September 23, 2015

In debt to the bank? Underwater on your mortgage? You might want to check the document carefully…

Filed under: Bureaucracy, Business, Law, USA — Tags: , , , , — Nicholas @ 04:00

At The Intercept, David Dayen says that there are a lot of sketchy documents that banks are hoping will stand up in court, but they might well be wrong:

A Seattle housing activist on Wednesday uploaded an explosive land-record audit that the local City Council had been sitting on, revealing its far-reaching conclusion: that all assignments of mortgages the auditors studied are void.

That makes any foreclosures in the city based on these documents illegal and unenforceable, and makes the King County recording offices where the documents are located a massive crime scene.

The problems stem from the Mortgage Electronic Registration Systems (MERS), an entity banks created so they could transfer mortgages privately, saving them billions of dollars in transfer fees to public recording offices. In Washington state, MERS’ practices were found illegal by the State Supreme Court in 2012. But MERS continued those practices with only cosmetic changes, the audit found.

That finding has national implications. Every state has its own mortgage laws, and some of the audit’s conclusions may not necessarily apply elsewhere. But it shows how MERS reacted to being caught defrauding the public by trying to sneak through foreclosures anyway. Combined with evidence in other parts of the country, like the failure to register out-of-state business trusts in Montana, it suggests that the mortgage industry has been inattentive to and dismissive of state foreclosure laws.

September 15, 2015

Tyler Cowen’s primer on Chinese economics

Filed under: China, Economics — Tags: , — Nicholas @ 03:00

At Marginal Revolution Tyler Cowen pulls together the key economic points you need to know to understand what is happening in China’s economic downturn:

1. You can’t invest 45-50 percent of your GDP very well forever. It’s amazing how long China’s run has been, but it is over. The quality of their marginal investments is now low and that means their growth rate will be much lower too. The low hanging fruit is gone, at least for the time being. They might later on resurrect some new low-hanging fruit through institutional reform, we’ll see if they end up stuck in the middle income trap but right now they are at a sharp discontinuity.

2. There is no simple way to switch to a “consumption-driven” economy without the growth rate both falling and staying permanently lower. Structural reforms are absolutely called for, but in this context they represent a surrender to a lower rate of growth and thus they are especially difficult to pull off in a politically sustainable manner.

3. The Chinese have been growing at ten percent or nearly ten percent for about thirty-five years. More than a generation of Chinese is used to treating the risk premium as if they don’t have to worry about it. I shudder to think what economic and also political decisions have been made on that basis.

4. The Chinese economic response to the dwindling of their low-hanging fruit is sharp rather than smooth because there is a sudden revision of expectations, as people realize the risk premium isn’t zero after all. And seeing the others see that causes the new set of beliefs to spread pretty quickly. That is a very painful process for a macroeconomy, and it is not well captured by simple AD-AS analysis, although of course it has implications for both AD and AS.

5. I would not so quickly infer that the Chinese government is stupid when it comes to economics. It is true their actions do not correspond to what professional economists would recommend. But they are painted into a very unpleasant corner and have lots of interest groups to feed. Their observed response is possibly explained by some kind of public choice-constrained, nested game, internal conflict-driven seventh-best response. They were smart a few years ago, and they are still smart now. That doesn’t mean they will end up doing a good job.

6. Avoid mood affiliation! You can be a pessimist about the Chinese recession now without being a) a pessimist about China in the longer run, or b) a pessimist about Chinese political stability. Those are separate albeit related questions, and you are not forced to have the same mood response to all of them.

QotD: The Ex-Im Bank

Filed under: Business, Politics, Quotations, USA — Tags: , , , — Nicholas @ 01:00

… every time the Ex-Im Bank gets involved in a deal, there are only two possibilities: The government is needlessly subsidizing something that would have happened anyway, giving away cheap money to a huge corporation. Or else it’s subsidizing a deal that wouldn’t have happened anyway, in which case we are defending the use of taxpayer dollars to sell cheap manufactured goods to foreigners. It’s not even as if we’re picking out especially needy foreigners, who may require a charitable contribution from the prosperous citizens of the United States; the subsidy is distributed on the basis of who is willing to, say, buy cut-rate U.S. airframes. And guess who benefits? U.S. corporations that export a lot.

