Professor Greg Mankiw points out that the the top 1% of taxpayers paid 40.4% of the total income taxes collected by the federal government. See here.
I don't think we should have a "free lunch" system where millions of Americans have no financial stake in their government. At the same time, with sales taxes increasing, it's hard to argue the middle class and poor are getting a "free lunch."
It would be more fair to see what percentage of all taxes--state, local, and federal--are paid by the top 10% rather than just income taxes. According to the WSJ, the top 1% of earners pay 26% of all federal taxes. See here. Given the income and wealth disparity in this country, the 26% figure does not shock my conscience--in fact, it seems more on the low than the high side. (Update: the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.)
Mankiw's cited statistics show that our income taxation system is inefficient and non-diversified. Any entity that relies on such a small percentage of its "customer" base for 40% of its "profits" will soon have problems. Rather than feel sorry for the super-rich, we should realize that income taxes are volatile and inconsistent sources of revenue. By relying on such a volatile source of revenue, the government isn't doing us any favors.
Mankiw's post implicitly contends that the rich have never had it worse--their 40% contribution is "the highest percentage in modern history," he says. This increased burden could mean two things: one, the rich are getting bilked; and/or two, the recession has hit the middle class and poor harder than the rich, so they are getting smaller slices of the income pie and paying less taxes as a result of receiving less income. I'm going with Door #2. I am disappointed that Professor Mankiw--normally a very thorough writer--cited the Tax Foundation's statistics without properly explaining the numbers.
Overall, we should figure out how to get more paying stakeholders into the system so we diversify revenue sources and rely on more recession-resistant revenue streams.
Update: Professor Mankiw points out that "the [tax] data predate the recession." Although the recession is not factored into the tax data, the disparity in tax burden between the rich and others may still be a result of a declining middle class.
Friday, July 31, 2009
Thursday, July 30, 2009
Michael Lewis on Goldman Sachs
Reason #48756 why Michael Lewis is the best financial journalist working today:
http://bloomberg.com/apps/news?pid=20601039&sid=a2X3hNaWcbeg
Every time we hear the phrase “the United States of Goldman Sachs” we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn’t a single former Goldman employee on the Supreme Court.)
Devastatingly funny, isn't it?
http://bloomberg.com/apps/news?pid=20601039&sid=a2X3hNaWcbeg
Every time we hear the phrase “the United States of Goldman Sachs” we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn’t a single former Goldman employee on the Supreme Court.)
Devastatingly funny, isn't it?
Wednesday, July 29, 2009
Lawyers Making a Difference: Jon Eisenberg
Here is an awesome interview (Super Lawyers, August 2009) with attorney Jon Eisenberg, who has litigated several fascinating cases against the government:
Mr. Eisenberg mentions one of his favorite authors, Jerzy Kosinski. Mr. Kosinksi's book, Being There, was adapted into a very good film by the same name. I had seen the film but was unaware of Mr. Kosinski's connection to it. If you haven't seen the film Being There, I highly recommend it. Peter Sellers plays the main character in the film.
During the Al-Haramain case you wrote a response to a government brief that you were not allowed to see. How does one go about doing that?
It was quite a challenge. It wasn't just that we had to speculate as to what might be in the secret DOJ brief; the conditions under which we wrote our secret response were onerous, approaching the bizarre: We were required to write the brief under guard in the U.S. Attorney's office in San Francisco; we were forbidden from preparing any notes for the brief-writing session; the DOJ retained sole possession of the brief we produced; and the DOJ has refused to allow us to review the brief since we wrote it. Litigation doesn't get any weirder than that.
Unbelievable stuff. Sounds like something out of a Soviet novel, doesn't it?Mr. Eisenberg mentions one of his favorite authors, Jerzy Kosinski. Mr. Kosinksi's book, Being There, was adapted into a very good film by the same name. I had seen the film but was unaware of Mr. Kosinski's connection to it. If you haven't seen the film Being There, I highly recommend it. Peter Sellers plays the main character in the film.
Tuesday, July 28, 2009
Henry Louis Gates, Questions
The following questions aren't the usual "Let's get to know you better" kind. They are leading questions, and they force you to question your own principles.
1. What is the point of the 4th Amendment if the government can tell you how to behave in your own home even after it has verified that it is your home; you have not committed a crime; and you have a legal right to be there?
2. Prof. Gates was arrested on his own front porch. The officer who arrested him had already verified his ID and appears to have been walking outside. If Prof. Gates began yelling at the police officer and belligerently demanded the officer's badge number, whose job was it to walk away and de-escalate the situation? The Harvard professor in his own home, or the police officer whose salary is being paid by the Harvard professor?
3. As soon as the police officer verified Prof. Gates' ID and realized he was the proper homeowner, did Prof. Gates have the legal right to tell the police officer to leave his property? If yes, then as a legal principle, what does it matter the choice of words that Prof. Gates used to ask the officer to leave his home?
4. Is it a crime to be verbally belligerent to a police officer in your own home when the police officer has already verified that no crime is taking place in the home? Is there ever such a thing as "contempt of cop"?
Here is the best article I've read so far on the Gates-Crowley affair (Robin Wells, July 27, 2009):
http://www.huffingtonpost.com/robin-wells/hard-truths-and-the-teach_b_245856.html
I believe that the treatment of Professor Gates was unjust and unprofessional. Yes, he was belligerent to a police officer. But that is no crime, and nowhere has Officer Crowley shown that there was any chance of a crime being committed, confirmed by the Cambridge Police Department's quick decision to drop the charges against Professor Gates. Police officers are trained to be professionals, and a professional would have recognized that an obstreperous sexagenarian who walks with a cane standing in his own house and faced with a phalanx of armed police officers is no threat...
[But] The hard truth that Professor Gates needs to hear is that he is the one who handed over his power to Officer Crowley. Letting his agitation get the better of him, Gates lost the ability to shape the outcome of the encounter and set up his own victimization by a poorly trained police officer.
Amen, sister. Basically, the police officer was unprofessional and did not handle the situation properly, but Prof. Gates could have saved himself a lot of trouble by being the bigger man. Professor Gates might not have realized he had to show the officer his state-issued ID, not just his Harvard-issued ID.
1. What is the point of the 4th Amendment if the government can tell you how to behave in your own home even after it has verified that it is your home; you have not committed a crime; and you have a legal right to be there?
2. Prof. Gates was arrested on his own front porch. The officer who arrested him had already verified his ID and appears to have been walking outside. If Prof. Gates began yelling at the police officer and belligerently demanded the officer's badge number, whose job was it to walk away and de-escalate the situation? The Harvard professor in his own home, or the police officer whose salary is being paid by the Harvard professor?
3. As soon as the police officer verified Prof. Gates' ID and realized he was the proper homeowner, did Prof. Gates have the legal right to tell the police officer to leave his property? If yes, then as a legal principle, what does it matter the choice of words that Prof. Gates used to ask the officer to leave his home?
4. Is it a crime to be verbally belligerent to a police officer in your own home when the police officer has already verified that no crime is taking place in the home? Is there ever such a thing as "contempt of cop"?
Here is the best article I've read so far on the Gates-Crowley affair (Robin Wells, July 27, 2009):
http://www.huffingtonpost.com/robin-wells/hard-truths-and-the-teach_b_245856.html
I believe that the treatment of Professor Gates was unjust and unprofessional. Yes, he was belligerent to a police officer. But that is no crime, and nowhere has Officer Crowley shown that there was any chance of a crime being committed, confirmed by the Cambridge Police Department's quick decision to drop the charges against Professor Gates. Police officers are trained to be professionals, and a professional would have recognized that an obstreperous sexagenarian who walks with a cane standing in his own house and faced with a phalanx of armed police officers is no threat...
[But] The hard truth that Professor Gates needs to hear is that he is the one who handed over his power to Officer Crowley. Letting his agitation get the better of him, Gates lost the ability to shape the outcome of the encounter and set up his own victimization by a poorly trained police officer.
Amen, sister. Basically, the police officer was unprofessional and did not handle the situation properly, but Prof. Gates could have saved himself a lot of trouble by being the bigger man. Professor Gates might not have realized he had to show the officer his state-issued ID, not just his Harvard-issued ID.
By law, you must produce state-issued ID when requested to do so by a police officer who has lawfully detained you. Most states have statutes similar to the following: “Any person so detained shall identify himself, but may not be compelled to answer any other inquiry of any peace officer." I know these types of "ID" laws sound perilously close to "Show me your papers," but the law seems clear--see U.S. Supreme Court decision Hiibel v. Sixth Judicial District Court of Nevada (2004), decided by a 5 to 4 vote. (I wonder if Justice Kennedy is now reconsidering his deciding vote.) Perhaps if Prof. Gates had known the law requires him to produce state-issued ID to an officer, the situation might not have escalated.
In any case, when a police officer needs to call backup to handle a senior citizen Harvard professor, something's amiss. As President Obama stated, "I think...that you probably don't need to handcuff a guy, a middle-aged man who uses a cane, who is in his own home."
In any case, when a police officer needs to call backup to handle a senior citizen Harvard professor, something's amiss. As President Obama stated, "I think...that you probably don't need to handcuff a guy, a middle-aged man who uses a cane, who is in his own home."
Although Prof. Gates could have de-escalated the situation, the burden was on the officer to do so, not Prof. Gates. The Cambridge Police Department owes Mr. Gates an apology for escalating what should have been a routine check.
Bonus: Here are 9th Circuit Judge Alex Kosinski's comments on free speech, which apply to Gates' case:
See Duran v. City of Douglas (1990): [T]he First Amendment protects a significant amount of verbal criticism and challenge directed at police officers." [Houston v. Hill, 482 U.S. 451 at 461] The freedom of individuals to oppose or challenge police action verbally without thereby risking arrest is one important characteristic by which we distinguish ourselves from a police state. Id. at 462-63, 107 S.Ct. at 2510. Thus, while police, no less than anyone else, may resent having obscene words and gestures directed at them, they may not exercise the awesome power at their disposal to punish individuals for conduct that is not merely lawful, but protected by the First Amendment.
Re: criticism of judges, see Standing Committee of Discipline v. Yagman quoting Bridges v. California, 314 U.S. 252, 263 (1941):
"The assumption that respect for the judiciary can be won by shielding judges from published criticism wrongly appraises the character of American public opinion. For it is a prized American privilege to speak one's mind, although not always with perfect good taste, on all public institutions. And an enforced silence, however limited, solely in the name of preserving the dignity of the bench, would probably engender resentment, suspicion, and contempt much more than it would enhance respect."
Judge Kosinski is often named as one of the potential candidates for the U.S. Supreme Court.
Bonus II:
1. The question isn't whether Gates could have acted better under the circumstances--the question is what a government worker should do in someone else's house once he verifies there is no threat, no crime, and the owner wants him out.
2. Gates may have been outsmarted by the police officer. The officer probably couldn't arrest Gates inside his own home for "disorderly conduct," so he may have beckoned Gates outside, where he could plausibly argue that the public was affected or endangered by Gates' conduct.
Patrick S. says:
Based upon the holdings in the MA cases below, Dr. Gates' conduct did not even fall under the disorderly conduct statute. Whether this is an issue of the cop arresting him anyway or whether the cops were not properly trained on what is "disorderly conduct" in MA is another question:
In Commonwealth v. Mallahan, 72 Mass.App.Ct. 1103, 889 N.E.2d 77 (2008), a decision rendered last year, an appeals court held that a person who launched into an angry, profanity-laced tirade against a police officer in front of spectators could not be convicted of disorderly conduct.
In Commonwealth v. Lopiano, (2004) 805 N.E.2d 522, 60 Mass.App.Ct. 723 (2004), an appeals court held it was not disorderly conduct for a person who angrily yelled at an officer that his civil rights were being violated. [In this case, according to the officer, Defendant was "yelling at me, you're violating my civil rights, then he began yelling at Ms. Carins, why are you doing this to me, you'll never go through with this."]
The Massachusetts statute defining "disorderly conduct" used to have a provision that made it illegal to make "unreasonable noise or offensively coarse utterance, gesture or display," or to address "abusive language to any person present." Yet the courts have interpreted that provision to violate the Massachusetts Constitution's guarantee of freedom of speech. So police cannot lawfully arrest a person for hurling abusive language at an officer.
[See more law-related discussion here and Commonwealth v Feigenbaum, 404 Mass. 471 (1989)]
Bonus: Here are 9th Circuit Judge Alex Kosinski's comments on free speech, which apply to Gates' case:
See Duran v. City of Douglas (1990): [T]he First Amendment protects a significant amount of verbal criticism and challenge directed at police officers." [Houston v. Hill, 482 U.S. 451 at 461] The freedom of individuals to oppose or challenge police action verbally without thereby risking arrest is one important characteristic by which we distinguish ourselves from a police state. Id. at 462-63, 107 S.Ct. at 2510. Thus, while police, no less than anyone else, may resent having obscene words and gestures directed at them, they may not exercise the awesome power at their disposal to punish individuals for conduct that is not merely lawful, but protected by the First Amendment.
Re: criticism of judges, see Standing Committee of Discipline v. Yagman quoting Bridges v. California, 314 U.S. 252, 263 (1941):
"The assumption that respect for the judiciary can be won by shielding judges from published criticism wrongly appraises the character of American public opinion. For it is a prized American privilege to speak one's mind, although not always with perfect good taste, on all public institutions. And an enforced silence, however limited, solely in the name of preserving the dignity of the bench, would probably engender resentment, suspicion, and contempt much more than it would enhance respect."
Judge Kosinski is often named as one of the potential candidates for the U.S. Supreme Court.
Bonus II:
1. The question isn't whether Gates could have acted better under the circumstances--the question is what a government worker should do in someone else's house once he verifies there is no threat, no crime, and the owner wants him out.
2. Gates may have been outsmarted by the police officer. The officer probably couldn't arrest Gates inside his own home for "disorderly conduct," so he may have beckoned Gates outside, where he could plausibly argue that the public was affected or endangered by Gates' conduct.
Patrick S. says:
Based upon the holdings in the MA cases below, Dr. Gates' conduct did not even fall under the disorderly conduct statute. Whether this is an issue of the cop arresting him anyway or whether the cops were not properly trained on what is "disorderly conduct" in MA is another question:
In Commonwealth v. Mallahan, 72 Mass.App.Ct. 1103, 889 N.E.2d 77 (2008), a decision rendered last year, an appeals court held that a person who launched into an angry, profanity-laced tirade against a police officer in front of spectators could not be convicted of disorderly conduct.
In Commonwealth v. Lopiano, (2004) 805 N.E.2d 522, 60 Mass.App.Ct. 723 (2004), an appeals court held it was not disorderly conduct for a person who angrily yelled at an officer that his civil rights were being violated. [In this case, according to the officer, Defendant was "yelling at me, you're violating my civil rights, then he began yelling at Ms. Carins, why are you doing this to me, you'll never go through with this."]
The Massachusetts statute defining "disorderly conduct" used to have a provision that made it illegal to make "unreasonable noise or offensively coarse utterance, gesture or display," or to address "abusive language to any person present." Yet the courts have interpreted that provision to violate the Massachusetts Constitution's guarantee of freedom of speech. So police cannot lawfully arrest a person for hurling abusive language at an officer.
