Throughout the IBM Pension heist, Ellen E. Schultz, a Pulitzer Prize winning investigative reporter with the Wall Street Journal, exposed IBM's and other companies shenanigans that have cost retirees millions and millions of dollars, while enriching corporate executives.
Ms. Schultz has just published a book that every IBMer should read: Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers. Many IBMers are aware of the "cash balance heist" of 1999. However, IBM has been stealing money from the pension plan dating back to 1991, well before the Gerstner era.
Great book, November 2, 2011, By Aclimatehawk. Can't say I enjoyed this book due to it subject matter. That said Ms Shultz style made this book easy to read and covered the topic very well. This is a book ALL Americans should read, to learn one more way the rich and powerful have rigged the game in their favor. In this case it is the very people that made the products and services that made the companies in the first place are the ones being exploited. Mirroring the main theme of the OWS protests, the game is rigged in the favor of those at the top.
Former IBM chief Louis Gerstner oversaw one of the largest job purges ever at a U.S. corporation; more than 60,000 employees were eliminated in 1993, the year he took over as chief executive at a floundering Big Blue. The job cuts were part of a revamping that has been credited with keeping IBM in business. Gerstner changed the company's culture, as well as its focus, shifting from computer hardware to information-technology services. He also embraced the Internet as a business phenomenon.
Staff at the plant commonly worked 100 to 120 hours of overtime a month and said they also suffered a high rate of workplace injuries, mass layoffs of older workers and frequent verbal abuse by managers, the US-based group said.
Alas, I can't find it ..... can someone point me to it? Thanks, TK
The J&S option is similar to a form of life insurance. You will get the largest monthly pension check if you decline the J&S coverage and take the single life option. Reducing J&S below 50% will require the consent of your spouse.
If you think that your spouse will need your pension income after your death, then the J&S probably makes sense. If your spouse has other sources of income, such as their own pension, savings or social security, then maybe the J&S option isn't necessary.
You may be able to do better than the cost of the J&S option by taking out a separate life insurance policy. Term life is one option, but perhaps not a good one since most policies last for a fixed time period, say 10 years, and you may not be able to renew it at the end of the initial term if you have health issues. If that happens, your spouse could end up without income that you had been planning on.
A more comparable choice to J&S would be a whole life policy, although this will be more expensive.
If you have any health issues today, you may not be able to buy a life insurance policy at a reasonable price leaving the J&S option as your best or only choice.
If you do decide to go with a separate life insurance policy, make sure you have the actual policy in hand from the insurance company BEFORE you sign the IBM retirement paperwork. It's not uncommon for an insurance company to give you an initial, non-binding approval and then turn you down once they investigate your health history further. Once you sign the IBM paperwork and mail it in, there is no opportunity to change it. So don't leave shopping for life insurance until the last minute.
The cost of the J&S option will vary depending on the difference between your age and the age of your spouse and your expected lifetimes. Many people feel the restore option is worthwhile as it costs very little extra on top of the J&S coverage.
The social security leveling option has a whole bunch of different considerations. If you choose this, essentially IBM will be loaning you money to boost your monthly check to make it look like you are collecting social security now. You pay for the loan through a reduction in your pension benefit. Hidden in that reduction is interest you have to "pay" for that loan. Typically, the interest rate IBM charges has not been cheap.
My advice would be to skip the social security leveling option if you can afford to get by without that extra income. If you are just a year or two away from social security eligibility, that might be easier to do than if you are 8 or 10 years away.
I don't have the actual numbers. I will also say that if you don't pay for the advice, but seek advice from someone that makes a living off the insurance commissions they sell, you could easily get a different answer. So be careful.
As far as the Social Security leveling, in our case he said to not even consider it. I had already arrived at that conclusion myself, but it was good to see it validated. There are reasons as pointed out below where it might make sense. Situations vary.
Understand where your adviser gets his/her living from! Pete.
As you can probably see, a comparison can be quite complicated and depends on individual circumstances.
If you do decide to replace J&S with life insurance, be sure to follow Madinpok's advice:
"If you do decide to go with a separate life insurance policy, make sure you have the actual policy in hand from the insurance company BEFORE you sign the IBM retirement paperwork."
If IBM poses this as something good (wouldn't surprise me, given their track record of mendacity and duplicity), then yes it is IBM's fault.
If it is the failure of the person about to receive SS to do their homework, then it is on them.
