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Cronyism from the left going to Hollywood


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2014 Oct 16, 2:03pm   13,345 views  67 comments

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Pulitzer Prize-winning writer David Cay Johnston mocked claims that higher taxes destroy jobs: “Some research into tax rates indicates that high tax rates have the opposite effect: People may work harder, trying to make more money to achieve a desired after-tax income and may slough off if tax rates are lowered.” In other words, high tax rates aren’t detrimental to the California economy—they may even be the cause of its recent growth.

http://www.city-journal.org/2014/cjc1016sg.html

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1   FortWayne   2014 Oct 17, 4:14am  

How much harder do any of us have to work? Geez!

2   indigenous   2014 Oct 17, 4:16am  

Calif legislators are putrid second only to the beltway. The quintessence of Nero.

3   FuckTheMainstreamMedia   2014 Oct 17, 4:37am  

indigenous says

Calif legislators are putrid second only to the beltway. The quintessence of Nero.

Lol that someone disliked your post.

Who the hell likes California state assembly people and senators?

I'd be surprised if even their immediate family liked them.

4   FuckTheMainstreamMedia   2014 Oct 17, 4:44am  

Btw, I'm adding David Cay Johnston to the list of people I've made for if I ever hit the lottery and money/career no longer matter, I'm seeking out and kicking them in the nuts.

The list so far:

1.) Hurricane Jackie Goldberg
2.) The Dumbass Caltrans Division head who conceived of and decided to put electric signs on the freeways in a state where a good percentage of drivers can't read English but try anyway.
3.) Rachel Maddow
4.) David Cay Johnston.

5   indigenous   2014 Oct 17, 4:50am  

dodgerfanjohn says

Rachel Maddow

Is that why you left JB off the list i.e. he doesn't have any?

6   indigenous   2014 Oct 17, 5:50am  

Call it Crazy says

Is he slipping today?

I think we are wearing him down.

7   DavidCayJohnston   2014 Oct 17, 11:16am  

How taxes affect behavior is complex, as behavioral economists have been showing in numerous experiments.

So is the system. How many people know that 20 states let 3,000 big companies like GE and News Corp and Nissan keep the state income taxes withheld from their workers' pay, for example - a fact hidden from the workers? Yet this is in the public record if you have the time and diligence to dig it out.

Knee jerk (and crude) responses like the post by dodgerfanjohn reflect how little Americans understand tax, including the critical issue of how we spend our tax dollars. People who get rich off taxes like Warren Buffet rejoice at such I'll-informed responses. (Buffett brags that he has a zero interest loan from the IRS of $57 billion and it grows each year by billions, but I doubt dodgerfanjohn Knows this.)

Some taxes discourage hiring (payroll taxes for example), while raising rates on very high incomes by business owners does not, which helps explain why California lead in 2013 job creation after a 30% increase on incomes above $1 million, but tax cutting Kansas saw its economy sink after it cut public investments that support private wealth creation. As a business cofounder I can assure my taxes do not determine hiring, which is done when there is more work.

All private wealth is built on a foundation of tax, without which there is no private property, no liberty, as the ancients taught and 2,500 years of history show.

But when we are taxed to subsidize the already rich, as my books and columns document from the public record that our politicians work hard to obscure, taxes cause serious economic harm.

How many people know that shopping centers, factories and office buildings are often paid for with tax dollars diverted from police, fire and schools shows if you know where to dig?

A single worker making the median wage (half make more, half less) of just over $500 a week now bears a third higher federal tax burden than the top 400 taxpayers, whose average income is more than $4 million per week.

I got the GWBush administration to acknowledge on 6-5-2005 that effective tax rates FALL as incomes rise above $2 million. That is also what the official data show.

Over the years I have named many people whose tax returns show they are billionaires, but legally live income tax-free or nearly so.

Many very wealthy people profit off their income taxes because they defer payment for decades, investing the unpaid taxes whose value grows while inflation erodes the fixed sum due, while most people have taxes taken out of their pay before they get their checks.

To understand how the system really works read my book Perfectly Legal or my recent Newsweek cover titled Corporate Deadbeats.

I hope dodgerfanjohn especially does read because the facts are not as he imagines.

8   indigenous   2014 Oct 17, 12:32pm  

DavidCayJohnston says

How taxes affect behavior is complex, as behavioral economists have been showing in numerous experiments.

On the off chance that you are who you say you are, I will try and refrain from kicking you in the nether region.

Yeah we are aware of the crony capitalism Buffet practices and his phony claims, he is one of the biggest hypocrites out there, especially when you consider how his companies have benefited from TARP and taxpayer purchases of MBSs i.e. Berkshire Hathaway would be gone if not for the unwitting taxpayer largess.

My complaint is against corporate welfare in all of it's stripes. Crony capitalism is NOT capitalism.

