The Audit

Audit Notes: The unbanked, Paolo Pellegrini, a debt collector pauses

The NYT on the minor mishaps keep people out of the banking system

By Ryan Chittum   Aug 1, 2013 at 06:50 AM

You’ve read a lot about how Big Data can save the world and all that. You don’t read much (at least until Snowden) about its downsides.

The New York Times’s Jessica Silver-Greenberg reports on one reason so many people can’t get bank accounts: They’re caught up in massive databases that turn minor violations like overdrafts into offenses that force people into the payday-loan underworld of the unbanked:

The ranks of those without bank accounts have swelled — up more than 10 percent since 2009, according to the Federal Deposit Insurance Corporation — as banks have sharpened their focus on more affluent customers who typically generate twice the revenue of their lower-income counterparts. Many banks are closing branches in poor areas and expanding in wealthier ones, according to an analysis of federal data.

Rejection for would-be bank customers can come as a shock. Tiffany Murrell of Brooklyn says a credit union denied her checking account application in September 2012 even though she had a job as a secretary and was up to date on her bills.

The obstacle, it turned out, was a negative report from ChexSystems, a consumer credit reporting firm that provides customer data to virtually every major bank and credit union in the nation. The black mark stemmed from a overdraft of roughly $40 in June 2010, according to a copy of a letter that the 31-year-old Ms. Murrell later received from ChexSystems. While she repaid the amount, plus interest and fees, before applying for a new account, the incident, she says, has barred her from opening an account at nearly every bank she has tried, an experience she called “insulting and frustrating.”

— David Fiderer takes apart Paolo Pellegrini, the former John Paulson managing director, who has issued, um, contradictory testimony in the prosecution of Goldman Sachs ex Fabrice Tourre.

No snippet will give you a sense of the full picture, so read the whole thing. But here’s a sample:

Then you have to consider the Pellegrini’s word games, which are used to deceive. At three meetings, either they discussed investment recommendations, or they discussed Paulson’s intention to short. Which means there could have been three meetings where the shorting strategy never came up. And, “wanting to buy protection on tranches of a synthetic RMBS portfolio,” is not the same as wanting to buy protection on the portfolio being assembled for the ABACUS transaction.

And no, Steve, buying protection is very different from buying a naked short. Generally speaking, people buy protection on risk exposures they already own. Shorting something you do not own is altogether different.

Which is why Abacus 2007-AC1 and $100 billion other synthetic mezzanine CDOs just like it, were all deeply immoral and unethical transactions. They had no legitimate purpose, since they financed nothing. They never added “liquidity to the market,” since everything about CDOs and credit default swaps is kept secret in order to protect the guilty. And they did not represent “a bearish view on housing,” since this was money on a sure thing, the fatal flaws in the triple-B ratings of hyper-levered tranches of subprime bonds. Their singular purpose was to screw a bunch of suckers, the outsiders who never made it on to Greg Lippmann’s email distribution list.

— American Banker continues its excellent work (which built on a report by Silver-Greenberg, by the way) on big banks’ sketchy debt-collection practices, reporting that Wells Fargo is now joining JPMorgan Chase in suspending its sales of bad debt to outside collectors. Previous reports had uncovered serious abuses in how the banks and their third parties handled the collections.

One reason for the results: regulators who are actually on the ball, with a big assist from the watchdog press:

CFPB Director Richard Cordray this month vowed to take enforcement action against the debt-collection industry and said his agency will hold banks accountable for lapses by third-party debt buyers. The OCC has compiled a list of best practices for banks that sell third parties rights to collect credit card debts the banks have already charged off their own books. The agency said this month that it is developing more binding supervisory guidance for the industry.

New York State Superintendent of Financial Services Benjamin Lawsky also on Thursday proposed a series of reforms that would require debt collectors to improve recordkeeping and the disclosures they make to borrowers.

Advance’s forced march backwards

The Plain Dealer imposes draconian cuts in the name of an outdated strategy for newspapers

By Dean Starkman   Jul 31, 2013 at 03:57 PM

Advance Publications’s remorseless campaign to impose a free-online content model on its regional newspapers exacted another heavy toll with the Cleveland Plain Dealer today eliminating the jobs of about 50 journalists, about a third of its already shrunken newsroom—and more, according to the union, than even the company had said it would.

Rollie Dreussi, executive secretary of the union that represents the paper’s newsroom, tells me that, while the situation is still fluid, it’s almost certain that the company has reneged on a promise to keep at least 110 union jobs in the Plain Dealer newsroom.

“We think they did lie to us,” he says.

A handful of Plain Dealer reporters and their supporters took to marching in front of the newspaper yesterday with signs saying that the newspaper had lied to them

In a story in Crain’s Cleveland Business, Terry Eggers, the Plain Dealer’s publisher and president and chief executive of the paper’s parent company, denies allegations of bad faith. I asked him for comment on the exact number of newsroom jobs that will be left after the layoffs, but an assistant sent an answer that was non-responsive. The statement does say that the company will share more about its future plans starting Sunday.

On Monday, August 5th, we chart a new course to ensure that we are positioned to be a viable business in an effort to better meet the needs of our community and remain Northeast Ohio’s number one source for news and information in today’s changing media environment. We will be sharing a preview of the changes with our readers in a guide that will be included with The Plain Dealer on Sunday, August 4th.

The layoffs in Cleveland are part of a long-running and painful restructuring across Advance’s newspaper assets that features deep newsroom cuts while shifting the resources to (non-union) digital companion companies geared entirely toward delivering news for free on the Internet. The restructuring started with a pilot program in Michigan in 2009 and was implemented, ham-fistedly, at Advance-owned New Orleans Times-Picayune and its Alabama papers. For background, read Ryan Chittum’s seminal story from CJR in March.

In April, Advance announced similar plans for Cleveland, including the creation of a new digital startup, Northeast Ohio Media Group, and promises of sharp cutbacks on the print product, delivering the full paper only three days a week, along with layoffs.

The plucky and useful Save the Plain Dealer Facebook page says this about company’s latest move in a post this morning:

The dismissals were unnecessary. They were driven by greed, fear and a disastrous inability on the part of the newspaper’s senior management and billionaire owners to creatively respond to the challenges facing journalism in the digital age.

Just so. We’ve argued for years, in many contexts, that a model that gives away free online content that it charges for in print, relying mainly on digital ads for online revenue, is a disaster for legacy news organizations with their huge fixed costs and expensive—and valuable—newsrooms. The model may be fine in many contexts, but for mature newspaper companies it has shown no potential for the kind of growth needed to make up for falling print ad revenue and fails to shore up subscription revenues via metered paywalls, now adopted by across the country and around the world.

Save the Plain Dealer says it better than I can, so I’ll just add emphasis:

We have no doubt that the gifted Plain Dealer journalists whose jobs were spared will continue to do good work. But they will do so in spite of, not because of, the radical changes that Advance Publications is imposing on its newspapers. Nationwide, the New Jersey-based company, owned by one of America’s richest families, has gotten rid of more than 1,500 journalists’ jobs since launching its ill-conceived “digital first” strategy in 2012. Fewer journalists inevitably means fewer in-depth stories, less comprehensive coverage, and reduced oversight, commentary and critical thinking. The remaining newsroom personnel at The Plain Dealer will struggle under an Advance business model that stresses quantity over quality of news, and under the direction of some managers who seem obsessed with trivia and sensationalism.

