Friday, September 2, 2016

Bridgeport City Council Meeting Next Tuesday

A quick reminder before your holiday weekend begins that there will be a Bridgeport City Council meeting this coming Tuesday, September 6 at 6:15pm. It is only through continued involvement of a large group of citizens that the Council will feel pressure to actually do their job in representing the interests of the people. The past few meetings have focused on the property tax change and the financial issues confronting the city. Hopefully, that will continue but we will also hear from those members of the community who have been effected by the recent uptick in violence in the city as well.

Jobs And Other Data Do Not Support September Rate Hike

August's unemployment numbers were released today and they hardly show an economy that is on the verge of overheating. 151,000 new jobs were added during the month and the revisions for June and July basically washed each other out. The unemployment rate remained at 4.9%. Wage growth continued to grow as the hourly earnings rose by about 3 cents and is now up about 2.4% year-over-year.  On the other hand, the average work week actually declined from 34.4 hours in July to 34.3 hours in August and is down from 34.6 hours a year ago. In addition, yesterday the Institute for Supply Management released their manufacturing index and it showed that the sector was contracting in August with all three indicators, PMI, new orders, and employment index, falling below the 50% threshold that indicates contraction. All three indicators were above 50%, indicating growth, in July. And today, a report showed that auto sales had also declined sharply in August, with car sales falling 12% from July. All car and truck sales are down 4% from a year ago.

The job numbers were decent but hardly spectacular and continued wage growth was also good to see. But all the other indicators in no way point to an economy where growth is spiraling out of control, In fact, they point in the exact opposite direction. I know that everyone expects GDP growth to be robust in the second half of the year due to restocking inventory, but I'll believe it when I see it. It is hard to see how any of these numbers would demand a rate increase this month by the Fed. But it is clear that there are many members of the committee who seem committed to a rate increase in the near future. Hopefully, these poor numbers will at least cool their desire for rate hikes until more data comes out later this year. Otherwise, it could be another rate hike disaster like the one last December.

Inequality And Income Under Thatcher And Blair

There is an interesting new study out that compared the growth of income and the rate of inequality in the UK over the last 50 years. That 50 year period was dominated by Prime Ministers Margaret Thatcher and Tony Blair and the comparisons are fascinating. For the bottom 20% of earners, essentially the poor, here is what the graph looks like:

The left axis represents inequality and the bottom axis shows income growth. For the poor, Thatcher provided virtually no income growth but the level of inequality skyrocketed. Blair, on the other hand, minimized the growth in inequality but raised income for this group by about 40%.

Here is the same graph for the top 5%, essentially the rich:
Under Thatcher, inequality skyrocketed and the rich's income grew by about 60% while under Blair inequality hardly rose and their income went up about 40%.  Now Tony Blair will always be remembered for his kowtowing to G.W. Bush and his complicity in the disastrous Iraq war. But, as far as his economic record, he did far better for all citizens of the UK than Thatcher ever did.

Price-Gouging Mylan Is Also A Tax Deserter

Mylan, the company that has jacked up the price of their lifesaving product EpiPen in anticipation of their patent running out, is now also a tax deserter. The company recently offered a generic version of their product for about 50% off their existing price after all the bad publicity surrounding the nearly 600% increase in price in the last eight years. Of course, that 50% off price of $300 represents a 300% increase in the price eight years ago so it's hard to see what kind of favor they are doing for EpiPen users. Even worse, it is now reported that Mylan's tax home is in the Netherlands. Last year, Mylan, which is based in Pittsburgh, completed what is euphemistically called a tax inversion and became a Netherlands-based company in order to save on US taxes. This is tax desertion and tax avoidance through and through. The disgusting thing is that Mylan continues to benefit from US patent protections while avoiding US taxes. Perhaps we might want to think about taking away some of the benefits of the US legal system if a company decides it doesn't want to pay US taxes anymore. That would be the least we could do.

Wall Street Colludes To Avoid Being Tested

One of the great teachers of my childhood used to quote Socrates, saying, "the unexamined life is not worth living." If only Wall Street felt the same way. Apparently, major firms on Wall Street are thinking about getting together to legally challenge the right of the Federal Reserve to force the banks to undergo the annual "stress tests". Their biggest complaint is that the Fed changes the parameters of the test every year so that they never know what disastrous scenario will need to be simulated. Of course, that's the way tests usually work. The Fed knows the people they are regulating quite well by now and correctly point out that the banks would be more likely to game the tests if they had more knowledge about the models to be simulated beforehand. After all, gaming the system is how Wall Street created the greatest financial crisis since the Great Depression. And, as Kevin Drum points out, doesn't discussing strategies for suing the Fed with your supposed competitors amount to some sort of collusion. It probably is illegal collusion but we all know no one will go after them on it.

Animal News

Some good news but more bad news in the animal kingdom these days. First of all, authorities in South Carolina have managed to kill millions of bees in an attempt to reduce the possibility of Zika by reducing the mosquito population. Traditionally, South Carolina has used Naled, a pesticide that kills mosquitos on contact but also disperses rather quickly, by dispersing it from trucks that traveled mosquito infested areas. But for some reason, officials in Dorchester County decided to use aircraft to dispense the pesticide. Having posted an announcement in the newspaper and put up a Facebook post on Friday, airplanes began dispensing Naled across a wide are over a two hour period early Sunday morning, despite the fact that Naled is known to be highly toxic to bees. Unfortunately, Sunday morning was extremely hot, hot enough that bees abandon the inside of their hive and cluster in massive groups outside in order to cool down, leaving them totally exposed to the insecticide. Death was immediate. At just one apiary in the county, over 2.5 million bees that had been in 46 hives died. And other beekeepers around the county shared a similar experience. As one said, the apiary "looks like it's been nuked". You have to wonder what other insects were also decimated by the improper use of this pesticide which was, in reality, overkill.

An even more depressing story comes from Africa where a continent-wide census of elephants primarily funded by Microsoft's Paul Allen showed fewer elephants than previously believed and a population that is plummeting due to poaching. A 1979 study estimate there were about 1.3 million elephants in Africa but by 2007 that number had dropped to around 500,000. And in the nine years between 2007 and 2016, that number plummeted by 30% to around 350,000. Poaching is the primary cause of this horrific decline. And the expectation is that the elephant population will probably be cut in half in another decade. Elephants are incredibly smart, social animals and the death of a matriarch can and usually does lead to a catastrophe for the other members of the family. And all this is carnage is in the pursuit of ivory, a luxury good if there ever was one.  It is just so disgusting and disheartening.

