Tag: economics

Carbon Credit Market and Goldman

Seth Anderson0 comment

As I said earlier, I don’t whether the new Cap and Trade legislation is a good step or not, I don’t have enough knowledge on the details, yet. However, I’m suspicious as to who is going to take most of the profits, namely Goldman Sachs.

Midas Touch

As Matt Taibbi writes:

The new carboncredit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.

Here’s how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigmshifting legislation, (2) make sure that they’re the profitmaking slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for capandtrade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson’s report argued that “voluntary action alone cannot solve the climatechange problem.” A few years later, the bank’s carbon chief, Ken Newcombe, insisted that capandtrade alone won’t be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, “We’re not making those investments to lose money.”

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utahbased firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There’s also a $500 million Green Growth Fund set up by a Goldmanite to invest in greentech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energyfutures market?

“Oh, it’ll dwarf it,” says a former staffer on the House energy committee.

[Click to continue reading The Great American Bubble Machine : Rolling Stone]

Suspicious, indeed.

Satanic Gift

Why are we privatizing cap and trade and not just making a straight tax on carbon emission?

Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private taxcollection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it’s even collected.

“If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedgefund director who spoke out against oilfutures speculation. “But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.”

The Great American Bubble Machine – Gasoline

Seth Anderson1 Comment

Matt Taibbi’s putdown of Goldman Sachs is finally online if you didn’t get a chance to read it yet. He places Goldman Sachs at the scene of several crime scenes, also known as stock market bubbles. For instance, the summer of 2008’s massive gas price increase. Reserves of crude oil were as high as they had ever been, demand was lower because of a world-wide economic slowdown, why then did gasoline prices exceed $4?

Gas At Last

Taibbi explains:

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a “traditional speculator,” who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC’s oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldmanowned commoditiestrading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren’t the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman’s argument. It issued the bank a free pass, called the “Bona Fide Hedging” exemption, allowing Goldman’s subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that’s likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

[Click to continue reading about the gasoline bubble: The Great American Bubble Machine : Rolling Stone]

Read the entire article here

Reading Around on July 3rd

swanksalot0 comment

Some additional reading July 3rd from 14:02 to 18:15:

  • Photos of Sarah Palin from RunnersWorld.com – “I used to joke around with John McCain during the campaign about coming jogging with me. And once I asked him what his favorite exercise was, and he said, ‘I go wading.’ Wading. He lives on a creek in Arizona, so he goes wading. That cracked me up.”

  • Matt Taibbi – Taibblog – Goldman Sachs is reeling under public pressure – True/Slant – That a company as rich and powerful as Goldman would stoop to peering through the web version of a locker-room peephole to make a few extra pennies either front-running random trades or somehow using visitor data “not for their benefit” shows how completely and utterly morally absent this company is. There is not an ill-gotten dollar they will not chase, no matter how small or insignificant the sums might be.

    Word should be spread about this and anyone who used the Goldman 360 portral for trading should seriously investigate this situation, as it is entirely possible you’ve been ripped off …

    More to the point, the fact that Goldman is getting enough public pressure that it feels it has to respond to these queries shows that the company is reeling. And the fact that their public statements have been so hilariously transparent and clumsy shows that they’re rattled and don’t know how to handle this kind of heat, which they’re not used to getting

  • Email Full-resolution Photos From the iPhone 3G S | Geek stuff – “What I found was, the photos contained in the email were full-resolution 2048×1536 photos, not the puny 800×600 photos that get sent via the “Share” method.”
    basically, use copy/paste

Reading Around on July 2nd through July 3rd

swanksalot0 comment

A few interesting links collected July 2nd through July 3rd:

  • Dovecote Records Limewire is a bunch of hypocrites Gets mad at Us for stealing –

    Woman: “Who the FUCK are you? And why are you eating our pizza?”

    Kosuke: Well our friend came in and told us there was free pizza at the bar. We are. So. Sorry. It was a misunderstanding.

    Woman: (with unbridled entitlement) This is a company party our CEO is here and you STOLE our pizza. Are you from out of town? Because let me tell you, NOTHING is free in New York City. Nothing is free… well maybe except for the condoms in Times Square.

    Paul and Kosuke continue apologizing. They offer to pay for the two slices.

    Woman: (didactically snobbish) We don’t want your money. No. Enjoy the pizza, but you can’t steal other people’s things. You can’t take what’s not yours

    Kosuke: What company do you guys work for?

    Woman: We work for Limewire.

    <Long pause> Kosuke’s eyes go wide. Anger festers in his pupils.

    Kosuke: Oh ok. Well I work at a record label so fuck you. You’ve stolen from us enough. (Bites pizza. Begins to walk away.)

