Power And Dollar

Lay Taxes To Those Not Buying Guns? NRA Must Be Grinning

John Roberts acknowledges that the Obamacare is unconstitutional in the commerce clause.  However, Roberts upholds the Obamacare because it is constitutional to lay taxes to those who do not buy health insurance.  So, using John Roberts formula, can the federal government lay taxes on those not buying guns? 

It seems like John Roberts’ formula is: if it is unconstitutional to X and it is constitutional to lay taxes to X, then it is constitutional.  Better yet, can the federal government impose taxes to finance the rendition program? Or lay taxes to finance the eaves dropping?  To impose taxes if you do not perform birth control?  To impose taxes if you do not perform abortion?  To impose taxes if you do not send your children to public school (this is already in practice)?  To impose taxes if you do not send your children to home school (this is not in practice)?

If John Roberts’ formula has to be supplemented by the general welfare clause, then not much difference it would make, as Richard A. Epstein (professor of law at New York University and a senior fellow at the Hoover Institution) suggests in NYTimes on 2012.06.29: Congress has the power to “lay and collect Taxes” only in order “to pay the Debts and provide for the common Defence and general Welfare of the United States.” The congress still can impose taxes if you do not buy guns since gun ownership contributes to the general welfare, if you agree that more guns around means we will have less criminals around.  The newer formula can still apply to anything the Congress sees fit. 

Isn’t the case that whenever something is unconstitutional to anyone element of the Constitution, then it is constitutional?  Benjamin Franklin said: “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”  John Roberts reversed (or the converse) the reasoning and we get a wonderful universal health care.  At what costs?


June 29, 2012 Posted by | activism, advocacy, america politics, Current Events, Democrats, opinion, politics, Regulation, Republican, Thoughts | , , | Leave a comment

Obama’s Another Banking Show

Taxing on banks is politically convenient since people are angry against the financial crisis.  Thus, it is a populist solution.  Furthermore, a mid-term election is coming up where the incumbent party is expecting to lose seats.  What is interesting about this item is: who will (and will not) get taxed among these banks?  What other options does government actually have to achieve the stated goals?

Community banks will get excluded.  Community bankers are still very influential in the local communities, i.e. they affect a lot of voting behavior in the congressional districts.  The key about this where is the cut-off point for community banks or non-community banks?  There are more than 8,000 banks in the country.  Of those, the top 3 banks take up about one third of the assets, more than $3T altogether.  About 100 banks are over $10B in asset.  If $10B is the cut-off, then we have 100 banks for this tax.  But is it $10B or $1B for a bank to be considered a community bank?  How much room is there?

The government says it wants to not affect consumers and investors.  That is rhetoric.  We all know it will get passed on to consumers AND investors.  It’s just who gets more of it. 

If eliminating fat cat is the goal, are there options?  There are always options.  The only question is: what kind of trade-offs are there?  A company is able to pay huge sum to executives (still employees) is that there are so few companies occupying the market space that investor have no choice but to part the profit to these critical employees.  Making the profit margin among these companies thinner by taxing is only one way to minimize the profit.  The more market oriented approach is to introduce more competitors in the market, for instance,

1)      Enable smaller banks to eat into the market share of the big markets;

2)      Disable banks from entering too many different markets, such as the old law that says a retail/mortgage bank cannot enter investment banking;

3)      Banks cannot perform house trade with depositors’ money.

Are these above new and bright ideas?  No.  These are all recycled ideas America has already tried and ditched or tried in other industries.  The first one is congruent to the anti-trust law.  The second one is Glass-Steagall Act.  The third one is from insurance industry and pension industry.  Obama can achieve the goal without being overly creative.  This creation simply tells us he is on another political show.

January 11, 2010 Posted by | america politics, banking, Barack Obama, 美國, Election 2010, legislation, obama, opinion, politics, Regulation, wordpress-political-blogs | 2 Comments

Want A Solution? Or Want A Political Solution?

Regulations suffocate businesses, so we have been hearing from the right side of the political spectrum.  Can you imagine a case where businesses, big businesses, want to have more regulation? 

Central bank veterans like Volcker (Federal Reserve) and Mervyn King (Bank of England) and politicians like Gordon Brown and Barrack Obama (or Timothy Geithner) are advocating opposing positions.  The first interesting story is that central bankers (or bureaucrats) are advocating less regulation.  The more interestingly part is the affected businesses want more regulations.  What is at heart of this debate?

