Friday, October 31, 2014

Some unpleasant municipal arithmetic

The Sacramento Bee's designated blogger for government employees, has it;
...more retirees are drawing money from their retirement systems while fewer active employees are paying in. Some of the troubling numbers:
▪ Cities and counties statewide paid $17.52 billion last year into pension funds, up from $6.38 billion in 2003. Employees’ contributions rose from $5.21 billion to $9.07 billion in 2013.
▪ Despite receiving more money, pension systems’ unfunded liabilities soared from $6.33 billion to $198.16 billion over the 11-year span.
Meanwhile, the city of Stockton emerges from bankruptcy...sorta;
Government pensions in California remain untouchable, at least for now, after a bankruptcy judge approved Stockton’s plan to repay its creditors Thursday without reducing the city’s pension obligations.
In a major victory for CalPERS and public employees, U.S. Bankruptcy Judge Christopher Klein approved Stockton’s reorganization plan over the objections of a disgruntled investment firm, Franklin Templeton, which wanted more money at the expense of the city’s pension benefits. “This plan, I’m persuaded, is about the best that can be done,” Klein told a packed courtroom in U.S. Bankruptcy Court in Sacramento.

Read more here:

Read more here:

La miseria ama la compañía

The latest Misery Index is out, and Venezuela is almost Number 1 (worst), so naturally that calls for a celebration;
The Cuba-Venezuela Comprehensive Agreement is celebrating its 14th anniversary, implementing a variety of social programs throughout the entire country, key among which are those of public health and education. Over this period, mutually beneficial economic and social projects have been developed, guided by the spirit of their creators: historic leader of the Cuban Revolution Fidel Castro and former Venezuelan President Hugo Chávez.
On October 30, 2000, both dignitaries signed the Caracas Agreement, resulting in the expansion of bilateral relations. 
Though Cuba is so secretive about its economy it isn't even rated.

Maybe the fact that you can go to jail for grocery shopping in Venezuela has something to do with their ranking;
A $15 grocery run has cost two single mothers from Colombia 48 days in jail — and the threat of a 14 year prison sentence — as a result of a crackdown on smuggling in Venezuela that’s ratcheting up tensions and highlighting growing economic distortions between the neighbors.
Jenifer Rojas and Belsy Alvarez were arrested in early September by Venezuela’s national guard walking out of a supermarket in the western city of San Cristobal with bags of pasta, mayonnaise and other staples that are heavily subsidized in Venezuela and whose sale is restricted to the country’s residents.
Along with the cashier who rang up their purchases, they face charges of smuggling and violating the socialist government’s new law of fair prices, whose penalties include 10 to 14 years in jail.
No, not an episode of Parks and Recreation;

Thank goodness they won't be lending that money out!

Unless you qualify for a subprime mortgage?
Big banks in the U.S. and Europe are stockpiling billions to pay for a potential trans-Atlantic settlement of allegations that they manipulated foreign-exchange rates as talks heat up with regulators on both continents.
....Several people familiar with the discussions said banks appeared more optimistic of reaching a global settlement than U.S. regulators. One person said the direction of the talks was changing by the hour.
Some of the people familiar with the matter said they are skeptical that all the U.S. regulators will go for a settlement alongside their U.K. counterparts. Among the U.S. agencies, there are varying degrees of enthusiasm for one big deal: The Justice Department, in large part because it is handling criminal probes of the conduct, expects resolutions of its probes to take months more, some of these people said.
After all, what are banks for?

Mary has a little lampoon

Vote for me, because my opponent is a Nazi?
Seeking to regain the momentum in the governor's race Friday, Democrat Mary Burke released a pair of ads, one with a former president and the other with an image of a swastika taken from the Facebook page of a Gov. Scott Walker supporter and Burke critic.
That's class. And, about that War on Women, who better to speak than Bill Clinton;
To make a closing case to voters, Burke debuted a new ad Friday featuring Clinton, who is fresh off a campaign visit for her in Milwaukee a week ago. The spot features the former president speaking directly into the camera — a technique often used by Walker himself.
"If you're ready for a governor who will get up every day thinking about your family and building the middle class, you're ready for Mary Burke," Clinton says in the ad.
Well, we're sure you are, Bill;

Marchar como es 1973

Like the good old days when the Chilean citizenry finally realized what they'd voted for, it's, take to the streets to fight communism-socialism;
A mass demonstration took place in Santiago, Chile, on Saturday, against the education reform proposed by the ruling New Majority (NM) coalition. Demonstrators rallied around the slogan #LaMarchaDeLosPapas (the parents’ march).
The policy in contention seeks to end profits in accredited educational institutions, subsidies for private high schools, and admissions selectivity. At this stage, the reform has the support of the Socialist, Christian Democrat, and Communist parties of Chile.
Michelle Bachelet's strategy was apparently to rely on the ignorance of the people;
Francisco Sánchez, a researcher at the Foundation for Progress, explained to the PanAm Post that the NM coalition has secured enough votes in both houses of the Chilean Congress to pass the reform: “It will most likely become law. It’s one of the symbolic promises of the presidential campaign, for which the political cost is nonexistent given that the population is not aware of the problems with education reform.”
But the people, again, aren't cooperating in their own destruction.

Gen U

To Uber; verb, transportive;
For Claire Danese, who lives in Brooklyn, New York, letting her son Rocco, 13, use the app through her account “was a no brainer,” she said.
.... Danese said. Rocco started using UberX about two months ago and spends $150 a month on the service, less than what the family paid for for taxi rides.
Rocco said he feels safe in an Uber car, especially since “the drivers are really nice, they help you to carry bags and give you drinks and candies.”
Rocco said he’s looking forward to driving himself in a few years, “but I’m not going to feel so comfortable initially and I know I’ll prefer to use Uber for the first two years to avoid crashes.”
Assuming the politicians let you, Rocco.

Who's afraid of Fiona?

