Ain’t No Such Thing As A Free Lunch . . . | The Big Picture

Deep down inside, you already know this: There ain’t no such thing as a free lunch, financially or otherwise. Yes, of course, you understand that.

Source: Ain’t No Such Thing As A Free Lunch . . . | The Big Picture

 

Couldn’t resist sharing this… I’d like to make my own addition, that lottery tickets are NOT a retirement plan.

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What I heard at the #DemDebate

As a Democrat who works in financial services, I’m used to people looking at me like I’m crazy, especially those in both respective groups. From my perspective, it makes complete sense as Democrats are the most likely to advance common sense regulation (which creates a level and stable playing field for all competitors) and set tax policy that reduces income and wealth inequality, increasing the middle class and increasing the market of consumers to which I have access.

In short, I do better when EVERYONE in this country does better and when my competitors have to play by the same rules.

Over the last few years, I’ve grown increasingly uncomfortable because the ultra left and the ultra right are matched up perfectly in their complete demonization of everyone in financial services and of the industry. During the debate, I watched two candidates say that all of Wall Street was built on fraud and nothing could be further from the truth… it’s painting everyone in the industry with a broad brush that, quite frankly, isn’t deserved.

So, let’s go over a few things…

1) Leading up to the collapse in 2008, some of the banks and traders committed what would be called fraud by constructing and selling securities they knew were bad.
2) Some of the larger investment banks borrowed FAR in excess of their capacity. Some of them went bankrupt or were sold for less than book value, while others who had collateral received loans. Lehman Brothers, for example, had a balance sheet composed of roughly $26 billion in equity floating $689 billion in assets. As a general rule, you would want at least 10% of assets as equity, or $68.9 billion which means LEH was SEVERELY undercapitalized.
3) Federal programs to assist banks with capital infusions WERE repaid. Taxpayers are not out any money on capital assistance, they did lose on assistance to homeowners which was part of TARP.
4) There were a number of federal and commercial programs designed to help homeowners. Some of these still exist and allow homeowners to refinance at loan to value ratios far in excess of what a company would be able to do.
5) Glass Steagall’s repeal DID NOT cause the financial crisis, nor did it meaningfully make it worse… those risky investments were all rated TRIPLE A and banks were trading those before the repeal of G-S.
6) The Great Depression would not have been prevented by Glass-Steagall. The collapse of the stock market hurt, but not enough to collapse the economy as a whole. What did that was the Fed’s decision NOT to increase liquidity in the banking system which caused runs, which in turn led to the collapse of large numbers of banks, and completely froze credit in the United States. Without that credit, companies couldn’t finance operations and consumers couldn’t buy.
7) The economy is dependent on the financial system… think of it as the circulatory system of the economy. Through it’s arteries and veins flow the credit and cash to keep the economy growing.

These are written as statements of fact because they are true. It’s ridiculous to debate them, and I seriously doubt either Mr. O’Malley or Sen. Sanders would. Even Senator Warren would not
debate point five

Warren, meanwhile, confessed to New York Times reporter Andrew Ross Sorkin that Glass-Steagall would probably not have stopped the financial crisis, but that she was pushing to reinstate it because, in Sorkin’s words, “it is an easy issue for the public to understand and ‘you can build public attention behind.’”

The simple truth is that Glass didn’t keep us safe, what kept us safe was an active Fed, a post-World War 2 boom, and tax policy that incented investment over speculation. When President Carter kicked off deregulation of the S&Ls with DIDMCA and President Reagan effectively ended oversight, it was all within the Glass framework. In short, G-S existed almost 20 years after deregulation started and it did nothing to stop, for example, the S&L meltdown or any of the other problems we had between 1980 and 1999 in financial services.

As further evidence of the ridiculous idea that simply separating investment and commercial banking will eliminate risk, keep in mind that we’re the only ones that did it. In the rest of the world, such separation is rare.

So, if not the restoration of Glass, what then can we do? Well, the two primary factors in the collapse were

1) Securities that were rated far higher than they should have been and were shoddily constructed (sometimes intentionally).
2) Leverage was far in excess of any sane measure, though this was primarily in the investment banks.

Cure for these things and we can prevent future collapses or, at a minimum and more likely, make the next collapse far smaller and less systemic. Implementing point one, especially by creating a fiduciary duty between salesman and customer, would allow us to send people to jail. Add in what already exists, a prohibition on the use of insured deposits to speculate, and you have a regulatory framework that’s not only flexible but lasting.

