The Tax Battle and the Consequences for Grover Norquist

Grover Norquist

The last few weeks and for the next couple of weeks the pundits of the world will be talking about the speculative congressional/White House fiscal deal and its consequences on the Grover Norquist Republican tax pledge. Democrat pundits are giddy because it could be the end of irrationally not raising taxes while Republican pundits are trying to say its not a big deal if revenue is raised by closing loopholes and ending tax incentives; as long as rates are not increased. It’s all very annoying and stupid, let me tell you why.

Grover Norquist is the president of a *lobbyist* group called Americans for Tax Reform. He formed it 20 years ago after George H. W. Bush promised not to raise taxes, but then went ahead and raised taxes. Norquists thought was that if he could get every elected republican to sign his pledge, then taxes will not be increased because they would have the backing of his lobby. It’s a brilliant financial move on his part: reach out to wealthy political donors and tell them “I stand for never raising taxes” – pretty easy sell really. Then, offer all this donor money to campaigns, as long as the person running for office signed the pledge – easy sell for the person running for office too. The problem is, the elected officials really wanted to live by this pledge because at the time, they thought it was a good idea. However, a lot of them are now realizing it was unrealistic because its simply not fiscally responsible to only ever lower taxes.

So, now pundits are having a field day because they can talk about what the consequences of a signed deal will mean for Grover Norquist. Democrats think it is the end of the tax pledge days and Republicans are hoping Norquist does not take a serious blow if tax rates happen to go up January 1st. Well let’s put all the speculation to bed right now, because I can see the future and I know exactly what will happen regardless of the details of a potential fiscal deal: nothing will fucking change. That’s right, you heard it here. You know why nothing will change? Because business will still be booming for Grover Norquist. There will still be rich people that will want to donate to his lobby because they do not want more taxes. And new Republicans running for office will still sign the pledge because then they get those fat lobby dollars. Pundits will continue writing about Grover into the new year and speculate his future, all the while his bank account will continue to grow and remain secure. Sure, he might lose a few big donors in the process because some Republicans will break the pledge, but they will be easily replaced by new donors.

The sickening thing here is not the outcome of any fiscal scenario – it’s the fact that everyone knows Grover Norquist runs a lobby, that Republicans get into its pocket if they sign a pledge, and in doing so it completely effects the legislation they are willing to pass. It has NOTHING to do with what is the right thing to do with the country and EVERYTHING to do with where their campaign contributions are coming from. And this is just a public pledge; imagine how many under-the-table pledges exists between lobby’s and candidates on both sides.

SEC Investigating Exchanges for Unfair Advantages

The amount of porn these displays could support…

The Securities and Exchange Commission is investigating a number of stock exchanges, because they feel the exchanges might be offering unfair advantages to certain clients over others. Basically, the exchanges are believed to have given an in depth view of the exchange internals (with respect to order types) to clients that spend more money.   These clients are told exactly how the exchange processes certain orders, or in other words, the exchange algorithms. Thus, the clients that spend more money at the exchange get better positions because of this extra knowledge that smaller clients do not get. The surprising thing here isn’t the fact that the exchanges are giving their high paying clients this information, it’s that the SEC is just realizing it now!  Holy shit! Next, you’re going to figure out that high frequency trading gives clients that trade with servers at the exchanges have an unfair advantage to those who trade remote. Only 10 years late to the party SEC!

WSJ: Exchanges Get Closer Inspection

The Apple Rolls Downhill – The Steve Jobs Myth

Steve Jobs
Last Known Photo of the Myth that is Steve Jobs

If you listen to our show, you may actually think I’m a strong Apple hater. This is not the case – I just present myself that way in front of Basement Rob to try and get him fired up. Since 2004 my personal computer has been a Mac of some kind and it will continue to be that way for the forseeable future (hell, Basement Rob was a hater until I annoyingly shoved my plastic Macbook down his throat!)

