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Tuesday, April 30, 2013

Rupert Murdoch, Ayn Rand and Our Sociopathic Economy

Rupert Murdoch, Ayn Rand and A Sociopathic Economy






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Pilots and Professors Barely Scraping By? 9 Surprising Jobs That Pay a Pittance


It's not only fry chefs who are struggling to make ends meet.

In the first two years of “recovery” from the Great Recession, the top one percent of households captured 121 percent of the economy's gains, according to economist Emanuel Saez, leaving the rest of us poorer than we were when the reversal began. Wall Street pay has more than bounced back, with average pay higher today than it was before the crash.

The top 25 hedge fund managers continue to take in close to a billion dollars per year each, on average. As Les Leopold noted, it would take a middle-class family 47 years to bring in what they make in just one hour. What value do they add to our society? Well, when they're not wrecking the global economy, they're pricing people out of the housing market and ripping off small investors.

As for the rest of us, the reality is that a disproportionate share of the jobs being created in America since the crash are low-income McJobs. According to a study by the National Law Employment Project, low-income jobs represented 21 percent of the total lost in the crash, but 58 percent of those added during the recovery (PDF). In contrast, 60 percent of the jobs lost in the downturn paid a middle-class wage, but they've only made up 22 percent of those added during the recovery.

One of the problems one finds talking about the proliferation of crappy, low-wage jobs is that many people have a mental image of teenagers flipping burgers at a fast-food joint. But those minimum-wage service jobs aren't the only ones that pay a pittance. You might be surprised at some of the professions where people make around $25,000 per year. Many require relatively scarce skills; others provide real value for our society.

1. Regional Airline Pilots

Senior pilots working for major international carriers earn a pretty good living. But flying for regional carriers – which employ about 13 percent of all pilots – means not only having to worry about weather and navigation, but also how you'll pay your bills at the end of the month.

According to the Houston Chronicle, starting salaries for pilots at regional airlines start at as low as $16,500. The average starting salary is about $20,000, and with years of experience, these pilots can pull their way up to a maximum wage of around $60,000.

Not only are passengers' lives in their hands, but piloting a commercial jet requires hours of training, extensive licensing, and in most cases, a four-year college degree.

2. Adjunct Professors

This profession is similarly tiered; tenured professors at private universities make a handsome salary of around $135,000 per year, on average. But an increasing number of courses are being taught by part-time adjunct professors – they now teach 75 percent of all classes, according to Inside Higher Education – and many of them are barely scraping by. According to the Chronicle of Higher Education, adjunct report being paid an average of $2,987 per 3-credit course. But at some community colleges, that figure is as low as $1,100; the average pay at rural two-year colleges is $1,808, or around $22,000 per year. As part-timers, they rarely receive benefits like health insurance.

3. Home Health/Psychiatric Aides

It's long been the case that occupations that have traditionally been seen as “women's work” tend not to pay well, and home health and psychiatric aides are no exception. But consider how difficult this job is – if you've ever cared for someone who is too elderly or handicapped to care for themselves, you know it's no picnic. This is also a profession that requires some trust – you don't want to leave grandpa with just anyone.

And yet, this fast-growing field pays an average of just $10.49 per hour, or $21,830 per year, according to BLS.

4. Ambulance Drivers and Attendants

They're first responders, with lives in their hands, and they make just $11.97 per hour, on average, according to BLS. One would think you wouldn't want the ambulance rushing you to the hospital to be driven by someone who has to work a second job to make ends meet, but that's often the case.

5. Veterinary Animal Caretakers

Sure, Fido is part of your family. His vet is pretty well paid, but the person who takes care of him when he disappears into the back of the vet's office? She's getting an average of $24,740 per year.

6. Childcare Workers

According to the shopworn cliché, our children are the future. And when we drop them off for childcare, we expect them to be well cared for, safe and un-molested. It's a lot to ask for an average of $10.25 an hour or $21,310 per year.

7. Cosmetologists for Dead People

This one pays a middle-class wage, although less than the median at $16.31 per hour, according to the Houston Chronicle. But it takes special skills, and one would think you'd need to pay folks a decent wage to deal with corpses all day. (The McJobs of the industry are funeral attendants, who make $24,250 per year, on average.)

8. Gambling Dealers

It seems like an exciting, high-paying job. And dealers at good casinos make good money in tips (or “tokes,” in gaming parlance) if they're at the right casino. But the best jobs are scarce, and those who don't see a lot in tips aren't getting rich. According to the Bureau of Labor Statistics, dealers make an average of $22,410 per year in salary.

9. Models

Top fashion models like Naomi Campbell rake in millions. But most models aren't international superstars. According to BLS, the average wage for a model is just $12.55 per hour, or $26,110 per year.

Joshua Holland is a freelance writer and editor-at-large at AlterNet. He's the author of The 15 Biggest Lies About the Economy. Drop him an email or follow him on Twitter.

