Year: 2008

Capital Gains Tax Bullsh$# Deconstructed

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Well, it appears that at the debates, Charlie Gibson echoed the latest right wing talking point/lie, that recent cuts in the capital gains tax rate have increased revenues, and that tax increases cut revenues. (I must have missed this because I found the debates too painful to watch).

This, along with the assertion that people making $200,000/year (the top 3%) are somehow middle class show why one should not put innumerate idiots in positions of authority in journalism.

Saying that tax cuts in capital gains increase revenue is like saying that running a year long sale in a store will increase profits.

What does happen is that one the eve of a change in the capital gains tax, you have accelerated (in the case of a future tax increase) or deferred (in the case of a future tax cut) profit taking. This is a one time per tax change effect.

It’s exactly like a store sale. It produces a temporary effect, and any attempt to use it to guide long term fiscal policy is dishonest.

Really, Really, Really Bad Ideas: Carbon Trading Edition

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Unfortunately, it’s hit the big time, with Fortune Magazine declaring that it has hit “the big time”, so it appears that much like new math, new Coke, sequels the Rocky, mortgage backed securities, and Astroturf, we will be seeing a lot of this.

The idea is that the government issues a limited number of carbon credits, basically permission to emit a certain amount of carbon dioxide into the atmosphere, and since there are fewer credits issued than would be actually needed, a “robust market” would be established where, because they can make money on these markets, carbon emitters would, through the magic of the profit motive, cut emissions.

You see, this market, with its highly compensated traders, and the complex investment vehicles that come with them, constitutes an unparalleled opportunity to create innovation.

Well, that’s the first problem. That’s what Alan Greenspan said about mortgage backed securities and credit default swaps, but it’s supposed to work just fine with combating global warming.

The second problem is that any regime for this is going to be difficult. You have to decide how many credits are issued, and who issues them, and how to regulate the market so you don’t have a lone trader bankrupting a multi-billion dollar company.

The most basic problem however, is that this is a tax on carbon.

Because your goal is to reduce carbon emissions, the number of credits issued must necessarily be lower than what the market really wants, at least a bit, which costs every business participating in it.

Only this tax goes to the polluters, at least the ones who manage to improve efficiencies or game the system by getting excess credits, and to the Bear Stearns types, who would leverage one of my farts if they could find a way.

If you are going to put a tax on pollution, then just tax that pollution, and let the government collect the monies, as opposed to the polluters and their parasites, and spend it on something other than multi million dollar executive compensation.

H1B and H2B Immigration Scams

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It’s spring, and cheap employers minds turn to using immigration to depress wages.

So, we see two articles regarding employers having problems finding workers because the H-1B (employees in specialty occupations), and H2B (seasonal employees) visa limits.

So we have hand wringing reports of high tech firms being unable to grow because of H1B limits, and, “Carnival operators in Alaska, landscapers in Pennsylvania and sugarcane processors in Louisiana” complaining of the same with regards to H2B.

The late Milton Friedman called the H1B a “just another government subsidy“, and he was right.

What’s more, it is a subsidy that works like a reverse Robin, taking from the poor and giving to the rich.

If you cannot find an employee in this moribund economy, you are not offering enough in wages and benefits.

Not only that, in the case of H1B visas in particular, it exacerbates any shortage (and there isn’t one, it’s just that people flee the profession in question) by dissuading people from entering these fields of study.

Pearls Without Swine

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In the world of neat stuff for the tech geek, we have an entry from the folks at the University of Dayton Research Institute, who have developed a technique to apply layers of ceramics to metal in the same manner as an oyster creates a pearl.

While ceramic coatings are fairly common this is a room temperature normal atmospheric pressure process, and should be effective in reducing wear and corrosion.

It appears that this was driven by a better understanding of the lowly bivalve, which does not extract CaCO3 from seawater, but instead, “that oysters use blood cells to deposit crystals that form shell and pearl”.

Only $600 Million

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This does appear to be a triumph of defense procurement.

$600 million is the price tag for the upgrade on the Gripen, where they replace the RM 12 (F404 derivative) with a GE F414G, giving about 25% more thrust, strengthen and relocate the landing gear, add more fuel, add two hard points for weapons carriage, and offer an AESA radar (though the radar seems to be an extra cost option).

While not quite as extensive as the F/A-18 C/D to F/A-18 E/F upgrade, the fuselage and wing profiles are nearly unchanged, the fact that they are doing this upgrade for something around the cost of a dozen aircraft is amazing.

My emotions mirror Bill Sweetman’s:

The whole deal cost the Swedish government – are you sitting down? – the equivalent of $600 million. That’s a little over half what the US will spend in one year on putting radios and plush carpets in the Presidential helicopter, and about the same as one year’s R&D on F-22 upgrades. And we wonder why we can’t afford our defense needs.

I’ve been invited to speak at next week’s event in Linkoping, and will take the opportunity to ask the Swedes how they did it.

Economics Update

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Clickable Image

In terms of economic indicators, we have 4 today, one up, and three down.

FWIW, the Jobless claims are noisy, but overall the numbers are trending up, and the LEI typically does not mean anything until you get three in a row.

