In The USA: the Next Revolution

[Dayuhan]

One of the things people find unfair is the disparity between income tax and capital gains tax. They don't understand why a professional investor (let's say Warren Buffett) enjoys a 10% capital gains tax for one year's work while his secretary is taxed something like 28-35% for her sweat?

Capital gains taxes are kept low for a number of reasons. For one, investing money is something we really, really, want people to do, because investment creates productive enterprise and employment, around the world. For another, people who don't invest sometimes forget that investors don't always gain. Sometimes they lose. The government takes part of the gain, but it doesn't share in any loss. If I invest well and gain, Uncle Sam is there with his hand out. If I invest poorly and lose, he's nowhere to be seen.

I personally think some forms of very risky but very necessary investment, notably venture capital investments in startup enterprises, should see no tax at all on capital gains. Investing in new enterprise is something we want to encourage.

Now if you want to say we might want to create fewer incentives toward "investments" that consist mainly of flipping money from place to place, with that I'd agree, but the idea of taxing investment-related gains at a minimal rate, or in some cases not taxing them at all, is basically sound. You want to create tax advantages for behaviour you want to encourage, such as investment, and tax behaviour that you want to discourage. If you want to nail the rich, far better to lay massive sales taxes on things only rich people buy, thus creating an incentive to invest that money instead of spending it. Of course that would get a howl of protest from people who make stuff that rich people buy, but somebody is always gonna hurt.

[Fuchs]

Dayuhan, did you really buy into all that propaganda that the rich and super-rich "deserve" their huge income?

That's wrong in so many ways...there's a huge spread between average worker income and CEO income that hasn't been nearly as great just a few decades before. CEOs did certainly not multiply their productivity like that.


Is there any reason to believe that some executives multiplied their productivity that much while others didn't?

In the case of higher executive pay, they ripped the workers off much of their pensions. That's (in part) how they did it, and the country was so much lacking checks and balances due to gutted-down labour unions that they got away with it.

Immelt and other corporate spokespeople have suggested that pension plan shortfalls are caused by out-of-control factors such as the large number of retirees, declining stock market investment returns and competition from foreign competitors that eschew good benefits for laborers.

Schultz knows better from her extensive research. She is a reporter who has become an expert in a relatively narrow subject matter. As she writes, "What Immelt didn't mention was that, far from being a burden, GE's pension and retiree plans had contributed billions of dollars to the company's bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for. Nor were these retirement programs — even with GE's 230,000 retirees — bleeding the company of cash. In fact, GE hadn't contributed a cent to the workers' pension plans since 1987 but still had enough money to cover all the current and future retirees."

Then Schultz delivers the clincher: GE was indeed burdened by a pension plan — the plan for top executives. The obligations of that plan, for a minuscule number of individuals compared with the 230,000 lower-level retirees, totaled $4.4 billion and had drained about $573 million from the corporate treasury over the past three years.

http://www.usatoday.com/money/books/...ook/50795990/1

And that's an example from some super-rich who work(ed). Many super-rich aren't productive at all.

[Bill Moore]

Presley, it is at least entertaining to see that there are some people who cling to the myths of our system being fair and the big corporations paying their fair share.

http://www.nytimes.com/2011/01/24/bu...emc=rss&src=ig

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

http://finance.yahoo.com/blogs/danie...205658852.html

But sometimes there's less than meets the eye. Generally, banks that repaid CPP funds did so with cash raised from earnings, or by raising new outside capital. In finance and banking you always have to read the fine print. And if you go back to the report, you'll notice that the fine print accompanying the entries for each of the above exits makes reference either to Footnote 49 or Footnote 50. Footnote 49 reads: "Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 using proceeds received in connection with the institution's participation in the Small Business Lending Fund." Footnote 50 reads: "Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 — part of the repayment amount obtained from proceeds received in connection with the institution's participation in the Small Business Lending Fund."

