Tag Archives: Wall street

Utah Media Investigate Growing Crime of Worker Misclassification

Posted on by

Utah Media Investigate Growing Crime of Worker Misclassification | Crooks and Liars.

Click above link to watch video.

A growing number of companies across the country are purposely misclassifying workers as self-employed ‘owners’ for the sake of saving on labor costs. Doing so allows the companies to avoid paying health care, to ignore worker regulations, shift the burden of payroll taxation to the workers and obtain an uncompetitive advantage over businesses who do the right thing. A recent investigative report by Utah’s KSL 5 News took a closer look at how the process works:

Thousands of Utah construction workers are employed in dozens of large projects not as traditional laborers, but as “owners” under a workforce re-classification process that critics say could allow employers to avoid paying benefits, payroll taxes and workers compensation insurance, according to an investigation by KSL Television.

The Utah Attorney General’s Office and the Utah Labor Commission told KSL they are each looking into the practice, which contractors say has allowed such companies to under-bid competitors on construction projects by as much as 50 percent. The companies who pursue the practice say it is legal under Utah’s limited liability laws, and isn’t designed to shirk any tax or payroll obligations.

In particular KSL 5 looked at a company called U&I, LLC:

On its website, it says if a business signs up for its services, that business’s “employees” now become “owners” in the U&I LLC. But these owners “still work on the jobs that you assign and take instruction and direction from you.” The only difference is, businesses no longer have to cover payroll taxes, workers’ compensation or unemployment. The website also says businesses that sign up will save a business “18 to 26 percent” off its labor costs.

An officer of U&I LLC told KSL that laborers are simply classified as “self-employed” and are given instructions and proper forms to ensure they pay taxes. Dean Kesler, a spokesman of U & I, said the business plan was reviewed by lawyers and accountants and the company is confident they are operating within legal boundaries.

The companies that specialize in such reclassification services are typically compensated by contractors who they sign up for their services, which generally consist of advice and help facilitating the change in employment classifications for the respective workforces.

…

For new “owners” like Jesus Delgado, such reclassification may be legal, but it is expensive. He now is responsible for covering costs traditionally borne by employers, but his wages have not increased. He is one of an estimated 3,000 employees-turned-owners who have agreed to the reclassification, in many cases to avoid unemployment.

Mr. Delgado says he signed up with another company offering similar services: CSG Workforce Partners.

Even though one would expect an “owner” to have influence over their workday, Delgado says he still took orders from the same contractors. He was occasionally ordered to work six days a week, which job site to report to and what exactly to do. Then, a few months into his construction job, he says he was fired.

KSL reviewed three months of Delgado’s pay stubs. Nowhere does it show how many hours he worked or the rate he was paid. There was also $400, or 12 percent, taken out of those checks, but no indication of where the money went and to whom.

“I didn’t see this as being fair,” says Delgado in Spanish. “Too much work and too little money, but we had to put up with it.”

Regardless of whether this particular practice is legal, it’s dishonest. And it should, of course, be made illegal because its only purposes are to allow for the exploitation of workers and the punishment of businesses who conduct their work more honorably.

About these ads

A Christmas Message From America’s Rich

Posted on by

A Christmas Message From America’s Rich | Matt Taibbi | Rolling Stone.

It seems America’s bankers are tired of all the abuse. They’ve decided to speak out.

True, they’re doing it from behind the ropeline, in front of friendly crowds at industry conferences and country clubs, meaning they don’t have to look the rest of America in the eye when they call us all imbeciles and complain that they shouldn’t have to apologize for being so successful.

But while they haven’t yet deigned to talk to protesting America face to face, they are willing to scribble out some complaints on notes and send them downstairs on silver trays. Courtesy of a remarkable story by Max Abelson at Bloomberg, we now get to hear some of those choice comments.

Home Depot co-founder Bernard Marcus, for instance, is not worried about OWS:

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

Former New York gurbernatorial candidate Tom Golisano, the billionaire owner of the billing firm Paychex, offered his wisdom while his half-his-age tennis champion girlfriend hung on his arm:

“If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit,” said Golisano, who turned 70 last month, celebrating the birthday with girlfriend Monica Seles, the former tennis star who won nine Grand Slam singles titles.

Then there’s Leon Cooperman, the former chief of Goldman Sachs’s money-management unit, who said he was urged to speak out by his fellow golfers. His message was a version of Wall Street’s increasingly popular If-you-people-want-a-job, then-you’ll-shut-the-fuck-up rhetorical line:

Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.