Please bear in mind I work in the industry and have been through recessions and expansions, under various regulatory mechanisms, and have always made money. Whatever happens with regulation after January, 2017, I will still make money. My point in writing that is to show that my best interest won’t be effected by what ends up happening after January, 2017. I do care about the overall health of the US economy and feel it necessary to tell everyone who is invested in the restoration of Glass that it won’t do what you need it to do. It’s time to wake up and focus on pragmatic solutions that will give us a solid financial system rather than boilerplate nonsense and false security.

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Earth to dumb bitch…

This makes me think Mann Coulter is full of shit because we’ve been speculating she was TG for years and we’ve never been sued.

What I don’t understand is why she’d be so angry about being called TG, it’s far better than other things she’s been caled. It is funny how irritated she is about being called something she’s claims not to be when her entire schtick is based on that premise.

Also, there’s this… did you sue this guy, Mann?

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Understanding Tax Plans from Republican Candidates (rather than opting for self immolation)

With the release of Trumps tax plan, there are now four Republican candidates who have released their tax plans, Jeb!, Senator Rubio, Senator Paul and now Donald Trump.

The most striking thing about all these plans is that they all make the same basic assumption, that cutting taxes will stimulate the economy. Now, this sounds really comforting and vaguely familiar because it’s the same talking point Republican candidates have been using SINCE 1980. The idea is, itself, based on work done by Ibn Khaldun close to 700 years ago defining, essentially, the optimum level of taxation that allows for savings, investment, and economic growth while maximizing revenue for the government to provide services to the citizenry. Tax too much, people find a way to avoid any taxable activity, government revenue falls and government must run deficits to pay for services. Tax too little and people do just enough to get by or speculate, ruining economic growth and forcing the government to run deficits to finance needed services (sound familiar?). We are seeing the latter. During the Clinton years, we hit as close to optimal as we have come since the 1960s and since then, we’ve been sub-optimal, which means deficits and increasing federal debt as far as the eye can see.

Here are some of the numbers for what the Republicans tax plans will do to the deficit over the next 10 years…

Donald Trump – $12 trillion, Jeb Bush – $3.66 trillion, Sen. Marco Rubio – $4 trillion, Sen. Rand Paul – $3 trillion. These are all increases OVER current deficits.

The important thing to remember is that NONE of these plans will accelerate economic growth. In fact, they will likely reduce economic growth since more money will be placed into speculative activities rather than invested into the economy. As we saw during the credit crisis, which was largely driven by speculation on multiple levels, this usually leads to economic collapse. Given that these estimates are based in large part on the candidates own growth numbers, it’s entirely probable (not possible, probable) that these numbers are too low.

There’s also a feature, not a bug, in each of these plans that will heavily benefit those already in the upper income brackets while doing little if anything to benefit the bottom 95% of taxpayers. This will increase income and wealth inequality which I think we can all agree has a destabilizing effect on society as a whole. Massive inequality is how you get Communist revolutions.

So, if you’re a Republican voter who sincerely cares about the deficit and debt, you can’t support ANY of these plans. The only plan that makes sense is increasing taxes on the wealthiest 5%, investment income and eliminating a broad range of loopholes. We can talk about reducing the corporate tax rate all we want, but US corporations barely pay 17% effective on average so we’re already in a competitive position thanks to the loopholes and breaks already given to them. We really need to see corporations running about 22% with no loopholes.

Jobsanger has some great detail on the Trump plan and what it really means for the middle class.

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McBlogger’s Business Maxims #3890 Commodity businesses suck

You can really never say too many bad things about Carly Fiorina. She’s a thoroughgoing mess of a human being who took advantage of education and opportunity only to lay one of the largest goose eggs in American corporate history. People fuck up, but Carly didn’t just fuck up… she ultra superduper MEGA fucked up AND walked away very well paid for her time fucking up the lives of employees and shareholders alike, making her one of the most hated people in tech.

Carly was CEO of HP from around mid 1999 until early 2005. In that time, revenue growth collapsed from 7% to 3% (adjusted for foreign currency transactions). She doubled HPs revenue, basically by buying Compaq (we’ll get to that in a bit)… there was almost NO organic revenue growth. Carly said she created thousands of jobs, but she actually slashed about 30,000. She was such a disaster that the only one who’ll speak up for her is Tom Perkins, himself an absolute disaster of a man who thinks votes should be allocated by wealth. She did lie about all this last night and was justifiably defensive. It’s also worth noting that she’s had a checkered past at other companies, like Lucent which had to merge with Alcatel, largely due to financing gear for customers (something Carly encouraged and promoted), and is now set to become a part of Nokia. Then there was AT&T which performed so badly it was acquired by a former subsidiary (where Carly hadn’t been and so couldn’t fuck it up).