All of which is to say that these banks repaid cash owed to a program run by the Treasury Department by. . . borrowing from another program run by the Treasury Department

.

Replacing one form of government capital for another doesn't do anything to lessen the public sector's involvement in the system. As with the CPP, taxpayers will eat the costs if banks taking SBLF funds can't return the capital. And I'd much prefer to see banks exiting TARP on their own power. But this new wrinkle at least remedies a design flaw of the original CPP by rewarding banks for lending more and punishing them for hoarding cash.

http://www.foxbusiness.com/on-air/wi...p-bailout-bill

Taxpayers are getting some payback on their bailout of one of the world's biggest insurance companies: AIG.

It's a drop in the bucket compared to all the money that was sent out the door through the Troubled Asset Relief Program (TARP), but still, American International Group is repaying $972 million to the U.S. treasury this week.

That brings AIG's outstanding balance from the 2008 bailout down to roughly $68 billion. That's out of the $182 billion ploughed into the company at the height of the financial crisis

According to the watchdog website Propublica - of the more than $580 billion spent so far, less than $278 billion has been paid back.

The biggest culprits are of course Fannie Mae and Freddie Mac. The mortgage twins have pocketed nearly $170 billion since 2008. The government has only recovered $28 billion.

I agree with Ken that Congress created the conditions that allowed the banks to get greedy and make terrible business decisions, but I don't agree that just because you can be stupid that you should. Of course that philosophy would explain the epidemic of obesity in our country. You don't have to drink sodas and order super size meals at your favorite fast food joint, and you probably have time to work out if you chose, but apparently obesity is the government's fault for not mandating this behavior. Our bailouts of the banks was done with tax payers money, and many of the companies that were bailed out came their executives large bonuses with tax payers dollars for failing. In a true capitalist system you are rewarded for success and punished for failure. I question anyone's sanity who claims that our current system is capitalism. It is an corrupt system controlled by a relatively few oligarchs that are finally being challenged, but it will be long and difficult road to get things back in balance again.

[motorfirebox]

Specifically, the 53 percent of us that pay federal taxes.

Your facts are bad and you should feel bad.

The government takes part of the gain, but it doesn't share in any loss. If I invest well and gain, Uncle Sam is there with his hand out. If I invest poorly and lose, he's nowhere to be seen.

I understand that that is how things are supposed to be in principle. But does anybody actually believe that's how it works, now?

Good thing no one's taking away income from the lower half of the US.

Sure, because crashing the economy, forcing it to shed millions of jobs, doesn't count as taking away income. Ba-dum tsh! He's here all week, folks! Try the veal!

[Dayuhan]

Dayuhan, did you really buy into all that propaganda that the rich and super-rich "deserve" their huge income?

That's wrong in so many ways...there's a huge spread between average worker income and CEO income that hasn't been nearly as great just a few decades before. CEOs did certainly not multiply their productivity like that.

When did what's "fair" or what anyone "deserves" come into the picture? Pretty much subjective constructs, no?

Earlier you were talking about "the lower income half of the U.S." being "ripped off", now you're talking about executives at major corporations allegedly "ripping off" their workers. Workers at major corporations are generally not in "the lower income half of the U.S.". If you look at pay scales of major corporations, even their secretaries are generally earning above median.

Your chart doesn't say whether it's comparing executive pay to pay of workers in the executive's corporation or of "the workers" collectively, a considerable omission. In any event, what do you propose to do about it?

I still don't see how "the lower income half of the US" - who are generally not working for major corporations - are being "ripped off" by corporate executives.

[Presley Cannady]

Your facts are bad and you should feel bad.

Funny. Are you sure it only seems that way because you live in a fictional world where state and local taxes pay for federal activity?

Sure, because crashing the economy, forcing it to shed millions of jobs, doesn't count as taking away income.

No, it doesn't. For two reasons.

