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“Everything Has Gone Wrong… We’ve Centralized All Our Data To A Guy Named Zuckerberg”

Authored by The Next Web's Mar Masson Maack via Hackernoon.com,

At its inception, the internet was a beautifully idealistic and equal place. But the world sucks and we’ve continuously made it more and more centralized, taking power away from users and handing it over to big companies. And the worst thing is that we can’t fix it?—?we can only make it slightly less awful.

That was pretty much the core of Pirate Bay’s co-founder, Peter Sunde‘s talk at tech festival Brain Bar Budapest. TNW sat down with the pessimistic activist and controversial figure to discuss how screwed we actually are when it comes to decentralizing the internet.

Forget about the future, the problem is now

In Sunde’s opinion, people focus too much on what might happen, instead of what is happening. He often gets questions about how a digitally bleak future could look like, but the truth is that we’re living it.

Everything has gone wrong. That’s the thing, it’s not about what will happen in the future it’s about what’s going on right now. We’ve centralized all of our data to a guy called Mark Zuckerberg, who’s basically the biggest dictator in the world as he wasn’t elected by anyone.

Trump is basically in control over this data that Zuckerberg has, so I think we’re already there. Everything that could go wrong has gone wrong and I don’t think there’s a way for us to stop it.

One of the most important things to realize is that the problem isn’t a technological one. “The internet was made to be decentralized,” says Sunde, “but we keep centralizing everything on top of the internet.”

To support this, Sunde points out that in the last 10 years, almost every up-and-coming tech company or website has been bought by the big five: Amazon, Google, Apple, Microsoft and Facebook. The ones that manage to escape the reach of the giants, often end up adding to the centralization.

We don’t create things anymore, instead we just have virtual things. Uber, Alibaba and Airbnb, for example, do they have products? No. We went from this product-based model, to virtual product, to virtually no product what so ever. This is the centralization process going on.

Although we should be aware that the current effects of centralization, we shouldn’t overlook that it’s only going to get worse. There are a lot of upcoming tech-based services that are at risk of becoming centralized, which could have a huge impact on our daily lives.

We’re super happy about self driving cars, but who owns the self driving cars? Who owns the information about where they can and can’t go? I don’t want to ride in a self driving car that can’t drive me to a certain place because someone has bought or sold an illegal copy of something there.

Sunde firmly believes that this is a realistic scenario as companies will always have to put their financial gains first, before the needs of people and societies. That’s why there needs to be a greater ethical discussion about technology and ownership, if we don’t want to end up living in a corporate-driven dystopia (worse than our current one, that is).

Making a shitty situation slightly more tolerable

Feeling a bit optimistic, I asked Sunde whether we could still fight for decentralization and bring the power back to the people. His answer was simple.

No. We lost this fight a long time ago. The only way we can do any difference is by limiting the powers of these companies?—?by governments stepping in?—?but unfortunately the EU or the US don’t seem to have any interest in doing this.

So there’s still some chance for a less awful future, but it would require a huge political effort. However, in order to achieve that, the public needs to be informed about the need for decentralization?—?but historically that’s not likely to happen.

I would say we, as the people, kind of lost the internet back to the capitalist society, which we were hoping to take it back from. We had this small opening of a decentralized internet but we lost it by being naive. These companies try to sound good in order to take over, that they’re actually ‘giving’ you something. Like Spotify gives you music and has great passion for music, and all of the successful PR around it.

But what it does to us in the long term is more like smoking. Big data and Big Tobacco are really similar in that sense. Before, we didn’t realize how dangerous tobacco actually was, but now we know it gives you cancer. We didn’t know that big data could be thing, but now we know it is. We’ve been smoking all our lives on big data’s products and now we can’t quit.

And just like with tobacco, it’s governments that need to create the restrictions. However, it’s difficult to see how any government?—?except for big players like US and EU?—?are supposed to be able to restrict the powerful tech giants.

Sunde feels that as the EU behemoth becomes bigger, it will be more difficult to pass laws that are actually for humans and that give people extended right. Which is unfortunate as the EU technically has the legislative power to make an actual difference when it comes to decentralization.

The EU could say that if Facebook wants to operate within the EU, they have to agree that all of the data has to be owned by the user, and not by Facebook. Which would be quite simple for the EU to do, but of course that would make Facebook really upset.

Then every country would be scared to be the first one to implement the law because Facebook would leave and all of its citizens would be without their tobacco. That’s the problem we’ll always have.

Sunde, however, is slightly optimistic (but not really) as he doesn’t feel that this fight has to necessarily go through monolithic governments to reach some kind of successful result. In fact, it might actually be more likely to succeed on a smaller national level.

In regards to this, Sunde names my beloved Iceland as an example, where the Pirate Party, running on a platform of groundbreaking digital policies, almost got into government. Dramatic changes on a national level, no matter how small the population is, could have great effects in the global community. Basically meaning that countries can lead by example.

Sunde, who’s half Norwegian and half Finnish, says that another good example of leading digital policies on a national level is when Finland made access to the internet a human right in 2010. By giving people these rights, the government had to define what the internet actually is and prevented future discussions about censorship?—?bolstering people’s rights against further centralization.

