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August 7, 2012

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 13 Jul 2012 12:24 AM PDT
The wealthy aren't anywhere near as important as they think they are:
Who's Very Important?, by Paul Krugman, Commentary, NY Times: "Is there a V.I.P. entrance? We are V.I.P." That remark, by a donor waiting to get in to one of Mitt Romney's recent fund-raisers in the Hamptons, pretty much sums up the attitude of America's wealthy elite. Mr. Romney's base — never mind the top 1 percent, we're talking about the top 0.01 percent or higher — is composed of very self-important people.
Specifically, these are people who believe that they are, as another Romney donor put it, "the engine of the economy"; they should be cherished, and the taxes they pay, which are already at an 80-year low, should be cut even further. Unfortunately, said yet another donor, the "common person" — for example, the "nails ladies" — just doesn't get it.
O.K., it's easy to mock these people, but the joke's really on us. For the "we are V.I.P." crowd has fully captured the modern Republican Party.. And there is, of course, a good chance that Republicans will control both Congress and the White House next year.
If that happens, we'll see a sharp turn toward economic policies ... especially solicitous toward the superrich — I'm sorry, I mean the "job creators." So it's important to understand why that's wrong.
The first thing you need to know is that America wasn't always like this. When John F. Kennedy was elected president, the top 0.01 percent was only about a quarter as rich ... and ... paid much higher taxes... Yet somehow we managed to have a dynamic, innovative economy that was the envy of the world. ...
What about the argument that we must keep taxes on the rich low lest we remove their incentive to create wealth? The answer is that we have a lot of historical evidence ... and none of it supports the view that ... tax-rate changes ... currently on the table ... would have any major effect on incentives. Remember when all the usual suspects claimed that the economy would crash when Bill Clinton raised taxes in 1993?
Furthermore, if you're really concerned about the incentive effects of public policy, you should be focused ... on workers making $20,000 to $30,000 a year, who are often penalized for any gain in income because they end up losing means-tested benefits like Medicaid and food stamps. ...
So, are the very rich V.I.P.? No, they aren't — at least no more so than other working Americans. And the "common person" will be hurt, not helped, if we end up with government of the 0.01 percent, by the 0.01 percent, for the 0.01 percent.
Posted: 13 Jul 2012 12:06 AM PDT
Posted: 12 Jul 2012 12:15 PM PDT
Nope, there's no need for regulation of financial markets, or for something like a consumer financial protection bureau:
Justice Department Details Higher Rates Charged to Minority Borrowers, by Janet Paskin, WSJ: At least 34,000 African-American, Hispanic and other minority borrowers paid more for their mortgages or were steered into subprime loans when they could have qualified for better rates, according to the Department of Justice. The DOJ settled a fair-lending lawsuit with Wells Fargo, the nation's largest mortgage lender, on Thursday.
That adds up to real money – and, in some cases, real stress:
As a result of being placed in a subprime loan, an African-American or Hispanic borrower… was subject to possible pre-payment penalties, increased risk of credit problems, default, and foreclosure, and the emotional distress that accompanies such economic stress.
The complaint also says that between 2004 and 2008, "highly qualified prime retail and wholesale applicants for Wells Fargo residential mortgage loans were more than four times as likely to receive a subprime loan if they were African-American and more than three times as likely if they were Hispanic than if they were white."
During the same period, the complaint says, "borrowers with less favorable credit qualifications were more likely to receive prime loans if they were white than borrowers who were African-American or Hispanic." ... Bank of America agreed to pay $335 million in settling similar charges in December. ...
I suppose I should add: It wasn't the CRA.
Posted: 12 Jul 2012 09:09 AM PDT
Ezra Klein:
The world desperately wants to loan us money, by Ezra Klein: The Financial Times reports that there was record demand for 10-year Treasurys this week. "The $21 [billion] sale of 10-year paper sold at a yield of 1.459 per cent, the lowest ever in an auction." ...
Remember: Low yields means we're getting the money for a cheap. It means the market thinks we're a safe bet. And it means we have the opportunity to get capital for almost nothing and invest it productively.
