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From: Nomi Prins, Author, investigative Journalist, Concerned American Citizen
To: North Dakota State Attorney Ladd R. Erickson, McLean County, firstname.lastname@example.com
Subject: Riot Charge Against Prize-Winning Independent Journalist, Amy Goodman
Dear North Dakota State Attorney Ladd R. Erickson:
Since you were first elected North Dakota's State Attorney in 2002, and subsequently re-elected in 2006, 2010 and 2014, you have prosecuted numerous cases based on a multitude of charges.
The case you are attempting to bring against Democracy Now! host, and award-winning veteran independent journalist, Amy Goodman is simply a miscarriage of the justice that you have been elected to uphold. It is a case unworthy of your stated responsibilities to protect the public. It is a case that flies in the face of the critical freedoms that we Americans hold dear.
Levying a riot charge against an experienced, professional journalist for the act of doing her job of informing the public about unfolding facts is not justice. As you know, it is legally immaterial whether you interpret those facts about the Dakota Access Pipeline as indicative of your own personal views or not. In addition, in light of the video that Amy Goodman shot, and that was distributed throughout global media platforms, it is simply illogical to conclude she wasn't conducting on-the-ground reporting, the very essence and definition of journalism.
Further, your riot charge against her violates the intent and stated purpose of the first amendment of the Constitution of the United States of America. "Congress shall make no law...abridging the freedom of speech, or of the press."
Freedom of the press and of free speech is a core value, principle and governing law of our country. Amy Goodman has committed no crime. You, sir, have the opportunity to do the honorable thing and to uphold that law. Thus, I urge you to reconsider dropping the charge.
I further urge you, District Judge John W. Grinsteiner, to dismiss the riot charge.
Nomi Prins
CC: District Judge John W. Grinsteiner, email@example.com
"When you play the Game of Thrones, you win or you die." – Cersei Lannister
I was late to Season 6 of Game of Thrones (while buried in writing my next book Artisans of Money.) If you have never watched Game of Thrones, a) do so immediately and b) here's the nutshell. The show, based on the book series, depicts a land in which several kingdoms are duking it out for the Iron Throne, the symbol of absolute power. Think the board game "Risk" except with dragons, magic, an army of the dead, and lots of blood.
While I was watching, I couldn't help noticing that its backdrop is a dead ringer for central banks' strategy. The Fed clings to status quo. Other central banks are vying to knock it down, or at least loosen its grip on them. But the Fed behaves as if it has no idea there are other powerful central banks that want to grab and harness its power. It carries on refusing to acknowledge that there may come a time, sooner rather than later, where its power is attacked.
The ramifications of such an attack will impact the standing of the U.S. in the world. The Fed can carry on being oblivious, but Game of Thrones illustrates the struggles playing out right now.
In the Game of Thrones world, emerging queen, Daenerys Targaryen is biding her time and building her army. She is creating alliances in Meereen, an ancient country in the East (her awesome fire-breathing dragons in tow). She's playing the long game, strategically planning when to elevate the fight against the ruling queen in the West, Cersei Lannister.
The most important part of Daenerys' story is not that she is determined to rule the seven kingdoms and take possession of the Iron Throne. It's that she knows she can't do it alone. So she aligns reinforcements, smaller power bases.
These smaller partners may or may not have allegiance to her based on the legitimacy of her claim to power — but they have all been wronged by the Lannister's. This family, currently led by Cersei Lannister, is extremely wealthy and powerful, but hasn't managed to lead the western kingdom, Westeros, to wealth and power. In fact, the people in Westeros are becoming increasingly frustrated and scared of their rulers. (You see the similarities?)
Not only has Cersei managed to create enemies out of the smaller families that surround her, she recently massacred a large portion of the city she rules to protect her own interests. She is losing her power domestically and globally, but continues to think and act as if she will rule forever. We'll see what happens next season.
The Fed's State
In this situation, the Lannisters are representing the U.S. and the Fed specifically. The Fed remains in denial about the true state of the domestic and global economies. In its realm of hubris, it has no idea of the steps other central banks are taking, or want to take, to reduce their exposure and reliance on not just the U.S. dollar, but on U.S. political, monetary, financial and regulatory policy in general.
Case in point. After the Dow dropped 250 points on September 9th, on September 12th, Asian markets nose-dived on the possibility that the Fed might raise rates (though it said nothing of the sort — the "rate tease" is a manifestation of deliberate Fed obfuscation and media boredom). This is a pattern that plays out every month, with varying degrees of intensity, or volatility.
Enter three of the Fed's giants, led by Lael Brainnard. During her speech at the Chicago Council on Global Affairs, she backtracked on any tightening talk saying, "the case to tighten policy preemptively is less compelling."
That calmed markets. That day. It reminded them nothing is changing any time soon. U.S. stock markets rejoiced. Bubble-baiters bought. The Dow soared 1.3%. Elsewhere in the world though, no one wants their market whipsawed by Fed speak. Certainly not the People's Bank of China.
The PBoC's approach has been to send out anti-Fed policy sound-bites through elite officials. These clips are picked up by national and international media and then spread to the general public.
On September 13th, for instance, Yi Gang, a deputy governor from the PBoC, told a central banking conference in Vienna, "We're still very cautious on this (zero-interest rate) monetary policy." He warned, "We have to be very careful and look at the limitations and uncertainty of a zero-interest rate policy, because in China we still have a decent growth rate." What he basically said was "the Fed's policy is a joke and we're not laughing." (I'll have more quotes like this in Artisans of Money.)
In the Game of Monetary Policy, the Fed whacked the idea of "free markets" in the face. (For the record, I don't believe they ever existed, because the theoretical implication is full information transparency and equal access, and that's just not been the reality – ever.) The ECB chucked an arrow in its heart. The BOJ sliced off its head. Markets are sustained artificially. The Fed has become, as you'll read more about in my book, the chief Artisan of Money. Central banks are bankrupt of new ideas to keep the system afloat.
Or are they? While the Fed cut rates to zero, bloated its book to $4.5 trillion, and pressed the rest of the developed world to follow, global skepticism bubbled over. First the Chinese, then Latin America. Then the IMF. Then the Chinese again. Central bank elite took turns bashing Fed policy, mostly under media radar, and calling for an alternative to the U.S. dollar associated with it. This is the equivalent of financial warfare. The U.S. and Fed struck first. It will take time, but the blowback is in motion.
The U.S. dollar was attached to a financial crisis fueled by big bank recklessness and Fed apathy, followed by a Fed policy that devalued money itself. Many other countries had no choice but to follow the Fed's lead and directives, but that doesn't mean they were happy about it. As in Game of Thrones, the smart choice is to forge strategic alliances with other houses or be slaughtered.
The IMF is one of the houses that will be a crucial player in the new power constructs.
The IMF Power Play
The IMF, created by the U.S. and Europe, has been seeking a broader role in the monetary politics wars. For all the media dissection of every word Janet Yellen utters about rates, the IMF knows the Fed is lost. Its policy hasn't worked. The Fed ignored this and raised rates last December, despite warnings from managing director, Christine Lagarde. Market punishment was swift and the damage was global. The move caused renewed fear and anger from nations that had already suffered at the hands of the Fed and the big U.S. banks it sustains.
The U.S. has the largest voting block within the IMF, which is located blocks away from the White House, but IMF leadership understands how the winds of change are blowing. If the BRICS and a few more developed states were to act as a voting block (or increase their voting power, as they're attempting), they could potentially dislodge the strong influence that the U.S. has within the IMF.
It was the U.S. voting block that gave Lagarde her job in 2011, and allowed Europe to maintain its 70-year stronghold on the IMF. As a result, Lagarde's opposition, Augustin Carstens, head of the Central Bank of Mexico, lost that country's first bid for the role.
In Game of Thrones, this is the story of Tyrion Lannister. He's Cersei's brother, but has been loudly critical of her leadership. Originally, he tried to guide his sister towards better practices. She didn't listen to him. Now, he has joined forces with Daenerys and is helping her rise to power. His loyal alliance with Daenerys has led him to ascend the ranks again, from another angle. He is well-connected throughout the seven kingdoms. He is strategic. He knows the strengths and weaknesses of all the players. He is formidable despite his size (or in central bank terms, the volume of reserves).
This is the Fed and the IMF. That entity was spawned to augment U.S. central bank and government power in the wake of WWII. Powerful, but not as powerful. Since the financial crisis, the IMF has been strategically chipping away at the Fed's power base. Like the PBoC, the IMF has been both criticizing and warning about the impact of Fed policy on other nations. By disparaging the Fed, it is amassing its own power. Its international influence has never been higher.
Under Lagarde, the IMF is doing more than funding development projects and supplying overall currency directives to the world, as was its original mandate. It is reconstructing new alliances amongst countries not involved in its creation. In doing so, it is building its own power by elevating their allies.
On October 1, for the first time in 43 years, the IMF will add China's currency, the Renminbi (denominated in yuan), into its Special Drawing Rights basket (SDR). In doing so, the IMF, at the zenith of its own power, has tipped the scales away from the U.S. and the Bretton Woods crew that created the SDR in 1969. The expanding SDR basket is as much a political power play as it is about increasing the number of reserve currencies for central banks for financial purposes.
The SDR Factor
China's power ambitions go well beyond the SDR. They include international diplomacy, sustainable energy dominance, and becoming a focal point for alliances through Europe, Russia and the ASEAN states. The ASEAN–China Free Trade Area (ACFTA) is a prime example of why the SDR for China and the region is important as China expands its influence. So are new trade and financial pacts with Russia where the yuan and ruble exchange in deals without involving U.S. dollars. In addition, Russia and China are both starting to amass gold which could return as the 6th component of the SDR someday.
When the SDR was created as a global reserve asset, it was to supplement the international supply of gold and the U.S. dollar. Once the gold standard was demolished and countries began accumulating international reserves, there was less of a need for this global reserve asset. It lay dormant, along with the power of the IMF. But in the wake of the financial crisis, it sprang back to life as another liquidity source for member countries. The IMF sprang back to power as well.
The SDR was initially defined relative to gold (0.888671 grams of fine gold — the equivalent of one U.S. dollar.) After the collapse of the Bretton Woods system in 1973, the SDR was redefined as a weighted basket of four currencies — the U.S. dollar, euro, Japanese yen, and pound sterling.
In 2015, when the yuan was approved, a new weighting formula was adopted. It assigns equal shares to the currency issuer's exports plus a composite financial indicator. That means the more prevalent the currency in the world, the bigger its weight. If more Yuan are used in the world, its position in the SDR grows. In another crisis, it could take on the U.S. dollar and Euro, and by extension the Fed.
The SDR weight of the yuan is just 10.92 percent compared to 41.73 percent for the U.S. dollar and 10.92 percent for the Euro.1 That's not a bad opening gambit. The next official weights review is in September 30, 2021. But in a crisis, there is latitude for this to happen much sooner.
As China continues to play host to global events (Olympics, G20, etc.) it also is in pursuit of greater regional influence. With the largest economy, and now showing its capability as having a globally recognized reserve currency, China is adding another layer of strength to its position. While the associated confidence measure will not be the death of the dollar, it indicates that the dollar is not the only option to turn to in times of panic, or increased trade or financial growth. The intrinsic power of that position attacks not only the dollar but the overall power of the U.S.
Competing Central Bank Kingdoms and their Power Bases
Currencies reflect both political and economic clout. Even if SDR's themselves aren't that voluminous yet, the shift in the make-up is meaningful. The Fed has already lost ground in the process. The IMF and PBoC have gained it. In the middle, there is an increasingly shaky, EU.
The ECB was established after the creation of the Euro in 1998 to oversee other member European central banks. It has more power than any of them because it sets rates for the EU, which dictates the cost of their money and how it flows.
Former Goldman Sachs executive and former Bank of Italy Governor, Mario Draghi is the current President of the ECB. He has followed the Fed's policy to a letter — despite grumblings from other EU power brokers (and reality) that negative interest rates have solved nothing and instead aided to the fractiousness of the EU experiment itself. In 2012, facing an acute European debt crisis, he promised, "the ECB is ready to do whatever it takes to preserve the Euro." The Euro has fallen precipitously since.
If Draghi's words are weak, his actions are weaker. The ECB is offering to pay banks that borrow money from it, plus, giving them 85 billion Euro each month through its ongoing QE program to purchase their debt. From a battleground standpoint, that smacks of desperation.
The ECB just announced it would give banks three years to write off bad loans — meaning they have lots of bad loans. Deutsche Bank is just one mega example. The ECB has failed to mitigate any risk. Its alliance with the Fed hasn't helped Draghi build his power, just retain it, and it certainly hasn't helped the EU as a whole.
Within the wider European Area, the Bank of England, under governor Mark Carney, retains legacy power. That power has waned though, and increasingly so since the Brexit vote. If Britain leaves the EU for real, then the Bank of England's actions are less relevant to the EU. This elevates the power of the ECB and the Euro. But as noted, those are already weak to begin with.
If the Bank of England follows the course that Brexit has laid out, the SDR could see a further reduction of the pound weighting, and Euro weighting, which would push up the weighting of the yuan by sheer math. This shift is symbolic now, but power can start in that realm.
The Bank of Japan, before governor Haruhiko Kuroda took the helm, had run-ins with the Japanese minister of finance over its negative rate policy and bond-buying programs. The Japanese stock market lies in a constant state of tension. Because the BOJ is on the same monetary policy plane as the Fed, Japan's markets have similarly become used to monetary adrenalin shots. Globally, this has led capital, seeking a fix in times of instability, to Japan and to the yen.
But lately Japan's markets have also been reacting more viciously whenever the possibility of a Fed tightening hits, or lack of fresh BOJ easing measures, emerge. The alliance of the BOJ and PBoC has not been fleshed out yet, but I believe that's only a matter of time. Old fights might be discarded if economic or financial survival is imperiled, which is what these sharper market moves foreshadow. (There have already been new trade and lending deals emerging between the two.)
