March 29, 2010
POLITICS: 8-K? What's An 8-K?
Coming as it does somewhat within my area of professional expertise, this is perhaps the most alarming example yet of the complete ignorance of the Obama Administration and Capitol Hill Democrats regarding how business operates - and to think these same people will be voting on overhauling financial services regulation:
The White House political and legislative operations were said to be livid with the announcement by several large U.S. companies that they were taking multi-million or as much as a billion dollar charges because of the new health-care law, the issue was front-and-center with key lawmakers. By last Friday, AT&T, Caterpillar, Deere & Co., and AK Steel Holding Corp. had all announced that they were taking the one-time charges on their first-quarter balance sheets. More companies were expected to make similar announcements this week.
"These are Republican CEOs who are trying to embarrass the President and Democrats in general," says a White House legislative affairs staffer. "Where do you hear about this stuff? The Wall Street Journal editorial page and conservative websites. No one else picked up on this but you guys. It's BS."
On Friday White House chief of staff Rahm Emanuel and Obama senior advisor Valerie Jarrett were calling the CEOs and Washington office heads of the companies that took the financial hits and attacked them for doing so. One Washington office head said that the White House calls were accusatory and "downright rude."
The companies are taking the charges because in 2013 they will lose a tax deduction on tax-free government subsidies they have had when they give retirees a Medicare Part D prescription-drug reimbursement. Many of these companies have more than 100,000 retirees each. AT&T may have more than three-quarters of a million retirees to cover.
"Most of these people [in the Administration] have never had a real job in their lives. They don't understand a thing about business, and that includes the President," says a senior lobbyist for one of the companies that announced the charge. "My CEO sat with the President over lunch with two other CEOs, and each of them tried to explain to the President what this bill would do to our companies and the economy in general. First the President didn't understand what they were talking about. Then he basically told my boss he was lying. Frankly my boss was embarrassed for him; he clearly had not been briefed and didn't know what was in the bill."
It isn't just the President who didn't understand his own proposal. Late Friday, House Energy and Commerce Committee Chairman Henry Waxman and Rep. Bart Stupak, chairman of the Oversight and Investigations panel, announced that they would hold hearings in late April to investigate "claims by Caterpillar, Verizon, and Deere that provisions in the new health care reform law could adversely affect their company's ability to provide health insurance to their employees."
Read the whole thing. H/T Moe Lane. Then, read Mark Steyn's explanation of the specific change at issue and why it's likely to change corporate behavior:
In 2003, Washington blessed a grateful citizenry with the Medicare prescription drug benefit, it being generally agreed by all the experts that it was unfair to force seniors to choose between their monthly trip to Rite-Aid and Tony Danza in dinner theatre.
However, in order to discourage American businesses from immediately dumping all their drug plans for retirees, Congress gave them a modest tax break equivalent to 28% of the cost of the plan.
Fast forward to the dawn of the ObamaCare utopia. In one of a bazillion little clauses in a 2,000-page bill your legislators didn't bother reading (because, as Congressman Conyers explained, he wouldn't understand it even if he did), Congress voted to subject the 28% tax benefit to the regular good ol' American-as-apple-pie corporate tax rate of 35%.
For the purposes of comparison, Sweden's corporate tax rate is 26.3%, and Ireland's is 12.5%. But just because America already has the highest corporate tax in the OECD is no reason why we can't keep going until it's double Sweden's and quadruple Ireland's.
I refer you to the decision last year by the donut chain Tim Hortons, a Delaware corporation, to reorganize itself as a Canadian corporation "in order to take advantage of Canadian tax rates." Hold that thought: "In order to take advantage of Canadian tax rates" - a phrase hitherto unknown to American English outside the most fantastical futuristic science fiction.
Ask yourself this: If you impose a sudden 35% tax on something, are you likely to get as much of it? Go on, take a wild guess. On the day President Obama signed ObamaCare into law, Verizon sent an e-mail to all its employees warning that the company's costs "will increase in the short term."
And in the medium term? Well, U.S. corporations that are able to do so will get out of their prescription drugs plans and toss their retirees onto the Medicare pile. So far just three companies - Deere, Caterpillar and Valero Energy - have calculated that the loss of the deduction will add a combined $265 million to their costs.
