If you have any doubts about the arrogance of the financiers, take a look at this.
The "logic" on display is painful to read, and demonstrates Loeb's sense of entitlement as a financier more than anything else. You can read the whole thing as a pdf Here.
Here's a preview from the NYT.
Daniel S. Loeb, the hedge fund manager, was one of Barack Obama’s biggest backers in the 2008 presidential campaign.
A registered Democrat, Mr. Loeb has given and raised hundreds of thousands of dollars for Democrats. Less than a year ago, he was considered to be among the Wall Street elite still close enough to the White House to be invited to a speech in Lower Manhattan, where President Obama outlined the need for a financial regulatory overhaul.
So it came as quite a surprise on Friday, when Mr. Loeb sent a letter to his investors that sounded as if he were preparing to join Glenn Beck in Washington over the weekend.
Loeb's Letter:
As every student of American history knows, this country's founding principles included non-punitive taxation, Constitutionally-guaranteed protections against the persecution of the minority, and an inexorable right of self-determination. Washington has taken actions over the past months like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others. For example, a well-intentioned government program gone awry is the new CARD Act that restricts banks from repricing interest rates on borrowers who fail to meet their revolving credit obligations. The effect of this legal prohibition has been to force the banks to raise the interest rate paid by all [emph. in original] borrowers, to compensate for losses they are now being forced to take on delinquent borrowers. The effect is a redistribution of wealth from people who pay their debts on time to those who do not.
Laws and regulations like these justifiably raise questions about this government's commitment to free-market capitalism and the articulated rule of law.
Better than a doubleshot mocha latte, isn't it? I mean, if that doesn't turn your motor (and your stomach) over, you just have no sense of outrage.
Let's parse, shall we?
"Founding principles included non-punitive taxation, Constitutionally-guaranteed protections against the persecution of the minority, and an inexorable right of self-determination."
First: What exactly is "punitive" taxation? Well, for Loeb, it's the "unconstitutional Bill of Attainder, the special "Enterprise Tax" proposed to be levied on hedge fund managers and other managers who wish to sell their management companies."
From the NY Times:
The House passed a bill on Friday that would end a tax break for executives of investment funds, leaving hedge funds, private equity firms and venture capitalists scrambling to ease the effects of the bill before it is taken up by the Senate next month.
The measure was part of a broader tax bill, passed by a vote of 215 to 204, that would extend benefits for unemployed people. It seeks to change the tax treatment of "carried interest," which is the portion of a fund’s investment gains taken by fund managers as compensation.
Under current rules, carried interest is taxed federally at a rate of 15 percent because it is treated as a capital gain. That contrasts with the tax rate on ordinary income, which can be as high as 35 percent.
The plan approved by the House, which overcame strong lobbying pressure from Wall Street, amounted to a compromise that would tax 75 percent of carried interest as ordinary income and 25 percent as capital gains. It is expected to raise more than $17 billion in tax revenue over the next decade.
So, a change in the rate of taxation is an "unconstitutional Bill of Attainder," according to Loeb.
Hmmm, better check that out. Can't have Congress abridging the Constitution . . .
Article 1, Section 8 - Powers of Congress
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; . . .
Amendment 16 - Status of Income Tax Clarified. (Ratified 2/3/1913. Note History)
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Gee, kinda sounds like Congress has the power to levy taxes, to me. Maybe it's the "Bill of Attainder" thing . . .
Attainder
attainder n. The loss of all civil rights by a person sentenced for a serious crime. [<OFr. attaindre, to convict] Source: AHD</p>
In the context of the Constitution, a Bill of Attainder is meant to mean a bill that has a negative effect on a single person or group (for example, a fine or term of imprisonment). Originally, a Bill of Attainder sentenced an individual to death, though this detail is no longer required to have an enactment be ruled a Bill of Attainder.
Aha! So, it's a Bill of Attainder, because it taxes a "single group," aka, Hedge Fund Managers. That must be it! It's unconstitutional to tax hedge fund managers at ordinary income tax rates rather than at capital gains rates, because, you know, that's persecution. They're a minority! Well, I'm sure they'll win that argument in court. Then again, maybe not . . .
Up until 2002, only five acts of Congress had ever been overturned on bill of attainder grounds. The Elizabeth Morgan Act was overturned in 2003 as a bill of attainder. Many suggested that the Palm Sunday Compromise in the case of Terri Schiavo was also a bill of attainder.
On March 10, 2010, the court ruled in favor of ACORN, and declared the Congressional ban on ACORN funding was an illegal Bill of Attainder, in violation of the U.S. Constitution. Case: ACORN v. USA [16]
Wikipedia.
What's that? 8 laws in 234 years declared Bills of Attainder? Well, okay, maybe the odds aren't that good. But still, It's So Unfair!
Fund mangers are typically paid a 2 percent management fee plus 20 percent of any profit they generate, the portion known as carried interest. Because their compensation is based on investment performance, they have argued that that money should be taxed at the lower capital gains rate.
But Victor Fleischer, the University of Colorado professor whose paper on the subject helped prompt Congress to act, said that carried interest should not qualify as capital gains because fund managers risk mostly other people’s money rather than their own. "They’re being paid a fee for a service, so it’s fair that they would pay the same rates as others who perform services," Mr. Fleischer said.