All of this is bad, but what made it one of the Legendary Business Fuckups Of All Time is the same thing that brings us to one of my business maxims, that commodity businesses suck…

Only a moron would double down on a low margin commodity business that any asshole could get in with minimal investment and in which your brand carries NO premium.

In 2001, that moron was Carly Fiorina. While Apple was busy differentiating itself by design (building a brand that would demand a premium in the market), Carly Fiorina decided to go another way… seek revenue and damn the profits. It’s a classic strategy if your desire is to hurt everyone except yourself. Most people, when they do shit this dumb, usually admit after the fact that they were on some sort of bender while this was going on. Carly never did … she owns it and is inexplicably PROUD of her performance at HP. Apple had a 15% of HP’s market cap in 2001 and now is worth around 10 times MORE than HP.

So, when by chance you run into Carly, make sure she knows how much she sucks.

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McB Breaks Down Whatever Dumbass Thing Was Said : Minimum Wage Edition

This morning on Bloomberg, former NYC Mayor Mike Bloomberg appeared with everyone’s favorite bank CEO, Lloyd Blankfein, to discuss the economy and Goldman’s small business lending program which is apparently a thing, not just some bullshit in a commercial. It was a pretty shitty piece but at one point Mike (and I can call him Mike because we’re totally friends like that) starts in on how he’s not a fan of raising the minimum wage and would instead like to raise the Earned Income Tax Credit to help the same people.

Now, there are some big problems with this… it does nothing to address inequality, lack of wage growth, and it explodes the deficit. Effectively, it’s a way of funneling money directly from the federal government to Wal Mart.

Raising the minimum wage consistently grows the economy, it doesn’t contract it or contract employment. It’s time to put the myths aside and get on with restoring wage growth.

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Pissing into the wind…

Governor Abbott Signs State Budget Into Law

AUSTIN – Governor Greg Abbott today signed HB 1, the General Appropriations Act, into law. Upon signing the 2016-2017 budget, Governor Abbott released the following statement:

“I am proud to sign a Texas budget that cuts taxes, provides a record amount of funding to secure the border, improves our schools and builds more roads. This budget proves that government can control its spending while ensuring the essential needs of its citizens are met.”

In order to further reduce our state’s debt burden and restrain growth in government, Governor Abbott has vetoed nearly $233 million in discretionary spending and made over $295 million in overall reductions.

The subject well covers my thoughts on this statement and the budget.

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Texas decides to waste money on bullion depository

I’m very impressed that Governor Abbott has signed the bill to create a bullion depository in the state of Texas. With Eye on Fiscal Armageddon, Texas Set to ‘Repatriate’ Its Gold To New Texas Fort Knox details the whole plan and it’s concomitant flaws. What they don’t cover is probably he single biggest issue, the TRUE cost to Texas taxpayers…

In a telephone interview with TPM, Capriglione said during the “interim period” between legislative sessions before his second term began, he set about re-designing the depository bill to outsource many of those more expensive functions to the private sector. Although the depository is performing the same functions in the new law as it had in the older version of Capriglione’s bill, shifting the execution to private contractors yielded a so-called “fiscal note” in the legislature that calculated an “indeterminate fiscal impact to the state.” Because it’s outsourced rather than run by state employees, it is no longer counted as a concrete expense in the state budget.

Now, this is just complete bullshit since those contractors are only doing this because they want to get paid and none of those people are going to spend money without something from the state, like a guarantee and insurance to cover associated risk (and no, Rep. Capriglione, I’m not talking about just the risk that some folks might come and steal the gold which is possible, but I’m also referring to the counterparty risk inherent in a scheme like this which effectively sets up an exchange AND allows dealers to set up mutual funds with almost no disclosure). A private insurer will charge a pretty penny to cover this so I’m sure it will be the state who steps in, with a significantly discounted rate that doesn’t begin to cover the cost of the actual risk.

