The third-largest bank in the country, Wells Fargo, is in big trouble. A federal investigation found that Wells Fargo was opening bank accounts without customers’ permission. Perhaps as many as two million fraudulent accounts.
After the scandal broke, Wells Fargo’s CEO John Stumpf was called to Capitol Hill to testify. He told the senators that the bank’s upper management wasn’t responsible for the giant scam. He said it was just a bunch of bad apples working at bank branches. Mostly low-level employees.
One of the low-level employees was watching her former boss testify. And she couldn’t believe it. This wasn’t Wells Fargo’s culture? Upper management had nothing to do with it? She knew the company in branches across the country had pushed and pushed young bankers until they broke the rules. Even the law.
Today on the show, we take you inside the branch at the headquarters of Well Fargo bank. A place where a lot of workers were rewarded for doing some very bad things.
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People stand in line to register for a job fair in Miami Lakes, Fla. A new study shows a growing number of young people in developed countries are giving up on work, school and training. Lynne Sladky/APhide caption
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Lynne Sladky/AP
Add to the list of worrisome economic trends what economists call “NEETs” — young people who are Not in Education, Employment or Training.
Their numbers are growing, now 40 million in the 35 member countries of the OECD — the Organization for Economic Co-operation and Development. And two-thirds of them are not actively looking for work.
In the United States, 14.4 percent of young people age 15-29 are NEETs, according to the OECD.
This report follows others that illustrate how the Great Recession disproportionately affected young people. It says one in 10 jobs held by workers under 30 have disappeared. And the OECD says the trend could affect economic mobility, as well as national and economic security for years to come.
In particular, the report highlights the dismal prospects of “early school leavers,” young people who do not complete secondary school.
Imara Jones, an economist who looks at race and gender, says for as many as one in seven young people, “that means that they’re totally outside of the economic lifestyle of the country, any kind of life of the country.”
The high number of NEETs also represents a major economic cost, estimated at between USD 360 billion and USD 605 billion, equivalent to between 0.9% and 1.5% of OECD GDP.
Young people who finished school at 16, without completing upper secondary education, make up over 30% of NEETs. Foreign-born youth are on average 1.5 times more likely to be NEET than native youth and 2-2.25 times more likely in Germany, Austria, the Netherlands and Norway.
“It is getting harder and harder for young people with low skills to find a job, let alone a steady job in today’s workplace,” said Stefano Scarpetta, OECD Director of Employment, Labour and Social Affairs. “Unless more is done to improve opportunities in education and training for everyone, there is a growing risk of an increasingly divided society.”
Fighting early school leaving is essential, says the OECD. Governments must ensure that young people obtain at least an upper-secondary qualification so they can continue in education or gain vocational skills. Despite progress, one in six 25-34 year olds in OECD countries left school before upper secondary.
Women are 1.4 times more likely to become NEET than men on average. For many of them, this is because they are looking after small children and the high cost of childcare is a major barrier to employment: in the US, Ireland, United Kingdom and New Zealand, childcare costs for a lone parent can account for between one-third and a half of net income.
Jacob Kirkegaard, a senior fellow with the Peterson Institute for International Economics, says, “Obviously this is not just an economics number, it actually has real implications on other things as well,” such as national security.
“All these young people, they have got nothing else to do and they are sitting in the basement surfing on the Internet,” Kirkegaard says. “And all of a sudden they get sucked into some radical ideology of some kind.”
“There is no doubt,” Kirkegaard adds, regardless of the country, “these numbers are materially worse for minority youth.”
Both economists worry that in many ways the problem is greater here in the U.S.
“The problem in Europe is more of a cyclical nature,” says Kirkegaard. “That’s because workers there are more likely to have training and be looking for work.”
In the U.S. he regards the problem as structural, because so many young people in the U.S. have given up on the economy. He warns that without gaining an economic foothold early on, the risk that this group “basically remains high school drop-outs for their life is much higher. And that basically is a structural problem.”
