Maxine Waters: “Deutsche Bank Is Perhaps The Biggest Money Laundering Bank In The World”

Now that she controls the House Financial Services Committee, Congresswoman Maxine Waters is preparing to finally make good on her threats to subpoena Deutsche Bank to get the “full story” on President Trump’s financial relationship with the only major bank that would lend to him following a series of Trump company bankruptcies during the 1990s. And as Waters prepares to let the subpoeanas fly, what better way to alert the broader financial industry that she is not playing around than to sit for an interview with CNBC’s chief political correspondent John Harwood?

During a brief interview that aired on Friday, Waters told Harwood that her goal is nothing short of exposing Deutsche Bank’s involvement in helping the president launder money and avoid taxes (allegations that haven’t been substantiated by any media reports or Mueller probe indictments – or any information that has found its way into the public awareness over the past two years).

Waters

According to Waters, “we already know that Deutsche Bank is one of the biggest money laundering banks…in the world.” And there have been rumors about Trump possibly committing financial improprieties during his business dealings. So, in Water’s estimation, the probability that her probe will uncover some kind of smoking gun is probably pretty high.

John Harwood: What is your objective in the joint investigation that you plan with Congressman Schiff of Deutsche Bank?

Maxine Waters: We know that Deutsche Bank is one of the biggest money laundering banks in the country, or in the world perhaps. And we know that this is the only bank that will lend money to the president of the United States because of his past practices. He won’t show his tax returns and we have a certain information that leads us to believe that there may have been some money laundering activity that might have been connected with Mr. Manafort, with some people in his family.

John Harwood: Do you believe that money laundering has been a significant part of President Trump’s business?

Maxine Waters: I know that there are a lot of rumors. I think we need to learn more about the finances of the president of the United States, and he’s hiding that information from us. He’s not disclosing that information. And I think we need to delve deeper into that and find out what is going on and whether or not money laundering has been involved and whether or not there are connections with the oligarchs of Russia.

So does Waters believe Trump is guilty of corruption (which would imply wrongdoing following his inauguration)? She refused to answer the question directly, but instead listed off a litany of Trump’s financial foibles, from his bankruptcies to reports that he stiffed contractors and subcontractors.

John Harwood: Do you believe, based on what you know now, that the president is corrupt?

Maxine Waters: I believe that this is a problematic president who has proven that he has taken advantage of others in the past. I know that he was fined and I do know that the attorney general of New York made him reimburse at least $25 million. We know that he has had bankruptcies. We know that there are a lot of stories he hasn’t paid contractors, he hasn’t paid subcontractors. We know a lot about the history of this president and it doesn’t look good. … So, we think that in addition to what Mr. Mueller is doing and now what we are able to do with our subpoena power, we’ll find out more and we’ll be able to answer that question directly.

In a surprising show of mettle, Harwood confronted Waters about the corruption allegations that have dogged her political career.

John Harwood: Now, do you think that the fact that you’ve taken some criticism about conflicts of interest — you were on a watchdog group’s list of most corrupt members of Congress — does that undercut your ability to pursue these issues?

Maxine Waters: No, absolutely not. First of all, all of the questions were answered, I was totally exonerated and found not to have done anything wrong. And the group that was involved in that was not an official group. It was simply a nonprofit operation that decided that it was going to take on the responsibility of choosing members that they didn’t necessarily like. But whatever they tried to do to me didn’t work because it was proven that I had done nothing wrong.

But he followed that question up with a softball: Asking Waters what she thinks of some of the media’s favorite sobriquets for the California Congresswoman.

John Harwood: So you think the “Angry Maxine,” the “Kerosene Maxine,” has been exaggerated?

Maxine Waters: I don’t know about those labels. I do know this, that oftentimes right-wing conservatives will label you, they will call you names. I think you have to look at where it comes from. If it comes from people who are diametrically opposed to me and my philosophy, and what I care about and what I’ve worked on, then it is not credible, and so I pay no attention to that.

That’s a lot of talk based on so little actual evidence. With this in mind, we can’t help but wonder: What is Waters going to say if her probe comes up empty handed?

Watch the full video below:

via ZeroHedge News http://bit.ly/2Gf8qQK Tyler Durden

One Of The Biggest At-Home DNA Testing Companies Is Secretly Sharing Data With The FBI

Just one week ago, we warned that the government — helped by Congress (which adopted legislation allowing police to collect and test DNA immediately following arrests), President Trump (who signed the Rapid DNA Act into law), the courts (which have ruled that police can routinely take DNA samples from people who are arrested but not yet convicted of a crime), and local police agencies (which are chomping at the bit to acquire this new crime-fighting gadget) — was embarking on a diabolical campaign to create a nation of suspects predicated on a massive national DNA database.

As it turns out we were right, but we forgot one key spoke of the government’s campaign to collect genetic information from as many individuals as possible: “innocent”, commercial companies, who not only collect DNA from willing clients, but are also paid for it.

FamilyTreeDNA, one of the pioneers of the growing market for “at home”, consumer genetic testing, confirmed a report from BuzzFeed that it has quietly granted the Federal Bureau of Investigation access to its vast trove of nearly 2 million genetic profiles.

While concerns about unrestricted access to genetic information gathered by testing companies had swelled since April, when police used a genealogy website to ensnare a suspect in the decades-old case of the Golden State Killer, that site, GEDmatch, was open-source, meaning police were able to upload crime-scene DNA data to the site without permission. However, the latest arrangement marks the first time a commercial testing company has voluntarily given law enforcement access to user data.

Worse, it did so secretly, without obtaining prior permission from its users.

The move is of significant concern to much more than just privacy-minded FamilyTreeDNA customers. As Bloomberg notes, one person sharing genetic information also exposes those to whom they are closely related. That’s how police caught the alleged Golden State Killer. And here is a stunning statistics – according to a 2018 study, only 2% of the population needs to have done a DNA test for virtually everyone’s genetic information to be represented in that data.

Thanks to its millions of customers, FamilyTreeDNA’s “cooperation” with the FBI more than doubles the amount of genetic data law enforcement already had access to through GEDmatch. According to BuzzFeed, and as confirmed by the company, on a case-by-case basis the company has agreed to test DNA samples for the FBI and upload profiles to its database, allowing law enforcement to see familial matches to crime-scene samples.

There is one caveat: FamilyTreeDNA said law enforcement may not freely browse genetic data but rather has access only to the same information any user might. Which of course, is ridiculous when the FBI has the same access as every single user.

Needless to say, the genealogy community has expressed dismay.

Last summer, FamilyTree DNA was among a list of consumer genetic testing companies that agreed to a suite of voluntary privacy guidelines, but as of Friday morning, it had been crossed off the list after it was revealed that the company had been lying all along.

“The deal between FamilyTreeDNA and the FBI is deeply flawed,” said John Verdi, vice president of policy at the Future of Privacy Forum, which maintains the list. “It’s out of line with industry best practices, it’s out of line with what leaders in the space do and it’s out of line with consumer expectations.”

Some in the field have begun arguing that a universal, government-controlled database may be better for privacy than allowing law enforcement to gain access to consumer information: after all what’s the difference if the companies will simply hand over all the information secretly. At least this was the public will know that Uncle Sam – and who knows who else – will have access to one’s genetic code.

FamilyTreeDNA said its lab has received “less than 10 samples” from the FBI. It also said it has worked with state and city police agencies in addition to the FBI to resolve cold cases.

“The genealogy community, their privacy and confidentiality has always been our top priority,” the company said – supposedly with a straight face – in an email response to questions submitted by Bloomberg.

