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Posts Tagged ‘finance

“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”*…

In the past few decades, the Gini coefficient—a standard measure of income distribution across population segments—increased within most high-income economies. The United States remains the most unequal high-income economy in the world. The disparity reflects a surge in incomes for the richest population segments, along with sluggish or even falling incomes for the poorest, especially during bad economic times.

At the same time, the middle class is shrinking. The percent of Americans in the middle class has dropped since the 1970s, from 61 percent in 1971 to 51 percent in 2019. Some have moved up the income ladder, but an increasing number are also moving down. The middle class has also shrunk considerably in countries like Germany, Canada, and Sweden, but other advanced economies have generally experienced more modest declines.

From the introduction to the Petersen Institute for International Economics report “How to Fix Economic Inequality?

Founded by Pete Petersen (Lehman Brothers Chair, Nixon’s Secretary of Commerce, and co-founder, with Trump supporter Stephen Scharzman, of investment giant Blackstone), and overseen by trustees who include Larry Summers, Alan Greenspan, and George Schultz, PIIE is hardly a “progressive” think tank. But they are worried: quite apart from its obvious humanitarian toll, inequality at the scales that have emerged is highly unlikely to be sustainable (even at the human cost that we’ve so far been willing to pay). Put more bluntly, it is ever more likely to torpedo the domestic (and large hunks of the global) economy and indeed to threaten the stability of democratic society.

Other sources suggest that they have very good reason for concern:

• Even as the stock market hits new highs, 26 million Americans are suffering food insecurity (See also: “The boom in US GDP does not match what’s happening to Americans’ wallets.”

• The distribution of assets in the US (and other developed economies, but most egregiously in the U.S.) is even more skewed than income: see data in the PIIE report and “The Asset Economy.”

• And lest we think that this issue is confined to the U.S., social democracies throughout the developed world are feeling the same pressures (albeit mostly less dramatically).

FWIW, your correspondent doesn’t have terrifically strong confidence in the remedies mooted in the PIIE report. Even as the authors recognize that the issues are deeply structural, they confine themselves to recommending (what seem to your correspondent) relatively timid and incremental steps– which, even if taken (and most require legislative or regulatory action) are more likely to slow the polarization underway than to reverse it.

But they are worth contemplating, if only to provoke us to more fundamental measures (e.g., here). And in any case, it’s telling– and one can only hope, encouraging– that determined champions of the very neoliberal economics that have gotten us here recognize, at least, that unless we change course, we’re speeding into a dead end.

* Warren Buffett

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As we agree that fair’s fair, we might recall that it was on this date in 2001 that Enron, once #7 in the Fortune 500, declared bankruptcy. Six months earlier, it’s stock had traded as high as $90; it closed November 30th at 26 cents, wiping out billions in wealth (a appreciable part of it disappearing from employees’ pension plans). At the time, Enron had $63.4 billion in assets, earning it the honor of being the nation’s largest bankruptcy to that date. (It would be surpassed by the WorldCom bankruptcy a year later.)

Jeff Skilling, Enron’s CEO served 11 years in prison on several counts of fraud; Andy Fastow, Enron’s CFO, would served about 5 years. Chairman Ken Lay was also found guilty, but died before his sentencing. Enron’s accounting firm, Arthur Andersen (at the time a leader among the “Big 5”), which at least “missed” the egregious fraudulent practices in their audits of Enron, was effectively forced to dissolve after the scandal.

Published a year before the scandal broke

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“Like the elite of ancient Egypt, most people in most cultures dedicate their lives to building pyramids. Only the names, shapes and sizes of these pyramids change from one culture to the other.”*…

“Corporate personhood” is– justifiably– a hot topic in the U.S. By dint of a questionable precedent and the legal superstructure that’s grown atop it, corporations here now have have the rights enjoyed by individuals (including the “free speech” right to make unlimited political contributions to PACs) even as they are free of many of a “real” person’s responsibilities.

But there corporations in other countries that are, in a very meaningful way, actually a person. The ever-illuminating McKinley Valentine points us to the intrigue surrounding one of South Korea’s leading chaebols (enormous conglomerates controlled by a single owner/family):

… if, like me, you enjoy mystery and conspiracy and watching too many political thrillers until they permanently damage your brain you will find this story fascinating.

A thread by John Yoo. He’s far from the only person talking about it, but he sums it up really well.

Chairman of Samsung is probably dead but we are all pretending he is alive because if he dies, the country will probably go into an economic death-spiral.

Samsung usually accounts for 20% of the exports of the entire country of South Korea. As a single group, it’s a conglomerate with either large or controlling market share in tech, construction, finance & insurance, hospitality, security, travel, food, retail producing 12% of GDP.