King advocates that in order to prevent another financial tsunami, we should prevent having banks that are too big to fail in the first place.  To suffice that, we need to break up banks that are big enough to pose systematic risk to the economy.  In this case, they see financing the whole economy as a portfolio.  Diversification is the solution.  It is simple, very simple.  Cost of regulation is minimal.  Markets will regulate and therefore reduce some of the problems.  Easy on the government (read: central banks will not get blamed), easy on the consumers.  Who would have a problem?  Big banks: Citi (NYSE: C), HSBC (NYSE:HBC) etc because they are everywhere.  The market share of big banks is already big.  The top three banks (BOA, NYSE: BAC; Citi, NYSE: C; JPMorgan Chase, NYSE:JPM) in the US take up already 1/3 of the assets in the bank sector.  NYT has an article about how Volcker is doing with this effort.

Another angle to view the cause of this financial tsunami is that some financial institutions carried risky activities that were not lending in nature (i.e. not banking) and relied on government bailouts where the money came from deposit insurance funds when such funds were designed to protect depositor’s money and not to finance the risk of activities unrelated to banking, i.e. lending.  That is why CNN is saying the cost of the bailout will be higher than previously thought.  To suffice that, we can separate lending from the risky activities (trading).  This is actually the Glass-Steagall Act, which got repealed.  Again, who has a problem?  Again, big banks: Citi (NYSE: C), HSBC (NYSE:HBC) etc because they have activities of all kinds, from boring first lien mortgage lending to exotic trading activities that only the math PhDs in that specific department would understand and not even the CEO can speak to them intelligently in any kind of congressional hearings. 

Gordon Brown and Barrack Obama are advocating neither of these.  They want compliance enforcement agencies (Financial Services Authorities in UK and Federal Reserve and others in the States) to create new rules/laws for the governments to check on.  These would involve reserve requirements and so on.  In both countries, central banks will have more oversight powers, which should be what bureaucrats want (more government jobs!).  However, both (and Nobel laureate Stiglitz) argue against it.  Why aren’t politicians listening to their advice?  Since central banks still carry high credibility in the society, central bankers do not typically have aspiration for high political office, elected officials want central banks to mitigate this systematic risk and thus be liable to the failure of systematic risk.  The proposals by central bank veterans are fundraising poisons. 

Why is Alan Greenspan silent?  His position is that this systematic risk a financial tsunami.  Nothing could have prevented it (and thus it was not his fault).  If some compliance enforcement could have prevented this tsunami, then he would take the blame.  Thus staying silent serves his best interests.

October 21, 2009 Posted by | banking, Current Events, 美國, obama, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

Did Centrists Republicans Just Defeat Obama-Care?

Democratic Senator Baucus is presenting a compromise health care bill in the Senate without public option whereas CNN reports that Obama is finally drafting his own version with a trigger for public option.  The Gang of Six has three Republicans.  They are: Enzi, Snowe and Grassley.  Grassley says in CNN that public option is Obama Care.  Now that Baucus proposal does not have it, Grassley and the like may actually have a way to claim victory that they will have defeated Obama Care.  If so, then health care will pass a giant step. 


With the sections 2701 to 2703 and 2706, 152, Baucus essentially creates an analogous health care version of Equal Credit Opportunity Act.  The impact of this idea will be long lasting, much more profound than Equal Credit Opportunity Act not because of any anti-discrimination, but because insurance business is completely centered on selecting good risks, i.e. choosing the less risky applicants, in any kind of insurance product.  One example is that insurers give a different price of life insurance based on occupation of applicant.  If you are a fireman, then your rate is higher.  If you are in the army, you rate is higher.  That is the reason insurance companies are not allowed to use DNA to determine price of health or life insurance.  Similarly, if you are younger, your auto insurance is higher.  While your age can be a factor in auto insurance application, your age cannot be a factor in your credit application, as prescribed by Equal Credit Opportunity Act.


This piece of legislation is about health insurance.  Therefore, life insurance can continue to legally discriminate life insurance applicants based on existing conditions. 


Health insurance companies underwriting procedures will have to change, industry wide, nationally.  Health insurers are Cigna, Aetna (NYSE:AET), Humana (NYSE:HUM), UnitedHealth (NYSE:UNH) Blue Cross Blue Shield (http://bcbs.com).  Here is an example: Just like some life insurers give better rates for their life insurance policies, some companies may have been marketing well among smokers for health insurance policies.  If Baucus proposal goes through, all health insurance companies may have the same application procedure to underwrite a smoker.  Smokers market is now thinner than before for this smoker specializing insurer.  We do not quite know if discrimination against occupation is covered by Baucus, or age or anything else.  However, a lot of compliance work will get involved in the future. 


