Dec 20

As I’ve been on somewhat of a writing hiatus while building my new financial modeling software company, ClearFactr, I recently came across this CNBC video featuring Cypress Semiconductor’s CEO, T.J. Rodgers.

It really doesn’t get any better than this, so, yeah… what he said.

Happy Holidays to all!

Jan 01

What does it mean to be able to afford our own government?  Most (although apparently not all) people realize that if we are to ask government to provide us with an ever-increasing list of services, we need to be able to pay for them.  And what better measure of affordability than the rate of growth of personal income?   It is from personal income that we pay our taxes, that pays for government.    Using data retrieved via the St. Louis Federal Reserve Bank’s eminently useful “FRED” system, I calculated an index that measures the former against the latter.    Let’s call this the Government Affordability Index. I think it exactly quantifies why we collectively feel so financially strapped.   Bear with me for a little econometric tedium…

FRED’s Federal Government Total Expenditures data series goes back to 1960, while their Personal Income series goes back to 1947.   Using a starting index level of 100 in 1960, I grew each new series by the annual growth rate in the source series (total expenditures and personal income), with each annual growth rate reduced by the annual GDP inflation index.   The inflation adjustment serves only to remove a lot of the exponential growth effect that shows up otherwise.    Here’s the result:


Personal Income Index Vs. Government Expenditures Index 1960-2012

Personal Income Index Vs. Government Expenditures Index 1960-2012

To zero in on the relationship between the two, I then took the one index and divided it by other, using Personal Income as the numerator, as any value over 1.0 implies that our total income level is commensurate with what we’re asking from over government.   Sadly, the graph only visits 1.0 twice since 1960:

Government Affordability Index 1960-2012

Government Affordability Index 1960-2012

 I can already hear the howling from the Left about using Personal Income as a proxy for affordability.   But to do so, they need to perform class warfare and taxpayer slice-and-dice stunts worthy of Benihana’s.  And that’s the point.   Government needs to be affordable by everyone, in total, and not according to some ruling majority’s view as to what constitutes someone else’s “fair share.”   Furthermore, although interest rates are indeed at record lows (cue clip of Ben Bernanke’s helicopter), and too many people are saying we shouldn’t fear more debt, the annual interest on that debt still needs to be paid back from, guess what, Personal Income.

Continue reading at Forbes Opinions…

Jan 24

Elephant in the roomDo we want to motivate people to create wealth or not?   It’s the unspoken question, the elephant in the room, when President Obama attempts to whip up the populace with stories of “billionaires paying lower tax rates than their secretaries” and other class-warfare demagoguery.

Mitt Romney recently said his effective tax rate is probably close to 15%, because most of his income comes from long term capital gains.  The admission hasn’t helped his campaign much, to be kind.  Warren Buffett has famously said similar things, and has become the President’s biggest gift in his drive towards wealth redistribution.

Nearly since the beginning of the income tax, the government has treated long term capital gains differently than “ordinary income.”  In 2003 the long term capital gains rate was cut to 15%.  Why are we surprised to see that people like Romney and Buffett have matched their behavior to the incentives?  Surely even President Obama understands the concept of incentives. Under certain conditions, section 2011 of his Small Business Jobs Act of 2010 establishes a particularly favorable long term capital gains rate: 0%.

Presumably what everyone’s attempting to foster here are wealth creation and capital formation.  From wealth comes the ability to invest, which creates jobs and, if created via free market capitalism — as opposed to crony-capitalism — advances society.  The opposite of wealth of course is poverty.   We see endless government reporting and programs attempting to alleviate the latter, but little understanding of the need to create the former.   If we want less poverty, we need to create more wealth.

Continue reading at Forbes Opinions…

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Oct 12

Let’s talk about “fair share.”   President Obama certainly wants to.   He’s “all in” on the notion that “the rich” don’t pay their “fair share” of taxes in this country.  Indeed, he’s wagering his re-election on the bet that a majority of voters will agree with him.  When the tyranny of the majority succeeds, Obama will win, too.

As parents, one of our most important tasks is to know when to say “no” to our children.  We all recognize a “brat” when we see one — a child who’s never been told “no”, and whines and complains until he or she gets his or her way.  ”Shame on his parents!”, or perhaps that’s not politically correct to say anymore.  But bratty children grow up to be bratty voters, too.

Unfortunately our political system often rewards the political equivalent of the irresponsible parent.   Using Other People’s Money, irresponsible politicians promise the world, and the bratty voters like it.  Once elected, these politicians do their best to deliver the goods.   It’s alright, they say, because of their interpretation of the General Welfare and Commerce clauses of the Constitution.  Others beg to differ…

Sadly, under such a system, no amount of revenue to the government is ever enough, because human wants are themselves unlimited.  Therefore, those with a lot of assets, with “a lot” being defined by the politics of envy, become natural targets for the boundless benevolence of these irresponsible people – voters and politicians alike.

