Sunday, December 21, 2014

158. Goldman Sachs: Vampire Squid or Martyred Innocent?



     “It’s everywhere.  The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

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A vampire squid.
Citron/CC-BY-SA-3.0

Mouth of a vampire squid.

     So wrote journalist Matt Taibbi in a memorable article of July 9, 2009, in Rolling Stone magazine, presenting an image that resonated then and still resonates.  His target was the multinational investment banking firm Goldman Sachs, now headquartered in a soaring 44-story tower at 200 West Street in Lower Manhattan.  Certainly this ultra-modern edifice proclaims its occupant a major player in the global world of finance, and one not to be trifled with.  So why has it inspired such venom?  I know nothing of vampire squids, but I’m sure I wouldn’t care to meet one.  And why, when I utter the words “Goldman Sachs” to friends and acquaintances unversed in the world of finance, do they reply with phrases like “big investment firm … dubious practices … cheating”?  What’s the story with this alleged blood-sucking predator?  Does it really merit such censure?  Bear with me as I, a layman with no special knowledge of finance, poke into the story and try to find some inklings of the truth.

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The Goldman Sachs Tower at 200 West Street.
Beyond My Ken

     First, a little history.  Who was Goldman and who was Sachs?  The firm was founded by Marcus Goldman, a Jewish German immigrant from Bavaria who began as a peddler with a horse-drawn cart in Philadelphia, became a shopkeeper, and later removed to New York, where in 1869 he opened an office dealing in IOUs.  (If you don't quite grasp that, neither do I, but it sure paid off.)  In 1882 his son-in-law Samuel Sachs joined the firm, which from then on was known as Goldman Sachs.  The firm prospered, turning over $30 million in commercial paper a year, and in 1896 joined the New York Stock Exchange.  No longer controlled by the Goldman family, in the twentieth century the firm survived the 1929 crash and became involved in investment banking as well as trading.  Today its stock is publicly traded, much of it owned by institutions like pension funds and banks.  It has a global presence, and its former employees have served on the White House staff and headed the New York Stock Exchange, the World Bank, the U.S. Treasury Department, the New York Federal Reserve, Citigroup, and Merrill Lynch.  Rare is the financial pie it doesn’t have its finger in.  So it is indeed everywhere, but is it a vampire squid?

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    For me, in the 1990s the face of Goldman Sachs was that of Abby Joseph Cohen, the firm’s chief investment strategist, who often appeared with one or two other women in the semiannual Barron’s roundtables, where a dozen or so financial experts were assembled to forecast the near-term developments of the economy and the markets.  (Yes, in those days I was actually reading, or at least scanning, Barron’s.)  Abby had reaped renown by predicting the bull market of the 1990s, and there was something about her that won you over.  New York-born, she looked unpretentious in photos,  nothing glitzy, little or no jewelry, her hair short, with the warmest smile: a Jewish momma from Queens who had made good in the hard-slugging male world of finance.  You simply wanted to believe her and wish her well.  And she was indeed a momma, having two teen-age daughters.  You couldn’t imagine her arriving at the office in a chauffeured limousine (though maybe she did), or jetting about the world to attend exclusive financial gatherings or advise clients (though in fact she did).  Abby was one of us.

Abby Joseph Cohen

     So influential was she in the 1990s that when a rumor hit Wall street in 1996 that she was switching from bull to bear, the Dow Jones Industrial Average plunged 60 points; then, when she got on the firm’s worldwide communications system to refute the rumor, it bounced back up again.  Power was hers.

     Alas, like many other experts, Abby failed to predict the brutal bear market of 2000 and was ridiculed for her persistent bullishness as stocks plummeted.  Worse still, again like most experts, she failed to foresee the  brutal bear market of 2008, and in March of that year was replaced as Goldman Sachs’s chief forecaster.  And today?  As Goldman Sachs’s senior investment strategist, she still appears in Barron’s roundtables and – you guessed it – she is resolutely bullish.  And so far she’s been right.

      In the 2007-2008 mortgage crisis that caught so many investment firms by surprise, Goldman Sachs sold subprime mortgage-backed securities short, so while other outfits faced catastrophic losses, it was reaping billions in profit.  In my eyes, nothing wrong with that; it was just smarter than the rest of the boys.  (No gender bias intended; this was a boys’ game primarily.)  No wonder the New York Times proclaimed Goldman Sachs without a peer in the world of finance.

