Thursday, January 21, 2016

Dangers of Global Wealth Inequality

A Credit Swisse Report says that the top 0.7% of the world’s population, those with net wealth of $1 million or more, about 34 million people, own 45% of all global wealth.  It says there are 123,800 Ultra High Net Worth individuals worldwide who have a net worth of more than $50 million.  Fortune summarized the report. 

The Guardian says that there are 199,235 Ultra High Net Worth individuals, whose combined net worth is around $27.7 trillion, about 40% of the world’s GDP. 

This increasing concentration of wealth may have implications for financial liquidity.  To be liquid, markets need buyers and sellers, and this means there needs to be some diversity.  You need people who are looking for different things from their investments.  As you narrow the group making investments, you narrow their interests.  At some point you might end up with a small group of people who all want to sell.  The people who would in the past have been  buyers, now would not have enough resources to buy the huge amounts the superrich want to sell.  The result might be a violent dive in the price of the assests in disfavor, whether they are stocks, bonds, or real estate.  The same would be true if all the superrich wanted to buy some particular asset.  The result would be at best increasing volatility, and at worst market crashes.  These crashes might have less effect on the superrich than on ordinary people, because the superrich would probably be diversified.  For example, a big loss in their real estate investments would be cushioned by their investments in the stock and bond markets, or the art market, etc.  However, for ordinary people a big loss in the value of their home might be devastating, because they would not have other big, valuable assets to cushion the loss of their home value. 

This is more or less what happened in the 2008 subprime mortgage crisis. 

The other side of that crisis was what happened to the banks.  A few banks then and now were humongous, dominating the market for complicated financial instruments, like bonds made up of home mortgages.  Having only a few huge banks is like having a small group of superrich people, the chances of some event affecting all of the players becomes larger as the group of players becomes smaller.  Dodd-Frank and the Volker Rule were supposed to help remedy this, but so appears to have done little, despite (or because of) the loud protests of the big banks against any restrictions. 

Thursday, January 14, 2016

Obama's State of the Union

I think Obama has done a good job as President compared to many of his predecessors, especially George W. Bush, one of the worst Presidents in modern history.  Bush and Cheney slept while New York City and Washington were attacked.  Then they retaliated against the wrong country.  They created Guantanamo, America’s version of the Soviet gulags, located in another country, because it was such a horrible thing that we didn’t want it in the continental US, just as Hitler did not want Auschwitz within the borders of Germany.  Under Bush and Cheney, America descended into a moral abyss.  It fell to the level of the terrorists who attacked it.  Obama has not done anything nearly as bad as that. 

ObamaCare was not a complete success.  Single-payer Medicare would have been preferable to the messy, hybrid, expensive system we got from the process, but it is better than nothing, which is what we had before.  He has not gotten rid of Guantanamo, but at least he says he wants to and will try to do so before the end of his term. 

His supposed admission that his one big failure was not restoring a civil dialogue between the Republicans and Democrats, is not really an acknowledgement of failure, it is just a nice sounding, back-handed way of saying, “I still can’t get along with those Republicans; they are just as nasty as ever.”  It was more an insult than an admission of failure. 

On the plus side, however, he tried to get us out of failed wars in Iraq and Afghanistan.  He did not entirely succeed in this, in large part because he inherited a horribly flawed situation from the previous administration.   Bush started the destabilization of the Middle East, but Obama may have abetted it by his encouragement of the Arab Spring’s desire to throw out all the old leadership of the Middle East.  Bush removed the foundation of Middle East stability, and Obama pushed over the unstable structure Bush left behind. 

I believe that Obama has done the right thing regarding Syria by not getting us deeper into that civil war.  The Syrian destruction of most of its chemical weapons was a plus for the conflict.  We would probably be hearing many more gruesome stories about chemical attacks, surpassing the stories of starvation and mutilation resulting from more conventional warfare.  Syria only presents a multitude of bad choices for the US, from want to do about Assad, to what rebel groups to support.  There is no one who can replace Assad and end the war, and there is no rebel group who will be able to put an end to the civil war militarily, without massive help and massive casualties on the side of whoever helps them.  The Republicans are anxious to see Americans die in Syria; I am not. 

