Friday, December 11, 2009

Dead peasant insurance


    Think about it somewhere in the accounting department is two people looking over a list of employees. "So you think Fred looks well?" says the Chief something officer. "Yeah he will not do, pick Sarah she is taking up sky diving," replies the director of things no one talks about. "Well that is settled ... now lets look at last month profits. ...

Stranger then Blue Canaries, www.heydan.com/

The Axis of Corporate Evil never ceases to amaze. Dead peasant insurance, also called Dead janitors insurance, is a wide spread but little known practice among corporate entities. The "Dead peasant" is industrial slang for the rank and file employee who is worth a considerable sum of money dead or alive.

The Wall Street Journal reports that corporations by the hundreds take out life insurance policies on their own employees with the companies as the beneficiaries. When an employee dies, sometimes years after the employee has left the company, the company receives the death benefit. "Most workers covered this way don't know it, nor do their families," says the Journal.

To make matters more interesting the companies use this little gambit as a tax shelter. It allows corporations to boost profits by taking advantage of the tax-shelter features of life insurance. While the employee is alive they are a great little investment for the employer. Without their knowledge or consent a company as beneficiary can subsequently borrow money against the policy and then claim the interest as a tax deduction. While the employee lives, the company gains from the loans and tax break. When the employee dies, the company gets the death benefit pay out yielding billions of dollars. Read on:

    That was certainly the case with the family of Margaret Reynolds, a 62 year old Ohio woman who died in 1998. Her family received a $21,000 death benefit from her employer, C.M. Holdings. The money was from a life insurance policy the company provided for is employees. What Reynolds did not know during her lifetime, and her family did not know after her death, is that her employer had taken out another life insurance policy on her with itself as the beneficiary. When she died, her family received the $21,000 while her employer received an insurance payout form the "dead peasant policy" of $180,000.

    Reynolds, like many other workers, had been used. Her son was outraged at the news of this deception because during the last years of Reynold's battle with Lou Gehrig's Disease, the family had "begged C.M. Holdings for $5,000 to pay for a specialized wheelchair so they could take her to church," a request the company refused.

Veniality is inherently blind to human suffering. In 1996 the IRS deemed the tax deductions improper and would no longer permit them saying that the corporate owned life insurance or COLI served no legitimate purposes; the agency "is investigating more that 85 companies that it says took 6 billion in illegal deductions." Some COLI policies even cover part-time and short-term workers and, in some cases, workers' relatives. The policies can remain in force long after the worker leaves the company. Many of the companies are challenging the disallowance saying that the death benefits go toward paying for other employee benefits but as a rule the courts do not accept that excuse.

Some argue that since the company pays for the premiums and has every right to benefit from it. Yet it's hard to ignore the fact that the company uses the employees name without compensating the employee for that use. A clear case of exploitation; in some cases if the employee is informed they have to give their approval to this practice as a condition of employment. Not only is this unethical in practice it's a big financial drain on the U.S. Treasury, as well as, a major concern to the Securities and Exchange Commission, Congress and the courts. Described as, " A product actively marketed by the insurance industry as an 'attractive, off-balance-sheet asset,'" so far it's been the source of an estimated $6 billion in lost tax revenue to the U.S. Treasury annually and the subject of several pending tax court cases.

It's all the rage among Corporate America's top 1% Enron subsidiary Portland General and Dow Chemical have engaged in this practice. Companies listed by The Examiner as taking out "Dead Peasant" policies include American Electric Power, AT&T, Ball, Basset Furniture, Eaton, Nestle USA, Olin, Pitney Bowes, PPG Industries, Procter & Gamble, Trans World Entertainment and Walt Disney. One attorney for the Hartford Life Insurance Co. hazards a guess that up to 25 % of the Fortune 500 companies have them covering the lives of 5 million to 6 million workers.

Many corporations are currently appealing the their tax dodging tactics to the 6th District Court. Wal-Mart used them in the early 90s when they were most popular as a means of sheltering income from taxes, turning liabilities into assets, and funding costly executive benefits. In 1995 Wal-Mart decided they weren't making any money from these policies and dropped the program. Maybe they mean no new policies. According to the Houston Chronicle, 5 to 6 million corporate serfs have life insurance policies held on them by Fortune 500 magnates, and Wal-Mart holds some 350,000. Wal-Mart launched a program in 1994 promising its employees a $5,000 death benefit. The company was so determined its workers should take advantage of the program that it threatened any who turned it down with the forfeiture of their health insurance.

While no longer legal in Texas, California and a few other states require written consent from employees, even so, many such disclosures don't explain where the proceeds of the death policy will go. One has to wonder how hard the insurance companies have pushed this idea. Welcome to the Brave New Corporate World where everything-- even death --has become a commodity traded by profiteers and an early demise has become the bottom line.

Sources

Dead Peasant Insurance

Dow Chemical

Picture Source

The Examiner

Tuesday, December 08, 2009

Seigniorage


Seigniorage-- I came across this word when I was reading the paper and I really had no idea about the concept behind it. Pronounced CEE-nyer-rij (seigniorage) is an absolute monopoly. That is the government makes money by making money. It is the profit or the difference between the monetary face value of the coins and the cost of production, including the market values of the metals they contain. Sometime during the 15th century, coinage became the sovereign right of kings, who prescribed the total charge and the part they were to receive as seigniorage. The concept originated in the days when precious metals comprised the monetary base and were considered as having intrinsic value. The government minted the coins, but private enterprise could profit by producing the metal. Coins were an asset without a corresponding liability. The government as well as individuals could gain financial wealth by acquiring coins. The value of the coins in exchange for goods and services depended on their relative scarcity.

