A blog about business and economics.

Sept. 20 2016 1:20 PM

Elizabeth Warren to Wells Fargo’s CEO: “You Should Give Back the Money That You Took”

In less than 10 minutes, Massachusetts Sen. Elizabeth Warren all but destroyed Wells Fargo CEO John Stumpf’s excuses for the wide-scale fraud that occurred on his watch, accusing him of presiding over a scam that not only ripped off millions of customers but also boosted the pay of senior executives like himself.

Let’s review!

Until Tuesday morning, Strumpf had all but pinned the blame for the scandal—in which Wells Fargo employees opened an estimated 2 million bank and credit card accounts for customers without their permission—on the company’s rank and file, who were seemingly desperate to keep up with the bank’s unrealistic sales goals, and who often only earned $11 or $12 an hour. “So, you haven't resigned, you haven't returned a single nickel of your personal earnings, you haven't fired a single senior executive,” Warren told Stumpf. “Instead, evidently, your definition of accountable is to push the blame to your low-level employees who don't have the money for a fancy PR firm to defend themselves. It's gutless leadership.”

Warren went on to point out that Wells Fargo did not aggressively investigate the fraud for years, even as the problems continued to grow. Even as media outlets like the Los Angeles Times wrote about them, and even as the bank conducted its own internal investigations and trainings for employees designed to stop them from engaging in less than ethical sales practices, Stumpf boasted of the bank’s cross-selling prowess on investor calls with stock market analysts. “While this scam was going on, you personally held an average of 6.75 million shares of Wells stock. The share price during this time period went up by about $30, which comes out to more than $200 million in gains all for you personally. And thanks in part to those cross-sell numbers that you talked about on every one of those calls.”

Warren than went on to call for government authorities to investigate Stumpf for fraud. “You should give back the money that you took while this scam was going on, and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.”

Finally, Warren linked the scandal to the housing crisis and the bank behavior that went unpunished even as millions of Americans lost their homes to foreclosure or otherwise saw their financial lives torpedoed, even as bank executives continued to rake in millions of dollars in annual bonuses.

A few other things from Stumpf’s testimony are worth noting. He seemed less than entirely prepared for the barrage of hostile questions. At one point he claimed he was “not an expert” on compensation and that he would leave questions about whether Carrie Tolstedt, the senior bank executive in charge of Wells Fargo bank branches at the time of the fraud, should have part of her pay clawed back to the bank’s board. (Stumpf is chairman of Wells Fargo’s board. Yes, senators quickly reminded him of that fact.) He also contradicted previous statements by a Wells Fargo spokeswoman who denied Tolstedt’s retirement was as a result of the scandal, saying her exit was prompted, in part, by changes the bank was making in the wake of the scandal.

Stumpf also apologized for the bank’s behavior. But not only was it too little, too late, it didn’t seem to register with him that a personal apology was not enough. There need to be consequences, the senators stressed. Let’s give Warren the final word:

This just isn't right. A cashier who steals a handful of $20s is held accountable, but Wall Street executives who almost never hold themselves accountable, not now and not in 2008 when they crushed the worldwide economy. The only way that Wall Street will change is if executives face jail time when they preside over massive frauds. We need tough, new laws to hold corporate executives personally accountable, and we need tough prosecutors who have the courage to go after people at the top. Until then, it will be business as usual.

Let’s hope this blast changes things.

Sept. 20 2016 12:24 PM

How Does Amazon Nickel-and-Dime Its Customers? This Socket Wrench Set Reveals All.

Among buyers, if not among sellers, Amazon had long held a reputation for transparency and customer service. This is, after all, the company whose margins are so low it has historically had trouble turning a profit despite an annual revenue stream that recently crossed $100 billion. (Recent quarters have been gangbusters, though that’s thanks in large part to the company’s cloud computing service.)

An investigation out today from ProPublica challenges the idea that Amazon is always giving you the best deal on your socks, books, and toothpaste. The reporters, Julia Angwin and Surya Mattu, analyzed 250 listings and showed that Amazon’s algorithms often automatically prioritizes the placement of products that aren’t the cheapest—but are sold by Amazon, or by companies that participate in its shipping program, Fulfilled by Amazon. It’s a sign of how Amazon is using its power as a marketplace to advance its business in shipping and logistics.

Here’s how that works. Click on a product page on Amazon—such as this one for a socket wrench set—and you’ll find it’s sold by dozens of sellers. Amazon automatically selects one for its “buy box,” at right, which features a big, yellow “Add to Cart” button. Other sellers are shunted into a less prominent list below.

