Still Masters of the Universe!

Brilliant!

Still The Masters of the Universe
Posted At : October 4, 2009 3:40 AM Posted By : Satyajit Das
Related Categories: Traders

Tom Wolfe writing in Bonfire of the Vanities created the term – ‘Masters of the Universe’: “He considered himself part of the new era and the new breed, a Wall Street egalitarian, a Master of the Universe, who was only a respecter of performance.” Wall Street bond trader Sherman McCoy, the original Master of the Universe, came to personify the avariciousness and self-aggrandisement of financiers.

Human history is a sequence of “ations” – civilisation, industrialisation, urbanisation, globalisation interspersed with actual or threatened “annihilation”. The most recent “ation” is “financialisation” - the conversion of everything into monetary form (also known as another “ation” – “monetisation”).

New paper economies emerged directly from the demise of the gold standard that removed restrictions on the ability to create money, especially debt. Finance inexorably displaced industry with trading and speculation becoming major activities as financial engineering replaced real engineering. In an earlier age, Heinrich Heine, the German poet, too had identified the change: “Money is the God of our time….” The rise of financiers is intimately linked to this financialisation of the global economy.

Financial innovations such as securitisation (the packaging up and sale of loans) and derivatives (effectively risk insurance) enabled banks to extend more credit. Banks could literally by increasing throughput, making more loans and selling them off to eager investors, magically increase returns to their investors. Bankers had invented a ‘money machine’.

Bank also began to trade more actively with their shareholders money, following the advice of Fear of Flying author Erica Jong: “If you don’t risk anything then you risk even more”.

All of this, of course, meant increased earnings for the bank and its star performers. As people who work in financial institutions know, it is primarily an enterprise that is run for the employees with an afterthought for shareholders.

Sherman McCoy could with a single phone call make $50,000 and, even better, a share of that was his and his alone. At the height of the boom, top hedge fund and private managers could make more in 10 minutes than the average worker earned in an entire year. In 2007, James Simons of Renaissance Technologies earned $1.5 billion and David Rubinstein of The Carlyle Group earned $260 million in the ethereal “economic stratosphere.” In Australia, Macquarie Bank employees rejoiced in the sobriquet – the ‘Millionaires factory”.

The ability to earn high rewards only becomes a problem where the promise of a share of profits encourages excessive risk taking and a focus on short-term earnings. It also becomes a problem where the basic measure of performance is ambiguous and can be systematically manipulated. Unfortunately, ‘earnings’ proved to be the result of wildly inaccurate models, accounting tricks and risks that had not been accurately captured.

Finance is also problematic when it comes to dominate the economy. In the U.S.A., financial services’ share of total corporate profits increased from 10% in the early 1980s to 40% in 2007. The combined stock market value of these firms grew from 6% to 23% over the same period.

It is now conventional wisdom to accept the central role of financial services. Gordon Brown, the Chancellor of the Exchequer under Tony Blair and then Prime Minister, harboured secret dreams of a Scandinavian-style social welfare state with low taxes funded by the growth of the City. In 2007, he told bankers: “What you have achieved for the financial services we … now aspire to achieve for the whole of the British economy.” Alistair Darling, Gordon Brown successor as Chancellor, was no less loquacious describing financial services as “absolutely critical” to the economy.

The golden age seemed to come to an end with the GFC. Initially, the world viewed the destruction of storied financial institutions in Global Financial Crisis as an entertaining blood sport.

Some bankers lost their jobs by the thousands. Others lived with the psychological fear of firing by text message.

In New York, bankers confessed it was hard to live on less than $500,000 – after all, the children’s private school fees, the maid, the Pilates lessons etc all cost money. They economised by buying cheaper cuts of meat. In London, families deferred moves to more expensive suburbs. The latest Gordon Ramsay restaurant was no longer a must have.

