Carol of the Bells - Computer Controlled Christmas Lights from Richard Holdman on Vimeo.
- Possibly related posts:
- What Is Happening to Me?
- Made With Love
- The Great Cookie Experiment
A Little Christmas Cheese
What would Christmas be without some totally crazy and cheesy video? I don't care who you are, this is cool.
Carol of the Bells - Computer Controlled Christmas Lights from Richard Holdman on Vimeo.
Carol of the Bells - Computer Controlled Christmas Lights from Richard Holdman on Vimeo.
There's No Place Like Tax Havens
Any intelligent person or company should do whatever they can to minimize or avoid their tax burdens. (Notice I didn't say evade taxes.) Tax havens can be a useful way to protect personal or corporate wealth by legally reducing tax liabilities.
But the subject of tax havens is stirring considerable debate globally, as governments around the world are enacting programs to ramp up public spending, support failing industries, nationalize companies, and guarantee bank deposits - all these interventions require additional fiscal fuel. As governments require more money, tax havens are looking like great places to pilfer from.
According to the Wall Street Journal, the incoming administration is expected to come down hard on tax havens like Bermuda, where there is no tax treaty with the U.S. A handful of companies have already moved to Switzerland, which does have a tax treaty with the U.S. Plans to make offshore accounts more difficult to obtain is nothing more than protectionism and greed on the part of legislators. Furthermore, there is little evidence that fraud in conjunction with offshore accounts is any worse than fraud within the country. Therefore, there is no extraordinary reason to punish tax havens disproportionately, other than to take advantage of obtaining protected wealth.
Even the Pope has weighed in on global policy-making, citing the existence of tax havens as the main reason for the global economic crisis. The Pope is a good man, but an economist he is not. As a Catholic and a libertarian, it is troubling to see the Pope's misguided opinions lead him to recommend actions that could destroy the ability for people worldwide to legally maintain control over their private property. From a moral point of view, destroying the protections people legally and rightfully deserve, in particular when they are trying to keep their wealth from being seized by corrupt governments around the world, is wrong.
I think the parallel to maintaining sanctity of free speech is a good one. If someone abuses free speech by threatening another person, or by spreading libel, they should have their right to such speech removed. However, isolated cases of abuse are not grounds for abolishing free speech for everyone. Similarly, isolated cases of tax abuse deserve punishment, however, tax havens provide more benefit than they do detriment.
If you are unfamiliar with tax havens, I highly recommend this brief yet informative video series (I've embedded the video at the end of this post) by Dan Mitchell of the CATO Institute.
The Economic Case for Tax Havens
The Moral Case for Tax Havens
Tax Havens: Myths vs. Facts
He clarifies what tax havens are, their benefits, and highlights some of the current debate surrounding them. I found the video The Moral Case for Tax Havens to offer an incredibly compelling argument, as tax havens have been instrumental in allowing citizens and businesses in countries with corrupt governments or prohibitively high tax rates to maintain some semblance of control over their private property and move towards financial freedom. To take away tax havens would destroy many people's chances of ever finding prosperity.
I hope you take the time to learn the truth about this important topic, and how it could impact you and your business in the future.
The Economic Case for Tax Havens
The Moral Case for Tax Havens
Tax Havens: Myths vs. Facts
But the subject of tax havens is stirring considerable debate globally, as governments around the world are enacting programs to ramp up public spending, support failing industries, nationalize companies, and guarantee bank deposits - all these interventions require additional fiscal fuel. As governments require more money, tax havens are looking like great places to pilfer from.
According to the Wall Street Journal, the incoming administration is expected to come down hard on tax havens like Bermuda, where there is no tax treaty with the U.S. A handful of companies have already moved to Switzerland, which does have a tax treaty with the U.S. Plans to make offshore accounts more difficult to obtain is nothing more than protectionism and greed on the part of legislators. Furthermore, there is little evidence that fraud in conjunction with offshore accounts is any worse than fraud within the country. Therefore, there is no extraordinary reason to punish tax havens disproportionately, other than to take advantage of obtaining protected wealth.