[See more law-related discussion here and Commonwealth v Feigenbaum, 404 Mass. 471 (1989)]
Monday, July 27, 2009
Tyler Cowen on Henry Louis Gates
Marginal Revolution's Tyler Cowen on the Henry Louis Gates arrest:
On the substance of the altercation I do not know the details but some time ago we decided, for better or worse, to give policemen a lot of discretion in intimidating individuals, including innocent individuals and especially African-Americans. I don't think we chose an optimum but it is disingenuous to be suddenly shocked by what happened.
I agree wholeheartedly. The real issue is the proper balance between individual rights and police power. Since 9/11, we've elevated the status of law enforcement personnel from well-compensated civil servants to heroes. As a result, many Americans believe police can do no wrong, and citizens must be highly respectful to law enforcement at all times--even in their own homes. Prof. Gates' arrest should have been an opportunity to re-examine this shift in values; however, by focusing on race rather than how police ought to behave in another person's home, we've lost a chance to discuss a topic important to all Americans.
On the substance of the altercation I do not know the details but some time ago we decided, for better or worse, to give policemen a lot of discretion in intimidating individuals, including innocent individuals and especially African-Americans. I don't think we chose an optimum but it is disingenuous to be suddenly shocked by what happened.
I agree wholeheartedly. The real issue is the proper balance between individual rights and police power. Since 9/11, we've elevated the status of law enforcement personnel from well-compensated civil servants to heroes. As a result, many Americans believe police can do no wrong, and citizens must be highly respectful to law enforcement at all times--even in their own homes. Prof. Gates' arrest should have been an opportunity to re-examine this shift in values; however, by focusing on race rather than how police ought to behave in another person's home, we've lost a chance to discuss a topic important to all Americans.
More Immigrants = More Safety
From Radley Balko, July 6, 2009:
http://www.reason.com/news/show/134579.html
Despite the high profile of polemicists such as Lou Dobbs and Michael Savage, America has been mostly welcoming to this latest immigration wave. You don't see "Latinos Need Not Apply" or "No Mexicans" signs posted on public buildings the way you did with the Italians and the Irish, two groups who actually were disproportionately likely to turn to crime. The implication makes sense: An immigrant group's propensity for criminality may be partly determined by how they're received in their new country.
"Look at Arab-Americans in the Midwest, especially in the Detroit area," Levin says. "The U.S. and Canada have traditionally been very willing to welcome and integrate them. They're a success story, with high average incomes and very little crime. That's not the case in Europe. Countries like France and Germany are openly hostile to Arabs. They marginalize them. And they've seen waves of crime and rioting."
I love the common sense.
http://www.reason.com/news/show/134579.html
Despite the high profile of polemicists such as Lou Dobbs and Michael Savage, America has been mostly welcoming to this latest immigration wave. You don't see "Latinos Need Not Apply" or "No Mexicans" signs posted on public buildings the way you did with the Italians and the Irish, two groups who actually were disproportionately likely to turn to crime. The implication makes sense: An immigrant group's propensity for criminality may be partly determined by how they're received in their new country.
"Look at Arab-Americans in the Midwest, especially in the Detroit area," Levin says. "The U.S. and Canada have traditionally been very willing to welcome and integrate them. They're a success story, with high average incomes and very little crime. That's not the case in Europe. Countries like France and Germany are openly hostile to Arabs. They marginalize them. And they've seen waves of crime and rioting."
I love the common sense.
Sunday, July 26, 2009
Sunday Quotes
1. "The entire essence of America is the hope to first make money--then make money with money--then make lots of money with lots of money." —Paul Erdman
2. Heard on the street: "TARP = affirmative action for white people."
3. On the Henry Louis Gates arrest: "Honestly, its not the local cops we have to worry about...the local SWAT team that's been drinking the homeland security kool-aid rampaging through a house on a bad tip is hella more worrisome than a local beat cop. -- Jason K.
2. Heard on the street: "TARP = affirmative action for white people."
3. On the Henry Louis Gates arrest: "Honestly, its not the local cops we have to worry about...the local SWAT team that's been drinking the homeland security kool-aid rampaging through a house on a bad tip is hella more worrisome than a local beat cop. -- Jason K.
Tests from Harvard
Most of us believe we harbor no prejudices against others. Harvard University has devised several tests to see if we make implicit associations about certain groups. Here is the link:
https://implicit.harvard.edu/implicit/demo/takeatest.html
Have fun.
https://implicit.harvard.edu/implicit/demo/takeatest.html
Have fun.
Saturday, July 25, 2009
Rich People, Free Links
Two great links:
1. Warren Buffett's financial advice:
http://www.billshrink.com/blog/lessons-wealth-warren-buffet
“Live your life as simply as possible.”
2. Worst financial gurus:
http://www.billshrink.com/blog/worst-financial-gurus
I really, really dislike the book, Rich Dad, Poor Dad. I am ecstatic that someone finally called out Kiyosaki.
1. Warren Buffett's financial advice:
http://www.billshrink.com/blog/lessons-wealth-warren-buffet
“Live your life as simply as possible.”
2. Worst financial gurus:
http://www.billshrink.com/blog/worst-financial-gurus
I really, really dislike the book, Rich Dad, Poor Dad. I am ecstatic that someone finally called out Kiyosaki.
Friday, July 24, 2009
Random Thoughts: American Express, Kraft, and MGM
1. American Express (AXP) CEO Kenneth Chenault had these sobering words to say (from American Express's 2008 Annual Report):
Also, Kraft recently provided me with good customer service, which is an important marketplace differentiator. In an era of increasing generic and store-branded competition, customer service matters more than ever. My issue related to Oscar-Mayer lunch meats. I complained that a package of turkey slices went bad too early. Nothing else in the same fridge drawer went bad, not even the other lunch meats. I asked Kraft to double-check their packaging on that particular item. I received a letter from a Kim M that acknowledged my issue, along with a coupon for a replacement pack. Now that's excellent customer service. Kudos to Kraft and Kim M.
3. Some interesting tidbits from MGM Mirage's (MGM) annual report:
Wasn't 2008 Supposed to Be the Bottom?: "Our current expectations for 2009 indicate that operating cash flow will be lower than in 2008." (page 3)
Yield Premiums Gone Wild: MGM issued $850 million of 11.125% senior secured notes due 2017 (page 4). Treasuries currently offer around a 3% yield. When a company has to offer 11%+ secured notes to attract financing, that's scary, isn't it?
Someone Benefited from Hurricane Katrina?: MGM received "insurance recoveries of $635 million which exceeded the $265 million of net book value of damaged assets and post-storm costs incurred...[MGM] recognized $284 million of insurance recoveries in income." (page 8)
I have little sympathy for MGM. During its 2008 annual shareholder meeting, I asked (former) CEO Terrence Lanni how he planned to adjust to the changing economic environment. I suggested he should lower prices and stop charging for basic items like internet access. He disagreed and seemed to mock my concerns. Other than licensing the MGM name, I didn't see any new streams of revenue. I left that meeting stunned that MGM's management didn't seem to feel the need for major changes. And so it goes.
Disclosure: I may own an insignificant number of shares in AXP, MGM, and KFT. The ownership of shares, if any, has not influenced any opinions expressed above.
The experience of the past year reinforces the principle that people should not spend more than they have the capacity to earn and pay back. And financial services companies should not encourage people to get over their heads in debt. Healthier consumer behavior is better for everyone in the long run. (Shareholder letter, page 9)
You might say Mr. Chenault deserves an obviousness award, except that millions of Americans are currently swimming in mortgage and credit card debt.
The upside is that American Express has plenty of room to grow: "Today, cash is used for about two-thirds of global personal consumption." Every time someone uses a credit card instead of cash, American Express receives a transaction fee. If American Express continues to successfully expand, it will make plenty of money.
On a side note, I don't understand why American Express isn't issuing credit cards with embedded chips here in the States. Almost all American credit card companies are still using the old magnetic strip technology, which is lovely--if you're into identity theft.
Magnetic strip technology makes stealing your credit card information very easy. The Europeans have figured this out and have mostly switched to embedded chip technology. American Express's Blue card used to offer embedded chip technology, but that's apparently been replaced by an ExpressPay system. If you have information about whether the ExpressPay system is more secure than the embedded chip technology, please post a comment.
2.I just realized that all of my lunch items, except for the bread, are Kraft-branded (KFT). This wasn't intentional--I don't care about brand names and usually focus on price. As a result, I was surprised when I peeked in my sandwich drawer and saw a) Kraft cheese (I love Kraft's extra sharp cheddar); b) Kraft mayo (with olive oil); and c) Oscar-Mayer lunch meats. (Kraft owns Oscar Mayer.) As more Americans brown-bag their lunches to save money, Kraft stands to benefit.On a side note, I don't understand why American Express isn't issuing credit cards with embedded chips here in the States. Almost all American credit card companies are still using the old magnetic strip technology, which is lovely--if you're into identity theft.
Magnetic strip technology makes stealing your credit card information very easy. The Europeans have figured this out and have mostly switched to embedded chip technology. American Express's Blue card used to offer embedded chip technology, but that's apparently been replaced by an ExpressPay system. If you have information about whether the ExpressPay system is more secure than the embedded chip technology, please post a comment.
Also, Kraft recently provided me with good customer service, which is an important marketplace differentiator. In an era of increasing generic and store-branded competition, customer service matters more than ever. My issue related to Oscar-Mayer lunch meats. I complained that a package of turkey slices went bad too early. Nothing else in the same fridge drawer went bad, not even the other lunch meats. I asked Kraft to double-check their packaging on that particular item. I received a letter from a Kim M that acknowledged my issue, along with a coupon for a replacement pack. Now that's excellent customer service. Kudos to Kraft and Kim M.
3. Some interesting tidbits from MGM Mirage's (MGM) annual report:
Wasn't 2008 Supposed to Be the Bottom?: "Our current expectations for 2009 indicate that operating cash flow will be lower than in 2008." (page 3)
Yield Premiums Gone Wild: MGM issued $850 million of 11.125% senior secured notes due 2017 (page 4). Treasuries currently offer around a 3% yield. When a company has to offer 11%+ secured notes to attract financing, that's scary, isn't it?
Someone Benefited from Hurricane Katrina?: MGM received "insurance recoveries of $635 million which exceeded the $265 million of net book value of damaged assets and post-storm costs incurred...[MGM] recognized $284 million of insurance recoveries in income." (page 8)
I have little sympathy for MGM. During its 2008 annual shareholder meeting, I asked (former) CEO Terrence Lanni how he planned to adjust to the changing economic environment. I suggested he should lower prices and stop charging for basic items like internet access. He disagreed and seemed to mock my concerns. Other than licensing the MGM name, I didn't see any new streams of revenue. I left that meeting stunned that MGM's management didn't seem to feel the need for major changes. And so it goes.
Disclosure: I may own an insignificant number of shares in AXP, MGM, and KFT. The ownership of shares, if any, has not influenced any opinions expressed above.
Thursday, July 23, 2009
Are Cities Using Parking/Speeding as Revenue Generators?
A driver was pulled over for going under the speed limit:
http://www.nbcwashington.com/news/local/I-Cant-Drive-65.html
And S.F. issued a citation to a driver who hadn't curbed his wheels...on an almost flat street:
http://www.mercurynews.com/localnewsheadlines/ci_12876699?nclick_check=1
As cities get less revenue from taxes and the state, they may use parking citations and tickets as revenue generators. Beware.
http://www.nbcwashington.com/news/local/I-Cant-Drive-65.html
And S.F. issued a citation to a driver who hadn't curbed his wheels...on an almost flat street:
http://www.mercurynews.com/localnewsheadlines/ci_12876699?nclick_check=1
As cities get less revenue from taxes and the state, they may use parking citations and tickets as revenue generators. Beware.
John Mauldin on Globalization and Leverage
From John Mauldin (July 17, 2009):
Globalization is a two-edged sword. On balance, it has brought prosperity to those who have embraced it, with rising lifestyles, better health, longer lives, and more. The more we need each other, the less likely it is that we'll shoot each other. Shooting your customers is not a good business strategy. And while the growth has not been even or smooth, only a Luddite would want to return to the early 1800s or 1900s, or even 1975.
The other edge of that sword? We are connected in so very many ways, far more than most of the world suspected. Who thought that insane lending policies at US mortgage banks would bring the world financial system to its knees, increasing unemployment and leading to a global recession?
I love the statement that killing your customers isn't a good business strategy. Mr. Mauldin also comments on leverage--and it's becoming fairly easy to see that leverage is what killed the golden goose:
In the first few years of the G.W. Bush administration, the banking authorities decided it would be OK to allow five banks to increase their leverage from 12:1 up to 30:1. Which five banks, you ask? Bear Stearns, Lehman, Merrill Lynch, JPMorgan, and Goldman Sachs. How did that work out, just five years later? Three are gone and two survived with large dollops of taxpayer money...Thirty times leverage means that if you lose 3.3%, you wipe out all your capital.
Some stocks fluctuate 3.3% in just one day. Even when I was leveraged just two to one times, I had difficulty sleeping. How did these investment bankers do it? How could they have been so irresponsible, gambling on non-tangible investments? Regular banks are highly leveraged, too, but they usually invest in tangible items like houses.
All this makes me yearn for the good old days--when banks were simple creatures, loaning money at an interest rate higher than their deposit interest rate. Wall Street's unconscionable leverage is exactly why more Americans should look to credit unions for their banking needs.
Note: Barry Ritholtz mentioned the same issue--leverage--in his book, Bailout Nation:
Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules that had existed for decades, limiting broker-dealers' debt-to-net-capital ratio to 12-to-1. You couldn't make this stuff up if you tried. (page 144)
If Congress wants to help mitigate the next financial bubble, it needs to pass laws restricting leverage. So far, I haven't seen any proposed bills that attempt to resolve systemic risk in the financial markets. That's a crying shame.
Required blurb: John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to:
http://www.frontlinethoughts.com/learnmore
Globalization is a two-edged sword. On balance, it has brought prosperity to those who have embraced it, with rising lifestyles, better health, longer lives, and more. The more we need each other, the less likely it is that we'll shoot each other. Shooting your customers is not a good business strategy. And while the growth has not been even or smooth, only a Luddite would want to return to the early 1800s or 1900s, or even 1975.
The other edge of that sword? We are connected in so very many ways, far more than most of the world suspected. Who thought that insane lending policies at US mortgage banks would bring the world financial system to its knees, increasing unemployment and leading to a global recession?
I love the statement that killing your customers isn't a good business strategy. Mr. Mauldin also comments on leverage--and it's becoming fairly easy to see that leverage is what killed the golden goose:
In the first few years of the G.W. Bush administration, the banking authorities decided it would be OK to allow five banks to increase their leverage from 12:1 up to 30:1. Which five banks, you ask? Bear Stearns, Lehman, Merrill Lynch, JPMorgan, and Goldman Sachs. How did that work out, just five years later? Three are gone and two survived with large dollops of taxpayer money...Thirty times leverage means that if you lose 3.3%, you wipe out all your capital.
Some stocks fluctuate 3.3% in just one day. Even when I was leveraged just two to one times, I had difficulty sleeping. How did these investment bankers do it? How could they have been so irresponsible, gambling on non-tangible investments? Regular banks are highly leveraged, too, but they usually invest in tangible items like houses.
