What is wrong with the US economy? Part 2

[OmCheeto]

I heard on the radio this morning that some congressman named DeFazio was proposing a new 0.25% tax on wall street transactions. I was half asleep and can't find reference to it yet on the web. Perhaps it was just a dream. Does anyone know the average daily transaction amounts for the various markets here in the US?

Here's a little blip on Defazio I found while looking for the above:

http://www.politico.com/blogs/thecrypt/0908/House_pushes_back_DeFazio_blasts_Paulson_as_a_Wall_Street_executive_masquerading_as_secretary.html"
September 22, 2008

Democratic Rep. Brad Sherman of California warned Congress not to blindly approve the estimated $700 billion bailout plan, which he called “the most generous power grab a Wall Street executive has ever asked for.”

And just in case you were wondering who that Wall Street executive was, Democratic Rep. Peter DeFazio spelled it out on the House floor before Sherman spoke.

“We should not be rolled by a Wall Street executive who is masquerading as the secretary of the Treasury,” DeFazio said, referring to Henry Paulson, who previously served as CEO of Goldman Sachs.

In an interview with Politico, Sherman called Paulson’s proposed legislation an “awe-striking, mind-boggling power grab” designed with only Wall Street in mind.

DeFazio warned that Congress will not be “rushed” into passing a bill because of dire warnings from the administration to act quickly to stave off a global financial meltdown.

“The world will wait,” DeFazio said. The Oregon Democrat said Congress needs to adopt a “thoughtful” plan that helps struggling homeowners as well as Wall Street banks.

 

[Astronuc]

GE slashes earnings view for 2008

NEW YORK (MarketWatch) -- General Electric Co. on Thursday warned 2008 earnings may be as much as 15% lower than it earlier predicted and said it would halt a stock-buyback program to maintain the AAA credit rating that's so important to its financials business.
. . . .
GE currently makes about 45% of its earnings from the financial unit, called GE Capital.

"Given the recent dramatic developments in the financial markets, we have made some tough decisions to further reduce risk and strengthen our balance sheet while maintaining our dividend. We have suspended the stock buyback to reduce GE Capital leverage, while still being able to pursue opportunistic acquisitions," said Chairman and CEO Jeff Immelt in a statement.

Other businesses are doing well, he said, with industrial and service orders up by rates in the double digits and with the "unqualified success" of the Beijing Olympics for NBC Universal.
. . . .

GE is one of the Dow 30 and a key indicator about the economy.

I think DeFazio's and Sherman's comments about Paulson and the plan are unfortunate and counter-productive to moving forward to resolve the current situation with the economy.

 

[mheslep]

GE slashes earnings view for 2008

GE is one of the Dow 30 and a key indicator about the economy.

I think DeFazio's and Sherman's comments about Paulson and the plan are unfortunate and counter-productive to moving forward to resolve the current situation with the economy.

I am interested in what the non-financial 55% of GE is doing - medical - jet turbines - wind turbines etc.

 

[Astronuc]

I am interested in what the non-financial 55% of GE is doing - medical - jet turbines - wind turbines etc.

Apparently they are doing well according to Immelt (stated elsewhere in the Marketwatch article). GE capital is less than 45% of GE, but they are much more profitable than the industrial/manufacturing divisions and it produces 45% of earnings.

 

[Astronuc]

In case anyone missed it, here is the text of Bush's address to the nation concerning the current financial crisis:

THE PRESIDENT: Good evening. This is an extraordinary period for America's economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We've seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.

We're in the midst of a serious financial crisis, and the federal government is responding with decisive action. We've boosted confidence in money market mutual funds, and acted to prevent major investors from intentionally driving down stocks for their own personal gain.
Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets. Financial assets related to home mortgages have lost value during the housing decline. And the banks holding these assets have restricted credit. As a result, our entire economy is in danger. So I've proposed that the federal government reduce the risk posed by these troubled assets, and supply urgently-needed money so banks and other financial institutions can avoid collapse and resume lending.