But this subject is a two street, you only talk about one side of this. The government especially in Calif and at the Fed level has grown tremendously in the past 4 decades. That has required 1/3 or so of Fed budget be from borrowed money.

But the most onerous, on the little guy, of all the taxes is inflation. Inflation only has one definition, it is not complicated at all, when the Federal Reserve Bank increases the money supply it creates inflation.

You and the Piketty crowd think that cure for what ails us is through taxation. Many of us contend that the cure would be by creating honest money. Not that honest taxation would not help but the real driver of the exacerbated inequality is dishonest money.

The reason this subject gets complex is because a centralized state is trying to control what I estimate to be at least 70 billion transactions per day. How can a government control that sort of volume? Some have tried and been a dismal failure at the expense of their countries citizens.

The problem in Calif has been their discouraging investment. The regulations and the attendant pretend jobs are very onerous on business in Calif. As Greenhut points out in his article the jobs created in NY by tax credits cost around 250k per job.

The point is that state has no business trying to determine what industry has value, because they are not that smart, no one is. As state wide the market is at least 390 million transactions per day and it requires 39 million people to determine what is valuable to them.

The one thing that creates jobs, investment, is being threatened away by uncertainty and state burdens.

The movie industry tax credits are more of a symbol than a real incentive to put more jobs here as the incentives pale in comparison to the savings by making the movie in Vancouver et.al.

9   DavidCayJohnston   2014 Oct 17, 11:17pm  

“My complaint is against corporate welfare in all of its stripes. Crony capitalism is NOT capitalism.”

Exactly, as my trilogy on hidden aspects of the American economy and my hundreds of my articles and columns have shown. In Perfectly Legal (taxes), Free Lunch (subsidies) and The Fine Print (restraint of trade) and elsewhere I have shown:

 how eliminating underwriting for mortgage loans enabled the mortgage crisis and how bank examiners were turned into sightless sheriffs. The opening line sets the tone here: http://reut.rs/K85ioM
 How the pipeline industry forces you to pay it the grossed up corporate income tax of 54% even though a 1986 law makes it exempt from the tax, by my count $3.3 billion collected but never turned over to government ($1.9 billion a Congressional study says). http://bit.ly/1adgnSp
 How state constitutions that bar all gifts of cash and credit are overcome http://reut.rs/1lf41Ni

For a serious factual look at crony capitalism, the abandonment of sound underwriting and the failure to re-institute effective banking regulations, including a link to the Financial Crisis Inquiry Commission report that Congress threw in the round file, read this: http://blogs.reuters.com/david-cay-johnston/2011/11/15/meltdown-redux/

“As Greenhut points out in his article the jobs created in NY by tax credits cost around 250k per job.”

Your source errs. No jobs were created. From 2005 to 2013 NY State subsidies tripled to $1.7 billion annually. Total subsidies of $10 billion over that time produced a loss of 175,000 jobs, or 2 percent, for an average cost of $57,000 per job lost; subsidies cost on average $1,400 per household. http://bit.ly/1ckLrdk

BTW, the NYS constitution flatly bans all corporate subsidies, but the state’s highest court found a (preposterous) way around that in a story covered only by me at the Albany NY paper: http://reut.rs/1lf41Ni

“The government especially in California and at the Fed level has grown tremendously in the past 4 decades.”

California, yes, because of two changes long ago. First, Ronald Reagan vowed if elected governor in 1966 to never allow income tax withholding and then quickly implemented it so he could get revenue to expand, among other things, the California Highway Patrol. State revenue quickly increased. Second, Prop. 13 stripped local governments of responsibility for their budgets and shifted power to Sacramento, making it much easier for corporate interests to lobby since 58 counties and hundreds of cities were replaced with one place to seek influence, while the benefits over time go mostly to industrial and commercial real property owners.

But on the federal level you are wrong. In FY14 about 12 percent, not a third, of federal spending was borrowed.

Federal receipts in 2009, 2010 and 2011 were at their lowest levels since 1950 and in 2012 were just below the average since 1950 and since 1980. In FY2014, which ended two weeks ago, federal taxes were a bit above these averages.

Likewise, federal spending has come down faster under Obama (of whom I have been harshly critical since 9 days after his taking office) and spending growth has been more constrained than under any other president since WWII; Reagan and GWBush were the big spenders.

The FY2014 deficit was the smallest since 2008 and by the time Obama leaves should be at about 2.2 percent of GDP, a number roughly equal to annual spending on long-lasting public investments.

Our economy would be much stronger if we increased federal investments (not total spending) in the future – basic research, infrastructure and education.

