Trade Insights, and More Thoughts on Corporate Taxes

The House Financial Servcies Committee is hearing testimony from Fed chairman Bernanke this morning. Committee chair Barney Frank, in opening remarks, acknowledged serious concerns over trade policy, and made it clear that ongoing commitment to free trade will require a compromise on social safety net issues. He explicitly mentioned health care, and made the reasonable sounding argument that the risks and benefits of trade need to be more fairly shared. Of course, the measure of fairness, and his stated objective of "trade, properly conducted", are a bit more worrisome, simply because the concepts need to be more clearly defined, and at the moment, a single party wields almost exclusive power to do so. Recall the power that the prior administration had over concepts such as ‘victory’ and ‘progress’ prior to the 2006 Congressional elections!

Still, as we noted recently, Frank’s statesmanship seems to have taken a notable leap forward since the start of this session, and he seems to have some good insights into the financial crisis (CRA and GSE’s excluded), and a very good grasp of where the regulatory gaps exist and how they ought to be filled. If he’s listening, we would simply point to some credible research by CEA chairwoman Romer that the burden of corporate taxes seems to fall disproportionately on the incomes of workers. We believe that that factor is the most compelling explanation for some Americans falling behind as global trade has expanded. If rising employment and incomes are the political objective, then the state of the corporate tax code – indeed, the entire U.S. tax code – should be the focus.

There are some aspects of our argument that I want to emphasize, lest we be called ‘Economic Flat Earthers‘. First, the U.S. corporate tax burden means little in isolation – it is the relative burden that determines the marginal impact on capital flows, investment, and ultimately, production and employment. Outside of 2003 and 2004, the trend has been disturbing:

In 2006, in the wake of the temporarily lower 2003-2004 corporate tax burden, the New York Times reported a fact that would undoubtedly surprise the hurlers of ‘flat earth’ and ‘wing nut‘ aspersions: "Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year. The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003…" That outcome certainly upended the pessimistic forecasts of the CBPP in 2003. Granted, that increase was accelerated by the low but temporary rate on repatriated profits. However, we predict that a more competitive corporate tax code would have a very favorable effect on the overall production of public revenues, especially when this country’s other advantages are taken into account. We have a lot to trade on. We shouldn’t allow our tax code to prevent us from capitalizing on them.

A common rebuttal to this argument is that the effective tax rate is the one that matters, and that on that metric, the U.S. is one of the least burdensome tax authorities. Yes, effective and marginal tax rates are very different, and are both important, but let’s think this through. First, there is far less disagreement over microeconomic theory than there is over macroeconomics, meaning that marginalism is alive and well in most economic schools of thought, and that precious few economists would argue against the idea that when it comes to decision making, everything happens at the margin. Second, tax rules vary widely between countries, and the U.S. has some of the most complex ones, as well as a fairly bizarre bracket structure. This only worsens the confusion and uncertainty associated with predicting the tax effects of any business decision, whether marginal or effective, and it does nothing positive for the overall level of investment. Third, the effective tax rate argument ignores the opportunity costs imposed on a country by its corporate tax code. For example, many ventures, especially those that hire less skilled employees, do not begin until certain tax credits, subsidies, and/or other guarantees have been successfully negotiated. One way to look at this is that if all business investment were domestic and proceeded without consideration of the tax code, the effective rate would begin to converge to the marginal rate(s). Another perspective is that if the marginal statutory rate were more competitive, more domestic investment would occur; indeed, one could even hypothesize that the gap between the marginal and effective corporate tax rates is itself an indication of the opportunity costs imposed. Lastly, opponents often overlook entirely the aggregate costs imposed by all business related taxes (e.g., payroll and a variety of state and local taxes) and regulations that dictate the allocation of a significant share of resources. Left leaning critics should be mindful of the risk that these kinds of barriers are more beneficial than harmful to ‘big business’, as they tend to limit competition.

This stuff isn’t rocket science, folks, and it’s far too important to be subjected to either the airy claims of cheerleaders or the caustic jeers of opposing sycophants. We’re fiercely independent, and not trying to pick a political fight with anyone. In fact, one of the most important things we’ve learned, via ‘wing nut’ extraordinaire Jude Wanniski, is that our political system is designed to produce optimal outcomes. Thus, the way we see it, Democrats control the Executive and Legislative branches precisely because that was the best of all possible outcomes as of November 2008. We’re just throwing in our citizen’s two cents on an issue that we think is extremely pressing, widely overlooked, and poorly framed by most of its advocates, because we think it would have a broad, positive, and significant impact on our current economic malaise.

