Rolling the Dice, Again

Let’s suppose a bunch of organized crime types –unbeknownst to you– put together a scheme to offer odds on whether or not you will pay your mortgage on time each month for the next year. And even though your mortgage is only a few hundred bucks a month, they found high rollers willing to put big money, hundreds of millions, on one side or the other of these bets.

While that’s a little oversimplified, that’s pretty much what happened leading up to the 2008 financial crash when the big banks had folks betting for and against packages of home mortgages. Of course organized crime types would be in big trouble if they did something like that; gambling laws in almost every state make that kind of activity a big no-no. Those laws, however, do not apply to banks, and others engaged in what can laughably be called investing. During recent decades the Federal Government adopted laws exempting this form of gambling.

You would think that after what happened so recently we would have changed those laws. You would be wrong. In fact the lobbyists have managed to block even modest reform. Dodd/Frank would have made some important changes, but it has been hamstrung by opponents who simply cut off funding to implement the reforms.  

And the gamblers have turned to the commodity market. Summer, normally a quiet time, has seen an all-time record trading month in July and it looks like August will surpass it. All the exchanges from commodities to stocks are racking up billions of trades every day; some are showing trading increases in the billion range doubling normal volume. From the high-frequency traders who are little more than pirates roaming the capital markets to panicky investors afraid to be skinned by the gamblers, the markets are crazy.  

It’s time to set some parameters that will bring the markets back to their purpose, to create capital to support our economy. Banks need to get back to banking and off the trading floor. The exchanges need to focus on their purpose, to serve as a marketplace for capital and business to meet and create growth in our economy. At this point they are too interested in the revenue created by billions of trades and not interested enough in the future of this nation.

We need to reward investors, those who buy and hold stocks. Those in the market for the long haul. They’re the ones who should get the tax breaks. Let’s make capital gains taxes gradually go away the longer you hold an investment. Let’s make the gains reaped by those who buy and sell stocks in a matter of days or hours or a few seconds subject to punishing taxes. This kind of “playing” the market generates no public benefit.

And let’s call those who bet for and against almost anything what they are, gamblers. Let’s take away their “Get out of jail free cards.” Let them suffer the same legal consequences as those running an illegal card game in their basement. It’s the right thing to do.

Our First Amendment??

Five big tobacco companies, 

AKA Merchants of Death, have filed suit against our Food and Drug Administration (FDA). The FDA rolled out a batch of gruesome warning labels –the first new ones in 25 years– and they are due to go on every pack of cigarettes in September. Big tobacco is suing to stop the new labels based on their First Amendment rights.

Their what!

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

That First Amendment?

We’re talking about beefing up warnings on the sale and use of a drug that kills about a half million people in the United States every year. We don’t see any difference between these labels and the king-sized skull & cross bones on a box of rat poison. The new warnings are certainly more dramatic than the current bland text warnings. If there’s a First Amendment issue in that difference we sure can’t find it.

Before enabling the use of something harmful, even life threatening, one must make an ethical decision. Everything that is legal is not necessarily ethical. It’s easy to rule out certain potentially harmful sectors in our culture, but there is no way to protect against everything. There is, however, no way to rule out tobacco, we know how to protect against this lethal substance. Those who are part of this world are drug dealers pure and simple. Their drug, tobacco, happens to be legal but that doesn’t make it ethical nor any less lethal.

Don’t listen to, “Back when we started we didn’t know.”  We knew. A hundred years ago during World War One cigarettes were called “Coffin Nails.” American “Doughboys” sang “If the Fatimas don’t kill you the Camels will.” They knew. R.J. Reynolds knew. He shipped his “Camels” by the millions “Over There” where they were handed out, “Free” to our troops. R.J. was secure in the knowledge that they would get hooked and be forced to buy them by the time they returned home.

Those who have chosen to cross the great ethical divide and take part in this evil enterprise will find a way to justify their action. But for Big Tobacco to challenge a need to warn those who buy cigarettes, that is a new low. Since they can’t ban tobacco, the least the FDA can do is to warn smokers of the devastating outcomes they risk. Seeing the gruesome conditions cigarettes trigger every time they light up may help, especially for those lighting up the first time.

Many of those who have escaped this horrific habit say getting off cigarettes was the hardest thing they ever did. Enduring the physical pain when your body screams for a narcotic, be it heroin or nicotine, is near unbearable. Then there’s a  constant craving that lasts sometimes for years. The health risks, Cancer, Emphysema, Heart Disease, they all await that first puff. Not taking that first puff is the easiest way to breathe easy. 

Stop Coddling the Super-Rich

I decided that the tack I was taking this week could wait. I have long been aware of Warren Buffett's belief that our tax structure is unfair. I had no idea how unfair until I read his OP-ED in the New York Times on the subject. For those of you who may have missed it, it is the very essence of an ethical position.
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By WARREN E. BUFFETT

Omaha

Our leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched. 

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors. 

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places. 

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent. 

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot. 

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot. 

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends. 

I didn’t refuse, nor did others. I have worked with super-rich for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation. 

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.) 

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering. 

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality. 

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get. 

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate. 

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice. 

