Streetwise Professor

February 28, 2010

The Amazing Powers of the CFMA

Filed under: Commodities,Derivatives,Economics,Energy,Exchanges,Financial crisis,Politics — The Professor @ 12:16 pm

I knew that the Commodity Futures Modernization Act (CFMA) was a powerful piece of legislation, but I was unaware just how powerful.  It apparently has the ability to alter the space-time continuum, and affect events even prior to its passage.  How did I learn this?  From a letter signed by senators Feinstein, Cantwell, Snowe and Dorgan to Chris Dodd.  (I haven’t been able to find a copy online.)  The senators state:

As you know, in 2000 Congress made the mistake of exempting energy from commodities regulation in the Commodity Futures Modernization Act.  This exemption, known as the “Enron loophole” led directly to the Western Energy Crisis.

Uhm, compromise language that was ultimately incorporated into CFMA passed the House on 14 December, 2000, and was introduced into the Senate on 15 December.  A conference committee hashed out differences, and the bill was ultimately signed into law (by Bill Clinton) on 21 December, 2000.

Meanwhile, the California/Western energy crisis had been building throughout 2000.  Power prices first spiked in May, 2000.  The first blackouts were in June, 2000.  San Diego Gas & Electric made allegations of market manipulation in August, 2000.  FERC rejected California’s request for a price cap on–wait for it–15 December, 2000.  The peak prices observed during the entire crisis occurred in December, 2000.

In other words, the energy crisis was well underway long before the passage of the CFMA, and reached its crescendo at the very time that the bill was being passed, and well before it could have, let alone did, affect one transaction in energy or anything else.  Since cause must precede effect, for these senators to say, in the very opening paragraph of their letter, that the Act “led directly” to the crisis is complete and utter bilge.

What’s more the underlying causes of the crisis are well known, and had nothing to do with the matters addressed in the CFMA, and everything to do with the wretched market design put in place by the California legislature.  Indeed, to the extent that derivatives were involved at all, it was the legislature’s ban on the ability of CA utilities to enter into long term purchase deals or hedging contracts that exacerbated the crisis.

Insofar as Enron is concerned, its actions (e.g., Death Star, Fat Boy, Ricochet) were designed to exploit flaws in the market design (particularly the design of the Power Exchange–PX–and differing price caps across markets).  They had nothing to do with the kinds of things addressed in the CFMA.

(I would also add that the exemptions in the CFMA were not quite so broad as the senators suggest in their letter.)

So, the senators got off to a very bad start.  What about other matters raised in the letter?  Well, better, but not much.

The basic thrust of the letter is to argue against providing end user exemptions from clearing requirements, or treating end users more liberally generally.  The essence of their argument is that systemic risk is unpriced, and that clearing internalizes this externality.

This represents just another example of clearing as deus ex machina that magically addresses systemic risk concerns.  The authors of the letter, like many others who have discussed the subject, assume that (a) counterparty risks are not priced properly in OTC markets, and (b) central counterparties will do a better job at pricing counterparty risks.  As I’ve written extensively, neither claim is necessarily true, nor even plausible.

The letter commits another factual gaffe when it claims that there was a “systemic failure caused by the Enron bankruptcy.”  Certainly counterparties lost money as a result of the Enron bankruptcy, but there was no systemic failure, particularly if one defines “systemic failure” to mean a contagion effect.

The Enron failure did not cause a major upset in the energy markets.  The implosion of the merchant energy sector occurred some months later.  The key event was the SEC’s announcement that it was investigating Dynegy’s accounting on 25 April, 2002.  Subsequent to that time, merchant energy stocks declined by about 90 percent in value, and other companies went bankrupt (e.g., Mirant).

But this wasn’t a systemic contagion event.  Instead, it was the result of a widespread recognition that the energy trading boom was overdone, that profitability estimates were probably inflated, and profit projections would not be realized due to overbuilding of capacity and other reasons.  That is, every firm in the sector was overvalued, and when the market reached that conclusion, they all fell  in value.  There was a common shock, and the affected firms fell in common.  That implosion would have occurred, clearing or no.

This point about confusing contagion effects (in which the demise of one big firm induces financial distress in otherwise healthy firms to which it is connected) and simultaneous collapses of multiple firms caused by a common shock is quite important, and gets too little attention.  The common shock in the recent financial crisis was real estate price declines, communicated to large financial institutions through their holding highly correlated positions in real estate price sensitive investments.  That’s different than a contagion resulting from the bad decisions or bad luck of one firm bringing down others just through contractual connections.