NEW YORK, NY - AUGUST 05:  'Varney & Co.' host...At least one prominent media figure is finally on to the correct way to put a lid on this ruinous line of “fair share” reasoning.  Most recently, it was Stuart Varney.

On his September 20th show, Mr. Varney put a simple question to a Democratic strategist, Mary Anne Marsh, in the context of discussing Obama’s plan to raise taxes on the wealthy.   To paraphrase:

“What is the maximum percentage of income that someone should pay in taxes?”

It’s an arresting question, for several reasons.


Continue reading at Forbes Opinions…



Aug 17

Did anyone really think that this Congress was capable of a real solution to the debt and deficit crisis?  Certainly Standard & Poors didn’t think so.  As the Cato Institute noted in a picture’s-worth-a-couple-trillion-dollars fashion, the long-term effect of this deal on the nation’s debt accumulation trajectory will be negligible.  And when ideological non-soulmates Keith Olbermann and Judge Andrew Napolitano both suspect that a key component of the bill, the so-called “Super Committee”, might be unconstitutional, you know we’re in uncharted waters.

Congress shoots... and misses

Maybe now the folks that were never politically involved, but have been suddenly active via the Tea Party, will wake up and realize it boils down to having the right elected officials in place when the votes are being cast and counted.   In the long term, that’s not a bad thing.

In the meantime, Congress has to find a couple hundred billion dollars a year to cut from the spending.   There’s a surefire way to do that in a single vote, and because it spreads “the pain” around to all factions, it’s a plan that could actually pass:  End all corporate welfare.

Continue reading at Forbes Opinions…

Mar 11

Want a recipe for ruckus? Merely suggest that Social Security might be a “Ponzi scheme”. You might even end up on Drudge Report. Yet the facts bear out the thesis, as we shall see…

Continue reading, at Forbes Online

Sep 28

Just what happens to the mind when the bank account crosses the billion dollar mark?  Do all those dollars exert some kind of Big Government Tractor Beam that only the few can escape?   Or is it just the logical conclusion of crony capitalism?

Let’s examine two of the most influential billionaires of our times, Warren Buffett and George Soros.  One squanders opportunities to promote and enhance the system that made both of them rich, while the other actively seeks to destroy it. Continue reading »

Jul 27

Is there any hotter subject for TV and film these days than the vampire?  The mass-appeal of these blood-seeking creatures appears to be at an all-time high, with shows like True Blood, The Vampire Diaries and the Twilight Saga series of books and films bringing home the bacon.

Wealth-sucking creatures that will stop at nothing...

Just when you thought it was safe to get back into the economy...

Then there are those perennial horror favorites, zombies, that defy all attempts to do them in.

It seems like Congress is trying to capitalize on the craze as well.   Witness the up-and-coming,  back-from-the-dead behavior of the Estate Tax, also known as the Death Tax, coming soon to every estate-planner’s office near you.

Continue reading »

May 16

Talk with a typical liberal-leaning voter and soon enough you’ll find that reducing income-inequality ranks as one of their most vaunted public policy goals:  just about any legislation can be justified as righteous if it claims to hit that mark.

In discussing income inequality, the liberal commentariat will invariably point to some kind of statistic showing that the gap between the people at either end of the earnings bell curve “has never been wider”.   Or put differently, “the rich are getting richer and the poor are getting poorer”.    What these people miss, as economists like Thomas Sowell and Alan Reynolds have repeatedly demonstrated, is that the people at any given percentile of the curve change over time.   As Sowell says when talking about supposedly stagnant household incomes:

“The problem is you’re talking about households, rather than flesh and blood human beings.   One of the real fallacies that runs through a lot of talk about income is confusing statistical categories with actual flesh and blood people.”

Income Inequality Sowell vs. Krugman

Essentially then, static comments made about a dynamic curve are meaningless.   By contrast, longitudinal studies following particular people over the course of their earning careers tend to show upward trends.

It turns out that one group of people, tracked longitudinally, have been on a particularly nice up-slope: public sector employees.   Continue reading »

Jan 19

As someone who spent fifteen years at various major Wall Street firms, and nearly my entire twenty-four career to date having a discretionary bonus as a major (and often predominant) form of my compensation, I thought I’d chime in on the recent commentary.

Let me start of by saying that as I’ve written before, failing firms need to be allowed to fail.   Poor management needs to be separated from capital so that capital can find a better steward, and the genuine threat of failure is vital to ensure that proper risk management and operational caution is exercised at every step.   Likewise, I’d agree that for a company to be on the public dole and pay non-contractual, discretionary “bonuses” to any employee would be reprehensible.   That said…

In the fall of 2008, a group of supposedly very smart people decided that our financial system was on the brink of “collapse”.   Never mind for a moment that the long term demand for banking, capital raising and investment management would exist regardless of what particular firms were around to provide those services.  Hundreds of billions of dollars were assembled and in foie-gras style, crammed down the throats of companies that didn’t ask for it (just like the geese).