Throughout the past year, the Save The Plain Dealer campaign and the Newspaper Guild have worked to oppose these disastrous changes, and to warn the public of the impending harm to their daily newspaper. These layoffs mark a low point, but not an end, of that effort.

A grim coda.

And here is some response on Twitter.

I'm a faithful 7-day 15-yr subscriber to the #PlainDealer. I'm sickened about the layoffs & new format. I like ink on my hands. Sad day.

— Juls (@Tribechic) July 31, 2013

As a veteran of The Call, I hurt for my #PlainDealer friends and feel disgust for the gutless and graceless PD management.

— Melissa Hebert (@MelissaHebert) July 31, 2013

Lots of good memories growing up with the @PlainDealer. Really bummed to see all of the spectacular journalists they let go.

— Beth Gaertner (@lookforbeth) July 31, 2013

Horrible news for the @PlainDealer and for Ohio. Dems thoughts are with all reporters at the PD tonight. http://t.co/FjlD8l6h3I

— Ohio Dems (@OHDems) July 30, 2013

Sad day for the #newspaper I grew up with as @PlainDealer lays off 50; thinking of those who got this call: http://t.co/wnXqZMsSmU

— Rebecca McKinsey (@RebeccaMcKinsey) July 31, 2013

The @PlainDealer has cut a third of its newsroom staff? Ugh. https://t.co/HpwJEfd2LG

— Jennifer Howard (@JenHoward) July 31, 2013

Art & archit. critic @Steven_Litt survives the purge @PlainDealer but says: "It's a very hard day for journalism & civic life in Cleveland."

— Lee Rosenbaum (@CultureGrrl) July 31, 2013

Health isn't big at all in Cleveland. #plaindealer RT @vincethepolack PD health reporter Ellen Kleinerman among those laid off.

— ChrisHy (@chrishy) July 31, 2013

A Big Mac miss by The Huffington Post

Poor reporting on a “study” by a Kansas undergrad

By Ryan Chittum   Jul 31, 2013 at 11:00 AM

The Huffington Post reports that McDonald’s could double its workers wages by raising the price of a Big Mac by 68 cents. It went large on the Internet on Tuesday.

Unfortunately, what it originally claimed was a study by a University of Kansas researcher turns out to be something—a term paper, maybe?—given to Huffington Post by a KU undergrad. And there are serious problems with it. The correction on its provenance came too late, though: it’s all over the internets:

McDonald’s can afford to pay its workers a living wage without sacrificing any of its low menu prices, according to a new study provided to The Huffington Post by a University of Kansas student.

Doubling the salaries and benefits of all McDonald’s employees — from workers earning the federal minimum wage of $7.25 per hour to CEO Donald Thompson, whose 2012 compensation totaled $8.75 million — would cause the price of a Big Mac to increase just 68 cents, from $3.99 to $4.67, Arnobio Morelix told HuffPost. In addition, every item on the Dollar Menu would go up by 17 cents.

Since the HuffPost doesn’t bother to publish the actual “study,” which wasn’t really a study, we can’t really tell where these numbers are coming from. So let’s back into them.

First of all, 68 cents may not sound like much, but it really means that McDonald’s would have to raise its menu prices across the board by 17 percent. That ain’t peanuts.

Second, the 17 percent number is just incorrect. It’s too low. Here’s the latest McDonald’s 10-K, which gives us a glimpse at the company’s labor costs:

The only way to get the 17 percent-of-revenue labor figure is to divide payroll and benefits at company-operated restaurants by total revenues. But here’s the thing: More than 80 percent of McDonald’s restaurants are franchises, and the company makes scads of money from them in no small part because it has no direct labor expense at those stores. The HuffPost explicitly includes executive compensation in its 17 percent figure, but executive comp and the pay of folks in Chicago who run marketing and the like are housed in “selling, general & administrative expenses,” not under payroll & employee benefits at company-operated stores.

You have to divide company-operated payroll & employee benefits by company-operated sales to get an apples-to-apples measure. That gets you 25 percent. So a Big Mac would, in fact, have to go up by a full dollar, not 68 cents, in order to double wages at McDonald’s. And the Dollar Menu would have to become the Dollar Twenty-Five menu.

It’s harder to get at non-restaurant (ie headquarters) wages because McDonald’s doesn’t break out labor costs in SG&A. Assuming pay is half of the total, it would put the number at 22 percent.

And then there are the franchisees. There are 1.9 million people who work at McDonald’s restaurants, but just 440,000 of those actually work for McDonald’s Corporation. The rest work for franchisees who pay a cut of their sales to Chicago for the rights to the Golden Arches, Ronald McDonald, and standardized coronaries-on-a-plate.

Worldwide, those franchisees took in $70 billion in revenue last year, and US stores took in $31 billion of that. McDonald’s Corporation doesn’t break out similar expense numbers for its franchisees, so the best I can do is research from Janney Capital Markets. It puts labor costs for US franchises at 24 percent of sales, which gibes with McDonald’s company-owned stores. Janney estimates franchisee operating income at just 5 percent.

If Janney is right (and I’m a bit skeptical. Five percent margins seem awfully low), McDonald’s franchisees in the US pay out, very roughly, $7.4 billion in labor costs a year and make about $1.6 billion in operating profit. Doubling pay without dipping into profit would mean menu prices would have to rise 24 percent—and that’s assuming such price increases wouldn’t hurt sales, which they would.

The bottom line is: This “study” and The Huffington Post are both wrong.

Unfortunately, bad information spreads pretty fast these days. The false findings got picked up far and wide. I retweeted a Henry Blodget post at Business Insider before looking into its origins.

The bogus information even made into credulous Forbes and New York Times blog posts.

But most ridiculous was Advance Publications’ MLive.com, which writes, falsely, that “Doubling the salary and benefits of every McDonald’s employee would increase the cost of a Big Mac by just 68 cents according to comprehensive research conducted by the University of Kansas.”

Look, it’s journalistic malpractice to call undergraduate work “comprehensive research conducted by the University of Kansas.”

And then there’s this (emphasis mine):

At year’s end, McDonald’s paid its employees - including the CEO Donald Thompson, whose salary was $8.75 million - more than $47.1 billion in wages and benefits, while earning a net income of $54.6 billion.

Morelix said that Thompson’s salary could double to $17.5 million, and every worker could earn a salary of $15 per hour, and the company’s net income would remain at $54.6 billion with his suggested price increases.

McDonald’s is the most profitable company in the history of the world? No. It earned $5.46 billion last year, not $54.6 billion. And MLive didn’t even bother to credit the original source of the misinformation, The Huffington Post.

All this is a separate question from whether low-wage workers ought to be paid much more. I think they should (though not all at once).

But get your numbers right.

(Updated to add the NYT/Forbes paragraph)

Further reading:

A McDonald’s own-goal on wages. Accidentally exposing the fallacy of its own personal-finance advice to workers.

John Stossel’s poor logic on minimum wages and jobs. Fox host fails to explain away Australia’s high wages and low unemployment

Minimum sense on the minimum wage. A WSJ op-ed from a front group for low-wage employers gets it very wrong.

Sympathy for the Walmart flack. How the PR-afflicted colossus pushes its “jobs” narrative on a credulous press

WSJ Gives Minimum Info on Front Group. An astroturf group gets a hit on the minimum wage.

The Minimum Wage in Context. How low-end pay has tumbled over the last 45 years.

McDonald’s through management’s eyes. Rude employees who, oh by the way, make poverty wages

John Stossel’s poor logic on minimum wages and jobs

Fox host fails to explain away Australia’s high wages and low unemployment

By Ryan Chittum   Jul 30, 2013 at 06:50 AM

Fox Business’s John Stossel is a long-time opponent of the minimum wage.

