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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Overlooked in last week’s employment report

Posted by WARREN MOSLER on February 8th, 2012


Karim writes:

Average hourly earnings reached a new all-time low on a y/y basis of 1.5%.
One of the strongest historical arguments as to why deflation is unlikely is downward nominal wage rigidity.
i.e., its easier to negotiate wage growth from say 4% to 3%, then 1% to 0%, or certainly a wage cut.
But, high unemployment and high duration of unemployment will test that theory.
A move much lower from here will stoke the fears of those Fed members worried about deflation.
Of course the flip side is that this is quite likely a positive for corporate profits.

participation

16 Responses to “Overlooked in last week’s employment report”

  1. jaymaster Says:

    Does anyone know if that index includes employer’s share of health insurance costs as part of the wages?

    I’m a manager here, and our insurance costs went up about 14% this year, which is a lot more than in the past few years. We have been eating that (not passing any increase along to the employee) for the last 4 years.

    So I guess my point is, “real” wages have been going up here. But they’re not dollars that the employees can spend, because they aren’t seeing it.

    And its not dollars that the employer can spend (or pocket) either. It gets sucked directly into the insurance/medical sectors. That still seems almost deflationary to me, kind of like a rise in energy prices.

    Reply

  2. beowulf Says:

    A move much lower from here will stoke the fears of those Fed members worried about deflation.
    Of course the flip side is that this is quite likely a positive for corporate profits.

    Increasing the minimum wage wouldn’t be the worst idea in the world.
    http://host.madison.com/ct/news/opinion/column/james-k-galbraith-minimum-wage-of-would-be-good-for/article_7049bbec-fe32-5e1e-89c4-77adf0836b3d.html

    Jaymaster, “hourly earnings” is wages-only, while “total compensation” would include benefits. You make a great point, health insurance is a hole below the waterline in state/local govt, business and family budgets. Obama should have jumped on it with both feet by transferring medical costs from employers’ budgets on the federal budget with some sort of universal Medicare plan (like Warren’s proposal, say) but he flinched. Obamacare really won’t do much to plug the hole.

    Reply

    Save America Reply:

    @beowulf, Anyone still believing in Obama after he succumbed to the power of the SUPERPAC is really living in dreamland. The whole government needs a total restructuring, even Warren sent up there couldn’t fight all the forces and power that would be stacked against him.

    Reply

    WARREN MOSLER Reply:

    raising the minimum wage right now is a bit like giving ‘the poor’ more water during a drought.
    It may be the equitable thing to do but it doesn’t make up for and can take the focus off the overall need for more rain or more conservation

    Reply

  3. Save America Says:

    Now homeland security can’t even stop a chinese national from working at the treasury and stealing US FED/Treasury computer code (so they TOO can mark up or mark down numbers in US bank accounts) (DO we not have enough US unemployed programmers to do this work?)

    http://www.bloomberg.com/news/2012-01-18/man-said-to-be-charged-by-u-s-in-federal-government-computer-data-theft.html

    But they can make New work for those underemployed in our nation. Warren says there is no conspiracy, but some foreign bank in switzerland, the oldest private bank in that nation got shut down by the USA, and now this, quick everyone, lets find all the ways warren and anyone else (with big money) has messed up on thier taxes and we can get 30% of thier wealth! Talk about crowdsourcing a job out to the masses ;)

    http://www.zerohedge.com/news/guest-post-introducing-government%E2%80%99s-newest-unpaid-spy-you

    The IRS has been encouraging this type of behavior for years, rewarding citizens with a share of collections for anyone who snitches on potential tax cheats. Last year the agency upped its reward payout for tax informants, topping out at a full 30%.

    A few months ago, the Mayor of Newark, NJ announced a similar program designed to reward citizens for snitching on gun owners. According to the mayor, “We don’t even have to have a conviction,” for an informant to get paid a cool $1,000 cash. Rat out your neighbor, get paid. Simple.

    (As an aside, police in neighboring East Orange, NJ have rolled out a new pre-crime surveillance system. In the words of Police Chief William Robinson, “The police are observing you. The police are recording you. And the police are responding.” Big Brother is clearly watching.)

