Moving Money

The best first step in restoring balance to the budget, and removing disparity induced discord, is to eliminate the carried interest loophole from the tax code.

First, a simple explanation of carried interest and the way it provides unfair and unethical gains to those who are hedging their bets to begin with. Carried interest is the 20% or so of profits that managers of private equity and hedge funds demand from their investors. In effect, it’s pay for their services, contingent on their results–kind of like a CEO’s bonus tied to a company’s results. But instead of being taxed like a bonus, at top ordinary income tax rates of 35%, plus Medicare payroll taxes, carried interest gets taxed—though “the indulgence of the IRS’’ as Sheppard puts it—as long term capital gains, at a current top rate of just 15%. (To oversimplify: the carried interest share, when awarded, supposedly can’t be valued, and so the IRS lets the money managers elect to value it at zero and then have their future income taxed as if they were partners who had risked their own capital in the fund.)

The next step is demanding meaningful bank reform.

The banks that were judged too big to fail have grown- banks absorbed their less stable competitors, in an effort to keep the financial system from crashing. The wisdom of government/treasury, stacked  heavily with former Goldman Sachs employees, has created an environment hospitable to continued irresponsible risk.

Kenneth Rogoff, PhD, Professor of Economics and Public Policy at Harvard offers reasonable advice- “The fashionable idea of allowing banks to issue “contingent capital” (debt that becomes equity in a systemic crisis) is no more credible than the idea of committing to punish banks severely in the event of a crisis. A simpler and more transparent system would ultimately lead to more lending and greater stability, not less. It is high time to restore sanity to financial-market regulation.”

Neil Barofsky on Moyers & Company described a threatening bribe offered by the Treasury Department if he’d change his tone. Barofsky did not take the bribe nor did he change his tone; instead, he wrote a book about his experience as Inspector General of the Troubled Asset Relief Fund. He feels we will maintain the status quo until the next financial catastrophe.

Our Canadian friends held government accountable, in the 90s, by refusing to allow bank mergers because “The public good demands it.” Christine Largarde, managing director of the International Monetary Fund, praised Canada for its proactive policies in financial system reform.

We must demand an end to the carried interest loophole. We must demand bank reform,  requiring banks to divest some of their interests to establish separate entities with separate assets, liabilities, directors, CEOs and employees to eliminate conflict of interest and wild speculation.

We can address this problem as individuals and as Americans, united for the common good. Nothing will change until we take personal responsibility and initiate the change. It all begins with a simple email.

About elroyjones

Married, no children, responsibly self-directed, living happily.
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13 Responses to Moving Money

  1. Doug says:

    You’re right and so is Barofsky, who’s book I have. It will take another financial fiasco to get the political will to make these changes.

  2. judithatwood says:

    Thanks for posting this information. Now I understand one more leaf on the tree of the money-grabbers and capitalist abusers.

  3. A simple email. That’s a good idea. I’ll send it to Goldman or Sachs and tell him I’m ready to jump on the gravy train. I don’t need a corner office. I don’t even need an office. Let’s do lunch.

  4. Holy smoke. It hurt my brain to read this…and my heart…’cause money is just a made up concept using paper rectangles and little bits of metal to represent shiny minerals we dig out of the ground… and they still want to have all of it.

    • elroyjones says:

      Exactly right, money is an abstract concept with only trust and imagination backing it up. If there are no natural resources, food etc., all the money in the world will not fill the fridge. I’d rather be a poor farmer than Wall Street rich.

  5. George says:

    I’m gonna trust you on this one; this stuff is way over my [poor-boy] head.

    I hope you guys are doing okay out on the coast!!!

    • elroyjones says:

      It’s complex stuff but I’ve heard that term “carried interest” over and over again so I thought I’d find out more about the many ways we’re being cheated. Regardless of who is elected, we need to restore integrity and sanity to this country.

      We are fine, stocked up with flashlights and lanterns so the power is still on!

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