Saturday Reads Around the Internets - It Pays to Do Your Homework

shocknews Welcome to the weekly roundup of great articles, facts and figures. These are the weekly finds that made our eyes pop.


Whole Foods - Made in China

Spending $8 bucks a pound for organic grapes? Think again. This video report shows Grocery chain Whole Foods so called organic foods are actually imported from China. Check out what happens with organic inspection and certification when food is imported.



Thank you Trade Reform for bringing this report to our attention.


Half the World's Rich are Americans

Take this one with a grain of salt. Supposedly world bank economist Branko Milanovic adjusted for cost of living in his claim America has half of the globe's rich, yet considering half of America is poor, one has to wonder. His claim is $34,000 for one individual is enough to make one in the top 1% of the globe's wealthy. Really? Seems $34,000 in India could buy a few man servants, while in the U.S. making that yearly income, you're probably being foreclosed on.

As of 2005 -- the most recent data available -- about half of them, or 29 million lived in the United States, according to calculations by World Bank economist Branko Milanovic in his book The Haves and the Have-Nots.

Another four million live in Germany. The rest are mainly scattered throughout Europe, Latin America and a few Asian countries. Statistically speaking, none live in Africa, China or India despite those being some of the most populous areas of the world.

While his numbers show the great global village philosophy isn't growing middle classes as promised, we believe there is something wrong with this guy's cost of living adjustments. There is no one in China or India in the super rich? O RLY? where did these 57 India Billionaires go to?


IRS Missing $385 Billion

The IRS is having problems collecting taxes. According to CNN, it's $385 billion:

Close to 15% of federal taxes -- or $385 billion -- went unpaid in 2006, according to new estimates by the IRS.

That's the net tax gap number -- meaning what didn't get paid even after the $65 billion the IRS managed to collect through audits.

And it's the closest proxy policymakers have to the country's annual revenue shortfall, said Mark Luscomb, the principal federal tax analyst at CCH, a tax information publisher.

What's driving the shortfall? A whopping 84% of the total tax gap is due to underreporting of income by corporations, small businesses and individuals.


Federal Reserve's Mortgage Plan

Naked Capitalism reviews the mortgage and housing crisis Federal Reserve paper:

It certainly is gratifying to see the Board of Governors of the Federal Reserve, via a paper released on Wednesday, “The U.S. Housing Market: Current Conditions and Policy Considerations,” (hat tip Calculated Risk) finally acknowledge that US has a mortgage/foreclosure mess that is not going to go away by virtue of QE or other efforts to goose financial asset prices. However, just as the Fed was late to see the global housing bubble (even the Economist was on to it in June 2005), so to is it behind the curve in its take on the housing problem. This paper at best constitutes a good start, when, pace Churchill, the Fed is at the end of the beginning when it really needs to be at the beginning of the end.

However, before we get to the housing/mortgage market issues, we wanted to focus on a political element of the paper which may be more important that its analytical content. The Fed is openly crossing swords with the FHFA.

The paper has four sections: background, a section on what to do about foreclosed properties that have not been resold (known as REO for “real estate owned”), borrower remediation efforts, and idea for improving mortgage servicing practices. The REO section is entirely about GSE REO.

Although the document is studiedly neutral in its tone, it makes clear in its coded way that it regards the GSE focus on short term loss minimization as destructive (note the Fed is hardly alone in this view). The Fed argues (with some supporting data) that in a lot of cases, converting REOs to rental would be a better policy, although it bizarrely fails to consider the “own to rent” option of keeping the current borrower in place. The paper is also a bit clueless about the realities of managing rental properties (it seems to fall for the economist’s default view that at some mythical market clearing price, demand will of course meet supply, when spread out properties, which is what you are likely to have in suburbs and low density areas of cities, does not make for an attractive property management opportunity on anything beyond a modest scale of operation).


Banksters Pawn off Losses on Investors

With the help of the Obama administration no less. The Financial Times is reporting banks, for illegally foreclosing on homes might reduce principle on mortgages, but only those owned by investors. Mortgages and thus people, held by Fannie and Freddie wouldn't be eligible for a mortgage principle reduction.

Investors in US home mortgage bonds may have to swallow losses as part of a wide-ranging settlement being discussed between leading banks and the Obama administration to resolve allegations of foreclosure misdeeds, people familiar with the matter said.

As a result, the five largest US mortgage servicers – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial – would avoid some of the cost of the potential $25bn settlement….

