Month: August 2012

Hun, Some of Rmnney’s Tax Evasion Was Pretty Simple

Basically, he took management fees and converted them to carried interest, in order to secure the lower capital gains rate:

Two and Twenty. Private equity fund managers are compensated in two primary ways: management fees and carried interest. The management fee, traditionally two percent annually, is paid to the managers to cover overhead, salaries, and so forth. The carried interest, traditionally twenty percent, is a share of the profits from the underlying investments. My paper Two and Twenty described the typical arrangement. Management fees are taxed at ordinary income rates; carried interest is often taxed at capital gains rates. I focused in the article on why the carried interest portion is better viewed like bonus compensation and should be taxed at ordinary income rates.

Management Fee Conversion. Current law on carried interest is already a sweetheart tax deal for private equity, but why not make it better? Private equity folks are not the type to walk past a twenty-dollar bill lying on the sidewalk. In the 2000s it became common for private equity fund managers to “convert” their management fees into carried interest. There are many variations on the theme, but here’s how many deals worked: each year, before the annual management fee comes due, the fund manager waives the management fee in exchange for a priority allocation of future profits. There is minimal economic risk involved; as long as the fund, at some point, has a profitable quarter, the managers get paid. (If the managers don’t foresee any future profits, they won’t waive the fees, and they will take cash instead.) In exchange for a minimal amount of economic risk, the tax benefit is enormous: the compensation is transformed from ordinary income (taxed at 35%) into capital gain (taxed at 15%). Because the management fees for a large private equity fund can be ten or twenty million per year, the tax dodge can literally save millions in taxes every year.

The problem is that it is not legal. Because the deals vary in their aggressiveness, there is some disagreement among practitioners about when it works and when it doesn’t. But in my opinion, and the opinion of many tax practitioners, the practices that were common in the private equity industry in the 2000s became very, very questionable, and it’s unlikely that they would have stood up in court.

Tax attorney and professor Victor Fleischer does the dumpster diving in Gawkers Bain document dump and this is the first bit of specific skulduggery that I’ve seen as a result.

Pass the Popcorn…

Gawker has acquired a cache of nearly 1000 internal documents detailing activities at Bain Capital, and they appear to show some fairly arcane tax avoidance schemes used by Rmoney to hide income from the IRS:

Mitt Romney’s $250 million fortune is largely a black hole: Aside from the meager and vague disclosures he has filed under federal and Massachusetts laws, and the two years of partial tax returns (one filed and another provisional) he has released, there is almost no data on precisely what his vast holdings consist of, or what vehicles he has used to escape taxes on his income. Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that he has used to keep his effective tax rate at roughly 13% over the last decade.

Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested—at minimum—more than $10 million as of 2011 (that number is based on the low end of ranges he has disclosed—the true number is almost certainly significantly higher). Almost all of them are affiliated with Bain Capital, the secretive private equity firm Romney co-founded in 1984 and ran until his departure in 1999 (or 2002, depending on whom you ask). Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama’s fiscal approach and his money managers’ embrace of those same policies. They also show that some of the investments that Romney has always described as part of his retirement package at Bain weren’t made until years after he left the company.

H/t Americablog, and the documents can be examined here.

It also appears that it’s getting coverage in the main stream old media (ABC) as well.


It’s Jobless Thursday

And initial jobless claims are worse than expected.

Additionally, it looks like China’s economy is approaching stall speed:

A key private sector indicator on Thursday, which showed Chinese factory activity slumped to a nine-month low in August against expectations of a modest pickup, throws up the question whether the worst is yet to come for the world’s second largest economy.

The second quarter, during which growth slowed to 7.6 percent, was regarded by many economists as the bottom for Chinese economic growth. However, experts say this view may have been overly optimistic.

It should be noted that while 7.6% seems to be a blisteringly hot growth rate, China has been running double digit numbers routinely for some time. (With the obvious caveat that Chinese numbers are crappy, but the delta probably remains significant.

I’m Impressed

Egypt’s President Mohamed Mursi has issued a decree ordering that journalists who have been detained under Egypts media laws must be released:

Egyptian President Mohamed Mursi issued a decree barring the detention of journalists awaiting trial, the state-run Middle East News Agency reported, citing presidential spokesman Yasser Ali.

In response to Mursi’s action yesterday, Egypt’s public prosecutor ordered the release of Islam Afifi, editor-in-chief of the independent newspaper Al-Dostour, MENA reported, citing Deputy Prosecutor General Adel el-Saeed. He was freed late yesterday, the Associated Press reported.

Egyptian journalists and rights groups have described the prosecution of Afifi, whose newspaper has been critical of the Muslim Brotherhood, as a benchmark of press freedom under Mursi and the most aggressive action by Islamists against what they portray as biased media coverage.

