MP3: Side 1 | Side 2
Introduction: Exploring reasons underlying the crash of 2008, investigative journalist Lucy Komisar reveals that the relevant question is not so much “What went wrong?” but “What didn’t go wrong?” An investment industry corrupt to its foundations, and colluding actively and routinely with the officials and institutions charged with its regulation, engaged in fraudulent commerce massive in scale and brazen in character. Lucy explores the use of devices and instruments such as short selling, naked short selling and credit default swaps in order to manufacture vast amounts of wealth in the markets.
“Short selling takes place when investors sell a stock they don’t own, in hopes it will fall and they will buy it more cheaply when they have to deliver it to the buyer. Under SEC rules they have to buy them and deliver them to their purchasers within three days. Except, they often don’t. They sell shares they don’t own and don’t intend to buy. That is called naked short selling. And since these days investors don’t get share documents on official paper, but simply trust their brokerages that their shares are on file, they generally don’t know that they’ve paid out money for nothing.”
Lucy defined credit default swaps:
” . . . the next crisis that will be provoked by short selling. Mortgage securities were bundled into large packages which were then transferred to large Wall Street firms. These firms created derivative contracts from them which were resold. The contracts could be traded in the credit swap market. Its prospective collapse dwarfs the problem of mortgage-backed securities. . . .”
Another major element of discussion concerned the necessity of the U.S. government using its stewardship of AIG to investigate the offshore operations through which it conducted business in the past. (Interested listeners can pursue the role of short-selling–probably executed by financial entities associated with the Underground Reich and its Bormann capital network–in operations associated with the assassination of JFK, the 9/11 attacks, and the collapse of investment bank Bear Stearns.
Program Highlights Include: AIG’s use of “captive” insurance companies; review of AIG’s Coral Reinsurance subsidiary; the manner in which naked short-selling and other investment practices corrupt corporate representation and governance; the manner in which naked short-selling and related practices destroy the value of companies that are targeted by the shorts; an overview of the corruption of the equities of the Taser company—in charge of manufacturing Taser devices for law enforcement; the roles of the DTC and DTSCC in assisting the shady stock operations that undermined the financial industry; RICO suits filed against SEC chairman Christopher Cox; collusion of the SEC with the nefarious stock operations.
1. Introducing one of the major focal points of discussion, Lucy explains “short selling” and “naked short selling,” as well as the roles of the Depository Trust Corporation in the gambit. Note the restrictions placed on short selling in the wake of the stock market crash of 1929, ascribed by some analysts to a “massive conspiracy” involving short selling.
“‘Naked short selling,’ the trade in counterfeit or non-existent shares, is a massive fraud run by the country’s big brokerages and the stock clearinghouse, the Depository Trust Corporation, with the collusion of the SEC.
Short selling takes place when investors sell a stock they don’t own, in hopes it will fall and they will buy it more cheaply when they have to deliver it to the buyer. Under SEC rules they have to buy them and deliver them to their purchasers within three days. Except, they often don’t. They sell shares they don’t own and don’t intend to buy. That is called naked short selling.And since these days investors don’t get share documents on official paper, but simply trust their brokerages that their shares are on file, they generally don’t know that they’ve paid out money for nothing.
Naked short selling works is done through a device called stock lending organized by the Depository Trust Corporation (DTC) in New York. It is a subsidiary of the DTCC (Depository Trust & Clearing Corporation) a holding company charged with clearance and settlement of securities. It is owned by its members, the major broker dealers. The Depository Trust Corporation (DTC) is the institution that transfers shares between buyers and sellers. When a DTC broker member sells shares and cannot deliver them to the purchaser, the depository makes arrangements to loan securities to the firm
It works like this. After the share trade occurs, it goes into the clearing system, if the seller does not have the securities available, the depository steps in with an automatic program that goes through all the available shares on deposit where account holders have said these shares can be loaned out if you need them. The DTC and the lender get commissions.
The DTC borrows the shares from its members -brokerages — to ‘deliver’ them to the buyer. But that’s just on paper; they are not really delivered. Shares used to be represented by paper certificates. Now that the DTC turned them into electronic files and kept the custody, it has made billions of dollars lending them out, over and over, getting a fee each time they ‘lend’ a share. The investor with an account at the lender has an account that says he owns those shares, and the buyer that has received shares also ‘owns’ the shares.
