Author: Matthew G. Saroff

A British Patriot

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J.K. Rowling, author of the Harry Potter series:

No, I’m afraid not. The 2010 election campaign, more than any other, has underscored the continuing gulf between Tory values and my own. It is not only that the renewed marginalisation of the single, the divorced and the widowed brings back very bad memories. There has also been the revelation, after ten years of prevarication on the subject, that Lord Ashcroft, deputy chairman of the Conservatives, is non-domiciled for tax purposes.

Now, I never, ever, expected to find myself in a position where I could understand, from personal experience, the choices and temptations open to a man as rich as Lord Ashcroft. The fact remains that the first time I ever met my recently retired accountant, he put it to me point-blank: would I organise my money around my life, or my life around my money? If the latter, it was time to relocate to Ireland, Monaco, or possibly Belize.

I chose to remain a domiciled taxpayer for a couple of reasons. The main one was that I wanted my children to grow up where I grew up, to have proper roots in a culture as old and magnificent as Britain’s; to be citizens, with everything that implies, of a real country, not free-floating ex-pats, living in the limbo of some tax haven and associating only with the children of similarly greedy tax exiles.

A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism. On the available evidence, I suspect that it is Lord Ashcroft’s idea of being a mug.

You will inevitably find people, both in the UK and the US who will make noise about moving their primary residence, or their company’s “headquarters” to some other country because of taxes or regulations that they do not like.

These people are Quislings, and they should be viewed as the lowest of the low, and their opinions should be of no concern of any person who cares about this country.

I want smaller government and my Social Security

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Teabaggers in a nutshell.

It’s not that government is too big, it’s that you are giving money to n*****s:

“That’s a conundrum, isn’t it?” asked Jodine White, 62, of Rocklin, Calif. “I don’t know what to say. Maybe I don’t want smaller government. I guess I want smaller government and my Social Security.” She added, “I didn’t look at it from the perspective of losing things I need. I think I’ve changed my mind.”

Their problem is that a black man is President.

Not a Shocker

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The big banks are strenuously objecting to the Basel proposals to strengthen capital requirements.

It seems that they think that it will cost, “13 of the largest banks $20 billion in annual earnings.”

This is probably right. When things are going well, going in hock up to your eyeballs is a good way to maximize your profits, and since the executives of these banks are paid largely on the basis of year to year profits, and the taxpayer bails them out when they fail, it means that they may have to forgo that 5th vacation for a year or so.

As to the dire consequences of such restrictions:

Standard & Poor’s said the new Basel rules could force some banks to change their business models.

“We expect smaller, deposit-funded retail banks to find it easier to comply with more stringent liquidity and capital requirements than larger wholesale-funded institutions with extensive trading operations or large loan books and securities holdings,” the credit rating company said in a report today. “For investment banks, the increase in capital requirements could be sizable.”

I don’t know about you, but it seems to me that this is a plus, not a minus.

I still favor a small (20-50 basis point) Tobin tax on all financial transactions and leverage, as well as a larger tax on M&A activity, but that is in addition to much larger capital requirements.

Zimbabwe Update (Meta)

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I have been following the comings and goings in Zimbabwe since Tsvangirai’s election, subsequently stolen, as President in 2008.

At first, I did so because I thought that we could see a real game change and a peaceful transition from one of the nastier pieces of work on the African continent, Robert Mugabe.

This has not happened, largely because Mugabe does not care, but additionally because the surrounding community, in particular South Africa and its former President Thabo Mbeki, have been most accommodating to Mugabe and his Zanu-PF party.

I don’t see this changing, and I have been posting about once a month because I feel guilty about not caring any more, which is a silly reason to post.

I have little knowledge of the area, nor of the complex social and political dynamics of the region, and honestly, little interest, just some guilt, so I’m throwing the towel in.

I would suggest the BBC and the Guardian for updates if you want them.

I’ll Take “Unsustainable” for $500, Alex

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China’s Economy?

China is reporting that its economy grew by 11.9% year over year.

This raises two issues:

  • How reliable are these numbers? The PRC tends to encourage lower level bureaucrats to over-report growth, and these numbers tend to filter up the chain.
  • If these numbers are anywhere near reality, what is driving it, and will it be like Wile E. Coyote discovering that he is standing in thin air when something more sustainable hits?

Chinese real estate is clearly with a bubble, with some areas experiencing appreciation in excess of 50% (!) over the past year.

