Relevant and even prescient commentary on news, politics and the economy.

Nurses Support Financial Transactions Tax

by Linda Beale

Nurses Support Financial Transactions Tax

 Perhaps the JPMorgan Chase debacle has caught enough attention to alter the debate. JPMorgan of course claimed to be entering a type of hedge that would be permitted under the Dodd Frank reforms. ( Apparently there were hedges on overall portfolio positions, and then those hedges were themselves hedged writing credit default swaps.) The authors of the legislation beg to differ, noting that the statute was drafted to permit hedges of specific asset but not portfolio-wide heding practices that become almost indiscernible from speculative “bets” on the direction of markets. Perhaps there will be one good result of the $2 billion plus and growing loss that JPMorgan encountered on its complex trades–regulators may finally quit paying so much attention to the banks’ “trust our judgement” lobbies and start making it less possible for banks that get federal support to bet with other people’s money in big ways that can cause systemic risk. This seems to be a no-brainer–we need to more tightly regulate the activities of commercial banks and prevent them from gambling with huge bets that can swing the marketplace and place the entire system in jeopardy. That means banks will need to accept more staid profit scenarios–and the compensation for managers and traders should be downsized as well. They made fortunes out of wrecking the economy. They should be content with reasonable compensation when they do good jobs, and salary cuts–or being fired–when they don’t.

Another action that might help to calm the too-reckless bankers and their desire for super-high profit margins would be to enact a financial transactions tax. It seems that lots of GOP candidates and economists think sales taxes make sense for ordinary folk–from Herman Cain’s 9-9-9 plan (that would eventually convert to a flat national sales tax) to the GOP push to cut income tax rates in states in favor of sales taxes. But when it comes to a financial transactions tax, all of a sudden the same folks seem to change their minds, suggesting that such a tax on financial transactions would discourage investment in the capital markets and be bad for America.

There are some singificant factors in favor of a financial transaction tax that would reap a few pennies from each transaction. First, it would raise much needed money from a group that generally can afford the cost. Second, it could act to discourage flash trading, where computer-run programs arbitrage the markets in a way that only those with the sophisticated programs can take advantage, leaving ordinary folk out in the cold. Third, it could be one factor in returning everyone to more prudent approaches to investment–investing for the long term, rather than profiting from arbitraging tiny differences in multiple trades.
The National Nurses United organization has taken out a full page ad in the New York Times in favor of a financial transactions tax. Here’s part of the text:

“I pay a sales tax every time I make a purchase. We all do–but not the financial services industry, the bankers who sunk [sic] our economy. A financial transaction tax would cost banks and investment firms just pennies on the dollar for transactions such as stock trades, like a sales tax. Those pennies would add up to create jobs and fund vital programs and services in this country–education, healthcare and rebuilting our deteriorating infrastructure. The big banks will never miss this money, while the revenue generated will provide a better life for millions of Americans. “

Maybe the nurses are on to something. But don’t look for Congress to act on this anytime soon.

crossposted with ataxingmatter

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When Competition, Easy Entry, and No Government Produces Lousy Results: A Quick Look at the Anti-Virus and Anti-Malware Market

by Mike Kimel

When Competition, Easy Entry, and No Government Produces Lousy Results: A Quick Look at the Anti-Virus and Anti-Malware Market

The other day I had to take my computer in to an expert for tune-up. I had all the usual onboard – an antivirus, anti-spyware software, etc. But the machine was running very, very slowly.

The expert I took it to cleaned out a lot of malware, removed my old anti-virus and anti-malware software, and installed new stuff. He swears by this stuff, and so far, my machine is working much better than it was before.

But here’s the thing… the previous set of anti-virus and anti-malware had been highly recommended just a few years by PC Magazine and CNET users and other similar sources. I know, because that’s why I installed those programs in the first place.

Which leads me to believe that in a couple of years, I should go through the process of investigating anti-virus and anti-malware software again. It seems, in fact, one’s choices with computers come to this:

1. Live with a machine that gets slower and slower and slower…
2. Periodically go through the effort of investigating anti-virus and anti-malware software, making sure that the stuff you use continues to be highly rated and effective.
3. Pay someone else to engage in number 2 for you.
4. Pick an operating system that is unpopular enough that it isn’t targeted by malicious software and deal with its foibles. Also, switch to another unpopular OS if the one you’re using starts becoming popular enough to attract the attention of malicious individuals.


That’s a lot of time and attention one has to go through simply to use a piece of equipment that is now required to do business in much of the world, and even after going through the time and effort, there is no way to know whether the product you are purchasing (or not) is the best one available for the price. Put another way – the outcome of this market is not one most of us would consider efficient.