The Dollar hit a new low vs. the Euro, $1.5982:€.

As an aside, I spend a fair amount of time on currency, because I believe that it will be the final nail in the proverbial coffin, much like it was in the Asian and Argentine financial crises.

In banking, investment and otherwise, we have
Merrilly Lynch announcing a $6.5 billion write down and massive layoffs.

Across the pond, we have the Bank of England announcing that it had three times as many bids for its cash auction as it was offering, implying that credit is still pretty frozen, and the prospect of massive bank failures in Germany as a result of the subprime crisis, which truth be told extends well into the prime mortgages too.

Finally, in another sign of the apocalypse, my predictions regarding the countrywide sale, that Bank of America was throwing good money after bad, appear to be coming true, as , “Continued credit deterioration at Countrywide Financial Corp. could raise concern among investors about the final sale price of the mortgage lender to Bank of America Corp., a Lehman Brothers analyst said Thursday.”

An Interesting Twist on the Texas Polygamist Case

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I really haven’t followed the story closely, but there appears to be an interesting development.

There are now indications that the 16 year old bride, the girl who allegedly made the phone call to authorities which resulted in the court order, may not exist.

It appears that authorities have been able to locate the girl, and the day after the raid, a similar call was made regarding another FLDS compound in Arizona.

This may make criminal prosecutions difficult.

Zimbabwe, Yet Again

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I think that the reason that I cover this is because I really don’t care about it, but I know that I should. It’s kind of funny that way.

Its an important story, and one that should be engaging more of the world than it does, but it does not even engage me.

I’m not sure why, perhaps I’m dismissive of troubles in Africa because so little goes right there, or perhaps, it’s a subtle manifestation of my own bigotry.

In any case, we now have Robert Mugabe accusing Morgan Tsvangirai of treason, and, “of working with Britain to oust the President from power,” which is, of course, absurd, and it is not a welcome development.

However, there has been some good news, as South Africa is finally calling for the vote results to be releases. Government spokesman Themba Maseko has said, “When elections are held and results are not released two weeks after, it is obviously of great concern.”

The question here is whether this is a change in policy from Thabo Mbeki, or a reflection of the rest of the ANC deserting him.

It’s clear that Mbeki has been the second biggest impediment to any sort of resolution on this, after Mugabe himself, for years, so I believe that if he has had a “battlefield conversion”, it is only because he has seen the writing on the walls.

As to the deeper reason’s for Mbeki’s enthusiastic boosterism regarding Mugabe, I tend to favor Tapiwa Kapurura’s thesis, that Thabo Mbeki in some way finds a personal threat to him or to the ANC in developments in Zimbabwe.

What is going on with the elections in Zimbabwe is that ZANU-PF, a party that is still attached to its revolutionary roots, has lost to the MDC, which is largely a more conventional Labor-type party.

It should be noted that analogy could be made between ZANI-PF and MDC and the ANC and the Congress of South African Trade Unions, a junior party in the ruling coalition in South Africa.

The Debates

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Switched over to them after 5 minutes from Olbermann, because I didn’t want to hear the intro.

Should have waited 10, but the whole Olbermann hatin’ on Hil is getting really old.

Then the questions. Stupid, really stupid vacuous question. Back to Olbermann. More hatin’ on Hil, back to the debate, and more evidence that Mike Judge was an optimist when he wrote and directed Idiocracy.

At the rate this is going I expect Gibson to ask about the designated hitter rule.

Can’t take it. I’m switching to Good Eats (Alton Brown) until “Bushed” on Olbermann.

I am not alone in my opinions, see here (“shoddy, despicable performances), and here (“perhaps the most embarrassing performance by the media in a major presidential debate in years”).

I watched perhaps 15 minutes of the debate, it was all I could take.

Next time, I’ll do the home root canal kit instead, or if I can’t do that, then I’ll watch a Fox TV reality show **shudder**.

Did I Say $45 Trillion? Me bad. $62 Trillion

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Yep, the numbers for Credit Default Swaps are far higher than I had previously noted. It’s $62.2 Trillion, up from $34.5 trillion a year ago, and up from my earlier number of $45 trillion.

By way of reference, world GDP is listed at $65.82 Trillion.

So we have something near the entire economic capacity of the Earth in complex instruments which may be worth nothing, and no one really knows what they are worth.

Paul Calello, head of investment banking at Credit Suisse, will tell the Isda meeting that the banking sector must accept that regulators will become more involved in the CDS market and other areas of derivatives in the future.

In particular, bankers and other financiers must now work with regulators to make the infrastructure more robust, since the crisis has exposed some serious potential weaknesses.

“There will be new regulation and there should be; voluntary efforts are not enough,” Mr Callelo will say. “We cannot expect ‘business as usual’.”

But Alan “Bubbles” Greenspan said that, “The use of a growing array of derivatives and the related application of more sophisticated methods for measuring and managing risk are key factors underpinning the enhanced resilience of our largest financial intermediaries.”

And as we all know Alan “Bubbles” Greenspan, acolyte of Ayn Rand, and poster child for sex without partners, is never wrong.*

*I know cheap shot, fish in a barrel. But I’m a cheap shot, fish in a barrel kind of guy.