(Otherwise known as Lord Mayor of London Woolf) NAPAC that's who;
Victims' groups have told Home Office officials they are "unanimous" in the view that the head of an inquiry into historic child sex abuse should resign.
The inquiry would be a "dead duck" if Fiona Woolf remained chairwoman, Peter Saunders from National Association for People Abused in Childhood said.
That is, he might not get the political pay-off he expected. [our bold, above]
Victims have called for her to step down because of her social links to ex-Home Secretary Lord Brittan.
A spokesman said PM David Cameron was "absolutely clear" she can do the job.
Those social links being that the LMoL once had Lord and Lady Brittan to her home for dinner in 2008. Which supposedly disqualifies her for;
The inquiry will look at whether public bodies and other institutions did enough to protect children from sexual abuse from 1970 to the present day.
Anyone who gave a dinner party between 1970 and now, need not apply?

L'enfant terrible

Not that there's anything wrong with that, as long as you have your ID to prove you're under 13;
After a string of incidents in which provacateur Pierrots have taken the fun out of funny, Vendargues Mayor Pierre Dudieuzere has issued an "absolute" ban in his southern French village on teenagers' and adults' dressing up as clowns for Halloween and November 1. After that, any teenager wanting to don the wig of everyone's favorite fool will have to ask for official authorization.

With the anti-jester gesture, Vendargues, population 6,000, wants to "avoid any disruption ... by evil clowns," Bruno Giraudo from the village hall told the news agency AFP on Thursday: "It's about protecting children by preventing any ill-intentioned clowns from mixing with residents."
Now, about those who are in the Palais de l'Elysée....

Thursday, October 30, 2014

Mary, Mary: 'Quite to the contrary, I wasn't fired.'

It's just that my family re-organized the business, and my job was eliminated. So I decided to go snowboarding.

That's Wisconsin heiress Mary Burke's story, and she's sticking to it as her campaign for Governor implodes;
A former employee with the company [Trek Bicycle Corp.] told Wisconsin Reporter that John Burke, Mary’s brother and current Trek president, had to let his sister go.
The former employee, who asked not to be identified for fear of reprisal from the Burke family, said Mary Burke was made to return to Wisconsin and apologize to a group of about 35 Trek executives for her treatment of employees and for the plummeting European bottom line.
Managers in Europe used to call Burke “pit bull on crack” or “Attila the Hun,” one source said.
“She never made money in Europe when she was there Germany was gushing blood and it would take profitability from everywhere else,” the former employee said.
Sounds like the perfect Wisconsite liberal to us.

Emmanuel, help Laura out

The word she's looking for at about 39-1/2 minutes is touché. Which comes after about 20 minutes of maneuvering around the persistent Dean Rich Lyons' questioning of Emmanuel Saez and Laura Tyson, about the lack of evidence to support their theories of the damage that income inequality supposedly does.

The coup de grâce being when Lyons points out that people do move away from European social democracies that attempt too much redistribution of wealth. Thanks to Prof. J. Bradford DeLong for pointing us to the most entertaining encounter with Berkeley economists we've had recently.

Also, kudos to Laura Tyson for (later, in the Q&A) alerting a young woman to the opportunity costs of 'free' tuition at Tennessee community colleges. Of course, Tyson immediately forgets that lesson when she talks about parental leave, but...

Que ferió, Larry

From the verb FERIR, to foul up your economic analysis by fixating on interest rates (and get the POTUS you advise to believe that monetary policy has shot its wad);
Alvin Hansen proclaimed the risk of secular stagnation at the end of the 1930s only to see the economy boom during and after World War II. It is certainly possible that either some major exogenous event will occur that raises spending or lowers saving in a way that raises the FERIR in the industrial world and renders the concerns I have expressed irrelevant. Short of war, it is not obvious what such events might be. Moreover, most of the reasons adduced for falling FERIRs are likely to continue for at least the next decade. And there is no evidence that potential output forecasts are being increased even in countries like the US where there is some sign of growth acceleration.
That's Larry Summers trying to make sense out of the Obama Administration's economy.  For which, this picture is worth many thousands of Summers's words;

Which is what happens when the economists in an administration cannot shake loose from the idea that interest rates are the transmission mechanism that matters. As Summers clearly cannot;
I explain why a decline in the full employment real interest rate – FERIR, for short – coupled with low inflation could indefinitely prevent the attainment of full employment.
Let us help you, Guy; persistence of abnormally low interest rates alongside persistently anemic economic growth and persistently high unemployment, are the classic signs of an overly tight monetary policy. Which is what you should have been whispering in Barack Obama's ear, when you had the chance. As opposed to the pablum;
Rising inequality operates to raise the share of income going to those with a lower propensity to spend.
Wake us when the Obama Administration is over. Please.

RE: Catastrophe

Where else, but in Insurance Journal, would you read about hedge funds doing what comes naturally;
Hedge funds have long been big buyers of insurance-linked securities such as catastrophe bonds, which pay high yields until a disaster hits and make up more than 10 percent of the $570 billion global reinsurance market.
Some alternative fund managers are now taking the next step: setting up their own reinsurance companies to earn a share of premiums and invest the income in high-yield strategies while waiting for the next big hurricane or earthquake.
Which are supposed to be the next big thing, according to Global Warming Climate Change-mongers.
For the funds, natural disasters have the appeal of being random and usually unconnected to increasingly linked global financial markets, where returns have been low.
The new reinsurers say their ability to invest in higher-risk assets, bet on securities falling in price and leverage their bets with borrowed cash gives them an advantage over traditional reinsurers, which generally invest only in low-yielding, fixed-income assets.
 What's in a name?
Skeptics say reinsurers set up by hedge funds in lightly-regulated jurisdictions like Bermuda are not as well safeguarded as traditional big European firms like Hannover Re, Munich Re and Swiss Re....
Speaking of unlikely, but potentially devastating events, Scott Sumner is trying to set up a demonstration market in NGDP futures. Which, when one things about it, has an insurable element in it.