It’s your choice, of course. But outside analysts tell ProPublica that the Buy Box dominates Amazon sales simply by appearing to be the default option. And the Buy Box favorite seems to be determined by an algorithm that omits shipping costs for Amazon and Amazon-shipped products, though with shipping costs included, they are often more expensive. Unless you’re an Amazon Prime customer, or buying more than $49 worth of stuff, that’s not an honest representation of the price.

Sept. 20 2016 5:45 AM

13 Questions the Senate Needs to Ask Wells Fargo CEO John Stumpf

Expect fireworks in Washington on Tuesday morning. That’s when John Stumpf, the chairman and chief executive officer of Wells Fargo, is expected to appear in front of the Senate Banking Committee to answer questions about how, exactly, the corporate culture at his bank went so awry that employees opened an estimated 2 million bank and credit card accounts for customers without their permission.

While the outlines of the situation at Wells Fargo have been known since a Los Angeles Times investigation in late 2013, few in the public or on Capitol Hill were worked up about or even aware of the problem until earlier this month, when the Consumer Financial Protection Bureau announced $185 million in penalties against the bank. The money will be split between the CFPB, the federal Comptroller of the Currency, and the Los Angeles City Attorney’s Office. Wells Fargo, which did not cop to or deny the allegations, also agreed to pay full restitution to the victims of the scam and says it’s already refunded $2.5 million.

“I’ve got a lot of questions for that man,” Sen. Elizabeth Warren, a member of the banking committee and a harsh critic of wrongdoing in the financial industry, said on Bloomberg Television last week. No kidding! Slate also has a lot of questions for Stumpf—and we hope that Tuesday’s hearing includes at least some of these ones.

Do you believe that the problems at Wells Fargo went beyond a few rogue employees?

Wells Fargo has long had a reputation in the banking industry for outsize success in cross-selling. Have a Wells Fargo checking account? Then you need a Wells Fargo credit card! And a mortgage! And another checking account! To make all of these cross-sales, the bank set aggressive sales goals for its employees. Many former employees report that managers threatened to discipline or fire them if they didn’t meet the goals. And Wells Fargo knew there were issues. The bank conducted at least three internal investigations, the first in 2012, a year before the Los Angeles Times published its reporting, in an attempt to stop employees from opening sham accounts, which it must have known was a consequence of those insane goals. Nonetheless, even last week, Stumpf said that the bankers and frontline workers who engaged in the fraud refused to “put customers first” and didn’t “honor” Wells Fargo’s “vision and values.”

Is it really possible for thousands of low-level bank employees to thwart the will of senior management for years?

The CFPB’s settlement with Wells Fargo covers the period between May of 2011 to the settlement date of Sept. 8, 2016. Wells Fargo says it’s fired more than 5,300 employees—somewhere between 1 and 2 percent of its entire workforce—as a result of the scandal. The New York Times and the Wall Street Journal reported that during this period the bank instituted trainings and subjected employees to lectures designed to knock out the fraudulent behavior. It also made some changes to the bonus system and beefed up internal compliance. But, again, many claim that supervisors continued to push employees to make the aggressive sales goals. So what values weren’t the fired employees honoring?

Why did Carrie Tolstedt, the head of community banking at Wells Fargo, announce her retirement earlier this year and receive a goodbye package worth an estimated $125 million?

Tolstedt was the executive responsible for oversight of all Wells Fargo branches, which is where the action took place. The announcement that Toldstedt, who is 56, planned to exit the bank came as a bit of a surprise. No reason was given at the time for her decision, though a bank spokeswoman subsequently said it was unrelated to the ongoing investigation. She was highly regarded by many both inside and outside the industry. Fortune magazine counted her as one of the “50 Most Powerful Women in Business.” In the news release the bank put out announcing Tolstedt’s retirement, Stumpf praised her, saying she was “one of our most valuable Wells Fargo leaders, a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.” And yet during Toldstedt’s tenure as the senior executive responsible for bank branch management and performance, the fraud persisted and the sales goals that caused it were never rolled back. Meanwhile, Fortune reports, “Tolstedt was regularly praised for her unit’s ability to get customers to open numerous accounts. For a number of years, Wells Fargo’s proxy statement, which details executive pay, cited high ‘cross-selling ratios’ as a reason that Tolstedt had earned her roughly $9 million in annual pay.”

Will Wells Fargo attempt to recoup any of Tolstedt’s goodbye package or other payments?

