March 5, 2013 archive

Mar 05

Corporate Welfare

A Stealth Tax Subsidy for Business Faces New Scrutiny

By MARY WILLIAMS WALSH and LOUISE STORY, The New York Times

Published: March 4, 2013

(T)he ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes – has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.



In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times. During that period, the single biggest beneficiary of such securities was the Chevron Corporation, which issued bonds with a total face value of $2.6 billion, the analysis showed. Last year it reported a profit of $26 billion.



In 2005, Congress created a similar program to spur rebuilding in areas of Louisiana, Alabama and Mississippi that were ravaged by Hurricane Katrina. The Times’s data shows that much of the bond proceeds went to the oil and gas industry, or to showcase projects like hotels or the Superdome. In 2008, Congress passed the Heartland Disaster Tax Relief Act, a bond program to help 10 Midwestern states hit by flooding and tornadoes. The goal was to help businesses rebuild their destroyed property. But by the time the program was set to expire at the end of last year, the criteria had been expanded to include new businesses.

One of those businesses was Orascom Construction Industries of Egypt, which raised $1.2 billion of tax-exempt bonds to build a fertilizer plant in Iowa. Another was the Fatima Group of Pakistan. In December, a Fatima subsidiary raised $1.3 billion, tax-exempt, to build a fertilizer plant in Mount Vernon, Ind.

But weeks later, Indiana received alarming news: Pentagon officials said that fertilizer from Fatima’s operations in Pakistan had been turning up in Afghanistan, in homemade bombs used against American troops.

Mar 05

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Mar 05

Can the U.S. Really Run out of Money?

L. Randall Wray recently gave a lecture at Lewis & Clark College discussing some economic orthodoxies including whether a sovereign monetary system not tied to fixed exchange rates with other currencies or commodities like that in the U.S. can ever “run out of money.”

The transcript is posted at Media Roots where I sourced the video and slideshow and is linked at New Economic Perspectives.

L. Randall Wray’s introductory remarks-

President Obama, for a long time, actually, even before the current debate, argued, that ‘our government is running out of money.’ He would like to do more to help the economy, to help the unemployed, but Uncle Sam has run out of money. Economists argue that we’re on an unsustainable debt path. And most Americans seem to have come to some kind of an agreement with these two positions. I just saw, in the hotel this morning, a USA Today poll says 70% of Americans say progress on the deficit is needed this year. And it was by far and away the topic, that had the greatest percent of Americans agreeing this was an issue, a critical issue, that needs to be resolved very quickly. Nothing else was even 50%.

There’s this fear we hear all the time that we’ve been borrowing from the Chinese and someday they might stop lending to us and we’d be in trouble. We have a lot of people arguing that the big budget deficits today, and in the future, are threatening us with hyperinflation. So, we might suffer the fate of Zimbabwe or the Weimar Republic.

Many people argue that that debt is a burden on our grandkids.

And, finally, people point their fingers to Europe and say that could happen to us. We might have a sovereign debt crisis, like the Irish, the Greeks, the Italians, the Spanish. There is rising default risk on these nations’ debt.

And the bond vigilantes are attacking them, boosting interest rates, increasing interest payments on the debt, and imposing conditions on these countries, forcing Greece to sell off its national heritage in order to try to cover interest payments, that the vigilantes are demanding.

Is any of this true?

Mark Twain said, ‘It ain’t what you don’t know that gets into trouble. It’s what you know for sure that just aint so.’

So, I’m going to be arguing, it just ain’t so. What we think we know is not true.

The video runs 1 hour and 4 minutes-

There are some complaints about the audio, but the left channel seems to work.

The slideshow contains 39 slides-

Mar 05

Banksters Jailed!

Not here obviously.

Afghan Court Convicts 21 in Kabul Bank Scandal

By MATTHEW ROSENBERG and AZAM AHMED, The New York Times

Published: March 5, 2013

In total, 21 defendants were found guilty on Tuesday of crimes for their roles in the failure of the bank, which investigators have described as little more than a Ponzi scheme.

Its main function was to funnel depositors’ money to its own shareholders and their cronies, and its owners masked their theft for years by creating fictitious companies, phony books and even smuggling cash out of the country in the food trays of a commercial airliner they owned.



According to Afghan and Western investigators, the regulators were actively deceived by the bank’s owners, who kept double books and engaged in other ploys to cover up their deceit. The owners even created fictitious companies, including fake letterheads and rubber stamps to leave a paper trail that would appear legitimate. The Karzai administration also stymied the regulators’ work, the investigators said before Tuesday’s verdicts. They had characterized the prosecutions as an effort to seek retribution.



