The Flat Tax that makes sense.

The "fake" flat tax that many preach about is posed as follows:
Lets select a "fair amount", lets say 17%, and have all pay this same amount without regard to other expenses --- If you are poor and make $100 per year, you pay a simple $17, if you make $100,000, you pay $17,000. Simple, right! And in particular, if you happen to be a lazy lout who inherited 1 billion from uncle Joe and have never earned a cent, not even in interest, you pay absolutely zip, nada, nothing because, you see, the tax is on "Income".

Lets now consider the argument from a different point of view. Lets say you have to raise an awfully expensive army because you are about to be invaded. For the sake of argument, let us suppose our economy is composed of only two individuals, Mike who earns a salary of $100,000 from the other participant in this economy, Joe who does not have to work because of his billion dollar inheritance. As luck would have it, the 100k salary is the only thing that Mike has because of his hand to mouth existence (he lives in the only town, called New York, which is very expensive, and also it happens to be owned by Joe the billionaire who has no salary).

Based on the above, the flat tax on salary seems like a strange way to finance our defense, especially since most of what we are defending really belongs to Joe!

But the flat tax dictates that since Joe has no income, and Mike literally has all the income (but zero real wealth) he ends up paying not only the full expense of defense, but even the principal and interest on all the loans secured to pay for defense since the president Joe (naturally) figured it was unwise to fully tax Mike immediately for the full expense of the conflict. Worse comes to worse, he may allow Mike to adopt a child so the debt could be passed on to the next generation.

I think it may possible be clear even to the blind at this point that a flat tax on incomes in a land that does not have a 100% inheritance tax makes absolutely no rational sense.

A flat tax must be apportioned based on total assets controlled by the individual being taxed relative to other participants in the economy.

Lets return to the two person example discussed above. Salary is not item that the tax should be apportioned against, it is total assets.

If at the end of year 1 of the this model economy, Joe has 1 billion dollars of total wealth and Mike has a total 100,000 (after food, healthcare, etc.) then the fraction of the tax bill that is owed by Mike is not 17%, it is 100000/(1 billion + 100k) = 0.009999 % and the balance that is owed by Joe is 99.99% of the tax bill !

I have a feeling that Joe will make sure that any conflict is short lived and will have definite payoff since he will be on the hook for most all of the cost!

Note I have only gotten to what part of the tax bill we are responsible for, not what the tax rate really is -- Tax should first be based on what is really owed by the individual, then we can then focus on what the rate is.

CITI, BOFA BUYING BACK LAUNDERED LOANS AT LOWER RATES

I didn't think it would happen this quickly:

http://www.nypost.com/seven/03252009/business/double_dippers_161157.htm

Geithner TARP TRAP TRICK -- One example on how to flush 100B of Toxic Waste 101

Consider two banks A and B. Each with 50 Billion dollars of Toxic Waste (aka stupid bets placed by their bookie (CDS dept.) or real estate broker) and 5 Billion of TARP money.

On Monday, Bank A either directly as an investment or indirectly through a ETF, hedge fund or other vehicle pays 100 Billion dollars for bank "B"s TW . They pay 100 Billion because they believe that they are undervalued and it is a fair price and hence they don't want too lose this opportunity. As luck would have it, bank "B" thinks the same about "A"s TW. Hence it pays 100 Billion dollars for bank "A"s TW .

By the middle of the week, both bank A and B figure out what they just bought was garbage and really only worth $0. Since 95 Billion in each case was borrowed according to Geithner wonderful plan, both banks only need to record a loss of 5 Billion dollars along with a gain of 100 Billion for the TW that they each just sold.

On Friday, both banks now have recorded net profits of 95 Billion dollars, which they promptly decide to invest in something safe like Chinese MBS. On the other hand, I and my family now can look forward to an additional 190 Billion dollars of debt so that the finance division banks A and B can party like there is no tomorrow (for America).

Please tell me why something like the above cannot happen. If it can happen, please tell me why I as a citizen have any interest in supporting this.

Would it not be better to let bank A and B go bankrupt. Move their current deposit accounts to smaller banks that acted prudently during good times, and stuff half of the above amount ( at 0% interest rates) into their coffers to grease the wheels of the transition.

AIG and Goldman -- Where our tax dollars are going

More about who we were truly bailing out in the AIG bailout:
http://www.reuters.com/article/ousiv/idUSTRE48R3HQ20080928

Bail Them Out or Jail Them -- Where is RICO when you need it!

Before I post another letter I wrote in response to my congressman's ill-advised vote to subsidize fraud, let me first direct the reader to the following link for a brief discussion of RICO - Racketeer Influenced and Corrupt Organizations Act. The main thing to take away from a discussion of RICO is that it can be applied to Securities Fraud such as the Mortgage Backed Securities. The parties involved may be Appraisers, Bond Raters, Investment Bankers and others who knowingly enabled the defrauding of Sovereign Wealth funds, foreign investors, and in the final stages American Pension funds and others with bundles of mortgages they knew were of low value. (If they didn't know, then they should be prosecuted on the grounds of criminal neglect with respect to their fiduciary responsibility.)

