Category Archives: Politics

Roundup, including Nevada as a test of the GOP Autopsy

Heck photo There’s an interesting piece in Talking Points Memo today about the Nevada senate race, Representative Joe Heck, included, and questioning Heck’s capacity to attract Hispanic voters in the state.  Perhaps someone should ask the GOP candidate if he supports Donald Trump’s bid for the presidency? The answer should tell us if Heck listened to the “autopsy” or is part of the corpse of the Republican party?

Loon How can we miss you if you won’t go away?  The Malheur Refuge Loons, the ones wearing camo, and pretending to be “patriots,” are still in court – including one Larry “The Loon” Klayman who wants very much to insert himself and his stack of conspiracy theories into the “movement” supporting Cliven Bundy in court.    Ammon Bundy intends to argue he can’t be prosecuted because the Federal government really doesn’t own the Malheur Refuge, no matter that there are similar cases with decisions  on record which dismissed this argument as having no merit.  Meanwhile, a Nevadan who participated in the Loon-acy has entered a guilty plea to charges of conspiracy.

Trump white power We’re Shocked. Shocked I say… to discover that there’s another white nationalist on the list of Trump delegates to the Republican convention.  In her own words: “I’m all for closing the borders. I’m all for not allowing Muslims in this country. I’m all for keeping illegals out and get as many of them who are here out as soon as possible. … Why do I want my taxpayer money taking care of criminals and murderers who aren’t supposed to be here?” We can add her to the folks already on the list who have child porn and weapons charges on their CV’s.  Meanwhile, back on April 28th Pew Research reported Republican “favorability” ratings edging lower.

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Filed under conservatism, Nevada politics, Politics, presidential race, public lands, Republicans

Clinton on Quarterly Capitalism

Clinton “We need an economy where companies plan for the long run and invest in their workers through increased wages and better training—leading to higher productivity, better service, and larger profits. Hillary will revamp the capital gains tax to reward farsighted investments that create jobs. She’ll address the rising influence of the kinds of so-called “activist” shareholders that focus on short-term profits at the expense of long-term growth, and she’ll reform executive compensation to better align the interests of executives with long-term value.” [Clinton]

I could happily live with this.  She had me at “… where companies plan for the long run.”  Let me start here, and then move forward into a familiar topic on this digital soap box.  I, too, have had enough of “quarterly capitalism,” and it is high time someone offered a cogent proposal to deal with the specter.

First, no one should try to argue that all short term equity and bond purchases are necessarily bad – there are some valid reasons for such trading. However, as in most other things in life it is possible to have too much “of a good thing.”  Let’s face it, high frequency traders aren’t investors – they’re traders, and shouldn’t be confused with those who are putting capital into the distribution system.    Too much short term investing (trading) in the mix and we’re asking for problems, three of which from the investment side are summarized by PragCap:

    1. A short-term view tends to result in account churning, higher fees, higher taxes and lower real, real returns.
    2. A short-term view often results in reacting to events AFTER the fact rather than knowing that  a well diversified portfolio is always going to experience some positions that perform poorly in the short-term.
    3. Short-term views are generally consistent with attempts to “beat the market” which is a goal that most people have no business trying to achieve when they allocate their savings.

If short term investing isn’t good on the investor’s side of the ledger, it’s not good on the corporate side either.  Generation Investment Management (UK) issued a report in 2012 on “Sustainable Capitalism,” [pdf] that emphasizes this point:

“The dominance of short-termism in the market, often facilitated and exacerbated by algorithmic trading, is correlated with stock price volatility, fosters general market instability as opposed to useful liquidity and undermines the efforts of executives seeking long-term value creation. Companies can take a proactive stance against this growing trend of short-termism by attracting long-term investors with patient capital through the issuance of loyalty-driven securities. Loyalty-driven securities offer investors financial rewards for holding a company’s shares for a certain number of years. This practice encourages long-term investment horizons among investors and facilitates stability in financial markets, therefore playing an important role in mainstreaming Sustainable Capitalism.”