People's Bank of China: Dragon Rising
This dragon's about to take flight. The People's Bank of China governor is Zhou Xiaochuan, who has held that post longer than any other G20 central bank leader. The PBoC holds more U.S. treasuries than any other central bank and is ready for battle. Zhou understands global paradigm shifts. He's the only Chinese person on the G30 and on the board of the BIS. He's been the leading figure pushing the yuan into the SDR basket by slowly allowing it to float with the market, despite allegations of ongoing currency manipulation. He has a good personal relationship with Lagarde.
As China's position has grown, so has Zhou's voice, albeit without giving too much away, (something for which the U.S. has been critical.) Keeping some card close to his chest is a strategy. "The central bank has a clear and strong desire to improve its communication with the public and market," he told Caixin, a major publication in China. "At the same time, it's not easy to do a good job in communication."
China wants to keep internal inflation down. This is why it would prefer a strong, not a weak currency. This negates the charge that China is trying to devalue or manipulate the yuan for better trade profits perpetuated by Donald Trump and Hillary Clinton. This is true to a minor extent due to economic pressures, but barely. (It was, after all, the Ming Dynasty back in 1455 that ended the printing of paper money in order to control inflation.)
The stronger the yuan, and the more prevalent it is globally, the more the PBoC challenges the Fed and the more control the China bloc gains over the U.S. In Chinese culture and the Game of Thrones, the Dragon symbolizes life and expansion. (Side note: I confess to having a Dragon obsession.) It's a fitting symbol for the rising power of China and the yuan.
The Current Central Bank Hierarchy
The Fed is the world's most powerful central bank. The ECB is a close second. Third, is the Bank of Japan. Fourth, for now, is the People's Bank of China. That will change.
The PBoC has crafted its own techniques to support China's economy through monetary policy. Although, at the recent G20 meeting, Xi Jianping told reporters that the age of monetary and fiscal stimulation is over and new strategies must arise, he did so by claiming the global growth mantel. As he said, "In light of the pronounced issue of lackluster global economic growth, we need to innovate our macroeconomic policies and effectively combine fiscal and monetary policies with structural reform policies."
The Fed's power is resting on the dollar's dominance. That dominance, in turn, was established by political design based on military prowess following two world wars — which were financed by elite U.S. banks.
The U.S. Treasury market is the world's largest and most liquid. Central banks holding U.S. dollars are really holding U.S. Treasuries. They are lending the U.S. money, and we pay them for it with interest. But when rates are zero, we are paying them nothing to lend us more money. This is why growing debt is so easy under current Fed policy.
Just like Cersei Lannister, the Fed thinks it will retain its power simply because it currently has power, even though everyone is wary of her and the house she represents. In contrast, Daenerys is not so disliked. Like China, she is clever and building alliances. They are playing the long game patiently and strategically.
Bad Bad Contagion
The Fed re-assembled in Washington on September 20-21, after a mini-break. Prior to that, they were in "black out" mode. During that time, I discovered a new report while sleuthing around the Fed's website. It's about 45 pages of mathematical equations, beyond which lies some scary thoughts.
In this September 2016 report, to which main stream reporters paid none to minimal attention, Fed economist, Juan M. Londono addresses the notion of "contagion." The Fed's own research team is ahead of its management. Bad contagion, Londono notes, is the "confluence of unexpectedly low stock returns across several international stock markets simultaneously." His findings revealed that, "episodes of bad contagion are followed by significant and meaningful deteriorations to financial stability indicators."
If stock markets crumble, so do economies. The elites running central banks in those economies don't want that happening on their watch. The only way to avoid the collapse is to distance themselves from the Fed and the dollar. Even David Reifschneider, deputy director of research for the Fed, noted, "there could be circumstances in the future in which the ability of the FOMC to provide the desired degree of accommodation using these tools would be strained." (Translation: The Fed is running out of bullets,. Or losing its power over other central banks.)
This doesn't mean the dollar will tank like a stone immediately as some people predict — the power base that supports it won't go down without a fight. (Nor will the Lannister's—Season 7 will be bloody.) But once the fight starts in earnest, it will accelerate off its own momentum.
Stock markets have reached historic highs on a steady diet of fabricated money. Contagion is real, because the associated polices are interdependent. Having gone down with the U.S. economic ship in 2008, why would any country want to endure that again?
During the past eight years, the Fed has led a global race to the bottom of responsible monetary policy while exuding bi-polar verbiage as to its effectiveness. This blind continuity of Fed policy is the clearest indication of its lack of success. The inability to articulate an exit strategy is another.
The third, is the denial that other central banks and countries want to distance themselves from the Fed. For the moment, the leader in that regard is the PBoC. The Dragon is re-entering the fight now that the stakes are highest. The swords are drawn. The battles of the East and West are on.]]>
"You must live in the present, launch yourself on every wave, find your eternity in each moment."
That quote captures the spirit of "carpe diem", seize the day - except the idea is to seize every day, every experience, every awakening, and every awareness. It's following the human impulse to explore the unexplored, question what doesn't ring true, dig beneath the surface of what you think you know to formulate your own reality, and embrace the inherent 'now' of life.
Earlier this week, a composer friend of mine asked me why I became a writer. And not in that 'why did you leave banking to become a writer' sort of way, deeper than that. I think we all embark upon circuitous life routes that, if we are paying attention, coalesce to move us ever closer to that thread that renders us authentically us by virtue of its consistent presence. We possess a core "self" with which we are most at peace, and around which we feel most natural. That self can have a tendency to hide, conform when it seems most comfortable or expedient to do so, cling to what's 'safe' regardless of whether that safety is merely a manifestation of fear and not a grasping of a bolder life. Seeking eternity or clarity in a single moment is a way to be free of that fear. Liberated. It is never easy, but always spiritually rewarding.
I started writing as soon as I began reading, sooner if you count drawings. Kids don't need to be told "write what you know", it's intrinsic. Everything we know is all we can imagine. We can envision the most complicated worlds and the simplest interactions between animals or people or objects without any filter. When you shove aside the noise, the infinity of ways to stay 'plugged in', the ugliness, the vapidity, you can experience a momentary clarity whose value can not be quantified. I moved on to mathematics and music and later banking, yet the pull to explore, to be guided by my curiosity, to find the story, to probe its elements, to tell the tale, remained a constant thread. The more I explore the less I know, but the more I want to know.
This year, I've traveled to Mexico City, Guadalajara, Monterrey, Rio de Janeiro, Sao Paulo, Brasilia, Porto Alegre, Beijing and Shanghai, and many cities in between, as well as throughout the United States. I've traveled on high speed railways over Chinese countryside, participated in anti-impeachment demonstration in Brazil and had numerous coffees with students and farmers and small business owners in Mexico. I fell a little bit in love with the essence of each new location and the people in it. Though I arrived to gather and share information and conduct interviews - I left with the knowledge that each discovery, personal connection and historical fact, became an extension of me and my story. I've met the most compelling people in my travels, and been blessed with an outstanding international team of researchers helping me.
For the month of August, I am going off grid to compose a 50,000-word narrative out of about 500,000 or 1,000,000 words of notes for the first half of my new book, Artisans of Money. The journey to this book, for which I spent time walking the Great Wall of China last month, as I did decades ago when I started in banking, showed me that traversing the same wall can invoke a tremendously altered perspective, not because of age, but due to a different and more open relationship with awareness and engagement.
The copy for the book so far says it's about the rise of central bank power and control of money flow in the post-crisis era, or as I call it, the "Artisanal Money Era", and how this influence pervades national and global economies and governments, and impacts ordinary people. But what I want to explore beneath that theme is the essence of how the world has changed. I want to delve into the motivations of the people and countries intrinsic to the largest shifts, as they repel and attract each other. I want to get to the core of who and what provokes the most critical transformations or clings to the status quo.
Everything is connected, not every connection is apparent. For me, behind them all, lies a saga that will uniquely capture my experience and analysis. By Labor Day, I hope to emerge with the first half of my book (because book deadlines are what they are) that centers on the US, Latin America and China, before moving on to travel and exploration for the second half which focuses on Japan, Europe with other places along the way. I look forward to foregoing every detail of the US election for a month. This US election - stripping away the name-calling, personality selling, and rhetoric - is (largely but not only) about two people trying to prove their authenticity to the public. I'll take up writing about that this fall, as I also continue along the Artisans path.
Meanwhile, I will be convening with nature, notes, and that wonderful struggle of finding and telling the story.
Have a meaningful and inspirational August, my friends!
Love, Nomi
This article orginally appeared in TomDispatch. The latest Panama Papers May 9th disclosures underscore the broad and ongoing global connections between big banks and tax havens. A swath of politicians on both sides of the aisle remain enablers and users...
There's a pile of money hiding offshore. It's true that jobs are also leaving the United States because American companies find it convenient to cut labor costs by moving manufacturing abroad, the economic issue you're hearing most about in this election season. But the stunning amount of money that continues to flow across American borders (and those of other countries), and eventually disappears into the pockets of the corporate and political elite, ultimately causes even more damage to our finances and our lives.
While the two leading candidates for the presidency, Donald Trump and Hillary Clinton, have indeed suggested cosmetic fixes for a situation that only grows more extreme with the passage of time, they have themselves taken advantage of numerous tax "efficiency" strategies that make money evaporate. Of course, you shouldn't doubt for a second that they'll change their ways once in the Oval Office.
As with so much in our American heritage, there's a history to the "offshore" world, too. Finding places to shield money from tax collection first became commonplace among upper-crust industrialists, bankers, and even public servants back in the 1920s. Treasury Secretary Andrew Mellon, a millionaire mogul who served presidents Calvin Coolidge, Warren Harding, and Herbert Hoover (and had a knack for cutting taxes on the wealthy), left office under mounting congressional probes into his tax evasion strategies.
Fast-forward about a century and tax dodging has been woven into the fabric of the lives of the affluent and corporate worldwide in an extraordinary way. According to an April 2016 Oxfam report, the top 50 U.S. companies are hoarding more than $1.4 trillion in cash offshore.
What's more, for every dollar that these firms spent lobbying Congress for "favorable" tax treatment (a collective total of $2.6 billion between 2008 and 2014), they received $130 dollars in tax breaks and $4,000 in subsidies from the U.S. government. These companies, including Pfizer, Goldman Sachs, Dow Chemical, Chevron, Walmart, IBM, and Procter & Gamble, created "an opaque and secretive network" of more than 1,600 company subsidiaries located in tax havens that they decided to disclose. (Because of the weak reporting requirements of the Securities and Exchange Commission, there could be thousands more.) According to a March 3rd report from the Citizens for Tax Justice, the Fortune 500 companies are now saving $695 billion in federal income taxes on a total of $2.4 trillion in offshore holdings.
Americans can't afford to ignore such tax games, since we're the ones who, in effect, wind up paying the taxes these firms don't. For government policymakers, such tax evasion is a grim matter of attrition, since the U.S. (and other countries) plunge ever deeper into debt thanks to such antics and then find themselves cutting services or raising taxes on us to cover the gap between the money they're losing and the taxes they're collecting.
Not only are such firms unpatriotic, they are parasitic and while they're at it, they use similar techniques -- let's not call it theft (though it is) -- to avoid tax payments in the poorest places on Earth. As Oxfam reports, "the biggest burden" of tax havens "falls on the poorest people." In the process, they only increase already oppressive levels of inequality globally.
Tax "secrecy" specialists -- people working in the money-hiding field -- help rich individuals, multinational corporations, political leaders, terrorists, and organized crime groups divert cash and capital, sometimes in staggering amounts, from local economies into an obscure, complex, multi-layered global financial network that operates outside any national or international regulatory or tax system. Given this, isn't it a little surprising that the top candidates for the presidency barely pay lip service to the impact of such hidden money? What toothless policies they have proposed to deal with the phenomenon will do little or nothing to change it.
The Panama Papers
U.S. trade agreements generally include rosy promises about partnering with regional economies around the world to encourage the flow of goods and services across borders. At the same time, they generally are focused on the obliteration of barriers that in any way restrict money from flowing out of the United States or into the embrace of other nations. The free movement of capital, or financial globalization as it's called, has been a bedrock Washington policy for a century and, since the 1980s, places like Panama -- a renowned tax haven -- have abetted this process.
A month ago, the International Consortium of Investigative Journalists released a trove of documents, 2.6 terabytes of them, including "more than 4.8 million emails, 3 million database files, and 2.1 million PDFs." These were turned over by an undisclosed source ("John Doe"), communicating through encrypted channels to avoid repercussions. Now known as "the Panama Papers," they reveal how elite multinational companies, the super rich, and government figures have engaged in tax-dodging practices engineered by a single Panama City-based law firm, Mossack Fonseca (MF).
In addition to public officials and billionaires, more than 500 global banks, their subsidiaries and branches, have registered at least 15,600 shell companies there using MF's services. That word "shell" is descriptively accurate since such "companies" rarely have employees and are commonly no more than a post office box providing a façade through which books can be doctored, taxes dodged, losses concealed, and money-laundering and other criminal actions carried out. And keep in mind that MF, which acts for approximately 300,000 companies, is only the fourth largest provider of such offshore services globally.
One mega-bank that used its services extensively was HSBC, which created an astonishing 2,300 shell companies with that law firm's help. We'll return to HSBC.
Mossack Fonseca's official mission, it claims, is "to deliver quality, reliable and comprehensive services to our worldwide clients in the legal, trust, investment consultancy, and digital solution fields." That's code for helping select establishment outfits and dubious enterprises to avoid paying taxes on profits, investments, or money made from buying and selling real estate, luxury yachts or planes, oil wells, weapons, or drugs, among other things.