In a letter released last week, Warren and four other Democratic senators—Sherrod Brown, Jack Reed, Robert Menendez, and Jeff Merkley, all also members of the Senate Banking Committee—asked whether Tolstedt’s payday would be clawed back and pointed out that Wells Fargo’s own governance rules say that the company can demand payback for payments received as a result of false information, misconduct, or negligent behavior. In a response received on Monday, the company said this call will be made by the bank’s board of directors. Stumpf, in addition to serving as the company’s CEO, is also chairman of its board.

Will Wells Fargo attempt to claw back all or part of performance bonuses of other senior employees, including Stumpf's?

Even if Wells Fargo finds fault in the C-suite, doesn’t Tolstedt report to someone? Well, yes, she reports to CEO Stumpf. And what’s his pay? Stumpf earned $19 million last year, including a $10 million performance bonus. In fact, between 2012 and 2015, he collected $155 million in stock options related to performance bonuses, according to the Institute for Policy Studies, which calculated the value of stock options, bonuses, salary, and other compensation.

Did the lower-level people fired by Wells Fargo for their part in this scandal receive settlements, too? If so, how much did they receive?

Because it’s worth noting that according to Glass Door, the typical Wells Fargo teller earns a base pay of $12 an hour, and a personal banker a little less than $40,000. These are the people Stumpf now blames for the endemic culture of fraud at the bank.

The Los Angeles City’s Attorney’s office first filed suit against Wells Fargo for this activity in the spring of 2015. The federal government also began looking into the bank later in the year. Why wasn’t this disclosed in corporate filings with the Securities and Exchange Commission?

Despite the internal probes, newspaper investigations, and government interest in the fraudulent sales practices at Wells Fargo, the bank continued to boast of its cross-selling prowess in its annual reports, reporting numbers that authorities challenged. Nonetheless, bank executives deemed none of this worthy of disclosing as a material fact in SEC filings. No doubt holders of Wells Fargo stock would disagree. Since authorities announced the $185 million settlement on Sept. 8, the stock price has dropped by almost 8 percent.

Will Wells Fargo continue to fight victims of this scheme who attempt to take them to court?

Even as Wells Fargo conducted multiple investigations that found evidence of fraud at the bank, bank officials aggressively fought back against people who attempted to get restitution via the courts. Incredibly, courts ruled the mandatory arbitration agreements customers sign when doing business with Wells Fargo also cover accounts they did not authorize and were opened without their permission. Nonetheless, lawyers are now circling. Last week, a lawsuit was filed in Utah against the bank, seeking restitution for everything from actual financial harm to mental anguish as a result of the fraud. Lawyers are seeking class-action status.

Will Wells Fargo continue to stonewall victims who say they suffered significant financial losses because of the actions of their employees?

Latina singing star Ana Barbara claims she was the victim of identity theft. In a lawsuit filed this summer, she alleges that Wells Fargo employees opened multiple accounts and credit lines in her name, costing her more than $400,000. When she sought restitution, she says the bank would only give her $250,000, saying she waited too long to notify them of the missing funds and fraudulent activity.

What do you know about damage to the credit records and scores of customers?

Wells Fargo customers are beginning to surface with tales of credit-report harm. New Jersey mom Linda Edwards reported last week that someone—likely a bank employee—opened a credit card in her teenage daughter’s name. That someone then ran up charges on that card he or she did not pay. Her daughter’s credit record was damaged. Wells Fargo eventually refunded the fees it charged, but “they never addressed the identify theft, forgery, or fraud,” Edwards said, instead attempting to pin the blame for the unpaid bill on her daughter. This despite the fact the girl never applied for the card or had it in her possession.

In a phone call with reporters on Friday, California Rep. Brad Sherman said he would ask the CFPB to determine if any Wells Fargo customers' credit records or scores suffered damage as a result of the wide-scale fraud. Even without full-scale identity theft, it certainly sounds like a reasonable supposition. Many consumers racked up fees and penalties on the accounts they did not authorize and often did not know about. Even multiple inquiries for credit can result in a temporary lowering of one’s credit score. If a customer was seeking any other loan, it’s possible they paid higher interest rates as a result of Wells’ actions without even knowing the reason why.

Has there been any attempt to quantify how many customers succumbed to pressure from bank employees and signed on for bank products they did not need or even truly want? Will Wells Fargo attempt to track these customers down and make restitution to them, even though they don’t all seem to be part of the settlement with the CFPB?

