Monday, March 23, 2009

$165M > $5B (Merrill Lynch,Smith Barney, Morgan Stanley brokers retention "awards") - guess it depends who's on the receiving end huh?

Incredible as it may seem - Congress and the entire business media would pull the wool over our eyes once again and have the US Taxpayer believe that $5 Billion is less than $165 Million.

Correcto-mundo. Wall St brokers RECEIVED over $5Billion in retention "awards" for what?
Try staying on the job, see blog post from Feb 16 & 22 at this daily planet.

HOWEVER - I say isn't it further IRONIC that:

  1. That the good AIG employees (Insurance part) get NO bonuses but much of the grief directed at their recently recognized and rewarded colleagues across the state line at AIG Financial Products Group.
  2. That AIG (the Insurance part) made a good decision to get out of insuring the brokerage firms’ customers for excess SIPC insurance in 2003 (see NY Times, Saturday, August 9, 2003 (not a typo) – yet their colleagues at FPG thought it was a good, make that a “terrific” idea, to underwrite same brokers’ credit default swaps.
  3. That $5B (not a typo) was “awarded” to the stock brokers last month at Smith Barney, Morgan Stanley and Merrill Lynch. (Oh yes, if the broker leaves he has to repay it – let’s see how many leave.) until then – thanks to the US Taxpayer for the coin!
  4. I wonder if, when or at all Mr Geithner was aware of this one????
  5. Almost forgot this tiny observation - both the AIG FPG and Brokers at Merrill Lynch, Smith Barney and Morgan Stanley were paid these bonuses in cash not stock; wonder why? with stocks at all time lows it would appear an attractive entry point
  6. ROT (Return on TARP) - it appears that the brokers clearly enhanced their cash position compared to the less handsomely ROT-bonused industry counterparts at AIG.

    In the meantime April 15 is rapidly approaching and none too soon for the cash gushing out of the US Treasury. Better get those check books out soon fellow taxpayers.

Tuesday, March 17, 2009

Madoff Tax "Theft Loss" - A full accounting or at least questions

With respect, sensitivity and feeling for the Madoff victims but correct me if I'm wrong or off base ok?

IRS decides and announces "theft loss" deduction applies for past 5 years and Senator Schumer is trying to get that extended to 13; not the less favorable "recoupment" of previous taxes paid upon what we now call fraudulent income; dividends and or capital gains.

From Market Watch: Under the IRS guidelines, victims will be able to take a deduction equal to 95% of the amount they invested, plus any investment income they believed they were earning, minus any expected recovery from the government or private insurance.

From AP: If deductions claimed this year result in a "net operating loss" for taxpayers, meaning they would owe no taxes, they can apply excess deductions to prior years, getting a refund for taxes already paid. They can also use the deductions in future years to lower their tax burden, under the guidelines.

By some estimates, the IRS could be out as much as $17 billion in lost tax revenue from refunds to investors who earned fictitious profits in the Madoff scheme.

  1. The Madoff victims, of his ponzi scheme are perhaps innocent victims, but make no mistake, they are not the first.
  2. Question - can victims of all past ponzi schemes file amended returns?
  3. Question - to the extent the IRS ruled that principal losses are deductible does it extend only to the taxable Madoff accounts involved to the exclusion of the IRA's, Pension plans, and Non profits, Schools, Colleges, University, foundation and endowment accounts?
  4. UBTI (IRS-speak for Unrelated Business Taxable Income) - to what extent does a tax exempt entity. non-profit cross over reporting and tax filing liability in the past compared to the instant IRS recovery.
  5. One last Question for now - if a Madoff investor took or received cash for dividends or gains how does that square, if at all, with the IRS rules?
    1. Does the investor need to reconcile cash invested, cash received, taxes paid on same, in comparison to the IRS new Theft loss deductions?

Roots of AIG Bonus rage - Asset-based compensation vs. Hourly wages: Wall St. versus Main St; how do you like your paycheck?

Wall St, Insurance companies Life & Annuity, Hedge funds, Banks & Real estate broker & agents, Mortgage brokers are among the select few industries where compensation is based upon "Asset values" championed along with all the poms poms and cheerleaders at the "business" TV, radio and print and internet media.