Economist Jones sees in this report an explanation for many of today’s social problems. Jones says countries that are key to global economic growth “have a structural problem of future growth where they have millions and millions of young people who are not consuming, nor are they investing in themselves through education.” It’s one of the reasons Jones postulates why economic growth remains slow.
A wrecked police motorcycle lays on the scene after a suspected drunk driver crashed during the Oklahoma State University homecoming parade in Stillwater, Okla. J Pat Carter/Getty Imageshide caption
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J Pat Carter/Getty Images
Zero. That’s the stated goal of transportation officials in the U.S., no traffic fatalities by 2046. Zero deaths is a movement that began in Sweden. There, it’s called Vision Zero. The idea is simple. “No loss of life is acceptable.” That is the one sentence motto of Sweden’s campaign.
Here in U.S., the rate is nearly four times that at approximately 11 deaths per 100,000. Transportation officials in the U.S. say they want to repeat Sweden’s success.
National Highway Traffic Safety Administration Administrator Mark Rosekind speaks at the start of a public meeting about self-driving cars earlier this year. Susan Walsh/APhide caption
One of the tragic coincidences is that as economic activity increases and more people with jobs are on the road, traffic fatalities go up. U.S. drivers put in a record 1.58 trillion miles on the road in the first half of this year, the Federal Highway Administration said this week. That’s a 3.3 percent increase over the same period in 2015. Meanwhile, the rate of deaths is up by more than 10 percent.
“The really sad part is that in the United States we accept 35,092 people dying on the roadways and thinking that’s okay. It should be unacceptable,” says Mark Rosekind, the head of NHTSA. Rosekind’s father was a motorcycle policeman in San Francisco, who was killed on the road in the line of duty. “There are too many stories like this,” Rosekind says.
Several states and cities in the U.S. have adopted this zero-tolerance policy. Practically, getting to zero is not only an ambitious goal but a complex one as well. In Sweden, a premium is placed on safety over convenience, traffic or speed. Low urban speed limits, strict policing of drunk driving, bike lanes with barriers separating cyclists from traffic, and smart pedestrian crossings are some of the solutions implemented.
“There isn’t actually a single magic bullet. It’s not like you can say if the entire country just changed its speed laws then we’d get rid of all fatalities on the road,” Rosekind warns. He says over the next month federal, state, and local governments along with the private sector will develop a plan that moves the country toward the zero-traffic fatalities.
“One of the ways for us to get there is to figure out how to leverage all the new technologies that are coming online that will help us improve safety,” Rosekind says. Autonomous vehicle technology with innovations such as automated braking will get the country closer to the goal, Rosekind says. But self-driving cars are not a panacea, at least not in the near term. Full, self-driving vehicles are still years away, he says. “And even if we were to get a perfect self-driving car tomorrow, it still takes 20 or 30 years to get into our fleet.” Without a plan, Rosekind says, it could take 50 or 60 years before self-driving cars alone helped bring the death rate down.
“In 30 years, we could be looking at zero deaths on our roadways. It’s bold. There’s no question it’s a heavy, heavy lift,” says Rosekind. But putting the focus on traffic deaths now, he says, sets the country up “for a future that could really be dramatically different than the tragedy we live in now.”
George Town in Grand Cayman, Cayman Islands, is the home of many international banks and offshore companies. A new study shows the Caymans hold $46 billion in multinational corporate profits, far more than its own $3 billion economy. David Rogers/Getty Imageshide caption
The study looked at Fortune 500 companies and how they used tax haven subsidiaries to avoid paying taxes on their income in 2015. One of the practices that has become standard for big companies is to create subsidiaries in a country that has no corporate or income tax.
According to the study, 367 of the companies on the Fortune 500 have at least one of these subsidiaries. The study found these companies are holding $2.5 trillion in accumulated profits offshore for tax purposes.
Here are highlights from the study, which is titled Offshore Shell Games 2016:
“All told, these 367 companies maintain at least 10,366 tax haven subsidiaries.
“The 30 companies with the most money officially booked offshore for tax purposes collectively operate 2,509 tax haven subsidiaries.