We can barely expect such more discriminating analysis, alas, from senators who are either completely ignorant of the legislation that they write about, or who don’t understand the basic fact that cause must proceed effect.

Update (3/1/10): SWP daughter #1 wonders if a silver DeLorean and a wild haired professor were seen in the vicinity of either Congress or California when the CFMA passed.

October 30, 2016

Hillary’s the One!

Filed under: Politics — The Professor @ 7:01 pm

No. I have not lost my mind and decided to come out in support of Hillary. The reference in the post title is to Richard Nixon’s 1968 campaign slogan, and Hillary epitomizes all of the worst of Nixon’s traits.

Nixon infamously said “if the president does it, it’s not illegal.” Hillary’s version of this is actually more ambitious: by deed, if not word, her credo is: “If Hillary does it, it’s not illegal.” The email saga is just the latest in a series of events going back almost 40 years (to her work on a Watergate committee, ironically) in which Hillary has acted as if the rules do not apply to her. Any rules. Any laws.

The Podesta emails reveal that even many of those around her were shocked and chagrined at her audacity to flouting the law and democratic and republican mores by operating a private server. But there was no adult who was willing to challenge her. Instead, everyone–and this arguably includes Obama, who corresponded (under an alias!) with her on her private email–enabled and excused her lawlessness.

One of Hillary’s rationalizations for her behavior is that everyone is out to get her–her paranoia is another Nixonesque trait. This most recent episode will only deepen that paranoia.

Which means that if Hillary is actually elected next Tuesday, the nation is in for a continuing series of these scandals. As president, her sense of entitlement and superiority to the law and paranoia will only only increase. In her mind, if Hillary does it, it’s not illegal, especially because she does it because otherwise her enemies (who are everywhere!) will destroy her.

Put differently, the woman is constitutionally unfit for any position of public trust, let alone the most powerful office in the land. Because of her constitutional unfitness, she is a walking (well, sometimes) Constitutional crisis.

The truly dispiriting thing about all this is that it is not news. The standard Clinton excuse for everything is “this is old news.” Well, Hillary’s defective character is very, very old news: the country has been on notice since at least 1993, and those paying attention knew about it well before that. Nonetheless, she was elected to the Senate from New York twice; appointed to the most senior cabinet position; nominated to run for president by the oldest political party in America; and is on the cusp of being elected president.

Hillary’s character failings are her responsibility alone. Tens of millions of people are responsible for the fact that she remains a carbuncle on the body politic. The most culpable are the alleged elite in this country, who plague us from their dens in DC, Manhattan, the Hamptons, Boston, and California. They are the main accessories in the degradation of the rule of law that is the result of the relentless rise of this woman who believes herself above the law.

One last thing. My comparison of Hillary to Nixon is terribly unfair to the latter. Hillary has none of the intelligence and strategic insight of Nixon. Hillary has ridden the coattails of her husband, whereas Nixon was as close to a self-made man as there has been in American politics in the 20th century. Most importantly, for all of his ethical and legal lapses, from time to time Nixon betrayed having a conscience: Hillary has exhibited no such weakness. (I think Obama knows this too. When the email scandal broke anew and Obama advised Hillary to “follow her conscience,” I think he was engaged in trolling on an epic scale.)

But this is the woman who, barring a staggering development in the most recent episode of the email saga, is likely to be the next president. God bless America. We’ll need it.

February 9, 2013

Hotel Aluminum: You Can Check In, But You Can Never Leave

Filed under: Commodities,Derivatives,Economics,Financial crisis — The Professor @ 2:20 pm

While I’m on the subject of commodity spreads and transformations, I’ll turn my attention to another spread story in the commodity news: cash premiums in aluminum.  This is a matter of great interest to people in the aluminum business, but even though I highly doubt such people make up a big fraction of my readers, it’s worth some analysis here because the broader and politically charged topic of the “financialization” of commodities has come to the fore in this debate.

In brief, there is a big differential between the price of aluminum “in store” in LME warehouses, and the price of newly produced aluminum at the factory gate.  Metal outside LME warehouses trades at a big premium to ingots inside them: the premium is about $300 on a price of around $2000.  The premium has become so wide and volatile that banks are offering swaps to hedge this risk.