On the economy, Obama has so far been pretty much a success.  He has restored employment, and under him the economy and the stock market have soared, compared with the great recession that Bush left for him.  He still has a year left for the economy to crater, but the gains under his Presidency have been so enormous, that even a moderate drop would still leave his administration with a very positive result.  He has been more willing to take on entrenched business and financial interests, but under his Presidency, consolidation of big business and banks has continued, and although he talks a good game against income inequality, it has increased on his watch.  Nevertheless, things are much better than under Bush, and what he has done is vastly superior to what the nay-saying Republicans have advocated. 

On foreign policy, the Republicans chafe at his unwillingness to kill everybody in sight, calling that weakness.  But I believe that it shows strength.  People may be more willing to challenge the US because they do not fear that Obama will nuke them for a small provocation, but they also see him as someone with whom they can negotiate.  His Iran nuclear deal is far superior to a war with Iran.  He showed strength in resisting Republican and Israeli screams for Iranian blood, based on some sort of extreme racial, religious and ethnic hatred.  In the long run, Obama’s approach is more likely to prevent a nuclear arms race or war in the Middle East  than a military attack. 

Reestablishing relations with Cuba was another positive step.  One reason I retired and left the Foreign Service was because of the Helms-Burton sanctions on Cuba.  An Italian complained to me that his daughter could not get a visa to visit Disneyworld because he worked for the Italian phone company and they had some kind a connection to Cuba.  It was too much like the German refusal to issue a visa to a Jewish child in order to prevent its mother from leaving Italy in one of the “Winds of War” books.  I don’t approve of punishing children for the sins of their parents.  The US bitterness and retaliation against Cuba has gone on too long.  It was time to end it; it was time years ago, but Obama finally did it. 

I am not a fan of free immigration.  I issued visas for a tour in Sao Paulo, Brazil, and felt bad every time I denied a visa, knowing that a Mexican could just walk across the border if he or she were denied a visa, but that it was not so easy for a Brazilian to do so.  Everyone looked the other way at illegal immigration for years.  Business benefitted because it kept salaries low, and liberals looked the other way because they wanted to see poor foreigners help themselves by coming to America.  Our immigration laws have been like Prohibition – strict laws on the books that are ignored in everyday life.  The law should be changed so that it can and will be enforced, whatever it turns our to be, strict or liberal.  Meanwhile, I don’t think there is much of a problem denying anyone who is a foreigner a visa for any reason; non-citizen, non-residents outside the US have no Constitutional protections, and keeping out anyone that poses even the least risk to the country is legal; we only need to decide what level that “least risk” should be. 

Monday, January 11, 2016

Jewish Financiers

There is so much talk in financial circles about the Federal Reserve raising interest rates that it has piqued my interest in the role of Jews in the US.  There have been only Jewish chairmen of the Fed since Paul Volker in the Carter administration. Prior to Volker there had been only one Jewish Fed chairman, who held the post at the height of the great depression. 

My concern is that the Jewish dominated Fed has helped Jewish bankers, financiers, and businessmen in a preferential manner.  This may not have been the result of some great scheme or cabal, like that envisioned by Henry Ford, but simply the result of a convergence of interests, formed at dinners, social occasions and business meetings among Jews over the years.  The results of this convergence of interests may not have been illegal insider trading, but they may have disproportionately benefited Jews over other parts of American society. It was a form of insider trading that was too vague and amorphous to be illegal, but one that affected how trillions of dollars were invested.  

Jews have been involved in financial businesses since before America was a country, and they have been active in financial circles since before the founding of the country.  But they did not play the huge role that they do today until after World War II.  The Holocaust drove many wealthy Jews out of Europe to America, where they resumed the financial activities in which they had excelled in Europe.  Today Jews not only play a dominant role in the Fed, but in most financial activities, particularly on Wall Street.  

Most wealthy financiers would not win any prizes for being great humanitarians.  They tend to be greedy, selfish, and often dishonest.  If they don't break the law, they go right up to the legal limit, and today they pay lobbyists to change the laws to let them do what they want to do.  Most of them leave a lot of their riches to charitable and cultural foundations as they approach death to try to atone for the evil they did in amassing their fortunes.  But that doesn't make the evil they did while amassing their fortunes any less evil.  The Protestant Rockefellers, Carneigies, Astors, Vanderbilts, Hearsts and their cohorts all fall into this same category, along with many present day Jews and Gentiles.  However, this cohort contains considerably more Jews in the top 1% than their 2% of the population would represent.  Jews represent nearly half of the richest of the rich in America.  