Actually, I got something wrong there. I said "almost nothing." But ... when you ... account for inflation, it's not "almost nothing." It's "less than nothing." ... They're negative. Negative! The market will literally pay us a small premium to take their money and keep it safe for them for five, seven or 10 years. We could use that money to rebuild our roads and water filtration systems. We could use that money to cut taxes for any business that adds to its payrolls. We could use that to hire back the 600,000 state and local workers we've laid off in the last few years.
Or, as Larry Summers has written, we could simply accelerate payments we know we'll need to make anyway. We could move up maintenance projects, replace our military equipment or buy space we're currently leasing. All of that would leave the government in a better fiscal position going forward, not to mention help the economy.
The fact that we're not doing any of this isn't just a lost opportunity. It's financial mismanagement on an epic scale.
Why not put people to work doing useful things at such a low cost? We all know the answer, there's no chance Republicans in Congress would allow it. For the political right, there is no greater good, only our side and your side.
Posted: 12 Jul 2012 06:48 AM PDT
In case you missed this:
Government documents unearthed by the Boston Globe show that Mitt Romney appeared to have remained CEO and chairman of Bain Capital three years after he said he had ceded control. The date of his departure is important because he has said his resignation in February 1999 means he can't be held responsible for bad investments the company made or people it laid off after he left.
From the Globe:
According to a statement issued by Bain Wednesday, "Mitt Romney retired from Bain Capital in February 1999. He has had no involvement in the management or investment activities of Bain Capital, or with any of its portfolio companies, since that time."
A former SEC commissioner told the Globe that the SEC documents listing Romney as Bain's chief executive between 1999 and 2002 cannot be dismissed so easily.
"You can't say statements filed with the SEC are meaningless. This is a fact in an SEC filing," said Roberta S. Karmel, now a professor at Brooklyn Law School. ...
The Globe found nine SEC filings submitted by four different business entities after February 1999 that describe Romney as Bain Capital's boss; some show him with managerial control over five Bain Capital entities that were formed in January 2002, according to records in Delaware, where they were incorporated.
A Romney campaign official, who requested anonymity to discuss the SEC filings, acknowledged that they "do not square with common sense." But SEC regulations are complicated and quirky, the official argued, and Romney's signature on some documents after his exit does not indicate active involvement in the firm. ...
Karmel, the former SEC commissioner, said the contradictory statements could have legal implications in some instances.
"If someone invested with Bain Capital because they believed Mitt Romney was a great fund manager, and it turns out he wasn't really doing anything, that could be considered a misrepresentation to the investor,'' she said. "It's a theory that could be used in a lawsuit against him."
Romney's claims about this appear to be about as accurate as his stump speech -- meaning not accurate at all.
When will the press begin to label his as the dissembler (to be kind) he appears to be?
Posted: 12 Jul 2012 06:39 AM PDT
Simon Johnson:
The Market Has Spoken, and It Is Rigged, by Simon Johnson, Commentary, NY Times: In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.
This is a big mistake.. The behavior at Barclays has all the hallmarks of fraud... Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. ...
Nevertheless, five arguments put forward in the last 10 days ... attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.
First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse... Second, it is also asserted that "everyone does it." This is not any kind of defense – try it next time you are accused of fraud. ...
Third, Libor-rigging is defended as a "victimless crime." This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. ...
Fourth, some contend that it is the regulators' responsibility and fault that there was cheating on Libor. It is certainly the case that there was regulatory capture at work... But who does the capturing in regulatory capture? Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.
Fifth, the weakest argument is, "It was only a few basis points, here and there"... Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no "just a little" in this context for the enormous global securities market. ...
How will this play in American politics? There is still time for politicians on the right and on the left of the political spectrum to get ahead of the issue. Digging in around specious arguments in favor of price-fixing cartels is not the way to go.
Power corrupts, and financial market power has completely corrupted financial markets. ...
There's also the argument that regulating the industry will harm economic growth, but look at the growth rates we currently have -- thanks in large part to an out of control financial sector -- to see the folly of that claim. Deregulation of the financial industry did not bring us the robust economy that we were promised, it brought disaster, fraud, and who knows what else, and more oversight is clearly needed.

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