Once celebrated by American and Afghan officials as a cornerstone of the Western project to rebuild Afghanistan, Kabul Bank was taken over by regulators in August 2010 after becoming perilously insolvent. At the time, 92 percent of its loan portfolio – $861 million, or about 5 percent of Afghanistan’s annual economic output at the time – had gone to 19 people or companies, according to a forensic audit by Kroll Associates, an international investigative firm.

All were part of a clique that was tied to Mr. Karzai’s government. Bailing out the bank cost the financially struggling Afghan government roughly $825 million, a sum that at that time represented most of the government’s annual revenues. Estimates of how much has been recovered from those who received loans vary from $200 million to $400 million, Afghan and Western officials have said.

Critics say Afghan court was lenient in bank corruption case

By Shashank Bengali, Los Angeles Times

March 5, 2013, 7:19 a.m.

The case was a major test for Afghanistan’s justice system, which had never before tried such a massive fraud case, or one that implicated powerful men with ties to President Hamid Karzai and other top officials – and critics judged the results to be disappointing. They noted that the three-judge panel convicted Farnood and Ferozi on a lesser charge of breach of trust, which carries a lighter sentence and didn’t include an order to confiscate millions from the disgraced executives’ offshore bank accounts.

Prosecutors had sought convictions for money laundering, embezzlement and other more serious crimes, which would have faciliated recovery of the stolen funds and together could have carried a maximum jail sentence of 20 years.



Executives and top shareholders looted the private Kabul Bank of $935 million – including some squirreled out of the country in food trays of a now-defunct airline – sparking one of the largest bank failures ever. The theft amounted to some 6% of Afghanistan’s gross domestic product, financed shopping sprees and overseas villas for leading shareholders while leaving ordinary account holders broke, and dealt a huge blow to international confidence in the country’s fledgling public institutions.

Mar 05

On This Day In History March 5

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

March 5 is the 64th day of the year (65th in leap years) in the Gregorian calendar. There are 301 days remaining until the end of the year.

On this day in 1770, a mob of angry colonists gathers at the Customs House in Boston and begins tossing snowballs and rocks at the lone British soldier guarding the building. The protesters opposed the occupation of their city by British troops, who were sent to Boston in 1768 to enforce unpopular taxation measures passed by a British parliament without direct American representation.

The Incident

The event began on King Street, today known as State Street, in the early evening of March 5, in front of Private Hugh White, a British sentry, as he stood duty outside the Custom house. A young wigmaker’s apprentice named Edward Gerrish called out to a British officer, Captain Lieutenant John Goldfinch, that Goldfinch had not paid the bill of Gerrish’s master. Goldfinch had in fact settled his account and ignored the insult. Gerrish departed, but returned a couple of hours later with companions. He continued his complaints, and the civilians began throwing rocks at Goldfinch. Gerrish exchanged insults with Private White, who left his post, challenged the boy, and struck him on the side of the head with a musket. As Gerrish cried in pain, one of his companions, Bartholomew Broaders, began to argue with White. This attracted a larger crowd.

As the evening progressed, the crowd grew larger and more boisterous. The mob grew in size and continued harassing Private White. As bells, which usually signified a fire, rang out from the surrounding steeples, the crowd of Bostonians grew larger and more threatening. Over fifty of the Bostonian townsmen gathered and provoked White and Goldfinch into fight. As the crowd began to get larger, the British soldiers realized that the situation was about to explode. Private White left his sentry box and retreated to the Custom House stairs with his back to a locked door. Nearby, from the Main Guard, the Officer of the Day, Captain Thomas Preston, watched this situation escalate and, according to his account, dispatched a non-commissioned officer and seven or eight soldiers of the 29th Regiment of Foot, with fixed bayonets, to relieve White. He and his subordinate, James Basset, followed soon afterward. Among these soldiers were Corporal William Wemms (apparently the non-commissioned officer mentioned in Preston’s report), Hugh Montgomery, John Carroll, James Hartigan, William McCauley, William Warren and Matthew Kilroy. As this relief column moved forward to the now empty sentry box, the crowd pressed around them. When they reached this point they loaded their muskets and joined with Private White at the custom house stairs. As the crowd, estimated at 300 to 400, pressed about them, they formed a semicircular perimeter.

