Counterparties: A surplus of cuts

April 11, 2013

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President Obama’s 2014 budget was released yesterday; Wonkblog has a concise rundown of its winners and losers. The plan aims to cut $1.8 trillion in spending while raising $580 billion in revenue over ten years. To the considerable dismay of liberals, it includes cuts to Medicare and a reduction in Social Security cost-of-living increases.

Despite these cuts, Annie Lowrey writes that the President’s budget zeroes in on the twin problems of inequality and wage stagnation by increasing the federal minimum wage, instituting free preschool, and making the five-year extension of the earned income tax credit permanent. Sam Stein and Ryan Grim, however, see a budget full of old stimulus ideas that likely won’t pass.

The deficit is already shrinking rapidly. Bill McBride points to a Goldman Sachs research report estimating that in the first three months of 2013, the federal deficit was 4.5% of GDP — less than half its 2009 level. Dan Gross thinks that even though current policy is “nobody’s idea of optimal”, we are experiencing a “golden age of deficit reduction”.

The budget also includes several major changes to the tax code, including the often discussed “Buffett Tax”, which would impose a 30% minimum tax on household income over $1 million. Private equity managers won’t be pleased either: the budget would kill the “carried interest” tax break. John Carney says this is futile; Dan Primack has a good rebuttal.

Simon Johnson isn’t pleased. He sees a president who “has allowed the debate to become dominated by excessive paranoia about deficits and by extremist demands to shrink government”. As Derek Thompson writes, the President is proposing between $200 billion and $380 billion more in Social Security and Medicare cuts than Republicans are asking for. Jonathan Chait thinks the reason Obama is proposing these cuts has everything to do with politics: the president wants to beat Republicans to the punch on spending cuts and deficit reduction. – Ben Walsh

On to today’s links:

EU Mess
Buiter on Europe: It’s “extraordinary that so much political power rests with unelected technocrats” – Euromoney
Of course, Cyprus is a template for the future of Europe – Pawel Morski

How the Feds caught a former KPMG exec giving out inside info: A golf course sting – DealBook

Big bank details just how much more valuable big banks would be if they were broken up – Bloomberg

Financial Arcana
The latest hot trade on Wall Street: swaps that lower banks’ capital requirements – Susanne Craig
Regulators are starting to fight back against “needless corporate complexity” in the banking sector – WSJ

The problem with America’s schools isn’t about spending – Josh Barro
From ’93-’09, US universities added bureaucrats 10 times faster than they added tenured faculty – Businessweek

“Accountants are cowboys of information”: David Foster Wallace on accounting – Zach Seward

Billionaire Whimsy
Collect art or keep control of your family’s company? – Ben Walsh

The state of financial services: generally so so, unless you work in equities – eFinancial Careers

“I’m not an economist…” – Choire Sicha

JP Morgan
Was Ina Drew “heinously greedy or heinously incompetent”? – Cathy O’Neil
Dimon calls the London Whale trades “stupid” in annual letter to shareholders – JP Morgan

“Google Glass: a cure for rogue traders” – American Banker

Foursquare, with just $2 million in revenue, raises $41 million from top VCs – Businessweek

And, of course, there are many more links at Counterparties.


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