At any rate, the moral of this story is NOT TO TAKE INCOME LEVELING.
Now, if someone had warned me years and years and years ago about IBM reneging on unwritten promises, things today would have been so very different.
And what I really don't understand is: My wife turns 65 in August 2012. I will be 64. The cost for IBM EPO-MVP goes from $1233/mo for Self +1 down to $1062/mo for Self +1 Medicare Dependent. If Medicare will be her Primary, why is this so high? It is only $298 for just myself. What am I missing? I thought if you were on the old plan, IBM contributed to you and your wife's Medicare Premiums or was that discontinued after a certain date like the Life Planning Account for Retirees who retired after 12/31/2003. I retired in 02/2004.
Although the state restricted the premium increase that MVP can charge to their customers, that does not apply to employees and retirees under the IBM plans. IBM is self-insured and pays all the bills, MVP just administers the plan for IBM and provides the network of physicians and hospitals. States do not regulate premiums of employer-provided insurance plans, such as IBM's.
The other factor is that IBM contributes a maximum of $7000 per year (on average) to the medical coverage for retirees who are on the old medical plan. You have to pay any increase above that amount.
There is no guarantee that IBM actually contributes the full $7000. IBM just promises it will never pay more than that when averaged across all old-plan retirees and nothing guarantees that they will actually pay that much.
The FHA (Future Health Account) rates for this plan (where the retiree pays the full cost, with no subsidy from IBM) give us an idea of the "real" cost without an IBM subsidy, and the premiums actually decreased slightly for 2012.
So it appears that IBM decided to be less generous and is kicking in less for next year, at least for the EPO-MVP plan.
In 2011, the apparent IBM subsidy for this plan was $5206 for self+1 coverage. In 2012, it looks like it is only $3059.
Also, and I am speculating, each plan has its own set of retirees with conditions that make the selected plan most attractive. This can/will lead to adverse selection and premiums to match.
Overall, the subsidies decreased compared to 2011. In most cases, the subsidies for Self+1 are significantly lower than those for Self-only. (Sorry if the formatting is poor... but that's Yahoo)
|Plan||Subsidy for Self||Subsidy for Self+1|
|IBM EPO - MVP||$5,279.40||$3,058.80|
|IBM Hi Ded PPO w/ HSA - MVP||$4,772.76||$2,897.40|
|High Ded PPO - MVP||$6,423.48||$7,387.08|
|Med Ded PPO - MVP||$4,578.48||$2,652.72|
|Low Ded PPO - MVP||$4,749.24||$2,310.36|
Subsidy change from 2011:
|Plan||Change from 2011|
|Change from 2011|
|IBM EPO - MVP||-$533.64||-$2,147.28|
|IBM Hi Ded PPO w/ HSA - MVP||-$400.80||-$1,761.60|
|High Ded PPO - MVP||-$148.20||-$824.28|
|Med Ded PPO - MVP||-$472.92||-$1,869.96|
|Low Ded PPO - MVP||-$738.24||-$2,508.48|
So what happened to the promise that IBM would contribute $7000 per year to the old retiree medical plan?
Well, that's hard to tell. IBM actually promised to cap the contribution at an AVERAGE of $7000 per retiree. From the numbers here, it sure doesn't look like they are contributing anywhere near that much, unless the vast majority of old-plan retiree are enrolled in the High Deductible PPO (without HSA). In that case, IBM might actually be living up to its promise. But we have no way to know whether that is the case.
...is limited to, or capped... Retirement date after Jan 1, 1992 "Not eligible for medicare ($7,000) "eligible for Medicare ($3,000)
The key word is "limited"; this year's document dated Sept. 2011. Carl.
Now has anyone been able to figure out why our monthly premium drops from $1233 to $1062 for the IBM EPO-MVP when my wife goes on Medicare? I'm sure a MVP Medicare Advantage Plan is less than $764/mo. Wouldn't I be better off taking Self for $298 and buy a Medicare Advantage Plan elsewhere for my wife? I'm thinking $1062 - $298 = $764 per month. She still has to pay for Part B out of her SS check so where do they come up with that figure for her? Thanks, John
The above might make it seem like I hate IBM, but I really do not. It's a great company...for shareholders. If you can commit three years of your life here you will become very marketable and make a decent sum of money if you opt to work elsewhere.