I don’t mean he opposes raising the minimum wage, something that puts him decidedly out of the mainstream. I mean he opposes any minimum wage, which puts him roughly in Ayn Rand/WSJ editorial page territory.

The idea being that a minimum wage causes mass unemployment, particularly amongst young and/or unskilled workers who would be profitable employees at $5.25 an hour, say, but who aren’t at $7.25.

The problem for this argument, beyond the raft of research that shows it isn’t true, is the real-world examples that contradict it.

In Australia, for instance, the minimum wage is more than twice ours, at $15 an hour (adjusted for exchange rates). But the unemployment rate there is just 5.7 percent—nearly two full percentage points less than it is here.

Ah, “but statists ignore the details,” says Stossel, in a piece headlined “The Australian Minimum Wage Myth”:

Most people who earn minimum wage are young, unskilled workers. How are they doing in Australia?

In June, Australia’s unemployment rate for workers age 15 to 19 was 16.5%.

If that seems like a compelling argument, note that Stossel fails to report what the American youth unemployment rate is: 24 percent. Youth unemployment is always much higher than adult unemployment, for a variety of reasons:

One thing the anti-labor types like Stossel never imagine is that higher wages incentivize work and lower wages disincentivize it. I recall my own miserable days as a teen worker making $4.25 an hour at hamburger joints, grocery stores, and for three glorious days—Chuck E. Cheese. A few days in, after visualizing my dickhead boss flicking me a quarter every five minutes (roughly my take-home rate) to shovel up cheeseburgers, I realized my youth was better spent elsewhere.

But when I got a job in the lucrative newspaper industry (those were the days!) helping deliver a commercial route, the $8 or $10 an hour I netted made the 2:30 a.m. start times and 100-degree Oklahoma summers spent in the back of a truck covered in ink and news dust quite tolerable.

Unlike us, though, Australia’s minimum wage is tiered by age, something Stossel completely misses:

You’d think, using Stossel’s logic, that since the minimum wage for 16-19 year olds ranges from $7.10 an hour (U.S. dollars) to $12.38 an hour, the kids’ unemployment rate would be lower than the adults’.

Stossel also says Australia’s unions support higher minimum wages because it “reduces competition from unskilled labor.” In other words, those dastardly unions want poor, young kids out of work!

When the Wall Street Journal reported the minimum wage increase in Australia, it called the law “a victory for unions.” But that seems strange because union workers normally make more than minimum wage.

But it is a victory for unions because union bosses know that raising the minimum wage reduces competition from unskilled labor. Union support for minimum wage laws is entirely self-serving.

Stossel doesn’t understand that unions want higher minimum wages because they put upward pressure on wages for union workers. It trickles up, so to speak.

Audit Notes: Robot truckers, Larry Summers, Detroit not America’s future

Computers take on a last haven of blue-collar jobs

By Ryan Chittum   Jul 29, 2013 at 06:50 AM

The Wall Street Journal’s Dennis Berman has an excellent piece on the future of the truck driver, whom he notes has been almost uniquely insulated from the decline of the working class.

Now the robots are coming for these jobs too. Gigantic automated trucks produced by Caterpillar are replacing most of the 180 drivers at one iron mine in Australia. It’s a matter of time before a UPSbot shows up at your door.

But watching a half-decade of lagging U.S. employment, it’s hard not to feel a swell of fear for those 5.7 million people, a last bastion of decent blue-collar pay.

A world without truck drivers may eventually be a better one. But for whom?

At least better for trucking-company owners, who today grapple with driver shortages of as much as 15%, in addition to perennial hassles of fuel costs, regulations and crummy margins. “Holy s—,” exclaims Kevin Mullen, the safety director at ADS Logistics Co., a 300-truck firm in Chesterton, Ind. “If I didn’t have to deal with drivers, and I could just program a truck and send it?”

What you can be sure of is that the very real economic gains will be concentrated in the hands of a few. Based on recent history, Berman is entirely correct to be pessimistic about the future prospects of those 6 million drivers.

— Somehow President Obama is mulling whether to nominate Clinton-era deregulator Larry Summers to be chairman of the Federal Reserve. Apparently, the president only taps Robert Rubin acolytes for his top financial and economic jobs.

The WSJ reports that Summers has been buck-raking Wall Street since he left the administration two years ago and consults for Citigroup, Nasdaq, and the hedge fund DE Shaw, which used to pay him millions of dollars a year for part-time work.

What does Summers tell his patrons?

At a closed-door Citigroup-sponsored analyst conference at a Boston hotel in March, Mr. Summers expressed surprise about the persistent backlash in Washington toward big banks, according to one participant. Mr. Summers suggested that uncertainty about bank regulation is holding back lending and economic growth.

He also seems to think that the too big to fail banks aren’t big enough, as Quartz’s Matt Phillips points out.

Just the man for the job!

— Charlie LeDuff writes vividly, as usual, about the collapse of Detroit:

I know of an 11-year-old boy who was shot, the bullet going clean through his arm. The cops stuffed him in the back of a squad car and rushed him to the hospital. That’s how we do it. There was no ambulance available. About two-thirds of the city’s fleet is broken on an average day.

I know a cop who drives around in a squad car with holes in the floorboards. There is no computer, no air-conditioning, the odometer reading 147,000 miles. His bulletproof vest has expired. His pay has been cut 10 percent.

But he’s just wrong that Detroit is “America’s Future”:

So Detroit files for bankruptcy. What does this mean? Pay close attention because it may be coming to you soon, Los Angeles, Baltimore, Chicago, Philadelphia. In 2011, Moody’s calculated the unfunded liabilities for Illinois’s three largest state-run pension plans to be $133 billion. (It is expected to be even larger this year.) That’s the size of six Detroit bankruptcies — give or take a few hundred million.

Look, when you lose a quarter of your population in 10 years (and more than half in 40) you’re going to have serious issues meeting your obligations. It’s just math. Illinois, say, is not Detroit.

Audit Notes: Meredith Whitney’s press, Steve Forbes, revolving door

An aversion to the press, proclaimed amidst a press tour

By Ryan Chittum   Jul 26, 2013 at 11:00 AM

Michael Aneiro of Barron’s watches Meredith Whitney, the discredited Cassandra of the municipal-bond market, on CNBC. Whitney has been popping up again now that Detroit has gone bankrupt.

Maria Bartiromo tosses her the softballs, naturally, asking a silly question about why the WSJ wrote a negative piece about her firm. Aneiro:

“I don’t want to be in the press,” Whitney said, with a straight face, DURING A SEGMENT ON CNBC. With said TV appearance coming on the day that she WROTE AN OPINION PIECE FOR THE FINANCIAL TIMES. And that opinion piece reiterating similar claims to those she made in a TELEVISED INTERVIEW ON 60 MINUTES in December 2010.

None of this faux publicity shyness would matter if Whitney’s hadn’t caused such real damage to the muni market two years ago, with six months of severe muni-fund outflows following her erroneous default predictions despite no related pickup in actual defaults. Whitney has certainly received her share of criticism over the past couple of years, but - despite her protestations to the contrary - she most certainly seeks publicity, and with that comes criticism, and fairly so. Let’s hope muni investors approach Whitney’s advice with an appropriate bit of skepticism this time.

Don’t miss this delicious Whitney takedown by the FT’s Lucy Kellaway.