How will it enforced?  Is Baucus planning to have Department of Labor to have a stronger role in health care enforcement?  Insurance is completely state regulated, for now.  Will this kind of enforcement be incorporated in Treasury? 


We will know by the time our speech entertainer Obama gives another performance tomorrow.

September 8, 2009 Posted by | activism, advocacy, Barack Obama, Current Events, 美國, health care reform, opinion, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

AIG The Sacrifice: The Reflection Of America’s Political Risk


I agree quite a few points of this article in regard to the AIG episode.


Of course, nothing is perfect.  I would change a word here:

It will certainly make Mr. Obama’s task much more difficult when he tries to sell the public [my version would be:  investors] on his administration’s ability to manage the rest of the bailout, and when he tries to sell private firms on the public-private partnership that will be needed to make the recovery work.”


Obama will have more difficulty to convince investors his future plans work (already stated in the article).  Also, Obama will have more difficulty to get troubled entities to take the bailout.  Look at AIG.  This bailout actually bites! 


AIG was politically insensitive.  This story alone will make firms in the future to invest more to mitigate political risk or at least reputation risk (branding), which is not a good news.  


In addition, a good portion of the reason for these companies to require a bailout is that their valuation (capitalization) fluctuated so greatly they were literally worthless.  So, some companies may realize taking themselves off the exchange is not a bad idea, at least they can insulate themselves from the volatility.  Is that what we want: fewer choices for mutual fund managers and pension fund managers?  If they have fewer options and social security is running out, then what are to do?


Fewer choices on the exchange also means quicker wealth concentration.  Gini coefficient will spike up very quickly.  Is that what Obama wants?

March 20, 2009 Posted by | activism, advocacy, america politics, banking, business, Current Affairs, Current Events, 美國, Democrats, economics, legislation, mccain, obama, opinion, politics, Regulation, Republican, US politics, wordpress-political-blogs | Leave a comment

Obama, How Much Per Job?


Obama’s message in the first presidential TV press conference was straight forward.  Who was he talking to?  Sure we all want get going with the recovery.  Where is the problem?  If there were not problem, Obama would not have been talking.  Can the TV appearance be credited for the Senate passage?  Hardly. 


Stimulus (by now, it should be stimuli) bill got going because 3 Republicans voted with the Democrats.  Nancy Pelosi is having the no-compromise stand.  However, the margin in the Senate is 2 Republican votes.  Nancy Pelosi may actually get hurt at the end.  Republicans have no problem with sinking since they are sinking a Democrat president.  The remaining Republicans got fairly safe seats.  Even if there is a backlash against Republicans, they felt they got their seats firmly.  House Republicans’ attitude is the proof.  Senate Democrats understood this fully.  That’s why Senate Majority Leader Reid says “the differences are minor”.  They are minor only when you want to compromise.  Reid is basically telling Pelosi to get it over with.  


Was Obama talking to Nancy Pelosi?  Or Senate Republicans?  Does public opinion carry weights on the Senate Republicans?  Hardly.  May be to someone like Palin who has national inspiration.  For the Senate Republicans, it cannot be appealing, at least not for another one and a half year when the midterm election is up or Republican primary is up.  So, could Obama be trying to build public support against Pelosi?  That would be an entertaining idea. 


$838B to create how many jobs?  The up side says 3.8M jobs.  Let’s say 4M.  So, we will spend $209,500 per job creation.  And let’s round it down, say 209K or even 200k per job and take the general rule of thumb that another $20 is needed for payroll tax and benefits.  We are looking at $174k per job (round down again).  What kind of job are these, actually?  And I guess $174k / job is okay because they are not $500k executive pay?


Gary Becker (1992 Nobel and right wing) gives the lowest multiplier so far I have read, below 1.  Let’s take that multiplier as half of 1.5 (the consensus he claims).  We are looking at 0.7.  In that case, the actual $ per job creation is $130k per job creation.  Does it make you wonder if you want to drop you current job and take one of these 4M jobs that are to be created by the government?


Yes, this is very cynical.  That is very inefficient.  That is exactly the point of the Senate Republicans.  Here is the however.


However, what is the cost of inaction?  How little is “just enough” for recovery?  This is not a typical recession.  A lot of this recovery is related to confidence: consumer confidence and investor confidence.  Any kind of stimulus of this magnitude cannot really afford a staged approach.  The stimulus has to be big enough to create a reverse shock effect to ignite activities.  The problem with staged approach is each new stimulus actually reinforces the perception that “We are doomed. We have tried so many times and we failed.  Give it up.  We should not try it again.” 


