In Case You Missed It: Don't Bank on It

In Case You Missed It

In this issue, bad banking behavior, alleged tax dodgers, why Americans can't save, more on wealth and inequality, and Hillary Clinton's plan on poverty.

In this issue, bad banking behavior, alleged tax dodgers, why Americans can't save, more on wealth and inequality, and Hillary Clinton's plan on poverty.

Don't Bank on It

The government has found that, over a five year period, mega bank Wells Fargo employees opened "2 million bogus" accounts and move their customers' money without their permission causing them to incur hidden fees that may have damaged their credit ratings, reports the Washington Post. The fallout includes a federal fine of $185 million and the firing of some 5300 low-level customer service agents by the bank. But as the Post reports, "not a single high-level executive has been sacked or even forced to give back the tens of millions of dollars in pay earned based on the fraud." In a Senate hearing with CEO John Stumpf claimed he felt accountable but Democratic Sen. Elizabeth Warren was having none of it:

The share price during this time period went up by about $30, which comes out to more than $200 million in gains all for you personally. And thanks, in part, to those cross-sell numbers that you talked about on every one of those calls. You know, here's what really gets me about this, Mr. Stumpf. If one of your tellers took a handful of $20 bills out of the crash drawer, they'd probably be looking at criminal charges for theft. They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multimillion dollar bonuses and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich. This is about accountability. You should resign.

Meanwhile, Apple is facing a penalty from European Union regulators who allege the company owes billions in back taxes--and might be one of many to come facing such audits, reports USAToday:

The European Union last month ruled that Apple must pay $14.5 billion for unpaid taxes to Ireland. Apple and Ireland both dispute the charge, but Margrethe Vestager, the EU Competition Commissioner who oversees antitrust and competition, remains adamant on the issue...

Amazon, Fiat and McDonalds are currently also under investigation for unfair tax advantages in Luxembourg, and the EU is also probing potential tax advantages given by Belgium to 35 companies including Anheuser-Busch InBev and by the Netherlandsto Starbucks. Amazon, Starbucks and other companies have said they received no special tax treatment and plan appeals.

Some tax experts surmise that tech giants such as Google, Microsoft and Facebook, each benefitting from highly favorable tax deals in Europe, could be in the EU's top competition regulator's sights, too.

In the New York Times, Morris Pearl, former CEO of asset management firm Blackrock, discusses why investors need better disclosure and monitoring for corporate taxes:

No area of business demonstrates the need for full disclosure as much as one that has been in the news a lot lately: large American companies’ shifting profits overseas to minimize tax bills, or to avoid taxes altogether. These schemes are starting to attract the attention of regulators and governments who view them more as tax dodges than as legitimate financial arrangements...

Incredibly, even though the blowback against egregious tax practices is a substantial risk to multinational companies and a significant threat for shareholders, it is often impossible for investors to determine how healthy a company really is and whether or not the profits are merely a reflection of aggressive tax planning.

The S.E.C.’s mandate is to require companies to provide full disclosure to a “reasonable investor.” But no reasonable investor could have known the full scope of Apple’s overseas tax shelters, which were not detailed in the company’s financial releases. That took multiple investigators with subpoena power working for a United States Senate subcommittee nearly a year. And there was no obvious way for investors to know the particulars of Apple’s Irish deal or how risky it might prove to be.

Blackrock issued a 16-page report following a recent G20 meeting arguing investors should pay closer attention to climate change, reports the Financial Times. “Investors can no longer ignore climate change. Climate factors have been under-appreciated and underpriced because they have been perceived to be distant [problems],” said Ewen Cameron-Watt, a senior director at BlackRock.

Over at CNBC, we have this report on why it is hard for Americans, even the wealthy, to save money:

Paying off credit-card debt is the primary cause of financial stress in many U.S. states, according to a separate GoBankingRates survey. Americans have a collective credit-card balance of $729 billion, according to the Federal Reserve Bank of New York; that’s below the peak $866 billion reached in 2008, but still a high number...

The amount that individuals were saving in GoBankingRates’s survey remained fairly consistent across all age groups, showing that saving behavior may indicate more about someone’s personality than stage in life, Huddleston said. “Even those people who are high-income earners find themselves living paycheck to paycheck because as their income increases, so does their spending.”

You might also be interested in this Economist piece about central bankers should do about "a lower rate world."

If I Weren't a Rich Man

In Fortune, we have a look at the rise in extreme wealth versus the still ebbing fortunes of the middle class:

In total, there were 6,789,666 millionaires in 2015, an increase of 41.5% from 2010. Since that year, the number of people worth $20 – $100 million increased a whopping 63.5%. The number of people worth $100 million – $1 billion jumped by an equally stunning 61%, according to Barron’s. Despite the new crop of increasingly-younger mega rich Americans, the majority of the nation’s populous is earning less money than it did 16 years ago, though that trend has changed slightly. The U.S. Census on Tuesday reported America’s median income rose 5.2% in 2015 to more than $56,500, according to CNN Money, but that figure is still less than the $57,342 median income the nation enjoyed in 2000.