     But then the picture darkened.  In October 2007 a Fortune magazine senior editor noted that Goldman Sachs had sold a $494 million issue backed by risky second-mortgage loans, the very kind of transaction that had facilitated the housing bubble, and the resulting bust that triggered the financial crisis then under way.  Was Goldman Sachs too shrewd for its own good?  Not in this instance.  Many borrowers defaulted on these junk mortgage loans, and investors who bought the issue suffered heavy losses, but not Goldman Sachs, since it had shorted the junk mortgage market, betting that prices would drop.

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     Even so, Goldman Sachs was not immune as the financial crisis developed.  Chaos followed when Lehman Brothers went into bankruptcy, triggering panic throughout the world.  Then in September 2008 Goldman Sachs became a traditional bank holding company, ending the era of wild investment banking on Wall Street.  Why did it do this?  To get aboard the federal gravy train, of course.  The change in its status meant that it would henceforth be regulated by the Federal Reserve, so that it qualified for a $10 million investment from the U.S. Treasury as part of the Troubled Asset Relief Program (TARP), a government program to purchase assets from troubled financial institutions in hopes of stabilizing a very shaky financial system.  In other words, the government used taxpayers’ money to bail out Goldman Sachs and other big financial institutions endangered by their risky speculative investments.  Big Brother was rescuing the bad boys when their misdeeds came home to roost.  (Pardon the inept image.)  To be sure, the firm repaid the Treasury’s TARP investment with 23% interest in June 2009, so the government was not suckered in the deal. 

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Henry M. Paulson, Jr.
     And who was Treasury Secretary during all these tumultuous events?  Henry M. Paulson, Jr., a former Goldman Sachs CEO.  And who were his assistants at Treasury?  A clutch of other Goldman alumni, all of them talented, but still, it makes one wonder.  Goldman insisted that, in a time of dire crisis, they were serving their country by making their expertise available in Washington.  Though unaware that patriotism raged on Wall Street, I’ll grant that in this assertion there may be a grain, a tiny grain, of truth.  And in Washington one makes so many useful contacts…

     These complicated financial doings can only baffle the layman.  Is Goldman Sachs a good guy or a bad guy?  If only it were that simple.  To even have a clue, you have to understand at least a little what these complex financial transactions involved.  Here is what this layman has grasped.  Derivatives, it should be noted, are contracts deriving their value from some underlying entity such as an index or an interest rate or an asset, in this case subprime mortgages (sometimes endearingly termed “junk mortgages”).

1.    Back in 2000 Congress, in its infinite wisdom, passed something called the Commodities Futures Modernization Act, which, inserted at the last minute into an 11,000-page spending bill with almost no debate, “modernized” derivatives trading by freeing it from most existing federal regulations.  In this shadowy sector of the market, then, banks like Goldman Sachs were free to do as they wanted.
2.    Eager home buyers were encouraged to take out a mortgage, even though their shaky finances made it unlikely that they could make the periodic payments required.
3.    These subprime mortgages were bundled into packages of risky mortgage-backed securities (a form of derivative) and sold by Goldman Sachs and other banks to unsuspecting pension funds and insurance companies.
4.    Even as it was doing this, Goldman Sachs was betting that the value of these mortgage-backed securities would decline, which it did.
5.    The buyers of these securities suffered a whopping big loss.
6.    Goldman Sachs raked in a whopping big profit.
7.    Meanwhile lots of homeowners were defaulting on their mortgage payments and facing foreclosure, meaning they would lose their homes.

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The enticement: a subprime mortgage offering, 2008.  But God help those who were enticed.
The Truth About
     What is one to make of all this?  The home buyers acted unwisely, but they were encouraged to do so, and all they wanted was to own their own home.  The buyers of the securities failed to do their homework, didn’t grasp how risky their investment was; they paid the price of their negligence.  Goldman Sachs, by selling risky securities that it wanted to see decline in value, may or may not have been committing securities fraud (it depends on who you talk to), but this was hardly ethical.  And why were these risky securities, backed by junk mortgages, on the market anyway?  Because too much money was looking for too few investments; in the absence of sound investments, investors were offered junk, which they eagerly snapped up.  Permeating the whole scene was ignorance on the part of some, and feverish greed and wild speculation on the part of others – a formula for disaster.  And disaster came.

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     If you’re still baffled by all this, don’t be concerned.  These are complex and esoteric financial matters best understood only by seasoned traders and analysts, which makes these markets just that much harder to regulate.  Laymen could just ignore the whole shebang, except that this unregulated market provoked a financial crisis that engulfed us all, and whose repercussions are still being felt.  Ask anyone who can’t find a job, or has to hold two or three jobs to support themselves, or is about to lose their home through foreclosure, or has lost it already.