And why would it tell the truth: just like search engines and social networks, where the user is the product, and all the information about the user is carefully collected, isolated and stored, then sold to the highest bidder, or quietly handed over to the government, consumer DNA testing has become a giant business: Ancestry.com and 23andMe Inc. alone have sold more than 15 million DNA kits. Concerns about an industry commitment to privacy could hamper the industry’s rapid growth.

To be sure, there are some fringe benefits – like authorities actually doing what they said they would do – since the arrest of the suspected Golden State Killer, more than a dozen other suspects have been apprehended using GEDmatch. By doubling the amount of data law enforcement have access to, those numbers are likely to rise. But at what cost?

“The real risk is not exposure of info but that an innocent person could be swept up in a criminal investigation because his or her cousin has taken a DNA test,’’ said Debbie Kennett, a British genealogist and author. “On the other hand, the more people in the databases and the closer the matches, the less chance there is that people will make mistakes.’’

And, of course, if every person’s DNA is in one giant genetic database, there would be no mistakes. Now if only the risk of abuse of this information was also nil, then everything would be great. Alas, as Snowden revealed when he exposed the flagrant abuses at the NSA years ago, this will never be the case especially when the “objective and impartial” FBI is involved.

Last June we asked “Millions Trust Ancestry.com With Their Genetic Code: What Could Go Wrong?” Now we know.

via ZeroHedge News http://bit.ly/2RzFLYE Tyler Durden

Pennsylvania Identifies Over 11,000 Registered Non-Citizen Voters

Pennsylvania state Rep. Daryl Metcalfe called on the state Wednesday to immediately purge 11,198 noncitizen voters who were confirmed as registered to vote despite not being eligible, reports the Washington Times.

Photo: The Patriot Post

State Rep. Daryl Metcalfe, a Republican and former chairman of a House government oversight panel, said the administration of Gov. Tom Wolf, a Democrat, belatedly acknowledged the large number of noncitizens in communications over the past two months.

“I believe that we need to take action and have those people removed immediately from the rolls,” Mr. Metcalfe told The Washington Times. “They were never eligible to vote.” –Washington Times

Metcalfe and Wolf sparred over the data after Metcalfe made a right-to-know request under state law which the Wolf administration objected to – going to court to try and keep it hidden from the public. The state Commonwealth Court appellate panel scheduled a hearing last month to address the issue, however one week before the hearing the Wolf administration withdrew their appeal and announced that they would turn over the information. 

Metcalfe questioned the Wolf administration’s timing.

This governor has been an obstructionist in revealing this information to the citizens, and thereby I believe a participant in allowing this fraudulent activity to occur because it benefits him and his party,” he said. 

Days earlier, Texas Attorney General Ken Paxton’s office announced that the Texas Department of Public Safety identified nearly 100,000 noncitizens on the state’s voter rolls, according to NBCDFW

Texas officials arrived at their conclusion after comparing state driver’s license records – which note immigration status – with voter rolls, and found that 95,000 people registered as noncitizens were among the 16 million registered to vote in the state. 

Of the 95,000 – around 58,000 had voted at some point since 1996.

Pennsylvania officials arrived at their figures in a somewhat similar process – admitting that a glitch in the state DMV computers allowed noncitizens to register to vote. 

The state did not release the names to Mr. Metcalfe or to Rep. Garth Everett, a Republican and chairman of the House State Government Committee, so they weren’t able to figure out how many had cast ballots.

Contacted by The Washington Times, the Pennsylvania Department of State did not provide a comment on its numbers.

Voter integrity advocates said the findings undermine arguments that there is no problem. –Washington Times

“Demonstrating, much less discussing, noncitizen voting activity is the worst form of heresy one can commit for left-wing groups,” said Public Interest Legal Foundation director Logan Churchwell, whose group is involved in Texas and Pennsylvania lawsuits to obtain voter data. 

Judicial Watch president Tom Fitton told the Times that these reports are “the tip of the iceberg,” adding “This shows the urgent need for citizenship verification for voting. The Department of Justice should follow up with a national investigation.”

There is currently no requirement to prove citizenship to vote in any state, and efforts to change that have failed. Last year, a US District Court Judge struck down a law spearheaded by former Kansas Secretary of State Kris Kobach which would require citizenship documentation. The ruling was appealed to the 10th US Circuit Court of Appeals. 

That said, Texas will begin implementing certain verification steps on the back-end. Each month the secretary of state will compare new voter registrations with federal immigration records at the Department of Homeland Security.

“This carries the benefit of being a report plus a reform,” said Churchwell. “This wasn’t a one-off research project. Texas will be actively screening for existing potential noncitizen registrants on a monthly basis, which is something we’ve long pushed for.”

Liberal groups have challenged the findings – suggesting that the DMV information could be out of date. 

A coalition of 13 liberal groups, including the American Civil Liberties Union, has challenged Mr. Whitley’s methodology and called his findings suspect.

They said that since driver’s licenses are issued every six years in Texas, the person could have become a citizen after the immigration status was submitted to the Department of Public Safety. The League of United Latin American Citizens says in its lawsuit that more than 50,000 Texans are naturalized each year and that most of them vote in their first election.

To account for that, Mr. Whitley created a process for election boards to notify each of the 95,000 names and ask them to verify whether they are citizens and should remain on the rolls.

In Pennsylvania, the state’s Democrat-led administration has been less enthusiastic about confronting the issue. –Washington Times

President Trump sparked a national debate after he claimed in 2017 that “millions and millions” of people voted illegally. A presidential commission was assembled to investigate, however it was disbanded after uncooperative states refused to hand over voter data and administrative issues. 

via ZeroHedge News http://bit.ly/2DOxBbf Tyler Durden

Media Frenzy After Democrat Governor Allegedly Pictured In Blackface/KKK Robes

Virginia Governor Ralph Northam’s (D) medical school yearbook features several pictures under Northam’s name; a classic yearbook headshot, an image of Northam leaning against a car, one of him in a rural setting, and a picture of two individuals wearing blackface and KKK robes – one of whom is presumably Northam, as first reported by Big League Politics and confirmed by the Virginian-Pilot which photographed the picture below.  

A half-page from the 1984 Eastern Virginia Medical School yearbook, photographed by The Virginian-Pilot on Friday, Feb. 1, 2019.

Under the photo of the men in blackface and the Klan hood are listed Northam’s alma mater, Virginia Military Institute, and his interest: “Pediatrics.” His quote is listed as “There are more old drunks than old doctors in this world so I think I’ll have another beer.”  –Virginia Pilot

Northam made headlines earlier this week discussing a controversial abortion bill that would loosen restrictions in third-trimester abortions. 

Meanwhile, Virginia Democratic leadership is already defending him “while it’s in poor taste…”

via ZeroHedge News http://bit.ly/2MMq1AI Tyler Durden

MAGA Hats Banned At California Restaurant; Owner Addresses Outrage In Ham-Handed Statement

A California restaurant owner sparked controversy in a now-deleted tweet in which he declared that anyone wearing a “Make America Great Again” (MAGA) hat would not be served.

Wursthall Restaurant & Bierhaus in San Mateo, CA

The owner of Wursthall Restaurant & Bierhaus in San Mateo, J. Kenji López-Alt wrote on January 25: “

In a separate now-deleted tweet to his 42,000 Twitter followers, López-Alt wrote “MAGA hats are like white hoods except stupider because you can see exactly who is wearing them.”

The award winning cookbook author’s tweets sparked an immediate controversy, with those on the left supporting the restaurateur, and free speech advocates condemning him. 

“I see where he’s coming from, but I don’t think you should just keep people out because of a hat,” said San Mateo resident Jamie Hwang while sitting at a table inside Wursthall. “I get that idea, that maybe that hat could mean the person wearing it is just looking for a fight, but just cutting off dialogue, not giving a chance to get to know someone — I just don’t know if that’s something I would do.”

