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TPMMuckraker | Talking Points Memo | All Joe Cassano Ever Wanted Was To Not Pay Taxes

The stink of AIG just keeps getting worse.

All Joe Cassano Ever Wanted Was To Not Pay Taxes

And as breathtaking as the sum of taxpayer dollars AIG has managed to put down in its post-crisis nationalized afterlife, the zombie insurer might possibly have indirectly scammed the government out of more money back in its Triple-A days. Today the Wall Street Journal explores AIG's euphemistically-named "tax structuring" business in a story about an IRS battle with Hewlett-Packard over an offshore entity -- or what the IRS terms a "sham that lacked economic substance and a business purpose" -- that AIG set up for the company to collect $132 million in tax credits. AIG's tax business, is "even bigger than the credit-default swaps business that led to the company's meltdown," a person "familiar with the business" tells the Journal. But that might be compartmentalizing things: we are beginning to suspect the credit default swap business and the tax "structuring" business were the same thing -- not just because they served the same end.

New President Meets New Media

New President Meets New Media

But the Gallup Organization's three-night tracking polls (with 1,500 interviews over three nights and 3-point error margin) suggest the White House need not be worried. Obama's job-approval rating in the Gallup poll had been at 62 percent, with 27 percent disapproval, through Thursday night, before his Leno appearance aired. But Gallup's Thursday-Saturday and Friday-Sunday samples showed Obama's approval at 65 percent, with 26 disapproving.

This is hardly significant movement, and I'm not necessarily arguing that his approval ratings increased because of those appearances. Nevertheless, his approval certainly didn't take a significant hit because he went on either. At this point, there was no other reason for his numbers to improve, what with the public being mostly preoccupied with wanting to tar and feather American International Group bonus recipients. At the very least it suggests that the administration didn't take an immediate hit over the bonuses.

Geithner's Five Big Misconceptions

Geithner's Five Big Misconceptions.

We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:

The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.



The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.



Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.



Once we get the "bad assets" off bank balance sheets, the banks will start lending again. The reality: The banks will remain cautious about lending, because the housing market and economy are still deteriorating. So they'll sit there and say they are lending while waiting for the economy to bottom.



Once the banks start lending, the economy will recover. The reality: American consumers still have debt coming out of their ears, and they'll be working it off for years. House prices are still falling. Retirement savings have been crushed. Americans need to increase their savings rate from today's 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average. Consumers don't have room to take on more debt, even if the banks are willing to give it to them.

Patience and using the tools you have.

The first rule of doing anything well is patience. It doesn't matter what it is. It is something I have always known but never put into practice very well.

For example when writing something such as this blog post. My desire is to finish it as quickly as possible and post it to my blog, rather then making sure I get the spelling correct or making sure I don't leave out words.

Being impatient leads to one getting frustrated when one runs up against an obstacle.

Being impatient leads to one missing important details.

Rushing to complete a task has always been my downfall. And my impatience is made greater the more I dislike the task that I have to complete. And in many instances it leads to procrastination, which inevitably wil leads to greater impatience.

Impatience leads to one overlooking the tools one has available to make the task less difficult, as mistake free possible and completed in a timely fashion.

The reason for my writing this post is that I have over the last several years felt incapable of blogging on a regular basis because each blog post seemed like an endless task and I was always in a rush post as quickly as possible. As a result the post would appear with a multitude of errors and aesthetically unpleasing.

Part of the problem was I never took the time to explore the tools available that would make writing a post easier and more satisfying. My impatience made me feel that these tools just consumed more time and prevented me from completing the post itself. But the time I saved only made the results worst.

In the past several days I have discovered that the few extra clicks it takes, spanning a few extra minutes leads to a result that is correct and satisfying.

Japanese CEOs escape ire

I think U.S. CEO's can take a page from their Japanese counterparts.

Japanese CEOs escape ire

When US auto bosses were being lambasted recently for flying to Washington in private jets to plead for government aid, the head of Japan Airlines (JAL), Asia's biggest carrier, was taking the bus to work with regular commuters.

JAL president Haruka Nishimatsu cut his own pay and even lines up with other employees for lunch in the company cafeteria.

At Japanese computer chip maker Elpida Memory, group president Yukio Sakamoto voluntarily went without a salary for two months last year to help turn around the group's poor performance.

He is not the only one making sacrifices. According to a survey by the Nikkei business daily, the heads of more than 200 listed Japanese firms have cut their own pay since last April.

Toyota Motor, the world's biggest automaker, has scrapped executive bonuses this year.

The problem with lot of American CEO's, is that they don't realize that just because you can doesn't mean you should.

Lawmaker says 13 bailut firms owe $220M in back taxes

Well this figures!

Lawmaker says 13 bailout firms owe $220M in back taxes

At least 13 firms receiving billions of dollars in bailout money owe a total of more than $220 million in unpaid federal taxes, a key lawmaker said Thursday. Rep. John Lewis, chairman of a House subcommittee overseeing the federal bailout, said two firms owe more than $100 million apiece. "This is shameful. It is a disgrace," said Lewis (D-Ga.). "We are going to get to the bottom of what is going on here." The House Ways and Means subcommittee on oversight discovered the unpaid taxes in a review of tax records from 23 of the firms receiving the most money, Lewis said as he opened a hearing on the issue.

Goldman Sachs defends $13-billion payment from AIG - Los Angeles Times

I really don't think they get it.

Goldman Sachs defends $13-billion payment from AIG

Goldman received $13 billion -- more than any other financial institution -- in payment for AIG investment guarantees after the federal government stepped in with bailout commitments that now total as much as $172 billion to keep the insurance giant from failing.

Paul Krugman Blog

Krugman despairs over Geithner's plan:

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.

Interesting Question

A rather interesting question.

WHAT IF AIG HAD A UNION?

As has often been noted, while AIG's bonuses were apparently bound by the sanctity of contract (and the ruthless Connecticut Wage Law), the autoworkers' contracts were renegotiated as a condition of the industry recovery plan. Mostly this is treated as a matter of class justice -- the workers made sacrifices, the Wall Streeters (or, more accurately in the case of AIG-FP, the Wiltonians) were untouched.

But there's more to it than that. How were the auto workers' benefits cut? Not involuntarily. They agreed to it. They agreed to it because they were able to act collectively. The United Auto Workers came to the table and agreed that the survival of GM and Chrysler was a more important common goal than everyone getting exactly what they were promised. The presence of the union created a collective sense of loyalty to the industry as well as to their own self-interest.

AIG reportedly paid millions more in bonuses - Los Angeles Times

What a surprise bonuses were paid out then AIG actually admitted to.

AIG reportedly paid millions more in bonuses

Connecticut's attorney general says documents turned over to his office by American International Group Inc. shows the company paid out $218 million in bonuses, higher than the $165 million previously disclosed. Attorney General Richard Blumenthal's office received the documents late Friday after issuing a subpoena.