Monday, April 29, 2013

New Research: Economic Austerity in US and Europe 'Is Killing People'


HIV/AIDS, malaria outbreaks, shortages of essential medicines, lost healthcare access, and an epidemic of drug abuse, depression and suicide

- Jon Queally, staff writer 

Recessions hurt, but austerity kills.

Despite assurances by financial elites that austerity economics is a prescription to improve the lives of the masses, research contained in a newly published book shows that the push for steep cuts in wages, social programs, and public health programs is literally killing people throughout Europe and the US.

The book—titled The Body Economic: Why Austerity Kills, written by David Stuckler, an Oxford University political economist, and Sanjay Basu, an epidemiologist at Stanford University—uses historical case studies from around the globe and throughout history to show "how government policy becomes a matter of life and death" during deep or prolonged financial crises.

Discovering that the cure to the financial crisis of 2008 was in some ways worse than the affliction, Stucklet and Basu argue that countries "turned their recessions into veritable epidemics" by championing austerity measures that ultimately "ruined or extinguished" thousands of lives in series of "misguided" attempts to balance budgets, appease financial markets, and bow to the economic elite.

"The harms we have found include HIV and malaria outbreaks, shortages of essential medicines, lost healthcare access, and an avoidable epidemic of alcohol abuse, depression and suicide," said Dr. Stuckler in a statement. "Austerity is having a devastating effect."
As Reuters reports:
the researchers say more than 10,000 suicides and up to a million cases of depression have been diagnosed during what they call the "Great Recession" and its accompanying austerity across Europe and North America.
In Greece, moves like cutting HIV prevention budgets have coincided with rates of the AIDS-causing virus rising by more than 200 percent since 2011 - driven in part by increasing drug abuse in the context of a 50 percent youth unemployment rate.
Greece also experienced its first malaria outbreak in decades following budget cuts to mosquito-spraying programs.
And more than five million Americans have lost access to healthcare during the latest recession, they argue, while in Britain, some 10,000 families have been pushed into homelessness by the government's austerity budget.
As the authors explain in the introduction to their book, it is not only the dire impacts of the policies they found troubling, but the heartlessness of the policy-makers who so vigorously endorse them. They write:
We were shocked and concerned at the illogic of the austerity advocates, and the hard data on its human and economic costs. We realized the impact of the Great Recession went far beyond people losing their homes and jobs. It was a full-scale assault on people's health. At the heart of the argument was the question of what it means to be a society, and what the appropriate role of government is in protecting people.
Compounding the problem, the authors conclude, is the fact that alternative paths did exist, and continue to exist, but that nations remain unwilling or unable to break free from the purveyors of austerity.

Citing examples from the historical and current record, Stuckler and Basu show that many countries have weathered financial and other crises by investing in public health and innovative social programs.

"Ultimately what we show is that worsening health is not an inevitable consequence of economic recessions. It's a political choice," said Professor Basu.

Sunday, April 28, 2013

Republicans Have Created a World Where Going to Work Can Get You Killed

Republicans Have Created a World Where Going to Work Can Get You Killed


Conservatives spend inordinate amounts of time trying to neuter the government from its role as a regulatory body with the power to rein in corporate depravity. For them, unfettered capitalism is a religion  because the “invisible hand” of the market place is supposed to somehow overcome the malevolent tendencies of the profit-motive and churn out a healthy society.  The rash of employee deaths on the job across a number of industries has received inadequate responses from the Occupational Safety and Health Administration (OSHA) for several decades now as conservatives have undermined them. There is one additional guarantee for employers across the country; no matter how egregious their worker safety violations become, they know they will never have to face real criminal consequences.

Outside the Corn Belt, few people realize that corn bins are actually quite dangerous. In 2010, 26 people died by becoming entrapped in corn. They effectively drowned in it as it takes on the qualities of quicksand. There are worker precautions that can limit the risk of this type of accident occurring. 
However, many businesses have factored in the cost of doing business without safety precautions, and they have decided to risk the lives of their employees. They know that the consequences for allowing one of their workers to die are minimal. Since 1984, fines for grain entrapment deaths have fallen by almost 60%. In fact, according to Jim Morris, a report by the Center for Public Integrity and National Public Radio found, “analysis of OSHA data shows that 179 people died in grain entrapments at commercial facilities — bins, rail cars, etc. — from 1984 through 2012. The fines initially proposed in these cases totaled $9.2 million but were cut to $3.8 million, a reduction of 59 percent.” Penalties like jail time are incredibly limited.

OHSA isn’t doing any better at protecting the oil & gas workforce, steel mill workers, trench diggers, or as we all keenly aware following the West, Texas explosion, chemical plant workers. During a 4-month period in 2010, 58 workers were killed in the oil and gas industry, and one union health and safety inspector notes, “They are basically self-regulated.” It isn’t surprising, because the penalties that OSHA is allowed to assess are among the lowest of any regulatory agency. By law, they haven’t been able to increase penalties with inflation since 1990. They are not even allowed to force an employer to fix a safety hazard after they issue a citation, often settling for a “pledge” from the company to behave. For example, a worker death at Crucible Steel Industries came after OHSA had cited the company for 70 safety violations and issued it $250,000 in fines. These figures stand out, because “serious” violations defined by OSHA as “most likely result in death or serious physical harm” carry a maximum penalty of $7,000 and “willful” violations receive a maximum fine of $36,720.