This rescue effort is not aimed at preserving any individual company or industry -- it is aimed at preserving America's overall economy. It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America's financial system is back on track.
I know many Americans have questions tonight: How did we reach this point in our economy? How will the solution I've proposed work? And what does this mean for your financial future? These are good questions, and they deserve clear answers.

First, how did our economy reach this point?

Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions -- along with low interest rates -- made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition -- some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit -- combined with the faulty assumption that home values would continue to rise -- led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected -- along with mortgage payments they could not afford. As a result, many mortgage holders began to default.

These widespread defaults had effects far beyond the housing market. See, in today's mortgage industry, home loans are often packaged together, and converted into financial products called "mortgage-backed securities." These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks such as Bear Stearns and Lehman Brothers found themselves saddled with large amounts of assets they could not sell. They ran out of the money needed to meet their immediate obligations. And they faced imminent collapse. Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.

With the situation becoming more precarious by the day, I faced a choice: To step in with dramatic government action, or to stand back and allow the irresponsible actions of some to undermine the financial security of all.

I'm a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There's been a widespread loss of confidence. And major sectors of America's financial system are at risk of shutting down.

The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold:
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.

Fellow citizens: We must not let this happen. I appreciate the work of leaders from both parties in both houses of Congress to address this problem -- and to make improvements to the proposal my administration sent to them. There is a spirit of cooperation between Democrats and Republicans, and between Congress and this administration. In that spirit, I've invited Senators McCain and Obama to join congressional leaders of both parties at the White House tomorrow to help speed our discussions toward a bipartisan bill.

I know that an economic rescue package will present a tough vote for many members of Congress. It is difficult to pass a bill that commits so much of the taxpayers' hard-earned money. I also understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15th, and are reluctant to pay the cost of excesses on Wall Street. But given the situation we are facing, not passing a bill now would cost these Americans much more later.

Many Americans are asking: How would a rescue plan work?

After much discussion, there is now widespread agreement on the principles such a plan would include. It would remove the risk posed by the troubled assets -- including mortgage-backed securities -- now clogging the financial system. This would free banks to resume the flow of credit to American families and businesses. Any rescue plan should also be designed to ensure that taxpayers are protected. It should welcome the participation of financial institutions large and small. It should make certain that failed executives do not receive a windfall from your tax dollars. It should establish a bipartisan board to oversee the plan's implementation. And it should be enacted as soon as possible.

In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system. In the short term, this will free up banks to resume the flow of credit to American families and businesses. And this will help our economy grow.

Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply. Yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages. The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal. And when that happens, money will flow back to the Treasury as these assets are sold. And we expect that much, if not all, of the tax dollars we invest will be paid back.

A final question is: What does this mean for your economic future?

The primary steps -- purpose of the steps I have outlined tonight is to safeguard the financial security of American workers and families and small businesses. The federal government also continues to enforce laws and regulations protecting your money. The Treasury Department recently offered government insurance for money market mutual funds. And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000. The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit -- and this will not change.

Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws. Recently, we've seen how one company can grow so large that its failure jeopardizes the entire financial system.

Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability. There are other good ideas, and members of Congress should consider them. As they do, they must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow.

In the long run, Americans have good reason to be confident in our economic strength. Despite corrections in the marketplace and instances of abuse, democratic capitalism is the best system ever devised. It has unleashed the talents and the productivity, and entrepreneurial spirit of our citizens. It has made this country the best place in the world to invest and do business. And it gives our economy the flexibility and resilience to absorb shocks, adjust, and bounce back.

Our economy is facing a moment of great challenge. But we've overcome tough challenges before -- and we will overcome this one. I know that Americans sometimes get discouraged by the tone in Washington, and the seemingly endless partisan struggles. Yet history has shown that in times of real trial, elected officials rise to the occasion. And together, we will show the world once again what kind of country America is -- a nation that tackles problems head on, where leaders come together to meet great tests, and where people of every background can work hard, develop their talents, and realize their dreams.
Thank you for listening. May God bless you.

