http://www.cbsnews.com/8301-250_162-57505015/n.y-attorney-general-opens-probe-into-private-equity-firms-including-bain/

The New York attorney general has opened an investigation into numerous private equity firms, including Bain Capital, according to an official familiar with the inquiry, CBS News has confirmed.

Attorney General Eric T. Schneiderman is examining whether the firms used a tax strategy to avoid paying hundreds of millions of dollars in taxes. The practice involved converting some fees collected for managing accounts into fund investments, resulting in a tax rate of 15 percent instead of 35 percent.

Republican presidential candidate Mitt Romney co-founded the private equity firm in 1984. He ran the organization until 1999, although documents show that he remained the sole owner, president and chief operating officer until 2002...Though Romney collects benefits as a Bain retired partner, the inquiry isn't focused on the time he ran Bain.

The New York Times first reported the investigation of more than a dozen firms. The report indicates that some observers think it is a political motivated investigation by a Democratic attorney general with relations with President Obama, while others say Schneiderman is seeking additional tax revenue for New York.

Tax experts tell the Times they have differing views about the strategy's legality. The New York Times estimates that Bain saved more than $200 million in taxes.

http://www.nytimes.com/2012/09/02/business/inquiry-on-tax-strategy-adds-to-scrutiny-of-finance-firms.html?_r=1&pagewanted=all

... The attorney general, Eric T. Schneiderman, has in recent weeks subpoenaed more than a dozen firms seeking documents that would reveal whether they converted certain management fees collected from their investors into fund investments, which are taxed at a far lower rate than ordinary income. Among the firms to receive subpoenas are Kohlberg Kravis Roberts & Company, TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners and Bain Capital, which was founded by Mitt Romney, the Republican nominee for president. Representatives for the firms declined to comment on the inquiry.

Mr. Schneiderman’s investigation will intensify scrutiny of an industry already bruised by the campaign season, as President Obama and the Democrats have sought to depict Mr. Romney through his long career in private equity as a businessman who dismantled companies and laid off workers while amassing a personal fortune estimated at $250 million.

Some executives at the firms said they feared that Mr. Schneiderman, a first-term Democrat with ties to the Obama administration, was seeking to embarrass the industry because of Mr. Romney’s roots at Bain. Others suggested that the subpoenas, which were issued by the attorney general’s Taxpayer Protection Bureau, might be part of an effort to recover more revenue for New York under state tax law. The attorney general’s office does not have the power to enforce federal tax laws... The tax strategy — which is viewed as perfectly legal by some tax experts, aggressive by others and potentially illegal by some — came to light last month when hundreds of pages of Bain’s internal financial documents were made available online. The financial statements show that at least $1 billion in accumulated fees that otherwise would have been taxed as ordinary income for Bain executives had been converted into investments producing capital gains, which are subject to a federal tax of 15 percent, versus a top rate of 35 percent for ordinary income. That means the Bain partners saved more than $200 million in federal income taxes and more than $20 million in Medicare taxes.

The subpoenas, which executives said were issued in July, predated the leak of the Bain documents by several weeks and do not appear to be connected with them. Mr. Schneiderman, who is also co-chairman of a mortgage fraud task force appointed by Mr. Obama, has made cracking down on large-scale tax evasion a priority of his first term...

MORE JUICY DETAILS AT LINK

OH, THE INDIGNITY OF DEMANDING TAXES OF OUR "JOB CREATORS"!

http://www.nakedcapitalism.com/2012/07/why-firing-ed-demarco-is-no-solution-to-fhfa-refusal-to-engage-in-principal-modifications.html#7SSJdKYtlVZGuohW.99

Today, Acting FHFA Director Ed DeMarco wrote to Congress, after due consideration, reaffirming his position that he will not permit Fannie and Freddie to lower principal balances of mortgages of borrowers that are delinquent. This is despite the fact that the top analyst in this space, Laurie Goodman, has determined that principal modifications are the most effective form of mortgage modification, resulting in much lower refault rates than interest rate mods or capitalization mods. And that makes sense. Why should a borrower struggle to hang on to a home when even if they make all the payments, when they sell they they are stuck with a big tax bill? And as we’ve stressed, private label investors are overwhelmingly in favor of deep principal mods for viable borrowers, and that’s because foreclosure is costly and leaves them worse off.