One of the things driving this is the fact that the Yuan is under-valued: It makes foreign assets more expensive, which drives up demand for local investments, like real estate.

If their currency appreciates, and it does appear to be in the cards in the not-too-distant future, we could see money flowing to non-Chinese assets, and their bubble burst.

This could be yet another shoe to drop (there are many out there) in the current downturn, even though we currently appear to have found a bottom.

The Poor Don’t Pay Taxes………My Ass!

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Yeah, right, only the rich pay all the taxes

The latest right wing meme is that 47% of the population pay no taxes.

Of course, it’s not true, though it is true that that number owe no federal income tax, but the do owe significant amounts of Social Security, Medicare, and state and local taxes.

As this handy, dandy chart shows, it’s simply not true, and my guess would be that if this were broken up into deciles, as opposed to quintiles, that the top 10% would pay even less, since they are above the social security cutoff, and get far more of their income in capital gains and dividends.

Warren Buffet once noted that his receptionist paid a greater percentage of her wages in taxes than he did, and that still holds true.

A Corollary to Saroff’s Rule

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Sex, Lies, and Videotape?

You know Saroff’s Rule:

If a financial transaction is complex enough to require that a news organization use a cartoon to explain it, its purpose is to deceive.

Well, now I have to come up with a corollary for puppet shows, because the always entertaining Dylan Ratigan has added this to the mix.

[on edit]If anyone can give me suggestions, it would be appreciated.

It’s kind of like School House Rock, on a bad acid trip.

Lincoln Follows the Poll Numbers, Goes Hard on Banks

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Blanche Lincoln (D-AR), as head of the Senate Agriculture Committee, has significant input on derivatives legislation, because one of the oldest of the derivatives are commodity futures, things like pork belly futures, which is why it manages the Commodities Futures Trading Commission (CFTC).

The word has been that Lincoln would be almost as much of a road block ad the Republicans on meaningful reform, seeing as how her record is one of doing the bidding of insurance companies and bank.

It turns out that the word is wrong. Lincoln is requiring that derivatives trading be walled off from banking, as well as requiring the trades be done on open exchanges:

Goldman Sachs Group Inc., JPMorgan Chase & Co. and their biggest rivals would be forced to wall off derivatives trading operations from their commercial banks under a measure to be introduced by Senate Agriculture Committee Chairman Blanche Lincoln, a congressional aide said.

Lincoln, an Arkansas Democrat, will propose a “no-bailout provision” as part of an overhaul of derivatives regulation she plans to unveil today, according to the aide, who declined to be identified because the plan isn’t public. The measure aims to ensure banks don’t endanger depositors’ money with risky trading of over-the-counter derivatives, the aide said.

…………

Lincoln’s provision would bar swaps dealers from taking advantage of the Federal Reserve’s discount lending window, emergency liquidity functions and the Federal Deposit Insurance Corp.’s deposit guarantee. “It eliminates all of the advantages with the affiliation with an insured depository institution, which are profound,” said Karen Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc.

…………

It would also increase protections for clients by requiring swaps dealers to treat them as a fiduciary — obligating them to put customers’ interests ahead of the company’s, the aide said.

The measure requires most over-the-counter derivatives to be traded on exchanges or through clearinghouses. Companies that use swaps to hedge the cost of materials or other non-investment purposes would be exempted from the requirements, the aide said. Like the Volcker rule, which would ban commercial banks from proprietary trading, the wall-off provision would separate derivatives trading from traditional banking activities such as taking deposits and making loans.

Let’s be clear, this is very tough stuff, at least by the standards of the Congress, particularly the Senate.

She actually lambasted the administration for being too soft on banks:

“Proposals that I have seen from the administration have not gone far enough to prevent bailouts of ‘too big to fail institutions’ and could contain loopholes,” Lincoln said. “If we pass reform, it needs to be real reform. My proposal will go further than any other congressional or administration proposal to prevent future bailouts.”

I’m with David Dayen, this all happened within days of her primary challenger, Bill Halter (Reminder, he’s on My Act Blue Page) releasing ads saying that she was too close to the banking industry.

Everyone on Capitol hill know that her proposals will never go beyond a press release, and that behind the scenes, she will continue to do the big banks’ bidding.

This is just electoral politics, and a full court press from her Congressional Colleagues and the White House.

Economics Update

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Well, we have mostly good news today, with the Summary of Commentary on Current Economic Conditions, aka “The Beige Book”, showed the economy picking up steam in March.