On Reddit, one person claiming to be a former Wells Fargo banker explained how fellow employees conned existing customers into signing up for less than necessary services by falsely claiming they needed separate checking accounts for online shopping or separate debit cards for every signer on their business checking or savings account. The Los Angeles Times investigation also reported on this sort of employee behavior, claiming, for instance, that one supervisor caught her underlings convincing a homeless woman to open and pay fees on half a dozen Wells accounts. No surprise, others are coming forward to complain of similar treatment. Frank Ahn, a Los Angeles laundromat and check-cashing business owner, told about Wells Fargo bankers who repeatedly told him to open multiple checking and savings accounts for his establishments, promising these would be no-fee accounts. They were not. It’s also possible—make that likely—more than a few people gave in to badgering and signed up for a credit card they didn’t need or really want.

This is not the first allegation of fraudulent activities at Wells Fargo in the past decade, nor is it the first settlement. Do you believe Wells Fargo might need to re-examine its culture and values?

In April of this year, Wells Fargo agreed to a $1.2 billion settlement with the federal government for misrepresenting the risk posed by certain mortgages during the housing bubble run-up (to be fair, before Stumpf was appointed CEO) so they could insure them through the Federal Housing Administration. In 2012, there was another housing-bubble settlement, this one on accusations Wells Fargo steered minority buyers to subprime loans during the go-go years even when they were qualified for mortgages with better financial terms.

Investors suffered too. Earlier this year, a unit at the bank was charged with fraud by the SEC, who claimed the bank did not reveal vital details to investors in a bond offering for baseball player Curt Schilling’s failed 38 Studios venture. Also earlier this year, Florida’s American Seminole tribe sued the bank for mismanaging a trust, claiming it lost $100 million to secretive fees fraudulently imposed on its funds by Wells Fargo. And in 2014, there was yet another settlement, this one for pushing risky investments between 2006 and 2008 on pension funds seeking more conservative strategies.

Student loans are also a problem spot. Last month, Wells Fargo agreed to pay $4.1 million to settle charges levied by the CFPB that it tacked illegal fees onto the accounts of some student loan borrowers. A deal to market student loans with online shopping giant Amazon unraveled this summer, after a number of elected officials expressed concern the plan could be “deceptive.”

Why do you still have a job?

As Harry Truman famously observed, “the buck stops here.” Where does it stop at Wells Fargo?

Sept. 19 2016 7:18 PM

The Jane Jacobs School of Counterterrorism

Ahmad Khan Rahami, who was arrested Monday morning in Linden, New Jersey, is suspected of leaving bombs in four separate locations in New York and New Jersey on Saturday.

Two bombs exploded, the first in a garbage can in Seaside, New Jersey, on Saturday morning, causing no injuries, and the second in a dumpster in Manhattan on Saturday night, causing 29 injuries. No one was killed.

The other two bombs were discovered before they could go off—not by the America’s largest police force, or by our billion-dollar surveillance state, but by curious bystanders. Call it the Jane Jacobs School of Counterterrorism, after her recognition that civilians, not police, operate the most effective surveillance.

Sept. 19 2016 12:32 PM

Trump’s Tax Cuts—and Child Care Plan—Would Be Utterly Worthless for the Middle Class

Donald Trump's tax plan is still a bit of mystery. For instance, it might include a roughly $1.5 trillion tax cut that would benefit wealthy business owners like himself. Or it might not! His campaign has sent mixed signals, and four days after rolling out the proposal during a big event in New York, that trifling detail still isn't clear.

But you know what is transparent at this point? That Trump’s tax package—including its much-hyped child care plan—is basically worthless to the middle class. The thing is a multitrillion-dollar gift to the rich.

That's one very obvious takeaway from a new analysis released Monday morning by the conservative Tax Foundation. In order to deal with the ambiguity hanging over Trump's proposal, the think tank ran two sets of calculations. One included the tax cut that Trump's campaign has waffled on—a controversial break for so-called pass-through businesses—and one did not. Either way, the picture is pretty much the same for middle-class households. They get very little, while upper-income Americans reap a windfall.

Here's the Tax Foundation's breakdown showing how much families at each rung of the income ladder would see their after-tax income increase if Trump got his way. You want to pay attention to the “static” analysis on the left, which sticks to the effect of tax cuts on their own. The dynamic analysis on the right factors in the impact of all the economic growth the Tax Foundation thinks Trump's cuts would spur—which, to put it lightly, is extremely hypothetical. Under the static analysis, the bottom 80 percent of families would generally see their income rise by less than 2 percent (taxpayers in the 20th to 40th percentile would get less than a 1 percent increase, on average). Top 1 percenters, meanwhile, get a 10.2 percent average boost without the pass-through tax cut, and 16 percent increase with it.