Finally, in a piece of good news, it looks like Tasmanian devils are developing a resistance to cancer that was threatening to drive the species into extinction. The cancer has already decimated the devils, causing an 80% decline in their population. But the remaining populations managed to survive far longer that scientist had predicted and some were surviving beyond the time when they could reproduce. DNA testing showed that the devils were "evolving immune-modulated resistance that could aid in species persistence in the face of this devastating disease." Hopefully, over time, the species will keep building this immunity to the devastating cancer and start to repopulate. Then perhaps the only remaining threat to their survival will be humans. Too bad they can't build an immunity to that.

Thursday, September 1, 2016

"Huge" Costs Of Climate Agreement Turn Out To Be Not So Huge After All

One sure-fire way to scare people is to throw out a big number without any context at all and I will readily admit that I'm not immune from that problem. But that's also why I put together my Reality Check series so that some of these numbers, especially those relating to our national debt and deficit, are put into some reasonable context. Yesterday, the Wall Street Journal pulled the same trick in an article citing a Columbia Business School economist that outlines the costs of President Obama's pledge to reduce greenhouse gas emissions by 80% by 2050. The sub-headline reads "President Barack Obama’s pledge to reduce emissions by 80% by 2050 would cost $5.3 trillion, a new study shows". Wow, that sounds like an incredible amount of money - how can we possibly afford it? Reading a little farther, in Trumpian fashion, we are told that indeed the numbers are "huge". But in the very next phrase, we also find out that it is $5.3 trillion over 30 years, or about $176 billion per year. Well that sounds a little better, but $176 billion is pretty big on its own. A little farther on, we read that improved battery technology might actually reduce that cost to $42 billion per year. That is actually beginning to sound almost manageable. We then learn that the US has already reduced emissions from the 2005 baseline that Obama was using, meaning that we are already 1/8 of the way to the emission targets. Finally, we learn that the study does not take into account any savings from the improved environment, either through better health or reduced storm damage. So maybe this really isn't going to cost that much after all. The article mentions that Hillary Clinton would maintain Obama's pledge while Trump would scrap it before ending an a down note with a quote from the author of the study, "It’s a sad comment on the political debate. This will affect people’s children and grandchildren."

As Dean Baker points out, perhaps the parents of our children and our grandchildren would be helped by a little context. In the $20 trillion dollar GDP economy that we are projected to have, $176 billion  is just 0.9% of GDP. At their peak, the wars in Iraq and Afghanistan were consuming nearly 2.0% of GDP, more than twice as much as the cost of Obama's program. He also makes the point that the reduction in potential output that was caused by the financial crisis is 10 times larger than the "huge" $5.3 trillion cost presented. Another way to put this in context is that, as of 2013, the US had already spent $2 trillion on the wars in Iraq and Afghanistan. And the projected costs for those conflicts are expected to grow to between $4 and $6 trillion dollars when you take into account the continued cost of care for wounded veterans and the replenishment of our armed forces. I'm pretty sure the Wall Street Journal never described the costs of those wars as "huge" and intimated that they were unaffordable. The sad part is that this article was in the economy section of the Journal as opposed to its factually challenged editorial page. It just shows how far the standards of the paper have fallen under the control of the Murdochs.

Wall Street Actually Does Very Little That Is Useful These Days

Financial firms share of GDP has increased globally in the last few decades due to increasing financialization. In 2010, the total compensation of US financial firms came to 9% of US GDP; in the UK, that number is 10%. Please note that that is the total of profits, wages, salaries, and bonuses. It specifically does not include any assets they control. Historically, financial firms made up less than 5% of GDP until the 1980s, but have been rising ever since. And what accounts for this dramatic increase - primarily excessive trading most of which is now driven by high-speed, computer driven activity. In the mid-1970s, 20% of the outstanding shares traded in the course of a year. These days, that number is well over 150%. Back in my day, this was considered churning and was illegal if done for a customer account. Yes, it increased fees for the broker and the firm but it contributed nothing except higher costs for the customers. Considering that most investors are relatively passive, it's hard to see how all this extra trading really helps us. Wall Street will say it gives us greater liquidity and better price discovery. But most people didn't have any problems selling their shares back in the 1970s.. And these days, the increased price discovery happens in milliseconds which is hardly beneficial to most investors. The other major claim of Wall Street is that they provide the much needed allocation of capital to firms that need it and that is certainly true. Unfortunately, these days, it is only a small part of their business and only makes up about 10% of financial firms' profits. Most of the rest is taken up with all that excessive trading. So the question remains, what are we really getting for all that money that Wall Street is making? Well, Lynn Stout at the Stigler Center at the University of Chicago Booth School of Business answers that question far better than I just have. And that is why I am posting her answer here in full:

Does Wall Street Do “God’s Work”? Or Even Anything Useful?



Bank executives frequently proclaim that Wall Street is vital to the nation’s economy and performs socially valuable services by raising capital, providing liquidity to investors, and ensuring that securities are priced accurately so that money flows to where it will be most productive. There’s just one problem: the Wall Street mantra isn’t true.

In the wake of the 2008 crisis, Goldman Sachs CEO Lloyd Blankfein famously told a reporter that bankers are “doing God’s work.” This is, of course, an important part of the Wall Street mantra: it’s standard operating procedure for bank executives to frequently and loudly proclaim that Wall Street is vital to the nation’s economy and performs socially valuable services by raising capital, providing liquidity to investors, and ensuring that securities are priced accurately so that money flows to where it will be most productive. The mantra is essential, because it allows (non-psychopathic) bankers to look at themselves in the mirror each day, as well as helping them fend off serious attempts at government regulation. It also allows them to claim that they deserve to make outrageous amounts of money. According to the Statistical Abstract of the United States, in 2007 and 2008 employees in the finance industry earned a total of more than $500 billion annually—that’s a whopping half-trillion dollar payroll (Table 1168).

There’s just one problem: the Wall Street mantra isn’t true.

Let’s start with the notion that Wall Street helps companies raise capital. If we look at the numbers, it’s obvious that raising capital for companies is only a sideline for most banks, and a minor one at that. Corporations raise capital in the so-called “primary” markets where they sell newly-issued stocks and bonds to investors. However, the vast majority of bankers’ time and effort is devoted to (and most bank profits come from) dealing, trading, and advising investors in the so-called “secondary” market where investors buy and sell existing securities with each other. In 2009, for example, less than 10 percent of the securities industry’s profits came from underwriting new stocks and bonds; the majority came instead from trading commissions and trading profits (Table 1219). This figure reflects the imbalance between the primary issuing market (which is relatively small) and the secondary trading market (which is enormous). In 2010, corporations issued only $131 billion in new stock (Table 1202). That same year, the World Bank reports, more than $15 trillion in stocks were traded in the U.S. secondary marketmore than the nation’s GDP. Yet secondary market trading is fundamentally a zero sum game—if I make money by buying low and selling high, it’s money you lost by buying high and selling low.