— Steve Forbes, the self-proclaimed Capitalist Tool, writes one of the worst paragraphs of post-crisis financial journalism (emphasis mine):

Another disturbing thing about the British news report is its reflection of the naive belief that more regulation means a safer, less risky financial system and economy. Big Government here and in Europe has perpetrated the astonishing myth that the recent financial crisis was caused by reckless and greedy private-sector bankers. No wonder the public howls for bankers’ heads. The real villains here were governments, particularly central banks.

Yeah, those Wall Street guys and all their credit-default swaps and CDOs and MBSs had nothing to do with it. Nothing at all.

And, oh, by the way, New Deal regulations prevented financial crisis for nearly fifty years until they were diluted and done away with.

— Slate’s Matthew Yglesias tosses off a #Slatepitch on the revolving door:

The SEC’s Top Cop Is Cashing In as a Wall Street Lawyer, and You Should Feel OK About It

Never mind the particulars of Khuzami’s tenure: Yglesias will generalize for you:

If you manage to unplug from the revolving door narrative for a second, you can see why this makes sense—if you spend your time as a government lawyer being extremely lackadaisical in your prosecutorial efforts that’s going to make you look like a bad lawyer who people don’t want to hire. If you want to cash in some day, you want to have the reputation of being someone who’s really smart and tough and effective and who understands how to make cases. That’s the kind of lawyer who the private sector wants to hire.

I’ll say it again. Does anyone think that Wall Street was scrambling to give folks like Elizabeth Warren and Neil Barofsky—two extremely “smart and tough and effective” lawyers—multimillion-dollar salaries?

Minimum sense on the minimum wage

A WSJ op-ed from a front group for low-wage employers gets it very wrong

By Ryan Chittum   Jul 26, 2013 at 06:50 AM

Minimum-wage earners make nearly a third less than minimum-wage earners did 45 years ago.

But it’s “intellectually bankrupt” to point that out, according to The Wall Street Journal editorial page and a Richard Berman front group for low-wage employers.

The Employment Policies Institute’s Michael Saltsman (who disingenuously calls himself a “Defender of the Minimum Wage” on his Twitter bio) wrote an op-ed for the Journal a couple of weeks ago claiming it’s cherry-picking to point out what the minimum wage was in 1968, as Joe Biden did last month, and as I and others have many times.

Saltsman (emphasis mine):

The federal minimum wage was first set in 1938 at 25 cents an hour. Had it tracked the cost of living since, it would today be $4.07 an hour, based on Labor Department data and the Bureau of Labor Statistics’ inflation calculator. This is the only logically consistent “historic” value of the minimum wage, and it’s 44% less than the current amount of $7.25.

A few things here:

First, and most obviously, it’s false to say that the only “historic” value of something is its original value. Shares of Cisco, say, started trading at a split-adjusted 4 cents a share in 1990 (not adjusted for inflation). They hit $82 a share in 2000 and are at $25.50 today. It’s correct to say Cisco shares are down 69 percent since their peak in March 2000. It’s also correct to say they’re up 66,000 percent all time. Both are true. If you want to show how far Cisco has fallen since its peak, and how it’s been dead money for more than a decade, ou use the March 2000 number.

Second, 1968 was indeed the historic peak for the minimum wage, but as you can see in the chart below (I’ve added the yellow line to show today’s minimum wage), it was the crest of a three-decade era. From 1956 to 1985, the minimum wage was always higher than it is today. The $7.25 wage of today is actually a sliver below what it was before the Korean War started, in 1950:

Third, 1968 was a long, long time ago and the economy has grown enormously since then:

Fourth, that minimum-wage workers made $4.07 an hour in 1938—75 years ago, amidst the Great Depression—is interesting historically. Saltsman would have it be a baseline to show today’s low-paid workers how good they have it. Heck, why not go back to Triangle Shirtwaist wages while we’re at it?

Most people whose salaries aren’t funded by lobbies have this odd notion that we should all live better as time passes and technology advances and the economy grows massively richer. One significant measure of a society is how much its poorest laborers earn.

In 1968 we saw fit to pay our poorest workers $3.50 more an hour than we do today, and that says quite a bit about where we’ve gone in the last nearly half century.

And it’s far from cherry-picking to point that out.

Tax overhaul: big numbers, hidden stories

Multinationals have ways to avoid taxes not available to domestic companies, and momentum is building in both parties to fix a flawed system. A few journalists are taking note.

By David Cay Johnston   Jul 25, 2013 at 11:12 AM

How big corporations pay—or don’t pay—their taxes isn’t a subject that gets a lot of quality explanatory coverage, though it should. And with momentum quietly building in the House, the Senate, and the White House to fix a clearly flawed system, now would be a good time to start. Fortunately, some publications are digging in.

We begin with The Wall Street Journal, which explained on Monday that—as the two top tax writers in Congress try to rush through comprehensive corporate tax reform before the end of the year—not all big corporations want the same outcomes. That makes balancing the interests of different powerful corporations a bit tricky for politicians.

As Journal reporters Damian Paletta and Kate Linebaugh explain,

The stakes are particularly high for multinational companies because the White House and Congress are considering changes that would dramatically alter the way foreign income is treated.

Democrats and Republicans have taken aim at the corporate practice of shifting profits abroad to places that impose little or no tax. How to address this issue is dividing large businesses that would be affected differently by various proposed tax-code changes.

One big split: Companies that pay hefty royalties to offshore subsidiaries for their intellectual property—patents, manufacturing processes, chemical formulas and even corporate logos—do not necessarily want the same tax rules as companies eager to expand manufacturing operations abroad. Think Microsoft vs. General Electric.

And, Paletta and Linebaugh note, “some multinationals want Congress to end the U.S. practice of taxing their income earned abroad altogether.” Some corporations already have arranged their books to profit off taxes by building up untaxed profits offshore and investing the money, as I showed here, using Apple as the example.

The Journal piece tees off of the announcements Friday and Saturday from Moscow, where the G-20 finance ministers said they would work together to keep multinational companies from gaming the system. This is the only indication that tax avoidance is not a uniquely American problem, but one common to all advanced economies. The reporters could have given us more on that.

The Journal piece also falls short in not quoting any critics of the varied multinational corporate arguments, instead relying on vague counterpoints such as “the companies defend the practice….” But it’s a good start.

Meanwhile, Fortune’s Lynnley Browning took aim on Monday at another issue central to any overhaul of corporate taxes, one that has gotten little attention outside of tax journals. People typically think of income taxes as objective. You fill in the boxes on tax forms and the software computes the same number for everyone. But as Browing explained, for big multinational corporations, taxes can be largely negotiable.

Multinationals privately negotiate agreements with the IRS that largely determine their taxes, by establishing how much they charge themselves for goods and services made in one country but sold in another.

The pacts, known as advance pricing agreements, effectively lock the IRS into agreeing with a company’s tax planning over many years, both future and past. Despite costing companies up to millions of dollars in fees to prepare and taking up to four years to seal, the agreements are nonetheless worth it to an elite group of big corporations that have them, including Google (GOOG), Apple (AAPL), and Amazon (AMZN).

To understand this, imagine you build widgets in a low tax country, say Vietnam. Your cost when the widgets are loaded onto a ship in Hanoi is $1 per widget including shipping to the Port of Los Angeles. While the widgets cross the Pacific, your Vietnam manufacturing arm sells the widgets to a sister “sales company” in the Cayman Islands for $40, which then resells them to your US marketing subsidiary for $45, which in turn sells them for $50 to retailers (who charge consumers $100).

