Low interest rates are killing pension funds

Pension liability

Banksters and speculators love our current ultra-low interest rates, as it allows them to borrow inexpensively. It’s party time for them, aided and abetted by the always banker-friendly Fed. The problem is, cheap money is absolutely killing pension funds, which rely on bonds for steady income. Bonds that used to yield 8% can be one-tenth of that or less now, which makes it difficult, sometimes impossible, for the fund to meet obligations.

So, if they are allowed to, they cut pension benefits and / or do risky trading to make up the difference. This is a worldwide problem. Here in the states, ginormous Calpers made 0.6% for FY 2016. It needs 7.5% to hit its targets. Ouch. Costa Mesa and San Jose have crushing pension debt loads that increase each year and threaten to swallow up entire city budgets. Yes it’s that bad. And California law makes it very difficult to cut public pension benefits.

Those with private pensions can be ever worse off. Multiple Teamsters pension funds are in dire shape and may be taken over by the feds within a few years. If that happens, benefits will be decimated. These workers were promised pensions. They paid into the fund for decades. Now it just gets vaporized?

Low rates helped pull down assets of the world’s 300 largest pension funds by $530 billion in 2015, the first decline since the financial crisis, according to a recent Pensions & Investments and Willis Towers Watson report. Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis.

Bookkeeper gets 4-10 yrs for $200,000 theft. Bank execs still not prosecuted

A 60-year-old Las Vegas bookkeeper is going to prison for illegally transferring $200,000 between two unrelated companies. It’s unclear if she personally profited from it. Meanwhile, banks like Wells Fargo and HSBC pay continual fines for laundering drug money and not a single executive is criminally prosecuted.

This is not accidental. Former Attorney General Eric Holder pointblank said big banks would not be prosecuted because doing do would be injurious to them. Yes, he really said that, weeping faux tears all the while. I’m sure he will become quite wealthy now that he has left government.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said, according to The Hill. “And I think that is a function of the fact that some of these institutions have become too large.”

Wells Fargo and HBSC just pay fines for obvious criminal actions.

The [California] Treasurer’s office has long relied on Wells Fargo as a partner to meet the state’s investment and banking needs, but the bank can “no longer be trusted with the public’s money when it has shown such little regard to the regular citizens,” State Treasurer John Chiang told a news conference.

Chiang last May banned the U.S. subsidiary of HSBC from participating in California’s $6.5 billion deposit program after receiving reports of money laundering and tax evasion.

Back to the bookkeeper. Sure, what she did was illegal and wrong. However, why does she go to prison and bank execs don’t?

A former Las Vegas bookkeeper was ordered to serve four to 10 years in prison Tuesday for illegally transferring more than $200,000 between two companies, including one owned by the wife of a Nevada Supreme Court justice.

Records stated that Sparks used Antonacci’s signature stamp to write unauthorized checks, made unauthorized cash transfers and used Antonacci’s Office Depot card to take $201,096.22 from Antonacci’s accounts and move it to Leslie Parraguirre’s.

Zombie condos and cratering condo HOAs

Foreclosure sign

Nationwide, an appalling 75% of condo developments don’t meet new FHA rules. This makes getting a mortgage on such units more difficult and thus harder to sell. Compounding the problems, banks are reluctant to foreclose on condos., so the condos become zombies, especially when their value is less than the loan balance.

Owners who can’t pay the mortgage generally can’t pay HOA fees either. Fees in some troubled condo complexes are rising sharply due to deferred maintenance costs. Some modest condos now have monthly HOA fees of $600 or more, which may actually be more than their mortgage. So they stop paying, especially if they are in foreclosure. This puts even more financial pressure on condo HOAs, so they close pools and tennis courts, making their condos ever harder to sell. The downward spiral continues. The housing market in general has recovered quite a lot since the 2008 crash. Condos, not so much,

Part of the problem is banks and mortgage brokers gave loans to buyers who couldn’t really afford them, especially when HOA fees are added in. And if the HOA was in dicey condition to begin with, then monthly fees were almost sure to rise.