NYT.
The poor, oppressed, persecuted hedge fund managers, forced to pay the same tax rates as the rest of us. Well, on 75% of their income, anyway. If the legislation passes the Senate . . . I'm sure that will happen . . .
Second:
Washington has taken actions over the past months like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.
Because those who hold power now, are entitled to hold it in perpetuity. 'Nuff said.
Third:
For example, a well-intentioned government program gone awry is the new CARD Act that restricts banks from repricing interest rates on borrowers who fail to meet their revolving credit obligations.
Well, that's just an outrage, isn't it?
GRACE PERIOD ON INTEREST RATE INCREASES: For the first year after you open an account, your credit card company now cannot generally increase your interest rate. Even more, after the first 12 months, rate increases can apply only to new charges. See this link for exceptions to this rate increase grace period, including if your card has a variable interest rate tied to an index, if you are more than 60 days late paying your bill or if you signed up for a limited-time introductory rate.
Still, this provision means that you won’t get an increase for late payments that are within 60 days of the due date or for late payments to other creditors.
NYT, What CARD Means for you.
No more cross-default clauses, have to actually give customers the rate they agreed to (for a full year -- unconscionable!), can't jack up their rates just because they're a few days late. What is the world coming to? Oh, well, we'll just have to gouge someone else!
The effect of this legal prohibition has been to force the banks to raise the interest rate paid by all [emph. in original] borrowers, to compensate for losses they are now being forced to take on delinquent borrowers.
The poor banks were forced, FORCED!!!!! to raise rates on everybody else to make up their losses. To compensate for the losses they are being forced to take. [So, the banks aren't really going to lose anything.]
Never mind that, this is still bad policy, because the economic crisis was caused by not imposing cross-default clauses and jacking-up interest rates on the average consumer! [They didn't do enough of that to cover their losses on all those shitty sub-prime mortgages and stuff?]
Those toxic assets and credit default swaps and mortgage-backed securities had nothing to do with it! And how dare the government SUE Goldman over their role in fraudulently selling securities they knew weren't worth anything! That interferes with their "inexorable right of self-determination!" Because that's in the Constitution! Look it up!
The effect is a redistribution of wealth from people who pay their debts on time to those who do not.
Because that's who I, the noble Daniel S. Loeb, am most deeply concerned about. It's so unfair that I and the rest of the banking industry are going to be forced to increase our margins on those people, rather than just take our losses on the rest. It's unfair. To them. Don't worry about us banks and hedge funds, we'll be fine, because we're raising their rates.
Fifth:
Laws and regulations like these justifiably raise questions about this government's commitment to free-market capitalism and the articulated rule of law.
The Free Market is perfect! If a business makes bad decisions, they fail! By the way, thanks for all the TARP money, and the interest free loans you gave us, so we can lend the money back to you at a nicely profitable interest rate, and suspending the mark-to-market rule, so we wouldn't have to recognize losses on our balance sheets. Whew, that would've put us all out of business, you know? Good thing (you other) taxpayers guaranteed all those toxic assets, too. But don't raise my taxes! That would be an unConstitutional Bill of Attainder! It's only the (little) people who work for a living who should have to pay income taxes. I should only have to pay capital gains - because risking other people's money is an inherently more valuable form of work than actually, you know, building things.
Sixth: Oh, fuck it, I give up. This guy's sense of entitlement is so out of touch with reality, it's impossible to analyze all of his fantasies.
But I will leave with this last gem:
All of the above leads us to conclude that America faces not only a crisis of confidence among consumers unwilling to spend and businesspeople unwilling to invest, but also a crisis of leadership. SO long as our leaders tell us that we must trust them to regulate and redistribute our way back to prosperity, we will not break out of this economic quagmire. Once can only hope that this Administration, composed of brilliant academics that have had experience in creating the very regulation and overseeing the very institutions that have failed, has learned from its mistakes and will set us down the right path. Perhaps our leaders will awaken to the fact that free market capitalism is the best system to allocate resources and create innovation, growth, and jobs. Perhaps they will see the folly of generating greater deficits by "investing" in programs that lead to corruption and distortions of the system. Perhaps too, a cloven-hoofed, bristly haired mammal will become airborne and the rosette-like marking of a certain breed of feline will become altered. In other words, we are not holding our breath and are focused instead on navigating these murky waters for the benefit of our funds.
As capital allocaters, it is important to remain dispassionate amid the volatility.
Dispassionate. Indeed.
Update: Had to change the title when I saw that Krugman had weighed in.
You know, one might have thought that having all the money in the world would make people less petty, less concerned about whether they feel that they’re in the in-group. But nooooo [/Belushi]
Update 2: David Dayen over at FDL also has a few choice comments:
Actually, I’m going to go ahead and call bullshit on "irrespective of their validity." If business leaders are talking about disinvesting but actually investing in the country, the actions matter more than the talk. In fact, businesses lowered investment during the corporate-friendly Bush Administration, and raised investment significantly during the time of FDR. The level of business investment depends almost entirely on the profitability of investment. This idea that business leaders will blow up the economy if they don’t get zero-taxation rates is transparent nonsense.
Nice shot, David. Why can't our "leaders" figure that out?