Category Archives: Economics

The Language of Crime

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Life has been particularly engaging of late! I am taking on a lot of responsibilities at work and am learning the craft. I’ve also been fortunate to meet some amazing people recently; for it all, I am grateful.

Occupy Boston may be gone, but I’m still paying attention. Recently, rouge micro-trading software from Knight Capital Group briefly messed up the stock market. On the watch of Knight’s archetypical CEO, Thomas Joyce (57), the firm found itself in need of a $400M bailout. Knight, a leader in “market making,” has all the hallmarks of a sleazy financial services operator. If this story sounds familiar, you have probably read or heard about it, and that’s what I’m writing about.

As I followed the Knight story, I began to notice a certain similarity in the tone of the articles; Knight was blamed for errors, but never publicly charged with a crime, as is every petty criminal.

So, in homage to that sociology class I took back in college, I surveyed the coverage of the story. Starting, loyally, from the:

Knight Press Release : Technical Issue

Reuters : Error
WSJ : Snafu
FOX Business : Glitch
MSNBC : Glitch
NY Times : Debacle
CNBC : Debacle
Seeking Alpha : Malfunction

My sample size is admittedly small, but it’s pretty diverse and mainstream.

Something very important and very dangerous had happened. This event laid bare, or if you will, further exposed, the rigged nature of the financial services industry. And boy was it being hushed up. Criminal conduct is vast; whether with malice or recklessness, something had happened, and it needed to be contained. Containment of such explosive news begins with deliberate verbal soft-pedaling. “Gee-whiz” type language attempts to evoke empathy and chagrin. Accordingly, the exceptional, or infamous, is rendered common.

Who hasn’t ever made an error? Haven’t we all found ourselves in a snafu? And damn, who hasn’t experienced a technical glitch and/or malfunction? Heck, maybe we laugh about it all in hindsight. That said, I must reluctantly give the Times and CNBC the win here with debacle. Defined by m-w.com in context, a debacle is “a complete failure.” Ouch.

The bottom line with Knight is that, as the very least, there was a certain wanton recklessness that any first year law student could tell you was criminal. So to start, Knight’s criminal behavior was couched in familiar language. Who hasn’t made a poor choice at a restaurant, gossiped and gotten into a bind, or attempted to re-string a weed wacker? Such errors, snafus, and malfunctions are routine. That they do not evoke alarm is the point.

In other news: New York settles with Standard Chartered for $340M on money laundering charges while the DOJ nets $300K from Barclays for same. Both banks, though they acted in direct contravention of the laws of the United States, continue to do business with and with the countenance of the government.

Complete failure is for chumps. Define the parameters of the debate, set the tone, and amplify.

Well, I think I smell skunk; I suppose I’ve said my bit.

Take care,

~WD

One If By Land

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It’s 2:30 a.m. and I have just returned from five amazing hours in Dewey Square at Occupy Boston. It has been quite an interesting few weeks for the movement and encampment.

About a month ago, Occupy Boston went to court to preemptively protect their rights. At first, there was a victory; a judge granted OB a temporary restraining order, prohibiting the police from clearing the camp. But just this week, OB failed to win a preliminary injunction from that same court, thereby freeing the City to clear the camp.

Shortly after this ruling, Boston Mayor Menino declared that any protesters remaining in Dewey Square after midnight on 12/8 would be subject to arrest for trespass. At this news, many in the camp decided to pack it up and leave, some attempting to avoid arrest, others satisfied that they had made their point. The library was boxed up and taken away, as were the medical, food and logistics tents.

Of course, there were some who were not going to go so quietly. It was anticipated that a smaller group would deliberately remain after midnight and subject themselves to arrest. In this spirit, OB called upon all its supporters to come down to Dewey Square and either a) join those seeking to be arrested, or b) support them from across the street.

As you know, I just passed the bar, so I chose choice b. When I arrived at Dewey Square around 9:00 the place was packed. Although many of the tents had been removed, exposing patches of black mud, the walkways and plazas were crowded with supporters. I was surprised to find a mostly festive atmosphere; a last hurrah if you will.