“The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune 500 reporting at least one subsidiary there.
“Approximately 58 percent of companies with tax haven subsidiaries have set up at least one in Bermuda or the Cayman Islands — two particularly notorious tax havens. The profits that all American multinationals — not just Fortune 500 companies — collectively claimed they earned in these two island nations according to the most recent data totaled 1,884 percent and 1,313 percent of each country’s entire yearly economic output, respectively.”
Matt Gardner, executive director of the Institute on Taxation and Economic Policy, is one of the study’s authors. He says: “In many tax havens, it’s easier to set up a subsidiary than it is to get a library card. Very often there is little asked of the company in terms of who owns it [and] what they’re doing with it.”
The Securities and Exchange Commission requires publicly held corporations, to disclose how they interact with the federal tax system — how much they pay in U.S. taxes, how much they pay abroad, how much cash they hold abroad for tax purposes. The study analyzed disclosures mainly from corporate reporting.
Gardner says a hallmark of Bermuda and the Caymans is that they have little in the way of a tax system. According to the study, nearly half of the money that is held offshore is parked on one of the two island nations.
“Is there a chance that they’re actually doing something real in these countries? And pretty clearly the answer is: no.” says Gardner. He points to the fact that the entire economy of the Cayman Islands is $2.7 billion, according the country’s Economics and Statistic office. According to the study, U.S. multinationals claimed they earned $46 billion in the Cayman Islands, a figure that far surpasses the size of its whole economy.
“Very clearly these are profits that are being earned in the Caymans on paper only,” says Gardener, “and the economic activity generating these profits is taking place somewhere else, most likely in the U.S.”
Gardner points out that this activity is completely legal, but he says his group is fighting for changes in federal tax laws. To those who say avoiding taxes is the responsibility of corporate managers, Gardner responds, “Concealing their profits in a post office box in Bermuda may be a highly effective strategy for avoiding tax but it’s a terrible strategy for building a company.”
Gardner says the billions of dollars held in these two islands are effectively being “stashed in a suitcase under a bed.” He says companies could be investing in meaningful ways, such as building infrastructure in the U.S. or other countries, investing in research and development or adding production capacity. “They’re not doing that with this cash,” he laments. That, he argues, is “fundamentally against the interest of their shareholders.”
Hyundai vehicles sit on display on a lot in Los Angeles earlier this year. Partick T. Fallon/Bloomberg via Getty Imageshide caption
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Partick T. Fallon/Bloomberg via Getty Images
General Motors, Ford, Honda and Fiat Chrysler all saw their sales go down in September. On the other hand, sales of Nissans and Toyotas were up.
Car sales in 2016 are on pace with 2015, says Jessica Caldwell, senior analyst with Edmunds.com. In 2015, 17.5 million vehicles were sold.
But “Just because we’re not seeing the same amount of growth as we’ve had in the past six years, it’s not a bad thing because we’re on a record pace,” Caldwell adds.
Caldwell says the fundamentals of the market surrounding cars remain strong. That’s despite the fact that overall the sales of passenger vehicles fell 0.7 percent to 1.4 million last month. Caldwell points out that gas prices and interest rates are low, which helps sales. The Conference Board, which tracks consumer confidence, has it at a nine-year high.
In a normal year, Caldwell says, we would be worried about a sales plateau, but, she says, “We’re plateauing at the highest level ever. We’re at point in which automakers are going to make money, dealers are going to make money and consumers are getting good deals.”
Many industry watchers are concerned about an impending automotive recession. For six straight years, the auto industry has grown. Now, most analysts expect sales to stay at a plateau for a while and fall off eventually. Jack Nerad, executive market analyst with Kelley Blue Book, says, “September sales results have industry observers on the edge. Is this just a minor fallback in an otherwise solid year or does this indicate that a long overdue dip in car sales is coming … and perhaps has already begun?”
That is the multibillion-dollar question, says Nerad, which will be answered in the final quarter of the year, “a [potentially] volatile final quarter that contains a hotly contested presidential election,” he adds.