Anti Terror Clown Show: Liberty City Seven

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After another few hundred thousand dollars of tax payer money, we have another mistrial.

It’s clear what happened here, a bunch of losers were contacted by an FBI informant, and they thought that he was al Queida, and that they could scam him out of money, uniforms, and maybe some assault rifles.

Fundamentally the real problem is that the material support statutes are so vague and so broad that the judge can’t throw this out of court with a big “BS” scrawled on the indictment.

Good News on that Pesky Nuclear War thing

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It appears that the US and the DPRK have come to an understanding over a North Korea-Syria connection and Uranium enrichment.

It involves the release of a document where the US makes the charges, and the DPRK acknowleges the US concerns.

Also, Iran has expressed a willingness to enter into talks over nuclear and other issues.

On the latter, the issue has always been more the US than Iran, because of the Bush admin’s insistence on it being a single issue negotiation, with Iranian capitulation being a necessary condition for even that.

Economics Update

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First, the Euro just hit an all-time high, $1.5968:€1.0000 (see also here)

I don’t think that it’s going to get better either, because its clear that Bernanke is not going to raise rates any time soon, because Euro zone inflation just hit an all time high of 3.6%, which means that the ECB will raise rates, as their only official duty is to prevent inflation, as opposed to the Feds dual roles of both price and employment stability.

This seems to be reinforced by the statements of Jean-Claude Trichet, the president of the ECB, who is saying that the European Central Bank is still focused in inflation, and that there is, “a strong belief that a solid anchoring of inflation expectations is of the essence”.

US inflation was pretty much in line with forcasts in March, 0.3% for the CPI, and 0.2% for the so called “core rate”

Finally, oil broke the $115/bbl barrier, hitting $115.07/bbl.

OK, This One is Really Bad News if True

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OK, for a while now, I have been talking about how the increasing TED and other spreads indicate that the credit market has not unfrozen.

It now appears that at least one of these numbers, the LIBOR, the London inter-bank offered rate, may actually have been significantly understated, meaning that the spread is higher, which means that people are more timid about lending money than has been previously reported (H/t Paul Krugman)

There are now indications that some banks may be under-reporting both the interest rates on the loans that they are paying, because it would be seen as financial weakness, which might lead to downgrades, and possibly a run on the institution.

Questions about Libor were raised as far back as November, at a Bank of England meeting in which United Kingdom banks, the firms that process bank trades and central bank officials discussed the recent financial turmoil. According to minutes of the meeting, “several group members thought that Libor fixings had been lower than actual traded interbank rates through the period of stress.” In a recent report, two economists at the Bank for International Settlements, a sort of central bank for central bankers, also expressed concerns that banks might report inaccurate rate quotes.

It’s of interest to more than the markets. LIBOR is also what many adjustable rate mortgages use as a benchmark to set their rates.

The financial system really does seem on the verge of collapse. We are getting to the point where there is absolutely no reliable data upon which one can make a decision, whether it is an individual investor, or the Federal Reserve.

Iraq Update

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First, we are seeing
another surge in bombings across Iraq, which should make one doubt about the claims of success with the US military surge.

Part of the problem, of course, is that Maliki is fundamentally disinterested in anything other his own very sort term sectarian power needs. First, he actively participated in ethnic cleansing, and now the only groups providing any meaningful aid to the million or so internally displaced Iraqis are the militias.

As to the conflict with Sadr, which is all about Maliki trying to gain an electoral advantage, not Iran or “lawlessness”, Major General Jeffery Hammond has announced that the US military has no intention of moving any further into Sadr city, which sounds an awful lot like the start of a “Fallujah moment”, when the generals declare victory and pull out.

That being said, the Iraqi troops are not waiting for a declaration of victory, they are leaving now.

The episode began when Major Sattar, the leader of an Iraqi company that had taken up positions 700 yards in front of the Americans, suddenly appeared at Company B’s field headquarters in the southern part of Sadr City.

The major’s company had replaced a more battle-hardened Iraqi unit just two days earlier, and he had been unhappy to find that he would be occupying a position to the front of the better trained and equipped Americans.

I’d be unhappy if I were told that my job was to be a speed bump too.

Zimbabwe Update

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Well, the call for a general strike went over like a dead balloon, though I think that the excuse, that too many people are too near starvation to participate, has some validity.

In terms of a runoff, Morgan Tsvangirai says that he will participate if, “a tally verified by both parties and the Southern African Development Community shows no candidate won more than 50 percent of the vote”, as he has no confidence in the electoral commission, which is clearly in Mugabe’s pocket.

In terms of the brighter side of this whole mess, it appears that Thabo Mbeki is also a loser in this affair, as members of the ANC, including ANC leader Jacob Zuma’s proxy Matthews Phosa are openly criticizing him. (also here)

This is a good thing. With his unqualified support of Mugabe, and his quite frankly delusional opposition to the use of anti-virals to fight AIDS, Mbeki is well past any usefulness to either the nation of South Africa, or the southern African region as a whole.