Jews believe they are smarter at doing business and manipulating markets than other people, so that if business and the markets are very complicated, Jews are likely to win and do better than their Gentile competition.  Thus, if interest rates are either very high or very low, Jews are likely to do better.  Many Gentiles would be happy just putting their savings into insured savings accounts and earning some interest, but if interest rates are less than one percent, that is not an option.  When rates are high, you have to be very clever about borrowing, or have money in hand, so that you don't have to borrow, again favoring many Jews.  Thus, Jews have disproportionately benefitted from the global financial turmoil, and from the complicated financial instruments and transactions that have been developed in recent years.  

NYT article on rich not paying taxes.

As described in an article in The New York Times on Wednesday, tax rates on America’s 400 wealthiest taxpayers fell sharply from the late 1990s through 2012, when their average effective income tax rate fell to 16.7 percent from 26.4 percent.  Of the few names specifically mentioned in the article, most were Jews, including Loeb, Simons, and Soros.

Tax rates rose for wealthy last year

Data released by the I.R.S. on Wednesday shows that tax rates on the income of America’s 400 wealthiest taxpayers rose sharply to 22.9 percent in 2013, erasing a majority of the last two decades’ decline in their effective tax rate, although 22.9% is still less than the old 26.4%.  They are all much lower than the maximum 39.6% tax rate which you would expect the wealthiest people to pay, even accounting for the lower tax rate they would pay on the first few thousand dollars they earn.

Monday, January 04, 2016

Recent MTCR News Items

Since I worked on the creation of the Missile Technology Control Regime (MTCR) back in the 1980s, I'm interested to see that it is still going.  Here are some recent news articles about it collected by Google Alert.  Most of them deal with India.  

No Decision Yet on India's MTCR Membership Application

Turkey and the Kurds

On CNN’s Fareed Zakaria, Anne Marie Slaughter picked the Turkey-Kurd issue as one of the most important for 2016, and I agree with her.  We have become increasingly dependent on the Kurds in the most volatile parts of the Middle East in which we are involved – Syria, Iraq, and Iran – and now the conflict is boiling over into Turkey.

Turkey used to be a reliable ally, a secular Muslim country with a competent government.  Now it is becoming increasingly sectarian, and the government is becoming increasingly problematic.  One of the main issues for the government is the irredentism of the Kurds in Turkey, who want to form a greater Kurdistan with their Kurdish brothers in Iraq, Syria, and Iran.  Years ago, Turkey got the West to agree to characterize the Kurdish rebels in Turkey as terrorists.  So, while the US is primarily worried about ISIS terrorists, the Turks are mainly worried about the Kurdish terrorists.  When we ask the Turks for cooperation against terrorists, we are thinking, “Let’s go kill some ISIS rebels,” and the Turks are thinking, “Let’s go kill some Kurdish rebels.”  Meanwhile the US is supporting the Kurds in Iraq and Syria, who have been the main line of defense against ISIS. 

Turkey sees the Kurds as a threat to its very existence; the Kurds would cut off a chunk of Turkey and incorporate it into greater Kurdistan.  Where does the US come down?  On the side of the Kurds who are fighting with us in Iraq, or with the Turks who have been NATO allies for many years. 

If we lose Turkey as a NATO ally, we face big problems in central Europe.  Turkey controls the Bosporus.  Without access to the Black Sea, we have real problems confronting Russia’s recent take over of Crimea, as well access in general to that part of the world.  I would think the US Navy would really want Turkey on our side.  In addition Turkish air bases give American air power better access to that unstable part of the world.  We would miss them. 

But if we don’t support the Kurds, what happens in Iraq and Syria?  We have to balance our interests there against our interests in other parts of the world, including Russia and Ukraine.  Plus, we have to worry about where Turkey is going.  Is Erdogan a passing phase for Turkey, or does he represent a long-term turn toward a less Western, more Muslim state?  We don’t want our opposition to push Turkey away toward a more religious Muslim orientation.