1. You're not entitled to a paycheck, particularly one cut by me.
2. We didn't buy houses we couldn't afford. We didn't a force a bank to lend to people who couldn't pay. We gave you ten years liquidity you probably didn't deserve. So please, by all means, go jump off a bridge for all I care.

[Presley Cannady]

Presley, it is at least entertaining to see that there are some people who cling to the myths of our system being fair and the big corporations paying their fair share.

What myths? 75 percent of taxes are paid by six-figure earners--20-25 percent of the population--half paid by the top 10 percent and 36 percent by the top 1. To put that in perspective, the total tax receipt for the top 1 percent is 3 orders of magnitude larger than these legal bills. So don't worry about, Moore. We got you covered.

I agree with Ken that Congress created the conditions that allowed the banks to get greedy and make terrible business decisions, but I don't agree that just because you can be stupid that you should.

Then please, don't be. You've decided to go with a particular narrative because, I presume, it was the less mathematically challenging one. Really? It never once occurred to you that a conspiracy of greed involving tens of millions of home owners, loan officers, bankers, credit advocates, mathematicians, software engineers and workaday drones might be a little far fetched?

[Presley Cannady]

http://finance.yahoo.com/blogs/danie...205658852.html

I'm assuming counting isn't out of your depth, so quick question. How many Footnote 49 and 50 repayments are listed in the 25 page report Gross links?

[Presley Cannady]

Incorrect. The top 1% pays 40% of all Federal income tax...

And in what alternate universe is TARP funded by state and local taxes?

Also one must reckon with the fact that the top 1% also take in a remarkably large chunk of national income and hold an even larger chunk of national wealth.

No, one must not, since it has nothing to do with the fact that 47 percent of Americans aren't on the hook for TARP and 75 percent of those who are make more than six-figures a year.

TARP was by far the smallest proportion of Federal aid to the financial community. The Federal Reserve's lending to the major banks was quite extensive, to put it mildly.

As you pointed out, the top quintile holds the vast majority of assets in this country. Who do you think holds the Fed's $16 trillion in outstanding debt? But don't worry, that overnight loan to ourselves was paid back within a day with interest.

[Presley Cannady]

One of the things people find unfair is the disparity between income tax and capital gains tax. They don't understand why a professional investor (let's say Warren Buffett) enjoys a 10% capital gains tax for one year's work while his secretary is taxed something like 28-35%

His secretary is taxed in the 28 percent bracket. His long-term gains are taxed at 15 percent. That is income deferred for a year or more. Take income from said gains within the year they were acquired, and you get taxed at your earned income rate--35 percent. By the way, this is after government already takes 15 percent to 39 percent off all a company's taxable income (including capital gains).

So...bull.

The middle class got ripped off by the banks in at least three different ways.
1) The banks sold sub-prime mortgages like hot cakes (borrowers share the blame here).

You have a funny notion of ripped off. You get an adjustable-rate mortgage to buy a house you otherwise would've never been able to get, you default, and it's the bank's fault?

Then they created and sold the mortgage backed securities causing the financial collapse.

MBS's were the only thing supporting your quest for ever expanding home ownership. So the banks ripped you off by innovating a product that all the models agreed should hedge against an increased risk of default by tripling subprime lending?

But those at the top who orchestrated the whole mess took the money and ran.

And here we get to the rub. So people who lost money predicting the housing bubble collapse before 2008 are victims according to reasoning, right?

Do you understand there two sides to any trade?

People like Ken Lewis participated in one of the gnarliest transfers of wealth from the middle class to their own pockets and walked away scott free. There were no negative consequences for the banks or the bankers...

Yeah, I guess that's why there were zero bank failures over the past 3 years. Guess ACA made out like a bandit on ABACUS. Lehman Brothers is having a banner year in 2011. Once again, do you understand that their are two sides to every deal?

...in the end it's the tax payer who assumed all the risk...