Honorable Congressman,
With all due respect, please consider this [ Wall Street bailout ] bill and the previous bailout of AIG to the tune of 85 Billion and the information that we have subsequently found out. The firm of the Treasury Secretary Henry Paulson was on the hook to the tune of 20 Billion dollars if AIG failed to make good on their end of the financial engineering efforts currently in play at Goldman Sachs. According to a recent New York Times article the AIG deal saves Goldman Sachs $20B . The article was published on September 27, 2008.
It is also well known that some of the current tightness of the credit is a direct consequence of actions by Treasury and the Federal Reserve such as increasing the reserve requirements for banking institutions. More money on reserve, means less money to lend, hence higher rates. Ergo, we have a manufactured crisis, with a tailor made solution that will allow the unwinding of financial engineering products with the taxpayer picking up the loss, while Goldman Sachs, and private individuals have their fortunes protected.
Yes, I do understand how the loss of $20 Billion will hurt Goldman Sachs and the Treasury secretary, but unless this matter of legislation is done in the full light of day and several months of critical review, I won't see why the proposed legislation helps the nation as a whole. I will hear after the fact from you and other legislators about how sorry you are for the error and that you had to "trust" those who had a consistent history of not being trustworthy.

The securitization of mortgages with well known, predictable weaknesses to defraud Asian investors and sovereign wealth funds that wanted to get a better return than U.S. Government bonds that were yielding less than 2% after 9/11 is more deserving of an application of the RICO statutes since it took active collusion between banks, appraisers, the GSEs, and others than a bailout from the public treasury.

Please take a listen to the following episode of the NPR program "This American Life" entitled "The Giant Pool of Money" which tries to explain the securitization process and the fee based motivation for the fraud. A transcript can be found here: http://www.thislife.org/extras/radio/355_transcript.pdf

Please look at the big picture. One example:

20 percent of U.S. power is provided by 100 nuclear reactors

Cost per reactor is about $2 Billion ( presuming economics of scale and using 1 design), we get from a back of the envelope estimate that we could build about 500 1 GigaWatt Nuclear Reactors for the expected $1 Trillion cost of this bill (and its children).

That would cover close more than 100% of our power needs and leave maybe 5 to 20 percent of the power capacity available for export to Canada and Mexico. We would be totally free of the need to import foreign oil. Lower power cost could even subsidize future bailouts of the financial services industry if you like!

Please develop that "Vision Thing" that we expect from our great leaders. If we can find a Trillion dollars at the drop of a hat, to bail out the hedge funds and children s "Financial Engineering" toys (MBS, CDO, swaps) then perhaps we should measure twice and cut once to deploy American treasury for planned, well thought out actions that may lead to real prosperity for many, rather than just the comfort of those who do lunch with Paulson.

Sincerely,

<anon>

As the Sun Sets in America

As the sun sets in America, the Congress and Senate of this land waits to see what sunrise in Asia will bring with the new day. Will they pass a favorable judgment on a debtor nation, or will they vote thumbs down by placing sell orders in the stock and credit markets.
Truly, this is a sad moment when a proud nation has found out that its leaders have been leading them astray on a path that leads to debt and servitude. The main product of the Financial Services Industry is debt.

The following is a recent letter I wrote to my Congressional Representative

Honorable Representative,

I’ll be straight to the point. Please vote against "The Emergency Economic Stabilization Act of 2008".

Please enact no legislation on this matter till after the elections and after a proper analysis of the problem and proposed solution can be scored by the Congressional Budget Office and other American and World Institutions.

Please have the expenditure also scored against a “zero base” review of how 700 billion to a trillion dollars can be spent to improve the health and welfare of the American people.

In the midst of all the talk of foreclosures, it seems that one of the major reasons for foreclosure in America has been forgotten. It is to cover the medical expenses of a sick citizen.

For most Americans, losing a job is just a part of life, losing one’s health care insurance or not being able to afford a decent education for self or children is about losing life and future.

I can understand how House Speaker Nancy Pelosi with millions of dollars of California real-estate and McCain with 7 or 10 million dollar homes may consider the current situation a circumstance where other peoples money must be put at risk immediately to protect the “public interest”, but many may say they have too many dogs (or dollars) in this fight to reason objectively about this issue.

There is no one I know who cannot delay buying their next home till next year, or their next car till the spring. On the other hand, if you have some exotic options, or interesting derivatives that are ticking their way to near expiration date, I can well understand why they may be getting a antsy about now!

I can think objectively about this issue and will consider carefully how my vote is used in November. I expect you to do the same --- this week!

Sincerely,

Starving the beast

Another recent letter to my Maryland representatives (with edits and modifications):

Honorable Senators and Representative,

Please keep in mind Reagan OMB chief David Stockman's reason for the excessive tax cuts and resultant deficits during the Reagan administration. The policy was called euphemistically: "Starving the beast".

Generating structural long term economic failure by sending our hard earned cash into stuff we can't see (derivatives and option's that can expire with zero value) is just another "Starving the beast" strategy. This will tie the hands of many future administrations.

Use the 700 Billion for a comprehensive "Industrial Policy" that will rebuild America's capacity to build items of real tangible value: Computers, Automobiles, Telecommunications hardware, Pharmaceuticals, Bio-Engineering, and derivatives that have real value: Software, Education, and an Educated population. Lets stop importing high school teachers from the overseas at low wages. Pay elementary and high school teachers a wage higher than the 70 percentile of the population. You will then never have a discussion again about the quality of the schools due to the competition by qualified candidates for those jobs. You usually get what you pay for!

Concentration of wealth in the financial sector is a sign of a society entering a major declining phase.(Kevin Phillips, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism)

If you vote for this bill and others like it without considering the entire "Industrial Policy" issue, this go around won't be called "Starving the Beast", it will be known as "Killing the future". If our decision makers continue with the current "lack of industrial policy", this will certainly be known as the China Century.

Sincerely,

<anon>