Andrew Ross Sorkin has a rather curious piece up today at the New York Times in that it purports to explain why the banking industry is up in arms about Obama, yet buries and/or omits some key issues.
It’s pretty well known that big financial firms have been throwing their weight around, no doubt encouraged by how successful that strategy has been throughout Obama’s tenure. So throwing another tantrum might be a shrewd strategy. Sorkin reports:
Daniel S. Loeb, the hedge fund manager, was one of Barack Obama’s biggest backers in the 2008 presidential campaign…
So it came as quite a surprise on Friday, when Mr. Loeb sent a letter to his investors that sounded as if he were preparing to join Glenn Beck in Washington over the weekend.
“As every student of American history knows, this country’s core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination,” he wrote. “Washington has taken actions over the past months, like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.”
So why this type of volte face? As Sorkin tells us:
Mr. Obama was viewed as a member of the elite, an Ivy League graduate (Columbia, class of ’83, the same as Mr. Loeb), president of The Harvard Law Review — he was supposed to be just like them. President Obama was the “intelligent” choice, the same way they felt about themselves. They say that they knew he would seek higher taxes and tighter regulation; that was O.K. What they say they did not realize was that they were going to be painted as villains.
Yves here. Please. Are you going to seriously tell me big financial players are up in arms because Team Obama occasionally calls them bad names? That explanation is so obviously bogus as to call for a look for the real reason. There’s a much more straightforward explanation, and it’s called “follow the money.”
The key omission from this story is the name Rahm Emanuel. Rahm, a former partner at Wasserstein Perella, was particularly effective at fundraising from private equity funds and hedge funds.
So re-read this key phrase: ” They say that they knew he would seek higher taxes and tighter regulation; that was O.K.” But what the article buries in plain sight is the fact that the plans to tax hedge and PE funds carried interest at ordinary income tax rates, rather than a preferential capital gains tax rates, has the 2 and 20 crowd seeing red. And in case you had any doubts, there was no justification for this special treatment in the first place. Loren Steffy of the Houston Chronicle noted (hat tip Independent Accountant) provides a deft skewering:
Dear IRS: Please note that beginning this year, I am no longer earning an income. From now on, I am compensated through what I like to call column interest. It isn’t pay. It’s a capital gain that I receive in exchange for providing about 2,000 words a week to this newspaper. Please lower my tax rate accordingly. hey, you can’t blame me for trying. After all, a similar strategy has worked for years for money managers at hedge funds and private equity firms. … The private investment community is decrying the move as a massive tax increase, is if oblivious to the fact that it’s enjoyed an unfair tax break for years. … Let’s set aside the rather silly notion of private equity as an engine of job creation–most buyouts result in big job cuts–and focus on the inequality. Private equity managers typically collect a 2 percent annual fee on assets in the fund, which is taxed as income. They also scoop up 20 percent of their funds’ annual profits, which is known as carried interest. … Profit-sharing plans for just about everyone else are taxed as income. … Tax law is a murky world, but one basic principle of our tax code is that people who perform similar jobs for similar pay should receive similar tax treatment. That’s not the case in the investment world.
Sorkin does mention Steve Schwarzman’s infamous outburst (“likened the administration’s plan for taxes on private equity to ‘when Hitler invaded Poland in 1939.'”) but does not indicate the fact that this is the major reason for the falling out among Obama’s former backers. It’s one thing to raise taxes generally, the big boys can stomach that. But it’s quite another to raise taxes in a way that targets them. (And note, by the way, that this measure failed, but the industry was still deeply offended at this show of disloyalty).
Similarly, Sorkin later argues for the reasonableness of the revolting businessmen:
Mr. Loeb’s views, irrespective of their validity, point to a bigger problem for the economy: If business leaders have a such a distrust of government, they won’t invest in the country. And perception is becoming reality.
Just last week, Paul S. Otellini, chief executive of Intel, said at a dinner at the Aspen Forum of the Technology Policy Institute that “the next big thing will not be invented here. Jobs will not be created here.”
