By James Kwak
From a Wall Street Journal article about The Children’s Investment Fund:
“[The fund] lost 43% in 2008, among the worst losses by a hedge-fund that year.”
“Both investors and employees defected during the crisis, with top talent leaving to start hedge funds of their own.”
“But with a 30% return in 2012 and a 14% gain this year, TCI has crossed its high-water mark.”
Makes you think.
By Simon Johnson
On Thursday, March 21, Sir John Peace conceded that he lied to investors on March 5, 2013 when he said of Standard Chartered Bank,
“We had no willful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made…”
Specifically, he now says that these remarks were “both legally and factually incorrect” because Standard Chartered had previously conceded that it deliberately laundered money.
In plain English, what Sir John said is called lying. Or, if you prefer the language of securities lawyers, he engaged in deliberate misrepresentation. He also violated Standard Chartered’s deferred prosecution agreement with US authorities.
Here is the full statement today.
Sir John should resign immediately as chairman of Standard Chartered. Continue reading
By James Kwak
Ezra Klein yesterday highlighted one of the underlying problems with even apparently informed discussions of deficits and the national debt: the CBO’s “alternative fiscal scenario.” As opposed to the (extended) baseline scenario, which simply projects the future based on existing law, the alternative scenario is supposed to be more realistic. And it is more realistic in some ways: for example, it assumes that spending on Afghanistan will follow current drawdown plans, not a simple extrapolation of the current year’s spending. But the problem is that it has become excessively conservative in recent years—to the point where, as Klein says, “Policy makers, pundits and others almost exclusively use this model to stoke Washington’s deficit anxieties.”
By Simon Johnson
In a recent interview with PBS’s Frontline, Lanny Breuer – head of the criminal division at the Department of Justice – appeared to admit that some financial institutions were too big to prosecute. In the “too big to fail is too big to jail” controversy that ensued, lobbyists and other supporters of big Wall Street firms tried all kinds of complicated ways to spin Mr. Breuer’s words.
Their job got a lot harder yesterday when Eric Holder, the attorney general, stated clearly to the Senate Judiciary Committee,
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” (Watch the video for yourself.)
According to Mr. Holder, speaking as the top enforcer of the country’s laws, “some of these institutions have become too large.”
Senator Sherrod Brown (D, OH), a leading voice for making the biggest banks smaller, reacted in this way, Continue reading
By James Kwak
The automatic sequester—the across-the-board cuts to discretionary programs that President Obama said “will not happen”—happened. The reason is simple and predictable: Republicans insist that the sequester be replaced entirely by spending cuts, while Democrats insist that tax increases must be part of the bargain.
One of the more controversial positions that I have taken, on several occasions over the past two years, was that the Bush tax cuts should have been allowed to expire completely. Now we see why.
In White House Burning, Simon and I calculated that the Bush tax cuts would be worth 2.5 percent of GDP in the long term. In other words, extending the tax cuts would mean that, in order to stabilize the debt-to-GDP ratio in the long term, we would have to come up with other tax increases or spending cuts equivalent to 2.5 percent of GDP—in today’s terms, about $400 billion per year.
Posted in Commentary
By James Kwak
A little over a year ago, iconic but fading department store J.C. Penney hired Ron Johnson as CEO. Johnson was head of retail operations at Apple—which, in case you didn’t know it, is just about the most successful retailer in the world by a bevy of metrics.
According to today’s Wall Street Journal article, Johnson quickly eliminated coupons and most sales at J.C. Penney.
“Johnson bristled when a colleague suggested that he test his new no-discounts strategy at a few stores. . . . ‘We didn’t test at Apple,’ the executive recalled Mr. Johnson . . . saying.”
Well, yeah. Apple doesn’t discount because they sell stuff that people really, really want and that they can’t get anyplace else. And they don’t test because Steve Jobs refused to. At Penney? Sales have fallen by about 30 percent.
Gee Whiz, Incentives Matter
By James Kwak
Back in the heady days of the financial crisis, I used to recommend Planet Money as a good way for non-specialists to learn about some of the basic economic and financial issues involved. Over the years, I’ve become less thrilled with the show, for reasons that will become obvious below. In particular, whenever Ira Glass dedicates a full This American Life episode to a Planet Money story, I cringe nervously, but I listen to it anyway, since, well, I’ve listened to just about every TAL episode ever, and I’m not about to stop now.
But I can’t let this weekend’s episode, on Social Security disability benefits, pass without comment. In it, Chana Joffe-Walt “investigates” the Social Security disability program, first by visiting Hale County in Alabama, where 25% of all working age adults are receiving disability benefits, and then by talking to different types of people (lawyers and public sector contractors) who help people apply for benefits.
Continue reading →
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Posted in Commentary
Tagged disability insurance, media, social insurance