This is not a good use of taxpayer dollars, and conservative ideologues, bless their hearts, are quite right to want to get rid of it. Their passion is a little out of proportion to the harm that this agency does, but even a small step in the right direction is better than none. The bank’s opponents concede that. For them, the appeal of taking on Ex-Im is that they might be able to take it down.

Against this impeccable economic and political logic, the bank’s supporters marshal a few arguments. First, they often claim (as Nocera implies) that the Ex-Im Bank generates a lot of money for the Treasury. Which is sort of true … except. First of all, it doesn’t account for the opportunity costs of the distortion; resources are diverted into production of certain goods, and away from others. And second of all, government accounting for loans is rather weird. According to the Congressional Budget Office, if we used a fair value accounting method, which would account for the risk of changing market conditions, the Ex-Im Bank’s six largest programs would be generating a deficit, not a surplus.

We are also told that Ex-Im is a vital matter of national security. I’m going out on a limb here, but I’m pretty sure that if the U.S. government needs to find some money to give foreigners as a vital matter of national security, they will manage to find it even if the Ex-Im Bank is shuttered and its silent halls hold only the lingering ghosts of departed exporters.

Megan McArdle, “Ex-Im Bank Is a Tiny But Tempting Target”, Bloomberg View, 2015-08-03.

August 13, 2015

Grand Theft, banking style

Filed under: Law, Liberty, USA — Tags: , , , , , — Nicholas @ 05:00

At Salon, David Dayen tells the astounding tale of American banks going feral and mass-forging legal documents to foreclose mortgages on houses they had zero claim on:

If you know about foreclosure fraud, the mass fabrication of mortgage documents in state courts by banks attempting to foreclose on homeowners, you may have one nagging question: Why did banks have to resort to this illegal scheme? Was it just cheaper to mock up the documents than to provide the real ones? Did banks figure they simply had enough power over regulators, politicians and the courts to get away with it? (They were probably right about that one.)

A newly unsealed lawsuit, which banks settled in 2012 for $95 million, actually offers a different reason, providing a key answer to one of the persistent riddles of the financial crisis and its aftermath. The lawsuit states that banks resorted to fake documents because they could not legally establish true ownership of the loans when trying to foreclose.

This reality, which banks did not contest but instead settled out of court, means that tens of millions of mortgages in America still lack a legitimate chain of ownership, with implications far into the future. And if Congress, supported by the Obama administration, goes back to the same housing finance system, with the same corrupt private entities who broke the nation’s private property system back in business packaging mortgages, then shame on all of us.

July 23, 2015

The breakdown state of Greece

Filed under: Economics, Europe, History, Religion — Tags: , , , , , — Nicholas @ 03:00

David Warren, earlier this month, on the slow-motion financial, economic, and political disaster that is modern-day Greece:

Now seriously, gentle reader, we are being reminded that there is truly no way out — no foreseeable practical and material escape — from the Nanny State web we have woven. Except by catastrophe, and/or miracle. My fascination with Greece is, as I have said, to see what happens as that state breaks down. Greece is unrepresentative in some ways; she never was a truly Western country, and thus even her way of abandoning the Christian faith is different from the Western. Since the West freed her from the Infidel Turk, Greece has had the luxury to pick and choose between spiritual destinies. The West offered three: the Catholic, the Protestant, and the Revolutionary. Greece chose to dress her post-Byzantine, Orthodox self in the robes of Marianne, goddess of fake Liberty. They don’t fit, can’t, and she has experienced one wardrobe malfunction after another. Whereas the French, whom she most likes to emulate, at least know how to carry off satanic modernism in style.

