August 4, 2009/3

I consider this one of the most brilliant and insightful analyses I have read - and am likely ever to read - of the mess that has been made up and down, right through the American economy. Its author's spiritual journey from neocon to new dealer is fascinating.

Incidentally: some years ago, in a talk at some club, I predicted that the curse of the computerization of Wall Street would be the enabling of profitable trading of ridiculously small fractions of money. "Flash trading"? "Dark Pools?" It has come to pass.

August 4, 2009/2

It will be interesting to see which arrives sooner in my existence: death or taxes. My money's on the latter. How the taxes necessary to restore some of our eroded position are formulated may be Washington's (and the voters') last chance to make good use of the crisis. Here are some thoughts.
What about a national sales tax, say 2%, on online purchases? It makes no sense that if I buy a classical CD from Arkiv, I pay NY sales tax, whereas if I buy the exact same disc from Amazon, I don't. Makes no sense - and offends my sense of equity. Half the tax collected could be ratably rebated to the states.
Corporate dividend payments should be deductible at the source. This would encourage distributions, keep the heat on managers and to some extent offset the cost of taxing benefit contributions.
Individual taxes, both on income (of any type) and capital gains, need to be indexed to reality. Or, as my mantra puts it, only tax AS rich what IS rich, on a sliding scale that begins low - at, say, $50,000 and moves upward in increments to a top bracket of, say, 50% on income in excess of $5 million and gains in excess of $50,000,000.

August 4, 2009/1

News reports today suggest that the strain is starting to tell on Geithner. It's understandable: the evolving regulatory structure will inevitably involve a lot of turf-protecting and a lot of turf-building. Personally, I think the notion of a single, uber-regulator is ludicrous. I am opposed to anything that makes lobbyists' work easier, and this will effectively permit one-stop shopping for K-Street. Here again, why is history being ignored? When banking and investment banking (for lack of a better word) were separated and kept separate (1933-99) by Glass-Steagall, and the two sides were separately regulated, Wall Street's ability to plunge the nation into systemic disaster was limited: the dot-com bubble was about as bad as it got. This economy runs on two energy sources: fossil fuel and credit. The pricing of the latter has been outside our control since 1973, when we failed to take steps to counter OPEC, and the repeal of Glass-Steagall effectively terminated our control of the latter. In both sectors, the principal agents of waste, the auto companies with their SUVs, and Wall Street with its securitizations and derivatives, ran wild and here we are. Why not go back to where we were?

August 3,2009/4

I wrote some months ago, either on Forbes.com or in NYO, that no experienced private-sector financier would do a deal on the giveaway terms that Uncle Sam was negotiating on the taxpayers' behalf with the TARP suckfish. The disparity in returns earned by Buffett vs. the taxpayer appears to substantiate that assertion. For a more eloquent analysis, by Roger Ehrenburg, go here.

August 3, 2009/3

Reading about how successful the "cash for clunkers" program appears to have been brings to mind a column I wrote some months back for NYO in which I argued that the best way to stimulate the economy would be to send every taxpayer (roughly 100,000,000 of us) a check for $25,000. That would add up to $2.5 trillion, cheap compared to the money the Great Geithner Giveaway has shoveled at Wall Street. Most of that money would get spent, I believe, and would move through the economy much more usefully - and rapidly - than via Wall Street computer trading. I stand by my argument.

August 3,2009/2

I defer to no one in my high regard for Joe Nocera as a financial writer, except for one quirk: now and then he'll strut his sympathy for Wall Street, he'll show that he feels the pain of Goldman Sachs and others for the terrible things people are saying about them. This past Saturday's column was a good example. Goldman and the rest have merely been doing what they do, he argued, and to call them greedheads or fraudsters - words that I happen to think apply - for not having behaved otherwise in the months since the October credit freezeup is wrongheaded. I disagree. I do not think that TARP and other taxpayer-funded facilities were designed to fund business-as-usual for Goldman, JPMC and the other survivors. I do not think these taxpayer programs were put in place to subsidize the overpricing of risk inevitable if 50% of the historical competition is swept off the board and an oligopoly brought into being in the name of "bailout." I do nor think that discount window "free money" was intended to finance computer-driven trading programs of whatever frequency. Given the speed of its profit reversal, I seriously doubt that Goldman was in anywhere near as bad shape as it must have represented itself as being in last fall, or that its exposure to AIG was truly critical. I have my doubts as to Buffett's investment in Goldman. It's not that I quarrel with Berkshire-Hathaway earning twice the rate of return on an investment a fraction of the size of the taxpayers' assumption of risk. I just wonder whether that deal may not have been window-dressing.
I like the way a team of writers recently put it in Der Spiegel:

"The taxpayer is paying for the chips in the casino," the head of the German operations of an international investment bank says quite openly, but anonymously nevertheless. "It doesn't get any better." The government, he says, provided guarantees for banks like Munich's Hypo Real Estate, whose securities are now being traded on the market at a huge discount. Investment banks, for their part, have bought the securities with money they borrowed from central banks at ridiculously low rates.

"The biggest beneficiary of the crisis has been US investment bank Goldman Sachs, which posted record earnings of $13.8 billion (€9.7 billion) in the second quarter. Its traders used money from the US government and the Federal Reserve Bank to speculate, behaving as if the bank were a gigantic hedge fund. Profits from proprietary trading almost doubled over the previous year, while earnings rose by a whopping 186 percent in the bank's bond, commodities and foreign currency speculation businesses. And Goldman CEO Lloyd Blankfein's appetite for risk is still growing. Value at risk (VaR), a measure of the risk of loss on a single day of trading, rose to $245 million -- the highest VaR in the bank's history."

To me, this kind of behavior with respect to measures designed to open up the credit spigots is inexcusable.

August 3, 2009/1

Took me longer to get back to town than expected. Getting head together after three hours on LI highways. Will write later today.