By Simon Johnson, an excerpt from my latest column on Project Syndicate
America’s financial sector has shown renewed strength in recent months – political strength, that is – by undermining most of the sensible proposals for banking reform that remain on the table. If we are still making any progress at all, it is because of the noble efforts of a small number of United States senators.
Most notable has been the work of Senator Ted Kaufman, a Democrat from Delaware (yes, a pro-business state), who has pressed tirelessly to fix the most egregious problems in the US financial sector. Kaufman understands that successful reform requires three ingredients: arguments that persuade, the ability to bring colleagues along, and a good deal of luck in the form of events that highlight problems at just the right time. On two fronts, Kaufman has – against long odds – actually managed to make substantial steps.
The rest of this article is available (free) on Project Syndicate.
The Baseline Scenario 
For those slave-minded peoples who claim the rich are paying it all and only taking their fair share, those that claim if you reduce the tax rates of the slave-minded they will suddenly stop wanting to pay nothing and change from their mindset that taxes are for the common folks, have a look at these most excellent articles with great charts(2nd article) explaining just what really happens under the “chicago way” economic deception that is indoctrinated most of the so-called developed world:
“In 1955, the richest tier paid an average 51.2 percent of their income in taxes under a progressive federal income tax that included loopholes. By 2006, the richest paid only 17.2 percent of their income in taxes. In 1955, the proportion of federal income from corporate taxes was 33 percent; by 2003, it decreased to 7.4 percent. Today, the top taxpayers pay the same percentage of their incomes in taxes as those making $50,000 to $75,000, although they doubled their share of total U.S. income.”
http://www.voltairenet.org/article160877.html
“And the rate of increase is even higher for the very richest of the rich: the top 400 income earners in the United States. According to an analysis by David Cay Johnston — recently retired from reporting on tax issues at the New York Times — the average income of the top 400 tripled during the Clinton Administration and doubled during the first seven years of the Bush Administration. So by 2007, the top 400 averaged $344.8 million per person, up 31% from an average of $263.3 million just one year earlier (Johnston, 2010). (For another recent revealing study by Johnston, check out “Is Our Tax System Helping Us Create Wealth?”).
How are these huge gains possible for the top 400? It’s due to cuts in the tax rates on capital gains and dividends, which were down to a mere 15% in 2007 thanks to the tax cuts proposed by the Bush Administration and passed by Congress in 2003. Since almost 75% of the income for the top 400 comes from capital gains and dividends, it’s not hard to see why tax cuts on income sources available to only a tiny percent of Americans mattered greatly for the high-earning few. Overall, the effective tax rate on high incomes fell by 7% during the Clinton presidency and 6% in the Bush era, so the top 400 had a tax rate of 20% or less in 2007, far lower than the marginal tax rate of 35% that the highest income earners (over $372,650) supposedly pay.”
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
An interesting piece on Ted Kaufman, which spurs thoughts…
– It is surprising what a “newbie” Senator is able to accomplish, despite the myth that you are not useful to your constituency until your veins have calcified, lobbyists’ tentacles have squeezed morality out of you, and you finally sit, useless, atop some committee or other.
– It is interesting, also, that Kaufman will not run for re-election. America was founded on the implication that good people should give service to their country in some way, at some point. And, then, return to private life. That might be a model to re-aspire to attain, instead of our present, up-out-of-the-sewer model.
Congratulations, joining Project Syndicate, a cut above….? I read Bjorn Lomborg’s latest.. now
there’s another red anthill. …from the computer modelers who couldn’t make stock market buyers and sellers match correctly on May 6th and those at the Brit Met Office who needlessly grounded 50K passengers because of An Ash Cloud That Wasn’t, we give you – ta-da! – global warming!
This is off-topic, I know, but too funny (and I need something light, today):
This was a real headline in Toronto’s newspaper, Canadian:
“Over 4.5 billion people could die from Global Warming related causes by 2012, as planet Earth accelarates [sic] into a greed-driven horrific catastrophe.”
http://wattsupwiththat.com/2010/05/18/most-idiotic-global-warming-headline-ever/#more-19607
Something else to worry about. …smile.