Advice to Senior Management: I agree that it's all about pleasing the shareholders, but if you do not compensate your employees better you will lose all the talent your company needs to continue driving that lovely EPS roadmap.
Advice to Senior Management: The answer to our problems is not to shove more and more features into our product. Do you remember when we used to be associated with quality? Not a week goes by that I don't hear from an important, dissatisfied customer that is on the verge of dumping us for a competitor. Stop focusing on quantity. Focus on quality. Quality is what sells. Quality is what keeps people coming back. Quality brings us money. So why aren't you focused on quality anymore?
There is an arresting moment in Walter Isaacson’s biography of Steve Jobs in which Jobs speaks at length about his philosophy of business. He’s at the end of his life and is summing things up. His mission, he says, was plain: to “build an enduring company where people were motivated to make great products.” Then he turned to the rise and fall of various businesses. He has a theory about “why decline happens” at great companies: “The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesman, because they’re the ones who can move the needle on revenues.” So salesmen are put in charge, and product engineers and designers feel demoted: Their efforts are no longer at the white-hot center of the company’s daily life. They “turn off.” IBM and Xerox, Jobs said, faltered in precisely this way. The salesmen who led the companies were smart and eloquent, but “they didn’t know anything about the product.” In the end this can doom a great company, because what consumers want is good products.
This isn’t quite the whole story. It’s not just the salesmen. It’s also the accountants and the money men who search the firm high and low to find new and ingenious ways to cut costs or even eliminate paying taxes. The activities of these people further dispirit the creators, the product engineers and designers, and also crimp the firm’s ability to add value to its customers. But because the accountants appear to be adding to the firm’s short-term profitability, as a class they are also celebrated and well-rewarded, even as their activities systematically kill the firm’s future.
In this mode, the firm is basically playing defense. Because it’s easier to milk the cash cow than to add new value, the firm not only stops playing offense: it even forgets how to play offense. The firm starts to die.
If the firm is in a quasi-monopoly position, this mode of running the company can sometimes keep on making money for extended periods of time. But basically, the firm is dying, as it continues to dispirit those doing the work and to frustrate its customers.
As the managers find it steadily more difficult to make money playing solely defense, they become progressively more desperate and start doing ever more perilous things, like looting the firm’s pension fund or cutting back on worker benefits or outsourcing production to a foreign country in ways that further destroy the firm’s ability to innovate and compete.
Selected reader comments follow:
However, Americans treat vacation as a luxury rather than a fact of life. Americans receive roughly half the Europeans' allotment of vacation time. In 2011, employed Americans earned 14 vacation days and took 12, a decrease from 2010. The median number of vacation days U.S. workers earned in 2010 was 15 days; the number taken was 12. In comparison, the French earned 30 vacation days, and took all 30 in 2011. In 2010, the average French worker used all but one of their vacation days.
The House legislation, by contrast, stipulated that such legal challenges can go forward before the vote. The bill will almost surely go nowhere in the Democratic-controlled Senate, but then, it’s just one foray in the Republicans’ battle to extirpate worker-controlled organizations in America. ...
Some might reasonably wonder why the GOP war persists when union power has already been so greatly reduced. In the mid-20th century, 40 percent of private-sector workers belonged to unions; today, just 7 percent do. But the Republican struggle continues for two reasons. When it comes to elections, unions are still the most potent mobilizers of the Democratic vote — getting minorities to the polls and persuading members of the white working class to vote Democratic. Indeed, Republican gains among working-class whites (whom they carried by an unprecedented 63 percent to 33 percent in 2010) are, above all, the result of the deunionization of that class. An analysis of exit polling over the past 30 years shows that unionized white working-class men vote Democratic at a rate 20 percent higher than their non-union counterparts. For political reasons, Republicans are determined to de-unionize workers even more.
There’s another reason, too. The Commerce Department’s Bureau of Economic Analysis reports that in the third quarter, wages as a share of gross domestic product were the lowest they’ve been since 1929, and compensation (that includes health insurance) as a share of GDP was at its lowest point since 1955. Corporate profits as a share of GDP, by contrast, are the highest they’ve been since 1929. The destruction of private-sector unions has redistributed income to the rich, which is the Republican Party’s raison d’etre. Which is why the Republican war on unions — which is also the Republican war on the 99 percent — rolls on.