Secrecy is its calling card. Tax havens, or locales amenable to tax dodging, whether in the Caribbean, Central America, Switzerland (still the world's top location for financial secrecy), or for that matter the state of Delaware, exist to circumvent tax laws. Period. And these operations are so shady that even the functionaries working in the shadows to establish such secret accounts are barely aware of exactly who owns them, where the money came from, or where it's going. For regulators, prosecutors, and tax collectors, the opacity is far worse.
You don't necessarily have to be rich or powerful to access the services of such offshore firms and banks, but it helps. Some havens take anyone ready to put up a minimum of $25,000, while others demand staggering sums. Western Samoa, for instance, requires a cool $10 million to get started.
The most alarming aspect of the Panama Papers revelations was not MF's clientele or even its secretive practices, but that what it does is completely "legal." Nor was this the first such disclosure. In November 2014, for instance, the "Luxleaks" scandal involving a whole "menagerie of Luxembourg-based tax schemes," as the Guardian put it, was disclosed by two whistleblowers from the accounting firm PricewaterhouseCoopers. (Luxembourg is a major European tax haven.) Citigroup, Deutsche Bank, Facebook, HSBC, JPMorgan Chase, and Microsoft were on the list of its more than 350 multinational "tax avoiders."
Avoiding vs. Evading Taxes and Corporate Inversions
Avoiding and evading taxes are technically considered different kinds of acts, the former being legal in the U.S., the latter not. According to the Internal Revenue Service, "Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means." Tax evasion, on the other hand, involves an "act to evade or defeat a tax, or payment of tax" by "deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are."
The line between the two is obviously thin and vague, but both practices result in the same thing: paying fewer taxes or hiding money.
The subject of tax avoidance and evasion has generally gotten little traction on the campaign trail in election 2016, the exception being corporate "inversions." These happen when, for example, an American company merges with a foreign one in a tax haven, and so gets a lower tax rate by re-incorporating (filling out some paperwork) there. This, too, is "legal," although it represents the purest form of corporate tax evasion. Perhaps you won't be surprised to learn that the practice began in Panama about 30 years ago.
In 2014, companies with household names like Apple, Microsoft, Pfizer, and General Electric avoided paying a collective $90 billion in taxes through inversion strategies. Apple led that list, holding $181.1 billion offshore. That's a lot of iPhone sales.
The Leading Candidates and Hidden Money
Tax havens are, in essence, perfectly "legal" criminal facilities designed to steal money from the rest of us. The two leading candidates in this election season, however, aren't talking about closing down tax havens for good (which would piss off lots of rich people, banks, drug cartels, and terrorists). They are instead focused on getting companies to voluntarily repatriate, or return, profits made abroad for taxation purposes or on closing tax "loopholes" that allow money to disappear. Neither, however, offers much detail as to what that means.
Both do share one thing, however, when it comes to tax havens: Hillary Clinton and Donald Trump have companies registered at the same address (also "shared" by 285,000 other companies) in Wilmington, Delaware. In other words, they make use of the "Delaware loophole," which allows for the legal shifting of earnings from elsewhere in the country to the ultimate tax haven state in the U.S. Neither, as Rupert Neate of the Guardian has written, has been willing to offer any explanation for this. That's the political beauty of loopholes: closing one is different from eradicating an entire practice but suffices as a promise.
Hillary has gone after tax havens before. In 2004, as a New York senator, she vowed to close tax loopholes for "people who create a mailbox, or a drop, or send one person to sit on the beach in some island paradise and claim that it is their offshore headquarters." She introduced no bills to do so, however.
She has spoken out against corporate tax inversions, too. She wants Congress to prevent them by imposing what she calls a "commonsense 50%" threshold on them; in other words, as long as a company keeps at least half of its operations in this country, it would be considered a U.S. company for tax purposes, no matter the inversions. She also has favored an "exit tax" to ensure that multinationals pay a "fair" share of U.S. taxes owed on earnings stored overseas. Both of these suggestions would put some modest limits on offshore tax dodging (after the fact), but not come within a country mile of banning it.
On such subjects, she can sound strong indeed at appropriate moments. InFebruary 2016, for instance, she said, "We need to go after a company like Johnson Controls that is trying to avoid paying taxes after all of us bailed it out by pretending to sell itself in a so-called inversion in Europe." It evidently didn't matter to her that the same automotive parts company set to merge with Tyco International (based in Ireland to dodge taxes) had donated money to the Clinton Foundation charity as recently as December 2015. (Johnson Controls denied Hillary's claims that it had received a bailout during the financial crisis.)
Hillary, lest we forget, joined the board of directors of the the Clinton Foundation, the family charity, in 2013. She resigned in April 2015 to run for president. Now, keeping it in the family, her husband, Bill, and her daughter, Chelsea, remain standing members of the board. Spawned from the William J. Clinton Foundation, founded in 1997, the charity has raised $2 billion, has about 2,000 employees (including at times members of Hillary's political team), and boasts an annual budget of $223 million.
Like many gilt-edged couples, Hillary and Bill Clinton have themselves utilized onshore and offshore tax loopholes. In 2010, they used a common tax-dodging technique by placing their multi-million dollar home in Chappaqua, New York, in a "residence trust." After he left office, Bill spent five years as an "adviser" to billionaire (now-ex-pal) Ron Burkle's investment fund, Yucaipa Global, which had funds registered in the Cayman Islands and Dubai. That alliance netted Bill at least $15 million.
Hillary's bedrock thinking on money flowing out of the U.S. and into the offshore world can best be seen in her support for the 2012 U.S.-Panama Trade Promotion Agreement when she was secretary of state. The agreement removed "barriers to U.S. services, including financial services," which actually simplified the process of squirreling money away in or through Panama by allowing it to flow freely into that country.
The Clinton Foundation inhales donations from people using tax havens (including Panama). Although Hillary denounced Mossack Fonseca's dealings on cue after the Panama Papers story broke, a number of individuals and multinationals that have contributed to the foundation used MF to establish offshore accounts, according to McClatchy. These include Canadian mining billionaire Frank Giustra who features in the foundation's $25 million top-tier donor bracket, and two firms tied to Ng Lap Seng, the Chinese billionaire implicated in a major donor scandal involving the Clintons and the Democratic National Committee.
Similarly, in a speech she gave at the New School in July 2015, Hillary highlighted the "criminal behavior" of global bank HSBC. In 2012, the behemoth financial institution agreed to a record $1.92 billion settlement with the Department of Justice and the Treasury Department for enabling drug cartel money laundering and violating U.S. sanctions by conducting transactions for customers in Iran, Libya, Sudan, and Burma. She vowed, "On my watch, it will change."
Yet, in 2014, the Clinton Foundation accepted between $500,000 and $1 million from that bank.
The Panama Papers are but one conflicted instance in which Hillary's stated beliefs, her actions, and the generosity of her friends and acquaintances came together in a contradictory fashion. The evidence suggests that tax-dodgers will, in fact, be able to breathe a sigh of relief if she becomes president. Her actions are likely to -- if you'll excuse the expression -- trump her words when it comes to curtailing the behavior of offshore scofflaws in significant ways. And speaking of Trump...
The Donald
Consider the fact that The Donald won't even disclose his tax returns. His indignantly delivered explanation is that they are "under audit." Under the circumstances, don't hold your breath. Perhaps he doesn't make nearly as much money as he claims -- or maybe he has an embarrassing tax haven habit. Who knows?
Ironically, Mossack Fonseca's Panama City headquarters is located a mereseven-minute drive from the Trump International Hotel and Towers in Panama City. (If you're interested, its website is pitching a bargain on rooms at "15% off our currently available Best Unrestricted Rate.") That decadent complex is one of many sketchy enterprises to which Trump lent his name for licensing purposes. According to his (unaudited) personal financial disclosurereport filed with the Federal Election Commission, the deal earned him $5 million. In true Trumpian style, lawsuits and battles surround the endeavor.
Under the tax plan he's touting in his presidential campaign, U.S. businesses would see a reduction in their maximum tax rate from 35% to 15%. This lower rate ("one of the best in the world") would, he claims, render corporate inversions unnecessary. The Donald apparently hopes that corporate America will be so eternally grateful to him that they'll move their money back onshore and pay taxes on it voluntarily (though most of them already don't pay the top tax rate here anyway).
Trump's views on a "repatriation tax holiday" that would let companies bring home their overseas stashes on a one-time basis for little or nothing have shifted over the course of his candidacy. Last year, he proposed the repatriation of hidden funds without penalty or taxation of any kind. Now he's advocating a more populist one-time 10% tax on them.
Although a key promise of his tax reform plan is to end the practice of stockpiling money in offshore accounts by American companies, he has personally invested in many of the companies that do so. As CBS News noted, in October 2015, Trump owned stock in 22 of the top 30 Fortune 500 companies ranked by their number of offshore subsidiaries. It's a group that has engineered 1,225 tax-haven subsidiaries holding $1.4 trillion. Of course, Trump has a keen understanding of the practices that disguise or shelter money from taxes. As he explained to supporters in Iowa this January, when it comes to his own business enterprises, "I pay as little as possible. I use every single thing in the book."
As far as we know, Bernie has no personal experience with tax havens and has a far more structured plan than either of the leading candidates to combat their money-sucking, tax-dodging prowess. His policies would prevent American companies from avoiding U.S. taxes through inversions, block them from escaping taxes by establishing a post office box in a tax haven site, and end the practice of letting corporations defer paying taxes on profits from offshore subsidiaries.
In the real world, financial speculation, crime, and tax evasion -- sorry for this word again -- trump the highly touted goal of "free trade" when it comes to tax havens. Bernie understood this well when he voted against the Panama "free trade" agreement of 2011. In a Senate speech on the subject, he presciently noted that "Panama is a world leader when it comes to allowing large corporations and wealthy Americans to evade U.S. taxes by stashing their cash in offshore tax havens. And the Panama free trade agreement would make this bad situation much worse."
He was right then and he remains right today. Unfortunately, no one was listening or interested in acting on his warning -- certainly not Hillary, who, as secretary of state, characterized the agreement as "an example of the Obama Administration's commitment to economic statecraft and deepening our economic engagement throughout the world."
In practical terms, Sanders went significantly further than Hillary by formulating actual legislation on the subject. Last April, he introduced theCorporate Tax Dodging Prevention Act of 2015 in the Senate. Among other things, it aspires to "prevent corporations from sheltering profits in tax havens like Bermuda and the Cayman Islands and would stop rewarding companies that ship jobs and factories overseas with tax breaks."
Regarding inversions, he would treat companies as American for tax purposes if they were majority-owned by U.S. interests and operating in this country. Even his plan, however, would fall short unless it made inversions illegal -- and too many companies are invested in not letting that happen.
Ted would abolish the Internal Revenue Service and enable people and companies to file taxes on a postcard, so there's no real point in further analysis of his "positions" on tax havens.
Missing Money Costs
As of 2014, according to Gabriel Zucman, University of California economist and author of The Hidden Wealth of Nations, at least $7.6 trillion, or approximately 8% of global financial wealth, was "missing" somewhere offshore. His analysis demonstrates that the sorts of tax-dodging practices we've been discussing put governments across the planet in the red by approximately $200 billion annually. Tax avoidance by major U.S. companies costs governments an additional $130 billion per year since nearly a third of their profits are hidden offshore.
The U.N. estimates that tax dodging by multinational companies costs developing countries $100 billion a year, an amount "equivalent to what it would cost to provide basic life-saving health services or safe water and sanitation to more than 2.2 billion people."
There are, in other words, harrowing costs to tax dodging. When the wealthy and powerful hide money from governments or speculate with it in sneaky ways, it destabilizes economies and enables the commission of crimes that place a further burden on ordinary people. When money flows from the economic necessities needed by the less privileged to the top fraction of a percent of the world's population and is then hidden offshore, essentially "disappeared," it's a net drain on and a blow to the world economy. This impacts jobs and the quality of our future. Unfortunately, the leading candidates in this election year aren't championing a major change for the better.
Enter Bernie Sanders, the Brooklyn-born presidential contender that has never been paid to perform for Goldman. His message to break up the big banks into less complex components has been ripped apart as single-issue politics, naïve, out of touch with the reality of how things get done. This, from former New York Senator, Hillary Clinton, whose senatorial term covered the entire financial crisis build-up period. Especially for New Yorkers – this IS the most critical issue to consider on Tuesday.
The Big Six banks are bigger (in terms of deposits, assets, and trading market share) than before the financial crisis. This continues to cost taxpayers money. They have settled various lawsuits and federal investigations for about $130 billion in fines since the crisis. Aside from individuals whose losses were directly caused by the associated practices, we collectively paid and pay for the public service hours of the United States Justice Department and Attorney General offices in handling these investigations and suits. Meanwhile, the remaining threat underlying these actions remains intact. CDOs (collateralized debt obligation at the heart of the financial crisis) get bought and sold daily. They're called BOT's now - bespoke tranche opportunities. Same old. Dodd-Frank did not change the size, complexity, inter-dependent relationships or estoric security engineering capabilities of any of the big banks. JPM Chase, the largest US (and New York-based) bank, cared so little about Dodd Frank's tepid requirement for a "living will" (a 'what-happens-now-plan' for after a crisis hits, liquidity dies and people are screwed anyway) that along with four other big banks, it didn't even bother to spend time putting a plan together. Think about that. Dodd-Frank is not pre-emptive security to begin with, and yet, a bank that benefitted from acquiring two other banks during the crisis, doesn't care about even pretending to be concerned with an emergency plan that doesn't involve government support.
New York based banks were involved in crimes ranging from mortgage securities fraud, to foreign exchange rate manipulation to interest rate rigging to violation of anti-money laundering laws to a host of other financial shenanigans. Just last week, Goldman Sachs dusted off another $5 billion settlement (much of it tax-deductible) for misleading investors. It isn't over.