Yves here. This is patently ridiculous and disingenuous. First, Sorkin chooses to overlook that Otellini’s comments about inventions and jobs is based on his throwing in his weight with the venture capital industry, which was one of the groups that fought the proposed taxes on carried interest. The argument, implicitly is that the VC industry would shrink or disappear were there no carried interest tax break, and that we’d therefore see much less new business formation.
Both those ideas are questionable. Yes, the VC business as it is currently constituted might shrink, but a lot of angel investors do deals as principals or with small syndicates. One can as easily argue with so many people now possessing Wall Street experience, we’d likely see capital move through new channels to small ventures.
But more important, the idea that VC is critical to new business growth is complete urban legend. Amar Bhide, in the first systematic study of successful new ventures, determined that VC contributes very little to the funding of new businesses, even the most successful ones (his proxy was the Inc. 500).
Second, the line that Sorkin parrots from big businesses, “Be nice to us or we’ll quit investing,” is also bunk. Guess what? As we’ve indicated, big businesses were net disinvesting even during the corporate-friendly Bush Administration. And to the extent they are leery of investing now, far and away the biggest reason is macro uncertainty. It’s awfully hard to plan if you aren’t sure whether the outlook is for inflation or deflation. But businesses will cavil like crazy about government intervention because it is one of the few variables they might be able to influence.
And it’s also remarkable that Sorkin can treat the self-serving and misleading canard, “We’re mad that Obama is treating us like bad guys” seriously. For anyone at the TBTF firms, it’s patent rubbish. The firms got overt and back door bailouts so they could shore up their equity capital, and what do they do? Pay a big chunk of government-provided largesse out to themselves in record 2009 bonuses. It’s one of the most blatant acts of looting on record, and the industry deserves every bit of scorn the authorities can muster dumped on its head.
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“Are you going to seriously tell me big financial players are up in arms because Team Obama occasionally calls them bad names?”
Not to underestimate the economic causes, IMHO insults are actually pretty serious. Most big financial players are not after money for money’s sake but for the status that it gets them. Calling them out to be the criminals that they are, deflates their status, perhaps not as effectively as a large tax increase but still measurably, and they don’t like it.
Puuuhhlease, Yves is spot on.
Sorkin is such a complete and total Wall Street Tool.
Doom out.
Politically the Rentier class need the Democrats to take the lead for the next few years. They got as much out of the Republicans as they could (much lower taxes on the rich) but there are some jobs that only the Democrats can do; like passing a corporate friendly health care reform and cutting social security. But Obama needs help from the Rentier class; specifically he needs them to outragously attack him in order to reinforce the cohesion of his left leaning supporters.
Since these left leaning supporters are intellectually capable enough to realize Obama is a corporate scam; the appeals have to be on the emotional level. The Tea Party, Glen Beck, stories about the Koch brothers, all do the trick to convince would be left leaning deserters that their vote for the Democrats really will make a difference. And so if the financial industry expects Obama to supprot them, they must support him by verbally attacking him as much as possible. Just imagine the opposite, what would happen politically to Obama if Goldman Sachs, Citibank, and JP Morgan all came out with a joint statement claiming Obama the wisest and greatest President ever?
In the end the fervid concentration on the differences between individual leaders, whether it be Clinton, Bush II, or Obama, is a deception away from what really matters, the policies the governments enacts. It is a little like going to a symphony and obsessing over who the conductor is. True, just like a conductor, the President picks the key players of his orchestra (government). But what really matters is the piece of music being played; and for quite some time it has been the Rentier class’s Ode to More Wealth for US that the various conductors have been playing. Now sure, each conductor puts a little of his own personal style and flair into the piece. And as mentioned above, some conductors might push the woodwinds (taxcuts for the rich) a bit more while others favour the strings (cutting SS). But in the end the end goal of each symphony, more concentration of wealth to the Rentier class, remains the same.