Of course, the mining industry is notorious for its unsafe conditions with 11 deaths just so far this year, but less well known are the dangers of digging trenches. The deaths of trench diggers are regarded by work safety experts as completely unnecessary. Nonetheless, 200 workers have been killed and scores more injured since 2002 by reckless employers unwilling to invest in the safety precautions. In an older research study published in 1988, researchers found that most workers died in shallow trenches while digging sewer lines. The walls of the trenches had not been shored up or braced. Strikingly, only 12% of such deaths occurred in unionized companies. The average fine per death: $1,991.
Chris Hamby, also of the Center of Public Integrity, explains, “Federal OSHA or the state agencies it oversees have failed to collect any of the original fine in one of every 10 cases since 2001…between the 2006 and 2012 fiscal years, OSHA referred about $131 million in debts to the Treasury Department, but only about $16 million was collected.”

Of course, the tragedy in West, Texas with the explosion of the West Chemical & Fertilizer Company shed light on the lax regulation this industry has enjoyed. Many people were stunned to learn that OSHA had not inspected the company since 1985. The company was last inspected by any regulatory agency whatsoever five years ago. Now, 15 people are dead. Chemical plant safety violations led to the death of an AC & S worker last year, resulting in 12 serious violations for the company. They might pay a fine of $42,700, if the company doesn’t successfully fight the fines in court, shut down and reopen under a new name, simply ignore the fine, or the debt isn’t discharged like it is in one out of every 20 worker death cases.

Despite its lack of substantive regulatory power, Republicans have worked hard for decades to eliminate the ability of OSHA to do its job. There are only 2,200 inspectors for 8 million work sites. Many Democratic lawmakers, listening to health and safety experts, agree that OSHA is “weak and ineffective” and therefore, they have proposed laws strengthening the agency. This is particularly evident when reviewing OSHA procedures for handling worker safety complaints. Once an employee contacts OSHA to report their workplace, the agency does not immediately send inspectors to investigate the problem. Instead, they notify the employer, ask the employer to investigate the reported safety violation, and then the employer has five days to report back to the agency. If the agency is satisfied with the response given by the employer, no inspection is scheduled. Essentially, businesses are free to police themselves. Clearly, that is not working.

Although many environmental crimes are charged as felonies, knowingly violating worker safety laws, leading to the death of an employee, is charged only as a misdemeanor with a maximum of six months in jail. The risk of actually spending any time in jail is minimal. You’re more likely to go to jail for videotaping cruelty to animals on factory farms than for overseeing a worksite responsible for the death of a worker. This state of affairs has been largely wrought by Republicans working as lackeys for businesses who whine about regulations, proving yet again how much value they actually place on life.

Republicans Have Created a World Where Going to Work Can Get You Killed was written by Deborah Foster for PoliticusUSA.
© PoliticusUSA, Apr. 28th, 2013. All Rights Reserved

When Your Boss Steals Your Wages: The Invisible Epidemic That’s Sweeping America



Wage theft is fast becoming a top trend of the 21st-century labor market.

Photo Credit: Shutterstock.com

Editor's note: This article is part of an ongoing AlterNet series, "The Age of Fraud."

Imagine you’ve just landed a job with a big-time retailer. Your task is to load and unload boxes from trucks and containers. It’s back-breaking work. You toil 12 to 16 hours a day, often without a lunch break. Sweat drenches your clothes in the 90-degree heat, but you keep going: your kids need their dinner. One day, your supervisor tells you that instead of being paid an hourly wage, you will now get paid for the number of containers you load or unload. This will be great for you, your supervisor says: More money!  But you open your next paycheck to find it shrunken to the point that you are no longer even making minimum wage. You complain to your supervisor, who promptly sends you home without pay for the day. If you pipe up again, you’ll be looking for another job.

Everardo Carrillo says that's just what happened to him and other low-wage employees who worked at a Southern California warehouse run by a Walmart contractor. Carrillo and his fellow workers have launched a multi-class-action lawsuit for massive wage theft (Everardo Carrillo et al. v. Schneider Logistics) in a case that’s finally bringing national attention to an invisible epidemic.

(Walmart, despite its claims that it has no responsibility for what its contractors do, has been named a defendant.)

What happened to Carrillo happens every day in America. And it could happen to you.

How big is the problem?

Americans like to think that a fair day’s work brings a fair day’s pay. Cheating workers of their wages may seem like a problem of 19th-century sweatshops. But it’s back and taking a terrible toll. We’re talking billions of dollars in wages; millions of workers affected each year. A gigantic heist is being perpetrated against working people: they’re getting screwed on overtime, denied their tips, shortchanged on benefits, defrauded on payroll, and handed paychecks that bounce like rubber balls. A conservative estimate of unpaid overtime alone shows that it costs workers at least $19 billion per year.