We live in a house in Vegas that is part of a tiny HOA. Sue is a CPA and read their financials before we bought the house. Always do this  before buying property in a HOA. Our fees are tiny, just $35 a month. There was a board vacancy when we bought so I volunteered, just in case the board might be up to something. (It’s not. Our meetings are friendly and take 45 minutes.)

Do not rent a condo in a troubled HOA if you even suspect the owner might be in foreclosure or is behind on payments. It probably won’t end well.

Before 2008, the FHA approved prospective condo buyers based on their individual financial stability. The new rules required that an entire community meet a minimum level of solvency.

The agency will not provide loans for condo communities if at least 15 percent of current owners are 60 days or more behind on their monthly fees. The FHA also requires that a community’s cash reserves be equal to at least 10 percent of its annual budget.

Apple’s tax dodge in Ireland and those uppity Europeans

How dare the European Union interfere with Apple parking billions in Ireland and paying practically no tax on it? Why you’d think Ireland was part of the EU and that the EU had a right to say what their member nations do. US Treasury Secretary Jack Lew thinks that’s pretty darned presumptuous of the EU to claim jurisdiction over what US corporations do in their countries.

Let’s review the facts. Ireland supports itself by being a tax haven. Big corporations can sluice money in from wherever to Ireland, where it pays a little bitty tax. Apple’s Ireland office has no employees and does no business there. The money is transferred in from elsewhere. Sooner of later, Ireland will be forced to stop being a tax haven and then will have generate revenue like other countries. It will genuinely be rough for them.

Our government has screamed at Apple for years to repatriate the $181 billion or so it has stashed overseas, so it would be taxable here. But now that EU says Apple must pay Ireland $14.5 billion in back taxes, our government has a hissy fit. Is this because they fear lost revenue or because how dare another country tell our corporations what to do. Either way, the infant United Sates and Apple CEO Tim Cook are banging their rattle on the high chair.

Whenever Brussels makes noises about getting tough with large U.S.-based firms, top U.S. politicians, business executives and commentators tend to fall into a reflexive response pattern and turn into crybabies. They immediately criticize the European Commission as an overbearing bureaucracy, hostile to innovation (and the United States per se), creating uncertainty, pursuing backward-oriented industrial policy, undermining investment in the EU and acting in an unfair manner.

Offshore Profit Shifting and the U.S. Tax Code, IRS testimony (PDF)

As to specific repatriation strategies being challenged by the IRS, these often involve foreign affiliates entering into various transactions with their U.S. parent that result in the parent receiving cash, notes or other property from the affiliates. Taxpayers assert that these transactions do not result in a dividend or gain to the U.S. parent corporation under various corporate non-recognition provisions. Examples of these transactions include so-called “Killer B” transactions, “Deadly D” transactions, zero-basis structures, and outbound F reorganizations. While these types of transactions have been addressed by new regulations, for pre-effective date periods the IRS has challenged many of them under common law doctrines and will continue to do so.

Online drug sales, money laundering, prepaid cards

People's Drug Store 8/15/16
People’s Drug Store 8/15/16

Dark Net drugs sales have tripled since 2013 when Silk Road was closed. While still a tiny part of overall drug sales, the anonymous nature of the transactions makes it ideal for using dirty money. The Dark Net is accessible only by the Tor browser. Everything is encrypted and routed through anonymous relays. Payments are made in cryptocurrency.

Buyers are purchasing in wholesale quantities, presumably for offline distribution.

There is evidence that drugs sold on cryptomarkets are fueling offline drug markets, with buyers sourcing stock for offline distribution. Twenty five per cent of total drug transactions on cryptomarkets during January 2016 were greater than $1,000.

In related news, credit card companies continue to resist regulations on hugely profitable prepaid cards, even as they are clearly used for money laundering. Some U.S. big box stores will cheerfully, and without questions, convert multiple prepaid cards into other prepaid cards (or cash) because they get a cut.

In 2011, Kumar Kibble, then Deputy Director at U.S. Immigration and Customs Enforcement testified in Congress that authorities had found hundreds of the cards hidden “in a compartment similar to those used to conceal cash, drugs and other contraband.”

John Tobon, deputy special agent in charge of Homeland Security Investigations in Miami, said the cards can be used to pay couriers smuggling money, drugs or other merchandise as large cash transactions come under greater scrutiny.