….Lady in Red
Lady in Red:
As a Canadian I have never heard of ‘The Canadian’ newspaper. It certainly is not Toronto’s newspaper – that would be the ‘Toronto Star’.
How would you feel if I told the world that the ‘National Enquirer’ was New York’s newspaper?
Oh dear! Egg on face. “Toronto-based…?” “Somewhere up north…?” …L in R
Iain said: How are these huge gains possible for the top 400? It’s due to cuts in the tax rates on capital gains and dividends, which were down to a mere 15% in 2007 thanks to the tax cuts proposed by the Bush Administration and passed by Congress in 2003. Since almost 75% of the income for the top 400 comes from capital gains and dividends, it’s not hard to see why tax cuts on income sources available to only a tiny percent of Americans mattered greatly for the high-earning few. Overall, the effective tax rate on high incomes fell by 7% during the Clinton presidency and 6% in the Bush era, so the top 400 had a tax rate of 20% or less in 2007, far lower than the marginal tax rate of 35% that the highest income earners (over $372,650) supposedly pay.”
Michael Lewis (The Big Short), made this exact point on Market Place radio yesterday, in an interview. You can hear/read it here:
http://marketplace.publicradio.org/display/web/2010/05/17/pm-the-future-of-wall-street/
He has a much more optimistic outlook than I do, especially after reading Paul Farrell’s piece on MarketWatch today. He quotes a lot of Jared Diamond’s work. I think I’ll just go quietly slit my wrists now…….
You should avoid giving you opinion regarding complex scientific theories about which you obviously know only what Glenn Beck tells you, which is nothing. Just stick to what you know, and stay on-topic.
(maybe not quite in the right thread here, but…)
There is possibly an approach to financial/economic regulation,
that would confront in a coherent fashion the TBTF (too big to fail)
question and the Tobin tax. Both have been discussed as
aspects of the problem/solution to bubbles that emerge
and excessive “levels of correlation of markets”.
A variation on the Tobin tax on financial transactions that
may be interesting to consider, would
structure the tax as a negative feedback on
the “level of correlation of markets”. In its simplest form the tax
would phase in and out as bubble like behaviour appears and disappears;
“bubble like” means markets rising, or falling, with a synchronization that indicates
a dangerous lack of diversity of opinion/information.
I wonder if this has already been discussed elsewhere?
An analogous tax on TBTF institutions could be based on the
levels of correlation they cause, or
the lack of diversity and of robustness of markets, that results from their
excessive concentrations of power.
Correlation has two well-know senses: “superficial correlation”
is the standard mathematical inner product of vectors that
one finds on calculators etc. “Profound correlation”, by contrast, is
any statistical dependency or redundancy,
(as in pattern recognition, information theory etc.)
typically detectable by higher
order versions of the 2nd order (superficial) correlation, and often
associated to the notion of causality. The latter is more relevant,
but has a huge shortcoming; there is no sure-fire mathematical technique to detect such things.
The (economic) problem of TBTF (social and political issues aside)
is that of the profound correlations
that lock-in when very sophisticated behaviors are applied, without
any of the robustness that diversification could provide. We don’t need
any sophisticated mathematical technique to detect such things in the TBTF context,
its an inherent feature of such institutions, but it is an interesting challenge to find
a good quantification.
This leads to more technical issues, of how exactly to structure such taxes,
and then how players might “game” them if they were applied—
this would certainly need to be carefully considered.
Far-fetched the need to protect a system that is Margined to Lose…
A friend sent this as an e-mail to me and I thought it is the best message of the day…
It certainly is timely and it comes on the back of my other posted message of the Volker connection the other day…
Ken, thank you for sending this as I took the liberty to remove only the names that identify for protection of their private or corporate concerns.
