Stealing from savers - a hell of a trial balloon II

In an update to the previous post, Jonathan Krugman says that kind of plan is already here in the form of ZIRP - Zero Interest Rate Program. 

The ZIRP has had an unintended - and positive - consequence.  Debtors - poor and middle class - who spent willy-nilly during the days where credit was easy are now pushed to pay off the high-interest rate balances on their debt - some at rates of 30% or more.  With a lower interest rate, balances are paid off much faster than they normally would.  While you might see puny interest in your savings accounts, once a debt is paid off, the interest you would have paid to the banks goes right into your pockets. 

Example: If you paid off a $10,000 balance at 24% APR, you would be receiving an effective $200 extra per month.  That's $200 less the bank would be receiving from you each month, which is much, much better than the 0.1% APR the bank would have paid on that $10,000 ($10 a year).  You make a nice profit of $2,390, tax-free.  And, if the creditor discharged your $10,000 debt, it would have become taxable income.

Also, not having any debt at all also denies banks and creditors the ability to make interest and profits off responsible customers.  It may not make you a profitable customer in some banks' eyes, but in others, the ability to manage debt well is sound financial footing, no matter how much income or savings you have.  Paying off the debt is equal to an interest free - 0% - loan.

On the other hand, there could be 180 degree opposite of Cyprus.  In the right situation, that $9.6 trillion the banks are sitting on could be forced to be returned to savers - in exchange for not receiving a lengthy Federal prison sentence for the collapse of the markets in 2008.  That and a few forced Big Bank breakups would work immediate and long-lasting wonders.

Stealing from savers - a hell of a trial balloon

SamaBlog puts the whole Cyprus "savers to sacrifice savings" neatly: (emphasis mine)

I just wanted to go on the record that what has happened in Cyprus, with the seizure of bank accounts, is a trial balloon. If the world give it a collective shrug, that a first world central bank seized money from its citizens with no due process, then it will happen again, and it could happen here even. But as of right now, it is no longer safe to hold significant assets in a bank account, and I would recommend removing significant amounts of cash from the bank asap.

 What Cyprus was planning to do, via European Union diktat, was to take 6.9% out of all accounts up to 100,000 euros, and 9.5% above that, as conditions of the EU bailing out Cyprus.  That effort was met with a huge outcry, and to prevent panic and bank runs, Cypriot banks closed.  The Cypriot parliament voted that effort down, but banks are still closed, and may yet have bank runs.  Cypriots and expats from Russia and the UK were furious, not just at the ministers, but at Angela Merkel, the German chancellor who engineered the conditions of the bailout.

Back in the 1940s, Americans were compelled to buy war bonds, which back then paid a handsome interest rate of 5% (but the dollar back then bought much more than today; a dollar back then would be about $14 today).  Today, people are pressured to fund their retirement accounts, which total about $10-$20 trillion.  Given the right manufactured crisis, the government will see that $10-$20 trillion as an irresistable lure that its citizens will be glad to hand over - not knowing that their money may never be paid back.

Say the government needs to bail out banks, and decide they will levy a 20% surtax on all 401(k) accounts, regardless of value.  That means for every $100,000 you've scrimped and saved tax-free, the government is seizing $20,000, never to give it back.  If you earn $50,000 a year and contribute 20%, $2,000 of the $10,000 that you put into your account will be captured by the government.   If the situation is dire enough, the government will have the right to seize every bit of that $10-$20 trillion, and pay back at a fraction of that to the savers at a much lower rate.

Resentment in perfection

There are schools that couldn't care less about kids who graduate, so long as they leave the building with the diploma they're all but handed.  There are also those that do care and make every effort to have their kids graduate at a rate above 80%.  Those who graduate every single student in the senior class is rare, yet incredible accomplishment.

So why take away the prom?   I can see cancelling a prom for bad behavior, but to motivate students to have that distinction, against all odds, and taking away a major event just so the administrators can feel better?

These schools - really the administrators - who likely have tons and tons of federal and state education funds riding on the graduation rate, i.e. having a metrics fetish so archingly huge that a 99% graduation rate means losing funds - funds they can't afford to lose.  It's an attention getter for the students to work harder, of course, but it sounds more like Captain Queeg running the high school.

On the other hand, these students are motivated enough to do their best, so this could all be a huge bluff by this principal to get them to work harder.  I'd love to see the students call this principal's bluff as follows: "Fine, we'll hold our own, unsanctioned prom, full of liquor and drugs, obscene dancing, and chaos.  No chaperones, no control, no anything.  Would you like to be in the news for a 100% graduation rate, or half of the NYPD in the Bronx hauling kids to jail?  Your choice."

Update: Never mind...the prom will go on.

Taxes are funny, innit? II

Deval Patrick put out his budget proposals, and the people are taking out their frustrations over the details of said proposals on their politicians.