Or, put more succinctly, short-term vision creates market volatility (big peaks and drops) which makes our stock markets more unstable, and undermines executives who are trying to create companies with staying power.  Instability and volatility improve the prospects for traders but not for investors, and not for the corporations and their management.

If we agree that “quarterly capitalism,” or “short-termism” isn’t a good foundational concept for our economy – from either the investors’ or the company’s perspective, then what tools are available to make long term investing more attractive, and to help corporations seeking “patient capital?”

rats rear end One tool in the box is the Capital Gains Tax. If only about 14% of Americans have individual investments in “The Market” [cnbc] why should anyone give one small rodent’s rear end about the Capital Gains Tax structure? 

Because:  The present capital gains tax structure  rewards investment transaction income more than on earned income. If we are going to allow this lop-sided approach, then there has to be some economic benefit in it for everyone?  The current system:  

“Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Taxpayers in the 10 and 15 percent tax brackets pay no tax on long-term gains on most assets; taxpayers in the 25-, 28-, 33-, or 35- percent income tax brackets face a 15 percent rate on long-term capital gains. For those in the top 39.6 percent bracket for ordinary income, the rate is 20 percent.” [TPC]

Thus, if one’s income is “earned” by trading assets then the tax rate is 20% at the top of the income scale, but if the income is earned the old fashioned way – working for it – the rate could be 39.6%.  This is supposed to incentivize investment.  But note the definition of a “long term asset,” as one held for more than 12 months… that’s right: 12 months. 

Contrast that definition of a long term investment with the Clinton proposal:

Clinton Cap Gains Tax ChartNotice that in Secretary Clinton’s structure the combined rate on capital gains moves from 47.4% for those “short term” investments, down to 27.8% if the investor holds the assets for more than six years.  Five and six years fits my definition of “long term” much better than a “little over 12 months.”

Thus we have an incentive for longer term investments, which means less instability and less volatility.  This seems a much better plan to practice “Sustainable Capitalism.”

rats rear end

But, what of the executive compensation packages that are tied to short term stock prices?   Yes.  That’s a problem. [NYT] And yes, President Bill Clinton’s attempt to rein in executive pay back-fired. However, Secretary Clinton has proposed legislation to provide shareholders a vote on executive compensation, especially on benefit packages for executives when companies merge or are bought out. Her proposal would have created a three year “claw back” period during which the SEC could require CEOs and CFOs to repay bonuses, profits, or other compensation if they were found to have overseen – or been intentionally involved in misconduct or illicit activity.  Granted that doesn’t cover the entire landscape of corporate misadventure, but this could be combined with the following excellent suggestion for amending the tax code:

“Instead, Section 162(m) could be rewritten to allow a deduction for compensation paid to any employee in excess of $1 million only if the compensation is paid in cash, deferred for at least five years and unsecured (meaning that if the company goes bankrupt, the executive would not have a priority over other creditors). This approach would encourage corporate executives to act more like long-term bondholders and obsess less about short-term stock price movements.” [NYT]

Every bit of “encouragement” might help.  I’d be very happy to see CEOs thinking like long term bond holders (if long term means more than 13 months) and less like the traders/gamblers in the Wall Street Casino.

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Filed under Clinton, Economy, financial regulation, Hillary Clinton, Politics, Taxation

I Guess I’m The Establishment

Clinton Logo

At the risk of bringing out the woodwork crowd, let’s open the door anyway. I’m a Clinton Supporter, and have been for some time.  Not that my support is exactly a necessity for anyone’s campaign – I supported Biden in 2008.  Kerry in 2004, and Bradley in 2000.  No one is now speaking of Presidents Biden, Kerry, or Bradley.  However much my endorsement may be the Kiss of Ultimate Obscurity, it does come from a recovering Republican whose former party went berserk in 1968 and over the edge in 1980.

I am a Democrat because I believe in capitalism.  As anyone who’s visited this blog more than a handful of times can attest, I do believe that capitalism works, and that it works better when financialism is restrained.  Wall Street is not an existential enemy.  For all the flaws in the system there has to be some way to distribute capital from sources of surplus to sectors of need, and no one has figured out a better way to do that than capitalism to date.  In short, a mixed economy provides the best way for businesses large and small to obtain the capital they need to sustain themselves and grow.  A mixed economy is, in my definition, capitalism regulated by rational restraints on the tendency to monopoly and financialism.