Almost $1 in every $5 in the country brought in from abroad is by Samsung.

[McK paraphrase: a whole ecosystem of suppliers and purchases has built up around Samsung, and is completely reliant on it. These would fail within months if Samsung collapsed] [not a whalefall situation, apparently]

Enter Korean tax code. Korea has 50% inheritance tax on assets above $2.5m. When Lee Gunhee dies, his family will owe the government $7b.

It is a fact that Chairman Lee Gunhee suffered a heart attack in 2014 and was hospitalized. Nobody but close family members have reported seeing him. People who claimed he was dead have either disappeared or been arrested.

When his death was reported in 2014, the entire country flipped and the story was deleted because the news site said that the whistleblower disappeared.

It’s been five years and nobody can tell us his condition with certainty. Nobody has seem him…

“The chairman of Samsung is almost certainly dead.” Do read the entire thread. And do consider following McKinley’s newsletter, The Whippet.

For more on the Samsung saga, see here (the source of the photo above); and for an explainer on chaebols, here.

* Yuval Noah Harari, Sapiens: A Brief History of Humankind

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As we stew over Succession, we might wish a stony-faced Happy Birthday to “the greatest actor-director in the history of the movies” (quoth Roger Ebert); Joseph Frank “Buster” Keaton was born on this date in 1895.

As a young vaudevillian, Keaton met silent star Fatty Arbuckle.  Keaton borrowed Arbuckle’s crew’s camera, took it back to his boarding house, disassembled and reassembled it, then returned to ask for a job.  He was hired as co-star and gag man on “The Butcher Boy”– and soon became Arbuckle’s “second director” and his entire gag department.  Keaton soon earned his own unit, and began churning out two-reelers.  Leo McCarthy (director of Charlie Chase, Laurel and Hardy, the Marx Brothers, Mae West, and others) recalled, “All of us tried to steal each other’s gagmen. But we had no luck with Keaton, because he thought up his best gags himself and we couldn’t steal him!”

From 1920 through 1929, Keaton made Our Hospitality, The Navigator, Sherlock Jr., Seven Chances, Steamboat Bill Jr., The Cameraman, and The General— gems all.  Indeed, Henson collaborator Orson Welles considered The General to be, “the greatest comedy ever made, the greatest Civil War film ever made, and perhaps the greatest film ever made.”

With the advent of sound, Keaton’s career took a sideways turn.  While he appeared in a number of feature films, guested on many television series, and even served as an advisor to Lucille Ball on I Love Lucy, he was never again the monster star that he had been on the silent screen… which adds to the power– and the poignancy– of his penultimate role: the lead in the only movie written by Samuel Beckett, the (nearly) silent Film.

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Written by LW

October 4, 2020 at 1:01 am

“Money laundering is a very sophisticated crime and we must be equally sophisticated”*…

 

money-wash

 

It’s bad form to mention money-laundering. Instead, you talk about asset-management structures and tax beneficial schemes.   — John Sweeney

This is the untold history of how prominent civil servants in the UK tailored US-devised anti-money laundering (AML) policies in ways that suited the needs of Britain’s financial services industry. In the aftermath of these initial compromises in 1987, criminal money managers in both the US and the UK were able to continue to operate in an environment that easily allowed them to hide and use dirty money. The researchers analysed six months of previously unseen personal correspondence and documents exchanged between various actors in the UK Government during 1987. From this they conclude that the core of the current, global AML regime, was not the destruction of drug money laundering and banking secrecy, nor the ending of criminal financial enablers and with it hot money; rather it was the protection and leverage of national trading interests on both sides of the Atlantic. And the drive to protect these interests would see crime control laws made, amended and changed to cater for the interests of the US and UK banking and finance industries. The file had been classified as secret and held by the UK Treasury until it was released to the public in 2017 as an archive document transferred to The National Archives in accordance with The Public Records Act and the Freedom of Information Act…

Mary Alice Young and Michael Woodiwiss tell the extraordinary story of governments effectively competing with criminal gangs at “A world fit for money laundering: the Atlantic alliance’s undermining of organized crime control.”

(Image above: source)

* Attorney General (1993 to 2001) Janet Reno… whose words can be understood, per the article cited above, in more than one way…

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As we follow the money, we might recall that it was on this date in 1957 that George B. Hansburg was issued a patent (#2,793,036) for his invention of “an improved pogo stick”– the modern two-handled pogo stick.

While spring stilts had been invented in 1891, the original pogo stick was created in 1920 by Max Pohlig and Ernst Gottschall– the first two letters of whose surnames gave the device its name.