The effects of belt-tightening were seen in a fall in bookings at luxury hotels, holiday resorts and sales of super yachts – some of the plutocrats were down to their last billion. Once rich hedge fund managers were back in court trying to renegotiate the terms of their divorce pleading ‘poverty’.

For some women, the aphrodisiac quality of a young unattached male purring “I’m an investment banker” in a certain type of bar lost its allure. Some professions – personal trainers, dog walkers, personal dressers, children's party organisers – were in danger of extinction.

There was a sense of Schadenfreude as the Masters of the Universe received their comeuppance. Unfortunately, the “financial” crisis quickly spread to the “real” economy – jobs, consumption, and investment- becoming everybody’s problem. “Too large to fail” financial institutions had to be bailed out by governments, that is the ordinary taxpayer. In a perverse piece of income redistribution, the less fortunate now were subsidising the masters of universe because it was in their best interest.

Commentators briefly dared hope that the power and influences of finance and financiers would be reduced. Finance would revert to being a facilitator rather than the central driver of the economy.

The Economist wrote: “Over the past 35 years it has seemed as if everyone in finance has wanted to be someone else. Hedge funds and private equity wanted to be as cool as a dot.com. Goldman Sachs wanted to be as smart as a hedge fund. The other investment banks wanted to be as profitable as Goldman Sachs. America's retail banks wanted to be as cutting-edge as investment banks. And European banks wanted to be as aggressive as American banks. They all ended up wishing they could be back precisely where they started.”

Unfortunately, those hopes are misplaced. Low or zero interest rates, heavily managed markets, reduced competition and state underwriting of solvency has helped surviving banks prosper.

Bank risk levels have increased to and in some cases beyond pre-crisis levels. The higher levels of risk taking reflect increasing comfort in central bank support of financial institution’s liquidity and their ability and willingness to intervene to limit price risks.

In 2008 in Canary Wharf, the financial district in London’s docklands, I meet two affable recruiters from the English Teachers Union who explained that there was “a bit of financial crisis”. Well-educated and highly motivated bankers who were losing their jobs by the thousands might like to consider a new career teaching. I questioned the adjustment in salaries that the change in careers would necessitate. One recruiter’s responded: “If you haven’t got a job then it’s not relevant is it? It was never real money and it wasn’t going to ever last was it?”

Over the last 30 years, talent has increasingly been lured from productive profession into finance and the speculative economy. The rewards available mean that the brain drain into these professions is unlikely to stop. The excesses of the financial economy are also unlikely to be easily tamed.

The Masters of the Universe that survived the carnage are back to their old tricks. The ‘fight for talent’ means that bonuses and remuneration guarantees for new employees are all back in vogue.

Government attempts to deal with the problems of the financial system, especially in the U.S.A., Great Britain and other countries, illustrate Mancur Olson’s thesis - small distributional coalitions tend to form over time in developed nations and influence policies in their favor through intensive, well funded lobbying. The resulting policies benefit the coalitions and its members but large costs borne by the rest of population.

The “finance government complex” (dubbed “Government Sachs” by its critics) and financiers have proved exquisite masters of the game of privatisation of profits and socialisation of losses. Many countries now practice Chinese socialism with Western characteristics.

A year after the collapse of Lehman, the near collapse of AIG and the grande mal seizure in financial markets, the Masters of the Universe are still firmly in charge. As Giuseppe di Lampedusa, author of The Leopard knew: “everything must change so that everything can stay the same.”

© 2009 Satyajit Das All Rights reserved.

Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).

Where the Economy Went

Feeling particularly irascible after celebrating my first year of unemployment, I figured I would sit down and pen a few notes for those in the "economic forecasting community".

So many people in the economic community -- particularly (but not limited to) Wall St., academia, and TV talking heads -- are scratching their heads wondering where the economy went. After yet another long, sleepless night of anger caused by wondering why so many people could be so highly educated yet so stupid in practical terms, I've decided to explain the current economy to people who don't understand why the economy hasn't recovered yet. In short, the economy hasn't recovered yet because you don't understand what happened to it.