Through this stock lending, you can multiply the number of shares in circulation so the number is greater than the number of shares authorized and outstanding. The illegal system affects stocks, bonds, currencies, and strategic metals.
Restrictions on short selling were put into the Securities Acts of 1933 and 1934 because evidence that the ‘sheer scale of the crashes was a direct result of intentional manipulation of US markets through abusive short selling by a massive conspiracy.'”
2. Lessons from the Great Depression went unlearned and the past has been repeated. The evolution of electronic records keeping exacerbated the problem. Former Director of Transfer Agent Services for Depository Trust Company Susanne Trimbath provides much of the information utilized by Lucy. Offshore accounts are used in these transactions, and one of the results of this is the corruption of corporate securities—more shares are counted in proxy fights than are in existence overall!
“But the problem surfaced again in 1971, when the DTC was set up to handle clearing electronically, instead of have runners exchange checks and certificates between buyers and sellers. Ten years later the SEC approved a stock borrowing program that set up a pool of shares from brokers margin accounts (where the broker had lent cash to the customer to buy the securities). Then gave an opening to those who wanted to manipulate shares by borrowing them and never returning them to the pool. There was a sale but no delivery of real shares to the buyer.
Susanne Trimbath, Director of Transfer Agent Services for Depository Trust Company (1987 to 1993) first heard about the problem from the people organizing proxy voting. Then in 2003 in New York, she had coffee with two lawyers at a mid town Manhattan. She said, ‘They described scenarios of short selling, stock lending and offshore accounts and how some small firms were being driven out of business. They said what ten years earlier was a minor problem which occasionally created difficulties for corporate voting had expanded tremendously and become an enormous problem.
‘It occurred to me that someone outside the system had realized this loophole existed and began to exploit it.’ She said the scenario they laid out was that DTC was being used for or was engaged in fraudulent behavior. They said accounts in offshore Bermuda were being used.’
She explains, ‘Let’s say there are shares that have been borrowed by the DTC from one broker and loaned and delivered to the investor customer of another broker. That customer leaves the shares with the broker. The buyer’s broker can also say these shares are lendable and they are lent again to cover settlement for another buyer.’ Then three investors think they own the shares – the original owner/lender, the first buyer, and the second buyer. Through this stock lending, the number of shares in circulations can multiply so it can be greater than the number of shares authorized and outstanding. That means that the same shares can be shorted repeatedly and never delivered, making it possible to sell multiples of the shares that really exist. She said, ‘I don’t think there’s a limit to how many shares you can duplicate this way. There’s nothing in the system that would prevent you from turning ten shares into ten million.’
3. Like current Secretary of the Treasury Henry Paulson, former Treasury Secretary Robert Rubin worked for Goldman Sachs, itself deeply implicated in many of these activities. A 1996 change in regulation permitted the lending of shares from pension funds to short sellers.
“In fact, 1993 was the year that Clinton’s Treasury Secretary Robert Rubin, former managing partner of Goldman Sachs where he was head of arbitrage and trading, issued an exemption to the short-sale borrow rule: if you were a market maker, arbitrage or hedge fund, you didn’t have to locate stocks or bonds for shorting. You could just sell them without having them or even knowing where you could get them. SEC Chairman Arthur Levitt, and FED Chairman Alan Greenspan agreed. The rules would apply to those with the power to do the most damage.
Then, in 1996 there was a change in the margin rules. From 1934 to 1996, it was illegal to lend anything except securities held in margin accounts. Now for the first time securities in pension funds could be loaned to short sellers. Under criticism, the SEC in 2004 adopted Regulation SHO which required short sellers to locate securities to borrow before selling, and also imposes delivery requirements on broker-dealers for securities that were suffering substantial naked shorts. But it exempted market makers, and there were no penalties for violations.
Trimbath says sellers’ failure to deliver stocks to buyers went from $1.4 billion in 1995 to $13 billion in 2007. ‘The DTCC [the parent of the DTC) could throw out of system anyone who doesn’t deliver securities for settlement. But they are owned and controlled by people who fail to deliver securities for settlement.’