There are an additional 3,500 businesses presently claiming the break. The cost to taxpayers of that 28% benefit is about $665 per person. The cost to taxpayers of equivalent Medicare coverage is about $1,200 per person. So we're roughly doubling the cost of covering an estimated five million retirees.
Now, let me explain this real simple: If you do something that's going to cost a company a lot of money, they have a whole lot of legal reasons why they have to tell their shareholders that sooner or later. And, if they're being prudent, they will tell them sooner rather than later when it starts showing up in the company's cash flow and the stockholders panic. Dennis the Peasant goes through this in a bit more detail, and he and Erick and Ace all look at Waxman's plan to drag the disclosing CEOs before a Congressional committee to explain why they are daring to inform their shareholders of the impact that the new regulations, specifically the withdrawal of tax breaks, will have on their business.
At least honest leftists would admit that yes, they were doing something genuinely harmful to publicly traded employers, although honest leftists would next try to pass even more laws to prevent the companies from doing anything to pass on the costs to employees, customers and/or taxpayers so as to preserve enough return to shareholders to enable the company to keep raising capital to stay in business. But in the happy-fairy-land of guys like Obama and Waxman, there are never any costs or tradeoffs to heaping new taxes and regulations on businesses in the middle of a recession, and no behavioral incentives changed when you meddle with the tax code.
The level of ignorance here is staggering. George W. Bush understood this stuff. Sarah Palin understands this stuff. Yet, these people whose self-image depends on telling themselves how much smarter than Bush and Palin they are, are continually taken by surprise by these things.
UPDATE: Ben Domenech looks at how Waxman is banking on intimidation but may end up getting more than he bargained for by calling witnesses who have no realistic choice but to contradict him.
Well, when you're a Liberal and beleive that money grows on trees and you can spend your way to prosperity, why wouldn't you be hopping mad when the real world impugns on the sensibilities of your happy-fairy-land?
Great post, Crank.
This administration reminds me of several salesmen I have worked with. They make all kinds of promises and dictate what their company is capable of and then leave others to figure out how to make it happen. Then they express shock when they are told that what they just promsed isn't possible in the timeframe they claimed. No sense of reality.
Domanech is not clear on why the CEO's wouldn't just step to the mic and tell the truth. I understand these congressional kangaroo courts are ridiculously one-sided, but the witnesses do get their say. And it doesn't take very long to say, "We have to disclose this because it's the truth."
Surprisingly good post, Crank.
Now that you've shown the Democrats are as clueless about business and the economy as the Republicans (remember GOP hero Greenspan realizing he never took into account the concept of greed? What a rube!), why don't you come over with me to the darkside and call for a better system than this screwed-up 2-party disaster the nation has?
BTW, I'm so looking forward to your mea culpa about being a Catholic. We all knew your smugness about your morals being better because you get yours from the Catholic Church was laughable, but it'll be nice to see you acknowledge it in writing.
This is hardly the kind of thing that requires a Congressional hearing. It's a no-brainer for the company to report this. You have a tax expense that you -know- you are going to incur in the future versus a theoretical, overall decline in health care expenses which is a maybe - at best - in the medium/long term. So you disclose what you know and report the expense.
This could be the most pointless Congressional investigation since the steroid hearings.
Yes, it is pointless to any sane minded individual who is not bound by ideological ties to the an entirely imprudent position.
No, to Stupak, Reid, Obama, Pelosi, et al., this is not an exercise in pointlessness, it's another attempt to stoke the populist fires one more time in an effort to direct attention away from their blatant power grab.
"it's another attempt to stoke the populist fires one more time..."
I was going to amend my post to mention that, but you saved me the trouble.
"it's another attempt to stoke the populist fires one more time..."
Good point. Not to mention it's a loser. We've already had a class war, and the rich won in a rout.
The point of these Congressional hearings is to waste time, so they won't have to examine the massive fraud perpetrated by our financial institutions which led to the current recession.
Or the government spying on American citizens without a warrant.
Or the gigantic waste of our tax dollars by KBR in Iraq.
Or what happened to the almost $9 Billion lost in Iraq.
Berto, the discovery that people in government don't know jack about the economy does not, in any rational universe, support giving the government more control over the economy.