Wednesday, October 29, 2014

Et tu, City Journal?

We've read versions of this argument before, but not in publications that deign to be taken seriously by conservatives;
[William] Ronan understood something else: transit was never going to pay for itself, but that didn’t mean it should die, as it had been gradually doing. “It’s time to stop talking about transit deficits,” he said. “We don’t talk about a police department deficit, but we need the subways as much as the police department.”
That is Nicole Gelinas recycling urban legend economics. Contrary to Ms Gelinas, transit in NYC did pay for itself for years. Including the NYC subways, which were first built as a profit seeking investment by the financier August Belmont in 1904. As we've written before;
While the city did float a bond issue to raise the funds to pay the construction costs, the contractor and his financiers were completely responsible for repaying the bondholders and the interest payments on the bonds.  Which they did, from fare box revenue.  The city's politicians who'd made the deal were at great pains to stress to their public that that was the case, as this NY Times story of the groundbreaking ceremonies makes clear; the expiration of a shorter period (fifty years [with an option to renew for another 25]) the city will own this tunnel railroad that will have cost $36,500,000, and which is the key to the rapid transit situation, without the expenditure of a single dollar for construction or interest, it having simply used its credit under carefully guarded guarantees for the time being to the advantage of the lessee, who meanwhile pays the interest as it falls due and provides for the liquidation of the bonds at the expiration of his lease."
That is, the contractor and the investors backing him would build the system for the city, but receive a lease allowing them to operate it for up to 75 years (and hopefully recoup their investment).  The 'carefully guarded guarantees' refer to the hefty sureties that had been put up by the private entrepreneurs; between $5 and $8 million of their own money.

It's easy to call that arrangement a subsidy from the private sector to the public, rather than the way Mr. [Timothy B.] Lee has it.  A subsidy, without which, there surely wouldn't have been any subway as early as 1904.
And as to that remark by Mr. Ronan about not talking about a police department deficit, that is because policing is the classic public good--i.e. one that is consumed jointly and is not excludable. Something that can not be said of private goods that are consumed by easily identified users who are excludable using prices--i.e. things like candy bars, shirts, coats and pants, and rides on a subway.

Elementary, my dear Nicole.

Fatca chance, Thomas

The economics profession's favorite French punching bag takes more assaults (this time from Michael Schuyler at the Tax Foundation);
According to Thomas Piketty, a professor at the Paris School of Economics, the main economic problem in developed countries is inequality. He believes it takes precedence over other economic concerns like poverty, unemployment, or slow economic growth. In his influential book, Capital in the Twenty-First Century,[1] Piketty argues that inequality is rapidly intensifying with no end in sight. He says a solution is vital, and he claims to have found it: extremely high income tax rates on upper-income taxpayers along with a global wealth tax.
So Schuyler uses a taxes and growth model to estimate what exactly would happen if the U.S. took up Piketty's recommendations, and finds that;
  • A wealth tax in the United States would reduce investment, wages, employment, incomes, and output.
  • Piketty’s basic tax would depress the capital stock by 13.3 percent, decrease wages by 4.2 percent, eliminate 886,400 jobs, and reduce GDP by 4.9 percent, or about $800 billion, all for a revenue gain of less than $20 billion.
  • ....
  • All income groups would be worse off under a wealth tax due to decreased economic activity; in the second scenario, the after-tax income loss for the top quintile would exceed 10 percent, but the losses for all lower quintiles would be in the 7 to 9 percent range.
 Piketty misery loves company.
Piketty’s only major concern about the viability of a comprehensive wealth tax is whether it would be enforceable. He suspects taxpayers would react vigorously and try to hide or recharacterize as much of their wealth as they could. To minimize evasion and avoidance, Piketty recommends that financial institutions be required to report much more information to governments, that governments step up tax enforcement, and that the wealth tax be imposed globally.
Regarding financial reporting, Piketty points to the U.S. government’s Foreign Account Tax Compliance Act (FATCA) as a good first step, although “insufficient.”[18] (Notwithstanding Piketty’s praise, FATCA has stirred international complaints of American heavy-handedness and bullying.[19] It has also caused enormous difficulties for Americans living abroad in finding banks willing to open accounts for them.)
Our bold in the above, and we've posted about Fatca before.

Dodge, and the Italians Dodge with you

Ferrari, and you're out on your own;
Fiat Chrysler Automobiles plans to spin off sports car maker Ferrari into a separate company, a way to unlock value in the luxury brand and distinguish it from its mass-market parent.
The company said Wednesday that spinning off Ferrari was part of a plan to raise capital to support the new merged carmakers' expansion plans. Fiat Chrysler's five-year plan calls for increasing net income by five times by 2018.
By selling more Alfa Romeos as Dodge Darts. The widows of John and Horace Dodge sold their husbands' auto company to an investment bank in 1925 for a reported 2 billion inflation adjusted dollars. That bank sold it to Walter Chrysler in 1928. Fiat acquired Chrysler when it was bankrupt in 2008.

The decision to break off Ferrari comes about two months after an awkward management transition at Ferrari that saw the longtime chairman Luca di Montezemolo resign after a public spat over strategy with Marchionne, who has taken over as chairman of Ferrari.
Marchionne has been vocal in his displeasure over Ferrari's long absence from the Formula One car racing winner's circle, and has pledged to get the team back to the top. The last time it won the driver's championship was in 2007.
We say, ironically, because the Dodge brothers' fortune mostly came with their roll of the dice on Henry Ford, who'd frittered away millions of (again, inflation adjusted) dollars of Detroit investors, building a race car back at the turn on the 20th century.

Ford, with nowhere else to turn for financing for his passenger car--his original Model A--agreed to give 10% of the new Ford Motor Co to John and Horace Dodge in return for their machine shop turning out the parts that Ford would assemble into the first mass marketed automobile.