And yet, the market seems to be characterized by most of the factors that a libertarian or conservative economist look for to produce an optimal outcome. It is relatively easy and inexpensive to enter and exit the market for anti-bad things software, the market is literally global (you can buy software made anywhere and download it from your desk in minutes), the cost of such products is low (many are given away free), there’s a heck of a lot of information out there, and there’s virtually no government involvement in the process.

So why are the outcomes of this market so poor?

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Federal judge rules part of new anti-terrorism statute unconstitutional

NEW YORK (AP) — A judge on Wednesday struck down a portion of a law giving the government wide powers to regulate the detention, interrogation and prosecution of suspected terrorists, saying it left journalists, scholars and political activists facing the prospect of indefinite detention for exercising First Amendment rights.

U.S. District Judge Katherine Forrest in Manhattan said in a written ruling that a single page of the law has a “chilling impact on First Amendment rights.” She cited testimony by journalists that they feared their association with certain individuals overseas could result in their arrest because a provision of the law subjects to indefinite detention anyone who “substantially” or “directly” provides “support” to forces such as al-Qaida or the Taliban. She said the wording was too vague and encouraged Congress to change it.

I wrote about this case on AB back in January and said that there’s no question but that that part of the law is unconstitutional.  I said back then that the only real question in that case is whether the plaintiffs, Truthdig columnist Chris Hedges and a few other journalists, have “standing” at this point to challenge the constitutionality of the law—that is, that they could show that things they themselves want to do are things for which, under the statute, they possibly could be detained.  According to today’s AP report, the government’s lawyer effectively acknowledged at the oral argument in the case in March that that’s possible.  

That clarified that the statute is as broad and as amorphous as the plaintiffs say it is—that there is no way even to know whether certain activities could result in detention (a violation of due process, which requires that laws be specific about what is proscribed), and also that the statute authorizes detention for activities that are protected by the First Amendment, including activities of the sort that these plaintiffs had engaged in and plan to engage in in the future.

This ruling is almost certain to be affirmed on appeal in the Second Circuit Court of Appeals, based in New York.  But ultimately, the Supreme Court will have to hear the case.  If, as I expect, the appellate court affirms the trial judge’s ruling striking down the law as unconstitutional, the Supreme Court will hear the case, because the Court always agrees to hear cases in which a lower appellate court has invalidated a federal statute.  And in the unlikely event that the appellate court reverses the trial judge’s ruling, the Court will hear this case because the First Amendment and due process issues are just too clear and too important here, and because the law so clearly does violate the First Amendment speech and assembly clauses and (because of its vagueness) Fifth Amendment due process rights.  I have no doubt that the Supreme Court will strike it down as unconstitutional.

It should be noted here that the only reason that Obama signed the law last December is that it was a poison pill that the House Republicans inserted into a Defense Department appropriations bill that was passed under deadline and that was necessary in order to avoid an interruption in salary to military personnel, among other things, if I recall correctly.  The Republicans’ purpose, of course, was to try to fabricate a Dems-are-soft-on-terrorism issue for the November elections.  As I said in my January post, Republican pols think it’s still 2002. Or at least 2004.  Or maybe even 1980.  Or 1968.  It’s not; they don’t realize that that well’s finally run dry, but it has.  Obama should have stood his ground, although some congressional Dems voted for the appropriations bill, for fear of political repercussions.  When Obama signed it, he said he thought that part of the law may well be stricken down as unconstitutional, and I do think that that’s what he expected.  Still ….

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Guest post: Another Romney/Bain Firm Got Subsidies (Then Closed a Plant)

by Kenneth Thomas

Another Romney/Bain Firm Got Subsidies (Then Closed a Plant)

The Tampa Bay Times reports (via Jed Lewison) that another Bain-owned company, Dade Behring, was a recipient of $7.1 million in subsidies from Puerto Rico and the federal government the year before it laid off 300 workers there. A common problem with many subsidized projects, it took the money and ran without any consequences.
   
As I have pointed out before, another Bain-owned company, Steel Dynamics, received at least $95 million in incentives from state and local governments in Indiana, for two separate investments. In fact, this exceeds the $85 million Bain made in profit from the firm.

Now we have a third example of Bain-owned companies getting government subsidies. For a candidate who claims to be about private enterprise, Romney clearly doesn’t walk the walk. As Jed Lewison has noted before, it’s clear that when Romney talks about crony capitalism, he’s talking about himself.

How many other government subsidies are in Bain’s past? Inquiring minds want to know.

crossposted with Middle class political economist

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Inflation, Credibility, and Expectations: Again Some More

Paul Krugman rightly attacked the confidence fairy again yesterday — claiming that the unemployment of the 80s following Volcker’s tightening proves that Fed credibility doesn’t help — but I think he misfires this time. Here’s what I sed over there, with some tweaks:

To be fair, Paul, isn’t the point here that in 1980 the Fed was decidedly lacking in inflation-fighting credibility? Volcker changed that — as you say, at great cost — and reluctance to lose the resulting credibility has been grounds for not sufficiently addressing the employment side of the Fed’s mandate ever since.