  • That’s Right! I Said It’s Caipirinha Time! on Flickr – Photo Sharing! – Every time I look at Friendly Joe’s awesome caipirinha making instructional Flickr page, I get a mighty, mighty thirst.

    “Caipirinhas are the Brazilian national drink. That said, we won’t conject on the overall condition of the Brazilian populace at large. No worries- They’re refreshing and the weather’s warmin’ up –
    Follow these simple guidelines and you’ll be ready to samba in your neighbor’s flower beds in no time… “

  • Tour № 2 – Ogden Avenue Extension | Forgotten Chicago –

    “Left: A brief aside, in case you forgot who built this damn city!

    Right: Remnants of Ogden’s bridge supports are still visible south of Division Street.”

  • Saddam And Goldman Sachs: Who Is The Student, And Who Is The Master? –

    The funniest part is, you could legitimately argue that Goldman Sachs has killed more people than Saddam.

Reading Around on June 29th through June 30th

swanksalot0 comment

A few interesting links collected June 29th through June 30th:

  • Matt Taibbi – Taibblog – On giving Goldman a chance – True/Slant – I intentionally put a lot of yes/no questions on that list. If the underlying thinking behind any of those questions was faulty, it would have been easy enough for them to say so and to educate us as to the truth. Instead, here is the response that we got:

    “Your questions are couched in such a way that presupposes the conclusions and suggests the people you spoke with have an agenda or do not fully understand the issues.”
    …That this is a non-denial denial is obvious, but what’s more notable here is that they didn’t stop with just a flat “no comment,” which they easily could have done. No, they had to go a little further than that and — and this is pure Goldman, just outstanding stuff — make it clear that both I and my sources are simply not as smart as they are and don’t understand what we’re talking about. So the rough translation here is, “No comment, but if you were as smart as us, you wouldn’t be asking these questions.”

  • Dean W. Armstrong: The intersection of the online/sharing culture, copyright, and photography – The issues are completely muddy and complex–as a photographer, for instance, I feel I should be compensated for my work. Websites like say Chicagoist or Treehugger use flickr CC shared images to illustrate their stories. In the traditional media, the photographer would be compensated for their work, either by being employed or by a fee. This is not being done at all for most of the non-traditional sites on the internet. It is also a truth that these sites probably couldn't afford the going rate for photographs. Getting your image out for people to see for a photographer is a very important thing, but is it driving the image creation business out of a profession and into the hands of casual photographers? (The latin term amateur is perfect for here but misused–these photographers love what they do and are often just as good as a pro, but the amateurs are not paid).
  • My Dinner With Andre :: rogerebert.com :: Great Movies – Someone asked me the other day if I could name a movie that was entirely devoid of cliches. I thought for a moment, and then answered, “My Dinner With Andre.'' …impressed once more by how wonderfully odd this movie is, how there is nothing else like it. It should be unwatchable, and yet those who love it return time and again, enchanted.…
    We listen with Wally as Andre tells of trips to Tibet, the Sahara and a mystical farm in England. Of being buried alive and conducting theatrical rituals by moonlight in Poland. Of being in church when “a huge creature appeared with violets growing out of its eyelids, and poppies growing out of its toenails.'' After this last statement, Wally desperately tries to find a conversational segue and seizes on the violets. “Did you ever see that play `Violets Are Blue'?'' he asks. “About people being strangled on submarines?''

    Like many great movies, “My Dinner With Andre'' is almost impossible to nail down.

How Kiva Works

Seth Anderson0 comment

Stumbled upon a micro-finance website called Kiva which sound intriguing. Their bona fides seem good (partners include Google, American Express, Microsoft, and other blue-chip corporations), and their mission is one I support, as an entrepreneur myself, and as a citizen of Earth. Microfinancing, as it is called, is a fairly recent innovation, giving small cash loans to those tiny businesses around the globe that are too small to attract attention from corporate banks.

I had not heard of this organization until today, but apparently they have been in the public eye for a few years:

Kiva’s business plan was quite straightforward: An online platform would allow ordinary people to invest in small and medium enterprises (SMEs) in the developing world. (See “Kiva’s Loan Cycle” on page 70 for an overview of how Kiva works.) Users would log on to the Web site to read the personal accounts of Kiva’s carefully chosen borrowers and then use their PayPal accounts or credit cards to lend as little as $25 to a borrower. On-the-ground MFIs would then administer the loans to the borrowers. Users would get their money back over the course of a year, with the option of either relending the money or pocketing it. While the loan agreement was in place, users would also receive frequent updates about their borrowers from the MFIs.

