Opinion

Ben Walsh

from Felix Salmon:

Counterparties: The state of the economy, restated

Ben Walsh
Sep 27, 2012 22:23 UTC

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Are you better off than you were 24 hours ago? The US labor market is, according to the Bureau of Labor Statistics.

The BLS released revised employment data that shows the US added 386,000 more jobs from January to March than previously thought. That variation, 0.3% of total nonfarm jobs, is exactly average: "the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of total nonfarm employment". This revision won't be the last: another will be released in February 2013, covering all of 2012. But as Bill McBride at Calculated Risk notes, the preliminary revision we got today is usually "pretty close to the final benchmark estimate".

US GDP for the second quarter of 2012 was also restated today. The Commerce Department announced the economy grew at a rate of 1.3% in the second quarter, a downward revision from the previously announced 1.7%, and below the first quarter's 2%. The single biggest revision was in drought-hit farm inventories, and economists at Morgan Stanley expect agricultural output to "continue to be a drag on growth in the second half" of the year. The bad news, says the WSJ's Paul Vigna, with a stall-speed economy, "is that it’s exposed, and liable to be knocked over by any sort of exogenous shock" like the euro crisis, or a diplomatic crisis with Iran or China.

Today's jobs revision was immediately pulled into the narrative of whether or not President Obama can claim net positive job creation since he took office (now, barring further revision, he can). As Jared Bernstein writes, that doesn't change the fact that "we’re still way behind where we need to be to tighten up the job market". And the GDP numbers show that growth is "still a slog". -- Ben Walsh

from Felix Salmon:

Counterparties: Is QE3 working?

Ben Walsh
Sep 25, 2012 20:46 UTC

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Last week, noted inflation hawk and Minneapolis Fed President Narayana Kocherlakota changed his tune and spoke out strongly in favor of keeping interest rates extraordinarily low until at least mid-2015. Now, the president of the Philadelphia Federal Reserve, Charles Plosser, has joined his Dallas counterpart in criticizing the Fed's latest round of monetary stimulus:

I do not believe that lowering interest rates by a few more basis points will spur further growth or higher employment. Business leaders who have talked to me continue to cite uncertainty about fiscal decisions — here and abroad — as the greatest hindrance to hiring and investment ... the central bank can do little to alleviate them.

How generous is Mitt Romney?

Ben Walsh
Sep 25, 2012 10:03 UTC

Mitt Romney’s campaign likes to trumpet its candidate’s generosity. The summary of Friday afternoon’s docu-dump of Mitt and Ann Romney’s 2011 tax returns hailed the couple’s “generous charitable donations”. They made $13.7 million and donated $4 million, which is impressively described as “amounting nearly 30% of their income”.

John Podhoretz, looking through the misleading income-to-donations lens, thinks Romney is an “extraordinarily, remarkably, astonishingly generous man”. Conor Friedersdorf is less hyperbolic, but still throws out praise: Romney “seems to be a very generous guy…good on [him] for giving lots of money to charity”.

Giving away almost a third of your annual income sounds laudable, but for someone of Mitt Romney’s wealth, charity should be assessed by net worth, not income. The Romneys’ net worth is currently estimated at $250 million. $4 million is just 1.6% of that net worth.

from Felix Salmon:

Counterparties: Mitt overpays to keep his word

Ben Walsh
Sep 21, 2012 22:47 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

As of this afternoon, Mitt and Ann Romney's 2011 tax returns are now public. As if you needed any reminder of how mind-numbingly complex the financial details of a man worth $250 million are, that means returns for Mitt and Ann Romney, along with their estimated return, which was completed in January and allowed them to be granted an extension, the Mitt Romney Trust, the Ann Romney Trust, and the Family Trust. A summary statement from Romney's trustee, Brad Malt, and a letter from Romney's tax preparers, PricewaterhouseCoopers, were also released.

In total, it's thousands of pages of tax arcana -- far beyond your average 1040. But simplicity was not what anyone was expecting from a man whose $13,696,951 in income puts him in the top 0.01 percent, as the NYT's Annie Lowrey highlights.

from Felix Salmon:

Counterparties: A hawk in dove’s clothing

Ben Walsh
Sep 20, 2012 20:49 UTC

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The QE3 press tour has begun. Yesterday, the president of the Dallas Fed blasted the central bank's decision. Today, in separate speeches, the presidents of the Atlanta, Boston and Minneapolis Feds defended the monetary stimulus decision and gave us some insight into how QEternity will play out.

As part of QE3, the Fed promised to keep interest rates low till at least mid-2015. Minneapolis Fed President Narayana Kocherlakota argues that the FOMC should keeps rates "extraordinarily low until the unemployment rate has fallen below 5.5 percent". For context, unemployment rates have not been below that level since April 2008. As Neil Irwin writes, Kocherlakota's target is especially noteworthy because he is "generally viewed as one of the more hawkish, or inflation-phobic, members of the FOMC". If he's on board with QE3, Tim Duy's conclusion that the hawks have been marginalized, or at least converted, appears true.