So, what benefit does society get from all this secondary market trading, besides very rich and self-satisfied bankers like Blankfein? The bankers would tell you that we get “liquidity”–the ability for investors to sell their investments relatively quickly. The problem with this line of argument is that Wall Street is providing far more liquidity (at a hefty price—remember that half-trillion-dollar payroll) than investors really need. Most of the money invested in stocks, bonds, and other securities comes from individuals who are saving for retirement, either by investing directly or through pension and mutual funds. These long-term investors don’t really need much liquidity, and they certainly don’t need a market where 165 percent of shares are bought and sold every year. They could get by with much less trading—and in fact, they did get by, quite happily. In 1976, when the transactions costs associated with buying and selling securities were much higher, fewer than 20 percent of equity shares changed hands every year. Yet no one was complaining in 1976 about any supposed lack of liquidity. Today we have nearly 10 times more trading, without any apparent benefit for anyone (other than Wall Street bankers and traders) from all that “liquidity.”

Finally, let’s turn to the claim that Wall Street trading helps allocate society’s resources more efficiently by ensuring securities are priced accurately. This argument is based on the notion of “price discovery”–the idea that the promise of speculative profits motivates traders to do research that uncovers socially useful information. The classic example is a wheat futures trader who researches weather patterns. If the trader accurately predicts a drought, the trader buys wheat futures, driving up wheat prices, causing farmers to plant more wheat, helping alleviate the effects of the drought. Thus (the argument goes) the trader’s profits from speculating in wheat futures are just compensation for providing socially valuable “price discovery.” Once again, however, this cheerful banker “just-so story” turns out to be unsupported by any significant evidence. Let’s start with the questionable premise that the average trader earns profits from doing good research. The well-established fact that very few actively-managed mutual funds routinely outperform the market undermines the claim that most trading is driven by truly superior information.

But even more significantly, the fact that a trader with superior information can move prices in the “correct” direction does not necessarily mean that society will benefit. It’s all a question of timing.  As famous economist Jack Hirshleifer pointed out many years ago, trading that makes prices more accurate when it’s too late to do anything about it is privately profitable but not socially beneficial. Most Wall Street trading in stocks, bonds, and derivatives moves information into prices only days–sometimes only microseconds–before it would arrive anyway. No real resources are reallocated in such a short time span. 

So, what does Wall Street do that benefits society? Doctors and nurses make patients healthier.  Firefighters and EMTs save lives. Telecommunications companies and smart phone manufacturers permit people to communicate with each other at a distance. Automobile executives and airline pilots help people close that distance. Teachers and professors help students learn. Wall Street bankers help—mostly just themselves.

(Note: Lynn Stout is a Distinguished Professor of Corporate and Business Law at Cornell Law School)

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.

Grassley Won't Stand In the Way Of Lame Duck Hearings For Garland

Chuck Grassley, Senator from Iowa and chairman of the Senate Judiciary Committee, indicated in a speech earlier this week that he may consider holding hearings for Supreme Court nominee Merrick Garland during the lame duck session of Congress after the election, but only if he was forced to. In fact, he specifically did not endorse the idea of holding lame duck hearings, saying, "If we have the election, and there was a majority of the Senate changed their mind about doing it in the lame duck, as opposed to January 20, I don’t feel that I could stand in the way of that. But I don’t think I can promote that idea." I'm so glad Mr. Grassley won't stand in the way. Immediately, Mitch McConnell killed the idea, releasing a statement that read, "the next President will make this nomination". But perhaps they should read the US Constitution:

[The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur; and he shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and consuls, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for, and which shall be established by law: but the Congress may by law vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.

I can agree with legal scholars that the Senate is certainly within their right to vote down a nominee, either in committee or in the full Senate, and even hold up a nomination by using the filibuster. But both of those actually fulfill their role of advice and consent - they actually involve a real vote on the nominee. Simply refusing to hold hearings at all and not allowing any kind of vote at all is an abrogation of their constitutional duty. It would be wrong for Democrats and it is wrong for Republicans. All I ask is that they do their job and bring this to a vote.

Spain May Need 3rd Election To Get Government

It's looking more and more like Spain will need yet a third election in order to produce a result that is actually able to form a new government. The country has not had a government since last December and two elections have failed to produce a coalition of parties that could form a government. After the last election in June, the Socialists initially tried to form a government and failed. That left the door open for the caretaker Prime Minister Rajoy and his conservative People's Party to have their chance. But yesterday their coalition failed to get the support of Parliament, falling just six votes short of the majority they needed. Rajoy may make another attempt but it is also expected to result in failure. There are a couple of regional elections later this month and a strong result there could allow another attempt by either party to form a government. Barring that, new elections will be scheduled for December, meaning that the country that is still reeling from the financial crisis will have been virtually rudderless for over a year.

You can't help but wonder if democracy is beginning to fail these days. Belgium went without a government for nearly two years before a government was formed back in 2010 and 2011. Republicans have spent eight years obstructing Obama. In Austria, a razor-thin election was just annulled by the courts due to voting irregularities, meaning the election will have to be re-contested. again this October. It doesn't seem to matter whether it is a plurality/majority voting system as it is in the US or proportional representation as it is in most of Europe, governmental gridlock continues to be a problem. With all the problems confronting us, you have to wonder how long that can stand.

Trump's Mexican Foray Fails

I guess we will have to wait for the polls to tell us how Donald Trump's trip to Mexico and his definitive (for the moment) policy speech on immigration went. But I can't believe it went over well. At first, it seemed that Trump's meeting with Mexican President Pena Nieto went as well as it possibly could - it was really a nothing-burger, a photo op, with some vague discussions of issues related to Mexican American relations. Unfortunately, at the post-meeting press gathering, Trump took a question on whether they had discussed the wall and Trump answered that the wall was discussed but not who would pay for it.  Considering the whole thrust of the Trump campaign has been that Mexico would pay for the wall, it seemed that Trump had thrown away a glaring opportunity to discuss the issue. But that was really a minor error as Trump could always claim that now was not the time to negotiate that deal. But it only got worse when Pena Nieto tweeted shortly after Trump had left that he had specifically made the point that Mexico would not pay for the wall. Now Trump was basically accused of lying when he answered the reporter's question. When you emerge from a meeting with another world leader and can not agree on what was actually said in the meeting, it does not enhance your presidential credentials in the way the Trump campaign had hoped. And it absolutely does not instill confidence in your foreign policy capabilities.