URLs:

http://rickwrites.blogspot.com/2009/02/flat-earth-economics-corporate-income.html 

http://www.nytimes.com/2006/07/09/washington/09econ.html 

http://www.symmetrycapital.net/idlespeculation/2007110701.pdf 

http://www.cbpp.org/10-16-03tax.htm 

http://mediamatters.org/items/200902030003 

http://www.polyconomics.com/jw-bio.htm 

Phil Gramm, Paul Volcker on Crisis

Two elder statesmen weigh in on the financial crisis, Phil Gramm, who helped craft the deregulatory Gramm-Leach-Bliley Act of 1999, and Paul Volcker, former Federal Reserve chairman and current Obama economic advisor. Gramm blames Congressional mandates or social engineering for the most part, while Volcker blames financial engineers (an interesting article in Wired magazine also illuminates the role of financial engineers).

Gramm:

The results [of the Community Reinvestment Act]? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

…The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.

Volcker:

This phenomenon can be traced back at least five or six years. We had, at that time, a major underlying imbalance in the world economy. The American proclivity to consume was in full force. Our consumption rate was about 5% higher, relative to our GNP or what our production normally is. Our spending – consumption, investment, government — was running about 5% or more above our production, even though we were more or less at full employment.

You had the opposite in China and Asia, generally, where the Chinese were consuming maybe 40% of their GNP – we consumed 70% of our GNP. They had a lot of surplus dollars because they had a lot of exports. Their exports were feeding our consumption and they were financing it very nicely with very cheap money. That was a very convenient but unsustainable situation. The money was so easy, funds were so easily available that there was, in effect, a kind of incentive to finding ways to spend it.

When we finished with the ordinary ways of spending it – with the help of our new profession of financial engineering – we developed ways of making weaker and weaker mortgages. The biggest investment in the economy was residential housing. And we developed a technique of manufacturing class D mortgages but putting them in packages which the financial engineers said were class A.

So there was an enormous incentive to take advantage of this bit of arbitrage – cheap money, poor mortgages but saleable mortgages. A lot of people made money through this process. I won’t go over all the details, but you had then a normal business cycle on top of it. It was a period of enthusiasm. Everybody was feeling exuberant. They wanted to invest and spend.

You had a bubble first in the stock market and then in the housing market. You had a big increase in housing prices in the United States, held up by these new mortgages. It was true in other countries as well, but particularly in the United States. It was all fine for a while, but of course, eventually, the house prices levelled off and began going down. At some point people began getting nervous and the whole process stopped because they realized these mortgages were no good.

You might ask how it went on as long as it did. The grading agencies didn’t do their job and the banks didn’t do their job and the accountants went haywire. I have my own take on this. There were two things that were particularly contributory and very simple. Compensation practices had gotten totally out of hand and spurred financial people to aim for a lot of short-term money without worrying about the eventual consequences. And then there was this obscure financial engineering that none of them understood, but all their mathematical experts were telling them to trust. These two things carried us over the brink.

They both make some good points, and the full articles are worth a read, but they ignore the role that leverage played in destroying financial capital. In our 2008 postmortem, we identified changes to the SEC’s Consolidated Supervised Entity program in 2004 as a primary culprit, as it allowed some large banks to increase their financial leverage substantially, which in turn helped fuel the CDS market and AIG’s massive levering up, among other things. When those measures were reversed, ex-SEC Chairman Christopher Cox stated that it was a gap in regulatory oversight that resulted from Gramm-Leach-Bliley, which raises at least one objection to the defense put forth by Sen. Gramm.

URLs:

http://online.wsj.com/article/SB123509667125829243.html 

http://ednews.org/articles/34263/1/VOLCKER-SPEECH-IN-CANADA/Page1.html 

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all 

http://www.symmetrycapital.net/idlespeculation/20090209.pdf 

http://www.sec.gov/news/press/2008/2008-230.htm 

Idle Speculator Piece: Now What???

We’ve posted a new Idle Speculator piece on the recent week long stock market thrashing, and some potential contributing factors. We still believe that the safest and surest way out of this crisis, beyond a smart strategy for supporting recapitalization of the financial sector, is to optimize the policy mix. Unfortunately, that idea is getting precious little play at the moment, seemingly because so few policymakers understand it; instead, the political logjam still centers around philosophical differences over the ownership of income and allocation of capital.