    In the financial system, there are droves of civilian agencies that have been coerced into becoming government spies. As we discussed a few weeks ago, everyone from bankers to brokers to gold dealers are obliged to submit ‘suspicious activity reports’ to the federal government. They even have minimum quotas.

    What’s more, these so-called “SARs” must remain top-secret. It’s a crime for your banker to inform you that you were the subject of a suspicious activity report.

    Yesterday, the Financial Crimes Enforcement Network (FinCEN), the federal agency which oversees the legions of unpaid government spies, added a few more businesses to the list. Now non-bank mortgage lenders and originators must ‘assist law enforcement’ by submitting suspicious activity reports.

    The rule will take effect in the spring. What’s ambiguous is whether or not it will apply to -individuals- who hold and issue private mortgages.

    Reply

    Save America Reply:

    @Save America, They even have minimum quotas.

    What’s more, these so-called “SARs” must remain top-secret. It’s a crime for your banker to inform you that you were the subject of a suspicious activity report.

    Now Warren, I know as a customer of your bank, you wouldn’t snitch on a customer and not inform them you were snitching on them would you? ;) LOL! What is the minimim quota for your bank to do this snitching Warren? Poor begotka and all the rest who banked with you, innocents crushed under your “minimum quota” juggernaut, you and every other banker that is a part of this system should feel great SHAME warren mosler.

    Reply

    Newbie Reply:

    @Save America, Can you reference where banks have “minimum quotas” for filing of SARs? I work in bank compliance and have never seen a regulation or guidance on a minimum number of SARs to be filed.

    Reply

    Save America Reply:

    @Newbie, Newbie, why do I have do to a simple google search for you? Come on dude, don’t be so lazy …. So since I know you guys are THOROUGH, lets have a chat about this Quota number, you have these issues archived for your review right? Certainly when examiners start complaining to their institutions that you aren’t meeting the PEER number, they don’t want to draw attention and start thinking hmmm, I better get closer to that peer number eh? 400 THOUSAND babies a day being born, you can’t control what is out of control dude, I feel for ya….

    Excerpted from SAR Activity Review Issue 7, page 49

    By John Byrne, representing the American Bankers Association (ABA) to the Bank Secrecy Act Advisory Group

    Recently, several financial institutions have contacted ABA about examiner criticisms received in reviews of their Suspicious Activity Report (SAR) programs due to the number of SARs that the institution has filed. These financial institutions expressed the concern that this may reflect new criteria for evaluating the adequacy of SAR programs, namely, that the number of SARs filed meets a minimum threshold, or that institutions are not filing the same number of SARs as “peer” institutions. The concern expressed is that there be new criteria for determining the adequacy of SAR programs consisting, in large measure, of counting the number of SARs filed and, in some instances, comparing the number of SARs filed between “peer” institutions. Obviously, this would be a significant and alarming development in the examination and review process

    And from PAGE 51, you aren’t reading these things NEWBIE?

    Excerpt from the SAR Activity Review
    FinCEN & Regulatory Agencies Respond to Industry Forum Comments

    The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration (the “agencies”) and FinCEN are not aware of any specific situations where an institution has been criticized solely because the number of Suspicious Activity Reports filed did not meet a minimum threshold or for not filing the same number of Suspicious Activity Reports as “peer” institutions. It is not the policy or practice of the agencies or FinCEN to draw conclusions based solely on the number of Suspicious Activity Reports filed. Nonetheless, as evidenced by the Industry Forum article written by the American Bankers Association, there is a perception and concern within the financial services industry that examiners are criticizing institutions on this basis.

    The agencies and FinCEN believe that there is no correct number of Suspicious Activity Reports that should be filed by an institution, and institutions should not be criticized solely on that basis. As part of the examination process, however, examiners must review significant changes in the volume or nature of Suspicious Activity Reports filed, and investigate the reason for this change. This may include a comparative analysis of the number of Suspicious Activity Reports filed by an institution and among peer institutions. A large discrepancy from the peer group average, or a large deviation from the number of Suspicious Activity Reports that an institution filed in the past, while not supportive of any inference or conclusion standing alone, would warrant further review by the examiners when evaluating the adequacy of an institution’s Bank Secrecy Act/Anti-Money Laundering program. Financial institutions undergoing such reviews should understand that an evaluation of the volume of Suspicious Activity Reports filed is merely a tool of the examination process, and does not represent conclusions about the adequacy of the institutions’ Suspicious Activity Report program.