Namely: the increase of the income tax from 5.25% to 6.25%; the reduction of state sales tax to 4.5%, to which sodas, snacks, and water bottles will be included; the increase of cigarette taxes to $3.51, and other things.  On the positive side, the personal exemption may go up to $8,800 - but only if you earn less than $37,000.

A few back-of-the-envelope calculations: If you're buying a pack of $6 generic cigarettes and the new excise tax is $3.51, that sports an effective tax rate of 58.5%, even before the sales tax is applied.  If you're buying $50 of snacks and a case of 24 cans of soda at $8, the new tax will rake in $2.25 for the snacks and $0.36 for the soda, plus another $0.60 for deposit.  That means an additional $3.21 tacked onto the bill.  If you earn $40,000 a year, you pay an extra $400 per year, or $8 per paycheck.

Deval Patrick knows that he's a lame duck and is very smart to use ignorance to his advantage. He knows the real money to be taken is where no one will take a second to question why and calculate how much.  He also knows the taxes he's raising are on the poor and lower middle classes who have little, if any, influence on how these taxes will be distributed - it might sound great that the monies are going to transit and education, but often they go to the general fund so they can be spent on pork and perks.  They're the same people who will hang on every promise but in the end get whacked in the face, time and again, because they aren't savvy enough to differentiate between good taxes (that are put out front and benefit everyone) and bad taxes (that can be hidden and manipulated to the whim of the politician).

Furthermore, these extra taxes beyond the income tax are designed to be regressive, and will come from the disposable income of the poor and lower middle class.  The snack and soda taxes alone will be a harsh regressive tax, and coupled with yearly fare hikes, the urban areas (and not the suburbs, who sustain most of the commuter rail fare hikes) will financing a huge chunk of shiny new buses and trains, while also having bus and train services reduced or cut.  On top of it, no one, not even the poorest, will avoid the 6.25% income tax (and no one knows if they'll offer an alternate, higher income tax for those who want to pay more - the 5.85% tax has generated so little revenue anyway).

Voters re-elected Patrick with passion.  Now they're seeing their passion repaid with a massive shakedown on their wallets.  Now the voters are certainly rekindling that same passion - by giving politicians a huge earful about how they'll vote for the other guy if this budget passes.

Taxes are funny, innit?

For the many people who were shocked, shocked that their paychecks were reduced, it was because the Social Security tax that was temporarily reduced to 4.2% from 2011-2013 was rightfully restored to the original 6.2% rate. 

I say "rightfully restored" because Congress let the temporary rate expire - and it was a bipartisan effort.  Not that 6.2% is a nice, cheap rate - it's better than the 39.6% plus a few surcharges signed into law along with the permanent Bush tax rates - but the reduction was to get people to spend more money in their paychecks, yet it went to paying for higher food and fuel prices.  (See also Making Work Pay, which credited people $400-$800 but also expired, replaced by the 4.2% temporary rate.)

Taxes are funny.  People will whine about an increase in taxes, but will still buy cigarettes, which carry a effective tax rate of 40-65%, will purchase beer at 11 cents per gallon excise tax, liquor at $4.05 per gallon excise tax, not recycle their cans and reclaim their nickel per can/bottle, and not look at their phone bills and be on the hook for 12-13% in more taxes.  Yet, when they're told that they can reduce or defer their taxes, either by decreasing the amounts they withhold in their paychecks or by deferring their income to a 401(k) program, they're too busy watching TV or letting the media narrate what's going on through the lens of a gossip columnist with a mighty big axe to grind.

Of course, there will be masochists taxpayers willing to pay even more.  Let them.  Let them endorse their paychecks directly to Uncle Sam if it makes them giddy.  It's a fool's errand, however, to force others to pay more just because you think they have deep pockets and must do it for the "common good."  When the money runs out from these folks, it's the "common good" who has to fork over their savings.  Soon enough, Margaret Thatcher's axiom of "eventually [running] out of other people's money" comes true.

Our thirst for exploitation TV

Andrea Peyser's fantastic column in regards to the disgusting six year old child participating in beauty pageants hits a hard nerve.

I have two nieces.  To their tremendous credit, they have zero interest in participating in things like that.  They want to be kids, not some hardcore pervert's fantasy.  My sister-in-law and my brother keep them rooted to reality.

Watching shows that exploit stereotypes, celebrities, and above all children has its parent in the Jerry Springer show.  When the Jerry Springer show brought in every base stereotype into the mainstream, a lot of ears perked up.  So did Maury Povich.  So did many other shows, raking in the cash on every fight, every "Jerry, Jerry, Jerry" and every "You're not the father."

The Osbournes brought in celebrity exploitation, thanks to Ozzy's doddering speech and call outs to "Sharon."  They beget the equally odious Kardashians.  Producers love rolling in the money when Gene Simmons and Shannon Tweed get married, get into fights, and all of the bleeps.

Now it's children and pageant/dance shows that have really solidified gross exploitative TV.  It's not enough for children as young as three to look like painted trollops; it's ratings and advertising gold for the mother/trainer to blow up like a Parris Island drill instructor.