So it’s more that a bit puzzling to see DeMarco nix principal mods, particularly in light of a Treasury program that provides subsidies to investors of 18% to 63% of the amount forgiven, depending on the loan to value ratio of the loan. With those kinds of[S] bribes[/S] subsidies, how could DeMarco say no?

Well, DeMarco has. His logic is twofold. First, bag considering the subsidies, they are just a transfer from one pocket (Treasury) to another (Fannie and Freddie) and therefore don’t count as far as the conservatorship mandate of saving taxpayer dollars is concerned. Second, he goes into dueling model mode, and not being able to see his model and model assumptions, one can’t tell how hard his team has gone in tweaking assumptions to produce the desired result. (if I get my hands on his 18 page letter, which I’ve seen referenced but not posted, I will update the post if it gives more insight on this matter). He concedes in his letter that if you do mods for borrowers that are now delinquent, you see a “small” net benefit (Treasury claimed $1 billion even after the cost of subsidies; it would be telling to see what DeMarco came up with). However, he contends the taxpayer could come up much worse off if people who were current defaulted in order to qualify. His bottom line: “We concluded that the potential benefit was too small and uncertain, relative to the known and unknown costs and risks.”

As much as this blogger is firmly of the view that this is a poor economic decision (deep principal mods are a sound idea, as long as you have a decent approach for vetting borrower income and other debt payments to see if they are viable with a mod), I have to hand it to DeMarco as a bureaucratic infighter. He is effectively throwing the abortion of HAMP results in Treasury’s face. Recall that HAMP did not require borrowers to default in order to qualify for mods, yet many did out of misdirection by servicers. Now in fact, servicers are unlikely to play that game this time, since a principal mod reduces their servicing income. But the fact, as detailed by Neil Barofsky in his book Bailout, that Treasury was indifferent to how homeowners fared under HAMP, and merely saw this as a vehicle for “foaming the runway,” meaning spreading out the number of foreclosures over time, rather than saving borrowers, led to irresponsible actions (like ordering servicers to sign up people for trial mods initially without even qualifying them), numerous changes in program design (disastrous for highly routinized servicers) and lack of concern with the fact that many people lost their homes by virtue of HAMP who might have kept them, has produced some data (in particular, informed estimates of the number of people who defaulted to qualify for HAMP) against the Administration. And notice in its speedy rebuttal letter to DeMarco, Geithner concedes that DeMarco has the power to take this action: “…you have the sole legal authority to make this decision.”

http://www.nakedcapitalism.com/2012/08/another-way-banks-abuse-homeowners-and-distort-markets-refusing-to-take-title-to-foreclosed-properties.html#aT3xAUOOd01Qsfbi.99



If there’s any way for banks to cut the cake to work to their advantage, they do.
One example that has not gotten attention is that servicers will complete all the steps of a foreclosure, sometimes even scheduling the sheriff’s sale, and then not put in a bid. The reason? The home is of so little value that at even a $100 price, the bank deems it to be not worth the trouble.

But keeping houses in limbo is a horror show for the old homeowner, who unknown to them, still owns the property (meaning they could have lived in in it and maintained it, preventing neighborhood blight) and is still on the hook for property taxes. And of course, these abandoned homes damage the value of neighboring properties. And needless to say, because they aren’t on the market, these houses are also not considered to be part of official inventories. Foreclosure experts in Florida have told me they see a lot of houses where the banks take the home up to the final step of foreclosure, then let it languish. This story, from Cleveland.com via April Charney, is confirmation that this is a broader phenomenon. Notice that this is a long standing practice; the article cites examples dating from 2006 and 2007. Key extracts:


Notice that there is a remedy, and I hope more states push for it:



Some judges are also taking matters into their own hands:



The more straightforward approach is for places like Cleveland to fine servicers. It would help to work with someone who understood how pooling & servicing agreements worked to construct it in such a way that it would be difficult for them to pass it on to investors. Oh wait, what am I thinking? Servicers pass on all sorts of impermissible fees to investors as it is. The more likely point of short-term leverage is for the city to identify which servicers have been the worst actors and to have community groups encourage businesses, churches, and foundations to move their accounts away from the banks that own them. Losing that type of customer has a vastly bigger impact on banks than individuals moving their money.

if someone pays the back taxes to the city state annd county...the property should be theirs free and clear with a special title given to the person that pays the taxes. The bank could not seize the property because they basically abandoned it themselves.