It remains urgent. Americans know that expensive medical care is squeezing non-health government programs and, through higher employer insurance costs, take-home pay. But they console themselves that U.S. health care “is the best in the world.” Among experts, this view has long been debated, but a new study from the Organization for Economic Cooperation and Development (OECD) in Paris suggests that the debate is over: It’s not true.
As societies grow wealthier, people want — and can afford — more health care. Still, U.S. health spending (about $7,960 per person in 2009) is in a league of its own. It’s 50 percent higher than Norway’s ($5,352), the next costliest. U.S. spending is more than double Britain’s ($3,487), France’s ($3,978) and the OECD average ($3,233).
Despite this, Americans aren’t notably healthier than people in other advanced countries, the study reports. Life expectancy in the United States (78.2 years) lags behind Japan’s (83 years) and the OECD average (79.5 years). It roughly equals Chile’s and the Czech Republic’s, says Mark Pearson of the OECD. Americans don’t have much to show for their system’s enormous cost, even if the gaps in life expectancy partly reflect differences in lifestyle and diet. ...
Indeed, by some indicators, Americans get less medical care than do people in other advanced countries. The number of practicing U.S. doctors (2.4 per 1,000 population) is less than the OECD average (3.1 per 1,000), as is the number of annual doctor consultations (3.9 per capita in the United States versus 6.5 for the OECD average). ...
What propels U.S. health spending upward? The OECD’s answer comes in two parts: steep prices and abundant provision of some expensive services. In 2007, an appendectomy cost $7,962 in the United States, $5,004 in Canada and $2,943 in Germany. A coronary angioplasty cost $14,378 in the United States, compared with $9,296 in Sweden and $7,027 in France. A knee replacement was $14,946 in the United States, $12,424 in France and $9,910 in Canada. ...
This is a devastating portrait. At times, the U.S. health care system delivers the worst of both worlds: pay more, get less. Unfortunately, the message isn’t new. America’s fragmented and overspecialized health system maximizes returns to providers — doctors, hospitals, drug companies — but not to society. Fee-for-service reimbursement allows providers to reconcile their ethical duty (more care for patients) and economic self-interest (higher incomes). The more they do, the more they earn.
The average beneficiary who falls into the coverage gap would have spent $1,504 this year on prescriptions. But thanks to discounts and other provisions in President Barack Obama's health care overhaul law, that cost fell to $901, according to Medicare's Office of the Actuary, which handles economic estimates.
"More effort will go into pushing this boulder up this Sisyphean hill in the next three months than in any court case in history," predicted Tom Goldstein, co-founder of the legal affairs SCOTUSblog and a lawyer for AARP in defense of the law. "However many op-eds or TV ads or whatever you want to place, you're just lighting money on fire when it comes to trying to change any Justice's opinions on these questions." ...
Still, the pressure for any group with a stake in healthcare to get involved could prove irresistible after the high court agreed this month to take up the case right in the middle of the 2012 election campaign. The real target, experts say, is the court of public opinion.
Why don’t Americans know what’s in the law? One common explanation has to do with most of the law not being implemented. But the above chart shoots a bit of a hole in that explanation: Many of the least known parts of the law have been implemented. That includes no co-pays for preventive care, the gradual closing of the donut hole and new abilities to appeal health plan decisions. Some of those came online just six months after the Affordable Care Act passed last March, and have been in effect for over a year now.
There are many who argue that we should do away with the practice of employers providing health care. In 2009, Princeton economics professor Uwe E. Reinhardt wrote in The New York Times that the practice poses two problems.1 First, the perception that fringe benefits are “given” to the employee are false. The cost of providing company benefits is subtracted from employees’ salaries, which ultimately disconnects workers from the impact of health care on their families’ finances. Second, employer-provided coverage is temporary and doesn’t follow employees after they leave the company.
Nevertheless, the pressure of providing competitive benefits packages has overwhelmingly disadvantaged small-business owners.
According to a report from the White House Council of Economic Advisers, small businesses “pay up to 18 percent more per worker than large firms for the same health insurance policy.” This, in what is effectively is a tax on small companies, discourages these firms from offering health coverage and recruiting the best talent.
The Affordable Care Act seeks to help small businesses in six ways, according to the White House...
They say the loophole could have dire consequences for the financial health of the exchanges, which are a key part of President Barack Obama's health care law. The online marketplaces are intended to make it easier to comparison shop for health plans and also to expand access to coverage for the uninsured. ...