Despite the simplicity of their model, Flannery and Jackley ran into a tremendous amount of resistance from microfinance experts. “The criticisms were about both the supply side and the demand side,” says Jackley. “On the supply side, critics said that the idea wasn’t scalable because of the time and effort needed to vet borrowers and then to post their stories on the Web. And on the demand side, the critics said, for whom is this product intended?” The microloans were neither investments nor donations. “No one knew what to do with this bizarre, in-between product,” she says.

Another issue was how much interest (if any) Kiva could charge borrowers and return to lenders. Kiva’s founders originally wanted to offer lenders the option of earning interest on their loans, both to attract lenders and to transform the usual wealthy donor-poor beneficiary hierarchy into the more egalitarian lender-borrower relationship. Yet returning interest on loans could have turned the loan into a security in the eyes of the Securities and Exchange Commission (SEC). Offering a security to the public would trigger a long list of SEC requirements, including sufficiently collateralizing the loans and investing only in entities that comply with U.S. accounting standards.

Kiva’s founders also debated whether to be a nonprofit or a for-profit organization. Establishing Kiva as a nonprofit was the fastest way for the founders to get the site up and running. Yet they could not readily ascertain whether a charitable organization could extend loans rather than donations. They were also unsure what tax implications Kiva and its lenders would face upon the return of the loan principals and, should they charge interest, profits.

Finally, skeptics doubted whether Kiva could actually help lift many people out of poverty. A common theory circulated that, for microfinance to have a significant impact on world poverty, MFIs would need to be integrated into the global economy and to tap into the capital markets. Yet most MFIs did not qualify for commercial-grade investments. Rather, they relied on donations, especially during their early years of operation. Observers questioned how Kiva could find enough appropriate MFIs with a reasonable number of borrowers to help the organization establish a creditworthy track record.

[Click to read more of Stanford Social Innovation Review : Articles : The Profit in Nonprofit (May 20, 2009)]

Kiva explains how the process works:

The below diagram shows briefly how money gets from you to an entrepreneur, and back.
1) Lenders like you browse profiles of entrepreneurs in need, and choose someone to lend to. When they lend, using PayPal or their credit cards, Kiva collects the funds and then passes them along to one of our microfinance partners worldwide.

2) Kiva’s microfinance partners distribute the loan funds to the selected entrepreneur. Often, our partners also provide training and other assistance to maximize the entrepreneur’s chances of success.

3) Over time, the entrepreneur repays their loan. Repayment and other updates are posted on Kiva and emailed to lenders who wish to receive them.

4) When lenders get their money back, they can re-lend to someone else in need, donate their funds to Kiva (to cover operational expenses), or withdraw their funds.

[From Kiva – How Kiva Works]

For me, whenever I am feeling depressed or angry at the world, especially around holiday season when I cannot squeeze in a trip home to see my family, I donate to food banks or other charities. I don’t talk about it with anyone: not relevant, but the simple act of anonymously sharing money with others who need it more than I do elevates my mood. When I think about it, I am extremely fortunate to be in the financial position I am in. I may not have a retirement fund, I may only have a few thousand dollars in the bank, but I’m fat and well-fed, with no material needs unmet.

Anyway, I’m reluctant to continue this thought, suffice it to say, I joined Kiva.org, and will be circulating some of my money there. You should too.

The most irritating aspect of Kiva.org is their insistence that lenders use PayPal. I don’t really prefer to use PayPal for any transaction that I don’t have to. Since I just had some cash deposited in my PayPal account, I’ll use that. I wonder if PayPal gives them a more favorable fee structure?

Oh, there is the hidden link to use a non-PayPal account. You can just donate money using a credit card after all. Well, why not, I’ll do that too…

Reading Around on June 10th through June 13th

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A few interesting links collected June 10th through June 13th:

  • ESPN – OTL: Phil At Work – Jackson is not thinking about 10 rings. – He puts the players on alert with it. Trap now. Watch the double. Jump out on that screen-roll. See what the opponent is doing — read the floor. Its meaning shifts. It’s a text to be read, interpreted and acted upon.…His brother taught him the whistle when they were kids. Jackson used it to call his dog …when they were walking through the streets of his hometown of Williston, N.D. When he got to the NBA, and shouting stripped his voice, he turned to the whistle.”Now it’s the source of his power, in a way,” assistant coach Brian Shaw says. “If it were words he was shouting, you could hear them or not hear them, but with the whistle, he’s asking you to think, he’s putting it on you.”

    It’s equal parts advance and retreat, right? He commands attention, then backs off, maybe leans back in his courtside chair, even puts his hands in his lap. The whistle says he’s here and he has expectations, and at the same time it says he trusts you, believes you can do what needs doing.