Ignoring shipping costs, your company made a $49 gross profit ($50 sale to retailers minus $1 in costs), but took $44 of that profit tax-free in the Caymans ($45-$1)—and thus in the US reported only $5 profit ($50-$45). Only the $5 in the U.S. is currently taxable. Meawhile, though, the $44 profit in the Cayman Islands can be loaned to your US parent for limited periods of time, and becomes taxable profit only if permanently moved to America.

Browning (disclosure: she was a colleague at two news organizations) explains that these deals “effectively lock the IRS into agreeing with a company’s tax planning over many years, both future and past” and then observes that:

some experts wonder if advance pricing agreements, perfectly legal under U.S. law and growing in number, sometimes play a major role in helping to shift some of those profits and drive down corporate tax bills. “There’s a lot of confidential information in these deals, because it’s where companies make their profits,” said Patricia Lewis, a tax lawyer at Caplin & Drysdale who helps companies negotiate the pacts.

Ending these secret and company-specific agreements has, so far, not shown up as part of tax overhaul being promoted by Senator Max Baucus, the retiring Montana Democrat who chairs the Senate Finance Committee, and Representative Dave Camp, the Michigan Republican who chairs the House Ways and Means Committee.

Meanwhile, Baucus and Camp call their largely unknown plans “reform”—a word that journalists should be careful to use only with attribution to advocates. (Paletta and Linebaugh demonstrated such care in their their Monday WSJ piece, referring in the lede to “the congressional effort to overhaul the tax code,” rather than tax code “reform.”)

In the coming weeks and months, journalists should expect to get a lot of spin from lobbyists and flacks for companies that hope tax reform will ease their burdens. An initial primer on the flak we can expect from flacks appeared Monday in the Tax Analysts blog of Martin Sullivan, a former Treasury economist. (Disclosure: I am a Tax Analysts columnist).

Sullivan offered six initial examples of arguments likely to confuse the debate over corporate tax overhaul. Many of these arguments relate to the advance pricing agreements that Browning wrote about, because they have to do with corporations making contracts between parent company and offshore subsidiaries—essentially between sibling subsidiaries.

The prime motivation is to enjoy the benefits of being in a market like the US or Europe without bearing the burden of the taxes that the support the systems that make these markets valuable.

Also good to remember: Any tax overhaul proposals will likely have little to no affect on the vast majority of corporations, at least based on the limited and often vague information Baucus and Camp have made available so far. Here are some telling details, pulled from the 2010 IRS Statistics of Income report on corporate taxes—Corporate Tax Table 4 if you want to look it up—to keep in mind when you are writing about efforts to revise tax policy via Congress, where major corporations hold the most sway through lobbying and donations:

• Two thirds of the 5.8 million corporations in America have between a dollar and $500,000 of assets; another 17.2 percent have no assets.
• More than 99 percent have less than $25 million in assets.
• Just 0.048 percent—one in 2,100 corporations—has more than $2.5 billion in assets; they average $23.4 billion.
• These 2,772 biggest corporations own 81 percent of corporate assets, and they paid an average tax rate of 16.7 percent.

Follow @USProjectCJR for more posts from @DavidCayJ and the rest of the United States Project team.

Goldman swings, misses, at NYT’s commodities exposé

Bank and newspaper, at odds again

By Dean Starkman   Jul 25, 2013 at 06:50 AM

I had a hunch that David Kocieniewski’s piece on Goldman Sachs’s metals maneuvers would stand up in the face of the severest scrutiny, and little in this Goldman press release on the ensuing contretemps suggests otherwise.

To be sure, the press release, “Goldman Sachs and Physical Commodities,” doesn’t mention the Times by name and is directed at the wider flap, including Senate hearings, that the piece provoked. But, still, let’s face it, this is a response to the Times.

And, for the sake of perspective, this rather mild dispute is nothing like the dramatic standoffs between the bank and the newspaper during the throes of the financial crisis when Goldman took issue with the Times’s reporting on its role and purported gain from the AIG bailout.

I assessed the claims at the time and sided with the Times—mostly.

Still, the recent Times piece makes some serious claims: namely that since Goldman bought a Detroit-area warehouse company three years ago, the pace of shipments out of the plant has slowed to crawl, increasing the amount of rent the Goldman unit can charge companies that use it and sending the price of aluminum higher generally for reasons discussed below. The story was illustrated with a memorable anecdote: warehouse workers moving the metal from one Goldman-owned warehouse to another for no apparent purpose other than to comply with industry regulations while doing nothing to alleviate the logjam. And while the unit has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, the Times says that “interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.”

Further, the story usefully relayed regulators’ all too critical role: how an exception allowed by Goldman’s regulator, the Federal Reserve, lifted a ban on bank holding companies from owning physical commodity trading assets; that then-outgoing Securities and Exchange Commission chairwoman Mary Schapiro granted the firm permission to start a similar business in copper; and that the warehouse company’s self-regulator, the London Metals Exchange, was actually owned by big banks, including Goldman.

In its dozen-point discussion of its commodities business, Goldman makes fair points, but essentially sidesteps nearly all of the Times’s assertions. Let’s take a look at a few.

One is that Goldman’s stake in the aluminum market is not really that big.

• Aluminum stored in Metro warehouses amounts to approximately 1.5 million tonnes, compared with global aluminum production in 2012 of about 48 million tonnes.

• Approximately 95 percent of the aluminum that is used in manufacturing is sourced from producers and dealers outside of the LME warehouse system.

The Times, though, says something different (my emphasis): “More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.

The Times figure is a subset of the former. And though aluminum markets are murky, experts have chimed in that it’s far from out of question that the logjam at Goldman’s warehouse could have impacted the price.

Also from Goldman:

• Delivered aluminum prices are nearly 40 percent lower than they were in 2006. The warehousing system is not driving up the price of aluminum.

Well, for one thing, in 2006 we had a housing bubble followed by a Global Financial Crisis (which some observers, including governmental authorities, believe Goldman had something to do with: See, for example, Chapter VI: “Investment Bank Abuse: Case Study of Goldman Sachs and Deutsche Bank.”). The Times’s point is again different from the one Goldman is making: that Goldman’s activities are raising aluminum prices higher than they would normally be absent the problems in Detroit:

[B]ecause storage cost is a major component of the “premium” added to the price of all aluminum sold on the spot market, the delays mean higher prices for nearly everyone, even though most of the metal never passes through one of Goldman’s warehouses.

Business Insider quotes Jeffrey Carter, a former board member of the Chicago Mercantile exchange and writer of the blog, Points and Figures, who puts it this way: “They [Goldman] can influence the price heavily because they affect a price where the entire market pegs.”

Goldman also says this:

Recent news reports have inaccurately accused Metro of deliberately creating aluminum shortages and incorrectly asserted that Metro moves aluminum from one warehouse to another in order to earn more rent fees.

• In fact, it is the owners of the metal who direct warehouse operators to dispose of stored metal or transport metal from LME-approved warehouses to warehouses outside the LME system to meet their own needs or objectives.

The idea here is that at the behest of tenants, the company is moving the metal from the more expensive LME space to cheaper non-LME space, also owned by Goldman.

In an interview, Goldman spokesman Michael DuVally adds that the three forklift drivers quoted by name in the Times story discussing moving metal from warehouse to warehouse all worked for the company for less than two and half months, “so it’s possible that they didn’t understand what was going on.”

Now, the paper’s main point was about the shipping slowdown generally, that it was part of a deliberate strategy. But the Times does imply, even if it doesn’t state outright, that the metal shuffling was a way to hew to the strategy while narrowly complying with industry rules.