Many things were going on at once: campers were disposing of their goods into a city dump truck parked nearby, a general assembly was debating what to do come midnight, and then, to my great delight, a brass band showed up. Rebirth they were not, but the “Second Line Social Aid and Pleasure Society” brought some great vibes and fun, participatory music to the scene. After dancing for an hour or so, I visited the general assembly which had decided to scrap a proposed midnight dance party and instead break the crowd into the two groups mentioned above, those willing to risk arrest and those who would support them from a distance.

As the midnight hour drew near, supporters offered impassioned well wishes to the crowd. This continued past the deadline, despite an attempt by some meatheads to derail the momentum by chanting nonsensical slogans. By this point, the crowd was so large that it was in two areas, one in Dewey Square and another across the street in front of the Federal Reserve Bank.

As the time progressed and no police action occurred, the two groups began doing call and response chanting across the street. The Dewey group spilled from the sidewalk into the street, taking up two of the three traffic lanes. The police did not try to disperse the crowd and instead concentrated on directing traffic through the remaining open lane. After about 20 minutes of this, a few bold supporters seized on a gap in traffic and took the third and final lane. We all danced out into the street, shouting and chanting (who’s streets? OUR streets) and a few brave people sat down in the middle of the street; Occupy Boston had taken Atlantic Avenue.

Amazingly, the police did not attempt to remove us. Instead they re-routed traffic and backed off.

So, how did we manage to defy and defeat the curfew? Strength in numbers.

I was at Occupy Boston on the first day it set up camp in Dewey Square. That day was awe-inspiring because when you looked out at the square, you couldn’t see any grass; a sea of people sat upon it. Since then, I’ve watched this movement grow and the camp become a little microcosm. Of late, however, it seemed that some of the movement’s momentum had been sapped; marches were attracting fewer people, and the issues within the camp seemed to be taking a toll on those committed to the cause. When I read the judge’s decision denying the preliminary injunction, I concluded that it was time for the camp, but not the movement, to go. I still feel that way. But what happened tonight was a testament to the power of the people; tonight we practiced what we have been chanting: “the people, united, will never be defeated.”

The people, us, the 99%, were out in huge numbers tonight; I would estimate that at the midnight peak, there were about 500 bodies there. The people were young and old, black and white, regulars and newcomers. They were there, and in their numbers, they sent a message… “NOT YET!”

I’m so proud of the occupy movement. Prior to it, this country was having idiotic conversations about the deficit. Now, people are talking about what really matters: income inequality, the corrupt tax code, outsize corporate influence in politics and the need for job creation. Although many other encampments have been shut down forcibly and the Dewey Square encampment is all but shuttered, this movement is just beginning. If 500 people can come out at midnight on a cold weekday, just imagine what we can do this spring.

America is still in for a winter of discontent; but as the grass will grow once again at Dewey square, so too will flower the hearty bulbs have been planted throughout this land.

(not) Taxing the Rich; Losing Our Way.

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Big Tex,

You posed an article by Robert Frank of the Wall St. Journal on my wall so I felt compelled to read it and respond thoroughly. Upon finishing my first read of the article, my mind was reeling attempting to harmonize its clever craftsmanship and highly disingenuous message; the WSJ is certainly getting its money’s worth with Mr. Frank.

Upon further contemplation, I was left with a lot of thoughts, which I’ll share below, after briefly recapping the author’s position.

Author’s Position

The article is motivated by the following correlation: those States most reliant on income tax revenue from their wealthiest citizens now face the largest deficits. Mr. Frank frames this subject by noting that this is emerging during a time of greatly increased public spending. He then notes that “as the incomes of the wealthy have grown, they have become less stable.” Mr. Frank acknowledges that there is a consensus that these top salaries are too tightly linked to the market. Nonetheless, this situation has left governments increasingly dependent upon their top earners for revenue.