    Excerpted from SAR Activity Review Issue 7, page 51

    Save America Reply:

    @Newbie, http://www.fincen.gov/news_room/rp/files/sar_tti_07.pdf Here you go Newbie, now tell me what you really think about Obama’s campaign promises of TRANSPARENCY, reading through some of this, it seems you guys are trying to make this SAR really opaque, banks involved in lawsuits can’t even get SAR’s from other banks that are suing them http://www.bankersonline.com/security/sar/sarappealcourtdec.html DISGRACEFUL!

    But we can stop these MERS and robosigning lawsuits dead in thier tracks before there is complete discovery. Absolue power corrupts absolutey, seems there is too much concentrated power to me, but how can you be objective NEWBIE? To feed your mouth and your family’s mouth, you are working for the system that is hurting so many other people :(

    Save America Reply:

    @Newbie, http://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2010.pdf

    Do a search for Quota in this document from 2010, newer than the other documents, now lets have an honest talk Newbie, examiners have criticized banks for not meeting quota, and it is known that there are “peer” levels, this puts pressure on people to comply, now lets look at a linkedin profile

    http://www.linkedin.com/pub/christa-knott/5/783/7b0

    “Consistently exceed a quota of 30 cases completed per month.”

    Here is Christa Knott, senior compliance officer, Bank of America, talking about a quota of 30 cases a month and BRAGGING about EXCEEDING it! So it seems those “peer” guidelines that your Bosses say shouldn’t be considered, are taken into account and are pressuring people into meeting quotas, and in Christa Knott’s case, EXCEEDING them, like that TV SHow the PRISONER, we are just a number now. ;)

  4. Dave Begotka Says:

    Why does Karim always write in blue…….it pisses me off……lol

    You guys know I don’t think any of the unemployment numbers are correct and here in the rust belt they have another practice of cutting peoples wages in half. Just above what they would get in unemployment however most of the people are mortgaged to max of their old wage. Is there an economic term for this activity?
    Mr Save America I do not remember ever having a bank account at Warrens bank…….It would be “suspicious activity” for me to have any money in a bank.

    Reply

    Save America Reply:

    @Dave Begotka, http://www.actimize.com/index.aspx?page=solutionsaml Begotka, like Borf said to SPACEACE everytime he died, you cannot win! Here is ACTIMIZE, bringing you tons of privacy exposure to your finances, and what they don’t get, I am sure GOOG and others are reporting on your clicks and web surfing/buying habits, but we try to OPEN THE DOOR on what these corrupt BANKS have done with MERS and robosigning and OBAMA shuts it Closed HARD before we have a proper process of discovery. What is good for you, aint good for the banks, pathetic.

    http://www.nakedcapitalism.com/2012/02/the-top-twelve-reasons-why-you-should-hate-the-mortgage-settlement.html

    Reply

  5. Newbie Says:

    @Save America,

    Thanks for the response. Yes, I do read the SAR activity review, though not as far back as 04 since I was still in college at the time. After reading those excerpts from the ABA and comparing it to the 2010 BSA Manual, it looks like the Fed clarified to examiners the purpose of reviewing the volume of SARs.

    “The federal banking agencies do not have targeted volumes or “quotas” for SAR and CTR filings for a given bank size or geographic location. Examiners should not criticize a bank solely because the number of SARs or CTRs filed is lower than SARs or CTRs filed by “peer” banks. However, as part of the examination, examiners must review significant changes in the volume or nature of SARs and CTRs filed and assess potential reasons for these changes.”

    At our last examination we handed our 2 SARs to the examiner, they looked at them for about 10 minutes and quietly handed them back, no issues.