All this makes me yearn for the good old days--when banks were simple creatures, loaning money at an interest rate higher than their deposit interest rate. Wall Street's unconscionable leverage is exactly why more Americans should look to credit unions for their banking needs.
Note: Barry Ritholtz mentioned the same issue--leverage--in his book, Bailout Nation:
Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules that had existed for decades, limiting broker-dealers' debt-to-net-capital ratio to 12-to-1. You couldn't make this stuff up if you tried. (page 144)
If Congress wants to help mitigate the next financial bubble, it needs to pass laws restricting leverage. So far, I haven't seen any proposed bills that attempt to resolve systemic risk in the financial markets. That's a crying shame.
Required blurb: John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to:
http://www.frontlinethoughts.com/learnmore
Wednesday, July 22, 2009
Taxpayers Take Over Delphi's Pensions
From Calculated Risk:
http://www.calculatedriskblog.com/2009/07/pbgc-to-assume-delphi-pension-plans.html
Companies underfund pensions to boost their bottom line, similar to California borrowing education monies to balance its budget. This is perfectly legal. I don't understand why the law allows companies or the state to use accounting gimmicks to project an image of financial health. If companies offer pensions, they should fully fund the pension plan at all times. Otherwise, if the company doesn't do well, eventually the taxpayer is on the hook for the pensions--as in the case of Delphi.
http://www.calculatedriskblog.com/2009/07/pbgc-to-assume-delphi-pension-plans.html
Companies underfund pensions to boost their bottom line, similar to California borrowing education monies to balance its budget. This is perfectly legal. I don't understand why the law allows companies or the state to use accounting gimmicks to project an image of financial health. If companies offer pensions, they should fully fund the pension plan at all times. Otherwise, if the company doesn't do well, eventually the taxpayer is on the hook for the pensions--as in the case of Delphi.
Bernanke's Fed
I know people were going gaga over Bernanke's WSJ article, but I hope everyone realizes they can get better material directly from the Fed's website.
Bernanke's Fed seems more transparent than Greenspan's Fed. I don't remember seeing as much information on the Fed's website several years ago. Anyway, here are some interesting excerpts from the Fed's most recent minutes:
Consumer price inflation was fairly quiescent in recent months, although the upturn in energy prices appeared likely to boost headline inflation in June.
Real personal consumption expenditures rose somewhat in the first quarter after falling in the second half of 2008, and available data suggested that spending was holding reasonably steady in the second quarter.
The fundamental determinants of consumer demand appeared to have improved a bit: Despite the ongoing decline in employment, real disposable personal income rose in the first quarter and posted another sizable gain in April as various provisions of the American Recovery and Reinvestment Act of 2009 boosted transfer payments and reduced personal taxes. In addition, equity prices recorded substantial gains in April and May, reversing a small portion of the prior wealth declines. Measures of consumer sentiment, while remaining at levels typically seen during recessions, improved markedly from the historical lows recorded around the turn of the year.
The steep decline in the demand for new single-family houses seemed to have abated....The apparent stabilization in housing demand was likely due, in part, to the improvement in housing affordability that resulted from low mortgage rates and declining house prices.
Although recent increases in oil and other commodity prices were likely to raise headline inflation over the near term, most participants expected core inflation to remain subdued for some time...A few participants were concerned that inflation expectations could continue to rise, especially in light of the Federal Reserve's greatly expanded balance sheet and the associated large volume of reserves in the banking system, and that as a result inflation could temporarily rise above levels consistent with the Committee's dual objectives of maximum employment and stable prices. Most participants, however, expected that inflation would remain subdued for some time...The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
Interesting stuff, no? It looks like the Fed is cautiously optimistic. Surprisingly, inflation doesn't seem to be a major concern.
Bernanke's Fed seems more transparent than Greenspan's Fed. I don't remember seeing as much information on the Fed's website several years ago. Anyway, here are some interesting excerpts from the Fed's most recent minutes:
Consumer price inflation was fairly quiescent in recent months, although the upturn in energy prices appeared likely to boost headline inflation in June.
Real personal consumption expenditures rose somewhat in the first quarter after falling in the second half of 2008, and available data suggested that spending was holding reasonably steady in the second quarter.
The fundamental determinants of consumer demand appeared to have improved a bit: Despite the ongoing decline in employment, real disposable personal income rose in the first quarter and posted another sizable gain in April as various provisions of the American Recovery and Reinvestment Act of 2009 boosted transfer payments and reduced personal taxes. In addition, equity prices recorded substantial gains in April and May, reversing a small portion of the prior wealth declines. Measures of consumer sentiment, while remaining at levels typically seen during recessions, improved markedly from the historical lows recorded around the turn of the year.
The steep decline in the demand for new single-family houses seemed to have abated....The apparent stabilization in housing demand was likely due, in part, to the improvement in housing affordability that resulted from low mortgage rates and declining house prices.
Although recent increases in oil and other commodity prices were likely to raise headline inflation over the near term, most participants expected core inflation to remain subdued for some time...A few participants were concerned that inflation expectations could continue to rise, especially in light of the Federal Reserve's greatly expanded balance sheet and the associated large volume of reserves in the banking system, and that as a result inflation could temporarily rise above levels consistent with the Committee's dual objectives of maximum employment and stable prices. Most participants, however, expected that inflation would remain subdued for some time...The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
Interesting stuff, no? It looks like the Fed is cautiously optimistic. Surprisingly, inflation doesn't seem to be a major concern.
Tuesday, July 21, 2009
China and the U.S. Dollar
From the Wilson Quarterly (Summer 2009):
You want to know why China won't dump the dollar? It has almost no choice, unless a new worldwide currency is created. Robert Aliber, a University of Chicago professor, explains how America's rising debt has limited both China and America:
By 1980, [America's] net foreign assets (assets minus liabilities) were larger than those of all other creditor countries combined. But the next 20 years brought a reversal of unprecedented proportions. By 2000, America's net foreign liabilities had become larger than those of all other debtor countries combined, and its liabilities were still growing rapidly as foreign savings surged into Treasury bills and other dollar-denominated securities. The shift was amazing rapid. (pps. 56-57)
[Even so,] Beijing is not likely to let market forces determine the value of its currency. And if it were to begin buying many more yen or euros instead of dollars...politicians from Tokyo to Paris would go ballistic. They would accuse the Chinese of following a classic "beggar-thy-neighbor" policy, keeping the value of the yuan artificially low and thus increasing China's exports to their countries. So China's leaders will continue to buy dollars, even as they complain loudly that the United States' trade and fiscal deficits are too large. (pp. 58)
Meanwhile, from 1981 to the present, the Chinese population's savings rose from 20% of China's GDP to more than 50%. (See WQ, pp. 60) Basically, the Chinese started saving more money and had to put the money somewhere. Interest rates were fairly high from 1981 to 2000 in the United States, so America was a natural destination for deposits. How much are the Chinese saving? By some accounts, up to 2.5 trillion dollars per year.
What does it all mean? Probably three things: one, the United States must manufacture more products foreigners need, desire, and can afford; two, the United States may subsidize some types of manufacturing through tax credits to counteract China's currency protectionism; and three, at least for the foreseeable future, the American dollar will remain the world's "least worst" currency, but may still have to increase interest rates sometime this year to mollify investors.
Contrary to public belief, increasing interest rates isn't all bad. Higher interest rates encourage more Americans to save and minimize the risk of inflation; therefore, higher interest rates have positive benefits. I am very upset that my T. Rowe Price money market fund (PRRXX) is giving me near 0% interest; however, I am unsure whether to transfer the money into a Ginnie Mae fund. If the Federal Reserve raises interest rates, the value of the Ginnie Mae fund's shares should decline, so waiting until mid-2010 to invest may be a more prudent path. Absent some clear signal from the Federal Reserve regarding its future interest rate decisions, I bet many Americans will remain on the sidelines, upset but unwilling to make any major moves.
Update on April 30, 2011: on the other hand, consider this question from Caroline Baum, Bloomberg: "A dollar today buys only 45 cents worth of the goods and services it bought in the early 1980s, according to the Bureau of Labor Statistics. Can you explain why, in a time when prices are supposedly stable, the dollar has lost half its purchasing power?"
You want to know why China won't dump the dollar? It has almost no choice, unless a new worldwide currency is created. Robert Aliber, a University of Chicago professor, explains how America's rising debt has limited both China and America:
By 1980, [America's] net foreign assets (assets minus liabilities) were larger than those of all other creditor countries combined. But the next 20 years brought a reversal of unprecedented proportions. By 2000, America's net foreign liabilities had become larger than those of all other debtor countries combined, and its liabilities were still growing rapidly as foreign savings surged into Treasury bills and other dollar-denominated securities. The shift was amazing rapid. (pps. 56-57)
[Even so,] Beijing is not likely to let market forces determine the value of its currency. And if it were to begin buying many more yen or euros instead of dollars...politicians from Tokyo to Paris would go ballistic. They would accuse the Chinese of following a classic "beggar-thy-neighbor" policy, keeping the value of the yuan artificially low and thus increasing China's exports to their countries. So China's leaders will continue to buy dollars, even as they complain loudly that the United States' trade and fiscal deficits are too large. (pp. 58)
Meanwhile, from 1981 to the present, the Chinese population's savings rose from 20% of China's GDP to more than 50%. (See WQ, pp. 60) Basically, the Chinese started saving more money and had to put the money somewhere. Interest rates were fairly high from 1981 to 2000 in the United States, so America was a natural destination for deposits. How much are the Chinese saving? By some accounts, up to 2.5 trillion dollars per year.
What does it all mean? Probably three things: one, the United States must manufacture more products foreigners need, desire, and can afford; two, the United States may subsidize some types of manufacturing through tax credits to counteract China's currency protectionism; and three, at least for the foreseeable future, the American dollar will remain the world's "least worst" currency, but may still have to increase interest rates sometime this year to mollify investors.
Contrary to public belief, increasing interest rates isn't all bad. Higher interest rates encourage more Americans to save and minimize the risk of inflation; therefore, higher interest rates have positive benefits. I am very upset that my T. Rowe Price money market fund (PRRXX) is giving me near 0% interest; however, I am unsure whether to transfer the money into a Ginnie Mae fund. If the Federal Reserve raises interest rates, the value of the Ginnie Mae fund's shares should decline, so waiting until mid-2010 to invest may be a more prudent path. Absent some clear signal from the Federal Reserve regarding its future interest rate decisions, I bet many Americans will remain on the sidelines, upset but unwilling to make any major moves.
Update on April 30, 2011: on the other hand, consider this question from Caroline Baum, Bloomberg: "A dollar today buys only 45 cents worth of the goods and services it bought in the early 1980s, according to the Bureau of Labor Statistics. Can you explain why, in a time when prices are supposedly stable, the dollar has lost half its purchasing power?"
Monday, July 20, 2009
MPAA Understood Torture Better than the DOJ?
I recently saw Rescue Dawn, a film about Dieter Dengler, a German-American Navy pilot. The film is rated PG-13, for intense violence and torture. I was surprised to see the the word "torture" instead of some euphemism like "enhanced interrogation," but I was thankful someone was still calling a spade a spade.
What kind of "torture" does Dieter experience in the film? Being dragged by an ox; being hung upside down with an ants' hive placed next to his face; and being subjected to simulated drowning. It's not waterboarding per se, but it comes so close, the difference is minimal.
Basically, in 2006, Bush's DOJ team and the MPAA differed on whether simulated drowning constituted "torture." It's a sad day when the MPAA's common sense trumps a President's. Shame on Bush II and his administration. As far as 1984-esque terms go, "enhanced interrogation techniques" is right up there with "collateral damage."
What kind of "torture" does Dieter experience in the film? Being dragged by an ox; being hung upside down with an ants' hive placed next to his face; and being subjected to simulated drowning. It's not waterboarding per se, but it comes so close, the difference is minimal.
Basically, in 2006, Bush's DOJ team and the MPAA differed on whether simulated drowning constituted "torture." It's a sad day when the MPAA's common sense trumps a President's. Shame on Bush II and his administration. As far as 1984-esque terms go, "enhanced interrogation techniques" is right up there with "collateral damage."
The Bond King: Americans Have Lost $15 trillion
From PIMCO's "Bond King," Bill Gross:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Investment+Outlook+July+2009+Gross+Appetit.htm
The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007. Global estimates are less reliable, but certainly in multiples of that figure. And when potential spenders feel less rich by that much, the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3½%. There’s no magic in that number, and no model to back it up, just a lot of commonsense that says this is how people and economic societies behave when stressed and stretched to a near breaking point.
15 trillion dollars is a heart-wrenching number. Even though I don't necessarily disagree with Mr. Gross, if interest rates stay at record lows, will Americans really save more money? Don't we need higher interest rates before saving looks more attractive over the long term? After all, a 1% interest rate isn't going to make anyone run to the bank.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Investment+Outlook+July+2009+Gross+Appetit.htm
The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007. Global estimates are less reliable, but certainly in multiples of that figure. And when potential spenders feel less rich by that much, the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3½%. There’s no magic in that number, and no model to back it up, just a lot of commonsense that says this is how people and economic societies behave when stressed and stretched to a near breaking point.
15 trillion dollars is a heart-wrenching number. Even though I don't necessarily disagree with Mr. Gross, if interest rates stay at record lows, will Americans really save more money? Don't we need higher interest rates before saving looks more attractive over the long term? After all, a 1% interest rate isn't going to make anyone run to the bank.
Sunday, July 19, 2009
Sacha Baron Cohen is Part-Iranian
Borat/Bruno/Cohen is part-Iranian!
http://www.guardian.co.uk/uk/2006/sep/29/film.media
Sacha's mother is Israeli-Iranian (of Persian ethnic ancestry, born in Israel), and his father is Welsh. I always thought Sacha Baron Cohen looked Iranian, but I hadn't checked his background until now.
Anyway, I haven't seen the Bruno movie, and I probably won't (I've heard it's really tasteless humor). I miss Ali G, though. I loved his interview with Steve Nash, where Ali G. claimed Canadians don't speak English and instead speak a strange language called "Canada." See clip above, or just do a search for, "I can't understand you, you're speaking in Canada."
Thomas Jefferson's First Inaugural Speech
I cannot believe I didn't read this speech in high school, college, or law school. For God's sake, I took three college-level American history classes!
http://www.princeton.edu/~tjpapers/inaugural/indraft.html
Thomas Jefferson's first inaugural speech (revised to modernize language):
The American citizen knows where his station should be. The law is his sovereign. We are but the servants of the law. In attempting to be more, we become nothing. Sometimes it is said that man cannot be trusted with the government of himself. Can he then be trusted with the government of others? Or have we found angels in the form of kings to govern him? Let history answer this question...
[We shall have] a wise and frugal government which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry or improvement, and shall not take from the mouth of labour the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities.
Yup, still one of my favorite Presidents.
http://www.princeton.edu/~tjpapers/inaugural/indraft.html
Thomas Jefferson's first inaugural speech (revised to modernize language):
The American citizen knows where his station should be. The law is his sovereign. We are but the servants of the law. In attempting to be more, we become nothing. Sometimes it is said that man cannot be trusted with the government of himself. Can he then be trusted with the government of others? Or have we found angels in the form of kings to govern him? Let history answer this question...