Big Banks retain big power, not just over susceptible politicians that financially gain from these relationships in a myriad of ways from campaign contributions to five-figure a plate fundraising dinners to Super PAC and Foundation millions, but over us – our deposits, financial assets and the stability of our economic futures.
Bernie's overall answer regarding breaking up the banks and actually reducing their systemic risk to the Daily News was correct – it requires a coordinated effort – and the will – from the President, Congress, Treasury Department, Federal Reserve, and the American people. That's how New York son, FDR got it done when he passed the 1933 Glass-Steagall Act that reduced the hazzard of Wall Street's risk appetite. (Even Republican banks, such as Winthrop Aldrich then then-Chairman of Chase Bank, a legacy bank of JPM Chase, helped - AND - he broke up Chase, as his colleague James Perkins who ran National City Bank (now Citigroup) broke up his bank - before the law was passed.
It was Bernie that was invited to speak at the Vatican on unemployment, poverty, and creating an "economy that works for all people rather than just a few." As long as the financial game remains rigged and its landscape unaltered, another tumultuous meltdown is inevitable - not impacting those at the top, but crushing the masses at the bottom. Ordinary. Everyday. New Yorkers.
We are about eight years from the onset of the global financial crash that cratered the economy, killed a couple of investment banks and sent the stocks of the surviving Big Six banks plummeting. They recovered with federal aid. Mega-socialism to Wall Street. That cycle of banking-led problems and gross government negligence prevails today.
New Yorker's should be concerned about Wall Street - not what might happen under Hillary's "plan" (or Trump's or Cruz's lack thereof) but what is happening now - among other dangers and injustices, on-going multi-billion dollar fines supported by taxpayers and capitulating policies.
Breaking up banks is not anti-bank, it's pro-people. That's a distinction that Bernie (and the Vatican) have made. And one that wasn't expressed during any of Hillary's years as a New York Senator.
Bernie was criticized for not pointing to a "single" law over which to prosecute big banks in his Daily News interview. Bernie did far more - he underscored the systemic criminality intrinsic to each Wall Street settlement that centers on multiple manifestations of fraud through misleading investors and the public (which is against SEC laws). Not to mention the felony counts that New York-based JPM Chase and four other banks copped to regarding foreign-exchange rate rigging. These cases are settled because banks can afford to settle them, not because the lawsuits weren't predicated on criminal enterprise. They were. Since 2012, Attorney General, Eric Schneiderman's working group has agreed to $45 billion worth of settlements – with just New York-based banks.
If you break up a bank, you break up its ability to scam the public, to stuff loans into fraudulently presented toxic assets and trade them to unsuspecting pension funds. That's what Glass Steagall prevented for decades. You also reduce the cost of investigation and settlements. You reduce the possibility of anyone's deposit account or mortage loan or insurance contract being held hostage during the next government bailout. You reduce the power inequality that spawns economic inequality. You create longer-lasting global stability. You vote for Bernie.
He was also under Carwash corruption investigations. No one so tainted, should risk throwing stones so blithely at a sitting, elected president. Brazil's new Attorney General, Jose Eduardo Cardozo, said as much, yesterday, on the grounds there are no legal reasons to impeach her, and that doing so would be to "rip up the constitution."
The domestic and international implications associated with Brazil's internal turmoil transcend the walls of the Planalto Palace in Brasilia, a planned city that belies its far less organized and cohesive government.
The majority of national and foreign press outlets have considered the impeachment of Dilma Rouseff a foregone conclusion, a question of when, not if. Last week's defection of the PMDB party, led by wannabe President, Michel Temer, the current Vice President hand-picked by PT (Worker's Party) leader, Dilma Rouseff was deemed another sign of her pending removal. Waiting in the wings of power, Temer had written a letter on December 7, 2015, that went viral and became the butte of many jokes in Brazil. He complained that Dilma didn't trust him enough to give him real latitude in her government. She was right. Score one for female intuition at least.
But that impeachment conclusion is based on a lattice of shaky alliances whose loyalties, like Temer's and the party he represents that historically sides with power not policy, can not be fully trusted. And even so, Temer isn't on solid ground.
Individual PMDB deputies don't have to vote with their party's leader, in the case of impeachment proceeding, or on anything for that matter. Brazil's major newspapers lean pro-impeachment and thus, tend to overplay that stance publicly, skewing popular opinion and downplaying the horse-trading strategies of Dilma's supporters. Brazilian newspaper, O Estado de São Paulo (Estadão), released their own math on April 2 regarding the impeachment situation in the House of Representatives.
According to their research, which only applies to 442 out of 513 deputies, 261 deputies are pro impeachment, 117 are against it, and 44 are undecided or waiting for more party direction. Even if one takes what politicians say in secret to a right-leaning paper for granted, these figures are actually better for the government than the opposition. Moving forward on impeachment requires 342 votes - which aren't there. The real situation can be recapped as follows:
1) There are 261 votes pro-impeachment (the core of the right-wing opposition plus some new deputies from the PMDB and some smaller party deputies);
2) There are 117 votes against impeachment (the core of left-wing parties plus loyal PMDB and small parties deputies);
3) There are 135 votes to be disputed (considering 55 undecided, 71 not localized and 9 that didn't answer). So, by this report, the opposition needs 60% of the votes in dispute to secure impeachment. Obviously, this is possible, but it is not certain.
On the other hand, Lula is building deals with small parties, and therefore:
1) It is possible that the Worker's Party (PT) will support the Brazilian Republican Party (PRB) in the Rio de Janeiro mayor election. By doing this, it is possible to turn most of those 12 and 5 votes that are pro-impeachment and undecided (maybe more in other parties because the PRB deputy is a popular evangelical church leader and owner of the second most important TV open channel in Brazil – Record TV);
2) The government is taking advantage of wobbly PMDB positions to negotiate with PP, PSD and PR deputies on the fence (examining the undecided votes of these three parties, gives 22 votes, and pro-impeachment votes could also change).
Separately, there's Supreme Court Judge Marco Aurelio de Mello's latest declaration. He just announced that Dilma could appeal to the Supreme Court in case of an impeachment, and that if this impeachment is made without proof of crime, she could win the appeal. He has opposed the overzealous nature of prosecutor, Sérgio Moro's Carwash investigations. Moro has the media fawning over him - he's thin, attractive and clean-shaven (as compared to hefty, scruffier, former President "Lula") But, he's only an ambitious b-level judge (despite acting as a prosecutor), multiple slots below Marco Aurelio de Mello. Another wrinkle? If Dilma is found guilty of corruption, so would Temer be, as he's been in her government since 2011.
Dilma denies any wrong-doing. It's also not clear which law she ostensibly broke, and if breaking that particular law is an impeachable offense. Her oft-cited "pedaladas fiscais" actions (moving money into the public till from public banks) would be illegal under the Fiscal Responsibility Law. But, only if the monies remained there at the end of the fiscal year. They didn't. She moved them back beforehand. This is sketchy, but common, and not necessarily illegal. However, her moves would not be illegal with respect to Public Budget Law, the operating law regarding responsibility crime and, consequently, impeachment.
With all the scrutiny, no offical charges of corruption (that could describe deputies across the political spectrum) have yet been levied against Dilma. This is why many anti-impeachment demonstrators are calling the entire escapade a coup or "gulpe" as well as an anti-democracy, purely politically-motivated act.
None of that makes Dilma a great president, something many people on the left and right agree upon – for different reasons. She also had to contend with battered commodity prices and lower demand from China, which compromised Brazil's economy. But it makes removing her more akin to a political coup (without the military involvement of the 1964 coup) than a measure of national justice.
Still, the main conversation in Brazil's streets revolves around speculation over Dilma's survival or demise. Betting against Dilma is also a pro-market, investor-friendly sport. The market rallies when her prospects worsen. It has been tha way since she ran for her second presidential term in 2014. She won by a narrow margin, hence the anger in Brasilia. The environment, as esteemed economist, and former Finance Minister Luiz Carlos Bresser-Pereira, told me during a private meeting at his São Paulo home, "shows more hate than I have witnessed at any other time during my career."
The idea of removing a left-wing government with a growing public debt to GDP ratio is embraced by the upper, business and new middle class (or upper middle class.) Current levels of social spending are seen as unnecessary even if they had helped tame inequality and provided services that all Brazilians enjoy. Public debt to GDP stands at 66% up from 54% last year, and is predicted to grow to 70% (which would be about 34% lower than the 104% debt to GDP ratio of the United States.)
Right now, universities are free in Brazil. Engineers, economists, lawyers, and doctors can earn a top notch education without incurring the kind of crippling debt that similar students in the US face (and that Bernie Sanders is campaigning to remove.) With Dilma gone, Tuition subsidies would be cut. That's one problem that students, regardless of their political ideologies would be hard-pressed to embrace. Health care, which is universal in Brazil , though the wealthier use private care as in many European countries, would be cut. Subsidies to the poor would be chopped as well.
Brazil's inequality would grow, So would unrest, demonstrations and unemployment. Even if Dilma is impeached and Temer remains somehow distant from being painted with the same brush of corruption being used against her, and embarks upon his austerity path – or 'bridge to the future' - economic conditions would still falter. That would make his position shakier with respect to the population (only a smattering of whom ever voted for him) and to interally hostile Machiavellian environment that characterize Brazil's government.
The alluring idea to those that want Dilma out, is the prospect of smooth sailing to a less left, more financially liberalized Brazil that would welcome foreign capital with even more open arms. But without her, waters could get much rougher. The anger of Brazilians could galvanize as the economy weakens.
This ramification may not be in the minds of most Brazilians, though strong opinions about her abound. The students in Porto Alegre, Brazil's southern most important city, with whom I participated in a pro-democracy demonstration last Thursday (that drew the largest crowds yet, including people old and young, plus new additions to that cause) admit her many weaknesses (lying to them, being an ineffective negotiator, lacking the charisma of Lula, etc.). But they are equally skeptical of the politicians on 'the other side' and fearful of the future of the economy under their policies. That said, one of my taxi drivers called her 'that bitch.'
As more demonstrations are planned, and the numbers of pro-democracy citizens rise on the realization that any shifting in government leaders means the same corruption (or more), just different faces, deputies could think twice about their votes. Dilma could keep her job by a sliver.
Because it's Brazil though, every bit of this is in flux. House of Cards isn't popular here for no reason. Meanwhile, the only thing that remains certain is uncertainty.
It's tempting to consider the spectacle as isolated to Brazil's unique brand of political-corporate collusion, where pillaging state-run companies to line pockets of power players is standard practice. But that doesn't do the whole story justice.
In the US, bartering government contracts or certain legislation for billions of dollars of political donations falls under the umbrella of legalized bribery, better known as campaign contributions, including via SuperPacs, the elite's favorite political currency thanks to Citizens United. Political stars leave Washington for cushy corporate board posts or lucrative speaking engagements, sometimes en route back to DC.
It's similar in Brazil, where former President "Lula" allegedly bagged $8 million in post-presidential speaking gigs from six companies. Bill Clinton nabbed about $105 million since he left the White House. Exact comparisons of how much of either of those sets of fees were connected to companies practicing corporate corruption will be a topic for my book, or another time. One country's public sector scandal is another country's private sector cost of doing business. Let's not pretend otherwise.
Details aside, establishment corruption is a global virus. It may fester in a certain spot for longer periods or in greater concentration for awhile, but it's omnipresent. It morphs to adapt to its environment and leaders. It moves like liquid. Because it links money and power, its also snakes through banks and political parties of all persuasions all over. For now, the scene is Brazil, but the corruption under scrutiny is bigger than Brazil.
Broken Promises
(A version of the next section appeared in the February Issue of Strategic Intelligence where you can see sneak peaks of Artisans of Money and follow my colleagues, Jim Rickards and Tres Knippa.)
Things once looked so promising for Petrobras, Brazil's state-run mega-oil company. In July 2006, the discovery of a massive pre-salt layer, 300 kilometers off the coast had the potential to transform Brazil into a leading oil producer.
The notion of "oil autonomy" even played a prominent role in Brazil's 2010 presidential campaign. That platform helped secure the presidency for Lula's protégé, Dilma Rousseff, who also happened to chair Petrobras' board of directors from 2003 to 2010. Petrobras was destined to become the biggest oil company in the world.
Naturally, everyone wanted a piece of it. Multinational banks wanted to finance it. Speculators and pension fund managers bet on its success. Two years after the US financial crisis cratered the global banking system, the energy sector provided mega banks fresh opportunity to manufactured and leverage debt. Subprime mortgages had gone cold. Oil was hot. Petrobras was really hot.
On September 24, 2010, Petrobras raised $70 billion in the largest share issue ever. Three of the Big Six US banks, Bank of America/Merrill Lynch, Citigroup, and Morgan Stanley, while simultaneously facing multi-billion dollar fraud suits in the US were global book runners. Brazilian bank, Banco Bradesco lead the offering. Banco Itau was another global book runner.
Brazil's Enron: The Unraveling of Petrobras: 2014
In the energy and finance sectors, the bigger they are, the more crimes they've committed. Just as US energy company Enron imploded in a haze of fraud in 2001, Petrobras followed suit. In March 2014, Brazilian investigators discovered certain Petrobras employees had taken kickbacks for awarding lucrative contracts. Petrobras sourced the bribe money the old–fashioned way - cooking its books; inflating contract payments and artificially inflating asset levels. Potential fraud totaled $30 billion over a 15-year period and became the focus of national probes and international lawsuits.
On March 17, 2014, Brazilian Federal Police arrested two men as part of "Operation Carwash," a federal investigation into associated money laundering activities. Paulo Roberto Costa, former head of Petrobras' refining and supply department, and Alberto Youssef, infamous Brazilian money launderer, were convicted and later sentenced to 12 and 8 years in prison respectively for having masterminded the web of corruption. They were also allegedly involved in money laundering operations for the PMDB (Brazilian Democratic Movement Party) and right wing PP (Progressive Party).