So we have a spread.  Spreads price transformations.  What is the transformation at issue here?  Turning metal inside warehouses into metal outside of warehouses.  So if the spread is wide, that tells us that there must be a bottleneck in getting Al out of warehouses.  And indeed there is.  It can take more than a year (!) to get some metal out of LME warehouses.  Warehouse operators (including Goldman, JP Morgan, and Glencore) are the subject of bitter criticism from aluminum consumers (e.g,. Coca Cola) for what consumers claim are unnecessarily glacial load-out rates.  File this under There is Nothing New Under the Sun.  Warehousemen and consumers have fought over load-out rates forever in every commodity.  (Look at a history of the warehouse wars in Chicago stretching back to the mid-19th century.)

As a result of the load-out bottleneck, large quantities of aluminum inventory that built up during the financial crisis and period of extended economic weakness in the US and Europe, are trapped in warehouses.  The storage facilities have become the metallic equivalent of Roach Motels: aluminum checks in, but it can’t check out.  Or maybe the metallic Hotel California: aluminum can check in, but it can never leave.

The fact that large quantities of metal are trapped in warehouses means that there are large quantities of metal that have to be carried-and financed, primarily in cash-and-carry trades hedged by forward sales.  What other alternative is there?  It ain’t going anywhere, so it has to be held and financed by somebody.  Moreover, well-capitalized banks (Morgan, Goldman, etc.) can finance the inventory cheaper than anybody else.  So just surely as day follows night, given the fundamentals in the market, and crucially the load-out bottleneck, the well-capitalized banks end up holding, financing, and hedging a big chunk of the inventory.

Here’s where the financialization meme comes in.  Many people-including some who should know better-see the co-existence of financed inventory and premiums, and conclude that it is the participation of financial institutions that is causing the wide premiums.  See! they exclaim.  Look at how the participation of financial institutions in commodity markets is distorting things! Something must be done!

This is totally back-asswards, and confuses cause and effect.  The underlying problem here is the load-out constraint.  The cash premiums clearly signal that is the problem.  Banks are not holding back metal to create profitable financing deals: time spreads adjust so that financing deals break even.  The problem is that insufficient quantities of metal can get out of warehouses.  That’s what inquiries should focus on.  Is the rate too low?  Why?  Are warehousemen exercising market power by unduly constraining load-out?  If so, why isn’t there sufficient competition between them?  (It would also seem that this would have to be an ex post holdup problem: if those storing metal anticipated the exercise of market power via slow load-out, it would reduce their derived demand for storage, thereby reducing the amount of metal stored and the rate the warehouse could charge.  This would tend to attenuate and perhaps eliminate the ability and incentive to exercise market power.  An opportunistic response to an exceptional circumstance not anticipated when metal was put into store could be what is going on.  That is, this could be a time inconsistency problem combined with an unprecedented shock.)

In other words, large financing deals are a symptom of the load-out bottleneck, and the overhang of metal in store resulting from the financial crisis.  It is not the financing deals that are holding back metal.  It is the load-out bottleneck that is holding back the metal, and driving the need to finance the metal.

One last note.  One of the biggest complainers about the situation and the involvement of banks in the aluminum market is the living proof that Neanderthals still walk the earth: Oleg Deripaska.  Yes, Putin’s favorite pen catcher.  Word to the wise: Deripaska’s whines about the causes of the aluminum cash premiums should be heavily discounted, as should always be the case when a highly financially stressed individual loudly talks his book.  Especially when the book talker has, shall we say, a rather testy relationship with banks.

January 8, 2011

Give Me a T for Texas, But Give Krugman an F

Filed under: Economics,Politics — The Professor @ 8:44 pm

Paul Krugman spews bilge routinely, and so for the most part I ignore him.  But his most recent op-ed piece is about my adopted home state of Texas, so it warrants–I wouldn’t say “merits”–a reply.  In a nutshell (which fits Krugman quite well, thank you), he argues that (a) in the conservative narrative, Texas is the “role model” for conservative state governance, a foil for basket cases like New Jersey, California, and Illinois, but (b) its fiscal situation is as dismal as any of these other states.  Thus, he concludes, we shouldn’t look to Texas as an example.  Indeed, since Texas is cruel and mean, it is not worth emulation.

