Thursday, August 25, 2011

Hot stock tip?

Warren Buffet, The Oracle of Omaha, has just made a really shrewd move or he really is nuts. He was recently vilified by the right for suggesting that people who make over a million dollars a year should start paying 35% tax instead of the current 15%. His new “questionable” investment was to put five billion dollars into Bank of America, the biggest of the big zombie banks. This pulls BoA back from the edge of the cliff and then some.

You might say he thought buying a stock that has lost 50% of its value was just an ordinary buying opportunity. But you might say that today's rumor about that big new jobs program Obama is going to introduce in September has something to do with it. The most successful capitalist in the world did President Obama a real solid by taking a principled stance against greedy right wingers. Did Obama return the favor with a hot stock tip? Or is Buffet just really smart?

The “secret” plan to revive the economy, if rumors are to be believed, is to finally refinance all of the outstanding mortgages to the new low interest rate which currently less than 4%. This would immediately start pumping cash into the economy, which when fully implemented would amount to 85 billion a year and would be high grade stimulus. This would continue for a generation until these loans are paid off.

The real kicker is that Congress can’t stop him from doing this and it won’t cost anything. Obama already has the authority to do this from laws passed in 2009. Buffet and BoA could benefit from the rewriting of the loans if they are allowed to do the paper work, and if nothing else it should take care of that trillion in bad mortgages BoA has on the books.

Why didn’t Obama do this before? Well, it’s going to really piss off those greedy millionaires and billionaires that Buffet has been publicly shaming. You need to understand about Freddie and Fannie, the government backed semi-private home loan holding companies, the ones that the right wingers want to “privatize” which really means “steal”. You see these companies have issued trillions of housing bonds that pay pretty good interest and are government backed, even if no longer AAA.

The rich people who hold these Freddie and Fannie bonds are suddenly going have them redeemed and they won’t have any place to put their ill gotten gains that pays anything. Not that these people are going to starve but they might need to invest in something productive for a change. These high interest bonds were simply an instrument for the rich lords to tax the peasants, and the rich didn’t pay any significant tax themselves as dividends, interest and capital gains are taxed at a maximum of 15%.

This kind of income is completely exempt from payroll taxes as well, not just the amount over 106,000. So while the self-employed Mercedes mechanic will pay 47% Federal tax ,including 12% for Fica, on the top slice of his income. The guy who has his chauffeur bring the cars in will sit home by the pool and whine about paying 15% maximum, not counting other tax loopholes.

The response from the right, “But, but, the rich pay more than half of the income tax and to be fair we need to tax the bottom 48% who don’t pay any taxes”. They don’t mention that rich (we are talking thousands of people compared to 150 million who don‘t pay), these rich people have more than half of the income as well. Plus the personal income tax only accounts for 44% of revenue while Fica is 41% and Fica is not paid by the rich. The rich pay about half of the actual income tax rate they paid in 1961.

The rich also benefit greatly from their ownership of massive corporations that provide them with all manner of lavish perks and the ability to wield raw power. No problem getting the 50 yard line seats for the big game with the company name on the stadium, and fly to the game on the corporate jet with the private five star chef. No problem getting George into Yale instead of trying to get him on at the sheltered workshop, and those criminal charges can just go away when the judge owes you his job. Corporations in the US pay the lowest actual tax rate in the developed world and it’s about a quarter of what they paid 50 years ago. It’s good to be rich, sucks for you teabagger.


Anonymous said...

Love this idea. My only problem with it is that Obama does not have the guts to do it. Too bad most of us don't have any money or the stomach to invest our pennies like Warren. I hope you are right on Mr. Buffett's strategy.

John said...

"Hot stock tip?"

I'm sure Mr Buffet hopes we think so.

As a legal aid attorney once revealed to me:
"There's a lot of money in poverty!"

Even if Buffet has outraged his own class, perhaps he thinks that the hoi polloi will now regard him as our hero in the class war AND follow his lead into BofA stock with our many, if small, "investments" in the non-scratch lottery of Wall Street.

After this well publicized "buy" signal, do you think Mr B. will announce his intention to exit from said stock ... after we've bid it up for him?

(Disclosure: I never have, do not have, nor will never have a client/financial relationship with BofA. It's only the fear of t-ism charges that keeps me from pursuing my dream of "depositing" a steaming crap on its corporate HQ doorstep.)

John Puma

macnow said...


personally I would do it in one of their safety deposit boxes...

much more discreet,

in time smells up all the bastards boxes around ya,

and it would probably take days or for them to finally figure it out.

Get a box closest to a exhaust air vent, making it harder to find direction.

:- >

Tony said...


You rightly point out that this middle class life preserver is nothing more than a rumor at this point. Obama has proven himself time and again to be on the side of the banks, the corporations, and Wall Street, and against the working class Democrats who put him in office. This point was illustrated again a few days ago by Matt Taibbi ("Obama Goes All Out For Dirty Banker Deal") who discussed the federal plan to protect the banks from major liability for their mortgage backed-securities fraud that was the biggest illegal fraud scheme in the history of money. Taibbi goes on to openly question whether Obama is the most disappointing president in history.

If this mortgage refinance plan is real, then great, and I will be the first one to applaud the president, even though this should have immediately been done as part of the "stimulus" in 2009. But given his track record, I have to see it to believe it, because right now I don't believe it will happen.

I guess BAC is turning out to be a buy after all?

John said...

What should have been done immediately in 2009 was a moratorium on all pending foreclosures and investigation of executed ones.

But, no, that atrocity was "put behind us" so that new new and more devastating atrocities could be developed and sprung on Americans.

I don't like our chances as that last layer of atrocities simultaneous put a knife into the heart of the American dream while simultaneously (fraudulent foreclosures) smothered, ironically, "conservatism's" ceaseless braying about private property rights.

John Puma