Now an Italianate Dodge wins out over another race car.

Tuesday, October 28, 2014

Irish byes?

Ryanair will have to re-evaluate its business dealings in France if this stands;
Ryanair is facing a €8.3m (£6.5m) penalty after losing an appeal against a decision that it broke French labour laws.
The no-frills carrier was found guilty of paying workers under Irish contracts to save money on payroll and other taxes.
Which contributes to the lower airfares paid by its customers, because;
Social charges in France are at around 40-45%, compared to 10.75% in Ireland.
There's always hope for Euro-justice
Ryanair's Robin Kiely said: "Ryanair will appeal this ruling to the French Supreme Court on the basis that European employment law clearly allows mobile workers on Irish registered aircraft to pay their taxes and social taxes in Ireland.
"We will also be seeking a referral to the European Court of Justice to prevent these attempts by the French authorities to claim social taxes that have already been paid in full to Ireland."

Vietnamization of the War Against the Car

NYC's ersatz-Communist Mayor Bill De Blasio wants to take his citizens out of their cars...and put them onto bicycles;
Citi Bike, New York City’s fledgling bicycle-sharing program, will get a boost of tens of millions of dollars in coming years to improve and expand the system, according to a person familiar with the matter.
....The deal would inject about $30 million into NYC Bike Share, the company that runs Citi Bike, according to the person familiar with the matter. The funds would improve the system’s technology and software, whose glitches have been frequent sources of frustration for users.
Whose money is it? That's the mystery. Who's going to throw good money after bad, just to pay for the parking of the bikes.
NYC Bike Share, a subsidiary of the Portland, Ore.-based program that runs New York’s Citi Bike program, is getting a $1 million parking ticket from the city for using parking spots for some of the program’s 330 docking stations. According to the Wall Street Journal, a provision in the contract requires that the company pay for the revenue the city is missing out on by taking up those spaces.
The city says it lost about $1 million in revenue in 2013.
- See more at:

NYC Bike Share, a subsidiary of the Portland, Ore.-based program that runs New York’s Citi Bike program, is getting a $1 million parking ticket from the city for using parking spots for some of the program’s 330 docking stations. According to the Wall Street Journal, a provision in the contract requires that the company pay for the revenue the city is missing out on by taking up those spaces.
The city says it lost about $1 million in revenue in 2013.
- See more at:

One thing Cuba will never run out of

Excuses for its failures;
“The damage caused by the blockade is limited thanks to the quality of our teaching staff and the efforts of our students”, Dr. Oberto Santín, deputy minister of Higher Education, stated during a press conference on the impact of the U.S. government’s economic war against Cuba, which has lasted over half a century.
Which also hasn't stopped the Castros from exporting troops all over the world to foment revolutions, so other peoples can have something to complain about the Yanquis too.
 As a result of the blockade, between April 2013 and March 2014, the University of Havana lost income of over $540,000 dollars, which could have been received for goods and services. 
Lost propagandizing opportunities?
  The University of Cienfuegos suffered losses of $13,860 dollars due to the expiration of its license for an exchange program established with the University of Washington-Tacoma.
Speaking for ourselves, we'd be happy to export the entire UW-Tacoma to Cuba.

Buenas intenciones

Argentina reinvented the Law of Supply (or so they thought);
Secretary of Justice Julián Alvarez responded to criticism of the Supply Law: “Is the Supply Law intended to force businesses to produce less? No. Is it designed to shut down businesses? No. The Supply Law is intended to address situations when there is scarcity of basic needs that affect the entire population and monopolies refuse to produce and sell that product. In that case, the state can request that a business take action, and if it does not, it will be fined.”
How appropriate that it's French companies that are the first to feel the government's power to disrupt;
Officials fined French automaker Peugeot AR$800,000 (US$54,400) for understocked automobiles and delivery delays in violation of the state’s automobile-subsidy plan Pro.Cre.Auto.
Following approval of the New Regulation on Production and Consumption Relations in September, which amended the Supply Law, the state gained the ability to set utility margins, maximum and minimum prices, and reference prices, as well as levy fines and force shop closures.
According to the policy, Peugeot must pay its fine in full before attempting to appeal the penalty. In addition to Peugeot, the auto company Renault also faces government sanctions, though the severity of their fine is not yet clear.
We like this response;
Martín Carranza Torres, a lawyer and president of the Liberal Republican Party of Córdoba Province, filed a criminal complaint against the legislation’s sponsors, as well as those who voted for its passage.
“This is an anti-republican law as it grants extraordinary powers to the Executive Branch, eliminating the constitutional guarantees of due process and the court system. It also strikes down the republican principle of separation and balance among governmental powers,” Carranza Torres declared.
We'll cry for you, Argentina. Just as soon as we stop laughing.

Rien ne peut être dit politesse

If we're going to pay polite attention to a French economist, we'd prefer one who has a clue, not these two political hacks;
Wealth inequality, it turns out, has followed a spectacular U-shaped evolution over the past 100 years. From the Great Depression in the 1930s through the late 1970s there was a substantial democratisation of wealth.
That word--our bold--doesn't mean what you think it means, Messieurs. Unless the French use it as a synonym for destruction. Since you seem to believe that the glory years for wealth were at the trough of the Great Depression through WWII, when the wealthy were put in their places. But, do you even bother to think about what you write;
The growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90% of families. 
That's a choice. Not something imposed upon them from above by the evil rich. Not that the plebians weren't encouraged to borrow for consumption by the federal government. But that's another story (and one we've written copiously about, before). Again, as the two Frenchmen say;
How can we explain the growing disparity in American wealth? The answer is that the combination of higher income inequality alongside a growing disparity in the ability to save for most Americans is fuelling the explosion in wealth inequality.
So, the answer is to teach Americans to fish (and save those fish), rather than to give them fish? That seems not to have occurred to the boys from Berkeley and LSE.