Costa's role in the corruption was international. In 2006, under his direction, a sketchy US acquisition took place. Petrobras purchased Houston-based refinery company, Pasadena, for $1.2 billion, about 30 times its worth. The purchase began at ten times its prior value, or $360 million for 50% of Pasadena, to be shared with Belgium energy firm, Astra. By July 2012, Petrobras paid an extra $820.5 million for its stake.
On July 23 2014, Brazil's public-spending watchdog organization, Union Accounting Tribunal (TCU) determined that Petrobras had overpaid for Pasadena. The kicker? Dilma had approved the purchase while Minister of Energy and president of Petrobras' board of directors. It was a decision that was either crooked or dumb, or both.
Three months later, on October 29, 2014, Veja Magazine published illegally leaked testimony from Youssef accusing Rousseff and Lula of knowing details about Petrobras' corruption 48 hours before the Presidential election. She won again anyway, but by a much slimmer margin. Petrobras didn't do so well. During 2014, Petrobras stock dropped by 37.9%. The decline continued.
More Unraveling and International Ire: 2015
By early 2015, not only was Petrobras mired in scandal, but also its foreign investors were livid. Lawsuits for billions of dollars of losses due to investors having been "misinformed" about Petrobras' true condition were stacking up.
Certain American banks were not blameless. Though they will argue it in the courts, they helped inflate Petrobras' debt burden without appropriate due-diligence, and advised clients to invest in Petrobras. Just like with Enron: big banks helped the firm become the sham it was and shareholders paid the price. That government corruption was also involved was either the cake or the icing depending on your point of view.
In New York, US Judge Jed Rakoff consolidated all the lawsuits against Petrobras and its bankers – Citigroup Global Markets, JP Morgan Securities and Morgan Stanley - into one large class action.
The nine largest Petrobras' American Depository Shares (ADS) holders claimed losses of more than $50 million each. Amongst claimants were US pensions funds already engaged in suits against US banks for subprime related fraud, such as the Ohio Public Employees Retirement fund. The Bill and Melinda Gates Foundation sued Petrobras. So did Pimco. The list is pretty long. Your pension fund may very well be on it.
With oil prices diving and scandal escalating, Petrobras needed money to make interest payments. Petrobras owes about $135 billion in loans and bonds (some estimates are lower) to banks and investors. China, Brazil's largest trade partner came to its rescue last spring. On April 1, 2015, Petrobras signed a $3.5 billion financing agreement with the China Development Bank as part of a broader oil cooperation agreement with China. (On February 26, 2016, China Development Bank produced another lifeline –a $10 billion loan in return for oil supply that covers all Petrobras' debt needs this year.)
China's generosity stoked a competitive urge amongst US-Euro banks. There's a reason for the phrase "throwing good money after bad" especially when it's other people's good money. On June 1, 2015, Petrobras issued $2.5 billion worth of a 100-year "century" bond with an annual yield of 8.45%. Deutsche Bank and J.P. Morgan coordinated operations for the first century bond issued by a Latin American company since 1997.
Foreign investor demand rendered the issue 5 times over-subscribed. Yet, mid-scandal Petrobras projections were based on crude oil prices of $60 and $70 per barrel for 2015 and 2016 when in fact oil prices closed 2015 nearer to $35 per barrel.
Big Banks were there to collect when the music stopped, too. On June 3, 2015, two years after Bank of America called Petrobras the "most indebted company in the world," Petrobras invited it to run a $5 billion asset sale.
On July 17, 2015, Petrobras selected five banks to lead the IPO of BR Distribuidora, Petrobras' fuel distribution unit that controls Brazil's largest gasoline network. They were Citigroup, Banco Bradesco, ItaúUnibanco, Banco do Brasil and BTG Pactual.
You'll notice that all three major US bank participants in the 2010 share issue bagged lucrative roles in Petrobras' demise; Citigroup in the IPO spin-off, JPM Chase in the century bond issue, and Bank of America in the assets sales.
The US-lead suit against Petrobras and its bankers will get increasingly hostile. On October 6, 2015, banks challenged the plaintiffs' claims and tried to get the case dismissed. Rakoff said "No." The suit is awaiting a trial date. (Petrobras Securities Litigation, U.S. District Court, Southern District of New York, No. 14-09662.)
Petrobras has denied all allegations and claims to be the victim of a plot against it by contractors and corrupt politicians. On October 20, 2015, a pro-government commission cleared Dilma of wrongdoings, but that ship remains in the harbor. Both Dilma and Lula could be called for testimony as the US case unfolds.
Other Problems
On December 22, 2015, newly appointed Minister of Finance, N. Barbosa, announced Petrobras didn't need a government injection – just higher oil prices. The next day, Brazil's antitrust authority, CADE, opened its own investigations into contract rigging associated with the 21 companies and 59 execs already under criminal probe.
Petrobras' problems have hampered Brazil on multiple levels beyond scandal and an estimated $30 billion in GDP losses. Due to ongoing investigations, Petrobras stopped payments to other firms, including rigging companies. That sent some into bankruptcy and others to the brink, a factor that will depress their share prices and cause more defaults in 2016. Related sectors remain imperiled, including the steel, construction and banking sectors.
In addition, Brazil's pension funds are in crisis. Unemployment and inflation, over 10 percent for the first time in 12 years, are rising sharply, despite high interest rates fashioned to contain inflation. Debt, defaults, jobs losses, lawsuits and currency devaluation don't paint a rosy picture.
Three investigations about Lula's connections with two companies prosecuted in Carwash Operation (OAS and Odebrecht) were opened on February 11, 2016, involving his country estate and beachfront apartment as well as other family holdings. On March 4, 2016, police stormed Lula's home to take him in for questioning. Because it's Brazil, the drama drove the Real and local markets higher; the idea of an imminent end to Dilma seen (by markets and many Brazilians, including her former supporters) as a preferred alternative to the opposition party's own equally corrupt leader.
Dilma has proven resilient so far, but political instability over her Petrobras relationship and alleged "dipping" into state bank funds to pay other expenses, will continue to darken the doorstep of Brazil's political system. We have 30 days to see whether her other coalition partner, the more centrist PMDB party, backs away from her, signaling a major reshuffling in Brasilia. Yet it's not like members of the opposition party are scandal-free. Which brings us back to the trio of money, power and corruption, it may have geographical or cultural nuances, but its stench is universal.
This Piece Originally Appeared in TomDispatch.
Speaking of the need for citizen participation in our national politics in his final State of the Union address, President Obama said, "Our brand of democracy is hard." A more accurate characterization might have been: "Our brand of democracy is cold hard cash."
Cash, mountains of it, is increasingly the necessary tool for presidential candidates. Several Powerball jackpots could already be fueled from the billions of dollars in contributions in play in election 2016. When considering the present donation season, however, the devil lies in the details, which is why the details follow.
With three 2016 debates down and six more scheduled, the two fundraisers with the most surprising amount in common are Bernie Sanders and Donald Trump. Neither has billionaire-infused super PACs, but for vastly different reasons. Bernie has made it clear billionaires won't ever hold sway in his court. While Trump... well, you know, he's not only a billionaire but has the knack for getting the sort of attention that even billions can't buy.
Regarding the rest of the field, each candidate is counting on the reliability of his or her own arsenal of billionaire sponsors and corporate nabobs when the you-know-what hits the fan. And at this point, believe it or not, thanks to the Supreme Court's Citizens United decision of 2010 and the super PACs that arose from it, all the billionaires aren't even nailed down or faintly tapped out yet. In fact, some of them are already preparing to jump ship on their initial candidate of choice or reserving the really big bucks for closer to game time, when only two nominees will be duking it out for the White House.
Capturing this drama of the billionaires in new ways are TV networks eager to profit from the latest eyeball-gluing version of election politicking and the billions of dollars in ads that will flood onto screens nationwide between now and November 8th. As super PACs, billionaires, and behemoth companies press their influence on what used to be called "our democracy," the modern debate system, now a 16-month food fight, has become the political equivalent of the NFL playoffs. In turn, soaring ratings numbers, scads of ads, and the party infighting that helps generate them now translate into billions of new dollars for media moguls.
For your amusement and mine, this being an all-fun-all-the-time election campaign, let's examine the relationships between our twenty-first-century plutocrats and the contenders who have raised $5 million or more in individual contributions or through super PACs and are at 5% or more in composite national polls. I'll refrain from using the politically correct phrases that feed into the illusion of distance between super PACs that allegedly support candidates' causes and the candidates themselves, because in practice there is no distinction.
On the Republican Side:
1. Ted Cruz: Most "God-Fearing" Billionaires
Yes, it's true the Texas senator "goofed" in neglecting to disclose to the Federal Election Commission (FEC) a tiny six-figure loan from Goldman Sachs for his successful 2012 Senate campaign. (After all, what's half-a-million dollars between friends, especially when the investment bank that offered it also employed your wife as well as your finance chairman?) As The Donald recently told a crowd in Iowa, when it comes to Ted Cruz, "Goldman Sachs owns him. Remember that, folks. They own him."
That aside, with a slew of wealthy Christians in his camp, Cruz has raised the second largest pile of money among the GOP candidates. His total of individual and PAC contributions so far disclosed is a striking $65.2 million. Of that, $14.28 million has already been spent. Individual contributors kicked in about a third of that total, or $26.57 million, as of the end of November 2015 -- $11 million from small donors and $15.2 million from larger ones. His five top donor groups are retirees, lawyers and law firms, health professionals, miscellaneous businesses, and securities and investment firms (including, of course, Goldman Sachs to the tune of $43,575).
Cruz's Keep the Promise super PAC continues to grow like an action movie franchise. It includes his original Keep the Promise PAC augmented by Keep the Promise I, II, and III. Collectively, the Keep the Promise super PACs amassed $37.83 million. In terms of deploying funds against his adversaries, they have spent more than 10 times as much fighting Marco Rubio as battling Hillary Clinton.
His super PAC money divides along family factions reminiscent of Game of Thrones. A $15 million chunk comes from the billionaire Texas evangelical fracking moguls, the Wilks Brothers, and $10 million comes from Toby Neugebauer, who is also listed as the principal officer of the public charity, Matthew 6:20 Foundation; its motto is "Support the purposes of the Christian Community."
Cruz's super PACs also received $11 million from billionaire Robert Mercer, co-CEO of the New York-based hedge fund Renaissance Technologies. His contribution is, however, peanuts compared to the $6.8 billion a Senate subcommittee accused Renaissance of shielding from the Internal Revenue Service (an allegation Mercer is still fighting). How's that for "New York values"? No wonder Cruz wants to abolish the IRS.
Another of Cruz's contributors is Bob McNair, the real estate mogul, billionaire owner of the National Football League's Houston Texans, and self-described "Christian steward."
2. Marco Rubio: Most Diverse Billionaires
Senator Marco Rubio of Florida has raised $32.8 million from individual and PAC contributions and spent about $9 million. Despite the personal economic struggles he's experienced and loves to talk about, he's not exactly resonating with the nation's downtrodden, hence his weak polling figures among the little people. Billionaires of all sorts, however, seem to love him.
The bulk of his money comes from super PACs and large contributors. Small individual contributors donated only $3.3 million to his coffers; larger individual contributions provided $11.3 million. Goldman Sachs leads his pack of corporate donors with $79,600.
His main super PAC, Conservative Solutions, has raised $16.6 million, making it the third largest cash cow behind those of Jeb Bush and Ted Cruz. It holds $5 million from Braman Motorcars, $3 million from the Oracle Corporation, and $2.5 million from Benjamin Leon, Jr., of Besilu Stables. (Those horses are evidently betting on Rubio.)
He has also amassed a healthy roster of billionaires including the hedge-fund "vulture of Argentina" Paul Singer who was the third-ranked conservative donor for the 2014 election cycle. Last October, in a mass email to supporters about a pre-Iowa caucus event, Singer promised, "Anyone who raises $10,800 in new, primary money will receive 5 VIP tickets to a rally and 5 tickets to a private reception with Marco."
Another of Rubio's Billionaire Boys is Norman Braman, the Florida auto dealer and his mentor. These days he's been forking over the real money, but back in 2008, he gave Florida International University $100,000 to fund a Rubio post-Florida statehouse teaching job. What makes Braman's relationship particularly intriguing is his "intense distaste for Jeb Bush," Rubio's former political mentor and now political punching bag. Hatred, in other words, is paying dividends for Rubio.
Rounding out his top three billionaires is Oracle CEO Larry Ellison, who ranks third on Forbes's billionaire list. Last summer, he threw a $2,700 per person fundraiser in his Woodside, California, compound for the candidate, complete with a special dinner for couples that raised $27,000. If Rubio somehow pulls it out, you can bet he will be the Republican poster boy for Silicon Valley.
3. Jeb Bush: Most Disappointed Billionaires
Although the one-time Republican front-runner's star now looks more like a black hole, the coffers of "Jeb!" are still the ones to beat. He had raised a total of $128 million by late November and spent just $19.9 million of it. Essentially none of Jeb's money came from the little people (that is, us). Barely 4% of his contributions were from donations of $200 or less.
In terms of corporate donors, eight of his top 10 contributors are banks or from the financial industry (including all of the Big Six banks). Goldman Sachs (which is nothing if not generous to just about every candidate in sight -- except of course, Bernie) tops his corporate donor chart with $192,500. His super PACs still kick ass compared to those of the other GOP contenders. His Right to Rise super PAC raised a hefty $103.2 million and, despite his disappearing act in the polls, it remains by far the largest in the field.