Even the Pope has weighed in on global policy-making, citing the existence of tax havens as the main reason for the global economic crisis. The Pope is a good man, but an economist he is not. As a Catholic and a libertarian, it is troubling to see the Pope's misguided opinions lead him to recommend actions that could destroy the ability for people worldwide to legally maintain control over their private property. From a moral point of view, destroying the protections people legally and rightfully deserve, in particular when they are trying to keep their wealth from being seized by corrupt governments around the world, is wrong.
I think the parallel to maintaining sanctity of free speech is a good one. If someone abuses free speech by threatening another person, or by spreading libel, they should have their right to such speech removed. However, isolated cases of abuse are not grounds for abolishing free speech for everyone. Similarly, isolated cases of tax abuse deserve punishment, however, tax havens provide more benefit than they do detriment.
If you are unfamiliar with tax havens, I highly recommend this brief yet informative video series (I've embedded the video at the end of this post) by Dan Mitchell of the CATO Institute.
The Economic Case for Tax Havens
The Moral Case for Tax Havens
Tax Havens: Myths vs. Facts
He clarifies what tax havens are, their benefits, and highlights some of the current debate surrounding them. I found the video The Moral Case for Tax Havens to offer an incredibly compelling argument, as tax havens have been instrumental in allowing citizens and businesses in countries with corrupt governments or prohibitively high tax rates to maintain some semblance of control over their private property and move towards financial freedom. To take away tax havens would destroy many people's chances of ever finding prosperity.
I hope you take the time to learn the truth about this important topic, and how it could impact you and your business in the future.
The Economic Case for Tax Havens
The Moral Case for Tax Havens
Tax Havens: Myths vs. Facts
Tiny or Not?
I have a strange obsession with all things tiny. I call my dog Tiny. I want a tiny bathroom sink. And these photographs of tilt-shift photography can make miniatures out of real-life scenes. Amazing!
Photo by Vincent LaForet
Photo by www.cityshrinker.com
Photo by Vincent LaForet
Photo by www.tiltshiftphotography.com
Photo by www.cityshrinker.com
CATO Unbound: What's the Big Idea?
CATO Unbound is my newest guilty pleasure. Or maybe I should say, geeky pleasure. Becoming a full-time student of finance and economics has turned me into a full-time geek. It’s Saturday night – I’m wearing an abhorrent outfit that is half-pajamas, half-business casual from teaching earlier in the day. My mascara is smudged and flaking, my hair tousled, glasses falling off my face, my right shoulder cramping and yet I Google community reinvestment act and release a satisfied laugh when I find those spreadsheets I was looking for.
For anyone interested in the exchange of big ideas surrounding current events, CATO Unbound releases a monthly topic for discussion, then seeks out knowledgeable contributors to subject their analyses to debate via blog. This month’s topic: What Happened? Anatomies of the Financial Crisis is just my cup of tea – anything that combines blogging and economics had me at hello.
My favorite of the economist’s commentary was, predictably, Lawrence H. White’s, an F.A. Hayek Professor of Economic History at the University of Missouri-St. Louis.
White says, “The housing-finance boom and bust are not the results of a laissez-faire monetary and financial system. We didn’t have one.” Thank you Professor White. People confuse enabling markets that wouldn’t otherwise exist in their current state with capitalism.
The now-soured phrase “unfettered markets” does little to reveal the sources of unfettered-ness. Government deregulation coupled with private profit-seeking are the Bonnie and Clyde of this crisis – but few bother to mention neither of these activities are laissez-faire pursuits in and of themselves. Quality matters. Therefore, not all deregulation and profit-seeking is created equal. Similarly, neither is all regulation created equal. Furthermore, when any of the above activities enables fraud – those involved deserve punishment, not taxpayer support or continued public service as legislators.