Totalitarianism is expensive and risky, but just like rape, if the population openly consents to it (in this case by means of an election), it is not totalitarianism. So if the Rentier class can get the American people to openly consent at the ballot box to the rough pounding that the rich have been dishing out so much the better. And since hate is a much more powerful emotion, and much easier to provoke than love, look for continued outrageous attacks on Obama. These are not intended to hurt Obama, or bring him down, these are intended to convince wayward left-leaning voters to consent to at least two more years of depredation. Just look at how hard the establishment left-leaning blogs are pushing all these attacks on Obama.
Speaking as a hostile critic of both Bush and Bush II, I can say that I have always found their supporters much more objectionable than pinheads at the bottom of the inverted triangle. That said, I retain my optimism. In any earlier post that somehow got et, I allowed that too many have a clear need to get along that cannot be repressed for too much longer.
I agree very much with part of your post, but confess that I find the term “rape” in this context, far too mild. I’m thinking more “tied to a tree in the backyard and gan..” Well, you get the picture, I’m sure.
Bjørn Lomborg is going to make billions off his former detractors. Liberals who railed against Marty Peretz now flock to the magazine to read vociferous defenses of Bam and similarly intense attacks on Beck et al. Iraq war? Hey, that’s over, except for the 50,000 troops there, forever.
I sincerely believe the Beck rally proved that most folks really do want to get along. Where’s the hate when liberals need it most, I ask you?
I totally agree about Mr. Lomborg. If he had a stock I would buy as much as I could get because that guy is going to get filthy rich in the near future!
On the Tea Party, I think the hate generated by liberals is just a case of conditioned response, it really doesn’t matter what Beck and the other Tea Party clowns say or do.
On the one hand with this whole Tea Party thing, it is depressing to see the Peasant’s adolescent attempts at class struggle. But on the other hand at least they are stirring, albeit in the wrong directions, which is more than we can say for the Bourgeoisie, who concentrate much more on problem solving than in changing existing power relations. The Peasants of the Tea Party remind me of a young teenager who lives with an overbearing father (Rentier class) who beats both the kid (Peasants) and his shrill and shallow mother (Bourgeoisie). The kid instinctively understands the injustice of the situation but he has lived so long in fear of his father that instead of taking him on directly he instead cowardly directs his rebellion elsewhere. Instead of leaving his father’s house (Republican Party), he just moves into the garage where he not only helps his father abuse his batty mother (who refuses to leave her man in any case because she is sure any day now she will lead him to the correct path) but also takes his anger out on the family dog (the Lumpenproletariat) who are admittedly shitting on the carpet from time to time.
Instead of worrying about abstract notions like liberty and obsessing on stupid shit like gay marriage and supposed socialism, the Tea Party should focus like a laser on Peasant employment (stop exporting Peasant jobs to the third world and stop importing the third world to take Peasant jobs). They should also focus on rebuilding the social institutions of the middle class, for example schools, universities, child care, health care, pensions, etc.
But to do any of this means attacking the Rentier class. And we are years away from the Peasants having enough cohesion and direction to do that.
What an awesome comment. I could you read your musings all day!
Thanks AJ!
Kevin
Agree, the Wall Streeters are now crying about Obama in order to generate the perception that he is being tough on Wall Street and business……..as if he has done anything but cravenly bend over for them and concede to their every whim.
Absolutely, it really boggles my mind that people are so simple when come to their manipulation.
Great comment.
However, I would add that HiFi will probably throw money to Repu, because many people have come to see Barack Obama clearly…and unable to chose a lessor evil, will vote revenge. The possibility is real and the outcome will be covered by HiFi.
On a personal note: I do believe if the Republicans don’t choose a “moderate sounding” Repu like Romney, then Colin Powell could run as an independent and walk away with the White House. I’m not saying Powell is considering it, he’s always been a pretty conservative/cautious guy, so it would be out of character…but depending on the Repu nominated, he could do it…and I think it could be a cake walk.
It’s a mystery to me that anyone still thinks Colin Powell has any credibility. Don’t we remember his dog and pony show at the UN where he declared that Iraq possessed weapons of mass destruction; that Baghdad was trying to deceive UN weapons inspectors and conceal WMD from them; and that Saddam Hussein was harboring members of the al-Qaeda organisation. Everyone of these assertions proved false, false, false; millions have died or suffered and we are still entangled in the mess. Please!!!