Some of the growth of new car sales is being dampened by used car sales. Leasing as an option has grown more popular — more than 30 percent of new vehicles are being leased. That’s up from 20 percent five years ago, and it means more nice used cars are competing with new cars for sale.
“Taking the short view that the end is nigh is juvenile,” says Eric Lyman, senior analyst with Truecar.com. “The end is nigh for sales growth, but if you go back 10 years and tell executives [that] for the foreseeable future … everyone would see 17 million in sales … everyone would have been over the moon,” he says.
Lyman sees demand falling off, a place for concern. Right now the industry is operating at full tilt, with automakers set up to produce vehicles that meet nearly record demand. If sales lag for a few months, Lyman sees the carmakers cutting back on production.
The analysts don’t expect to see production cut until mid-2017. That has implications for autoworkers. Ford, for example, has indicated that it would very likely cut production. Lyman says until carmakers figure out demand, “it will be a wonderful time for consumers.” Lyman and other analysts see sales incentives increasing in the coming months.
Donald Trump speaks about his tax plan in New York on Sept. 28. Julie Jacobson/APhide caption
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Julie Jacobson/AP
We don’t really know what Donald Trump paid in taxes, because unlike every other major presidential candidate in the last four decades, the GOP nominee has refused to release his tax returns. But the New York Times offers a tantalizing theory that Trump could have legally escaped income tax liability on hundreds of millions of dollars, thanks to staggering losses from two decades ago.
That he could have done so while still enjoying a lavish lifestyle is testament to both the flexibility of the federal tax code—especially when it comes to real estate professionals—and the willingness of creditors and investors to keep propping up a businessman who had already lost nearly a billion dollars.
The Times account is based on a fragmentary sample of Trump’s tax returns from a single year that were leaked to the newspaper by an anonymous source. Trump’s former accountant confirmed their authenticity for the paper.
At the time, the tax code allowed such losses to be “carried forward” up to 15 years, offsetting income and reducing or even eliminating tax liability and carried backward on income up to 3 years prior. (The allowance has since been changed to carry forward 20 years and carry back 2 years.) The code is particularly flexible when it comes to real estate professionals like Trump.
A doctor who owns a rental property and loses money on it can only use that loss to offset rental income, not what he or she earns practicing medicine.
But thanks to more generous allowances for real estate professionals, Trump would have been allowed to use his casino losses to offset income from unrelated work, including the millions he earned as star of “The Apprentice” television show, or licensing his name to the maker of Trump neckties.
“Here’s the magic of real estate,” says Lee Sheppard, contributing editor of Tax Notes, a Washington-based journal. “Congress, which writes the tax laws, affirmatively subsidizes commercial real estate through the mechanism of the tax code.”
The favorable treatment of real estate developers is just one example of the way the tax code rewards real estate development and investment. The popular tax deduction for home ownership is another, and one of the costliest in the overall code.
“Real estate is a very powerful lobby in Washington,” Sheppard says. “There used to be a running joke that it would be cheaper for the government to make real estate tax-exempt.”
The losses cited on Trump’s 1995 return were so massive, he could have earned up to $50 million dollars a year for nearly two decades without owing any income tax.
“Mr. Trump was a spectacular loser,” said Steve Rosenthal, a former staffer for the Joint Congressional Committee on Taxation and a senior fellow at the Tax Policy Center.
Because the tax records obtained by the New York Times are fragmentary, we don’t know the detail behind the losses that Trump claimed that year. A separate statement describing the losses was not included in the leaked documents.
“That’s why we should see his tax returns,” said Rosenthal. “Was Mr. Trump really losing money that spectacularly? Or was he ginning up his losses” through accounting maneuvers?
It’s a provocative question for a presidential candidate whose campaign is largely based on his purported success as a businessman.
“Donald Trump has a long, well-documented history of reporting different numbers” to different audiences, said David Cay Johnston, an investigative reporter, tax expert, and author of The Making of Donald Trump.
But debts that were personally guaranteed by Trump were transferred to others, while Trump himself collected tens of millions of dollars in salary and bonuses.