The winners are the short sellers and the DTC and brokerages. They all make a lot of money selling shares that don’t exist. This corrupt system has destroyed dozens, maybe hundreds of companies before it helped bring down Fannie Mae, Freddie Mac, and probably Bear Stearns and Lehman Brothers. The SEC has known this for years and, siding with the brokerages, has chosen not to protect companies or investors. The result is that companies are beaten into the ground, their share prices falling because of massive sells. That hurts not only the companies, that can’t borrow because of bets against their future earnings and stability, but victimizes shareholders, including pension funds that hold the retirement money of American workers, and employees of the companies who lose their jobs.”
4. More about the massive irregularities caused by some of these devices, relating the misadventures of Zann Corporation, a Michigan firm. Note the deep complicity in this activity by the SEC and other agencies and institutions designed to attenuate this sort of behavior.
“In 2005, Robert Simpson, CEO of Zann Corp, a Michigan technology company, saw its shares drop 98% in two years. To test the system, he paid about $5,000 for more than one million shares of a property-development company called Global Links. He got delivery of the shares, which turned out to be 126,986 more shares than the company had issued. So he owned 100% plus. A day later, more than 37 million shares of the company were traded. The day after that, over 22 million traded. None of them were his. All of them were counterfeit.
Both the US government and municipalities who issue bonds also suffer. Trimbath says that because more investors claim that their dividends are from tax-free municipal bonds than there are bonds that exist, they are failing to pay $1.54 billion a year in federal taxes. The investors are simply getting cash from their brokers who tell them it is dividends, but in fact it is not. And since there is a greater market for municipal bonds than the bonds that exist, the municipalities could be selling more bonds and obtaining the cash. Instead, the brokers get their clients’ cash and use it for their own purposes, paying out ‘dividends’ at a lower percentage than the interest they would have to pay if their borrowed that money legitimately.
Trimbath, highlighting the short selling problem on supposedly safe, conservative securities: Federal Reserve of NY data from the 22 primary dealers who have to report trades and failures to deliver show fails to deliver of $680 billion a day over the last 3 weeks. The most recent report, for October 8, 2008, show $2.5 trillion Treasury bill fails to deliver. It is the highest it’s ever been. Since 2001, 15% of mortgage backed securities trades failed to settle. There were no mortgages under these bonds because they were phantom bonds. There was excess demand for these investments. Rather than allow this to push prices up, the regulators allowed failures to deliver to depress prices. If the 13% of extra outstanding shares of Fannie and Freddie had been translated into buyers getting real shares, that would have driven up the price.
The failure of regulation by the SEC and the clearing agencies on naked short selling is a matter of record. The SEC has the information showing more shares owned than issued, but has constantly allowed loopholes in the system and carries out no real enforcement. Civil penalties are minimal. One of the loopholes allows traders to avoid the normal settlement process of the National Securities Clearing Corporation (NSCC) and thereby to avoid public and regulatory scrutiny and to evade US securities laws.
The SEC ruling as a result of the financial crisis temporarily banned short-selling for shares of some 900 companies for a few weeks, But when the bailout was approved, it allowed short selling to resume. But the problem is not so much short selling, as naked short selling.
Harvey Pitt, who was Bush’s first SEC chairman 2001 to 03, said in November, ‘Phantom shares created by naked shorting are analogous to counterfeit money.’ Pitt, however, ignored efforts by outside critics to get him to do something about naked short selling while he had the power to do so. C. Austin Burrell, a former options trader for Shearson Lehman and longtime critic of short selling, has pointed out to Pitt and other SEC officials over years that selling counterfeit and therefore unregistered securities was a violation of the Securities Act. But the SEC under Bush chairs Pitt, William Donaldson and Christopher Cox ignored him and other critics, and did nothing to stop it. In fact, the rules of the SEC and other market institutions facilitate it.
A DTCC (Depository Trust & Clearing Corporation) subsidiary, the National Securities Clearing Corporation (NSCC) is charged with clearing each trade. At the end of the day, the NSCC instructs the Depository Trust Company, also a DTCC subsidiary, to move shares between participants. The DTCC writes the rules. And it panders to the industry. One of its loopholes allows traders to avoid the normal settlement process of the NSCC and thereby avoid public and regulatory scrutiny and evade US securities laws. The rule allows them to settle shares between members outside the normal system. They use the clearing system for money transfers but agree to settle trades off market. This is called ex-clearing, ie an agreement between market participants to clear trades with each other rather than at the NSCC. The National Association of Securities Dealers has the same rule.