Additionally, the retail sales report for March rose more than expected, and diesel fuel consumption rose indicating increased transportation activities, and the US trade deficit rose, which also indicates an increase in demand.

On the down side, the National Federation of Independent Business’ index of small business optimism fell in March, and since this is where most jobs are created, it does not bode well for jobs in the near term.

In real estate, mortgage applications fell for the 6th straight week, which is not surprising, as mortgage rates have been trending higher and the FHA has started to charge more for mortgage insurance to replenish its depleted reserves.

Finally, inflation seems to remain well under control with the March CPI rising by only 0.1%

That Special Election in Florida?

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Bob Wexler retired, and there was a special election in Florida’s 19th district to replace him last night.

The results? Democrat Ted Deutch trounced Republican Ed Lynch, 62%-36%.

This is very much in line with the district’s PVI D +19, but that’s the point: there was no movement from the existing trends.

So much for “voter backlash” against the HCR bill.

I think that the Republicans may have seen the outrage of their base at losing when they thought that they had won, and thought that it was some sort of mass anger at the bill.

Put a Steak* Through It’s Heart

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We See the problem here

The good folks at Bloomberg, no group of raving socialists have some graph pr0n.

What they are showing is something very basic: That when profits (and not stated, remuneration) in the financial industry skyrocket, this is not a sign of health in the economy, this is a sign of sickness.

It means that enormous amounts of resources are being redistributed to non-productive activities, essentially bankers shafting their customers and pocketing the difference:

In July 2008, [Deutsche Bank AG strategist Jim] Reid said that U.S. banks had made “excess profits” of about $1.2 trillion in the previous decade, compared with how much they should have made based on economic growth, and that those excesses would be wiped out. Since then, U.S. financial firms have written down the value of their assets by about $1.15 trillion, according to Bloomberg data.

“We are now all well aware that rather than overhaul a financial system that arguably contributed to the problems of the last two to three years, the authorities have created the conditions for the industry to thrive,” Reid wrote this week. “Only time will tell how the regulators and politicians will decide to address these imbalances.”

In any case, I spotted it on Kevin Drum’s blog, and he found it at Paul Kedrosky’s blog, but he begs to differ with Mr. Kedrosky’s analysis.

You see, Mr. Kedrosky’s thesis is that with rates at 0%, and the finance industry still not supplying the lubricant that keeps the economy moving particularly well, that even bad bankers can make a profit.

Mr. Drum, and I agree, sees the role of the bankers somewhat differently :

Wall Street is only full of bad bankers if you think the role of bankers is to provide efficient financial services to the rest of the economy. If you adopt the more correct attitude that the role of bankers is to make lots of money for bankers, then America has the best bankers in the world. And they’re proving it yet again.

(emphasis mine)

This is, of course the problem: What is good for the banks is increasingly bad for the country, which is why the finance industry, and all of the FIRE sector (Finance, Insurance, and Real Estate) needs to be shrunk back to historic levels of society.

Until one of the goals of regulation is a recognition that the FIRE sector is basically parasitic once it expands much beyond the bare minimum required, then part of the solution is to shrink it, and this needs to be an explicit goal of any new regulatory regime.

*It’s a reference to Damon Knight’s (very) short story eripmaV. Read the story, or buy the T-shirt with the story printed in full on it.

Saroff’s Rule, Once Again

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Saroff’s rule: If a financial transaction is complex enough to require that a news organization use a cartoon to explain it, its purpose is to deceive

The New York Times has a description of how Lehman Brothers used a front company to obtain credit and conceal debt:

It was like a hidden passage on Wall Street, a secret channel that enabled billions of dollars to flow through Lehman Brothers.

In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.

The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.

While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.

None of this was disclosed by Lehman, however.

Not surprised about their doing this, though I am surprised that this is, at least nominally, legal.

Quote of the Day

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This man should spend the rest of his life digging coal a mile below the earth with his bare hands

Crusiing the innerwebz, a member of the by invitation only Stellar Parthenon BBS discovered the following video of Massey CEO Don Blankenship’s.

It’s short, but you will note that he thinks that agencies attempting to make coal mines safer are as “silly as global warming.”

Well, one of the users, Jolly Reaper, on said the following:

If he doesn’t get whacked by a miner, this nation really is full of pussies.

It’s true.