Perhaps half of today’s economy is based on taxpayer funded-research from before WW2, primarily physics, chemistry, math and materials and post-war basic research that gave us the Internet, advanced materials and many other broadly enjoyed economic benefits. Today we starve research budgets, and reduce taxpayer funding of public higher education, to our long-term detriment while our competitors increase these investments to their long-term benefit.

Our economy would also be stronger if we did not spend so much on our sick care system that the excess costs alone equaled the income taxes collected in 2010 http://reut.rs/1kuKMv5 and if we did not burden business with these costs, which are more efficiently handled through government.

“when the Federal Reserve Bank increases the money supply it creates inflation.”

Empirical evidence to support this? First, the official inflation rate is moderate, well below the average of the post-war era and especially since 1980. Second, even if you apply unofficial but reasonable measures like John Williams’ Shadow Statistics the rate is consistent, not rising, since the Fed interventions: http://www.shadowstats.com/alternate_data/inflation-charts

A deeper worry should be a deflation as in the late 1800s because of an imbalance and lack of liquidity for the 90%. Generally falling prices are a nightmare and we are seeing those in two broad areas – housing (which is still too high relative to incomes) and the wage component of compensation for services.

“You and the Piketty crowd think that cure for what ails us is through taxation. Many of us contend that the cure would be by creating honest money.”

First, you lump together two people with very different POVs. I’m a champion of competitive markets and balanced regulatory rules. We could have lower rates if we get rid of all the preferences for those at the very very top and stopped paying them to defer their taxes. See http://bit.ly/1rzBSSO and http://bit.ly/1Aa8xQ3

Second, tax is the biggest economic activity in the world by far. To think a flawed tax system is not central to our economic problems, thus, is absurd.

All private wealth is built on a foundation of tax-funded commonwealth and civil laws that define property and protect liberty. http://nyti.ms/1ntUTae

All wealthy societies have high taxes because private wealth depends on commonwealth goods and services as well as strong enforcement mechanisms.

We err, these days, in giving subsidies to individuals and specific companies instead of improving the common goods and services that anyone can use. Reining in such spending is, for sure, a major concern of mine.

We need a tax system that rewards savings and investment, captures rents and supernormal incomes, just as every classic worldly philosopher since Aristotle has favored. Ed Kleinbard’s brilliant new book We Are Better Than This is eloquent and instructive on both sides of the ledger, levying and spending.

We should not have a tax system that burdens a $500 a week worker far more than the average $4 million per week household, or that allows hedge fund and PE managers and others to defer unlimited amounts of taxes for decades and that allows the 2,800 biggest companies to profit off taxes, while the rest of us are burdened by them. See http://bit.ly/1Aa8xQ3 and http://bit.ly/1gTXAKp and Point 4 here http://bit.ly/1y2A8Dg

“…honest money…”

Has any merchant or government refused to take your money? Are interest rates at their lowest levels in 700 years? The problem is not money per se, but rules that pile up money in a few hands, so much so that it cannot be profitably reinvested, just as if your venal blood flow exceeded your arterial. The blood would pool somewhere in your body making you ill and maybe killing you. Plutarch and Adam Smith are instructive on imbalances. And in the highly unlikely event that we have a meltdown of our money I will alter my view because the facts will be different. But I think your assertion is poppycock with no empirical basis.

“a centralized state is trying to control what I estimate to be at least 70 billion transactions per day.”

Empirical evidence to support this? If you have any email it to me at davidcay@me.com.

“movie industry tax credits are more of a symbol than a real incentive to put more jobs here as the incentives pale in comparison to the savings by making the movie in Vancouver et.al.”

Yes – and these incentives are worse than you imagine. A single movie of no consequence got Wisconsin subsidies equal to all of the state taxes paid by more than 44,000 small Wisconsin businesses. You can read about this and more in the “Hollywood Robbery” chapter of The Fine Print, which also explains a key reason politicians like this particular subsidy.

“Berkshire Hathaway would be gone if not for the unwitting taxpayer largess.”

Utter nonsense. This shows you do not understand the structure of B-K, its diversified portfolio or its huge tax subsidies (that $57 billion zero interest loan I cited before that keeps growing, its pipeline tax profits, its utilities, etc.). Some of the companies B-K owns minority stakes in might be gone, notably Wells Fargo Bank, but B-K itself was in zero danger of going out of business, as you wrote.

This kind of ill-informed hyperbole only spreads disinformation. You should show more care with facts. On the other hand, see the chart on page two of this link and the narrative on how Buffett got a much better Goldman Sachs rescue deal than Uncle Sam did: http://taxprof.typepad.com/files/121tn1427.pdf

Finally, instead of juvenile opening lines about kicking people, engage in grown up debate about verifiable facts. And stop cowering behind a nom d’ Internet. Sign your writing with your real name.

10   DavidCayJohnston   2014 Oct 17, 11:31pm  

errata: ...a story covered only by me (((at))) AND the Albany NY paper...