Of course, for Trump supporters, all that is basically meaningless. They were just waiting for his speech in Arizona to see whether he really was softening his immigration policies or not. And, on that score, Trump delivered the red meat to his base - deportation forces, Mexico will pay for the wall, extreme vetting, immigrants are criminals - reverting back to his position in the primaries. He put any idea of softening his immigration position to bed, at least for the immediate future. But this is Trump after all. It is also hard to see how the juxtaposition of his rather tame performance in Mexico and his firebrand speech in Arizona will help him look like he has the temperament to be President.

All in all, I think it was on net another negative for the Trump campaign. Seemingly, the whole idea behind this potential softening of his immigration policy and the Mexican foray was to help Trump look presidential and sway white, suburban voters. Instead, they got to see Trump as he is - having difficulty with the truth and lacking the temperament to lead. In addition, the supposed softening of his immigration position that he totally repudiated last night has only led to confusion about what his position actually is, although that may have been part of the plan. But to see it refuted so forcefully totally negates the effort of the past two weeks. We will have to see whether the polls over the next few days agree with that analysis.

Wednesday, August 31, 2016

SCOTUS Refuses To Overturn Decision To Block North Carolina Voting Restrictions

In another victory for voting rights, the Supreme Court today split 4-4 on a request from North Carolina to grant a stay from a lower court's decision to block voting restrictions the state was trying to implement this year. The decision effectively blocks North Carolina from implementing five types of voting restrictions - a photo ID requirement, a cutback to early voting, the elimination of same day registration, a ban of out-of-precinct voting and a prohibition on pre-registration of young voters - for the 2016 election. The lower court also stated in its ruling that these measures targeted African-Americans "with almost surgical precision". Incredibly, four Supreme Court justices felt that that was just fine.

Fed Graph Of Future Fed Funds Rate Only Hurts Their Credibility

Sometimes you really have to wonder what is going on at the Fed. They recently released their projections for the Fed Funds rate all the way out until the fourth quarter of 2018:

As you can see, they have 70% confidence that the Fed Funds rate will be somewhere between slightly more than zero and slightly less than 5%, with their median path ending up at around 2.5%. Seriously, does anybody in their right mind think the Fed Funds rate will be anywhere close to 5% just 9 quarters from now! In fact, I would venture to say that even the rate of 2.5% is highly optimistic. The Fed has been overly optimistic about rates for years now and I'm afraid this graph will do nothing to enhance their credibility.

The August unemployment report comes out this Friday and some on the Fed are pushing for a September rate hike if those numbers are strong. I know the general consensus is that the anemic growth in the first two quarters of this year were due to drawing down inventories and that restocking those inventories along with robust job numbers indicate much stronger growth in the last half of this year. Well, let's actually see it before we act. In addition, the positive wage growth we've seen in the last year is primarily due to exceptionally low inflation rather than spectacular wage increases. It is unfathomable that the Fed does not understand that, while you may have to be ahead of the curve when interest rates are at 4 or 5 percent, you need to make sure you are slightly behind the curve when you are at the zero bound. Another rate hike that kills the economy like the one in December last year and the Fed will have lost all credibility.

Confusing Moves Indicate Fissures In Iranian Leadership

I am not expert on Iranian internal politics but it does seem like there must be some kind of internal battle going on within the government. I think we all knew that the nuclear deal with the US would create some friction within the Iranian government, but I'm not sure we expected the disarray to be this visible. First, there was the debacle with allowing Russia to use Iran as a base for attacks in Syria. Initially, Iran allowed Russia to use the Iranian Shahid Nojeh Air Base to refuel its bombers for attacks in Syria. A week later, the Iranians announced that the Russian use of the base was "finished, for now." Initial reports indicated that the Iranians were angry at Russia for publicly announcing the fact they were using the Iranian base and that was the reason for ending Russian use of the base. But in this day and age of sophisticated monitoring and satellites, it is inconceivable that Iran could think that this would not come out publicly very soon - the US probably knew what was going on as it was happening. Within Iran, there had been some pushback to the use of the base within Parliament, with some members pointing out that allowing a foreign base within the country violated the Iranian constitution. But you have to wonder if the internal dissension over this move was more complicated than that.

Then, earlier this week, a member of the Iranian delegation responsible for negotiating the nuclear deal was arrested and charged with spying. A prosecutor in Teheran earlier announced the arrest of a dual national for spying for Britain. An Iranian judiciary spokesman subsequently answered a question about this arrest of a dual national by calling him a "spy who had infiltrated the nuclear team". It is unclear but probable that the two announcements refer to the same person. This could be payback by the hardliners within the regime who opposed the nuclear deal. But I think it also indicates some of the fissures within the regime that this could happen.

More disturbing for the regime may be the fact that the economy is still mired in the doldrums. It had been expected that the economy would take off when the sanctions against Iran were lifted last year. But prices of essential goods have continued to rise and the expected foreign investment has yet to materialize. The hardliners place the blame on the US for not fulfilling their end of the deal and the Supreme Leader Ayatollah Ali Khamenei has backed away from the deal he once supported, saying the nuclear deal has had "no concrete or distinct impact on people’s lives". Yet, in parliamentary elections earlier this year, moderate candidates made a strong showing and the middle class largely still supports moderate President Hassan Rouhani and are disgusted by the corruption at the highest levels of government. But even Rouhani is feeling the heat from the hardliners, recently accusing the US of not implementing the nuclear deal in good faith. All this is a prelude to next June's election when Rouhani will probably stand for re-election. If the economy does not improve, you can expect the hardliners to regain control. But the internal battle between now and then may be reflected in some confusing moves by the government as each side jockeys for position.

Industry Contaminates And Taxpayers Foot The Bill

Two unrelated items in the NY Times today show once again that taxpayers continue to have to pick up the tab for the failures of corporations. Today, it relates to contamination of the environment. In East Chicago, Indiana, the mayor has decided that a development that houses 1,100 people needs to be demolished and the residents moved for their own safety. Soil tests at the complex show incredibly high levels of lead and of arsenic. The EPA insists the soil can be removed safely but the mayor believed that moving so much soil would actually aggravate the problem. Of course, the problem really was caused by a smelting plant just south of the development that was owned by the US Smelter and Lead Refinery. That area has already been declared a Superfund site but officials were shocked to see the high levels of lead in arsenic outside the plant. Right now, the focus is on the EPA and why it didn't know about this sooner and be more diligent about warning residents of the danger. But let's be clear - the blame clearly lies with the smelting plant.

