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Archive for the ‘Geithner’ Category

I’ve been fighting for more than 10 years to stop an IRS regulation that would force American banks to put foreign tax law above US tax law.

Sadly, I recently lost that battle when Treasury Secretary Tim Geithner finalized the third version of the regulation (it was first proposed by Clinton, and then a second version was put forth by the Bush White House).

In previous posts, I explained why this regulation represents bad tax policy and undermines the rule of law. I also have explained that it will hurt the American economy and why it endangers the human rights of people living under tyrannical and thuggish regimes.

But such concerns don’t matter to the tax cheat who is serving as the Treasury Secretary.

Richard Rahn is not happy about this outcome, either, and here is some of what he wrote in the Washington Times.

Over the past several years, Treasury Secretary Timothy F. Geithner was warned by many private economists and members of Congress of the adverse consequences of a proposed rule that would force U.S. banks to be uncompensated tax collectors for foreign governments. On April 17, Mr. Geithner issued the rule anyway. …To put it simply, the Obama Treasury Department and Internal Revenue Service (IRS) are forcing U.S. banks to report to foreign governments that often are corrupt or worse on lawful deposits their citizens hold in U.S. banks, thus putting those citizens’ lives at risk. As the former governor of Oklahoma and now president of the American Bankers Association, Frank Keating, wrote: “While the IRS minimizes potential security issues, nonresident aliens are unlikely to feel reassured by promises that their information won’t fall into the wrong hands. These pledges could be met with apprehension when countries with questionable human rights records remain on the recipient list. This rule gives nonresident aliens every incentive to pick up and move their deposits elsewhere.” …Looking at the actions and words of Mr. Geithner, you can conclude that he is consciously trying to destroy the U.S. economy, he lacks a sufficient number of brain cells and nerve connections for the job, or his ego and desire to pander to his boss and well-known economic illiterates has caused him to be willfully negligent over and over again. The latter is probably closest to the truth.

What makes this new regulation so disturbing is that it is a gross abuse of the regulatory process. For more than 90 years, Congress has maintained a policy of seeking to attract capital to the American financial system. Lawmakers repeatedly have looked at this issue of “nonresident alien” deposits, and they always have decided that America should be a safe haven for foreigners who want a good place to deposit money.

Yet the IRS, which is supposed to issue regulations that enforce existing law, proposed a regulation that overturns the law. And Geithner approved it. No vote from Congress. No legislation from the White House. No need to bother with the rule of law or democracy (and people wonder why there is rhetoric about a gangster government!).

I cover some of the key points in this video about the proposal.

You may be wondering why the Obama Administration is in favor of such a bad idea. Well, there’s no great mystery. Politicians get very upset if people have the freedom to shift economic activity to jurisdictions with better tax law. This process, known as tax competition, creates pressure for better tax policy.

Statists from all around the world have united in a campaign to undermine tax competition and expand the power of governments to impose bad tax policy. Obama and his team are simply doing their part to advance this dystopic vision.

The implementation of this IRS regulation means we’ve suffered an unfortunate defeat in this battle. So if we care about promoting good policy and restraining the greed of the political class, we need to redouble our efforts.

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Kevin Williamson of National Review is always worth reading, whether he’s kicking Paul Krugman’s behind in a discussion about the Texas economy, explaining supply-side economics, or even when he’s writing misguided things about taxation.

But I’m tempted to say that anything he’s written to date pales into insignificance compared to his analysis of the corrupt relationship between big government and Wall Street. Here are some excerpts, but read the entire article.

He starts out with a strong claim about the Obama Administration being in the back pocket of Wall Street.