This was not something that I would have expected, but my guess is that he he is much more forward looking in his views of free speech and society than the generals we have been backing all these years.

But I think that we will still see a full court press from the usual suspects at the Council for Foreign Relations screaming “Islamist”.

Not Enough Bullets…

One of the largest food trading firms in the nation is bragging about how drought and food shortages will make them lots of money:

Every so often a business titan forgets himself, drops his guard and tells us what he’s really thinking.
So it was that a big cheese at the world’s largest commodities trader bragged that the worst drought to hit the US since the 1930s – and the worrying volatility in food prices around the world – will be “good for Glencore”.
On one reading, Chris Mahoney, the business titan in question, appeared to be celebrating the destruction of 45 per cent of America’s corn and 35 per cent of its soya bean crops this year. The crisis threatens to push cereal prices to a new record in a move that will put further pressure on the world’s poorest people and raises the prospect of a fresh round of food riots.
Mr Mahoney’s comments have put the spotlight firmly back on food prices, which rose by an average of 6 per cent globally in July, while cereals accelerated considerably faster still, jumping by 17 per cent to within a whisker of their record in April 2008, according to the UN.
“The US weather starting mid-May…has been among the worst three or four years of the century, comparable to the dust bowl years of the mid-30’s,” said Mr Mahoney, Glencore’s head of agriculture, suggesting that it won’t be long before cereal prices hit a new record.
“In terms of the outlook for the balance of the year, the environment is a good one. High prices, lots of volatility, a lot of dislocation, tightness, a lot of arbitrage opportunities [the sale and purchase of an asset to profit from price differences in different markets],” he added.

The usual suspects were suitably appalled, but as Concepcion Calpe of the UN Food and Agriculture Organization noted, it won’t happen because agribusiness in general, and Glencor in particular, “Know this and have been lobbying heavily around the world to water down and halt any reform.”

Our economy is run by and for sociopaths, and they control our food.

Read this Series

Naked Capitalism is doing a series analyzing private equity, and their first article, which explains how private equity exists solely through a massive infusion of government money:

This is the first in a series of postings on the private equity industry (“PE”) and will serve as an introduction to private equity investing.

Private equity practitioners, including most famously Mitt Romney, often depict their sector as the epitome of private enterprise. These claims are false. Private equity firms not only depend directly and substantially on government support, they have also actively cultivated links to the state.

Some readers may know that private equity relies heavily on tax subsidies. Private equity firms engage in debt-leveraged buyouts of public and private companies, and the interest charges on this debt are tax deductible. But most members of the public do not know that close to half the investment capital in private equity funds is contributed directly by government entities. In this respect, private equity is little different than companies like Fannie, Freddie, and Solyndra that are regularly criticized in the media as recipients of government subsidies.

Their decisions to invest government funds in private equity reflect assumptions by government officials that have gone unchallenged and, we contend, are quite likely incorrect. Moreover, virtually all of the important details of the private equity investments made by these state investors are kept secret at the insistence of PE firms, in striking contrast to every other type of government contract.


This is not surprising.

Private equity, even when compared to hedge funds, are remarkably opaque, with no prospectus, and little information given to investors.

Even the payoff date is not revealed to investors.

Of course for a public pension manager, they will be gone when it all turns to sh%$.

They’ll probably working for a private equity fund.

If you are investing other people’s money (as in the contributions of state employees) and someone lies to you about possible return on investment, and this would allow your bosses in the governors’ mansions and the state houses to balance the budget, you are inclined to be quite credulous.

An Update from Obama’s Gulag

Looks like those military tribunals are not going as well as expected, so now they are trying to ensure that effective and vigorous representation by counsel is impossible:

In a federal court hearing that fully disclosed the deepening level of distrust between the military officers who run the Navy’s prison at Guantanamo Bay, and the volunteer lawyers who represent the detainees there, the presiding judge reacted with obvious skepticism to the military’s new move to curb those lawyers’ activities there.


As the hearing unfolded, a government lawyer suggested darkly that detainees’ lawyers have brought unspecified “contraband” into their meetings with clients at the Naval prison, and argued that intensifying activities in prosecuting war crimes cases there are raising new security fears among military officers, with many more lawyers in their midst. Answering those expressions of distrust, lawyers for detainees countered that the government cannot be trusted to keep its word even if it promises not to interfere with legal representation; they cited shifting details of lawyer curbs as well as the government’s more fully expressed doubts that some of the detainees have any remaining right to a lawyer.

“‘Counsel visits [to Guantanamo] are a burden on the resources and manpower of Guantanamo Bay to provide accommodations for counsel and on security personnel to ensure the safety of counsel and their good behavior as well,” Justice Department attorney James J. Gilligan said at the hearing. In turn, one of the lawyers for the detainees, New York attorney Rebecca Briggs, contended that “these limitations [on counsel’s access] that are being added in footnotes [in government access rules] just highlight the fact that their assurances to yield their discretion responsibly cannot be taken at face value, unfortunately.”