In New York, the upstate area around Hoosick Falls is suffering through the contamination of their water supply. Initial tests showed that the Hoosick Falls water supply was contaminated with perfluorooctanoic acid (PFOA), a hazardous chemical used in the making of Teflon among other things. Subsequent studies showed the contamination extended to other nearby towns and even into Vermont. Landfills in three towns were also declared possible Superfund sites due to high levels of contamination with the chemical. Again, the EPA is accused of not being quick enough or transparent enough in informing communities of the dangers involved. And, again, the real cause of the problem is a nearby plant owned by Saint-Gobain Performance Plastics which is located on the Hoosick River and close to the municipal wells that provide water to Hoosick Falls. The company noted that it had paid for a water filtration system and was currently providing bottled water to residents as if that compensates for the damage that's been done and is an adequate replacement for having safe drinking water from your tap.

In both cases, the EPA is getting lots of flak about how they have handled the situation within the community and some of that may be deserved. But let's be clear that it is private industry that is creating these problems and then relying on government resources to clean them up. Initially, about 70% of the cost of cleanup of Superfund sites was borne by businesses, either through agreements with existing companies or via a tax on the petroleum and chemical industries. But since 2001, the majority of the cost of cleanup has fallen on taxpayers. In addition, the Superfund program is severely underfunded so that many sites are just sitting there due to the lack of resources for remediation. So the cycle continues - businesses pollute, citizens are harmed, and the problem just sits there or taxpayers foot the bill for the remediation that does occur. It's a great way to run a business.

End Of An Era For Grandstand Court At US Open

Yesterday marked the end of an era. It was actually supposed to have ended last September, but we were thankfully given one last brief reminder of how great it was. The grandstand court at the US Open has seen its final match. In fact, it was only supposed to be used as a practice court this year but problems with the court surface on one of the outer courts forced it back into use for the fist two days of the Open. The change was so unexpected that there was no "hawkeye" available on the court and so no challenges were allowed. But, ever faithful, the grandstand was still there, providing the most intimate setting of any court.

I grew up going to Forest Hills to watch the US Open. I must have only been 6 or 7 but I can still remember when Chuck McKinley slammed his racquet into the grass only to have it bounce up and break his nose; when Clark Graebner (I believe) was getting heckled by a fan during warmup and turned around and fired a ball right at the spectator to shut him up; all the Aussie greats - Laver, Rosewall, Stolle, Newcombe, Emerson; and my favorite, the tragic Mexican, Rafael Osuna who was even more graceful and effortless than Federer moving around the court. But not even those days could compare to the intimacy you had with players on the grandstand court at the Open.

People forget that when the Open moved to Flushing Meadows, Arthur Ashe stadium did not exist. Louis Armstrong was the showcase court and the grandstand was essentially the "other" show court. And there were so many classic matches. Louis Armstrong fans would look over the railing to catch the incredible upset that was far more enjoyable than the match on their court. And the atmosphere was electric as the overhanging Armstrong kept all the cheering reverberating through the grandstand. I'm guessing that there were more five set matches on the grandstand than any other court at the Open - I wonder if they keep records like that. Readers are free to leave a comment about memorable matches they may have seen on that special court.

In recent years, we've taken to going to the Open on the Thursday or Friday of the first week with just a grounds pass, getting in line around 8:30 or 9am, and then making a beeline for the grandstand when the gates opened. Invariably, you would get three good competitive matches between players usually ranked between 10 and 20 in the world. With a front row seat, you literally could reach out and touch the players when they came back to towel off. I'll never forget when Gael Monfils played a deep ball incredibly casually, missing his shot. A fan asked in a normal tone, not a yell, "Gael, what happened?". Monfils turned and replied in his French accent, "I do not know. I thought the ball was out but when it landed it was in." Or when the handsome Tommy Haas made my wife swoon when he gave her a big wink after a winning point. You could only feel that intimacy on the grandstand court.

The court will be demolished sometime before next year's Open as part of and upgrade to the grounds. And players and fans have given positive reviews to the new grandstand, although I haven't seen it yet. But I'm pretty sure there will be no other court that has the history and the intimacy of the old grandstand court. May it rest in peace.

Tuesday, August 30, 2016

Median Household Income Rose In 2015

It looks like 2015 was finally a good year for middle class incomes. Early estimates are that the median household income in the US grew by a pretty robust 3.8% in 2015 which would push income up to around $55,600 from 2014's $53,657. More importantly, the rise in income in 2015 far outstripped the anemic inflation rate. Inflation grew 0.1% in 2015, primarily due to plummeting energy costs. But even if food and energy are excluded (which are actually of primary importance to households), the inflation rate only came in at 1.8%, still well below the 3.8% in income growth. This means that households' purchasing power finally increased in 2015. Of course, median household income is still far below the $57,724 number as recently as 2000 and inflation has ticked up quite a bit since then as well. So, although purchasing power still remains far below the levels we had in the 1990s, at least they are finally headed in the right direction. Of course, there are people at the Federal Reserve who want to make sure they nip this increasing purchase power of American families in the bud. For them, it's time for a rate increase.

Trump May Be Paul Ryan's Undoing

Donald Trump may end up becoming Paul Ryan's undoing, despite Ryan's continued backing of Trump. A remote possibility would be that a landslide loss for Trump would also lead to the Republicans also losing the House. But that might actually be the best result for Ryan's political future. The more likely result is that Democrats win the Senate and make significant gains in the House but still leave Republicans in control. Unfortunately for Ryan, those gains that Democrats make in the House will be at the expense of "moderate" Republicans, which will only strengthen the hand of the extreme ideologues in the Freedom Caucus. In fact, one reason fro Ryan's continued support of Trump is primarily to keep those ideologues at bay. In addition, Ryan will also have to work with Democrats in the Senate in order to get any kind of legislation passed. The balancing act required to work with Senate Democrats while keeping the Freedom Caucus happy is probably beyond the capabilities of anyone, even a Cirque du Soleil performer. In fact, Republican hard-liners are already planning to obstruct a Clinton Presidency in much the same manner they have spent the last eight years obstructing Obama. But, without control of the Senate, all that will remain will be endless House committee investigations, something that really will not help Ryan build his 2020 presidential resume. But Ryan may have even more to fear from his own Republican caucus. Already there is talk within the Freedom Caucus of trying to ensure that Ryan does not retain his position as Speaker of the House on the first ballot next winter. This revolt against Ryan knows that it won't actually succeed. It is more focused on weakening Ryan and forcing him to accept changes in the rules and leadership that will give even more power to the Freedom Caucus. That would leave Ryan in the worst position possible, a pariah among conservatives and without any way to move forward the Ryan agenda that he desperately needs for his next presidential run.