    As far as the linkedin profile you provided, we may disagree on this, but my guess is that the quota this woman is “bragging” about exceeding seems to be a workflow performance metric. BAC has an inordinate amount of transaction data and I’m sure that data kicks alot of “cases” to the compliance team. Not all cases get SARs filed. Example, probably all of the transactions that generate CTRs get queued to this woman’s department to research. Or any new account that matches the FinCen314a report also more than likely gets queued for her to review. She probably has to review and close out 30 of these a month, regardless if 0 or 30 have SARs filed.

    SAR’s being held confidential is the Fed’s policy. If we violate that policy the bank is held to significant penalties. Not a lawyer so I can’t speak to legality of this issue, but that’s not what I asked. I assume that its partly the Feds not wanting possible suspects that they are being investigated and partly protection for the banks that file them and the customers that are the subjects of them, as this is not the bank’s expertise and a filed SAR that is not criminal activity should not constitute permissible evidence in court and should not cause irreperable harm to the bank or the consumer. As far as the case you provided, you are misconstruing the facts. The bank did not request the SAR from the other bank. The plaintiff was suing a bank in which the major fraud perpetrator had an account at. The plaintiff also requested that another bank which also had an account of the fraud perpetrator produce documentation on that person including SARs filed. So no bank was denied a SAR from another bank that was suing them.

    I agree with you regarding MERS and robosigning. However, my family and I do not get fed by this system. My bank does not offer consumer products, business only and no real estate. Actually just equipment finance. Do I like everything we do? No, look up “evergreen clause”. Not proud that my bank lobby’s to keep this legal. But, since it’s legal and most Federal regulations only cover consumers, we don’t get hammered by our examiners for it.

    I never opined on Obama’s campaign promises, so I am not sure why you want to know what I really think about them. Didn’t vote for him either, voted for Barr. That was before I found MMT. Not sure who to support now. Hoping I get to vote for Mosler in the future, how about you?

    Reply

    Save America Reply:

    @Newbie, Have you read the article that has been posted by Arnold Kling about 250 states and why democracy does not scale well as the number of people grow? For this reason I don’t think sending Warren to DC will fix any issue, the entire way our government is currently structured allows too much lobby power in DC to overrule what is best for the people.

    “SAR’s being held confidential is the Fed’s policy.”

    Again, why did franklin say those that give up a little freedom for security deserve niether? This puts a MASSIVE amount of power into a very few small hands. I just watched this movie called The Watchmen – and one of the goodguy superheroes was killing off the other superheroes – and it was asked – who watches the watchers? Who watches these few fed folks doing all the watching of the rest of us? Lets say warren mosler or bill black own a bank or are a director, and are corrupt and doing fraud, and you thier bank examiner has been corrupted and doing fraud, who will catch it?

    What if we had a TRANSPARENT system, where everyone got to see who was being investigated, then the market could decide for themselves if they wanted to bank at bank A or Bank B, maybe if bank A is doing lots of sars then the MARKET will like that bank because they are prudent and watchful, but you have clouded so many things in secrecy, only a very small select few are getting the info, never a good idea from what history has taught me. Transparency my man, that is what many voted Obama in for, not more obscurity.

    ” If we violate that policy the bank is held to significant penalties.”

    I see where one banker got 25K fine slapped on him in california, this puts pressure on you guys to try and stay similar to PEERS, so although there is no direct RULE to match a peer quota, human beings, being what they are, and the old saying about a good banker fails spectacularly with his friends, will certainly not want to stand out from the crowd. The tallest blade of grass is the first to be cut LOL!

    ” customers that are the subjects of them, as this is not the bank’s expertise”

    I used to have debates with Warren on why local banks have better information on thier local customers than any central authority ever could and why a central fed/treasury body is not very robust without good regulators. During the crisis in 06 I used to come to his old board and ask how does a miami loan officer (who I thought was an illegal alien) make loans to his illegal alien cousins (who I knew were) for houses and condos and trucks and condos for thier mistresses etc etc, down in south florida and no one thqt regulated seemed to care, but if the local depositors were aware of this information, I am sure that bank would have had a lot of deposits yanked. (and rightfully so in my mind)

    Bush defunded all the financial crimes cops we had before:

    Tony Adamski, the FBI’s former head of financial crime investigations, said Thursday that he had more than 1,000 agents dedicated to financial crimes during the savings and loan scandal of the 1980s and early 1990s — a crisis that pales in comparison with today’s financial meltdown.