If nation states can actually facilitate further decentralization, like Sunde suggests, then we might actually be able to hamper the immense power of big corporations. Countries like Estonia have shown that politicians can come up with digital policies that actually preserve citizens’ right in a digital age.

However, we humans are illogical creatures that don’t necessarily do the things that are good for us: “It’s better for the people, but we don’t want to suffer that one single down-time second of our beloved tobacco.”

Check out Peter Sunde’s TNW Answer Session here.

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Yield Curve Collapses To 10 Year Lows, Stocks Stumble Amid “Unprecedented” Bullish Sentiment

Bonds and Bullion are bid and the yield curve crashed as the Santa Claus rally fails to appear for a second day…

 

Gold's gains are S&P's losses as the two converge for the month of December…

 

For the second day in a row, stocks went nowhere despite the promise of the Santa Claus rally… (NOTE the somewhat ridicluous instaramp in the last 2 minutes to get stocks green)

 

Futures show the week so far better – Nasdaq (green), Dow (blue), S&P (red) (note AAPL was down again today, testing its 50DMA)…

 

Perhaps it is because, as Kevin Duffy noted earlier, "8 out of 10 of the best sentiment indicators are in the 99th percentile of bullishness over the past ten years (a period of mostly bull market optimism!).  This is unprecedented…"

 

FANG Stocks are down for the 6th day in a row… (the longest losing streak since Nov 4th 2016)

 

Banks have been under pressure this week…

 

VIX jumped somewhat notably today (3rd day up in a row) – NOTE the VIX hammering into the European close and then it snapped…

 

Despite a heavy tail in today's 5Y auction, yields crashed across the curve and the yield curve flattened dramatically…

 

Perhaps a few funds are seeing the 'value' in bonds?

 

Notably 10Y yields dropped back below 2.4% (YTD unch)…

 

Which is notable, as Strategas points out, a 12/31 close above 2.44% would be the 3rd year of rising rates in a row – the longest stretch since 1981…

 

The yield curve crashed most since Brexit to a new cycle low…(lowest close since Oct 2007)

 

There is some serious problems brewing in Japanese liquidity markets as while Euro- and Sterling cross-currency swaps have bounced back, Yen-USD basis swaps have collapsed to a new cycle low suggesting major USD-funding issues for Japanese entities…

 

 

The Dollar Index slipped lower today…lowest close since Dec 5th

 

WTI was unable to extend yesterday's gains above $60…

 

Gold and Bitcoin continued to recouple…

 

As Gold surged above its 100DMA for the first time in a month… (NOTE – gold suffered a death cross as the 50DMA crossed below the 200DMA)

 

Meanwhile copper is at near 4 year highs…

 

The question is – why are bond yields collapsing and not playing along…

 

Cryptos had a mixed day with Ripple ramping, but Ether, Bitcoin, and Litecoin all sliding…

Bitcoin futures volume picked up today but remains notably lower than last week…

As a fional notes, CFTC reports that net speculative positioning in CBOE Bitcoin Futs is -1371 contracts, or Short 6,855 Bitcoins… so prepare yourself for a short squeeze.

Bonus Chart: WTF!!

 

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The Great Recession 10 Years Later: Lessons We Still Have To Learn

Authored by Robert Bruner, op-ed via TheHill.com,

Ten years ago this month, a recession began in the U.S. that would metastasize into a full-fledged financial crisis. A decade is plenty of time to reflect on what we have learned, what we have fixed, and what remains to be done. High on the agenda should be the utter unpreparedness for what came along.

The memoirs of key decision-makers convey sincere intentions and in some cases, very adroit maneuvering. But common to them all are apologies that today strike one as rather lame.

“I was surprised by the sudden crisis,” wrote George W. Bush, “My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies. … We were blindsided by a financial crisis that had been more than a decade in the making.”

 

Ben Bernanke, chairman of the Fed wrote, “Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.” He cited psychological factors rather than low interest rates, a “tidal wave of foreign money,” and complacency among decision-makers.

 

Timothy Geithner said that, “failures of foresight were primarily failures of imagination … our visions of darkness still weren’t dark enough.”

 

And Henry Paulson explained that “we believed the problem was largely confined to subprime loans. … (Then) the problems were coming far more quickly.”

Surprise, underestimation, poor imagination, and disbelief in an adverse outcome are hallmarks of the onset of a financial crisis.

My studies of the 17 major financial crises since the founding of the Republic reveal that over-optimism is an important driver of the bubbles that eventually become busts. As the legendary investor, Sir John Templeton, once said, “The four most dangerous words in investing are ‘This time is different.’” Such was the mindset that real estate prices could only rise (2008), dot-com companies would forever grow and be profitable (2001), or that the Russian government would never default (1998).

These days, the blogosphere chatters about a coming crash and financial crisis, for the obvious reason that conditions feel bubble-ish. We are in the late stage of the third longest economic expansion and second-longest bull market in U.S. history. Stock prices are high: The cyclically-adjusted price-earnings ratio is at the third-highest since 1880. Consumer confidence is buoyant. The personal saving rate, 3.1 percent, is near the all-time low. According to the Fed, financial conditions are looser than average. House prices have broken above their peak at the last housing bubble. A Saudi prince paid $450 million for a painting. And nearly every day, Bitcoin sets record prices.

