Tag: Financial Trickery

The Magical 401(k)

Remember to plan for your retirement…….

Back during the reign of “King Ronnie” and his big push to privatize everything…the big new plan to help people retire was the advent of the 401(k).

This was a way for business and government to get out of the business of pensions…..but since those days in the 1980’s this idea has proven to be as bad an idea as sneaking arms to the Contras…….

The only people that this horrible idea benefited was stock traders and fund managers…the individual was only a tool to extend wealth and not for the individual……

When 401(k) plans emerged in the ’80s, they were supposed to complement pensions, not replace them. But as the Wall Street Journal reports, only 13% of workers in the private sector today hold pensions thanks to the 401(k) revolution—and original proponents of the tax-deferred savings plans are now saying they may not be the best way for people to shore up for their golden years. “We weren’t social visionaries,” says Herbert Whitehouse, an ex-J&J exec who was also an early 401(k) promoter. Not only are the plans—which let workers sock away pretax money—vulnerable to stock market declines (defined-benefit pensions are guaranteed payouts for life), they’re also subject to costly manager fees. And Forbes notes that longer-lived retirees may need enough funds to last 30 years or more, making it even more critical that retirement cash can be stretched for the long haul.

One economist says at first she’d tell workers they’d be set if they saved just 3% of their salary—but that was based on projected 7% annual investment returns, an overly optimistic calculation. Plus, per an Employee Benefit Research Institute researcher, only 61% of workers who could be saving for retirement are currently doing so. Based on Boston College calculations, 52% of US households are “at risk” of not being able to live comfortably during retirement. Not that 401(k) plans are complete failures: Advocates say if people start using an employer-offered 401(k) early enough, it can lead to substantial savings. Still, fixes are being proposed, such as mandated savings plans run by either employers or the government. “There was a complete overreaction of excitement and wow” in the early days of the 401(k), laments a retirement services exec. (Research has pointed to this “alarming” anti-401(k) fact for a few years.)

As usual none of these “miracle” plans ever fully assists the individual.

The Path To Wealth

The Easter weekend is over….everyone can go back to being yourself…..and as usual the news was so mundane and tedious that it was not worth a visit……Crapping on Iran deal was everywhere…..and then there was….oh who cares?

Since we are talking about money today……why not go to the biggest capitalist of them all…..Buffet?

We all have had this delusion that one day we would be wealthy and have the world at our feet…….have beautiful women falling throwing themselves at us…….cool cars and travel……….but that was when we were young and stupid.  And now?……………..

We all have heard of Warren Buffet the genius of Wall Street…..his company has been a massive success and he is seen as some sort of financial god…….you will remember the story of a couple of years ago about how as wealthy as he is he pays less tax than his assistant…….and that started a whole movement to lower taxes or at least to make them more equitable…….yes he is a financial wiz…….. but why is he so successful?

Warren Buffett’s image as an avuncular business genius who has all-American interests at heart might take a hit after a scathing investigation by the Seattle Times and the Center for Public Integrity. It alleges that Clayton Homes, a giant in the mobile-home industry owned by Buffett’s Berkshire Hathaway, is duping poor people into unscrupulous loans. Here’s the main summation:

  • “Buffett’s mobile home empire promises low-income Americans the dream of homeownership. But Clayton relies on predatory sales practices, exorbitant fees, and interest rates that can exceed 15 percent, trapping many buyers in loans they can’t afford and in homes that are almost impossible to sell or refinance.”

The investigation looked at more than 100 sales in 41 states and found a “consistent array of deceptive practices.” For example, Clayton goes by so many names, at least 18, that mobile home customers who think they’re shopping around actually aren’t. It controls virtually every aspect of the deal, from the construction to the real estate sale, to the loan itself, a fact that customers often don’t realize because of those different names. Buyers often encounter exorbitant fees, loan terms that change abruptly, and ruthless collection agents. Spokespersons for Clayton and Berkshire would not be interviewed, but a Clayton statement insists that its “policies, procedures and training are designed to ensure that customers have a choice of lenders,” reports the Omaha World-Herald. Read the Seattle Times piece here and the CPI version here.

An age old story of how to acquire wealth…..SCREW THE POOR!

Is Goldman-Sachs Screwed?

Subject:  Financial News/Economic Crisis

The big financial news last week was that the investment firm of Goldman-Sachs was been accused, that is the key word, accused, of financial fraud….the anger by Main Street makes this an interesting turn of events and does not hurt the battle for financial reform either…….unless you are an ardent investor or an economic junkie you probably have NO idea what all the crap is about….true?

Let me help……

The SEC’s submission to New York’s Southern District Court provides a devastating glimpse into the criminal activities of a financial oligarchy that was not only indifferent to the destructive social consequences of its operations, but eager to profit from a crisis precipitated by its own speculative activities.

