Category Archives: Finance

Anti-trust: Bust ’em up, or?

Clearly Google, Amazon, Facebook, Apple and a few others are too big, too market expansive, too monopolistic. Apple less so, but the argument would still hold for them.

Those first three are market behemoths with the power and capital to quash any competition — primarily through acquisition. Don’t like that company competing with your searches, online shopping or online ad market? Buy them up.

That’s how monopolies become monopolies. Price fixing (like Apple and Uber) or price gouging, (like Amazon and Microsoft) which drives out competition (or shrinks the competition down so that they become easy acquisition targets), are all tactics to build monopolies.

The Big Three will get disassembled here in the next few years, no doubt about it. The DOJ, once the IBI* in Chief is out of the picture, will get back on track working for the U.S. Citizens.

But what about eliminating the problem created by such companies in the first place?

The below linked Senate Bill tries to do just that. But I wonder if there’s a simple rule that could be put in place that would kill the M&A practice like the evil corporate consolidation game that it is.

What if we use the market capitalization of any company as a filter to determine which companies can buy other companies?

Surely a $Trillion dollar company like Apple has so much cash they could buy nearly any other company they coveted. Apple Buys Uber and then becomes a massive captive distributed transportation monster. Obviously, we’d want to stop that.

So, at what size does a company become too big to allow it to swallow up competition (or expand sideways like Amazon’s purchase of Whole Foods)?

Here’s a simple concept to limit monopolies:
A company that sits at the 90th percentile or higher of market capitalization as ranked on the S&P500 — is banned from ANY and ALL acquisitions.

Right now that would take the top 50 companies out of the possibility of buying other companies. Right now that’s a market cap of about $100B. As this is a percentage, it wouldn’t matter how big or small the actual market cap would be. A simple rule that would severely limit monopoly creation (It might be that the 80th percentile would be better, but you get the point.)

Here’s that senate bill:
https://www.congress.gov/bill/115th-congress/senate-bill/1812/text?r=22

And here’s the list of FINDINGS that were listed in that bill:

(1) competitive markets are critical to ensuring opportunity for all people in the United States;

(2) when companies compete, businesses offer the highest quality and choice of goods for the lowest possible prices to consumers and other businesses;

(3) competition fosters small business growth, reduces economic inequality, and spurs innovation;

(4) concentration that leads to market power and anticompetitive conduct makes it more difficult for people in the United States to start their own businesses, depresses wages, and increases economic inequality;

(5) undue market concentration also contributes to the consolidation of political power, undermining the health of democracy in the United States;

(6) the anticompetitive effects of market power created by concentration include higher prices, lower quality, significantly less choice, reduced innovation, foreclosure of competitors, increased entry barriers, and monopsony power;

(7) monopsony power— (monopsony means only a single BUYER is available)

(A) allows a firm to force suppliers of goods or services to cut their prices to unreasonably low levels, resulting in reduced business opportunities for suppliers and reduced availability and quality of products and services for consumers; and

(B) can result in workers being forced to accept unreasonably low wages;

(8) horizontal consolidation, vertical consolidation, and conglomerate mergers all have potential to cause anticompetitive harm;

(9) unprecedented consolidation is reducing competition and threatens to place the American dream further out of reach for many consumers in the United States;

(10) since 2008, firms in the United States have engaged in over $10,000,000,000,000 in mergers and acquisitions;

(11) between 2010 and 2015, there was a 50-percent increase in the number of mergers and acquisitions reviewed by the Federal Trade Commission and the Antitrust Division of the Department of Justice;

* Incoherent Bloviating Imbecile

 


Taxes = Happiness

Name the happiest people in the world.
Name the highest taxes paid by people and corporations in the world.

Guess what? They (tend) to be the same people.

This is a simple plot (R code below) of 108 countries plotted by their “happiness quotient” in relation to their combined personal and highest corporate tax rate.

happytax

That line means that, in general, the higher the tax rate, the happier people reported to be (see cite below). This has been documented before. And a new report is due soon that will further elucidate this relationship.

The bottom line? If you take the recent US Republican tax bill that passed (Dec 2017), then what these fools have done is slid the United States BACKWARDS on that line. By reducing taxes (they say) across the board, they effectively want the Citizens of the United States to be more miserable than they are now.