Not the first time…

Last May the Cheesecake Factory apologized after a 22-year-old Trump supporter Eugenior Joseph was harassed by employees, with some threatening to “knock his head in so hard his hat’s going to come off.” 

According to multiple witnesses and Joseph’s own account, a woman who worked at the restaurant walked up to him and started pointing at his hat, signaling for the other employees to come over.

Her finger was literally on top of his head, we were all looking at her like ‘what is happening?’” one witness told The Daily Wire. “She was pointing at him, calling her other coworkers, telling them to look at this guy wearing a Make America Great Again hat.” –Daily Wire

And in June of last year, the manager of a Canadian restaurant was fired after he ejected a man wearing a MAGA hat – leading to Trump-hating Canadians swarming their Yelp page with negative reviews. 

“As a person with a strong moral backbone, I had to take a stand against this guest’s choice of headwear while in my former place of work. Absolutely no regrets,” the former employee told CBC News.

Kenji backpedals, kind of

In a carefully crafted Friday PR statement, Kenji suggests that he wasn’t attacking individuals – but the “hate” that a MAGA hat represents. 

“My message was intended to reject anger, hate and violence, and indicate that these shouldn’t be welcomed in our society and aren’t welcome in our community. It was meant to be directed at those who would try to bring messages of hate, violence, and anger into my place of business,” wrote López-Alt, adding “It was aimed at these three elements rather than at a physical object, but I understand that many interpreted my words in a different context, and construed a message of hate directed at them.”

In short, “If you come into my restaurant wearing a MAGA cap, you aren’t getting served” wasn’t directed at people (it was), rather it was aimed at MAGA hats themselves – and he’s sorry for any confusion caused by his clear language.

“Wursthall will continue, as it always has, to serve all customer regardless of race, color, religion, sex, national origin, sexual preference, gender orientation, disability, or political opinion — so long as they leave hate, anger, and violence outside of the doors of our restaurant.”

In short, you still can’t wear a MAGA hat inside of his eatery. 

via ZeroHedge News http://bit.ly/2DOyVuV Tyler Durden

Howard Marks: “The Tide Is No Longer Rising… Unhappiness Crystalizes In Populism”

Memo to: Oaktree Clients

From: Howard Marks

Re: Political Reality Meets Economic Reality

In 2016 I wrote Economic Reality (in May) and Political Reality (in August), two memos covering subjects I thought were important and timely. In the latter, I summed up Economic Reality as follows:

[It] describes the ways in which economics defines and constrains reality in business, investingand everyday life. Economics establishes the rules of the game and the boundaries of the playing field, and these things can’t be ignored. They can be altered, but not without consequences.

The realities of economics are stark and consistent, but also logical. They aren’t absolute, like the laws of physics (e.g., gravity), but they reliably establish tendencies and limits.

The point is that the field of economics covers the choices people and organizations face; the costs, possible rewards and potential consequences; and how decisions regarding those choices are made. These are the bases on which people enter into economic transactions. More than anything else, perhaps, economics is the study of choice.

Three months later, in Political Reality, I said:

I’ve always gotten a kick out of oxymorons – phrases that are internally contradictory – such as “jumbo shrimp” and “common sense.” I’ll add “political reality” to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world, politicians seem to feel free to ignore them. . . .

The purpose of this memo is to describe what happens when political behavior collides with economic reality, as illustrated in one area where the government is taking steps – tariffs – and another in which debate among politicians is heating up – restrictions on the capitalist system.

Before I move forward, I’d like to state up front, as I did in Economic Reality in 2016, that I’m not writing to make political judgments or to make any politician or party look bad. But economic pronouncements can’t be separated from the people who make them. If you read through to the end, you’ll see I find something to complain about in the approach of members of both parties.

Tariffs

Tariffs are very much in the news these days, and their complexity renders them ripe for error and thus appropriate for discussion here.

Many people – albeit President Trump’s supporters more often than economists in general – applaud his decision to impose tariffs against China. Whereas the simple story was that he was doing so to (a) reduce our trade deficit with China, (b) support U.S. manufacturers and (c) protect U.S. jobs, there’s more in play. In The Wall Street Journal of October 20, Richard Haass, president of the Council on Foreign Relations, an independent, nonpartisan organization, enumerated complaints that have been lodged against China in the area of trade:

. . . higher-than-warranted tariff and non-tariff barriers, forced transfers of technology, theft of intellectual property, government subsidies and currency manipulation designed to make exports cheaper and to reduce the demand for imports.

Everyone knowledgeable tells me these complaints are warranted. While they’re not new, past presidents don’t seem to have done much about them, or at any rate didn’t produce any results. Clearly Trump likes to take action and doesn’t shy away from confrontation. Given that China’s economy is much more reliant on exports to the U.S. than ours is on exports to China – and given China’s need for rapid economic growth in order to reach its goals – imposing tariffs represents a possible way for Trump to get China to alter its behavior.

Thus rather than criticize Trump’s tariffs, I’m going to use them as an example to illustrate the central messages of this memo: (a) economic actions have costs and consequences, (b) for that reason, it’s generally safe to say there are no simple solutions to complex problems, (c) given the complexities, few people thoroughly understand economics, and (d) because of that understanding deficit, politicians’ proposed solutions often fail to receive the scrutiny they should.

First, there’s misunderstanding. The U.S. runs chronic trade deficits with most of its trading partners, and with China it amounted to $335 billion in 2017. Trump takes these deficits to mean our trading partners are winning and we’re losing. “We have countries ripping us off for years We have trade deficits; they have surpluses.” In particular, he says “China’s been killing us,” suggesting there’s something nefarious about trade deficits. But is that the correct inference? The other day I went to the barber for a haircut, and when I paid him, I ran a trade deficit. He got my money, and I got a haircut. I didn’t feel like I had lost. Likewise, Chinese businesses make money from the U.S., and U.S. consumers get the low- priced goods they want. Both sound like winners to me.

Trump has said, “If we didn’t trade, we’d save a hell of a lot of money.” Would we? That would be true only if we didn’t otherwise buy the things we’ve been importing, or if we were able to buy them cheaper domestically. Would it really save us money to not trade with China?

After all, who pays tariffs? They’re a tax paid by exporters and presumably passed on to consumers in the countries into which goods are imported. So it’s not enough to say “exporters are paying increased tariffs.” It’s also likely that U.S. consumers are paying increased prices for the goods they consume.

If tariffs are paid by consumers in the importing nations, what’s to be accomplished by imposing them? In short, it’s done to raise the cost of foreign goods and thus discourage their consumption. But that leads us to the knock-on effects: what else happens?

Let’s take the first shot fired in last year’s escalation on trade: the imposition of tariffs of 25% on imported steel and 10% on imported aluminum. Here are some of the many possible complications, ramifications and second-order consequences:

  • Tariffs on imported intermediate goods such as steel and aluminum might increase the cost of finished goods manufactured in the U.S., rendering them less competitive if their prices are raised (or less profitable if they’re not). According to The New York Times of July 4, 2018:

The Aluminum Association, which represents the bulk of the American industry, says that 97 percent of American jobs in aluminum are at what are called “downstream” businesses that shape the metal into things like auto parts and other goods. Those companies are hurt by Mr. Trump’s tariffs, because they now must pay higher prices for their raw materials.