Now, with physical gold outside of the range of a regular exchange, all this Texas gold will trade at a decent discount to spot gold because it has to be transported. Which means ALL gold traded in this hybrid exchange depository will trade at a discount to NYMEX because it has to be delivered there ultimately since it’s the most liquid market in the US. So, for all you broker dealers looking to set up with this thing, you’re cutting your margins likely below profitability right out of the gate.

Then there’s the issue of using drafts on the bank as a sort of gold backed transactional currency but it doesn’t explain WHY this would matter… except as an inflation hedge which is fine as long as you ignore the fact that the price of gold has actually deflated. Substantially.

Finally, this is all a complete waste of time since the State of Texas HAS NO GOLD. UTIMCO has some gold, which will flip to a loss if it’s ‘repatriated’ to Texas.

I have to wonder, given Rep. Capriglione’s profession, if he has personal plans to profit from this, solely or in partnership with some of his donors.

 

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OMG, would you shut up Leon Cooperman?

Leon Cooperman may be a brilliant investor, but his hearing needs some work. So does his anger management.

“I don’t need anybody crapping all over what I do for a living,” Leon Cooperman, the billionaire founder of the Omega Advisors hedge fund, told CNN on Monday, adding that she “hangs out with all these people in Martha’s Vineyard and in the Hamptons and then the very first thing she has to say is to criticize hedge funds.”

Cooperman says he and other maligned hedge fund managers have given millions of dollars back to society in the form of donations to universities, charitable organizations, and cultural institutions.

“I have nothing to apologize for. I’ve made a lot of money. I’m giving it all back to society,” he said.

This defensive diatribe (and Leon, we’ll be HAPPY to debate the social and economic utility of hedge funds whenever you’d like) was the result of a theme coming from Clinton in which she does not criticize hedge fund managers but she does talk about tax code fairness…

“There’s something wrong when hedge fund managers pay lower tax rates than nurses or the truckers that I saw on I-80 as I was driving here over the last two days,” Clinton declared in mid-April as she campaigned in Iowa.

“People aren’t getting a fair shake. Something is wrong when CEOs earn more than 300 times than what the typical American worker earns and when hedge fund managers pay a lower tax rate than truck drivers or nurses,” she repeated a month later when she returned to the state.

Note that there’s no critique of hedge funds, just a comment about tax fairness. Clearly, Leon has a reading and listening comprehension problem.

Of course, the WaPo and Politifact both rated Clinton’s statement as false in absolute dollar terms and false in terms of rates, which is obviously what she meant (see the second quote). They are both wrong since their analysis doesn’t take into account total tax burden vs. income, which for the average American is about 30% and for the average billionaire (like our friend Leon) is around 22% or less.

I think we can all agree that putting progressivity back into the tax code is a must as Secretary Clinton has been pointing out. I think it’s a shame that Cooperman, who first gained the attention of the general public by whining about how President Obama is ‘antagonistic to the wealthy’, is still whining about this shit.

And, for the record, while Clinton and the other candidates may not want to criticize the existence of hedge funds, I sure as hell will… I think they’re a big part of what is wrong with American capitalism and provide no social or economic benefit… in fact, the often are quite harmful. To wit.

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Not so much, Bernie…

I’ll be honest… I LIKE HILLARY CLINTON. I like that she blows off the press and that she drops straight, unequivocal quips about abortion. This race ain’t going to be like 2008, it’s going to be her this time and that brings me to the thing I like best about Clinton, that there isn’t a single Republican who can beat her. Not one.

I also like Bernie Sanders. I think he’s fighting the good fight, trying to do something about out of control income and wealth inequality. While we may not agree on solutions, we do agree on the problems and that makes us kissing cousins versus the Republicans who can’t even acknowledge that there is a problem. What kills me about Bernie is that same fucking thing that’s killed me about every fucking leftover socialist, the ability to drop a quote like this:

Hence Sanders’s admonition to CNBC this week: “You don’t necessarily need a choice of 23 underarm spray deodorants when children are hungry in this country.”

Yeah, but the problem is that the number of different deodorants has absolutely nothing to do with childhood hunger. The problem of childhood hunger is related to a Congress where the majority wants to punish people for being poor because they took the wrong fucking lesson from Matthew 25… do your best, but don’t do nothing (forget the material aspect of the Bags of Gold parable) and take care of those who are marginalized. So, why not make it about that rather than consumer goods? Because the argument he’s making is a typical command economy socialist argument, the same one that’s been failing for 100 years.

The problem isn’t capitalism, the problem is that we aren’t MANAGING capitalism.

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