I have been a lonely cheerleader for laissez-faire capitalism since the crisis began, but I do not believe capitalism is aided in any way when government-sponsored activities masquerading as free market initiatives create false markets (and substantial profits) for the purposes of commodity egalitarianism. By encouraging affordable housing to those who shouldn’t yet own homes or promoting mortgage and other asset-backed security markets to enhance liquidity, dooming them to explode with the bloat of cheap “riskless" supply, the government has done more harm in the name of social justice than achieving any kind of equality other than making everyone more equally poor. I'm also under the assumption these markets would have emerged on their own if demanded or necessary. I believe efficient markets exist when there is natural supply, demand, and competition.
William K. Black’s addition was significant and informative, though littered with emphatic quotation marks and italics - leaving the reader to imagine if the text were spoken aloud, its performance would be prone to unpredictable outbursts. I did appreciate his links and references to warnings from a few years ago. It makes one wonder, despite legitimate calls of “Wolf!”, no one did a thing about the bogus mortgage markets. Black focused on demonizing greedy CEOs, admonishing mortgage and investment banks involved in fraudulent loan origination, and indicated he disagreed with White’s thesis. But perhaps it is because White so succinctly offered a solution to Black’s ire, “The remedy for private business mistakes is bankruptcy.”
I felt Black focused too heavily on primary mortgage market fraud, which explains only a fraction of the problem in my opinion.
Black exempts the government, “No regulation forced any lender to make a bad loan.” Government force is a topic that requires its own discussion. But, I’d argue that coercion was a critical factor. For example, I know there are many who doubt claims that the government encouraged bad loans via the Community Reinvestment Act (CRA), but a visit to the Federal Financial Institutions Examination Council (FFIEC) CRA website reveals downloadable spreadsheets of underserved areas lenders should focus their efforts in, and the scoring and examination requirements they should aim to pass if they hope to maintain favorable depository requirements and business practices such as mergers and acquisitions.
In other words, unless they did what the government said, they could face potentially crippling business restrictions – but of course, they still had the choice not to comply. Any lending institution monitored by the FFIEC would have been foolish not to lend to undeserving, er, I mean, underserved populations.
It seems Professor White agrees, “There is no doubt that private miscalculation and imprudence made matters worse for more than a few lending institutions and individual borrowers. (One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses.) Such mistakes help to explain which firms have run into the most trouble. But to explain industry-wide errors we need to identify policy distortions capable of having industry-wide effects. The actual causes of our financial troubles were unusual monetary policy moves and novel federal regulatory interventions. Regulatory distortions intensified in the 1990s. Poorly chosen public policies distorted interest rates and asset prices, diverted loanable funds into the wrong investments, and twisted normally robust financial institutions into unsustainable positions…We can group most of the unfortunate policies under two main headings: (1) Federal Reserve credit expansion that provided the means for unsustainable mortgage financing, and (2) mandates and subsidies to write riskier mortgages.”
University of Chicago Economist and Professor Casey B. Mulligan took an arm’s length approach, which I appreciated, “All of the hypotheses have a common chain of logic: something caused a massive housing boom between the years 2000-2006.” He followed his theme of dissecting causes between “tastes, technology, and public policy.” For anyone interested in a technical and unemotional analysis, I though his essay was exemplary. He indicates that blame has been placed prior to any formal examination, a grave mistake, “Unfortunately, October and November of 2008 witnessed much confident commentary as to the causes of the crisis, without much open, public application of the economic methodology.”
Each author was limited by topic, time and space constraints for their analyses, but I was disappointed more than a few critical areas were left without comment:
1. While government expansion of the secondary mortgage market and the involvement of Freddie and Fannie emerged primarily in the 70’s through the 90’s, their inception following the Great Depression looks remarkably like the actions we are now taking to remedy the same problems. The vicious-cycle nature of intervention is pervasive. There were mentions of Freddie and Fannie, but not the impetus for their creation: government support of a secondary mortgage market based on commodity egalitarianism; creating excess and artificial supply and demand. I believe this action resulted in blowing up this secondary market beyond what it may have been had natural capitalistic processes been allowed to function. I wonder if the secondary market would have emerged as early and with the breadth it has grown to without government creation and repeated intervention.