“You’ll get more out of me,” the billionaire said, “if you treat me with respect.”

Finally, there is this from Blackstone CEO Steven Schwartzman:

Asked if he were willing to pay more taxes in a Nov. 30 interview with Bloomberg Television, Blackstone Group LP CEO Stephen Schwarzman spoke about lower-income U.S. families who pay no income tax.

“You have to have skin in the game,” said Schwarzman, 64. “I’m not saying how much people should do. But we should all be part of the system.”

There are obviously a great many things that one could say about this remarkable collection of quotes. One could even, if one wanted, simply savor them alone, without commentary, like lumps of fresh caviar, or raw oysters.

But out of Abelson’s collection of doleful woe-is-us complaints from the offended rich, the one that deserves the most attention is Schwarzman’s line about lower-income folks lacking “skin in the game.” This incredible statement gets right to the heart of why these people suck.

Why? It’s not because Schwarzman is factually wrong about lower-income people having no “skin in the game,” ignoring the fact that everyone pays sales taxes, and most everyone pays payroll taxes, and of course there are property taxes for even the lowliest subprime mortgage holders, and so on.

It’s not even because Schwarzman probably himself pays close to zero in income tax – as a private equity chief, he doesn’t pay income tax but tax on carried interest, which carries a maximum 15% tax rate, half the rate of a New York City firefighter.

The real issue has to do with the context of Schwarzman’s quote. The Blackstone billionaire, remember, is one of the more uniquely abhorrent, self-congratulating jerks in the entire world – a man who famously symbolized the excesses of the crisis era when, just as the rest of America was heading into a recession, he threw himself a $5 million birthday party, featuring private performances by Rod Stewart and Patti Labelle, to celebrate an IPO that made him $677 million in a matter of days (within a year, incidentally, the investors who bought that stock would lose three-fourths of their investments).

So that IPO birthday boy is now standing up and insisting, with a straight face, that America’s problem is that compared to taxpaying billionaires like himself, poor people are not invested enough in our society’s future. Apparently, we’d all be in much better shape if the poor were as motivated as Steven Schwarzman is to make America a better place.  

But it seems to me that if you’re broke enough that you’re not paying any income tax, you’ve got nothing but skin in the game. You’ve got it all riding on how well America works.

You can’t afford private security: you need to depend on the police. You can’t afford private health care: Medicare is all you have. You get arrested, you’re not hiring Davis, Polk to get you out of jail: you rely on a public defender to negotiate a court system you’d better pray deals with everyone from the same deck. And you can’t hire landscapers to manicure your lawn and trim your trees: you need the garbage man to come on time and you need the city to patch the potholes in your street.

And in the bigger picture, of course, you need the state and the private sector both to be functioning well enough to provide you with regular work, and a safe place to raise your children, and clean water and clean air.

The entire ethos of modern Wall Street, on the other hand, is complete indifference to all of these matters. The very rich on today’s Wall Street are now so rich that they buy their own social infrastructure. They hire private security, they live on gated mansions on islands and other tax havens, and most notably, they buy their own justice and their own government.

An ordinary person who has a problem that needs fixing puts a letter in the mail to his congressman and sends it to stand in a line in some DC mailroom with thousands of others, waiting for a response.

But citizens of the stateless archipelago where people like Schwarzman live spend millions a year lobbying and donating to political campaigns so that they can jump the line. They don’t need to make sure the government is fulfilling its customer-service obligations, because they buy special access to the government, and get the special service and the metaphorical comped bottle of VIP-room Cristal afforded to select customers.

Want to lower the capital reserve requirements for investment banks? Then-Goldman CEO Hank Paulson takes a meeting with SEC chief Bill Donaldson, and gets it done. Want to kill an attempt to erase the carried interest tax break? Guys like Schwarzman, and Apollo’s Leon Black, and Carlyle’s David Rubenstein, they just show up in Washington at Max Baucus’s doorstep, and they get it killed.

Some of these people take that VIP-room idea a step further. J.P. Morgan Chase CEO Jamie Dimon – the man the New York Times once called “Obama’s favorite banker” – had an excellent method of guaranteeing that the Federal Reserve system’s doors would always be open to him. What he did was, he served as the Chairman of the Board of the New York Fed.

And in 2008, in that moonlighting capacity, he helped orchestrate a deal in which the Fed provided $29 billion in assistance to help his own bank, Chase, buy up the teetering investment firm Bear Stearns. You read that right: Jamie Dimon helped give himself a bailout. Who needs to worry about good government, when you are the government?