  • To avoid paying tariffs, American manufacturers could reduce their imports of foreign steel and aluminum for use in the finished goods they make, and instead increase their imports of finished goods – which are not subject to the tariffs – made abroad with foreign steel and
  • Going beyond importing finished goods, American companies could move their manufacturing overseas, cutting domestic jobs. The overseas use of untaxed, low-cost metals could provide a competitive edge when those finished goods are imported into the S.
  • Non-U.S. companies likewise could gain an advantage over their American competitors. Their use of untaxed, low-cost materials could give them lower selling prices or higher profit margins when exporting finished goods to the S.
  • Despite the cost increases caused by tariffs, imports might not actually be discouraged and U.S. production encouraged, simply because U.S. capacity doesn’t exist:

“The reality is there’s not enough aluminum made here,” said Eric Krepps, who runs the North American automotive business at Constellium NV, a Dutch aluminum company. “We could not source everything out of the U.S. even if we wanted to,” . . . since the U.S. produces just 13% of the 5.6 million metric tons of raw aluminum it uses each year. (The Wall Street Journal, July 18, 2018)

  • Since tariffs might raise selling prices on imported goods (or goods incorporating imported materials and components), the reduced competitiveness of those imports could enable domestic producers to raise their prices. The result would be higher consumer prices on all
  • Countries whose goods are subjected to tariff increases are unlikely to just sit there and take it. Retaliation is always a reasonable expectation. “While tariffs help some companies, they have the potential to hurt thousands of others. Businesses that depend on access to overseas markets are being hit with retaliatory tariffs . . . .” (The New York Times, August 7, 2018)
  • Finally, a trade war centered on escalating tariffs makes the global environment less stable, reducing predictability and increasing uncertainty. This isn’t good for any

Going beyond steel and aluminum, increased tariffs on imported automobiles and auto components have been under discussion for much of the past year. Some of the considerations described above regarding steel and aluminum don’t apply to cars, since they’re finished goods, not intermediate goods. But a number of additional elements create exceptional complexity:

  • S. companies manufacture cars in the U.S. for sale abroad.

  • S. companies manufacture cars abroad for import to the U.S.

  • Some of the biggest manufacturers of cars in the U.S. are non-U.S.

  • Many of the cars produced in the U.S. by non-U.S. companies are destined for

  • Cars made in the U.S. incorporate a lot of components made

  • Of the cars sold in the U.S. last year, 44% were

On July 20, The New York Times discussed the possibility of increased tariffs on autos as follows:

If imposed, the tariffs would most likely have deeper and wider-reaching repercussions for the economies than levies on fish or steel. Cars don’t come together in one plant, with one work force – they’re the final result of hundreds of companies working together in a supply chain that can snake through small American towns and cross oceans.

Thus increased tariffs on automotive imports could bring about:

  • an increase in the price of all cars bought by Americans,
  • a resultant decline in the number of cars sold,
  • tougher times for manufacturers, dealers, support businesses and their employees, and
  • thus a general contraction of the economy. (In July the IMF projected that “currently announced tariffs would reduce global economic output by $430 billion, or half a percent, in 2020, if they remained in place and shook consumer confidence.” (The New York Times, July 23, 2018))

The bottom line is that tariffs aren’t a simple solution or a sure thing. They’re a tool or tactic with potential benefits, but also costs and risks. They can help some parts of the economy and simultaneously harm others. In other words, they’re a tradeoff. That’s the key word in economics. The question is whether they’re worth it. In good part, it depends on whom you ask.

One study of the Obama tire tariffs found in a single year, 2011, Americans spent an extra $1.1 billion on tires as a result of a tariff that preserved, at most, 1,200 jobs. That is almost $1 million per job, for jobs paying an average of about $40,000.

Steel tariffs imposed in 2002 by President George W. Bush yielded similar results, penalizing not just consumers but companies that use steel to make other products, like construction companies and carmakers. The Dartmouth economist Douglas Irwin estimated 140,000 American workers make steel, while 6.5 million workers make products that include steel.

“If for some reason you said, ‘We just want to help steel producers, shareholders, possibly steel workers,’ it makes sense,” Mr. Irwin said. “If you care about manufacturing employment or the manufacturing sector, it doesn’t make sense.” (The New York Times, September 17, 2018)

I’ll move to wrap up on the subject of tariffs with a few paragraphs from Economic Reality:

Have the voters who think it’s a great idea to “bring back the jobs” thought about what goods manufactured at U.S. wages – or tariffs designed to bring the cost of Chinese goods up to those levels – would do to their cost of living? I’d guess not. How will the interests of the 3.2 million Americans estimated to have lost their manufacturing jobs to China be balanced against the hundreds of millions who would have to pay considerably more for imported goods? Not an easy question.

Quotas, tariffs and subsidies are all ways for countries to protect industries that can’t hold their own against international competitors without these things. Thus they’re a good example of ways in which policy decisions can lead to distortions. Since the industries for which tariffs and subsidies are established are, by definition, industries that can’t compete without them, for these things to be enacted, someone has to make a decision that (a) these industries should be kept afloat and (b) consumers of these industries’ goods should be prevented from paying the lower prices that would prevail if consumers had easy access to goods from abroad, free of tariffs. . . .

The bottom line, as with so many of the things I’m discussing here, is that economic laws cannot be ignored or magical solutions willed to appear. While it’s far from the entire explanation, the main reason the U.S. has lost manufacturing jobs to foreign countries is that people there are willing to work for much less. In this globalized world, that means Americans can’t enjoy both the high-paying manufacturing jobs they used to have and the low-cost goods they’ve been buying of late. The imposition of tariffs can’t solve that conundrum.

On two occasions last summer, while discussing the steel and aluminum tariffs, The Wall Street Journaldid a good job of summing up the key considerations:

The fallout, while so far limited, illustrates how efforts to protect some companies can cause unintended pain for others. (June 4, 2018)

Put into practice, tariffs are a complex economic weapon that can ricochet through an economy in ways even proponents don’t expect. (July 17, 2018)

As mentioned earlier, I’m not writing here to criticize tariffs (or administrations that impose them), but rather to show (a) it’s not easy for government actions to improve the functioning of economies and (b) there are ramifications to be considered. Tariffs are typical of economic reality, and economic reality is complex, in large part because it consists mainly of dividing resources among participants, not of creating more for everyone. As economists like to say, “There’s no such thing as a free lunch.”

Anti-Capitalism

Something else is going on that I worry about far more than the imposition of tariffs: increasing anti-capitalist sentiment.

One of the big trends in politics in recent years has been the rise of populism. While populism is somewhat amorphous, here’s a definition for the purposes of this memo:

A political philosophy supporting the rights and power of the people in their struggle against the privileged elite. (The Free Dictionary)

I think it’s important to add another word with regard to the adoption of populism as a political strategy: it plays on resentment on the part of “the people” toward “the elite.”

Populism has been on the rise in Europe for a number of years, generally associated with the political right and characterized by resentment toward economic, liberal and urban elites. It has often been accompanied by authoritarianism, allowing charismatic strongmen to present themselves as protecting “the people” from looming threats like immigration.

A good part of the credit for Donald Trump’s election in 2016 has likewise been attributed to populism. This instance, also coming from the right, was largely built on resentment from rural, white, older and less-educated voters directed at urban, establishment, educated and cultural elites, as well as unhappiness with social and demographic trends that are disrupting the status quo.

But as shown in the 2016 presidential Democratic primary contests and since, another wave of populism has arisen from the left. I’m most concerned that in this case, the principal targets of popular resentment are capitalism and capitalists.

One of the big stories of the 2016 primary season was the success of avowed Democratic Socialist Senator Bernie Sanders. Sanders launched a challenge to Hillary Clinton, the heir-apparent to the leadership of the Democratic Party and eventually the chosen nominee. He gained a lot of followers and gave Clinton a run for her money, in particular by emphasizing economic justice, the corrosive effect of money (and especially corporate money) in politics, and the promise of healthcare and education for all.