Monday, October 27, 2014

I got 'rithmetric

I got millions in speaking fees and royalties, who could ask for anything more;
And, don't let anybody tell you, don't let anybody tell you that, you know, its corporations and businesses that create jobs. You know that old theory, trickle-down economics. That has been tried. That has failed. It has failed rather spectacularly.
You know one of the things my husband says when people say well, you know, “What did you bring to Washington?” He says “Well, I brought arithmetic.”
And Hillary Clinton has got hers, so she doesn't have to care about anyone else (except a few politically ambitious friends).

Cultured Pellerin

In France the Prime Minister doesn't know the work of its Nobelist in Economics, Jean Tirole, and the Culture Minister hasn't the time to read;
When French novelist Patrick Modiano won the Nobel Prize in literature earlier in October, the country's Culture Minister Fleur Pellerin said it showed the "influence and vitality of French literature in the eyes of the world".
But in an interview with Canal+ on Sunday, Pellerin was forced to admit she had never read any of the acclaimed French author’s novels.
“I haven’t had time to read anything in the last two years except for a lot of notes, legislative texts and news wires,” she said.
Big deal. Nobody else has heard of him either.

As we were saying

The Wall Street Journal notices the European market response to CoCos;
One winner of Sunday’s European bank stress test: a risky type of bond that lenders have flocked to issue in recent years.
Prices of many so-called contingent capital bonds, or CoCos, rose Monday, and analysts said the generally positive stress-test results could pave the way for more supply.
CoCos pay coupons like conventional bonds, but if a bank’s key capital ratios sink, they can convert into common equity—which doesn’t pay interest and is first to be wiped out if a bank fails. That makes them riskier to hold than conventional bonds.
Also making them like canaries in the coal mines, a market signal that a bank is weak or strong. HSIB has noted the enthusiasm for this form of bank self-regulation on the part of Columbia economist Charles Calomiris;
...the Columbia economist offers a suggestion to improve the banking system;
 I would establish a minimum uninsured debt requirement for large banks in the form of subordinated debt, known as contingent capital certificates, or "CoCos." The CoCos would automatically convert to equity based on predetermined market triggers, which would be very dilutive to pre-existing shareholders. One banker who understood my proposal for CoCo's said, "You are putting an electric fence behind me."
The potential for dilution of stockholder equity being the key incentive for management to work to prevent that from happening.
Calomiris has said, in speeches, that the Federal Reserve has had the legal authority to do this since the 1999 Gramm, Leach, Bliley Act, but chose not to implement that reform. Now would be a good time to listen to Charlie.

Sunday, October 26, 2014

Di Fi anti-ROI 4U

The millionaire Senatoress from California, who is married to millionaire Real Estate investor Richard Blum, is firmly against anyone else making buck on their real estate in San Francisco;
The San Francisco Board of Supervisors is poised to approve legislation that would legalize short-term stays in private homes that are negotiated through a number of online reservation systems.
This is a shortsighted action that would destroy the integrity of zoning throughout San Francisco, allowing commercial and hotel use in residential areas throughout the city.
That's her two cents worth published in the San Francisco Chronicle's Op-Ed section last week. She claims that allowing the little folks to earn an extra buck here and there will be bad, bad, bad;
This home-sharing legislation blurs those lines and provides for residential housing to be leased out for hotel use. As such, those of us who value the residential character of our neighborhoods and are invested in the city’s quality of life will see all of this washed away by a blanket commercialization of our neighborhoods.
It’s no secret that San Francisco is one of the most expensive cities in which to live. The legislation approved by the board will encourage property owners and renters to vacate their units and rent them out to hotel users, further increasing the cost of living.
Simply put, this bill will further increase already sky-high rental costs.
If she's so rich--estimated combined net worth of her and her husband being over $100 million--why isn't she smarter in the things she writes for publication?

Oh, she and her husband happen to own a hotel (The Carlton) in San Francisco. he comes

Maybe Paul Krugman, Thomas Piketty, and all the other inequality-phobes have a point after all;
Flush with cash from California billionaire Tom Steyer's group, a Washington state environmental group is backing candidates this November to help Democratic Gov. Jay Inslee pass sweeping climate change legislation.
Inslee, who says the state has a moral responsibility to act on climate change, has gotten national attention for his efforts. But he's struggled to persuade some lawmakers in his own state, in part because of a state Senate controlled by a GOP-dominated coalition.
The Washington Conservation Voters Action Fund this month received $750,000 from Steyer's pro-environment super PAC, NextGen Climate Action. The state group is spending heavily to unseat three Republican incumbents in legislative races that could decide control of the state Senate.
Must be what IMF honchoess meant when she said;
Income disparity can bring more dire consequences too. "Disparity…brings division," [Christine] LaGarde said. "History…teaches us that democracy begins to fray at the edges once political battles separate the haves against the have-nots."

Saturday, October 25, 2014

Tous pour l'état, Pablo

Spanish expat, Pablo Picasso ended up living for the glory of France--as his heirs couldn't afford to pay the taxes on his art he left to them--and today you can again (after five years) view them at a former tax collector's home in Paris;
...the collection has two facets which make it unique. First, it covers all periods of the artist's life (though admittedly some more than others).
But second, and more important, it is made up of artworks which we know Picasso held dear.
Because he didn't sell them himself, since to do so would have subjected him to France's confiscatory income taxes. So the estate taxers gobbled them up. The French do irony;
The Hôtel Salé.... was built by a salt-tax farmer, Pierre Aubert.... Aubert made his fortune in the 1630s-1640s by various schemes, including an advantageous marriage and the purchase of successive appointments, eventually becoming an important financier on the Paris market and advisor and secretary to the King. Joining the salt tax offices, Pierre Aubert collecting tax on salt as a lump sum in the name of the king, consolidated his standing. His position created a name for the house, which quickly became known as the Hôtel Salé (“salé” meaning “salty” in French).
Which now houses the Musee Picasso. Before going, we suggest viewing the 1956 short film Le Mystere Picasso (which the French government has also expropriated);

Reset! Reset! Reset!