The basic idea behind an optimal policy mix is that the federal government must ease up on the private sector thru smarter taxes and regulations, so that (1) the economy can return to a growth path, and (2) the Federal Reserve can put its focus where it belongs, on keeping the purchasing power of the dollar reasonably stable, and the interests of debtors and creditors in balance. Until something like that is on the horizon, broad stock markets will have to fall a good bit further for us to become bullish on them for anything beyond a trading range bounce. To reiterate, we do see a historic number of compelling values lying around – but the broad U.S. stock markets, although more attractively priced than a year ago, are still not among them, even now.

http://symmetrycapital.net/idlespeculation/20090224_What_Now.pdf 

The Bradley Plan

Former congressman and presidential candidate Bill Bradley weighed in with a proposal for addressing the financial crisis. Some of the ideas are interesting – but one has the potential to wreak havoc:

What can we do? Here are five suggestions that may help ease the credit crisis, spur economic recovery sooner rather than later, and lay the groundwork for future economic growth:

- Trust a market approach first to deal with the bad assets…

- Provide a floor for home mortgages…

- Move mortgages from adjustable to fixed rates to avoid future crises…

- Invest in new companies…

- Strengthen Treasury bonds…

On that last point, Bradley argues (emphasis added): 

Given the $8 trillion in direct assistance and guarantees we’ve provided our financial system since this crisis began, the $787 billion in fiscal stimulus Congress just passed, and the existing national debt of nearly $11 trillion, many investors are expecting future inflation. Foreign investors, who own more than 30% of our Treasury debt, may be afraid to buy more. Worse, they may sell what they have, causing the dollar to plummet. To rebuild trust among foreign investors, our government must be willing to cut spending and raise taxes in the next two to three years.

Some say we can get to that when inflation heats up. I say it’s too late then. Why will China, Japan, Europe and the Gulf states continue to buy U.S. Treasurys if they believe that the inflationary consequences of America’s exploding debt will substantially devalue their investments?

In the wake of the Democrats’ ascendancy, economic policy has truly entered a time warp. The size of the debt by itself does not determine the course of inflation – monetary policy does (i.e., the Federal Reserve, NOT the U.S. Treasury, controls inflation). For example, Japan has a staggering public debt compared to ours, but has experienced persistent deflation – the reason being that, due to its abysmally low (nonexistent) rate of economic growth, the Bank of Japan’s policy rates, as low as they are, are not inflationary.

Unfortunately, because the USD is still the world’s reserve currency, the Federal Reserve has much less wiggle room than the BOJ. To prevent USD inflation, its interest rate target must, to some extent, approximate the rate of global growth rather than just domestic growth. What Bradley’s ’strengthen Treasuries’ idea proposes is that the Treasury lower domestic growth by raising taxes, and we presume that he would also have the Federal Reserve keep its target rate low to support the domestic economy. The rub is that, should the global economy out perform the U.S. – as happened in the 1970s – the USD will lose ground, inflation pressures will build, and buyers of Treasury debt will demand a higher interest rate (i.e., they will lend less money to the U.S. at existing interest rates). In other words, Bradley’s prescription is likely to do exactly what he wants to avoid!

Bill was alive in the 1970s. He should dig a little deeper into the economics of the period. If he did, he might notice the striking parallels and perhaps conclude that a lighter, more efficient tax and regulatory burden, coupled with a tighter Federal Reserve, is the right way to support our national creditworthiness.

Unfortunately, it looks to us like we are not headed in that direction any time soon. Democrats are very likely to gain a super majority in the Senate in 2011, at which point we would expect an even heavier burden on the private sector and heavier spending in the public sector. If the Fed adheres to its Humphrey-Hawkins mandate, focusing on domestic employment as well as inflation, then this public-private sector imbalance will have precisely the opposite effect that Bradley predicts. We’ve been saying it a lot lately, but our stagflation thesis still holds.

TR2: Mike Bloomberg on NYC taxes

More evidence that ‘Tax Revolt 2′ may be slowly gaining momentum. From the WSJ editorial page:

New York state and city revenues are falling amid the collapse of Wall Street, and state lawmakers in Albany are considering income tax hikes for households earning between $250,000 and $1 million, who already pay 6.85% to the state. Meanwhile, the New York Post reports that City Council Speaker Christine Quinn wants to increase the city’s top tax rate of 3.68% for households earning as little as $297,000 (to 4.25%); those earning $532,000 to $1.2 million would pay 4.45%; and above that 4.65%. But late last week Mayor Bloomberg…said that raising taxes on high earners could drive them from the city. "One percent of the households that file in this city pay something like 50% of the taxes," explained the Mayor. "In the city, that’s something like 40,000 people. If a handful left, any raise would make it revenue neutral. The question is what’s fair. If 1% are paying 50% of the taxes, you want to make it even more?"