Executive Summary: No, Virginia, there is to be no "V-shaped" Immaculate Recovery.


In Business Model Terms:
Great news boss! We laid off Research and Design. We also laid off Manufacturing and Purchasing! We've cut our costs completely to 0! Even better news! As a side benefit, we were able to completely eliminate Shipping! We now consist only of the Profit Centers of Marketing, Sales and of course, Upper Management. That's right, ZERO overhead!

(To Self) I'm sure its only a matter of time before we're able to optimize those. Just wait until the analysts hear how we've been able to cut costs! oooooohhhh I just can't WAIT until the next round of bonuses! I'm gonna CASH IT IN! Hello corner office!


In Semi-Allegorical terms:
You had a goose that laid golden eggs. Every quarter, like clockwork, your goose would plonk out a auric cackleberry worth $10,000. Good, true, but how to make it better? Hmmm.... how's about feeding it twice as much? Would that make even more golden eggs? Nahhh, that would make it cost too much. We're already spending $100 per quarter on feed already. How's about figuring out a way to cut the cost of feed? Instead of duck food, why not try dirt? Or better, why not air! That's cheap and provided by the government (or whoever... we're not really sure where air comes from, but at least it don't come from our pocket!)

Ok, output is down, but we're sure there'll be a rebound in 3Q12. After all, the sharper the downturn, the more dramatic the recovery!


For you Analysis/Quant types:
99% of the income-earners in the American economy (The Poor) get by on roughly $40k per year. 9/10th of 1% (The Middle Class) earn $100k per year and the remaining 1/10th of 1% (The Rich) earn upwards of that.
Eliminate the income stream of The Middle Class by destroying and/or outsourcing manufacturing (damn American autoworkers, they're expensive!), "in-sourcing" tech jobs (fucking electronics designers, they're expensive!) and shipping overseas every other fucking job that isn't nailed down. Who's that leave us with on the jobs front? Lessee... Wall Mart and bussing tables at Denny's (By the way, both of those jobs now employs the New Middle Class, who just pushed the poor out of all those cush jobs.) and The Rich -- who, when not raiding the Treasury -- mill about all day wondering why Wall St. investments aren't up. Nothing to worry about here... after all it's the Rich that drive this economy. Come on V-shaped recovery! (Don't forget to tip!)


For Fans of W-esque Republican Sloganeering:
That "Next Technology" that all of us were supposed to "retrain" ourselves to do.... well, it never happened because you sent all the fucking technology jobs to China and China ain't so hot on sending "New Technology" jobs anywhere other than... (I'll give you a hint: It ain't Taiwan.)


In Environmental Terms:
You strip-mined the economy and are now wondering why nothing's growing in the bare rock. Come back in a few hundred years.


In Biological Terms:
You stupid, idiotic, blood-sucking leeches. You sucked the host dry. It's dead. You're gonna either spend the next 30 years dodging vultures feeding on the carcass of your dead (former) host, or dry-hump it into the hinterlands and find a new victim. Hope you speak Chinese are a quick-study on Communist Party slogans.


In Geopolitical Terms:
China's version of Ronald Reagan demanded that America "tear down that (trade) wall!". We did. Now we have the economy of (the former) East Germany.


In Psychological Terms:
Maslow's Hierarchy of Needs: Food, Housing, Health, Education for their Kids, Big Screen TVs. The top four are shot in the ass. Guess what's left?


Executive Executive Summary: It's the jobs, stupid. You fucking destroyed them. 300 million people working at Wall Mart ain't an economy and they damn-sure couldn't afford to shop at the mall even if they wanted to.