For years, investors and creditors went along in the belief that Trump and his lavish public lifestyle added value to the aspirational casino business.
“If his lifestyle is part of the brand, his lifestyle is kind of a business expense in itself,” said Sheppard.
We dug through the trash and tracked down experts around the globe to make sense of economic mysteries that you sent us. There’s a puzzle about the cost of postage stamps, a debate over the price of happiness, fatal pastries and a little stop at the Federal Reserve, because, yeah, we’re Planet Money.
You, our enthusiastic, curious listeners, can get a little wonky with your questions and we love you for it. But we can still have way too much fun fishing out the answers from all corners of the word. Today on the show, we answer your questions, wherever they lead us.
If you have a question you want us to answer, hit us up on Facebook or Twitter. Or better yet, tell us a great story about economics that answered a question you had. We’ll take that too.
A century ago, people relied on nature to make basic things: toothbrushes were made of silver, combs were made of ivory, and clothes were made of cotton. In a lot of ways, life as we know it today, is possible because of plastic. We can now afford phones, computers and medical devices in part because of one chemist’s discovery a century ago. But his descendants have some regrets.
State Treasurer John Chiang (right) at a news conference in Sacramento, Calif., in May. On Wednesday, Chiang announced he is suspending major parts of the state’s business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts. Rich Pedroncelli/APhide caption
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Rich Pedroncelli/AP
California’s state treasurer has announced he is suspending major parts of the state’s business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts.
In a letter to Wells Fargo, John Chiang asked, “how can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their well-being in its care?”
As we reported, “Wells Fargo said earlier this month it had agreed to pay $185 million to settle charges that it opened some 2 million deposit and credit card accounts for its customers without their permission over a five-year period.”
The new sanctions include the bank’s “most highly profitable business relationships with the state,” as Chiang’s letter read.
In an interview with The Two-Way, California’s deputy treasurer for public finance, Tim Schaefer, laid out the sanctions against Wells Fargo. They fall into three categories.
First, Schaefer said that the state won’t “buy any more of their debt securities,” which he said currently amount to approximately $800 million. He added that “we’re not going to go out and liquidate that tomorrow morning, because we don’t want to put the taxpayers of California at risk of a loss, but we’re not going to renew it. And that will all be gone over the next couple of months.”
Second, Schaefer said the state will no longer use Wells Fargo as a broker-dealer for buying securities. The value of that relationship is not clear, he says, but the state has “engaged in about $1.65 billion worth of trades with them, in that way, over the last 18 months. That $1.65 billion would be expected to produce high hundreds of thousands of dollars if not low millions of dollars in revenue for them.”
Third, Schaefer said the state will no longer use Wells Fargo to underwrite bonds. Over the last 18 months, the state has appointed Wells Fargo to five bond offerings, he said. “Two of those were terminated Monday afternoon, so that left them with three.” Those remaining three have amounted to about $1.75 million during that time period, he added.
He said two major aspects of California’s relationship with the bank will remain in place. Local governments can still use Wells Fargo to wire money to the state government. And two major public pension funds — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — have at least $2.3 billion invested in the bank’s fixed income and equity. That money will remain where it is.
The message of these sanctions, Schaefer said, is that “ethics and responsibility in the community matter.”
In a statement to NPR after Chiang’s announcement, Wells Fargo said that it has “diligently and professionally worked with the state for the past 17 years to support the government and people of California” and “stand ready to continue delivering outstanding service.” It added that it is “very sorry and take full responsibility for the incidents in our retail bank.”
Yesterday, the company announced that its CEO and former retail-banking head will forfeit tens of millions of dollars in outstanding stock awards. CEO John Stumpf will forfeit such awards totaling about $41 million, while former retail-banking head Carrie Tolstedt will forfeit awards worth about $19 million. Neither will receive bonuses this year, the bank said.
Stumpf is scheduled to testify before the House Financial Services Committee on Thursday. As we reported, he was questioned by the Senate Banking Committee last week, which was “widely seen as something of a public relations disaster.”
