A compilation of articles and videos regarding income inequality in the United States

GRtak

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Goldman Makes It Official That the Stock Market is Manipulated, Buybacks Drive Valuations

Posted on October 21, 2014 by Yves Smith

It?s remarkable that this Goldman report, and its writeup on Business Insider, is being treated with a straight face. The short version is current stock price levels are dependent on continued stock buybacks. Key sections of the story:


Goldman Sachs? David Kostin believes a temporary pullback may explain why the S&P 500 has tumbled from its all-time high of 2,019 on Sept. 19.

?Most companies are precluded from engaging in open-market stock repurchases during the five weeks before releasing earnings,? Kostin notes. ?For many firms, the beginning of the blackout period coincided with the S&P 500 peak on September 18. So the sell-off occurred during a time when the single largest source of equity demand was absent. Buybacks dip during earnings reporting months, which have seen 1.2 points higher realized volatility than in other months during the past 25 years.??

?We expect companies will actively repurchase shares in November and December,? he writes. ?Since 2007, an average of 25% of annual buybacks has occurred during the last two months of the year.?


cotd-buybacks-volatility.jpg
http://www.nakedcapitalism.com/wp-content/uploads/2014/10/cotd-buybacks-volatility.jpg

Notice how the bulk of buybacks are concentrated in the fourth quarter, with the obvious intent of goosing prices at year end so as to lead to higher executive pay for ?increasing shareholder value?? In fact, these companies are being gradually liquidated. Issuing debt, which public companies have done in copious volumes since the crash, and using it to buy shares is dissipating corporate assets. They are over time shrinking their businesses. That is also reflected in aggressive headcount cuts and cost-saving measures. Even though analysts like to tout the cash that companies have sitting on their balance sheets as a source of potential investment, as we?ve discussed in previous posts, public companies are so terrified of even a quarterly blip in earnings due to incurring expenses relating to long-term investments that they?d rather do nothing, or go the inertial path of cutting costs to show higher profits.

But with borrowing the big source of this corporate munificence to the share-owning classes, this is a self-limiting game. But the end game could be a long time in coming. First, you have economists who believe that the stock market directly drives consumer spending, echoing the Fed?s confidence in the wealth effect. For instance, see this argument from Roger Farmer (hat tip Bruegel blog):


There is a close relationship between changes in the value of the stock market and changes in the unemployment rate one quarter later. My research here, and here shows that a persistent 10% drop in the real value of the stock market is followed by a persistent 3% increase in the unemployment rate. The important word here is persistent. If the market drops 10% on Tuesday and recovers again a week later, (not an unusual movement in a volatile market), there will be no impact on the real economy. For a market panic to have real effects on Main Street it must be sustained for at least three months.

Yves here. The problem is that correlation is not causation. Significant and sustained stock market declines are almost always the result of Fed tightening. The usual lag between an interest rate cycle turn and a stock market peak historically was roughly four months, but in our new normal of seemingly permanent heavy-duty central bank meddling, old rules of thumb are to be used with great caution. Nevertheless, Greenspan was obsessed with what drove stock prices, and the Fed is unduly solicitous of asset price levels, no doubt because people like Janet Yellen have to leave their DC bubble in order to meet actual unemployed people.

Mike Whitney reminds those who manage to miss it that the Fed is so concerned about the actual and psychological impact of stock market prices that it immediately talked investors into getting back into the pool when the market started misbehaving badly last week. From Counterpunch:


For those readers who still think that the Fed doesn?t meddle in the markets: Think again. Friday?s stock surge had nothing to do with productivity, price, earnings, growth or any of the other so called fundamentals. It was all about manipulation; telling people what they want to hear, so they do exactly what you want them to do. The pundits calls this jawboning, and the Fed has turned it into an art-form. All [St. Louis Fed President James] Bullard did was assure investors that the Fed ?has their back?, and , sure enough, another wild spending spree ensued. One can only imagine the backslapping and high-fives that broke out at the Central Bank following this latest flimflam?.

It?s too bad the Fed can?t put in a good word for the real economy while they?re at it. But, oh, I forgot that the real economy is stuffed with working stiffs who don?t warrant the same kind of treatment as the esteemed supermen who trade stocks for a living. Besides, the Fed doesn?t give a rip about the real economy. If it did, it would have loaded up on infrastructure bonds instead of funky mortgage backed securities (MBS). The difference between the two is pretty stark: Infrastructure bonds put people to work, circulate money, boost economic activity, and strengthen growth. In contrast, MBS purchases help to fatten the bank accounts of the fraudsters who created the financial crisis while doing bupkis for the economy. Guess who the Fed chose to help out?