[We shall have] a wise and frugal government which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry or improvement, and shall not take from the mouth of labour the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities.
Yup, still one of my favorite Presidents.
Saturday, July 18, 2009
Great Debate on Race and Affirmative Action
Visit msnbc.com for Breaking News, World News, and News about the Economy
John Yoo Defends Bush Administration
Professor John Yoo recently wrote an article (WSJ, July 16, 2009) defending President Bush's warrantless wiretapping program. Mr. Yoo's reasoning is sound only if Americans desire a world where the Constitution is selectively applied using ethnic or religious criteria.
Mr. Yoo's arguments have merit. A warrant requests permission to spy on a specific person, telephone number, or email account. If you don't know who the terrorists are or what email/telephone accounts they use because your foreign intelligence services are incompetent, how do you ask a court for a warrant? The only option--at least initially--is to start spying on everyone to narrow the list of likely suspects. Consequently, any discussion about warrantless wiretapping must begin by accepting Mr. Yoo's general premises: getting a warrant is cumbersome, and it prevents law enforcement agencies from identifying terrorists as quickly as possible.
There is another problem with Mr. Yoo's argument. He states that in wartime, the President may bypass Constitutional safeguards to protect the American people because war requires quick action; however, post-9-11, the United States declared war on "terrorism," not a specific country. Such a war could last another hundred years or more. Without any oversight, who decides when the war is over and how to erase personal information gathered during the surveillance? Does the executive branch get to keep all the personal information it has gathered for the next wartime emergency? Without continuing oversight, who decides what information to keep, how to protect that information, and what information should be erased? What if Congress decides a war is over, but the President disagrees? If the executive branch believes an attack is imminent but does not want to share information with Congress, may it spy on Americans without a warrant? Most important, without a warrant procedure, who decides when to stop surveillance? After East Germany's experience with the Stasi, you would think that an educated person like Mr. Yoo would realize the need for safeguards.
Mr. Yoo's belief that the executive branch may ignore the 4th Amendment during wartime would be more reasonable if the FISA courts were unduly interfering with the terrorism investigations. In reality, FISA courts have rubber-stamped the government's requests for a warrant. From 1979 to 2006, FISA courts approved all but nine wiretapping applications. (See here for the statistics.)
While Mr. Yoo's basic premise is correct--the 4th Amendment is indeed cumbersome--from a practical and legal standpoint, his interpretation of the Constitution makes us all less safe. What is most interesting about Mr. Yoo is his utter lack of self-awareness. One of the most serious threats to the United States right now is North Korea. Mr. Yoo is ethnically Korean. If North Korea attacks Hawaii, will Mr. Yoo mind if the government spies on him and his family, unmolested by the 4th Amendment? He probably won't. Anyone who interprets the Constitution in such a way that approves of an American version of the Stasi clearly expects to be the one doing the monitoring, not ever the one being monitored. Perhaps Mr. Yoo, with his government connections, is more self-aware than I give him credit for.
Bonus: information from wiretapping isn't necessarily helpful. The following newstory further indicates that loyal citizens and their willingness to communicate with the government are essential elements of any effective counter-terrorism operation. From CNN:
Friday's report found that the intelligence gathered [from Bush's wiretapping program] was only a small part of counterterrorism work, and most intelligence officials interviewed for the report had trouble "citing specific instances where PSP reporting had directly contributed to counterterrorism successes."
Mr. Yoo begins by using the government's incompetence as an excuse to ignore civil liberties. He says that post-9-11, we didn't know much about Al-Qaeda, so the best option was to tap everyone's telephones and computers to learn more. He also alleges that compliance with FISA--which requires a judge to approve a wiretap if the target is an American citizen or permanent resident--would have been cumbersome and impractical post-9-11.
Mr. Yoo's arguments have merit. A warrant requests permission to spy on a specific person, telephone number, or email account. If you don't know who the terrorists are or what email/telephone accounts they use because your foreign intelligence services are incompetent, how do you ask a court for a warrant? The only option--at least initially--is to start spying on everyone to narrow the list of likely suspects. Consequently, any discussion about warrantless wiretapping must begin by accepting Mr. Yoo's general premises: getting a warrant is cumbersome, and it prevents law enforcement agencies from identifying terrorists as quickly as possible.
Mr. Yoo damages his credibility, however, by not disclosing other relevant facts: one, existing law does not require a FISA court order to spy on non-U.S. citizens or non-lawfully admitted permanent resident aliens; two, most of the 9-11 terrorists were not American citizens or permanent residents; and three, his argument requires Americans to ignore the 4th Amendment, which protects U.S. persons from unreasonable and unlimited government surveillance.
FISA requires a warrant only when American citizens or permanent residents are involved. The CIA and FBI may intercept communications between two non-U.S. persons without a FISA warrant, as long as they follow certain procedures. While it is true that American residents may engage in terrorism, most of the 9-11 hijackers were not U.S. citizens or permanent residents. As a result, the Constitution's so-called "dysfunctional" warrant procedure had little to do with 9-11.
In fact, the CIA's and FBI's failure to prevent 9-11 was clearly not affected by any Constitutional limits. Think about it: even having access to every email and spoken word doesn't mean anything if our security agencies lack the linguistic and cultural competence to determine what is "noise" and what is relevant. It should also be obvious that any competent terrorist will use code words, so even intercepting every communication with the words "Muslim," "airplane," or "terrorist" won't help anyone find potential hijackers. Thus, Mr. Yoo's intent on creating reasons to ignore the Constitution is misplaced, because the real issue has always been how to properly gather and analyze relevant information.
In fact, the CIA's and FBI's failure to prevent 9-11 was clearly not affected by any Constitutional limits. Think about it: even having access to every email and spoken word doesn't mean anything if our security agencies lack the linguistic and cultural competence to determine what is "noise" and what is relevant. It should also be obvious that any competent terrorist will use code words, so even intercepting every communication with the words "Muslim," "airplane," or "terrorist" won't help anyone find potential hijackers. Thus, Mr. Yoo's intent on creating reasons to ignore the Constitution is misplaced, because the real issue has always been how to properly gather and analyze relevant information.
Most troubling, however, is Mr. Yoo's failure to realize the real effect of warrantless spying--namely, that it gives carte-blanche to law enforcement to single out Americans based on nothing more than their ethnicity or religion. How much do you want to bet that singling out American citizens because of their religion or ethnicity will make them less loyal to America and law enforcement in particular? Why would people belonging to any targeted religion or ethnicity report suspicious persons or activity to law enforcement agencies if they think they will be treated differently than other Americans? Once you follow Mr. Yoo's belief that warrants are not required during wartime, you realize that what he's really saying is that every time there is a war, certain groups of Americans--whether Japanese, German, or Muslim--may be disproportionately targeted based on their religion or ethnic background. Under Mr. Yoo's logic, if Muslim terrorists attack Americans, then the quickest way to find more information is to target all communications involving Muslims or Islamic-related words. In reality, however, allowing the executive branch to selectively apply the 4th Amendment makes it harder to protect Americans.
Allow me to explain. Let's assume, as a purely theoretical exercise, that the primary threat of terrorism comes from Muslims. If we agree with Mr. Yoo's statement--that the lack of information about terrorists post-9-11 required suspending the Constitution--then it follows that we need more information about Muslims to protect America. What are the best sources of information about Muslims? People who go to mosques; people who have Muslim friends; people who eat in halal restaurants; and people who understand basic Muslim culture, allowing them to have comfortable interactions with Muslims. What groups of people fit into all of the aforementioned categories? Primarily Muslims. In general, a Muslim is more likely to have information about other Muslims, some of whom may be terrorists, than a non-Muslim. Overall, the best source of information about Muslims probably comes from Muslims themselves.
Once we accept that a) Muslims represent the greatest threat of terrorism (again, this is a purely theoretical exercise); and b) in general, Muslims have the most access to information about Muslims, then it should be follow that we would want to maximize the number of Muslims who are more loyal to the United States. As such, treating Muslims differently than other groups is a terrible idea. When a Muslim reads a webpage about how violent Islam is, do you think he or she becomes more or less likely to report potential terrorist activity to the government? When a Muslim reads that evangelical Christians believe that Islam is the natural enemy of Christianity, does that perception make it more or less likely that he will share information with other Christians? When a Muslim reads yet another anti-Islamic Daniel Pipes article, do you think he suddenly feels compelled to give up his religion and dedicate his life to finding Muslim terrorists? Allow me one last example: when a Muslim reads that his government's top legal advisor believes that the executive branch may spy on Americans without any checks and balances and realizes it means that his communications will be more heavily scrutinized than other Americans, does that make him more loyal or less loyal to America?
Each and every time a Muslim reads an ignorant statement about his religion or about the government spying on a mosque, he trusts his government less. This is a natural reaction. Anyone who believes his fellow citizens think he is not fully American because of his religion or ethnicity will probably isolate himself or associate only with people with similar backgrounds. This logical reaction--to withdraw and self-segregate--leads to less interaction, less openness, and less trust between Americans. We can prove that singling out people based on their religion or ethnic background leads to distrust and a lack of national allegiance by recognizing France's inability to assimilate its Muslim population. The French are notorious for believing that Muslims are not truly French and for attempting to restrict the exercise of Islamic modesty. As a result, in France, discrimination against Muslims is commonplace, which has led to riots. In America, law enforcement's disparate treatment of African-Americans caused riots, including the Watts Riots. (Note: despite America's participation in Abu Ghraib, Guantanamo Bay, and Iraq, America has not experienced any Muslim riots.)
When Mr. Yoo proposes to ignore the Constitution during wartime, he's saying it is acceptable to antagonize certain groups and make them less loyal to America during a time when we need all Americans to be more loyal. In order to maximize our chances of gaining viable intelligence regarding suspicious activity, it is vital that all Americans, regardless of their religion or ethnic background, feel loyal to their country and their government. Thus, in the real world, Mr. Yoo's proposed Constitutional interpretation restricts information about potential terrorists by weakening loyalty and increasing distrust of government, making us less safe.
Also, practical consequences aside, if Mr. Yoo is legally correct, why did America's founders specifically include a warrant requirement in the 4th Amendment if they believed the executive branch could freely spy on American citizens during wartime? The founders could have included a wartime exception within the 4th Amendment. They did not.
There is another problem with Mr. Yoo's argument. He states that in wartime, the President may bypass Constitutional safeguards to protect the American people because war requires quick action; however, post-9-11, the United States declared war on "terrorism," not a specific country. Such a war could last another hundred years or more. Without any oversight, who decides when the war is over and how to erase personal information gathered during the surveillance? Does the executive branch get to keep all the personal information it has gathered for the next wartime emergency? Without continuing oversight, who decides what information to keep, how to protect that information, and what information should be erased? What if Congress decides a war is over, but the President disagrees? If the executive branch believes an attack is imminent but does not want to share information with Congress, may it spy on Americans without a warrant? Most important, without a warrant procedure, who decides when to stop surveillance? After East Germany's experience with the Stasi, you would think that an educated person like Mr. Yoo would realize the need for safeguards.
Mr. Yoo's belief that the executive branch may ignore the 4th Amendment during wartime would be more reasonable if the FISA courts were unduly interfering with the terrorism investigations. In reality, FISA courts have rubber-stamped the government's requests for a warrant. From 1979 to 2006, FISA courts approved all but nine wiretapping applications. (See here for the statistics.)
While Mr. Yoo's basic premise is correct--the 4th Amendment is indeed cumbersome--from a practical and legal standpoint, his interpretation of the Constitution makes us all less safe. What is most interesting about Mr. Yoo is his utter lack of self-awareness. One of the most serious threats to the United States right now is North Korea. Mr. Yoo is ethnically Korean. If North Korea attacks Hawaii, will Mr. Yoo mind if the government spies on him and his family, unmolested by the 4th Amendment? He probably won't. Anyone who interprets the Constitution in such a way that approves of an American version of the Stasi clearly expects to be the one doing the monitoring, not ever the one being monitored. Perhaps Mr. Yoo, with his government connections, is more self-aware than I give him credit for.
Bonus: information from wiretapping isn't necessarily helpful. The following newstory further indicates that loyal citizens and their willingness to communicate with the government are essential elements of any effective counter-terrorism operation. From CNN:
Friday's report found that the intelligence gathered [from Bush's wiretapping program] was only a small part of counterterrorism work, and most intelligence officials interviewed for the report had trouble "citing specific instances where PSP reporting had directly contributed to counterterrorism successes."
Friday, July 17, 2009
Elie Wiesel's Moving Remarks (June 2009)
REMARKS BY PRESIDENT OBAMA, GERMAN CHANCELLOR MERKEL, AND ELIE WIESEL AT BUCHENWALD CONCENTRATION CAMP, June 5, 2009, Weimar, Germany
Link
MR. WIESEL: Mr. President, Chancellor Merkel, Bertrand, ladies and gentlemen. As I came here today it was actually a way of coming and visit my father's grave -- but he had no grave. His grave is somewhere in the sky. This has become in those years the largest cemetery of the Jewish people.
Link
MR. WIESEL: Mr. President, Chancellor Merkel, Bertrand, ladies and gentlemen. As I came here today it was actually a way of coming and visit my father's grave -- but he had no grave. His grave is somewhere in the sky. This has become in those years the largest cemetery of the Jewish people.
The day he died was one of the darkest in my life. He became sick, weak, and I was there. I was there when he suffered. I was there when he asked for help, for water. I was there to receive his last words. But I was not there when he called for me, although we were in the same block; he on the upper bed and I on the lower bed. He called my name, and I was too afraid to move. All of us were. And then he died. I was there, but I was not there.
And I thought one day I will come back and speak to him, and tell him of the world that has become mine. I speak to him of times in which memory has become a sacred duty of all people of good will -- in America, where I live, or in Europe or in Germany, where you, Chancellor Merkel, are a leader with great courage and moral aspirations.
What can I tell him that the world has learned? I am not so sure. Mr. President, we have such high hopes for you because you, with your moral vision of history, will be able and compelled to change this world into a better place, where people will stop waging war -- every war is absurd and meaningless; where people will stop hating one another; where people will hate the otherness of the other rather than respect it.
But the world hasn't learned. When I was liberated in 1945, April 11, by the American army, somehow many of us were convinced that at least one lesson will have been learned -- that never again will there be war; that hatred is not an option, that racism is stupid; and the will to conquer other people's minds or territories or aspirations, that will is meaningless.
I was so hopeful. Paradoxically, I was so hopeful then. Many of us were, although we had the right to give up on humanity, to give up on culture, to give up on education, to give up on the possibility of living one's life with dignity in a world that has no place for dignity.
We rejected that possibility and we said, no, we must continue believing in a future, because the world has learned. But again, the world hasn't. Had the world learned, there would have been no Cambodia and no Rwanda and no Darfur and no Bosnia.
Will the world ever learn? I think that is why Buchenwald is so important -- as important, of course, but differently as Auschwitz. It's important because here the large -- the big camp was a kind of international community. People came there from all horizons -- political, economic, culture. The first globalization essay, experiment, were made in Buchenwald. And all that was meant to diminish the humanity of human beings.