     It is interesting to note that, in the crisis year of 2008, Goldman Sachs paid $14 million in taxes.  Does that sound like a lot?  Its profit that year was $2.3 billion, and in 2009 it paid its CEO $42.9 million.  But how could it pay a mere 1% in taxes?  Because it shifted its earnings to subsidiaries in low-tax or no-tax countries, a manipulation beloved of multinational corporations and quite legal; it had 15 subsidiaries in the Cayman Islands alone.  Said one Democratic Representative from Texas, “With the right hand out begging for bailout money, the left is hiding it offshore.”  Ah, clever Goldman, it doesn’t miss a trick.

     Other matters worthy of note:

·      To settle a lawsuit by the SEC alleging securities fraud linked to mortgage investments, in 2010 Goldman agreed to pay $550 million.
·      In 2009, in the midst of the financial crisis, it set aside $11.4 billion for employee bonuses.
·      In 2010 it came to light that a Goldman director had tipped off a hedge-fund manager about a substantial investment in Goldman by the legendary investor Warren Buffett before news of the investment reached the public, which amounted to illegal insider information.
·      Goldman has been accused of helping the Greek government hide the size of its debt from 1998 to 2009.
·      In 2011 the Washington Examiner reported that Goldman was the company that raised the most money for Obama in 2008, and that its CEO had visited the White House ten times.
·      After ex-director Stephen Friedman became chairman of the Federal Reserve Bank of New York, which regulated Goldman, he held on to his Goldman stock and bought more, prompting charges of conflict of interest that led to his resignation in 2009.
·      In 2009 Goldman agreed to pay up to $60 million to end an investigation by the Massachusetts attorney general into its involvement in alleged predatory mortgage lending practices.
·      In 2010 the SEC charged Goldman and one of its vice presidents with securities fraud, leading to a settlement in which Goldman paid $550 million.

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     And so on and so on.  More potentially damning, in 2012 Greg Smith, the former head of the Goldman Sachs equity derivatives business in Europe, the Middle East, and Africa, resigned his position, saying in a letter made public in the New York Times that Goldman had a “toxic and destructive” environment in which “the interests of the client continue to be sidelined.”  This caused quite a stir, even though his account was found to be wanting in specific details.

          On the positive side:

·      The Goldman Sachs Foundation has given $114 million in grants to promote youth education worldwide.
·      Goldman has been on Fortune magazine’s 100 Best Companies to Work For list since 1998, with emphasis on its support for employee philanthropy.
·      In 2008 it initiated the 10,000 Women program to train women from developing countries in business and management.
·      In 2008 it pledged $500 million to help small businesses in business and management education and philanthropy.
·      In 2012 it offered a loan of $9.6 million to deliver therapeutic services to teenage inmates on Rikers Island.

And so on and so on.

     So is Goldman Sachs a great vampire squid, as alleged in the Rolling Stone article?  How is a layman to say?  But a Forbes magazine article of August 8, 2013, entitled “The Great Vampire Squid Keeps on Sucking” said the following:

Goldman Sachs, the vampire squid, and its Wall Street cohorts see money everywhere.  They will attempt to squeeze a deal even if it’s not a banking project.  Like street thugs, Wall Street banks are manipulating prices, such as aluminum, to profit.  The result is higher prices for consumers.

If even the financial press condemns Goldman Sachs, the basic charges of the Rolling Stone article would seem to be confirmed.

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     Does Goldman Sachs then supplant Monsanto as the company I most love to hate?  No, because it poses no immediate threat to me, whereas Monsanto tampers with the very food I eat.  Also, to understand such tampering requires grasping only a term or two such as “bovine growth hormone” and “genetically modified organism” or “GMO,” whereas getting a fix on Goldman Sachs’s shenanigans requires mastering a whole battery of esoteric terms:

·      Derivative
·      Mortgage-backed security
·      Credit default swap
·      Collateralized debt obligation
·      Hedging
·      Arbitrage
·      Option

When these and other terms burst upon the public consciousness with the financial convulsion of 2008-2009, many on Wall Street confessed that some of these terms baffled even them.