That's not even remotely true. The taxpayer that assumes any risk is the 53 percent who pay federal taxes. Of that, 75 percent of the risk goes to the 20 percent making $100,000 or more. But even then, the principle risk is held by Treasury bond holders. So tell you what, let us worry about saving the quadrillions in credit you need to power this $13 trillion economy and you just sit back, relax, and enjoy making 20 percent more while working 200 hours a year less than you (or your daddy) did fifty years ago.

[Fuchs]

No, one must not, since it has nothing to do with the fact that 47 percent of Americans aren't on the hook for TARP and 75 percent of those who are make more than six-figures a year.

Let's assume that the Federal budget is risking losses with TARP, person A pays federal taxes and person B doesn't (but still lives in the country and is adult, pays state taxes).

Intuition is misleading here. Both A and B are "on the hook" in this case. That's an economic analogy of a system of communicating water tubes. There's certainly some rigidity in the system, but in the end all are "on the hook".

The system balances government revenues between federal and state level, and would rebalance over time if state level runs into problems. So in the end, B would be on the hook, too. He's a substitute income source to A.


Economic science has found many such cases which are similarly misleading.
For example the German social insurance payments. Employers pay 50%, employees pay 50%. In the end, employers still have no economic damage from these payments at all because economically speaking the wages are lowered accordingly. In reality labour foots the whole bill (after some sticky/rigidity effects). It usually takes some economic education in the field to spot these cases.

[Fuchs]

Earlier you were talking about "the lower income half of the U.S." being "ripped off", now you're talking about executives at major corporations allegedly "ripping off" their workers. Workers at major corporations are generally not in "the lower income half of the U.S.".

Doesn't matter. The upper middle class didn't get appropriate real wage growth either.

Besides, it was just an example.

As an economist I do also consider 'rip offs' beyond labour compensations, such as ripping off consumer rents in bad trades (banks ripping off customers, retail ripping off customers and much more).
Economic rents are one way to go when you discuss asymmetric exploitation, but you need an economist audience to do it in full swing.

The U.S. has systematically deregulated safeguards against such asymmetric exploitation during the last 30 years and suffers accordingly. It's the price for living in money-driven ideology land.

[JarodParker]

His secretary is taxed in the 28 percent bracket. His long-term gains are taxed at 15 percent. That is income deferred for a year or more. Take income from said gains within the year they were acquired, and you get taxed at your earned income rate--35 percent. By the way, this is after government already takes 15 percent to 39 percent off all a company's taxable income (including capital gains).
So...bull.

So what? Why should he get a break because he chose to defer his income a year? And so what, he gets hit with a corporate tax... he chose that path because the advantages outweighed the tax savings he would have under other corporate structures.
Personally I like the smaller tax burden of long-term holdings and I'm on board with Dayuhan argument about encouraging investment. But I can see how people can find the disparity to be unfair.

You have a funny notion of ripped off. You get an adjustable-rate mortgage to buy a house you otherwise would've never been able to get, you default, and it's the bank's fault?

You're intentionally taking my statement out of context here. The rip-off is not in that the subprime mortgages were made available but the rabbit hole they lead down to. The top management at many big banks created an atmosphere where line employees were encouraged to qualify anybody with a pulse for a mortgage even by falsifying applications. They did this so they can have good quarters and rake in the bonuses. And I clearly stated that the subprime borrowers shares the blame as well.

MBS's were the only thing supporting your quest for ever expanding home ownership. So the banks ripped you off by innovating a product that all the models agreed should hedge against an increased risk of default by tripling subprime lending?

I never really bought the notion that everyone should be a homeowner.
And it doesn't matter what the models showed if the input was tainted. Those MBS's were improperly rated by the agencies who were in collusion with the banks.

And here we get to the rub. So people who lost money predicting the housing bubble collapse before 2008 are victims according to reasoning, right?