Following on Sanders’s performance, the so-called “progressive” or left wing of the Democratic Party is becoming a formidable bloc. I expect progressives to be a force to be reckoned with in the coming years. They will show up strongly in the 2020 primaries and influence the debate. In fact, their influence is already being seen. And thus this section of my memo.

In a possibly isolated but telling incident, in a Democratic congressional primary last year in Queens, New York, Alexandria Ocasio-Cortez came from the far left to beat Joe Crowley, a ten-term, center/left congressman. Crowley was #4 in the Democratic leadership in the House of Representatives and considered a likely eventual successor to Nancy Pelosi as House Speaker. Instead he was ousted by Ocasio-Cortez: 28 years old at the time and sporting a storybook bio featuring a working-class upbringing, academic distinction and stints as a bartender and waitress. She had been politically oriented but had never held elected office. And yet she became the youngest woman ever elected to Congress.

She’s been very outspoken since and has attracted disproportionate attention for a freshman legislator.

Ocasio-Cortez, like Sanders, is a member of the Democratic Socialists of America, and she willingly accepts the label “radical.” A New Yorker article titled “Left Wing of the Possible” quotes her as follows:

I do think we are in a crisis of late-stage capitalism, where people are working sixty, eighty hours a week and they can’t feed their families. There is a lot that is economically dystopic in this country. So that’s why people are open to change. (July 23, 2018)

Julia Salazar, another member of the D.S.A., also ousted a Democratic incumbent last year and won election to the New York State Senate with the “ardent support of Ocasio-Cortez.” The same article included a statement from her that I found chilling:

. . . a democratic socialist “recognizes the capitalist system as being inherently oppressive, and is actively working to dismantle it and to empower the working class and the marginalized in our society.”

Does this group genuinely want to abolish capitalism? Thankfully, the same article went on to reflect some moderate sentiment:

Michael Kazin, a co-editor of Dissent and a D.S.A. member, [said]: “The radical left’s major influence in American history is to push liberals, progressives, to the left. And that is going to be the impact. I don’t believe we are going to have a socialist transformation of America in my lifetime.”

In July, The New York Times explored the Democratic Socialists’ agenda as follows:

“So what are we talking about here?” the host Stephanie Ruhle asked in an MSNBC segment, with background graphics highlighting that democratic socialism is “NOT Socialism” and “NOT Communism” but something more like a fondness for Social Security and Amtrak. The D.S.A. itself both embraces and rejects such friendly definitions, explaining that it “fights for reforms today” but still seeks to overturn “an international economic order sustained by private profit, alienated labor” and other forms of exploitation. . . .

When today’s leftists talk about socialism, they point to places like Sweden and France (home to robust maternity leave and universal health care) or even to lost relics of America’s recent past (stable jobs, union power, a collective investment in human welfare). (July 22, 2018)

Ocasio-Cortez and Salazar may not be indicative of a broad movement, as they hail from New York City, where a Democratic candidate is a sure thing in a general election and extremism is unlikely to be an impediment. But some trends among our citizens are very much worth noting. According to the New Yorker article cited above:

In 2016, the Institute of Politics, at Harvard’s Kennedy School, polled people between the ages of eighteen and twenty-nine, and discovered that support for capitalism was surprisingly low. Fifty-one percent of the cohort rejected capitalism; thirty-three percent supported socialism. A later edition of the survey found that fifty-one percent were “fearful about the future,” while only twenty percent were hopeful. . . .

Seventy-eight percent of Americans working full time live paycheck to paycheck; nearly half do not have four hundred dollars at the ready. . . .

. . .while ninety percent of people born in the nineteen-forties outearned their parents – the traditional American expectation – this number has fallen to fifty percent for people born in the nineteen-eighties. [Of course, they could be too young to have done so yet.]

These are the dystopic trends Ocasio-Cortez cites and the source of the resentment of capitalism that gives rise to today’s populism from the left.

As I see it, for the 60 years immediately following World War II, much of the world enjoyed a rising tide of prosperity that lifted all boats. That made nearly everyone economically content and thus happy with capitalism and free-market solutions. Even though some people did better than others, most did quite well. Living standards rose and the incidence of poverty declined. Ronald Reagan and Margaret Thatcher celebrated the efficacy of free markets, and the world agreed.

Now the rate of economic progress has receded and current trends are less cheering:

  1. The possibility that economic growth will be slower than that of the post-war period

  2. The negative impact of globalism and automation on specific groups

  3. The increased importance of advanced education or the ownership of capital

  4. As a consequence of numbers 2 and 3 above, increased income inequality

In short, the tide is no longer rising to the same extent, and many fewer people are happy with their circumstances and outlook. Their unhappiness crystalizes in populism. And it needs a target. Why not capitalism?

My point here is that, as I said above, I expect the rising influence of the left to impact the 2020 election cycle. Left-wing Democratic candidates will present challenges to moderates in their party, and the latter will have to tailor their messages to compete. And it’s starting. In particular, I cite two pieces of proposed legislation that emerged recently from prominent Democrats:

  • Senator Elizabeth Warren, already an announced 2020 presidential candidate, has introduced her Accountable Capitalism Act. Two of its provisions caught my attention:

. . . incorporation for large companies would become a federal matter, . . . These federally chartered companies would be mandated to consider the interests of a list of stakeholders, from investors to employees to customers and communities. These groups could then sue if they deemed the company had breached their duties. . . .

. . . Senator Warren’s legislation calls for 40 percent of directors to be elected by employees. (The Financial Times, September 24, 2018)

  • Senator Cory Booker of New Jersey, often mentioned as a presidential hopeful, has introduced legislation that I view as related:

The Worker Dividend Act would mandate that companies buying their own shares must also pay out to their own employees a sum equal to the lesser of either the total value of the buyback or 50 percent of all profits beyond $250 million. (Vox, January 10, 2019)

I absolutely am not writing to defend stock buybacks or criticize labor representation on boards. What I oppose is (a) the idea of governments deciding how companies will be run and (b) the appropriation of corporations’ economics for parties other than their owners.

What would be the effects of turning over some of businesses’ capital to workers, or requiring that they be put on corporate boards? Clearly, to do the former would be comparable to saying to shareholders, “That thing you thought you owned – the company – you don’t really own that.” Stock buybacks are a way of returning capital to companies’ owners. Why should each one be accompanied by giving an equivalent amount to workers? Wouldn’t the next step be to say, “Whenever a company pays a dividend, it has to distribute an equal amount to its workers”? And wouldn’t that be tantamount to saying, “As for corporate capital, the workers own half”? Consequences? Ask yourself who would start a corporation in the future if it meant the workers would be entitled to half the gains.

What about requiring that workers be put on boards? To date, it has been the job of a corporation’s directors to represent its shareholders. Requiring that 40% of them be workers would be, in essence, another way of saying the shareholders aren’t in full control. If workers were put on boards, whose interests would they represent: the corporation and its shareholders, or labor? To whom would they work to deliver benefits? If an opportunity arose to increase efficiency and profitability by investing in automation, for example, how would labor’s directors be expected to vote?

And that leads to the matter of requiring corporations to serve multiple interests. Today, directors are legally deemed to have done their jobs if they applied “business judgment” for the benefit of the company (and thus its shareholders). How would they be expected to simultaneously work for the good of the company and its owners as well as its workers, customers and communities? Can you imagine the lawsuits that would fly over the issue of whether too much had gone to one group rather than another? How could a court decide whether the multiple constituencies had benefitted in the appropriate proportions?

What I’d like to do is get some of the progressive politicians and the less-capitalist young people in a room and ask them a simple question: To what do you attribute America’s preeminence in the world over the last hundred years and the generally superior living standards of its people? In short, what has been behind the United States’ progress to the top of the heap?

