… the Democratic Congresswoman currently under ethics violations charges, establishing offices in each of the 30 financial regulatory agencies and departments to insure "diversity" in their hiring, that of their contractors, and those they oversee. The Federal Reserve, including all 12 regional banks, the SEC, and all other Federal Financial regulatory agencies, must establish an Office of Minority and Women Inclusion. Banks and other contractors that fail to meet ill-defined targets for non-White and female hiring will lose their contracts, and may face unspecified penalties (the rules are still being written). Call it the "White Man Tax" or the reverse of the famous "True Romance" White Boy Day. This outcome will not be very good.
"This will destroy the financial industry," warned Diana Furchtgott-Roth, a senior fellow at the Hudson Institute who was the Labor Department's chief economist under President George W. Bush.
"If the CEOs of American financial institutions have to be worried about the diversity regulations, whereas those in other countries are worrying about their profits, we are going to fall behind," she said.
Indeed it will. The costs of the "White Man Tax" are likely to be: failure to fund worthy new companies through venture capital or IPOs, "zombie" companies soaking up federal and private investment, and continued wild swings in the financial sector plunging
America into constant recessions and costly bail-outs. With regulators even more clueless and ham-handed than usual. Why?
"While the cost will largely be invisible, it will nevertheless be present."
Indeed. The diversity racket is a tax, and corporations don't pay taxes, people do. The added costs are offset by (a) higher prices paid by a business' customers, (b) lower or no dividends paid to the stockholders, and/or (c) lower wages and benefits to the company's employees.
It doesn't apply in this sort of case, i.e. financial firms, but you've got to wonder, as Obama and his minions pile on regulations ad nauseum, how much of the economy is going to go "off the books." Here in
L.A., the estimate is that 25% or so of the economy is what the L.A. Times euphemistically calls "the informal economy." Of course, they call it that because of who most of the participants are, i.e. Latino immigrants. If it were white men involved, it would be referred to as the "black market" or something similarly disapproving.
Because of the hard fact that there just are not many qualified women, and non-Whites, able to fill financial management and decision making roles. One might argue about WHY this is true, from lack of interest, or desire for more "healing" professions (Women make up 50% of the admissions to medical schools according to the AMA), or even considerable Black and Hispanic reading comprehension gaps, compared to White and Asian students. Those who already have talents, and interests, and experience in making money, have been swooped up by Hedge Funds, the most lucrative part of Wall Street. The rest go to work at places like Goldman Sachs, and to a lesser extent the Fed, or SEC, or other regulatory agencies (after which they leave and go to work for Goldman Sachs or other Wall Street Firms, lobbying their old workmates).
The new law allows each director of the Office of Minority and Women Inclusion the authority to develop their own standards, at the companies they regulate as well as their own agencies, and those they contract with. Conceivably, we could see (and probably will) 30 different standards, with a "rapid race to the bottom" to see who can invoke the most heavy "White Man Tax" that penalizes White male employment.
Already, the US Government has an Office of Small and Disadvantaged Business Utilization that encourages the Federal Government to use women and non-White owned businesses (instead of those owned by White Men), along with the EEOC and the Labor Department's Office of Federal Contract Compliance Programs, which also implement a "White Man Tax" on those wishing to do business with the Federal Government.
The House Financial Services Committee added the provision in 2009 at the urging of Waters and other members of the Congressional Black Caucus. Part of the motivation was the limited participation by firms owned by women or minorities in emergency programs undertaken by the Treasury Department and the Federal Reserve to address the financial crisis.
"The inclusion of minorities and women in our financial services programs is long overdue," Waters said, noting that only one of the 12 firms that the Treasury pre-qualified as fund managers for its Legacy Securities Public-Private Investment Program was minority-owned.
Waters also cited federal data showing that women made up 44.2% of the federal workforce in 2006, and minorities 28.3%. Some financial regulatory positions had lower figures: Just 35% of financial institution examiners were women and 18.7% were minorities, according to the Office of Personnel Management.
In 2008, white men held 64% of senior positions in the financial services industry, according to a May report by the Government Accountability Office.
The new offices, according to the provision, must "to the extent consistent with applicable law" consider the diversity of companies seeking contract work and, in some cases, their subcontractors. The provision applies to "all contracts of an agency for services of any kind" but specifically cites financial services such as asset management and programs dealing with economic recovery.
It could be years before the provisions kick in. Similar language was added to a 2008 bill mandating new diversity offices at federal housing agencies, including Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Those agencies have not yet approved final rules.
America, a "White Man Tax" is a political winner. Agencies will compete to see who can construct the most punitive measures. But how will the mechanics work out?
First, Hedge Funds that are highly mobile, will move out of the
Switzerland or other jurisdictions outside
US diversity mandates, but retaining the rule of law, contract enforceability, and decent living conditions. This will take the most talented people, managing the greatest amount of money, outside the
US. The taxes they pay, will instead go to places like
Switzerland. Pimco, based in
California, has $1 trillion in assets under management. They cannot afford (nor can any Hedge Fund afford) "diversity" hires who cannot do the job but have the correct skin color. Indeed they cannot afford anything but the best performance, since investors can yank out funds, if they perform poorly.