 

[turbo]

Bush and his cronies have not explained why we the taxpayers have to pay more than market value for Wall Street's bad debt, and how that will "save" our economy. The "crisis" is largely manufactured so that the neocons can rob our treasury. Nothing happens in a vacuum, and if investment firms fail, others will step in and take their share of the business. If liquidity is affected or credit tightens, the market will eventually correct, and with private capital. There is NO need for a huge bailout - there is a need for re-regulation so that speculators find it harder to leverage the economy as they have.

 

[turbo]

James Galbraith has a decent article in today's Washington Post. Sadly, it will be ignored by law-makers who seem eager to cave it to Bush/Paulson/Bernanke's contrived panic.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html

 

[kronon]

is anyone else concerned that too much confidence has been put on the bailout plan? It is very much needed, to be sure, but is unfortunately unlikely to prevent a recession anyway, only perhaps avert a very BAD recession.

Even calling it a "rescue" or "bailout" seems to suggest a connotation that it'll all be fixed afterwards, but it wont.

Congress are understandably loathe to agree the package but will do so in the belief that it will work once and for all. We'll see. Probably should of been promoted as an interim solution rather than raise hopes as a final "rescue".

 

[pelastration]

Wall Street? http://www.hollywood.org/images/Wall_Street.jpg" !

 

[LowlyPion]

This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

This sad fact gets laid squarely at the feet of the Republicans and their poor regulatory oversight and their concessions that allowed the big firms to over-leverage in a slackened environment of lending standards.

 

[nuby]

All this talk about economic crisis, depression, domino effect, etc, how exactly would this scenario play out if the bailout plan wasn't implemented?

What is the bailout plan supposed to achieve?

 

[LowlyPion]

All this talk about economic crisis, depression, domino effect, etc, how exactly would this scenario play out if the bailout plan wasn't implemented?

What is the bailout plan supposed to achieve?

Preserve liquidity.

 

[felixxelgato]

I thought of a scenario.

If the bailout has some success and helps the banks continue, what is stopping house prices from staying high? And if that is the case, if house values remain high and lending is tighter won't there be a sudden slump in the market somewhere down the track? Then there will be another group of mortgagees who can't afford to keep paying, but can't get a decent price to get out so they will default too. Is there a possibility it will happen all over again but this time there will be no money in the kitty?

 

[Astronuc]

Banks will be very leary about appraised values.

Also, I would expect no more zero-down or zero-% financing.

Credit will tighten up.

And hopefully regulatory oversight will improve.


We still need to wait to see what falls out of the various FBI investigations. The fraud, especially systemic fraud, could be prosecuted under RICO.

 

[LowlyPion]

I thought of a scenario.

If the bailout has some success and helps the banks continue, what is stopping house prices from staying high?

At this point I think only inflation is going to raise housing prices when they hit bottom. I think they are dropping further first.

 

[Phrak]

The federal reserve corp. manipulates the prime rate by buying and selling into the bill and bond market. The prime is the lending rate federal reserve member banks charge other member banks for overnight loans in order make their cash-on-hand. The prime rate influences the housing market through home lone interest rates. So the prime, lending practices, and load regulations determine housing prices.

The overheated housing maket was a direct result of manipulating the prime to sub 4.25% values in order to keep businesses solvent in the aftermath of the overheated tech market frenzy.

 

[OmCheeto]

In case anyone missed it, here is the text of Bush's address to the nation concerning the current financial crisis:

THE PRESIDENT: Good evening. This is an extraordinary period for America's economy. ...where people of every background can work hard, develop their talents, and realize their dreams.
Thank you for listening. May God bless you.

What a beautiful speech. Probably the smartest words that have ever crossed his lips. I wonder who wrote it.