Virtually No One Will Ever Go To Prison For Financial Crisis Fraud

If there was any better indication that there is something seriously wrong with our economic and legal system in this country, it is the fact that virtually no one has gone to jail for all the rampant fraud and abuse that triggered the greatest financial crisis since the Great Depression. I'm pretty sure that the outrage over this fact is something both Bernie Sanders and Donald Trump supporters can actually totally agree on. And, in fact, most American would also agree. To add insult to injury, taxpayers were then required, not asked, to bail out the very companies and very people that had created the crisis to begin with. In the end, it may have actually made money for the taxpayers but it certainly hasn't cost the financial firms and the fraudsters who ran them a dime.

Last week, the SEC wrapped up its final case against a Fannie Mae executive charged with securities fraud for understating their exposure to subprime mortgages. The result was a pathetic fine which the individual did not even have to pay for himself - Fannie Mae will make a mere $100,000 "donation" to the Treasury Department and the executive will pay nothing and receive no censure at all. He can continue in his job unperturbed.

If that wasn't bad enough, on the very same day an appeals court refused to reconsider a ruling that absolved Bank of America and Countrywide of committing fraud. An earlier appeals court ruling overturned the conviction of Bank of America/Countrywide that had been returned by a jury in 2013. The trial court demanded a nearly $1.3 billion penalty for Bank of America and a $1 million fine for the Countrywide executive named in the suit. But the whole case was overturned earlier this year by an appeals court in a ruling that said no fraud had been committed because "willful but silent noncompliance" did not amount to fraud because no misstatement had actually been made.

These two cases represent the final cases the government has been able to mount over the financial crisis and the results are incredibly pathetic. The only government conviction that has actually held up was against a minor Goldman Sachs trader. All other cases, even where the government has reached a settlement, have resulted in either minimal fines or fines that the defendant did not even have to pay on his own and a one or two year ban on certain management positions in public companies. I'm pretty sure that did nothing to discipline the offenders and it certainly sent a very loud and clear message to others in the industry that your chances of actually having to pay for your criminal actions are pretty negligible.

Fraud was rampant in the mortgage and securities business in the years leading up to the financial crisis and everyone knows it. The fact that the government could obtain virtually no convictions stands as a testament not only to a lack of aggressiveness on behalf of prosecutors but it also points out that the laws themselves are clearly failing. So, perhaps it is time to rewrite these laws.  One of the reasons business always love "clarity" and "stability" is that it gives them a chance to plan for a fairly certain short-term future. But it also gives them the opportunity to find creative ways around the laws and regulations. And we all know that some sensitive corporate decisions and discussions get done "off-line" simply to avoid creating a paper trail. Maybe it's time to write some broad laws that give prosecutors pretty wide latitude in whether they will prosecute or not. Certainly, lots of prosecutors will do nothing, but that's not much different from today where regulators and prosecutors are already in the pocket of big corporations. But every once in a while, a crusading prosecutor will take these companies on and perhaps win some big judgements and real jail time for the white-collar criminals involved. And maybe, just maybe, the uncertainty created by that possibility would make these people think twice before committing fraud.


EU Fight For Tax Fairness Opposed By Ireland And US

Antitrust enforcement has been a lot stronger in the EU than here in the United States over the last couple of decades. Of course, many believe that EU enforcement has been a little too focused on foreign-owned business (see Microsoft and Google) but at least they have taken some action to reduce the power of these virtual monopolies. Today, the European Commission order Apple to pay nearly $15 billion in back taxes due to illegal tax incentives offered the company by Ireland. The Commission has recently been focusing on corporate tax-avoidance via tax deals countries strike with multinational corporations. It has already gone after Starbucks in the Netherlands, Amazon in Luxembourg, and Anheuser Busch-InBev in Belgium. All of these companies have received favorable tax treatment from the country in question. All these countries are offering these sweetheart tax deals primarily in the hopes of bringing additional foreign investment into their country. But most of the time, these large multinationals barely have a presence in these countries and just move profits into country to pay a far reduced tax rate. In Apple's case, the "so-called head office [in Ireland] had no employees, no premises, no real activities," according to Margrethe Verstager, the competition chief of the Commission. But, by being "located" in Ireland, they were able to reduce their tax on European profits to 0.005%, saving over 50 euros for 1 million in profits.

These tax deals for multinationals actually provide them with an unfair advantage over other, smaller firms who do not have access to these special deals. They also essentially rob other EU countries of tax revenue that should rightfully belong to them. Considering the trouble that Ireland has had after the financial crisis, you would thing that they would only be too happy to receive an extra $14 or $15 billion. And you would think that the US would be happy that someone is trying to enforce tax fairness, perhaps making the repatriation of the profits of the US companies slightly more attractive. But, of course, you would be wrong. Ireland has vowed to appeal this decision on the grounds that they need "to defend the integrity of our tax system." They can't have other companies taking advantage of these sweetheart tax deals getting cold feet, whatever the cost to their own citizens. And a US Treasury spokesman said the decision would "undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU." Yes, we can't have anyone trying to crack down on these US-based multinationals companies. We can see pretty clearly where the priorities of government lies and it is clearly not with their own tax-paying public.

TPP Is Not A Trade Deal - It's A Corporate Power Play

The Huffington Post has a long article on one particular aspect of the proposed Trans-Pacific Partnership (TPP), the huge new trade deal with Asian-Pacific countries, that perfectly illustrates that these are not "trade" deals at all, but are just vehicles for protecting certain industries from competition. TPP has lots of additional patent and copyright protections that will only help Hollywood, the big pharmaceutical companies, and, of course, Wall Street.

Today's article focuses on what is called "investor-state dispute settlement" or ISDS in shorthand. It is essentially an extra-judicial court that resolves disputes between corporations and states. The court operates outside any country's judicial system - it is totally independent. The court was originally set up to ensure that states do not nationalize foreign-owned companies or seize their products without some form of compensation, which would be determined by the court. This gave foreign investors at least some confidence that their investment would not be totally lost through state intervention. But over time, the court's jurisdiction has expanded and TPP looks to expand it even more. Under ISDS, companies are now suing states over mere changes in policy that effect their business. As an example, due to the financial crisis and the resulting budgetary problems, Spain has been forced to reduce its subsidies to the solar power industry on a pretty regular basis over the last few years. As these subsidies were declining, investment arms of Deutsche Bank and BNP Paribas bought a few Spanish solar-thermal power plants. When Spain continued to reduce the subsidy, these investment firms sued Spain, claiming their expectation was that the subsidies would continue at a fixed level and their business was harmed because of the new reductions. It really takes a lot of nerve to create the financial crisis that drives countries into the ground and then sue them for not supporting your investments, but we are taking about the cartel of global banks - nothing is beyond them. The case is still pending. In fact, most people believe that these investments were made primarily to bring an ISDS case against Spain in the hopes of a massive settlement. And, increasingly, third parties are providing funding for these cases, protecting companies from the up-front costs of litigation and then taking a cut of whatever settlement results. In fact, many cases have resulted in over $100 million judgements against the states and that settlement has to be paid in cash. So, rather than being used as a tool to prevent states from seizing corporate property, ISDS is increasingly becoming a vehicle for speculation for investors to wins huge settlements from states for mere changes in policy.