And yes: there are only two possible outcomes to a class war; either you replace the rich people with different rich people, or you destroy wealth altogether and impoverish everybody. You can choose the Zimbabwean economic model, but no thanks.
As for your hatred of Catholicism, you clearly don't understand Church history or the concept of sin, evidence of which is pervasive in human history within and without the Church. Christianity exists to address the reality of sin, not as a futile attempt to abolish it.
I could argue with you, but what's the point? You've already decided what the problem is and who is to blame, and in doing so, you've drastically oversimplified a complex economic crisis in which many parties - rich, poor, government, corporations, ratings agencies - can be accused of greed, incompetence, and outright stupidity.
If it makes -you- feel morally superior only to blame the "rich," go ahead. But I notice you offer no solutions other than to condemn the two-party system in place of ....funny, you've never mentioned what exactly what you want, I wonder why....
In short, you are exactly the kind of liberal that guarantees Rush Limbaugh a conservative audience year after year.
Do yourself a favor, pick up a standard textbook on economics or international political economy, and read it.
And by the way, when Crank mentions researching Catholic history, he is not talking about the Da Vinci Code.
Well Crank, here's what I learned about Jesus from reading your site.
1) Jesus would have stood up for the multi-billion dollar church protecting child molesters, as opposed to the worthless shifty Negroes fighting to get homeless people housed, keep people from losing their homes, and fighting usurious interest rates on payday loans (ACORN).
h/t: El Cid
2) Based on point number 1, Jesus was an asshole.
We need to get a higher class of liberal fools to post on the site. Berto, etc. are getting old and say pretty worthless things.
I think it is nice of you that you have not banned them from the site-I would have.
As for Berto's comments about Jesus. As God probably said to George Carlin when he showed up at the pearly gates "Hey George, how funny are those jokes now?"
It almost makes me want to pretend to be a liberal for a week just to show them what a logically consistent liberal argument might look like, minus the nonsense about racism, class warfare, and fairy-tale economics. And there are much better liberal arguments, but these aren't even close.
I would have thought they would have been shamed into coming up with better arguments by now, but apparently not.
I have reviewed and analyzed securities disclosures for over 20 years and, in nearly every case, companies disclose adverse impacts and take charges on their balance sheets only when they absolutely have to.
The actions of the companies you discuss sounds fishy to me. Also, the only "source" for your claims of ignorance (as opposed to political argument) is an anonymous industry lobbyist. Having practiced in DC ofr 30 years, here's a secret, those guys lie, especially when it is off the record.
Finally, O/T, but I watched your buddy Erick Erickson on CNN explaining, or trying to, his inflammatory rhetoric. If his explanations are genuine, and he really intends to chosse his words more wisely, he might be interesting to listen to.
That's right. It was the poor who lobbied for deregulation of the financial markets. It was the poor who traded in Credit Default Swaps, who incentivized the employees of those mortgage companies they own to encourage borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms, and who perpetrated fraud with their subsidiary ratings bureaus to get pension fund managers to buy worthless mortgage-backed securities.
I get it, MVH. Like Crank here, when those who aren't on your team err, sin, or commit crimes that's reason for dismissal of each and every utterance or action they take (as well as a call for prison time or an overthrow of their democratically elected governments) .
When the same happens with your "team", it's 'everyone's to blame', 'everyone does it', or "we have a forgiving God'.
God may not be judgmental, but be honest, can you say the same of Crank after reading his nonsense?
Re: "nonsense about racism"
Do you think the CRA being blamed for the recent financial crisis is just a coincidence? Of all the wrong-headed things to blame the crisis on, they just happened to pick a program where minorities receive a leg up in life?
And what "thinking" is behind the "real Americans" (i.e. teabaggers) hatred of healthcare reform?
It's obviously not a distrust of big government. These are the same people who cheered on Cheney's 'unitary executive theory" and didn't make a peep when the previous administration spied on American citizens without a warrant (clearly in violation of the 4th amendment).
It's not the cost of healthcare reform. Again, not a peep from them when almost $9 billion of tax-payer money "went missing" in Iraq. Instead they supported tax cuts during wartime while chanting their mantra: "Reagan proved deficits don't matter".
It may be uncomfortable for you, but the fact is the majority of these "real Americans" just don't want their hard-earned tax money to be spent on the healthcare of ni**ers, PERIOD.