So today I write to complain about this article in Forbes, that says very clearly if Steve Jobs were still around, iOS 6 never would have been released. This sentiment exists mainly because of some amusing bugs in the recently released Apple Maps application, which forcefully replaces the Google Maps application that used to be standard in iOS. The writer asks:

If Steve Jobs was alive, would he have introduced Apple Maps with rough edges?  Did the meticulousness that went into Apple products die with Steve Jobs?  Has Apple squandered the trust of users built up by Steve Jobs over years in one swoop?

Then he says “These are the important questions for Apple investors to ponder.” Really? I’m pretty sure the only question Apple investors are asking right now is “when will this baby hit $1000!?”. Don’t be so fucking naive Forbes – Steve Jobs was around when they released the iPhone 4 for Christ’s sake – remember that debacle?

Should the US Sell GM Right Now?

United States of GM
United States of GM

Executives at General Motors are urging the United States Treasury department to sell its remaining shares of the once (and probably still) fledgling US automaker. The reason? Because GM claims that the restrictions (like executive pay) are making it difficult for the auto-giant to attract quality talent for its high ranking management staff. If the government were to sell its share today, with the current share price, the government would lose a total of $15 billion. For the US government to break even on the bailout, the share price would have to climb to $50 a share, more than double the current price. With a P/E of only 8.5, $50 is not an entirely laughable target, but can GM reach that target without removing the executive pay restrictions? I actually think so, and I also think it is quite ballsy of GM to even ask the government to sell its shares right now at a cost of $15 billion to the taxpayers.

I suppose at the same time, this guy at Forbes predicts GM will be bankrupt in a years time, so perhaps it is a good time to sell..

Mutualize European Debt: Round 12 – “Human Sacrifice, cats and dogs living together, mass hysteria!”

peter vernman
“We came, we saw, we kicked its ass!”

Let’s finish this once and for all.

You do a great job summarizing the dual-mandate (seriously), however I still fail to see how they can influence unemployment, as this really is a function of the free market. Yes, they can encourage lending by lowering the interest rates to zero (or less), but this does not create organic growth. This kind of dangerous lending can lead to seriously over-manufactured growth, which creates bubbles and ultimately recessions depending on the rate of default. In fact, this sort of thing may have happened recently in the form of mortgages, perhaps you heard about it?

Mutualizing European debt and financial Armageddon are not the only two options on the table (you’re really starting to sound like a professional pundit though, so congrats). You’re forgetting the very simple, very boring middle-of-the-road option of bailing out smaller country’s with short-term payback programs – no real unification and no Armageddon. This will spur a raging amount of mediocre growth over the next 5 – 10 years, after which will be coined “The Lost Decade – European Edition”. I suppose the argument can be made that it’ll bring Europe closer together in the short-term, as Germany will want to make sure as hell Greece and Italy and Spain pay back the loans, but they will in no way be set for the long term.

The reason for my prediction is fairly simple, and that is that there is not enough at stake for unification to take place. Meaning, too many people will make more money in the short term if unification does not happen and too many lifestyle’s will be disrupted if unification were to happen. For instance, Germany would want to impose certain tax laws that other country’s (*cough*Greece*cough*) wouldn’t/couldn’t enforce if they wanted to, and Germany would not be willing to take on the debt burden without said reassurances. Like I’ve said from the beginning, the vast differences in ideology will prevent a European unification. They may get close, I could see them bundling the debt of the weaker country’s like Italy, Spain and Greece – but what happens when you pile shit with more shit? You’re just left with a bigger pile of shit.

I think we’ve exhausted the topic thoroughly at this point, spinning our wheels and re-iterating the same points over and over. We both clearly agree that a unified Europe is better for the world, we just disagree on the timing and the ramifications it will take for Europe to take the steps into unification. This will almost certainly be an interesting read one year from now (maybe even one month as you suggested), as who knows what the ensuing months have in store for us. Ultimately though, the most timeless aspect of these arguments have no doubt been the references to the wonderful movies of our generation, so let’s end it all with a classic…

rodney dangerfield caddyshack
“Hey everybody, we’re all gonna get laid!”

