Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktFix income inequality with $10 million loans for everyone!
By Sheila Bair, Published: April 13
Are you concerned about growing income inequality in America? Are you resentful of all that wealth concentrated in the 1 percent? I’ve got the perfect solution, a modest proposal that involves just a small adjustment in the Federal Reserve’s easy monetary policy. Best of all, it will mean that none of us have to work for a living anymore.
For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.
So why not let everyone participate?
Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)
Think of what we can do with all that money. We can pay off our underwater mortgages and replenish our retirement accounts without spending one day schlepping into the office. With a few quick keystrokes, we’ll be golden for the next 10 years.
Of course, we will have to persuade Congress to pass a law authorizing all this Fed lending, but that shouldn’t be hard. Congress is really good at spending money, so long as lawmakers don’t have to come up with a way to pay for it. Just look at the way the Democrats agreed to extend the Bush tax cuts if the Republicans agreed to cut Social Security taxes and extend unemployment benefits. Who says bipartisanship is dead?
And while that deal blew bigger holes in the deficit, my proposal won’t cost taxpayers anything because the Fed is just going to print the money. All we need is about $1,200 trillion, or $10 million for 120 million households. We will all cross our hearts and promise to pay the money back in full after 10 years so the Fed won’t lose any dough. It can hold our Portuguese debt as collateral just to make sure.
Because we will be making money in basically the same way as hedge fund managers, we should have to pay only 15 percent in taxes, just like they do. And since we will be earning money through investments, not work, we won’t have to pay Social Security taxes or Medicare premiums. That means no more money will go into these programs, but so what? No one will need them anymore, with all the cash we’ll be raking in thanks to our cheap loans from the Fed.
Come to think of it, by getting rid of work, we can eliminate a lot of government programs. For instance, who needs unemployment benefits and job retraining when everyone has joined the investor class? And forget the trade deficit. Heck, we want those foreign workers to keep providing us with goods and services.
We can stop worrying about education, too. Who needs to understand the value of pi or the history of civilization when all you have to do to make a living is order up a few trades? Let the kids stay home with us. They can play video games while we pop bonbons and watch the soaps and talk shows. The liberals will love this plan because it reduces income inequality; the conservatives will love it because it promotes family time.
I’m really excited! This is the best American financial innovation since liar loans and pick-a-payment mortgages. I can’t wait to get my super PAC started to help candidates who support this important cause. I think I will call my proposal the “Get Rid of Employment and Education Directive.”
Some may worry about inflation and long-term stability under my proposal. I say they lack faith in our country. So what if it cost 50 billion marks to mail a letter when the German central bank tried printing money to pay idle workers in 1923?
That couldn’t happen here. This is America. Why should hedge funds and big financial institutions get all the goodies?
Look out 1 percent, here we come.
outlook@washpost.com
Sheila Bair is a former chairman of the Federal Deposit Insurance Corp. and a regular contributor to Fortune Magazine.
Filed under: Federal Reserve, fun stuff |
All Things in Moderation 
Alternately, give everybody one million dollars when they turn 18 on the proviso that the government gets to kill them once they go broke.
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Breyer’d be happy, people could finally afford burial insurance.
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OT:
Someone was wondering the other day about who in modern society does not have photo ID. The Amish for one:
http://thinkprogress.org/justice/2012/04/12/462977/pennsylvania-voter-id-amish-voters/
The voter registration rules for people who either don’t have or don’t want photo ID seem byzantine at best.
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yello (from your link):
Pennsylvania’s voter ID law requires certain people of faith to take additional steps simply to exercise their constitutional right to vote.
This is false. It “requires” no such thing. What it does is allow certain people of faith who refuse to take the simple step of producing a photo ID to obtain an acceptable non-photo ID by taking additional steps.
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BTW, if I form a religion which prohibits its members from paying income taxes, will tax laws become unconstitutional on religious liberty grounds?
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Worth a read also:
“Yes, Virginia, This Is Obama’s JOBS Act
Matt Taibbi
POSTED: April 12, 6:55 PM ET
A number of people, many of them enthusiastic supporters of President Obama, wrote in to complain about my last piece about the JOBS Act. The gist of many of these letters was that the new deregulatory law could in no way be described as “Obama’s JOBS Act.”
“This was a Republican bill, birthed by Eric Cantor in the House, and driven by overwhelming Republican support,” wrote in one emailer. “All Obama did was sign it. It’s totally dishonest to call it an Obama bill.”
Okay, let’s talk about that.”
http://www.rollingstone.com/politics/blogs/taibblog/yes-virginia-this-is-obama-s-jobs-act-20120412
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Scott
BTW, if I form a religion which prohibits its members from paying income taxes, will tax laws become unconstitutional on religious liberty grounds?
Interesting question. I don’t think “constitutional law” would ever come up because you would have no reason to need consider it to avoid taxation. I suspect a very clever fellow like you could indeed work out a system predicated on “religion” to avoid taxation. Might require some clever name for the funds you raised, doubt you could simply call your income “salary’ and get away with it,,,but cars, housing, food, should be pretty easy to take without taxation.