I never said that. My point was that if you're going to get paid ungodly sums of money as an executive, it should be based on a track record longer than just one quarter. They should not be able to uild a house of cards and walk away as it implodes. It's like a ship's captain having to be responsible for his wake inside the harbor. Salary and bonuses should be structured in a way that CEOs create profit in a responsible manner... I say this as an investor. Otherwise it's just a ponzi scheme.

Yeah, I guess that's why there were zero bank failures over the past 3 years. Guess ACA made out like a bandit on ABACUS. Lehman Brothers is having a banner year in 2011. Once again, do you understand that their are two sides to every deal?

Lehman failed because it was the first big bank to be hit and at that point the government did not have its act together to respond as they did in later instances. Most of the other failures are in smaller regional banks who were in fact more disciplined in their lending. And there are always bank failures, even in non-crisis times. Overall, the banks/bankers did not learn a lesson.

...in the end it's the tax payer who assumed all the risk...

That's not even remotely true. The taxpayer that assumes any risk is the 53 percent who pay federal taxes.

I don't seed how you can disagree with me here. I said "the tax payers assumed all risk" and you fired back with "the taxpayer that assumes any risk is the 53 percent who pay federal taxes"... aren't the 53% who pay federal taxes, taxpayers?

Of that, 75 percent of the risk goes to the 20 percent making $100,000 or more.

How did we go from the top 1% to the top 20%? $100,000? that's a nurse who works overtime, or a police lieutenant (sergeant in the big cities) or an engineer. These people share the outrage of the demonstrators.

But even then, the principle risk is held by Treasury bond holders.

You know people in the middle class are also bond holders right? 401Ks, TSPs and such.

Keep in mind that not everyone who's hurting right now took a subprime mortgage or was reckless in their personal finances or earned non-marketable degrees.

[Bill Moore]

http://www.theatlantic.com/national/...o-fail/246159/

Interesting chart displaying how over 30 banks were consolidated into four banks over the past 20 years.

I'm not convinced this was Adams Smith's view of how capitalism should work, but obviously many disagree. When a few banks (or any business) dominate the market in a way that eliminates competition it is no longer a free market, and when that happens the market no longer determines the value of the service or the product. Too big to fail comes closer to the communist model than a capitalist model.

The too big to fail problem is compounded by the large amount of cash currently in savings. First the U.S. was criticized because its citizens didn't save enough, now that the stock market has scared people to shift money from stocks to savings, the banks have too much money to manage and their complaining they can't invest it profitably (one reason your savings interests rates are so low).

http://triplecrisis.com/greece-lehma...o-big-to-fail/

The collapse of Lehman Brothers in 2008 introduced three new concepts to the public: Moral Hazard, Systemic Risk, and Too Big To Fail. The first was well-known but misunderstood, the second wasn’t supposed to exist but did, and the third has helped morph the legacy of the 2008 banking crisis, the explosion of government debt across Europe, into a secondary banking crisis with a pernicious twist that is perhaps the real lesson of Lehman.

We used to live in a world where banks bailed out sovereigns, but now sovereigns bail banks that are too big to fail – and the banks know it. Capitalizing upon this is now a business model. It’s a truly immoral hazard.

We made this bed, so we have to lay it for now, but tomorrow is another day.

http://www.nytimes.com/2011/11/05/bu...er=rss&emc=rss

Global regulators on Friday named 29 banks so important to the world’s financial system that they require more capital and closer surveillance than rivals, plus a detailed plan to allow them to be wound down without taxpayer help if they hit trouble.

[Presley Cannady]

Let's assume that the Federal budget is risking losses with TARP, person A pays federal taxes and person B doesn't (but still lives in the country and is adult, pays state taxes).

Intuition is misleading here. Both A and B are "on the hook" in this case. That's an economic analogy of a system of communicating water tubes. There's certainly some rigidity in the system, but in the end all are "on the hook".

So let me get this straight.

1. TARP is a federal expenditure.
2. Person A pays federal taxes.
3. Person B pays no federal taxes.
4. TARP repayments falter.
5. Handwaving.
6. Both Person A and Person B are on the hook.