As usual, Krugman gets arm weary punching at straw men.  Texas has received positive attention because its economy has weathered the recession better than most, certainly better than other states that are heavy in manufacturing and natural resources.  It was among the last states to enter the recession, and suffered smaller than average declines in employment and income; its GDP fell by less than the national average in 2008-2009, and it did better than all the large states.  The positive coverage has not been mainly about the “modern conservative theory of budgeting,” as Krugman would have it.  And contrary to what Krugman says, serious people never labeled Texas as “recession proof”–they’ve just noted that Texas has done a lot better in this recession than its peers. (Rick Perry, for instance, never did a Vladimir Putin and claim that the financial crisis would not affect Texas.)

Even where the government’s financial situation is concerned, Krugman’s case is weak.  It is no secret to those in Texas that the state’s budgetary situation is hardly ideal.  As a member of the Faculty Senate at UH (I participate because I hear it counts against purgatory), I have heard Chancellor Khator and Provost Antel detail–and bewail–the state’s straitened circumstances, and the dire implication of that for the UH budget.

But it is not as bad as Krugman portrays it.  He picks an outlier number–a $25 billon deficit estimate over two years–and goes from there.  But other estimates put the number at $15 billion over two years.  (Texas works on a two year budgeting cycle.)

To put things in perspective, California’s deficit is around $25 billion over one year, or about 3 times the Texas deficit, whereas the California economy is less than twice as large as Texas’s.  Illinois–$15 billion budget deficit for one year, but its economy is about half the size of Texas’s.  (H/T, commentor Charles.)  New York–about $10 billion, with an economy smaller than that of Texas.  New Jersey–also about $10 billion, with an economy about a third the size of Texas’s.

So not great, but it could be far worse.  And it is indeed far worse, in most other big states around the country.

Moreover, it would be worse–a lot worse–had Texas not been conservative in its budgeting, as compared to other states.  Texas is dealing with its budget strains a lot more constructively than California or New York or Illinois.  (Of course, especially with regards to California “more constructively” is a very low bar.)  Take Illinois particularly.  It is facing a shortfall equal to about 40 percent of its budget–yes, 40 percent–and has just announced a barrage of new taxes.  These will doom it to the tax death spiral that many cities have already experienced, e.g., Detroit, my other sort of home St. Louis (city); in the spiral taxes go up, employers leave, exacerbating the budget problems, so taxes are raised more until the local motto becomes “Last One to Leave–Turn Out the Lights.”  (This is happening in Michigan at the state level too.) Texas is choosing and has already chosen a different route: it didn’t get itself as badly into the financial quicksand, and isn’t trying to get out by flailing about imposing new taxes on everything (including internet purchases, in Illinois).

So yeah, Krugman, tax increases are pretty much out of the picture, because Texas doesn’t want to join the death spiral parade.

Krugman notes that the Texas unemployment rate is below the national average, but argues that this is due to “high oil prices.”   Really?  Uhm, oil prices cratered–absolutely cratered–in 2008-2009, falling from $140 in July 2008 to around $35 in early 2009.  Natural gas prices cratered too, falling by about two-thirds.  Under Krugman’s theory, Texas should have suffered more in 2009 than the rest of the country; the fact that it didn’t is another fact in its favor.  Oil prices have rallied, but only relatively recently, and gas prices have remained in the doldrums.  Also, Texas is far less dependent on energy than it was in, say, 1986.  So Krugman’s attempt to attribute Texas’s relative good performance in the great recession to “oil prices” is just lame–and idiotic.

Krugman claims that Texas balances its books on the backs of the poor:

Texas has indeed taken a hard, you might say brutal, line toward its most vulnerable citizens. Among the states, Texas ranks near the bottom in education spending per pupil, while leading the nation in the percentage of residents without health insurance.

Is this the reasoning that gets you a Nobel Prize?  Then how come every idiot doesn’t have one?  I mean, really.  First, how does the spending on school students averaged across all pupils in the state–which includes those in the richest districts and the poorest ones–have any bearing on how the state treats “its most vulnerable”?  Second, I’m sure Krugman might have heard somewhere that the connection between per pupil spending and academic achievement is tenuous at best.  Third, what does the percentage of citizens without health insurance have to do with the state budget?  The state, like other states, pays for Medicaid, the eligibility rules for which are set by the Federal government.  The state provides health insurance for its employees.  The decisions of private employers and their employees regarding insurance is a matter of private contract, and has nothing to do with the state budget.  He further says that Texas is “willing both to impose great pain (by its stinginess on health care).”  Again–if by “it” he means the State of Texas, he provides no evidence that “it” is stingy, because the fraction of individuals without health insurance is driven primarily by decisions in the private sector, not in the state government.  (It’s also worth noting that the same figures that show that Texas has the highest level of uninsured demonstrate that the state’s growth in the uninsured over 2007-2009 was below the national average.  So does that mean that Texas became less “brutal” in recent years?  Or that other states–including many quite blue ones–have become more brutal?)