Therefore, it would be out of character for me to worry about Secretary Clinton’s speeches to Wall Street gatherings; I’m certainly not a Socialist by any stretch of the definition.

I am a Democrat because I believe there is strength in diversity.  We’ve become the greatest nation on this planet because, not in spite of, the cultural diversity of this country.  This is the nation that gave the Jewish genius Albert Einstein a safe haven in 1933, and we were better for it.  Sergey Brin came from Russia, and founded Google – pretty good for an immigrant. Jerry Yang came from Taiwan, to found Yahoo! I’m certain we’re better for attracting Carlos Santana and enjoying his music, and I’ll always think of Albert Pujols in “cardinal” red.  There’s Puebla Foods entrepreneur Felix Sanchez de la Vega Guzman whose NJ based company is now worth $19 million.  Interested in drones? Then you probably already know about Jordi Munoz who co-founded 3D Robotics.  I have to admit that I have mixed feelings about Garrett Morgan, the African-American inventor of a modern traffic light – I’m not sure I like him when stopped for a long pause, but he’s probably saved my life innumerable times.

In short, I’m not in need of a revolution of any sort.  I certainly don’t feel the need to make American great again – what’s not great about a country that attracts the best and brightest from all over the world?  Nor do I feel the need to upend the socio-economic system, remember I’m not a Socialist.  We can, and should, do a better job of diminishing the income inequality gap in this country.  However, that doesn’t require a “re-distribution” of any sort.  We need to adopt economic policies which encourage entrepreneurship and the expansion of the American middle class.

I am a Democrat because I believe John Donne was right. No man is an island. All that “rugged individualism” palaver is just so much gibberish seeking to justify selfishness, or “I got mine, now you try to get yours…sucker.”  Perhaps someone with money to burn can hire a private security company – but I need the local police.  And, even the family which can afford the security company still needs someone to insure that the clothing on their children’s’ backs isn’t highly flammable or toxic.

When the woman in the family is earning only about 3/4th of what a man in the family can make, then the entire family suffers for it, and so do the merchants who would otherwise see more retail sales at their grocery stores. How much productivity do we lose each day a youngster has to endure crowded classrooms and underfunded education systems?  How much more attractive are our cities and towns when they have libraries, parks, and an investment in the arts?

I am a Democrat because I believe in democracy.  Notice please that’s not libertarianism of any sort. My definition of the little d – democracy holds that where there are no holds barred there’s the least real freedom.  Without rules we’d be back to ‘might makes right’ and reverting to the savagery of ages past, like bronze, iron, and stone.

Again, let me affirm that I believe we have one of the best political systems on Mother Earth, if we truly cherish it and make it possible for more people to vote in our local, state, and national elections.  Getting registered to vote in this nation should be far easier than the effort required to buy a gun.  We need to renew our Voting Rights Act, to revisit our campaign funding schemes, and to require that the FEC  truly have the capability to ferret out and punish untoward practices.

I tire very quickly when individuals launch into conspiracy theories and assorted assertions of fraud and misadventure.  At the beginning of this piece I said that I’d backed several candidates none of whom were elected to the office aspired to; I could have named many more from state and local elections.  With the exception of the 200o election, which I believe to have been messed up by election rigging in key states, I do not believe that if a specific candidate loses a specific election it must be because of some nefarious plot to defy Democracy and Vox Populi.  The glazed over look in my eyes is probably there because I stopped believing in conspiracy theories long ago.

If this renders me “establishment” so be it. I do not expect any other person in this great free land to pass my political purity test and I have no interest in sitting for anyone else’s.

There’s a difference between partisanship and zealotry. I am a partisan.  Perhaps in the eyes of some I am worse yet – a pragmatist. I don’t believe in intransigent positions for the sake of intransigency and purity – if I did I’d still be a Republican.  I believe that compromise is a good word, and a good political outcome.  So, here I am, and if that’s “Establishment” it’s a badge I’ll gladly assume.