Guess Russia didn't get the message the first time;
Russian President Vladimir Putin accused the United States on Friday of trying to “reshape the whole world” for its benefit, in a fiery speech that was one of the most anti-American of his 15 years as Russia’s paramount leader.
....In nationally broadcast remarks that lasted nearly three hours, Putin gave no hint of concessions to Western consternation over Russia’s role in Ukraine, where Putin first pressured former president Viktor Yanukovych over his plans to sign a European-friendly trade deal, annexed the Crimean Peninsula after pro-European protesters forced Yanukovych’s ouster and then helped fuel a pro-Russian rebellion in eastern Ukraine.
Russia “is not asking anyone for permission” in its conduct of world affairs, Putin said.
Meanwhile, Israel is unhappy with the Obama Administration too;
A top Israeli minister says there is a "crisis" in in the country's relations with the United States that must be fixed.
Finance Minister Yair Lapid's comments Saturday came a day after U.S. officials said the Obama administration refused Israeli Defense Minister Moshe Yaalon's requests to meet several top national security aides.
Oh well, we'll always have Iraq.

Red State

That bastion of the middle class, Italy, bites the hands that feed their bank accounts;
Hundreds of thousands of protesters have rallied in Rome to protest Premier Matteo Renzi’s plan to make it easier to fire workers.
And consequently easier for employers to hire workers.
Two noisy marches crisscrossed the heart of the Italian capital Saturday, snarling traffic for hours. Protesters cheered CGIL labor confederation head Susanna Camusso when she promised more protests and strikes unless Mr. Renzi abandons efforts to give employers considerably more leeway to fire workers.
The CGIL is a Communist dominated union. Which seems to be oblivious to;
Nationwide, unemployment tops more than 12 percent. Nearly one of every two youths is unemployed, with many going abroad to find work. Mr. Renzi’s main goal of economic growth has so far proved elusive.
Funny that Credit Suisse thinks Italy is so prosperous. As we've already pointed out;
.... In Italy, nearly four-fifths (79%) of young adults were living with their parents.
At the same time that Italy's median family has a net worth of over $140,000?

Getting to be a habit with thee

In yet another masterpiece of poor timing, Nobel laureate Paul Krugman took on Jeff Bezos and;, the giant online retailer, has too much power, and it uses that power in ways that hurt America.
Which was written shortly before Amazon made its announcement that;
After the Seattle company on Thursday reported a huge third-quarter loss and issued a disappointing holiday forecast, the stock sold off by nearly 10 percent. It's now lost 28 percent of its value since the beginning of the year, closing at $287.06 Friday.
What's bad for is bad for America, Paul?

Friday, October 24, 2014

EU to UK: UO Nous

But Perfidious Albion prefers to pay less, not more;
British Prime Minister David Cameron on Friday vehemently dismissed a request from the European Union for an additional 2.1-billion-euro payment into the bloc's coffers after a revision of official data showed the United Kingdom's economy was doing well.
"We are not suddenly going to get our checkbook and write a check for 2 billion euros. It's not going to happen," Cameron said on the second day of an EU summit in Brussels, adding that the surcharge was an unfair way to treat one of the bloc's biggest contributors
"I'm not against readjustments … but this is completely unacceptable," he said.
From each according to his Germany and France;
Another source of contention was the fact that France and Germany, the eurozone's most powerful and prosperous economies, will both receive rebates from the EU as their economies falter.

Now, one that runs on ethanol would be a different matter

But an electric car in Iowa?  Get a horse;
Iowa’s transportation department is telling Tesla Motors to stop offering test drives in the state because doing so is illegal, reports the Des Moines Register. Iowa’s DOT apparently said the test drives–conducted by Tesla in West Des Moines earlier this month–were illegal because Tesla isn’t a licensed auto dealer in Iowa, and that state law bans auto manufacturers from selling vehicles directly to consumers.
And the members of the Iowa legislature--as do politicians almost everywhere--like the campaign contributions that come from its state's auto dealers.  Which might dry up if Tesla isn't prevented from competing with those dealers.

All in the name of protecting Iowa's consumers, of course.

NY, NY: A helluva storm

And after two years the politicians are getting around to cleaning up and repairing Sandy's devastation;
A program to help New York City homeowners with [Oct 29, 2012's] Superstorm Sandy home-repair efforts has made progress following an overhaul, and is aiming to count up to 1,000 construction starts and 1,500 reimbursement checks by the end of the year, New York City Mayor Bill de Blasio said on Oct. 20.
De Blasio said there have been 727 construction starts and 878 reimbursement checks through the Build it Back program so far this year. That’s compared to none at the start of the year, when he took office.
Heckuva job, Blassy. That only leaves 19,000 families hanging;
A report earlier this month from the city’s Department of Investigation found that about 20,000 households applied after the program was created in June 2013. But eight months later, no repairs or reimbursements had been made, and some of those who had initially applied stopped taking part.

Your tax refund is in the mail

Well, eventually anyway;
The coming tax-filing season could be the most complicated ever for the Internal Revenue Service, IRS Commissioner John Koskinen said in an interview with the nonprofit publisher Tax Analysts that was published this week.
Congress has yet to reinstate dozens of tax provisions that expired at the beginning of 2014, he noted. In past years, late action by Congress on such provisions created problems for the IRS and sometimes delays that affected taxpayers.
But there's another reason. The IRS is busy illegally paying Obamacare subsidies to people enrolled in health insurance schemes for which congress didn't authorize them. As the IRS commissioner admits;
Moreover, “the difference this year compared to the past is we are having to implement the Affordable Care Act and Fatca,” he said.
Fatca being another ingenious policy of the Obama Administration. One that the IRS has, in the past, denied was complicating things;
In a statement on its website, Robert Stack, deputy assistant secretary for international tax affairs, rebuts certain "myths".
"Fatca provisions impose no new obligations on US citizens living abroad... US taxpayers, including US citizens living abroad, are required to comply with US tax laws," he says​.
The Supreme Court is soon going to have to decide if the IRS is also required to comply with US tax laws.