When the rabid right wing rants that Barack Obama wants to create some sort of Soviet style totalitarian state, they miss the fact that Obama has already done so, but he hasn’t expanded it beyond Muslims ……… yet.

Here is an Interesting Case

An appeals court has reinstated a case against the South Burlington, VT jail for slavery, for forcing inmates in pretrial detention to do hard labor:

A man who claimed he was forced to do manual labor while detained pending trial can proceed with claims against the state of Vermont under the 13th Amendment, which prohibits slavery and involuntary servitude.

In an opinion on Friday, a three-judge panel of the 2nd U.S. Circuit Court of Appeals found that a lower court wrongly denied Finbar McGarry a chance to argue that he was forced, against his will and under threat, to work in a prison laundry.


For six weeks, McGarry said he was forced to work three days a week for up to 14 hours at a time washing other inmates’ laundry at a pay of 25 cents an hour.

The work was hot, unsanitary and resulted in his getting an infection in his neck, McGarry said. If he refused to work, McGarry said prison officials threatened to send him to “the hole,” where inmates were confined for 23 hours a day.


His lawsuit, which he filed himself, asked for $11 million in damages.

In dismissing the case, U.S. District Judge Garvan Murtha in Brattleboro, Vermont, ruled that the state was immune from McGarry’s claims because he had failed to show that the prison work was sufficiently akin to African slavery.

Appeals judges Robert Katzmann, Barrington Parker and Richard Wesley, however, disagreed with the judge’s reading of the 13th Amendment, which was enacted in 1865.

“The Amendment was intended to prohibit all forms of involuntary labor, not solely to abolish chattel slavery,” the opinion, drafted by judge Parker, said.

More broadly, the appeals court said Vermont could not treat people in custody pending trial the same way it treats convicted prisoners, such as compelling them to participate in work programs designed to rehabilitate inmates.

The Supreme Court has recognized that you cannot treat people in pretrial detention the same as people who are serving a sentence, and if this stands, this will make a major change in the operation our prison industrial complex.

Why the Banksters Should Go to Jail, Part XXIX

There is an interesting article in Scientific American which argues that punishing cheaters produces evolutionary pressures toward cooperation:

Humans are one of the most cooperative species on the planet. Our ability to coordinate behavior and work collaboratively with others has allowed us to create the natural world’s largest and most densely populated societies, outside of deep sea microbial mats and a few Hymenoptera mega-colonies.

However, a key problem when trying to understand the evolution of cooperation has been the issue of cheaters. Individuals in a social group, whether that group is composed of bacteria, cichlids, chimpanzees, or people, often benefit when cooperating with others who reciprocate the favor. But what about those individuals who take advantage of the generosity of others and provide nothing in return? These individuals could well thrive thanks to the group as a whole and end up with greater fitness than everyone else because they didn’t have to pay the costs associated with cooperating. For decades the idea that cheaters may in fact prosper has been the greatest difficulty in understanding cooperation as an evolved trait.

However, it turns out that cooperation could be a viable evolutionary strategy when individuals within the group collectively punish cheaters who don’t pull their weight. For example, Robert Boyd, Herbert Gintis, and Samuel Bowles published a paper in the journal Science in 2010 with a model showing how, so long as enough individuals work together to punish violators, each cooperative individual in the group can experience enhanced fitness as a result.

This is why, “Looking forward and not back,” is so harmful to society.

Whether it’s the torture by the Bush administration (or for that matter by the Obama administration) and the misdeeds of the banksters must be prosecuted to the fullest extant of the law.

In failing to do this, Obama and Holder are, whether they realize it or not, are actively selecting for corruption and fraud.

Google Agrees With Me

They think that software patents suck wet farts from dead pigeons too:

Google suggested today that it might be time for the U.S. to ditch software patents.

“One thing that we are very seriously taking a look at is the question of software patents, and whether in fact the patent system as it currently exists is the right system to incent innovation and really promote consumer-friendly policies,” said Pablo Chavez, Google’s public policy director.

Chavez’s remarks at the Technology Policy Institute’s conference here this morning come as the Mountain View, Calif. company is enmeshed in a series of legal actions involving software patents, including Oracle (which Google won at trial) and Apple (which is still pending).

Software patents have become increasingly controversial in technology circles, in part because of the rise of what are derisively called “patent trolls,” and in part because of the mixed quality of the patents that the U.S. government has granted. In April, Twitter announced a kind of Hippocratic Oath for tech companies, saying its patents would only be used for defensive purposes — not to block rivals from innovating.