The laws protecting workers are grossly inadequate, and wage thieves go unpunished. For giant companies like Walmart, Citigroup and UPS, getting fined is just the cost of doing business. You could even say that they're incentivized to cheat because punishment is so unlikely, and when it happens, so light. The protections we used to take for granted, like the right to receive at least the minimum wage, the right to workers’ compensation when hurt on the job, and the right to advocate for better working conditions, are nothing more than a quaint memory for many Americans. Activist Kim Bobo, author of Wage Theft in America,calls it a "national crime wave."

{Like this article? Follow me on Twitter.}

The sheer scope of the problem is jaw-dropping, sweeping across key industries and inflicting massive damage on individuals and society as a whole. In 2009, the National Employment Law Project (NELP) released a ground-breaking study, “Broken Laws, Unprotected Workers,” which found that in America, an honest day’s work is frequently rewarded with theft and abuse. A survey of over 4,000 workers in Chicago, L.A. and New York found that minimum and overtime violations were rife, and any attempt to complain or organize was swiftly met with punishment. Among the revelations:
  • 26 percent of low-wage workers got paid less than the minimum wage.
  • 76 percent of workers toiling over 40 hours were denied overtime.
  • Workers lose an average of $2,634 a year due to these and other workplace violations.
Who gets cheated?

Women, minorities, immigrants, and workers at the bottom of the wage scale are hardest hit, but wage theft is thriving across the employment spectrum.
People hired for jobs like yard work and domestic services in which the employer pays cash are denied social insurance like Social Security, and often what’s paid doesn’t add up to minimum wage. Some employees are paid for piece work, like the number of shirts produced in a garment factory, and get cheated when the tally falls below minimum wage (that’s one of the things that’s alleged to have happened to Carrillo). Another common form of theft is the “last paycheck” scam in which a worker is either fired or quits and finds that her final wages are withheld.

Low-wage tip workers are frequently the victims of theft in which the boss illegally keeps tips or makes you pay for your uniform or a ride to the job site. Restaurants are infamous for paying wages below the legal minimum; some charge a fee to convert credit card tips into cash, while others simply steal tips outright. When I was in college, I waited tables at a restaurant where the manager required the waiters to turn over tips at the end of the day, ostensibly so a certain percentage could be distributed among the cooks and other staff. I thought my manager was doing something to create fairness. Actually, he was stealing tips.

Then there’s the payroll fraud scam. Misclassifying workers as independent contractors means the business doesn’t pay overtime, employer contributions to Social Security and Medicare, or unemployment insurance. Sometimes bosses misclassify by mistake, but often they do it knowingly. Temporary and seasonal workers are especially vulnerable. The construction and trucking industries are notorious offenders, but payroll fraud impacts people like engineers, financial advisers, adjunct professors, and IT professionals. It doesn’t matter if you have agreed to call yourself an independent contractor, you may not be under the law.
Two tests are commonly used to determine your status: the Department of Labor “economic reality” test and the IRS “Right to Control Test.” These tests consider questions like: Do you set your own hours? Can you make a profit or loss depending on how you do the job? Is the job contracted for a specific time period?  Unfortunately, various federal and state entities have their own criteria, creating widespread confusion. The independent contractor issue is one of the fastest growing areas of litigation, with class actions by independent contractors jumping by 50 percent in 2010Congress has introduced bills to deal with this problem, but they tend to die in committee.

You might think that joining the managerial ranks would protect you from wage theft. You would be wrong. Some people are given titles as managers so they can be forced to work overtime without extra pay. Managers pressured to “improve their numbers” sometimes resort to falsifying employee records. Others deny breaks or deduct the break from the workers’ wages. Walmart has engaged in so many of these practices that researcher Susan Miloser of Washington & Lee Law School refers to retail wage theft as a result of managerial strain the “Walmart Pinch.”

How did we get here?

The world of work in America has fundamentally changed in the last 30 years, and not for the better.

In her paper, “Picking Pockets for Profit,” Susan Miloser traces a struggle for protection that began over a century ago with the public outcry over brutal workhouses where recent immigrants, women and children were paid substandard wages. Massachusetts was the first state to enact minimum wage legislation in 1912. Then came the Great Depression, and President Franklin Roosevelt responded with New Deal legislation that included the Fair Labor Standards Act pushed by his labor secretary, Frances Perkins. One of the key things the Fair Labor Standard Act did was ensure a minimum wage under the theory that wages were subject to something economists call “market failure.” The idea is that you, as a worker, are at a serious disadvantage compared to your boss when negotiating your wages. So the government has to intervene to correct this failure of the market and create a more level playing field.

The act also made provisions regulating payment for overtime. Employers who violated the law could be sued for back pay and damages. Roosevelt insisted that businesses that violated fair labor standards were toxic to the economy: “Goods produced under conditions that do not meet rudimentary standards of decency should be regarded as contraband and ought not to be allowed to pollute the channels of interstate trade," he said. Roosevelt, we may assume, would frown on shopping at Walmart.