Happy Holidaze!

[R Code]

lmod <- lm(happiness ~ taxrate, data = happytax)
plot(happiness ~ taxrate, data = happytax, pch = 19, 
 main = "happiness vs. taxrate", 
 xlab = "taxrate",
 ylab = "happiness")
abline(lmod)

[Cite:]
https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates
https://tradingeconomics.com/country-list/personal-income-tax-rate
https://en.wikipedia.org/wiki/World_Happiness_Report


Logical maximum pay

I like creating simple algorithms to solve complex social issues. My 28th, 29th and 30th Amendments, FED tax schedule, college tuition, inequality tax and dividend maximums, among others, are examples.

One of the bizarre social numbers out there is CEO pay (or corporate executive pay). Generally, these numbers are incomprehensible.  Some examples (BI):

Name Company Salary
Steve Wynn Wynn Resorts $28.2 million
Leonard Schleifer Regeneron Pharmaceuticals $28.3 million
Ginni Rometty IBM $32.3 million
Jeff Bewkes Time Warner Inc. $32.6 million
Brian Roberts Comcast Corp. $33 million
Robert Kotick Activision Blizzard Inc. $33.1 million
David Zaslav Discovery Communications $37.2 million
Bob Iger Walt Disney Co. $41 million
Les Moonves CBS Corp $68.6 million
Tom Rutledge Charter Communications $98 million

What is reasonable? Certainly not $100 million a year! Some say that executive pay is necessarily high as it needs to attract the best (the best sociopaths…) who are willing to take the heat and dish out the sometimes oppressive company actions that keep a corporation healthy.

Yeah, right!

But as I asked, what is reasonable? What is a logical maximum salary? What simple algorithm could we create to deduce this? How about this. I’ll admit that someone might be:

  • twice as smart as me
  • twice as skilled as me
  • twice as educated as me
  • twice as experienced as me
  • twice as industrious as me and
  • twice as lucky as me.

(Twice being 100% better. “Me” being the average Joe.)

That’s 2 x 2 x 2 x 2 x 2 x 2 = 64 times “better” than me.

If the median household salary is $59k (US Census Bureau 2016) then:
64 x $59k = $3,776,000

That is the maximum logical pay anyone could possibly be paid based on the reasonable comparison of people’s abilities. $3.7M is a pretty hefty paycheck in my book. Plenty, I’m sure, on which to live a lavish life.

But there are 482 CEO’s of the S&P 500 paid more than this number.
(cite: https://aflcio.org/paywatch/highest-paid-ceos)

The highest, Sundar Pichai of Google fame, gets $100M. That means that he’s effectively 1694 times “better” than me.

Boy, that sure is one-hell-of-a-lot better! I’m sure he’s worth it.


Sheesh, Capitalists!

“Here’s What Stocks You Want to Own in the Event of a War With North Korea”

https://www.thestreet.com/story/14316270/1/north-korea.html

What a load of aristocratic horse hockey! Cramer’s TheStreet is trying to tell you “Hey, here’s how to make money on the up coming end-of-the-world — get in now while you still have air to breathe!”

  • Do these people even realize how like human scum they are?
  • Is there a more despicable slice of humanity than capitalists?
  • Do capitalists even have souls?
  • What do you call 1,000,000 capitalists at the bottom of the sea?
    A good start. (an oldie but tasteless joke).
  • Are there conscientiousness capitalists? I guess… I’ve never met any. They “say” they are but most likely would read an article like that and, if it made sense, take financial advantage of the information.
  • Do I despise capitalists? No. Only those who own capital.

 


Self-regulating Systems

Nature knows how to self-regulate. The cycles of feast or famine are simple examples of such systems. Too much browse for caribou produces too many caribou calves, which then feeds too many wolves which then produce too many pups which then grow up and eat too many caribou… Leading to too few caribou, starving too many wolves, which end up producing too few new pups, which then let too many new caribou to prosper. Yeah, The Lion King was right, it’s a circle, sometimes it’s a big circle and sometimes it’s a little one. But around and around it goes.

Other self regulating system examples are the human body: when we get hot, we sweat, which cools us down. If we get too cool then we shiver which produces excess heat which warms us up.