Thanks.
Yes I’m sure many swing voters will vote Republican, HiFi will not even have to put so much of an effort in for that to happen.
But the real stakes are in SS reduction. So they want the Dems to take a beating but not so bad that the Republican brand gets tarnished by SS reduction. Getting a spanking but not totally losing the House will give the Dems the chance to say they have heard the voice of the voters and then take the blame for cutting SS! Obama will probably sweeten the pot by combining a huge long-term cut to SS with a small one-off stimulus package. Kind of like when management used to offer one time cash payments in return for the workers agreeing to give up their medical benefits forever.
If Obama can deliver SS reduction to his wealthy masters they will reward him with a sub-par opponent for 2012. They will also want to see the American people ratify this decision by re-electing the man who took it, just like Iraq in 2004. On the other hand if Obama fails and the economy really starts looking good (both unlikely) they may throw Romney in. The key is that with things going badly, Obama is the Rentier class’ man because, to many Peasants, he symbolizes a combination of the Bourgeoisie (Harvard) and the Lumpenproletariat (incorrectly, but due to his race) and therefore the Peasant’s anger is directed towards these classes and away from the Rentier.
As Lona says, Powell destroyed his political capital with that speech back in 2003. In any case he is enough of a realist to know how little power the President actually has and probably wouldn’t relish that position. The only very long shot chance would be if there were some sort of national disintegration like there was in France in 1958 and an elderly statesman was required to step a la Charles De Gaulle.
Penetrating analysis, Kevin. And I’m afraid you’re right; theirs is a wicked chess game—quite Machiavellian and diabolical.
But this too shall pass. History does not repeat precisely; it rhymes. And this time the ferment is quite different than past inflection points in important ways that must have TPTB quite restive. The noosphere/blogosphere is now far more robust and rapid than at any other time in history—yielding breakthrough technologies (potent blogospheres) at the convergence of multiple existential crises: financial, political, military, ecological, and cultural (stupidity). The collision of multiple crisis would (will) bring wrenching shock, but it may also force positive holistic transformation.
Thanks Doug, and yes you are right, someday this will pass.
A,
So, they are pathological thieves and looters, whose actions of greed and demand for the increased use of scarce and depleting resources are your country of a future; and they are upset that people noticed the Corporate Cannibals are the four horses of the Apocalypse, not knights on white horses?
“an inexorable right of self-determination”- Umm, if one picks out, Karl Kraus style, the philological detail that is the tell-tale sign of the larger corruption, that’s the phrase. Someone should tell that half-educated, presumptious idiot that the classic notion is “an inalienable right”, not an inexorable one. Else he begins to sound like Sarah Palin.
Karl Kraus? Karl Kraus? I thought the only Austrian was Ludwig von Mies! (not to mention the inexorable execrable H-man).
Adolf Loos for president.
I can’t resist. Two Karl Kraus quotes:
1. About war but applies as well to politics in America
“War: first, one hopes to win; then one expects the enemy to lose; then, one is satisfied that he too is suffering; in the end, one is surprised that everyone has lost.”
2. For the “pro-lifers”
“Moral responsibility is what is lacking in a man when he demands it of a woman.”
Emily Dickinson –
The heart asks pleasure first –
And then release from pain –
And then the little anodynes
That lessen suffering…
My favorite Karl Kraus line:
“Politics is what a man does to conceal himself, and what he does not know”.
My take is that the finance elite would prefer the Democrats in power because they provide the same bank-friendly policy as the Reps, but have fewer truly insane or idiotic cadres among their leadership. Big business likes stability and consistency, except where it’s intentionally generating instability and disaster itself.
Also, the Dems are more wussy and craven, and therefore easier to push around.
The problem is that they’re also morbidly incompetent at politics. They always manage to turn a strong position into the weakest position. In this case, their choices were to either smash the banks, which would have made them heroes to a large majority of the people and ensured their electoral supremacy for years to come (perhaps even the vaunted permanent majority); or they could have been consistent in being pure Wall Street flunkeys, as they clearly prefer to be.