But the religious “dodge” is a good one. Ask L Ron Hubbard. HIs acolytes now own half or more of the valuable land in downtown Clearwater Florida which has placed a greater demand on the Clearwater taxpayers since the Scientologists do not pay property taxes on their buildings..with little exception…perhaps their hotel.
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I would end all tax exemptions for non-profit groups. No free rides.
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ruk:
you would have no reason to need consider it to avoid taxation.
I’d have as much reason as the Amish have to avoid photo IDs.
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Well, according to the WSJ, the Fed has been the buyer of 61% of government debt as part of QE. Hedge funds are definitely not doing the yield curve arbitrage. (Hey, I want to lever up the 10-year. Pay me 2 and 20 for that?)
And banks are holding onto more government debt not because they are arbitraging the yield curve, it is because Basel III capital and liquidity requirements are very strict. People forget that part of the reason why banks are sitting on cash and not lending is due to regulation.
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JNC
I would end all tax exemptions for non-profit groups. No free rides.
Again we’re in agreement JNC. I’m not sure why non believers are supposed to subsidize the fire and police protection and the roads and infrastructure for any non profit.
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Mark:
Thanks for posting this Bair article. What a great idea! I too think that the Fed should provide individual Americans with the same opportunities it gives to banks.
However, in order to “make money available” (to use Bair’s carefully crafted turn of phrase), ideally $10mm, to individuals Americans at near zero interest rates in the same way it does for banks, a few things would have to happen first.
First of all, each individual person would need to get other people to deposit a total of at least $100mm with them. Then, the Fed would apply its reserve requirements against these deposits, and each individual would be required to post 10% of its deposits with the Fed, meaning that each person would be required to place $10mm on deposit with the Fed. Once this was done, the Fed could then change its reserve requirements, reducing them to 0% and return the reserves, thus “making money available”, to the tune of $10mm, for each person holding $100mm in deposits, just like it “makes money available” to banks by changing reserve requirements.
Of course, reducing the reserve requirement to 0% might be considered a bit dangerous. After all, reserve requirements exist for a reason. So, alternatively every individual in the nation could convince others to deposit, say, $200mm with them, in which case reserve requirements would have them posting $20mm each to the Fed. Then the Fed could simply reduce reserve requirements to 5% of total deposits, and voila, each person would suddenly have $10mm “made available” to them! It’s like magic.
Now, I know what you might be thinking…where is the $200mm in deposits, per person, going to come from? These are minor details perhaps best left for Ms Bair to advise us on.
Another way, apart from changing reserve requirements, that the Fed “makes money available” is via the purchase of government debt. So, rather than collecting deposits and placing reserves with the Fed that can then be returned to them, individuals could go out and purchase $10mm worth of government treasuries. Then, when the Fed comes to the market with newly minted cash to buy up government debt, individuals can sell their $10mm worth of government debt to the Fed, and thus $10mm will have been “made available” to them.
Of course, where each individual will come up with the $10mm in order to purchase the government debt in the first place is obviously a problem. Again, maybe Ms. Bair has some ideas.
Lastly, there is the Discount Window. This is, in fact, the most direct method of “making money available” to banks, although it also happens to be the least utilized. The main reason it is the least utilized is because it is generally reserved for banks in some kind of liquidity crisis, and the rate charged is not actually zero, but is in fact higher, currently .75% for “primary” credit quality banks, and 1.25% for “secondary” credit quality banks. It is deliberately set higher than the Fed Funds rate precisely in order to encourage banks to utilize private markets for borrowing, and make the discount window a lender of last resort.
However, we could consider opening the discount window to all individuals and grant them the same privileges as banks. So, in order for individuals to borrow $10mm from the discount window, they would each first need to come up with some kind of highly rated asset with a face value of somewhat more than $10mm (there is a haircut, of course) to post as collateral against the loan. Again, I’ll leave the nagging details of where to get these assets up to Ms. Bair, but she’ll have to come up with a better idea than posting Portuguese debt purchased with the borrowed funds. You need to actually have the assets for collateral before you can borrow the money from the discount window. (That’s rather a primary purpose of the discount window…to provide liquidity for otherwise illiquid assets.)
So, now that each individual has their $10mm, they can implement Ms. Bair’s ingenius plan, ie buy 10yr treasury notes yielding 2%, and reap the spread between the borrowing rate and the asset yield. One thing, though, is that the spread is not really the full 2%, because remember the discount window rate is actually higher than the Fed Funds rate, so really the spread is, at best, only 1.25% (2% – .75%) and probably lower, since it would be difficult to classify most individuals as “primary” credit quality.
Also, and more significantly, there is the term mismatch problem, in that one can borrow from the discount window only on a short term basis, usually overnight, while buying a 10yr note is investing for a much longer term, namely 10 years. So one has to be able to borrow at .75% every day for the next 10 years in order for this to work out as planned. That’s a fairly risky prospect considering that the rate changes at the whim of the Fed itself, and just 5 years ago the discount rate was 6.25%. In fact, one might even call such a risky position speculation on future interest rates. I wonder what Dodd-Frank and Volcker would think of such speculation? And, of course, if we are going to grant individuals the same privileges as banks, they will surely have to operate under the same regulations, no?