The SEC decided that provisions regarding naked short selling do not apply to shares that don’t settle at NSCC. The SEC does not regulate fails to deliver outside of the National Securities Clearing Corporation NSCC system, supposedly because they’re rare. But they are not rare. Do they know how frequent they are? They haven’t a clue. Furthermore, SEC’s July emergency order, requiring pre-borrowing shares of 19 other financial stocks to short them, exempted market makers. The primary market makers are Goldman Sachs (Fannie Mae) and LaBranche & Co. (Freddie Mac). (A market maker is a bank or brokerage company that will purchase the stock from a seller, even if it doesn’t have a buyer lined up. In doing so, it is ‘making a market’ for the stock. The market maker makes money on the ‘spread’ (profit margin) on the stock that it sells after it buys it.) Most market participants were not allowed to short sell without pre-borrowing shares for settlement and in a 12 day period, this amount only accumulated to 5.5 million increased shorted shares. The majority of the 3.5 billion shares sold were not sold by legitimate investors who owned the shares. They must thus be shares counterfeited by the market makers, Goldman Sachs and LaBranche & Co. who could avoid the normal settlement process of the NSCC. The numbers were known by the regulatory and clearing institutions.
New York Stock Exchange (NYSE) collects trade-by-trade information. It would know that shares were all owned by registered institutions and that millions or even hundreds of millions of shares should not be trading. The National Securities Clearing Corporation (NSCC) also has records that show billions of shares could not have been legally settled through their settlement system. Why don’t the institutional investors themselves notice that more shares are traded than owned? Private investment advisors to institutions don’t care as long as the money keeps flowing, they buy stock, and get their fees.”
5. One of the most devastating devices affecting the global financial landscape are credit default swaps.
“Credit Default Swaps: the next crisis that will be provoked by short selling. Mortgage securities were bundled into large packages which were then transferred to large Wall Street firms. These firms created derivative contracts from them which were resold. The contracts could be traded in the credit swap market. Its prospective collapse dwarfs the problem of mortgage-backed securities. On September 23, 2008, in testimony before the Senate Banking Committee, SEC Chair Cox asked Congress to regulate the market for credit default swaps, financial instruments that insure the holder against losses from declines in bonds and other types of securities. He said, ‘I will conclude, Mr. Chairman, by warning of another similar regulatory hole in statute that must immediately be addressed or we will have similar consequences. The $58 trillion notional market in credit default swaps to which several of you have referred in your opening comments that is double the amount that was outstanding in 2006, is regulated by absolutely no one. Neither the SEC nor any regulator has authority over the CDS market, even to require minimum disclosure to the market. This market is ripe for fraud and manipulation and indeed we are using the full extent of our anti-fraud authority, our law enforcement authority right now to investigate this market.’
Credit default swaps are contracts between dealers on stocks, bonds, mortgage backed securities or other financial instruments (‘securities’) that can be hedged by selling the securities at the current market value. Speculators may trade a swapped contract for a future delivery of a security several years in the future. Then they hedge the contract by selling the securities into the public markets or to investment funds, such as pension funds, even though they don’t own them.
It works like this. You are Merrill Lynch and I am Lehman. You and I decide we’re going to short-sell a stock. I agree to write a contract to you that says in five years I will deliver to you 10 million shares of ‘xyz’ on Jan 1. You agree to write a contract to deliver to me 10 million shares on Jan 2. You and I never exchanged a dime, we just wrote a contract. We’re allowed to hedge that. I can sell 10 million shares of ‘xyz.’ So can you. Even though we don’t own them. 20 million counterfeit shares just got sold. At the end, the contracts are shredded. The money is made from naked short selling, from the price decline of the asset. The most profit is obtained if the security declines to zero.
Once they do their hedge, the brokers then can sell the contract to another party – to their favorite hedge fund client. Then that client is allowed tohedge again the risk of the ten million shares. It is legalized fraud.”
6. More about the SEC’s complicity in these gambit:
“They don’t settle. Cox said we have no statutory authority, the SEC doesn’t regulate contracts. But when they sell the equity into the market as a hedge, the SEC has control. It has turned a blind eye. Neither the SEC nor any regulator accepts authority over credit default swap market even to require minimum disclosure. Now they’re saying we have antifraud provisions to go after these people. But they never used them.
