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Member since: 2003 before July 6th
Number of posts: 37,305

Journal Archives

Credit Suisse Bonus Bonds Lead Embrace of Relief Deals

When Credit Suisse Group AG (CSGN) handed out $750 million of bonuses this year in the form of bonds, generosity wasn’t the only motive.

The securities also shielded the Zurich-based bank from potential losses on $16 billion of derivatives trades -- and reduced its capital needs -- by shifting some of the risk onto employees, people with knowledge of the matter said. Instead of the company bearing the full brunt of any trades where customers failed to pay up, bonus recipients will share the cost.

The bonds are part of a resurgence in “regulatory capital relief transactions,” created by bankers looking to cut risk and build cushions against losses without diluting shareholders, selling assets or scaling back trades and loans. Some of Europe’s biggest banks including Barclays Plc (BARC), Standard Chartered Plc (STAN) and Commerzbank AG (CBK) are paying investors and employees interest rates as high as 15 percent in return for agreeing to share losses on at least $30 billion of assets.

“If somebody’s out there and willing to accept that risk, that’s beneficial, as long as it’s being used properly,” said Christopher Culp, a former Federal Reserve Bank of Chicago examiner who’s now managing director of Risk Management Consulting Services Inc. in Chicago. “Some regulatory transactions are designed to exploit inefficient regulations.”


Romney Hints At Radical Health Care Reform Plan To Replace ‘Obamacare’

Likely GOP presidential nominee Mitt Romney doesn’t like to talk about the key details of his own plan for reforming the country’s health care system — the plan he’d push as a replacement to “Obamacare.”

But if you string together what he has said publicly, you arrive at a plan that would be far more disruptive to the existing health care system than “Obamacare” would be if fully implemented.

That’s what the Los Angeles Tims did in a story that the White House missed and the Romney’s campaign declined to discuss with TPM. What the Times arrived at is a plan broadly similar to the widely derided blueprint John McCain ran on in 2008.

The underlying idea is to wipe out one of the main fiscal tent poles of the existing health care system, and use the resulting revenues to finance billions of dollars in subsidies to buy insurance on the existing private market. The result, according to experts, would likely be a significant increase in the number of uninsured Americans, in an economy where, for better or worse, employers would likely no longer provide their workers with health care coverage.

The fact that the government excludes employer-sponsored insurance from taxation is the reason most people get their insurance through their workplaces. Companies are also able, unlike most individuals, to pool risk, so that sick as well as healthy people can be covered without distorting premiums for everybody. The result is a mix of perverse incentives that keep people tied down to jobs they don’t like, and leave self-employed people and many others to fight it out in the under-regulated individual market, where insurers can deny people coverage based on their pre-existing medical conditions, rescind coverage from individuals who get sick and skew premiums based on everything from age to geography.


Charges shifted online opinion about George Zimmerman's guilt in Trayvon Martin case

Updated at 1:07 p.m. ET: As soon as George Zimmerman was formally charged last week in the shooting death of Florida teenager Trayvon Martin, public opinion began shifting online, and for much of this week, a slight majority of those expressing an opinion indicated they believed he probably wasn't guilty of violating Florida law, according to msnbc.com's computer-assisted analysis of 2.6 million Internet postings.

The findings are best read as a snapshot of how the lodging of charges influenced public opinion online. As it has several times since Feb. 26, opinion began shifting again after the bond hearing, and a small majority of Friday's commentary indicated a belief that Zimmerman is, in fact, guilty.

The msnbc.com analysis of online forum posts, Facebook posts and Twitter messages since the shooting indicates a striking willingness among commenters to strongly sympathize with the Martin family while at the same time remaining open to the possibility that Zimmerman — who claims he shot Martin in self-defense — may not have committed a crime.


Looks like the Zimmerman prosecution might have a bunch of holes

The key to the performance, though, was O'Mara's battle scene with investigator Dale Gilbreath. He got up and questioned Gilbreath so much about the affidavit that the investigator came off looking like a fool. First, Gilbreath admitted he wasn't aware of any inquiry to Trayvon Martin's father as to whether he could identify the voice heard screaming in the 911 calls as his son's. Gilbreath also admitted that he does not know who started the fight, does not have evidence to prove who started the fight and does not have evidence to contradict Zimmerman's statement that Martin started the fight. He also testified he does not have evidence to contradict Zimmerman's assertion that he turned back around to walk to his car. O'Mara also laid into Gilbreath over the use of "profiling" in the affidavit and the claim that Zimmerman "continued to follow" Martin even after he was told by a dispatcher not to. This claim that he "continued to follow" is key to the case, because it helps the prosecution prove he had an intent to kill, which is grounds for a 2nd degree murder conviction.