Notwithstanding, the material facts of Nanny State are universal, and Greece can now serve as an illustration of their consequences — for the simple reason that she has made more mistakes, faster, than any other European country.

My fondest hope was that the failure of Greece would provoke a genuine re-assessment of the European Union. My worst fear is that it would instead make Europe’s commissars circle their wagon (the EU flag unintentionally represents this), and advance the continental nannyism in the vain belief that they can somehow save it. This, I observe, is what most likely happens. Or to put this another way, for the third time in a century, Europe has embarked on a mission of self-destruction, and will not turn back.

The correct response, to my humble mind, would have been on two fronts. First, to acknowledge that Greece can’t pay, and therefore write off the debts. Let them start again from scratch, according to their lights, providing whatever humanitarian aid can be afforded, but making clear it is a gift, and therefore delivering it through visibly European (and North American) agencies. Never let anyone think he is receiving gifts by right, and thus confuse gifts with payment. But don’t kick Greece out of anything; they have as much right to use euros while unwinding as the Argentines had to use U.S. dollars through their last bankruptcy. In defiance of post-modern sentimentalism, I would say it is possible to be both charitable, and firm.

Second, to begin a peaceful disassembly of most of the pan-European scheme, including the euro currency, which doesn’t and can’t work. Restore marks, francs, lire, pesetas; but also gradually downsize the Brussels bureaucracy to what it can and did do reasonably well — as a clearing house for trade transactions. This would be sane, now the ambition of a “European nation” is proved to have been foolish in itself. It would be insane, politically, to leave it to the member countries’ respective nationalist lunatics to achieve the same end by jingo, with the violence that follows inevitably from that.

It is in this greater (political, not religious) light that I think another bailout for Greece is a horror. It means Europe’s politicians are accelerating down a blind alley — the political equivalent of “the spirit of Vatican II.”

June 18, 2015

John Kay’s Other People’s Money

Filed under: Books, Business, Economics — Tags: — Nicholas @ 03:00

John Kay posts the introduction to his new book Other People’s Money: Masters of the Universe or Servants of the People? to be published in September:

The assets of British banks are around £7 trillion – four times the aggregate of the yearly income of everyone in the country. The liabilities of these banks are a similar amount. The assets of British banks are five times the liabilities of the British government. But the assets of these banks mostly consist of claims on other banks. Their liabilities are mainly obligations to other financial institutions. Lending to firms and individuals engaged in the production of goods and services – which most people would imagine was the principal business of a bank – amounts to about 3 per cent of that total (see Chapter 6).

Modern banks – and most other financial institutions – trade in securities, and the growth of such trade is the main explanation of the growth of the finance sector. The finance sector establishes claims against assets – the operating assets and future profits of a company, or the physical property and prospective earnings of an individual – and almost any such claim can be turned into a tradable security. ‘High-frequency trading’ is undertaken by computers which are constantly offering to buy and sell securities. The interval for which these securities are held by their owner may – literally – be shorter than the blink of an eye. Spread Networks, a telecoms provider, has recently built a link through the Appalachian Mountains to reduce the time taken to transmit data between New York and Chicago by a little less than one millisecond.

World trade has grown rapidly, but trading in foreign exchange has grown much faster. The value of daily foreign exchange transactions is almost a hundred times the value of daily international trade in goods and services. The annual volume of payments processed in Britain is £75 trillion: about forty times Britain’s national income. Trade in securities has grown rapidly, but the explosion in the volume of financial activity is largely attributable to the development of markets in derivatives, so called because their value is derived from the value of other securities. If securities are claims on assets, derivative securities are claims on other securities, and their value depends on the price, and ultimately on the value, of these underlying securities. Once you have created derivative securities, you can create further layers of derivative securities whose values are dependent on the values of other derivative securities – and so on.The value of the assets underlying such derivative contracts is three times the value of all the physical assets in the world.

