The facts are that on Oct. 25, Jon Corzine, a former New Jersey governor, stated he was confident that MF Global would successfully manage its $6.3 billion exposure to European debt (Spain, Portugal, Belgium and Italy). Yet a week after a failed attempt to sell the company, MF Global filed for Chapter 11 bankruptcy on Oct. 31.
Now let’s discuss the failure of management at MF Global. Mr. Corzine who is considered by many one of the smartest fixed-income minds in the business took immeasurable risk with the capital of his firm. It was revealed that the company was leveraged 40-1. In summary, the company only had 2.5 percent equity invested against risk positions. Note: Even in the height of the subprime crisis a 40-1 leverage would have been considered extremely risky, where small movements in underlying positions could represent deleterious outcomes for investors.
Did the great Jon Corzine not learn from the greatest financial meltdown seen in the U.S. economy? The answer is simple, here is another example to the entrusted “gambling with other people’s money.” The irony of this is that in the August 2011 bond deal there is a key clause that states if Mr. Corzine departs as MF Global’s full-time chief executive officer prior to July 1, 2013, because of an appointment to a federal position by the president and confirmation of that appointment by the U.S. Senate, investors would get an additional 1 percent coupon on their existing 6.250 percent bonds. I beg to differ in that the “clause” should have said if Mr. Corzine decides to increase the risk-taking at MF Global similar to previous risk positions at Goldman Sachs, investors should be redeemed their money at 100 cents on the dollar. We will find out more but another concern, there is approximately $600 million of unaccounted for customer funds.
The court-appointed trustee overseeing MF Global’s bankruptcy says up to $1.2 billion is missing from customer accounts, double what the firm had reported to regulators last month.
Obama is the Solyndra president. He’s been raiding the public coffers to reward his billionaire campaign fundraisers from day 1 with from his “stimulus” funding – running 1.3 trillion deficits to pay off all the people who got him elected. The young people who will have to pay off this debt still keep voting for him like lemmings – they have no idea about his connections to rich Wall Street bankers. They buy the rhetoric. And the Obama-media has no interest of informing anyone about his connections to dodgy people and organizations.
Look for Corzine to get a presidential pardon in 2012, when Obama leaves office.
Consider this article by the Cato Institute, a libertarian think tank, which discusses how the Reagan tax cuts affected the unemployment rate.
Excerpt:
In 1980, President Carter and his supporters in the Congress and news media asked, “how can we afford” presidential candidate Ronald Reagan’s proposed tax cuts?
Mr. Reagan’s critics claimed the tax cuts would lead to more inflation and higher interest rates, while Mr. Reagan said tax cuts would lead to more economic growth and higher living standards. What happened? Inflation fell from 12.5 percent in 1980 to 3.9 percent in 1984, interest rates fell, and economic growth went from minus 0.2 percent in 1980 to plus 7.3 percent in 1984, and Mr. Reagan was re-elected in a landslide.
[…]Despite the fact that federal revenues have varied little (as a percentage of GDP) over the last 40 years, there has been an enormous variation in top tax rates. When Ronald Reagan took office, the top individual tax rate was 70 percent and by 1986 it was down to only 28 percent. All Americans received at least a 30 percent tax rate cut; yet federal tax revenues as a percent of GDP were almost unchanged during the Reagan presidency (from 18.9 percent in 1980 to 18.1 percent in 1988).
What did change, however, was the rate of economic growth, which was more than 50 percent higher for the seven years after the Reagan tax cuts compared with the previous seven years. This increase in economic growth, plus some reductions in tax credits and deductions, almost entirely offset the effect of the rate reductions. Rapid economic growth, unlike government spending programs, proved to be the most effective way to reduce unemployment and poverty, and create opportunity for the disadvantaged.
President Bush signed the first wave of tax cuts in 2001, cutting rates and providing tax relief for families by, for example, doubling of the child tax credit to $1,000.
At Congress’ insistence, the tax relief was initially phased in over many years, so the economy continued to lose jobs. In 2003, realizing its error, Congress made the earlier tax relief effective immediately. Congress also lowered tax rates on capital gains and dividends to encourage business investment, which had been lagging.
It was the then that the economy turned around. Within months of enactment, job growth shot up, eventually creating 8.1 million jobs through 2007. Tax revenues also increased after the Bush tax cuts, due to economic growth.
In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.
The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.
Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:
GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.
The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.
Those are the facts. That’s not what you hear in the media, but they are the facts.
The actual results of the cuts in tax rates in the 1920s were very similar to the results of later tax-rate cuts during the Kennedy, Reagan and George. W. Bush administrations — namely, rising output, rising employment to produce that output, rising incomes as a result and rising tax revenues for the government because of the rising incomes, though the tax rates had been lowered.