    When told Thursday how many agents the bureau now has working the problem, Adamski, now retired, broke into a gale of rueful laughter.
    Read more: http://www.seattlepi.com/national/article/Bush-administration-denies-funding-for-FBI-probe-1290010.php#ixzz1lwQvR0ZV

    “and a filed SAR that is not criminal activity should not constitute permissible evidence in court and should not cause irreperable harm to the bank or the consumer.”

    Why should citizens expect a right to privacy? In thier person or house or finances? These seemed to be an important point with the founding fathers, do you know why? Maybe they saw giving too much power to too few would not be in the interest of the majority. Or are you one of thoes guys that says, if you are doing nothing wrong, you shouldn’t mind a little intrusion?

    ” As far as the case you provided, you are misconstruing the facts. The bank did not request the SAR from the other bank. The plaintiff was suing a bank in which the major fraud perpetrator had an account at. The plaintiff also requested that another bank which also had an account of the fraud perpetrator produce documentation on that person including SARs filed. So no bank was denied a SAR from another bank that was suing them.”

    OK, but why is it impossible for a judge to get these SARS? You say to protect the banks, but moral hazard is a real thing, and too much protection is not good for robustness, and too much power in too few peoples hands corrupts absolutely. Citigroup Chairman Reed said he is in SHOCK that wall street is still taken seriously, that they have not been totally discredited since the crisis, that there have been no major arrests of his corrupted greedy friends like Sandy Weil.

    Reply

    Save America Reply:

    @Newbie, Newbie, I have tried to read a lot more about these SARS, as Warren says, the financial system is a lot more trouble than it is worth, the amount of REDTAPE that people like you must put your lives too saddens me, you could be using that big brain to find cancer cures or something more productive to all of us.

    13 million electronic reports filed according to this link, that doesn’t include regular mailed in reports I assume.

    http://www.bankersonline.com/articles/bhv12n08/bhv12n08a1.html

    Remember Warren was encouraged by his boss to make a bad loan to an old granny for a lawn mower, how tolerant would our system be today with such actions that helped the poor and the old?

    Trial by Jury and innocent until PROVEN guilty was thought important, I have been reading a lot of these SAR filings, it seems the system can easily be perverted, just any ole bank employee can stir up a ruckus if they so choose – perhaps bank employee sally doesn’t like bank employee or customer suzy stealing her boyfriend, so the evil takes hold in her heart and she starts fugging with things, well you get the idea – anyways here is the ethical dilemma faced by one employee:

    http://www.bankersonline.com/articles/bhv12n09/bhv12n09a17.html

    Internal Theft & Filing SARs
    Question: I have a very sticky situation that I could use some help on. My assistant and I have uncovered a problem internally, and after our research we have discovered, and proven, which employee is stealing money from our bank and how she is doing it. We put the whole case together and went to our boss, with all the documentation and proof. We recommended that the employee be confronted, terminated, and prosecuted. Our supervising officer, who has the authority to make such decisions, refused to prosecute – said it would ruin our reputation. And, as a bigger problem as I see it, she also refuses to allow us to file a Suspicious Activity Report.

    The employee was confronted, confessed, and was terminated. But no matter how much we tried to convince our boss, she still refuses to file the SAR. Should we contact local law enforcement instead of filing? What do we do now?

    Answer: You’ve described an explosive situation. The law in the form of the Bank Secrecy Act says you MUST report any theft or suspected theft by an employee in any amount. It also says that if you practice “willful blindness” that you can and may be prosecuted.

    If nothing else, because I know you are trying to hold your job, put your recommendation to your boss IN WRITING stating that the SAR should be filed as soon as possible. Copy your assistant on that memo, and keep a copy in your file.