Federal officials and state prosecutors have said they do not want to allow the banks to reduce loan principal on mortgages packaged into bonds. They say that doing so would penalise investors who were not responsible for allegedly wrongful mortgage practices.

In allowing banks to use investor-owned mortgages to fulfil their obligations to reduce targeted amounts of loan balances and monthly payments as part of the settlement, government officials run the risk of repeating the outcome of a 2008 deal with Bank of America.


Implosion of the H-1B Foreign Guest Worker Business Model

We sure hope this one's true. Displacing U.S. workers with foreign guest workers is despicable.

The biggest tech story of 2012 — and perhaps the biggest business story of the year — will be the implosion of the H-1B visa-centric business model of the major U.S. and non-U.S. IT services providers.

The catalyst for the implosion will be universally identified as the courageous quest of Jay Palmer, a man whose technology and people skills made him a rising star within Infosys, the giant Indian IT services provider whose lifeblood for years has been the supply of temporary work visas that have enabled it to bring foreign workers to this country by the thousands.


Banksters Using Trade Treaties to Avoid Regulation

This should be no surprise. Public Citizen is warning the financial sector is trying to use NAFTA to kill any financial reforms.

A form of the Volker Rule made it into the Dodd-Frank financial reform bill that became law in 2010, but bankers are trying to cripple the rule as regulatory agencies write the details of how the rule will work. The Investment Industry Association of Canada has raised the possibility of attacking the Volker Rule with NAFTA.


Tim Does His Homework

Tim of TMTGM just did a little homework on Friday's unemployment report and be glad he did. We also noted it was odd to see 42,000 courier jobs in a month, especially the month known for temporary seasonal hiring. Look what Tim bothered to reality check:


Walmart Banned and Blacklisted

Walmart was blacklisted by one of the largest pension fund investors on the globe. Why? Their crappy employee treatment and practices.

The Netherlands' biggest pension fund, Algemeen Burgerlijk Pensioenfonds, with more than $300 billion in assets, announced that it was blacklisting the largest retailer in the world for noncompliance with the United Nations' Global Compact principles. The Global Compact presents a set of core values relating to human rights, labor standards, the environment and anti-corruption efforts. Sixteen other companies were blacklisted along with Walmart, nearly all of them excluded for producing chemical or nuclear weapons that violate the Nuclear Non-Proliferation Treaty.

ABP said on Wednesday that the decision to pull its investment from Walmart was not hasty. The fund declined to say how much money is involved, but according to ABP records, it had invested some 95 million euros, worth $121 million today, in U.S. Walmart stores as of June 30, 2011. The fund first sent a letter to Walmart executives in 2008, a year after ABP formalized its responsible-investing policy. Four years later, after many meetings with employees and all levels of management, ABP concluded the retail giant was still falling short.



Ravi Batra: it costs $1.5M to create one job!

This is a Sunday read, dated 8 January 2012.

Check this out from Ravi Batra published at (under Creative Commons Attribution-Noncommercial 3.0 United States License) -- The Cost of Trickle-Down Job Creation: $1.5 Million per worker (8 January 2012)

Batra distills down the current state of USA "Keynesian" economic policy and related political (campaign money) cycle as follows:

The trillion dollar question is this: where is it all going, when the annual average wage is no higher than $50,000? Obviously, it must be going to the so-called 1 percent group or what the Republican Party calls the job creators, i.e., the mostly male CEOs and other executives of large corporations. ....

We don't need higher government spending or tax cuts. We need fundamental economic reforms so that wages rise proportionately with ever-growing labor productivity. This is what used to happen in the United States until 1980 .... But at that time. we did not have trade deficits, outsourcing and merger manias  .... ever since 1981, the official economic policy has been designed to keep wages stagnant even as people work hard and students take large loans to educate themselves to hone their skills. Consequently, almost the entire fruit of soaring productivity has gone to the 1 percent group, while millions of students are stuck with college loans. .... ever since [1981], inequality has been soaring, leading to a shrinking middle class. The culprits: huge federal deficits and faulty official policies. And how are we financing these deficits? We are borrowing money from China and other countries, which in effect means that the wealthy prosper as never before, while the nation becomes a beggar to the world. Unfortunately, this system will continue unless the masses, the 99 percenters, revolt and demand fundamental economic reforms. The Occupy Wall Street movement opposes the interest of the Big-Business-Big-Bonus CEO, and in its success lies the revival of America and the middle class.