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Monsanto

     Ah, how one misses those simpler days of the 1990s, when a bull market was raging, and Abby Joseph Cohen, unpretentious and benign, presented the face of Goldman Sachs!  And what of Abby today?  In a 2011 interview with Deborah Solomon of the New York Times, she sidestepped some pointed questions about Goldman Sachs or gave rather vague answers.  Asked if it was ethically justifiable for some bankers to earn $50 or $60 million a year, when unemployment was nearly 10% and income inequality was widening, she noted that such inequality was apparent in many sectors and mentioned athletes, entertainers, and chief executives.  And when asked if she felt any responsibility for the economic meltdown of 2008, she said that the causes were multiple and mentioned “bad decisions made by many different entities.” 

     Clearly, through thick and thin, Abby is loyal to her firm.  And how is that firm doing today?  In October of this year it reported net earnings of $2.24 billion (yes, billion, not million) for the third quarter of 2014, with assets under supervision increasing to a record $1.15 trillion (yes, trillion, not billion).  If vampire squid it is, it is getting on swimmingly.

     The New York Times of December 11, 2014, reported the results of a recent poll asking opinions on a wide range of economic and financial issues.  Among the questions and answers were these:

How much confidence do you have in Wall Street bankers and brokers?
·      A lot, 4%
·      Some, 31%
·      Not much, 29%
·      None, 32%

How much confidence do you have in the federal government’s ability to regulate financial institutions?
·      A lot, 9%
·      Some, 31%
·      Not much, 34%
·      None, 24%

If any further confirmation were needed, as a part of the compromise to keep the government running, on December 11, 2014, the House of Representatives voted to loosen the regulations for derivatives trading.  The gravy train rolls on.

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     But that’s still not the end of it.  On December 12 Senator Elizabeth Warren of Massachusetts took the Senate floor to excoriate Citigroup for its exerting undue influence on federal legislation, and its work to loosen rules on risky derivatives trading, while noting how many Citigroup alumni hold significant posts in the federal government.  It was a heartfelt speech such as I have rarely heard a politician make, and thanks to WBAI I heard the heart of it.  She bitterly opposed the Senate’s following the House in voting to loosen derivatives regulation, which it then proceeded to do.  Her chief target was Citigroup, but Goldman Sachs could have been substituted and all her charges would have stood.  The speech has been hailed by many as electrifying and historic, and The Huffington Post calls it the speech that could make Warren the next President of the United States.  That’s going some, but I agree that it was historic.

     And there’s still more.  In the Times Business section of December 14, 2014, veteran financial journalist Gretchen Morgenson reported, under the caption At Big Banks, A Lesson Not Learned, that the government has fined ten big financial firms, Goldman Sachs among them, $43.5 million for violating regulations in 2010.  And many of the firms involved had been fined a total of $1.4 billion for violations back in 2003. 
    
     Yes indeed, a lesson not learned.  Even a layman like myself can see that Goldman Sachs, Citigroup, and our other big banks are still engaging in risky deals that sooner or later are bound to provoke a crisis, at which point they will expect us, the taxpayers, to bail them out once again.  To learn better, they will have to be kicked in the teeth.  And so, I’m afraid, will all of us, until we march in the streets, banging pots and pans or whatever, so as to make Congress impose penalties that cut the offending banks to the quick.  That day, I hope, will come.  I don’t know when, but it will, it must.

     Final thought:  Big financial institutions like Goldman Sachs have money and connections and power.  What they don’t have is respect.

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     Dick Cheney, the man I love to hate:  In a previous post (#82, “Who makes money when America goes to war?”) I noted why ex-Vice President Dick Cheney had much to smile about.  Now he has resurfaced (though he never really went away) in the wake of the Senate report on the CIA’s use of torture, a use that, as Vice President under Bush #2 (Baby Bush, as opposed to Papa Bush), Cheney vigorously supported at the time.  “I would do it again in a minute,” he announced in an NBC “Meet the Press” TV interview.  Yes, even if it involved holding a prisoner in a coffin-sized box for 11 days, or handcuffing a prisoner’s wrists to an overhead bar for 22 hours a day.  As for “rectal feeding,” he believes it was done for medical reasons.  His views on the subject differ radically from those of fellow Republican John McCain, who was tortured while a prisoner of the North Vietnamese.  Mr. Cheney did not serve in the Vietnam War, having received four deferments as a student and a fifth as a new father.  He is now 73 and has had a heart transplant, though the new heart seems to be working much like the old one.  Baby Bush has had the good grace to admit a few mistakes (the Mission Accomplished show, his ill-timed “Bring ’em on” remark, so resented by U.S. soldiers in Iraq), but his no. 2 is fiercely consistent.  Often photographed as V.P. smiling against a backdrop of the Stars and Stripes, Dick Cheney is fast becoming the man I love to hate.