So you may agree to Senate Republican’s message.  However, can you afford to err on the “right” side?  Or would you rather err on the left side?


February 10, 2009 Posted by | banking, Current Events, 美國, Democrats, obama, opinion, politics, Regulation, Republican, wordpress-political-blogs | Leave a comment

What Is The Price Per Vote To Pass The Bailout Bill?

CNN says more banks are likely to fall.  It seems like that 700B will get plenty of asset to buy.  Now, how much did the additional votes cost to get the bill?


Taxpayers For Common Sense compiles a list of 15 pet projects within the bailout bill ().  It would be difficult to determine which provision actually got tucked into the bill to exchange for votes.  However, we can see where the most direct beneficiary of the provisions and see the incentives of the votes, especially the switch votes.  


Of the 15 listed there, 10 of them are costed out.  They total price tag is $26,396 M.  

There were 60 switch votes: 58 No-to-Yes, 1 Abstain-to-Yes, 1 No-to-Yes.


If you cross out the direct beneficiary of the provisions listed in the website and plus 2 guesses I have for the research provision (301) and racetrack provision (317), then you get the table below:

















201 Sales Tax Deduction









































This is a total of $26.4B for 30 votes (some of these votes above are the same votes).  This is a total of $890M/vote.  These 30 votes cover 51% of all swtiched votes.


The famous archery provision is provision 503.  That provision, jointly with 211, gave the bailout bill 1 vote.  Together, those 2 provisions cost $12M.  The interesting thing is that the House Representative who district covers the biggest beneficiary company Rose City Archery, which is located Mytle Point of Oregon, voted against the bill twice.  The original House sponsor is actually Representative Kind from WI (Yes twice).  By far, the most cost effective provision is 602 (Transfer to abandoned mine reclamation fund).  $9M for 7 votes, $1.3M per vote. 


The most expensive provision is 301, $19B.  I only identified TX, IL, WA.  However, I am sure there are more states which would be benefited because of it.  This one so far got 9 votes (and very likely more). 


The most cost ineffective is 601, $3.3B for 1 vote.  It benefits OR and ID.  However, ID completely voted against the bill.  I guess they did not exactly want the money. 

October 7, 2008 Posted by | activism, advocacy, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, obama, Palin, politics, Regulation, Republican, wordpress-political-blogs | 1 Comment

Bailing Out Van Gogh Traders?

The senate has passed Bailout bill, an important bill by itself and even more so during an election season.  Simultaneously, Americans are debating about the next President as well as the centennial financial crisis.  The debate will continue: about what sweeteners ought to be in and what to be tossed out (mainly the idea of buying toxic assets from the banks), even after this implementation.  However, this bailout probably provides an excellent stage for a third debate: what is fair market value?


Part of this mess has something to do with the accounting rule about the value of an asset.  Currently, the valuation of an asset goes by the rule of “mark-to-market”.  Politicians (French Sarkozy for now) is ready to bend the “mark to market” rule .  However, plenty of accountants can explain to you why “mark to market” is important.  


No one can argue against accountant accounting, although plenty of people can win arguments against lawyers about laws.  Accountants will tell you that it is about liquidity in the market, it is about protecting shareholders, etc.  Ask yourself this: can you put all your money into a box that you may not be able to open and retrieve your money?  Accountants are saying you should put the money into something you can always retrieve.  Mark to market makes the box transparent to you.  Even though you are not retrieving the money at this moment, you can still see what you got in the box.  Liquidity gives you transparency.  However, you still have to sell the asset in order to see the value.  With mark to market, you can see the money, based on the current market conditions.  


It comes back to the market design.  Financial institutions put the money in market(s) where the products are thinly traded (not much liquidity).  Thus, if everything is mark to market during the good times, everyone and everything is fine since every asset value is growing.  However, once it falls, liquidity vanishes quickly.  Who is ideal to take the role of market design? Regulating bodies.  Regulating body does not have to be the government.  American Bar Association is a self regulating body.  Accountants used to be a self regulating body.  However, in centennial financial crisis, there was no regulating body for these asset backed commercial papers.  



Let me give an example of a market that has a similar liquidity as the situation we are in: fine arts.  


When the economy is in boom, paintings (or whatever else Sotheby auctions) sell well, both in quantity and in price.  However, once the economy goes down, both quantity and price go down.  When quantity goes down, there is no market and thus no market value for anything you hold.  