Let me take you higher!!! (Sly and the Family Stone)
No doubt - the higher assets, real estate, mortgages oh and lets not forget those recent vintage AAA – rated mortgage backed securities and derivatives thereon can be driven, whirled, spun, escalated the better - for the recipients of asset-based compensation and the not so tiny bonuses. These once venerated “Capital Assets” turned out to be nothing less than a veritable new and distinct “form of casino-chip-like currency” one whose champions for the past 30 years decried ANY large or small government gaze let alone regulation or information sharing huh?

Where are, I ask, those champions now? Today – with threats couched as lamentations that the “systems” failed us. Crying to the US taxpayers and taxpayers around the world, to give us some time, a line, some bucks, make that a few trillion in bailouts and guarantees?

In the meantime, MAIN St, indeed most of the rest of the world toils or in some cases simply aspires to an hourly wage or annual salary.

Did it ever occur to Congress that Corporate America and the capital markets’ asset values were built in part on the backs of the hourly wage earners and corporate America’s ability to aggressively manage and trim costs thereby boosting profits?

By the way, the next shoe, after credit card and auto loan defaults hit reality look to be those 3 or 4% or more guarantees in life and annuity insurance contracts, with clever lobbying perhaps the FASB, SEC and or Congress will whip up a new accounting artifice to stave that one off.

And now the same titans – are looking for more breaks? Relax fair value accounting because now they cry with asset values at more realistic levels they are “difficult”, give is more guarantees, give us two months to stress test when we know – like Gilligan’s’ Island that they know that we know that they know to the penny to the minute what their assets and liabilities are worth under multiple scenarios. The second largest software vendor SAP AG in the world after MSFT – with many years of presence and dominance in the banking, securities and insurance sectors.

Helps to explain much of the increasing difference in incomes for the past 25 years; and in particular the 2003 to 2008 era.

Something for policy makers to address.
Asset - based compensation tends to do what?
Cause the players to bid up same. How many times do we have to see the same videotape? Asset inflation, Asset bubble, positive skewness - the tendency for asset prices to rise over time - call it what you will…

Example: Short sellers potential gains END when the asset price hits zero; on the long side, upside - is unlimited; limited only by the amount of dollars that inundates an asset; whether by deposit of cash, collateral or borrowed money.

Almost forgot – to include – those newly printed US dollars – whose counting? More importantly what potential whipsaws in the capital / asset markets will they cause in the near and distant future?

And in repeat fashion – is the US Treasury and Fed creating a future asset – based compensation bubble? Increasingly dislocated from that which we know – structural overcapacity in most industries, soul-crushing jobs in same cloaked in career ladders and perhaps to the detriment of emerging labor markets both here in the US and abroad to the detriment of countries whose competitive advantage may lie in its youth?

What is the real promise of America, and more importantly the message America is sending to the rest of the world and its future generations?

Sunday, March 1, 2009

Excise tax on TARP Banks’ employees’ paychecks!

Excise tax on TARP Banks’ employees’ paychecks!

These managers and employees created the mess we are in;
No one forced them to buy any toxic assets;
Non one forced them to hold them;
No one forced them to increase and add more thru borrowing called leverage;
No one raised their hand upon getting a bonus check and said “it’s too much” when it’s clear to all NOW that it was;
No US taxpayer begrudged a TARP bank employee huge bonus checks!

They get a paycheck;
They get to keep their jobs;
They get to avoid “unemployment” and all the negatives associated.

The Taxpayer;
Gets one thing – the BILL!

SPECIAL EXCISE TAX on these TARP banks employees better aligns their interests TO the taxpayer.

Tax 10% of each TARP Bank employees’ paycheck deposited and held in a special escrow account;
Disbursed to US Treasury / Taxpayer upon earlier of:
TARP banks loan repayment in full with interest to US Treasury and /or;
TARP banks stocks increases / sold by US Treasury to repay taxpayer loans.
Or 2 years

Example – if at end of 2 years TARP loans have outstanding balance:
That TARP banks employees’ amounts in escrow account are released disbursed back to US treasury.

This places the TARP banks’ employees interests better in line with the position of their employers and more importantly the US Taxpayer – who is fronting, shouldering all the risk in this deal.