All because viewers have allowed degrading TV shows like this.  We've not just become desensitized to gross violence and hedonistic sexual activities, but watching hicks, ghetto trash and other people do stupid stuff makes people feel better.  Sure, you're two months back on rent and the collectors are calling you every two hours, but hey, at least I'm better than the people on TV, right?

No.  It's not right.  Not even close.

The best resolution is to make these shows so unappealing to watch that people will flock from the shows in droves...the Cousin Oliver syndrome writ large.  Make viewers squirm in total discomfort, outrage them to the point where they call the network and threaten to boycott every advertiser on the show, and soon enough, the series finale will wind down and the show will be relegated to the dustbin of history.  Once people wipe their eyes and see that vile and disgusting shows that exploit minorities, celebrities, children, and racial and sexual stereotypes only enrichen networks, they too will demand them off the networks.  If the fear of God doesn't work, the threat of losing advertisers and their juicy revenue vaporizing does.  The message to producers and networks will then become broadcast exploitation shows at your own financial peril.

Perhaps two decades from now, that six year old eating mayonnaise from a jar will become a better, wiser young woman and a spokesperson against child exploitation in particular and exploitation in general.

The way out is the way in

"The way out is the way in" has an analogue: one door closes, another one opens.

After reading Suldog's "Happy New Year to Me" entry, it may be true: lose a job, get hired for a new one.  It might take a month, a year, or longer, but it's never easy, especially when it comes to the end of the year and at the expense of longevity.

Whenever people get laid off for business purposes (and not disciplinary ones - as in getting flat-out fired for being flat-out stupid), or at meetings where layoffs are discussed and people are concerned they'll be next, I always go back to the time I was laid off in 1995 from a company operating in Newton Corner.

Layoffs and staff reductions are usually geared to getting rid of deadwood, but sometimes when management has already gotten rid of incompetent and corrupt employees, they have to get rid of the loyal (those who have worked over 20 years) and those who make too much money (why keep a $40k worker when you can retain $20k workers?).

I was between temping in Downtown Boston after college and beginning to pay off student loans when I happened upon an ad working for hotel reservations for major companies.  The pay wasn't stellar, but enough to pay the bills I did have and keep a little cash on the side.

I began in August of 1995.  We had one big firm that was having a major convention in the South.  First, they had me typing in reservations...which was fine.  Then they had me going onto the phones, taking reservations.

There were good days when the reservationers were friendly; other days, I simply wanted the job to end.  I used to work from 11am to 8pm, come home on the express bus, and did it all again the next day.  Soon, I went to a traditional 9am - 5pm schedule.

Sometimes, to cheer employees up, management brought in food and had prizes, but somehow all that food got consumed while me and a few other people were on the phones.  In between doing the phones and entering reservations, I frequently got called to the carpet for accuracy and/or not selling people places other than the Big Hotels.

My health was also going downhill.  I had a near nervous breakdown in November 1995, enough to send me home and have a meeting with my supervisor the next day.  However, after Thanksgiving, everything seemed to improve.  I received about details about health insurance, salary, etc.  The company was going to have its annual Christmas Party at the hotel across the street.

Then December 5 came around.

Back then, I didn't see the warning signs: my time card was filled out for the rest of the week and it was only Tuesday; an admin handed me a $17 check for items I had purchased.  I was doing my usual work after I returned from lunch when my manager tapped me on the shoulder and told me to come to the office.

He gave The Speech - we lost two accounts, and as a result I no longer had a job.  He gave the same speech to nine other colleagues.   When I returned to my desk to collect my stuff, other managers and supervisors were devastated, apologized profusely, but the damage was done.

Oh, and we were disinvited from the company Christmas Party.

About a few months later, after I got hired temp-to-perm, I met up with an old colleague.  She was still working there and filled me in on the details of what happened after we were laid off:

• One woman who came that night to work and discovered us laid off quit immediately.
• The group we were making reservations for had their credit cards charged two or three times, which led to very angry conventioneers and a loss of another account, which led to more layoffs.
• Some of the subordinates were having inappropriate personal relationships with supervisors, which resulted in more firings - the people who were participating in those relationships and managers who looked the other way.
• Some of the management who had severe personality conflicts and rage problems with other co-workers was later fired.

From what I can gather, the final straw came when the owner sold it to a national congolmerate, sent the phone jobs to India, and fired everyone else.

The more I think about it, I was glad I got laid off from that company.  I don't like to talk cold on the phone (and a later temp job cemented that so much that I actually gave my agency my last day), but the promise of health insurance and being hired full time made me hang on until management decided, after four months, to let me go.

Businesses naturally don't want to panic other workers into feeling, "oh my God, I might be next!" but that's the nature of business, cruel as it is.  I say that each and every time someone gets laid off - and add that months from now, we might look at those layoffs as blip on the screen.