Archive for the ‘government powers’ Category

A Review of the IRS Phony Scandal

AReviewOfTheIRSPhonyScandal  <– PDF version

We have all heard the reports about how the Internal Revenue Service (IRS) selectively targeted social welfare organizations by delaying their applications for 501(c)(4) tax-exempt status over the course of two federal election cycles (2010 and 2012).  Singling out certain groups was important to the current administration, since the 21 Jan 2010 Citizens United ruling by the Supreme Court prohibited limitations on political spending by nonprofit groups.  After that ruling, a great many “Tea Party” and other pro-freedom groups applied for tax-exempt status, to enable them to raise funds and use part of those to inform the public about issues of importance in the upcoming elections.

The method of identifying which groups were to be delayed or denied was based on their names (“Tea Party”, 9/12″), or their views on the Bill or Rights or Constitution, or their views on the federal budget and spending in general.  The ever-efficient IRS even created a spreadsheet called “Be On the Look Out for” (BOLO) as a way to establish targeting keywords that would trigger “closer scrutiny”.  None of the 501 applications were denied outright during the period from March 2010 to April of 2012.  Instead, the IRS non-profit review offices delayed approval of applications in several creative ways:

a.  By demanding information that could not exist (“What books are your members reading”);

b.  By asking whether any of their members intended to run for elective office;

c.  By demanding a list of donors, the amounts donated, and how the donations were spent;

d.  By demanding copies of all web pages, blog posts, and brochures ever used by the organization;

e.  By demanding copies of all emails sent or received by organization members.

The IRS Tax Exempt review division also illegally leaked donor lists of some organizations to their opponents, audited those who had donated to the “Tea Party” groups, and in some cases, urged other government entities (FBI, ATF, OSHA) to illegally investigate or harass the applicants.  Finally complaints about the abuse of power at the IRS became so distracting that the Treasury Department Inspector General was forced to look into it.  He released a report [1] detailing the basics of the IRS activities, along with a list of nine recommendations.  In summary, he concluded:

The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention.  Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information request to be issued.

President Richard “I am not a crook” Nixon was nearly impeached for merely asking the IRS to attack his opponents.  President Bill “Perjurer in Chief” Clinton successfully used the IRS to harass his opponents. It appears that the current administration has done the same thing, and when caught, has responded to this series of events by denial, obfuscation, and changing the subject, same as usual. Numerous IRS officials delayed informing Congress of what they knew as the internal investigation proceeded.  One of them, Deputy Commissioner for Enforcement and Services Steven T. Miller, falsely stated on 15 May 2012 that the abuses were the work of two rogue agents in Cincinnati; but as it turned out, was being orchestrated from Washington the whole time, probably by Lois G. Lerner, Director of IRS Tax Exempt and Government Entities Division.  We will probably never know who Lois Lerner was taking orders from, whether it was the President, his staff, the Department of Justice, the Treasury Department, or the upper echelon of the Democratic party. In August of 2012, Congress issued a subpoena for all emails to and from Lois G. Lerner for the period 1 Jan 2009 to 2 Aug 2013.  After 18 months, on 13 Jun 2014, the IRS finally admitted that it would not comply with the subpoena because Lerner’s computer hard drive crashed on 13 Jun 2011, and the emails prior to that date are irretrievably lost.  Three days later, the IRS admitted that it also no longer had subpoenaed emails from six other IRS employees in Lerner’s division because their hard drives also crashed.  Meanwhile, Attorney General Eric Holder has refused to open an investigation into the abuse of power.

We the People have a right to evaluate the conduct of our government agencies.  To do so, we need only review the statements made by the principals involved.  On 14 May 2013, President Barack “I lied, period” Obama called the reports of IRS abuse “intolerable and inexcusable”.  Lois G. Lerner testified under oath before Congress on 22 May 2013:

My professional career has been devoted to fulfilling responsibilities of the agencies for which I have worked, and I am very proud of the work I have done in government.  I have not done anything wrong. I have not broken any laws, I have not violated any IRS rules or regulations, and I have not provided false information to this or any other congressional committee.

On 24 Jul 2013, the president said the entire episode was nothing more than a “phony scandal”; on 2 Feb 2014, he told interviewer Bill O’Reilly that there “was not a smidgen of corruption” at the IRS.