11   DavidCayJohnston   2014 Oct 17, 11:34pm  

I also just noticed that you began this thread with an article that subtly mischaracterizes what I wrote for the Sacramento Bee about California raising taxes on the highest earners and still leading the nation in the rate of job growth.

My piece is here: http://www.sacbee.com/opinion/california-forum/article2604184.html

12   Entitlemented   2014 Oct 18, 1:03am  

It should be pointed out that Hollywood has successfully eliminated State Tax for most of the high revenues generated. They get the best Tax Break of any group in CA:

http://www.boe.ca.gov/pdf/pub61.pdf

13   indigenous   2014 Oct 18, 3:35am  

DavidCayJohnston says

For a serious factual look at crony capitalism, the abandonment of sound underwriting and the failure to re-institute effective banking regulations

Actually it goes deeper than that, this is the reference, by a Columbia Business School economist:

http://www.schiffradio.com/pg/jsp/verticals/archive.jsp?dispid=310&pid=66345

http://fragilebydesign.com/

DavidCayJohnston says

Your source errs. No jobs were created. From 2005 to 2013 NY State subsidies tripled to $1.7 billion annually. Total subsidies of $10 billion over that time produced a loss of 175,000 jobs, or 2 percent, for an average cost of $57,000 per job lost; subsidies cost on average $1,400 per household.

You appear to be looking at total numbers instead of the jobs created specifically in the movie industry?

DavidCayJohnston says

First, Ronald Reagan vowed if elected governor in 1966 to never allow income tax withholding and then quickly implemented it so he could get revenue to expand, among other things, the California Highway Patrol.

That sentence does not make sense to me, it appears to be non sequitur?

DavidCayJohnston says

Prop. 13 stripped local governments of responsibility for their budgets and shifted power to Sacramento, making it much easier for corporate interests to lobby since 58 counties and hundreds of cities were replaced with one place to seek influence, while the benefits over time go mostly to industrial and commercial real property owners.

Totally agree

DavidCayJohnston says

But on the federal level you are wrong. In FY14 about 12 percent, not a third, of federal spending was borrowed.

These graphs say otherwise:

DavidCayJohnston says

federal spending has come down faster under Obama

That conclusion is premature, the CBO projected in the mid 60s that medicare would be a fraction of what it really ended up being in 1990. Not to mention the impact of Frank Dodd a comparible might be Sarbanes Oxley and it's attendant costs I have heard estimated to be over a trillion dollars, because of accounting costs and business that do IPO's offshore.

DavidCayJohnston says

Our economy would be much stronger if we increased federal investments (not total spending) in the future – basic research, infrastructure and education.

Perhaps half of today’s economy is based on taxpayer funded-research from before WW2, primarily physics, chemistry, math and materials and post-war basic research that gave us the Internet, advanced materials and many other broadly enjoyed economic benefits. Today we starve research budgets, and reduce taxpayer funding of public higher education, to our long-term detriment while our competitors increase these investments to their long-term benefit.

I'm ambivalent to this as investment in people may equate to investment in capital goods OTOH we have a culture that is based on consumption and government handouts. I contend that the primary teacher is the culture.

DavidCayJohnston says

Our economy would also be stronger if we did not spend so much on our sick care system that the excess costs alone equaled the income taxes collected in 2010

Further crony capitalism...

DavidCayJohnston says

Empirical evidence to support this?

Record highs in the stock market, near record highs, again, in real estate, and once again high sales in luxury goods i.e. remodeling activity on Rodeo Dr, and stock buybacks.

DavidCayJohnston says

A deeper worry should be a deflation as in the late 1800s because of an imbalance and lack of liquidity for the 90%.

Why, deflation helps the common man. Of course it would be hard on banks that leverage their money, but so what. To conflate deflation with the great depression is specious.

DavidCayJohnston says

I’m a champion of competitive markets and balanced regulatory rules. We could have lower rates if we get rid of all the preferences for those at the very very top and stopped paying them to defer their taxes.

My bad I thought you were of the Krugman ilk. And I agree, Sowell says that if we cut out corporate subsidies we could balance the budget.

DavidCayJohnston says

Second, tax is the biggest economic activity in the world by far. To think a flawed tax system is not central to our economic problems, thus, is absurd.

That is my point it should not be.

DavidCayJohnston says

All private wealth is built on a foundation of tax-funded commonwealth and civil laws that define property and protect liberty.

There is a difference between common law and statutory law the latter being the source of the problem. Protecting liberty or controlling the citizens often with overreach such as civil forfeiture, or more cronyism with the TSA?