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Filed under Nevada politics, Politics

Harbinger of Events Yet to Come?

Humboldt County Democrats

LogoMonday, May 16, 2016

Mr. Jim Roosevelt and Ms. Lorraine Miller
Co-Chairs, Rules and Bylaws Committee
Democratic National Committee
430 South Capitol Street Southeast
Washington, DC 20003

To the Co-Chairs and Members of the DNC Rules and Bylaws Committee:

By this letter, the Nevada State Democratic Party (“NSDP”) hereby lodges a formal complaint regarding the conduct of supporters of Senator Bernie Sanders at the recent State Convention held in Las Vegas, Nevada on Saturday, May 14, 2016, as well as the conduct of representatives of Senator Sanders’ presidential campaign (the “Sanders Campaign”).

We believe, unfortunately, that the tactics and behavior on display here in Nevada are harbingers of things to come as Democrats gather in Philadelphia in July for our National Convention. We write to alert you to what we perceive as the Sander Campaign’s penchant for extra-parliamentary behavior—indeed, actual violence—in place of democratic conduct in a convention setting, and furthermore what…

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Physicians Could Use A Bit Of Healing in Nevada: Opioid Prescription Problems

oxycontin  The Reno Gazette Journal has done a piece of highly recommended reporting – an in-depth account of opioid prescribing in Nevada.

“…a Reno Gazette-Journal analysis of DEA data showed that for certain drugs, Nevada ranks among the highest in the country.

Take oxycodone, Nevada’s most widely prescribed opioid. In 2012, nearly 1.04 million grams was distributed via retail in the state. That’s more than double what doctors prescribed in 2006. Nevada’s distribution rate is third highest in the country.

Nevada also ranks third for its hydrocodone distribution rate. In 2012, doctors prescribed more than 799,000 grams of hydrocodone — nearly three times the rate of New Jersey, which has triple Nevada’s population.”

OC pill There are some important points to take away from the article.  One of the first is that physicians, themselves, have opposed greater oversight of opioid distribution to patients, specifically in regard to SB 459.  One physician testified to the Assembly Committee on Health and Human Services that SB 459 sections 1-12 should be adopted, but the rest of the bill including reporting and medical education requirements should be dropped because it wouldn’t prevent overdoses. [AHHS pdf] Another doctor offering testimony “went there,” comparing the regulation of opioids to Nazi Germany:

“When people come to Las Vegas and need surgery or have chronic conditions and they hear that the climate here is like Nazi Germany in terms of regulations, the tightening of prescription pain medications, and the prosecution of doctors, it has a very chilling effect on these people who need those medications. […] there are folks who have chronic pain. I am an internist and I see this every single day. I sit there arguing with them about cutting their medications down and they start crying and throwing a fit because they need it.”  [AHHS pdf]

He continued:

We pull the DEA reports now and, as a private practitioner with a two- or three-man office, it creates a lot of extra work for my staff and more
documentation. It makes me pause every time I start to write a script for any controlled substance; I should not have to feel like that. At the end of the day, the doctor and the patient have the relationship, not the government in the middle. Doctors should be the ones who decide what is best for their patients. This bill has a chilling effect on that. [AHHS pdf]

The good news is that the language requiring that a doctor check the prescription drug monitoring database before writing a prescription for a narcotic to a new patient was retained in the bill.  However, the testimony presented should cause some alarm from members of the general public.

OC pill

As the article points out, a state with one third of the population of another probably shouldn’t be prescribing three times the amount of narcotic painkillers.

The argument that the state legislature shouldn’t try to do something to mitigate the problem if the proposal won’t fix the entire problem sounds altogether too analogous to the NRA’s arguments for doing absolutely nothing to prevent guns getting into the hands of felons, fugitives, and domestic batterers.  “If it doesn’t solve the whole problem, then it shouldn’t be done.”  The second piece of testimony is, itself, chilling.

