24 March 2014

Martens: Ghouls of Wall Street - JP Morgan Bets BillIons On the Death of its Workers

"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power. Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they create a desolate wasteland, they call it peace."

Tacitus, Agricola

IF the Banks are self-insured, and IF they are offering death related benefits to the employees for which this employee insurance is strictly a hedge, then this might make some moral and legal sense. But it does not appear to be the case.

And certainly for years companies have taken out life insurance on key employees, whose loss would be a blow to the company, as the article acknowledges.  But they go on to point out that this program is not related to key employees, but is widespread, and continues on even after they leave their employment with that firm.

It seems that there is some perverse loophole in the tax laws and insurance calculations that makes it profitable for a corporation to 'bet' on the deaths of its employees, for its own profit, as this article implies, and not as any hedge against the loss of their talent. And if they are doing the insurance and reinsurance through subsidies, they may be moving any losses from book to book in order to further game the tax laws, similar to the methods by which multinationals create 'income' in subsidiaries located in tax havens offshore.

The point is not that this is nefarious, but that it epitomizes the kinds of government subsidies for non-public-beneficial activities that corporations exploit. 

The failure of the Fed and the Regulators in general is in not aligning the interests of the Banks with the success of Main Street.  Banks are not making loans that encourage capital investment in sound projects and activities.  Instead the Banks are incented to game the system, play the markets, and invest their innovation and energy into the financialisation of nearly everything, including the deaths of their own employees.

In some other news  analysis of the day, What is Wrong with American Capitalism, it has been pointed out that US corporations are busily engaged in buying their own stock to improve their quarterly earnings and stock option returns for executives, rather than investing in infrastructure, rather than in research, innovation, and employee development and training.  This is another subsidy and distortion promoted by the government in service of corporations.

As the article below by Martins reminds us, Senator Carl Levin said that JPMorgan has 'the lowest loan-to-deposit ratio of the big banks, lending just 61 percent of its deposits out in loans.' Apparently, said Levin, 'it was too busy betting on derivatives to issue the loans needed to speed economic recovery.'

And gaming the markets as well, Senator, as well as all sorts of other extracurricular activities other than serving Main Street and efficiently allocating capital. 

And you can place a large portion of that blame on those in Washington who are only too eager to take soft bribe money in the form of large campaign contributions and other perks and revolving door payoffs from the Banks, Super PACs, and corporate interests.

I am aware that not only JPM does this, or even started this practice. I remember the stories about Walmart doing this as well some years ago. Their abuse of this prompted legal action and a thorough public shaming.

Generally speaking, Code section 101(a) of the US Tax Code makes the receipt of insurance proceeds nontaxable. Wal-Mart was insuring the lives of its employees for $50,000 or thereabouts and collecting the money if the employee died. Its employees apparently were not aware of this, and Wal-Mart was making money on this insurance 'program' free of income tax without providing any benefit to the employee or their heirs.

A new tax provision 101(j)in 2006 made insurance proceeds in excess of premiums paid taxable as income to the employer unless the employee consents in writing before the issuance of the insurance contract. The notice must state affirmatively that the employer may continue the insurance coverage even after the employee is no longer employed.

There is an income tax form (Form 8925) that a company must file and sign indicating if the employee has affirmatively consented.

If memory serves Walmart was shamed into discontinuing this practice by the publicity. Apparently JPM and the TBTF Banks have turned it into a sizable line of business, after having been bailed out by the Fed, and the taxpayers, with billions in subsidized dollars and forgiveness for their gambling losses and frauds. 

And therein is the point. JPM and the other Banks are only nominally Banks, and therefore do not deserve the protections, exemptions, and subsidies extended to them by the government for banking and depository activity, which is becoming a smaller portion of their overall activity.  The Volcker Rule was intended to change this, and given the London Whale and other abuses, including some not yet come to light, it is not working.

Corporate capitalism is turning ghoulish, and it is not just the western Banks and corporations that are joining in on the feast, but their political associates here and abroad who are enabling the death of whole countries for profit. Neo-Liberalism As Social Necrophilia: The Case of Greece.

'And what rough beast, its hour come round at last, slouches towards Bethlehem to be born?'

JPMorgan Chase Bets $10.4 Billion on the Early Death of Workers
By Pam Martens and Russ Martens
March 24, 2014

Families of young JPMorgan Chase workers who have experienced tragic deaths over the past four months, have been kept in the dark on many details, including the fact that the bank most likely held a life insurance policy on their loved one – payable to itself.  Banks in the U.S., as well as other corporations, are allowed to make multi-billion dollar wagers that their profits from life insurance policies on employees will outstrip the cost of paying premiums and other fees. Early deaths help those wagers pay off.

According to the December 31, 2013 financial filing known as the Call Report that JPMorgan made with Federal regulators, it has tied up $10.4 billion in illiquid, long term bets on the death of a large segment of its employees.

The program is known among regulators as Bank Owned Life Insurance or BOLI. Federal regulators specifically exempted BOLI in passing the final version of the Volcker Rule in December of last year which disallowed most proprietary trading or betting for the house. Regulators stated in the rule that “Rather, these accounts permit the banking entity to effectively hedge and cover costs of providing benefits to employees through insurance policies related to key employees.” We have italicized the word “key” because regulators know very well from financial filings that the country’s mega banks are not just insuring key employees but a broad-base of their employees.

Just four of the largest U.S. banks, JPMorgan Chase, Bank of America, Wells Fargo and Citigroup hold over $53 billion in investments in BOLI according to 2013 year-end Call Reports. Death benefits from life insurance is purchased at a multiple to the amount of the investments, meaning that $53 billion is easily enough to buy $1 million life insurance policies on 159,000 employees, and potentially a great deal more. Industry experts estimate that the total face amount of life insurance held by all banks in the U.S. on their employees now exceeds half a trillion dollars.

When the General Accountability Office (GAO) looked into the matter for Congress in 2003 and 2004, it found the insidious practice of continuing the life insurance even after the employee had left the company – nullifying any ability to consider him or her a “key” to the business. The GAO wrote: “Unless prohibited by state law, businesses can retain ownership of these policies regardless of whether the employment relationship has ended.” The GAO found that multiple companies held life insurance policies on the same individual...

One reason banks are enamored with taking out policies on other people’s lives and keeping the practice as hush-hush as possible with the willing consent of regulators is that the gullible U.S. taxpayer who bailed out the banks to the tune of trillions of dollars from 2008 to 2010 and is now subsidizing too-big-to-fail through an implied permanent Federal backstop, is also subsidizing these death wagers. Both the buildup in the cash value of the policy over time and the payment of the death benefit are tax-free income to the bank; the more workers they insure, the more tax-free income they receive to help their bottom line; and the less corporations pay in their share of Federal income taxes, shifting more and more of the burden to the struggling middle class.

Banks have also exploited other tricks with the billions invested in these policies. JPMorgan is the assignee for Patent number 5,806,042 at the U.S. Patent and Trademark Office, titled “System for Designing and Implementing Bank Owned Life Insurance (BOLI) With a Reinsurance Option...”

Read the entire article here.