Dimon, incidentally, is another one of those bankers who’s complaining now about the unfair criticism. “Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” he recently said, at an investor’s conference.

Hmm. Is Dimon right? Do people hate him just because he’s rich and successful? That really would be unfair. Maybe we should ask the people of Jefferson County, Alabama, what they think.

That particular locality is now in bankruptcy proceedings primarily because Dimon’s bank, Chase, used middlemen to bribe local officials – literally bribe, with cash and watches and new suits – to sign on to a series of onerous interest-rate swap deals that vastly expanded the county’s debt burden.

Essentially, Jamie Dimon handed Birmingham, Alabama a Chase credit card and then bribed its local officials to run up a gigantic balance, leaving future residents and those residents’ children with the bill. As a result, the citizens of Jefferson County will now be making payments to Chase until the end of time.

Do you think Jamie Dimon would have done that deal if he lived in Jefferson County? Put it this way: if he was trying to support two kids on $30,000 a year, and lived in a Birmingham neighborhood full of people in the same boat, would he sign off on a deal that jacked up everyone’s sewer bills 400% for the next thirty years?

Doubtful. But then again, people like Jamie Dimon aren’t really citizens of any country. They live in their own gated archipelago, and the rest of the world is a dumping ground.

Just look at how banks like Chase behaved in Greece, for example.

Having seen how well interest-rate swaps worked for Jefferson County, Alabama, Chase “helped” countries like Greece and Italy mask their debt problems for years by selling a similar series of swaps to those governments. The bank then turned around and worked with banks like Goldman, Sachs (who were also major purveyors of those swap deals) to create a thing called the iTraxx SovX Western Europe index, which allowed investors to bet against Greek debt.

In other words, banks like Chase and Goldman knowingly larded up the nation of Greece with a crippling future debt burden, then turned around and helped the world bet against Greek debt.

Does a citizen of Greece do that deal? Forget that: does a human being do that deal?

Operations like the Greek swap/short index maneuver were easy money for banks like Goldman and Chase – hell, it’s a no-lose play, like cutting a car’s brake lines and then betting on the driver to crash – but they helped create the monstrous European debt problem that this very minute is threatening to send the entire world economy into collapse, which would result in who knows what horrors. At minimum, millions might lose their jobs and benefits and homes. Millions more will be ruined financially.

But why should Chase and Goldman care what happens to those people? Do they have any skin in that game?

Of course not. We’re talking about banks that not only didn’t warn the citizens of Greece about their future debt disaster, they actively traded on that information, to make money for themselves.

People like Dimon, and Schwarzman, and John Paulson, and all of the rest of them who think the “imbeciles” on the streets are simply full of reasonless class anger, they don’t get it. Nobody hates them for being successful. And not that this needs repeating, but nobody even minds that they are rich.

What makes people furious is that they have stopped being citizens.

Most of us 99-percenters couldn’t even let our dogs leave a dump on the sidewalk without feeling ashamed before our neighbors. It’s called having a conscience: even though there are plenty of things most of us could get away with doing, we just don’t do them, because, well, we live here. Most of us wouldn’t take a million dollars to swindle the local school system, or put our next door neighbors out on the street with a robosigned foreclosure, or steal the life’s savings of some old pensioner down the block by selling him a bunch of worthless securities.

But our Too-Big-To-Fail banks unhesitatingly take billions in bailout money and then turn right around and finance the export of jobs to new locations in China and India. They defraud the pension funds of state workers into buying billions of their crap mortgage assets. They take zero-interest loans from the state and then lend that same money back to us at interest. Or, like Chase, they bribe the politicians serving countries and states and cities and even school boards to take on crippling debt deals.

Nobody with real skin in the game, who had any kind of stake in our collective future, would do any of those things. Or, if a person did do those things, you’d at least expect him to have enough shame not to whine to a Bloomberg reporter when the rest of us complained about it.

But these people don’t have shame. What they have, in the place where most of us have shame, are extra sets of balls. Just listen to Cooperman, the former Goldman exec from that country club in Boca. According to Cooperman, the rich do contribute to society:

Capitalists “are not the scourge that they are too often made out to be” and the wealthy aren’t “a monolithic, selfish and unfeeling lot,” Cooperman wrote. They make products that “fill store shelves at Christmas…”

How about, in this upcoming year, they “make the products” themselves?  Let’s see how much money they make then doing it on their own, without help of any of their product line workers?