Clearly, the New Deal has somehow transformed into the Raw Deal. Since the rise of Ronald Reagan, the American workplace has been morphing from a relatively level playing field into a theater of exploitation. This process has been aided and abetted by influential economists known as "free-market fundamentalists," who dominate the Ivy League and policy circles. They have convinced policy makers and politicians that a voluntary system magically guided by an “invisible hand” produces outcomes that are good for most people. In their view, the economy is a system of equal exchanges between workers and employers in which everybody who does her part is respected and comes out ahead. Obviously, they don’t focus their research on labor: they may talk about unemployment or wages – keeping the former high and the latter low -- but the conditions workers face are completely off the radar of these economists. (If you’d like to see how this kind of thinking plays in the mainstream media, take a gander at a recent post by Slate’s Matt Yglesias: “Different Places Have Different Safety Rules and That's OK.”)

Here’s where we are: the twin evils of high unemployment and economic inequality have joined forces to turn workers into so many expendable units in the great capitalist machine. Union-busting, globalization, outsourcing, downsizing, and recession have turned dignified jobs into opportunities for employer predation. I have called job insecurity the “Disease of the 21st Century” and it has clearly metastasized into a situation in which people are terrified of doing or saying anything to jeopardize employment, no matter how egregious the abuse. As long as there aren’t enough jobs, bosses maintain the upper hand. In the face of public opposition and recent revelations about the flaws in research used to support austerity, deficits are still the focus of economic policy rather than job creation. All of this conspires to protect crooked employers and exploit workers, making wage theft a crime without punishment.

What do we do?

The Department of Labor is supposed to enforce fair labor practices, but budget cutting at the insistence of Big Business has had the desired effect. Currently, there are only 1,000 enforcement officers protecting 135 million workers. That would be enough to cover, say, the city of Chicago. Maybe! You can place a claim through the department, but you may not get results. Workers are often left to fend for themselves. (One thing every worker can do is consult the website CanMyBossDoThat.com to at least get a sense of your rights.)

In Wage Theft in America, Kim Bobo outlines a variety of things that communities and activists are doing to address the crisis, from creating task forces to identifying agencies that help low-wage workers know when they are being cheated. There’s been some good news: campaigns to strengthen wage theft laws in several states, cities and counties are underway. The state of New York has enacted statewide legislation to protect workers from wage theft. In Miami-Dade County, a city-wide ordinance was established in 2010 which focuses on eliminating the underpayment or nonpayment of wages and targeting unscrupulous businesses. Chicago’s newly adopted wage theft ordinance will strip employers of their business license if they are caught cheating workers. But the key word is "if." Methods are sneaky and workers often have no idea that they are being robbed.

Local direct actions have sometimes been effective in highlighting and shaming wage thieves. In Seattle, Eric Galanti of the Admiral Pub tried to withhold the final paycheck of his cook Lucio when he was deported to Mexico. But Lucio’s family, along with advocacy groups like Casa Latina, fought back by plastering the city with posters, placing messages on social media and picketing. Finally, Galanti gave in. Stories like this are encouraging, but it's hard to imagine that sort of thing working in, say, Mississippi.

Immigration reform is a key piece of the puzzle -- it will help many low-wage, undocumented workers from being exploited by wage thieves who use deportation as the threat. Modernizing record-keeping, imposing criminal liability on wage thieves, and increasing public awareness of wage fraud would also help to combat the problem. High unemployment remains one of the biggest factors in encouraging wage theft, but we're not making good progress in that area. The sequester is expected to lay off 750,000 Americans this year alone. Instead of helping the problem, our elected officials are worsening it. Until these issues are addressed, workers will remain vulnerable to predatory bosses. And that costs everybody.

Lynn Parramore is an AlterNet senior editor. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of 'Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture.' She received her Ph.d in English and Cultural Theory from NYU, where she has taught essay writing and semiotics. She is the Director of AlterNet's New Economic Dialogue Project. Follow her on Twitter @LynnParramore.

Saturday, April 27, 2013

A Tax System Stacked Against the 99 Percent

The New York Times

The Opinion Pages

A Tax System Stacked Against the 99 Percent

LEONA HELMSLEY, the hotel chain executive who was convicted of federal tax evasion in 1989, was notorious for, among other things, reportedly having said that “only the little people pay taxes.”

As a statement of principle, the quotation may well have earned Mrs. Helmsley, who died in 2007, the title Queen of Mean. But as a prediction about the fairness of American tax policy, Mrs. Helmsley’s remark might actually have been prescient.

April 15, the deadline for filing individual income-tax returns, is a day when Americans would do well to pause and reflect on our tax system and the society it creates. No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes — far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners — almost a third — paid less than 15 percent of their income in taxes.

Conservatives like to point out that the richest Americans’ tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.

What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan “revolution” of the 1980s.

Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010 — about the same as the share of income they took home, an outcome that is not progressive at all.

With such low effective tax rates — and, importantly, the low tax rate of 20 percent on income from capital gains — it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.

If these numbers still don’t impress you as being unfair, consider them in comparison with other wealthy countries.