To be sure, regulatory reforms since 2008 have produced more strongly capitalized banks, tests of resilience to shocks, more inter-agency coordination, and some consumer protections. But like the generals who are prepared to fight the last war, these reforms don’t persuade me that we’ll be ready for the next crisis.

History shows that crises arise unexpectedly from corners of the economy that fell beyond the conventional radar screen — in such corners, regulations are light or nonexistent, information is scanty, players are relatively unknown, and flows of capital in and out are particularly hot. Human ingenuity will always create such corners of the economy, either to serve new needs or to arbitrage around regulations. To eliminate every scintilla of systemic risk in the financial sector would be extraordinarily costly and would breed an intolerable regime of surveillance.

Yet I believe that there is one thing that the president and other leaders could do that would help to mitigate the risk of a financial crisis: reinforce a national culture of prudence — this includes the virtues of earning your money before you spend it; saving for a rainy day; investing wisely; honoring your debts; using resources carefully; respecting the property rights of others; and providing for the welfare of family and community. For the president and leaders of Congress to say all of this would evoke gales of laughter in the wake of recent action. Yet the bully pulpit of leadership can set a powerful tone.

At the outset of this tenth anniversary of the Global Financial Crisis, it is well worth remembering that we require not only vigilance from our leaders, but also the ability to articulate enduring values that will assure the sustainability of our society. We have had a culture of prudence in America before: “Use it up, wear it out, make it do, or do without” was the simple rhyme of the 1930s upon which America built an episode of extraordinary growth to the 1970s.

A culture of prudence is a culture of resilience. Prudence and resilience can trump surprise. Would that the president set this tone.

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Ross Ulbricht Files Appeal to the Supreme Court on His Life Sentence Without Parole

Ross Ulbricht was sentenced in May 2015 to life in prison without parole for various crimes connected to his launching the darkweb sales site Silk Road. In May of this year, the Second Circuit Court of Appeals upheld his conviction and his grossly disproportionate sentencing.

Ulbricht has now appealed the Second Circuit’s decision to the Supreme Court.

Kannon K. Shanmugam, the lawyer managing the appeal, summed up the legal issues that require settling by the Supreme Court in a December memo to potential amici in the case. Even those who might never dream of launching a darkweb site facilitating possibly illegal substance sales should be very worried about how the government convicted and sentenced Ulbricht, he explains:

This case presents two important questions of constitutional law with broader significance for the rights of criminal defendants generally. First, the Second Circuit affirmed the government’s warrantless collection of Mr. Ulbricht’s Internet traffic information by relying on the third-party doctrine, which the Court is reviewing in a different context this Term in Carpenter v. United States….This case would afford the Court an ideal opportunity to address how the doctrine applies to Internet traffic information.

Damon Root reported from the Supreme Court earlier this month on the oral arguments in that Carpenter case, which hinges on a warrantless search of cellphone records in a bank robbery conviction. As Root wrote:

The government insists that this warrantless search did not violate Carpenter’s Fourth Amendment rights because, in the words of the Supreme Court’s 1979 ruling in Smith v. Maryland, “a person has no legitimate expectation of privacy in information he voluntarily turns over to third parties.” In other words, Carpenter has no Fourth Amendment right to privacy in his cellphone records because he voluntarily used his cellphone, thus voluntarily disclosing his location to the various cellphone towers that handled his calls.

Throughout the November 29 oral arguments, Justice Alito was perhaps the most supportive of the government’s position and the most critical of Carpenter’s arguments. Justice Gorsuch, on the other hand, seemed extremely skeptical of the government’s stance. Gorsuch even suggested at one point that the government’s position was at odds with the “original understanding of the Constitution”—not exactly a compliment, since Gorsuch is a self-professed originalist.

Root went on to explain how in the oral arguments in the case, Gorsuch seemed to believe that Americans ought to have a defensible property right in such digital information analogous to the classic analog “papers and effects.” As Root wrote, “Gorsuch proffered a property rights argument that might allow Carpenter to win the case.” The Supreme Court’s decision in Carpenter has not yet been issued.

Shanmugam, a former law clerk to the late Justice Antonin Scalia, has argued 21 previous cases before the Supreme Court, has had at least five wins there, and has a good record of a 36 percent success rate in having cert petitions granted by the Court from 2012-2015.

He says those Fourth Amendment questions related to digital information, ripe for reappraisal, are not the only issue at stake in Ulbricht’s case:

Second, the Second Circuit affirmed the sentencing court’s determination of facts never submitted to the jury, which significantly altered the Guidelines range and ultimately led the court to impose a life sentence—a sentence the Second Circuit admitted “condemn[s] a young man to die in prison.” Several justices have previously questioned whether this kind of judicial factfinding violates the Sixth Amendment. For both these reasons, this case warrants Supreme Court review.

The certiorari filing in Ulbricht’s case has not yet appeared on the Supreme Court’s online docket. But its primary contentions are that the warrentless pen/trap search orders on both Ulbricht’s home IP address and his laptop represent a fresh and more extreme government intrusion into private information than recognized by past phone-based precedent.