Unbelievable. Merry Christmas, bankers. And good luck getting that message out.

How Banks Cheat Taxpayers

Posted on by

How Banks Cheat Taxpayers | Matt Taibbi | Rolling Stone.

A good friend of mine sent me a link to a small story last week, something that deserves a little attention, post-factum.

The Bloomberg piece is about J.P. Morgan Chase winning a bid to be the lead underwriter on a $400 million bond issue by the state of Massachusetts. Chase was up against Merrill for the bid and won the race with an offer of a 2.57% interest rate, beating Merrill’s bid of 2.79. The difference in the bid saved the state of Massachusetts $880,000.

Afterward, Massachusetts state treasurer Steven Grossman breezily played up the benefits of a competitive bid. “There’s always a certain amount of competition going on out there,” Grossman said in a telephone interview yesterday. “That’s good. We like competition.”

Well … so what, right? Two banks fight over the right to be the government’s underwriter, one submits a more competitive bid, the taxpayer saves money, and everyone wins. That’s the way it ought to be, correct?

Correct. Except in four out of five cases, it still doesn’t happen that way. From the same piece [emphasis mine]:

Nationwide, about 20 percent of debt issued by states and local governments is sold through competitive bids. Issuers post public notices asking banks to make proposals and award the debt to the bidder offering the lowest interest cost. The other 80 percent are done through negotiated underwriting, where municipalities select a bank to price and sell the bonds.

By “negotiated underwriting,” what Bloomberg means is, “local governments just hand the bid over to the bank that tosses enough combined hard and soft money at the right politicians.”

There is absolutely no good reason why all debt issues are not put up to competitive bids. This is not like defense contracting, where in some situations it is at least theoretically possible that X or Y company is the world’s only competent manufacturer, say, of armor-plated Humvee doors, or some such thing. It’s still wrong and perverse when companies like Halliburton or Blackwater get sole-source defense contracts, but at least there’s some kind of theoretical justification there.

But this is a bond issue, not rocket science. In most cases, all the top investment banks will offer virtually the same service, with only the price varying. Towns and cities and states lose billions of dollars every year allowing financial services companies to overcharge them for underwriting.

It gets even worse in the derivatives markets, where banks routinely overcharge state and local governments for things like interest rate swaps, for one very obvious reason – swaps are not traded on open exchanges, so only the banks know how to price them.

Imagine what NFL gambling would be like if the casinos didn’t publish the point spreads every week, and you’ll get a rough idea of how the swap market works. If you couldn’t look it up, how many points would you give the Dolphins against the Jets next week? Two? Five? Seven? The big casinos know, because they’re taking all that action, that the real number is one point.

In the same vein, exactly how accurately do you think some local county treasurer might be able to guess the cost of an interest rate swap for his local school system?  Answer: he’d probably do about as well as you or I would, guessing the odds on a Croatian soccer match.

The big banks know this, which is why there should never, ever be non-competitive bids for those sorts of financial services. In a sole-source contract for a swap deal, you’re trusting a (probably corrupt) Too-Big-To-Fail bank to give you a good deal for a product whose price is not publicly listed anywhere.

There have been numerous investigations and lawsuits across the world connected with this sort of systematic overcharging, from Erie, Pennsylvania to the notorious Jefferson County, Alabama  case, to Milan, Italy (which sued Chase and four other banks for misleading them about derivative prices).

In the Erie case, Chase recommended to the locals that they hire a financial adviser to review the deal. What they didn’t tell the local government was that Chase had paid a fee to this adviser, a firm called Investment Management Advisory Group Inc., or IMAGE. They pulled the same scam with the school district of Butler County, Pennsylvania.

And in the oft-discussed Jefferson County case alone, Chase reportedly overcharged the locals $100 million for the crooked swap deals that, in a completely separate outrage, will probably leave Birmingham bankrupt for the next generation.

All of which is exactly what people like the OWS protesters are complaining about when they talk about greed and excess on Wall Street. Nobody is begrudging a bank’s desire to make money, and nobody is saying a bank shouldn’t be allowed to make money, even a lot of money, performing legitimate services for the state and the taxpayer.

But when you put a thumb on the scale in a financial services contract, the costs start to get outrageous very quickly. The banks would still do a very crisp, almost effortlessly lucrative business if they just stuck to submitting competitive bids for legitimate work – but instead of that, they for some reason have to game the system, grease politicians, rig bids, and stick the taxpayer with overpriced products. Which sucks, of course. Hopefully politicians will catch on and go the Massachusetts route more often.