More to the point, though: I am utterly mystified why the Fed thinks that saying it will allow slightly higher inflation (3 or 4 percent), doing so, then presumably bringing it back down, would hurt its inflation-fighting credibility. Quite the contrary.

Unless: they actually believe that they couldn’t pull it off — that a wage-price spiral would ensue, destroying their credibility. Which is the same as saying “if we let things go a little now, allowing more inflation while spurring employment, we may have to allow a lot of unemployment in the future (a la Volcker) to control runaway inflation.”

Given our (their) inability to predict economic futures, and their at-least-perceived decades-long ability to control inflation without big Volcker-style employment hits, this seems like a ridiculous concern.

The more likely explanation in my view: each extra point of inflation would transfer hundreds of billions of dollars of buying power every year from creditors to debtors. Permanently. This isn’t just Econ 101; it’s simple arithmetic.

And the Fed is run by creditors.

This explanation is completely in keeping with the rightie mantra that (only personal financial) incentives matter.

This raises a question I have, especially for (Market) Monetarists:

Suppose two or three years from now inflation is at 4% and employment is strong. Could the Fed bring inflation down by saying they’re going to be less expansive — setting expectations for lower inflation? Or is expectations-setting asymmetrical?

Can the Fed set higher expectations for growth/inflation largely through Open Mouth Operations, while lowering expectations would require (more) actual monetary operations, Volcker-style?

Cross-posted at Asymptosis.

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No, Greg, It’s That The Entire Republican Party has Decided to Lie

The only reasonable conclusion is that Greg Sargent should resign from the Washington Post  before it finishes destroying his brain.

Give Sargent credit: he knows Mitt Romney is lying, and he calls him out on it, which—especially for the denizens of “Fox on 15th”—is as close to truth as you get outside of Sarah Kliff’s Wonkblog pieces.*  But he always tries to find the bright side, assuming that it’s not deliberating lying so much as hoping there is a “memory hole” in the electorate.

RNC Chair Reince Preibus this evening went out of his way to prove that this is a far too generous.  In an email entitled “Stop Obama’s Debt and Deficits,” he declares:

Obama’s [sic] racked up the three highest deficits in history and is scheduled to rack up the fourth this year.
In less than four years, President Obama has run up more than $5 trillion in debt, which is the most rapid increase in the debt under any U.S. President.

That is elephant shit.**

As I noted a couple of days ago, the “three highest deficits in history” (on an absolutely dollar basis, of course; no Republican currently in the party would admit that the largest percentage increase was under Ronald Wilson Reagan) include the fiscal year ending in September of 2009—the result of the Previous Administration’s final budget (which still holds the record in dollars, let alone inflation-adjusted terms, by at least $113B).  That’s not just hoping for a “memory hole,” it’s outright prevarication. Lying, not to put too fine a point on it.

Even if we were stupid enough to believe that Barack Obama was responsible for the Previous Administration’s final budget—what, he did a Vulcan Mind Meld, simultaneously planting the idea that Starburst Palin should be the Veep pick?—the total for those three years of deficit is just over $4T. So where does the RNC get $5T, just under 25% higher?

Well, again, we here in Dataland cannot answer that question.  We can accurately state that Willard “My Name is Julie Mitt” Romney has been saying for a while that the jobs lost for the January, 2009, report—the report of data taken the week of the 12th, before the inauguration, but apparently journalists are even stupider than economists, since even Sargent let that blatant falsehood slide recently—are all Obama’s fault.***

So let’s be Amazingly Generous.  Let’s accept, just for argument’s sake, that the deficit for the month of January, 2009—a month in which the Previous Administration was in office more than 5/8ths of the time—should all be blamed on the Obama Administration, even though they have no control of the purse strings.

In short, let’s make the scenario as bad as possible for the Obama Administration, while remaining in Dataland. If we were pretending that Reince Preibus was an Andrew Sarris stand-in, my next line would be, “Well, I have the Monthly Treasury Statement right here…”

For the time period from January, 2009 to April, 2012, inclusive, the total deficit is just under $4.4T.****  Yet Reince Preibus emails us that “President Obama has run up more than $5 trillion in debt.”

With the exception of Megan McArdle, no one who isn’t deliberately lying could be that innumerate, not even an English Lit/PoliSci J.D. with a staff and a budget.

If he really is that innumerate, then I have only one thing to say: Reince, buddy, it took me less than five minutes to document that your email was bollocks.  You need to hire me (or someone like me).  Today.

Otherwise, even Greg Sargent will have to admit that Mitt Romney isn’t just lying; he’s Following Orders to Lie.