2. The baffling logic of basing financial modeling of asset-backed securities on the risk of pre-payment, neglecting the obvious possibility of non-payment. Even defaults were conveniently renamed involuntary pre-payments under the assumption that funds would be forcibly procured from the defaulter or the security's insurance provider to cover the loan amount. Are these insufficient though sophisticated mathematical models the pinnacle achievement of laissez-faire economics? I don't believe so, nor can I assume any proponent of free market ideas that should be taken seriously would argue to the contrary - but I'd be interested to know more about this topic. In any case, companies who illegitimately staked their financial futures on faulty models should be toppled, not rewarded with taxpayer money.
3. A related topic that escaped discussion was the sale of assets to bankruptcy-remote Special Purpose Vehicles, creation of asset-backed securities, and the fantasy-based rating systems devised by rating agencies. While I understand the underlying asset (bad loans and receivables) caused much of the demise of the system, I think highlighting some of the features that greatly amplified their effects is critical to this conversation.
I found this passage from Fabozzi and Modigliani’s Capital Markets: Institutions and Instruments to be shockingly informative, “Suppose [the hypothetical SPV holding receivables of its parent corporation, the hypothetical XYZ Corp.] SPV Corp. sells securities backed by the installment sales receivables. Now creditors evaluate the credit risk associated with collecting the receivables independent of the credit rating of XYZ Corp. What credit rating will be received for the securities issued by SPV Corp.? Whatever SPV Corp. wants the rating to be! It may seem strange that the issuer (SPV Corp.) can get any rating it wants, but that is the case.”
Rating agencies colluding with businesses offering credit enhancement criteria to achieve specific ratings was/is a huge problem. Huge. Not even in a laissez-faire system does this technique make any sense, nor should this be condoned. “Thus, XYZ Corp., which is BBB rated, can obtain funding using its installment sales receivables as collateral to obtain a better credit rating for the securities issued. In fact, with enough credit enhancement it can issue a AAA-rated security.”
In the end, I agree with White’s hypothesis, “No matter how painful the adjustment process, delaying it only delays the economy’s recovery.”
A fourth installment is going to be released on Monday – so I wrote this post early in hopes readers would head to CATO Unbound, read all four contributions and comment here, respond with their own posts, and at Unbound for a lively discussion on this critical topic!
For anyone interested in the exchange of big ideas surrounding current events, CATO Unbound releases a monthly topic for discussion, then seeks out knowledgeable contributors to subject their analyses to debate via blog. This month’s topic: What Happened? Anatomies of the Financial Crisis is just my cup of tea – anything that combines blogging and economics had me at hello.
My favorite of the economist’s commentary was, predictably, Lawrence H. White’s, an F.A. Hayek Professor of Economic History at the University of Missouri-St. Louis.
White says, “The housing-finance boom and bust are not the results of a laissez-faire monetary and financial system. We didn’t have one.” Thank you Professor White. People confuse enabling markets that wouldn’t otherwise exist in their current state with capitalism.
The now-soured phrase “unfettered markets” does little to reveal the sources of unfettered-ness. Government deregulation coupled with private profit-seeking are the Bonnie and Clyde of this crisis – but few bother to mention neither of these activities are laissez-faire pursuits in and of themselves. Quality matters. Therefore, not all deregulation and profit-seeking is created equal. Similarly, neither is all regulation created equal. Furthermore, when any of the above activities enables fraud – those involved deserve punishment, not taxpayer support or continued public service as legislators.
I have been a lonely cheerleader for laissez-faire capitalism since the crisis began, but I do not believe capitalism is aided in any way when government-sponsored activities masquerading as free market initiatives create false markets (and substantial profits) for the purposes of commodity egalitarianism. By encouraging affordable housing to those who shouldn’t yet own homes or promoting mortgage and other asset-backed security markets to enhance liquidity, dooming them to explode with the bloat of cheap “riskless" supply, the government has done more harm in the name of social justice than achieving any kind of equality other than making everyone more equally poor. I'm also under the assumption these markets would have emerged on their own if demanded or necessary. I believe efficient markets exist when there is natural supply, demand, and competition.