Monahan and her colleague Dan Schwarcz, an expert on insurance regulation, tried to anticipate how companies would respond to the law given the harsh economic environment and soaring health insurance costs. They discovered the law gives many large employers an opportunity to squeeze the most expensive workers out of their health plans. The loophole applies to companies that self-insure; that is, design and cover the cost of their own plans. Those companies account for six in ten workers who get insurance through work. ...
Monahan doubts that many large companies would stop insuring their employees entirely because they'd face a penalty under the health care law. But self-insured employers "can exclude things and essentially structure their plans to be attractive to low-risk, healthy employees and not attractive to people who are going to have significant health needs," Monahan said. She said self-insured employers could design coverage that would discourage sicker workers from remaining on the company plan and make it more attractive for them to seek coverage through the public insurance exchange.
"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.
Mitt Romney's proposal, which suggests fewer changes, would benefit middle- and lower-income families more than his rivals' would. ...
The findings stem from an analysis of the candidates' plans conducted by The Tax Institute, based on scenarios affecting four families at multiple income levels suggested by Bloomberg News. It examined the tax plans of President Barack Obama and four Republican candidates with the most detailed tax proposals: Mr. Cain, Mr. Huntsman, Mr. Perry and Mr. Romney.
Unlike the proposals of his potential Republican rivals, Mr. Obama's plan would raise taxes for the wealthy family in the study and would prevent tax increases for the other three households. ...
The extent of the Republican candidates' tax cuts for the wealthy family depends on how they would adjust the top income tax rate and especially on how they would tax investment income. “Whatever you do to dividends and capital gains, they benefit or get hurt in spades,” said Roberton Williams, a senior fellow at the Tax Policy Center, a nonpartisan research group in Washington. “The ones that exempt investment income all benefit the rich enormously.”
The Times’s Jason DeParle, Robert Gebeloff and Sabrina Tavernise reported recently on Census data showing that 49.1 million Americans are below the poverty line — in general, $24,343 for a family of four. An additional 51 million are in the next category, which they termed “near poor” — with incomes less than 50 percent above the poverty line.
As for all of that inspirational, up-by-their-bootstrap talk you hear on the Republican campaign trail, over half of the near poor in the new tally actually fell into that group from higher income levels as their resources were sapped by medical expenses, taxes, work-related costs and other unavoidable outlays. ...
Conservative politicians and analysts are spouting their usual denial. Gov. Rick Perry and Representative Michele Bachmann have called for taxing the poor and near poor more heavily, on the false grounds that they have been getting a free ride. In fact, low-income workers do pay up, if not in federal income taxes, then in payroll taxes and state and local taxes. ...
The poor do without and the near poor, at best, live from paycheck to paycheck. Most Americans don’t know what that is like, but unless the nation reverses direction, more are going to find out.
The SEC accused Citigroup of selling investors mortgage-backed bonds that the bank knew would lose value. Citi netted roughly $160 million in profits from the sale of these bonds while investors lost more than $700 million. Under the proposed settlement with the SEC, the bank would have had to pay $285 million in penalties and fees, but would not have had to admit to any wrongdoing, according to the court decision.
The lack of admission was the main reason Jed S. Rakoff, a Clinton-appointed U.S. district judge, said he decided to throw out the settlement. An admission of guilt or innocence is a matter of significant public interest, he said. "The court, and the public, need some knowledge of what the underlying facts are," wrote Rakoff. "For otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is prevented from ever knowing the truth in a matter of obvious importance." ...
The SEC often settles with large financial institutions without requiring an admission of guilt. And it's extremely rare for a judge to throw out a settlement -- though Judge Rakoff did once previously, in 2009, when he ruled that Bank of America and Merrill Lynch had "effectively lied to their shareholders" when the two firms paid out $3.6 billion in executive bonuses shortly before the bank acquired Merrill and after the bank had accepted billions of dollars in federal bailout funds.
"The way the SEC has always proceeded is a slap on the wrist and a cost of doing business, and all these big banks know it," the securities lawyer said. "If they get in trouble with the SEC, they know they can buy their way out of it without admitting anything. Ninety-nine out of 100 judges go along with it because it is the machine that greases the wheels."
The basic bargain is over -- not only at Ford but all over the American economy. New data from the Commerce Department shows employee pay is now down to the smallest share of the economy since the government began collecting wage and salary data in 1929.
Meanwhile, corporate profits now constitute the largest share of the economy since 1929.
