It’s not enough! In fact, that comment deserves several exclamation points.
SAC Capital Advisors, a huge hedge fund run by multibillionaire Steven A. Cohen, agreed Monday to pay $1.8 billion as part of a deal to plead guilty to five charges of trading stock when it had information that wasn’t available to the public.
To be sure, that’s a lot of money. Hell, I couldn’t raise that much if I made every person walking the streets of New York City empty their pockets and wallets for the next 100 years.
But it isn’t a lot to Cohen, who has been known to spend more than $100 million on a single piece of art that I wouldn’t put in my attic. (But realize, please, that I do have a pretty nice attic.)
According to Forbes, Cohen is worth $9.4 billion and is the 41st richest person in America.
Would $2 billion be a big enough settlement? How about $5 billion? What if we took all of Cohen’s money and made him, his wife and seven kids subsist on food stamps?
Nobody, after all, is really sure how much cheating went on at SAC Capital over the past decide. Maybe all of his $9.4 billion in assets is ill-gotten.
The settlement between SAC and Manhattan US Attorney Preet Bharara only confirms that at least one employee at each of five SAC units engaged in insider trading.
But really, do you believe it was just one person doing wrong one time?
And that gets me to my point: No amount of money is enough to make up for what SAC Capital did.
If 70 or so crooked traders were sent to prison for SAC, the largest firm that was a “veritable magnet for market cheaters,” according to Bharara, prison is what its leaders deserve.
Leaders like Cohen.
There is hope, however, that the 57-year-old investor will end up behind bars.
In his press conference, Bharara made one thing very clear: There was “no immunity from criminal prosecution for any person.” And the prosecutor also hinted not very obliquely that the SAC case was ongoing.
Cohen’s cooperation is not part of Monday’s deal, Bharara said. And why would it be if Cohen is the next target?
But even going after Cohen is not enough. If SAC and Cohen got the entire $9.4 billion by cheating, it’s still not the biggest heist on Wall Street.
That occurred back during the crisis years of 2007 and 2008, when Wall Street firms that were bigger than SAC used highly placed government connections with the ultimate inside information to fleece millions of investors. Cohen and SAC were small stuff compared with these companies.
If Bharara really means business he won’t stop with the prosecution, of second-rate firms like SAC or lone wolves like Cohen. And since Bharara did remind everyone yesterday that “no institution is too big to jail,” maybe there is hope that our legal system can be made pure again.
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Three cheers for the declining US budget deficit!
Now let’s look at the numbers a little more closely. You’ll be surprised at what you will find.
The US Treasury announced last week that the federal budget deficit for the 2013 fiscal year, which ended Sept. 30, was $680 billion.
That’s a lot better than $1.4 trillion deficit in 2012. In fact, the $680 billion shortfall is the smallest deficit in five years.
That’s the good news. (And we need all the good news we can get these days.)
But that $680 billion shortfall isn’t nearly as good as Washington was predicting just a few months ago. The Congressional Budget Office — which I guess I should point out is nonpartisan — predicted this past May that the deficit would be $642 billion.
Then, in July, the CBO wavered a little when it said in its monthly budget review that “total outlays and revenues for the fiscal year will be both slightly less than CBO projected in May.”
Is the $38 billion between the May prediction of a $642 billion and the actual deficit of $680 billion a “slight” difference? Or it is telling us something else?
I won’t keep you in suspense any longer: A large portion of the recent deficit improvement could be a quirky result of last December’s fiscal cliffhanger.
My hunch has been that people and companies accelerated wages and earnings into 2012 when they realized Congress was going to raise taxes in 2013. That caused a bump up in tax revenues on returns filed in April 2013 and resulted in at least some of the deficit improvement of which Washington and President Obama are so proud.
There was, of course, also an $80 billion reduction in government spending that helped drop the deficit. Food-stamp recipients are starting to feel those cuts this week. But that $80 billion was not nearly enough on its own to account for the entire deficit decline.
My theory hasn’t been confirmed yet, but it’s looking good. Washington, it seems, is getting less revenue than the Treasury or the Congressional Budget Office anticipated.
Back when it was predicting a deficit of only $642 billion, the CBO thought tax revenues for fiscal 2013 would be $2.813 trillion. The real number turned out to be just $2.774 trillion.
And if companies and taxpayers did accelerate earnings into 2012 (reported on this year’s tax return), that means it will steal government revenues from this and future years.
Why is all this so important? Because Congress and the president will again be fighting over debt ceilings and budget deficits in a month or two. And it would be nice if both parties were clued in to just how much worse next year’s deficit could be before they make important decisions on spending and taxing.
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The White House is starting to send its people out to explain that economic growth was hurt by the government’s shutdown. Well, no kiddin’!
Corporations have also been using the government-shutdown excuse. The shutdown is the greatest cop-out corporate America has had in a long time.
To find out how corporations are doing, you need to look at revenues, not earnings.
Earnings can be spruced up by cutting back expenses. That’s one of the reasons companies haven’t been hiring additional workers. The change in health-care obligations — ObamaCare — is, of course, the other big one.
Wall Street’s favorite profit gauge — earnings per share — is particularly ripe for manipulation. If a company can’t boost its profits, all it has to do is buy back shares on the open market. With fewer outstanding shares, earnings per share rise even if profits don’t.
Revenues, however, can’t be easily manipulated.
Thomson Reuters I/B/E/S, the research firm, reports that 53.4 percent of companies beat revenue expectations in the third quarter. Typically, 61 percent beat revenue expectations. And 46.6 percent missed Wall Street’s target, compared with a normal 39 percent.
This continues a disappointing trend. Over the past four quarters only 49 percent have beaten estimates and 51 percent have missed.