…it’s no big deal to buy a president, which is precisely what Wall Street did in 2008 when, led by investment giant Goldman Sachs, it closed the deal on Barack Obama. For a few measly millions, Wall Street not only bought itself a president, but got the start-up firm of B. H. Obama & Co. LLC to throw a cabinet into the deal, too — on remarkably generous terms. …the real bonus turned out to be Treasury secretary Tim Geithner, who came up through the ranks as part of the bipartisan Robert Rubin–Hank Paulson–Citigroup–Goldman Sachs cabal. Geithner, a government-and-academe man from way back, never really worked on Wall Street, though he once was offered a gig as CEO of Citigroup, which apparently thought he did an outstanding job as chairman of the New York Fed, where one of his main tasks was regulating Citigroup — until it collapsed into the yawning suckhole of its own cavernous ineptitude, at which point Geithner’s main job became shoveling tens of billions of federal dollars into Citigroup, in an ingeniously structured investment that allowed the government to buy a 27 percent share in the bank, for which it paid more than the entire market value of the bank. If you can’t figure out why you’d pay 100-plus percent of a bank’s value for 27 percent of it, then you just don’t understand high finance or high politics.

Since I’ve compared Tim Geithner to Forest Gump, I’m not going to argue with this assessment.

Later in the article, Kevin makes a case that politicians are engaging in widespread insider trading.

Nancy Pelosi and her husband were parties to a dozen or so IPOs, many of which were effectively off limits to all but the biggest institutional investors and their favored clients. One of those was a 2008 investment of between $1 million and $5 million in Visa, an opportunity the average investor could not have bought, begged, or borrowed his way into — one that made the Pelosis a 50 percent profit in two days. Visa, of course, had business before Speaker Pelosi, who was helping to shape credit-card-reform legislation at the time. Visa got what it wanted. The Pelosis have also made some very fortunate investments in gasand energy firms that have benefited from Representative Pelosi’s legislative actions. The Pelosis made a million bucks off a single deal involving OnDisplay, the IPO of which was underwritten by investment banker William Hambrecht, a major Pelosi campaign contributor. …Besting Nancy Pelosi, Rep. Gary Ackerman (D., N.Y.) got in on the pre-IPO action, without putting up so much as one rapidly depreciating U.S. dollar of his own assets, when a political supporter — who just happened to be the biggest shareholder of the firm in question — lent him $14,000 to buy shares in the private company, which he then sold for more than a hundred grand after the firm went public. There wasn’t so much as a written loan agreement. On and on and on it goes: Sen. John Kerry invested aggressively in health-care companies while shaping health-care legislation. Rep. Spencer Bachus (R. Ala.) was a remarkably apt options trader during the days when he had a front-row seat to Congress’s deliberations on the unfolding financial crisis.

I wish I had known these details when I went on TV to discuss congressional corruption earlier this year.

Kevin also explained how Warren Buffett made a boatload of money thanks to insider knowledge about bailouts.

…during the financial crisis, a big piece of Goldman Sachs was bought by Warren Buffett, who stacked up a lot of cash when the government poured money into that struggling investment bank with the support of Barack Obama. When the federal government bought into Goldman Sachs, it negotiated for itself a 5 percent dividend. Warren Buffett got 10 percent — on top of the benefit of having Washington inundate his investment with great rippling streams of taxpayers’ money.

No wonder Buffett’s willing to lie in order to help his buddies in Washington raise taxes.

There’s a lot more in the article, but here’s a final excerpt that sums up Kevin’s article.

Wall Street can do math, and the math looks like this: Wall Street + Washington = Wild Profitability. Free enterprise? Entrepreneurship? Starting a business making and selling stuff behind some grimy little storefront? You’d have to be a fool. Better to invest in political favors. …hedge-fund titans, i-bankers, congressional nabobs, committee chairmen, senators, swindlers, run-of-the-mill politicos, and a few outright thieves (these categories are not necessarily exclusive) all feeding at the same trough, and most of them betting that Mitt Romney won’t do anything more to stop it than Barack Obama did. …Free-market, limited-government conservatives should be none too eager to welcome them back, nor should we let our natural sympathy with the profit motive blind us to the fact that a great many of them do not belong in the conservative movement, and that more than a few of them belong in prison.