1929, by the way, was the year of the Great Crash that ushered in the Great Depression. In the years leading up to the Great Crash, most employers forgot Henry Ford's example. The wages of most American workers remained stagnant. The gains of economic growth went mainly into corporate profits and into the pockets of the very rich. American families maintained their standard of living by going deeper into debt. In 1929 the debt bubble popped. ...
Sound familiar? It should. The same thing happened in the years leading up to the crash of 2008.
The latest data on corporate profits and wages show we haven't learned the essential lesson of the two big economic crashes of the last 75 years: When the economy becomes too lopsided -- disproportionately benefiting corporate owners and top executives rather than average workers -- it tips over. In other words, we're in trouble because the basic bargain has been broken. ...
Corporations don't need more money. They have so much money right now they don't even know what to do with all of it. They're even buying back their own shares of stock. This is a bonanza for CEOs whose pay is tied to stock prices and it increases the wealth of other shareholders. But it doesn't create a single new job and it doesn't raise the wages of a single employee. ...
American businesses, including small-business owners, have no incentive to create new jobs because consumers (whose spending accounts for about 70 percent of the American economy) aren't spending enough. Consumers' after-tax incomes dropped in the second and third quarters of the year, the first back-to-back drops since 2009.
Let me suggest two areas in which it would make a lot of sense to raise taxes in earnest, not just return them to pre-Bush levels: taxes on very high incomes and taxes on financial transactions.
About those high incomes: In my last column I suggested that the very rich, who have had huge income gains over the last 30 years, should pay more in taxes. I got many responses from readers, with a common theme being that this was silly, that even confiscatory taxes on the wealthy couldn’t possibly raise enough money to matter.
Folks, you’re living in the past. Once upon a time America was a middle-class nation, in which the super-elite’s income was no big deal. But that was another country.
The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals. ...
It’s instructive to compare that estimate with the savings from the kinds of proposals that are actually circulating in Washington these days. Consider, for example, proposals to raise the age of Medicare eligibility to 67, dealing a major blow to millions of Americans. How much money would that save?
Well, none from the point of view of the nation as a whole, since we would be pushing seniors out of Medicare and into private insurance, which has substantially higher costs. True, it would reduce federal spending — but not by much. The budget office estimates that outlays would fall by only $125 billion over the next decade, as the age increase phased in. And even when fully phased in, this partial dismantling of Medicare would reduce the deficit only about a third as much as could be achieved with higher taxes on the very rich. ...
And then there’s the idea of taxing financial transactions, which have exploded in recent decades. The economic value of all this trading is dubious at best. In fact, there’s considerable evidence suggesting that too much trading is going on. Still, nobody is proposing a punitive tax. On the table, instead, are proposals like the one recently made by Senator Tom Harkin and Representative Peter DeFazio for a tiny fee on financial transactions. ...
But wouldn’t such a tax hurt economic growth? As I said, the evidence suggests not — if anything, it suggests that to the extent that taxing financial transactions reduces the volume of wheeling and dealing, that would be a good thing. ...
And it’s instructive, too, to note that some economies already have financial transactions taxes — and that among those who do are Hong Kong and Singapore. If some conservative starts claiming that such taxes are an unwarranted government intrusion, you might want to ask him why such taxes are imposed by the two countries that score highest on the Heritage Foundation’s Index of Economic Freedom.
The charitable deductions generated by Mr. Lauder — whose donations have aided causes as varied as hospitals and efforts to rebuild Jewish identity in Eastern Europe — are just one facet of a sophisticated tax strategy used to preserve a fortune that Forbes magazine says makes him the world’s 362nd wealthiest person. From offshore havens to a tax-sheltering stock deal so audacious that Congress later enacted a law forbidding the tactic, Mr. Lauder has for decades aggressively taken advantage of tax breaks that are useful only for the most affluent. ...
An examination of public documents involving Mr. Lauder’s companies, investments and charities offers a glimpse of the wide array of legal options for the world’s wealthiest citizens to avoid taxes both at home and abroad.
His vast holdings — which include hundreds of millions in stock, one of the world’s largest private collections of medieval armor, homes in Washington, D.C., and on Park Avenue as well as oceanfront mansions in Palm Beach and the Hamptons — are organized in a labyrinth of trusts, limited liability corporations and holding companies, some of which his lawyers acknowledge are intended for tax purposes. The cable television network he built in Central Europe, CME Enterprises, maintains an official headquarters in the tax haven of Bermuda, where it does not operate any stations.