Krugman also tries to blow off Texas’s good economic performance in the recent decade by attributing it to “liberal land-use and zoning policies.”  (If it’s liberal, why doesn’t he like it?)  Well, that’s just one of a whole set of policies that make Texas a desirable place to work, live, and operate a business.  And that’s exactly the kind of thing that Texas boosters say that other states would be wise to emulate.

Krugman mentions, but effectively ignores, the elephant in the room: Texas’s rapid population growth.  That’s the best barometer of the desirability of a state’s amenities and its policies.  Do people move to places that are “brutal”?  Do they move to places with crappy schools?  Obviously not.

People move where the bundle of private and public goods is most attractive.  That Texas is gaining population while California, New York, Illinois, etc. are losing it is the most important fact, by far.  Period.

Jerry O’Driscoll and Michael Barone understand this.  Krugman, Nobel Prize and all, apparently doesn’t.

I would have hoped that this was the worst thing Krugman has written in the last couple days, but alas that is not to be.  For not only is Krugman a reflexively ideological and dishonest opinion writer, he is a loathsome human being.

Think that’s too strong?  Well consider this.  The powder smoke was still hanging in the air in Tuscon when Krugman assigned blame.  No prize to those who guessed the obvious: that Krugman blamed conservatives:

We don’t have proof yet that this was political, but the odds are that it was. She’s been the target of violence before. And for those wondering why a Blue Dog Democrat, the kind Republicans might be able to work with, might be a target, the answer is that she’s a Democrat who survived what was otherwise a GOP sweep in Arizona, precisely because the Republicans nominated a Tea Party activist. (Her father says that “the whole Tea Party” was her enemy.) And yes, she was on Sarah Palin’s infamous “crosshairs” list.

Just yesterday, Ezra Klein remarked that opposition to health reform was getting scary. Actually, it’s been scary for quite a while, in a way that already reminded many of us of the climate that preceded the Oklahoma City bombing.

You know that Republicans will yell about the evils of partisanship whenever anyone tries to make a connection between the rhetoric of Beck, Limbaugh, etc. and the violence I fear we’re going to see in the months and years ahead. But violent acts are what happen when you create a climate of hate. And it’s long past time for the GOP’s leaders to take a stand against the hate-mongers.

Yeah, tell us about hate, Krugman: you’re the expert.

If you want a more reasonable conjecture about the Tuscon shooter, I suggest Shannon Love’s piece at Chicago Boyz.  The conclusion is spot on:

The left plays a dangerous and ultimately self-defeating game when in every case to date, they have immediately, often literally within minutes, of a reported act of political violence, sprung out to denounce ordinary non-lefitsts as culpable in the attack. Since it is widely known that such attackers are either seriously mentally ill or individuals with highly egocentric and idiosyncratic ideologies, seeking to link such attacks to their mainstream political opposition makes it clear that they see instances of political violence merely as chances to advance their political power. Moreover, since such attackers have a hodgepodge ideology, one can just as easily blame leftist’s rhetoric for such attacks as non-leftists.

More darkly, by linking ordinary, mainstream political opponents to such political violence, the left appears to be creating a context for suppressing or even violently attacking such opposition. They are desperately trying to create an equation in which disagreeing with a leftists is tantamount to a violent attack.

Words to heed, Krugman.  Not that you ever will.

February 23, 2010

Obamacare Delenda Est

Filed under: Uncategorized — The Professor @ 6:29 pm

Thirteen months into his administration, Obama has deigned to release an outline of his proposal for his signature policy issue: health care “reform.”  So glad he was able to make the time, even though what has been produced in all these months is only slightly more complete than the infamous produced-over-a-weekend-under-crisis Bernanke-Paulson TARP legislation outline.  It is quite a performance.

In a nutshell: it strips out from the pending bills noxious but irrelevant-in-the-scheme-of-things elements like Bribes for Ben; takes the worst elements from the House and Senate bills; and adds (as hard as it is to believe) even more destructive elements.

Two features are particularly destructive: the creation of a body empowered to review and reject insurer premium increases, and taxes on capital income to finance the huge costs of the proposal.