Instead they chose to go through the motions of a sham finance reform bill, but were incompetent to manage the process well enough not to alienate their bankster masters (as this piece discusses). In the meanwhile the people, and especially the Dem base, have seen through the charade and know the Dems are our enemies. So there’s almost zero chance of their being able to whip up any voter enthusiasm.
Under those circumstances, where as usual the Dems no sooner take power then they seem to want to hand it right back to the Reps, Wall Street has of course done what it does, bet against a sure loser. So the donations flow back to the Reps. (The stupid rhetoric is both an example of bankster psychopathy but also meant to register extreme displeasure at the poor job the Dems did in the eyes of their employers. Perhaps such verbal punishment added to the retracted-bribe penalty will teach them a lesson, the banksters hope.)
Sorkin remains eternally Sorkin with his drivelling, snivelling tone; I finally just started reading To Big To Fail, and while the narrative so far is well done, his “analysis” in the introduction was almost unreadable, it was so offensively stupid and exculpatory. There are few so deranged as he in their religious funadamentalist assumption that the finance sector has to or should exist at all, and that the Bailout was anything other than the worst possible thing that could have been inflicted upon us, nothing but a monstrous crime. The scribblers who abet them are also criminals.
I’ve worked in several VC-funded high-tech startups and am working on a technology patent application right now. I’ve unsuccessfully tried to get my own VC money, now I know better.
There’s less than meets the eye with respect to the role of VCs in fostering new technology.
For a technologist, getting VC money is like getting a record contract from a major for a musician. Which is hardly surprising, since a record contract is essentially a form of VC funding.
The analogy extends further, since anyone who trusts either her VC firm or her record company to deal fairly, honestly, or competently with either the product or the financial side … will learn otherwise from ugly experience.
The competence comes down to in either music or tech VC funding, the people who will tell the “lucky” person ‘we’re going to make you a star’ are in general, people who know the buzzwords rather than what is actually going on… and on this basis of uninformed opinion, will tell the technologist or musician what they are to do, how to do it, and who they will be doing it with.
And people wonder why the success/failure number with respect to VC-funded startups is 1 in 8.
Better to bootstrap on a shoestring than to deal with either in most cases.
If we’d had an efficient mechanism for getting money into early-stage at the start of the high-tech era, the technology in our daily lives would probably be at least a generation ahead of where it is, possibly 2.
It’s quite possible that new technological ventures will be leaving America, but for the most part, this will be driven by the damage the wealthy have done to the American economy and the infrastructure that is NOT going to be fixed because America’s government has been captured by the private jet crowd as a rent extraction tool, not because the wealthy are whining that somebody is pointing out that they are avoiding paying their fair share into America’s upkeep.
Nessim Taleb in his ‘update ‘of the ‘Black Swan’ puts it simply: ‘In the 2000s the banks took over the government. That is surreal’.
There must be a thankless sense of ennervating exhaustion that accompanies the process of waking up each day and articulately mapping and skewering the psycopathy that passes for rhetoric among the financial parasite class.
It would wear me out, for sure. The self-evidency of their studpidity negates, for any sentient mind, any need for logical refutation. Every fact of history, every mind-lit illumination of integrity, every instinctively obvious truth of human nature, overwhelms the facile sophistry they employ as argument, when they even strain themselves to argue cogently, which they rarely do, relying instead on the babble of a possessed and addicted mind that barely ascends even to an ideology and that neither instructs or illuminates anything but their mindless and soulless self-interest bought at the expense of the lives, souls and fortunes their fellow man and woman.
The implacably and painfully ponderous obviousness of their idiocy, their contorted self-justifying theories, their puerile wailing at even any boundary (let alone obstruction) proposed for their looting, the miserable financially murderous narcissism that radiates like poision from their every utterance and every action.
It would be enough to send me to an absinthe bar in Paris, where I can transcend into a higher plane of consciousness, where these assholes fade into little specks on the the distant filthy floor of the world, thousands of feet below.