All the economic policies adopted by various administrations since 1981 have to be abandoned to fix our comatose economy. The system needs an overhaul, not bigger government. We need free markets, not monopoly capitalism. We need to break up business conglomerates and generate competition among companies, especially in the oil and health care industries, in order to bring down the cost of their products. We need to get rid of the trade deficit and outsourcing and link the minimum wage with the cost of living. Hats off to the Occupy Wall Street movement.

Hats off to Ravi Batra, telling it like it is!

it's not the theory it's the corruption

I didn't check his numbers but I can believe it. Keynesian economics works. The problem is the Stimulus was not Keynesian at all. It drives me crazy that people try to smear Keynes over that corrupt, tax cut laden bogus bloatware they passed called "Stimulus".

It did not have a direct jobs program, it did not require only U.S. goods and most importantly, U.S. citizen, perm residents were hired as workers. Money poured out of the country and into various executives pockets too.

I've got another one. How much in bank bailouts did it cost? I'll bet we could have given everyone in America a free house they spent so much.

But the problem here is people think Obama is a socialist, he's a corporatist. They blame Keynes and the theory when the actions, legislation is a bastardization, not even close to what the Keynes equations say.

Drives me nuts and worse because this gives cannon fodder to really bad economic "philosophies" that really do not work, unless of course you're King Midas or a Feudal lord, then they work great for you!

"Keynesian" in quotes

"Keynesian economics works. The problem is the Stimulus was not Keynesian at all. It drives me crazy that people try to smear Keynes over that corrupt, tax cut laden bogus bloatware they passed called 'Stimulus'." -- Robert Oak

That's why I put "Keynesian" in quotes.

I'm sure not an expert on Keynes or on Batra, but I think Batra is decrying policies after about 1980, and probably real Keynesian economic thinking informed earlier economic policy.

I agree that the key fault line lies in the SCOTUS-imposed doctrine of "money is speech," which btw dates back, not from the recent Citizens United decision, but from Buckley v. Valeo (1976). Compare that with decline dating from 1980 per Batra's analysis. Of course, we probably don't have a real clear historical basis for comparisons because the predominance of WTO financial capitalism combined with corporate globalism has interposed so much into the workings of Keynesian (or pseudo-Keynesian) models, with the result that many or most approximately Keynesian experiments have taken place within national boundaries with tighter barriers to financial and labor flows than exist in much of the world today.

As you often point out, preconditions must be in place for any economic policy or theory to have any chance of working, and those necessary preconditions may include fundamentals of the political process and other under-appreciated cultural factors, generally invisible to economists (and others) except retrospectively. Then there are also resource and other physical environmental preconditions that may have been crucial to success of earlier or other Keynesian experiments but are critically missing in a particular case where policy-makers and the public are counting on Keynesian analysis and projections to work.

On the other hand, IMO, there's something to be said for the perspective of Henry C. Simons and proposals for systemic financial, monetary and economic reform, e.g., along the lines of Simons' Positive Program for Laissez Faire (1934) or the 'Chicago Plan' as outlined in 1933 by Henry Simons, Frank Knight and (later Senator) Paul Douglas. See, The Chicago Plan and New Deal banking reform by Ronnie J. Phillips (1995). See also, Monetary Policy and Politics: Rules versus Discretion by George Macesich (1992).

The feudal lord may prefer the discretionary approach, but over time the rules approach is probably what best endures. (I would suggest North Korea as an example of a feudal lord who chooses to retain complete discretion but Singapore as an example of a feudal lord who chooses to emphasize a stable system of rules.)

BTW: Have Keynesian theory or policies ever been tried in a 100%-reserve banking environment within a capitalist economy (with 100% publicly owned central bank currency issue)?

NOTE: The word 'Keynesian' is better defined than the word 'monetarist' because 'Keynesian' refers specifically to the work of Keynes. Herein, I put "monetarist" in quotes not to indicate that Simons' proposals are not really "monetarist" but because "monetarist" can be used or abused to point to very different ideas or to no well-defined ideas at all. Many who would call themselves "monetarist" (Austrian School) condemn Simons's proposals as flat-out socialism, even though IMO Simons is much more consistently anti-authoritarian than v. Mises or Hayek.

right, this is the spin

They take the Stimulus and then try to claim Keynesian economics doesn't work. Well, well, I can tell them what doesn't work, these extreme "Austrian school" agenda items.

But that's why we're here, to separate the wheat from the shaft. We too railed on the "Stimulus" but that was because it was throwing good money out the window instead of really getting bang for the buck.

The "financial crisis" is truly where the waste has happened. I'm pretty sure one can give everyone in the U.S. a house and probably a good retirement fund for the kind of money blown.