US traders have issued credit default swap contracts far greater than housing issues. The value of these contracts has been estimated to be $58 to 62 trillion. Compare that to the fact that the entire U.S. public retirement accounts amounted to $17.6 trillion at the end of 2007. Sixty trillion dollars is equal to the value of all publicly traded stocks listed on all major global stock exchanges. Cox said, ‘Because CDS buyers don’t have to own the bond or the debt instrument upon which the contract is based, they can effectively naked short [ie, sell and never deliver] the debt of companies without any restriction, potentially causing market disruption and destabilizing the companies themselves.’ Because the companies’ shares will plummet.
He said, ‘This is a problem we have been dealing with, with our international regulatory counterparts around the world with straight equities and it’s a big problem in a market that has no transparency and people don’t know where the risk lies.’ In fact, the SEC has not dealt with this. Cox asked Congress for the first time to regulate the market for credit-default swaps, financial instruments that insure the holder against losses from declines in bonds and other types of securities. Days later the SEC issued a new order indicating it now realizes that voluntary submission of information by the major broker dealers does not work. So expect regulation.
The analyst said, ‘Money in Wall Street does not vaporize in a financial crisis; it is only transferred from investors to those Wall Street participants who benefit from market crashes. There have been very large credit default swap contracts and other methods of naked short selling used against U.S. securities. There is an incentive for the small number of profiteers in these large naked short positions to crash the value of the underlying securities, but this will, as it already has begun to, crash the U.S. economy. These profiteers can then conceal the fact that they have previously stolen the money from the financial system by selling securities they created from sham contracts. There are vast pools of money gained from this activity by a small number of identifiable participants and if the U.S. cannot counteract these pools, financial devastation is assured.
‘It’s collusion; it violates fraud and anti-manipulation rules, but the SEC has never enforced the rules against these types of contract. As soon as they get to the large broker dealers, they don’t deliver on promise to investigate. Now they say they’re going to.”
7. When in Congress current SEC chairman Christopher Cox helped to facilitate the implementation of these scams.
“In fact, Cox as a congressman in 1995 sponsored the private securities litigation reform act to knock civil securities cases out of the RICO law. A number of companies had brought RICO actions in federal court against prime brokers and hedge funds. Cox himself was sued in a RICO case in 1992. So he protected himself, the brokers and the funds. The law gave the SEC sole authority to bring RICO actions related to stock fraud. Awards under the law can be significant – three times the amounts stolen. The SEC has never used it.
The analyst said, ‘The exchanges, the clearing firms, the settlement firms have the data. It’s completely illegal to sell something long that you don’t own. The contracts are illegal because they mark the shares ‘long’ [meaning they own the shares they are selling] so they never show up as ‘short.’ It’s the dealers’ responsibility. If they didn’t mark them as short, it’s fraud. And if they developed very large sums of these, it’s market manipulation by the fact of the number of shares they developed. This is theft on a major scale. They should do disgorgement of ill gotten gains. Should people go to jail? Absolutely?
He said, ‘I would completely revamp. They’ve taken a concept designed to be a risk hedge. It wasn’t a bad concept. But they changed it to hedge securities they don’t own. There’s no hedge. There’s no economic risk. That type of contract should be eliminated. Any credit default swap based on no underlying assets should not be allowed to trade. He said, ‘The only answer I see is to go after the very large amount of money that has been stolen from the economy. It’s not hard to track. Credit default swaps are ‘off balance sheet transactions’ in broker-dealers’ books, But they report them in footnotes in 10K filings and auditors are aware of them. Regulators don’t see them. It’s a non-reporting report. They use special accounts, trusts, special purpose enterprises — that is the likely home for the money that was stolen through manipulation of shares through fraudulent methods.
It’s sitting offshore, in the Cayman Islands or the British Virgin Islands. Or it flowed through there. We know who executed the trades. Henry Paulson as a Goldman Sachs executive and senior partner is very versed at how these types of markets work and understands the complexities of credit default swaps and that the prime broker dealers are carrying these transactions off the books. But they always back off of the large prime brokers.”