The crowd continued to harass the soldiers and began to throw snow balls and other small objects at the soldiers. Private Hugh Montgomery was struck down onto the ground by a club wielded by Richard Holmes, a local tavernkeeper. When he recovered to his feet, he fired his musket, later admitting to one of his defense attorneys that he had yelled “Damn you, fire!” It is presumed that Captain Preston would not have told the soldiers to fire, as he was standing in front of the guns, between his men and the crowd of protesters. However, the protesters in the crowd were taunting the soldiers by yelling “Fire”. There was a pause of indefinite length; the soldiers then fired into the crowd. Their uneven bursts hit eleven men. Three Americans – ropemaker Samuel Gray, mariner James Caldwell, and a mixed race sailor named Crispus Attucks – died instantly. Seventeen-year-old Samuel Maverick, struck by a ricocheting musket ball at the back of the crowd, died a few hours later, in the early morning of the next day. Thirty-year-old Irish immigrant Patrick Carr died two weeks later. To keep the peace, the next day royal authorities agreed to remove all troops from the centre of town to a fort on Castle Island in Boston Harbor. On March 27 the soldiers, Captain Preston and four men who were in the Customs House and alleged to have fired shots, were indicted for murder.

The Trial of the Soldiers

At the request of Captain Preston and in the interest that the trial be fair, John Adams, a leading Boston Patriot and future President, took the case defending the British soldiers.

In the trial of the soldiers, which opened November 27, 1770, Adams argued that if the soldiers were endangered by the mob, which he called “a motley rabble of saucy boys, negroes, and molattoes, Irish teagues and outlandish jack tarrs,” they had the legal right to fight back, and so were innocent. If they were provoked but not endangered, he argued, they were at most guilty of manslaughter. The jury agreed with Adams and acquitted six of the soldiers. Two of the soldiers were found guilty of manslaughter because there was overwhelming evidence that they fired directly into the crowd, however Adams invoked Benefit of clergy in their favor: by proving to the judge that they could read by having them read aloud from the Bible, he had their punishment, which would have been a death sentence, reduced to branding of the thumb in open court. The jury’s decisions suggest that they believed the soldiers had felt threatened by the crowd. Patrick Carr, the fifth victim, corroborated this with a deathbed testimony delivered to his doctor.

Three years later in 1773, on the third anniversary of the incident, John Adams made this entry in his diary:

The Part I took in Defence of Cptn. Preston and the Soldiers, procured me Anxiety, and Obloquy enough. It was, however, one of the most gallant, generous, manly and disinterested Actions of my whole Life, and one of the best Pieces of Service I ever rendered my Country. Judgment of Death against those Soldiers would have been as foul a Stain upon this Country as the Executions of the Quakers or Witches, anciently. As the Evidence was, the Verdict of the Jury was exactly right.

“This however is no Reason why the Town should not call the Action of that Night a Massacre, nor is it any Argument in favour of the Governor or Minister, who caused them to be sent here. But it is the strongest Proofs of the Danger of Standing Armies.

Mar 05

Cartnoon

Mar 05

Late Night Karaoke

Mar 05

Austerity Could End The Death Penalty

Cross posted from The Stars Hollow Gazette

Someone has finally found the argument that could finally put an end to the death penalty, it costs too much. In the age of austerity, the cost to the state of Maryland to litigate the appeal of inmates on death row is three times higher than the cost of life in prison without parole:

In its 2008 report, the (Maryland Commission on Capital Punishment) wrote that the average cost of prosecuting and imprisoning a Death Row inmate was $3 million, nearly three times higher than the cost of convicting and sentencing a murderer to life imprisonment. Of that $3 million, $1.7 million is spent in the courtroom and $1.3 million is spent in a Supermax prison, the commission wrote. [..]

The commission determined that the state spent $1.8 million dollars for every failed attempt to impose the death penalty, including $950,000 in prison costs and $850,000 in adjudication costs.

Maryland’s Gov. Martin O’Malley said since the death penalty is not a crime deterrent and the exorbitant cost, it is time to end the death penalty in his state.

On Friday, the Maryland state Senate once again began debating a bill to repeal capital punishment in the state. It needs 24 votes to pass and 26 senators have already said publicly that they support the repeal.

Rather than funnel all of their focus into moral and social arguments, the bill’s supporters have been making their point partly in economic terms. The cost of prosecuting a death row case in Maryland can be as much as three times what it costs for a case seeking a life sentence without parole.

On Sunday’s Up with Chris Hayes, Bryan Stevenson, founder & executive Director of Equal Justice Initiative, professor at New York University School of Law, addressed how the savings could benefit public safety. He and Up host Chris Hayes were joined by panelists Mattea Kramer, the National Priorities Project; David Sirota, contributor to Salon.com; and Roberto Lovato, writer for New American Media, contributor to The Nation.