TPP only expands this capability even further. Under the proposed treaty, at least 9,000 firms will now have access to ISDS. More importantly, the treaty expands "the minimum standard of treatment" to now cover financial firms.. This huge gift to Wall Street now gives those big banks the ability to demand compensation from countries that implement regulations that somehow effect the firms' bottom line under ISDS. And it is yet another example of how corporate power is challenging state sovereignty. From Aetna threatening to withdraw from Obamacare if their merger is blocked to tax-avoidance schemes using other countries, corporations are slowly whittling away at the power of individual countries to regulate them. Passage of TPP would just be another step down that road.

Monday, August 29, 2016

So Far, Clinton Is Running An Almost Flawless Campaign

I have spent a lot of time on this blog going on about the failings of the Donald Trump campaign but I have spent hardly a word on Hillary Clinton. And that's primarily because she has managed to simply stay out of the way and let Trump sink himself. Besides a small misstep when she said she "short-circuited" an answer during a Chris Wallace interview, she has largely run a pretty faultless campaign. The convention hit all the right notes and was remarkably successful. She has handled the "scandals" surrounding Benghazi and the email server pretty well. Her attacks on Donald Trump have basically used Trump's owns words against him, inoculating her from any of the usual trope that she is lying about his record. And she continues to make substantive policy proposals such as today's proposal on mental health.  Of course, everyone probably recognizes that none of these proposals will actually get through Congress as it is currently aligned but they continue to provide a stark contrast with the Trump campaign. She comes across as the serious candidate while he continually stumbles, now even having problems explaining his own immigration proposal which really is the centerpiece of his campaign. And that's not even talking about the superior organization that Clinton has built around the country. I kind of doubt whether she can keep this kind of "stealth" campaign going all the way until the election, especially when the debates roll around. Additionally, this kind of campaign may not energize enough new voters, making it harder for Democrats to win the Senate and, perhaps, even the House. It maybe that Trump alone will provide the impetus for a Democratic wave. For now, however, Hillary is running an exceptional campaign.


Broadband Firms Use State Law To Deny Citizens Access to Internet

Today's example of corporate power running amok and distorting the political process comes from a ruling by the United States Court of Appeals for the Sixth Circuit. The ruling upheld laws in Tennessee and North Carolina that restricted the spread of municipal broadband networks. Municipal broadband networks usually begin in areas where traditional internet providers either offer incredibly poor or even no service at all because it is not cost-effective to provide service to a few people over a wide area. But internet providers in Tennessee and North Carolina lobbied those states to limit the areas that these municipal broadband networks could service, leaving those customers locked out of the networks at the mercy of the broadband oligopoly or, in most cases, monopoly. The FCC had tried to use its power from a 1996 law that mandated it to remove barriers to broadband investment to block these laws but the appeals court ruled that the state laws were legal. Some lawmakers and other free market types have argued that these networks are costly to set up and could create an undue burden on taxpayers. Thom Tillis, Senator from North Carolina, had this to say, "[u]nelected bureaucrats at the F.C.C. completely overstepped their authority by attempting to deny states like North Carolina from setting their own laws to protect hardworking taxpayers and maintain the fairness of the free market". Yes, I guess that free market is working really well for those taxpayers who will now be denied internet access because they will no longer have access to the municipal network. Broadband providers have had virtual monopolies for years, providing lousy service at higher prices than most other industrialized nations. And now they are using their power in state legislatures to actually deny citizens access to the internet.

The Sordid Past Of Trump's Advisors

Donald Trump sure seems to be surrounding himself with some pretty sleazy advisors these days. First there was the hiring of Steve Bannon of Breitbart News to be his new campaign CEO. I have still yet to have anyone explain to me how a campaign CEO is any different from a campaign manager. Perhaps he gets paid ten times as much for doing the same job. His sordid record at Breitbart is well-known but perhaps less known is his less than stellar stint at Biosphere II. In recent days, it has also been revealed that Bannon was charged with domestic violence back in 1996 although the case was subsequently dropped. Bannon has also some serious tax problems as well as a civil lien imposed on him as recently as 2011. And now the latest revelation is that he is actually committing voter fraud by illegally registering to vote by using a vacant house due for demolition in Florida as his residence. Bannon apparently rented a couple of properties in Florida in which his divorced wife lived and which he also listed as his primary residence. At the same time, apparently, he was actually a resident of Laguna Beach, California and was registered to vote there up until 2014. Josh Marshall surmises that Bannon's use of the Florida residence was probably a tax dodge as Florida has no state income tax. It will be interesting to see if that turns out to be the case. On the other hand, Republicans can find a silver lining in this, as we actually may have uncovered a real case of voter fraud. But I doubt it - it is hard to imagine Bannon voting in person in Florida and California on the same day, although I suppose he could have taken advantage of early voting and/or absentee ballots to actually vote twice. Maybe that's why Trump is constantly hitting the theme of a "rigged" election - because Bannon has explained how it's done.

On Friday, it was also announced that former Chris Christie aide Bill Stepien has been brought in by the Trump campaign to enhance their get-out-the vote efforts. Stepien is probably a name that most people would outside of the New York area have never heard of but he was apparently an instrumental figure in the Bridgegate scandal that helped doom Chris Christie's campaign. That scandal involved shutting down lanes on the George Washington Bridge so that traffic would be forced through Fort Lee, New Jersey whose mayor had refused to endorse Christie. At the time, Stepien was Christie's campaign manager in his gubernatorial re-election campaign. He was also having an affair with Christie's deputy chief of staff Bridget Anne Kelly, whose email to the Port Authority that it was "time for some traffic problems in Fort Lee" linked the closures to Christie and his staff. Stepien was essentially thrown overboard by Christie due to the scandal as it became clear that, even if he did not know about the closures beforehand, he certainly condoned them after the fact. And a recently released contemporaneous text indicates that Stepien may have been much more involved than just after the fact. In any case, the trial regarding Bridgegate starts in about three weeks and you can be sure that Stepien's name will come up frequently and he might even be called on to testify as could Chris Christie. That's just the kind of publicity a campaign needs in the weeks leading up to an election.