DavidCayJohnston says

We need a tax system that rewards savings and investment, captures rents and supernormal incomes

Agreed on the first part, on the second though those supernormal incomes are as often as not fleeting, as there is no real monopoly, other than the government. Also notice how the wealthy end up spending in philanthropy and through much more efficient means than the government.

DavidCayJohnston says

Has any merchant or government refused to take your money? Are interest rates at their lowest levels in 700 years? The problem is not money per se, but rules that pile up money in a few hands, so much so that it cannot be profitably reinvested, just as if your venal blood flow exceeded your arterial.

Yes and look at how it has made Real Estate unaffordable, or how Yellin laughably say that middle class needs to invest more.

The mechanism that lands that money in a few hands is inflation plain and simple, even Yellin admits this.

The reason that the economy is stalled, is as you correctly indicate the money is not profitably reinvested, is that the money that should should have been available for such has instead been used for bailouts and purchases of MBSs and foreclosed houses.

What should have happened was that AIG, Golman Sachs and Morgan Stanley, GM went the way of Lehman. This would have allowed price discovery of assets. Which then creates real value or honest value.

My homemade empirical evidence is that there are 39 million people in Calif, they average, I'm guessing 10 transactions a day, this mean 390 million transactions per day.

The point is that the touchstone of the economy is price discovery NOT centralized powers.

DavidCayJohnston says

This shows you do not understand the structure of B-K, its diversified portfolio or its huge tax subsidies

Then Berkshire Hathaway as we know it, and Warren Buffet would no longer be the 2nd richest man in the world or even the top 10?

DavidCayJohnston says

And stop cowering behind a nom d’ Internet. Sign your writing with your real name.

Spare me your piety also this is an interest of mine not a profession.

This website is used to discuss financial matters, a pseudonym is conducive to a forthright discussion on these matters.

14   FuckTheMainstreamMedia   2014 Oct 18, 5:01am  

DCJ, YSSCKY.

Oh, and cover that scrote if I ever win the lottery.

15   indigenous   2014 Oct 18, 5:04am  

dodgerfanjohn says

DCJ, YSSCKY.

Oh, and cover that scrote if I ever win the lottery.

But still no JB?

16   indigenous   2014 Oct 18, 5:06am  

DavidCayJohnston says

“…honest money…”

BTW the dollar today would be .04 cents in 1912. Of course you will answer that wages have inflated since then as well. But the fact is that life is lived in the margins and that is where the cronys have profited.

17   indigenous   2014 Oct 18, 8:24am  

DavidCayJohnston says

Our economy would be much stronger if we increased federal investments (not total spending) in the future – basic research, infrastructure and education.

There is no correlation between government investment and science being furthered. IMO because there is no incentive to discover. An example would be Samuel Pierpont Langley verses the Wright Brothers, Langley was given 70k (1.8 million today) to produce the first manned flight, the Wrights were given nothing. When the Wrights succeeded Langley quit as his motivation was money and the Wrights had the goal to create a flying machine.

In essence that is why government funding of science does not work.

18   indigenous   2014 Oct 20, 7:26am  

And here is David Cay Johnston's response:

http://www.youtube.com/embed/K8E_zMLCRNg

19   DavidCayJohnston   2014 Oct 22, 11:51pm  

Silly response alike that of "The Professor: who dares not sign his name evidently thinks at the level of an 8th grader.
Of course an individual can be untaxed and rich, as I have shown in naming many people with huge incomes whose tax returns show they paid nothing and others who literally turn a profit off their taxes under rules I have spent years digging out of the public record.
But there is no civilization without taxes to finance commonwealth goods and services, civil and criminal law enforcement, rules that define and protect property and person. Without taxes thugs can, have and would take your fortune and nothing would stop them except more vicious thugs.

20   mell   2014 Oct 23, 12:57am  

DavidCayJohnston says

“Berkshire Hathaway would be gone if not for the unwitting taxpayer largess.”

Utter nonsense. This shows you do not understand the structure of B-K, its diversified portfolio or its huge tax subsidies (that $57 billion zero interest loan I cited before that keeps growing, its pipeline tax profits, its utilities, etc.).

We can argue some of the points, but that is utter nonsense. Diversified portfolios and hokey religions are no match for a good amount of CDS blowing up at your side (or in your face that is). Without TARP => W. Buffet = toast

21   indigenous   2014 Oct 23, 12:58am  

DavidCayJohnston says

Of course an individual can be untaxed and rich, as I have shown in naming many people with huge incomes whose tax returns show they paid nothing and others who literally turn a profit off their taxes under rules I have spent years digging out of the public record.

The revered Warren Buffet for example...

DavidCayJohnston says

But there is no civilization without taxes to finance commonwealth goods and services, civil and criminal law enforcement, rules that define and protect property and person. Without taxes thugs can, have and would take your fortune and nothing would stop them except more vicious thugs.