The "White Man Tax" will simply put the Hedge Fund business into
Switzerland, or perhaps the
Bahamas, or some other place outside the
Goldman Sachs and other investment banks, will simply move as many people and assets outside the
US, to avoid the crushing penalty of the "White Man Tax."
As the Financial Times recently published, the "Intex" bond valuing computer software package ($1.5 million or so per company), allowed "simple" mortgage backed securities to be valued based on assumptions. This was the software used to value first corporate bonds, and then the mortgage backed securities.
A banker showing Intex in action chose a particular mortgage-backed security, entered its price and a figure for each of prepayment speed, default rate, and loss severity. In less than 30 seconds, back came not just the yield of the security, but the month-by-month future interest payments and principal repayments, including whether and when shortfalls and losses would be incurred. The psychological effect was striking: for the first time, anyone could understand mortgage-backed securities.
The reliability of Intex's output depends entirely on the validity of the user's assumptions about prepayment, default and severity. Nevertheless, it is interesting to speculate whether some of the pre-crisis vogue for mortgage-backed securities resulted from having a system that enabled neophytes such as myself to feel they understood them. Certainly, like any language, Intex aided communication. If you were planning a mortgage-backed deal, you could construct an Intex file, make it available to potential investors, and use it to discuss the deal's features, modify those features, and gauge investors' interest.
The limits of the language came when mortgage-backed securities were repackaged into collateralised debt obligations (CDOs), complex debt securities based on pools of other assets. You could still run Intex, first for each of the securities and then for the CDO, but it could be a slow process. Often, CDOs included not just mortgage-backed securities, but tranches of other CDOs, each maybe incorporating further CDOs. This multiplied enormously the number of underlying mortgage pools, causing a single valuation run to take hours. (On occasion, each of a pair of CDOs would buy a tranche of the other, creating a "loop" that slowed analysis). Sometimes, users did little more than one run using the prepayment, default and severity rates judged most likely. Those (such as the rating agencies) that needed to do more nearly all took a fatal shortcut. Instead of analysing CDOs from the bottom (the underlying pools of mortgages) up, they shifted to a different mathematical language, which treated a CDO�s components (mortgage-backed securities and tranches of other CDOs), in effect, as if they were corporate bonds, with their properties inferred from their ratings. This often led to serious underestimation, especially by rating agencies, of correlation among these components.
The one bank found that did analyse CDOs based on mortgages from the bottom up was Goldman Sachs. It developed its own analytical techniques, and used a large "computer farm" in
New Jersey to spread the analysis over multiple machines, so keeping the time each run took tolerable. Goldman's Abacus CDOs – one of which was the flashpoint of the SEC�s recent investigations – were apparently analysed this way.
A bottom-up analysis was – and still is – expensive. It requires clever quantitative analysts, multiple computers and software developers able to "parallelise" a program so it runs efficiently on many machines at once. Nevertheless, if going beyond the limits of existing languages in this way helped Goldman take the crucial late-2006 decision to liquidate or hedge its positions in mortgage-backed securities (enabling it to survive the crisis almost unscathed), it was well worth it. Hopefully, its competitors have learned the lesson: a limited language means a dangerously limited world.
While Goldman Sachs apparently makes a great deal of money on screwing its customers, detailed and rigorous quantitative analysis is what allows them to KNOW how to screw over their customers.
Can anyone see Goldman Sachs saying "aw hell with it, let's fire our White and Indian and Asian quant guys and hire Blacks and Hispanics off the street. What could go wrong?"
Instead, all the quantitative analysis, the trading desks, anything and everything at Goldman Sachs (and every other Wall Street Firm) connected with making money, will be moved to places beyond the Federal jurisdiction.
What will be left will be the dregs, the losers, the thinly capitalized, desperate for government contracts, barely ahead of the boiler room brigades, financial firms, loaded up with folks who cannot possibly do their jobs.
Meanwhile, the venture capitalist companies, that funded companies as diverse as Apple and Hewlitt Packard, will be hamstrung by the new rules that mandate, not the best analysts, but ones that are not White Men (or likely, Asian and Indian Men). This along with other measures hamstringing Venture Capital, removes an essential part of American economic advantage: easier capital for new companies with considerable upside. These companies are hard to recognize. For every Apple Computer in the rough, there is a Peapod, an e-Toys, a Pets.com, or a Commodore Computer. Companies with buzz and sizzle but little long-term upside.
What is likely, with the vast dilution of talent of Wall Street and Financial firms, is the herd mentality (already present) will follow those firms with most hype (and problems) and ignore firms that could create jobs and wealth and power. Zombie firms like, well GM, will be common (this already happened in
Japan), not the least of which is this power extends to banks and bank loans. The "White Man Tax" is likely to penalize those firms that have the misfortune not to be owned or managed by non-White Men. Banks need Federal funds deposited, loans, and regulatory approval. Avoiding "the White Man Tax" is likely to be a key priority.