But for the sake of those not yet ready, or constitutionally incapable of transcendance in an absinthe bar, somebody has to do the heavy lifting of rhetorical resistance.
And while it it must at times seem to be a thankless task, I’m continuously grateful for the effort and retain a faith that the seeds planted daily here, and in simlar places, will eventually grow somehow into an overwhelming and undeniable truth that no little parasite shithead or shithead apologist can counter with anything other than a final and complete surrender to its unrelenting truth and uncontestable sanity.
the sooner the “we won’t invest unless you let us loot” bluff of the parasite class is called, the sooner the country can start to heal
It’s Kabuki.
The parasites looted the government under Obama, according to plan.
Do you expect them to thank Obama in public?
Throw them in prison for the frauds they have committed.
The implied assumption that they have made a contribution in the past is false, so for them to say they will not continue in the future as they have in the past is welcome.
They should be really, really careful what they wish for.
Banks and Hedge Funds are corrupt beyond all reason , having absolute free reign in all they do and request . Tell me one 2010 candidate that sees this and is willing to serve the American people , as an Elliot Ness and bust up the cartel , with guns if neccessary , to pry them from their nest of power . ….. silence . There is no candidate that will do this . A vote in November is useless . We are speeding to third world status . But no riots to keep voters away , they already will stay away . May the Congress , Senate , TBTF’s and Hedge funds reap what they sow , and soon . A pox on all their houses .
In case you missed it the first time, back by popular demand. Here is the link to the Mayo Clinic’s brief but telling list of symptoms for Narcissistic Personality Disorder.
Definition
By Mayo Clinic staff
Narcissistic personality disorder is a mental disorder in which people have an inflated sense of their own importance and a deep need for admiration. Those with narcissistic personality disorder believe that they’re superior to others and have little regard for other people’s feelings. But behind this mask of ultra-confidence lies a fragile self-esteem, vulnerable to the slightest criticism.
http://www.mayoclinic.com/health/narcissistic-personality-disorder/DS00652
I suspect, that analogous to the extreme violence of military combat creating post traumatic stress disorder, the extreme level of wealth and privilege brings on NPD.
I’ve always been very reluctant to indulge in ad hominem attacks no matter how sniveling, childish, self-serving and obsequious the potential target…
And that’s also no matter how corrupt, pathological and destructive are the ‘interests’ such a gentleman serves.
So regarding Andrew Ross Sorkin…
I have nothing to say.
I read that article this morning, and see/saw basically 2 different slices in it’s meaning.
First is, as the article’s theme says, WS/banking is abandoning BO. Well… given last decade’s WS character that’s not so hard to understand. And that these guys are flocking to same republicans who layed the foundation for mess we’re in, well… just another in the downward trend lines on US shores AFAIC.
But… at end of that article, Sorkin says 2 things:
Or in other words, they want same rarified special treatment as Gods of economic enlightenment, even though most of BO’s “reforms” were little more than minor course corrections.
But the stickler AFAIC…
Well, yes… of course.
And where, pray tell, is Loeb (or any of these other “principled” financiers) speaking about what happened this decade, how WS/finance utterly abandoned principles, how that affected decay in US economy, how we depended on China to finance Iraq while simultaneously financing China’s industrial construction/education/infrastructure rebuilding while abandoning our own…
I mean, really.
On the whole, I take that article as another point along the way pointing to US decline in world economics. These people want their own, at the expense of a social/economic/legal/educated populace foundation needed to move things forward.
Empty, utterly selfish continuation of empowering a robber barron class, paying exact same souless rupubs who made the mess to get us out of it… or in other words, bribes to continue the state sanctioned rape.
Not good.
The VC and hedge funds are stuck with us; everywhere else they’ll pay much higher taxes. (Kuwait and Dubai excluded.)
Obama was the farthest left of any US Senator, he was “mentored” by Frank Marshall CPUSA, he “sought out Marxist professors in college” he had a close association with Bill Ayres and other leftist radicals and yet even though all this information was available before the election these guys on Wall Street voted for him.
With a background like that you would expect him to try and crush Wall Street but instead he has showered them with money.