I have to admit, the thought of Pope John Paul II burning to a crisp in hell for systematically covering-up for child rapists does bring a smile to my face.
Re: "I think it is nice of you that you have not banned them from the site-I would have."
True. You seem too thin-skinned to allow someone to point out your hypocrisy.
As I said, it is waste of time to try arguing with you, but I will clarify my point about the poor. Yes, I'm sure predatory lending occurred to some extent, but if you really think that all of these people who signed these mortgages were in the dark about what risks they were taking, you are out of your mind.
It's not hard to figure out if you can afford a monthly payment on a mortgage, and that monthly payment is unambiguously stated on the loan documents - it's required by law after all. So are the interest rates, and the terms of these mortgages.
These people also were aware - or should have been aware - of the risk that they could lose their job or encounter some other financial hardship that could affect their ability to repay. Many of these people could never afford a home in the first place, and they took a major risk.
I read one sob story about this lady who was facing foreclosure and was stubbornly refusing to give up her home. It turns out she and her husband had purchased the home when they were married. Unfortunately, they got a divorce, and then she had job trouble.
Now did she do the sensible thing and sell her home after the divorce? No, she didn't - she said "I'm never giving up my home" and in all likelihood is still dragging out the foreclosure for a house that she can probably never afford on one income. Am I supposed to feel sorry for her because she can't be a homeowner?
So yes, Berto, those people who could never have afforded a home in the first place do bear their share of the blame.
To borrow an old SNL line
"Berto you ignorant slt"...enough said.
"...I'm sure predatory lending occurred to some extent"
Yes. To a MAJOR extent.
Look. The mortgage loan lenders were incentivized to make loans that were risky, because the companies they worked for didn't care if those like the "sob story lady" you mentioned ever re-paid her home loan. They'd already re-packaged the loans as CDOs, and sold it off to the next sucker who'd buy their fraudulently-rated financial instruments.
The FBI says 80% of losses occurred when lender personnel wee involved (i.e. the losses came from the lenders, not the borrowers). The remaining 20% of the losses were due to the borrowers BECAUSE the lenders also deliberately gutted the under writing standards of the industry (so they could charge a higher interest rate).
To Rob a Country, Own a Bank:
Despite the obvious fraud involved, there has not been a single arrest, indictment, or conviction of a senior insider at a major non-prime lender.
I get it. You believe your "sob story lady" should be held accountable. OTOH, you also believe anyone who thinks the rich, connected and powerful should also be held accountable is just playing the "class warfare card".
Now you want to dismiss my arguments because they show how shameful your attitude is. Sorry, but I'm not going to feel bad for pointing it out.
That's a tight argument. Let me guess, debate class at Regency Law School?
"You believe your "sob story lady" should be held accountable. OTOH, you also believe anyone who thinks the rich, connected and powerful should also be held accountable is just playing the "class warfare card"."
No, as I told you quite clearly, I think everyone has their share of the blame. You are assuming I'm supporting the rich because that's what you want to believe. No one is denying the problems these companies caused.
But you are ignoring the fact that it takes two parties to make a loan agreement. You are naively calling one party a shark and the other a sucker, as if homebuyers can't be expected to do some basic math. The lenders can't repackage what they can't sell.
"Now you want to dismiss my arguments because they show how shameful your attitude is. "
No, I am dismissing your arguments - as usual - because they are simplistic. You can't understand why the government -had- to bail out the financial system, regardless of blame, for two reasons: (1) you don't know much about economics; and (2) you prefer to stick to your own naive, morally self-serving assumptions about the rich and the poor.
Of course, given your previous statements that you would have preferred to see the economy crumble to the ground rather than be saved, your concern for the poor obviously doesn't run too deep.
Sorry Berto, that was about all the effort your argument was worth.
I see what you mean.
You're open-minded enough to realize the train conductor is just as culpable as Jesse James. Although in your analogy, the conductor should lose the contents of his train's safe, and those who feel Jesse James should be arrested, tried, and jailed are just trying to score cheap political points because they don't understand how much money James will be putting back into the economy.
Clarification: In the prior comment, I'm referring to Jesse James the train robber, not Sandra Bullock's husband. :-)