Corporate donors to Jeb's Right to Rise PAC include MBF Healthcare Partners founder and chairman Mike Fernandez, who has financed a slew of anti-Trump ads, with $3.02 million, and Rooney Holdings with $2.2 million. Its CEO, L. Francis Rooney III, was the man George W. Bush appointed ambassador to the Vatican. Former AIG CEO Hank Greenberg's current company, CV Starr (and not, as he has made pains to clarify, he himself), gave $10 million to Jeb's super PAC. In the same Fox Business interviewwhere he stressed that distinction, he also noted, "I'm sorry he is not living up to expectations, but that's the reality of it." AIG, by the way, received $182 billion in bailout money under Jeb's brother, W.
4. Ben Carson: No Love For Billionaires
Ben Carson is running a pretty expensive campaign, which doesn't reflect well on his possible future handling of the economy (though, as he sinks toward irrelevance in the polls, it seems as if his moment to handle anything may have passed). Having raised $38.7 million, he's spent $26.4 million of it. His campaign received 63% of its contributions from small donors, which leaves it third behind Bernie and Trump on that score, according to FEC filings from October 2015.
His main super PACs, grouped under the title "the 2016 Committee," raised just $3.8 million, with rich retired people providing the bulk of it. Another PAC, Our Children's Future, didn't collect anything, despite its pledge to turn "Carson's outside militia into an organized army."
But billionaires aren't Carson's cup of tea. As he said last October, "I have not gone out licking the boots of billionaires and special-interest groups. I'm not getting into bed with them."
Carson recently dropped into fourth place in the RealClearPolitics composite poll for election 2016 with his team in chaos. His campaign manager, Barry Bennett, quit. His finance chairman, Dean Parke, resignedamid escalating criticism over his spending practices and his $20,000 a month salary. As the rising outsider candidate, Carson once had an opportunity to offer a fresh voice on campaign finance reform. Instead, his campaign learned the hard way that being in the Republican hot seat without a Rolodex of billionaires can be hell on Earth.
5. Chris Christie: Most Sketchy Billionaires
For someone polling so low, New Jersey Governor Chris Christie has amassed startling amounts of dosh. His campaign contributions stand at $18.6 million, of which he has spent $5.7 million. Real people don't care for him. Christie has received the least number of small contributions in either party, a bargain basement 3% of his total.
On the other hand, his super PAC, America Leads, raised $11 million, including $4.3 million from the securities and investment industry. His top corporate donors at $1 million each include Point 72 Asset Management, the Steven and Alexandra Cohen Foundation, and Winnecup Gamble Ranch, run by billionaire Paul Fireman, chairman of Fireman Capital Partners and founder and former chairman of Reebok International Ltd.
Steven Cohen, worth about $12 billion and on the Christie campaign's national finance team, founded Point 72 Asset Management after being forced to shut down SAC Capital, his former hedge-fund company, due to insider-trading charges. SAC had to pay $1.2 billion to settle.
Christie's other helpful billionaire is Ken Langone, co-founder of Home Depot. But Langone, as he told the National Journal, is not writing a $10 million check. Instead, he says, his preferred method of subsidizing politicians is getting "a lot of people to write checks, and get them to get people to write checks, and hopefully result in a helluva lot more than $10 million." In other words, Langone offers his ultra-wealthy network, not himself.
6. Donald Trump: I Am A Billionaire
Trump's campaign has received approximately $5.8 million in individual contributions and spent about the same amount. Though not much compared to the other Republican contenders, it's noteworthy that 70% of Trump's contributions come from small individual donors (the highest percentage among GOP candidates). It's a figure that suggests it might not pay to underestimate Trump's grassroots support, especially since he's getting significant amounts of money from people who know he doesn't need it.
Last July, a Make America Great Again super PAC emerged, but it shut downin October to honor Trump's no super PAC claim. For Trump, dealing with super PAC agendas would be a hassle unworthy of his time and ego. (He is, after all, the best billionaire: trust him.) Besides, with endorsements from luminaries like former Alaska Governor Sarah Palin and a command of TV ratings that's beyond compare, who needs a super PAC or even his own money, of which he's so far spent remarkably little?
On The Democratic Side:
1. Hillary Clinton: A Dynasty of Billionaires
Hillary and Bill Clinton earned a phenomenal $139 million for themselves between 2007 and 2014, chiefly from writing books and speaking to various high-paying Wall Street and international corporations. Between 2013 and 2015, Hillary Clinton gave 12 speeches to Wall Street banks, private equity firms, and other financial corporations, pocketing a whopping $2,935,000. And she's used that obvious money-raising skill to turn her campaign into a fundraising machine.
As of October 16, 2015, she had pocketed $97.87 million from individual and PAC contributions. And she sure knows how to spend it, too. Nearly half of that sum, or $49.8 million -- more than triple the amount of any other candidate -- has already gone to campaign expenses.
Small individual contributions made up only 17% of Hillary's total; 81% came from large individual contributions. Much like her forced folksiness in the early days of her campaign when she was snapped eating a burrito bowl at a Chipotle in her first major meet-the-folks venture in Ohio, those figures reveal a certain lack of savoir faire when it comes to the struggling classes.
Still, despite her speaking tour up and down Wall Street and the fact that fourof the top six Wall Street banks feature among her top 10 career contributors, they've been holding back so far in this election cycle (or perhaps donating to the GOP instead). After all, campaign 2008 was a bust for her and nobody likes to be on the losing side twice.
Her largest super PAC, Priorities USA Action, nonetheless raised $15.7 million, including $4.6 million from the entertainment industry and $3.1 million from securities and investment. The Saban Capital Group and DreamWorks kicked in $2 million each.
Hillary has recently tried to distance herself from a well-deserved reputation for being close to Wall Street, despite the mega-speaking fees she's garnered from Goldman Sachs among others, not to speak of the fact that five of the Big Six banks gave money to the Clinton Foundation. She now claims that her "Wall Street plan" is stricter than Bernie Sanders's. (It isn't. He's advocating to break up the big banks via a twenty-first-century version of the Glass-Steagall Act that Bill Clinton buried in his presidency.) To top it off, she scheduled an elite fundraiser at the $17 billion "alternative investment" firm Franklin Square Capital Partners four days before the Iowa Caucus. So much for leopards changing spots.
You won't be surprised to learn that Hillary has billionaires galore in her corner, all of whom backed her hubby through the years. Chief among them is media magnate Haim Saban who gave her super PAC $2 million. George Soros, the hedge-fund mogul, contributed $2.02 million. DreamWorks Animation chief executive Jeffrey Katzenberg gave $1 million. And the list goes on.
2. Bernie Sanders: No Billionaires Allowed
Bernie Sanders has stuck to his word, running a campaign sans billionaires. As of October 2015, he had raised an impressive $41.5 million and spent about $14.5 million of it.
None of his top corporate donors are Wall Street banks. What's more, a record 77% of his contributions came from small individual donors, a number that seems only destined to grow as his legions of enthusiasts vote with their personal checkbooks.
According to a Sanders campaign press release as the year began, another $33 million came in during the last three months of 2015: "The tally for the year-end quarter pushed his total raised last year to $73 million from more than 1 million individuals who made a record 2.5 million donations." That number broke the 2011 record set by President Obama's reelection committee by 300,000 donations, and evidence suggests Sanders's individual contributors aren't faintly tapped out. After recent attacks on his single-payer healthcare plan by the Clinton camp, he raised $1.4 million in a single day.
It would, of course, be an irony of ironies if what has been a billionaire's playground since the Citizens United decision became, in November, a billionaire's graveyard with literally billions of plutocratic dollars interred in a grave marked: here lies campaign 2016.
The Media and Debates
And talking about billions, in some sense the true political and financial playground of this era has clearly become the television set with a record $6 billion in political ads slated to flood America's screen lives before next November 8th. Add to that the staggering rates that media companies have been getting for ad slots on TV's latest reality extravaganza -- those "debates" that began in mid-2015 and look as if they'll never end. They have sometimes pulled in National Football League-sized audiences and represent an entertainment and profit spectacle of the highest order.
So here's a little rundown on those debates thus far, winners and losers (and I'm not even thinking of the candidates, though Donald Trump would obviously lead the list of winners so far -- just ask him). In those ratings extravaganzas, especially the Republican ones, the lack of media questions on campaign finance reform and on the influence of billionaires is striking -- and little wonder, under the money-making circumstances.
The GOP Show
The kick-off August 6th GOP debate in Cleveland, Ohio, was a Fox News triumph. Bringing in 24 million viewers, it was the highest-rated primary debate in TV history. The follow-up at the Reagan Library in Simi Valley, California, on September 16th, hosted by CNN and Salem Radio, grabbed another 23.1 million viewers, making it the most-watched program in CNN's history. (Trump naturally took credit for that.) CNN charged up to $200,000for a 30-second spot. (An average prime-time spot on CNN usually goes for $5,000.) The third debate, hosted by CNBC, attracted 14 million viewers, a record for CNBC, which was by then charging advertisers $250,000 or more for 30-second spots.
Fox Business News and the Wall Street Journal hosted the next round on November 10th: 13.5 million viewers and (ho-hum) a Fox Business News record. For that one, $175,000 bought you a 30-second commercial slot.
The fifth and final debate of 2015 on December 15th in Las Vegas, again hosted by CNN and Salem Radio, lassoed 18 million viewers. As 2016 started, debate fatigue finally seemed to be setting in. The first debate on January 14th in North Charleston, South Carolina, scored a mere 11 million viewers for Fox Business News. When it came to the second debate (and the last before the Iowa caucuses) on January 28th, The Donald decided not to grace it with his presence because he didn't think Fox News had treated him nicely enough and because he loathes its host Megyn Kelly.
The Democratic Debates
Relative to the GOP debate ad-money mania, CNN charged a bargain half-off, or $100,000, for a 30-second ad during one of the Democratic debates. Let's face it, lacking a reality TV star at center stage, the Democrats and associated advertisers generally fared less well. Their first debate on October 13th in Las Vegas, hosted by CNN and Facebook, averaged a respectable 15.3 million viewers, but the next one in Des Moines, Iowa, overseen by CBS and the Des Moines Register, sank to just 8.6 million viewers. Debate number three in Manchester, New Hampshire, hosted by ABC and WMUR, was rumored to have been buried by the Democratic National Committee (evidently trying to do Hillary a favor) on the Saturday night before Christmas. Not surprisingly, it brought in only 7.85 million viewers.
The fourth Democratic debate on NBC on January 17th (streamed live on YouTube) featured the intensifying battle between an energized Bernie and a spooked Hillary. It garnered 10.2 million TV viewers and another 2.3 million YouTube viewers, even though it, too, had been buried -- on the Sunday night before Martin Luther King, Jr. Day. In comparison, 60 Minutes on rival network CBS nabbed 20.3 million viewers.
The Upshot
So what gives? In this election season, it's clear that these skirmishes involving the ultra-wealthy and their piles of cash are transforming modern American politics into a form of theater. And the correlation between big money and big drama seems destined only to rise. The media needs to fill its coffers between now and election day and the competition among billionaires has something of a horse-betting quality to it. Once upon a time, candidates drummed up interest in their policies; now, their policies, such as they are, have been condensed into so many buzzwords and phrases, while money and glitz are the main currencies attracting attention.
That said, it could all go awry for the money-class and wouldn't that just be satisfying to witness -- the irony of an election won not by, but despite, all those billionaires and corporate patrons.
Will Bernie's citizens beat Hillary's billionaires? Will Trump go billion to billion with fellow New York billionaire Michael Bloomberg? Will Cruz's prayers be answered? Will Rubio score a 12th round knockout of Cruz and Trump? Does Jeb Bush even exist? And to bring up a question few are likely to ask: What do the American people and our former democratic republic stand to lose (or gain) from this spectacle? All this and more (and more and more money) will be revealed later this year.
Over the holidays, I had the opportunity to stay away from airports and hike Runyon Canyon with my dogs. For those of you that have never traversed Runyon's peaks and dips, they are nature's respite from the urban streets of Los Angeles, yet located in the heart of the City of Angels. It's a place in which to observe, reflect, and think about what's coming ahead.
As a writer and journalist covering the ebbs and flows of government, elite individual, central bank and private industry power, actions, co-dependencies, and impacts on populations and markets worldwide, I often find myself reacting too quickly to information. As I embark upon extensive research for my new book, Artisans of Money, my resolution for the book - and the year - is to more carefully consider small details in the context of the broader perspective. My travels will take me to Brazil, Mexico, China, Japan, Germany, Spain, Greece and more. My intent is to converse with people in their respective locales; those formulating (or trying to formulate) monetary, economic and financial policy, and those affected by it.
We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever.
The butterfly effect - the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part - is on center stage. There is much information to process. So, I'd like to share with you – not my financial predictions for 2016 exactly - – but some of the items that I will be examining from a geographical, political and financial perspective as the year unfolds.
1) Central Banks: Artisans of Money
Since the Fed raised (hiked is too strong a word) rates by 25 basis points on December 16th, the Dow has dropped by about 3.5%. Indicating a mix of fear of decisive movements and a market awareness deficit regarding the impact of its actions, the Federal Reserve hedged its own rate rise announcement, noting that its "stance of monetary policy remains accommodative after this increase."
These words seem fairly clear: there won't be many, if any, hikes to come in 2016 unless economies markedly improve (which they won't, or the words would be much more definitive.) Still, Janet Yellen did manage to alleviate some stress over the Fed's inaction on rate rises during the past 7 years, by invoking the slighted action possible with respect to rates.
Projections are past reactions here. The Fed, to save face more than anything or to "appear" conclusive, raised the Fed Funds rate (the rate US banks charge each other to borrow excess reserves, of which about $2.5 billion are with the Fed anyway), to .25-.50% from 0-.25%. And yet, the effective rate stood within the old Fed target range, or at an average of .20% on December 31 for various reasons, the timing of which was not lost on the Fed. It was at .35% or so on the first day of 2016. The Fed's rate move was tepid, and it's possible the Fed moves rates up another 25 or 50 basis points over 2016, but less likely more than that and more likely it engages in heightened currency swap activities with other central banks as a way to "manage" rates and exchange rates regardless.