Mutualize European Debt: Round 10 – Time to Grow Up Dick

tom hanks in Big
Just like Tom Hanks, you’re a 10-year boy trapped in a man’s body

It’s cute that you think Europe will mutualize its debt next month, it really is. You probably also think Palestine will have its own territory by December, Iran will ally with the United States to bring peace in Syria, and that J.K. Rowling is secretly writing another Harry Potter book. Face it Dick, none of that is going to happen.

I standby my statement on scale, but I also agree that economics is a social science. not a natural science. The biggest difference between the two, in my mind, is the lack of predictability in social sciences. (Scientific formulas are wonderful because, regardless of scale, the outcome is always predictable. I will put money on your search to find otherwise). Take, for instance, my latest series on Austerity or Stimulus and which works better in a financial crisis. There is very strong evidence for both theories being the “right” method in fixing a broken economy, and there are both success and failure instances in execution in just the last 5 years. The fact that there are both real-life failure and success examples with each method proves that there are a lot of hole’s in current economic models. So I will not only go as far as to say that economics is an unpredictable bitch, but that even after a model has been chosen for execution, it is nearly impossible to prove its success/failure over the opposing model.

You say “now more than ever our Economic system is interconnected with our financial system” and the fact that you are correct in saying so should scare the shit out of you. Bankers are not civil servants, yet their actions have just as big an impact on our society as any other paid government official. That’s a huge problem in my mind. And I’m not saying the competency of a banker versus the competency of a government official is worse, in fact it’s probably not in a lot of cases. But the underlying goal of each profession is vastly different.

You also mention the Fed’s function of lowering the unemployment rate, and I know that this is a typical function of a central bank, however I fail to see how it can realistically accomplish this in a capitalistic economy. Perhaps you can enlighten me on how the Fed will create jobs for its citizens that are unemployed? It’s funny because the Fed blames Congress for not doing enough to lower unemployment and A LOT of pundits are blaming the Fed for not doing enough. I can’t see how the government could possibly be responsible for creating jobs, that’s the free markets role. I would simply say it’s the government’s responsibility to take care of people who are unemployed.

Obama’s Success Gaffe and Welfare Tied Together?

Obama success gaffe
Obama making it rain money!

Obama’s success gaffe of saying “you didn’t build that, somebody else made that happen” is still be talked about today. On the Obama side, his campaign says what he really meant to say was something like “America will give you the opportunity, you have to make the success.” Romney on the other hand says something like “that’s Obama’s ideology” and “Obama really believes people are not responsible for their enterprises” and so-on. This is a stupid argument, and here is why. They are both right, and they are both wrong. Businesses would not be successful without society and society would have nothing without business. It’s actually a very direct relationship that has been evolving for thousands of years. To politicize either side as an attack versus the other party is stupid.

So, let’s bring in Wall Street Journal op-ed by Arthur Brooks and how Mr. Brooks links the Obama ideology to the current state of welfare in the United States. First off, Mr. Brooks fails to impress me by not acknowledging that Obama is half right, and one single person cannot possibly make a business successful. Even in a successful one-person operation, you must have clients to be successful. But, I’ll forgive the lack of philosophical insight on that one. Brooks then shortly rants that Obama cock-blocks business with the stimulus bill that apparently only helped “politically connected” businesses and via Dodd-Frank by hurting small banks. This I find annoying because he provides no actual proof for either of these claims, so I’ll just call this an “empty calorie” argument. Then he makes the final stretch that the comments by the president contradict his current reform to welfare, where states can use a waiver for work requirements needed for recipients of welfare. The contradiction, I think, is that people on welfare don’t have to do anything anymore to collect while people who work for a living  don’t earn their successes? That doesn’t actually make sense to me. Furthermore, the current reform to welfare and the creation of the waiver is that so states can manage their own form of welfare-to-work programs and not have to rely on the federal government (way to not mention that, buddy). Fox News here actually does a good job at outlining the Romney complaint and the actual reform.