The greatest tax of all is inflation, which most benefits the cronys.

You appear to have cause and affect confused. The sequence is a free market and then taxes, how can you tax someone who has no money?

You also seem to confuse cause and effect regarding free market 1st or civilization first. In countries ruled by an ancient monarchy or oligarchy there is no way the rulers can consume enough to support an economy. In a free market economy the rich invest in business to make more money which gives opportunity for the people to better themselves.

And this is the very problem with the current economy.

BTW Xeer law does a fine job without the taxes in a place everyone thought there was complete anarchy, yet whose economy continues to improve.

22   DavidCayJohnston   2014 Oct 23, 1:02am  

@mell you really have not read the record on this. Try studying the FCIC report -- http://fcic.law.stanford.edu -- which is very solid and which Congress tossed in the round file or the FCIC autopsy at UMKC in fall 2011.

B-K has stakes in banks that would have gone poof, but that would not sink B-K as they were but a part of its portfolio. Wild overstatements undermine credibility.

The disclosures on what share of B-K assets were in institutions with CDS paper are right there for you to read if you just make the effort. The facts do not support your claim.

23   indigenous   2014 Oct 23, 1:05am  

mell says

We can argue some of the points, but that is utter nonsense. Diversified portfolios and hokey religions are no match for a good amount of CDS blowing up at your side (or in your face that is). Without TARP => W. Buffet = toast

Which set a precedent for what we have now, clearly declared by the Fed, income with no tail risk for all investors...

24   DavidCayJohnston   2014 Oct 23, 1:12am  

@ indigenous, your response (like that of some others here) lacks coherence and respect for facts. No one has made the silly assertion that "there is no way the rulers can consume enough to support an economy."

Again, without tax there is no civilization with its rules that define and protect property and liberty. In the jungle the tiger eats as he chooses, the thug takes what he wants. We have tax records going back many thousands of years to when money was only accounting devices (coinage is much newer; paper money even newer).

"Free market" is a misleading term as all markets have rules; to economists that term means free entry and exit, no an absence of rules. And who makes the rules? Governments, which can be states or other entities with rule-making powers from the FASB to MLB, which sets the rule son how many stitches a baseball has, what color yarn is used and the color of that yarn.

No principle in economic theory argues that "In a free market economy the rich invest in business to make more money which gives opportunity for the people to better themselves."

The rich can sit on their money. And many people who are not rich can combine their assets to invest - ever hear of a joint stock company? Indeed, governments can do the investing and they are - sometimes - much more efficient operators than private owners.

Being so wedded to inflation as an economic disease is like wearing eyeglasses that distort. You are not seeing clearly or broadly.

25   bob2356   2014 Oct 23, 1:37am  

mell says

Without TARP => W. Buffet = toast

Show me the numbers.

26   indigenous   2014 Oct 23, 1:52am  

DavidCayJohnston says

@ indigenous, your response (like that of some others here) lacks coherence and respect for facts. No one has made the silly assertion that "there is no way the rulers can consume enough to support an economy."

It is self evident, a priori i.e. common sense. Otherwise Saudi Arabia or North Korea would have a thriving economy.

DavidCayJohnston says

Again, without tax there is no civilization with its rules that define and protect property and liberty. In the jungle the tiger eats as he chooses, the thug takes what he wants. We have tax records going back many thousands of years to when money was only accounting devices (coinage is much newer; paper money even newer).

You suggest people are complete idiots. People can and do band together to defend against thugs without taxes or police. And before taxes there was a market.

DavidCayJohnston says

"Free market" is a misleading term as all markets have rules; to economists that term means free entry and exit, no an absence of rules. And who makes the rules? Governments, which can be states or other entities with rule-making powers from the FASB to MLB, which sets the rule son how many stitches a baseball has, what color yarn is used and the color of that yarn.

Review xeer law, no government, just individuals. People acting in their own self interest get along fine as the natural order of things is to get along through trade, only the insane prefer the risk of conflict.

DavidCayJohnston says

No principle in economic theory argues that "In a free market economy the rich invest in business to make more money which gives opportunity for the people to better themselves."

Yet that is what occurs, Except where government interferes, as is the case right now.

DavidCayJohnston says

Indeed, governments can do the investing and they are - sometimes - much more efficient operators than private owners.

OMG that is complete poppy cock. Clearly you have never owned a business...

DavidCayJohnston says

Being so wedded to inflation as an economic disease is like wearing eyeglasses that distort. You are not seeing clearly or broadly.

You are the one suffering from myopia...

27   mell   2014 Oct 23, 2:07am  

DavidCayJohnston says

@mell you really have not read the record on this. Try studying the FCIC report -- http://fcic.law.stanford.edu -- which is very solid and which Congress tossed in the round file or the FCIC autopsy at UMKC in fall 2011.