This story is told through the personal story of Brad Williams, a former economic forecaster for the State of California. Mr. Williams retired from the State in 2007 and now runs his own consultancy. We learn that Mr. Williams had long been aware of this excess reliance on top earners. While working for the State, he advocated the following fixes: 1) flattening income tax rates, 2) allowing the wealthy to defer payments on windfall profits, and 3) establishing a “rainy day” fund. His proposals, however, were not adopted. Mr. Williams, however, felt vindicated by the recommendations of a bipartisan commission assembled by former Governor Schwarzenegger in 2009. The commission’s proposal to fix the State’s over reliance on income taxes from the wealthy was to decrease those taxes while increasing the general sales tax. As California remains beholden to its wealthiest, and by implication, to the market, Mr. Williams laments of having “no real pleasure in being right.”

My Thoughts

As I alluded earlier, the author of this article, Robert Frank, has spun this tale well. However, its unquestioned reliance on certain tacit assumptions, along with a gross disregard of other highly relevant factors, make it a staggeringly disingenuous work of art.

To his credit, Mr. Frank notes how the top tax bracket has fallen from 90% during WWII to 35% today. But instead of analyzing this massive decrease, he instead highlights how today, those earning over $379,000 are taxed twice that of those whose salaries are under $69,000. This “twice as high” tax rate is presented as a great injustice while the broader 55% decrease is included as mere background. Mr. Frank fails to examine how these massive tax reductions for the wealthy helped create the very conditions which underlie the current crisis.

Throughout the article, the increased accumulation of wealth is treated as inevitability. Furthermore, the article dismisses, as asides, other factors that have lead to the current crisis, namely decreased corporate taxes. As anyone following the saga of General Electric is aware, large corporations, while thriving, are paying far less in taxes than before. These profits are instead going into CEO and senior executive pay. Since these outsize compensation packages are directly tied to the stock market, they foment instability. Thus, public officials, instead of leading, are left studying Wall St. to “more accurately predict state revenues.”

In essence, this story is about how US public policy regarding taxation has empowered the super-wealthy to leverage their wealth so spectacularly as to ensnare all of us in their vagaries. The US economy has been split in two, leaving government constantly one step behind, trying to fix what has already transpired while the next movement is afoot.

The proposals that the author endorses, those espoused by Mr. Williams, are cruel and cynical. To escape the current volatility, it is suggested that income taxes be lowered and sales taxes increased. Such a proposal would further impoverish the state, enrich the already wealthy, and burden the poor and middle class.

Mr. Frank fails to examine other, more progressive policies, that could help address the current volatility in state revenues. Higher income taxes for the very wealthy might well temper current excesses in market-based speculation. And decreasing income polarization would itself engender more stable revenue collection models, thus allowing states to better plan for and wisely craft their spending priorities.

Instead, we’re one again pitched tired old proposals which do little more than privatize profit while socializing losses. We’re told that states will benefit if the super-rich are allowed to spread out their income tax payments on windfall profits over multiple years. In the same breath, we’re encouraged to create a “rainy day” fund, the type which could ostensibly be funded by such windfall tax revenues. Mr. Frank’s vision would leave us poorer now and surely impoverished later.

Conclusion?

Sorry, but if that’s the best that “conservative” America has to offer, then maybe we should start dragging the term “conservative” through the mud, like “social welfare” (aka Socialism) has been. As Bob Herbert has opined in his swan song at the New York Times, America has lost its way. Our extreme economic inequality now holds the majority of us hostage, and our elected officials appear to be indifferent, impotent or in-cahoots. Our system no longer serves us. Rainy day funds are not the answer to an America, Inc., which has become “too big to fail.”

So, Jim, those are my thoughts. This article is well crafted but wrongheaded. I respectfully disagree.

Best,
-WD

Dear Mr. President

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You have recently indicated your willingness to extend tax breaks for the richest Americans in this time of great financial distress. In the spirit of bi-partisanship, as you so often trumpet, I’d like to remind you of some words from Theodore Roosevelt:

It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.

Are you a cold and timid soul, Mr. President?

For shame.