8. Lucy discussed the necessity of examining AIG’s use of offshore tax havens.
“The U.S. takeover of the world’s largest insurance conglomerate, AIG, puts it in a unique position to look into the inner dealings of a company that is a profligate user of tax havens. AIG has employed offshore shell companies to cook its books and dodge taxes. The new U.S. managers should investigate how they do it. AIG’s favorite offshore jurisdictions are Bermuda, Barbados, Switzerland, and Luxembourg, places immune from even the lax enforcement of America’s state insurance regulators and the Securities and Exchange Commission (SEC). AIG’s offshore subsidiaries include American International Assurance Company Limited, Bermuda; American International Reinsurance Company, Ltd., Bermuda; AIG Life Insurance Company Ltd., Switzerland; and AIG Financial Advisor Services, S.A., Luxembourg. AIG in the past has used tax havens to evade regulations and hide insider connections in supposedly “arms-length” deals. This is especially significant as the company has moved into financial services and asset management. It has also used the offshore system to evade U.S. taxes.
Here are two examples, the first reported exclusively by this writer. AIG helped Victor Posner, a notoriously crooked investor, set up an offshore reinsurance company so that Posner could evade U.S. taxes. The policy scam was discovered in the early 1990s, after the SEC prosecuted Posner for a fraudulent takeover scheme concocted with Wall Street thieves Michael Milken and Ivan Boesky, ordered him to pay $4 million to fraud victims and banned him from serving as officer or director of any publicly-held company. New managers took over Posner’s NVF Corp., which ran a Delaware vulcanized rubber plant. An insurance agent charged with examining company policies discovered that NVF was paying AIG’s National Union Fire of Pittsburgh substantially over market for workmen’s compensation insurance. AIG reinsured the policy through Chesapeake Insurance, an offshore reinsurance company Posner owned in Bermuda. In essence, NVF, owned by Posner, was buying insurance from an AIG company which was buying reinsurance for the policy from an offshore company owned by Posner. Bermuda provided tax and corporate secrecy, so Chesapeake’s books were safe from the eyes of American regulators and tax authorities. AIG and Posner made out like bandits. AIG got a higher commission from the inflated NVF premium before sending the rest to Chesapeake. Posner wrote off the entire amount as a business expense and enjoyed the extra cash in Bermuda, tax free, stiffing the U.S. government. Reduced profits also meant smaller dividends and share prices for investors. The insurance agent cancelled the NVF policy with AIG, but the Delaware Insurance Department did not make the scam public or take any action against AIG. A former insurance department regulator told me, “This was not an isolated case with Vulcan [NVF]. AIG did that a lot. AIG helped companies set up offshore captive reinsurance companies.” A “captive” is owned by the company it insures. AIG, he alleged, “would then overcharge on insurance and pay reinsurance premiums to the captives, giving the captive owners tax-free offshore income.”
AIG says that it “pioneered the formation of captives” and offers management facilities to run them in offshore Barbados, Bermuda, Cayman Islands, Gibraltar, Guernsey, Isle of Man, and Luxembourg – all places where corporate and accounting records are secret and taxes minimal or nonexistent. Another scam helped AIG dodge taxes and U.S. regulations. Insurance companies normally insure themselves by laying off part of their risk to reinsurance companies, so if a claim comes in above a certain amount, the reinsurance company will pay it. State laws also require them to keep a certain amount of capital available to pay out claims. If they have reinsurance, that amount can drop. Companies have to show losses – amounts they have paid out – on their books. If they have enough good reinsurance, they get a credit for that against their losses. The reinsurer, of course, has to be an independent company; the risk isn’t reduced if it’s just moved to another division of the same company. In the mid-1980s, two of AIG’s reinsurers failed. AIG would have had to curtail writing new business, since rules require a certain ratio of assets to risk. Finding new reinsurers was going to be difficult and expensive. CEO Maurice “Hank” Greenberg persuaded several of his business friends to set up a company into which he could “cede” AIG insurance. The company was launched with a private sale of shares organized by Goldman Sachs, then headed by Robert Rubin. Greenberg’s front men were loaned the money to “buy” risk-free shares in the new Coral Re, an allegedly independent offshore reinsurance company, to allow it to illegally move debt off AIG’s books and violate rules about maintaining minimum levels of reserves required to pay off claims. The company was registered in Barbados, where capital requirements and regulation are minimal, where American regulators couldn’t readily discover AIG’s involvement and where, as an added incentive, it could evade U.S. taxes. If Coral Re was an AIG affiliate, it would have to pay taxes on its income. . . .”