Glad you got the message…
Ken e-mail to recipient starts:
Now I know you understand the larger picture…
Also, I know you can’t give this kind of stuff out to the other folks, but it helps to feed them helpful hints for them not to get hurt. Very important to teach the young and seasoned pro; their guts to protect their positions of trading and to read and study and it’s not just about charts and lines.
It’s not just charting or pushing buttons either. It is getting together many combinations of sources of creditable information. The baselinescenario.com I gave you is the site that many professors and top minds of our world go to voice their frustrations and concerns to a world that has gone wrong. They also give solutions and their books. Great connections.
You might mention only this point during the afternoon session. From a trader that is seeing a whole new horizon coming toward us for future of many hard times.
Not that we don’t all have it coming to us. I am not a pessimist, quite the contrary, I am an optimist who says get proactive to understand to a more sophisticated and developed trading models for a far more moving edge system in favor of us against them clearing wealth from being us; the baby boomers and many traders as clearly outlined is occurring in the model of the COASE new era we are all embarking on.
I am an older retired guy, that will probably be gone before the real hurt comes to many on this shoreline, but it will come, trust me it is coming. The training for the best trading swing-traders and day-traders will be almost critical as they are also entering uncharted waters and they are very deep. It is like when I was in the Market-making side and the vast drop is endless and knows no end…
Send the message to take all money bets out of Margin as this is a critical message now…
I will state this one more time… All traders that are in MARGIN should be out of MARGIN right now as they are the PRIME candidates to incur the first – of THE HOUSE OF REAL PAIN and THIS is REAL PAIN….
I will look for the honor of (Brokerage Company Ken Asked) and of (Brokerage Company Ken Asked) to start to protect their client to see if they can be client friendly.
Ken (Recipient), 30 years, I have made a few good choices and certainly have a well connected tract of why things are going to happen. I am also to old and know the reasons behind the triggers for market choices and timing them. Tough to Know too much now and continue to know that too many have thrown the creator out of the mix and this as put us all into a real pickle and we may not recover from this one without a whole lot of pain.
Look forward to you folks putting the clients first and keeping to doing the right thing…
I will say it again…
THE MESSAGE IS CLEAR;
TRY TO BRING THE BETS DOWN TO WHERE YOUR BETS or TRADES ARE DONE ON NO MARGIN or LIMTED MARGIN IN THIS CURRENT environment as this is the most highlighted environment ever seen now ever before for the markets, and to hedge now to maintain your safety, and to hedge towards that safety to keep and preserve that safety for the future; as these are unprecedented times.
Unprecedented times that have these countries needing too settle austerity and other concerns that directly affect each and every one of us and your family until further notice. Can’t say in any other way…
(Recipient), After reading a few other connection and other phone calls made over the weekend and today, this is the real deal, take it for what is worth, this is a flight to safety to bring beta to an acceptable level as what is market shift’s going on all over the world. The plays I gave you in the Semi space were strong DRAM plays because they still support what will continue as CRUS, ISSI and LSCC, KLAC, SNDK, and as you know the others. Do your own reading on them. They are strong for a reason because they support the austerity space of continued confining populations.
Think, on another note, and not off subject. On the health care reform just passed by our folks up on the hill gave all the Corporate structures the green light for their first quarter to take a $2,000 hit per employee to take them off their healthcare insurance to the rolls and put them onto the health rolls of the Government health plan.
What does this mean and how does this fit into the roll as we move towards the austerity thing as we are running against this debt bubble as we acquire all these precious metals as shown by the web-link. Getting interesting isn’t it.
Margin is not anyone’s friend is a good message now.
Trying to live in one’s means is another good message to be sending to all your friends and anytime you can send it over the air that are to people can gear you and stop for a moment and say, I better stop for a moment and give some thought to that statement, because
WHAT (Recipient) just said is not wrong, is absolutely 100% right on the money…
(Recipient) it’s been my pleasure to give you ideas and I hope you will respond in a positive way along with your bosses that have to approve such a response I suppose.