  • Valassis Uses News America’s Own Clients Against in Trial; Feel the Wrath of Sara Lee! | BNET Advertising Blog | BNET – “Account reps for News America Marketing could face some uncomfortable meetings and phone calls with their clients over the next few weeks, because dozens of their clients’ names have been dragged into the ongoing Michigan state court trial in which the agency is accused of forcing its customers to take anti-competitive bundled deals on in-store promos and newspaper coupons.The News America clients named on just the first day of the trial were:

    Procter & Gamble, Unilever, Dial, S.C. Johnson, Georgia-Pacific, Campbells, Sara Lee, Pepsi, Church & Dwight, Johnson Family Co., Kraft, Coca-Cola, Conagra, Cadbury, Ocean Spray, Clorox, Novartis, Pfizer, Tropicana and Reckitt-Benckiser.”

  • Yes! 50 Scientifically Proven Ways to Be Persuasive « alex.moskalyuk – Number 7 sounds like Apple’s iPhone 3GS and 3G pricing model:
    “A more expensive product makes the old version look like a value buy. An example here is a Williams-Sonoma bread maker. After an introduction of a newer, better, and pricier version, the sales of the old unit actually increased, as couples viewed the new item as “top of the line”, but old product was all of a sudden reasonably-priced, even though a bunch of features were missing”

Fools Gold

Seth Anderson0 comment


“Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe” (Gillian Tett)

According to Gillian Tett (by way of New Yorker columnist John Lanchester), our current financial meltdown started because of the Exxon Valdez oil spill.

first bore fruit when Exxon needed to open a line of credit to cover potential damages of five billion dollars resulting from the 1989 Exxon Valdez oil spill. J. P. Morgan was reluctant to turn down Exxon, which was an old client, but the deal would tie up a lot of reserve cash to provide for the risk of the loans going bad. The so-called Basel rules, named for the town in Switzerland where they were formulated, required that the banks hold eight per cent of their capital in reserve against the risk of outstanding loans. That limited the amount of lending bankers could do, the amount of risk they could take on, and therefore the amount of profit they could make. But, if the risk of the loans could be sold, it logically followed that the loans were now risk-free; and, if that were the case, what would have been the reserve cash could now be freely loaned out. No need to suck up useful capital.

In late 1994, Blythe Masters, a member of the J. P. Morgan swaps team, pitched the idea of selling the credit risk to the European Bank of Reconstruction and Development. So, if Exxon defaulted, the E.B.R.D. would be on the hook for it—and, in return for taking on the risk, would receive a fee from J. P. Morgan. Exxon would get its credit line, and J. P. Morgan would get to honor its client relationship but also to keep its credit lines intact for sexier activities. The deal was so new that it didn’t even have a name: eventually, the one settled on was “credit-default swap.”

[From Outsmarted: Books: The New Yorker]

I haven’t read the book yet, but I ordered it after reading these sentence:

The value of Gillian Tett’s book is in the level of detail with which she tells the story, concentrating on the specific sequence of inventions and innovations that made it possible. Tett, a Financial Times reporter who covered the credit markets, was one of the few people to have seen the implosion coming. A critical factor was that she has a Ph.D. in social anthropology—a “hippie” background, as one banker told her, intending no compliment. It helped her focus on what she calls “social silences” in the world of banking.

Midas Touch

Bankers and their greed, but of course, greed with consequence for all of us.

There was one final component to the J. P. Morgan team’s invention. The team set up a kind of offshore shell company, called a Special Purpose Vehicle, to fulfill the role supplied by the European Bank for Reconstruction and Development in the first credit-default swap. The shell company would assume $9.7 billion of J. P. Morgan’s risk (in this case, outstanding loans that the bank had made to some three hundred companies) and sell off that risk to investors, in the form of securities paying differing rates of interest. According to J. P. Morgan’s calculations, the underlying loans were so safe that it needed to collect only seven hundred million dollars in order to cover the $9.7-billion debt. In 1997, the credit agency Moodys agreed, and a whole new era in banking dawned. J. P. Morgan had found a way to shift risk off its books while simultaneously generating income from that risk, and freeing up capital to lend elsewhere. It was magic. The only thing wrong with it was the name, BISTRO, for Broad Index Secured Trust Offering, which made the new rocket-science financial instrument sound like a place you went to for steak frites. The market came to prefer a different term: “synthetic collateralized debt obligations.”

John Lancaster’s article is fascinating, give it a read before the Rapture takes your neighbors away…

Legalize our Sins

Seth Anderson2 Comments

Other than the headline – that believing in sins requires one to believe in a religious authority that assigns value to actions – this is an idea I believe would benefit our society. Nick Gillespie, editor of Reason Magazine, writes:

Wages of Sin and a Pink Caddy

Here’s a better idea — and one that will help the federal and state governments fill their coffers: Legalize drugs and then tax sales of them. And while we’re at it, welcome all forms of gambling (rather than just the few currently and arbitrarily allowed) and let prostitution go legit too. All of these vices, involving billions of dollars and consenting adults, already take place. They just take place beyond the taxman’s reach.