In April of 2007, just prior to the sub-prime mortgage collapse, Goldman Sachs received $15 million from hedge fund operator John Paulson to help put together a package of securitised home loans—a collateralised debt obligation (CDO)—and market it to Goldman’s clients. According to the SEC, Paulson and Goldman knew that the CDO, called ABACUS 2007-AC1, was comprised of junk assets, but they led the public to believe that a sound investment was being offered.

Paulson had staked the fortunes of his hedge fund betting on a market collapse. He therefore selected the worst sub-prime mortgage securities on the market for the Goldman CDO, mostly derived from mortgages in Arizona, Florida, Nevada and California—states which were subsequently among the hardest hit by the wave of foreclosures.

The banks lured people into taking out mortgages they knew the purchasers could not afford. They then packaged these toxic loans into securities—collateralize debt obligations—and made billions in profits by selling them to investors around the world, including pension funds, 401(k) plans, insurance companies and private investors. Those involved knew very well they were running the equivalent of a giant Ponzi scheme—a fraud far more massive and destructive than the criminal operation headed by Bernard Madoff.  (Thanx to Barry Grey and Patrick O’Connor for the synopsis above)

That is by NO means the end of the tale…..there will be more coming….that is if they really want to find the culprits that caused the economic crisis….it will be interesting see how this plays…after all Wall Street and mostly namely Goldman-Sachs gave a million maybe more to politicians in 2008….will that preclude them being found guilty?

National Financial Literacy Month

Today is the first day of April ….and NO this is NOT an April Fools post….it really is National Financial Literacy month……I personally think this is a good idea because the American people are the dumbest I have found on economic and financial issues…they need all the help they can get and I cannot wait to see just what types of education the people will receive….

I would like to help in their education on economics and finance……

All the people need to know is….if it sounds too good to be true, then it mostly like is……there you go…all you need to survive in this world of economic scams….

One last thing….if your economic strategy is motivated by greed, then you will NEVER learn a valuable lesson!

Side Note:  In case you were considering a visit to the theater to see “How To Drain Your Dragon”…..Done!…..it is a cartoon about training a dragon, not a potty training movie…….I should have known when I realized it was Train not Drain…..(always with a little humor)

The Repo Men

Professor’s Classroom

Subject:  Economics/Finance

NO!  I am not doing a review of some Hollywood mind dribble about guys that repossess organs that are in arrears…..NOPE!….I am talking about the theft occurring on Wall Street…..

A definition, a simple one, for therm economic term of REPO:

An agreement in which one party sells a security to another party and agrees to buy it back on a specified date for a specified PRICE. CENTRAL BANKS deal in short-term repos to provide LIQUIDITY to the FINANCIAL SYSTEM, buying SECURITIES from BANKS with cash on the condition that the banks will repurchase them a few weeks later.

There is the theft that was pulled on the American people that damn near brought the country down around our ears…..in other words, they used worthless non-existent paper as collateral for the money they were given and when it came to the day the sale was called in…there was nothing of value to use to raise the cash to pay back the money…..

But there was another……DERIVATIVES:

Financial ASSETS that “derive” their value from other assets. For example, an option to buy a SHARE is derived from the share. Some politicians and others responsible for financial REGULATION blame the growing use of derivatives for increasing VOLATILITY in asset PRICES, and for being a source of danger to their users. Economists mostly regard derivatives as a good thing, allowing more precise pricing of financial RISK and better RISK MANAGEMENT. However, they concede that when derivatives are misused the LEVERAGE that is often an integral part of them can have devastating consequences. So they come with an economists’ health warning: if you don’t understand it, don’t use it.

The world of derivatives is riddled with jargon. Here are translations of the most important bits.

• A forward contract commits the user to buying or selling an asset at a specific price on a specific date in the future.

• A future is a forward contract that is traded on an exchange.

A swap is a contract by which two parties exchange the cashflow linked to a liability or an asset. For example, two companies, one with a loan on a fixed INTEREST RATE over ten years and the other with a similar loan on a floating interest rate over the same period, may agree to take over each other’s obligations, so that the first pays the floating rate and the second the fixed rate.• An option is a contract that gives the buyer the right, but not the obligation, to sell or buy a particular asset at a particular price, on or before a specified date.

• An over-the-counter is a derivative that is not traded on an exchange but is purchased from, say, an investment BANK.

• Exotics are derivatives that are complex or are available in emerging economies.

• Plain-vanilla derivatives, in contrast to exotics, are typically exchange-traded, relate to developed economies and are comparatively uncomplicated.