The United States stands out among the countries of the Organization for Economic Cooperation and Development, the world’s club of rich nations, for its low top marginal income tax rate. These low rates are not essential for growth — consider Germany, for instance, which has managed to maintain its status as a center of advanced manufacturing, even though its top income-tax rate exceeds America’s by a considerable margin. And in general, our top tax rate kicks in at much higher incomes. Denmark, for example, has a top tax rate of more than 60 percent, but that applies to anyone making more than $54,900. The top rate in the United States, 39.6 percent, doesn’t kick in until individual income reaches $400,000 (or $450,000 for a couple). Only three O.E.C.D. countries — South Korea, Canada and Spain — have higher thresholds.

Most of the Western world has experienced an increase in inequality in recent decades, though not as much as the United States has. But among most economists there is a general understanding that a country with excessive inequality can’t function well; many countries have used their tax codes to help “correct” the market’s distribution of wealth and income. The United States hasn’t — or at least not very much. Indeed, the low rates at the top serve to exacerbate and perpetuate the inequality — so much so that among the advanced industrial countries, America now has the highest income inequality and the least equality of opportunity. This is a gross inversion of America’s traditional meritocratic ideals — ideals that our leaders, across the spectrum, continue to profess.

Over the years, some of the wealthy have been enormously successful in getting special treatment, shifting an ever greater share of the burden of financing the country’s expenditures — defense, education, social programs — onto others. Ironically, this is especially true of some of our multinational corporations, which call on the federal government to negotiate favorable trade treaties that allow them easy entry into foreign markets and to defend their commercial interests around the world, but then use these foreign bases to avoid paying taxes.

General Electric has become the symbol for multinational corporations that have their headquarters in the United States but pay almost no taxes — its effective corporate-tax rate averaged less than 2 percent from 2002 to 2012 — just as Mitt Romney, the Republican presidential nominee last year, became the symbol for the wealthy who don’t pay their fair share when he admitted that he paid only 14 percent of his income in taxes in 2011, even as he notoriously complained that 47 percent of Americans were freeloaders. Neither G.E. nor Mr. Romney has, to my knowledge, broken any tax laws, but the sparse taxes they’ve paid violate most Americans’ basic sense of fairness.

In looking at such statistics, one has to be careful: they typically reflect taxes as a percentage of reported income. And the tax laws don’t require the reporting of all kinds of income. For the rich, hiding such assets has become an elite sport. Many avail themselves of the Cayman Islands or other offshore tax shelters to avoid taxes (and not, you can safely assume, because of the sunny weather). They don’t have to report income until it is brought back (“repatriated”) to the United States. So, too, capital gains have to be reported as income only when they are realized.

And if the assets are passed on to one’s children or grandchildren at death, no taxes are ever paid, in a peculiar loophole called the “step-up in cost basis at death.” Yes, the tax privileges of being rich in America extend into the afterlife.
As Americans look at some of the special provisions in the tax code — for vacation homes, racetracks, beer breweries, oil refineries, hedge funds and movie studios, among many other favored assets or industries — it is no wonder that they feel disillusioned with a tax system that is so riddled with special rewards. Most of these tax-code loopholes and giveaways did not materialize from thin air, of course — usually, they were enacted in pursuit of, or at least in response to, campaign contributions from influential donors. It is estimated that these kinds of special tax provisions amount to some $123 billion a year, and that the price tag for offshore tax loopholes is not far behind. Eliminating these provisions alone would go a long way toward meeting deficit-reduction targets called for by fiscal conservatives who worry about the size of the public debt.

Yet another source of unfairness is the tax treatment on so-called carried interest. Some Wall Street financiers are able to pay taxes at lower capital gains tax rates on income that comes from managing assets for private equity funds or hedge funds. But why should managing financial assets be treated any differently from managing people, or making discoveries? Of course, those in finance say they are essential. But so are doctors, lawyers, teachers and everyone else who contributes to making our complex society work. They say they are necessary for job creation. But in fact, many of the private equity firms that have excelled in exploiting the carried interest loophole are actually job destroyers; they excel in restructuring firms to “save” on labor costs, often by moving jobs abroad.
Economists often eschew the word “fair” — fairness, like beauty, is in the eye of the beholder. But the unfairness of the American tax system has gotten so great that it’s dishonest to apply any other label to it.

Traditionally, economists have focused less on issues of equality than on the more mundane issues of growth and efficiency. But here again, our tax system comes in with low marks. Our growth was higher in the era of high top marginal tax rates than it has been since 1980. Economists — even at traditional, conservative international institutions like the International Monetary Fund — have come to realize that excessive inequality is bad for growth and stability. The tax system can play an important role in moderating the degree of inequality. Ours, however, does remarkably little about it.

One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.

Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.

Aside from the evidence, there is a strong intuitive case to be made for the idea that tax rates have encouraged rent-seeking at the expense of wealth creation. There is an intrinsic satisfaction in creating a new business, in expanding the horizons of our knowledge, and in helping others. By contrast, it is unpleasant to spend one’s days fine-tuning dishonest and deceptive practices that siphon money off the poor, as was common in the financial sector before the 2007-8 financial crisis. I believe that a vast majority of Americans would, all things being equal, choose the former over the latter. But our tax system tilts the field. It increases the net returns from engaging in some of these intrinsically distasteful activities, and it has helped us become a rent-seeking society.