Hyperbole rarely provides productive content in a civic discussion, and Godwin’s Law applies.  Bring up Hitler, and the audience moves along assuming the argument has been abandoned.  Secondly, it’s a bit more than disturbing that a licensed physician would be argued into prescribing medication he or she knows is deleterious or even dangerous for a given patient.

OC pill

No one wants the Hot Potato.  The state pharmacy board doesn’t want to use its database to flag doctors who are over-prescribing narcotics.  Their director: “Who’s to say what’s normal or what’s OK,” Pinson said. “It might be appropriate for a physician to be prescribing a ton of narcotics according to his specialty.” [RGJ]  It might be, and then again, it might very well not be. And the Board of Medical Examiners isn’t enthusiastic about clearing out their ranks either:

“It would be inappropriate, and it’s not the intent of the (prescription monitoring program), to find cases to investigate,” said Edward Cousineau, executive director of the Board of Medical Examiners, which licenses medical doctors and investigates malpractice complaints in the state.” [RGJ]

Again, we might ask: Why isn’t it appropriate to weed out physicians who are creating a situation in which Nevada is among the top five states for opioid pushing? Perhaps the next session of Nevada’s Assembled Wisdom will find the intestinal fortitude to (1) require that the Pharmacy Board use its drug monitoring database to look for BOTH doctor shopping patients and pill pushing physicians; and (2) more thoroughly investigate drug overdose deaths. 

OC pill

Kentucky, Tennessee, Texas, and Arizona have enacted such legislation. [RGJ] Nevada should join them.

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Filed under health, Health Care, nevada health, Nevada legislature, Pharmaceuticals, Politics, public health

Amodei Quacks Like A FLAG-waving Duck

Amodei 3

Representative Mark Amodei (R-NV2) doesn’t like being categorized as “anti-public land,” or more precisely lumped in with the Bundy Boys.  However, his sponsorship of legislation and other activities have him on the Anti-Public Land list:

“Amodei landed on the list for sponsoring legislation that would give the state control of 7.2 million of the approximately 58 million acres of federally controlled land in Nevada, opposition to the creation of the Basin and Range National Monument, membership in Federal Lands Action Group and a statement about the Malheur occupation.

The statement, attributed to Amodei and two other members of the action group, said the lawmakers didn’t condone the Oregon action but added, “we do understand their frustration with increasingly heavy handed federal agencies that continue to violate the rights of hardworking American farmers and ranchers.” [RGJ]

Duck looks The poor little Republican has been cast amongst the Bundys.  How did he end up bunched up with them?  First, he’s a “FLAG” member.

“Rep. Amodei is a FLAG member and introduced H.R. 1484, the Honor the Nevada Enabling Act of 1864—which would seize Nevada public land for state control. In 2015, Rep. Amodei also introduced H.R. 488, which would cripple the Antiquities Act by blocking the extension or creation of national monuments in Nevada, unless authorized by Congress. Rep. Amodei has also cosponsored four other bills aimed at curtailing the Antiquities Act and seizing public lands. In response to the occupation of the Malheur National Wildlife Refuge, Rep. Amodei signed on to a joint statement that condemned federal officials for law-breaking, rather than condemning the actions of the armed militants.” [CAP]

So, what is FLAG, and how does it relate to the Anti-Public Lands crowd?  The organization is the brain child of two Utah Representatives, Stewart and Bishop, who announced its creation on April 28, 2015.  And, the purpose?

Today, Representatives Chris Stewart (R-Utah) and Rob Bishop (R-Utah) launched the Federal Land Action Group, a congressional team that will develop a legislative framework for transferring public lands to local ownership and control. […] This group will explore legal and historical background in order to determine the best congressional action needed to return these lands back to the rightful owners. We have assembled a strong team of lawmakers, and I look forward to formulating a plan that reminds the federal government it should leave the job of land management to those who know best.” [Stewart]

Who were among the first members of the FLAG group? “Other members of the Group include Representatives Mark Amodei (R-Nev.), Diane Black (R-Tenn.), Jeff Duncan (R-S.C.), Cresent Hardy (R-Nev.), and Cynthia Lummis (R-WY).” [Stewart]