Unfortunately, the WSJ doesn’t point out that Mayor Bloomberg is seeking to increase the city sales tax. Granted, that may be the least risky approach to raising revenues; for example, if rising income taxes did drive high taxable incomes away, the city might eventually have to raise sales taxes anyways, possibly on a smaller consumer base. A sales tax also brings in revenue from non-residents. But ignoring Bloomberg’s willingness to hike a non-progressive tax rate lends credence to the belief that the WSJ’s editorial staff sometimes think like ‘country club’ supply siders.

URLs: 

http://online.wsj.com/article/SB123500384765617949.html 

http://www.nj.com/news/index.ssf/2009/01/bloomberg_seeks_increase_in_ny.html 

Another Sarbox Revisitation

CFO.com reports on a new academic study of Sarbanes Oxley which found that ‘accounting risk’ seems to have risen in its wake (emphasis added):

Nearly seven years ago, Sarbox ended what was once a cozy relationship between companies and their audit firms. Bristled by Arthur Andersen’s collapse and strict prohibitions in the law, auditors quickly stepped back from their clients, withholding accounting advice and isolating their consulting services.

Among Sarbox’s many auditor-independence restrictions: audit firms could no longer provide internal-audit work to the clients they audit. For some observers of the industry, there was no question that keeping the two audit functions separate was preferable, to avoid any appearance of conflict of interest and, effectively, boost investor confidence that had been violently shaken by Enron and the other corporate debacles earlier this decade…

Until now, there’s been lots of talk about how much Sarbox — in particular, its internal-control provision — has cost companies, but little analysis of what benefits the law truly achieved, says Prawitt.

"Of all the services external auditors provided before the SOX prohibition, we believe internal audit outsourcing represents the greatest possibility for creating [a risk of accounting errors]," the academics said in their paper…

Hiring a public accounting firm to provide both internal and external audits, a practice that was banned by the Sarbanes-Oxley Act, actually reduced companies’ accounting risk, researchers claim.

The knowledge of a company that an external auditor gained from internal auditing lowered the chances of publishing misleading or fraudulent financial results, according to preliminary findings by professors at Brigham Young and Texas A&M universities.

…the researchers themselves aren’t advocating that lawmakers reconsider this part of Sarbanes-Oxley. What they do hope is that their research — which is still subject to a peer review process that could take months or longer — will begin a debate about the thought process behind the law, which by all accounts was rushed through Congress. "There was a tsunami that came from the scandals and it didn’t matter what the evidence showed," says Prawitt.

So rushing a law through Congress without sufficient thought process is a bad thing? Let’s refer to that as ‘political risk’, and admit to ourselves that it has hardly been receding in this decade. The rather frustrating implication is that shareholders of public companies have not only had to incur much higher auditing fees and expenses as a result of Sarbox, but that they’re also subject to a greater risk of accounting problems. What is it they say about using good intentions to pave a road???

URLs:

http://www.cfo.com/article.cfm/13111528?f=RegWatch021609 

Gas Prices Up, Crude Oil Down?

A good article on the refining peculiarities behind rising gasoline prices and falling crude oil prices. Timely information for the torch and pitch fork crowd!

…crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

To drivers once again grimacing as they tank up, it sounds like a conspiracy. But it has more to do with an energy market turned upside-down that has left gas cut off from its usual economic moorings.

The price of gas is indeed tied to oil. It’s just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That’s the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

The pitch and torch crowd should also realize that gas stations’ profit margins on gasoline stink – 6% nationally in 2008 according to an NPR story, even evaporating entirely for some stations. As the NPR story notes, gas station owners make far better margins on bottled water and other goodies for sale inside the store. In other words, it’s much better for business if you save on gas and buy snacks instead – that’s hardly a recipe for price gouging.