There is only one conclusion.  Lois Lerner faithfully fulfilled her responsibilities to implement administration policies, and did therefore nothing wrong.  It is a “phony scandal” because the correct intended policy was actually enacted by the IRS; the corruption is intolerable and inexcusable only because Lois Lerner and her accomplices were dumb enough to get caught.  Fortunately, they were able to get the most damaging evidence destroyed in time (remember, this started in March of 2010).

They’re all Lerner’s now.  We do not need a special prosecutor to establish it.  When IRS Commissioner Douglas H. Shulman-Lerner told Congress on 22 May 2012 that “there is absolutely no targeting”, he was correct because the IRS was not singling out certain disapproved non-Democratic groups, it was harassing and delaying applications from all of them.  When current IRS Commissioner John Koskinen-Lerner said on 26 Jun 2014 that a special prosecutor would be “a monumental waste of taxpayer money”; he is correct because it will not be able to find anything.  All the other Lerner’s, their supporters, and the usual Democratic minions in the media will run out the clock until Obama pardons them on his last day in office.

Another successful operation.

[1]        Michael E. McKenney, Acting Deputy Inspector General for Audit, U. S. Treasury Department, “Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review”, Reference Number 2013-10-053, 14 May 2013

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FinancialStatusOfSocialSecurity_Part2   <– PDF version

Some analysts and economists have claimed that the Social Security system is nothing more than a Ponzi scheme.  I believe I can show that there are enough differences between the two to demonstrate that this claim is incorrect.

Let’s begin by reviewing what Ponzi scheme is.  It was named for Carlo Ponzi, a Boston businessman who talked people into investing in a plan to earn a profit through arbitrage of international reply coupons (IRC).  An IRC is an international agreement by which nations agree to deliver mail from other nations within their postal system.  Ponzi’s plan was to take advantage of the difference in postal rates among the various nations participating in the IRC treaty.  His plan fell through with great losses because the overhead on each transaction was too high.  Ponzi’s plan started as a legitimate enterprise, but he turned it into a fraud when he started realizing losses.  He then diverted money provided by new investors by using it to pay off the original investors, while also taking a cut for himself.  In honor of Mr. Ponzi, any investment plan in which early investors are paid off with funds provided by new investors instead of profits is now called a Ponzi scheme.  Instead of earning money by wise investing, the fund managers camouflage their losses by sending out false financial statements.  When necessary, they make payments to the original investors by robbing the newer investors.  This continues until the management runs out of new investors, or the operators steal everything they can.  Normally, Ponzi schemes attract investors by claiming to have invented some secret stock market advantage, or by claiming to have discovered some hidden trading tactic that is always profitable. With that background in mind, here are five reasons why Social Security is not a Ponzi scheme.

1.  “Investing” in a Ponzi scheme is voluntary, “investing” in Social Security is not.  If you are working, whether for wages or in business for yourself, you are inducted into the system except for some very narrow exceptions (usually involving employment by a religious institution).

2.  A Ponzi scheme, although fraudulent, is ultimately subject to Securities regulation, thus incurring a legal obligation to conduct the business honestly (although they have no intention of doing so). Social Security is not subject to any regulation; the Social Security Administration is under no legal obligation to pay benefits: it operates solely on the whim of Congress.

3.  Because a Ponzi scheme is set up to be nominally subject to regulation, an investor can demand to get his money back at any time.  However, no one can get their Social Security “investment” back until they meet age or disability requirements set by Congress.

4.  A Ponzi scheme is based on attracting a small number of wealthy people to invest in it; thus it robs the rich when it fails.  Social Security is based on forcing a large number of poor and middle class people to participate; thus it will rob the poor and middle class when it fails.

5.  Ponzi scheme managers send out false financial statements to give the illusion that it is solvent in the short run.  The Social Security Administration publishes honest financial statements that prove that it is insolvent in the long run.

 

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On Bail Outs and Bail Ins

OnBailOutsAndBailIns  <– PDF version

Are you tired of seeing the government rescuing wealthy bankers from their errors with your tax money?  Are you tired of watching banks creating questionable securities, then making large profits by selling them to unsuspecting customers based on risk ratings that were bought and paid for by the banks who created the suspect securities?  Meanwhile, when the bad securities crashed, the bankers took your tax money from the government to continue and expand their gambling racket.  Are you tired of watching your friends and neighbors lose their houses and jobs while the politically well-connected bankers are compensated and rewarded for failure?  In short, are you tired of seeing these Wall Street losers line up to take bailouts to save them from their own incompetence while the taxpayers take the loss?  Well cheer up chumps, in addition to future recurring bail-outs, there will come a day when you will be “invited” to “participate” in a bail-in.  Here’s how the scam will work.