I will continue with e-mails with a positive response or I will become a listener. If no response to the listeners of your show that has over 5000 listeners world-wide, I guess I will be just a little more sadden that you and the others of (Brokerage Asked by Ken and Brokerage asked by Ken)are only truly part of a machine that are building the problem for many of the retail clients to suffer untold losses they need not suffer.
I think your advertising campaign would be incredible with the ability to beat all the other brokerage houses that you put the clients interest first to protect them in such an dangerous environment of transitional world changes of debt potential collapses.
With Best Regards,
Ken
Well I think I will end this post with you can’t beat what Ken had written from his heart and he allowed by permission once I contacted him. He is truly ahead of the curve, there is no debt about his years and wisdom he has imparted to many retain investors of the MA and PA or the ones thinking to become traders. Sends the message to re-think safety in these uncertain times and to make your financial advisor’s earn every bit of their commissions and make the clients the number one priority in the equation of the day.
I will repost below the Volker piece just for comments in this topic area…
Far-fetched, Not anymore folks…
Peace, I am out of here for now…
James G.
Far-fetched, but sometimes we miss the little things that weigh so much…
The important reason the volatility of regulatory controls and getting all working on the same page will be important. This is for the preservation of making that we do not have to endure a more COASE condition or other term called austerity measures as I mentioned the healthcare reforms are also needing for the Corporate to be higher penalty towards $45,000 per employee making impossible for them with also making over a certain size employee size employer of 100 employee and up. and then $10,000 for 50 – 100. This would possible ensure us from total deterioration of the corporate escape and government rollover into the Greece scenario if debt over-load could not be paid. Just want the think tank to put their brains to work.
I must also add a quick note. John Bannon had commented on another topic area… and I thank, I thank you for your comments, but many within this community John have been ahead of the curve long before I had written thoughts on these matters. You would of found many of my posts and efforts had pointed minds and curious around the world-wide web to this blogging community for their insight and take on matters.
Insights concerning our welfare and the state of our economy. I think their are a lot of sharp folks here, but don’t let it go to their heads because we don’t know what that can cause for another world crises and books…
I think where I can take a little smidgen of claim in pushing anything within this community or a lot of publishing sites is the COASE and Oppression theorem and the importance for all learned minds that can make a difference get a handle on it and move it to the forefront and main stream of thinking.
NOW WITH THAT SAID, THIS BEARS REPEATING… I WAS DOING A LITTLE MORE THINKING AND WANT TO SEE WHAT OTHERS THINK ABOUT THIS NEW TWIST of THE VOLKER EFFECT…
It depends on whether, when currencies weaken, people switch to gold; and on whether when currencies strengthen, they become more confident about the value of currencies, and switch from gold. Even though gold no longer has any role in the monetary system of any major country, such behavior could still be sensible.
WELL THE ANSWER TO THIS IS WRONG…
GOLD IS VERY MUCH IN THE PICTURE as United States since Richard Nixon, along with many within the Debtors nations have had to retrieve this precious commodity to buoy their reserves to give shoring to their sovereign debts and ratings. It happens to be, coincidental that an old member still be alive from the Tri-lateral commission of our friend Mr. Paul Volker.
Mr. Volker was instrumental during the Nixon Presidency to put the final fate to the gold standard of our country and the safety.
Was this the end of the America, as we KNEW?
Is this the sweeping changes towards, Good or BAD and Coase Oppressive form of economics…?
Gold is now a full hedge against the U.S Dollar and against the backdrop of a world emerging with the need to consume at ever a more fever of a pace of consumption than-ever before. It was these years of economics of changes and the handing of the baton over as the reins given Alan Greenspan and then his counterpart predecessor of Big Ben Bernanke.
Now between all three financial held titans of Volker, Greenspan, and currently Ben Bernanke of 39 years of opened printing presses for the world to amass untold credit to debt levels. We are still trying to figure out the liar-debtors of nation’s world poker table of next to fail nation.