You spoke of humanity, Mr. President. Though unto us, in those times, it was human to be inhuman. And now the world has learned, I hope. And of course this hope includes so many of what now would be your vision for the future, Mr. President. A sense of security for Israel, a sense of security for its neighbors, to bring peace in that place. The time must come. It's enough -- enough to go to cemeteries, enough to weep for oceans. It's enough. There must come a moment -- a moment of bringing people together.
And therefore we say anyone who comes here should go back with that resolution. Memory must bring people together rather than set them apart. Memories here not to sow anger in our hearts, but on the contrary, a sense of solidarity that all those who need us. What else can we do except invoke that memory so that people everywhere who say the 21st century is a century of new beginnings, filled with promise and infinite hope, and at times profound gratitude to all those who believe in our task, which is to improve the human condition.
A great man, Camus, wrote at the end of his marvelous novel, The Plague: "After all," he said, "after the tragedy, never the rest...there is more in the human being to celebrate than to denigrate." Even that can be found as truth -- painful as it is -- in Buchenwald.
Thank you, Mr. President, for allowing me to come back to my father's grave, which is still in my heart.
Disney's Up
If you liked Disney's movie, "Up," I've got a treat for you. Lou Romano, also known as the voice of Remy in Ratatouille, has revealed color scripts from the film. Scroll down his blog to find them:
http://louromano.blogspot.com/
The best part of "Up" was the first ten minutes, which are unforgettable.
http://louromano.blogspot.com/
The best part of "Up" was the first ten minutes, which are unforgettable.
Thursday, July 16, 2009
Book Review: Barry Ritholtz's Bailout Nation
I'm a huge fan of Barry Ritholtz. His blog, The Big Picture, accurately predicted the most recent stock market collapse; as a result, Mr. Ritholtz gained millions of fans. Not being content with blogging and television appearances, Mr. Ritholtz published a book, Bailout Nation. His thesis is that excessive financial leverage, lax regulation, and government incompetence and cronyism caused our current economic crisis.
Bailout Nation is geared towards the general public, i.e., non-experts. If you have been waiting for an easy-to-read, thorough explanation about how we reached our current economic crisis, Bailout Nation is for you.
The flip side of making Bailout Nation so accessible is that long-time market followers will not be surprised by most of book's substantive content. In addition, I was disappointed that Mr. Ritholtz used a more formal writing style for his book. On his blog, Mr. Ritholtz brings an irreverent tone that makes him a delight to read. In fact, I've called Mr. Ritholtz the "Anthony Bourdain of Wall Street" because of his intelligent, devil-may-care style. (Jim Cramer would be Rachael Ray, of course.) Fans of The Big Picture, where curse words are used on a semi-regular basis, will be disappointed to know that I found only one curse word (on page 165).
Perhaps Mr. Ritholtz sanitized his writing style to reach a broader audience. (Either that, or Aaron Task, his editor, had a heavy hand in the book.) Whoever decided to sanitize Mr. Ritholtz made a mistake. As anyone who's read his blog posts can tell you, one reason people love Mr. Ritholtz is because he's the opposite of uptight. In fact, if there was ever such a thing as a "blue-collar" banker, Mr. Ritholtz would be it. There are too few people on Wall Street who have inside knowledge of the business and who are willing to take on the big boys (like Goldman Sachs) with panache. When you are one of the very few people on Wall Street who told people to get out of the market before it collapsed, your record speaks for itself--you don't need a dry, Utah-esque writing style to gain anyone's credibility. Even though readers won't see much of Mr. Ritholtz's normally informal style, don't let it stop you from reading the book--it's not quintessential Barry, but it's still pretty darn good.
Mr. Ritholtz starts out by telling us the "modern era of finance is now defined by the bailout...Perhaps what the government should be doing is acting to prevent systemic risk before it threatens to destabilize the world's economy, rather than merely cleaning it up and bailing out out afterward." (page 5) He then distinguishes between corporate welfare--bailing out individual companies--and broad-based stimulus plans, noting that the "public works programs of the Depression era were designed to impact the entire economy," not a few politically-connected groups. (page 11)
Although Mr. Ritholtz singles out the government's 1971 Lockheed Martin bailout, which he believes paved the way for other taxpayer-backed boondoggles, he places much of the blame on the banking sector and the Federal Reserve. His scorn for former Federal Reserve chairman Alan Greenspan is palpable. Mr. Ritholtz believes Greenspan actively aided and abetted the financial and housing bubbles when his job was to prevent bubbles, not make them. (As Charlie Munger once said, "Greenspan overdosed on Ayn Rand.") Given the ripple effects of the banking sector's collapse on the general economy, Thomas Jefferson's quote--that "Banking establishments are more dangerous than standing armies"--seems all too prescient today. (page 15)
Mr. Ritholtz then surveys the financial damage, and it is heartbreaking. "[A]s of March 2009, the S&P 500 was back at levels below where it was [in] 1996...If you bought the broad index [in 1996] some 13 years later you would have nothing to show for it." (page 66) The market's reversion to 1996 levels makes sense, because so much perceived wealth creation was based on false housing valuations. Most of us know that consumers used their homes as piggy banks, but I was unaware of the extent to which this occurred. Mr. Ritholtz says that "the impact of mortgage equity withdrawal [MEW] has been nothing short of breathtaking: MEW was responsible for more than 75 percent of GDP growth from 2003 to 2006." (page 96)
It doesn't get better, unfortunately. Mr. Ritholtz slams us with another shocking statistic: "From 2001 to 2008, the [American] greenback lost nearly 40 percent of its purchasing power." (page 106)
One reason Mr. Ritholtz may have seen the crisis coming was because of the unreasonable yield spread between U.S. Treasuries and mortgage-backed CDOs. He points out the absurdity in having mortgage-backed CDOs rated the same as U.S. Treasuries but paying a much higher interest rate: "These CDOs rewrote the laws of economics. They promised to be as safe as U.S. Treasuries, but paid out a significantly higher yield. In other words, for the same exact risk, the reward was much greater. This should have been recognized as an impossibility...Someone would either be winning a Nobel Prize in economics--or going to jail." (page 113)
Mid-way through the book, Mr. Ritholtz mentions the "net capital rule." "From 1975 to 2004, this was the primary tool used to prevent investment banks from taking on too much leverage. The rule limited their ratio of debt to net capital to 12 to 1; in other words, $12 was the maximum they could borrow for every $1 in capital." (page 143) After 2004, however, the net capital rule did not apply to major investment banks.
After reading about the SEC's relaxation of the net capital rule, I made up my mind--the economic collapse occurred because the SEC allowed a small number of investment banks to take on an unholy amount of leverage. How much more leverage? Well, in 2004, the SEC exempted investment firms with a market capitalization of over $5 billion from the net capital rule. Thus, Goldman, Lehman, Bear Stearns, and Morgan Stanley were no longer governed by the 12 to 1 limit. These investment firms promptly increased leverage dramatically, sometimes up to a 40 to 1 ratio. Welcome to Wall Street on steroids. Initially, the growth looks good to you and everyone else, but the shrinkage is inevitable. Or, as Mr. Ritholtz writes,
Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules that had existed for decades, limiting broker-dealers' debt-to-net-capital ratio to 12-to-1. You couldn't make this stuff up if you tried. (page 144)
The paragraph above sums up the book for me, but Mr. Ritholtz isn't done. He talks about the fact that "We in the United States have lived beyond our means for many years. " (page 210) As a result, we are dependent on the kindness of foreigners willing to fund our spendthrift ways, and once "you begin to depend on the kindness of strangers, it's best not to make those strangers too angry." (Id.) So, "Why bail out overseas counterparties and debt holders? One gets the sense Uncle Sam had little choice in the matter." (Id.) I echoed Mr. Ritholtz's conclusion here in September 2008:
The money belongs mostly to the Japanese and Chinese, who have lent us trillions of dollars by buying up U.S. debt, bonds, and preferred shares. If we want them to continue financing our lifestyle—-which they will do, because few other places contain citizens so willing to spend—-they set the terms of the bailouts, not us...In large part, international investors are willing to forgive our transgressions because of the bailouts.
Or, as the joke goes, "I just took out a dollar bill to buy coffee and the bill had the inscription, 'Made in China.' Is this going to be a problem?" It's funny, in a Weimar Republic sort of way.
Lest you think Mr. Ritholtz favors bailouts, don't worry--he later writes, "We cannot have privatized profits and socialized risks." (page 227) I wholeheartedly concur. If you're interested in reading about the seeds of the current economic crisis, you'll enjoy Barry Ritholtz's book.
English Majors Unite: on page 199, "tax deferred" is spelled "tax defered."
Note: page numbers refer to the 2009 hardcover edition, published by John Wiley & Sons, Inc.
Disclosures: the publisher provided me with a complimentary copy of Bailout Nation. I do not currently have a financial stake with the author or the publishing company.
Bailout Nation is geared towards the general public, i.e., non-experts. If you have been waiting for an easy-to-read, thorough explanation about how we reached our current economic crisis, Bailout Nation is for you.
The flip side of making Bailout Nation so accessible is that long-time market followers will not be surprised by most of book's substantive content. In addition, I was disappointed that Mr. Ritholtz used a more formal writing style for his book. On his blog, Mr. Ritholtz brings an irreverent tone that makes him a delight to read. In fact, I've called Mr. Ritholtz the "Anthony Bourdain of Wall Street" because of his intelligent, devil-may-care style. (Jim Cramer would be Rachael Ray, of course.) Fans of The Big Picture, where curse words are used on a semi-regular basis, will be disappointed to know that I found only one curse word (on page 165).
Perhaps Mr. Ritholtz sanitized his writing style to reach a broader audience. (Either that, or Aaron Task, his editor, had a heavy hand in the book.) Whoever decided to sanitize Mr. Ritholtz made a mistake. As anyone who's read his blog posts can tell you, one reason people love Mr. Ritholtz is because he's the opposite of uptight. In fact, if there was ever such a thing as a "blue-collar" banker, Mr. Ritholtz would be it. There are too few people on Wall Street who have inside knowledge of the business and who are willing to take on the big boys (like Goldman Sachs) with panache. When you are one of the very few people on Wall Street who told people to get out of the market before it collapsed, your record speaks for itself--you don't need a dry, Utah-esque writing style to gain anyone's credibility. Even though readers won't see much of Mr. Ritholtz's normally informal style, don't let it stop you from reading the book--it's not quintessential Barry, but it's still pretty darn good.
Mr. Ritholtz starts out by telling us the "modern era of finance is now defined by the bailout...Perhaps what the government should be doing is acting to prevent systemic risk before it threatens to destabilize the world's economy, rather than merely cleaning it up and bailing out out afterward." (page 5) He then distinguishes between corporate welfare--bailing out individual companies--and broad-based stimulus plans, noting that the "public works programs of the Depression era were designed to impact the entire economy," not a few politically-connected groups. (page 11)
Although Mr. Ritholtz singles out the government's 1971 Lockheed Martin bailout, which he believes paved the way for other taxpayer-backed boondoggles, he places much of the blame on the banking sector and the Federal Reserve. His scorn for former Federal Reserve chairman Alan Greenspan is palpable. Mr. Ritholtz believes Greenspan actively aided and abetted the financial and housing bubbles when his job was to prevent bubbles, not make them. (As Charlie Munger once said, "Greenspan overdosed on Ayn Rand.") Given the ripple effects of the banking sector's collapse on the general economy, Thomas Jefferson's quote--that "Banking establishments are more dangerous than standing armies"--seems all too prescient today. (page 15)
Mr. Ritholtz then surveys the financial damage, and it is heartbreaking. "[A]s of March 2009, the S&P 500 was back at levels below where it was [in] 1996...If you bought the broad index [in 1996] some 13 years later you would have nothing to show for it." (page 66) The market's reversion to 1996 levels makes sense, because so much perceived wealth creation was based on false housing valuations. Most of us know that consumers used their homes as piggy banks, but I was unaware of the extent to which this occurred. Mr. Ritholtz says that "the impact of mortgage equity withdrawal [MEW] has been nothing short of breathtaking: MEW was responsible for more than 75 percent of GDP growth from 2003 to 2006." (page 96)
It doesn't get better, unfortunately. Mr. Ritholtz slams us with another shocking statistic: "From 2001 to 2008, the [American] greenback lost nearly 40 percent of its purchasing power." (page 106)
One reason Mr. Ritholtz may have seen the crisis coming was because of the unreasonable yield spread between U.S. Treasuries and mortgage-backed CDOs. He points out the absurdity in having mortgage-backed CDOs rated the same as U.S. Treasuries but paying a much higher interest rate: "These CDOs rewrote the laws of economics. They promised to be as safe as U.S. Treasuries, but paid out a significantly higher yield. In other words, for the same exact risk, the reward was much greater. This should have been recognized as an impossibility...Someone would either be winning a Nobel Prize in economics--or going to jail." (page 113)
Mid-way through the book, Mr. Ritholtz mentions the "net capital rule." "From 1975 to 2004, this was the primary tool used to prevent investment banks from taking on too much leverage. The rule limited their ratio of debt to net capital to 12 to 1; in other words, $12 was the maximum they could borrow for every $1 in capital." (page 143) After 2004, however, the net capital rule did not apply to major investment banks.
After reading about the SEC's relaxation of the net capital rule, I made up my mind--the economic collapse occurred because the SEC allowed a small number of investment banks to take on an unholy amount of leverage. How much more leverage? Well, in 2004, the SEC exempted investment firms with a market capitalization of over $5 billion from the net capital rule. Thus, Goldman, Lehman, Bear Stearns, and Morgan Stanley were no longer governed by the 12 to 1 limit. These investment firms promptly increased leverage dramatically, sometimes up to a 40 to 1 ratio. Welcome to Wall Street on steroids. Initially, the growth looks good to you and everyone else, but the shrinkage is inevitable. Or, as Mr. Ritholtz writes,
Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules that had existed for decades, limiting broker-dealers' debt-to-net-capital ratio to 12-to-1. You couldn't make this stuff up if you tried. (page 144)
The paragraph above sums up the book for me, but Mr. Ritholtz isn't done. He talks about the fact that "We in the United States have lived beyond our means for many years. " (page 210) As a result, we are dependent on the kindness of foreigners willing to fund our spendthrift ways, and once "you begin to depend on the kindness of strangers, it's best not to make those strangers too angry." (Id.) So, "Why bail out overseas counterparties and debt holders? One gets the sense Uncle Sam had little choice in the matter." (Id.) I echoed Mr. Ritholtz's conclusion here in September 2008:
The money belongs mostly to the Japanese and Chinese, who have lent us trillions of dollars by buying up U.S. debt, bonds, and preferred shares. If we want them to continue financing our lifestyle—-which they will do, because few other places contain citizens so willing to spend—-they set the terms of the bailouts, not us...In large part, international investors are willing to forgive our transgressions because of the bailouts.
Or, as the joke goes, "I just took out a dollar bill to buy coffee and the bill had the inscription, 'Made in China.' Is this going to be a problem?" It's funny, in a Weimar Republic sort of way.
Lest you think Mr. Ritholtz favors bailouts, don't worry--he later writes, "We cannot have privatized profits and socialized risks." (page 227) I wholeheartedly concur. If you're interested in reading about the seeds of the current economic crisis, you'll enjoy Barry Ritholtz's book.