It doesn’t have to be this way. We could have a much simpler tax system without all the distortions — a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one — we wouldn’t have to go through all the wrangling we’ve been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.

The consequences of our broken tax system are not just economic. Our tax system relies heavily on voluntary compliance. But if citizens believe that the tax system is unfair, this voluntary compliance will not be forthcoming. More broadly, government plays an important role not just in social protection, but in making investments in infrastructure, technology, education and health. Without such investments, our economy will be weaker, and our economic growth slower.
Society can’t function well without a minimal sense of national solidarity and cohesion, and that sense of shared purpose also rests on a fair tax system. If Americans believe that government is unfair — that ours is a government of the 1 percent, for the 1 percent, and by the 1 percent — then faith in our democracy will surely perish.

12 Programs the Poor, Mothers and Children Depend on Congress That Refuses to Save from Budget-Cutting Sequestration

A flight delay is inconvenient, not being able to receive your cancer treatment is a matter of life and death.



As they were rushing to board their flights home for the weekend, Senators and members of Congress pushed through a bill to allow the Federal Aviation Administration (FAA) to reshuffle funding in order to avoid the flight delays caused by FAA furloughs due to the sequester.

Unfortunately for millions of Americans who cannot afford to get on a plane, Congress has yet to repeal the disastrous and devastating cuts to important programs for the poor, mothers, children, and many others.

A flight delay is inconvenient, not being able to receive your cancer treatment is a matter of life and death. Here's 12 important programs that Congress has so far refused to save from the sequester's automatic cuts, even though they've been in place for nearly 2 months. By contrast, the FAA furloughs caused flight delays for just four days.

1. Long-term unemployment: There are 4.7 million Americans who have been unemployed for longer than six months, but sequestration cut federal long-term unemployment insurance checks by up to 10.7 percent, costing recipients as much as $450 over the rest of the year. Those cuts compound the cutseightstates have made to their unemployment programs, and 11 states are considering dropping the federal program altogether because of sequestration — even though the long-term unemployed are finding it nearly impossible to return to work.

2. Head Start: Low-income children across the country have been kicked out of Head Start education programs because of the 5-percent cuts mandated by sequestration, as states have cut bus transportation services and started conducting lotteries to determine which kids would no longer have access to the program, even though the preschool program has been proven to havesubstantial benefits for low-income children. In all, about 70,000 children will lose access to Head Start and Early Head Start programs.

3. Cancer treatment: Budget cuts have forced doctors and cancer clinics todeny chemotherapy treatments to thousands of cancer patients thanks to a 2 percent cut to Medicare. One clinic in New York has refused to see more than5,000 of its Medicare patients, and many cancer patients have had to travel to other states to receive their treatments, an option that obviously isn’t available to lower-income people. Rep. Renee Ellmers (R-NC) proposed restoring the funding, but the legislation so far hasn’t moved in Congress.

4. Health research: The National Institutes of Health lost $1.6 billion thanks to sequestration, jeopardizing important health research into AIDS, cancer, and other diseases. That won’t just impact research and the people who do it, though. It will also hurt the economy, costing the U.S. $860 billion in lost economic growth and at least 500,000 jobs. Budget cuts will also hamper research at colleges and universities.

5. Low-income housing: 140,000 low-income families — primarily seniors with disabilities and families with children — will lose rental assistance thanks to sequestration’s budget cuts. Even worse, the cuts could likely make rent and housing more expensive for those families, as agencies raise costs to offset the pain of budget cuts, and sequestration will also cut from programs that aid the homeless and fund the construction of low-income housing.

6. Student aid: Sequestration is already raising fees on Direct student loans, increasing costs for students who are already buried in debt. The budget cuts reduce funding for federal work study grants by $49 million and for educational opportunity grants by $37 million, and the total cuts will cost 70,000 college students access to grants they depend on.

7. Meals On Wheels: Local Meals on Wheels programs, which help low-income and disabled seniors access food, have faced hundreds of thousands of dollars in cuts, costing tens of thousands of seniors access to the program. Many of those seniors have little access to food without the program, but Congress has made no effort to replace the funding.

8. Disaster relief: The Federal Emergency Management Administration will losenearly $1 billion in funding thanks to sequestration, jeopardizing aid for families, cities, and states right as the spring storm season begins. The aid package Congress passed for Hurricane Sandy relief will also see more than $1 billion in reductions.

9. Heating assistance: The Low Income Home Energy Assistance Program (LIHEAP) helps nearly 9 million households afford their heating and cooling bills. Sequestration will cut the program by an estimated $180 million, meaning about400,000 households will no longer receive aid. These cuts come on top of $1.6 billion in reductions since 2010.