On the other hand, it’s possible that the workers knew quite well what was going on and that the Times’s unnamed sources confirming the general idea did, too. The possibility that the Goldman unit moved metal on its own, absent tenant orders, and that some made its way from one LME warehouse to another, is far from foreclosed.

As for what it was doing in the physical commodities business in the first place, the regulatory exceptions that allowed it, and the wider questions of the soundness and fairness of a financial institutions controlling the movement of a sizable share of a market in which it trades, the Goldman release is silent.

Sympathy for the Walmart flack

How the PR-afflicted colossus pushes its “jobs” narrative on a credulous press

By Ryan Chittum   Jul 24, 2013 at 06:56 AM

On some level you have to feel a little bad for the Walmart flack.

You try polishing the image of an eyesore-producing, taxpayer-subsidy-guzzling, shoddy-goods-peddling, union-busting, $260 billion cutthroat monopsonist.

On the other hand, the company has quite a few PR successes, particularly below the national-media radar.

Walmart is in a pitched PR battle right now to build six smaller stores in Washington, DC. The District council passed an ordinance a couple of weeks ago that forces non-union big-box retailers to pay its employees at least $12.50 an hour. Walmart, in response, is threatening to abandon its plan to enter the District unless the law is vetoed or rescinded. A reminder—this is $12.50 an hour in the District of Columbia, not rural Kansas.

Walmart is busy pushing the jobs angle, which is constantly misused by companies in development squabbles to play municipalities off each other or to just snooker the local rubes in office. It says that if it fails to open its stores there, DC will lose out on the 1,800 jobs it would have brought.

Problem is, retail is a zero-sum game at best. A new store doesn’t create purchasing power; it redistributes it from elsewhere. (That’s particularly so since the US has more than triple the retail space per capita as any other country. DC is under-retailed by American standards, having roughly the same amount shop space per resident as the second-most retail-saturated country, the UK.)

Walmart’s PR push on jobs goes beyond abstract numbers. A perusal through Factiva shows lots of ribbon-cutting stories, pieces about Walmart’s hiring centers, and soft-focus manager walk-throughs. None of them are enterprise stories, to put it kindly.

The store-manager-started-out-as-cashier pitch is particularly gobbled up by the press (as is Walmart’s softening-up potential community-group opposition with cash, as you can see in this rather sad PR video from an opening). Here’s a sampler of stories from the last month or so to give you a flavor of how a mega PR machine seeps into the media stream.

Here’s a glowing profile in the Ocala Star-Banner on July 16:

As a single mom, she began work as a cashier at the 19th Avenue Road Walmart in 2000. Within six months she had been promoted to a new level. In the next 13 years she worked her way up through the myriad administrative levels, from hourly supervisor to salaried manager.

The Benicia (California) Patch on July 17:

New Store, New Jobs

The new store employs up to 95 full- and part-time associates. The first Walmart Neighborhood Market opened in 1998, and today there are approximately 250 Walmart Neighborhood Market stores nationwide.

Store manager Vicky Rafael began her Walmart career in 2000 as a cashier.

The Sunbury, Pennsylvania, Daily Item on July 15:

Former part-time cashier now leads seven Wal Mart stores

The Vallejo Times Herald on July 3:

“I started at the old Vallejo Walmart in 2001 as a cashier, then I was transferred to the Napa store, then to the Fairfield store, where I became assistant manager.”

Rafael said she spent time climbing the corporate ladder in the American Canyon Walmart Supercenter before returning to Vallejo.

“Now, I have a store of my own, in my own town,” she said. “This company has been so good to me in the 13 years I’ve been with them. It’s so much fun. It’s like creating a new family.”

The Fall River, Massachusetts Herald News in June:

This is home to him, Disla said. He is 34. A few summers on a landscape crew while growing up near Boston made him appreciate Walmart when he joined the company right after college.

“I’ve been with the company for 15 years,” he said. “I started right after college and stayed.

“It is a family atmosphere. You can grow up with this company.”

Never underestimate an overworked reporter’s appetite for a Horatio Alger story with a contrarian storyline presented on a silver platter by well-funded PR folks who outnumber him four-to-one.

This is not to say that flack-generated stories are wrong per se, just that it’s seriously problematic when the results read more like press releases than news stories—particularly when the narrative obscures complicated issues.

The PR counter-narrative here is, “See, low-paying Walmart jobs aren’t dead ends: They’re new starts!”

But there are probably a hundred or two hundred workers for every one of those big successes—far more of them are making $8 or $9 an hour than manager salaries—while their (relatively) well-paid store managers who manipulate their hours to maximize store profits at the expense of their employees’ non-work lives get credulously profiled by the local newspaper. Numerically, there are only so many workers who can ascend beyond the poverty wage rank at Walmart. And so the press focus—or at least some of the focus—should be on them.

It’s worth noting what happens when someone else shows up to push back on the Walmart-created narrative. Here’s the Woodland, California Daily Democrat last month at a ribbon cutting:

“We are very excited,” said Store Manager Ed Medina, a 10-year Wal-Mart worker. “Finally all the craziness is done and now we’re taking care of all our customers — that’s what we’re good at.”

Well, maybe not all the craziness.

Just after 4 p.m. Wednesday a group of about 10 protesters convened at the store’s front entrance with signs such as “Wal-Mart: Always low pay,” “Boycott Wal-Mart” and “Fair Pay.” The protest was organized by Occupy Woodland’s Steven Payan…

“Small businesses close, wages drop, and more county services are needed because most of the employees are on Medi-Cal or use emergency room services,” he said. “Because wages are so low most have to augment with food stamps.”

It’s too bad that it takes a handful of Occupy protestors to get newspapers to dilute the pure PR wins they’re giving Walmart.

The revolving door spins for Robert Khuzami

Former SEC enforcement chief lands a $5 million a year gig

By Ryan Chittum   Jul 23, 2013 at 06:50 AM

Robert Khuzami made the big bucks as Deutsche Bank’s general counsel for the Americas during the subprime securitization orgy, which Deutsche’s American arm helped unleash with toxic instruments that would crush the economy and millions of homeowners and workers.

Then in 2008 a promising young candidate was elected to bring hope and change to the land amidst a financial crisis that threatened a second Great Depression. Presented with an historic opportunity to become a second FDR, Barack Obama went to work stocking his critical cabinet positions with folks like Tim Geithner (wholly captured by Wall Street), Mary Schapiro (Wall Street soft-touch self-regulator), Eric Holder and Lanny Breuer (partners at Covington & Burling, which repped big banks and mortgage companies), Larry Summers (Clinton-era deregulator, finance-industry multimillionaire).

Khuzami became the Obama SEC’s chief of enforcement.

If you really wanted truth and justice and all that from your SEC, you probably wouldn’t go for someone who “worked with lawyers (at Deutsche Bank) who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors,” as The Wall Street Journal noted three years ago.
Okay, it worked with Joe Kennedy, but that was a different era.

As Yves Smith wrote in January when we were all wondering which Wall Street law firm Khuzami would end up at:

Any serious investigation of CDO bad practices would implicate Deutsche Bank, and presumably, Khuzami. Why was a Goldman Abacus trade probed, and not deals from Deutsche Bank’s similar CDO program, Start? Khuzami simply can’t afford to dig too deeply in this toxic terrain; questions would correctly be raised as to why Deutsche was not being scrutinized similarly. And recusing himself would be insufficient. Do you really think staffers are sufficiently inattentive of the politics so as to pursue investigations aggressively that might damage the head of their unit?