English Majors Unite: on page 199, "tax deferred" is spelled "tax defered."
Note: page numbers refer to the 2009 hardcover edition, published by John Wiley & Sons, Inc.
Disclosures: the publisher provided me with a complimentary copy of Bailout Nation. I do not currently have a financial stake with the author or the publishing company.
Wednesday, July 15, 2009
Glenn Loury
Here is a really interesting 2002 interview with Glenn Loury about race, identity, and economics. One excerpt from the NY Times Magazine profile:
[Professor Glenn] Loury argues that blacks are no longer held back by ''discrimination in contract'' -- discrimination in the job market -- but rather by ''discrimination in contact,'' informal and entirely legal patterns of socializing and networking that tend to exclude blacks and thereby perpetuate racial inequality.
Fascinating stuff. If the link doesn't work, try Professor Loury's homepage.
[Professor Glenn] Loury argues that blacks are no longer held back by ''discrimination in contract'' -- discrimination in the job market -- but rather by ''discrimination in contact,'' informal and entirely legal patterns of socializing and networking that tend to exclude blacks and thereby perpetuate racial inequality.
Fascinating stuff. If the link doesn't work, try Professor Loury's homepage.
Immigrants Founded Many Famous U.S. Companies
Whenever anti-immigrant sentiment arises--almost always during a recession--I wonder how people can forget the jobs and inventions immigrants have given to America:
http://www.smartmoney.com/investing/stocks/10-companies-founded-by-immigrants
If you've ever used eBay, Google, or almost any technology company's products, chances are, you are benefiting from an immigrant's work. Even Steve Jobs is ethnically part-Egyptian.
More on immigration here, where I wrote, "Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself."
Bonus: from Palo Alto's Sutter Hill Ventures, an article titled, "America’s Secret Innovation Weapon: Immigration."
http://www.smartmoney.com/investing/stocks/10-companies-founded-by-immigrants
If you've ever used eBay, Google, or almost any technology company's products, chances are, you are benefiting from an immigrant's work. Even Steve Jobs is ethnically part-Egyptian.
More on immigration here, where I wrote, "Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself."
Bonus: from Palo Alto's Sutter Hill Ventures, an article titled, "America’s Secret Innovation Weapon: Immigration."
Tuesday, July 14, 2009
Mary Elizabeth Lease on Wall Street
From Mary Elizabeth Lease:
Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street...Our laws are the output of a system which clothes rascals in robes and honesty in rags.
The full speech, in all its American glory, is below:
This is a nation of inconsistencies. The Puritans fleeing from oppression became oppressors. We fought England for our liberty and put chains on four million of blacks. We wiped out slavery and our tariff laws and national banks began a system of white wage slavery worse than the first. Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master. The West and South are bound and prostrate before the manufacturing East. Money rules, and our Vice-President is a London banker. Our laws are the output of a system which clothes rascals in robes and honesty in rags. The [political] parties lie to us and the political speakers mislead us. We were told two years ago to go to work and raise a big crop, that was all we needed. We went to work and plowed and planted; the rains fell, the sun shone, nature smiled, and we raised the big crop that they told us to; and what came of it? Eight-cent corn, ten-cent oats, two-cent beef and no price at all for butter and eggs-that's what came of it. The politicians said we suffered from overproduction. Overproduction, when 10,000 little children, so statistics tell us, starve to death every year in the United States, and over 100,000 shopgirls in New York are forced to sell their virtue for the bread their niggardly wages deny them... We want money, land and transportation. We want the abolition of the National Banks, and we want the power to make loans direct from the government. We want the foreclosure system wiped out... We will stand by our homes and stay by our fireside by force if necessary, and we will not pay our debts to the loan-shark companies until the government pays its debts to us. The people are at bay; let the bloodhounds of money who dogged us thus far beware.
Did you catch the part about the national banks? This speech was delivered around the year 1890. The more things change, the more they stay the same.
Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street...Our laws are the output of a system which clothes rascals in robes and honesty in rags.
The full speech, in all its American glory, is below:
This is a nation of inconsistencies. The Puritans fleeing from oppression became oppressors. We fought England for our liberty and put chains on four million of blacks. We wiped out slavery and our tariff laws and national banks began a system of white wage slavery worse than the first. Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master. The West and South are bound and prostrate before the manufacturing East. Money rules, and our Vice-President is a London banker. Our laws are the output of a system which clothes rascals in robes and honesty in rags. The [political] parties lie to us and the political speakers mislead us. We were told two years ago to go to work and raise a big crop, that was all we needed. We went to work and plowed and planted; the rains fell, the sun shone, nature smiled, and we raised the big crop that they told us to; and what came of it? Eight-cent corn, ten-cent oats, two-cent beef and no price at all for butter and eggs-that's what came of it. The politicians said we suffered from overproduction. Overproduction, when 10,000 little children, so statistics tell us, starve to death every year in the United States, and over 100,000 shopgirls in New York are forced to sell their virtue for the bread their niggardly wages deny them... We want money, land and transportation. We want the abolition of the National Banks, and we want the power to make loans direct from the government. We want the foreclosure system wiped out... We will stand by our homes and stay by our fireside by force if necessary, and we will not pay our debts to the loan-shark companies until the government pays its debts to us. The people are at bay; let the bloodhounds of money who dogged us thus far beware.
Did you catch the part about the national banks? This speech was delivered around the year 1890. The more things change, the more they stay the same.
Monday, July 13, 2009
The FT on IQ
The FT On IQ:
http://www.ft.com/cms/s/2/4add9230-23d5-11de-996a-00144feabdc0.html
The last time the debate flowered in full was in 1994, on the publication of The Bell Curve by the psychologist Richard Herrnstein and the conservative political scientist, Charles Murray. They argued that intelligence test scores were both a good indicator of social success and strongly determined by our genes. The implication, that an unequal society was inevitable and fair, and that a black, inner city “cognitive underclass” was having too many children, made it seem as though eugenics had never gone away. “Mr Murray can protest all he wants,” wrote Bob Herbert, a columnist for The New York Times, “his book is just a genteel way of calling somebody a n*gg*r.”
More on The Bell Curve here.
http://www.ft.com/cms/s/2/4add9230-23d5-11de-996a-00144feabdc0.html
The last time the debate flowered in full was in 1994, on the publication of The Bell Curve by the psychologist Richard Herrnstein and the conservative political scientist, Charles Murray. They argued that intelligence test scores were both a good indicator of social success and strongly determined by our genes. The implication, that an unequal society was inevitable and fair, and that a black, inner city “cognitive underclass” was having too many children, made it seem as though eugenics had never gone away. “Mr Murray can protest all he wants,” wrote Bob Herbert, a columnist for The New York Times, “his book is just a genteel way of calling somebody a n*gg*r.”
More on The Bell Curve here.
Too Soon to Judge Current Stimulus Package
The WSJ's Corey Boles brings some common sense to the table:
According to the report, 90% of the money distributed has come in the form of increased federal education and health-care grants to state governments...[but] most of the spending money from the stimulus plan had yet to go out, and so it was too soon to tell whether it was working.
The author says that $29 billion out of the $787 billion stimulus package has been given to state governments. The WSJ author also writes that of the money that has been spent, almost all of it has gone to state governments, presumably to prevent layoffs and the stoppage of essential services.
Unless I'm missing something, the $29 billion number does not represent the total amount distributed so far. The federal government's own website states that a total of $60.4 billion has been paid out. The government's website is quite interesting, because it shows several non-U.S. states receiving millions of dollars from the Recovery Act. For example, Palau is receiving about $2 million. I don't necessarily mind these smaller outlays--it's good to have friends all over the world--but why did it have to part of the "American Recovery and Reinvestment Act of 2009"?
In any case, although we still have hundreds of billions of dollars to go, many people, including Paul Krugman, are already recommending a second stimulus plan. A second stimulus plan seems premature at this stage. Hundreds of billions of dollars have yet to be distributed. Haven't these second-stimulus people heard the (sarcastic) remark, “A billion here, a billion there, and pretty soon you're talking about real money”? Sarcasm aside, shouldn't we wait a little longer for the current stimulus money to work its way through the system before devising a Plan B?
According to the report, 90% of the money distributed has come in the form of increased federal education and health-care grants to state governments...[but] most of the spending money from the stimulus plan had yet to go out, and so it was too soon to tell whether it was working.
The author says that $29 billion out of the $787 billion stimulus package has been given to state governments. The WSJ author also writes that of the money that has been spent, almost all of it has gone to state governments, presumably to prevent layoffs and the stoppage of essential services.
Unless I'm missing something, the $29 billion number does not represent the total amount distributed so far. The federal government's own website states that a total of $60.4 billion has been paid out. The government's website is quite interesting, because it shows several non-U.S. states receiving millions of dollars from the Recovery Act. For example, Palau is receiving about $2 million. I don't necessarily mind these smaller outlays--it's good to have friends all over the world--but why did it have to part of the "American Recovery and Reinvestment Act of 2009"?
In any case, although we still have hundreds of billions of dollars to go, many people, including Paul Krugman, are already recommending a second stimulus plan. A second stimulus plan seems premature at this stage. Hundreds of billions of dollars have yet to be distributed. Haven't these second-stimulus people heard the (sarcastic) remark, “A billion here, a billion there, and pretty soon you're talking about real money”? Sarcasm aside, shouldn't we wait a little longer for the current stimulus money to work its way through the system before devising a Plan B?
Sunday, July 12, 2009
John Stuart Mill and Freedom of Speech
From John Stuart Mill's On Liberty:
Society can and does execute its own mandates, and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practices a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating more deeply into the details of life, and enslaving the soul itself. Protection, therefore, against the tyranny of the magistrate is not enough. We need protection also against the tyranny of the prevailing opinion and feeling, against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them.
Mill is promoting absolute freedom of speech. How can we actually enforce such unfettered freedom without being tyrannical? If you have an idea, please post a comment.
Society can and does execute its own mandates, and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practices a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating more deeply into the details of life, and enslaving the soul itself. Protection, therefore, against the tyranny of the magistrate is not enough. We need protection also against the tyranny of the prevailing opinion and feeling, against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them.
Mill is promoting absolute freedom of speech. How can we actually enforce such unfettered freedom without being tyrannical? If you have an idea, please post a comment.
TSA = Totalitarian, Sadistic Agents?
For anyone who's ever had to deal with an unreasonable TSA agent, here is some good news:
http://online.wsj.com/article/SB10001424052970204556804574261940842372518.html
A federal judge in June threw out seizure of three fake passports from a traveler, saying that TSA screeners violated his Fourth Amendment rights against unreasonable search and seizure. Congress authorizes TSA to search travelers for weapons and explosives; beyond that, the agency is overstepping its bounds, U.S. District Court Judge Algenon L. Marbley said.
Finally, we have a judge who does his job--keeping the government in check when it unreasonably and arbitrarily exercises power over American citizens. Maybe now TSA agents will focus on doing their job--searching for weapons, explosives, and other harmful items--instead of acting like Interpol officers. For more TSA incompetence, check out this link.
Also, if you haven't heard about what happened to Steven Bierfeldt, google his name and do some reading.
Bonus: here is comic writer Mark Sable's deliciously ironic TSA experience.
http://online.wsj.com/article/SB10001424052970204556804574261940842372518.html
A federal judge in June threw out seizure of three fake passports from a traveler, saying that TSA screeners violated his Fourth Amendment rights against unreasonable search and seizure. Congress authorizes TSA to search travelers for weapons and explosives; beyond that, the agency is overstepping its bounds, U.S. District Court Judge Algenon L. Marbley said.
Finally, we have a judge who does his job--keeping the government in check when it unreasonably and arbitrarily exercises power over American citizens. Maybe now TSA agents will focus on doing their job--searching for weapons, explosives, and other harmful items--instead of acting like Interpol officers. For more TSA incompetence, check out this link.
Also, if you haven't heard about what happened to Steven Bierfeldt, google his name and do some reading.
Bonus: here is comic writer Mark Sable's deliciously ironic TSA experience.
Saturday, July 11, 2009
California's Education and Pension Costs Out of Control
From AP writer Judy Lin:
Funding for K-12 schools and community colleges accounts for roughly half of annual state spending.
Funny how we haven't gotten smarter, but we've definitely gotten poorer. Meanwhile, California's state worker pension fund--which includes teachers' pensions--is still worth $177.7 billion. (Yes, that's billion with a "b.")
After years of staying mostly neutral, the San Jose Mercury News (July 7, 2009) finally issued an editorial opinion asking Sacramento to enact pension reform:
http://www.mercurynews.com/ci_12772192
The unfortunate truth is that the Democrat-controlled Legislature has been too quick to increase pension benefits and will resist reconsidering them unless it's forced to. Now is the time to do that...
Now, because of stock market declines and rising costs of health care, retirement costs are already siphoning $3.3 billion from the state budget, just when California is facing substantial cuts in education and services to the poor. That cost is expected to rise steeply. [Emphasis added]
By the way, in case you're wondering, state workers get the following benefits: "3 percent of pay for every year worked, up to 90 percent maximum after 30 years for safety officers and 60 percent for other employees." Where can non-government workers get 60% of their salary guaranteed in retirement? If you discover a place that allows non-executives to claim the 60% retirement bracket, let me know. I won't be holding my breath.
Update on July 12, 2009:
For the record, I favor increasing teachers' salaries as long as pension costs are eliminated. Why not replace teachers' pensions with 403b plans (the public-sector equivalent of a 401k)? If a 401k/403b is good enough for a Google/Apple/Target employee, why isn't it good enough for a government employee, too?
The average government worker should not have better retirement benefits than the average non-government worker. Is a secretary or lawyer who works for the government "better" than a secretary who works for Pfizer or Pepsi? I don't think so, especially not when the modern economy is so inter-connected.
Retirement benefits like lifetime pensions and lifetime medical care are inherently unstable because you have to predict how long a worker will live--that's not an easy task. As a result, costs are unpredictable, which makes accurate budget planning difficult. Why not create a budget framework that allows us to definitively ascertain employee costs without worrying about the ticking time bombs of unfunded, unpredictable long-term liabilities?
Funding for K-12 schools and community colleges accounts for roughly half of annual state spending.
Funny how we haven't gotten smarter, but we've definitely gotten poorer. Meanwhile, California's state worker pension fund--which includes teachers' pensions--is still worth $177.7 billion. (Yes, that's billion with a "b.")
After years of staying mostly neutral, the San Jose Mercury News (July 7, 2009) finally issued an editorial opinion asking Sacramento to enact pension reform:
http://www.mercurynews.com/ci_12772192
The unfortunate truth is that the Democrat-controlled Legislature has been too quick to increase pension benefits and will resist reconsidering them unless it's forced to. Now is the time to do that...
Now, because of stock market declines and rising costs of health care, retirement costs are already siphoning $3.3 billion from the state budget, just when California is facing substantial cuts in education and services to the poor. That cost is expected to rise steeply. [Emphasis added]
By the way, in case you're wondering, state workers get the following benefits: "3 percent of pay for every year worked, up to 90 percent maximum after 30 years for safety officers and 60 percent for other employees." Where can non-government workers get 60% of their salary guaranteed in retirement? If you discover a place that allows non-executives to claim the 60% retirement bracket, let me know. I won't be holding my breath.