All of this underscores why TARP was such an unmitigated disaster – and why we should be suspicious of politicians like Romney and Gingrich who supported the bailouts.

Remember, capitalism without bankruptcy is like religion without hell.

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The Secretary of the Treasury, Tim Geithner, is infamous for conveniently forgetting to pay tax on $80,000 of income and then getting kid-glove treatment from the IRS when his crime was uncovered.

Not only did Geithner avoid even a slap on the wrist, he was confirmed to head the department that includes the IRS. So you can understand why a clever person came up with this t-shirt mocking the Treasury Secretary.

But it appears that Geithner’s elitist disdain for the law is shared by high-level left-wing political figures in other nations. Here’s a very similar story from the United Kingdom, where a cabinet official got caught for not complying with the value-added tax.

Here are some excerpts from the UK-based Independent.

Mr Cable was hit with a £500 penalty from HM Revenue and Customs (HMRC) after the blunder over a VAT bill of up to £15,000 on his media work. The Business Secretary – who has criticised firms which seek to avoid tax – admitted it was a “bit embarrassing” that his VAT liability “wasn’t spotted earlier”. But he insisted that he “made no attempt to avoid tax” and the “oversight” had happened in good faith. Downing Street said it regarded the incident as “closed”, adding that Mr Cable retained the Prime Minister’s full confidence.

If you recognize Mr. Cable’s name, there’s a good reason. He is member of the parasite class in England most associated with the push for higher tax rates on capital gains – which led to a clever set of posters attacking his destructive proposal.

Makes you wonder if there is some secret fraternity of politicians, with initiation rites involving the chant: “Taxes for thee, but not for me.”

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One almost feels sorry for Treasury Secretary Tim Geithner.

He’s a punchline in his own country because he oversees the IRS even though he conveniently forgot to declare $80,000 of income (and managed to get away with punishment that wouldn’t even qualify as a slap on the wrist).

Now he’s becoming a a bit of a joke in Europe. Earlier this month, a wide range of European policy makers basically told the Treasury Secretary to take a long walk off a short pier when he tried to offer advice on Europe’s fiscal crisis.

And the latest development is that the German Finance Minister basically said Geithner was “stupid” for a new bailout scheme. Here’s an excerpt from the UK-based Daily Telegraph.

Germany and America were on a collision course on Tuesday night over the handling of Europe’s debt crisis after Berlin savaged plans to boost the EU rescue fund as a “stupid idea” and told the White House to sort out its own mess before giving gratuitous advice to others.German finance minister Wolfgang Schauble said it would be a folly to boost the EU’s bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.”I don’t understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense,” he said.

All that’s missing in the story is Geithner channeling his inner Forrest Gump and responding that “Stupid is as stupid does.”

…at birth?

Separated…

This little spat reminds me of the old saying that there is no honor among thieves. Geithner wants to do the wrong thing. The German government wants to do the wrong thing. And every other European government wants to do the wrong thing. They’re merely squabbling over the best way of picking German pockets to subsidize the collapsing welfare states of Southern Europe.

But that’s actually not accurate. German politicians don’t really want to give money to the Greeks and Portuguese.

The real story of the bailouts is that politicians from rich nations are trying to indirectly protect their banks, which – as shown in this chart – are in financial trouble because they foolishly thought lending money to reckless welfare states was a risk-free exercise.

Europe’s political class claims that bailouts are necessary to prevent a repeat of the 2008 financial crisis, but this is nonsense – much as American politicians were lying (or bamboozled) when they supported TARP.

It is a relatively simple matter for a government to put a bank in receivership, hold all depositors harmless, and then sell off the assets. Or to subsidize the takeover of an insolvent institution. This is what America did during the savings & loan bailouts 20 years ago. Heck, it’s also what happened with IndyMac and WaMu during the recent financial crisis. And it’s what the Swedish government basically did in the early 1990s when that nation had a financial crisis.