    Your officer’s concern about publicity over the filing of the SAR is unfounded. There will, in all probability, be no investigation because of the filing. However, if other financial institutions file on the same employee, a red flag may eventually go up about that person. No one, including your ex-employee, will know about the filing, because the non-disclosure clause says no one will have any knowledge of the filing except the person who files. If your boss wants no further investigation or prosecution locally, there is no need to contact law enforcement.

    My biggest concern on the basis of your conversation with me is YOUR liability. If you know about employee theft and don’t report it, and you are the person responsible for reporting it, you could eventually be in very deep trouble. In the description of the division of duties regarding BSA, be very sure it spells out that your boss is the sole individual finally responsible for filing Suspicious Activity Reports. The examiners are heartless when it comes to omissions such as you describe.

    Reply

    Newbie Reply:

    @Save America, I’ll try my best to respond to all the points and questions you have raise, but my time is limited and you have touched upon a wide range of topics.

    First, I can try to give you a bit more insight into the process of how my bank determines whether to file a SAR or not. Can’t speak for other banks, but I will assume it is very similar. An employee files an investigative report when they come across a transaction, application, incident that may appear to be fraudulent, money laundering, etc. Example a credit analyst notices discrepancies with social security numbers provided on a credit app and a credit report or tax return. They document the situation in the report which gets forwarded to our BSA officer. An independent internal auditor reviews the report and recommends further action to the BSA officer. It ultimately comes down to the BSA officer to file a SAR, though the discussion could conceivably reach its way all the way up to the bank’s board of directors. So if its employee A getting back at employee B for some personal vendetta, the investigation would weed that out before a SAR is filed. Could there be a conflict of interest or a moral hazard? Of course there could be. One could always contact our whistleblower hotline or go to any authorities on their own they deem necessary. Sure, that doesn’t always happen, look at the whole Penn State situation.

    But if this is the case, then the bank is failing to report suspicious activity to authorities. Is that the failure you see or is the lack of financial privacy of the customer the failure? You seem to want it both ways. I think the system is set up to protect both the public from financial crimes and individuals from irreperable harm of being a subject of a SAR. You have never read an actual SAR. As noted, they are confidential. They are not indictments, complaints, warrants or anything definitive in a legal sense. It is simply a report from a bank to a law enforcement authority stating this doesn’t look right and we think you should investigate further. So in comes the confidentiality. Why would SARs be public knowledge? So all that may be deemed suspicious have to defend themselves in a court of public opinion outside the judicial system? You said your self, innocent until proven guilty. Keeping them confidential allows the subjects of SARs to have their day in court if the investigation ultimately leads to an indictment or suit. Why would a judge or jury want or need to see a SAR regarding a defendant that does not relate to the facts of the case? They should not even know they exist and in reality the SAR itself is just hearsay. Example, I accuse you of running a ponzi scheme through Bank A. I know you have accounts at Bank B and want to get any SARs filed by Bank B on you because it will help my case. But these SARs are just Bank B’s suspicions that you may have done something illegal that may not even relate to my case. This decision protects the defendants as our framers intended.

    As far as a right to privacy from even being subject to a possible SAR, I think we agree that the banking system is a public/private system. Just like our highways, there must be some sense of order for it to funtion for the public. Troopers patrol highways to catch speeders that may be a danger to the rest of us on the road. The federal government has implemented this system to catch money launderers, fraudsters, etc, that are using our banks to commit their crimes. And like I said, just because a SAR may be filed doesn’t mean you go to jail and/or your reputation will be ruined.

    I agree with you there are other great frauds that exist within the system and almost nothing is being done about it. But these issues are outside this topic and do not relate specifcally to the SAR process.

    Don’t get me wrong, I do not worship the banking gods, or devote my life to FRB regulation. I have other interests and pursuits in life, and some are productive for my community, though curing cancer seems to be beyond my capabilities. I didn’t care for biochemistry as much as I did for Physics.

    Anyway, I hope I gave a little more insight to the SAR process and helped you see that its not necessarily an evil big brother plot as just another tool to help protect the public from hucksters. As for the hucksters inside the bank, well we have a lot more work to do on that front. I think you will find Wray’s newest working paper on the Levy Institute site very interesting as well as a book I read a few years ago call “The Gridlock Economy” by Michael Heller.

    Reply

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