No worries, though. I’m sure we can make this work somehow. Ms. Bair knows exactly what she is talking about, and would never prey on the (wholly understandable) ignorance of the average person in order to demagogue and demonize the banking system.
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Excellent comment.
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Mark:
Excellent comment.
Thanks.
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I cannot fathom why traditional White House pay to play is in anyway newsworthy.
I’m not being sarcastic or snarky. Does anybody find this topic surprising? Any ideas on why the Times thought it was worthy? I’m genuinely baffled.
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Heh. David Axelrod apparently has forgotten that Obama is running for re-election.
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And with a few well chosen words…
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Did all eleven bring the same woman?
http://www.washingtonpost.com/politics/secret-service-scandal-and-alleged-prostitution-inquiry-began-with-night-of-partying/2012/04/14/gIQAytztHT_story.html?hpid=z1
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George, I am guessing that the NYT is dutifully reporting the truth about who gets into the WH, regardless of the party in power. We here all know that no WH is open to “citizen input” from the great majority who do not max out contribs, but every nominee promises to “listen to the people”. So it is always worth reminding us that our POTUSes are not saviors, they are not men of the people, and while they are probably all motivated to “do the right thing” for the nation as they see it, they don’t really care how we see it, except in order to pander to us while running for election or reelection.
Isn’t it good for a paper of record to remind us of the charade?
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Mark,
I understand what your writing, but do you honestly think that those for whom the reminding might have an effect actually read the Times? I do not. I’m wondering if the Times thinks they do. If they do not (my initial instinct) that still leaves me baffled as there would be no reason to write it. If they do think that low-info voters read the Times, well, then I’d be speechless. It’s been my lifelong experience that hero-worshippers are low-info voters. Does your experience differ?
I guess that’s why I’m so fascinated by this.
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but do you honestly think that those for whom the reminding might have an effect actually read the Times?
Maybe. Their readership is not as “elite” in NYC as it might be nationwide. Their city edition has lots of stuff in it you and I would have no interest in. I don’t think it ever has been a great business rag, but it is trying since the WSJ was sold to NewsCorp. It used to just assume that biz readers were reading the WSJ. So, yep, I think their metro NYC dead tree readers include lots of average folks. Just a guess. We should ask Brent and Scott who live up in that hellish nightmare.
Speaking of living, I saw that condos in the Hermann 1400 building are cheap. http://www.1400hermann.com/
Do you know what’s going on there?
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Mark:
We should ask Brent and Scott who live up in that hellish nightmare.
I don’t have any special insights into the local readership of the NYT, but I would guess that so-called low-info voters are not particularly avid readers of the NYT. (There’s some cheap snark to be had in there about those who are avid NYT readers, but I will refrain.)
I suspect that this particular story and others like it represent, in the world of the NYT, balance. When accusations of bias and shilling for the left arise, they get to point to this kind of story and say “See, we attack Obama too.”
BTW, I don’t know when you were last in NYC, but it really is nothing like it used to be back in, say, 1990. It’s really pretty nice. Stupidly expensive, of course, but I wouldn’t call it a hellish nightmare.
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I apologize for the snark, Scott. I’ve been to Manhattan at least a half a dozen times since 2001 and Brooklyn twice. The city seems much safer and cleaner now then it did pre 1990.
During the work week, midtown Manhattan still reminds me of an ant colony, however.
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Mark:
I apologize for the snark, Scott.
No need to apologize, I’ve got no great love for NYC, and have aimed plenty of snark at it myself. But when I moved back after nearly 15 years away, I was pleasantly surprised at how safe and clean it had become. It’s really nothing like the NYC of The Warriors or Fort Apache: The Bronx, or even Bonfire of the Vanities lore. And it definitely used to be.
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Mark,
There was an interesting comment somewhere that said, in effect, that the Secret Services greatest asset was the belief that it’s impossible to successfully carry out an attack on the President. I wonder if this undermines that belief, and if so, what’s to be done about it.
It was Kessler that wrote, in his book, that one of Cheney’s daughters wanted the SecServ to drive her and her friends around Washington. When her detail complained, the detail’s chief was transferred.
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I would hate to think someone will be emboldened by this Secret Service lapse.
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Troll:
I’m genuinely baffled.
I’m with you. Low-info voters who read the NYT are still unlikely to read an article about “pay to play.”
BTW, since you are a pharma guy, I would like to hear your opinion on Mark’s post the other day about the proposed legislation reserving seven classes of antibiotics for human use, in response to the overuse of antibiotics in livestock. New antibiotics and, particularly, new classes of antibiotics seem to be extremely few and far between.
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Mark,
There is a bit of a condo glut in Houston right now so that might explain it. Several new buildings have opened up around the Galleria kind of changing the “desirability quotient” in regards to location as well.
Scott, I think you’re right, it’s (snicker) balance.
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