You know the results of Khuzami’s tenure: A splashy half-billion-dollar deal with Goldman Sachs, a bunch of “neither admits nor denies the charges” settlements, banks sued for fraud with no bankers sued for fraud, and embarrassingly low settlements with the likes of Citigroup and Bank of America for slam-dunk frauds. Oh, and who could forget: soliciting promises from banks to not break a specific law again, even though they’d already promised the SEC repeatedly not to break that law again in previous settlements.

Now, the payoff: The New York Times reports that Kirkland & Ellis will give Khuzami a whopping $5 million a year to continue serving represent their corporate clients.

The Times gives Khuzami pretty favorable treatment yet again. Last time, it went overboard with the tough-guy superlatives. This time the NYT calls him “A Legal Bane of Wall Street,” which is darn near correctable.

If Khuzami had truly been a “bane of Wall Street,” he would not have been flooded with $5 million a year job offers by Wall Street. Does anyone think Neil Barofsky or Elizabeth Warren—who were truly banes of Wall Street—got multimillion-dollar-a-year offers from the Street after their tenures?

Read this Matt Stoller piece from last year:

The dirty secret of American politics is that, for most politicians, getting elected is just not that important. What matters is post-election employment. It’s all about staying in the elite political class, which means being respected in a dense network of corporate-funded think tanks, high-powered law firms, banks, defense contractors, prestigious universities, and corporations. If you run a campaign based on populist themes, that’s a threat to your post-election employment prospects… If you actually go after powerful interests while in office, then you better win, because if you don’t, you’ll have basically nowhere to go. And if you lose, but you were a team player, then you’ll have plenty of money and opportunity.

That’s as good a synopsis as I’ve seen on why the soft corruption of the revolving door and the sellout culture is so damaging.

Further reading:

The Times gives the SEC’s Khuzami a parting kiss. The enforcement chief still gets the “new sheriff in town” treatment.

The SEC’s Soft Touch For Repeat Offenders. NYT and Bloomberg show how often banks violate promises not to re-commit fraud.

The revolving door spins for Schapiro and Breuer. Former SEC and DOJ officials cash in.

NYT exposé machine hums along (UPDATED)

Kocieniewski reveals Goldman’s commodity manipulations; one of a series

By Dean Starkman   Jul 22, 2013 at 06:50 AM

Dave Kocieniewski’s corker in yesterday’s Times is just a gorgeous piece of work, as an investigation, a piece of writing, and as a window onto the sad state of our financialized economy and collapsed regulatory regime.

It’s, like, nice. [UPDATE: But not, like, first to the topic. See my note below.]

The piece has something for everyone suffering from Wall Street scandal deprivation—it’s been months since Libor—and those curious about what investment banks are doing these days now that the blood funnel has finished with lower-middle class homeowners. Here is a star-studded cast of conflicted self-regulators (check); round-heeled government regulators (take a bow, Federal Reserve), a goodbye present from Mary L. Schapiro, and Pinteresque comic relief from forklift operators whose job it was uselessly to shuffle aluminum from one Goldman warehouse to another.

As Kocieniewski reveals, ever since Goldman Sachs bought a Detroit area warehouse company, one of the country’s largest storers of aluminum three year ago, the waiting time for delivery of the metal has soared 20 fold, from six weeks to 16 months. The delays add a soupcon of extra cost—an estimated $5 billion total, to everything from cars to cans of Coke—while helping Goldman to boost materially its commodities profits. Storage cost, apparently, is a major component of the premium added to the price of all aluminum sold on the spot market, so, the Times says, the delays mean higher prices for nearly everyone. The delay also just adds rent that Goldman can charge companies, those that actually make something, including Coca-Cola itself, which duly complained to the industry’s conflicted self regulator, the London Metals Exchange, owned by members of the exchange, including, Citigroup, Barclays, and yes, Goldman itself. Adding an element of the surreal to this rentier’s dream, industry rules require at least 3,000 of the 1.5 million tons of the metal sitting in Goldman’s warehouse to be moved each day. But instead of moving it to customers, it’s moved back-and-forth between warehouses.

None of this is possible without government help. The Federal Reserve lifted a sensible ban on bank holding companies from owning physical commodity trading assets; then Securities and Exchange Commission chairwoman Mary Schapiro, on her way through the revolving door, granted the firm permission to start a similar business in copper.

The story has a source that confirmed that the slowdown in aluminum shipments is intentional and part of the business model.

Metro International, which declined to comment for this article, in the past has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, and the administrative complications of tracking so much metal. But interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.

There are other clues that suggest this is a direct hit by the Times against the bank.

First, the new owners of the exchange, which was sold last year, have already proposed new rules intended to reduce the bottlenecks at Metro. Second, even that round-heeled regulator, the Fed, says it is “reviewing” its 2003 finding that “certain commodity activities are complementary to financial activities and thus permissible for bank holding companies.”

And third, despite having said in Securities and Exchange Commission filings it would do for copper what it did for aluminum, Goldman tells the Times it has now changed its mind, and did so on Saturday, the day before the story ran, and without offering any particular reason.

In filings with the SEC, Goldman has said it plans by early next year to store copper in the same Detroit-area warehouses where it now stockpiles aluminum. On Saturday, however, Michael DuVally, a Goldman spokesman, said the company had decided not to participate in the copper venture, though it had not disclosed that publicly. He declined to elaborate.

The supine Goldman response speaks volumes.

Credit where it’s due: This piece is one of a string of big-foot investigative work done by the Times that has probed some of the world’s most powerful corporations and done so squarely with agenda-changing stories. Among the work that comes to mind are David Barstow’s WalMart bribery stunner last year, a classic (Pulitzer-winning) investigative work in any era; the Foxconn story, also last year, by Charles Duhigg and David Barboza; Kocieniewski’s (also) Pulitzer winning GE tax story the year before.

While we’re on the subject of Goldman, it was the Times that broke the news during the throes of the crisis that the AIG bailout was essentially a pass-through to Wall Street firms, especially Goldman, as well as, in 2010, that it helped create the designed-to-fail Abacus housing CDO.

It’s not that other news organizations aren’t doing blockbusters. The WSJ’s Matt Day had a fine piece in April about two firms amassing big chunks of the copper business. But the NYT’s are a cut above. Whatever else is going on over there, somebody is doing something right.

The most promising thing about the Times’s Goldman piece may be that it’s the first in a series, the “House Edge,” on Wall Street and consumer prices.

[UPDATE: As hinted at, Reuters, I learn, published a 2,600-word piece on Goldman’s grip on the aluminum storage business back in July 2011. The story, by Pratima Desai, Clare Baldwin, Susan Thomas, and Melanie Burton, is very good and includes many, but certainly not all, of the major elements of the Times story. Among them: that since Goldman had acquired the Detroit-area warehouse business, a shipping bottleneck had developed; and that the “spike” in prices had led to clashes between aluminum buyers, Goldman, and the London exchange. The piece also raises the potential conflict between Goldman’s role as a handler of physical assets and as a commodities trader that could benefit from knowledge gained from its operational role.

Having said all that, the Times story adds several new, important elements. Among those: the government’s regulatory laxity, the London exchange’s conflict, the estimated dollar cost to consumers, the complaint by Coke, and so on. But really, the key to the Times story is the forklift follies, the metal-shuffling of the lead anecdote, which illustrates the absurdity, and wastefulness, of the arrangement and elevates the story to another level. Finally, and there’s a lesson here, the Times piece is framed less as a business conflict and more as a matter of wider public concern. Should the Times have nodded to the Reuters story? It would have been nice, yes.The important thing is that the Times did the story, even if someone got to the subject first, and did it well.]