Price controls like those included in the Obama proposal are the last refuge of economically illiterate.  Lenin called anti-Semitism the socialism of fools: the epithet fits price controls as well.  Like anti-Semitism, Obama’s call for price controls is economically ignorant demagoguery.

There are examples stretching back over millennia demonstrating the destructive effects of such controls.  Except in exceedingly rare cases of true monopoly—which the health care insurance market is most definitely not—these controls result in shortages, rationing, declines in quality, rent seeking, regulatory arbitrage and corruption.  (Regarding regulatory arbitrage and rent seeking, some of the provocatively-named Enron California electricity trading strategies were intended to circumvent price controls, pure and simple.  Price controls also lead to otherwise-inefficient organizational choices, such as excessive vertical integration.)

Price controls will be the death of a private market for insurance.  But perhaps that’s exactly the intent, no?

Hard as it is to believe, the Obama proposal is even more costly than the Senate bill; definitive estimates are unavailable (and would be unbelievable in any event) due to the paucity of details, but guesstimates put the cost within hailing distance of a trillion dollars.   (Leading me to endorse the wisdom of a bumper sticker I saw: “I hope Obama doesn’t know what comes after trillion.”)

Part of this additional cost is due to undoing Bribes for Ben and related special favors with a “free ice cream for EVERYONE not just Ben (or Mary)” strategy.  But what the heck, it’s not their money, right?  Well, not yet, anyways.

As is his wont, Obama attempts to deflect criticisms of budgetary impact by striking the Fiscally Responsible pose by claiming that the proposal includes sufficient sources of additional revenue to make it budget neutral.

Several things.  First of all: IT’S THE SPENDING, STUPID.   The deficit issue is of the Fram Oil Filters you-can-pay-me-now-or-pay-me-later variety.  What really matters is whether the spending is justified.

Second, some of the purported sources of money to cover the cost are, quite frankly, figments of the imagination.  A big chunk is from cracking down on Medicare waste, fraud, and abuse.  Well, what has been done about that in the last year?  (Crickets chirping.) Well, nothing.  Not because waste/fraud doesn’t exist, but because it’s virtually impossible to eliminate.  Promises to eliminate “waste, fraud, and abuse” were baloney when Reagan made them to argue that his policies would not create deficits.  They are baloney now.  Indeed, at this late date, claiming to pay for any huge program by eliminating waste, fraud, and abuse is itself an abusive fraud.  (And again, if waste can be wrung from Medicare, the question remains: is this health care proposal the best way to spend that money?)

Third, and most importantly, the tax elements of the proposal are extremely destructive.  In particular, not only (like the existing bills) does it effectively increase substantially marginal tax rates (through the phase out of subsidies on insurance premia), it increases taxes on capital income by extending Medicare taxes to various sources of capital income (pejoratively described as “unearned income”).

Capital taxes are a terrible idea.  Capital is already heavily taxed.  What’s more, as elegantly described by Steve Landsberg here and here, capital taxes are particularly distortive.  As Landsberg notes, capital taxes are really a tax on “earned income” because in the first instance you have to earn the income that you save to generate capital income.  It is, therefore, categorically false to sell these as taxes on “unearned income.”

As a result of these distortions, these taxes are inimical to growth.  They discourage capital formation and bias decisions towards current consumption rather than future consumption.

But we should not be surprised.  Obama demonstrated his ignorance of, and indeed disdain for, the economic consequences of capital taxation during the Democrat primary debates.  He said he didn’t know whether capital gains tax cuts would cause revenue to rise or decline, and what’s more, didn’t care, because it was all about “fairness”:

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.

And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools.

And you can’t do that for free.

. . .  .

GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

OBAMA: Well, that might happen, or it might not.

Obama says he wants growth, but virtually all of his policies are aggressively anti-growth.  The tax features of his health care proposal are just a particularly egregious example of that.

The climax of the conflict over healthcare is impending.  Nothing in Obama’s plan addresses the fundamental, and completely merited, sources of widespread hatred of the existing legislation; indeed, it incorporates all of these, and adds more.  Thus, it will only further stoke the political conflict.  Despite Obama’s Nixonian denials that he is not an ideologue, he has decided to wage an all out battle over a highly divisive ideological vision.  One can only hope and trust that the checks and balances baked into the system for the very purpose of stemming such recklessness are sufficient to overcome what has become the greatest act of political adventurism in American history.

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