Now keep this in mind: The foundation tells me its analysis incorporates all of Trump's child care plan, which operates through the tax code using a combination of credits, deductions, and tax-exempt savings accounts. In many states, center-based child care can cost up to 10 to 15 percent of a typical family's income, according to Childcare Aware. The sum total of Trump's tax and child care benefits don't come close to touching that for the families who need it. In fact, they're so small as to be practically negligible.

This is all in the context of a tax plan that will cost between $4.4 trillion to $5.9 trillion, according to the Tax Foundation's estimates. We are talking about trickle-down economics at its extreme. In the true style of a man who loves Las Vegas, Trump has made his offer to the middle class, and it is this: nothing.

Sept. 16 2016 6:07 PM

The Insane Mystery Hanging Over Donald Trump’s Tax Plan

When presidential candidates unveil major public policy proposals, they typical have a pretty firm idea of what's going to be included in them. But Donald J. Trump is no ordinary presidential candidate. And more then 24 hours after announcing the latest iteration of his tax plan at a snazzy event in New York, it is unclear whether it will contain a trillion-dollar giveaway to wealthy businessmen and financiers—like him.

Isn't this election fun?

As recently as last month, the Republican nominee was touting a plan that would have allowed all businesses to pay a single max tax rate of 15 percent. What made this proposal especially startling, not to mention wildly expensive, was that it wouldn't have just applied to companies organized as C corporations—think Exxon, Apple, or Walmart—but also so-called pass-through entities, which include a whole alphabet soup of business types you might be familiar with, like LLCs, LLPs, and S-Corps. Pass-through entities don't pay the corporate rate, which currently tops out at 35 percent. Instead, their profits are distributed directly to their owners, who then pay taxes on them as normal income. A lot of truly small businesses are set up this way. But so are hedge funds, private equity firms, real estate developers, and major law firms, whose partners would often pay a top rate of 39.6 percent on their earnings. Trump was essentially offering to cut their top tax rate by more than half.

Perhaps not coincidentally, the Trump Organization LLC is a pass-through entity.

It is hard to overstate what a truly terrible policy idea this is. You know how people complain about the carried interest rule that gives hedge fund and private equity guys a tax break? This is that on performance-enhancing drugs, a version that wouldn't just help Wall Streeters, but businessmen like Trump himself and the well-paid lawyers who help him minimize his tax bill. It's essentially a lite version of the disastrous tax cuts that have gutted the Kansas state budget. (There, the government completely eliminated taxes on pass-through income.) You will sometimes see “small business” lobbyists argue that giving corporations and pass-through entities the same tax rate will somehow “even the playing field” between them, but even that's complete bunk. The money corporations earn gets taxed twice—once, on the corporate level, and second, when it's distributed to shareholders as a dividend. With law firms and hedge funds or your local boutique, it's only getting taxed once.

Anyway, when Trump announced his tax plan Thursday, it appeared he had experienced a momentary bout of sense and had nixed the 15 percent rate for pass-through businesses. Or so he told the conservative Tax Foundation, which he asked to estimate the cost of his plan. But then, as the New York Times' Binya Appelbaum reported Friday, his campaign “privately reassured” the National Federation of Independent Business that it was still on board with the cut. “We have it directly from his campaign,” a spokesman told the paper.

Since then, the Tax Foundation's analysts has been trying to pin the Trump campaign down on whether or not it supports the break. Last I talked to them, they still hadn't had any success.

This is not a small amount of money we are talking about. Kyle Pomerleau, the Tax Foundation's director of federal projects, told me that the pass-through giveaway would be worth about $1.5 trillion over a decade. (Previous reports suggested it was worth about $1 trillion.) However, that's based on the tenuous assumption businesses won't reincorporate as pass-throughs to take advantage of the incredibly low rates, which is exactly what happened in Kansas. (A lot of high-earners might also just incorporate themselves to get the break.) "In a way the $1.5 trillion is the optimistic score,” Pomerleau said. Keep in mind, without the pass-through break, Trump's plan would supposedly cost $4.4 trillion—we're talking about a 35 percent difference.