And earlier this year, Mr. Lauder used his stake in the family business, Estée Lauder Companies, to create a tax shelter to avoid as much as $10 million in federal income tax for years. In June, regulatory filings show, Mr. Lauder entered into a sophisticated contract to sell $72 million of stock to an investment bank in 2014 at a price of about 75 percent of its current value in exchange for cash now. The transaction, known as a variable prepaid forward, minimizes potential losses for shareholders and gives them access to cash. But because the I.R.S. does not classify this as a sale, it allows investors like Mr. Lauder to defer paying taxes for years. ...
In theory, Mr. Lauder is scheduled to pay taxes on the $72 million when the shares are actually delivered in 2014. But tax experts say wealthy taxpayers can use other accounting techniques to further defer their payment. ...
The tax burden on the nation’s superelite has steadily declined in recent decades, according to a sliver of data released annually by the I.R.S. The effective federal income tax rate for the 400 wealthiest taxpayers, representing the top 0.000258 percent, fell from about 30 percent in 1995 to 18 percent in 2008, the most recent data available. ...
“There’s real truth to the idea that the tax code for the 1 percent is different from the tax code for the 99 percent,” said Victor Fleischer, a law professor at the University of Colorado. “Any taxpayer lucky enough to have appreciated property is usually put to a choice: cash out and pay some tax, or hold the property and risk the vagaries of the market. Only the truly rich can use derivatives to get the best of both worlds — lots of cash and very little risk.” ...
“This welfare for the well-off — costing billions of dollars a year — is being paid for with the taxes of the less fortunate, many who are working two jobs just to make ends meet, and i.o.u.’s to be paid off by future generations,” said Senator Coburn, a Republican, who has called for limits on tax breaks for high earners.
So here we go again -- one more time. The Federal Reserve is giving away our billions to those who deserve it least: the institutional debt a.k.a. commercial banking bond holders that crashed and burned the banking system and continue to be the biggest beneficiaries of government aid. Fed Chair Ben Bernanke, otherwise known as Uncle Ben, has authorized another unstimulating stimulus on top of the other unstimulating stimulus programs since the fall of 2008.
Bloomberg reports that the Fed "will start another program next quarter, [serving] 16 of the 21 primary dealers of U.S. government securities that trade with the central bank." So who are these primary dealers? Let's see... Merrill Lynch (now part of BofA), Goldman Sachs, Morgan Stanley, Citigroup, Credit Suisse, Nomura, Jeffries (highly exposed to MF Global), HSBC, BNP Paribas, Deutsche Bank, Barclays, JPM, UBS (a mess), RBS (didn't they go bankrupt?)! Yup -- the Fed is giving away another half trillion dollars worth of the fruits of the 99%'s labor to the same folks who did them in. ...
The rest of us have quaint little customs to follow -- like fiscal responsibility. We have to pay our bills with our own money, often at rape and pillage interest rates or suffer severe consequences. If you are a big bank with bad credit no problem -- you can dip your hands into taxpayer coffers with abandon at little or no cost. And even better, with no shame or embarrassment to your good name -- because no one will even know about it! But if you are one of the 99% and struggling to make ends meet, overburdened with bills and debt, you follow different rules: the Ordinary American Public rules.
It doesn't matter if you lost your job, closed your business, had your income slashed, watched your home lose value, or are mired under mortgage or credit card debt, you are stuck. No one is going to lend you a hand. Ironically, least of all the lender or creditor who has one rule for you -- pay or suffer -- and another for themselves. This is what the government and politicians call "moral hazard." It creates a moral "hazard" if the Fed relieves American consumer or homeowner debt. But it is sound fiscal policy if the Fed absorbs big bank debts and liquidates them with middle class money. The same people who find themselves in court facing judgments and foreclosure by too-big-to-fail lenders are bankrolling their legal teams. To the majority of Americans this is beyond moral hazard: it's downright depraved.
But Wall Street’s goal is to make money, not create jobs. Wall Street institutions view wages and worker benefits as costs to be minimized. Wall Street executives know that the most certain way to boost the share price of their company, and thereby pump up the value of their personal stock options, is to announce that thousands of people are to be laid off, their jobs eliminated or moved abroad.