Update on July 12, 2009:
For the record, I favor increasing teachers' salaries as long as pension costs are eliminated. Why not replace teachers' pensions with 403b plans (the public-sector equivalent of a 401k)? If a 401k/403b is good enough for a Google/Apple/Target employee, why isn't it good enough for a government employee, too?
The average government worker should not have better retirement benefits than the average non-government worker. Is a secretary or lawyer who works for the government "better" than a secretary who works for Pfizer or Pepsi? I don't think so, especially not when the modern economy is so inter-connected.
Retirement benefits like lifetime pensions and lifetime medical care are inherently unstable because you have to predict how long a worker will live--that's not an easy task. As a result, costs are unpredictable, which makes accurate budget planning difficult. Why not create a budget framework that allows us to definitively ascertain employee costs without worrying about the ticking time bombs of unfunded, unpredictable long-term liabilities?
Good Riddance: Peggy Rips Palin a New One
Someone finally summarizes why Sarah Palin is the wrong choice for the Republican Party...and it's a Republican! I've always liked Peggy Noonan's common sense--it's something the GOP desperately needs right now:
http://online.wsj.com/article/SB124716984620819351.html
[Palin] was not thoughtful...she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them. She wasn't thoughtful enough to know she wasn't thoughtful enough...[s]he is a ponder-free zone...
For national elections, the Republican Party needs to attract more than just religious conservatives to win. Remember: most Americans now live in large cities, a group that is less Christian and more diverse and not particularly attracted to someone like Sarah Palin.
If the Republican Party wants to have any hope of winning national elections, it should ask Palin to create a religiously-inclined third party or handle Midwestern/Southern GOP fundraising efforts. At the same time, the GOP should cast out anyone within its ranks who does not adamantly support the separation of religion and state. Basically, unless Republicans re-affirm the Goldwater/Eisenhower philosophies--limited government and limited interference in other countries' affairs--it will have a tough time winning over voters in metropolitan areas. With these voters, the GOP cannot win the presidency as long as the electoral college system exists.
Ms. Noonan is trying to help the Republican Party. Republicans disregard her advice at their own risk.
http://online.wsj.com/article/SB124716984620819351.html
[Palin] was not thoughtful...she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them. She wasn't thoughtful enough to know she wasn't thoughtful enough...[s]he is a ponder-free zone...
For national elections, the Republican Party needs to attract more than just religious conservatives to win. Remember: most Americans now live in large cities, a group that is less Christian and more diverse and not particularly attracted to someone like Sarah Palin.
If the Republican Party wants to have any hope of winning national elections, it should ask Palin to create a religiously-inclined third party or handle Midwestern/Southern GOP fundraising efforts. At the same time, the GOP should cast out anyone within its ranks who does not adamantly support the separation of religion and state. Basically, unless Republicans re-affirm the Goldwater/Eisenhower philosophies--limited government and limited interference in other countries' affairs--it will have a tough time winning over voters in metropolitan areas. With these voters, the GOP cannot win the presidency as long as the electoral college system exists.
Ms. Noonan is trying to help the Republican Party. Republicans disregard her advice at their own risk.
Immigration Laws Provide the Government Too Much Discretion
Ken McLaughlin has written an interesting story (SJ Merc, 7/3/09) about the broad discretion of immigration judges:
http://www.mercurynews.com/ci_12744965?source=rss&nclick_check=1
If the link doesn't work, try googling these words:
When he was 10, Hank Nijmeh moved with his family to San Jose when the Beatles were still together and much of the Santa Clara Valley was carpeted with mustard fields. He was one of five children in a friendly Palestinian Catholic family that established one of the valley's most beloved eateries — the Falafel's Drive-In on Stevens Creek Boulevard...
U.S. Immigration and Customs Enforcement has kept Nijmeh in custody since April 2006, when he tested positive for marijuana while on probation....U.S. Immigration and Customs Enforcement has kept Nijmeh in custody since April 2006, when he tested positive for marijuana while on probation...
Immigration laws may be unevenly applied and enforced because of the wide latitude given to immigration judges. Remember this immigration fiasco, when immigration authorities wanted to deport the widows of American citizens because BCIS delayed processing their citizenship applications? Talk about pouring salt into an open wound...
http://www.mercurynews.com/ci_12744965?source=rss&nclick_check=1
If the link doesn't work, try googling these words:
When he was 10, Hank Nijmeh moved with his family to San Jose when the Beatles were still together and much of the Santa Clara Valley was carpeted with mustard fields. He was one of five children in a friendly Palestinian Catholic family that established one of the valley's most beloved eateries — the Falafel's Drive-In on Stevens Creek Boulevard...
U.S. Immigration and Customs Enforcement has kept Nijmeh in custody since April 2006, when he tested positive for marijuana while on probation....U.S. Immigration and Customs Enforcement has kept Nijmeh in custody since April 2006, when he tested positive for marijuana while on probation...
Immigration laws may be unevenly applied and enforced because of the wide latitude given to immigration judges. Remember this immigration fiasco, when immigration authorities wanted to deport the widows of American citizens because BCIS delayed processing their citizenship applications? Talk about pouring salt into an open wound...
Blog: Christopher Fountain
I just discovered an interesting blog:
http://christopherfountain.wordpress.com/
Mr. Fountain discovered a website that allows readers to see newspapers all over the world:
http://www.thepaperboy.com/newspapers-by-country.cfm
Disclosure: I don't know Mr. Fountain personally and do not necessarily endorse everything on his website. I do, however, like the fact that he's apparently a former attorney.
Bonus: here's another excellent blog:
http://lacunaemusing.blogspot.com
Here are Lacunae Musing's posts on Madoff:
http://lacunaemusing.blogspot.com/2009/01/bernie-reality-show.html [Reality Show?]
http://lacunaemusing.blogspot.com/2008/12/madoff-bailout.html [Bailout?]
http://christopherfountain.wordpress.com/
Mr. Fountain discovered a website that allows readers to see newspapers all over the world:
http://www.thepaperboy.com/newspapers-by-country.cfm
Disclosure: I don't know Mr. Fountain personally and do not necessarily endorse everything on his website. I do, however, like the fact that he's apparently a former attorney.
Bonus: here's another excellent blog:
http://lacunaemusing.blogspot.com
Here are Lacunae Musing's posts on Madoff:
http://lacunaemusing.blogspot.com/2009/01/bernie-reality-show.html [Reality Show?]
http://lacunaemusing.blogspot.com/2008/12/madoff-bailout.html [Bailout?]
Friday, July 10, 2009
Write Your Congressperson about H.R. 2798
It was only a matter of time--Madoff's investors have asked the 111th Congress for a bailout. The House of Representatives has obliged, and the House Committee on Financial Services is currently reviewing H.R. 2798. As of July 10, 2009, H.R. 2798 has not been submitted for a vote. You may write to the House Financial Committee using the following link: http://financialservices.house.gov/contact.html
Here is my letter:
Dear House members:
I am asking that you vote against H.R. 2798 or decline to submit the bill for a full House vote. The proposed bill seeks to bail out Madoff's investors under the guise of shoring up the SIPC. For example, SIPC members will only be expected to pay $1000 annually (up from $150 annually) into the SIPC fund. This amount is stunningly low, given that credit unions have had to pay millions of dollars to shore up their own version of SIPC, called the National Credit Union Share Insurance Fund (NCUSIF). Star One Credit Union, for example, will be assessed a $44.2 million charge to maintain adequate member protection. Thus, a revised annual SIPC fee of $1000 is laughable if consumer protection is the goal.
H.R. 2798 would be even more comedic if the money to expand SIPC protection wasn't coming from taxpayers. Unfortunately, because the SIPC has been woefully underfunded, if Congress passes H.R. 2798, the U.S. Treasury must issue loans to raise the SIPC fund's available credit from one billion dollars to $2.5 billion. As you know, the U.S. Treasury is basically the American taxpayer, so ordinary Americans and their children will be on the hook for this proposed bailout.
Most tragically, H.R. 2798's proposed penalties for white collar crime are too low at five years' jail time and a $250K fine. Such minimal deterrence will not protect the public against a future Madoff. Approving such low penalties post-Madoff may cause voters to wonder if white collar criminals have lobbyists. If I worked in Congress, I would not want my name associated with H.R. 2798 in its current form. Please vote "no" on H.R. 2798.
Sincerely,
Name
Here is my letter:
Dear House members:
I am asking that you vote against H.R. 2798 or decline to submit the bill for a full House vote. The proposed bill seeks to bail out Madoff's investors under the guise of shoring up the SIPC. For example, SIPC members will only be expected to pay $1000 annually (up from $150 annually) into the SIPC fund. This amount is stunningly low, given that credit unions have had to pay millions of dollars to shore up their own version of SIPC, called the National Credit Union Share Insurance Fund (NCUSIF). Star One Credit Union, for example, will be assessed a $44.2 million charge to maintain adequate member protection. Thus, a revised annual SIPC fee of $1000 is laughable if consumer protection is the goal.
H.R. 2798 would be even more comedic if the money to expand SIPC protection wasn't coming from taxpayers. Unfortunately, because the SIPC has been woefully underfunded, if Congress passes H.R. 2798, the U.S. Treasury must issue loans to raise the SIPC fund's available credit from one billion dollars to $2.5 billion. As you know, the U.S. Treasury is basically the American taxpayer, so ordinary Americans and their children will be on the hook for this proposed bailout.
Most tragically, H.R. 2798's proposed penalties for white collar crime are too low at five years' jail time and a $250K fine. Such minimal deterrence will not protect the public against a future Madoff. Approving such low penalties post-Madoff may cause voters to wonder if white collar criminals have lobbyists. If I worked in Congress, I would not want my name associated with H.R. 2798 in its current form. Please vote "no" on H.R. 2798.
Sincerely,
Name
French-Algerian Celebrities
Reading some of the anti-Muslim comments French citizens, including Brigitte Bardot, have made, I am struck by how quickly memories fade. The French seem to have forgotten that some of their most famous representatives come from Muslim families. For example, Marcellin "Marcel" Cerdan, Edith Piaf, and Zinedine Zidane are all of Algerian Muslim descent. [It is true that Edith Piaf became Christian, but her maternal grandmother was Aïcha ("Emma") Saïd ben Mohammed (1876–1930).]
Castigating or judging people on the basis of their religion makes no sense. Throughout history, each religion has been persecuted. Clearly, the choice of religious persecution depends on whomever has a population advantage. One day, it might be your turn--unless we work hard to overcome our atavistic tendencies.
Castigating or judging people on the basis of their religion makes no sense. Throughout history, each religion has been persecuted. Clearly, the choice of religious persecution depends on whomever has a population advantage. One day, it might be your turn--unless we work hard to overcome our atavistic tendencies.
Campbell: Local Fare
1. Anthony Bourdain would like Isabella's. Isabella's Restaurant is located at 70 S. Winchester Blvd., San Jose, California. It specializes in South American cuisine and its chef is Peruvian. The decor is nice--make sure you catch the small wooden sculpture of a soccer player on the left hand side of the restaurant. The location could be better--being next to a hairdresser and across from a nail salon doesn't scream five-stars--but I didn't care about the neighbors once I tasted the food.
I ordered the anticucho de corazon and the tacu tacu. If you like rice dishes, definitely get the tacu tacu--it's a flavorful rice and beans dish. The steak that came with the tacu tacu failed to impress, but I ordered it for the rice portion, so I didn't mind.
The anticucho de corazon was also great. It's basically four skewers of animal heart. What's animal heart? Well, imagine liver, but without the icky texture and aftertaste. Definitely try it--it was the highlight of my dinner.
2. I am always happy when I see an immigrant opening a new store. It reminds me the American Dream is alive and well. A new Ethiopian store, Tana Liquors and Groceries, has opened on 1358 S. Winchester Blvd., San Jose, CA. The store is very small and appears to have opened recently.Their advertising focuses on their imported spices, coffee, and liquor. I also noticed pre-paid phone cards. Right now, the store is new, so it doesn't have tons of products, but I bought and enjoyed a small apricot drink. The store's phone number is 408-871-8199; listed cell phone is 408-373-0606.
3. If you're into veggie food, don't forget Chaat Bhavan.
Disclosure: as of this writing, I have no financial interests in the above establishments and have not received "kickbacks" from them.
I ordered the anticucho de corazon and the tacu tacu. If you like rice dishes, definitely get the tacu tacu--it's a flavorful rice and beans dish. The steak that came with the tacu tacu failed to impress, but I ordered it for the rice portion, so I didn't mind.
The anticucho de corazon was also great. It's basically four skewers of animal heart. What's animal heart? Well, imagine liver, but without the icky texture and aftertaste. Definitely try it--it was the highlight of my dinner.
2. I am always happy when I see an immigrant opening a new store. It reminds me the American Dream is alive and well. A new Ethiopian store, Tana Liquors and Groceries, has opened on 1358 S. Winchester Blvd., San Jose, CA. The store is very small and appears to have opened recently.Their advertising focuses on their imported spices, coffee, and liquor. I also noticed pre-paid phone cards. Right now, the store is new, so it doesn't have tons of products, but I bought and enjoyed a small apricot drink. The store's phone number is 408-871-8199; listed cell phone is 408-373-0606.
3. If you're into veggie food, don't forget Chaat Bhavan.
Disclosure: as of this writing, I have no financial interests in the above establishments and have not received "kickbacks" from them.
ABA: Loan Forgiveness Coming
For all you law school hopefuls and grads, President Obama and Congress are going to help you:
http://www.abajournal.com/weekly/student_loan_relief_on_the_way_for_law_grads
Make sure you read the comments, which are usually the best part of an ABA Journal post. One person says the world doesn't need help getting more lawyers. He has a point.
I paid off all my student loans myself, but I suspect more than a few people game the system. For example, I've heard that some recent graduates had taken loans against their houses and used a home equity loan to pay off their student loans. Then, depending on the remaining value of the home and their state's exemptions, they may have been able to declare bankruptcy and still keep their home. There are probably other ways to game the system, but the way banks were giving out HELOCs, using your home was probably the easiest way.
Some people have suggested getting Perkins loans. When I was in law school, my financial aid advisor recommended that I maximize my Perkins loans, so every year, I'd go to the financial aid office and ask for more Perkins loans. From 1999 to 2002, Perkins loans had low interest rates and were therefore favored by many students; however, under the new "Competitive Loan Auction Pilot Program" terms, I've heard that Perkins loans are not entitled to any relief unless they are consolidated. (At least according to this Sunday's SJ Merc.) One thing's clear: more than ever, it's essential to talk with your financial counselor to make sure you know all your options. Make sure you do your due diligence.
For all you policy wonks, here is a link that leads to the text of the law itself. You'll notice that Dems sponsored the bill, and George Bush signed it. So why is President Obama getting credit for this "new" student loan relief? Because Section 701 recently gave his administration more power and discretion:
Section 701 -Basically, President Obama's appointee gets to set the terms for lenders who want to loan money to students. In exchange, eligible lenders get a guarantee that 99% of the unpaid balance of the loans issued under President Obama's rules get paid back, courtesy of the American taxpayer. Interesting, no? Congress passes a law in 2007 with provisions that "activate" in 2009 and thereafter until 2017.
http://www.abajournal.com/weekly/student_loan_relief_on_the_way_for_law_grads
Make sure you read the comments, which are usually the best part of an ABA Journal post. One person says the world doesn't need help getting more lawyers. He has a point.