B-K has stakes in banks that would have gone poof, but that would not sink B-K as they were but a part of its portfolio. Wild overstatements undermine credibility.

The disclosures on what share of B-K assets were in institutions with CDS paper are right there for you to read if you just make the effort. The facts do not support your claim.

bob2356 says

mell says

Without TARP => W. Buffet = toast

Show me the numbers.

I have neither time nor inclination to do so, I could as well ask for the reverse. Let me be brief, BRKs CDS exposure was roughly 20 billion gross and AIGs roughly 50 billion. Net it was far less of course, however with counterparty concentration risk and the absence of collateral (anybody who by now still thinks banks have significant collateral needs their head checked) the net numbers cannot be trusted. Further there was enormous credit pressure on BRK during that time, leading the stock to trade "irrationally" low (of course there wa nothing irrational about it)and the 5 year swap for BRK went nuts, obviously meaning a lot of people betting on a default within that time-frame. With the open risk with CDSs the market was definitely thinking default. We all don't know if it would have happened without TARP, but the likelyhood was significant.

28   bob2356   2014 Oct 23, 3:17am  

mell says

We all don't know if it would have happened without TARP, but the likelyhood was significant.

That's a long way from BUFFET=TOAST. You are basing this on what information? Any article, research, link, anything at all or just I believe it's true? I haven't seen anything yet that documents how BK would have been taken under by AIG. I was assuming you could supply that since you are so definative it would have happened. I'll read the FCIC report and see what it says.

29   mell   2014 Oct 23, 4:27am  

bob2356 says

mell says

We all don't know if it would have happened without TARP, but the likelyhood was significant.

That's a long way from BUFFET=TOAST. You are basing this on what information? Any article, research, link, anything at all or just I believe it's true? I haven't seen anything yet that documents how BK would have been taken under by AIG. I was assuming you could supply that since you are so definative it would have happened. I'll read the FCIC report and see what it says.

You cannot make a 100% sure claim without knowing the exact math, reading 8Ks or 10Ks gives you half the information at best. The FCIC report is not worth much since they are based of the 8Ks and 10Ks. That's where Cramer got his info from when he screamed "buy buy buy Bear Stearns, they are rock solid!" - just before they went belly up. I have given you numbers of CDS exposure that alone could have brought BRK down - why do you think the Fed backstopped them? It certainly is much much much much much more likely that BRK would have gone belly up then it is that the Fed has no influence on the markets.

30   mell   2014 Oct 23, 4:31am  

The Professor says

Does anyone know how much of these "CDS", "MBS", and other non-treasury assets the Fed holds? Beside all of this debt, is their ANYTHING REAL backing the "Federal Reserve Note"s I have in my wallet?

That's exactly the problem. A net CDS number is not worth much. They are assuming a closed financial universe where the counterparties cancel each other out. However that assumes that each of them can pay and that assumption is based on their last financials. Not only are financial statements often heavily cooked (not much has changed here), the money can escape the closed universe in an instant, for example when a whale trader makes a huge losing bet where thew money ends up in a totally unrelated (and possibly foreign) party and the sudden loss makes them insolvent should they have to pay out insured risk, which then triggers the events we have seen in 2008.

31   bob2356   2014 Oct 23, 4:33am  

mell says

The FCIC report is not worth much since they are based of the 8Ks and 10Ks. That's where Cramer got his info from when he screamed "buy buy buy Bear Stearns, they are rock solid!" - just before they went belly up. I have given you numbers of CDS exposure that alone could have brought BRK down - why do you think the Fed backstopped them?

So you are saying that no can get the information, but lacking the information you can predict that BK would have gone under? How is it your numbers lacking the details are better than anyone else's numbers lacking the details. That's an interesting position.

32   mell   2014 Oct 23, 4:38am  

bob2356 says

So you are saying that no can get the information, but lacking the information you can predict that BK would have gone under? How is it your numbers lacking the details are better than anyone else's numbers lacking the details. That's an interesting position.

The CDS exposure numbers and the way their own swaps traded back then lead me to the conclusion that it was a likely event. Then Buffet himself said something along those lines. Even if not, he would have been severely decimated and certainly not the greatest billionaire investor of all times anymore, just a regular smart guy with ups and downs in the market. By the way, if you want to tag my toast expression as hyperbole, I have no problems with this. But then you should tag ramblings such as "The Fed has nothing to do with the markets/wealth inequality" as mega-hyperbole ramblings of lunatics ;)

33   indigenous   2014 Oct 23, 4:38am  

mell says

I have given you numbers of CDS exposure that alone could have brought BRK down

For educational purposes, would you say the same re AIG?

mell says

Not only are financial statements often heavily cooked (not much has changed here), the money can escape the closed universe in an instant, for example when a whale trader makes a huge losing bet where thew money ends up in a totally unrelated (and possibly foreign) party and the sudden loss makes them insolvent should they have to pay out insured risk, which then triggers the events we have seen in 2008.