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What a winning smile!  And a flag on his lapel as well.

     A note to Anonymous:  A viewer of this blog who calls himself (I assume it’s a “him”) Anonymous has added two fervent comments in response to my post on David Rockefeller (#89, Sept. 29, 2013).  He thinks me naïve, and I find his tirades, while interesting, intemperate and extreme.  We aren’t diametrically opposed; it’s a matter of degree.  I give the Rockefellers the benefit of a doubt, given their generosity in creating Rockefeller Center in the pit of the Depression, and their help in founding the Museum of Modern Art, whereas Anonymous denounces them with what strikes me as visceral hate.  So I now ask Anonymous, not to refrain from his comments (which are always welcome), but to stop masking himself with anonymity.  Have the guts to drop the name “Anonymous” and make your case under your own name.  If you do, your comments will have more weight with both me and others.

     Coming soon:  Used and rare-book bookstores, who patronize them, and why do they denounce the employees?  And what am I to do with 250-300 used books I need to get rid of?  And after that, maybe divorce New York style, from way back down to today.  (It wasn’t always easy; you had to fake adultery.)

     ©  2014  Clifford Browder

Sunday, December 14, 2014

157. Taxes: Who Pays Them and Who Doesn't




   No subject can raise more hackles than taxes, including above all income taxes.  Long ago in Alaska, before that territory had become a state, a resident urged me to urge my Congressmen to endorse statehood for Alaska.  And if that meant more taxes, so be it.  “You can’t have civilization without taxes,” he insisted.  This is not an opinion shared universally.  In our Western states, especially, citizens are wary of government, convinced that the IRS is out to grab their hard-earned cash and give little in return for it.  But tax avoidance, so common in many foreign countries, is not sanctioned here.  Back in the 1950s, when I was hanging out at the San Remo bar in the West Village, I overheard snatches of conversation from two Frenchmen, one new to the States and the other his mentor, who were watching “les existentialistes américains,” a scruffy bunch of bohemians imbibing at the bar.  But the Frenchmen were discussing other matters.  Said the veteran to his newly arrived friend, “En Amérique la taxe est sacrée” (In America taxes are sacred). 

     New York is a notoriously high-tax state, and residents of New York City are hit with a triple whammy: federal income tax, state income tax, and yes, believe it or not, a city income tax.  The state income tax alone is grounds for complaint.  In the 1970s, when I was doing research in Putnam County, I observed that if two New York City residents got together, they talked about crime, whereas when two Putnam County people got together, they talked about taxes.  And dodging the state tax was not unheard of.  From a friend who taught there, I learned that some of the professors at Skidmore College in Saratoga listed a summer residence in Vermont as their main address, so as to escape the New York State income tax.  Whether the state ever got wise to this, I have no idea.


     Another form of protest came from the Iroquois people, who claimed to be a sovereign independent state and therefore not subject to New York State taxes.  In 1957 native American medicine man and activist Wallace Mad Bear Anderson led several hundred Mohawks on a march to the courthouse in Massena, New York, burn court summonses issued for unpaid taxes.  Again, how this finally worked out I don’t know.

     One thing is certain: New York State welcoming signs at the state line cannot match Nevada’s, which proclaims

                                     NO INCOME TAX
                                     NO SALES TAX
                                     NO INHERITANCE TAX
                                     NO CORPORATION TAX
                                     NO GIFT TAX

                    A DEBT-FREE STATE WELCOMES YOU

And if one enters that tax-free paradise, as I did once at night on a bus, the explanation becomes immediately apparent.  As the bus sped through the darkness over the bleak and level landscape, at intervals lights would appear in the distance, and as the bus pulled in to the station, one could see a brightly lit interior with rows of slot machines.  With legions of one-armed bandits everywhere, not to mention casinos, there was no need of taxes.


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Pcb21

     Since New York State is not so blessed, what do its tax-burdened citizens do?  At tax time – the months and weeks preceding the dread deadline of April 15 -- they go to accountants, of course, to save themselves the ordeal of preparing their tax returns themselves, and to pay the least amount of taxes possible.  And those accountants, those wonder workers, those toilers in the bureaucratic maze, thrive.

     My partner Bob once went to an accountant named Russo (not his real name).  One year, since Bob was in charge of acquiring recordings for the Fine Arts Department of the library system he worked for, Russo suggested that he deduct the cost of all his opera tickets as a necessary business expense.  After all, how can you acquire recordings of current performances, if you haven’t heard the performances and evaluated them?  So Bob, a real opera buff, claimed the deduction.  I thought this a bit of a stretch, but maybe worth a try.  Alas, the IRS didn’t go for it.  They called Bob in for an audit, and when, dismayed, he didn’t contest their finding and cooperated, they let him off and went after Mr. Russo.  What came of it I don’t know, but Russo was a pretty shrewd operator; I doubt if he got more than a reprimand.