The game is now rigged in every way possible
“Obama … Frank Marshall … Bill Ayres”
Jerry Rubin went from Yippie to Yuppie, and even Mao Zedong’s old outfit is now a bastion of capitalism/corporatism. You can’t even trust the radicals anymore. That’s why I’ve always said that if I were to become a political fanatic I’d be a non-violent anarchist. You can’t trust any of them, all government is illegitimate, and basically just fuck ’em.
Whoops I meant Frank Marshall Davis….
“All commie names sound alike, and they all support fluoridation.” — Gen. Jack Ripper, USAF
Oh boy, the right wing misinformation and paranoia never ends.
I grew up with a grandmother who wrote for the Socialist magazine, The Masses. I saw the movie “Reds” with her. She commented on the personal lives of the men and women in the opening vignettes.
In the sixties the boarding school I attended, a bastion of the East Coast establishment, invited Norman Thomas, head of the American Socialist Party to speak. Imagine that – at the height of the cold war, a respected prep school bringing a Socialist to indoctrinate the future leaders of America!
Quick, revive HUAC and root out all the closet Muslims in the White House.
Yves, a question about corporate savings: I was under the impression that while corporate cash holdings have been growing, corporate debt as a whole has been increasing this past decade, at least according to Fed data. How does that square with underinvestment? Thanks for any reply.
Leveraged buyouts. More than half the corporate debt ratings in the US are at junk bond level. And they don’t invest.
It now seems apparent that Sorkin has his eye on Lucas van Praag’s job.
Great post (this and William Black in one day?? Thank you.)
Sorkin wrote a fine book, shame to hear he’s going (or willing to be pushed) downhill.
How quickly we forget that the governments of the U.S., Great Britain, Germany and other countries only two years ago this month had to save the world economies from the damage created by Wall Street. Danny Loeb, Schwarzman, and their associates do not understand the pain that still exists away from NY. Small businesses and hourly workers are still wondering where their bailout is. So, it is incredibly ironic that Wall Street wants to continue its obscene compensation arrangements and its unregulated business practices while those who foot the bill still suffer.
Wall Street is like the husband whose wife caught him fooling around. He has “fessed up,” apologized to his wife and wants everything to be the same as before. The truth is that it will never be as before. The damage has been done and trust has been lost. Wall Street, like the husband, is the villain. Like it or not.
Yes, and so far America is like the wife who stupidly believes his lies and fails to leave him (even though she’d take everything since ALL the property was hers before the marriage began).
OK, before I get pilloried, let me first state that I am *100%* in favor of taxing carried interest as ordinary income.
With that out of the way, please let me explain something. The tax system is complex, and not just because everyone is evil. Any income tax suffers from the accounting period problem. Most of us set (or are forced to set) the calendar year as the accounting period in which to compute income. This causes numerous measurement problems when one is trying to compute income and expenses that accrue over multiple time periods. Second, capital gains and ordinary income are, yes, quite clear and distinct at the poles, but like many other continua, quite fuzzy in the middle of the two extremes.
This is my problem. I don’t disagree with Yves often, but this statement, “And in case you had any doubts, there was no justification for this special treatment in the first place,” I cannot abide.
First, I can admit that there may be a basic underlying belief that most of carried interest is ordinary income from labor rather than capital gain, but that’s surely a matter of reasonable debate. As I said above, I *agree* with the proposition that it *feels* more like labor.
But to say there is “no justification” is not accurate, and I think a few points about partnership tax accounting and Subchapter K of the IRC might illuminate the discussion.
In subchapter K, the aggregate approach predominates the allocation side of partnership taxation. The carried interest is an allocation of income from a partnership, and under the aggregate approach, each item allocated retains its character (OI or CG) to the individual (or entity) to whom (or to which) it is allocated. These GPs getting a carried interest are partners (yes, the problem is slightly more complicated than I am making it here, but *that’s the point*!).
Listen, it is easy to undo the results of the aggregate approach. Just put in a new Code section! But to say that there is “no justification” of this is, sorry, just not correct. You may not like the justification (and as I said, I don’t like the ultimate results of it), but to say there isn’t a rational system under subchapter K that gets you this result, I just cannot agree.