That all said, it's almost not worth agonizing over the specifics of Trump's tax vision. In the end, Trump would likely sign whatever tax cut House Speaker Paul Ryan hands him. And currently, the GOP's ideologue-in-chief wants to cut the rate on pass-through entities to 25 percent. So a President Trump might have to settle on a slightly more modest version of his absolutely god-awful idea.

Sept. 15 2016 4:22 PM

Donald Trump Wants You to Think He’s a Populist. But His Economic Plan Is Built for the Rich.

There was one particularly funny and telling moment during the big speech on economics that Donald Trump delivered Thursday in New York. After a long introduction that revisited many of his familiar themes about the evils of “globalism,” disappearing manufacturing jobs, and the need to put “America first,” the Republican nominee offered up an ambitious mission statement of sorts to the crowd of assorted business types. His administration, Trump said, would set “a national goal of reaching 4 percent economic growth.” Not a measly 2 percent. Not 3 percent. But 4 percent. “My great economists don’t want me to say this, but I think we can do better than that,” he added as an aside.

If the idea of 4 percent growth sounds familiar to you, that's because Trump isn't the first candidate to bring it up this election cycle. Poor, deflated Jeb Bush made the exact same promise when he launched his own presidential campaign, which Trump torpedoed with a steady barrage of mockery. Having trounced his old foe, the mogul was now repeating Bush's signature line in front of a crowd at the swanky Economic Club of New York that probably included a few of Jeb's former donors. It was the Republican politics equivalent of kicking sand in some poor nerd's face and walking off with his girlfriend.

But Trump hasn't just learned to repeat the Republican donor class's shibboleths about economics. Despite his campaign's populist veneer, Trump is offering this establishment breed of Republican the kinds of policies it most dearly wants, which is to say a platform of massive tax cuts and deregulation that would greatly benefit the sorts of people who can afford to attend a Hamptons fundraiser.

Consider Trump's new tax plan, which was theoretically the focus of Thursday's speech. His original vision, released last year, was a barely thought-out parody of a public policy document—a monstrous giveaway to the wealthy with a price tag somewhere north of $10 trillion over a decade, or more expensive than Medicare. With the help of some old Republican supply-side hands, like former Heritage Foundation chief economist Stephen Moore, Trump has scaled back his new blueprint into a more generically bonkers conservative proposal—which is to say, it would still cost a budget-busting $4.4 trillion, with much of the benefits clearly tilted to the wealthy. Trump argued Thursday that his income-tax cuts, which also include his much-hyped credits for child care, would lower the IRS burden for middle-class families while “someone earning $5 million will receive virtually no change in their tax bill at all.” But that almost certainly ignores the massive corporate tax relief Trump has proposed, which would largely benefit shareholders. Trump's decidedly not-middle-class crowd actually whooped when the candidate said he would knock the top tax rate on businesses down from 35 percent to 15 percent. (“I know that's what you've been waiting for,” he said in response.) The man has also promised to eliminate the estate tax, which already only affects multimillionaires.

Unfortunately, we'll have to wait until think tanks formally score Trump's new plan to know precisely how its benefits are distributed. But eyeballing them now, it seems pretty clear they'll tilt to the rich. When I asked Alan Cole of the conservative Tax Foundation for a ballpark estimate, he suggested about half the cost would come from corporate and estate-tax reductions.

To be fair, there are aspects of Trump's tax plan that are less plutocrat-friendly than what other Republicans have previously proposed. For instance, Jeb Bush would have reduced the top marginal tax rate from 39.6 percent to 28 percent. Trump settles for 33 percent. Marco Rubio would have entirely eliminated taxes on capital gains and dividends. Trump leaves those rates alone. But it also seems absurd to think Trump is especially attached to any particular part of his plan, other than maybe the corporate rate reductions, which he's talked about forever, and his daughter Ivanka's child care proposals. The basic outlines offer little reason to think he'd be unhappy signing something similar to what Paul Ryan has proposed in the House (his income tax rates are already similar). That, of course, would be the Republican establishment's dream. And much like Ryan, he's promised to pay for his proposals with a combination of cuts to nondefense spending, which will almost certainly fall on the poor, as well as phantom economic growth he says his proposals will spur—a magical 3 to 4 percent asterisk.

Beyond taxes, Trump spent a good portion of Thursday's speech talking about his plans to deregulate vast swaths of industry. He'd nix President Obama's clean power plan to fight climate change. He's previously vowed to do away with Dodd-Frank's Wall Street reforms and consumer protections. This is obviously the stuff of lobbyists' dreams, especially in an era when banks are paying massive fines to the Consumer Financial Protection Bureau for doing things like creating customer accounts without permission.