File:US-InternalRevenueService-Seal.svg     My own accounting adventures had to do with an accountant named Mateo Morales (again, not his real name), another shrewd operator, hefty and glib of tongue, whom I soon nicknamed Immorales.  (Not to his face, of course.)  Having no college degree to his name, he admired those who did and was especially happy  doing their tax returns; he was recommended to me by a fellow instructor at Columbia, who praised him to the skies.  Mr. Immorales too was adept at finding possible deductions, but nothing so dubious as Mr. Russo’s suggestion.  Even so, on one occasion I was summoned for an audit.  The prospect of an audit can be daunting, all the more so in my case, since a friend of mine, very vulnerable, had gone to one, encountered an aggressive auditor, and been devastated by the experience.  So I offered to pay Mr. Immorales whatever he wanted, if he would go in my place, and with some reluctance he agreed.  On the day of the audit I got a phone call from him late in the afternoon.

     “I had a long session with the auditor,” he said in his quietly competent, slightly oily voice, “and at one point I raised my voice within the hearing of all the auditors in the room, ‘Madam, are you accusing me of proposing something illegal?’  That put her on the defensive.  When all was said and done, you owe them nothing more in taxes.  And she was rather intrigued by you and asked if you were married.  At that point, I confess I exaggerated a little, saying you were a brilliant scholar so involved in your studies that you had no time for social life, much less marriage.  I even said your apartment was so jammed with books and papers that you kept books in the oven.”

     By now I was laughing heartily, and all this for a fee of only $25!  Of course this was long ago, when $25 went a lot further than now. 

     Mr. Immorales continued diligently and cannily in his profession, while affording
us, his university clients, glimpses of his yearnings, his vulnerabilities.  He once told me that he could write a story that would glue me to the page, but when I suggested that he show some to an agent, he flashed a sour look and changed the subject, hinting that he had tried this without success.  (Scratch an accountant, you may find a writer; scratch a dentist, you may find a sculptor.  And that’s not just New York.)

     But you mustn’t go to an accountant in his busy season with a mishmash of papers, a friend of mine learned, when I recommended Mr. Immorales to her.  She went at the last minute with a shoebox full of documents, expecting him to do her tax preparation.  First I got a phone call from him, reporting that she had left his office very hostile, since he had declined to take her on at this late date, with her papers in such disorder.  Then I got a phone call from her, very indignant, saying that it was his job to do this stuff.  I announced to both that he was still my accountant and she my friend, and took some responsibility for the incident, having recommended him without realizing her papers were so disorganized. 

     Another friend told me how, when Immorales finished his return, he had asked the accountant if there was any favor he could do him.  There was: could he, using his college diploma, create a fake diploma that Immorales could hang on the wall?  My friend agreed and somehow was able to copy his own degree, substitute Immorales’s name, and so create the diploma, which promptly went up on the wall of the accountant's office.  Rather sad, I and my friend thought; deceptive, to be sure, but mostly just sad.

     There was sadder news yet to come.  Immorales had a stroke, and when that same friend went to see him at tax time, he found him utterly changed.  Instead of the keen mind and glib tongue we were used to, the man was vague, unfocused, slow of speech, lost.  By then I was no longer seeing him, but I was saddened by the news.  What then happened I have no idea, but he must have lost most of his clients.  Yes, sad, very sad.

     For years I did my own tax returns, simply following what Mr. Russo had done for me one year; the figures changed, but the basic pattern didn’t.  I was a freelance editor now with a home office and self-employed, so I had to fill out Schedule C and itemized my business expenses.  A home office and itemized deductions are often red flags to an auditor, but luckily I was never audited.  And when I went to Europe in the summer of 1963, I deducted as business expenses the basic costs – travel, meals, hotels – of the time I spent in French-speaking countries.  Far-fetched?  Not really, since there had been a recent IRS ruling acknowledging that foreign language teachers need to keep up their skills in this way.  I was careful in the deductions and – miracle of miracles! – wasn’t audited.