I now endorse president Bush, and his message.

btw, did anyone see the CNN "http://transcripts.cnn.com/TRANSCRIPTS/0809/20/se.01.html" " show? (Sorry if I've missed the thread. I've been busy being depressed about my finances...)

I was so mesmerized, I had to watch it twice.

SESNO: Warren Christopher?

WARREN CHRISTOPHER, 63TH SECRETARY OF STATE: Well, I think we have to deal with the two wars we're dealing with at the present time. They're draining our economy in enormous way.

I found when I came into office that our economy was in some difficulty. The first year the president got through the Deficit Reduction Act, and it just improved things so much. So I think the president needs to begin to work on that to give the world confidence that we can manage our own economy and thus we are a trusted partner.

and cow farts too. :rofl:

 

[Phrak]

"Ignore the economics of anyone with a political axe to grind." -Phrak

 

[nuby]

A whole other situation that I haven't really heard anything about.

Some people paid $240k for new homes that are now worth $180k (going down) ... The same house next door is for rent for $800/month ... They're paying $1700/month. Lots of people out there are doing the math, and will just walk away from their mortgage/home (even though they can afford the payment).

 

[turbo]

John McCain's last minute dash to DC to "rescue the economy" looks a lot like a comedy skit.

 

[OmCheeto]

GE slashes earnings view for 2008

GE is one of the Dow 30 and a key indicator about the economy.

I think DeFazio's and Sherman's comments about Paulson and the plan are unfortunate and counter-productive to moving forward to resolve the current situation with the economy.

Ok. I agree that finger pointing is non-productive, but I think something in your post points out what is really wrong with the US economy:

NEW YORK (MarketWatch) -- General Electric Co. ...
GE currently makes about 45% of its earnings from the financial unit, called GE Capital.

When making money is more important than making "something", there's something wrong.

 

[Astronuc]

Wall Street rescue deal stalemate
http://news.bbc.co.uk/2/hi/business/7636943.stm

Talks to agree a huge $700bn (£380bn) bail-out of the US financial industry have ended in a "shouting match".

After several hours of discussions with President George W Bush, a group of Republican members of Congress blocked the government plan.

The proposal would have seen the government buy bad debts from US banks.

Without a swift rescue package more finance companies are expected to collapse, causing more serious damage to the global economy.

Both sides have agreed to resume talks later on Friday. The leader of the Democrats in the House of Representatives, Nancy Pelosi, told ABC News that she "hoped" a bailout plan could be agreed within 24 hours, because "it has to happen".

Financial markets are gummed up because banks do not know exactly how much bad debt they hold and are therefore reluctant to lend to businesses, consumers and each other.

The fall-out of this credit crunch continues to make a huge impact:

• The United States suffered its largest bank failure yet, when regulators moved into close down Washington Mutual and then sold it to US rival JP Morgan Chase for $1.9bn
• In a co-ordinated move the European Central Bank, the US Federal Reserve, the Bank of England, Bank of Japan and the Swiss National Bank announced new short-term loans to the banking sector worth tens of billions of dollars
• Banks continued to cut costs, with UK banking giant HSBC saying it would axe 1,100 jobs
• Shares in UK bank Bradford & Bingley fell another 20% to 17 pence before recovering slightly.

Serious matter and McCain and House GOP members are playing games, or sabotaging the economy.


This statement - banks do not know exactly how much bad debt they hold - is a stunning revelation. I have to wonder if this is true or an exaggeration.

 

[turbo]

This statement - banks do not know exactly how much bad debt they hold - is a stunning revelation. I have to wonder if this is true or an exaggeration.