Of course, the one economic subject where Trump truly departs from Republican orthodoxy these days is trade (the audience was noticeably quiet when talked about it Thursday). And to be sure, Trump still barks about protecting American workers. But his actual proposals don't exactly have fangs. He's promised to label China a currency manipulator and slap tariffs on its goods. Mitt Romney also promised to do the former, and as for the latter, well, chances are companies will find other low-wage countries to import goods from before they bring jobs back to the U.S. He says he'll renegotiate NAFTA or pull out of it entirely. But never does Trump say exactly what he'd like to renegotiate for. He promises to aggressively pursue trade cases against countries that violate existing agreements, which—shocker—the Obama administration has been doing for a while.

So while Trump makes noise about helping the working class, he mostly has a plan to help the wealthy. And that, more than anything, should tell you why he's won the support of hedge funders like his chief fundraiser and rumored Treasury Secretary choice, Steve Mnuchin, and Anthony Scaramucci. On the matters dearest to their hearts—taxes and regulation—Trump is turning into Jeb Bush with a dash of blue collar-friendly racial and nationalist demagoguery. He's passing off a plan to help one-percenters as populist. If you're a financier sitting in the Economic Club of New York, what's not to love?

Sept. 15 2016 1:51 PM

Dozens of Cargo Ships (and a British Performance Artist) Are Still Stuck at Sea

8 days after the news was announced of Hanjin's bankruptcy....

A photo posted by Rebecca Moss (@_rebecca.moss) on

There aren’t many winners in the saga of Hanjin, the South Korean shipping giant that filed for bankruptcy last month, leaving dozens of ships literally stranded at sea around the world. But you could make a case for Rebecca Moss, the British performance artist currently on a residency aboard the Hanjin Geneva, a ship originally bound from Vancouver to Shanghai, but currently bobbing off the coast of Japan without a destination. Moss, whose work, according to the Guardian,stems from putting herself in slapstick or surreal scenarios,” had intended with this project to explore “the comedic potential of the clash between mechanical systems and nature.” She has surely gotten herself a much better absurdist art piece out of the debacle.

The ship’s plight is now the subject of her piece, which she says has, “forcefully underscored the contradictions I always perceived about this endless stream of stuff that is constantly flowing across the Pacific.”

For most of the estimated 2,500 sailors stranded on Hanjin ships around the world—most of them from South Korea, the Philippines, and Indonesia—there’s no such silver lining. Some of the ships have been turned away by ports that are fearful their dockworkers won’t get paid. Others have been seized by authorities, with crews prevented from disembarking. When I wrote about Hanjin last week, I focused mostly on what the situation indicated for the future of the global shipping industry, in part because I assumed the immediate crisis would be resolved soon.

But as of this Wednesday, the Korean Thanksgiving holiday, 89 vessels are still stranded around the world carrying about $14 billion of cargo. The crew of one of those ships, the Hanjin Rome, currently off the coast of Singapore, seems to be wiling away the hours talking the media, with stories on the ship published in the Wall Street Journal and BBC this week. The ship has been seized by Hanjin creditors and a Singapore court has banned it from performing shipping operations or leaving the port. That means the men on board can’t disembark. They’re relatively lucky, getting regular deliveries of food and other supplies, something not available to compatriots stranded further offshore, but the crew seem understandably bored and despondent about their situation.

There are some signs of movement. A U.S. judge has issued a court order allowing some vessels to dock at U.S. ports without the risk of being seized by creditors. And three Hanjin ships have been sold off. But with the global shipping industry plagued by overcapacity, there’s not much incentive for Hanjin’s rivals to buy more ships, and with global commodity prices low, even scrapping them may not be profitable. So for many of the stranded crews, it could still be a long wait.

Sept. 14 2016 5:51 PM

Will the Feds Go After Wells Fargo’s Executives?

It looks like the feds have some serious questions for Wells Fargo and its CEO, John Stumpf. The Wall Street Journal reports that federal prosecutors for the U.S. Attorney’s Offices in the Southern District of New York and the Northern District of California have opened an inquiry into whether the bank’s fraudulent sales practices meet the standard for a criminal or civil case.

The Wells Fargo scandal re-entered the news last week, when the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Los Angeles City Attorney levied $185 million in fines on the bank. The $100 million that will go to the CFPB is the largest fine the agency has collected in its five-year existence.