What is it all for? What is the purpose of this activity? And why is it so profitable? Common sense suggests that if a closed circle of people continuously exchange bits of paper with each other, the total value of these bits of paper will not change much, if at all. If some members of that closed circle make extraordinary profits, these profits can only be made at the expense of other members of the same circle. Common sense suggests that this activity leaves the value of the traded assets little changed, and cannot, taken as a whole, make money. What, exactly, is wrong with this commonsense perspective?

Not much, I will conclude. But to justify that conclusion, it will be necessary to examine the activities of the finance sector and the ways in which it does, or might, make our lives better and our businesses more efficient. Assessing the economic contribution of the industry is complex, because there are many difficulties in interpreting reported information about the output and profitability of financial sector activities. But I will show that its profitability is overstated, that the value of its output is poorly reported in economic statistics, and that much of what it does contributes little, if anything, to the betterment of lives and the efficiency of business. And yet many things that finance could do to advance these social and economic goals are not done well – or in some cases at all.

May 13, 2015

QotD: Mono-culture banking

Filed under: Bureaucracy, Economics, Quotations, USA — Tags: , , , — Nicholas @ 01:00

One of the factors in the financial crisis of 2007-2009 that is mentioned too infrequently is the role of banking capital sufficiency standards and exactly how they were written. Folks have said that capital requirements were somehow deregulated or reduced. But in fact the intention had been to tighten them with the Basle II standards and US equivalents. The problem was not some notional deregulation, but in exactly how the regulation was written.

In effect, capital sufficiency standards declared that mortgage-backed securities and government bonds were “risk-free” in the sense that they were counted 100% of their book value in assessing capital sufficiency. Most other sorts of financial instruments and assets had to be discounted in making these calculations. This created a land rush by banks for mortgage-backed securities, since they tended to have better returns than government bonds and still counted as 100% safe.

Without the regulation, one might imagine banks to have a risk-reward tradeoff in a portfolio of more and less risky assets. But the capital standards created a new decision rule: find the highest returning assets that could still count for 100%. They also helped create what in biology we might call a mono-culture. One might expect banks to have varied investment choices and favorites, such that a problem in one class of asset would affect some but not all banks. Regulations helped create a mono-culture where all banks had essentially the same portfolio stuffed with the same one or two types of assets. When just one class of asset sank, the whole industry went into the tank,

Well, we found out that mortgage-backed securities were not in fact risk-free, and many banks and other financial institutions found they had a huge hole blown in their capital.

Warren Meyer, “When Regulation Makes Things Worse — Banking Edition”, Coyote Blog, 2014-07-07.

March 5, 2015

Tax Free Savings Accounts

Filed under: Cancon, Economics, Law — Tags: , , , — Nicholas @ 02:00

At Worthwhile Canadian Initiative, Livio Di Matteo talks about tax free savings accounts (TFSAs), registered retirement savings plans (RRSPs), and why some people are getting upset that some Canadians benefit more from these financial tools than others do:

A major theme running under most of these arguments goes something like this — Registered Retirement Savings Plans (RRSPs) at least leave “a legacy of tax revenue to future governments” whereas TFSAs may generate “supernormal” returns that will escape taxation and on top of it will accrue primarily to the well-off.

However, when I think of RRSPs and TFSAs, I see them both as essentially the same. They are both “tax expenditures” that are designed to encourage saving by promising some type of tax incentive. The broader debate should really be about how we want to encourage more saving and then about “tax expenditures” in general rather than how much we should allow as limits to either RRSP or TFSA contributions.

However, if we are going to argue about RRSPs and TFSAs, to my mind what differs is the timing of the break. For an RRSP, you are getting the tax incentive upfront and deferring the taxes until you withdraw the money. For a TFSA, you are making the contribution with after tax dollars and allowing the contribution to accumulate tax free — the tax benefit comes down the road as the money grows.