In a sense, all these financial institutions were trying to make money out of trading Van Gogh.  That makes this bail out like a Van Gogh traders bail out.

October 2, 2008 Posted by | Barack Obama, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, obama, politics, Regulation, Republican, wordpress-political-blogs | Leave a comment

$700B buys a Wall Street PATRIOT ACT

Warren Buffet has called the credit derivatives the “financial weapons of mass desctruction”.  To combat this financial weapon of mass destruction, Bush administration is getting another Patriot Act with a price tag of $700B.  Pentagon runs about $500B.  Paulson is essentially asking to run the biggest show now.  The best part of this proposal is that Paulson left out the oversight part.  Even McCain is screaming about oversight now.


$700B of spending without oversight.  Hm… does it sound like the No-fly list created by PATRIOT Act?


Patriot Act was the last option before the Al Qaeda Armageddon.  Paulson now delivers the rescue of last resort (the latest?) before the financial weapon of mass destruction.  A nice parallel.


Forbes gives a good article about all the major points of the Paulson proposal here.



The foreign participant part is just special interest (executive compensation too), no different from any other legislator who wants a dip.  The interesting part is, so far, this plan seems to only focus on bailing the banks and leaves out the individual homeowners.


Working off these assets is a huge task.  If this bail out effort has the budget constraint of 700B, then prioritizing the assets itself is highly political, especially during an election year.  


The unfortunate part of this story is that he only gets to stage the show, not really running it since he will be leaving office by the time everything is running.  Is this thing going to be cost effective?  Is it going to be worth the money?  Or is it another gig of pork barrel and plum jobs?  Remember how the contractors got nice deals out of the war against terrorism? And somehow quite a good amount of them are friends of Cheney?  Is this the Paulson version now?

Fear is the best friend of politicians.

September 22, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Election 2008, Investment, John McCain, mccain, obama, Palin, politics, Regulation, Republican, Sarah Palin, wordpress-political-blogs | 5 Comments

The Danger Of The Merrill Purchase To You

Thank God, they bailed out AIG”?  Can we say “Thank God, Bank of America bought Merrill”?

Do you think the Merrill (NYSE:MER) take-over by Bank of America (NYSE:BAC) is better than the bankruptcy of Lehman (NYSE:LEH)?  Because at least the company is saved?  Not really, unless you are an employee of Lehman.  In fact, the Merrill take-over by Bank of America is worse to all tax payers and to anyone who is a depositor of Bank of America (Bank of America has overseas operations).  


Investment banks take high leverages.  Investment banks have a different nature in their business from retail or commercial banks (or wholesale banks).  That is why investment banks have a much more volatile nature than other banks.  For instance, take the year 2000 instead of 2008.  The market capitalization variation of Citi (NYSE:C) is only 29% while Goldman (NYSE: GS) is 62%.


The danger of this merger is that since investment banks are a lot more volatile, having a deposit bank and an investment in the same balance sheet puts the retail depositors’ money in danger.  It comes down to one question: what if the hole of investment bank is big enough to suck out all the depositors’ money?  Exactly for this reason, America got a thing called Glass-Steagall: separating investment banks and deposit banks.  This requirement is removed by another law Gramm-Leach-Bliley during Clinton Administration.


Glass-Steagall was created to contain the risks from the investment banking industry, preventing their risks to spread out to all over the place.  Investment banks make loads of money during the good time, i.e. high M&A seasons.  During the bad times, like we have now, investment banks sink harder than Titanic. 


This merger means more of FDIC’s money is now exposed to a greater risk, the hole of Merrill.  Bank of America’s Tier 1 capital is now at best 7.4% Once we see formal filing, we will probably see that the Tier 1 will be even lower than 7.4%.  What is the cost to the depositors?  What can be done about it?  The fed can actually give Bank of America a greater pressure on the Tier 1 capital requirement.  It cannot fix everything, but something. 


Bank of America already swallowed LaSalle and Countrywide.  However, Countrywide is more about swallowing client list.  LaSalle is more about geographic expansion.  Merrill is about a new business line and new clientele.  This will be a great test of Bank of America’s management.  It’s just that Bank of America is not known for management integration.


Certainly Bank of America got the biggest brand in the investment bank.  What is the price in addition to the stock swap?  What is the management cost of this merger?  This will take years or even a decade to work out the integration.  How long will it take to get a divorce out of this one?


September 17, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, finance, Investment, John McCain, market, mccain, Money, obama, opinion, politics, Regulation, Republican, Sarah Palin, wordpress-political-blogs | Leave a comment