Unfortunately, this is not only true, but an inevitable consequence of lending. Banks lend based on an expectation that they will be repaid. When they lend in a boom housing market, and they lend more than the collateral will be worth in a flat or bust housing market, they have taken on bad debt. The magnitude of the bad debt can be roughly estimated, but it cannot be quantified until the bank finds out how many people will default on their loans, and how much the collateral has depreciated due to market conditions. What makes the situation much worse is that so many of these bad loans have been bundled and resold, and it might be impossible to try to evaluate one's exposure to losses in the housing market. If you bought and held individual mortgages, you could look at the job market, the overall economy, and the housing market in the region where the loan was originally written, and estimate the likelihood of repayment. How do you do that when you have bought debt bundled from thousands of mortgages?

 

[Astronuc]

Unfortunately, this is not only true, but an inevitable consequence of lending. Banks lend based on an expectation that they will be repaid. When they lend in a boom housing market, and they lend more than the collateral will be worth in a flat or bust housing market, they have taken on bad debt. The magnitude of the bad debt can be roughly estimated, but it cannot be quantified until the bank finds out how many people will default on their loans, and how much the collateral has depreciated due to market conditions. What makes the situation much worse is that so many of these bad loans have been bundled and resold, and it might be impossible to try to evaluate one's exposure to losses in the housing market. If you bought and held individual mortgages, you could look at the job market, the overall economy, and the housing market in the region where the loan was originally written, and estimate the likelihood of repayment. How do you do that when you have bought debt bundled from thousands of mortgages?

I get a monthly statement from the bank that has my mortgage. I expect that since there is a monthly record of payment, then there must be a giant database on some mainframe that has all the loans. Presumably it's pretty easy to roll in the assessed value with payment schedule so that the particular bank can see what's outstanding against the assessed value, and which loans on current, which are behind, and which are in default.

As for the securitized mortgages, I have to wonder. The moment I hear securitized, bundled, collateralized, . . . - alarm bells go off!

I thought the job description of finance/accounting included knowing precisely how much debt one has. I thought the point of 'account' is to 'account'. Has someone changed the commonly accepted definitions of the English language recently?

 

[Astronuc]

Talks Implode During a Day of Chaos; Fate of Bailout Plan Remains Unresolved
http://www.nytimes.com/2008/09/26/business/26bailout.html

WASHINGTON — The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.

It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington.

By 10:30 p.m., after another round of talks, Congressional negotiators gave up for the night and said they would try again on Friday. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets, as well as whether the first presidential debate would go forward as planned Friday night in Mississippi.

When Congressional leaders and Senators John McCain and Barack Obama, the two major party presidential candidates, trooped to the White House on Thursday afternoon, most signs pointed toward a bipartisan agreement on a grand compromise that could be accepted by all sides and signed into law by the weekend. It was intended to pump billions of dollars into the financial system, restoring liquidity and keeping credit flowing to businesses and consumers.

“We’re in a serious economic crisis,” Mr. Bush told reporters as the meeting began shortly before 4 p.m. in the Cabinet Room, adding, “My hope is we can reach an agreement very shortly.”

But once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.

The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling news conferences and interviews rife with partisan finger-pointing.

Friday morning, on CBS’s “The Early Show,” Representative Barney Frank of Massachusetts, the lead Democratic negotiator, said the bailout had been derailed by internal Republican politics.

“I didn’t know I was going to be the referee for an internal G.O.P. ideological civil war,” Mr. Frank said, according to The A.P.Thursday, in the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.

“I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.”

Mr. Paulson sighed. “I know. I know.”

It was the very outcome the White House had said it intended to avoid, with partisan presidential politics appearing to trample what had been exceedingly delicate Congressional negotiations.

. . . .

That the integrity of the US economy hinges upon the drama in Washington is pretty surreal. Reality is certainly sometimes way more bizarre the fiction.

 

[kronon]

This evil of Banking fluctuation, ends not with the mercantile community. It extends to every thing that commercial enterprise reaches. It injures the farmer and mechanic, in the precise ratio of the vacillations of public feeling.

It falls with single and dreadful severity upon the industrious poor man, whose capital is not sufficient to command accommodations.