Choosing from the Chinese menu

Is pretty much the same as elsewhere. The Laws of Supply and Demand spoil the broth every time;
While China instituted a minimum wage system in 1994, enforcement of compliance with the law was significantly tightened only in 2004; the results described below are based on post-2004 data.
So what does the evidence show? On average across all firms, we find that an increase in the minimum wage leads to a small decline in employment: a 10% percent increase in the minimum wage lowers employment by a little over 1% percent.
The impact differs across firms, being greater in low-wage firms than in high-wage firms.
No kidding!

Thursday, October 23, 2014

There is nothing good or bad...

Only the thinking makes it so, said Hamlet, who would have appreciated this BBC piece;

In his book The Swastika: Symbol Beyond Redemption? US graphic design writer Steven Heller shows how it was enthusiastically adopted in the West as an architectural motif, on advertising and product design.
"Coca-Cola used it. Carlsberg used it on their beer bottles. The Boy Scouts adopted it and the Girls' Club of America called their magazine Swastika. They would even send out swastika badges to their young readers as a prize for selling copies of the magazine," he says.
It was used by American military units during World War One and it could be seen on RAF planes as late as 1939. Most of these benign uses came to a halt in the 1930s as the Nazis rose to power in Germany.
In fact, its use goes back thousands of years before Adolph Hitler was even born.
Single swastikas began to appear in the Neolithic Vinca culture across south-eastern Europe around 7,000 years ago. But it's in the Bronze Age that they became more widespread across the whole of Europe. In the [Ukrainian National History] Museum's collection there are clay pots with single swastikas encircling their upper half which date back to around 4,000 years ago. When the Nazis occupied Kiev in World War Two they were so convinced that these pots were evidence of their own Aryan ancestors that they took them back to Germany. (They were returned after the war.) 

If you can make it here

It'll probably be because it's more cost effective, all things considered, says the Boston Consulting Group (they get paid to tell businessmen this?);

U.S. manufacturers are increasingly considering factors other than direct costs such as labor when they devise their production strategies. More than 70 percent cited better access to skilled talent as a reason for moving operations to the U.S.—more than four times as many respondents as those who cited access to talent as a reason for relocating production outside the U.S. For goods that would be sold in the United States, around 80 percent cited logistical reasons such as shorter supply chains and lower shipping costs as primary reasons for moving operations to the U.S. from other countries. 

“We have long advised companies to look at the total cost of manufacturing in the U.S. and to consider the entire supply chain—not just the obvious factors such as wages,” said Michael Zinser, a BCG partner who leads the firm’s manufacturing practice in the Americas. “When companies take a holistic view, the U.S. increasingly comes out ahead, particularly if those products are to be consumed in the U.S.”
Which they did many years ago and concluded it made sense to move their manufacturing overseas. Now things have they have always done....

Unless you're Thomas Piketty, you knew that.

No girly-men in Gitmo

We await Gloria Steinem's response;
The use of female troops inside the highest-security unit at Guantanamo Bay is sparking protests by prisoners.
Prisoners designated as "high-value" detainees are refusing to meet with their lawyers unless the military agrees to use only male guards to move them around the U.S. base in Cuba.
....A Marine Corps lawyer says accused terrorist mastermind Khalid Sheikh Mohammed refused to meet with counsel on Thursday. Maj. Derek Poteet says the protest will prevent efforts to prepare his defense to charges stemming from the Sept. 11 attack. The military says it won't agree to use only male guards.

Hillary of Africa?

In Zimbabwe the cats have claws;
Zimbabwe's First Lady Grace Mugabe said on Thursday deputy president Joice Mujuru, potential successor to her 90-year-old husband Robert Mugabe, should resign, in an attack likely to widen divisions in the ruling party.
...."Mrs Mujuru must resign now. She wants to use money to topple Mugabe," Grace said while addressing veterans of Zimbabwe's 1970s liberation war at her orphanage outside Harare.
"There are plenty of people who can run this country, not Mujuru," she said in a speech.
Anyone in mind?
Grace, 49, has been quickly vaulted into the higher echelons of [ruling party] ZANU-PF. Her abrasive style has rankled with some senior party members, who say in private Mugabe could be preparing his wife to take over when he leaves office.
"She (Mujuru) says I want to be president. Why not? Am I not a citizen of Zimbabwe? Why do you think only you are fit?" Grace Mugabe asked in the Shona language.
Ball of yarn in your court, Joice.

You can take the taxpayer to the cleaners, but...

The above chart from the Heritage Foundation is offered for a little context to the news from the Treasury that fiscal year 2014 produced over $3 trillion in tax revenues for the first time ever. Which is still only about 17.5% of nominal GDP. Less than the six decade average (post-WWII) of slightly over 18%.

Another fun Heritage chart shows the change in revenues from different income earning groups over the years since 1980. Highlights being that the bottom 50% of earners have seen their 'contributions' drop steadily over the three decades since Jimmy Carter was last in office (1981), from almost 7.5% of revenues to only 2.36% in 2010 (while earning about 12% of the income).

Who picked up the burden from the slackers? The 'rich' of course, as the top 10% of earners (with 45% of all income) paid almost 70% of the income taxes.

Oh, yeah, the government that took in $3 trillion also spent $3-1/2 trillion.