But politicians don’t like this “FDIC-resolution” approach because it means wiping out shareholders, bondholders, and senior management of institutions that made bad economic choices. And that would mean reducing moral hazard rather than increasing it. And it would mean stiff-arming campaign contributors and protecting the interests of taxpayers.

Heaven forbid those things happen. After all, as Bastiat told us, “Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.”

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Treasury Secretary Tim Geithner may be most famous in the United States for cheating on his taxes (you can even buy a t-shirt to acknowledge his tax dodging), but he’s becoming a punch line in the rest of the world for different reasons.

I wrote two years ago about Chinese students erupting in laughter after Geithner claimed the Administration believed in a strong dollar.

Now he’s getting mocked by the Europeans.

After Friday’s post about the absurdity of Obama sending his Treasury Secretary to lecture the Europeans, you can imagine my great amusement today as I read that the Europeans basically told Geithner to go jump in a lake.

Here are some passages from the Reuters report.

Treasury Secretary Timothy Geithner’s high-profile trip to Europe left some European officials more dumbstruck than starstruck. …”We can always discuss with our American colleagues. I’d like to hear how the United States will reduce its deficits … and its debts,” Belgian Finance Minister Didier Reynders said somewhat tartly. Jean-Claude Juncker, the chairman of the Eurogroup, was even more to the point. “I don’t think it would be wise for me to report from an informal meeting that we have with the treasury secretary. We are not discussing the expansion or increase of the EFSF with a non-member of the euro area,” he said.

And here is a brief excerpt from the Financial Times.

…some eurozone finance ministers hit back at Mr Geithner’s comments, questioning the usefulness of his visit. “I found it peculiar that even though the Americans have significantly worse fundamental data than the eurozone, that they tell us what we should do and when we make a suggestion … that they say no straight away,” said Maria Fekter, Austria’s finance minister. Sweden’s Anders Borg said: “we need to make progress, but it’s quite clear the US has a big debt problem and the situation would be better if the US could show a sustainable way forward.”

When the dust settles, though, the fact that Secretary Geithner is getting laughed at and mocked by people in other countries is not that funny. Not because he doesn’t deserve abuse, but rather because the bad policies of the Obama Administration are resulting in genuine hardship and suffering.

And the fact that the Europeans are even further down the path that leads to fiscal crisis makes it all the more tragic. You would think American policy makers would learn what not to do.

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This is either frightening or hilarious. The people in Washington who are trying to make America more like Europe are advising the Europeans to double-down on the awful policies that have pushed the continent’s welfare states to insolvency.

Here are some of the surreal details from a CNBC report.

Treasury Secretary Timothy Geithner will take the unprecedented step of attending a meeting of EU finance ministers in Poland on Friday. It will be his second trip to Europe in a week after he met his main EU counterparts at a G7 meeting last weekend. Obama said that while Greece is the immediate concern, an even bigger problem is what may happen should markets keep attacking the larger economies of Spain and Italy. “In the end the big countries in Europe, the leaders in Europe must meet and take a decision on how to coordinate monetary integration with more effective co-ordinated fiscal policy,” the news agency EFE quoted him as saying. Geithner is likely to urge euro zone finance ministers on Friday to speed up ratification of changes to their bailout fund and consider boosting its size, an EU source said. …Obama’s comments suggested that Washington is trying to nudge European governments toward closer fiscal union or a bigger bailout fund to recapitalize teetering banks but European politics, especially in Germany, make that difficult.

Your eyes are not deceiving you. Obama and Geithner want more bailouts, which will simply encourage more profligacy. And the President even endorsed more harmonization of economic policy, which will exacerbate the problems in Europe by leading to higher taxes, more spending, and additional regulation.

But you have to give Obama and Geithner credit. They support the same bad policies on both sides of the Atlantic Ocean.

Obama, however, is not fully consistent in his beliefs. During a visit to Africa, he said, “No business wants to invest in a place where government skims 20 percent off the top.” But I guess bigger government is okay in Europe, where the burden of government is already 50 percent of economic output.