Michael Hudson spoke with Max Keiser about what he calls “fictitious capital” which is essentially lending backed by inadequate capital, such as collateral that has fallen in value. This is an idea he has explored in his previous papers, such as “From Marx to Goldman Sachs” and now in his new book, The Bubble and Beyond. For German readers, Hudson was also interviewed in FAZ.

VIDEO AT LINK: http://www.nakedcapitalism.com/2012/08/michael-hudson-on-fictitious-collateral.html#lVcgz7p9D3UZd5vO.99

Has been hotter than normal lately, especially since that economist got canned for being on his show.

If the Presidential campaign seems vacuous to you, that’s because it is. Here are some questions that “we” — by which I mean the legacy party campaigns, their enablers, and our famously free press — can’t seem to bring ourselves to ask during the campaign. So, I’m going to ask them now:

1. How did 8% nominal unemployment become the new normal? Here’s last month’s version of the most frightening chart in the world from Calculated Risk:



From where I sit, the employment market flatlined in 2008 and never recovered, and the 2007-2012 curve looks like successfully achieved public policy. Clearly, that’s true for government employment, where the current powers that be, uniquely for the four recessions since 1981, engineered a decrease in public sector employment, as Ezra Klein (of all people) points out:



Republicans, as Klein also points out, honor “shrinking government” during a recession more in the breach than the observance. Obama, a Democrat, actually implemented their policies, by commission at the Federal level, and by omission at the State level, since he bailed out the banks instead:



Anyhow, corporate profits are high and wages are low, so what’s not to like?

2. Why can’t we prosecute the executives of major banks for accounting control fraud? NC readers are thoroughly familiar with WIlliam R. Black’s “accounting control fraud” construct, and Yves has shredded the Obama administration’s refusal to deal with it, so I need not review that material. Instead, I’ll quote William Black from a terrific summary of his speech the MMT conference held recently in Italy:



Indeed. How’d that happen?

3. Why do we have to deliver health care through the private health insurance industry? Here’s the chart:



Here at least is one case where American Exceptionalism turns out to be true: The American system of health care is both exceptionally expensive and uniquely lethal. Why can’t we talk about, instead of diverting ourselves by arguing about the misfeatures of a “reform” that mostly kicks in two years from now, and has the main virtue of only throwing some few millions under the bus? And don’t talk to me about meanie Republicans; if the Democrats had wanted to pass real legislation, they would have abolished the filibuster in 2009, when they had the House, the Senate, and a mandate...


5. Why can’t we restore the tax brackets of the Eisenhower era? Here they are:



Romney:“What I’m saying is, don’t raise taxes.” Obama: “Ask the wealthy to pay a little more.” A little? Why not a lot? NOTE: I know from MMT that taxes don’t “fund” spending. However, a higher tax rate for the wealthy is good for two other reasons: (1) They can’t use all their loose cash to buy the government, and (2) preventing an aristocracy of inherited wealth is good.


http://www.nakedcapitalism.com/2012/07/thirteen-ways-of-looking-at-a-clang-bird.html#Ghmj3xEgolqgOQ6P.99

picked up off YAHOO, of all places - though originally from US News & World Report - though that, too, is surprising.

http://news.yahoo.com/one-person-whos-better-off-under-president-obama-173017737.html

True, this: "One Person Who's Better Off Under President Obama: Mitt Romney"

But of course, they have to get in a BIG LIE



And then: "Who's better off under President Obama?"
http://www.usnews.com/news/blogs/rick-newman/2012/08/22/whos-better-off-under-president-obama

Top three:



And who's worse off?

http://www.usnews.com/news/blogs/rick-newman/2012/08/22/whos-worse-off-under-president-obama

Top three:

S&P 500 +0.4%
DOW +0.4%
NASDAQ +0.4%

http://www.marketwatch.com/story/ecb-to-launch-outright-monetary-transaction-plan-2012-09-06-8915421