All in all, Mr. Brooks’s op-ed is a total waste of your time and brain cycles. Instead of reading it, watch this awesome video of the mars rover’s descent onto martian soil.

Stimulus or Austerity: Round 2 – The Battle Within

battle within via meditation
Trippy Shit

Recently, I posted the story of Estonia and their rebuilding after the latest global financial crisis through austerity measures. Even more recently, Arthur Laffer argues that austerity would have been way better for the United States and the Obama stimulus, as well as the actions by the Fed, have only worsened our recovery. His proof is a IMF chart that shows country’s that spent a lot also experienced decreases in GDP between 2007 – 2009. The problem with this epiphany is that country’s that didn’t spend a lot ALSO experienced significant drops in GDP, so I’m not sure this is the best proof in the argument of stimulus or austerity.

However, it’s still an argument worth having. First of all, I don’t believe GDP is the number 1 indicator of a healthy economy. Just like batting average is way overrated in baseball (just ask Billy Beane), GDP is overrated in economics. It simply takes into account the raw output of a nation, it doesn’t include the quality or efficiency of said output though. Second, non of the critics of the Obama stimulus, let alone any stimulus, ever ask the question “could things be worse right now had we not spent a lot of taxpayer money?”. The answer, we’ll never know. If you we create parallel universes and test it out, that would be fantastic. But we don’t. Economics is a bitch like that, we have models for different theories and the creators of each model will defend with their life these models, but they are nearly impossible to disprove.

Ultimately when it really comes down to stimulus or austerity, we’re divided along party lines in this country. Republicans fight for austerity while democrats fight for stimulus. This is a *gigantic* generalization, but in the pundit world it holds pretty true (after all, pundits are paid to be zombie loyalists to their party’s agenda). But what about the real world, which is the better solution? I hope you didn’t come here for an answer, because I have no idea. That’s why this is “The Battle Within”. I will continue to explore as more idiot pundits blabber on with their party’s focal points, perhaps we can find an answer together.

Financial News Sensationalism at its Best

mr bean hates sesnationalism
Mr. Bean knows what I’m talking about

Dear New York Times,

Yeah, we know some crazy shit went down today on major exchanges in New York. Some rogue computer application made A LOT of trades, creating mass confusion among *day traders* for about an hour. The culprit, Knight Capital, said they had some technology issues that will be thoroughly investigated. You, NYT, have turned this into an opportunity to say “…spreading turmoil across Wall Street and drawing renewed attention to the fragility and instability of the nation’s stock markets.” Only half of this statement is really true – day traders did suspect turmoil in the early hours. However, fragility and instability of the nation’s stock markets? Please. This is exactly why we have the SEC and federal regulations, which in time will do its job to clear this mess. The only real loser in the ordeal will be the idiots who tried to move on the excess volume, and of course Knight Capital who will surely face heavy lawsuits from its greedy clients. Cut the sensationalist shit, report the story AS IS, and be done with it.

Dear Wall Street Journal,

It’s unlucky that I read the New York Times article first, because afterwards I didn’t think it could get worse. I was wrong. The title alone, “When Will Retail Investors Call it Quits?”, is deserved of a five-across-the-face. Are you kidding me? You say that small investors, like “Grandpa”, don’t stand a chance when things like this happen. Why is that exactly? Is Grandpa buying and selling the same stocks everyday? Well, he might be, but if he is he deserves to lose his money. For proper, long-term investors, this makes no difference whatsoever, so stop acting like it does. Stocks, particularly equities, in the long run will be evaluated exactly where they should be by the overall market. I can’t even believe you found people stupid enough to say stuff like:

With events like the flash crash and this week’s stumble, Mr. Glasser adds, “you could buy and hold a company for 15 years and then have everything you’ve built up disappear in five minutes. No one can take that kind of risk anymore. There’s no such thing as a widows-and-orphans stock anymore.”

If your portfolio is designed in a matter where you can lose 15 years worth of investments on a day like today, you really deserve to be broke, because I’m guessing your portfolio only consists of Knight Capital. Other than Knight, all other stocks affected today will still be the same companies tomorrow, and their value will find their way back to where they should be.