How about throwing some money towards the whores in Congress investing in some lobbying to change the laws.

IP as currently administrated in the United States are a major impediment to innovation, not the incentive to innovation it is supposed to be.

God Bless The Onion

I Misspoke—What I Meant To Say Is ‘I Am Dumb As Dog Sh%$ And I Am A Terrible Human Being’

By Rep. Todd Akin (R-MO) August 20, 2012

As a politician, I often find myself in situations where, unfortunately, I express a certain thought or idea poorly, or find my words taken out of context. Indeed, that is what happened this weekend. Upon reviewing the impromptu remarks I made Sunday afternoon, I can now see that I used the wrong words in the wrong way. I would now like to set the record straight with the American people and clear up some confusion about what it was I intended to convey.

You see, what I said was, “If it’s a legitimate rape, the female body has ways to try to shut that whole thing down.” But what I meant to say was, “I am a worthless, moronic sack of sh%$ and an utterly irredeemable human being who needs to shut up and go away forever.”

(%$ mine)

They owe me a screen cleaner.

Not a Surprise

A three star general is now alleged to have explicitly ordered the tortured of Bradley Manning:

An order to submit WikiLeaks suspect Bradley Manning to harsh and allegedly illegal treatment in prison apparently came from the upper echelons of the Marine Corps.

According to military e-mails released to Manning’s defense, a three-star general was the force behind the marching orders to hold Manning as a maximum-custody detainee under prevention-of-injury watch, or POI — orders that resulted in severe conditions at the Marine Corps brig in Quantico, Virginia, that left Manning isolated and repeatedly mistreated by his guards.

Defense attorney David Coombs disclosed the contents of the e-mails in a post published on his blog on Friday. He did not publish the actual e-mails.

Coombs called the treatment a “flagrant violation” of his client’s right to not be punished prior to trial and has filed a motion asking for the charges against Manning to be dismissed based on the allegedly unlawful treatment.

“These e-mails reveal that the senior Brig officer who ordered PFC Manning to be held in MAX and in POI was receiving his marching orders from a three-star general,” Coombs wrote on his blog. “They also reveal that everyone at Quantico was complicit in the unlawful pretrial punishment, from senior officers to enlisted soldier.”

OK, we now know that when Obama said that he had “received assurances” that Manning’s treatment was “Humane”, those assurances almost certainly came directly from this unnamed general, and Obama either knew this, or he was willfully blind, as did everyone between the two of them in the chain of command.

As a rough guess, I figure that something over half of the General officers in the military, along with their superiors on the civilian side of Pentagon, are aiding and abetting crimes against humanity.

This is why you cannot allow any torture:  It grows to subsume your entire state security apparatus, because eventually the whole of the state has to join in the coverup.

Charlie Gets in Touch With His Inner Geek

Click for full size

Not as bad as I feared.

With the cube, he has a little James Bond thing going on

Saturday evening, we picked up Charlie’s Bar Mitzvah suit after some tailoring.

Well, Charlie really hated the idea of wearing a tie, but he has to wear one, so we got him a normal tie when we bought the suit a week ago.

On Saturday, he said that he wanted to wear a bow-tie.

I told him that I did not know how to tie a bow-tie, and that I had already paid for a tie.

He agreed to pay for the tie out of his own money, and said that he’d learn to tie a bow tie from Youtube.

Sunday morning, we fired up the laptop, and he stood in front of the mirror, and practiced, but he didn’t get it right.

Well, we had a wedding to go to, a three hour trip to Lakewood, NJ, and he practiced, and he taught himself how to wear a bow tie on the way. (We brought the regular tie as a backup)

So, he’s spouts obscure scientific erudition, he does Rubik’s Cube type puzzles, and now he’s wearing a bow tie.

As you can see, I got some action pix (my phone has a rapid fire shooting option) of him doing a one-handed solve.


There is no hope for him.

On the Road Today

My chevrusa’s, (Torah study buddy for Charlie and I) daughter got married in Lakewood, NJ, and so it’s road trip crew.

This takes me out of my social comfort zone:  I’ve become comfortable with studying and praying with black hat orthodox, but the social interactions are far less copacetic.

So the wedding ceremony is fine, but I feel a bit like an alien at the reception.

To quote David Byrn, ” You may ask yourself, well, how did I get here?”

Not Javajo, Not Cherokee, Not Sioux, this is the Jioux

Click for full size

This is not Indian Jewelry

This may very well be the the most clueless eBay ad ever.

This is not Indian jewelry, though it was probably worn as a “member of the tribe.:

H/t my dad, who sent this via email.

My older physicist brother, rarely at a loss for words had only one, “Gevalt.”

My first reaction was to wonder if it was cast, stamped out of stock, or done by hand.