Against a power so tremendous, what barrier have we erected? As Well might Canute have controlled the waves of the ocean with a breath.

The wretched state of the currency for the two succeeding years cannot be overlooked; the disaster of 1819, which seriously affected the circumstances, property, and industry of every district in the United States, will long be recollected.

A lamentable and rapid succession of evil and untoward events, prejudicial to the progress of productive industry, and causing a baleful extension of embarrassment, insolvency, litigation, and dishonesty, alike subversive of social happiness and morals.

Every intelligent mind must express regret and astonishment, at the recurrence of these disasters in tranquil times and bountiful seasons, amongst an enlightened, industrious, and enterprising people, comparatively free from taxation, unrestrained in our pursuits, possessing abundance of fertile lands, and valuable minerals, with capital and capacity to improve, and an ardent disposition to avail ourselves of these great bounties.

Calamities such as these are well calculated to inspire and enforce the conviction that there is something radically erroneous in our monetary system.

Mr John White, the Cashier of the United States Branch Bank, February 15th, 1830.

 

[LowlyPion]

Harry Reid is describing what happened yesterday, and apparently it was McCain in the Republican Caucus that berated the congressional Republicans and urged them to abandon their cooperation in seeking a solution.

This whole thing is very disappointing to see as McCain, the one that talks so much about honor, apparently cares so little for America, as to create crisis that he can then play the part on stage to pretend that he resolved. I've concluded that he's just not an honest man, blinded by some apparent lust for power. In that regard, he and Palin are looking like a matched pair.

 

[Ben Niehoff]

I thought the job description of finance/accounting included knowing precisely how much debt one has. I thought the point of 'account' is to 'account'. Has someone changed the commonly accepted definitions of the English language recently?

My girlfriend is an accountant, and has worked several places, not one of which had their stuff remotely in order. Accounting departments as a rule are grossly understaffed, and can barely manage to get bills and commissions paid on time, working 12 hour days; never mind processing data in order to get any sort of "big picture" view of the company's finances. And it's all voodoo, anyway...if you want the company to look good this month, you put the debt on next month's sheet, etc.

 

[Art]

My girlfriend is an accountant, and has worked several places, not one of which had their stuff remotely in order. Accounting departments as a rule are grossly understaffed, and can barely manage to get bills and commissions paid on time, working 12 hour days; never mind processing data in order to get any sort of "big picture" view of the company's finances. And it's all voodoo, anyway...if you want the company to look good this month, you put the debt on next month's sheet, etc.

Public companies accounts are independently audited so situations such as you portray would not exist for long before heavy sanctions were invoked.

There is no voodoo in accounts there are strict rules governing every aspect of each and every transaction and so no you cannot shove debt onto next month on a whim. At least not legally. Bad accounting is not a fault of accounting systems it is a reflection on the honesty or competence of the people using the system.

 

[edward]

Public companies accounts are independently audited so situations such as you portray would not exist for long before heavy sanctions were invoked.

There is no voodoo in accounts there are strict rules governing every aspect of each and every transaction and so no you cannot shove debt onto next month on a whim. At least not legally. Bad accounting is not a fault of accounting systems it is a reflection on the honesty or competence of the people using the system.

ENRON ! The books can be cooked at any public company no matter what the size.

As with the 25 other ongoing FBI inquiries involving the mortgage debacle, the main focus of interest is whether companies and their executives misled investors and auditors when they put a value on their mortgage-related investments.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403589.html

 

[Astronuc]

Arthur Andersen audited Enron, but AA also did consultation with Enron (conflict of interest).

Only after the fact - after the patient became fatally ill - was it revealed that Andersen audits were meaningless. Apparently there was no real review and the Andersen people could not understand some of the complicated transactions Enron was up to. That and Andersen didn't catch the shell game orchestrated by Fastow.

Both Andersen and Enron are history - after investors lost $billions.