Why We Need a Fresh Fourth Amendment Doctrine for the Digital Age

In rejecting Ulbricht’s earlier appeal, the Second Circuit held to the “third party doctrine,” which says any information you voluntarily passed along to or through a third party, like a phone company (as in the initial invention of the doctrine in the 1979 Smith case, or by modern analogy, internet service providers), is information over which you no longer have any Fourth Amendment privacy right.

Ulbricht’s cert petition tries to argue that the Court should at the very least “hold this case pending its decision in Carpenter, which may articulate principles applicable here.”

As the cert petition goes on to explain, the pre-existing, telephone-based, criteria to judge the “third party doctrine” in the computer age is one courts of appeals “have largely felt constrained by” and “have signaled the need for this Court to address whether, and how, those precedents apply in the context of modern Internet technology.”

In that earlier Smith decision, “the Court emphasized the pen register’s ‘limited capabilities,’ noting that “a law enforcement official could not even determine from the use of a pen register whether a communication existed.”

The cert petition lists and quotes various cases in which circuit courts of appeal have clearly questioned whether all the information we are “willingly” giving to third parties in the internet age are indeed things over which we have no Fourth Amendment interest, if the Fourth Amendment is to retain any strength at all in the 21st century.

The very confusion in the lower courts on this question, the petition argues:

only underscore the necessity of this Court’s intervention. Calling the Internet traffic information collected by pen/traps today “constitutionally indistinguishable” from the list of telephone numbers at issue in Smith is “like saying a ride on horseback is materially indistinguishable from a flight to the moon”: “[b]oth are ways of getting from point A to point B, but little else justifies lumping them together.” (Riley, 134 S. Ct. at 2488).

Ulbricht’s case is “an appropriate companion case to Carpenter because the Internet traffic information at issue here is broader in important ways than the cell site location information at issue in Carpenter. In addition to allowing the government to determine when petitioner was accessing the Internet from the privacy of his own home, the information gathered by the pen/traps here permitted the government to determine the websites to which petitioner connected, the length of the connections, and the port of transmission of the data. As this Court has recognized, the collection of such Internet information could reveal ‘an individual’s private interests or concerns.’ (Riley, 134 S. Ct. at 2490).” (The 2014 Riley case quoted did apply Fourth Amendment protections to searches of cell phones incident to an arrest.)

The Supreme Court has a great opportunity to clarify further for law enforcement the meaning of the Fourth Amendment in the Internet age, the petition argues.

These are some of the reasons why Ulbricht’s legal team thinks the warrantless searches in his case deserve to be distinguished from the telephone records at issue in 1979’s Smith case:

unlike in Smith, the government could identify the “purport of any communication” at issue here, because it collected the ports of transmission of petitioner’s Internet activity. A “port” is a piece of information used to identify the purpose of a particular packet of data being transmitted between computers….More broadly, an individual’s Internet traffic information is far more sensitive than the telephone routing information at issue in Smith. As this Court has observed, “an Internet search and browsing history * * * [can] reveal an individual’s private interests or concerns—perhaps a search for certain symptoms of disease, coupled with frequent visits to WebMD.” Riley….

Extending Smith and Miller to Internet traffic information would allow the government to access significant information about an individual’s Internet habits without a warrant and without probable cause. For example, the government could learn that the individual regularly visits websites associated with a particular political party or sexual orientation, “enabl[ing] the Government to ascertain, more or less at will, [people’s] political and religious beliefs, sexual habits, and so on.” United States v. Jones…(2012) (Sotomayor, J., concurring)….

What is more, pen/traps revealing IP address information can also allow the government to identify an individual’s general location, as the government demonstrated at petitioner’s trial….In that respect, the government turned petitioner’s laptop into an analogue of the tracking device at issue in United States v. Karo… (1984). In that case, the Court held that the government conducted an unconstitutional search when it monitored a signal from a tracking device in the defendant’s home without a warrant.

When agents can gather an individual’s Internet traffic information upon only the minimal showing required by the Electronic Communications Privacy Act, little beyond their discretion constrains their ability to monitor citizens’ private lives. And an agent’s choice to exercise discretion is no substitute for clear limits imposed by an impartial magistrate.

The Sixth Amendment Implications of Ulbricht’s Life Sentence Without Parole

The Shanmugam memo sums up the legal issues raised by Ulbricht’s life sentence without parole. While “Ulbricht’s Sentencing Guidelines range would have resulted in a recommended sentence of, at most, 30 years in prison,” the sentencing judge considered various allegations that Ulbricht paid for (uncommitted) murders, allegations never actually tried in court. The Second Circuit in his initial appeal “reluctantly affirmed, concluding that the alleged murders for hire separated the case from an ordinary drug crime.”

From this layman’s perspective, it seems hideously unjust that a judge can sentence based on crimes never proven in court. Shanmugam explains in the memo however that “the Court has previously declined to grant certiorari on petitions presenting this question” (of sentences based on unadjudicated accusations).