Dewey’s dragooned capital

Ben Walsh
Sep 19, 2012 19:27 UTC

The fallout from the Dewey and LeBoeuf’s bankruptcy continues to be bizarrely fascinating. The latest question: did Citibank intentionally withhold information about Dewey’s finances to get new partners to help pay down the firm’s debt? And when does a lender have any fiduciary duty to a borrower?

Citibank sued Steven Otillar, a former Dewey partner, in the immediate aftermath of the firm’s collapse  for defaulting on a $207,000 loan (full court filing here). Otillar borrowed the money because he had to pay Dewey when he joined as a partner. Citi’s loan wasn’t one-off, but part of an ongoing program between the bank and Dewey. Here’s the American Lawyer’s explanation:

Citi launched a capital contribution program with Dewey in 2010, according to former partners, through which it offered six-year loans—with Dewey paying the interest for the first three years—to help partners fulfill capital obligations that committed them to contribute 36 percent of their targeted yearly compensation to the Dewey partnership by the end of the calendar year in which they joined.

from Felix Salmon:

Counterparties: Revenge of the lucky dukies

Ben Walsh
Sep 18, 2012 22:47 UTC

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Mitt Romney is defending his comments in an anonymously sourced video, taken surreptitiously at a Florida fundraiser, that "there are 47 percent of the people who will vote for the president no matter what... These are people who pay no income tax". Which is odd, because Romney's take on "the 47%" was factually wrong and politically daft.

It is true, according to the Tax Policy Center, that 46% of American taxpayers pay no federal income taxes -- the so-called lucky duckies. They do, however, pay taxes like "federal payroll and excise taxes as well as state and local income, sales, and property taxes". A combination of poverty and tax breaks for children, the elderly and the working poor account for 87.2% of cases where zero federal income taxes are paid, something Ronald Reagan bragged about. Awkwardly for Romney, there's also a small slice of high-earning taxpayers who pay no federal income tax due to the treatment of capital gains and dividends. NPR's Planet Money has a great graph that simplifies the breakdown. The reality is that America's tax system is barely progressive and in effect approaches a flat tax.

from Felix Salmon:

Counterparties: Can Mariano be a closer?

Ben Walsh
Sep 17, 2012 21:59 UTC

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Eleven days ago, Mario Draghi announced that the European Central Bank was ready to do what he'd been hinting at for months: buy unlimited amounts of sovereign debt to hold down borrowing costs in countries like Spain. Assuming, that is, that national leaders request aid and agree to the central bank's conditions.

As a result, since Draghi's announcement, the burden has been on Spanish Prime Minister Mariano Rajoy to formally apply for the aid. But his immediate reaction, like that of Italian PM Mario Monti, was noncommittal. As of last week, Rajoy was still recalcitrant, saying he didn't "know if Spain needs to ask for" help beyond the €100 billion bank bailout it received in July, which was less than a sterling success.

Goldman’s analysts, now more like everyone else

Ben Walsh
Sep 14, 2012 14:17 UTC

The WSJ’s Liz Rappaport and Julie Steinberg have the news that Goldman Sachs is dramatically changing its analyst program. The move is the result of a longstanding trend: fewer and fewer analysts in the investment banking and asset management divisions are staying at the firm past their initial two-year committment, and analysts are making exit plans earlier and earlier.

Since the 1980′s, Goldman has hired undergraduates on two-year contracts, with analysts paid a base salary plus bonuses for those two years. Analysts get fairly continuous feedback from colleagues and participate in Goldman’s fabled 360-degree review program throughout that time, so they have a good understanding of what their career trajectory (at least in the short term) looks like at Goldman. It’s only with six months to go into their two-year commitment that analysts are allowed to begin looking for jobs outside GS or apply to grad school. At the same time, they can also look for other roles internally. Alternatively, if they want to stay in their role, they can make it clear that they want to stay and, if their manager approves, stay on as a third-year analyst.

The expectation from Goldman is that analysts will spend one and a half years with their heads down, working extremely hard, and then, with six months to go, start thinking about what to do next, while continuing to work extremely hard. Every so often, during the first 18 months, Goldman can start dropping strong hints that it would be better for all concerned if the analyst started looking for opportunities elsewhere. But generally, that takes major misbehavior or serious lack of fit.

from Felix Salmon:

Counterparties: The Fed’s bottomless punch bowl

Ben Walsh
Sep 13, 2012 21:49 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

The Federal Reserve today announced a third round of monetary stimulus, aka QE3, aimed rather directly at the housing market: the Fed will buy $40 billion of mortgage-backed securities a month indefinitely.

The Fed wants to lower yields on mortgage-backed securities and thereby lower mortgage rates for consumers. This is pretty darn close to "Uncle Ben's Crazy Housing Sale" that Ezra Klein called for back in July. As the NYT's Binyamin Appelbaum notes, QE3 has an open-ended timeline and variable targets: the Fed will buy mortgage-backed securities "until the outlook for the labor market improves". For a close look at exactly what changed since the last Fed statement, the WSJ's Phil Izzo has the tracked changes, which are significant.

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