We should assume the group means what it says.  It wants to transfer public land to local ownership and control.   Towards this end the FLAG group held its first “forum” in June 2015, and among the speakers was a representative of the “Independent Institute.”  Board members of this organization include a private equity manager, a person from Deloitte & Touche USA, a member of the Howley Management Group, the Botto Law Group, a managing director of Palliser Bay Investment Management, Reditus Revenue Solutions, Audubon Cellars and Winery, Berkeley Research Group LLC, and the former chair of Garvey International.  [II.org]  This isn’t a list that inspires one to ask if they are primarily interested in public land for the sake of conservation.

Prof. Elwood L. Miller (UNR) was on the initial panel, adding a touch of accounting expertise to the argument that the federal government is too bureaucratic and caught up in procedural questions to be a good steward of public lands.  Attorney Glade Hall added the usual federal control isn’t constitutional argument. “It is a patent absurdity to assert that such full powers of governance cover 87 percent of the land surface of a state of the Union and at the same time assert that such state has been admitted to the Union on an equal footing with the original states in every respect whatever,” Hall said.” [STGU] A sentiment echoed by the head of the Natural Resources Group, whose book on the “theft” of the environmental issue is available from the Heritage Foundation.

In short, there was nothing to remind anyone of a fact-finding operation in this inaugural panel sponsored by FLAG.  It was of, by, and for individuals who want to ultimately privatize federal lands.

It’s also interesting that the panel members offered these opinions based on personal experience, or “talking to people,” but nothing in the presentations was offered to demonstrably prove that the federal government has no authority (beyond the usual crackpot interpretations spouted by the Bundy-ites and allies) or is actually and provably incompetent to manage public lands.  The guiding assumption – however poorly demonstrated – was that the local agencies could do a better job. Period.

If anyone is still unsure of the ideology driving FLAG, please note that the Heritage Foundation and the Mercatus group aren’t the only players supporting the efforts.  There’s also the John Birch Society (They’re still around) touting the confab on Facebook.  Additionally, there’s the ever-present American Legislative Exchange Council (ALEC) imprimatur on the project.

One segment of ALEC testimony from a February 2016 FLAG meeting can serve as an illustration of their argument:

“Bureaucratic inflexibility and regulatory redundancy make it almost impossible for the federal government to handle the lands in its charge for optimal environmental health. Any change in strategy on how to manage the lands, such as harvesting trees on forest lands to reduce wildfire fuel loads and prevent pest infestation, can take years to adopt and implement. By the time the federal government is able to act, it is often too late.”

Examples? The argument is made that three factors are responsible for the severity of wildland fires – poor logging practices, overgrazing, and over aggressive fire control. At this juncture, we could well ask how, without regulatory control, can better logging practices be promoted throughout the region? Or, if the Bundy Bunch isn’t convinced by the Federal authorities to pay their grazing fees and not trespass on BLM lands, then how is a state with less in the way of resources supposed to take on the task? 

However, the most intriguing element of the ALEC position is this: Further, they have operated with budget shortfalls for over a decade calling into question whether they even have adequate funds to get the job done.”  At this juncture it’s appropriate to ask – and who is touting cutting the federal and state budgets?  Who, if not ALEC?  Thus, the federal government can’t do a better job because the funding has been cut, and because the funding has been cut it can’t do the job?  Circular Reasoning at its finest, looped in with the obvious cuts and shaving from state budgets.   The ultimate argument would be that neither the federal government nor the state governments can “do the job” and therefore the lands should be transferred to private hands.  Nothing would please the Koch Brothers more?

The second way one gets attached to the Bundy-ites is to get mealy and smushy about their activities.  As in, “we do understand their frustration with increasingly heavy handed federal agencies that continue to violate the rights of hardworking American farmers and ranchers.” [RGJ]  It’s past time to get specific.  Exactly what constitutes “heavy handed federal agencies?”  Are they agencies which are tasked to collect grazing fees?  How long is an agency expected to wait for a person to decide to pay those fees? 