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There’s a lot of buzz about a Wall Street Journal interview with Stanley Druckenmiller, in which he argues that a temporary delay in making payments on U.S. government debt (which technically would be a default) would be a small price to pay if it resulted in the long-term spending reforms that are needed to save America from becoming another Greece.

One of the world’s most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government’s ability to pay for its future obligations that he’s willing to accept a temporary delay in the interest payments he’s owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs. “I think technical default would be horrible,” he says from the 24th floor of his midtown Manhattan office, “but I don’t think it’s going to be the end of the world. It’s not going to be catastrophic. What’s going to be catastrophic is if we don’t solve the real problem,” meaning Washington’s spending addiction. …Mr. Druckenmiller’s view on the debt limit bumps up against virtually the entire Wall Street-Washington financial establishment. A recent note on behalf of giant banks on the Treasury Borrowing Advisory Committee warned of a “severe and long-lasting impact” if the debt limit is not raised immediately. …This week more than 60 trade associations, representing virtually all of American big business, forecast “a massive spike in borrowing costs.” On Thursday Federal Reserve Chairman Ben Bernanke raised the specter of a market crisis similar to the one that followed the 2008 bankruptcy of Lehman Brothers. As usual, the most aggressive predictor of doom in the absence of increased government spending has been Treasury Secretary Timothy Geithner. In a May 2 letter to House Speaker John Boehner, Mr. Geithner warned of “a catastrophic economic impact” and said, “Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover.”

Mr. Druckenmiller is not overly impressed by this hyperbole. The article continues with this key passage.

“Here are your two options: piece of paper number one—let’s just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don’t know, six days, eight days, 15 days, but I know I’m going to get it. There’s not a doubt in my mind that it’s not going to pay, but it’s going to be delayed. But in exchange for that, let’s suppose I know I’m going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured,” he says. Then there’s “piece of paper number two,” he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. “I don’t have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we’re going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it’s a no-brainer. It’s piece of paper number one.” …”Russia had a real default and two or three years later they had all-time low interest rates,” says Mr. Druckenmiller. In the future, he says, “People aren’t going to wonder whether 20 years ago we delayed an interest payment for six days. They’re going to wonder whether we got our house in order.”

This is a very compelling argument, but it overlooks one major problem – the complete inability of Republicans to succeed in forcing fiscal reform using this approach.

Here’s a sure-fire prediction, assuming GOPers in the House actually are willing to engage in an eyeball-to-eyeball confrontation with Obama on the debt limit.

o There will be lots of political drama.

o We will get to a point where the federal government exhausts its borrowing authority.

o At that point, either Geithner or Bernanke (or probably both) will make some completely dishonest statements designed to rattle financial markets.

o The establishment media will echo those statements.

o The stock market and/or bond market will have a negative reaction.

o Republican resolve will evaporate like a drop of water in the Mojave Desert.

o The debt limit will be increased without any meaningful fiscal reform.

For all intents and purposes, this is what happened with the TARP vote in 2008. There were basically two choices of how to deal with the financial crisis. The establishment wanted a blank-check bailout, while sensible people wanted the “FDIC-resolution” approach (similar to what was used during the savings & loan bailouts about 20 years ago, which bails out retail customers but wipes out shareholders, bondholders and senior management). Republicans initially held firm and defeated the first TARP vote, but then they folded when the Washington-Wall Street establishment scared markets.

I hope I’m wrong in my analysis, but I don’t see how Republicans could win a debt limit fight. At least not if they demand something like the Ryan budget. The best possible outcome would be budget process reform such as Senator Corker’s CAP Act, which would impose caps on future spending, enforced by automatic spending cuts known as sequestration. Because it postpones the fiscal discipline until after the vote, that legislation has a chance of attracting enough bipartisan support to overcome opposition from Obama and other statists.

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