Meanwhile, most other central banks (Brazil being an extreme counter example) remain in easing mode or mirror mode to the Fed. It's likely that more creative QE measures amongst the elite central banks will pop up if liquidity, markets or commodities head southward. Less powerful central banks will attempt to respond to the needs of their local economies while balancing the strains imposed upon them by the elite central banks.
2) Global Stock Markets
They say that behavior on the first day of the year is indicative of behavior in the year to come. If so, the first trading day doesn't bode well for the rest. Turmoil began anew with Asian stock markets crumbling at the start of 2016. In China, the Shanghai Composite hit two circuit breakers and China further weakened the yuan.
Yes, there's the prevailing growth-decline story, a relic of 2015 "popular opinion", being served as a reason for the drop. But also, restrictions on short selling by local Chinese companies are expiring. Just as in last August, China will have to balance imposing fresh sell restrictions with market forces pushing the yuan down.
The People's Bank of China will likely inject more liquidity through further reserve requirement reductions and rate cuts to counter balance losses. The demise in stock values is not simply due to slower growth, but to high debt burdens and speculative foreign capital outflows; the story of China as a quick bet is no longer as hot as it was when China opened its markets to more foreign investors in mid-2014, since which volumes and volatility increased. It will be interesting to see if China responds with more capital controls or less, and how its "long-game" of global investments plays out.
Blood shed followed Asian into European markets. Subsequently, the Dow dropped by about 1.6% unleashing its worst start to a year since the financial crisis began. Last year's theme to me was volatility rising; this year is about markets falling, even core ones. This is both a reaction to global and local economic weakness, and speculative capital pondering definitive new stomping grounds, hence thinner and more dispersed volumes will be moving markets.
3) Global Debt and Defaults
As of November 2015, Standard & Poor's tallied the number of global companies that defaulted at 99, a figure only exceeded by that of 222 in 2009. Debt loads now present greater dangers. Not only did companies (and governments, of course) pile on debt during this zero interest rate bonanza period; but currency values also declined relative to the dollar, making interest payments more expensive on a local basis.
If the dollar remains comparatively strong or local economies weaken by an amount equivalent to any dollar weakening, more defaults are likely in 2016. In addition, the proportion of junk bonds relative to investment grade bonds grew from 40% to 50% since the financial crisis, making the likelihood of defaults that much greater. Plus, the increase in foreign, especially dollar, denominated debt in emerging markets will continue to hurt those countries from a sovereign downgrade and a corporate downgrade to default basis.
I expect sovereign downgrades to increase this year in tandem with corporate downgrades and defaults. Also, as corporate defaults or default probabilities increase, so does corporate fraud discovery. This will be a year of global corporate scandals.
In the US about 60% of 2015 defaults were in the oil and gas industry, but if oil prices stay low or drop further, more will come. Related industries will also be impacted. In mid-December, Fitch released its leveraged loan default forecast of the TTM (Trailing Twelve Month index) predicting a 2.5% rise in default rates for 2016, or $24 billion in global defaults. That's an almost 50% increase in default volume over 2015, and more than the total over the 2011-2013 period. Besides higher energy sector defaults, the retail sector could see more defaults, as consumers lose out and curtail spending.
4) Brazil and Argentina
Brazil is a basket case on multiple levels with nothing to indicate 2016 will be anything but messier than 2015. Even the upcoming Olympics there have reeked of scandal in the lead up to the summer games.
Brazilian corporations have already sold $10 billion in assets to scrape together cash in 2015, a drop in the bucket to what's needed. Brazil's main company, Petrobras, is mired in scandal, its bond and share prices took massive hits last year as it got downgraded to junk, and a feeding frenzy between US, Europe and China for any of its assets on the cheap won't be enough to alter the downward trajectory of Brazilian's economy. In fact, it will just make recovery harder as core resources will be effectively outsourced.
Fitch downgraded seven Brazilian sub nationals to junk, with more downgrades to come. Brazil itself was downgraded to junk by S&P with no positive outlook from anywhere for 2016. Falling revenues plus higher financial costs due to higher debt burdens will accentuate trouble. In addition, pension funds are going to be increasingly underfunded, which will enhance local population and political unrest, as unemployment increases, too.
Though Brazil will have the toughest time relative to neighboring countries, Argentina, will not be having a walk in the park under its new government either. The new centrist government removed currency capital controls in a desperate bid to attract capital. This resulted in crushing the Argentinean Peso (a.k.a. "Marci's devaluation") and will only invite further speculative and political volatility into the country. It could get ugly.
5) The Dollar and Gold
Despite what will be a year of continued pathways to trade and currency arrangements amongst countries trying to distance themselves from the US dollar, the fact that much of the world is careening toward global Depression will keep the dollar higher than it deserves to be. It will remain the comparative currency of choice, as long as central banks continue to fabricate liquidity in place of government revenues from productive growth.
Outside the US, most central banks (except Brazil which has a massive inflation problem) have maintained policies of rate reduction, lower reserve requirements, and other forms of QE or currency swap activities. As in 2015, the dollar will be a benefactor, despite problems facing the US economy and its general mismanagement of monetary policy. But the US dollar index and the dollar itself might exhibit more volatility to the downside this year, straying from its high levels more frequently than during 2015.
Last year, given the enhanced volatility in various markets, I expected gold to rise during the summer as a safe haven choice, which it did, but it also ended the year lower in US dollar terms. Because the US dollar preserved its strength, the dollar price of gold fell during the year - yet not by as much as other commodities, like oil.
I take that as a sign of gold finding some sort of a floor relative to the US dollar, with the possibility of more upside than downside for 2016, though in similar volatility bands to the US dollar. Gold relative to the Euro was just slightly down for 2015, relative to the approximate 10% decline in value relative to the US dollar. Considering the home currency is important when examining gold price behavior.
Also, it's important to note that investing in gold requires a longer time horizon - months and years, rather than weeks and months - and should be done through physical gold, coins or allocated bars depending on disposable investment thresholds, not paper gold.
In addition, as I mentioned last year, routinely extracting cash from bank accounts and keeping it in safe non-bank locations, remains a smart defensive play for 2016.
6) The People's Economies
As companies default and economies suffer, industries will inevitably shed jobs this year around the world. The Fed's publicly expressed optimism about employment figures and the headline figure decrease in US unemployment will be met with the realities of companies cutting jobs to pay the debts they took on during the ZIRP years and due to decreased demand.
Unemployment is already rising in many emerging countries, and it will be important to note what happens in Europe and Japan, as well as the US in that regard. This Recession 3.0 (or ongoing Depression) could fuel further artisanal money practices that might again be good for the markets and banks, but not for real economies or jobs lost through reactive corporate actions.
7) Oil
With Saudi Arabia and Iran pissed off at each other in a round of tit-for-tat power positioning, it's unlikely either OPEC heavy weight will reduce oil production, this while tankers worldwide remain laden with their loads and rigs are quiet. Tankers off the coast of Long Beach in California for instance, that used to come in and unload, remain in stalling patterns away from the shoreline, waiting for better prices. This means tankers are making money on storage, but also that extra oil supplies are hovering off shore, and even if prices rise, release of that supply would have a dampening consequence on prices.
Oil futures have been a generally highly speculated product, so I've never believed that simple supply and demand ratios drive the price of spot oil as it relates to the futures price of oil. Only in this case, not only is there oversupply and weakening demand, but speculators are playing to the short side as well. That combination seems destined to keep oil prices low, or push them lower in the near future, but should be closely watched.
Meanwhile, signs of knock on problems are growing. In China, for instance, shipyards are struggling because global rig customers don't need their rig model orders fulfilled.
8) Europe
While Greece faces more blood-from-a-stone extortion tactics and none of the Troika get why austerity measures don't actually produce local revenues at high enough levels to pay expensive debts to foreign investors and multinational entities, other parts of Europe aren't looking much better for 2016. Spain is facing political unrest, Italy, despite exhibiting a tenuous recovery of sorts, still has a major unemployment problem, and the Bank of Portugal lowered its growth estimates - for the next two years.
Mario Draghi, European Central Bank (ECB) head decided to extend Euro-QE to March 2017 from September 2016, having had the markets punish his less enthusiastic verbiages about QE late last year, because he has no other game. The Euro will thus likely continue to drop in value against the dollar, negative interest rates will prevail, and potential bail ins will appear if this extra dose of QE doesn't keep the wheels, big banks and core markets of Europe properly greased.
9) Mexico
The Mexican Peso closed near record lows vs. the dollar for 2015. Much of the Peso's weakness was attributed to low oil prices and Mexico's dependence on its oil sector, but the Peso was already depreciating before oil prices dropped. If the US dollar remains comparatively high OR if oil prices continue to remain low or drop, the Peso is likely to do the same.
When I was in Mexico a few years ago, addressing the Senate on the dangers of foreign bank concentration, there were protests throughout Mexico City on everything from teachers' pay to the opening of Pemex, Mexico's main oil company to foreign players. The government's promise then was that foreign firms would provide capital to Mexico as well as industry expertise that would translate to revenues. Oil prices were hedged then at 74 dollars per barrel. With oil prices at half of that, many of those hedges are coming off this year and that will cause additional pain to the industry and Pemex.
That said, though Mexico will feel the global Depression pain this year as a major player, it is still set to have a much better year than Brazil on every level; from a higher stock market to a higher currency valuation relative to the US dollar to lower inflation to lower unemployment to a better balance of trade with the US than Brazil will have with China. Plus, it has far less obvious inbred corporate-government corruption.
10) Elections and Media Coverage
It's been a minute since the last debate or late night show fly-by from any Presidential hopeful, but this is the year of the US election. I look forward to continuing to post my monthly wrap on TomDispatch as the Democratic and Republican nominees emerge. I will be taking stock of the most expensive election in not just US history, but in the history of the World. Look for more on the numbers behind the politics later this month.
From a financial standpoint, this election has low impact on flows of capital. Given the platforms of everyone in reasonable contention (with the exception of Bernie Sanders' platform), no one will actually touch excessive speculation, concentration risk in the banking or other critical sectors like healthcare, or meaningfully examine the global role of artisanal central bank policy, particularly as emanating from the Fed.
Elsewhere, economic stress throughout the globe and a general sense of exasperation and distrust with politicians is putting new leaders in place that are pushing for more austerity or open capital flow programs rather than foundational growth and restrictions on the kind of flows that cause undue harm to local economies. That is a recipe for further economic disaster that will fall most heavily on populations worldwide.
This piece originally appeared on TomDispatch.
Fact: too many Republican candidates are clogging the political scene. Perhaps what's needed is an American Hunger Games to cut the field to size. Each candidate could enter the wilderness with one weapon and one undocumented worker and see who wins. Unlike in the fictional Hunger Games for which contestants were plucked from 13 struggling, drab districts in the dystopian country of Panem, in the GOP version, everyone already lives in the Capitol. (Okay, Marco Rubio lives just outside it but is about to enter, and Donald Trump like some gilded President Snow inhabits a universe all his own with accommodations and ego to match.)
The six candidates chosen here (based on composite polling) have remarkably similar, unoriginal, inequality-inducing, trickle-down economic recommendations for the country: reduce taxes (mostly on those who don't need it), "grow" the economy like a sprouting weed, balance the budget by cutting as yet not-delineated social programs, overthrow Obama's health-care legacy without breaking up the insurance companies, and (yawn)... well, you get the idea. If these six contenders were indeed Hunger Games tributes, their skills in the American political wilderness would run this way: Ben Carson inspires confusion; Marco Rubio conveys exaggerated humility; Ted Cruz exudes scorn; Jeb Bush can obliterate his personality at a whim; and Carly Fiorina's sternness could slice granite. This leaves Donald Trump, endowed with the ultimate skill: self-promotion. As a tribute, he claims to believe that all our problems stem from China and Mexico, as well as Muslim terrorists and refugees (more or less the same thing, of course), and at present he's leading the Games.
When it comes to economic policy, it seems as if none of them will ever make it out of the Capitol and into the actual world of American reality. Like Hillary Clinton, blessed by Wall Street's apparently undying gratitude for her 9/11 heroism, none of the Republican contestants have outlined a plan of any sort to deal with, no less break the financial stronghold of the big banks on our world or reduce disproportionate corporate power over the economy, though in a crisis Cruz would "absolutely not" bail them out again. Stumbling around in the wilderness, Carson at least offered a series of disjointed, semi-incomprehensible financial suggestions during the last Republican "debate," when asked why he wouldn't break banks up. "I don't want to go in and tear anybody down," he said. "I mean that doesn't help us, but what does help us is to stop tinkering around the edges and fix the problem."
Rubio, already in top Hunger Games form, swears that it's recent regulations (not legacy elite decisions) that did the dirty deed. "The government made [the banks] big by adding thousands and thousands of pages of regulations," he saidof Dodd-Frank legislation (which doesn't actually alter Wall Street structurally in any way). In fact, in recent decades every major power grab or consolidation in American business, from banks to energy companies, resulted from bipartisan deregulation.
None of these big-money-backed candidates seem particularly concerned that another economic crisis could ever cripple the country, or have evidently even noticed that most Americans have yet to experience the present "recovery." None seem to realize that when the Federal Reserve winds down its cheap money policy and banks and companies are left to fend for themselves, more economic hell could break loose in the style of the 2007-2008 meltdown. Jeb Bush recently summed up the general 2016 Republican position on the economy in a single what-me-worry-style sentence: "We shouldn't have another financial crisis." 'Nuff said.