And perhaps we are now seeing it on an even bigger scale - with $trillions lost.

 

[Art]

ENRON ! The books can be cooked at any public company no matter what the size.



http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403589.html

Per my earlier comment

At least not legally. Bad accounting is not a fault of accounting systems it is a reflection on the honesty or competence of the people using the system.

 

[Art]

With the world's second biggest economy and America's largest trading partner, Japan, shrinking at an annualised rate of 3%, and given the financial problems shaking consumer confidence in the US, my prediction is the US will hit negative GDP growth in the 4th Qtr and possibly, close to if not actually, negative in the current (3rd) qtr.

 

[turbo]

With the world's second biggest economy and America's largest trading partner, Japan, shrinking at an annualised rate of 3%, and given the financial problems shaking consumer confidence in the US, my prediction is the US will hit negative GDP growth in the 4th Qtr and possibly, close to if not actually, negative in the current (3rd) qtr.

It's not just "shaking consumer confidence", Art. When soaring prices of gas, heating oil, and food strip the pockets of the consumers, they just don't have the money to spend in other sectors. Expect the economy to tank when heating-oil prices start hitting home.

 

[Astronuc]

Study: Most companies avoid income taxes
GAO report says both U.S. owned and foreign corporations dodge levy
http://www.msnbc.msn.com/id/26145921/

The Business of Not Paying Taxes
Tuesday, August 12, 2008

http://www.daylife.com/article/0fg12NR8pP5Tm


Are You Paying For Corporate Fat Cats?
http://www.parade.com/articles/editions/2008/edition_04-13-2008/Intelligence_Report

As you file your tax return this week, you may think you’re paying off the tax obligations for just your household. But you’re also footing the bill for American companies that are dodging billions of dollars in taxes. “Most major corporations have a tax department not just to comply with the tax code but also as a profit center,” says Charles Cray of the Center for Corporate Policy, a nonprofit watchdog group.

A 2004 U.S. Government Accountability Office (GAO) study found that 61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total U.S. tax burden, compared with about 50% in 1940.

While companies are getting off easy, thanks to loopholes, ordinary wage earners are getting stuck with the tab. The tax burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21 trillion this year, according to the Congressional Budget Office (CBO), while corporate tax receipts are expected to decline from $370 billion to $364 billion. By 2013, the CBO estimates, ordinary taxpayers’ bills may climb to $1.86 trillion while corporate tax bills drop to $327 billion.

One strategy of corporations is to create “shell companies” in places like Bermuda, Gibraltar and the Caribbean to avoid federal taxes. Corporations “set up an offshore division that has nothing more than a post office box,” says Rep. Richard
E. Neal (D., Mass.), the chairman of a House subcommittee probing tax breaks. Experts estimate that the U.S. Treasury may be losing up to $100 billion a year due to shell corporations.

In one recent case, KBR—a former Halliburton subsidiary and the largest Iraq war contractor—admitted to “reducing tax obligations” through two Cayman Islands divisions, reportedly avoiding hundreds of millions of dollars in Medicare and Social Security taxes. A 2004 study by the GAO found that 24 of the largest federal contractors used Cayman Is*lands units to shave their tax bills.

Oil and other multinational companies also benefit from tax breaks, some specially written for them. Most are perfectly legitimate, but companies sometimes push the envelope too far. Pharmaceutical giant Merck paid $2.3 billion to the government last year for profits related to a Bermuda partnership.

Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005
http://www.gao.gov/new.items/d08957.pdf

Tax Foundation takes exception to the report.
http://www.taxfoundation.org/blog/show/23476.html

and so does the US Chamber of Commerce
US Chamber Responds To GAO Corporate Tax Report
http://www.tax-news.com/asp/story/US_Chamber_Responds_To_GAO_Corporate_Tax_Report_xxxx32317.html


Certainly the GAO needs to be impartial and get it right (whatever right is), otherwise it does the nation a disservice.