I read somewhere that this could be said of GE and Jeff Immelt in the repo market.

34   mell   2014 Oct 23, 4:43am  

indigenous says

mell says

I have given you numbers of CDS exposure that alone could have brought BRK down

For educational purposes, would you say the same re AIG?

mell says

Not only are financial statements often heavily cooked (not much has changed here), the money can escape the closed universe in an instant, for example when a whale trader makes a huge losing bet where thew money ends up in a totally unrelated (and possibly foreign) party and the sudden loss makes them insolvent should they have to pay out insured risk, which then triggers the events we have seen in 2008.

I read somewhere that this could be said of GE and Jeff Immelt in the repo market.

CDS are difficult to predict, but I believe that AIG and GE would have ceased to exist before BRK. Just an opinion ;)

35   indigenous   2014 Oct 23, 5:00am  

mell says

CDS are difficult to predict, but I believe that AIG and GE would have ceased to exist before BRK. Just an opinion ;)

Thanks, that gives me a perspective of the magnitude of this situation.

However it would be Much preferable, to let the market takes it's course, to what is on the horizon.

36   DavidCayJohnston   2014 Oct 23, 5:31am  

@mell obviously has not read (or utterly misread) the FCIC report as it is based on extensive testimony and documents and only in a minor way on SEC filings.

mell also appears not to understand legal or economic liability for stock investments. Liability is limited to the amount paid for a stake less dividends received.

And while Iagree that FASB and SEC rules enable misleading financial statements, a subject on which I have written extensively, mell ignores the relative size of B-K investments in companies with exposure to credit default swaps.

Out of $484 billion of assets, its Wells Fargo stake cost less than $12 billion; its USBancorp stake $3 billion; its Goldman Sachs stake $750 million. Add in smaller institutions like M&T Bank and you still do not get to 5% of B-K assets.

But what mell seems not to understand is that even if every bank whose shares B-K owned had been allowed to fail the only liability to B-K would be that its positions in those banks would be wiped out. Thus we could have let market forces, instead of crony rescues, proceed and B-K would still be there.

Buffett earns actual profits from numerous businesses (many benefitting from government rules that tilt the playing field) and also gathers up subsidies by the train load, none of which would have been reduced by the combined failures of Wells, US Bancorp, Goldman, M&T and other companies in which it is a minority shareholder.

Mell displays appalling ignorance of the facts when he writes "Without TARP => W. Buffet = toast." Utter nonsense.

37   mell   2014 Oct 23, 5:55am  

You have not addressed the CDS at all, so what's new? I am all for letting it play out in 2008 and maybe he would have survived, but you cannot seriously disregard the - not only indirect, but also direct - CDS exposure. I am happy though that you have so much faith in the market and advocate for letting it play out instead of using crony bailout policies.

38   indigenous   2014 Oct 23, 6:14am  

mell says

I am happy though that you have so much faith in the market and advocate for letting it play out instead of using crony bailout policies.

I will give him that. As to the government influence that is where the blinders come in.

39   DavidCayJohnston   2014 Oct 23, 6:48am  

@mell continues to ignore that his CDS statements regarding B-K have exactly zero factual basis. mell is not off by a little, but is completely wrong.

WHAT direct exposure, as mell now claims?

Neither Geico nor Buffett's smaller reinsurance companies were TARP beneficiaries. No B-K subsidiary is on the TARP list.

(Buffett did turn a fat profit from a side deal, as I revealed on Dec, 22, 2008. That, however, cuts against what mell posted. A reprint of my column is here: http://taxprof.typepad.com/files/121tn1427.pdf

B-K's exposure was limited to the value of its shares in Goldman, USBancorp, Wells, AmEx and some smaller institutions. And that means less than 5% of B-K assets could have been wiped out.

So, again, even if every single bank B-K was a minority investor in had failed -- and but for friends in high places most of them would have -- not only would B-K still be in business, it would still have more than 95% of its assets.

mell's "Without TARP => W. Buffet = toast" has not a scintilla of truth to it. Oh, and you misspelled his name, too.

Be honest. Acknowledge you got it completely wrong, not just in writing that B-K would have failed but for TARP, but also in asserting the basis for the very solid FCIC report. Facts matter. When people make up facts, or fail to correct mistakes, they pollute.

40   bob2356   2014 Oct 23, 6:54am  

mell says

if you want to tag my toast expression as hyperbole, I have no problems with this. But then you should tag ramblings such as "The Fed has nothing to do with the markets/wealth inequality" as mega-hyperbole ramblings of lunatics ;)

I have many times.

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