URLs: 

http://news.yahoo.com/s/ap/20090215/ap_on_bi_ge/gas_prices_unhinged 

http://www.npr.org/templates/story/story.php?storyId=10733468

http://www.venturacountystar.com/news/2008/feb/10/station-skips-deliveries-because-profit-margin/

Wall Street Sucks

Strong title to this one, and a bit tongue in cheek – the investment industry is critically important and doesn’t always suck. But some individuals within it sure do. The WSJ reported that the SEC is investigating several hedge funds and a regional broker-dealer for trading ahead of material non-public information – in this case, a brokerage analyst’s unreleased and very negative report on an insurance company in 2003. Names have been redacted to avoid the time and expense of nonsensical legal threats from the parties involved, and issuer information was redacted to avoid any alleged appearance of a securities recommendation (good grief!):

At issue in the civil suit and the SEC investigation is a research report by [an] analyst [at a] a Memphis, Tenn., investment firm…[who] initiated his coverage of [the company] on Jan. 17, 2003. His report said [the company] was $5 billion short of the reserves it should have been holding to cover potential insurance claims, and rated it "underperform." It also said the company’s strategy of acquiring troubled property and casualty insurers had backfired, saddling the company with assets that would have to be written down, potentially erasing most of shareholders’ $2 billion of equity in the company…

Documents in the case reviewed by The Wall Street Journal, primarily emails and instant messages submitted as exhibits by [the company], show that some of the hedge funds knew of Mr. [Analyst's] report more than a month before it came out.

On Dec. 11, 2002, a [hedge fund A] executive wrote the hedge fund’s founder, [hedge fund A founder], saying he had heard from another hedge fund that Mr. [Analyst] was going to issue a research report rating [the company's] stock "underperform" and warning about a reserves deficiency, according to a court exhibit.

A week later, Mr. [hedge fund A founder] forwarded an email to [hedge fund B guy] at [hedge fund B], a New York hedge fund founded by [hedge fund B founder]. The email, written by another [hedge fund A] employee who said he had talked to Mr. [Analyst], said the analyst "was more critical of [the company] than I’ve ever heard a sell side analyst … everything from underwriting to accounting to honesty," according to a court exhibit.

On Jan. 16, 2003, a [hedge fund A] executive wrote Mr. [hedge fund A founder], saying he had just talked with Mr. [Analyst]. "[H]is piece that rips [the company] apart is supposed to be published tomorrow…"

Trading records obtained by [the company] through discovery in the lawsuit show that [hedge fund A] put on a $5 million "short" position, or a bet against [the company's] shares, in the month after Mr. [hedge fund A founder] learned of Mr. [Analyst's] report, including $2.5 million the day before the report came out, a [company] attorney…said during a September court hearing.

[Hedge fund A] attorney…disputes that account. He says [hedge fund A] reduced its short position after receiving information about Mr. [Analyst's] views in mid-December and increased its…short position by "a modest amount" on Jan. 16, but did so before the email about the report’s pending release. He declined to provide specific figures, and the trading records aren’t part of the public court file.

In other words, at least one of the funds that acted on this information made almost all of its short sale gains in the days and weeks preceding the release of the report. And when the report was issued, they closed out their trades and booked their profits, made all the tidier by the market’s reaction to the report. If the funds (or the fund advisor(s)) had conducted the research internally and acted upon it for the benefit of all of its clients, that would have been fine. But they cannot trade on a broker dealer’s report before it’s released. That’s cheating***. And as in any other pursuit, cheating enriches some at the expense of the game itself. In this particular case,  individuals within the investment industry – some high profile ones at that – were perfectly willing to sacrifice some of the industry’s social and political capital for their own benefit (at least $2,000,000 for ‘hedge fund A’ by our estimates, and an astronomical annualized rate of return). As a fellow professional, this kind of BS is infuriating.

We’d note a couple of other things. First, the SEC investigation was sparked by e-mails uncovered in the discovery process related to the insurer’s litigation against the parties involved. It should take a bit less than that to uncover and investigate this kind of nonsense, shouldn’t it? Second, short sellers are staunch defenders of their craft, as they should be. But in [hedge fund A founder] they’ve lost one of their most public and influential voices. This could also undermine their attempts to get regulators and exchanges to renounce curbs on short sales. All of that said, we would point out that this kind of unseemly behavior is not limited to hedge funds, much less short selling funds. Anyone with access to material nonpublic information is going to be sorely tempted, and there’s plenty of evidence to indicate that the use of inside information is still common (unfortunately, it seems as though private individuals are the ones most frequently targeted for prosecution, rather than the professionals who know how to cover their tracks). Investment professionals simply have to make the right choice, which is to respect the game, even when it means less money in your bank account. Anyone who can’t do that should be banned for life. Like incentives, disincentives matter.