Audit Notes: Noonan and Morris on the IRS, free Internet, Guardian gains

The Woodward and Bernstein of the bogus Tea Party tax scandal

By Ryan Chittum   Jul 22, 2013 at 06:50 AM

At this point, the right’s Woodward and Bernstein are Peggy Noonan and Dick Morris, and that says about all you need to know about the state of conservative journalism.

Morris, as printed by The Hill, which pays him to be a columnist for some reason:

William Wilkins: The G. Gordon Liddy of the IRS scandal?

You can write anything when you put a question mark after it. Dick Morris: The G. Gordon Liddy of toe-sucking?

Anyway, Noonan, who was chief amongst the hacks leaping to call this the next Watergate when it broke two months ago, writes this about hearings last week that produced little to no news:

A Bombshell in the IRS Scandal

The “bombshell” is that one IRS Cincinnati employee testified that they ran the cases up to the chief counsel’s office. Problem is, as Media Matters points out, we knew this two months ago. Peggy Noonan knew this two months ago and wrote about it at the time.

Here’s her lede this time:

The IRS scandal was connected this week not just to the Washington office—that had been established—but to the office of the chief counsel.

The office of the chief counsel has 1,600 employees. But you won’t learn that from Noonan, who would have you believe that William Wilkins himself answers the phones.

— BuzzFeed, of all places, runs a post on how the end of the free Internet is nigh.

Regular Internet users soon came to expect that almost every type of media they once paid for — music, movies, news — would be available for free, legally or otherwise.

That era — let’s call it the Internet’s free trial period — is coming to an end. In the 12 years since courts shut down Napster, the Internet has taken its hatchet to every other branch of the media industry, deftly pruning ad dollars, jobs, and shaving away bottom lines. Now the reaction, opposite but never quite equal, and always late, is starting to take effect. The untamed and lawless expanses of web content are quickly being replaced by paywalls and monthly fees. And, surprisingly, we don’t really seem to mind all that much. Most of us don’t even seem to notice…

As far as trends move, paid news’ is creaking along glacially. The percentage of enthusiastic paywall subscribers is still below 20%, but it’s growing — an encouraging sign for a business model that was widely predicted to fail at the outset. “Today’s paywalls are by no means perfect, [and] have a lot of big holes in them,” Magid Advisors’ president Mike Vorhaus told BuzzFeed. “But we’re all going to pay for more and pay for stuff we’re not used to paying for. And as a result, publishers of all kinds will continue do a better job figuring out what we value and packaging our content better and more efficiently.”

It’s a bit much, but they’ve got the right idea.

— The Guardian had a really good year last year, taking in more new digital revenue than it lost from print.

Alas, it still lost $47 million.

Its digital revenue increased to $85 million last year, a 29 percent gain (more than a quarter of that digital revenue is subscriptions, mostly from its dating site). That’s a big deal. Growing a relatively mature revenue stream by nearly a third in one year is no joke. If the paper could somehow continue that kind of growth for another three years (and maintain flat costs), it would turn a small profit by 2016, if print continues to decline at 7 percent a year.

That surely won’t happen. But The Guardian is fortunate to have investments that kick off tens of millions of dollars a year plus a $400 million trust fund. That gives it a safety net that few other newspapers have.

Art Laffer + PR blitz = press failure

The media types up the retail lobby’s propaganda

By Ryan Chittum   Jul 19, 2013 at 06:50 AM

Here’s the headline of a USA Today op-ed in Thursday’s paper:

Arthur B. Laffer: Collect more sales taxes

Say what? A legendary conservative economist issued a study that advocates raising taxes? Tell me more!

Use e-commerce revenue to cut income taxes.

Oh. Sales taxes hit poor people harder than rich people. Income taxes hit rich people harder than poor people.

And:

The study was funded by a business group called the Marketplace Fairness Coalition, which backs the legislation.

I see.

Point being, it’s always worth a second look when a prominent conservative think-tank type comes out for higher taxes (or, let’s face it, just about anything). Arthur Laffer, need I remind you, was the intellectual brainpower behind Reagan’s voodoo economics.

So it is with Laffer’s op-ed, which is laughable on its face (no pun intended), but not apparently to wide swaths of the media. It’s a case study in how powerful interests move their message through a lazy and compliant press.

Here’s the lede from The Hill, which will apparently print any old thing and which passes on Laffer’s numbers without so much as a sideways glance.

Allowing states to tax online purchases could produce about 1.5 million new jobs and a $563 billion boost in gross domestic product, according to a report from famed conservative economist Arthur B. Laffer.

This transparent nonsense is regurgitated by several other papers too, including the Harrisburg Patriot-News, which goes all in on the PR line:

“Dr. Laffer’s study proves that closing the online loophole and cutting taxes is the right prescription for economic growth in Pennsylvania,” said Greg Rozman, owner of Rozman Brothers Appliances-TV-Furniture in Harrisburg, where the Pennsylvania chapter of the Alliance for Main Street Fairness held a press conference timed to today’s release of the study.

As does the Knoxville Daily Sun:

“Dr. Laffer has been viewed as a national expert for years,” said Scott Schimmel, co-owner of Bliss and Bliss Home on Market Square and in West Knoxville. “His analysis of the Marketplace Fairness Act should leave no doubt among conservatives that it does not impose a tax increase, and in fact could be used to lower taxes.”

The PR blitz made The Dallas Morning News, Politico, Chattanooga TV (which at least didn’t quote the Laffer “study”), the Knoxville News Sentinel, The Chattanoogan, The Roanoke Times, and my hometown Tulsa World and the paper 15 miles north, The Collinsville News, which at least has the decency to give a byline to the flack that wrote its story and comes from Pearson Public Affairs, which says on its website that it is “turning advocacy into activity.” The Laffer nonsense hit my inbox in an email from the Retail Industry Leaders Association, which lobbies for Walmart, Target, and other big chain retailers. Perhaps least excusable is Reuters’s credulous coverage.

The Tampa Bay Times never gives the Laffer numbers that second look I mentioned above, writing, “Arthur Laffer has been hailed as a key player in the tax-cutting movement of the 1980s… So it might come as a surprise to some conservatives that he’s on a mission to collect more sales taxes.”

Let’s sit here and think about this for, oh, half a second. The Marketplace Fairness Act would raise between $10 billion and $25 billion a year for states and cities by taxing online sales. Laffer would use that money to lower income taxes. So he’s saying that by switching that money around, the economy will grow by more than half a trillion dollars by 2022 while creating a million and a half jobs because. Sure, boss!

None of these outlets bring a sliver of analysis to these numbers, much less pick up the phone and call somebody who would know what they’re talking about. When you see giant numbers bandied about by some study funded by a powerful lobby, always be skeptical. When a conservative economist tells you, as Laffer does the Tampa Bay Times, that “This is not a conservative or a liberal paper,” while advocating moving from progressive to regressive taxation, call him on the lie.

The thing is: It’s nuts that we’ve let Internet retailers go untaxed for as long as we have, as I’ve written for years. It’s a simple fairness issue: Bricks and mortar retailers shouldn’t face a 7 to 10 percent price handicap to retailers selling online.

You don’t need outlandish numbers from a discredited economist paid for by a vested interest to make the case for taxing online retail.