Importantly, “Justice Gorsuch has…expressed interest in this issue, and may spur a renewed interest in granting certiorari. Writing for a Tenth Circuit panel in 2014, then-Judge Gorsuch…wrote that ‘[i]t is far from certain whether the Constitution allows’ a judge to increase a defendant’s sentence within the statutorily authorized range ‘based on facts the judge finds without the aid of a jury or the defendant’s consent.’ United States v. Sabillon-Umana…(10th Cir. 2014) (Gorsuch, J.) (citing Jones).”

Technically, the sentence Ulbricht received was within the range of possible, though not recommended, sentences for the crimes for which he was actually convicted. As explained in the memo:

Even though a particular sentence may fall within the statutory range, the sentencing court is not free to impose that sentence without taking account of the Guidelines range and explaining any variance. To do otherwise constitutes procedural error and results in an unlawful sentence. Thus, even within the statutory range, there are sentences that would be unlawful but for a court’s factfinding and explanation. Under this Court’s Sixth Amendment precedents [such as Apprendi and Alleyne] those factual findings that justify the otherwise unlawful sentence must be found by a jury or admitted by the defendant before they can be used by the judge to increase the defendant’s sentence. The practice of relying on judicial factfinding to sustain an otherwise unreasonable sentence is unconstitutional.

As the cert petition explains, “it is hard to imagine a better example of the consequences of runaway judicial factfinding than this case. Petitioner, a young man with no criminal history, was sentenced to life imprisonment without the possibility of parole for drug crimes that do not ordinarily carry that sentence, based substantially on numerous factual findings made by the sentencing judge by a preponderance of the evidence.”

In the 2007 Rita case, the late Justice Scalia and current Justice Clarence Thomas both expressed concerns about judge’s imposing sentences that are only reasonable because of “judge-found facts.” Both of them in the 2014 Jones case “noted the pressing need for the Court to resolve the question.”

“Numerous judges in the lower courts have urged a different approach or specifically importuned this Court to provide guidance, noting the importance of the question and the attendant uncertainty surrounding sentencing practices while the question remains open,” Ulbricht’s cert petition says. “This Court should grant review and definitively hold that the practice of sustaining an otherwise unreasonable sentence through judicial factfinding is unconstitutional.

Ulbricht’s case is a perfect opportunity for the Court to protect the integrity of a justice system that should be sentencing based only on facts considered and proven in court.

As Ulbricht said to the District Court in his initial trial, “I remember clearly why I created the Silk Road. I had a desire to—I wanted to empower people to be able to make choices in their lives for themselves and to have privacy and anonymity.”

If not for those principles, then at least for the clear constitutional issues raised by the specifics of his prosecution and sentencing, the Supreme Court should take up Ulbricht’s case.

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Tax Plan Jitters Cause Sudden Collapse In Manhattan Apartment Prices In 4Q

Apparently the combination of a massive flood of excess supply in the form of new luxury developments and a Trump tax plan that penalizes people living in expensive cities by capping SALT, mortgage interest and property tax deductions was simply too much for the Manhattan real estate market to ignore in 4Q 2017.  After reaching an all-time high of nearly $1.2 million in 2Q 2017 (chart per Douglas Elliman)…

…the Wall Street Journal this morning notes that median Manhattan apartment prices have dropped to $1.08 million in 4Q 2017, down 9.8% compared to the peak set earlier this year.

Not surprisingly, Pamela Liebman, the president of New York real estate broker The Corcoran Group, attributed the pause by Manhattan buyers to the tax bill and said that folks are increasingly convinced that prices peaked in 2017 and may continue to be under pressure.

“We lost a lot of deals in the fourth quarter, while people waited to see the outcome of the tax bill,” she said. “Now that the uncertainty is gone they will be able to make a decision.”

 

She said buyers were active but “focused on value and reasonable pricing.”

 

“The good news is there are a lot of buyers who are ready to purchase next year,” Ms. Liebman said. “Sellers who don’t overshoot the mark should do well.”

Apartment

Of course, the New York real estate market wasn’t universally rosy during the first half of the year as another broker, Donna Olshan, who produces a weekly report on contract signings above $4 million, said there were worrying signs in the luxury market, including an increase in the average time a listing spent on the market of nearly four months, from about 10 months in 2016 to 14 months this year.  As the following chart from Douglas Elliman highlights, luxury prices in Manhattan peaked 2 quarters before overall prices and have been plummeting ever since.

Meanwhile, new development prices have also been on the decline as the market contends with a steady stream of new buildings coming online.

Of course, the fact that Manhattan real estate prices are coming under pressure should come as little surprise as we noted the following interactive maps from ATTOM Data Solutions last week which perfectly illustrated just how concentrated mortgages over $750,000 are in a handful of expensive cities like New York and San Francisco.

Among 2,022 counties included in this analysis and at least 50 home purchase loans so far in 2017, those with the highest share of loan originations above $750,000 were New York County (Manhattan), New York (63.8 percent); San Francisco County, California (58.0 percent); Nantucket County, Massachusetts (57.3 percent); San Mateo County, California (55.2 percent); and Marin County, California (50.o percent). Among those same 2,022 counties, those with the highest number of purchase home loan originations above $750,000 so far in 2017 were Los Angeles County, California (9,197); Santa Clara County, California (5,543); Orange County, California (4,450); Maricopa County, Arizona (3,723); and King County, Washington (3,715).


