A couple of weeks back at the gym, one of my conservative friends came running up to me.
"See, Mark? See? I told you Barack Obama would be a horrible president."
"How do you mean?" I asked.
"Look at the Dow. Wall Street doesn't like him."
"Yeah, but how much does the president really affect Wall Street?"
"Oh, they do."
"So when it dropped all that way under Bush...that was his fault too?"
"That was different. That was Barney Frank's fault."
"Ah, I see. But, ML (her initials) it just went up a little today. How do you explain that?"
"My husband-he's in banking and knows more than you-that's just the dead cat bounce. This market is dead. Obama is destroying the market and eventually he will destroy this economy with his socialist policies."
Yesterday, the Dow gained 500 points after two weeks of solid gains. As of this writing it is slightly up after starting low. As I often do in these situations, I defer to someone who knows more about the economy than I do (I am more of a foreign policy and political wonk)...Last In Line...who has told me quite often that the president doesn't really have that much to do with the state of Wall Street.
These days that might be a little less true but his main point is valid. I do wonder, though, if she will give our president at least some credit the next time I see her at the gym and ask her about that "dead cat bounce" thing...why it, like so many other things out of the mouths of the right, was a complete bag of shit.
Probably not.
12 comments:
Stewart had a reply for your healthy friend's financial hubby's assumptions, around the same time, 20 days ago, watched it then and it's still true. His bro's a trading tech hotshot at the NY Stock Exchange btw. jt.
http://blog.indecisionforever.com/2009/03/05/jon-stewart-thinks-barack-obama-needs-to-wear-a-stock-ticker-visor/
I would think when you see the dow go up like that, you should be happy for the people of this country, not wonder if so-and-so who you had your latest debate with will come over to your way of thinking or if people on blogs give credit to your favorite politician.
Those swings you see in the dow (one day up, next day down) – hedge fund managers and day traders can easily make those happen via cashing out stock or buying into stock (see Charlie Sheen in the movie Wall Street) and our economy simply isn’t measured by folks who are sitting at home watching Cramer or watching shows like Fast Money on CNBC are making the dow go up and down by buying and selling all day.
Leaving my post there would be chickenshit way to go. So what is an accurate measure of the economy? One of the figgers I pay attention to is Market Capitalization. Market Capitalization is basically the total value of all the shares of stock that a company has issued. You get the figure by taking the current market price per share of the stock and multiply it by the number of outstanding shares. The difference is known as market capitalization. If Buttercup, Inc. has 3 million shares that are selling for $20, then Buttercup, Inc would have a market capitalization of $60,000,000 (3,000,000 X $20). Right now, total market capitalization has dropped about $18 - $20 trillion and drops aren’t good.
We also need to get capital markets moving again. Businesses (large and small) need to have loans. Banks ARE lending, just not as much as they used to and if a company can’t get a loan and if people aren’t buying the companies stock, then these businesses don’t have cash. All these folks chanting "main street not wall street" are morons – we have to get the banks and wall street fixed first, then main street will be able to be fixed after that. Smart parasites know not to kill the host.
When this all started, Bernanke dropped the discount rate (the interest rate for the money the fed loans to banks) from 4.4 to 2. It didn’t save us. Discount rate is at .5 now. He also dropped the fed funds rate, which is the interest rate on money that banks loan to each other. It didn’t save us. That rate is pretty much at zero right now. Notice that some banks want to give the money they got back – that’s because the government has now changed the rules mid-game.
The economy is in trouble because people took on way too much debt and are now collapsing under the weight of it. As people and businesses tighten their belts, companies that sell to them are tightening their belts as well, thus prolonging the problem.
What made the dow jump on Monday? The Treasury Departments announced plan did. I haven’t read all of it but it looks like Geithner dusted off and tweaked Paulson's old plan for handling troubled assets. Paulson wanted to isolate the bad bank debts, box them up, and market them for whatever they would bring. Geithner wants to try a variation of this: Banks put up their toxic assets and, with help from the FDIC as well as taxpayer dollars, repackage these assets for resale. This could be seen as a good thing because he is letting the market dispose of the bad assets. Obviously, some investors are psyched about the opportunity to invest in these assets, have most of their losses covered by the taxpayers, and then benefit on the upside (big surprise). Is a $500 billion to $1 trillion plan large enough to restore confidence for investors when the size of the problem here is greater than $2 trillion? And what if the worldwide problem is several times as large? Private investors stand to make a lot of money and these days all it takes is a few high-profile stories about lavish compensation to bring out the class-envy idiots. That’s why Krugman doesn’t like it.
Remember that people do not deposit cash in hedge funds or insurance companies. They invest in them, and assume certain risks when they do. The Obama wants to socialize the risk by placing the government as a guarantor of sorts for the investors, but that may make people less likely to invest rather than more likely. Part of the lure of investing comes from the potential reward of greater growth of funds than what can be found in bank accounts and bonds. Limiting risk also means limiting gains.
The logic of the plan is there, but the problem could be the execution.