 

*For which, far too often, Ezra Klein will be credited.

**I considered “horse” or “bull,” but the magnitude is at least in the “what, and quit show business” range.

***That the Party that claims that the 2001 recession—which began in March—was not their Administration’s fault has a standard bearer who declares that the layoffs the month before the following Administration took office are also Not Their Fault would win the Chutzpah Award if there were still journalism being practiced by another other than Jon Stewart and Stephen Colbert.

****By the way, Februarys have been especially ugly since 2002. If I any econometrician wants to look for when the Seasonal Adjustment formula went wrong, that might be a good place to start.

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Solamere Capital offered to help fund the auto-industry managed bankruptcy … just like Bain Capital!

Ah.  Well, now we know what Romney has in mind when he says that GM and Chrysler didn’t need federal bailout funds in late 2008 and early 2009 in order to undergo bankruptcy reorganization rather than be forced to liquidate, because there was private-equity funding available for that purpose.  Solamere Capital and its Rolodex of potential investors were available to provide the funding, but, stupidly, no one from the Obama administration thought to contact them. 

Anyway, I can’t wait to hear the statistics on how many jobs Tagg Romney created!

(NOTE: This entire post, including its title, is intended as facetious.)

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Elizabeth Warren campaigns in MA

Elizabeth Warren is running for the US Senate in Mass. and came by Casey’s Diner Monday at lunchtime, a stop among many.   Eventually the campaign will heat up as a lot of money is being raised, and the summer ends.

Ezra Klein of the Washington Post interviewed Elizabeth Warren this Monday as well. Here is part of the transcript with questions and answers regarding JP Morgan and Jamie Dimon from the wonky economic policy and regulatory angle:

EK: That gets us to the Volcker rule, which is what would keep banks that get that guarantee from gambling with customer money and a federal backstop. But at this point, I don’t think very many people — even people who follow this stuff quite closely — have a very specific sense of what the difference between a good and bad Volcker rule is. So how do you think about that?

EW: I’m going to reframe it slightly: Who profits from the complexity of the Volcker rule? It’s the largest financial institutions. No financial institutions want a simple Volcker rule. They want layers and layers of complexity because it’s in complexity that there are loopholes. That’s where it’s possible to back up regulators who are not quite certain about the ground they stand on. And it’s a larger problem with our regulatory structure: Complexity favors those who can hire armies of lobbyists and lawyers. The big push I made at the Consumer Financial Protection Bureau was simple rules. Simple mortgage documents. Simple credit card agreements. Because complexity creates too many opportunities for an army of lawyers to turn the rules upside down.

 EK: I agree that complexity is where lobbyists and lawyers work their dark magic. But when I talk to people in the industry about this, they say that simple rules sound great, but they’re not really possible. It’s hard to distinguish a hedge from a bet, or a speculative trade from a legitimate one. The world is complex, and that’s why regulators and politicians who don’t like Wall Street and don’t like being browbeaten by lobbyists end up allowing complex rules, too.

EW: Here’s another way to look at what you just described: That’s the strongest argument for a modern Glass-Steagall. Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, that’s fine. But it doesn’t get the backup of the federal government. If it’s too complicated to implement the Volcker rule, do you say we give up and let the largest financial institutions do what they want? Or do you say maybe that’s the reason we need a modern Glass-Steagall?

EK: What about breaking up the big banks?

EW: You’re approaching risk from two different directions. One is the risk of the activity. That’s the Volcker rule. The other direction is to say risk is an assumption of size. Community banks shouldn’t have to deal with complex regulatory oversight, but the largest institutions should be subject to far more aggressive oversight and have to pay more for the protections they receive from the American taxpayer. Then shareholders may decide to invest in institutions that are not so large.

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A web of privilege supports this so-called meritocracy

Brad DeLong points to an article by Gary Younge in The Guardian:

A web of privilege supports this so-called meritocracy: Shortly after Mitt Romney’s failed 2008 campaign for the Republican nomination his son Tagg set up a private equity fund with the campaign’s top fundraiser. One of the first donors was his mum, Anne. Next came several of his dad’s financial backers. Tagg had no experience in the world of finance, but after two years in the middle of a deep recession the company had netted $244m from just 64 investors. 

Tagg insists that neither his name nor the fact that his father had made it clear he would run for the presidency again had anything to do with his success. “The reason people invested in us is that they liked our strategies,” he told the New York Times. 

Class privilege, and the power it confers, is often conveniently misunderstood by its beneficiaries as the product of their own genius rather than generations of advantage, stoutly defended and faithfully bequeathed. Evidence of such advantages is not freely available. It is not in the powerful’s interest for the rest of us to know how their influence is attained or exercised. But every now and then a dam bursts and the facts come flooding forth…

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