Meanwhile, the second proposed change in the GOP tax plan involved a cap on the deductibility of property taxes at $10,000.  And, much like the impact of mortgage interest above, the map of who’s most impacted looks eerily similar to the 2016 electoral college map.

The county-level heat map below shows the share of single family homes and condos in each county where the most recent property tax bill available was more than $10,000.

 

Among the 1,731 counties analyzed, those with the highest share of homes with property taxes above $10,000 were Westchester County, New York (73.4 percent); Luna County, New Mexico (68.7 percent); Rockland County, New York (60.0 percent); Mathews County, Virginia (54.4 percent); and New York County (Manhattan), New York (52.5 percent). Among those same counties those with the highest volume of homes with property taxes above $10,000 were Nassau County (Long Island), New York (176,946); Los Angeles County, California (165,078); Suffolk County (Long Island), New York (155,592); Bergen County, New Jersey (126,096); and Harris County (Houston), Texas (125,792).


Conclusion: Low-tax, cheap cost of living states (i.e. “Red States”) are suddenly starting to look a lot more attractive to liberal “millionaire, billionaire, private jet owners” in New York who aren’t so keen on “spreading their wealth around” as their rhetoric would have you believe.

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Squeezing The Consumer From Both Sides

Authored by 720Global's Michael Lebowitz via RealInvestmentAdvice.com,

The Federal Reserve raised the Federal Funds rate on December 13, 2017, marking the fifth increase over the last two years.  Even with interest rates remaining at historically low levels, the Fed’s actions are resulting in greater interest expense for short-term and floating rate borrowers. The effect of this was evident in last week’s Producer Price Inflation (PPI) report from the Bureau of Labor Statistics (BLS). Within the report was the following commentary:

“About half of the November rise in the index for final demand services can be traced to prices for loan services (partial), which increased 3.1 percent.”

While there are many ways in which higher interest rates affect economic activity, the focus of this article is the effect on the consumer.  With personal consumption representing about 70% of economic activity, higher interest rates can be a cost or a benefit depending on whether you are a borrower or a saver. For borrowers, as the interest expense of new and existing loans rises, some consumption is typically sacrificed as a higher percentage of budgets are allocated to meeting interest expense.  On the flip side, for those with savings, higher interest rates generate more wealth and thus provide a marginal boost to consumption as they have more money to spend.

This article focuses on borrowers and savers to show how the current interest rate cycle is squeezing consumers. Said differently, the rising cost of borrowing is dwarfing the benefit of saving.

Borrowers

As mentioned but worth repeating, personal consumption accounts for the bulk of economic activity. To gauge how higher interest rates might affect individuals’ spending, we classify personal debt into the following five categories: mortgages, home equity lines, auto loans, student loans and credit card debt. The following table shows the amount of debt outstanding in each category and estimates the percentage of each loan type that has fixed interest rates and floating interest rates.

Distinguishing between fixed and floating interest rates is important, as borrowers using fixed-rate loans are largely unaffected by higher interest rates. Accordingly, we focus this analysis on floating rate debt as those borrowers and consumers will see immediate increases in their interest expenses every time the Fed raises rates.

Based on the table, approximately $2.8 trillion of consumer loans outstanding are floating rate. We calculate that every 25 basis point (0.25%) interest rate hike by the Fed will increase interest expense higher by $7 billion annually for these consumers.  Since December 2015, when the Fed began to hike interest rates, the Fed Funds rate and other interest rates to which consumer debt is frequently indexed are about 125 basis points higher. Thus on an annual basis, the additional cost of borrowing is approximately $35 billion. Looking forward, if the Fed raises rates three times in 2018 as they currently forecast, the annual interest expense will increase by another $21 billion to bring the total to $56 billion per year.

The graph below charts Fed Funds, 3-month LIBOR, and average credit card rates to show the nearly perfect correlation between Fed actions and short-term borrowing rates. 3-month LIBOR is the index most frequently used to determine floating rate interest rates.

Data Courtesy: St. Louis Federal Reserve (FRED)

Savers

To do a complete analysis of the effect of higher rates on consumption, we must look beyond the increased interest costs, as quantified above, and also consider the benefits of higher interest rates to savers. According to the Fed, personal savings equals $471 billion. The increase in interest rates should reward savers, which will help offset the economic burden related to the increase in interest expense.

Interestingly, what should happen and what has happened are two different stories. The truth of the situation is that individual savers have barely benefited from higher rates as banks and financial intermediaries are not passing on higher rates to savers. The chart below provided by WalletHub and Wolfstreet.com compares the change in the Fed funds rates and credit card interest rates to instruments of savings. Please note the table does not include the most recent increase in rates on December 13, 2017.

To confirm the data in the chart, we searched for other sources of savings rate data. Data from the FDIC reports that bank savings rates, 3-month CD’s, money market accounts and interest checking rates have increased by 0, 3, 1, and 0 basis points respectively since the Fed began raising rates two years ago.

Based on the graph and the data above, it is fair to say that borrowers have benefited by less than ten basis points (0.10%) on average despite 125 basis points (1.25%) of interest rate increases. Based on total savings of $471 billion, we can approximate the benefit to borrowers is a mere $600 million.