     In time, computing my own taxes became an arduous ordeal involving this or that form, this or that regulation, and endless mathematical computations: enough to unsettle the sanest of citizens.  All my friends used a tax preparer, and marveled at my doing the stuff myself.  Finally, I tried TurboTax, a system that does it for you online if you feed the proper info to them.  Their website shows an attractive young woman grinning at you, while her laptop announces, “Nice refund, Pat!  $2,744.” I expected no such bonanza, just a lot less computing, but believe it or not, TurboTax found a substantial deduction for my New York State return that I had been unaware of.  I checked the NYS tax regulations online, and they confirmed it, so TurboTax, even if it cost me something, also saved me money.

File:Dollar.PNG     It’s fashionable to complain about our broken tax system, and there is merit to many of the criticisms.  Loopholes and special dispensations abound, sometimes through Congress’s negligence and sometimes through its subservience to special interests, who often seem to write the laws.  Recently it was reported by Citizens for Tax Justice (CTJ) that 26 of the biggest U.S. corporations quite legally paid no federal income tax from 2008 to 2012, and 93 out of the 288 analyzed companies paid below 10%.  Critics often decry the high U.S. corporate tax rate of 35%, but many companies exploit tax breaks, loopholes, and accounting schemes to their advantage.  And who are some of the companies that paid no federal tax whatsoever?  Here are a few:

·      Boeing
·      General Electric
·      Verizon
·      Consolidated Edison
·      Corning
·      Duke Energy
·      PG&E Corporation

And many other utilities.  The report is of course disputed by the companies named, who point out that it ignores other taxes that they pay, such as state and local taxes.  True enough, but the report is still pretty damning.  One online article on the subject includes a photo of a white-haired lady holding up a sign in bold print: 


MAKE  DEADBEAT  CORPORATIONS  PAY.

      And people?  Here are some who have been prosecuted for tax evasion and related charges, starting with the most recent:

·      2013: Accounting firm Ernst & Young paid $123 million.
·      2008: Senator Ted Stevens, Republican of Arkansas, convicted on 7 counts of bribery and tax evasion.  He ran for re-election but lost.
·      2008: Representative Charles Rangel, Democrat of New York, paid $11,000 in back taxes and – a truly rare event -- was censured by the House.
·      2006: Lobbyist Jack Abramoff was fined $24.7 million and is now serving 70 months.
·      2006: Representative Duke Cunningham, Republican of California, was fined $1.8 million and sentenced to 8 years, 4 months.
·      2002: Six members of the Christian Patriot Association, a white supremacist organization based in Oregon, were convicted of tax fraud and tax evasion and faced up to 5 years each in prison plus a $250,000 fine.

     But why go on?  The list is endless, includes both major parties, and usually involves those in or close to government.  But often there is more to the story.  Ernst & Young had advised 200 wealthy clients who then avoided  $2 billion in unpaid taxes.  Ted Stevens got off when his indictment was dismissed because of prosecutorial misconduct.  Duke Cunningham was still entitled to a pension for his years of service in the Navy and Congress.  The Christian Patriot Association, which had helped 900 people evade taxes on $186 million over 14 years, believed that white people were the chosen people of God and therefore entitled, apparently, to not pay taxes.


File:SWISS BANK OFFICE- SWITZERLAND.JPG
In financial fortresses like this one, who knows what fortunes
are hidden?  And whose?

Palm jumera

     But these are the ones who got caught.  What about all those others with money stashed in offshore accounts maintained by Swiss banks, whose legendary secrecy is now under attack by the U.S. and the European Union?  Not to mention such tax havens as Luxembourg, Andorra, and Liechtenstein, tiny European countries thriving on their tax-haven status, and such exotic locales as the Bahamas, the British Virgin Islands, Monaco, Panama, Singapore, and numerous others.  In the 2012 Presidential campaign Mitt Romney, the Republican candidate, had trouble explaining why he had millions stashed away in Bermuda and the Cayman Islands.  Though not illegal, it looked fishy, and demolished any chance he had (and it wasn’t much) of appearing to voters as an ordinary guy just like you and me.  Obama could be a bit distant and dispassionate, but at least he didn’t have a fortune offshore.


File:Seven miles beach-Grand Cayman.JPG
Seven Miles Beach, Grand Cayman Island.  In such an idyllic setting, how could anything
dubious occur?

     Everyone agrees that our tax system needs to be drastically reformed, but few agree on how to do it.  Some want to tax the rich more, some want to tax them less.  And since Congress is a pack of millionaires who, with some exceptions, think the present system is just dandy – or at least have reasons not to meddle with it – meaningful reform is not likely to come very soon.  Meaningful reform may require a groundswell of opinion from below, and there’s little sign of that at this time.