William K. Black’s addition was significant and informative, though littered with emphatic quotation marks and italics - leaving the reader to imagine if the text were spoken aloud, its performance would be prone to unpredictable outbursts. I did appreciate his links and references to warnings from a few years ago. It makes one wonder, despite legitimate calls of “Wolf!”, no one did a thing about the bogus mortgage markets. Black focused on demonizing greedy CEOs, admonishing mortgage and investment banks involved in fraudulent loan origination, and indicated he disagreed with White’s thesis. But perhaps it is because White so succinctly offered a solution to Black’s ire, “The remedy for private business mistakes is bankruptcy.”
I felt Black focused too heavily on primary mortgage market fraud, which explains only a fraction of the problem in my opinion.
Black exempts the government, “No regulation forced any lender to make a bad loan.” Government force is a topic that requires its own discussion. But, I’d argue that coercion was a critical factor. For example, I know there are many who doubt claims that the government encouraged bad loans via the Community Reinvestment Act (CRA), but a visit to the Federal Financial Institutions Examination Council (FFIEC) CRA website reveals downloadable spreadsheets of underserved areas lenders should focus their efforts in, and the scoring and examination requirements they should aim to pass if they hope to maintain favorable depository requirements and business practices such as mergers and acquisitions.
In other words, unless they did what the government said, they could face potentially crippling business restrictions – but of course, they still had the choice not to comply. Any lending institution monitored by the FFIEC would have been foolish not to lend to undeserving, er, I mean, underserved populations.
It seems Professor White agrees, “There is no doubt that private miscalculation and imprudence made matters worse for more than a few lending institutions and individual borrowers. (One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses.) Such mistakes help to explain which firms have run into the most trouble. But to explain industry-wide errors we need to identify policy distortions capable of having industry-wide effects. The actual causes of our financial troubles were unusual monetary policy moves and novel federal regulatory interventions. Regulatory distortions intensified in the 1990s. Poorly chosen public policies distorted interest rates and asset prices, diverted loanable funds into the wrong investments, and twisted normally robust financial institutions into unsustainable positions…We can group most of the unfortunate policies under two main headings: (1) Federal Reserve credit expansion that provided the means for unsustainable mortgage financing, and (2) mandates and subsidies to write riskier mortgages.”
University of Chicago Economist and Professor Casey B. Mulligan took an arm’s length approach, which I appreciated, “All of the hypotheses have a common chain of logic: something caused a massive housing boom between the years 2000-2006.” He followed his theme of dissecting causes between “tastes, technology, and public policy.” For anyone interested in a technical and unemotional analysis, I though his essay was exemplary. He indicates that blame has been placed prior to any formal examination, a grave mistake, “Unfortunately, October and November of 2008 witnessed much confident commentary as to the causes of the crisis, without much open, public application of the economic methodology.”
Each author was limited by topic, time and space constraints for their analyses, but I was disappointed more than a few critical areas were left without comment:
1. While government expansion of the secondary mortgage market and the involvement of Freddie and Fannie emerged primarily in the 70’s through the 90’s, their inception following the Great Depression looks remarkably like the actions we are now taking to remedy the same problems. The vicious-cycle nature of intervention is pervasive. There were mentions of Freddie and Fannie, but not the impetus for their creation: government support of a secondary mortgage market based on commodity egalitarianism; creating excess and artificial supply and demand. I believe this action resulted in blowing up this secondary market beyond what it may have been had natural capitalistic processes been allowed to function. I wonder if the secondary market would have emerged as early and with the breadth it has grown to without government creation and repeated intervention.
2. The baffling logic of basing financial modeling of asset-backed securities on the risk of pre-payment, neglecting the obvious possibility of non-payment. Even defaults were conveniently renamed involuntary pre-payments under the assumption that funds would be forcibly procured from the defaulter or the security's insurance provider to cover the loan amount. Are these insufficient though sophisticated mathematical models the pinnacle achievement of laissez-faire economics? I don't believe so, nor can I assume any proponent of free market ideas that should be taken seriously would argue to the contrary - but I'd be interested to know more about this topic. In any case, companies who illegitimately staked their financial futures on faulty models should be toppled, not rewarded with taxpayer money.