Summary

Consumers are being squeezed. Debt linked to short-term interest rates is rising lockstep with the Federal Funds rate while savings rates remain stubbornly low. While the dollar amounts are not massive, the transmission mechanism of the Fed’s rate hikes is acting like a tightening vice that will result in less consumption and slower economic growth.

One of the key takeaways from the Fed’s action during and following the financial crisis of 2008 has been a prolonged and intentional effort aimed at crushing savers. Near zero percent savings rates is part of the Fed’s strategy to incentive savers to move out of the security of cash and invest in riskier assets and/or consume. Even today, despite the rise in interest rates, banks accept the benefits of higher rates imposed on borrowers while refusing to adjust rates for savers. As one of the primary regulators of the financial system, the Fed could encourage a change in that behavior, but to date, no such influence has even been mentioned. Interestingly, the savings rates that banks earn on deposits at the Fed has increased lockstep with Fed Funds.

After nearly a decade of imposing its unique brand of price controls over the cost of money, the Fed admittedly is not willing to do that which is in the best interest of the general public and continues to adhere to policies that favor their primary constituents, the big banks and major corporations.

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Reflections on 2017 – A Personal Journey

2017 was a tumultuous and extremely binary year for a considerable number of Americans. For those who thought everything was going swimmingly during the Obama years, Trump’s election wasn’t simply a shock to their system, but an extinction level event for civilization that handed the U.S. government to bunch of Putin-controlled fascists. In stark contrast, Trump’s election was seen as divine deliverance by his devoted cheerleaders and red hat wearing obsessives. Finally, someone from outside of the swamp had successfully trash-talked his way into the Presidency — an imminent restoration of American greatness is now assured thanks to his business acumen and courage.

Naturally, neither one of these perspectives is remotely accurate. They’re just distinct fairytales that quarreling groups of Americans have enthusiastically embraced within an increasingly insane and divided political environment. The societal pressure to self-segregate into passionate support for either “The Resistance” or “Trumpism” was overwhelming all year and has continued to this day. I recognized this early on, and wrote about it back in February.

Here’s an excerpt from that piece, Lost in the Political Wilderness:

I think the U.S. citizenry is being afflicted by a sort of mass insanity at the moment. There are no good outcomes if this continues. As a result, I feel compelled to provide a voice for those of us lost in the political wilderness. We must persevere and not be manipulated into the obvious and nefarious divide and conquer tactics being aggressively unleashed across the societal spectrum. If we lose our grounding and our fortitude, who will be left to speak for those of us who simply don’t fit into any of the currently ascendant political ideologies?

Little did I know it at the time, but the sentiments expressed in that piece, coupled with the four-part series on Spiral Dynamics that followed, would result in profound changes to my overall outlook on life and the evolution of this website.

continue reading

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Obama & Hillary “Most Admired” Man & Woman For 10th Year In A Row

Former President Barack Obama is America’s “most admired man” for the 10th consecutive year, according to new survey data from Gallup, and perhaps even more surprising, Hillary Clinton was named the most admired woman for the 16th year in a row.

As Gallup notes, the pair retain their titles this year, although by much narrower margins than in the past. Obama edges out Donald Trump, 17% to 14%, while Clinton edges out Michelle Obama, 9% to 7%.

Source: Gallup

Trump is one of few incumbent presidents who have not been named the most admired among all Americans.

Gallup has asked the most admired man question 71 times since 1946 — all but in 1976. The incumbent president has won 58 of those times.

Previous incumbent presidents who did not finish first include Harry Truman in 1946-1947 and 1950-1952, Lyndon Johnson in 1967-1968, Richard Nixon in 1973, Gerald Ford in 1974-1975, Jimmy Carter in 1980, and George W. Bush in 2008. All but Truman in 1947 and Ford in 1974 had job approval ratings well below 50%, like Trump.

As would be expected for a Republican president, Trump wins handily among Republicans — 35% name him as the man they admire most, with only 1% naming Obama. In contrast, Obama leads among Democrats, with 39% mentioning him and 3% Trump. Independents are slightly more likely to name Obama (12%) than Trump (9%).

The former secretary of State and presidential candidate has been named most admired more than any other man or woman in polling history, according to Gallup, who notes in a release that her polling numbers this year (at just 9%) were the lowest in the past 15 years, making it unlikely for her to hold the top title for much longer.

“She managed to win this year because she remains arguably more prominent than other contenders,” Gallup said.

 

“However, retaining that stature may be more challenging in coming years with her political career likely over.”

Perhaps more reflective of the state of society, a quarter of respondents could not name a man or woman they admired most, according to Gallup, and about a tenth named a relative or friend.

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Ron Paul: A Popular Libertarian Candidate in 2020 Is ‘Very Possible’

Distrust in America’s foreign and monetary policies, unrelieved by the election of Donald Trump, is going to be a “big opening” for libertarians in 2020, former Texas Republican Congressman Ron Paul told the Washington Examiner.

Trump was able to co-opt much of the messaging of an establishment that has maintained a bipartisan consensus on these issues without offering much of substance to voters committed to the values of freedom.