Young households with children who face more cash constraints might find the RRSP more attractive while older households would probably find the TFSA more attractive. All other things given, both vehicles are of greater advantage to higher rather than low income earners because higher incomes are more likely to be able to save — period. If you are going to make the argument that TFSAs are somehow favouring the wealthy or higher income earners, you need to acknowledge that the same argument applies to RRSPs.

Update, 7 March: It kinda helps when I remember to include the correct link to an article…

January 23, 2015

“We are all [Milton] Friedman’s children and grandchildren”

Filed under: Economics — Tags: , , , , — Nicholas @ 04:00

At Worthwhile Canadian Initiative, Nick Rowe explains just how important Milton Friedman still is in economics today:

I can’t think of any economist living today who has had as much influence on economics and economic policy as Milton Friedman had, and still has. Neither on the right, nor on the left.

If you had a time machine, went back to (say) 1985, picked up Milton Friedman, brought him forward to 2015, and showed him the current debate over macroeconomic policy, he could immediately join right in. Is there anything important that would be really new to him?

We are all Friedman’s children and grandchildren. The way that New Keynesians approach macroeconomics owes more to Friedman than to Keynes: the permanent income hypothesis; the expectations-augmented Phillips Curve; the idea that the central bank is responsible for inflation and should follow a transparent rule. The first two Friedman invented; the third pre-dates Friedman, but he persuaded us it was right. Using the nominal interest rate as the monetary policy instrument is non-Friedmanite, but the new-fangled “Quantitative Easing” is just a silly new name for Friedmanite base-control.

We easily forget how daft the 1970’s really were, and some ideas were much worse than pet rocks. (Marxism was by far the worst, of course, and had a lot of support amongst university intellectuals, though not much in economics departments.) When inflation was too high, and we wanted to bring inflation down, many (most?) macroeconomists advocated direct controls on prices and wages. And governments in Canada, the US, the UK (there must have been more) actually implemented direct controls on prices and wages to bring inflation down. Milton Friedman actually had to argue against price and wage controls and against the prevailing wisdom that inflation was caused by monopoly power, monopoly unions, a grab-bag of sociological factors, and had nothing to do with monetary policy.

January 7, 2015

How to create an investment monoculture

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 03:00

At Coyote Blog, Warren Meyer explains how what must have seemed to be a simple, common-sense regulation change led almost inevitably to a housing market melt-down:

… a redefinition by governments in the Basel accords of how capital levels at banks should be calculated when determining capital sufficiency. I will oversimplify here, but basically it categorized some assets as “safe” and some as “risky”. Those that were risky had their value cut in half for purposes of capital calculations, while those that were “safe” had their value counted at 100%. So if a bank invested a million dollars in safe assets, that would count as a million dollar towards its capital requirements, but would count only $500,000 towards those requirements if it were invested in risky assets. As a result, a bank that needed a billion dollars in capital would need a billion of safe assets or two billion of risky assets.

Well, this obviously created a strong incentive for banks to invest in assets deemed by the government as “safe”. Which of course was the whole point — if we are going to have taxpayer-backed deposit insurance and bank bailouts, the prices of that is getting into banks’ shorts about the risks they are taking with their investments. This is the attempted tightening of regulation to which Kling refers. Regulators were trying for tougher, not weaker standards.


Anyway, what assets did the regulators choose as “safe”? Again, we will simplify, but basically sovereign debt and mortgages (including the least risky tranches of mortgage-backed debt). So you are a bank president in this new regime. You only have enough capital to meet government requirements if you get 100% credit for your investments, so it must be invested in “safe” assets. What do you tell your investment staff? You tell them to go invest the money in the “safe” asset that has the highest return.

And for most banks, this was mortgage-backed securities. So, using the word Brad DeLong applied to deregulation, there was an “orgy” of buying of mortgage-backed securities. There was simply enormous demand. You hear stories about fraud and people cooking up all kinds of crazy mortgage products and trying to shove as many people as possible into mortgages, and here is one reason — banks needed these things. For the average investor, most of us stayed out. In the 1980’s, mortgage-backed securities were a pretty good investment for individuals looking for a bit more yield, but these changing regulations meant that banks needed these things, so the prices got bid up (and thus yields bid down) until they only made sense for the financial institutions that had to have them.