That about right?

The system balances government revenues between federal and state level, and would rebalance over time if state level runs into problems.

What does that even mean? No...seriously.

So in the end, B would be on the hook, too. He's a substitute income source to A.

A "substitute income" source to A? What?

Economic science has found many such cases which are similarly misleading
For example the German social insurance payments. Employers pay 50%, employees pay 50%. In the end, employers still have no economic damage from these payments at all because economically speaking the wages are lowered accordingly. In reality labour foots the whole bill (after some sticky/rigidity effects). It usually takes some economic education in the field to spot these cases.

So...you're saying that the federal government sticks state governments with the bill?

Does that even make sense?

[Presley Cannady]

So what? Why should he get a break because he chose to defer his income a year?

Because his income remains invested capital for much longer than yours, and the whole purpose of capital gains is to encourage that sort of saving.

And so what, he gets hit with a corporate tax... he chose that path because the advantages outweighed the tax savings he would have under other corporate structures.

What?

Personally I like the smaller tax burden of long-term holdings and I'm on board with Dayuhan argument about encouraging investment. But I can see how people can find the disparity to be unfair.

I can see how people can be envious of anything. I just don't give a damn.

You're intentionally taking my statement out of context here. The rip-off is not in that the subprime mortgages were made available but the rabbit hole they lead down to.

The top management at many big banks...

How many banks?

...created an atmosphere where line employees were encouraged to qualify anybody with a pulse for a mortgage...

In other words, you're pissed off that ease of acquiring credit varies over time.

...even by falsifying applications.

If you're going to accuse people of fraud, be specific.

They did this so they can have good quarters and rake in the bonuses.

Yes, who would stoop so low as to want good quarters and bonuses?

And I clearly stated that the subprime borrowers shares the blame as well.

You stated a lot. Not much of it making any sense, let alone true. How do you apportion blame for a credit crunch? You might as well take a helping for yourself.

I never really bought the notion that everyone should be a homeowner.

Funny, I don't see any evidence of you making noise to the contrary before the subprime implosion.

And it doesn't matter what the models showed if the input was tainted. Those MBS's were improperly rated by the agencies who were in collusion with the banks.

That's hilarious. You really think the securities were improperly rated? Do you even know how these securities were traded?

I never said that. My point was that if you're going to get paid ungodly sums of money as an executive, it should be based on a track record longer than just one quarter.

It is. You're career track record.

[quote]They should not be able to uild a house of cards and walk away as it implodes. It's like a ship's captain having to be responsible for his wake inside the harbor.

Salary and bonuses should be structured in a way that CEOs create profit in a responsible manner...

Which you're in no position to judge, seeing as you've a thoroughly mistaken grasp of the key facts underlying the subprime implosion and the subsequent credit crunch.

I say this as an investor.

A guy with $25 in a savings account is an investor. Impress me.

Otherwise it's just a ponzi scheme.

So your definition of ponzi scheme is any investment you have a risk of losing?

Lehman failed because it was the first big bank to be hit and at that point the government did not have its act together to respond as they did in later instances.

That's about as insightful as saying Lehman failed because it failed, which has nothing to do with the point I was addressing--specifically, your argument that there were no negative consequences for the banks and the bankers.

Most of the other failures are in smaller regional banks who were in fact more disciplined in their lending.

And you're basing that assertion on what?

And there are always bank failures, even in non-crisis times. Overall, the banks/bankers did not learn a lesson.

Oh, we learned plenty of lessons. Just not the ones you're trying to teach them, because your lessons are worthless.

I don't seed how you can disagree with me here.

It's easy. I actually know this business, and I know very little of what you've said here bears any relationship whatsoever to my industry.

I said "the tax payers assumed all risk" and you fired back with "the taxpayer that assumes any risk is the 53 percent who pay federal taxes"... aren't the 53% who pay federal taxes, taxpayers?