Between 2000 and 2009, for example, U.S. transnational corporations, which employ roughly 20 percent of all U.S. workers, slashed their U.S. employment by 2.9 million even as they increased their overseas workforce by 2.4 million. The result was a significant loss of jobs nationally, as well as a net loss globally. ...
A series of Kauffman Foundation studies find that nearly all job growth in the United States comes from entrepreneurial startups, which by their nature are products of Main Street. It is equally significant that more than 90 percent of the entrepreneurs responsible for job growth come from middle-class or the top end of lower-class backgrounds. Less than 1 percent of America’s job-creating entrepreneurs come from extremely rich or extremely poor backgrounds. ...
This is a critical insight. To unleash America’s job-creating entrepreneurial energies, we must advance policies that expand the middle class and build strong Main Street economies. We have seen this demonstrated by our own national experience. ...
Beginning in the 1970s, Wall Street interests quietly mobilized to free themselves from regulation, unions, and taxes and to dismantle the nation’s economic and social safety nets. Their initiatives, which gained traction under the Reagan administration, reduced taxes on the rich, undermined unions, pushed down wages and benefits, eliminated and outsourced jobs, eliminated limits on usury and speculation, and redirected financial markets from long-term investment in real wealth creation to profiting from securities fraud, usury, market manipulation, corporate asset stripping, and the inflation of financial bubbles.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse. ...
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.” ...
The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.
$7.77 Trillion. The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year. ...
The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view. The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak. ...
Lawmakers knew none of this.
They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.
What was revealed in the audit was startling: $16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious - the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.
To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is "only" $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is "only" $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world. ...
When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.
Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said. ...
The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.
No, scratch that. It was the greatest hoax in the history of money. And it was built on lies. How many? Let us count the ways.
Here's the first one: The banks paid back all the money back that they were given. No, they didn't. They paid back the principal on these loans. But by obtaining loans at rates far below market value, we now know they received the equivalent of $13 billion in cash giveaways.
Here's another lie: Fed economists support a free-market economy.
en Bernanke is a conservative economist who claims to support a free-market system. But we now know that the Federal Reserve lent astonishing sums to US banks in secret, and Bernanke fought with all the resources at his disposal to ensure that this information didn't become public. He didn't just want it to be held back to avoid a panic during the crisis. He wanted it kept secret forever.
They were able to do that because they're members of the Federal Reserve Board of Governors - a group of people who are not voted into office, but have the power to completely dictate monetary policy in America. They are not politicians - they're technocrats - they're bankers and financial experts. Technocrats aren't interested in democracy - it takes too long, and often the interests of the majority of voters don't quite line up with the interests of the minority of bankers and foreign investors. Or - to put it in today's terms - the interests of the 99 percent rarely line up with the interests of the 1 percent. That's why - back in 2008 - the technocrats at the Fed weren't interested in waiting for Congress - with all of its open debate and constituent services - to bail out the banks - they just went ahead and did it themselves. According to documents obtained by Bloomberg News - in 2009 - the Fed dished out $7.7 trillion in no-strings-attached, super-low interest loans to Wall Street's biggest players.
That's $7.7 trillion!
That's more than half of the total value of EVERYTHING - every single thing produced in America - that same year. $7.7 TRILLION out the door - with no one bothering to inform the electorate about it until now. And since they were super-low interest loans - banks made enormous profits off of them. Six of the nation's biggest banks - like Morgan Stanley and Bank of America - pocketed a not-too-shabby $13 billion in undisclosed profits, thanks to the deal with the technocrats at the Fed. So today - thanks to a decision made by technocrats, and not politicians - the too-big-to-fail banks are even bigger, and Wall Street has raked in more profits in just the last 30 months then they did in the entire eight years leading up to the 2008 financial crisis.
Financial service lobbyists and other K Street advocates have for weeks been working hard to help the freshman senator win his high-stakes battle for re-election against Elizabeth Warren, a liberal Harvard law professor. Warren is anathema for many finance-sector lobbyists and Wall Street leaders who abhor the newly created Consumer Financial Protection Bureau— a centerpiece of the financial services overhaul—of which Warren was the intellectual architect. ...
Other advertising firepower on Brown’s behalf is expected to come from the U.S. Chamber of Commerce. The business behemoth will be engaged early and heavily in Massachusetts with ads as the Chamber did, to the tune of about $1 million, when Brown won his special election in early 2010.
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