     Here’s a novel solution proposed by nutritionist and WBAI commentator Gary Null and some others: tax both individuals and corporations a flat 10%, with absolutely no loopholes or exceptions.  Doing this, Null insists, would let us abolish the Internal Revenue Service altogether.  An enticing prospect, though I’m not sure how various income groups would fare.  And in the present circumstances there’s no chance of it being enacted or even seriously discussed.

     Everyone – and especially accountants – love to disparage the IRS, and New York State as well.  But I have sometimes including a note with my state and federal returns, telling them that I trust their judgment because they have treated me fairly in the past.  And I haven’t been audited.  Clever on my part?  No, the comment is sincere.  On several occasions the IRS or the state has found an error in my return and sent me a refund.  So a letter from these authorities isn’t always bad news.

     Admittedly, a dreary subject over all.  My advice to all U.S. citizens: when tax time comes, organize your records, get yourself a good accountant, and pray.

New York notes

1.  What three rights do all New Yorkers claim?  (1)  The right to complain.  (About New York, of course.)  (2)  The right to boast.  (About New York, of course.)  (3)  The right to jay-walk.

2.  Even so, at what intersection would I never dare to jay-walk?  Columbus Circle, where traffic comes at you from all directions.

3.  Who are most likely to offer me their seat on a crowded subway train?  African American women.  I usually decline the offer, but it is much appreciated.

4.  Which are the ten most dangerous U.S. cities for pedestrians?  Which have the most pedestrian deaths from traffic accidents?  Surprise, surprise: New York isn’t one of them!  The fatal ten, with 1 being the most unsafe:


1.    Orlando
2.    Tampa
3.    Jacksonville
4.    Miami
5.    Memphis
6.    Birmingham
7.    Houston
8.    Atlanta
9.    Phoenix
10.  Charlotte

     So what’s with Florida, that the top 4 are in that state?  And what's with the South, that all but Phoenix are in that region?  But I have to add that pedestrians do get hit by vehicles in this dear city of mine, especially when the vehicles making a turn cross into a pedestrian crosswalk.  Just the other day, as I crossed in a crosswalk, three cars whisked by me in quick succession without my being aware of their approach.  (They came from behind, not from a right angle, and other sounds masked the noise of their approach.)  The first car’s action was pardonable, since it could go past without making me halt.  The second was about four feet away – too close for comfort.  And the third was even closer; at him I yelled a full-throated expletive.  No wonder the mayor has reduced the permitted speed in the city from 30 to 25 mph, not that this would have saved me, had the third car miscalculated ever so slightly.  But it must be worse in Orlando.   

     Good tidings from the AARP Bulletin:  The last bit of news about pedestrian deaths I found in the December 2014 issue of the AARP Bulletin, which comes to members of the AARP (American Association of Retired Persons), the Golden Oldies club and union, though it welcomes anyone over 50.  Info like this you will find squeezed in among upbeat articles about how great it is to be elderly, and ads for walk-in bathtubs, impotence remedies, auto insurance (yes, they still drive!), travel (yes, they still travel!), a motorized wheelchair ingeniously named the Rascal, and best of all,  SEX.  IT’S  NEVER  TOO  LATE  TO  LEARN  SOMETHING  NEW,  an ad for a video series, with a picture of two dashingly youthful-looking seniors in a passionate embrace.  Among the nonsense, however are useful tips for seniors regarding scams, investing, healthy living, and pending legislation that may affect them. 

     Included in this issue was a map and chart showing, state by state, donations to charity as a percentage of adjusted gross income in 2012.  So what states are the most generous?  New York?  No way.  Utah, with 6.56%, tops the list.  After that come Mississippi, Alabama, Tennessee, Georgia, South Carolina, Idaho, and the District of Columbia, in that order, with DC registering 4.00%.  And New York?  2.86%, in a sort of low middling rank.   And the lowest?  New Hampshire, with 1.74%.  So what should one make of all this?  The most charitable states, it seems, are those where religion still holds fast: Mormons in Utah and Idaho, Baptists and other sects in the South.  Clearly, believers are more ready to part with a buck.  Liberal, more secular New England comes off as the stingiest – or should I just say frugal?  And for this telling bit of data we can thank the AARP Bulletin, that chronicle of dynamic aging.

     Coming soon:  Goldman Sachs, vampire squid or patriot and martyred innocent?  Plus collateralized debt obligations and credit default swaps, but don’t worry, I don’t understand them either.

     ©  2014  Clifford Browder