Wednesday, October 22, 2014

Credit Suisse reports have holes in them

With apologies to the joke writers for Emily Hartley, we first note this Guardian story from earlier this year;
One of the most comprehensive social surveys of 28 European countries reveals on Tuesday that the percentage of people aged 18-30 who were still living with their parents had risen to 48%, or 36.7 million people, by 2011, in tandem with levels of deprivation and unemployment that surged during five years of economic crisis.
.... In Italy, nearly four-fifths (79%) of young adults were living with their parents.
Our bold in the above, because a new report on Global Wealth from Credit Suisse claims that while median wealth per Italian is fifth highest in the world at $142,296, that figure for the United States is only $53,352 (good for 25th place).

Woe is USA!

But hold on a minute, according to Demographia Americans live in houses that are, on average (2,200 sq ft) more than twice as big as Italians' homes (less than 1,000 sq ft). Italy: Crowded R Us

Which anomaly some are able to swallow whole, apparently.

Beats John Cassidy too

The New Yorker's economics writer tries his best, but no cigar;
The extent of and continuing increase in inequality in the United States greatly concerns me. … It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.
No, that wasn’t Elizabeth Warren, or the editor of the Nation, or Paul Krugman (or even me) banging on about how the rich are getting richer and most everybody else is struggling to keep up. It was Janet Yellen, the chairwoman of the Federal Reserve, addressing a conference in Boston on Friday morning. It’s not unheard of for a Fed chief to discuss rising inequality: Ben Bernanke addressed it in a 2007 speech. But Yellen’s speech is surely the first time a Fed chief has pointed out that rising inequality threatens America’s sense of itself.
Someone's sense of itself is definitely distorted. Maybe those who write professionally about economics ought to stop contributing to that distortion of reality. Say, with things like this;
Since the top five per cent of households own almost two-thirds of the wealth, it stands to reason that most American households don’t own very much at all.
Except for all those cars, television sets that access hundreds of channels, microwave ovens, mobile phones that double as cameras, designer clothing and eyeglasses, gourmet cookbooks, and bigger houses in which to live and entertain friends.

As the census figures at the link show, in good ol' 1973 the median newly constructed home--the one smack dab in the middle of the pack, built for the middle income earner--was a mere 1,575 square feet (the mean average home was a slightly larger 1,660 sq. ft). But by 2010 that same home demographic had increased to 2,169 sq. ft. (mean average; 2,392 sq ft), or by almost 40%. Not to mention the extra bathrooms, appliances, built-in vacuums, spas and other amenities that houses for the middle class routinely have today.

So much for Janet Yellen's stagnant living standards for the majority. Ditto for John Cassidy's;
These numbers confirm an old but rarely stated truth. Many, if not most, individual American households possess next to nothing.
Rarely stated?

Tuesday, October 21, 2014

Why, indeed?

Why should policymakers care about economic inequality?

 Carter Price says, Beats me.
In an early survey of the literature, economist Roland Benabou at Princeton University in 1996 found that the vast majority of studies said high and rising inequality harmed economic growth.
 Then, some thought a second time;
In response to this early literature, various economists explored the nuances of this relationship. University of Melbourne economist Sarah Voitchovsky summarizes much of this middle literature in a 2009 review, finding that there was substantial disagreement about the relationship between inequality and growth. Some studies showing that inequality may improve growth under certain circumstances.
 On the third hand;
The muddle of this middle period in this economic literature has given rise to a newer narrative. Methodological differences appear to have driven the differences in the results, with later analysis finding that higher inequality can be associated with faster economic growth in the short term, but over time higher inequality is related to lower growth.
Recent work by International Monetary Fund economists Andrew Berg, Jonathan Ostry, and Charalombos Tsangaridis as well as by Roy van der Weide of the World Bank and Branko Milanovic of the City University of New York have robustly found a negative relationship between economic inequality for developed countries and within the United States, respectively.
Or not;
This most recent wave of studies will likely not be the final word on the relationship between economic inequality and growth. Furthermore, there is substantial work needed to understand how inequality affects growth.
But that won't stop the inequalityphobes from doing end this...something.

Siempre y en todo lugar en Argentina

Blame it on Rio's politicians. The gauchos have seen it before; Inflation is once again the main topic in Argentinean politics.

And el diciembre is the cruelest month;
This is a sensitive issue given that December is usually the most problematic month in Argentina, coinciding with Christmas shopping and coming just before the summer vacation period in the Southern Hemisphere. It is the month during which rioters have raided shops and supermarkets, leading to a dozen deaths in 2012 and several other casualties in 2013. Perhaps in order to avoid unrest, San Luis’ governor has announced a 2,000-peso bonus (€184) for government employees. La Rioja’s governor is also offering 300 to 400 pesos (€27 to €36) in extra pay.
So those who can, trade in el dinero de dólar; Buenos Aires taxi driver who prefers to remain anonymous said: “I get paid and I buy dollars. I get paid and I buy dollars. I get paid and I buy ... My wife and I work on the Ministry of Security’s administrative staff. We live on what I make with the taxi. And we invest our salaries in dollars. That way we save, we make sure inflation does not it eat into it. Ten years ago a trip to the Caribbean cost $1,500 – same as today. But it’s much more in pesos. Then they might tell you that you don’t believe in the country, that you have to spend pesos, but the peso is not worth anything after a few months.”
Of course, it's all the yanquis' fault.

Seattle to help poor by making housing more expensive to build

When it comes to hubris the Greeks have nothing on the Seattle City Council;
Seattle should charge a new fee on development to pay for affordable housing, the City Council decided Monday.
The "linkage fee" would be a charge per square foot on new commercial and residential buildings. It would be lowest for projects in low-cost areas, with higher fees in medium- and high-cost areas. The city would spend the money raised to build homes affordable for low-income households....
The fee would be between $5 and $22 per square foot, thus adding $10,000 to $44,000 to the costs of building a 2,000 square foot home. Meaning, all else equal, fewer new homes will be built in Seattle.

But--the politicians cross their hearts and hope to die-- it will magically result in MORE new homes for low income people.  After deductions for administrative expenses, of course.