I paid off all my student loans myself, but I suspect more than a few people game the system. For example, I've heard that some recent graduates had taken loans against their houses and used a home equity loan to pay off their student loans. Then, depending on the remaining value of the home and their state's exemptions, they may have been able to declare bankruptcy and still keep their home. There are probably other ways to game the system, but the way banks were giving out HELOCs, using your home was probably the easiest way.
Some people have suggested getting Perkins loans. When I was in law school, my financial aid advisor recommended that I maximize my Perkins loans, so every year, I'd go to the financial aid office and ask for more Perkins loans. From 1999 to 2002, Perkins loans had low interest rates and were therefore favored by many students; however, under the new "Competitive Loan Auction Pilot Program" terms, I've heard that Perkins loans are not entitled to any relief unless they are consolidated. (At least according to this Sunday's SJ Merc.) One thing's clear: more than ever, it's essential to talk with your financial counselor to make sure you know all your options. Make sure you do your due diligence.
For all you policy wonks, here is a link that leads to the text of the law itself. You'll notice that Dems sponsored the bill, and George Bush signed it. So why is President Obama getting credit for this "new" student loan relief? Because Section 701 recently gave his administration more power and discretion:
Section 701 -
Directs the Secretary to conduct a Competitive Loan Auction Pilot program, beginning in July 2009, under which biennial auctions are held in each state allowing prequalified lenders to compete for the exclusive right to make FFEL program PLUS loans at all IHEs within the state. Provides that the winning bids from each state auction shall be the two bids containing the lowest and the second lowest proposed special allowance payments requested from the Secretary. Requires the Secretary to guarantee 99% of the unpaid balance of such loans.
Thursday, July 9, 2009
CIA to Congress: We Misled You, but That's Not Our Policy
Some strange things are going on between Congress and the CIA:
http://www.cnn.com/2009/POLITICS/07/08/cia.congress/index.html
http://www.latimes.com/news/nationworld/politics/wire/sns-ap-us-congress-secret-briefings,1,2711337.story
Letters by the chairman of the House Intelligence Committee and other members of the panel say CIA Director Leon Panetta told Congress last month that senior CIA officials have concealed significant actions and misled lawmakers repeatedly since 2001.
I am upset that rather than focusing on stopping the CIA from misleading Congress in the future, the media and House Republicans are making this an issue about Pelosi. I think Senator Pelosi knew about harsh interrogation methods, but not all the details. I do wonder if she knew about waterboarding, but it doesn't matter now--she had her chance to speak out against harsh interrogation methods and failed to do so. The real issue now is reforming the CIA, not Pelosi.
Update on July 20, 2009: Judge rules CIA lied to the court:
http://news.yahoo.com/s/ap/20090720/ap_on_go_ot/us_cia_fraud
According to court documents unsealed Monday, U.S. District Judge Royce Lamberth referred a CIA attorney, Jeffrey Yeates, for disciplinary action. Lamberth also denied the CIA's renewed efforts under the Obama administration to keep the case secret because of what he calls the agency's "diminished credibility" in the case.
http://www.cnn.com/2009/POLITICS/07/08/cia.congress/index.html
http://www.latimes.com/news/nationworld/politics/wire/sns-ap-us-congress-secret-briefings,1,2711337.story
Letters by the chairman of the House Intelligence Committee and other members of the panel say CIA Director Leon Panetta told Congress last month that senior CIA officials have concealed significant actions and misled lawmakers repeatedly since 2001.
I am upset that rather than focusing on stopping the CIA from misleading Congress in the future, the media and House Republicans are making this an issue about Pelosi. I think Senator Pelosi knew about harsh interrogation methods, but not all the details. I do wonder if she knew about waterboarding, but it doesn't matter now--she had her chance to speak out against harsh interrogation methods and failed to do so. The real issue now is reforming the CIA, not Pelosi.
Update on July 20, 2009: Judge rules CIA lied to the court:
http://news.yahoo.com/s/ap/20090720/ap_on_go_ot/us_cia_fraud
According to court documents unsealed Monday, U.S. District Judge Royce Lamberth referred a CIA attorney, Jeffrey Yeates, for disciplinary action. Lamberth also denied the CIA's renewed efforts under the Obama administration to keep the case secret because of what he calls the agency's "diminished credibility" in the case.
Commodities, Cap and Trade, and Natural Gas
There's a lot of hubbub about H.R. 2454, otherwise known as the "cap and trade" program. My main criticism is that is that cap and trade programs require inter-country cooperation to be effective, but inter-country enforcement mechanisms have not been clearly defined or tested. What will the U.S. do, for example, if China "cheats" on carbon emissions? China, after all, uses mostly coal for its energy needs. (Perhaps we'll have some version of the International Atomic Energy Agency (IAEA), but for carbon checks.) Another problem: although heavy-handed enforcement will strain relations between countries, a heavy hand is necessary to convince everyone to play by the rules.
In any case, I jumped into commodities earlier this week (a few days too early), and am happy to hold UNG, FCG, WMB, WPZ, GSG, COP, and DBC. If approved, President Obama's cap and trade program will reduce coal and encourage more natural gas and solar power. Thanks to environmentalists, America may finally be able to reduce its use of "dirty" energy sources, including oil.
As I've already pointed out, the "cap and trade" program is not perfect--the government may end up artificially increasing certain commodity prices by transferring subsidies from coal to other energy sources. Even so, I'd rather subsidize clean energy than environmentally harmful energy sources.
Owners of Market Vectors Coal ETF (KOL) might want to assess the impact of the cap and trade program very carefully. Although it provides some exposure to Chinese coal companies, all coal companies will remain an uncertain bet as cleaner energy becomes more viable. After all, why would power plants use coal when they can use natural gas? From the EIA:
In the electric power sector, natural gas is an attractive choice for new generating plants because of its relative fuel efficiency and low carbon dioxide intensity. Electricity generation [will account] for 35 percent of the world’s total natural gas consumption in 2030, up from 32 percent in 2006.
You might still be wondering, "Why natural gas? Why not nuclear, wind, or solar companies?" Elementary, my dear Watson--it's the simple process of elimination.
First, America has far more natural gas than petroleum. Many Americans already know we have more natural gas than oil, but I am very surprised to see so many people overestimating cap and trade's foreign policy implications. If you think switching to natural gas will crush foreign regimes, don't kid yourself--the Middle East still has the world's largest supply of natural gas. I am willing to bet that in ten years, Russia and Iran spearhead a new natural gas "OPEC." That's okay--America won't ever be as dependent on natural gas imports as it has been on petroleum imports. In fact, Canada will probably be the largest foreign beneficiary of increased natural gas use.
Second, wind power looks D.O.A.--T. Boone Pickens, its most visible proponent, has scratched the idea, at least in Texas. That's not a good sign for the Pickens Plan.
Third, solar power is more complicated than it looks because it requires lots of empty land to put all the solar panels a power plant requires. Solar panels are most effective when powering relatively small structures, like houses and outdoor emergency phones. In any case, I don't know of any solar power plants that can supply power on the same scale as traditional power sources. (I am not an expert on solar power, so I appreciate being corrected if I am wrong.) At least for now, solar will not displace natural gas, but will probably work in conjunction with it.
Fourth, nuclear power suffers from a major image problem. Chernobyl will force legislators to hedge their bets on other energy sources and/or slowly adopt nuclear power.
I hope I've adequately explained why I believe natural gas has a bright future. If we're weaning ourselves from "dirty" energy like oil and coal, and solar and wind power have years to go before effective nationwide use, what's left? Aside from nuclear power, which suffers from a NIMBY problem, there's just natural gas. (Please don't get me started on ethanol--the idea of driving up food costs to get oil is untenable--and both Alan Greenspan and Charles Munger agree.)
Mind you, I do not expect natural gas prices to rise immediately. Even if the Senate approves the cap and trade bill, also known as H.R. 2454 (American Clean Energy And Security Act of 2009), it will take years for demand to dent the current supply of natural gas.
Why, then, am I buying natural gas and commodities companies now? Two reasons: one, current natural gas prices seem relatively low; and two, if Congress removes certain subsidies for natural gas companies or does not supply them with adequate incentives, companies will halt or reduce natural gas drilling, which will reduce supply and increase natural gas prices.
You might also wonder why I own ConocoPhillips (COP), an oil company. Petroleum will continue to be an important resource (petrochemicals, etc.), and many oil companies also have natural gas interests. In addition, oil companies sell an essential product and pay high dividends (unusual in our current era of 1% money market rates). I also don't mind buying anything Warren Buffett owns.
It is important to note that I hold all of my commodity-based shares in a retirement account to minimize taxes. Owning UNG in a regular account creates tax implications because of its partnership structure. I am not certain, but apparently, UNG does not pay out distributions, but imputes income to its investors anyway. Any more information on UNG's tax issues would be appreciated. (Feel free to leave a comment, especially if you're a CPA.) UNG's tax structure doesn't affect me because I hold my shares in a retirement account, but I am still curious.
Regardless of whether H.R. 2454 passes, the future of the energy industry is clear: the winner will be either nuclear or natural gas. I am choosing natural gas because it has a higher chance of widespread adoption. Fairly or not, nuclear power will always be linked to Chernobyl, Three Mile Island, and Davis-Besse, which reduces its appeal.
Disclosure: I own UNG, FCG, WMB, WPZ, GSG, COP, and DBC. I have recommended to family members to sell KOL if they own any shares.
Disclaimer: The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.
Update: Of the 20 million barrels of oil consumed each day, 40 percent is used by passenger vehicles, 24 percent by industry, 12 percent by commercial and freight trucks, 7 percent by aircraft, and 6 percent in residential and commercial buildings. (Source) Cap and trade will first impact the 30% slices (industrial and commercial/residential building) of the energy consumption pie, because not enough automobiles currently run on natural gas.
Bonus: below is an interesting link from the State Department on energy use:
http://www.state.gov/g/oes/rls/rpts/car/90316.htm
In any case, I jumped into commodities earlier this week (a few days too early), and am happy to hold UNG, FCG, WMB, WPZ, GSG, COP, and DBC. If approved, President Obama's cap and trade program will reduce coal and encourage more natural gas and solar power. Thanks to environmentalists, America may finally be able to reduce its use of "dirty" energy sources, including oil.
As I've already pointed out, the "cap and trade" program is not perfect--the government may end up artificially increasing certain commodity prices by transferring subsidies from coal to other energy sources. Even so, I'd rather subsidize clean energy than environmentally harmful energy sources.
Owners of Market Vectors Coal ETF (KOL) might want to assess the impact of the cap and trade program very carefully. Although it provides some exposure to Chinese coal companies, all coal companies will remain an uncertain bet as cleaner energy becomes more viable. After all, why would power plants use coal when they can use natural gas? From the EIA:
In the electric power sector, natural gas is an attractive choice for new generating plants because of its relative fuel efficiency and low carbon dioxide intensity. Electricity generation [will account] for 35 percent of the world’s total natural gas consumption in 2030, up from 32 percent in 2006.
You might still be wondering, "Why natural gas? Why not nuclear, wind, or solar companies?" Elementary, my dear Watson--it's the simple process of elimination.
First, America has far more natural gas than petroleum. Many Americans already know we have more natural gas than oil, but I am very surprised to see so many people overestimating cap and trade's foreign policy implications. If you think switching to natural gas will crush foreign regimes, don't kid yourself--the Middle East still has the world's largest supply of natural gas. I am willing to bet that in ten years, Russia and Iran spearhead a new natural gas "OPEC." That's okay--America won't ever be as dependent on natural gas imports as it has been on petroleum imports. In fact, Canada will probably be the largest foreign beneficiary of increased natural gas use.
Second, wind power looks D.O.A.--T. Boone Pickens, its most visible proponent, has scratched the idea, at least in Texas. That's not a good sign for the Pickens Plan.
Third, solar power is more complicated than it looks because it requires lots of empty land to put all the solar panels a power plant requires. Solar panels are most effective when powering relatively small structures, like houses and outdoor emergency phones. In any case, I don't know of any solar power plants that can supply power on the same scale as traditional power sources. (I am not an expert on solar power, so I appreciate being corrected if I am wrong.) At least for now, solar will not displace natural gas, but will probably work in conjunction with it.
Fourth, nuclear power suffers from a major image problem. Chernobyl will force legislators to hedge their bets on other energy sources and/or slowly adopt nuclear power.
I hope I've adequately explained why I believe natural gas has a bright future. If we're weaning ourselves from "dirty" energy like oil and coal, and solar and wind power have years to go before effective nationwide use, what's left? Aside from nuclear power, which suffers from a NIMBY problem, there's just natural gas. (Please don't get me started on ethanol--the idea of driving up food costs to get oil is untenable--and both Alan Greenspan and Charles Munger agree.)
Mind you, I do not expect natural gas prices to rise immediately. Even if the Senate approves the cap and trade bill, also known as H.R. 2454 (American Clean Energy And Security Act of 2009), it will take years for demand to dent the current supply of natural gas.
Why, then, am I buying natural gas and commodities companies now? Two reasons: one, current natural gas prices seem relatively low; and two, if Congress removes certain subsidies for natural gas companies or does not supply them with adequate incentives, companies will halt or reduce natural gas drilling, which will reduce supply and increase natural gas prices.
You might also wonder why I own ConocoPhillips (COP), an oil company. Petroleum will continue to be an important resource (petrochemicals, etc.), and many oil companies also have natural gas interests. In addition, oil companies sell an essential product and pay high dividends (unusual in our current era of 1% money market rates). I also don't mind buying anything Warren Buffett owns.
It is important to note that I hold all of my commodity-based shares in a retirement account to minimize taxes. Owning UNG in a regular account creates tax implications because of its partnership structure. I am not certain, but apparently, UNG does not pay out distributions, but imputes income to its investors anyway. Any more information on UNG's tax issues would be appreciated. (Feel free to leave a comment, especially if you're a CPA.) UNG's tax structure doesn't affect me because I hold my shares in a retirement account, but I am still curious.
Regardless of whether H.R. 2454 passes, the future of the energy industry is clear: the winner will be either nuclear or natural gas. I am choosing natural gas because it has a higher chance of widespread adoption. Fairly or not, nuclear power will always be linked to Chernobyl, Three Mile Island, and Davis-Besse, which reduces its appeal.
Disclosure: I own UNG, FCG, WMB, WPZ, GSG, COP, and DBC. I have recommended to family members to sell KOL if they own any shares.
Disclaimer: The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.
Update: Of the 20 million barrels of oil consumed each day, 40 percent is used by passenger vehicles, 24 percent by industry, 12 percent by commercial and freight trucks, 7 percent by aircraft, and 6 percent in residential and commercial buildings. (Source) Cap and trade will first impact the 30% slices (industrial and commercial/residential building) of the energy consumption pie, because not enough automobiles currently run on natural gas.
Bonus: below is an interesting link from the State Department on energy use:
http://www.state.gov/g/oes/rls/rpts/car/90316.htm
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