The climate is generally a homeostatic system – a system that reaches an equilibrium (or oscillates between extremes, the average of which is steady over time). Ignoring humans impact for now, too much CO2, produces too much plant growth, which then extracts much more CO2 (a greenhouse gas) which then allows the planet to cool, which kills or retards plant growth allowing the decay of plant material to return the CO2 to the atmosphere which then heats up and allows plants to thrive again.

Over the years I’ve tried to figure out how to apply such self-regulating behaviors to social systems. For instance, I dreamed up a number of Constitutional Amendments, one of which addressed campaign contribution limits. I figured that if we used median wage as the basis for contributions — this would self regulate: every citizen could contribute one days gross wage, per candidate, per year. If politicians wanted greater contributions — they should work to elevate wages.

Another one is: what should be the minimum wage for any one location? I figured that the cost of living should determine the minimum wage; it would cost more to live in New York, NY than in Lincoln, NB. To create an algorithm for this: if we use the median monthly cost of an apartment as the basis for minimum wage: $1000 / mo. rent multiplied by 2 and divided by 100 would give us $20/hr. At 20 dollars an hour, a $1000 a month rent seems reasonable. If you want to raise rent, you have to raise wages too. If you want to lower wages, you have to lower the cost of rent.

All sort of systems can be redesigned with self-regulation in mind. Taxes for instance. Or how to handle income inequality. I’ve posted on these topics here if you’re curious. But what about other applications? Healthcare? Are there self-regulatory aspects we could apply there? I’ve posted my thoughts on the “win/win” vs the “win/lose” aspect of capitalism. That seems like a candidate for determine when free-markets should be used. In fact when the “win/win” impact of capitalism is applied, supply and demand also finds its own equilibrium.

Tragedy of the commons algorithms? Water rights algorithms? Gun laws? Energy production and consumption? Land use? The elimination of biases in the hiring process for employers? I’m sure there are many facets of life that would benefit from an intelligent analysis and design of algorithms which would produce a self-regulating system.


New FED Mandate – Equality

The Federal Reserve is “governed” by a Congressional mandate:

  • Maximize employment.
  • Keep prices stable.
  • Retain moderate long-term interest rates.

I propose another:

  • Minimize income inequality.

Now, there’s a problem with all of these mandates. The FED has but three primitive tools with which to accomplish their goals.

  • The Discount Rate, that is, the oft stated “interest rate”.
  • Banking reserve requirements, what percentage of deposits banks are required to retain to substantiate their loans.
  • Open market activity, buying and selling of treasuries like the Quantitative Easing they did during the 2008 Financial Crisis.

So, what new (or existing) tool can Congress give the FED to help it with this new “Min- Inequality” mandate? How can the FED do its work with only a throttle/brake (interest rate), a bottle of NOX (QE),  and seat belts (banking reserve)?

If we postulate that the three main drivers of income inequality are corporations that:

  • Pay their executives and officers far more than they are worth, and pay their employees far less than they are worth.
  • That they distribute the income of the company’s business to shareholders rather than a larger portion going to employees (as wage, salary or shares).
  • And that they use net income to buy-back shares of the company from the stock market (which boosts stock prices).

Then those are the behaviors we want to change.

These are therefore the leverage points we can use:
1) Corporations borrow money from banks to fund growth.
2) They borrow money from investors as bonds to fund growth.
3) And corporations issue additional common or preferred stock to fund growth.

We would need to give the FED the power to throttle each of these corporate growth behaviors. With me so far? For each of these corporate expansion tactics we’ll add an inequality tax. This tax will be a calculation of the highest paid employee divided by the lowest paid employee — and that then divided by 100.

   CEO    ÷ low wage ÷ (adj)
5,000,000 ÷  50,000  ÷  100  = 1.00

The FED will now be given additional power, a number the “Inequality Quotient” IEQQ, by which they can lower the inequality penalty or raise it.

With the FED IEQQ number set to 1.00, a corporation with the above inequality metric would have to pay 1% higher interest rate to borrow money from any bank. Would have to pay 1% more in bond interest for any bonds they issue. And they would have to pay 1% gratuity tax on any new shares they offered.