In the 2012 presidential election, Mitt Romney's chances dwindled after hedisparaged 47% of the country as so many leeches. Today's Hunger Gamers have learned from his experience. Optics spell opportunity, so as a group they're shuffling the usual Republican-brand tax cuts for corporations and the wealthy in with selective recognition of the broader population and promises to kill all loopholes in some future utopian tax bill. None of them, of course, would consider raising the minimum wage to put more money in the pockets of workers before tax-time hits. Even old Henry Ford knew the power of wages when, early in the last century, he strengthened his car empire by doubling the then-prevailing minimum wage for his workers to $5 a day -- enough for them not only to save up and buy his Model-Ts, but also boost productivity.
The present set of Hunger Gamers could invoke Republican President Teddy Roosevelt's trust-busting ire, or President Dwight D. Eisenhower's willingness to fund vast national construction projects, or even (to reach into the distant past) President Herbert Hoover's initial attempts to pass what became, under Democrat Franklin Delano Roosevelt, the 1933 Glass-Steagall Act that separated deposit-taking from speculation at banks. But to be realistic, none of them belong to the Republican Party as it once existed. They all live in an American Panem and so feel no compunctions about promoting the idea that corporations contributing ever less to the federal till would Make America Great Again.
Now, let's send those six candidates into that wilderness, weapons in hand, one at a time, and while we're at it, examine their minor differences by checking out their campaign websites to see what kind of games we can expect in a coming Republican era of "good times."
Ben Carson
If you look through the index of Ben Carson's latest bestseller, A More Perfect Union, you won't even find the words "economy," "banks," or "Wall Street." Instead, his campaign slogan, "Heal, Inspire, Revive," could headline a yoga retreat. His position as the Republican co-frontrunner or runner-up (depending on which polls you look at) relies on his soft-spoken, non-politician persona, not his vague economic ideas that flash by in a chameleon-like fashion.
Yes, he was a brilliant neurosurgeon, but the tenacity and skills required to become a gifted medical practitioner have not translated well into presidential-style economic policies. To the extent that he has a policy at all, it's a shopworn version of the twenty-first-century Republican usuals: ratifying a balanced budget amendment to the Constitution "to restore fiscal responsibility," introducing a flat tax, not raising the minimum wage, yada, yada, yada. In a Washington Post op-ed last year, he recounted his mother's days as a "domestic in the homes of wealthy people who were generous to her" and would slip young Carson and his brother "significant monetary incentives" in return for good grades. One even loaned him a luxury convertible. With such employers -- and the incredibly rich are a well-known generous bunch, at least when it comes to supporting Republican presidential candidates (just 158 families have contributed more than half the money to this election so far, mostly to Republicans) -- who needs a government-declared minimum wage?
Regarding taxes, Carson considers the 74,000-page tax code "an abomination." And who would argue otherwise? But like his various opponents, he's not about to point out that it was largely crafted by the representatives of mega-corporations, not Wal-Mart workers at meet-ups with senators. He's for a flat tax of 10% with no exemptions for the poor, based on biblical economics 101. Maybe people who don't produce bumper crops should just pray for a better lot.
He would conveniently cut the official corporate tax rate from 35% (the average effective tax rate is 27.9% but the biggest, brightest companies don't even approach that amount) to between 15% and 20%, the definition of corporate manna from heaven. He would also allow companies to bring their foreign profits back to the U.S. completely tax-free if they would even... pretty, pretty please... consider allocating 10% of them to "finance enterprise zones" in major cities. And so it goes in Carsonland.
Best bet on his campaign website: A $25 bumper sticker that says #IAMACHRISTIAN, proof that he's eager to channel his inner evangelical Katniss.
Donald Trump
Trump actually brought up President Dwight Eisenhower recently, but only for Operation Wetback, his grim Mexican immigrant deportation program. No I-like-Ike mention was made of his funding of the interstate highway system or the way he strengthened banking regulations.
The Donald lists five core positions on his site, including the two economic pillars of his campaign: "U.S.-China trade reform" and "tax reform," both of which would, of course, "make America great again." This may already sound a bit repetitively familiar to you, but he wants to reduce the corporate tax rate to 15% because it "would be 10 percentage points below China's and 20 points below our current burdensome rate that pushes companies and jobs offshore." Given that our biggest companies already pay far less than that "burdensome" rate, can there be any question that lowering it further would produce more generous CEOs and slay dreaded China at the same time?
Like President Snow, Trump would start aggressively and only get more so, economically speaking. He would "attack" the national debt and deficit by eliminating government waste, fraud, and abuse, and "grow" the economy xenophobically by doing in local Mexicans and distant Chinese, and all of this cutting and slashing would, like a Chia Pet, make the economy sprout even as tax revenues were savaged. Or, even if it isn't one of his five core positions, he could pull a genuine Snow and get rid of old-fashioned-style government, leaving Americans officially beholden to an oligarch.
In another piece of (black) magic, his campaign website assures readers that cutting the deficit and reducing our debt would also stop China from "blackmail[ing] us with our own Treasury bonds." No matter that China actually lent us money to run our government and bolster our financial system, and that a thank-you note might be in order (on paper made in China, of course).
When it comes to tax reform, Trump's "populist" program would remove 75 million households from the income tax rolls and provide them, so he claims, with a simple one-page form to send the IRS, saying "I win." Though he would cut the current seven tax brackets to four -- 0%, 10%, 20%, and 25% -- it's his 15% corporate tax rate that trumps the field. Rubio would only chop it to 25%, Bush to 20%, Cruz to 16%, and Carson... who knows? Various estimates suggest that Trump's plan would lead to a staggering federal revenue loss (so lucky for us that, in a Trump presidency, the rich would undoubtedly be so grateful that their generosity would soar beyond imagining). The nonpartisan Citizens for Tax Justice computed the cost of his plan at $12 trillion over 10 years. So don't expect any Eisenhower-esque national building campaigns (other than that "beautiful" wall on the Mexican border).
Best gimmick on his campaign website: A $15 Trump dog sweater modeled bythe saddest damn wiener dog ever. Perhaps its mother was a deported Chihuahua.
Marco Rubio
Rubio's slogan "a new American century" couldn't be grander, perhaps to compensate for the lackluster version of economic policy at his campaign website. It's certainly not the sort of thing you'd expect from someone aspiring to be president of the world's largest economy. Despite that, rest assured that he's had economics and success on his mind 24/7. After all, Goldman Sachs is now his top contributor and his super PACs are on a run, too, including the rap-inspired "Baby Got Pac" just launched by multimillionaire John Jordan.
And in true Hunger Games fashion -- when the "odds" head in a tribute's favor, the patrons and gifts begin rolling in -- Rubio just bagged Republican mega-donor billionaire Frank VanderSloot. Mitt Romney's former national finance co-chairman, VanderSloot joins a growing roster of Rubio billionaires, including hedge-fund moguls Paul Singer and Cliff Asness.
"Marco Rubio is the brightest and most capable candidate," wrote VanderSloot of his new political buddy. Of the others he and his brain trust considered, headded, "Jeb simply does not have the leadership skills necessary to unite the people behind him"; Carson lacks "the international knowledge or skill set"; Cruz and Trump are "simply not electable in a general election" (no billionaire-envy there); and Fiorina, his second choice, "simply isn't resonating with the voters."
Rubio's tax plan, the "cornerstone" of his economic policy, would -- you won't be surprised to learn -- reduce the number of tax brackets from seven to three and eliminate taxes in ways particularly beneficial to the billionaire (especially hedge-fund billionaire) class, including the estate tax and taxes on capital gains and dividends. For the broad population, Rubio includes family tax cuts. According to an analysis by the Tax Policy Center, his plan would be a bargain compared to Trump's, costing federal government coffers a mere $2.4 trillion or more in receipts over the next decade. As a byproduct, his program is essentially guaranteed to spark a new round of financial speculation, but don't for a second let the 2007-2008 meltdown cross your mind since, as every Republican knows, with a Marco Rubio, Donald Trump, or Ben Carson in the Oval Office that can't happen.
Best gimmick on his campaign website: You can "fall into campaign season" by ordering a "Marco Polo" made-in-the-USA shirt for $48 in patriotic red, white, or blue naturally! For a mere $500 extra, you can personally have the honor of buying Rubio a "plane ticket" (perhaps to meet and greet his next billionaire).
Ted Cruz
The Cruz campaign website offers a hodge-podge of semi-incoherent economic salesmanship. His tax plan, or what he likes to call (without the slightest justification) the "next American revolution," promises to "reignite growth in our economy." His "simple flat tax" (yep, another of those!) would abolish the Internal Revenue Service as well. Personal income tax brackets would go from seven to... count 'em!... one at a 10% rate across the board and the corporate income tax would be replaced by a flat tax of 16%. And it should be taken for granted that the American economy would soar into the stratosphere!
Cruz's tax code would be so "simple with a capital-S" that it would make Donald Trump's look complicated. A postcard or phone app would suffice for individual and family filings. There would be no tax on profits earned abroad and it almost goes without saying that Obamacare taxes would die a strangulated death. Loopholes for businesses would apparently go, too.
Cruz claims his simple flat tax will elevate the gross domestic product, increase wages by 12.2%, create nearly five million new jobs, and undoubtedly fill the world with unicorns. It would also wipe out between $768 billion and $3.6 trillion in federal tax receipts over 10 years.
Best gimmick on his campaign website: For $55 you can get a bad-boy posterof Cruz sporting a Sons of Anarchy look (tattoos, cigarette in mouth, etc.) captioned "Blacklisted and Loving It."
Jeb Bush
Jeb! has by far the sleekest web page. He and his donor entourage took the "presidential concept" seriously with a look that seems to have been stolen directly from "the Capitol" in the Hunger Games.
Its economic section excoriates the tax code for being "rigged with multiple carve-outs for favored industries." He blasts Obama's economic policies for leading to "low growth, crony capitalism, and easy debt." Yet, under Jeb's governorship, Florida's debt escalated from $15 billion to more than $23 billion. After his term, the housing-bubble that had inflated the state's coffers burst big time, and Florida's economy under-performed much of the country during the financial crisis. While homeowners statewide went underwater, helanded a multi-million dollar consultancy gig with... gulp!... Lehman Brothers.
By now, you won't be shocked to learn that Bush's plan would cut tax brackets from seven to three: 28%, 25% and 10%, and that he would cut the corporate tax rate from 35% to 20%, five points below China's. (These days, if you're a Republican, you've got to stick it to China.)
While Jeb would not rein in Wall Street (for all the obvious and already well-documented reasons), right now it looks as if he's not going to have a chance to not rein in anything. While his PR team maintains "Jeb can fix it," invigorating his wilting campaign will require more than a bow and arrow and a mockingbird.
Best gimmick on his campaign web page: "The Guaca Bowle" for $75because who doesn't need one? (Bush family guac recipe not included.)
Carly Fiorina
Fiorina's web page doesn't offer a lot of economic anything. It's more like a personality infomercial. For her official positions, you need to watch video clips of her TV appearances from CBS This Morning to late night talk shows and -- if you're starting to get bored -- just imagine Stanley Tucci as Hunger Games host of festivities Caesar Flickerman narrating.
Fiorina calls for "zero-based budgeting" because "zero" sounds so much cleverer than "balanced" and touts ad nauseam a three-page tax plan (perhaps the current one in a microscopic font, since we don't actually know the details). The repetition of simple concepts to the masses seems to be her modus operandi.
Best gimmick on the Carly for America Super PAC website: For only $26 you can get a "Hillary Who?" infant one-piece, the perfect gift for any Republican baby.
How Corporations Really Pay Taxes
Despite the prominence of tax cuts in the policies of the top six Republican candidates, even the venerable Brookings Institution found that they have a minimal effect on economic growth. In addition, when you consider all the promised corporate cuts, you should know that corporations already don't contribute much.
According to Citizens for Tax Justice, between 2008 and 2012, 26 of the 288 Fortune 500 firms (consistently profitable in those years) managed to pay nothing, nada, zero in federal income tax. The 288 firms collectively paid an effective federal income tax rate of 19.4%, and a third of them paid an effective rate of less than 10%. Five companies -- Wells Fargo, AT&T, IBM, General Electric, and Verizon -- also bagged over $77 billion of the $364 billion in tax breaks doled out in those years. Extra jobs didn't follow. Think of this crew as the real winners of the American Hunger Games in this period.
For 2014, for instance, Goldman Sachs avoided forking over federal income taxes on almost half of its $6.8 billion in U.S. profits, paying an effective tax rate of 18.6%. Between 2010 and 2012, due to tax breaks associated with executive pay, Fortune 500 companies saved an extra $27 billion in federal and state taxes. That's a lot of dosh to use for Super PAC support.
In 2012, the Democrats blasted candidate Mitt Romney's tax plan as a giveaway to the rich. This time around, our six tributes-cum-candidates are taking no such chances. They're making sure to throw crumbs to the middle and working classes, even as they offer more caviar to the wealthy and corporations. Depending on the candidate and plan, the overall loss of national revenue will range from an estimated $1.6 trillion (even factoring in growth that may never happen) to $12 trillion, but will be a stunning amount.
Perhaps with such a field of candidates, the classic Hunger Games line will need to be adapted: "Let the games begin and may the oddity of it all be ever in your favor." Certainly, there has never been a stranger or more unsettling Republican campaign for the presidential nomination or one more filled with economic balderdash and showmanship. Of course, at some point in 2016, we'll be at that moment when President Snow says to Katniss Everdeen, "Make no mistake, the game is coming to its end." One of these candidates or a rival Democrat will actually enter the Oval Office and when that happens, both parties will be left with guilt on their hands and all the promises that will have to be fulfilled to repay their super-rich supporters (Bernie aside). And that, of course, is when the real Hunger Games are likely to begin for most Americans. Those of us in the outer districts can but hope for revolution.