When you make a deposit at a bank, you receive in return a demand deposit in the form of either a savings account or checking account entry.  Likewise, when you purchase a certificate of deposit, you receive a document, which is, like the savings and checking accounts, a receipt showing that the bank owes you the deposited amount upon presentation of a claim.  In other words, the bank does not sequester the money you deposited; it simply issues you a future right to a certain amount of money in the future, namely, the amount you deposited in one of the account types.  You are actually lending those assets to the bank, and the bank may do with it as it pleases.  The bank is merely obligated to fulfill its promise return it to you upon demand, and likewise with all other depositors.  The bank therefore keeps a small amount of cash on hand to disburse to its depositors from day to day; the rest is loaned out at a profit to the bank.  (Yes it’s true: banks make their profits by lending out something they do not actually own: your deposit).

But what if the bank engages in shady real-estate transactions, or lends money to people who refuse to pay back, or who cannot pay back; or if the bank over-extends itself through highly leveraged investments that decline in value?  There may come a time when the bank’s cash flow is insufficient to meet the daily demands by its depositors; in that case, it will have to obtain more capital to cover those losses and make good on its promises to the depositors.  But what if it cannot raise the required capital?  Remember, banks do not make money by risking their money; only by risking yours.  The CEO of the bank is not going to pony up $300 million of his own money to cover the depositors: he will inform the government that a bailout is needed.  If enough banks make the same mistakes, and the entire cartel becomes insolvent, then they get a very large bailout because they can claim that the entire financial system will collapse.  So it becomes an extension of the old rubric, which goes: “If you owe the bank $100 and can’t pay, you have a problem.  If you owe the bank $1,000,000 and can’t pay, the bank has a problem”.  To which we now add, “If the banks owe $1,000,000,000,000 and can’t pay, then the taxpayers have a problem.”  Hence the need for the government to bail out the bankers; the funds to do so are created by the central bank (the Federal Reserve in the U. S.), and the repayment is made by future tax increases to pay off the new debt created by the central bank.  A bail-out is when the bank is rescued by some external entity, usually the central bank acting on behalf of the government.

A bail-in is different.  A bail-in is when bankers are rescued by internal entities, which is to say, the depositors.  This is done by getting the government to allow the banks to refuse to honor claims by depositors, or prevent risk of capital loss to the bank by depositors demanding their own property back.  The bankers are unable to understand the colossal nerve of depositors, demanding to exercise their rights, formerly issued by the bank, to retrieve their own property on demand.  To the bankers, you are nothing more than an ingrate if you still insist that the bank uphold its end of the deal.  A bail-in is manifested by “capital controls”, (not on the banks since they do not risk their capital), but on its depositors.  It comes in the form of limitations upon depositors on how much can be withdrawn per day or week; a prohibition on the cashing of checks, limitations on how much currency can taken out of the country, limitations on overall volume of transactions, etc.  It matters not that a depositor needs money to pay for groceries or the mortgage: what matters is that the bank, by exercising a bail-in, gets to keep their money as long as it needs to, thus avoiding default, until it can coerce, bribe, or intimidate a government or other banks to give it a bail-out.  Now banks do not have the legal power to invoke a bail-in unilaterally: it has thus far required a conspiracy with the government to transfer such a power to the bank; for which consideration, the politicians are of course rewarded with favorable loan terms or even forgiveness of existing loans.  A bail-in generally does not permit the banks to pilfer the contents of “safe deposit” boxes, but it would be naive to exclude such a future possibility.

Lest you think this is all idle speculation, be advised that it already happened in Cyprus in 2013.  When the Cypriot national banks got into trouble, it negotiated a bailout with the IMF and other European central banks, but the deal was contingent upon the government of Cyprus to allow a bail-in binding on depositors.  So, in March of 2013, Cypriot depositors were saddled with the following restrictions on their own property [1, 2], some of which are still in effect:

a.  withdrawals limited to 300 euros per day

b.  cashing of checks prohibited

c.  Persons exiting Cyprus could take no more than 1000 euros with them

d.  Payments or transfers to foreign accounts limited to 5000 euros per month

e.  A 9.9% tax levied on depositors with balances greater then 100,00 euros, and a 6.75% tax on deposits less than 100,000 euros

What happened when the government imposed these violations of rights upon its own citizens in order to save the incompetent and/or corrupt bankers?  Did the people reach for the pitchforks and torches and descend upon the bankers and politicians?  No; they patiently waited in long lines like sheep; they raised no protest at the violation of their rights; they did not question the merits of the government’s actions against them.  You may be sure that this quiet acquiescence did not go unnoticed by the bankers and their political cronies.  When U. S. banks get in trouble again, as they are sure to do, it will create the perfect excuse for the government to restrict most cash transactions, allow the banks to prosper without risk, and track your every economic move electronically.