Do you really want to know why the Fed isn?t going to end QE? Here?s how Nomura?s chief economist Bob Janjuah summed it up:

?I want to remind readers of a message that may be buried in the past: When QE1 ended, the S&P 500 fell just under 20% in a roughly three-month period before the QE2 recovery.

When the QE2 ended, the S&P 500 fell about 20% in a three-month period before the next Fed-inspired bounce (aided by the ECB). QE3 is ending this month??

Is that why the Fed started jawboning QE4, to avoid the inevitable 20 percent correction?

Whitney continues with one of our favorite tropes: that all QE has done is elevate asset prices. That has not led to a recovery in anything much beyond the balance sheets of the top cohorts and the income of the top 1%. Even worse, it has provide cover for the Administration falling in with investor-favoring austerity, in the form of reducing deficit spending when it ought to be increasing it to take up the considerable and costly slack in the economy.

It?s not surprising to see the Fed double down on a failed strategy. The central bank had apparently finally recognized in 2013 that QE was not helping the real economy, and they needed to exit the policy to reduce the resulting economic distortions. But they lost their nerve during last summer?s taper tantrum, and turned cowardly again in response to a mere stock market hissy fit.

The Fed believes that what is good for the wealthy is good for the US, and that when they are in danger of suffering financially, the central bank should break glass and administer monetary relief. Even though the Fed may think it is serious about ending QE and eventually raising rates, as they say in Venezuela, ?They have changed their minds, but they have not changed their hearts.?

How long until the cards all fall again?
 

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Who?s Buying the Midterm Elections? A Bunch of Old White Guys

This is the year of the mega-donor: just forty-two people are responsible for nearly a third of Super PAC spending in the 2014 election cycle. Super PACs, meanwhile, are outspending the national parties. The list of would-be kingmakers includes Tom Steyer, the former hedge-fund manager who?s poured out $73 million to elect environmentally friendly Democrats; Michael Bloomberg, who?s distributed upwards of $20 million on behalf of both sides; and Paul Singer, the ?vulture-fund billionaire? and powerful Republican fundraiser.

Take a look at the list of top donors. They might have distinctly different political agendas, but they have one thing irrefutably in common: they?re almost exclusively old white guys. Only seven women made it into the forty-two, and not a single person of color.

One of the things highlighted in the aftermath of Michael Brown?s death in Ferguson, Missouri, is how poorly America?s political leadership, from city councils to the US Senate, reflects the diversity of the country. According to data compiled by the Reflective Democracy Campaign, white men make up 65 percent of elected officials?more than twice their proportion in the general population. Only 4 percent of our political leaders are women of color. As Jelani Cobb writes in The New Yorker, the midterm elections won?t right this imbalance between demographics and political representation, no matter which party wins the Senate.

In fact, the midterms suggest that white men are gaining clout, at least behind the veil. As campaign-finance laws erode, political power is increasingly concentrated among the billionaires playing the strings of the electoral marionette?a pool that looks less diverse even than Congress. (Given the prominence of dark-money groups, it?s likely that some of the biggest individual players in the midterms are anonymous. But there?s no indication that secret donors are any more diverse than others.)

It?s shrinking, too. Between 1990 and 2010, the number of individual donors increased each election cycle. This year, the pool contracted from 817,464 individual contributors in 2010 to 666,773 as of late October, according to a new analysis from CRP. ?Despite only a slight increase in the cost of the election, outside groups, which are overwhelmingly fueled by large donors, are picking up more of the tab, candidates are cutting back on their spending, and there are fewer large (over $200) individual donors contributing overall to candidates and parties,? reads the report.

Politicians should be accountable to the electorate, which is growing more diverse. But the fact that candidates are growing more dependent on a narrow group of contributors means that they may be responsive to a limited set of concerns. There are many factors blunting the political impact of demographic changes, but certainly laws that amplify a less diverse group of people?s voices over others? in an election is one of them.

The unfettering of big money also makes it harder to elect minority candidates. ?Why is it that the Congress we have right now doesn?t look anything like the rest of the country? A lot of it has to do with our campaign-finance laws and the fact that there?s so much money in the system and you need so much money to run for office,? said Lawrence Norden, deputy director of the Democracy Program and the Brennan Center for Justice. ?There?s no question that it makes it more difficult for people who aren?t connected to these very wealthy donors to run for office.?