***Even if [hedge fund A] already had an existing short position in place, they should have restricted further activity and sought legal counsel on next steps (we assume they at least sought legal advice on the issue after it came to their attention – if not, their conduct is that much more damning). In fact, even if [hedge fund A] had never traded in the company, the fact that its founder and chairman would forward an internal e-mail containing material nonpublic information to another fund is simply mind boggling. It certainly implies a culture of entitlement – entitlement to a different set of rules than the rest of us, that is. Incredibly – but perhaps not surprisingly, the more we learn about human behavior – ‘hedge fund A’ appears to have done very well for its clients over the years based on solid analysis. In other words, it didn’t need to filch $2MM ahead of the market. It just couldn’t say no.

An admonition to our fellow investment practitioners – cut the bull, play by the rules, and respect the game. We’ll all be better for it.  

URLs: 

http://online.wsj.com/article/SB123449787320481341.html (subscription required)

http://www.cnbc.com/id/26789044

Dear Friend: Things Are Tough All Over

My spam blocker missed this apparently. Typically these kinds of scams originate in certain parts of Africa. Surprisingly, this one appears to come from Hong Kong, which has had a relatively strong economy for decades (e-mail ID redacted, in case any weak heart strings should read this):

Dear Friend,

I need your services in a confidential matter regarding money out of a beneficiary deposit for investment in your country as such I decided to establish contact with you for assistance. This requires a private arrangement, as you will receive these funds under legal claims; all legal documents will be carefully worked out to ensure a risky free claim.

I am willing to share the funds 50/50 as soon as this transaction is completed. I have all the details, which I would provide with your corresponding email. The funds in question amounts to about $30 million United States dollars. I will expect a straight answer from you. Yes or No. If yes, Kindly furnish me with your full names and telephone/fax numbers.

Please Send me an e-mail as soon as you receive this letter for further discussion and more clarification. My personal email is :########@yahoo.com.hk

Regards,
Hong Wu.

By the way, if you’ve ever wondered about vigilante movements, you can observe one in real time: http://www.419eater.com/. Some of their members were interviewed by NPR’s Ira Glass during a segment on ‘Enforcers’ last fall (http://www.thisamericanlife.org/Radio_Episode.aspx?episode=363). Their activities raise some ethical dilemmas – for example, how much punishment should be meted out to internet scammers, if any? E-mail scammers are clearly thieves whose activities add nothing to the well being of humanity, and anyone who’s received these e-mails, or worse, fallen prey to them, will be heartened to know that a network of devilishly clever vigilantes are fighting back. On the other hand, who knows how many opportunities the scammers have to engage in more productive vocations where they are (which is primarily Nigeria, according to 419eater)? We sometimes have to remind ourselves that western democracies that provide opportunities to most or all of their citizens have historically been the exception, not the rule; and in the expanse of human existence, they’ve been around for less than a blink of the eye. Yet another concern is that, while 419eaters and their ilk can make e-mail scamming less attractive at the margin, they can’t do anything to change the space of possibilities for the scammers, who might choose even more destructive occupations, such as kidnapping, piracy, prostitution, etc. And that doesn’t improve the overall well being of humanity either. Troublesome, fascinating stuff. The vigilantes might want to brush up on their knowledge of the Pearl River Delta.

WSJ: Growing Pessimism among Economists

The Wall Street Journal is reporting that economists in its latest forecasting survey have grown more pessimistic about 2009 economic performance:

Economists in the latest Wall Street Journal forecasting survey, while still mostly projecting growth in the U.S. gross domestic product by the third quarter, largely agree that a "second-half recovery"—a scenario that has been a common feature of most 2009 outlooks—is looking much less likely now than it did a few months ago. Recent data showing just how sharply growth in the U.S. and abroad has declined in the final months of 2008 have cast a deepening shadow over 2009.

We’re not happy about this – recessions, especially severe ones, stink**. But we note that the forecasting profession is moving closer to our fairly dim outlook, articulated most recently in our 2009 Outlook.

** On the other hand, recessions aren’t all pain and woe. Time is an extremely valuable commodity in a highly productive economy like ours. Time with family and friends, time for introspection, time out of the rat race, time spent reflecting on the past, and thinking about the future – these are all real benefits for people who’ve been negatively affected by an economic downturn (we’d note that their value is also enhanced by social safety nets like unemployment benefits). Today, we’re emerging from a period of surplus incomes, credit, and acquisitiveness, and entering a period of surplus time, savings, and reflection. We’ll adapt and even thrive. In short, we’ll be OK – wherever this cycle takes us.

URLs:

http://online.wsj.com/article/SB123445757254678091.html?mod=djemalertNEWS 

http://www.symmetrycapital.net/idlespeculation/20090209.pdf