‘But to say there is “no justification” is not accurate’
You miss the bigger point that there’s no justification for taxing any capital gains at a lower rate than earned income. It’s been empirically shown that capital gains rates do *not* encourage investment. Get rid of capital gains rates and the whole carried interest debate goes away.
That’s what annoys me about the carried interest debate – it misses the bigger picture. Accepting that capital gains rates should be lower than earned income rates is like some medieval peasant accepting that of course the nobility should be tax exempt. Isn’t that part of the natural order of the universe?
Listen, I agree that the two should not be taxed differently.
But, and I mean this in the nicest way possible, people have different preferences and values than the ones you and I share. To say there is “no justification” for the difference or that it has been “empirically proven” that it doesn’t help investment is just hogwash. There is a “justification” (we just don’t like it) and it *cannot* be “empirically proven” (we can never run tests on the counterfactuals…there is no “control” in the studies).
Sorry, I generally agree with you, but I don’t believe that stating things that are not accurate will help our shared cause.
The money people have to periodically show some love to each of the major parties and give each a chance to hold the wheel and pretend they are steering the ship. Otherwise a frustrated opposition party might arise. The time at the helm for Obama and the Democrats is winding down, but the important work of keeping voters confused and making liberal/left/democratic politicians equally complicit in the unvarying policies has been accomplished for at least another decade.
Funny comment!
If the polls are right, the US is about to toss the Demo’s to the curb, but not for love of Repu’s.
http://www.politico.com/news/stories/0810/41603.html
Even “off the table” Nancy is getting the cold shoulder as the rats look for lifeboats
http://www.politico.com/news/stories/0810/41608.html
Save for a politic “fat cat” quip, the adminstration has been groveling and genuflecting to these saavy masters of the universe. And for that “Democrats Face Midterm Meltdown
A lot of this is like “a tale told by an idiot, full of sound and fury, signifying nothing.”
From FT: “Democrats Face Midterm Meltdown”
“It follows a Gallup poll that showed the Republicans with a 10 percentage point lead over the Democrats – the widest margin in 68 years.”
[…]
“The numbers, which threaten Mr Obama with a “wave election” similar to those of 1994 and 2006, when Democrats wrested back control of the House after 12 years, also extend to key states.”
“According to local polls, Democrats are on course to lose the governorships of traditionally left-leaning states such as Michigan and Pennsylvania and may be vulnerable in Illinois, long a party bastion.”
http://www.ft.com/cms/s/0/44d4b1c4-b52f-11df-9af8-00144feabdc0.html
If it comes to pass it will be a richly deserved loss, but as pros says above, it’s Kabuki. Note the next paragraph in the FT piece:
“Such is the scale of the expected losses that analysts are already focused on how Mr Obama can turn Republican domination to his advantage in his 2012 re-election race.”
Oh no, not that there briar patch! Then wait for the theatrical handwringing and the distracting investigations, while they collude to loot Social Security, the last vestige of middle class security?
Wall Streeters love to imagine they are “hip”, “cool”, “revolutionary” (in a capitalist sort of way). They love eating at restaurants in NY such as “Paris Commune”, “Socialista”. They love every possible variation of legs + mini skirt.
They even love a blog called “naked capitalism”. Oh how ironic. And sexy.
There is one thing they hate.
Labor Unions.
Have for more than a century.
And anyone remotely associated with them.
Drive by ignoramus.
1. NC is not well liked on Wall Street
2. NC has said some positive words about unions.
Well what can you expect when plutocrats throw their weight around in a plutocracy? They know they rule the roost and that Obama and the “little people” are impotent. Contemptible and impotent, to be swatted like so many flies.
It was about a year ago (I think) that Obama schedualed a meeting with several Wall Street CEOs (I believe that Larry Blankfein and some others decided to blow it off). Here’s what he should have done when the finance guys all arrived and settled in for said meeting: http://www.youtube.com/watch?v=VMew38zTXHQ
opps…”scheduled” Damn fatigue.