What’s absolutely clear to me is what it’s not: that we’re superior people, smarter, better, more virtuous or more deserving. Instead, I think it’s our democracy, our freedoms, and our less rigid social and financial structures. But, extremely importantly, I also think there have been enormous contributions from capitalism/free enterprise, the free-market system, economic incentives, private ownership of property, individual economic opportunity, and the very limited involvement of government in the economy.

Capitalism is an imperfect economic system, because differential performance in the pursuit of economic success – as well as luck – results in there being (a) some people who are less successful as well as some who are more and (b) a few who are glaringly successful. Obviously I’m someone who has profited from capitalism, so my views could be dismissed as hopelessly biased. However, I’m 100% convinced that the capitalist system has produced the most aggregate gains for our society, exceptional overall progress, and a better life for most. For me, the best assessment of capitalism is the one Winston Churchill applied to democracy:

No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time.

In the same way, I’m convinced that capitalism is the worst economic system . . . except for all the rest. No other economy has accomplished what the U.S. has, accompanied by extensive personal freedom, and especially not the ones centrally controlled by government. In particular, no other economy has produced inventions and innovations – and distributed life-enhancing products – like the U.S. has.

I’m not arguing in favor of unfettered behavior on the part of corporations. They can’t be allowed to use just any tactics to get ahead. They mustn’t be permitted to compete unfairly against each other, behave in anti-social ways, or do damage in pursuit of profit. Thus laws, regulations and active supervision on the part of diligent directors are needed to police corporate behavior. I also think the leaders of society should encourage companies to operate with a conscience and voluntarily work for the betterment of their communities. But this must be done within the framework of the elements that made America great – not by subverting them.

Also, I feel it’s essential that governments create effective safety nets to assist the less-fortunate members of society who end up at the bottom of the income distribution. Capitalism can make countries successful through the operation of economic incentives and healthy competition, but I’m not in favor of unmitigated “dog eat dog” or “survival of the fittest.”

Progressives and Democratic Socialists promise increased equality of income and improvement for people below the top. These are worthy goals, and I support them. But trying to achieve them by dismantling capitalism would be worse for just about everyone. There is no proof that restrictions on capitalism and government involvement in economies can promote equality other than by shrinking the pie. Consider what it would be like if the U.S. didn’t have the sanctity of private ownership, the efficiency of privately run business, and the incentive of personal economic advancement. The hard- left thinks government can do things better than free markets and increase wellbeing. Which government agencies would you like to see managing our economic engine?

A lot of the left’s economic approach is based on closing the income gap, not just by making things better for people at the bottom, but also by pulling down people at the top.

  • Thus on the TV show 60 Minutes, Ocasio-Cortez expressed fondness for a top federal income tax rate of up to 70% on incomes over $10 million. Combined with the top New York State and City rates, for example, that would give government 83% of the marginal income of people in the top bracket. (That’s not terribly far from the suggestion from Jean-Luc Mélenchon, the Communist Party’s candidate for president of France in 2017, of a 100% tax rate on incomes above €400,000, or 20 times France’s average )

  • Not dissimilarly, in November members of the House considered adjusting its rules to require a 60% super-majority to increase income taxes on the bottom 80% of Americans, but only a simple majority to raise taxes on the top 20%. Is it fair for government to employ different sets of rules when deciding how different groups will be taxed?

  • On January 24, just under the wire for inclusion in this memo, Elizabeth Warren took the issue of differential taxation to its ultimate extreme: a wealth tax. I’ll let her words on Twitter speak for themselves:

The rich & powerful run Washington. Here’s one benefit they wrote for themselves: After making a killing from the economy they’ve rigged, they don’t pay taxes on that accumulated wealth. It’s a system that’s rigged for the top if I ever saw one.

We need structural change. That’s why I’m proposing something brand new – an annual tax on the wealth of the richest Americans. I’m calling it the “Ultra- Millionaire Tax” & it applies to that tippy top 0.1% – those with a net worth of over $50M.

Any populist appeal to resentment there?

And what exactly is the benefit that the “rich & powerful . . . wrote for themselves”? That they get to keep what they earn net of taxes. Senator Warren omits to mention that under the American system, nobody pays tax on accumulated wealth. But she sure makes it sound egregious that the rich don’t do so. The rich didn’t arrange an exemption for themselves; there is no wealth tax. But why let facts like those get in the way of political rhetoric?

Over the centuries, one thing that has brought successful democracies to an end has been the realization on the part of the majority that they can appropriate more for themselves by taxing those at the top. This is an example of the so-called “tyranny of the majority.” As The New York Times said the other day, albeit in direct reference to Brexit:

During debates over the American Constitution, James Madison warned in one of the essays that became the Federalist Papers that unbridled majoritarianism had made earlier democracies “as short in their lives as they have been violent in their deaths.” Only “a republic” of representatives subject to rules and institutions as well as the public, he wrote, “promises the cure for which we are seeking.”

. . . as Mr. Madison warned in the Federalist Papers, a democracy imposed “by the superior force” of an “overbearing majority” may not always remain democratic. (January 22, 2019)

Does the left understand the long-term consequences of the majority imposing confiscatory taxes on the rich, and do they really want them? Will reducing the incentive to earn more (or incentivizing successful Americans to transfer their citizenship to other nations) really result in the betterment of most people?

Americans generally accept the concept of progressive tax rates. But they must not be punitive and de-motivating. Note in this regard that in 2015, the top 5% of taxpayers (with 37% of all income) paid 60% of all income taxes, and the top 1% (with 21% of income) paid 39%. To the political left: are those proportions of taxes paid “fair”? And would it still be fair if they were much higher?

(I want to make clear that I believe room does exist for increases in tax rates on the biggest earners since (a) today’s top rate of 37% is one of the lowest in the 106-year history of the U.S. income tax and (b) dividends and capital gains are taxed at rates that are far lower still. It could be argued that all forms of income should be taxed the )

While there are ways in which the system can be improved, I consider it problematic when people denounce capitalism without acknowledging its benefits. It’s ironic to think of politicians criticizing the

capitalist system via platforms like Twitter and Facebook (accessed on their iPhones); at rallies reached via airlines and cars (perhaps employing ride-sharing services such as Uber); in meetings over a Starbucks coffee; and via cable news networks. All of these are innovations that came out of a system that encourages people to take significant risks to start companies on the premise that they’ll reap the rewards of ownership if their businesses succeed.

I’m sure if they thought about it, the list of innovations these people wouldn’t want to live without – ranging from drugs to consumer products, to services, to technology – would be a long one. Which of those would we have today if not for the profit motive and the possibility of ending up with accumulated wealth? And in the absence of those expectations, to whom would we look for the innovations of the future? How’s the record of non-capitalist countries such as the U.S.S.R., Cuba and Venezuela in this regard?

A great deal of America’s economic progress has resulted from people’s aspiration to make more and live better. Take that away and what do we have? The people at the bottom won’t have as many at the top to resent. But without the contributions of those who aim for the top, everyone will have less to enjoy (see the appendix for an informative parable). This is why I worry about the rise of negative sentiment toward capitalism and antipathy toward those who succeed under it.

* * *

Politicians, depending on their ideology, can pose simple questions that suggest simple solutions to the problems people face, like these:

  • Should we impose tariffs on imports to save American jobs?

  • Should workers have a say in how companies are run?

  • Should we enact rent control laws to protect tenants from rent increases?

  • Should the government provide jobs for all?

For many people, it’s easy to answer “yes.” The benefits from doing these things are obvious. Who would oppose them?