Orwell: "Comes Invariably From People Who Are Not Fighting"

"All the war-propaganda, all the screaming and lies and hatred, comes invariably from people who are not fighting." -- George Orwell

Herman Goering: "It works the same way in any country"

We got around to the subject of war again and I said that, contrary
to his attitude, I did not think that the common people are very thankful for leaders who bring them war and destruction.

"Why, of course, the people don't want war," Goering shrugged. "Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece. Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship."

"There is one difference," I pointed out. "In a democracy the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars."

"Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy.

All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country."

First Death Panels, Now This

I found this on World News Daily, but the link is not working, so I posted it here so people can see the *real* plan.

Obama health care bill to offer curbside recycling

In a closed-door town hall restricted to liberal Democratic partisan groups in San Francisco, Obama unveiled a proposal to further reduce the impact of catastrophic illness on American families.

"Studies show that Americans spend upwards of $10,000 for an average funeral. Costs are even higher if the family selects a non-cardboard casket option. This burden is simply unbearable for anyone but the wealthiest among us. Working families simply cannot afford the funerary burden brought about by the death panels, even if they save money in the long run by retiring their elderly early. We have to bring some of the death panel cost savings forward."

"With our plan, family members will be able put their dear departed in specially marked containers on the curbside for next-morning pickup, " adding, "After the grieving process is complete, of course."

The estimated 10,000+ audience at the San Francisco Convention Center seemed to be generally pleased. San Francisco after all has had an aggressive recycling program for several years, as California has imposed a requirement on municipalities to recycle at least 50% of their area's waste.

"These Death Panels are going to save us a lot of money, but in the short term, we'll have a lot of bodies stacking up
without an economical way to handle the load. This plan turns a problem into a solution by taking something seen only as a burden and turning it into rich, loamy compost." "Besides", he continued, "filling valuable land with dead people rather than empty commercial buildings hampers our ability to make optimal use of scarce real estate."
"Sometimes, complex problems really do have simple solutions!", he beamed.

San Francisco mayor Gary Newsom was generally supportive. "This will only help us meet the state's requirement for recycling of more than 50% of our current waste stream. Keeping departed family members out of landfills will be a big help in us continuing to meet that goal."

Secretary of Health Kathleen Sibelius is scheduled to deliver a presentation on the details of the proposal,
including pilot locations, proper labeling of remains for pickup and scheduled pickup days.

She is also expected to cover the delivery of memorials. Early information packets released to the media by Sibelius's office included photographs of the memorials. Our sources tell us that the memorials will be made partially of recycled aluminum as worldwide copper prices are forecast to remain prohibitive for the next several quarters.

Image of funerary urn prototype released today by Sibelius's' office

Insiders admit that prototypes of the memorials are suffering from early production problems due to the recycled content, but they see no reason that all the problems couldn't be ironed out by the time the program is finally rolled out.

"We're working closely with our Chinese manufacturers", said one source who wished to remain anonymous.

The Centainty of One's Convictions

... is often inversely proportional to one's understanding of the problem.

How We Got Here: Management Nation

We have become a nation of managers.

Perhaps it was the national fascination with "Being one's own boss". Whatever the reason that the nation accepted it, the truth remains that we have internalized the ideas being peddled by "The Rich", that is:

- American's don't want to work
- America doesn't have the talented X to do the job
- Unemployed Americans simply need to "retrain" themselves in the Next New (as of yet unspecified) Thing.

What has really happened is that the country's collective conscience has declared anything relating to labor as "icky" and to be dispensed with in the cheapest, most expeditious manner possible.

Follow for a moment the distribution of compensation today. It falls along a very bright line: people who "manage" things get compensated well (even in failure: see Wall St.), people who *do* things get paid relatively pitifully. Think plumber, teacher, fire fighter, engineer, laborer.

Any "doer" job that could be outsourced was. "It's cheaper in China" was the mantra. Any "doer" job that wasn't outsourced was replaced by flooding the labor market through immigration. Everyone was fine with immigrants (both legal and not) cutting grass and washing cars. When America ran out of "talented X", immigrants were called in to replace engineers, IT, customer service, you name it. Even doctors and nurses are feeling downward income pressure coupled with increasing education costs. (So far only lawyers have so far evaded this downward income pressure.) It is the commoditization of labor.