Another consequence was that people in higher-income brackets paid not only a larger total amount of taxes, but a higher percentage of all taxes, after what were called “tax cuts for the rich.” It was not simply that their incomes rose, but that this was not taxable income, since the lower tax rates made it profitable to get higher returns outside of tax shelters.
The facts are unmistakably plain, for those who bother to check the facts. In 1921, when the tax rate on people making over $100,000 a year was 73%, the federal government collected a little over $700 million in income taxes, of which 30% was paid by those making over $100,000.
[…]By 1929, after a series of tax-rate reductions had cut the tax rate to 24% on those making over $100,000, the federal government collected more than a billion dollars in income taxes, of which 65% was collected from those making over $100,000.
There is nothing mysterious about this. Under the sharply rising tax rates during the Wilson administration, fewer and fewer people reported high taxable incomes, whether by putting their money into tax-exempt securities or by any of the other ways of rearranging their financial affairs to minimize their tax liability.
Under Wilson’s escalating income-tax rates to pay for the high costs of the First World War, the number of people reporting taxable incomes of more than $300,000 — a huge sum in the money of that era — declined from well over a thousand in 1916 to fewer than three hundred in 1921. The total amount of taxable income earned by people making over $300,000 declined by more than four-fifths in those years.
Secretary Mellon estimated in 1923 that the money invested in tax-exempt securities had tripled in a decade, and was now almost three times the size of the federal government’s annual budget and nearly half as large as the national debt. “The man of large income has tended more and more to invest his capital in such a way that the tax collector cannot touch it,” he pointed out.
Getting that money moved out of tax shelters was the whole point of Mellon’s tax-cutting proposals. He also said: “It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to the support of his government should remain unaltered.”
Empirical evidence on what happened to the economy in the wake of those tax cuts in four different administrations over a span of more than 80 years has also been largely ignored by those opposed to what they call “tax cuts for the rich.”
Confusion between reducing tax rates on individuals and reducing tax revenues received by the government has run through much of these discussions over these years.
Famed historian Arthur M. Schlesinger Jr., for example, said that although Andrew Mellon, secretary of the treasury from 1921 to 1932, advocated balancing the budget and paying off the national debt, he “inconsistently” sought “reduction in tax rates.”
Nor was Schlesinger the only highly regarded historian to perpetuate economic confusion between tax rates and tax revenues. Today, widely used textbooks by various well-known historians have continued to misstate what was advocated in the 1920s and what the actual consequences were.
According to the textbook “These United States” by Irwin Unger, Mellon, “a rich Pittsburgh industrialist,” persuaded Congress to “reduce income tax rates at the upper-income levels while leaving those at the bottom untouched.”
Thus “Mellon won further victories for his drive to shift more of the tax burden from the high-income earners to the middle and wage-earning classes.”
But hard data show that, in fact, both the amount and the proportion of taxes paid by those whose net income was no higher than $25,000 went down between 1921 and 1929, while both the amount and the proportion of taxes paid by those whose net incomes were between $50,000 and $100,000 went up — and the amount and proportion of taxes paid by those whose net incomes were over $100,000 went up even more sharply.
President Kennedy, like Andrew Mellon decades earlier, pointed out that “efforts to avoid tax liabilities” make “certain types of less-productive activity more profitable than other more valuable undertakings” and “this inhibits our growth and efficiency.” Therefore the “purpose of cutting taxes” is “to achieve a more prosperous, expanding economy.”
“Total output and economic growth” were italicized words in the text of Kennedy’s address to Congress in January 1963, urging cuts in tax rates. Much the same theme was repeated yet again in President Reagan’s February 1981 address to a joint session of Congress, pointing out that “this is not merely a shift of wealth between different sets of taxpayers.”
Instead, basing himself on a “solid body of economic experts,” he expected that “real production in goods and services will grow.”
Even when empirical evidence substantiates the arguments made for cuts in tax rates, such facts are not treated as evidence relevant to testing a disputed hypothesis, but as isolated curiosities. Thus, when tax revenues rose in the wake of the tax-rate cuts made during the George W. Bush administration, the New York Times reported:
“An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”
Expectations, of course, are in the eye of the beholder. However surprising these facts may have been to the New York Times, they are exactly what proponents of reducing high tax rates have been expecting, not only from these particular tax rate cuts, but from similar reductions in high tax rates at various times going back more than three-quarters of a century.
It’s Thomas Sowell – the official economist of the Tea Party.
WINTERY KNIGHT 