Opinion

David Cay Johnston

Closing Wall Street’s casino

David Cay Johnston
Nov 18, 2011 20:26 UTC

The author is a Reuters columnist. The opinions expressed are his own.

A superb example of a sound rule in law and economics that needs reviving, because it can halt the rampant speculation in derivatives, is the ancient legal principle that gambling debts are not enforceable through court action.

Not so long ago — before casinos, currency and commodities speculation, and credit default swaps became big business — U.S. courts would not enforce gambling debts.

Restoring this principle offers a simple way to shrink the rampant speculation in derivatives that was central to the 2008 meltdown on Wall Street.

Professor Lynn Stout, a deeply principled Republican capitalist who teaches corporate law at the University of California, Los Angeles, raised this issue at a conference where we both spoke about the 2008 Wall Street meltdown.

“Derivatives are gambling,” she said, referring to credit default swaps, at the University of Missouri-Kansas City law school conference on the financial crisis. “They are a zero-sum game in which one side loses the bet and one side wins,” Stout said.

You’re paying taxes, so why aren’t energy companies?

David Cay Johnston
Nov 8, 2011 17:42 UTC

By David Cay Johnston

The views expressed are his own.

In a competitive market, economists argue endlessly about who bears the burden of corporate income tax. Is it owners, who get a smaller net return? Or workers, who make less? Or suppliers, who get lower prices? Or customers, who pay higher prices?

In one sector of the U.S. economy, however, the answer is clear-cut. Corporate-owned utilities (mostly electric and natural gas) and pipeline partnerships, all of them legal monopolies, pass their income tax burdens on to customers.

Now a study, released last week, provides powerful new evidence that these two industries convert corporate income taxes from a burden to a benefit.

Pipeline profiteering

David Cay Johnston
Oct 17, 2011 18:14 UTC

By David Cay Johnston
The opinions expressed are his own.

Last year a fourth of the nation’s oil pipelines earned excessive profits, at up to seven times the rates allowed these regulated monopolies, according to an explosive analysis prepared by a former general counsel for the U.S. Federal Energy Regulatory Commission.

R. Gordon Gooch, the former counsel, alleges in his Oct. 3 study, for instance, that Sunoco’s Mid-Valley Pipeline, which carries crude oil from Texas to Michigan, earned a 55 percent return on assets. That is seven times its authorized profit margin, based on a calculation derived from an accounting report the company filed with FERC.

Three other regulated monopoly pipelines earned more than 40 percent on their assets, while another three earned more than 30 percent, an examination of their FERC filings by Reuters shows.

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