What will kill the economy is the proposed cap-and trade program which is a giant economic dagger aimed at the nation's heartland - particularly states like Michigan with a large industrial and manufacturing base. It is a massive tax hike on everything that Michigan does - making things, driving cars, burning coal, etc etc. The right to emit carbon and use energy would be auctioned off to generate revenue for more government spending programs. Obamas budget projects receipts totaling $646 billion through 2019 from the sale of these greenhouse gas permits. That is money taken directly out of the private sector and is sent to government. The goal is to reduce greenhouse gas emissions but doing so will drive up the cost of nearly everything and will amount to a major tax increase for American consumers. The carbon tax will be paid by energy companies, manufacturers and public utilities who will then pass the cost on to their consumers and lower class folks will be especially hardest hit.
Going back to Michigan, they will be especially targeted because they get 60 percent of their electric power from coal plants, and the state's economy is still reliant on heavy manufacturing such as car and truck assembly and auto parts production. The proposed tax would take effect in 2012 and it is impossible to raise costs for such basics as manufacturing and energy production by more than half a trillion dollars over a decade and not have the effects felt across the economy. Is this really a good time to be talking about a carbon tax? Well, Michigan is a blue state and some lessons still have to be learned the hard way.
Oh, and for the record – that bill congress passed taxing AIG bonuses at a 90% rate is flat-out unconstitutional. If that becomes the precedent then look out because I know some readers of this blog who will be next or have immediate family members who will be next. What if there aren’t enough of those evil $250+ per year households to tax so Obama can follow through on all his spending promises? You folks in households making $100k will be next.
I really liked your explanation Lil, which was eloquent and enlightened. Oh, i liked it all except for the last paragraph :) jt.
Joanne, I'm all or nothing. Love me and hold me. heehee
My thoughts on who will be Next is just opinion and a prediction.
With regards to the legislation passed concerning the AIG bonuses...I did not endorse nor condemn the bonuses - I'm just saying that the legislation, the way it was passed in congress, is unconstitutional. Article 1, section 9 of the US Constitution (Limits on Congress) reads "No bill of attainder or ex post facto Law shall be passed".
What did the founders mean by a bill of attainder? A Bill of Attainder is a legislative act that singles out an individual or group of individuals for punishment without a trial. Such actions were regarded as BS by the founders because they thought the courts should impose punishment upon individuals, not the congress.
It also passes an ex post facto (after the fact) law. An ex post facto law is a law passed after the occurrence of an event or action which retrospectively changes the legal consequences of the event or action. It makes something illegal today that you committed yesterday.
Sure this could very well be a monetary punishment and not a criminal conviction but doesn’t a 90% levy go beyond taxation and become confiscation?
I completely and utterly agree with you about the principle.
That Congress imposing a 90% tax on ANYONE, is disgusting and more than disgusting, precedent-setting.
On this page (which i find interesting after having viewed a documentary recently proving the fact that 'Income Tax' in the US is 'voluntary' and can't be enforced by the IRS, although that's THEORY until it's mass movement endorsed, because it always is enforced, the IRS has individuls' social security numbers and can proceed to make American lives hell :)
Anyway, on THIS page : http://www.originalintent.org/edu/consttax.php ) it says the following, all interesting and all rooted in explanations of the Law. . . ususally politicians (& tax-collectors) revert to 'rhetoric' (or arrogance-based wishful thinking) not the letters of the Law. . .
' What Did The 16th Amendment Do?
The 16th Amendment was an attempt to overturn, by Constitutional Amendment, the supposed tax limitations placed on the national government by the decision of the US Supreme Court in the case of Pollock v. Farmer's Loan and Trust Co., 157 US 429 (1895). [While we see the 16th Amendment as being wholly unnecessary as a response to the Pollock decision, that discussion would require an entire separate article.]
Here is what the 16th Amendment says:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
That's it! That's the entire text of the Amendment that has caused so much confusion and trouble. '
The page also says . . .
' However, profit or gain (to a shareholder) from a corporate enterprise should properly be income subject to taxation as an excise taxable activity - after all, there would be no opportunity for said profit if the state hadn't granted the corporation into existence. '
and . . .
' "The Treasury Department cannot, by interpretive regulations, make income out of that which is not income within the meaning of the revenue acts of Congress, nor can Congress, without apportionment, tax as income that which is not income within the meaning of the 16th Amendment."
Helvering v. Edison Bros. Stores, 133 F.2D 575
The last part of that quote is crucial to a proper understanding of the impact 16th Amendment, and indeed the entire tax structure of the federal government. It is essential that you understand that only "16th Amendment income" can be taxed without apportionment.
"The individual, unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity which owes its existence and charter powers to the state; but the individuals' Right to live and own property are natural rights for the enjoyment of which an excise cannot be imposed." Corn v. Fort, 95 S.W.2d 620 (1936)
From these two decisions alone, we can pinpoint some very crucial information.
All property (which includes income) other than "16th Amendment income" can only be taxed if the tax is constitutionally apportioned.
"16th Amendment income" can be taxed without apportionment.
Obviously the courts are making it clear that there is a real and significant distinction between "income" in the ordinary sense, and "16th Amendment income".