But there is a a downside. There simply aren't 300 million projects in America that need managing. Everyone that "saved money" watching Wal-Mart export their job slowly but surely watched Wal-Mart become their only shopping option as income, savings and yes, eventually the "Home ATM" dwindled.

Now the world wonders how America is going to pick itself up and once again become the world's favorite consumer. What America has yet to realize is that in order to consume (nay, to eat) one has to have an income.

The Rich has long contended that The Rich are responsible for the jobs in this country. They repeatedly demand that laws not impinge The Rich's ability to "create jobs". Curiously, The Rich are nowhere to be seen as we wait for a knight in shining armor to save us.

What *is* happening is the states and the country as a whole is looking at extreme tax income shortfalls as the bulk of the country go unemployed. When the bulk of the country's tax base loses jobs, the onus of tax payment has to go somewhere. People without a roof over their head are hard to coerce into tax payments. This leaves The Rich facing the outstretched hand of Uncle Sam without anyone else to shift that burden to.

How We Got Here: Lying Central Bank Head

How We Got Where We Are

"Should we fault Chairman Bernanke for 'Green shoots'? Isn't it appropriate for a central bank to provide a rhetorial confidence? Aren't central bankers supposed to say things like 'green shoots'?"

Have we sunk so low that this is considered a valid question? Roughly re-worded, this question is, "Shouldn't the central banker cheerlead the economy and try to convince people that it is better than it is [in the hopes that this will make the economy better]?"

I can almost stomach this concept when applied to CEOs. Ok, so part of their job is as Marketeer in Chief. But our government officials? Our head of the Central Bank?

What happens when the cheerleading is revealed to be false? Where is his integrity and authority then?

Now we know.

http://www.ritholtz.com/blog/2009/07/shiller-roubini-discuss-anemic-economic-recovery/

What Journalism Has Become

Why Journalism is Dying, Part 2x10^74

Irish student hoaxes world's media with florid but phony quote from dead French composer


DUBLIN (AP) -- When Dublin university student Shane Fitzgerald posted a poetic but phony quote on Wikipedia, he was testing how our globalized, increasingly Internet-dependent media was upholding accuracy and accountability in an age of instant news.

His report card: Wikipedia passed. Journalism flunked.

The sociology major's obituary-friendly quote -- which he added to the Wikipedia page of Maurice Jarre hours after the French composer's death March 28 -- flew straight on to dozens of U.S. blogs and newspaper Web sites in Britain, Australia and India. They used the fabricated material, Fitzgerald said, even though administrators at the free online encyclopedia twice caught the quote's lack of attribution and removed it.

A full month went by and nobody noticed the editorial fraud. So Fitzgerald told several media outlets they'd swallowed his baloney whole.

"I was really shocked at the results from the experiment," Fitzgerald, 22, said Monday in an interview a week after one newspaper at fault, The Guardian of Britain, became the first to admit its obituarist lifted material straight from Wikipedia.

"I am 100 percent convinced that if I hadn't come forward, that quote would have gone down in history as something Maurice Jarre said, instead of something I made up," he said. "It would have become another example where, once anything is printed enough times in the media without challenge, it becomes fact."

So far, The Guardian is the only publication to make a public mea culpa, while others have eliminated or amended their online obituaries without any reference to the original version -- or in a few cases, still are citing Fitzgerald's florid prose weeks after he pointed out its true origin.

"One could say my life itself has been one long soundtrack," Fitzgerald's fake Jarre quote read. "Music was my life, music brought me to life, and music is how I will be remembered long after I leave this life. When I die there will be a final waltz playing in my head that only I can hear."