   CEO    ÷ low wage ÷ (adj)
5,000,000 ÷ 50,000   ÷ 100 * (1.00 FED IEQQ) = 1.00%

All funds collected would go into — Social Security!

Simple right? Now, how do we convince Congress that this is important and that this (or a version of it) will work?


Secure Society Tax

The wealthy are different

The rich don’t earn their income through work. They don’t get “paid”. Therefore they pay no payroll tax. And that’s what the Social Security tax is. Instead the wealthy earn their wealth through:

  • Dividend income
  • Bond income
  • Rental income
  • Venture debt income
  • Private equity income
  • Real estate income
  • P2P (peer to peer) income
  • CD interest income
  • Capital gains

All of which are taxed differently (or not taxed at all if you can finagle it.)

So, altering the Social Security taxation model is going to miss one HELLUVA LOT OF WEALTH. It would still work, to some degree. And the corporate inequality tax would contribute substantially. But probably not enough. How do we squeeze these filthy rich people of the funds that they’ve earned as capitalists climbing their wealth ladder made from the backs and bodies of us the worker?

Consumption tax? Not nearly enough. The rich don’t wear more sox, eat more food, drink more beer. And the expensive consuming they do do, maybe 2x to 10x of what the average cost to you and I would be, would contribute practically nothing in tax revenue for our SSI. Expensive cars, boats, homes, condos, planes? Eh, a drop in the bucket compared to what we need.

(We need to raise, oh let’s say $500billion per year to fund SSI. But that’s just a ass-pulled number. I’ll sit down here soon and determine just what we would need to fund this program.)

Still the problem exists — the rich don’t pay their share of their wealth — wealth built from the hard work of EVERY AMERICAN throughout the decades.

As funding sources for SSI here’s what we have:

  • Payroll taxes (SS and Medicare tax)
  • Corporate inequality tax
  • Paltry wealth-income taxes

What else could we tap?

  • Stock Market trading transaction tax?
  • Luxury consumption tax?
  • Luxury property tax?
  • Luxury travel tax?
  • ???

Our security has value

For the most part, in the United States, we live in security. We are secure from invasion. Secure from civil unrest. Secure from property seizure. We have systems in place to assist us in times of natural disaster and financial disaster. Fiduciary, physical and civil insurance infrastructures help protect our investments, our savings, our towns and cities. We have federal, state and local systems to protect us against fire and attack. We have transportation systems secured for safe travel and commerce.

Bottom line: we live in a pretty secure system, for which we all are grateful. If you own a car, rent a home, have a job and a kid or two — you should be thankful. And I bet you are.

But what if you own a building or ten of them? A couple of mansions, a yacht, a jet, a fleet of private vehicles. What if you have millions of dollars of investment in industry, technology, the trading markets? Are these not also protected by the country’s vast and comprehensive security system?

What if you are worth $500 million dollars. How much of that “worth” is actually tied up in the country’s protective infrastructure?

  • Need consistent and uninterrupted electricity?
  • Need pure water and a sewage system?
  • Need roads, bridges, traffic signals, emergency services?
  • Need airports, shipping ports?
  • Need a continuously operating communication system?
  • Need a fast and responsive medical system?
  • Need an education system for yourself, your kids and your employees?
  • Need a full featured legal system?

What if your entire wealth basis depended on every one of these (which it no doubt does)? How much would you have to pay to build all of this yourself in order to be worth that $500M?

As the country’s workers, we pay income tax. We pay sales and property tax. And we ARE the protection system. We ARE the cops, the firemen, the insurance adjusters, the nurses and doctors, the teachers, the soldiers. We ARE the country’s security network. And because we ARE this system — you, the wealthy of the nation, of the world, you need to pay up!

What we need is a Secure Society Tax. You like living in a secure society? Well, that security comes at a cost. The more you own, the more you have, the more you gather — ALL OF THAT NEEDS PROTECTION!

You can’t just live here and benefit from all of this amazing security systems that are the United States of America without coming to the realization that if it were NOT for US, the We the People, you would NOT be wealthy. So, pay up!

Secure Society Tax: 1% of net worth paid per year.

You don’t like paying for the great service and security you receive in the United States? Well then — move.