A Citizen's property (which includes ordinary income) cannot be taxed as an excise. '
In other words. . . taxing CORPORATE activity is constitutional -- whereas taxing PRIVATE activity (the fruits of one's work or labour are defined in Law as "private property" can not be forcibly taxed, in other words it is unconstitutional to tax that which is not defined as taxable -- by the Laws -- and which individuals do not actively consent to be taxed .)
So, the reason i didn't like your (1st) last paragraph :) is not the principle, which i completely agree with, but the logic, that Congress can apparently and constitutionally tax corporate activity (AIG employees are individuals but the corporation came into being due to government statute and is subject to the 16th Amendment taxation brackets) -- as individuals, my personal take is that i definitely think their bonuses are neither the fruits of their labour or their 'private property'. . jt
Muffin, the examples you used were court precedence. This case wasn't dealt with in court. Also, corporations are viewed as individuals many times in the eyes of the law. You presented your case well and posted some very valid arguments and I see your point. My post doesn't invalidate your argument and vice-versa so it's kind of hard to tell who is right and who is wrong - we'll just have to find out which argument is constitutional.
Torch, even though you haven't posted your healthcare plan for this nation, I officially grant you permission to address me on here. You are a lawyer after all. What is your take?
jt, every once is a while we'll see a story about some militia type who says that the govt can't tax people. Whether they are right or wrong, the militia type usually end up paying their taxes once the govt tells them to shut up and pay up.
I'm going to be honest and admit I didn't one freakin clue what the point of your post was, jt. Is your ultimate point that the AIG bonuses are "Corporate Activity" and not personal income? Whether or not you think those executives "earned" those bonuses, it seems specious reasoning to me to conclude that because the bonuses were originated by a corporation (with no relationship to ownership share) they qualify as Corporate Activity. As opposed to, for example, tax on the on-going profits of a corporation, which by those same definitions qualify as Corporate Activity and are taxed as such.
Unless of course you are arguing that the AIG executives are themselves corporations, which I don't know to be the case. But it could be.
By that same argument (which, again, I could be grossly misunderstanding) all salaries derived from a corporation would be taxable, but a salary derived from a business entity that doesn't exist as a corporation would not be.
By any argument, I'm basically just an idiot, and I'll shut up now.
Thanks for thinking of me, lil. I have been out of the country for the past several weeks and have not been keeping in touch. Basically, I have been buried under a pile of paperwork in Dubai which is nice only for the reason that I have been missing the typical Minnesota spring and instead have enjoyed 80 degree temps.
If I have the time when I get back, I will check it out.
the point was to tell Lil why i didn't like his last para. i agree with him in principle but it is (apparently) constitutional for Congress to do what it did (copying & pasting one bit again --) the writer gives all the legal back-up on the page link, i didn't want to put all that there too. You can read his bio, he's a lawyer and head of various organisations, following up with the Gov.
'profit or gain from a corporate enterprise should properly be income subject to taxation as an excise taxable activity - after all, there would be no opportunity for said profit if the state hadn't granted the corporation into existence. '
the 2nd point was that Tax-collection (personal income tax collection) is also unconstitutional . But the IRS does it anyway. That's the conclusion anyone would reach after watching this 2-hour film (Producer was Hollywood and then Libertarian politician, not militia :)with non-stop details and interviews with Fed Govt & IRS (a handful of court cases have been upheld in favour of the non taxpayer, followed up on a 60 Minutes show -- but Lil is right, the majority of state courts do not uphold in favour of the voluntary non-taxpayer because of the national implications.) If anyone's interested, they can read more on the same org website. Jt.
Sorry jt. Didn't really answer my question.
So your point is that the bonuses paid to AIG executives is "profit or gain from a corporate enterprise"?
I don't doubt the qualifications of the person who posted the argument. I just don't follow your interpretation of that information. My interpretation was quite different, and I'm trying to reconcile that difference by better understanding exactly what argument you are making. To me, the same argument that you cite refutes the point that (I believe) you are trying to make, in that compensation for working for a corporation is legally different from profit for shareholders from investing in corporations. Whether or not they "deserved" the money, the money paid to AIG executives is not in any way related to their investment in the corporation, therefore by no interpretation of the information you cite that I can endorse would that money be "16th amendment income".
So help me understand what I'm missing in your argument? Not that it's really that big of deal. It sounds like most people agree it's a bad idea to go after that money, and whether or not it's constitutional to do so is academic.
seem to remember u didnt answer my last question too not that its really that big a deal :) and nothing's missing in my argument, because im not arguing your point pl, you are. read LIL's very first post above, and you will understand my responses to his. so 'whether or not it's constitutional..' was the WHOLE point actually (at least that he & i were debating.) jt.
. . maybe it's a bit of a cop-out PL and i COULD if i made my brain and wanted to, understand your argument too (which i don't quite get right now! ditto!) But i'm not in the mood to talk tax tonight. Maybe the TORCH can throw light on the bottom lines, this weekend, though he may have other things to do :j jt.
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