Fitzgerald said one of his University College Dublin classes was exploring how quickly information was transmitted around the globe. His private concern was that, under pressure to produce news instantly, media outlets were increasingly relying on Internet sources -- none more ubiquitous than the publicly edited Wikipedia.

When he saw British 24-hour news channels reporting the death of the triple Oscar-winning composer, Fitzgerald sensed what he called "a golden opportunity" for an experiment on media use of Wikipedia.

He said it took him less than 15 minutes to fabricate and place a quote calculated to appeal to obituary writers without distorting Jarre's actual life experiences. He noted that the Wikipedia listing on Jarre did not have any other strong quotes.

If anything, Fitzgerald said, he expected newspapers to avoid his quote because it had no link to a source -- and even might trigger alarms as "too good to be true." But many blogs and several newspapers used the quotes at the start or finish of their obituaries.

He said the Guardian was the only publication to respond to him in detail and with remorse at its own editorial failing. Others, he said, treated him as a vandal who was solely to blame for their cut-and-paste content.

"The moral of this story is not that journalists should avoid Wikipedia, but that they shouldn't use information they find there if it can't be traced back to a reliable primary source," said the readers' editor at the Guardian, Siobhain Butterworth, in the May 4 column that revealed Fitzgerald as the quote author.

"It's worrying that the misinformation only came to light because the perpetrator of the deception emailed publishers to let them know what he'd done, and it's regrettable that he took nearly a month to do so," she wrote.

Fitzgerald said he had waited in part to test whether news organizations or the public would smoke out the quote's lack of provenance. He said he was troubled that none did.

And he warned that a truly malicious hoaxer could have evaded Wikipedia's own informal policing by getting a newspaper to pick up a false piece of information -- as happened when his quote made its first of three appearances -- and then use those newspaper reports as a credible footnote for the bogus quote.

"I didn't want to be devious," he said. "I just wanted to show how the 24-hour, minute-by-minute media were now taking material straight from Wikipedia because of the deadline pressure they're under."

Best AIG Bonus Analogy Yet

"Tipping your rapist."

I can't take credit for this one, I'm just repeating it.

English Empire: Result of Bad Food?

Paul writes:

There are advantages to not having a food culture. I have always claimed that the reason England conquered half of the world is that Englishmen were seeking a decent meal. The English sailor would sit down to a meal of overcooked and greasy meat and vegetables and think, I need to go conquer a country that knows how to prepare a decent meal.

The Italians, on the other hand, dined very handsomely and stayed at home.

Iron Chef, Family Edition

We've all seen that cheesy Japanese TV show (and it's equally cheesy American spinoff) where top chefs compete to whip up amazing dishes in an hour.

That's all fine and good, but as a practical matter, Iron Chef is as valuable to a parent as trying to learn tire rotation tips by watching NASCAR pitstops.

So I propose a new spinoff: Iron Chef Family.

Same basic format, with the array of Iron Chefs and a weekly guest challenger, but from there the rules would be a bit different.

Instead of the mystery ingredient being rare Peruvian sea cucumber, eye of newt or whatnot, ICF would have everyday items like 'hamburger meat', 'broccoli' or 'whatever's on sale that day at Safeway'.

Then would come the *real* challenge: preparing in an hour a meal using everyday ingredients that one could serve to a typical family. No soux chefs, blast chillers, 5 megawatt electric skillets or 'mixologists'. Just a stove, knives, a sink, maybe on special occasions (if they've been good) a blender and a microwave. Oh, and did I mention that the chef has to also get the dishes washed and put away within the hour?

Then would come the judging. Two families of four. Mom, dad and the 2.2 kids would judge the meals. Scoring would be on taste, nutrition, balance (did the chef put out an entree, a starch AND a vegtable?) and most importantly: did the kids eat it?

Iron Chef is great for the fancy restaurant crowd with their huge fully-staffed kitchens. But you want to impress me? Make a great meal that everyone will eat in an hour. Hell, if it tastes good enough, I'll throw in an extra 30 minutes to let him square away the leftovers.