Exactly what constitutes a “violation of rights of hardworking people?”  Exactly what rights have been violated?  How is it a violation of my rights to have to pay the same grazing fees, or have to move cattle from overgrazed areas, just like every other rancher in a given area under Federal management?  Freedom, rights, and independence are easy words to toss around, but without actual evidence of real violations of RIGHTS then the argument is hollow.

Bundy rally And, one lands on the anti-public lands roster by sponsoring legislation like Representative Amodei did in April 2015:

“Most recently, Congressman Mark Amodei (R-NV) introduced a “large-scale” public lands bill, which would allow the state of Nevada to seize and sell off public lands. Representative Rob Bishop (R-UT), chair of the House Natural Resources Committee, also requested $50 million in the federal budget in order to facilitate immediate transfer of public lands to state control.”  [TP]

Looks like a duck, walks like a duck, quacks like a duck, then there’s no reason to list it as anything other than a duck.

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Filed under agriculture, Amodei, ecology, koch brothers, National Parks, Nevada news, Nevada politics, Politics, privatization, public lands, Rural Nevada

Wall Street May Not Be The Enemy: It’s the friends we need to watch

“Wall Street” is an extremely elastic catch phrase, useful for politicians of all stripes.  For example, we have Senator Dean Heller (R-NV) reminding us at every possible moment that he “voted against the bail out.” And, we have politicians from the other side of the aisle excoriating the traders for all the ills of modern America.  Both are off the mark.

Wall Street sign

First, beware the thinly veneered populism of Senator Heller.  Yes, he did vote against the bailout – an extremely safe vote at the time – but, NO he hasn’t stopped being the Bankers’ Boy he’s always been.  Let’s remember that while he was offering himself as the Little Guy’s Candidate he was voting on June 30, 2010 to recommit the Dodd-Frank Act to instruct conferees to expand the exemption for commercial businesses using financial derivatives to hedge their risks from the margin requirements in the bill.  Then, on June 30, 2010, he voted against the conference report of the Dodd-Frank Act.  Heller wasn’t finished.

In 2011 he and then Senator Jim DeMint (R-SC) introduced S. 712 – a bill to repeal the Dodd-Frank Act.

“What S. 712 does is to (1) repeal measures which require banks to have a plan for orderly liquidation (another word for bankruptcy), (2) repeal requirements that banks keep records of transactions which would need to be transparent in case an “orderly liquidation” is in order, (3) repeal the establishment of an oversight committee to determine when a bank is becoming “too big to fail,” and is endangering the financial system — an early warning system if you will.  The new requirements governing (4) Swaps would also be repealed, along with the (5) Consumer Protection bureau.” [DB 2011]

Few could have been more obviously promoting the interests of Wall Street traders than Heller and DeMint. [DB 2012]  Few could have been more readily apparent in their enthusiasm to protect the financialists from the provisions of the Dodd-Frank Act including the Volcker Rule.

Volcker Rule

A word about the Volcker Rule:

“The Volcker Rule included in the Dodd-Frank Act prohibits banks from proprietary trading and restricts investment in hedge funds and private equity by commercial banks and their affiliates. Further, the Act directed the Federal Reserve to impose enhanced prudential requirements on systemically identified non-bank institutions engaged in such activities. Congress did exempt certain permitted activities of banks, their affiliates, and non-bank institutions identified as systemically important, such as market making, hedging, securitization, and underwriting. The Rule also capped bank ownership in hedge funds and private equity funds at three percent. Institutions were given a seven year timeframe to become compliant with the final regulations.” [SIFMA]

Yes, Senator Heller et. al., if the Dodd-Frank Act is repealed then the financialists on Wall Street may go back to gleefully trading all manner of junk in all kinds of packaging with no limits on bank ownership of hedge and private equity funds.  Let’s remind ourselves at this point that capitalism works.  It’s financialism that’s the problem.  Under a capitalist form of finance resources (investments) are moved from areas (funds) with a surplus to areas (businesses) with a scarcity of funds.  Under a financialist system capital (money) is traded for complex financial instruments (paper contracts) the value of which is open to question.  Not to put too fine a point to it, but the “instruments” seems to have whatever value the buyer and seller agree to whether the deal makes any sense or not.  The Dodd-Frank Act doesn’t forbid “financialism” but it does put the brakes on.