Legalizing the world’s oldest profession probably wasn’t what Rahm Emanuel, the White House chief of staff, meant when he said that we should never allow a crisis to go to waste. But turning America into a Sin City on a Hill could help President Obama pay for his ambitious plans to overhaul health care and invest in green energy. More taxed vices would certainly lead to significant new revenue streams at every level. That’s one of the reasons 52 percent of voters in a recent Zogby poll said they support legalizing, taxing and regulating the growth and sale of marijuana. Similar cases could be made for prostitution and all forms of gambling.

In terms of economic stimulation and growth, legalization would end black markets that generate huge amounts of what economists call “deadweight losses,” or activity that doesn’t contribute to increased productivity. Rather than spending precious time and resources avoiding the law (or, same thing, paying the law off), producers and consumers could more easily get on with business and the huge benefits of working and playing in plain sight.

[Click to continue reading Nick Gillespie – Paying With Our Sins – NYTimes.com]

Unfortunately, too many vested interests impeding the progress of this idea. Too bad, because the economic numbers are extremely favorable:

Based on estimates from the White House Office of National Drug Control Policy, Americans spend at least $64 billion a year on illegal drugs. And according to a 2006 study by the former president of the National Organization for the Reform of Marijuana Laws, Jon Gettman, marijuana is already the top cash crop in a dozen states and among the top five crops in 39 states, with a total annual value of $36 billion.

A 2005 cost-benefit analysis of marijuana prohibition by Jeffrey Miron, a Harvard economist, calculated that ending marijuana prohibition would save $7.7 billion in direct state and federal law enforcement costs while generating more than $6 billion a year if it were taxed at the same rate as alcohol and tobacco. The drug czar’s office says that a gram of pure cocaine costs between $100 and $150; a gram of heroin almost $400; and a bulk gram of marijuana between $15 and $20. Those transactions are now occurring off the books of business and government alike.

Reading Around on March 24th through March 27th

swanksalot0 comment

A few interesting links collected March 24th through March 27th:

  • Is Jon Stewart Our Ed Murrow? Maybe… – Mr. Stewart. Yes, he makes funny faces and starred in Death to Smoochy, but, along with Stephen Colbert, his ability to entertain is what lends him his authority in the first place. Think about it. Why should we care who this or that newspaper publisher endorses for president? Answer: we only care because we care about the editorial influence on the audience. Presidential candidates don’t go seeking the endorsement of high school newspapers because, well, dude, kids don’t vote. Stewart and Colbert have the audience that powerful people want to reach; yet at the same time, these two men do not participate in a pack mentality, and that’s what makes them politically invaluable (and at this point, irreplaceable).

  • The President Vs. the Press – The Daily Beast – There you have it. CNN wants emotions, theatrics, the stamping of feet, mano-a-mano anger, and outrage contests. This is a presidency defined by cable news food-fights and Maureen Dowd-style armchair psychoanalysis. Obama wants to “know what he’s talking about,” pick the best policy to achieve it, and explain it as calmly as he can to his country. … Take a look at the blogging of the news conference by the New York Times’ Helene Cooper and Jeff Zeleny: At 8:28, Cooper writes: “Finally! A break from the wonkish budget talk.” Eight minutes later, Zeleny adds, “At the half-way mark, Mr. Obama has yet to make much news.” In the meantime, Obama has been trying to explain, in part using the press and in part going over the heads of the press, why what he’s trying to do with his budget will address the source of their concern about their futures. Where’s the fun in that?

  • All Ears: Dancing with the Scars (Emotional Ones) – Photo Credit: Seth Anderson

  • Beer drinkers could purchase direct from local breweries under compromise plan | Texas Watchdog – Shiner beer photo by flickr user swanksalot, used via a Creative Commons license.

Not Insane: Payroll Tax Holiday

swanksalot0 comment

I’m with The New Yorker’s Henrik Hertzberg on this one – let’s at least temporarily reduce the various payroll taxes1 that are deducted from most workers paychecks2.

Moto and the devouring of money2

Where income taxes are concerned, even Republicans seldom argue that taxing added income over a quarter million dollars at, say, thirty-six per cent rather than thirty-three per cent is wrong because the affluent need more stuff. They argue that making the rich richer enables them to create jobs for the non-rich. More jobs: that’s a big argument for capital-gains and inheritance-tax cuts, too. But the payroll tax is a direct tax on work and workers—on jobs per se. If the power to tax is the power to destroy, then the payroll tax is, well, insane.