3. A related topic that escaped discussion was the sale of assets to bankruptcy-remote Special Purpose Vehicles, creation of asset-backed securities, and the fantasy-based rating systems devised by rating agencies. While I understand the underlying asset (bad loans and receivables) caused much of the demise of the system, I think highlighting some of the features that greatly amplified their effects is critical to this conversation.
I found this passage from Fabozzi and Modigliani’s Capital Markets: Institutions and Instruments to be shockingly informative, “Suppose [the hypothetical SPV holding receivables of its parent corporation, the hypothetical XYZ Corp.] SPV Corp. sells securities backed by the installment sales receivables. Now creditors evaluate the credit risk associated with collecting the receivables independent of the credit rating of XYZ Corp. What credit rating will be received for the securities issued by SPV Corp.? Whatever SPV Corp. wants the rating to be! It may seem strange that the issuer (SPV Corp.) can get any rating it wants, but that is the case.”
Rating agencies colluding with businesses offering credit enhancement criteria to achieve specific ratings was/is a huge problem. Huge. Not even in a laissez-faire system does this technique make any sense, nor should this be condoned. “Thus, XYZ Corp., which is BBB rated, can obtain funding using its installment sales receivables as collateral to obtain a better credit rating for the securities issued. In fact, with enough credit enhancement it can issue a AAA-rated security.”
In the end, I agree with White’s hypothesis, “No matter how painful the adjustment process, delaying it only delays the economy’s recovery.”
A fourth installment is going to be released on Monday – so I wrote this post early in hopes readers would head to CATO Unbound, read all four contributions and comment here, respond with their own posts, and at Unbound for a lively discussion on this critical topic!
Eye on Michigan: Follow-Up
Last week I provided a review of what I considered some of Michigan's leadership failures in regards to the economy. I stand by my opinions, however, I did a bit more research on Michigan's fiscal policies, and was pleased to see the following item:
The Michigan Business Tax Surcharge Will Be Phased Out Over the Next 8 Years.
While the surcharge was ludicrous to begin with, and 8 years is a long time to wait to repeal this piece of unfavorable tax legislation, it is a step in the right direction.
Also, some results from an interesting survey from the Kalamazoo Chamber of Commerce -business owners indicated the way that the tax changes enacted last year will be impacting them:
• More than 60 percent of the 690 business responding said the MBT is more complicated than its predecessor, the Single Business Tax:
• 77 percent said they are now worse off than under the SBT
• 31 percent said they would delay or cancel wage and salary increases
• 24 percent said they would delay or cancel capital improvements
• 15 percent would move an expansion or cancel a location in Michigan
• 14 percent would lay off employees.
Business don't want to take these kinds of actions, but when the tax environment produces changes that are not easily absorbed by their business plans, they are forced to modify. We should observe that businesses are not never-ending stream of cash flows impervious to statutory changes in tax code.
The Michigan Business Tax Surcharge Will Be Phased Out Over the Next 8 Years.
While the surcharge was ludicrous to begin with, and 8 years is a long time to wait to repeal this piece of unfavorable tax legislation, it is a step in the right direction.
Also, some results from an interesting survey from the Kalamazoo Chamber of Commerce -business owners indicated the way that the tax changes enacted last year will be impacting them:
• More than 60 percent of the 690 business responding said the MBT is more complicated than its predecessor, the Single Business Tax:
• 77 percent said they are now worse off than under the SBT
• 31 percent said they would delay or cancel wage and salary increases
• 24 percent said they would delay or cancel capital improvements
• 15 percent would move an expansion or cancel a location in Michigan
• 14 percent would lay off employees.
Business don't want to take these kinds of actions, but when the tax environment produces changes that are not easily absorbed by their business plans, they are forced to modify. We should observe that businesses are not never-ending stream of cash flows impervious to statutory changes in tax code.
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