"Assumes any risk," as in the risk assumed by the people who actually pay taxes--a risk heavily skewed towards senior earners--is very small.

How did we go from the top 1% to the top 20%? $100,000? that's a nurse who works overtime, or a police lieutenant (sergeant in the big cities) or an engineer. These people share the outrage of the demonstrators.

Except when they're cracking skulls. Am I right?

You know people in the middle class are also bond holders right? 401Ks, TSPs and such.

Yes, I understand there's a wading pool out there.

Keep in mind that not everyone who's hurting right now took a subprime mortgage or was reckless in their personal finances or earned non-marketable degrees.

Who cares? There were such people hurting before the crisis and there will be afterwards.

[Fuchs]

Presley; yes, that's what I wrote and meant - and it makes sense.
Maybe it takes some economic education to get my points, but they're really basic and universally accepted econ stuff.

I already mentioned that economic analysis unearths some connections that are at odds with intuition.

Small disclaimer; I wrote about medium-long term. The short term situation differs, but it is quite uninteresting in this context.

What does that even mean? No...seriously.

It means that if the federal level runs into trouble the revenue system between states and feds would adapt to the situation.

Keep in mind that additional expenses do mean additional net debt in the current situation, and this means a net debt increase for decades. That's why the long term view is appropriate, and the long term includes such adaptions.

[JarodParker]

Wow, it seems you are getting quite emotional about this and trying to make this way too personal.

As for the rating agencies, here's a related article by Krugman...

No, the e-mail messages you should be focusing on are the ones from employees at the credit rating agencies, which bestowed AAA ratings on hundreds of billions of dollars' worth of dubious assets, nearly all of which have since turned out to be toxic waste. And no, that's not hyperbole: of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.

The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody's and Standard & Poor's; what it has found confirms our worst suspicions. In one e-mail message, an S&P employee explains that a meeting is necessary to "discuss adjusting criteria" for assessing housing-backed securities "because of the ongoing threat of losing deals." Another message complains of having to use resources "to massage the sub-prime and alt-A numbers to preserve market share." Clearly, the rating agencies skewed their assessments to please their clients.

Senate inquiry faults rating agencies

In 2007, a Moody’s analyst told a Merrill Lynch investment banker that a rating could not be finalised until the “fee issue” was resolved.
The banker responded: “We are OK with the revised fee schedule ... We are agreeing to this under the assumption that ... you will work with us further ... to try to get some middle ground with respect to the ratings.”

[Presley Cannady]

Presley; yes, that's what I wrote and meant - and it makes sense.

Sure, in a world where "handwaving" constitutes an argument.

Maybe it takes some economic education to get my points...

Not really. All you need is a willingness to throw facts overboard.

...but they're really basic and universally accepted econ stuff.

Is that so? There's a really basic and universally accepted economic argument that people are on the hook for a federal expenditure even if they don't contribute to federal taxes?

I already mentioned that economic analysis unearths some connections that are at odds with intuition.

Yes, and I graciously ignored it as the non-sequitur it is.

Small disclaimer; I wrote about medium-long term.

Oh, so in the medium to long term we're all on the hook for spending they regardless if whether or not they have money in the pot? I should point out that you haven't even bothered to characterize how said risk is apportioned.

The short term situation differs, but it is quite uninteresting in this context.

Considering the short-term covers the life of the warrants, how is it uninteresting?

It means that if the federal level runs into trouble the revenue system between states and feds would adapt to the situation.

In other words, handwaving. Why not assume that the feds will default?

Keep in mind that additional expenses do mean additional net debt in the current situation, and this means a net debt increase for decades.

How do you figure?

[Presley Cannady]

Wow, it seems you are getting quite emotional about this and trying to make this way too personal.

The word you're looking for is disdainful. Here's an exercise for you. Research a single improperly rated mortgage back security, that is an MBS with a AAA bestowed on a clearly risky mortgage.