[David] Frum is not the only Republican on the case. “If you want a quick answer to the question what would I do,” Mitch McConnell, the Senate Republican leader, said recently, “I’d have a payroll-tax holiday for a year or two. That would put taxes in the hands of everybody who has a job, whether they pay income taxes or not.” Other Republican politicians and conservative publicists have made similar noises. They haven’t made it a rallying point, though; it would, after all, shape the over-all tax system in a progressive direction. Anyhow, their sincerity may be doubted: when President Obama proposed a much more modest cut along similar lines—a refundable payroll-tax credit of four hundred dollars—they denounced it as a welfare giveaway.

Liberals have been reticent, too. The payroll tax now provides a third of federal revenues. And, because it nominally funds Social Security and Medicare, some liberals regard its continuance as essential to the survival of those programs. That’s almost certainly wrong. Public pensions and medical care for the aged have become fixed, integral parts of American life. Their political support no longer depends on analogizing them to private insurance. Besides, the aging of the population, the collapse of defined-benefit private pensions, the volatility of 401(k)s, and pricey advances in medical technology mean that, no matter what efficiencies may be achieved, Social Security and Medicare will—and should—grow. Holding them hostage to ever-rising, job-killing payroll taxes is perverse.

[From Not Insane: Comment: The New Yorker]

I say give it a shot. The Republican plan of cutting taxes on the upper income brackets, having been the mantra of the Congress for over a decade, has obviously not worked so well for the rest of us.

Footnotes:
  1. Social Security tax, the Social Security and Medicare tax, or the Federal Insurance Contributions Act (FICA) tax consume about 15% of a typical paycheck [↩]
  2. Not that it matters, but I’m for this even though it wouldn’t affect me directly (indirectly, if our economy resumes its typical strength) – I don’t have a sort of job where I get paid every week, two weeks, or even every month. I’m lucky if I get a few lump sums of cash a year, some years there are only lumps of coal, some years there are several projects that pay out. Like I said, not sure if it matters, really, to the matter at hand [↩]

Rule of Law and Sancitity of Contracts

Seth Anderson0 comment

Glenn Greenwald notes the absurdity of the claim that AIG’s outrageous bonuses must be paid because we are a nation of laws.

Soulsville cropped

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

…

To use Larry Summer’s eloquent phrase (perversely deployed to justify the AIG bonus payments)1: if “we are a country of law,” we would probably do something about these severe violations of law that are right in front of our faces, particularly since we all know exactly who the lawbreakers are.  

Apparently, this “we are a country of law” concept means that hundreds of millions of dollars in taxpayer money must be transferred to the AIG executives who virtually destroyed the financial system, but it does not mean that something must be done when high government officials get caught plainly breaking the law. What an oddly selective application of the “rule of law” this is.

…In comments, EJ has an excellent suggestion as to how the Government can enable AIG not to pay these bonsues:
Couldn’t Congress just give poor, well-meaning AIG immunity from lawsuits? Novel idea, huh?

That would certainly solve the problem.  If Congress (with Obama’s support) was willing to immunize lawbreaking telecoms from lawsuits brought by their illegally-spied-upon customers, shouldn’t Congress be willing to immunize AIG from bonus-seeking lawsuits brought by their executives who helped spawn the financial crisis?

[From The sanctity of AIG’s contracts – Glenn Greenwald – Salon.com]

Yes we are a nation of law, but we are also a nation of lawyers, and since when is a business contract sacrosanct? Just ask a labor union about renegotiating contracts.

such as:

Associated Press, February 18, 2009:

The United Auto Workers’ deal with Detroit’s three automakers limits overtime, changes work rules, cuts lump-sum cash bonuses and gets rid of cost-of-living pay raises to help reduce the companies’ labor costs, people briefed on the agreement said today. The UAW announced Tuesday that it reached the tentative agreement with General Motors Corp., Chrysler LLC and Ford Motor Co. over contract concessions, as GM and Chrysler sent plans to the Treasury Department asking for a total of $39 billion in government financing to help them survive.

Concessions with the union are a condition of the $17.4 billion in government loans that the automakers have received so far.

or, for example, a concession that has nothing to do with bailouts:

Members of the San Francisco Chronicle’s largest union have agreed to contract concessions that parent company Hearst Corp says are essential to keeping the newspaper open.

Members of the California Media Workers Guild voted by a 10-1 margin to approve concessions that would allow the Chronicle to cut at least 150 union jobs and eliminate various benefits and rights, according to a statement on the union’s website posted on Saturday evening.

New York-based Hearst had threatened to close the paper unless it could secure immediate concessions. The company also says that it may close the Seattle Post-Intelligencer newspaper, or possibly take it online only with a much smaller staff. A decision may come next week.