Having a wife who works also gives men a clue about real life.

Did Mitt ever have to grocery shop? Or rush home to pick up the kids after school? Or have to stay at home to take care of sick kids because Mom has used up all her leave?

Having a working Mom means Dad has to do more too.

If Zimmerman prevails in the SYG hearing the Martin family can't sue.

One area that sets Florida apart is the next step Zimmerman faces: With the police and prosecutor having weighed in, a judge will decide whether to dismiss the second-degree murder charge based on "stand your ground." If Zimmerman wins that stage, prosecutors can appeal.

But in another aspect peculiar to Florida, if the appeals court sides with Zimmerman, not only will he be forever immune from facing criminal charges for shooting the 17-year-old Martin — even if new evidence or witnesses surface — he could not even be sued for civil damages by Martin's family for wrongfully causing his death.


Instead of giving to charity Warren Buffet should pay his share through estate taxes.

Why is the US Treasury aka We the people not a good enough charity?

We need to cap that deduction.

Austerity, Social Unrest, And Europe's 'Lose-Lose' Proposition

The link between government spending cuts and social unrest is highly non-linear and extremely troublesome. We first noted the must-read quantification of the relationship between so-called CHAOS of social unrest and spending cuts back in early January and this brief lecture reiterates some of the frightening conclusions. Critically, small spending cuts impact social unrest in very marginal ways but once the cuts begin to rise to 2-3% of GDP then the probability of considerable and painful social unrest becomes much higher. As Hans-Joachim Voth points out in this INET lecture, analogizing between a burning cigarette as a catalyst for a forest fire in an arid landscape, he suggests the rapid build up of combustible material caused by austerity (youth unemployment in Spain perhaps?) could be inflamed by a seemingly small catalyst that would otherwise be ignored in general (a poor immigrant being shot or motorist murdered in a bad part of town) when spending cuts are at the extremes we see across Europe currently. The frightening reality of the non-economic, real social costs of the Troika's handiwork look set to be tested going forward as the link between periods of very heavy unrest (clusters of rioting for instance) and austerity is very strong. His findings on the post-chaos fiscal policies, (what does the government do once social unrest explodes) are perhaps more worrisome in that governments will immediately withdraw from austerity patterns which leads to some tough game-theoretical perspectives on the endgame in Europe in a 'lose-lose proposition' for austerity as the uncertainty shock of these events cause dramatic drops in Industrial Production.


JPMorgan recently noted this study:

The authors tested to see if results varied with ethnic fragmentation, inflation, penetration of mass media and the quality of government institutions; they did not. Results are also consistent across time, covering interwar and postwar periods.
The independent variable that did result in more unrest: higher levels of government debt in the first place.
Compounding the problem is the way some decisions are being taken, which may reinforce perceptions of a "democratic deficit" at the EU level, an issue highlighted by Germany’s Constitutional Court. It remains to be seen if Europe can sustain cohesion around its path of most resistance. One sign of rising tensions: the following (staggering) comment by the head of the Bank of France: "A downgrade does not appear to me to be justified when considering economic fundamentals," Noyer said. "Otherwise, they should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping." At a time of increasing budgetary pressures and declining growth, I suppose there are limits to European solidarity.


The "Buffett Rule" In Perspective

As a reminder, as we pointed out yesterday, the US just posted the largest ever March budget deficit in history of nearly $200 billion, which followed the single largest monthly budget deficit on record of $232 billion. Keep those numbers in mind, because they frame, in a very, very, very aggressive case, the bottom and top range of what the entire Buffett Rule would offset in terms of gained revenue. As rick explains, assuming one taxes an upper estimate of those eligible for the Buffett Rule (indicatively 225,000 people but realistically far less) an incremental $1 million, the offset would be $225 billion over the proposal's life. Which is not enough to even plug one month of US deficit. And that is what all the posturing is about.

Now don't get us wrong: America has a record deficit problem, and it will require both revenue and spending decisions to fix it, but in isolation, neither will make a dent, and with the government as bloated as it is, far more spending cuts will be required to match any revenue increases.

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