Notice, it puts the brakes on, but doesn’t eliminate the old CDOs.  Nor does it prevent the CDO with a new name: The Bespoke Tranche Opportunity.  It works like this:

“The new “bespoke” version of the idea flips that business dynamic around. An investor tells a bank what specific mixture of derivatives bets it wants to make, and the bank builds a customized product with just one tranche that meets the investor’s needs. Like a bespoke suit, the products are tailored to fit precisely, and only one copy is ever produced. The new products are a symptom of the larger phenomenon of banks taking complex risks in pursuit of higher investment returns, Americans for Financial Reform’s Marcus Stanley said in an email, and BTOs “could be automatically exempt” from some Dodd-Frank rules.” [TP]

Zero Hedge summed this up: “This is the synthetic CDO equivalent of a Build-A-Bear Workshop.” We’re told not to worry our pretty little heads about this because, gee whiz, CDOs got a bad reputation during the Big Recession of 2007-2008, when they were just “hedging credit exposure.”  Yes, and ARMs got a bad reputation when they were just putting people in houses… Spare me.

And, we’d think that after the CDO debacle of 2007-2008, some one might have learned something somehow, but instead we get the Bespoke Tranche Opportunity and a big bubble in really really junky bonds.   That would be really really really junky bonds:

“Junk bonds are living up to their name right now. As we have noted in the past, the lowest-rated junk bonds may have inflated a $1 trillion bubble at the bottom of the debt market. The thing is, it never should have gotten that way.” [BusInsider]

Indeed, back in the bad old days no one could issue CCC bonds.  Now, we have Central Banks supporting Zombie Companies, low yield Treasuries making investors look to more “speculative” debt, and more demand for high yields meant that purveyors of Junk found a market for their garbage. [BusInsider] And, of course, someone out there is hedging all this mess.

Lemmings Here we meet the second problem with financial regulation in this great country.  Not only would the Bankers’ Boys like Senator Heller like to go back to the days of Deregulation, but the Financialists are hell bent on Yield! High Yield!  Even if this means supporting Zombie Companies which should probably just die already; even if this means allowing the sale of Bespoke Tranche Opportunities; and, even if this means selling bonds no one would touch only a few years ago.  The quarterly earnings report demands higher yields (As in: What Have You Done For Me In 90 Days Or Less) and investors jump like lemmings off the cliff.

We’ll probably keep doing this until someone figures out that in these schemes the chances are pretty good that “getting rich fast” more often means going broke even faster.  Thus the financialists package Bespoke Opportunities and C (for Crappy) Bonds.

Said it before, and will say it again:’  What needs to be done is —

  • Continuing to restrict the activity of bankers who want to securitize mortgages, under the terms of existing banking laws and regulations.
  • Continued implementation of the Dodd-Frank Act.

To which we should add, “restrict the creation and sale of artificial “investment” paper products which add nothing to the real economy of this country, and instead soaks up investment funds, and creates Bubbles rather than growth.

 

Read more atSIFMA, “Volcker Rule Resource Center, Overview.” Desert Beacon, “Deregulation Debacle,” 2012.  Desert Beacon, “Full Tilt Boogie,” 2011.  Think Progress, “High Risk Investments,” 2015.  Zero Hedge, “The Bubble is Complete,” 2015.  Bustle, “Is the ‘Big Short’ Right?, 2016.  Bloomberg News, “Goldman Sachs Hawks CDOs,” 2015.  Huffington Post, “Big Short, Big Wake Up Call,” 2016.  Market Mogul, “BTO, Deja Vu” 2016.  Business Insider, “Trillion Dollar Bubble,” 2016.  Business Insider, “Bubble Ready to Burst,” 2016.  Seeking Alpha, “OK, I get it, the junk bond miracle rally is doomed,” 2016.  Wolfstreet, “CCC rated junk bonds blow past Lehman moment,” 2016.

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