DRAGHI - BOND-BUY PROGRAMME INCLUDES, FOR EXAMPLE, 10-YEAR BONDS WITH 3 YEARS LEFT TO MATURITY

DRAGHI - BREAKDOWN BY COUNTRY TO BE PUBLISHED ON MONTHLY BASIS

DRAGHI - WILL PUBLISH WEEKLY AMOUNTS OF PURCHASES

DRAGHI - NO QUANTITATIVE LIMITS SET ON SIZE OF BOND BUYS

ECB'S DRAGHI - WILL ACT IN ACCORDANCE WITH MON POL MANDATE

ECB'S DRAGHI - NECESSARY CONDITION IS CONDITIONALITY ATTACHED TO EFSF/ESM PROGRAMME

DRAGHI - AFTER FULL ASSESSMENT, ECB WILL DECIDE ON START, CONTINUATION OF BOND PURCHASES

DRAGHI - ECB BOND PURCHASES WILL BE CONDUCTED UNDER CONDITIONALITY

ECB'S DRAGHI - IMF INVOLVEMENT WILL BE SOUGHT IN MONITORING, SETTING CONDITIONS

ECB'S DRAGHI - GOVERNMENTS MUST STAND READY TO ACTIVATE EFSF/ESM

ECB'S DRAGHI - WE WILL ACT INDEPENDENTLY

ECB'S DRAGHI - EURO IS IRREVERSIBLE

ECB'S DRAGHI - WE ARE STRICTLY WITHIN MANDATE, WE ACT INDEPDENDTLY

... DRAGHI: "As we said a month ago, we need to be in a position to safeguard the monetary policy transmission in all countries across the euro."

8:33: Draghi introduces the OMT program: Outright Monetary Transactions.

This is the official name of the new bond buying scheme. It's the successor to the SMP.

Draghi says he will release a press release momentarily on how it works.

8:36: Now Draghi is talking about the economy, and he just revised GDP expectations to -0.4% from -0.1%. And he says risks remain to the downside.

Calls on governments to fully implement

Inflation risks are "broadly balanced."

8:39: Still talking growth and so forth. Everything is either bad or subdued.

Keep refreshing for the latest...

8:42: Draghi is now introducing Outright Monetary Transactions...

Conditionality. Strict and effective conditionality is attached to ECB purchases of sovereign debt. What this means is: No country gets to have their bonds purchased unless they submit to outside oversight on fiscal matters. IMF observation will get re-elected. Draghi threatns to terminate actions in non-compliance.
Unlimited purchases of 1 to 3 years.
ECB is no longer senior. ECB expects the same Pari Pasu treatment.
Sterilization: The liquidity created through outright transactions will be sterilized.
Transparency: Purchases to be revealed on a weekly and monthly basis.

8:48: Draghi now talking about collateral. ECB suspends collateral rating requirements for countries...

Read more: http://www.businessinsider.com/ecb-decision-day-2012-9#ixzz25hC8dH4N


GD Note: None of this goes into effect without German Court Ok, formal requests by governments (ie. Spain), and presumably negotiated yet further 'austerity' (ie. civil unrest) measures.

ZH continues... http://www.zerohedge.com/news/ecb-releases-smp20-aka-outright-monetary-transactions-details

[center] [/center]

...

I am sure it is getting interesting.

One of my favorite Collins songs, made even more poignant these days. Every time I hear the news from Spain or England, I think of you and some others that are in that part of the globe.

http://www.marketwatch.com/story/us-jobless-claims-drop-12000-to-365000-2012-09-06?link=MW_home_latest_news

http://www.forbes.com/sites/abrambrown/2012/09/06/adp-u-s-hiring-surged-in-august-with-201000-new-jobs/

75 of his co-workers were phoned at home and told not to come into work.
He survived that purge only to get the phone call himself a couple weeks later.

But hey, who cares? The stock market is a-roarin'!!!! I hear tell that's good for all of us! I'm sure it's cheering her up a LOT, don't you know?

the bigger the crash when it implodes.

Daughter was a research scientist at a children's hospital and son was a policeman. Too much stress. So there are 2 openings for someone else.

Count them 22 openings for School Nurses. The word has gotten out as to how crappy we are paid and worse still, how horrid we are treated. There will be more beatings until the morale improves.

http://www.bostonfed.org/economic/ppdp/2012/ppdp1205.htm



full paper: http://www.bostonfed.org/economic/ppdp/2012/ppdp1205.pdf

Ah. And this one's for all you young, naive, kids:

deNile?