It was like suddenly passing a law saying that the only food people on government assistance could buy with their food stamps was oranges and orange derivatives (e.g. orange juice). Grocery stores would instantly be out of oranges and orange juice. People around the world would be scrambling to find ways to get more oranges to market. Fortunes would be made by clever people who could find more oranges. Fraud would likely occur as people watered down their orange derivatives or slipped in some Tang. Those of us not on government assistance would stay away from oranges and eat other things, since oranges were now incredibly expensive and would only be bought at their current prices by folks forced to do so. Eventually, things would settle down as everyone who could do so started to grow oranges. And all would be fine again, that is until there was a bad freeze and the orange crop failed.

Government regulation — completely well-intentioned — had created a mono-culture. The diversity of investment choices that might be present when every bank was making its own asset risk decisions was replaced by a regime where just a few regulators picked and chose the assets. And like any biological mono-culture, the ecosystem might be stronger for a while if those choices were good ones, but it made the whole system vulnerable to anything that might undermine mortgages. When the housing market got sick (and as Kling says government regulation had some blame there as well), the system was suddenly incredibly vulnerable because it was over-invested in this one type of asset. The US banking industry was a mono-culture through which a new disease ravaged the population.

January 1, 2015

Unintended consequences – charities suffer due to US anti-terror measures

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 11:31

It’s actually rather amazing how powerful the US government can be … and we’re not talking about military power here. US banking laws are being exported to other nations without their consent or consultation, and there’s nothing non-US governments can do about it:

Now here’s a real surprise. The various anti-terror laws, terrorist financing laws, know your customer, illicit money tracking laws which now festoon the financial system have costs. Really, who would have thought it that bureaucratic regulations have real costs out there in the real world? It’s something of an amusement that it’s a rather lefty think tank, Demos, that brings us this news. For, of course, it tends to be those who are rather lefty who tell us that regulation is the cure for all our ills and no, of course not, regulations never have any costs they only do good things. You know, the Elizabeth Warren approach, piles of regulations on finance will be just wonderful, no one will ever lose out.

It particularly interests me as I’ve a very vague connection with a charity, Interpal, that has been hit by these sorts of regulations. Not, I hasten to add, that I am actually connected with that charity, only that I was once on a TV program with the head of it discussing their difficulties in gaining access to a bank account. The basic problem was that the Americans thought that they were less than kosher (the charity themselves obviously disagree) and that thus they shouldn’t have access to the banking system. This shouldn’t be all that much of a problem as they’re a UK charity and they were looking for access to the UK banking system. But that isn’t how it all works. If the Americans decide that they don’t think someone should have access to the banking system then they tell the bank that, well, you wouldn’t want us to come looking at your American banking licence if you were to offer an account with your UK licence, would you? And thus there is the leverage required to extend US law to other countries.


It’s not particularly the British government that is causing these problems although they have a part in it, to be sure. It’s the general international rules over who a bank may deal with, what they’ve got to know about them and what they’re doing with the money. Everyone seems quite happy with this as it stops (or hinders at least) drug dealing, money laundering and tax abuse. But it does have costs. Absolutely any set of regulations will affect people who are not the target of said regulations. If you insist that banks make a large effort to understand what their customers are doing then the banks will simply reject some customers as not being worth the candle. If perhaps handling money for some Islamic terrorist means bankers go to jail then bankers won’t handle the money of anyone who might be an Islamic terrorist: nor anyone who wanders around in Huddersfield in Islamic robes and states that they’re raising money to help the poor of Gaza. The manager of, say, Lloyds Bank in Huddersfield doesn’t know what the heck is going on in Gaza, who is linked to Hamas, who is not, who is delivering food and who is doing other less reputable things. And there’s no reason why she should either. So, the laws to prevent the one will lead to the other not gaining access to a bank account. This is really simple, simple, stuff.