[From San Francisco Chronicle union OKs concessions | Reuters ]

So please, no bullshit about AIG bonuses being immune to renegotiation. I don’t believe it, and neither should you.

Obama can read between the lines too:

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama’s economic recovery agenda.

“In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. He added that he had asked Treasury Secretary Timothy F. Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”

“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses. But they said the Treasury Department would be trying to figure out what they can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the

[click to continue reading Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses – NYTimes.com]

Footnotes:
  1. We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system. [↩]

Reading Around on March 12th

swanksalot0 comment

Some additional reading March 12th from 19:11 to 21:58:

  • Mad Dog Blog – NBA players with Twitter.com Accounts – “I had no idea what Twitter was and so I decided to do some research and really figure it out. As I was checking on it I found someone’s blog who pointed out that a bunch of NBA players have Twitter accounts. Then on my own I found some other NBA players with accounts. Some of the players are listed below.

    Chris Bosh
    Andrew bogut
    Danny Granger
    Steve Nash
    Shaq
    Charlie Villanueva
    Tyson Chandler
    Jalen Rose
    Dwight Howard     “

    maybe. Some of these seem fake, or near fake.

  • Fdic: Banks Didn’t Pay Into FDIC Coffers From 1996 To 2006 – For 10 years—including the boom times banks enjoyed in the first half of this decade—the FDIC was prevented from collecting fees from 95% of financial institutions, which it would have used to further build up its safety net in the event it would someday have to bail out a bunch of stupid losers…

    Cornelius Hurley, director of the Boston University law school’s Morin Center for Banking and Financial Law, [said] if the FDIC has to take over a large bank—say, Citibank—the funds that remain would be drained “in a flash.”
    “Typically you would build up a reserve during the halcyon days to protect yourselves during a recession,” he said, calling the decision to stop collecting most premiums “a political one” that was pushed by banks and not based on strict accounting principles.

    Of course the American Banking Association says it made no sense to pay into the FDIC during those 10 years because they had more than enough money. Congress, not surprisingly, agreed with them.

Reading Around on February 27th through February 28th

swanksalot0 comment

A few interesting links collected February 27th through February 28th:

  • Debunking the Clean Coal Myth : EcoLocalizer – “There is no such thing as “clean coal” in the U.S. today. Coal is responsible for 32% of CO2 emissions in this country and 83% of the CO2 emissions from producing our electricity. In theory, we could retrofit this nation’s coal plants to capture their pollution and store it. Here is my question: If every single coal plant needs to be revamped to be truly “clean,” why not just invest that time and money in truly clean, renewables?” [Image Credit: Creative Commons photo by Seth Anderson]
  • April Winchell » Barack Obama is tired of your motherfucking shit – Ray, a fellow classmate of Obama’s, was also bi-racial, and also trying to define himself. But what set him apart was his colorful manner of self-expression. Ray cursed like a motherfucker.

    This would all be snickerworthy enough, but it turns out that Obama actually read the audiobook version of Dreams From My Father.

    And that means he read Ray’s quotes.

    And that means you’re about to hear the President of United States using language that would finish Cheney off once and for all.

  • Chicago Reader Blogs: Chicagoland Come back to tell you all, I shall tell you all: The Chicago Journalism Town Hall – “In other words: journalism isn’t dying. (Journalists are dying, of course, but even I don’t blame the Huffington Post for that.) The institutions are dying. That’s it. We’ve isolated the problem!

    Journalists (I will irresponsibly use this as a synonym for “people who work in broadcast or print,” even though we’re all kind of journalists, which I will get to later) blame the bloggers (ditto, for people who work online). Bloggers blame the journalists. Everyone blames the economy, and management. Was it Ben Goldberger in the Blog with the Aggregator? Or was it Eric Zorn in the Newspaper with the Inverted Pyramid, or Sam Zell in the Boardroom with the ESOP?”

  • John Bolton at CPAC: The Benefits of Nuking Chicago | Mother Jones – “Former UN Ambassador John Bolton believes the security of the United States is at dire risk under the Obama administration. And before a gathering of conservatives in Washington on Thursday morning, he suggested, as something of a joke, that President Barack Obama might learn a needed lesson if Chicago were destroyed by a nuclear bomb.”

    Asshole!

  • BULLS: Sam Smith: He was always Stormin’ – “Chicago understood Norm because it is known as the Second City. It is in the flyover region. Norm couldn’t crack the big time and run with the big boys, not among the playing elite and not afterward. But he never accepted being less than them and always was sticking his foot in the door to remind them he wasn’t going away.