Most governments have some type of seigniorage and by today's standards the precious metal it is commonly based upon is bullion, usually the difference between the value of the bullion used and the face value of the coin. One drawback for governments deciding to adopt a universal money system is the loss of revenues from the issue of their own currency. By sharing seigniorage governments open up a whole new arena of complex political, economic, foreign policy issues. Some countries such as Ecuador have changed their system to dollarization with the US in an effort to stabilize the inflation of their economy.

The United States earns about $25 billion per year in seigniorage. Cumulative seigniorage for a twenty year period 1935 through June 1975 was $7,280,639,514.69. In 1994 seigniorage' in various world accounts were; $30 billion in US, $20 billion in Japan and $12 billion in Germany.

The regulation of e trading is also in the lime light since there is the risk of loss of seigniorage when computer money is intended to replace real cash is used. To compensate for the loss regulators are considering the imposition of a tax on the issue of computer money.

Some trivia about seigniorage I found floating around out there in cyberspace:

  • The penny has by far the lowest seigniorage (profit) rate of any U.S. coin. Each one cent coin costs four-fifths of a cent to make, netting Uncle Sam just one-fifth of a cent, or 20 percent. The "profit" on a quarter, by comparison, is more than 20 cents.
  • Casinos, because they realize their own seigniorage from tokens that are sold by casinos, they are not real interested in using coins, because a lot of folks, as tokens of their visit to casinos, and so forth, take them home, never redeem them for the value they purchased them for. So casinos realize a nice profit, somewhat similar to what the Mint does on its circulating coinage.

As the economy of the world and the internet evolve the concept of seigniorage will continue to be redefined.

Sources

Britannica

New Century of ECO-MONEY

Picture Source

Regulation of International Electronic Trading

Seigniorage

US Treasury Opposes Bill on Dollarisation

Sunday, December 06, 2009

It is easier for a camel to go through the eye of a needle


    And when he was gone forth into the way, there came one running, and kneeled to him, and asked him, Good Master, what shall I do that I may inherit eternal life? And Jesus said unto him, Why callest thou me good? there is none good but one, that is, God. Thou knowest the commandments, Do not commit adultery, Do not kill, Do not steal, Do not bear false witness, Defraud not, Honour thy father and mother.
    And he answered and said unto him, Master, all these have I observed from my youth.
    Then Jesus beholding him loved him, and said unto him, One thing thou lackest: go thy way, sell whatsoever thou hast, and give to the poor, and thou shalt have treasure in heaven: and come, take up the cross, and follow me.
    And he was sad at that saying, and went away grieved: for he had great possessions.
    And Jesus looked round about, and saith unto his disciples, How hardly shall they that have riches enter into the kingdom of God!
    And the disciples were astonished at his words. But Jesus answereth again, and saith unto them, Children, how hard is it for them that trust in riches to enter into the kingdom of God!
    It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.
    And they were astonished out of measure, saying among themselves, Who then can be saved?
    And Jesus looking upon them saith, With men it is impossible, but not with God: for with God all things are possible.
    Mark 10: 17 –27 (KJV)
A biblical phrase for the smallest opening imaginable. A remark attributed to Jesus in Mark 10:25. Paraphrased-- he announces that the camel, largest of the familiar animals of the era, can pass through the needle's eye more easily than a wealthy person can enter the kingdom of God. This startling image is toned down by the remark that with God all things are possible. The wealthy young ruler could not possibly abandon all and walks away. Not able to understand that Jesus is telling him that the Lord was prepared to give grace to the young man, if he had only said, O Lord, I cannot abandon my wealth, but give me grace.

His entire commentary draws attention to the dissimilarity between human activity and divine grace. This answer is so general in form that it cannot be regarded as complete; nor would it appear that Jesus expected it to be so regarded.

Some patristic interpreters remove the mixed metaphor in this figure of speech by reading rope (Greek kamilos) in place of camel (Greek kamElos). However, the variant form in the Babylonian Talmud, on the other hand, keeps the animal imagery and tell of the elephant passing through a needle's eye as something impossible. The proverbial saying that; for whatever may be possible with difficulty for a camel would be quite impossible for an elephant. The saying is hyperbolic - an exaggeration, to describe a thing very difficult to do.

Later Medieval affections for moral allegory created the suggestion that needle's eye referred to a narrow pedestrian gate used after nightfall when the large gates of the city were shut. Only by the load being removed from the camel's back, have him go down on his knees and crawl through the small opening, and with much pushing and pulling, could the animal be got through; so the rich man must get rid of his load of riches if he wished to enter the Kingdom of God. However, there is no evidence for any gate with this name and no ancient writer ever records this explanation; yet if it was customary for camels to get through postern gates such an explanation might have been expected from men familiar with the sight.

References

The Bible Study

Needle's Eye by Gary Larrabee

Holy Bible; King James Version.

The Oxford Companion to the Bible, 1993.