But it turns out they aren’t such easy questions, since economic reality shows them all to have downsides that just might exceed their upsides:

  • Should we impose tariffs on imports in order to save American jobs?

    • Do the potential gains for a limited number of workers warrant the broadly shared increase in costs to all consumers?

  • Should workers have a say in how companies are run?

    • Will they act in the interests of the companies, society as a whole, or only labor?

  • Should we enact rent control laws to protect tenants from rent increases?

    • If rents are regulated, will landlords maintain and expand the stock of rental housing?

  • Should the government assure every citizen a job?

    • What incentive will people have to work hard if they’re guaranteed employment?

One of the key elements running through economics is its complexity: there are few decisions that face us that aren’t multivariate and that are free of second- and third-order consequences. Thus we shouldn’t take actions – like imposing tariffs – just because they offer potential benefits, without considering their costs. And we shouldn’t condemn things – like capitalism – solely because they’re imperfect, without taking into account their benefits.

Because economics is just about dollars and consumption, the belief is encouraged that it can be understood intuitively. The truth, however, is that few people are educated regarding economics, and its complexity and ramifications render it far less easy to understand than many people may believe. Yet, while this stuff is complicated, we can all benefit by applying some common sense. You don’t have to be an economist to recognize that if you raise the prices of inputs, it increases the cost of goods and reduces the quantity sold, and if you reduce the rewards for success, you’ll get less effort to create value.

The bottom line is that politicians are able to offer simple economic solutions that have considerable appeal but fail to hold up in real life. Since politics is largely about how costs and benefits are distributed – rather than about increasing aggregate benefits – politicians’ simplistic economic prescriptions mustn’t be swallowed whole.

January 30, 2019

P.s.: Just prior to publication (I can hardly keep up with the developments in this area!) I received a mass email from a candidate for New York City’s Public Advocate, effectively a “public watchdog,” stating the following:

. . . we fought for, and won, a $15 minimum wage, though as we all know, $15 just isn’t enough to support a family in this city. So we need to keep fighting A $30

minimum wage, adjusted with inflation, for New York City government workers and businesses that employ over 75 New Yorkers would be where we start.

This brings to mind the description Winston Churchill used regarding the folly of a nation trying to tax its way to prosperity: “like a man standing in a bucket and trying to lift himself up by the handle.”

*  *  *

Appendix: The Tax System Explained in Beer

Suppose that every day, ten men go out for beer, and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes (by taxpayer decile), it would go something like this:

The first four men (the poorest) would pay nothing. The fifth would pay $1.

The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18.

The tenth man (the richest) would pay $59. So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you’re all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six? How could they divide up the $20 windfall so that everyone would get his fair share?

The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to suggest the new lower amounts each should now pay.

And so the fifth man, like the first four, now paid nothing (a 100% saving). The sixth now paid $2 instead of $3 (a 33% saving).

The seventh now paid $5 instead of $7 (a 29% saving). The eighth now paid $9 instead of $12 (a 25% saving). The ninth now paid $14 instead of $18 (a 22% saving). The tenth now paid $50 instead of $59 (a 15% saving).

The first four continued to drink for free, and the latter six were all better off than before. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the fifth man. He pointed to the tenth man, “But he got $9!”

“Yeah, that’s right,” exclaimed the sixth man. “I only saved a dollar, too. It’s unfair that he saved nine times more than me!”

“That’s true!” shouted the seventh man. “Why should he get $9 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next day, the tenth man didn’t show up, so the other nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important: They didn’t have enough money between all of them for even half of the bill!

And that is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is friendlier.

* * *

I’ve been waiting a long time for a chance to use this. The numbers may not be exactly right, but the idea is. The unarguable bottom line is that everyone’s view of the fairness of the tax system – like most such matters – depends largely on the angle from which you look at it.

via ZeroHedge News http://bit.ly/2S4VZyi Tyler Durden

Twitter Bans 2,000 Pro-Maduro Accounts As Demands For Regime Change Escalate

On the evening before National Security Advisor John Bolton reiterated that “all options [including, presumably, military intervention] are on the table” regarding the situation in Venezuela, Twitter announced that it had joined the US-backed coup by taking down 2,000 accounts that it said were engaged in a “state-backed influence campaign”, according to RT.

In a blog post, Twitter said it removed 1,196 accounts located in Venezuela which it deemed to “appear to be engaged in a state-backed influence campaign targeting domestic audiences.” The company also removed another 764 accounts, but said “we are unable to definitively tie the accounts located in Venezuela to information operations of a foreign government against another country.”

VZ

The purge was part of a crackdown on “foreign information operations”, which also serves as a resource for researchers hoping to investigate these operations. In the post, Twitter announced that it was adding five new sets of account sets to its archive of foreign influence campaigns.

Twitter has removed 764 accounts located in Venezuela. We are unable to definitively tie the accounts located in Venezuela to information operations of a foreign government against another country. However, these accounts are another example of a foreign campaign of spammy content focused on divisive political themes, and the behavior we uncovered is similar to that utilized by potential Russian IRA accounts. We are disclosing them out of an abundance of caution and welcome the feedback of researchers.

Additionally, we have removed 1,196 accounts located in Venezuela which appear to be engaged in a state-backed influence campaign targeting domestic audiences. We have shared information on these accounts with our industry peers, and continue to investigate malicious activity originating in Venezuela, both targeting audiences with in Venezuela and abroad.

Abby Martin, host of YouTube series Empire Files, lamented that amid Twitter censorship of pro-government supporters, “pro-coup Venezuelans and right-wing exiles dominate the media sphere.”

While at least one independent journalist accused Twitter of acting as an “extension” of the US government.

And another journalist highlighted Twitter’s caveat that the company wasn’t able to “definitively tie” the accounts to the Maduro regime, meaning that some pro-Maduro Venezuelans with no ties to the government may have found their accounts eliminated.

Of course, this isn’t the first time Twitter has cracked down on pro-government Twitter accounts. In September, Twitter suspended the official account of the Venezuelan government’s press team, reportedly without giving any explanation.  In an interesting twist on a punitive technique often employed against conservatives, Twitter and several other US social media companies also removed the “verified” labels from accounts belonging to Maduro.

But of course anybody who questions Twitter’s commitment to open expression is a bigot – and probably a Nazi.

via ZeroHedge News http://bit.ly/2S4IONO Tyler Durden

Powell-Pivot Sends Gold To 8-Month Highs, Dow Up Sixth Straight Week

What made The Fed stomp on the brakes and slam the monetary trajectory into reverse so fast? Probably nothing!!

 

China’s stock markets were levitated late Thursday, early Friday (after The Fed) back into the green for Shanghai Composite (tech heavy indices underperformed)…

 

A Mixed week too in Europe with UK’s FTSE outperforming and Spain and Italy underperforming…

 

No “mix” for US stocks – they are all green. Trannies were best on the week with the rest of the majors holding around the same gains (Dow up 6 straight weeks)

 

S&P, Dow, and Small Caps all lifted into the close to end green but Nasdaq ended red (Thanks to AMZN)

 

Futures show today a little better – the surge on payrolls and again on ISM then fade from the European close…

 

The major US equity indices all stalled at the 100DMA…

 

Energy, Financials, and Tech continue to lead the market this year, though financials underperformed on the week…

 

AMZN spoiled the party this week (down for 2 straight weeks, back into bear market)…and is unchanged since Jan 7th…

 

VIX tumbled to a 16 handle and credit spreads crashed in the week…

 

As the Fed’s implied easing plunged…

 

Treasury yields tumbled on the week after The Fed but rose today after good payrolls/ISM data…

 

This was the biggest yield drop for 2Y since 2018… sending the curve notably steeper… (though hitting resistance once again)

 