“The appearance of the libertarian movement has been set back partially because of Trump, but intellectually we’ve been doing well,” Paul said. “We as libertarians have some work to do before [voters] are going to accept a true-blue libertarian, but I think moving in that direction and having a popular candidate is very possible” in 2020.

Paul called the economic upturn this year “a bit of an illusion,” and said U.S. monetary policy benefits those connected to government, creating the most pernicious form of “inequality.”

“It’s a bubble economy in many, many different ways and it’s going to come unglued,” said Paul, who has previously blamed the Federal Reserve for what he sees as a bitcoin bubble.

“We’re on the verge of something like what happened in ’89 when the Soviet system just collapsed,” Paul told the Examiner. “I’m just hoping our system comes apart as gracefully.”

The Examiner noted that Paul doesn’t think the U.S. will break up the way that the Soviet Union did, but rather that the U.S. will have to deal with its unsustainable foreign policy and the Fed-driven monetary policy that helps fuel it.

“I think our stature in the world and our empire will end, and that’s when, hopefully, the doors will be open and [people will] say, ‘Hey, maybe these libertarians have some answers to this’,” Paul told the Examiner. “If they only hear our message, I know they would choose liberty and sound money and freedom and peace over the mess we have today.”

Paul’s criticism of Trump’s foreign policy is understandable. Trump was never the non-interventionist some (at times even Paul’s son, Republican Kentucky Sen. Rand Paul) made him out to be.

“I think the foreign policy is a total disaster,” Paul told the Examiner.“Trump’s approach sounds good one day but the next day he’s antagonizing everyone in the world and thinks we should start a war here and there.”

Paul also said he’d be delighted if Trump fired Attorney General Jeff Sessions, who has been a disaster for civil liberties, although he’s not optimistic the replacement would be any better.

Read the rest of the interview at the Examiner.

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Trump To Rollback Deepwater Horizon Regulations

Authored by Nick Cunningham via OilPrice.com,

The Trump administration is hoping to slash regulations on offshore oil drilling that were implemented after the 2010 Deepwater Horizon disaster that killed nearly a dozen people and led to an oil leak that spewed for months.

According to the Wall Street Journal, the Bureau of Safety and Environmental Enforcement (BSEE), which is the agency housed in the Interior Department that regulates offshore oil drilling, is proposing a rollback of a series of changes made after the 2010 disaster.

BSEE says that the cuts will save the oil industry $900 million over ten years. The proposal has not been made public, but the WSJ reports that some of the changes include easing rules that require the streaming of real-time data of oil production operations to facilities onshore, which allows regulators to see what is going on. Another rule that would be removed requires third-party inspectors of equipment, such as the blowout preventer, to receive certification by BSEE.

Another example includes alterations to the “well-control rule,” one of the signature regulations that was implemented by the Obama administration after years of review following BP’s oil spill. The well-control rule required the use of certain safety equipment and operations intended to reduce the risk of another disaster.

But the Trump administration, in a nod to the oil industry, has proposed deleting the word “safe” from a section of the rule, the WSJ reports, which would restrict BSEE’s ability to withhold permits. “Based on BSEE experience during the implementation of the original [well control rule], BSEE has concluded that the term ‘safe’ creates ambiguity in that it could be read to suggest that additional unspecified standards, beyond those expressly stated, may be imposed in the approval of proposed drilling margins,” BSEE wrote in a justification of the rule change, according to the WSJ.

The upshot is a weaker regulatory regime over offshore oil and gas drilling and it comes at a time that Trump’s Interior Department is also moving to expand drilling not just in the Gulf of Mexico, but eventually in the Atlantic and Arctic Oceans.

The current head of BSEE said earlier this year that the Obama administration overstepped when it put in place regulations on drilling. “It was obvious to me that back then there was a conclusion that it was a systemic problem, and yet I don’t believe there was evidence at the time that it was a systemic problem,” Scott Angelle, the director of BSEE, said in June.

BSEE now argues that the oil industry has learned from its mistakes, and has incorporated changes since the 2010 incident, and thus, does not need heavy government oversight.

Meanwhile, BSEE also sent a stop-work order on a study that would evaluate how the agency inspects offshore oil and gas operations. The study, to be conducted by the National Academies of Sciences Engineering, and Medicine, was initiated last year and was intended to figure out ways to improve inspections.

Environmental groups are crying foul.

“The Department of the Interior, whose job it is to make sure offshore drilling is safe, should welcome a serious investigation into the best way to carry out that job, especially as the administration pushes to expand drilling even further in the Atlantic and the Arctic,” Andrew Rosenberg, director of the Center for Science and Democracy at the Union of Concerned Scientists, said in a statement.

 

“Instead, they’re blocking research into the risks. What is Secretary Zinke afraid of?”

Interior is lining up a massive auction of offshore acreage, scheduled for March. The auction is expected to serve up 77 million acres for drilling, the largest offering ever held. The auction will include "all available un-leased areas on the Gulf's Outer Continental Shelf," the agency said in a statement a few months ago.

It is unclear how much interest there will be in offshore drilling, but the sector is looking to rebound several years after the market downturn. The EIA expects the U.S. Gulf of Mexico to add 344,000 bpd of new supply in 2018 from seven different projects, although many of those were planned years ago.

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