literally — from the consequences of their actions.  Money laundering, bogus securities that the sellers knew were worthless, even actual bribery became part of the business model and the justice system was blinded by those handlers in the government, who relied on the very same hucksters to finance their political promises!

So yeah, sure, we have psychopaths on Wall Street.  But the real problem doesn’t lie there.

The root of this problem lies in Washington DC, because without their active cooperation there would have been thousands of indictments, trials and prison sentences handed out by now.

But in point of fact there have been none.

The Institute for Supply Management released the December 2011 Manufacturing ISM Report On Business® “The PMI registered 53.9 percent, an increase of 1.2 percentage points from November’s reading of 52.7 percent, indicating expansion in the manufacturing sector for the 29th consecutive month. The New Orders Index increased 0.9 percentage point from November to 57.6 percent, reflecting the third consecutive month of growth after three months of contraction. Prices of raw materials continued to decrease for the third consecutive month, with the Prices Index registering 47.5 percent, which is 2.5 percentage points higher than the November reading of 45 percent. Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012 as reflected by the panel in this month’s survey.”

Expiring Business Tax Credits Partially Responsible

Looking for an explanation for the rise in December? I have one (and was aware of a likely jump in PMI in advance): 2011 Expiring Business Tax Incentives

Expiring Business Tax Incentives

1. 100% Bonus Depreciation – The bonus depreciation  deduction for qualifying property placed into service after September 8,  2010 and through 2011 was increased to 100%. Once the incentive expires  the depreciation rate reverts back to 50% bonus depreciation.
2. Self-Employment Tax Reduction – In 2011, the  self-employment tax was reduced on a temporary basis. Individuals who  are self-employed only need to pay a Social Security tax of 10.4%  (reduced from 12.4%) and 2.9% Medicare tax on qualifying income.  Self-employed individuals can also take a deduction for the 6.2%  employer’s share of Social Security with a 1.4% employer’s share of  Medicare as an above-the-line deduction.
3. Section 179d Depreciation Provisions – The increase  in expensing limits under Section 179d for 2011 at $500,000/$2,000,000  (equipment/property) will be phased out at the end of 2011. In 2012, the  rates will reduce to $125,000/$500,000 (equipment/property) until  December 31, 2012..
4. 15 Year Straight Line Depreciation – This allows  property owners and lessees to depreciate qualifying improvements to  commercial office spaces, as well as restaurant leasehold improvements  and new restaurant development.
5. Enhanced Charitable Deductions. This tax credit  allows C-Corporations the opportunity to claim an enhanced charitable  deduction for qualified computer contributions, book inventories to  school and food contributions to food depositories.
6. Employer Wage Credit for Active Military Reservists– This tax credit provides eligible small businesses (companies with 50  or fewer employees) with a credit against the company’s income tax  liability for a taxable year in an amount equal to 20% of the sum of the  wage payments made to activated military reservists..
7. New Markets Tax Credit – This tax credit offers a  39% credit on an equity investment to a Community Development Entity  (CDE) that is claimed over a 7 year compliance period. The CDE must then  make a Qualified Equity Investment or loan to a Qualified Business in a  Qualified Low Income Community (LICs). Most commercial and mixed-use  real estate development located in LICs are considered Qualified  Businesses. The credit is designed to encourage investment in LICs that  traditionally have limited access to debt and other sources of  investment income.
8. Credit for Construction of New Energy Efficient Homes  – This tax credit provides an eligible contractor which constructs a  qualified new energy efficient home a credit of up to $2,000 per home.  The credit is available for all new homes, including manufactured homes  constructed in accordance with the Federal Manufactured Homes  Construction and Safety Standards.
9. Energy Efficient Appliance Credit. This tax credit  is available to companies that manufacture or produce qualifying models  of refrigerators, dishwashers and washers/dryers. The credit is  available for models produced in 2008, 2009, and 2010. The amount of the  credit is dependent on the efficiency of the model and date the  appliance was manufactured.
10. Alternative Fuel Vehicle Refueling Property Credit.  This tax credit provides a 30% credit of the cost of any alternative  fuel vehicle refueling property placed into service in 2011 (not  including hydrogen stations). The credit is limited to $30,000 per  location for commercial clean fuel property, and $1,000 per location for  residential clean fuel property.

Some of the above incentives are minor but others likely had a major impact.

Think manufactures did not bring massive amounts of production forward to take advantage of these expiring credits?

Enjoy it While You Can As US Decoupling Won’t Last

Manufacturers are producing at an unsustainable rate. The global economy is rapidly cooling led by Europe, Asia, and Australia. That is a lot of downside leadership.

Please note that Eurozone Manufacturing Contracts 5th Straight Month; New Orders Fall Faster than Output

The US will not decouple this year as noted in Major Slowdown in Global Trade Coming Up; Think the U.S., China, Germany, or U.K. will Be Immune?

Expiring tax incentives provided a nice, but unsustainable pop in manufacturing. Notice how prices and backlog of orders did not follow.

Regardless of how much tax credits affected the ISM numbers, the global slowdown will take a toll on US manufacturing.

Mike  “Mish”  Shedlock – Global Economic Analysis

Governor Granholm’s “legacy” in Michigan strikes again….