10. Workplace safety: The Occupational Safety and Health Administration (OSHA) has long suffered from a lack of funds, which means its staff is so stretched that many workplaces go without an inspection for 99 years. The fertilizer plant that exploded in West, Texas, for example, hadn’t had a visit from OSHA since 1985. That will get worse, as sequestration will cut the agency’s budget by $564.8 million, likely leading to 1,200 fewer workplace inspections.

11. Obamacare: Sequestration cuts a number of important programs in the Affordable Care Act: $13 million from the Consumer Operated and Oriented Plan Program, or CO-OPs; $57 million from the Health Care Fraud and Abuse Control program; $51 million from the Prevention and Public Health Fund; $27 million from the State Grants and Demonstrations program; and $44 million from the Affordable Insurance Exchange Grants program, or the insurance exchanges.

12. Child care: Child care costs can exceed rent payments or college tuition and waiting lists for getting assistance are already long. Yet sequestration will reduce funds even further, meaning that 30,000 children will lose subsidies for care. For example, Arizona will experience a $3 million cut to funding that will force 1,000 out of care.

Friday, April 26, 2013

The Richest 1 Percent Have Captured 121 Percent Of Income Gains During The Recovery

The Richest 1 Percent Have Captured 121 Percent Of Income Gains During The Recovery

From 2009 to 2011, average real income per family grew modestly by 1.7% (Table 1) but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011.
How is it possible for the 1 percent to capture more than all of the nation’s income gains? The number is due to the fact that those at the bottom saw their incomes drop. As Timothy Noah explained in the New Republic, “the one percent didn’t just gobble up all of the recovery during 2010 and 2011; it put the 99 percent back into recession.”

Saez added that “In 2012, top 1% income will likely surge, due to booming stock-prices, as well as re-timing of income to avoid the higher 2013 top tax rates…This suggests that the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.”


Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

Rolling Stone


Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix



Illustration by Victor Juhasz
April 25, 2013 1:00 PM ET
Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

The Scam Wall Street Learned From the Mafia

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."

The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said.

But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

"A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal.
"Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.

All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want.

The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.

Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.

Every morning, 18 of the world's biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the "Libor panel," and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.

Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.

Gangster Bankers Broke Every Law in the Book

Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the "Libor submitters") and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off.

Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:
SWISS FRANC TRADER: can u put 6m swiss libor in low pls?...
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?...
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo. . . thatd be awesome
Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services sector.

Hundreds of similar exchanges were uncovered when regulators like Britain's Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. "It's just amazing how Libor fixing can make you that much money," chirped one yen trader. "Pure manipulation going on," wrote another.

Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.

Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.

The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters' and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages.

One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks' legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.

The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, "Our goal here is not to destroy a major financial institution."

In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. "It is essential to our argument that this is not a competitive process," he said. "The banks do not compete with one another in the submission of Libor."

If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which banks submit Libor data – 18 geeks sending numbers to the British Bankers' Association offices in London once every morning – is not competitive per se.

But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers obeyed the speed limit on the way to the heist. It's the silliest kind of legal sophistry.

But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren't guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense.
"The plaintiffs, I believe, are confusing a claim of being perhaps deceived," he said, "with a claim for harm to competition."

Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a "cooperative endeavor" that was "never intended to be competitive." Her decision "does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process," said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements.

Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.

"It's now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive," he said. "And that's not just surmising. This is just based upon what they've been caught at."

Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. "There's no therapy like sending those who are used to wearing Gucci shoes to jail," he says. "But when the attorney general says, 'I don't want to indict people,' it's the Wild West. There's no law."

The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.

Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn't that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you've got the basic idea of an interest-rate swap.

In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to "swap" that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.

Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix's U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.

And here's what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company's office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers' Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.

"It's obviously reminiscent of the Libor manipulation issue," Darrell Duffie, a finance professor at Stanford University, told reporters. "People may have been naive that simply reporting these rates was enough to avoid manipulation."
And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they're paying the real price for swaps or a price being manipulated by bank insiders for profit.
Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it's also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.

So although it's not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed.

"How is some municipality in Cleveland or wherever going to know if it's getting ripped off?" asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. "The answer is, they won't know."

Worse still, the CFTC investigation apparently isn't limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information.

Swap prices are published when ICAP employees manually enter the data on a computer screen called "19901." Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen.

The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal.

Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race.

At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed "Treasure Island."

Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. "That allows dealers to tell the brokers to delay putting trades into the system instead of in real time," Bloomberg wrote, noting the former broker had "witnessed such activity firsthand." An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is "cooperating" with the CFTC's inquiry and that it "maintains policies that prohibit" the improper behavior alleged in news reports.

The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. "It's almost hilarious in the irony," says David Frenk, director of research for Better Markets, a financial-reform advocacy group, "that they called it ISDAfix."

After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust.

"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they'll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. "In general," it wrote, "those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion."

Translation: When prices are set by companies that can profit by manipulating them, we're fucked.

"You name it," says Frenk. "Any of these benchmarks is a possibility for corruption."

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It's not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever's in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it's only just coming into view.

This story is from the May 9th, 2013 issue of Rolling Stone.