This mess affects only day traders, plain and simple. And anyone who thinks they can make money day trading may as well play the slots, because there is no short-term rationality to the stock market. Never has been, never will be. And stop comparing this to the Flash Crash of 2010, a day where the Dow dropped more than 900 points. This incident lasted an hour, and the market closed almost exactly where it would have regardless of the morning’s snafu.

Technology Today: What the hell are these guys doing?

technology talk
lol – looks like a Palm device

Technology Today: Apple Buys into Twitter, Microsoft on Edge, and Google’s Tangent’s

Since technology and politics are so tightly intertwined (unless you are Dick Sharpe), let’s take a change of pace for today and talk about the latest technological trends and news. So, what happening with technology today.

First on the list, rumors surfaced late last week about Apple investing a bunch of cash into the profit-less fail-whale that is Twitter. After a quick and failed attempt at social networking by Apple, they have probably decided to invest in a successful tool rather than re-invent the wheel. Interestingly, for the first time in a long time, Microsoft beat Apple to the punch by investing a bunch of its cash in Facebook 5 years ago.

Question: Should these gigantic company’s really be investing in social this way? Perhaps I’ll say. The whole thing is slightly reminiscent of the browser wars from a decade ago, and in my opinion, every player than spent a lot of time and money investing in a browser came out as a loser (see Netscape). There is a slight difference with social networking, and that is that some of these firms actually make money, like Facebook and LinkedIn, so it’s not a total lost investment. And much like the browser, social networking is not going away any time soon, so it’s better to be invested in it, and not developing it youself is the safest investment you can make. If you think creating the social network is something big company’s like Apple and Microsoft should be doing, tell me – how is Google+ doing these days?

Second on the agenda, Microsoft. Poor, poor Microsoft. This cash juggernaut is playing with napalm on the edge of a 1000 foot cliff juggling hand-grenades. Just today, Microsoft announced the dismantling of Hotmail for a new email service called Outlook (get your desired email handle today, just in case it takes off). I played a bit with it, and it’s actually quite nice. It is a no ads, easy to use, and nicely configurable web email client. It’s a bit clunky with its other services, such as the calender which links to the old Hotmail site, but I assume that will change over in time. It also connects nicely with Facebook, as just about every new service needs to do these days.

Question: Will this really work for Microsoft? I say, who the hell knows. Much like Gotham believes in Harvey Dent, I still believe in Microsoft, but my confidence is starting to wear thin. The only reason I remain confident is because of the enterprise: Microsoft still dominates the enterprise with Windows, Office, Exchange, Active Directory, and even MSDN. The biggest problem Microsoft faces is its mixture of enterprise and consumers, and that’s something no tech giant has really been able to accomplish. I’d say if Microsoft can continue its stranglehold on the enterprise, introduce the Surface to enterprise clients, it may actually stand a chance in the future.

Third and finally, Google. The Warren Buffet of search if you will. Google last week expanded its unrelated-to-its-core-business to Internet and television service in the Kansas City area. For a one time fee of $300, you can get no-contract, free monthly Internet with a download rate of 5mbps and an upload rate of 1mbps. By modern metrics, that’s equivalent to a good cell phone signal, but you can’t beat the price. For $70 a month, you can get a 1gbps upload and download, which by any modern metrics of price to performance for an ISP, kicks more ass than the Easter Bunny and Santa Claus combined. The third tier of programming adds television into the mix, for $120 a month you get TV and Internet. Similar to a FiOS package, but without one of those outdated home-phones.

Question: What the hell is Google doing? Other than burning through its stock piles of cash, I have no idea, but I like it a lot. Any time a large player enters a market is has no business being in, they either turn out looking incredibly smart or incredibly stupid. I hope it’s not the latter, because I would really enjoy some gigabit Internet, which is not something Time Warner, Comcast, Cablevision, and even Verizon come close to. If this does nothing but get the other players to move to a faster Internet method, then I’m happy with that.