Pogoanim source

 

Written by LW

May 21, 2020 at 1:01 am

“I like to pay taxes. With them, I buy civilization.”*…

 

Tax Haven

 

The United States and Britain had a treaty under which they agreed not to tax each other’s companies’ profits. Such double-taxation treaties are foundational to the globalised economy because they ensure that a company that operates in more than one country isn’t taxed twice on the same money… this treaty extended to Britain’s overseas colonies, which exposed a flaw at the heart of this system: if one country undercuts the other on tax rates, companies that base themselves there can dramatically reduce the amount of tax they pay in the other.

Most big countries won’t play this game, because it would destroy their tax bases. The BVI, being small and having a weak economy, had no such considerations because it didn’t have much tax revenue to lose: the new business the islands attracted from relocating companies gained them more in fees than they lost in taxes. Such countries are now understood and referred to as tax havens, but back in the 1970s they were a new phenomenon and businesses were exploring them with relish.

In the 1970s, corporations in the BVI paid 15 per cent tax on their profits, while in the United States they paid 50 per cent. If an American incorporated her business in the Caribbean she could export her dividends and cut her effective tax rate by more than half. All she needed was a local lawyer. And, dating from 1976, when US clients first found him, that lawyer was Michael Riegels…

The extraordinary story of the British ex-pat in the British Virgin Islands who founded the now-global off-shore tax haven “industry,” currently estimated to hold $7-10 trillion in assets (up to 10% of global assets) anonymously and outside the reach of home country authorities: “The Second Career of Michael Riegels.”

* Oliver Wendell Holmes Jr.

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As we salt it away, we might recall that it was on this date, the Ides of March, in 44 BCE that Julius Caesar, who was reputedly “born of the knife” (via cesarean section), died by the knife– stabbed to death by Brutus, Casca, and 58 others in the Roman Senate.

In fact, the early history of cesarean section remains shrouded in myth and is of dubious accuracy.  Even the origin of “cesarean” has apparently been distorted over time.  It is commonly believed to be derived from the surgical birth of Julius Caesar, however this seems unlikely since his mother Aurelia is reputed to have lived to hear of her son’s invasion of Britain.  At that time the procedure was performed only when the mother was dead or dying, as an attempt to save the child for a state wishing to increase its population.  Roman law under Caesar decreed that all women who were so fated by childbirth must be cut open; hence, cesarean.  Other possible Latin origins include the verb “caedare,” meaning to cut, and the term “caesones” that was applied to infants born by postmortem operations. [source]

440px-Jean-Léon_Gérôme_-_The_Death_of_Caesar_-_Walters_37884

The Death of Caesar, Jean-Léon Gérôme, 1867

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“Commodities tend to zig when the equity markets zag”*…

 

Screen Shot 2020-01-13 at 11.11.12 AM

 

On the subject of things– things that matter, whether we are active investors or not– that we might (to our peril) take for granted…

There are plenty of expensive assets in the world today. The past decade of loose monetary policy and central bank money dumps have created the infamous “bubble in everything”. This is one reason we now have the bizarrely yo-yoing investment environment that we do, in which everything from risky stocks to safe gold is rising at the same time.

But one thing has remained reliably cheap — commodities. While the US equity market, which keeps ratcheting up to new highs, is almost as expensive as in the past 150 years, commodities are about as cheap relative to stocks as they’ve been in the past century.

Part of this is natural — and structural…

And yet, having watched the last big demand-driven oil spike in 2008, as well as the more financially driven price spike in 2011-12, which eventually came undone when central bankers pulled back on quantitative easing, I think it’s unwise to assume that we have entered a permanent bear market in commodities — at least not yet…

… if commodity prices did rise, there would be myriad ramifications. You would start to see the heads of petro states further emboldened, and populist nationalism increase globally — inflation in food and fuel prices hits the poor hardest, encouraging political volatility. That could, in turn, create new trade turmoil and the sort of disruption that the markets are currently discounting.

On the upside, though, demand for commodities is price elastic — once prices go too high, demand always falls. The cycle of replacing one source of energy with another has been playing out for hundreds of years, and continues. In an ideal world, the next commodities bubble, whenever it comes, could help us make what might be the final shift — away from fossil fuels and towards renewables.

The estimable Rana Foroohar explains there are many reasons for the US dollar to weaken, which would (among other drivers) cause commodity prices to rise: “Commodities may not stay cheap forever.”

* legendary investor Jim Rogers

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As we contemplate cycles, we might rejoice that it was on this date in 1605 that El Ingenioso Hidalgo Don Quijote de la Mancha ( or The Ingenious Hidalgo Don Quixote of La Mancha— aka Don Quixote), the masterwork of Miguel de Cervantes (and of the Spanish Golden Age) was first published.

Original title page

 

Written by LW

January 16, 2020 at 1:01 am

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