Over at RealClearPolitics, John Tammy says the slight pay raise for the workers has less to do with policy and everything to do with private employers--but also said ignoring that these wages are lower than in 1999 is perilous:

Those who've actually met a payroll know very well that it's extremely expensive to underpay workers simply because high rates of employee turnover greatly decrease business profits and productivity. Henry Ford "overpaid" his workers not thanks to unionization or increased worker leverage, but because annual turnover rates that exceeded 300% were sapping Ford Motor Co. profits...

Getting to the truth about income, good companies, good jobs and rising wages are a function of investment.  Always. Good companies and jobs aren't finite, there's not a limited supply of them such that labor and management are constantly at war with one another; in fact the only barrier to soaring income is a lack of investment that makes it less feasible for companies to invest in productivity enhancements. Raises spring from the latter as investment authors enhanced productivity per worker that drives higher pay per worker... 

The white working class mostly still blames Washington for its problems, reports CNBC:

Lastly, in the New York Times Democratic presidential candidate Hillary Clinton offered up a plan to reduce poverty

The best way to help families lift themselves out of poverty is to make it easier to find good-paying jobs. As president, one of my top priorities will be increasing economic growth that’s strong, fair and lasting. I will work with Democrats and Republicans to make a historic investment in good-paying jobs — jobs in infrastructure and manufacturing, technology and innovation, small businesses and clean energy. And we need to make sure that hard work is rewarded by raising the minimum wage and finally guaranteeing equal pay for women...

We also need to ensure that our investments are reaching the communities suffering the most from decades of neglect. We have got to acknowledge that even though poverty overall has fallen, extreme poverty has increased. Tim Kaine and I will model our anti-poverty strategy on Congressman Jim Clyburn’s 10-20-30 plan, directing 10 percent of federal investments to communities where 20 percent of the population has been living below the poverty line for 30 years.

In the Wall Street Journal, Richard Epstein looks at a new book by Edward Conard who argues there's an upside to inequality:

For Mr. Conard, one of the founding partners of Bain Capital, the rising levels of economic inequality in America are linked to the inexorable demands of our thriving, but high-risk, information economy...

The author is on shakier ground when he claims that income redistribution diverts resources from wealth creation. “Redistribution—whether achieved through taxation, regulatory restrictions, or social norms—appears,” he asserts, “to have large detrimental effects on risk-taking, innovation, productivity, and growth over the long run, especially in an economy where innovation produced by the entrepreneurial risk-taking of properly trained talent increasingly drives growth.” Yet Sergey Brin and Larry PageBill Gates and Mark Zuckerberg thrived because they faced few if any direct obstacles to innovation.

Ironically, after he attacks our social programs, Mr. Conard explains how these transfer payments have prevented the “hollowing out of the middle class,” and he rightly criticizes economists Emmanuel Saez and Thomas Piketty for ignoring such payments and retirement benefits when calculating individual income. Taking into account increases in longevity and improvements in quality of life, the middle class has done well in the present age, even if the top 1% has done better.

Also in Fortune, Gary Shapiro argues folks are getting it wrong on growing inquality and taxing the wealthy:

What the Gini coefficient and vocal billionaires like Warren Buffett and Bill Gates who argue for higher personal income taxes conveniently ignore is that they have the majority of the nation’s wealth – and it’s almost totally shielded from income taxes via complex trust arrangements and charitable foundations. In Buffett’s case, his trust not only hides his wealth from high taxes, but it employs his progeny. These billionaires are not alone.

In other words, the current income tax rate is not the real issue. The real issue is that our current tax structure doesn’t factor in and capitalize on accumulated wealth. The discussion of income inequality could more appropriately be about wealth inequality, since a good portion of America is owned by billionaires, most of whom use trusts to effectively limit their federal income taxes. With most of the public discussion on income equality – what the Gini coefficient measures – the real issue of wealth inequality is frequently overlooked.

Who Gives a Care?

Despite the racial wealth gap, studies show African Americans give away 25 percent more of their incomes than whites, reports Inside Philanthropy in a look at the state of black philanthropy:

The story of black philanthropy isn't just about a wealthy elite, but the masses of people committed to giving back whatever they can. Sayings like "don't forget where you came from" have long been part of the black lexicon, they reminded me. This tradition is also rooted in the black church, a defining institution which has served not only as an important site of organizing and social change, but also of giving. 

The populist nature of black philanthropy underscores the need to look beyond foundations and major donors in thinking about how to spur greater African American giving. Because there are fewer big pots of wealth available, as is the case for white America, efforts to elicit higher levels of mass giving and better-targeted giving are key to nurturing black philanthropy as a rising force. 

In the Denver Post, Bruce Deboskey argues we may need to revisit the "Donor Bill of Rights" establishing ten things to help govern the relationship between philanthropist and grantee:

When this document was first published, technologies like the internet and digital cellular communication were embryonic. Nonprofits had no websites. Access to online information about an organization’s mission, programs, finances and leadership was little more than a futuristic dream...

Many new ways of donating that we now accept as commonplace — including giving days, online contributions, crowdfunding, social media fundraising, ice-bucket challenges and texted disaster-relief support — had yet to be imagined.

Because of these and other dramatic changes, those of us concerned with philanthropy and its important results must re-think many aspects of the relationship between donors and the organizations they support. Today, technology drives the nonprofit sector. Today, public reporting and open records are standard. Today, philanthropy is trending to partnerships, collective action, complex investments, impact analysis, transparency — and more.




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