Please send comments to Edward.d.duvall@gmail.com

[1]  BBC News Europe, “Cyprus eases some bank restrictions after bailout”, 29 Mar 2013, http://www.bbc.co.uk/news/world-europe-21978286

[2]  Edward Harrison, “Cyprus’ Bank Deposit Bail-In”, 16 Mar 2013, http://www.nakedcapitalism.com/2013/03/cyprus-bank-deposit-bail-in.html

 

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The Antics of the Government Shutdown, Oct 2013

AnticsOfTheShutdownOct2013  <– PDF version

So we’ve had another “partial shutdown” of the federal government.  As usual, the administration did what it could to inconvenience the people for political gain; “essential” government employees worked as usual; and “non-essential” government employees received a two-week taxpayer-paid vacation.  Meanwhile, non-government employees who suffered from slowdowns and furloughs went without.  Situation normal: the ruling elite always look out for themselves and their non-essential government colleagues, first and foremost.  Finally the Democratic faction of the ruling elite came up with a temporary fix on 16 Oct 2013 which will cause the same debate to recur in Jan 2014.  In return, the Republican faction received a promise to negotiate spending cuts from the elitist President that would not even talk to them during the partial shutdown.

This shutdown started when the Republican faction attempted to link de-funding of Obamacare to a continuing resolution; they later reduced their demands to a delay in the individual mandate, but failed in the end to achieve even that.  The Democratic faction spent the two weeks busily claiming the shutdown was a conspiracy by the Republican faction, whimpering non-stop that it was unfair to link Obamacare modifications to a continuing resolution.  But, in their never-ending hypocrisy, the Democratic faction ignored the fact that Obamacare was passed originally as part of a budget resolution.  Therefore every budget bill would naturally allow a challenge to Obamacare.  The blame-stream media of course castigated the Republican faction at every turn.  What else should be expected from institutions that behave as if they were entirely owned and operated by the Democratic faction?

But the Republican faction is equally hypocritical when they pretend that they would behave any differently than the Democrats if Obamacare had been their idea.  After all, the main purpose of the law is to transfer power to the government by regulating the distribution of health care services, and the Republican faction desires the expansion of government power just as much as the Democratic faction.  As always, it is the people who lose out; in this case, the people will, in the long run, end up with lower quality or lesser quantity at a higher cost, typical of every one-size-fits-all government program.  If the problems signing up for Obamacare so far are any indication, the law is even worse than the analysts concluded.  Good thing the Democrats didn’t read it before they passed it — now they have plausible deniability.

The ruling elite cannot or will not do their jobs because they do not have the discipline to impose a budget process, hence the need for continuing resolutions.  This is especially true of the Republicans, who control the House of Representatives from whence all funding bills must originate.  In this instance the budget problem was coupled with a need to raise the debt limit because the government would be technically unable to meet all its obligations around the 17th of Oct 2013.  Once again, the hypocrisy of the administration was in full vigor, claiming that the U. S. would have defaulted on Treasury obligations (i.e., to pay interest on the debt) on that date.  But there is sufficient cash flow from the never-ending cascade of federal taxes being paid every month to cover those interest payments.  What Mr. Obama really meant was that the government would not be able to both service the debt and make full payouts on all the social programs, corporate welfare, and excessive regulation which the ruling elite together has imposed on the people.

In reality, both factions wanted a shutdown.  The Republicans wanted it for two reasons: a) to embarrass the President into allowing a cancellation of his signature “achievement”; and 2) draw attention to the excessive government spending (except for the part they voted for).  The Democrats also wanted it for two reasons: a) to distract attention from the scandal-of-the-week; and b) let the blame-stream media paint the Republicans as extremists for political advantage.

Look no further to the ruling elites in Washington for “leadership” or “solutions”.  If it’s not in the Marxist Handbook, the Democrats cannot understand it.  If it requires working together for a sensible objective, the Republicans cannot pull it off.  The good news is that they get to do it all again in a few months.

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