Candidates raise money from people they know, Norden explained, and American social circles are deeply segregated. Three-quarters of white Americans, for example, don?t have any non-white friends. Neighborhoods remain segregated by race and class. ?If you don?t have a lot of money to begin with, you?re not interacting with the people who can provide that money,? said Norden.

A number of structural changes have been proposed to right lopsided representation, many of them focused on increasing turnout among minority voters. Those suggestions are particularly salient in response to the GOP?s campaign to pass laws that make it more difficult for low-income people and people of color to vote. But turnout won?t affect the diversity of elected officials if the pool of candidates isn?t diverse to begin with. As long as the financial bar for running a viable campaign keeps rising, it?s going to be more difficult for people of color, women and low-income people to appeal for votes at all.

There?s some evidence that public campaign financing increases proportional representation. Connecticut implemented a voluntary public-financing system in 2008, which provides a fixed amount of funding to candidates who rely on small donors. A study by Demos found that the program led to a more diverse state legislature and increased Latino and female representation. Another study found that the percentage of women elected in five states with public financing was significantly higher than the national average. Unfortunately, in several states recently politicians have set to dismantling, not strengthening, public financing.

?It?s really clear that that?s a major barrier to women and people of color, in particular, that can happen on all levels, even the local level,? said Brenda Carter, director of the Reflective Democracy Campaign, about the growing power of outside money. Still, she noted that there?s been little research into the specific ways in which the influence of money in politics has a disproportionate effect on minority candidates. ?Adding a race and gender lens to the money-in-politics conversation is a really important thing,? she said.
 

GRtak

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Several charts at the link, and the link in the article has many more.

A full-time minimum-wage job won't get you a 1-bedroom apartment anywhere in America

There is no state in the union where a full-time, minimum-wage worker can afford to rent a one-bedroom apartment for less than 30 percent of his paycheck (which is a standard measure of housing affordability).

That's the depressing takeaway from a new report by the National Low-Income Housing Coalition. The paper includes this map tallying the hours a worker would have to put in at her job each week to rent a one-bedroom apartment without it eating more than 30 percent of her wages:

In Texas, a minimum wage worker needs to put in 73 hours a week to afford a one-bedroom unit. In California, it's 92 hours. In the District of Columbia, it's a solid 100 hours.

These are, of course, state averages. Rent will be more expensive in some cities ? but those cities will often have a higher minimum wage than the rest of the state. Sadly, as this chart from the report shows, the increase in rental prices tends to be much higher than the increase in the minimum wage:

What that chart shows, basically, is that there's almost no way for low-income workers to live in the cities where the best-paying jobs are. And so, often, they don't. As Joseph Stromberg wrote in an excellent piece, being forced to live far from jobs is a key impediment to moving up the income ladder:


A Brookings Institution report found that the average resident of a US metro area can reach just 30 percent of the jobs in that area via a 90-minute or less transit ride ...

A recent study led by Harvard's Raj Chetty tracked 5 million children starting in the 1980s, considering how all sorts of factors relating to their neighborhoods (such as crime rates, schools, and levels of inequality) correlated with their odds of ascending to a higher income bracket than their parents. Among all these factors, "a neighborhood's average commuting time was the strongest single correlation we found," says Jamie Fogel, who worked on the study.

For much more data, read the National Low-Income Housing Foundation's full report, which breaks down housing affordability not just by state, but by every county in every state.
 

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Interrobang

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[...]
I wonder what the next "hot job" will be?
Social Worker. Riot-police-grunt. Human shield for rich people.

Disney laying off US workers for cheaper foreign ones. Then having the gaul to force the American workers to train their cheaper replacements.
[...]
http://www.nytimes.com/2015/08/05/business/media/disney-earnings-3q.html
As the Walt Disney Company extends its growth streak, it is bumping into a challenge faced by high-flying companies of all kinds: With great success comes even greater expectations.

Disney said on Tuesday that revenue in its fiscal third quarter totaled $13.1 billion, a 5 percent increase from the same period last year. But analysts had expected $13.22 billion, and shares in the entertainment conglomerate dropped about 6.4 percent in after-hours trading, to $114.[...]
Gotta squeeze out those millions somewhere, 5% increase is not enough for the investors ... screw those middle-class It-guys, someone needs a new yacht for christmas!