Legal authorities are now reportedly trying to determine whether bank employees were following the direction of more senior management when they opened more than 1 million bank accounts and several hundred thousand credit cards without permission of customers. They’re also attempting to determine whether high-level executives deliberately looked the other way so the fraudulent activity could continue.

From what we know, these seem like reasonable suppositions—certainly ones warranting further investigation. Wells Fargo senior executives had to know something wasn’t right at their bank long before last week. Now-retired Los Angeles Times reporter E. Scott Reckard first wrote about the strange goings-on at Wells Fargo in 2013. He reported on numerous bank employees and managers who claimed that unrealistic sales goals set by higher-ups led many of their colleagues to engage in shady behavior, signing people up for bank accounts and credit cards without their knowledge. “Anyone falling short after two months would be fired,” Reckard reported.

On the off chance that Wells Fargo executives missed out on Reckard’s investigation, they certainly found out about the misbehavior when the Los Angeles City Attorney’s Office filed a civil suit against its bank in May of 2015, saying unrealistic sales goals pressured workers into “unfair, unlawful and fraudulent conduct.” In fact, bank officials would ultimately decide to study the period between May of 2011 and July of 2015 to determine just how much fraud their employees engaged in.

Moreover, it also defies reason to believe that thousands of bank employees over a period of years, working in different regions of the United States, on their own initiative, could independently decide to engage in the same illegal behavior, without even a halfway-competent CEO wondering if this was indicative of a bigger problem at some point before the authorities began banging on his door.

Yet, amazingly, this is what Wells Fargo executives would like the public to believe. In an interview Tuesday with the Wall Street Journal, CEO Stumpf placed the blame for the epic and widespread consumer fraud on rogue employees. The 5,300 workers the bank fired as a result of the scandal didn’t “put customers first,” or “honor our vision and values,” Stumpf hmphed.

Actually, given the extent of the fraud, it seems likely the now-axed workers understood Wells Fargo’s values all too well. Here’s hoping someone asks Stumpf about this next week. That’s when he’s scheduled to testify before the Senate Banking Committee on the matter. Among his expected interrogators? Longtime banking industry nemesis Sen. Elizabeth Warren. Get ready for fireworks.

Sept. 14 2016 4:44 PM

Ford Is Moving Some U.S. Production to Mexico, and Donald Trump Is Going to Have a Field Day

Ford is just begging for an angry tweet from Donald Trump. The automaker confirmed Wednesday that it would move all of its U.S. small-car production to Mexico, a step that will save on labor costs thanks to lower wages south of the border, where it's building a $1.6 billion factory.

Obviously, this sort of thing is political catnip for Trump, who has promised to do all sorts of unpleasant things to manufacturers that attempt to shift production abroad. Back in April, when Ford announced its plans to build that plant in San Luis Potosi, the Republican presidential candidate called the move an “absolute disgrace” and promised that such travesties wouldn't take place under his watch. But leaving aside the politics, I think this development might illustrate a happy story about trade effects on the U.S. economy.

One of the points you often hear economists raise in favor of the North American Free Trade Agreement is that it has allowed the U.S. auto industry to thrive by moving low-margin manufacturing to Mexico, where wages are cheaper, while leaving more profitable work in the U.S. Often, this means integrating the supply chains between the two countries, so U.S.-made raw materials are turned into parts in Mexican factories, and shipped back again over the border to be assembled into trucks and SUVs. But Ford's announcement also fits into that framework. The big U.S. automakers have historically had difficulty making much money on small cars manufactured on American soil (it's not impossible to do, but it's not easy). They have much, much less trouble earning money making bigger SUVs, crossovers, and pickups domestically. Ford, for its part, will be moving production of its Focus and C-Max out of an assembly plant in Wayne, Michigan. But, as the AP notes, the factory “will be getting new products under a contract signed last year with the United Auto Workers union. They will likely be larger, more profitable vehicles like the Ford Ranger pickup.” Moreover, Ford has said Americans won't be losing any jobs (which is a pretty good illustration of why it's nice to have a union around).

This seems like a fairly efficient outcome for all involved. High-value production stays in the U.S., while lower-value work moves to Mexico, where it can be done at a cost that keeps Ford's products price-competitive. You can protest that Ford should find a way to consistently churn out profits while manufacturing small cars at home, but that's easier said than done. And given that the whole American auto industry was on death's door less than a decade ago, it doesn't seem so wrong to root for these companies to stay financially healthy.

None of this will stop Trump from turning Ford into a whipping boy. But that goes without saying.