Firms like Goldman Sachs and JP Morgan have since been pretty clear that although they were sweating it, word of their demise had been greatly exaggerated.   At last Wednesday’s assembly of the Financial Crisis Inquiry Commission, Lloyd Blankfein of Goldman reminded his inquisitors that they had raised substantial amounts of fresh capital, and could have raised more,  prior to having the TARP money put to them, and JP Morgan’s Jamie Dimon stated in a CNBC interview shortly thereafter that they did not need TARP funds to ensure their survival.

It should be no surprise that in the volatile markets of 2009, containing one of the most ferocious upside moves in stocks ever recorded, Wall Street firms were fantastically profitable.    Most of the major Wall Street TARP recipients have paid back their cramdowns with interest, and yet there’s a lot of money left over.  But in an age of record-breaking deficits and politically-stoked class warfare, a demagoguing President Obama eying the money pot has the courage to say “We want our money back, and we’re going to get it”.    Why does he think it’s his money? I’ll also take the bet that you will never hear Obama utter those words to General Motors.   But I digress.

There are sorry parallels between what’s happening with employees of Wall Street firms and the minority communities that are the supposed beneficiaries of affirmative action, another quasi-bailout program with terrible unintended consequences.   Although filled with the best intentions for helping any particular needy minority individual, every person in these groups created solely by skin-color (thus perpetuating the need to categorize ourselves as such — take note of your upcoming census) must now face the occasional (or not occasional) silent wondering of their fellow students or co-workers:  “I wonder if he’s here only because of his skin color”.   That any member of such a targeted group might possibly endure that kind of unspoken criticism is disgusting.

Isn’t the same now possible towards employees in the banking industry?   “Yeah, the new neighbors both work on Wall Street.   I wonder if they’d be buying that house if it wasn’t for TARP?  We so bailed them out, and look at them now.” And a possible response:  “But we didn’t ask to be bailed out, and our departments made money.  We’re not investment bankers — we’re computer programmers.   Not to worry, with our 80 minute commutes and 50-70+ hour work weeks, we won’t see you too often.” I’m not sure it’s equally disgusting, but it is artificially divisive nonetheless.

I like to say that “honest achievement is the root of self-esteem”.   By stuffing money into the Wall Street firms, by having a Federal Reserve that can keep rates so low for so long that it’s hard for banks to not make money, but then railing about it when they do, our government has once again used its power to fracture civil society that much further.   It has now sown the seeds of doubt about that achievement, and with it, the self-esteem.

But what would Obama do with the money anyway?   It would get thrown into the vortex that is our Congress and spent on grand designs that can not work. By contrast, the voluntary spending and investing of Wall Street bonuses is for many regions of the country one of the primary economic engines, with ripple effects literally worldwide.  Ask the waiters at the Manhattan steak houses what they think of Wall Street bonuses, or the car dealers, or the home improvement contractors, or the real estate agents.    Ask them if they’d rather have some derivative scrap of a nanny-state program, fought for by political gamesmanship, or a bunch more customers fueled by Wall Street bonuses.

Obama’s problem is that he can not get away from the Wall Street vs. Main Street rhetoric.   When will he and his disciples own up to the fact that it’s all the same street? Something tells me that Obama and his staff, let alone much of Congress, have never read Leonard E. Read’s short but brilliant classic, “I, Pencil”. It’s never too late.

The more Obama and his ilk pursue the sort of vindictive, utterly unpredictable legislative and public-relation campaigns against Wall Street’s top earners, the more these earners will simply pull a John Galt and say, that’s it, it’s not worth it.   They won’t retire.  They’ll simply form or join private organizations that will do everything the public organizations do, but with the exception of not playing in the public arena.   And if we can assume that there is at least some correlation between compensation and talent, then by extension, returns in which the general public can participate will go down, while a separate caste of privately-accessible returns will increase in scope.   Civil society’s splintering will be furthered once again.

One of my most lasting lessons from college was an ex-Westinghouse executive-turned-professor describing the concept of a big company holding up a “price umbrella” for other smaller, more aggressive companies to get under.   Here we have our government calling out a supposed price umbrella.  So by extension, there would seem to exist an opportunity for one or more companies to swoop in and steal all of the customers being over-charged by these overpaid Wall Street types.   It isn’t happening.

In a recent column, John Tamny wrote the following:

So far, however, “discount” investment-banking firms and traders have yet to reveal themselves in a substantial way. That said, if what Wall Street’s myriad critics say is true about its employees being overpaid, it seems there’s a very real and enriching opportunity for these same critics to put up or shut up. If investment banking and trading are really as easy as they suggest, here’s their chance to prove it.

To those critics:  Please “put up” and prove your case.   Then spend the profits any which way you’d like, if they haven’t been confiscated first.

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