Heck, just watching the Chairman scream "Hamburger Helper!" while revealing the secret ingredient might make the entire show worthwhile.

The Fall of Empire

Talk about reporting your own death:
http://www.nytimes.com/interactive/2009/03/12/business/20090312-papers-graphic.html


I find this another interesting example of the *huge* social changes that the internet has brought. Digital cameras have devastated (for now, at least) professional photography, all the way from High Fashion and Advertising to the mall photo booth. Job outsourcing has within a few years devastated domestic employment as any "information job" can be run from "anywhere". Finance and Wall St. have exploded with the ability to suck money from anyone with cash and an internet connection. Online sales have put major pressures on "Brick and Mortar" retailers. Medical, political, the list goes on and on.

We all remember the power of William Randolf Hearst. Strange how the seemingly unrelated invention of "The Internet" has brought these huge and powerful institutions to their knees. They can't even sell the newspapers now... the entire business or even the paper its printed on. Remarkable.

P.S. I predict TV will be the next media victim. In the next 10-15 years, we'll see broadcast TV and many "cable" TV shows go the way of the payphone. (Cue post on the remarkable social re-working brought about by the mobile phone!)

So... Do We Have Free Healthcare Now or What?

For decades Republicans have warned that free healthcare for all would lead to economic collapse, the onset of high taxes, unemployment, frozen equity markets, just to name a few.


So.... we got all that. Where's my free healthcare? I'm still getting bills.

We're totally in the crapper. Did we lose a war or what?

Oh, right. We did. We lost to ourselves.

Saving the Rich

On Thu, Mar 12, 2009 at 2:00 PM, XX wrote:
There needs to be a examination of the cost of government compared to the output of it's citizens. When Gov't expenses go to high, taxes go up, workers are likely to balk at improving their income.

It will cease to be an issue, because we are approaching 50% of our voters not paying any federal tax. That means they will decide to increase taxes on those who do pay. Notice how "the wealthy" are now paid less and less. Now it's about $250K. In a previous Democratic administration, a Millionaire was someone that earned a million dollars in their life time.

Ah, another Red Herring. "If you raise taxes too high, people will just refuse to work."

This reflects an *aggregious* mis-understanding of the tax code.


Let's say, for example that you make $100. Let's say that the tax rate is 40% up to and including $100, and 50% for $101 and up.

So, when you make $102, what is your tax?

A) $102 * 0.5 = $51
B) ($100 * 0.4) + ( $2 * 0.5 ) = $40 + $1 = $41


We have a *staged* tax system. The answer is 'B'.



I've not heard of a single extremely-rich person (we used to call them "millionaires") that's in it for the money. I doubt there's a single one that says, "You know, I've made enough money, why don't I stop for a while?" or "You know, if I make over X, it'll just send me into the next tax bracket. No thanks."

The only people we hear talking about this is A) Republican talking heads B) People who *want* to be millionaires, but don't even understand the basics of finance enough to become rich, let alone millionaires.

Show me one instance in which Warren Buffet said, "No more money for me! I don't want to be in the next tax bracket."

Rich people will turn all sorts of tricks to avoid paying taxes. They may *defer* income into "down" years or whatnot, but I'd like to see one case of a truly "rich" person refusing the opportunity to make money because it would kick them into the next income tax bracket.

I never cease to get amusement out of middle-class Republicans that will bend over backwards to screw themselves in order to save "the rich" money.


A much better avenue of attack would be chasing down that 50% that doesn't pay taxes.


Lemme propose a test:

Let's say someone approaches you on the street and says, "If you give me a nickel, I'll give you $250k, but you must give 75% of it to a random passer-by."

Do you accept or no?