    Norm was like us. Never really appreciated despite working so hard at it and giving everything he had every time. Norm broadcast harder than some guys played the game, and he let them know it. Someone was speaking up for us, and we loved Norm for that. And he loved us because he understood, if not accepted, rejection.”

  • SLAM ONLINE | » First Person: Norm Van Lier – “It was my dad who helped me let go of my anger. Before he died in 1988, we watched “The Godfather” together. Afterward my dad asked me, “Why do you think the Bulls owe you anything?”

    I told him about this and that, slights and slams, stuff that had grown into huge obstacles in my mind.

    “Did they pay you on time?” Yes, sir. “Were their checks good?” Yes, sir.

    “Well, then they don’t owe you a thing. So get up, stop feeling sorry for yourself, and go to work.”

    I swear, from that moment on, my attitude was completely different. I’ve not looked back since.”

  • The Sports Guy: Bill Simmons Welcome to the No Benjamins Association – ESPN Page 2 – Ru-oh.
    “For once, the league’s problems have nothing to do with talent, drugs, racial issues or how the sport is being played. With the country embroiled in its worst economic crisis in 80 years, the NBA is quietly bracing for its own little D-Day … only outsiders don’t fully realize or care. Clearly, we wouldn’t put this budding debacle on par with the Gulf War, the collapse of American car companies, the real estate quagmire, the implosion of Wall Street, the decline of the American dollar, the shaky footing of previously untouchable media institutions (newspapers, magazines, TV networks, movie studios and publishing companies), or even Vegas and the porn industry caving financially. “
  • Media Matters – Media Matters: In support of shunning – Will has made false claims about the Voting Rights Act and the New Deal. He made a claim about China drilling off the coast of Florida that was so wrong, even then-Vice President Cheney — who cited Will in repeating the claim — acknowledged it wasn’t true. When even Dick Cheney thinks you’ve gone too far in spouting pro-drilling falsehoods, you have a problem. But neither Will nor the Post corrected the error.

    Last year, Will claimed in his Newsweek column and on ABC that Social Security taxes are levied based on household income. Not true. He claimed that McCain won more votes from independents during the primaries than Obama did. Wrong. He claimed most minimum-wage earners are students or part-time employees. False. Will has even lied about Hillary Clinton’s Yankees fandom.

    Basically, George Will routinely makes false claims large and small, holds politicians to disparate standards, and engages in ethically dubious conduct on behalf of his preferred candidates.

  • The George Will Affair : CJR – Undeterred, on Tuesday, the Sierra Club, the League of Conservation Voters, Friends of the Earth, and Media Matters for America sent a joint letter to the Post reiterating the call for some form of correction or clarification. It cited three key problems with Will’s column: that he misused data on global sea ice levels from the Arctic Climate Research Center; that he misrepresented the World Meteorological Organization’s position on global warming and climate trends; and that he “rehashed the discredited myth that in the 1970s, there was broad scientific consensus that the Earth faced an imminent global cooling threat.”

    “George Will is entitled to his own opinions, but he is not entitled to his own facts,” the letter concluded. “We respectfully ask that you immediately make your readers aware of the glaring misinformation in Will’s column.” But the Post’s position remains the same.

Reading Around on February 26th through February 27th

swanksalot0 comment

A few interesting links collected February 26th through February 27th:

  • There Is No Social Security Crisis | The American Prospect – When does the Social Security trust fund run out in that case? Never. It never runs out (here’s the graph, if you’re interested).

    The Social Security trustees aren’t the only ones who have tried to crunch these numbers; the Congressional Budget Office estimates that the trust fund will be exhausted in 2049, not 2041, and that at that point tax revenues will cover 84 percent of benefits, not 78 percent. But looking at all the various projections, one has to conclude the following:

    At some point, somewhere between 30 and 70 years in the future, the Social Security trust fund may be exhausted. If it is exhausted and taxes are not raised, beneficiaries will see a reduction in benefits that will be meaningful, though not catastrophic.

  • Chicago Closer to High-Speed Hub Reality? – Chicagoist: Chicago News, Food, Arts & Events – Awesome, let’s hope this happens. “it seems like a battle is shaping up for who will get the biggest slice of the transit pie as U.S. Senate Leader Harry Reid (of Nevada) will be making a play for his area, but he’ll be going up against Illinois’ own…President Obama. The Midwest line also has the Federal Railroad Administration on its side thanks to a layout that would connect up to 11 major metro areas (St. Louis, the Twin Cities, Detroit, Cleveland, Cincinnati, etc) within a 400 miles of Chicago, the proposed hub. As for what kind of train would be used, while Amtrak was batted about for the Midwest, the “Sin Express” folks are looking into maglev technology, a system which uses magnets to cause trains to levitate that is currently in use in Shanghai.”