This is what happens when people regulate.

November 12, 2014

QotD: Europe’s banking trap

Filed under: Economics, Europe, Quotations — Tags: , , , , — Nicholas @ 00:01

Banking is a service, […] and a service has a cost associated with it. Modern banking has all kinds of fees and charges associated with it. But depositors are often charged for keeping too low a balance in their savings or checking accounts, not too large a balance. What’s going on here?

Central banks have created this monster via the regimen of ZIRP (Zero Interest Rate Policy). This is a way of implementing Keynesian stimulus, but central banks have run up against the liquidity-trap wall: interest rates cannot fall below zero. Monetary policy stops working at the zero-interest boundary.

For central banks, the problem is that in a slow-growth economy (or actually a recessive one) a paradox arises where rational behavior on the part of savers leads to bad results: consumers save their money out of concern for the future, but the economy — starved of the cash that fuels it — slows still further. This is the argument behind Keynesian stimulus; inject more (newly-printed) money into the economy until people stop being scared and start spending freely again (with their own money and borrowed money). The danger of inflation looms, however, so central banks try to implement various regimes to keep it under control (with varying degrees of success).

This theory founders on the shoals of reality, alas. It’s rational for people to save money, particularly during bad times, because people believe their currency stock to be an appreciating (or at least a constant-value) asset. But when a sovereign inflates (devalues) its currency to solve a short term economic problem, they run the risk of damaging confidence in the currency itself. Inflation may inject some nitrous oxide into the engine of the economy for a short time, but the outcome may be a blown engine (i.e., a ruined currency, as it was during the Weimar era).

When people lose trust in a fiat currency, it’s nearly impossible to restore confidence in it. Trust is all a fiat currency has — without trust, fiat currency is just worthless paper. This is really the core of the sound-money argument: deflation is bad because it can stall an economy and make debt servicing murderously difficult, but inflation is worse because it wrecks the currency itself. Hard-money currency regimes may be somewhat prone to deflationary cycles, but at least they never go to zero value; they always retain some value. Fiat currencies can go to zero.

Monty, “DOOM: The Wrath of Draghi”, Ace of Spades H.Q., 2014-11-06.

November 6, 2014

Asset forfeiture again

Filed under: Law, Liberty, USA — Tags: , — Nicholas @ 00:02

In the Washington Post last month, David Post discussed the issue of asset forfeiture:

The heat is slowly turning up on the government’s use of civil asset forfeiture procedures to extort money out of innocent individuals without the messy need to actually show that they did anything wrong or wrongful. I blogged about this a couple of weeks ago, and today’s New York Times has a front page article detailing another wrinkle in the civil forfeiture scam: seizures of funds deposited in violation of the “anti-structuring” provisions of the federal code.

As you probably know, banks have an obligation to report all cash transactions of more than $10,000 to the federal government. What you may not know is that it is a federal crime to “structure a transaction,” including by “breaking down a single sum of currency exceeding $ 10,000 into smaller sums, … “for the purpose of evading the [reporting] requirement.” The reporting requirement itself is designed to alert the government to possibly suspicious transactions involving proceeds from money laundering, or drugs or gambling or other cash-intensive activities. But the statute makes the evasion itself a crime — even if the money was derived from perfectly lawful activities, and even if the “purpose of evading the reporting requirement” is a perfectly benign one. And to make matters much worse, the IRS doesn’t even have to charge you with the crime of “structuring” in order to seize the proceeds of the transaction under civil asset forfeiture laws, and the Times article details growing use of this procedure to take and keep money belonging to innocent individuals who are never even charged with the crime at all.