Finally, there is Roger Ailes. His disgraced departure from Fox News as a serial sexual predator has been fully documented here and elsewhere. But he is now apparently an important strategist in the Trump campaign, despite Kellyanne Conway's statement that he "obviously has no formal or informal role with the campaign". I'm not the only one who thinks that Ailes will become more and more important to the Trump campaign as we head into the home stretch after Labor Day. In fact, you can see the Trump campaign making an issue of Hillary's health records as a way to blunt the fact of his not releasing his tax returns. To me, that just reeks of an Ailes' maneuver.

Trump's key advisors now consist of a tax-dodging flame-thrower, a man up to his eyeballs in criminal lane closures in New Jersey, and a serial sexual predator. If Hillary Clinton had advisors like that, can you imagine the daily torrent of media abuse she would be getting. But Trump seems to somehow get away with it, perhaps because he is a continual daily outrage machine. But that shouldn't allow him to not have to answer for his choice of advisors.

Another Criminal Scandal At Deutsche Bank

There is a fascinating story in last week's issue of the New Yorker about Deutsche Bank essentially helping Russians expatriate over $10 billion dollars over a four year period through a fairly simple scheme known as mirror trades. Deutsche Bank (DB) is another serial offender global bank, having been implicated and/or fined for violating US sanction, defrauding mortgage companies, manipulating the price of gold and silver, manipulating the LIBOR rate and then essentially lying to regulators about that, hiding vast losses during the financial crisis, criminally rigging the foreign exchange markets, and now this money laundering for wealthy Russians. In addition, according to the article, the lawyer who was brought in to upgrade the bank's controls and investigate former illegal activity was forced out because, according to a DB board member, he had been "overzealous" in showing that senior executive were well aware of the illegal activity that was occurring. And all this illegal activity has been uncovered just since 2008, a mere eight years.

The money laundering scheme worked like this. A wealthy Russian would open an offshore account in some tax haven and then invest in a Russian based fund. A broker for the Russian fund would by a Russian stock with rubles from Deutsche Bank. That same broker would then sell the same Russian stock for an offshore fund at exactly the same time to DB but this time for dollars, euros, or pounds. Then the offshore fund would transfer those monies into the wealthy Russian's offshore account, essentially converting rubles to the other currencies and moving the money from Russia offshore. Deutsche Bank would pick up a commission on both of these trades, meaning that the trades almost inevitably always lost money for the customers but enriched DB. Technically there is nothing illegal about mirror trades and there are occasions where they serve a legitimate attempt to exploit some inconsistencies in the market. But the willingness of these clients to continually sustain losses on these trades should have been a red flag. And any minimal amount of research would have also show that the funds involved in the trades had the same beneficial owner, another red flag. But DB made no effort to investigate their clients in clear violation of the "know-your-customer" rules that govern trading firms. It seems pretty clear that people in the DB Moscow office where the trades originated as well as a few people in the London office that executed these trades knew exactly what these trades were intended to do. But they did nothing to stop them, preferring to pick up the easy revenue instead. Finally, in 2015, an internal investigation into the mirror trades resulted in three members of the Moscow office being suspended. But please read the whole story, as my recap just covers of the most egregious actions at the bank.

In 2015, two researchers in the Deutsche Bank London office decided to look at capital movements that were not included in the normal balance of payments reporting number for individual countries. What they found in the UK was somewhat shocking - at least $1.5 billion per month in "unreported" capital was flowing into the UK economy every month and much of that money was coming from Russia. When the mirror trade scandal was finally revealed later that year, it became apparent that DB itself was responsible for about 20% of that capital movement. As anyone in London can tell you, foreigners have bought up tons of real estate in the city and it has become unaffordable for most average Londoners - I have a number of friends who have been forced to move out of the city. And a lot of the money used to buy London property is clearly money expatriated illegally from Russia as well as other countries.

Once again, the wealthy use their illegal gains at the expense of workers and families and banks and governments do virtually nothing to stop it. Deutsche Bank will again probably only receive a manageable fine for these mirror trades which it will just treat as the cost of doing business. All I can say, if any individual had wracked up the record of criminality that Deutsche Bank has managed in the last eight years, they would be looking at some serious jail time. It is really time we treated these serial offender companies exactly the same way.

US Open Preview

The US Open tennis tournament, the final major of the year, begins in just a couple of hours here in Queens, NY. And, as usual, the two number one seeds and prohibitive favorites are Novak Djokovic on the men's side and Serena Williams on the ladies'. But both players come into the tournament with some serious questions about their health and their play.

Djokovic had a poor loss at Wimbledon against Sam Querrey and then lost a classic match against Juan Martin Del Potro in the early rounds of the Olympics. There have been rumors of some sort of injury but it certainly seems that Novak has kind of lost his mojo ever since winning the French Open. That victory at the French gave him his career Grand Slam and also made him the first player since Rod Laver to hold all four major titles at once. He seemed on his way to a possible calendar Slam but that all ended at Wimbledon. According to Mats Wilander, Djokovic really lost his motivation after winning the French and he will need to some time to find that incredible drive again. So I don't expect Novak to make it all the way this year. And if he stumbles, the field is wide open. del Potro looks to be back in form after a number of injury-plagued years but he may not have the stamina yet to endure the full two weeks. Rafa Nadal looked like he also had recovered from a severe wrist injury with his play at the Olympics but it is questionable whether he can also hold up for two weeks. Kei Nishikori has made a couple of deep runs here at the Open but it remains to be seen whether he can be as consistent as he needs to be to win it. And Andy Murray has been playing some solid tennis all summer long as has Marin Cilic. If Djokovic does not return to the dominant form he has shown over the last two years, this could be a wonderful, wild ride on the men's side of the draw.

The question for Serena Williams is not motivation, but health. After a disastrous Olympics, it was revealed that Serena had a some kind of shoulder injury which was clearly effecting her play and, more importantly, her serve. Serena's serve is such a weapon and, without it, she can be vulnerable. On the other hand, Williams has incredible motivation this year. This is by far the tournament she most loves to win and a victory here would give her 23 major singles victories, surpassing Steffi Graf and add another record to her resume as the greatest women's singles player ever. But if she should lose early, it will open up the draw to a whole host of players. The number two seed, Angelique Kerber, has a chance to dethrone Serena as number one in the rankings, giving her motivation but also some added pressure. In addition, Agnieszka Radwanska and Karolina Pliskova have had solid summer tournaments and are both in form. But I don't think it will matter. I really believe this is the one Serena really wants to win so I expect her to be lifting the trophy in another two weeks.