When The Criminal Is Corporate, The Language Changes

I've been carefully watching the unfolding coverage of Barclays' manipulation of the LIBOR (the London interbank offered rate) which is the benchmark for interest rates globally. Two things stood out to me in the coverage. First, I noticed how stories about massive fraud committed by other banks began to taper off, as coverage increasingly focused only on Barclays' massive corporate conspiracy to commit fraud, with little coverage of the six other banking corporations being investigated for manipulating LIBOR, including Citigroup and Royal Bank of Scotland. The Barclays story has also overshadowed other banking scandals - such as, for example, the multi-bank conspiracy to manipulate the public bid process in towns across America). Second, I noticed how the language changes when the media covers criminal allegations facing corporations who committed fraud against the people as a whole, as contrasted with media coverage of individual criminal acts. When a person robs a bank, the headline calls it a crime. When a bank robs the people, the headline calls it a "mess". This second point - the alteration of language based on the identity of the criminal committing the fraud - has a more insidious effect than one might assume on first glance. Erasing the language of complicity and fault implicitly - and nefariously - strips away responsibility from the corporate actor whose principals (employees) engaged the crime being alleged. Crimes are committed purposefully, messes just happen. In the case of Barclays (and many other instances of coverage on the greater Wall Street CDO scandal), this linguistic distinction is not only absurd, it prevents the public from fully understanding the gravity of the allegations at issue. One article on the CNN Money website actually had the audacity to posit that some consumers gained from Barclays' fraud, but when would any "responsible" media outlet write a story on consumers who may have "gained" from the criminal act of an individual, say from the work of hacktivists (hackers who break into computers for socially progressive causes)? In my experience, never.

People presume the market sets interest rates. Financial reporters (and finance professors) might generally say it costs what it costs to borrow money for an objective reason (or for a set of objective reasons/factors). However, if one entity manipulates LIBOR for their own gain, the whole world is literally robbed as interest rates rise globally as a result. While the aforementioned CNN Money article positing the "consumer benefits" potential derived from this fraud outlined an argument that Barclays LIBOR manipulation artificially (and fraudulently) lowered interest rates borrowers may have been seeking during a certain period, it also lowered the amount of money that institutional investors such as pension groups may have been able to earn on certain investment vehicles during the same period. In other words, you might get a favorable interest rate on a car loan and lose out on potential retirement income: win now, lose later. Hopefully, prosecutors will be able to prove in court that what Barclays did is a horrible crime and they are responsible for creating a terrible mess. Whether the media covers any convictions in this light remains to be seen.

(cross-posted with my other blog, http://bizarrearmy.blogspot.com)

A False Pro-1% Argument

So, I ran into someone on Twitter who posted this video of CEO Peter Schiff confronting pro-99% demonstrators at Occupy Wall Street. The only problem is, Schiff is holding (and hogging) the mic the whole time, often taking it away from people as they are in the middle of salient points, not addressing valid points yelled off-camera, and failing to account for any nuance in tax policy or the criticism of government complicity with corporate interests articulated by the pro-99% demonstrators.

Schiff fails to include several key points in his analysis:

(1) Earned income is not the sole basis for determining the final tax any individual ends up paying when his or her return is completed (any debate about the fairness of the tax code has to center around "effective tax rate", the percentage of income one winds up paying when income comes from various streams (sales of stock, dividend income, rental income, etc) and after various deductions have been taken (too many to list here). This is the crux of billionaire Warren Buffett's argument that he should pay a higher *effective* tax rate than his secretary, which he currently does not. Seeing Schiff blow off Buffett, who is clearly a more successful investor than Schiff, as if Buffett's opinion on this key economic matter is invalid, is both comical and sad.

(2) Any argument that a change in tax policy will affect job creation immediately fails when one looks at the job creation rate and the rate of entrepreneurial growth during times of higher tax rates for millionaires. If the tax rate was the sole determiner of economic incentive, every post-1913 American industrialist in the 20th Century would have sought their fortunes in some other country after the income tax was first established. Instead, the five decades after the income tax was established saw more expansion of American corporate wealth than the prior 137 years combined (even with the Great Depression in the middle of it!). The economic environment in this country: infrastructure (roads, fire, police), transparency (banking regulation, securities regulation), rule of law and availability of capital are unparalleled virtually anywhere else in the world. Changing the tax code alone will never cause any of this growth to grind to a halt and arguably won't affect any future entrepreneurial growth at all, in light of the entrepreneurial growth we experienced during the five decades following the ratification of the 16th Amendment (the foundation of the income tax as we understand it). The marginal tax rate for a single person earning over $550,000 in 1971 was 70%! If this didn't discourage future entrepreneurs like Bill Gates and Steve Jobs (who were old enough to remember that rate) from dreaming of being successful businessmen, what rate could?

I could spend the better part of a decade deconstructing Schiff's points, but I think I have gone far enough.