October 25, 2014

Destroying the “too big to fail” meme

Filed under: Britain, Economics — Tags: , , , — Nicholas @ 10:09

In the Telegraph, Allister Heath makes a case for the looming end to the economically disastrous notion that certain entities are “too big to fail”:

Bank bail-outs have been a cultural catastrophe for those of us who support free markets, low taxes and enterprise. During the 1980s and 1990s, much of the British public came to accept and even embrace capitalism, in return for a simple deal: profits and losses would both have to be privatised. Clever entrepreneurs, savvy traders or brilliant footballers would be encouraged to make money; but companies and investors that placed the wrong bets would be allowed to fail, with no pity.

Not only did this trigger an explosion in prosperity, it also helped shift the British mindset towards a much more pro-enterprise position. The rules of the game felt fair: risk and reward went hand in hand. The government would serve as an umpire, not a supporter of vested interests.

But the crisis of 2007-09 put an end to this implicit bargain, at least in the eyes of vast swathes of the public. They saw large institutions bailed out at great public expense, and with substantial amounts of taxpayer money put at risk. It started to look as if — when it came to the banking industry at least — risk had been socialised while profits remained private. To many members of the public, it was a case of heads you win and tails we lose. Profits were retained by a small elite, while losses were spread much more broadly — or so it felt.

Needless to say, the reality was more complex. Shareholders of bailed-out banks often lost everything. But bondholders were rescued, institutions survived, staff contracts were not ripped up and the process of creative destruction was severely derailed. And while big beasts were kept afloat, many smaller firms went bust and many ordinary folk lost their jobs. This is one reason — together with an incorrect narrative of the causes of the crisis which wrongly absolves governments and central banks — for increased support for punitive tax and government meddling in prices and wages.

So why did governments turn their back on capitalism and suddenly refuse to let market forces do their work? The uncontrolled failure of a major financial institution has a much broader, system-wide impact than the uncontrolled failure of a hair salon. Under traditional bankruptcy law, however, both would be treated in the same way, which simply makes no sense. One needs a different approach to tackle the failure of major banks or insurers — a proper Plan B. With the right institutions in place, there need not be such a thing as “too big to fail”. With the correct planning and tools, even the largest of financial firms can be dismantled sensibly without wiping out millions of depositors and triggering another Great Depression.

September 12, 2014

Scottish businesses face a “day of reckoning” after a Yes vote

Filed under: Britain, Business, Politics — Tags: , , , — Nicholas @ 16:04

Usually, when someone is planning to punish their political enemies, they keep quiet about it until the votes are counted. The former deputy leader of the Scottish National Party is pretty forthright about just who is going to be facing punishment if Scotland votes yes:

Former SNP deputy leader Jim Sillars has claimed there will be a “day of reckoning” for major Scottish employers such as Royal Bank of Scotland and Standard Life after a Yes vote.

Speaking from his campaign vehicle the “Margo Mobile”, Mr Sillars insisted that employers are “subverting Scotland’s democratic process” and vowed that oil giant BP would be nationalised in an independent Scotland.

Earlier this week, a number of banks, including Lloyds Banking Group and RBS, said they would look to move their headquarters south of the border in the event of a Yes vote.

Mr Sillars, who earlier this week claimed he and First Minister Alex Salmond had put their long-held personal differences behind them to campaign together for independence, also revealed that he would not retire from politics on 19 September but said he would be “staying in” if Scotland became independent.

He claimed there is talk of a “boycott” of John Lewis, banks to be split up, and new law to force Ryder Cup sponsor Standard Life to explain to unions its reasons for moving outside Scotland.

He said: “This referendum is about power, and when we get a Yes majority, we will use that power for a day of reckoning with BP and the banks.

“The heads of these companies are rich men, in cahoots with a rich English Tory Prime Minister, to keep Scotland’s poor, poorer through lies and distortions. The power they have now to subvert our democracy will come to an end with a Yes.”

If I had any investments in Scotland, I would be calling my broker to review them in the light of this pretty specific set of economic and political goals for an independent Scotland. It won’t be a safe place to invest any kind of retirement savings if Sillars represents more than a fringe of the SNP.

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