Another fairly normal financial exercise….but once in the hands of greedy Wall Street traders it became a thing of ugliness…the second prong of the financial disintegration of the world’s financial markets…..in this case worthless sub prime mortgages were the culprit….when they were packaged and sold to raise money…..it was dishonest for the banks and institutions knew that they were worthless when they were sold….a SCAM is a polite word to describe the theft……

The two practices that I covered are nothing short of theft….but then their is a third prong to this…..the bailout.  After really bad practices and the economy crashing the country was sold on the idea that these institutions were too big to fail and were given billions to save their companies from ruin……then a year later still using taxpayers money……these companies gave employees massive bonuses….still using taxpayer money…..and there is the final prong…….yet another theft of cash but this time they are stealing taxpayer money….that means YOUR money…….anger resides on Main Street and to save these thieves from being fed to the wolves the Congress is working on a financial reform bill……..at best the bill, if passed as is, is a YAWN and a tap on the pee pee for the financial thieves that we trust our economy to……will we ever learn?

To Be Continued……..

More Good News In The Making

At least that is what the economists want us to believe…..housing is trying to make a comeback…it will but slowly…..unemployment claims are down…..markets were doing better, but that is a daily indicator….means nothing in the overall picture right now.

Apparently the rest of the economic world does not agree with thye cheerleaders of the US economy.  The World Bank issued this statement:

The World Bank said today the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington- based lender said in a report today. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said.

I know ….some will say that the World Bank is more concerned with the poor third world than the US, but sorry Irene…in this age of globalization it is all the same.  What effects Kenya will have an effect on the US.  That is why it is called “globalization”.

Nowhere are the indicators saying that the picture of the economy is becoming brighter….only in the lies of the economists that make their living off the markets.  Main Street has been suffering….and will continue to suffer until some how the guys in Washington realize that there is a diminishing middle class.

To Answer My Own Question

Banks that have their hands out in Washington this year were handing out multimillion-dollar rewards to their executives last year.

The 116 banks that so far have received taxpayer dollars to boost them through the economic crisis gave their top tier of executives nearly $1.6 billion in salaries, bonuses and other benefits in 2007, an Associated Press analysis found.

That amount, spread among the 600 highest paid bank executives, would cover the bailout money given to 53 of the banks that have shared the $188 billion that Washington has doled out in rescue packages so far.

Some banks trimmed their executive compensation in the face of faltering performance that foreshadowed the current economic crisis, but they still granted multimillion-dollar packages. Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

Such bonuses amount to a bribe for executives “to get them to do the jobs for which they are well paid in the first place,” said Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services committee.

The AP review comes amid sharp questions about the banks’ commitment to the goals of the Troubled Assets Relief Program, a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program’s goals, instructing the Treasury Department to pump tax dollars directly into banks to prevent wide economic collapse.

The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes. Some banks are forgoing bonuses and restricting other compensation.

I heard a story yesterday that the AP had asked 4 of the major loan recipients to explain where the money is going and all four declined.

Why are the American people being so hard on the workers in the auto industry and allowing the white collar theives to go unchecked?  I is beyond time for the American people to wake up and smell the damn coffee.  They are under attack and they are allowing the government to reward crooks and scammers while punishing the worker.  That is unacceptable and just plain pathetic!

More Bailout News

An extra-legal measure quietly enacted by the Treasury Department in the shadow of the $700 billion Wall Street bailout package will hand the country’s biggest banks another $140 billion windfall, the Washington Post reported this week.

In a five-sentence memo issued on September 30, on the eve of the first House vote on the bailout bill, the Treasury Department unilaterally overturned a two-decade-old tax law passed by Congress. The measure denied profitable companies the ability to shield their profits from taxation by buying up bankrupt firms as shell companies and using their losses as a tax dodge.

The law, section 382 of the tax code, was enacted by Congress in 1986. It was aimed at curtailing what was seen as an egregious corporate scamming of the tax system. The Republican right and corporate lobbyists have been pushing for the measure’s repeal or amendment ever since.

Treasury Department spokesman Andrew DeSouza defended the action, telling the Post that the administration had the power to overturn a law passed by Congress as part of its mandate to interpret the tax code. He further insisted that the action was a necessary means of rescuing the banks from the financial meltdown.

The action by the Treasury Department has been dubbed the “Wells Fargo Ruling,” as it apparently provided direct aid to the successful bid by Wells Fargo to buy up the failing Wachovia bank. According to sources cited by the Post, the tax change will net Wells Fargo $25 billion from the deal.

In other similar takeovers, PNC bank, enjoyed a windfall of $5.1 billion in its takeover of National City as a result of the scrapping of the tax law, while the Spanish Banco Santander gained another $2 billion because of the change when it gobbled up Sovereign Bancorp.

The clear aim of the tax measure was to steer the hundreds of billions of dollars that have been injected into the biggest private banks into the profitable buying up of their weaker competitors, thereby facilitating the concentration of economic power in the hands of a few giant banks, allowing them to exercise monopoly control over the financial system.