This is though the interesting catch to the title or theme as I began. The United States has actually and will have, by the next reporting, if not too far off on this prediction. Be almost up to a reserve not less than 84% of that of the total percentage of Reserves as followed by the World Gold Council.
What does this also mean to all that are shorting the U.S. Stock market and the S&P? It may mean that they may be in for a surprise that Ben Bernanke along with Timothy Geithner may have just of pulled off the biggest turn around play in bench mark hedge plays ever seen as you can see the dollar raising against all other currencies along with the Gold.
Talk about a stockpiling of gold bullion under the noses of the whole world while Volker is still alive and being the one that took us off the pesky stuff in the first place.
What a great story to catch all the baby boomers that are shorting the market and think they know it all. What a great way America is showing the world we will be able to build a strong shelve of safety for a moment, if only for a short moment.
A moment while the rest of an world is reeling in debt against the rest of the world that does not have this gold or precious metal as collateral to give support to their currency. A currency of countries holding masks of liars’ in need of true support in a world of debtors of unknown sovereign masks.
Gold also will retain even more value as China, and all other countries will have to come out to some formal standard to return to normalizations of formal trusts of debt trade to measurable and sustainable debt to credit trust banking relationships moving forward in this new world order that now has been created.
Call this week and the following weeks as may be market rallies in the Small caps along with the Semi(s). I know for one, once many figure this all out. It will be a mad scramble to start to cover and get their houses n order. U.S. as their act together and they are on tract. Make no mistake about that statement. History has three levels of wisdom in-place even along with this darn Tri-Lateral Commission that Volker has ties to from reading.
What this all means to world economics are a continued slide for OIL due to deflationary concerns and a re-balancing, as GDP needs to be reconciled with a more realistic global sustainable growth metric to balance the austerity slowly throughout the world. Oil should see much lower prices but balance to maintain the Arab concerns and others to their economic concerns as it trades forward as it trades at its current price.
Who are the world’s biggest debtor nations? The rankings may surprise you!”
20. United States External debt (as % of GDP): 95.9%
19. Australia External debt (as % of GDP): 108.8%
18. Hungary External debt (as % of GDP): 124.2%
17. Italy External debt (as % of GDP): 154.6%
16. Greece External debt (as % of GDP): 175.3%
15. Spain External debt (as % of GDP): 184.7%
14. Germany External debt (as % of GDP): 189.4%
13. Finland External debt (as % of GDP): 205.7%
12. Norway External debt (as % of GDP): 208.9%
11. Hong Kong External debt (as % of GDP): 218.8%
10. Portugal External debt (as % of GDP): 231.5%
9. France External debt (as % of GDP): 247.2%
8. Austria External debt (as % of GDP): 268.9%
7. Sweden External debt (as % of GDP): 275%
6. Denmark External debt (as % of GDP): 315.2%
5. Belgium External debt (as % of GDP): 345.6%
4. Switzerland External debt (as % of GDP): 390%
3. Netherlands External debt (as % of GDP): 395.6%
2. United Kingdom External debt (as % of GDP): 427.6%
1. Ireland External debt (as % of GDP): 1,352% Source.
Ireland’s $2.39 trillion debt is a whopping 1,352% of their Gross Domestic Product, which is only $177.3 billion. How can they possibly keep that going? That is like one of those high interest, and penalty, credit cards that the consumer can NEVER actually pay back. It’s going to be a rough road ahead for all the countries on this list.
I am not an Analyst but I suggest you talk with yours or do your due diligence, as these are no longer far-fetched concepts anymore.
Best of luck in the markets and keep your eyes on “I am”; as number one in your heart and soul, you might find that “”I am” another name for “God” will give you greater harmony within all the disorder around you.
Peace I am out-of here..
James G.
“….complex scientific theories…?” Surely you jest! …smile.
Those are Simple, Straight-forward, Solved, Scientific *Principles* of which you write and about which the entire world (that matters) — scientific and otherwise — is in drum-major, lock-step agreement. Haven’t you heard? …L in R