One of the great tragedies of US culture is that when disgruntled employees go on shooting sprees, they target their coworkers, as opposed to upper management, which should then be followed by a few acquittals.

While any loss of life is tragic, if there was a real fear of death among upper management as to their safety, we would see better management.

It seems that even workers going postal give too much deference to the MBA/Banker types.

A Coda on “Collateral Murder”

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A soldier whose unit was involved in the incident captured on video is saying that these actions were business as usual and were fully in accord with the rules of engagement.

The full statement is after the break, but his basic point is that this is an inevitable part of war.

Certainly this is true to some degree, but the incident is also a reflection of some real issues with US doctrine, particularly with the aggressive use of air power, and rules of engagement.

Both of these problems contribute, and continue to contribute to, a situation where we are creating an environment where we create more insurgents, and, in the long run, more dead American soldiers.

Statement follows:

FOR IMMEDIATE RELEASE
April 9, 2010 10:45 AM
CONTACT: Media Advisory

Veteran of “Collateral Murder” Company Speaks Out

WASHINGTON – April 9 – Josh Stieber, who is a former soldier of the “Collateral Murder” Company, says that the acts of brutality caught on film and recently released via Wikileaks are not isolated instances, but were commonplace during his tour of duty.



“A lot of my friends are in that video,” says Stieber. “After watching the video, I would definitely say that that is, nine times out of ten, the way things ended up. Killing was following military protocol. It was going along with the rules as they are.”



Stieber deployed to Baghdad with Bravo Company 2-16, whose members were involved in the incident captured in Wikileaks’ “Collateral Murder” video, which has made international headlines by depicting a July 2007 shooting incident outside of Baghdad in which over a dozen people, including two Reuters employees, were killed. Although he was not present at the scene of the video, he knows those who were involved and is familiar with the environment. Stieber, who now works to promote peace and alternatives to war, is speaking publicly about his time in Iraq and the incident captured in this video.



“If these videos shock and revolt you, they show the reality of what war is like,” says Stieber. “If you don’t like what you see in them, it means we should be working harder towards alternatives to war.”



Stieber currently lives in Washington, D.C.




BACKGROUND ON JOSH STIEBER:
Branch of service: United States Army (USA)

Unit: 1st ID

Rank: Spc.

Home: Laytonsville, Maryland

Served in: Baghdad (Rustamiyah) 07-08 Fort Riley, KS 06-07, 08-09



###

No Outrage From Me At All

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Developing nations are threatening to cut aid to poorer nations that do not sign onto to greenhouse gas reductions:

Rich countries have threatened to cut vital aid to the developing nations if they do not back the deal agreed at the UN climate summit in Copenhagen, it has emerged.

The pressure on poor countries to support the US, EU and UK-brokered Copenhagen accord came as 190 countries resumed UN climate talks in Bonn in an atmosphere of mutual suspicion.

“The pressure to back the west has been intense,” said a senior African diplomat. “It was done at a very high level and nothing was written down. It was made very clear by the EU, UK, France and the US that if they did not back them then they would suffer.”

My heart bleeds borscht for them.

The idea that LDC’s, which for some reason includes two of the industrial powerhouses of the world, India and China, should get a free ride, and basically be allowed to destroy the world is complete crap.

If you want to piss in the punch bowl, don’t expect to be invited to the party.

Not only is such arm twisted to be expected, it is the right thing to do.

The damage that was done by the Kyoto protocols, where the LDC’s were left off the hook, giving polluting industries an incentive to move there and continue to pollute, is huge and ongoing.

We want more of this arm twisting, not less.

Economics Update

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Business orders returning

Well, it’s kind of a slow news day, as the big news was the Euro loans to Greece, but we do have another sign of a recovery, which is that business orders are on an upswing worldwide.

All in all, I think that we are truly in recovery, unless another shoe drops in high end finance, but I’m kind of expecting another shoe to drop there, causing another panic and another bailout.

The National Bureau of Economic Research (NBER) continues to take a conservative approach, saying that, “The determination of the trough date on the basis of current data would be premature.”

This is not surprising. The folks at the NBER typically take more than a year after the trough bottom to announce that they have determined a trough date.

In energy, gasoline is up nearly 4¢/gallon this over the last three weeks, to $2.85/gallon, and it’s not unreasonable to assume that it will break $3/gallon by the start of the summer driving season.

As to oil, it fell today, as and so did the dollar, largely in reaction to the Greek bailout.