And the market shifted more hawkish on the day after the “good” data…

 

The Dollar plummeted after The Fed flip-flop and only rebounded around half of the loss after good data today…

 

Yuan was practically unchanged on the week after a big roller-coaster run higher then lower…

 

Litecoin managed to rally on the week but the rest of the major cryptos continued their slide…

 

Commodities are higher across the board this week, led by WTI…

 

Gold had a second good week in a row – closing at the highest since May 2018…

 

And against the Yuan, surged back to early Jan highs…

 

WTI rose to its highest since November, back above $55…

 

And the coldest week on record prompted a big sell-off in NatGas…

 

As The Nattie/WTI ratio continues to re-normalize…

 

Finally, we note that while macro surprises have exploded today (thanks to payrolls), earnings expectations continue to tumble (to six month lows)…

Let’s just hope its not 2018 deja vu all over again…

And remember what is driving all this exuberance in stocks…

via ZeroHedge News http://bit.ly/2Gnh4gr Tyler Durden

World’s Largest Asset Manager Compares Market To A Horror Movie, Warns Complacency Is Back

When the portfolio manager for the world’s largest asset manager warns that, following a torrid market surge which saw virtually every major asset in January post positive returns, something which Deutsche Bank said had never before been seen, the market resembles a horror movie, it’s probably a good idea to listen. Because that’s just what BlackRock’s Russ Koesterich has done in his latest blog post, asking “Have investors shifted market sentiment too quickly”, and giving three specific reasons why that is indeed the case.

Here is Koesterich’s take on why markets have gone from despair to euphoria in the blink of an eye, and why this signals that complacency is once again back.

* * *

Have investors shifted market sentiment too quickly?

As every fan of horror movies knows, the best way to elicit screams is to lull the audience into a false sense of security. It’s when everyone has relaxed, thinking the worst has past that the real fright occurs.

Since bottoming in late December, global equity markets have rallied more than 10% in dollar terms and market volatility has been cut in half. This raises the question: Have investors gone from panic to complacency too quickly? A few observations:

1. The economic data has not stabilized.

If part of what induced the unprecedented December selloff was the fear of an economic slowdown, it’s not clear why everyone has become more optimistic. While the global economy is not falling off a cliff, forward looking measures of growth continue to soften. China has been aggressively stimulating its economy, but the expected benefits have yet to materialize. At the same time, European data continues to disappoint, and even the U.S. is showing signs of weakness, particularly in housing. BlackRock’s proprietary measure of global growth still suggests further deceleration over the next six months (see Chart 1).

2. Volatility no longer looks too high relative to financial conditions.

As always happens in the midst of panic, implied volatility (measured by the VIX Index) spiked in December. At the peak, the VIX rose above 35, the highest level since February. Although volatility looked artificially high in December, it looks a bit too low today. Looking at the VIX relative to two measures of financial market conditions–high yield credit spreads and the St. Louis Fed Financial Stress Index–as well as forward looking economic indicators–the Chicago Fed National Activity Index–suggests that at 17 volatility appears about 10% too cheap. For volatility to remain low, financial conditions would arguably need to ease or forward looking measures of the economy improve.

3. It’s not obvious that political risk has dissipated.

Beyond vexing over a slowdown and a less dovish Federal Reserve, investors spent the holidays fretting over a host of geopolitical issues. No more. BlackRock’s geopolitical dashboard suggests that geopolitical worries have become less pronounced in recent weeks. In particular, investors appear much more sanguine on China and trade, despite the lack of a clear resolution.

To be sure, there is a counter argument to all the above: Risky assets have already discounted slower growth and less accommodative financial conditions. That was true in December, but it is less obvious today.

Markets have already retraced the December swoon. For example, high yield spreads–the difference in yield between high yield bonds and similar maturity Treasuries–increased by over 100 basis points (bps, or 1 percentage point) in December, indicating extreme risk aversion. However, since the start of the year spreads have subsequently reversed most of that move and are now back to levels last seen in early December.

It appears that investors are now convinced the fright has passed. That is normally the time to grip the arm rest a bit tighter.

via ZeroHedge News http://bit.ly/2BfI1zb Tyler Durden

Crypto Exchange Seeks Bankruptcy Protection After Founder’s Mysterious Death

More than ten years after the birth of bitcoin, the crypto industry remains riddle will con artists, scammers and fraud. And sometimes, businesses that for years appeared to be legitimate enterprises will suddenly be outed as long-running frauds – a la Bernie Madoff – when they hit a speed bump.

Quad

For Canadian crypto exchange QuadrigaCX, that moment of truth apparently arrived earlier this month when its CEO Gerry Cotten died suddenly from complications related to Crohn’s disease . According to a statement from the company, he died while traveling in India where “he was opening an orphanage to provide a home and safe refuge for children in need.”

Since his death, 115,000 customers of the exchange have been struggling with Mt. Gox-style “liquidity issues” as those trying to withdraw their funds have suddenly found it extremely difficult – if not impossible – to do so successfully. Finally, on Thursday, Quadriga’s board released a statement announcing that it would be filing for bankruptcy protection. In the statement, the company said the filing was prompted by an inability “to locate and secure our very significant cryptocurrency reserves held in cold wallets.”

An application for creditor protection in accordance with the Companies’ Creditors Arrangement Act (CCAA) was filed today in the Nova Scotia Supreme Court to allow us the opportunity to address the significant financial issues that have affected our ability to serve our customers. The Court is being asked at a preliminary hearing on Tuesday February 5 to appoint a monitor, Ernst & Young Inc., as an independent third party to oversee these proceedings.

For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful. Further updates will be issued after the hearing.

The implication is, of course, that Cotten, a sickly young man with a chronic illness, was the only person who had the key to the exchange’s cold storage, and that he took this information to his grave.

This would be easy to overlook if the sum was relatively insignificant. But according to an article in CoinDesk, QuadrigaCX owes its clients a total of $190 million.

The exchange holds roughly 26,500 bitcoin ($92.3 million USD), 11,000 bitcoin cash ($1.3 million), 11,000 bitcoin cash SV ($707,000), 35,000 bitcoin gold ($352,000), nearly 200,000 litecoin ($6.5 million) and about 430,000 ether ($46 million), totaling $147 million, according to the affidavit.

It’s unclear what percentage of these holdings was kept in ‘hot’ wallets as opposed to the cold storage wallets. But adding another layer of intrigue, Cotten’s widow reportedly told a Canadian judge that her deceased husband held “sole responsibility for handling the funds and coins,:” and that the remaining team members have had “no luck” accessing the exchange’s coins.

And as users on Reddit swiftly pointed out, something about QuadrigaCX’s story doesn’t add up, leading some to ponder whether the whole business was one big scam.

On Quad’s website they write they can’t locate or access their cold wallets. The unstated suggestion is that the private keys were lost when the CEO died.

But that CEO wasn’t hit by a car. Allegedly he died from “complications related to Chrons Disease”. So while he was on his deathbed for all that time, he didn’t once think to tell someone the private keys? Highly unlikely.’

I’d also love to know the name of the “orphanage” he was supposedly building in India, and/or the name of even one independent witness who saw him building it.

QuadrigaCX made headlines last year when it challenged CIBC for refusing to process transactions involving Quadriga. However, during that time, stories like this one suggested that the fault lay with Quadriga, which appeared to be deliberately delaying – or outright refusing to process – customers’ transactions, leading money to seemingly “vanish into thin air.”

Given this checkered history, we certainly could empathize with those harboring a more conspiratorial viewpoint might seriously consider whether Cotten may have absconded with his clients’ money before faking his own death in a foreign land.

via ZeroHedge News http://bit.ly/2WCwKlh Tyler Durden