A final point. I *used* to be in the $250,000 bracket. I'll *gladly* pay whatever tax Obama wants rather than continue to "save tax money" under the W administration. I'm tired of this "American's don't want to work (because taxes are too high)" bullshit.

My thoughts exactly:

The Cunning Realist

That Would Have Worked Out Well

Anyone seen any recent calls for Social Security private accounts?

The stock market crash has shown how catastrophic private accounts would have been, and who would have really benefited from them. Would the government have allowed the Bear Stearns and Lehman outcomes had the Social Security system been chock full of those stocks? Remember, both were former blue chips, the sort of companies that proponents of private accounts insisted any new system would be limited to. The same for Citi, AIG, Fannie Mae, and others. How much pressure would the Fed and Treasury have felt -- and what more would have been done -- to keep those afloat and/or out of penny stock land?

That pressure would have been exerted by millions of unpaid but highly effective lobbyists: people emailing and calling Washington, demanding that their Social Security money -- and so the stocks, the companies, and the executives -- be saved. Corporate bondholders would have loved it, since the Social Security system effectively would have become a massive safety buffer. Would "nationalization" even be considered if it meant destroying part of Social Security?

Private accounts are dead now, so it's a bit of a moot point. But I wonder how many of those who both supported them and genuinely object to the prevailing bailout ethos ever thought this through.

Krugman: Nonrival and Nonexcludable

Krugman at NY Times

What should government do? A Jindal meditation

What is the appropriate role of government?

Traditionally, the division between conservatives and liberals has been over the role and size of the welfare state: liberals think that the government should play a large role in sanding off the market economy’s rough edges, conservatives believe that time and chance happen to us all, and that’s that.

But both sides, I thought, agreed that the government should provide public goods — goods that are nonrival (they benefit everyone) and nonexcludable (there’s no way to restrict the benefits to people who pay.) The classic examples are things like lighthouses and national defense, but there are many others. For example, knowing when a volcano is likely to erupt can save many lives; but there’s no private incentive to spend money on monitoring, since even people who didn’t contribute to maintaining the monitoring system can still benefit from the warning. So that’s the sort of activity that should be undertaken by government.

So what did Bobby Jindal choose to ridicule in this response to Obama last night? Volcano monitoring, of course.

And leaving aside the chutzpah of casting the failure of his own party’s governance as proof that government can’t work, does he really think that the response to natural disasters like Katrina is best undertaken by uncoordinated private action? Hey, why bother having an army? Let’s just rely on self-defense by armed citizens.

The intellectual incoherence is stunning. Basically, the political philosophy of the GOP right now seems to consist of snickering at stuff that they think sounds funny. The party of ideas has become the party of Beavis and Butthead.

Republicans Keep Forgetting Who Created This Mess

Andrew Sullivan

Which party added over $32 trillion to future unfunded liabilities, turned a surplus into a trillion dollar deficit, and endorsed indefinite nation-building at a simply staggering cost in two of the most intractably divided non-countries in the world? Which party asserted "near-dictatorial" powers for the executive, the priority of the will of the leader over the rule of law, and a mantra, in the words of the most "conservative" vice-president in memory, that "deficits don't matter." Which party described prohibitions against torture "quaint" and presided over the most reckless, and irresponsible period in American finance since the 1920s?

Republicans Keep Forgetting Who Created This Mess

Andrew Sullivan

Which party added over $32 trillion to future unfunded liabilities, turned a surplus into a trillion dollar deficit, and endorsed indefinite nation-building at a simply staggering cost in two of the most intractably divided non-countries in the world? Which party asserted "near-dictatorial" powers for the executive, the priority of the will of the leader over the rule of law, and a mantra, in the words of the most "conservative" vice-president in memory, that "deficits don't matter." Which party described prohibitions against torture "quaint" and presided over the most reckless, and irresponsible period in American finance since the 1920s?

Of Drug Dealers and Liars

Both drug dealers and Liars put themselves in the most peril when they consume their own product.