With regulators, already behind the curve because Hedge Funds pay the most talented people the most, the Investment Banks the next most, and regulatory agencies the least, the impact is likely to be catastrophic. The SEC clearly missed Goldman Sachs and other Investment Banks selling CDOs and other mortgage backed securities as investment grade while they were junk, on the basis of ratings by Moodys and others. The SEC allowed the ratings agencies to rate junk as gold. Because they lacked the people with the smarts to see that the bonds being rated as gold were indeed, junk. And provably junk.
If the financial crash was caused (rather than causing) the recession/ depression, nevertheless the cost of the bailout was considerable. Preventing another one requires the best regulators that can be had, not the most politically correct ones. The talent pool of qualified Black and Hispanic and Female financial experts is very, very small. Akin to that of the qualified, experienced, and talented White or Asian NBA players. There are a few, but not many. The NBA is 80% Black, and no one calls for Affirmative Action for White players.
Maxine Waters is not proposing to replace Kobe Bryant, Ron Artest, and Lamar Odom of the Lakers with White guys, on the theory that only racial discrimination could account for the Lakers not being mostly White, and that athletic talent qualifying for championship caliber play in the NBA is evenly distributed among all races. If she did, Lakers fans, including White ones, would laugh her out of town.
Financial firms will not fight this – they will simply move abroad. Banks will not fight this, they will simply comply and wait for the next bailout. Venture Capital is likely to move abroad, and focus on firms overseas that they can fund without having to pay "the White Man Tax." The real costs are likely to be paid by the US Taxpayer (with bail out after bail out coming after regulators miss the obvious, and banks play PC games), and the consumer and job applicant. While the cost will largely be invisible, it will nevertheless be present. Fewer jobs from fewer dynamic new companies looking to build staff and expertise, as private as well as public resources are funneled to "zombie" companies that have the correct amount of White guys (as little as possible) and the favorable view of the herd.
If there is one thing that stands out in "the Big Short" by Michael Lewis, it is that the people who correctly called the insanity of the housing market, and the even greater insanity of the CDO's based on subprime mortgages (sold as investment grade), were nearly all White men. John Paulson, Mike Burry, Steve Eisman, Gregg Lippman, who got it right, early, before anyone else did. Meanwhile, the infamous Wing Chau, happily bets billions on housing prices continuing to rise. Bloomberg has the gory details of the spectacular default, and the seemingly Affirmative Action derived career, of Wing Chau.
This is not because of racial superiority. It turns out, the kind of man who likes to obsess about numbers, their meanings, and how to find winning strategies in them, from baseball statistics, "SABREMETRICS" and Bill James type insights, to the stock and bond markets, are mostly nerdy White guys. The same type of people who thought that the way you plowed a field could be adapted to transmit video pictures like Idaho spud farmer Philo T. Farnsworth, produce guys who have an insight on what produces wins in baseball (not making outs) or destroys value in bonds (subprime mortgages). The kind of guy who can produce a 4.36 forty yard dash at the NFL combine, is mostly Black. Neither is "better." Terrel Owens is not the avatar of the Super-Race because he's very, very fast and strong and big. Neither is Jim Chanos a Superman just because he called Enron correct (and shorted it) and seems to be right on
White willingness to cede athletic dominance (the NFL, NBA, MLB, were all exclusively White in the Jim Crow Era) was not born out of guilt, as much as desire to win. Winning, after all, is what sports is all about. Institution of the "White Man Tax" and exclusion of White men in the most lucrative job sector, and the only one that has any promise of recovery (manufacturing, resource extraction, and most services are not coming back) any time soon, is not going to happen without social cost. White guys are not going to be rioting in the streets, but the willingness to cut slack, for those of other races, or women, is likely to be greatly reduced. Its one thing to play the "White Guys Last" card in good times, when jobs are plenty and wages rising. It is another to play this right at the start of the double dip in the recession.
The "White Man Tax" is not going to produce social revolt. But it will be one more outrage that White guys will take into the voting booth, producing a tribal reaction (non White male candidates will suffer) and inevitable reaction once the current Democratic majority is out of office or power. If there is a "White Man Tax" to be paid, why not a "Non White Man Tax" when power swings that way?
You cannot uncross the Rubicon. We have already established the precedent that White Men Finish Last in government preferences, have to give up their positions:
This… there's nothing more difficult than this. Because we have really, truly good white people in important positions. And the fact of the matter is that there are a limited number of those positions. And unless we are conscious of the need to have more people of color, gays, other people in those positions we will not change the problem.
We're in a position where you have to say who is going to step down so someone else can have power.
So… How many White men will step down, from the world of finance, so someone else can have power? Exactly. It is naked racial spoils politics, and like a bullet it cannot be called back. Already we can expect a purging of non-White guys when the pendulum swings. Since the rules have been established. Whoever has power purges the government and private sector of the "losing" race and gender. It is White men now. It will be (because it cannot be any other way), non-White men and women later.
This ends, that part of the American Experiment. The bullet just cannot be called back. In my considered opinion, we are about to find out, nothing less or more, than what an America looks like when the White population, particularly the White male part, has no racial guilt, nor aspirations of racial supremacy, nor even desire to rule over others, but is determined to be first in line for EVERYTHING . Because the only alternative is to be last in line. For everything.