After the Troy City Council turned down $8.4 million in federal funding to construct a transit center, a lawmaker urged the governor and transportation officials to keep the funds in Southeast Michigan, and a business leader called a halt to further expansion in the company’s Troy facilities.

What do these two have in common, if I may ask?

The Troy City Council rejected the funding and transit center plans in a 4-3 vote at a Dec. 19 meeting. Mayor Janice Daniels, and councilmen Wade Fleming, Doug Tietz and Dave Henderson nixed the plan, citing ongoing operation expenses, use of federal funding on principle and the cost of the center in light of current mass transit use. The federal funds cannot be transferred to other Troy projects.

Good.  Light rail has never shown that it has a payoff.  The line in question supposedly runs from Troy to Pontiac, a pretty-much dead city at this point.  There is also an apparent problem with current mass transit utilization — why put in something for which there is no demand and which will be a permanent suck on the taxpayers (other than the big megacorp, of course) — like, for instance, the residents who own houses there.

On Dec. 20, Troy Chamber of Commerce President Michele Hodges received an email letter from Frank Ervin, manager of governmental affairs at Magna Corp., an auto parts manufacturer with 300 facilities worldwide, more than 100,000 employees and more than $24 billion in sales in 2010.

Ah, here it comes….

“After watching the disappointing behavior of City Council and being exposed to some of the individual actions such as those of the mayor and Councilman (Wade) Fleming this morning, I am drafting a memo to all Magna group presidents and our Magna corporate executives strongly recommending that Magna International no longer consider the city of Troy for future site considerations, expansions or new job creation,” the letter states.

And why is that, exactly?  Specifically, would you mind explaining exactly why the city’s unwillingness to stuff money down a rathole when there appears to be no justification on a usage basis with existing mass transit is something that makes you uncomfortable Frank?

I would think you’d want a city government that is a good steward of tax dollars and uses them wisely; after all, that’s what an entity should be doing with its resources…. right?

This past April, the Michigan Economic Growth Authority approved a three-year $1.5 million state tax credit for Magna in support of plans to invest $765,000 in its Troy facility for a new division, which was estimated to create 200 new jobs.

Oh that’s nice.  The state paid twice for the investment that the company made?  As for the number of new jobs, can we have an actual headcount instead of “estimates”?  Exactly how many actual long-term jobs were created, if I might inquire, and at what rate of pay?  What’s the net benefit to the State from this handout?  That should be trivially able to be provided since the firm does remit payroll taxes and knows what its headcount and wage base is….

The company, which is based in Aurora, Ontario, leased 9,738 square feet at the Troy Technological Park, off John R, between 14 Mile and Maple, for powertrain operations. General Motors had previously occupied that space, which had since been empty.

9,700 square feet is not much.  That’s less than a 100×100′ box, basically.  I had 8,300 square feet in Two Prudential and it was about 1/3rd of a floor; we supported thirty employees in that space, more or less.  We could have probably added another five, maybe ten if I reconfigured a bunch of stuff — but that’s all.

Someone is lying here.  200 employees in 9,700 square feet eh?  That’s a square of about 7′ on a side with no other space involved — no aisles, no cube systems, no bathrooms, no closets, no IT infrastructure, no front desk, no chairs, no hallways, no private offices, well, you get it.

Now maybe there are other facilities involved in the deal, but this much I’m very sure of — there is no way that 200 employees were packed into 9,700 square feet of space.

Peters said that the plans had included transit bus lines connecting the transit center in Troy to Macomb County.

“It doesn’t make any sense to do that now,” he said. “I always believed the rapid bus line should go up to Pontiac.”

He said the evidence is overwhelming that where investments are made in public transit systems, there are huge returns. “It really spurs the economy and is not something we’ve had in the history of Detroit. It (economic development) goes hand in hand. The Troy transit center was a piece of that. I’m certainly disappointed in the council’s decision.”

Really?  Show me the numbers please Mr. Peters, D-Bloomfield.

And make sure that when you do that you count the entire sunk cost of these facilities, plus the operating expense, and put against it the number of actual full-time jobs that are created and stay once the system is complete, including those you steal from the other end of the line, along with number of actual users of these new facilities and per-user cost figures on both a capital and recurring basis.

There are good, solid arguments for transit systems within high-density urban areas.  Between them is a much dicier proposition, in that movement of people between those areas doesn’t necessary do anything other than siphon people from one area to another.

The better question that I have here, however, is over this entire tax subsidy thing.  $1.5 million in subsidies for a $765,000 investment is effectively paying a company twice to spend money.  The claim of 200 jobs in 9,700 square feet is facially bogus and went unchallenged in the source article, so one has to wonder exactly what sort of idiots we have for so-called “reporters” at that paper.

This, in turn, calls into serious question exactly what other hinky deals this company (and others) are getting in Michigan and more importantly, who the costs and taxes are being shifted to in order to support this outrageous and incestuous behavior between these corporations and the state and local governments involved.

Absent more information that changes my mind I applaud Troy for saying NO MORE to this blatant and obvious scam.

A call to the reporter to inquire on the paper’s investigation on these matters was not returned by press time.