/sarcasm.
 

argatoga

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Keely there is an idiot.

Anyhow,

On the state level it works. Let's look at a major public local university here.

Total enrollment, 54,223.
Total local residence enrolled, 41,751.
Total yearly cost of living + tuition for a local resident is $30k, so $1,252,551 a year to pay for their education.

The total Washington State budget is $87 billion.

A million is a drop in the bucket. You don't need to raise taxes much to cover the cost. Not to mention that nearly all of the money spent stays in the state.

The state can pay for their education with a proviso that student debt is only paid off if the student stays in the state for a number of years after graduating, then it is a win win. A better educated populace makes more money. A richer populace enjoys a higher standard of living. A happier and more wealthy populace pays more taxes.
 
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LeVeL

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Wait, aren't you a college student?
I'm four weeks from finishing grad school. While working full-time. Come to think of it, I don't remember the last time I didn't have a job for an extended period of time.

That said, I saw a lot of self-entitled retards in undergrad. It seems like everyone in college is suddenly an expert in everything, while actually knowing nothing.



Keely there is an idiot.

Anyhow,

On the state level it works. Let's look at a major public local university here.

Total enrollment, 54,223.
Total local residence enrolled, 41,751.
Total yearly cost of living + tuition for a local resident is $30k, so $1,252,551 a year to pay for their education.

The total Washington State budget is $87 billion.

A million is a drop in the bucket. You don't need to raise taxes much to cover the cost. Not to mention that nearly all of the money spent stays in the state.

The state can pay for their education with a proviso that student debt is only paid off if the student stays in the state for a number of years after graduating, then it is a win win. A better educated populace makes more money. A richer populace enjoys a higher standard of living. A happier and more wealthy populace pays more taxes.
1) Your math is off by a few decimals. 41,751 x $30,000 = 1,252,530,000, which is $1.2billion.
2) That budget figure is for a three-year period. That averages out to $29bil per year.
3) With the corrected numbers, we see that University of Washington, which is what your example is based on, comes in at roughly 4.5% of the state budget. This is in a state that already has a significant budget deficit.
4) There are six public four-year universities in Washington state and you only picked one. Obviously once you start adding in the others, the total costs skyrocket.

We all scoff at the fantasy tales of money trees, yet we're convinced ourselves that there is an infinite number of super-rich wealth hoarders that we can just keep on taxing to infinity. Sorry, doesn't work that way.

Your suggestion that we force college grads to stay in those states is silly, sorry. Not only is it ridiculous to put restrictions on where someone lives, this would also stop students from relocating - someone that grows up in MA probably won't commit to living in WA for years and years after graduation. Besides, what if they get a fantastic job offer in MA but can't take it because they're stuck in WA, where the unemployment rate is higher anyways?

"Better" education is a phrase that's becoming meaningless. I bet I can walk into any Starbucks in Boston, ask the baristas about their backgrounds, and most will have degrees in some random useless bullshit like women's studies, gay and lesbian studies, and so on. Students used to go to college to learn actual skills and knowledge that would help them get better, higher-paying jobs, but that's quickly becoming a false illusion. Many, if not most, seem to enroll simply for the sake of enrolling because it's been beaten into them (by parents, teachers, politicians, etc) that they absolutely must go to college. What happens is that most of them end up making less than their blue-collar counterparts.
 

argatoga

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My quick calculations were off, and I stand corrected on that as I had not put that much thought into the matter before.

I'll accept your calculations, in which case I will change my stance. Either costs would need to be significantly reduced, or we continue with the current system.

I have no problem with people who are being given money by the state to be expected to stay in it. If someone doesn't want that limitation they can pay the out of state rate. If they find a fantastic job opportunity elsewhere, they can pay the state's tax payer back.

Even a "bullshit" topic like women's studies still requires one to learn how to perform research, and write a coherent argument. It also comes attached with general requirements in other fields.

My own major isn't related to my profession, however it has enhanced my understanding of the world and given me the ability to further do so. A university education has merits other than the prospect of a higher salary.

By the way, I have never suggested that the 1% can pay for everything.
 
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GRtak

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The 1% should not pay for everything, but they and corporations should pay more than they currently do.
 

argatoga

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The 1% should not pay for everything, but they and corporations should pay more than they currently do.
Correct. I do agree however that they can't pay for everything.
 
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