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

© 2011 New York Times

A History Lesson

Bainbridge Island is one of the most beautiful locations on earth. Across Puget Sound from Seattle, this lush green landscape saw a memorial wall dedicated early this month marking one of the ugliest moments in our history. In the spring of 1942 US Army troops came to Bainbridge Island, bayonets fixed, to roundup residents of Japanese descent.

They were given less than a week to get together what they could carry and be ready to go they knew not where. Some of the 277 were third generation Americans, their forebearers came to Bainbridge in the 1800s. They were the first of roughly 120,000 to be sent off to Internment Camps based solely on their Japanese ancestry. Sixty percent –over 70,000– were American citizens.

An irrational fear that they might help Japan attack the West Coast was at the root of this massive injustice. Apparently fueled by the racist paranoia of the military commander tasked with guarding the Coast, the internment (AKA imprisonment) was endorsed by his superiors –including President Roosevelt.

Oddly, in Hawaii where there were a lot more Japanese, the military commander steadfastly refused to consider any such measure. When he was ordered to remove those of Japanese descent from one sensitive region, he simply refused. After the war we learned that Japan had considered invading Hawaii following their successful 1941 attack but abandoned that plan. Japan had no plan to invade the West Coast.  

Meanwhile our treatment of those related to Nazi Germany was very different. Our Ambassador to Great Britain, Joseph Kennedy, repeatedly attempted to set up a meeting with Adolph Hitler, whom he admired. When his public remarks became overly outrageous he was recalled. Henry Ford and Charles Lindberg among other prominent Americans were also seen as Nazi sympathizers.

The German American Bund –one of several Nazi leaning groups made up of Americans of German descent– openly displayed their support for the Fatherland. Bund parades in full Nazi uniforms carrying Swastika emblazed banners were seen on the streets all across America. 

In February of 1939 a huge Bund rally was held in Madison Square Garden; in October the Bund paraded on 86^th Street in New York. Most Americans of German heritage were appalled by those who supported the Bund, however, no one suggested setting up interment camps even for those with a picture of the Führer on their mantelpiece. These movements died out soon after Germany declared war on the United States.

The errors we made in the 1940s, should give us pause. Muslim Americans were as horrified by the 9/11 attack as any of us. Here was a fringe group committing mass murder in the name of their faith. The blanket opposition to Muslim Americans today is as mindless as the internment Camps of WW2. As we mark the 10^th year since the attack on the twin towers let us remember Bainbridge Island and rededicate ourselves to the rights of all Americans.     

How Low Can You Go?

Just when you begin to think that the Murdoch Empire’s Limbo demonstration could not lower the bar any further, another disclosure adds to their record setting performances. We’ve known about their hacking into the mobile phone of murdered teen Milly Dowler in 2002. Rupert Murdoch himself made a very public apology for that one.

Now the London Coppers have told Sara Payne -who’s eight-year-old was murdered two years earlier in 2000- that her mobile was hacked by a private detective in the employ of Murdoch’s News Corp. And guess where Sara got that telephone? It was a gift from the sympathetic and ever-so-friendly then editor of The News of the World, Rebekah Brooks. The same woman who went on to head all of Murdoch’s British newspaper operations. The same woman who resigned a hair's-breadth before she was arrested. So we are left to ask, where did the private eye get Sara’s number? Is it possible that Ms. Rebekah knew nothing of all of this? Right!

Nasty business, smarmy, but maybe no laws were broken. Maybe. Leave the law breaking bit to new disclosures of a four-year News Corp cover-up. It turns out that an investigation in 2007 by a committee of the British Parliament triggered by a phone hacking guilty plea from a News Corp reporter did not get the whole story. News Corp saw to it that important disclosures were left out.

Murdoch’s minions had their law firm, Harbottle & Lewis, review a couple thousand emails looking “only” for any involvement by the reporter’s editors in his efforts to hack the mobile phones of the Royal Family. After much back and forth about its content, the prestigious law firm dispatched a one-paragraph letter saying they had found no evidence of any higher-up’s involvement in the hacking and the Committee was satisfied.

Now it turns out that while there may have been nothing in the emails to show that the phone hacking went above this one reporter, there were instances –lots of instances– indicating that the reporter was routinely paying police officers to provide inside information. In one instance he asked for a thousand pounds (about two grand US) to buy a stolen copy of the Royal Family’s private phone directory from a police officer.

A review of funds used by News Corp reporters shows receipts covering payments to police officers that round out to about a half billion in US funds over several years. Jon Chapman, a News Corp lawyer at the time, says that he did not realize that slipping payoffs to police officers was illegal. How could he? After all he is not a criminal lawyer and he must have missed that bit about bribing police when he was in law school. Apparently News Corp wouldn’t allow Harbottle & Lewis to go there. Since they were unwilling to flat out say they had found nothing incriminating, they kept their response narrowly parsed to cover only the level of knowledge related to the phone hacking. And the friendly Investigative Committee bought it.  

In the meantime, Rupert Murdock stands steadfast that he knew nothing of any of this; reminiscent of Sergeant Schultz in the CBS Sitcom, “Hogan’s Heroes”. While Murdoch may yet escape any personal responsibility, the culture and views he holds dear are indelibly stamped on every aspect of his worldwide organization. It is hard to imagine that these unsavory and perhaps illegal, ongoing tactics do not reflect News Corp’s founder.