July 2010

Must Read Posts for July 5, 2010

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On The Economic Populist you might have noticed the right column. We try to list other sites and blogs who have exceptional insight and writing on what is happening in the U.S. economy.

Sometimes though, one cannot say it better but miss those who did.

Must Read Post #1

The New York Times analyzed the corporate tax code and found the oil industry is one of the most subsidized of them all.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.

What's a capitalist to do?

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AIG's Joe Cassano - An American Tragedy

By Numerian

What’s a capitalist to do when he loses $500 billion and almost single-handedly destroys the global economy? In Japan you would bow deeply in public and express the deepest possible remorse and shame, that is if you already had not committed seppuku. In America, where the Ayn Rand ethos of objectivism reigns supreme, you weasel your way out of any explanation or regret, while riding off in the sunset with your undeserved fortune.

Joe Cassano, former CEO of AIG Financial Products, could have chosen the Ronald Reagan Alzheimers defense: “I have forgotten everything that happened.” That was the route taken by AIG Chief Risk Officer Robert Lewis, when he along with Cassano appeared yesterday before the Financial Crisis Inquiry Commission. Lewis, unlike Reagan, had to act like he actually had Alzheimers to make this defense plausible.

Cassano could have used the “I was too dumb to know what I was doing” defense, which would have at least have been plausible. Instead he chose to brazen it out in front of the Commission, arguing that everything he did was perfectly correct and legal, and any losses were the fault of somebody else.

We know everything he did was perfectly legal, because both the SEC and the FBI have dropped any plans to charge Cassano with criminal activity, which was one reason he was able to appear before the Commission and be so openly unrepentant for what happened. We also know that nothing he did was correct, which even a cursory reading of the public record will reveal. Cassano built an untenable portfolio of credit default swaps, selling these insurance contracts to banks around the world anxious to protect themselves if the US housing market tanked. He earned billions in fees for AIG and $300 million in bonuses for himself, but when the housing market did indeed tank, his losses totaled half a trillion dollars and destroyed AIG in the process. AIG was taken into the bosom of the US Treasury, and the American taxpayer made good all the losses the banks would have experienced had AIG been thrown into the bankruptcy courts.

IRS fails government audit

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Irony Alert! Please put on your Irony Goggles.
I don't have to tell you that audits suck. Just ask the IRS.

A new report from the Government Accountability Office inspected the tax agency's financial statements from the 2009 fiscal year with the exacting thoroughness of, well, of an IRS auditor, and found a few billion-dollar errors.

Manufacturing ISM for June 2010 - 56.2%

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The June 2010 ISM Manufacturing Survey is out and PMI came in at 56.2%. This is a decline of -3.5% from last month's 59.7%. While this is the 11th month for expansion (anything above 50 is an expansion), this is a slowing on the manufacturing ISM. Why is this important? There is a relationship to overall GDP growth. The below GDP correlation numbers are annual. Taken to quarterly, the PMI correlation implies rough 2.2% Q2 2010 GDP. A correlation is not a fact so take this number with a wet thumb in the air.
(Q_i = ((Q_a + 1)^{-4})Q_{i-1})

The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (58.5 percent) corresponds to a 5.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (56.2 percent) is annualized, it corresponds to a 4.8 percent increase in real GDP annually.

 

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