What is the economic effect of a cap and trade system for carbon dioxide?
Let's say natural gas trades at a premium to coal at the current time to produce the same amount of power and natural gas produces less carbon dioxide for that amount of power. The effect of the cap and trade system that imposes a fee on each emission of carbon dioxide is to: (a) increase demand for natural gas and (b) reduce demand for coal. A similar effect occurs to the extent that natural gas produces less carbon dioxide than oil.
Now who benefits from a cap and trade system. Those who have large investments in natural gas or alternative fuels. From a political standpoint, an aggressive cap and trade system may benefit Pennsylvania to the extent that Pennsylvania will become a major natural gas producer in the future as a result of the Marcellus Share Resorvior. Thus, even though coal has been a major contributor to the PA economy, the new reality is that Pennsylvania probably benefits as much as any state from a cap and trade system to the extent that my theory is correct and natural gas replaces oil and coal.
I believe major Obama supporters such as Warren Buffet and Bill Gates have major investments in natural gas. Presumably, a cap and trade system vastly boosts the value of their natural gas holdings. Google, which has several Obama supporters, is making major investments in alternative energy. Energy costs are a major concern for Google. A cap and trade system may benefit Google by raising energy prices for potential competitors. Anyway, these businesses and investors aren't supporting Obama out of concern for the poor. There is a lot of profit to be made as a result of a cap and trade system.
It won't help coal miners and coal towns which will be devastated by this system. It won't help individuals and businesses which will pay much higher energy costs. But it will provide additional money to those who will generate the most benefit from cap and trade, which is those who produce the fuel that creates the lower carbon dioxide emissions per the BTUs produced. For them, the higher the tax on carbon emissions, the more money they can make.
Will a cap and trade system help spur alternative energy sources such as solar, wind, etc? It depends on how high the tax on carbon emissions is.
Do I think a cap and trade system is good? If it is used as a tax raising device as appears to be the proposal by President-Elect Obama, then I don't think it will work well. It will probably make the cost of manufacturing prohibitive in many parts of the country.
Monday, November 3, 2008
Saturday, November 1, 2008
The Gasoline and Electricity Tax Increase Will Offset Obama's Tax Credit
My thinking is that what will propose a global warming bill with large increases in the gasoline tax and electricity. (Personally, I favor a higher gasoline tax to cut imports but certainly do not favor a higher tax on electricity.) (See interview with Iowa Public Television.
http://www.wnd.com/index.php?fa=PAGE.view&pageId=79758 )
I expect that this green tax will equal the $500/$1,000 tax credit for most individuals.
The biggest problem with Obama's proposal is that raising the tax on electricity will be a job killer. Electricity costs are an important part of manufacturing costs. It would make U.S. products less competitive with products in other countries. And, if it was based on greenhouse gases emitted, the states which have coal plants would suffer enormously.
My own thinking is that while there may be somethng to it, global warming could be the biggest hoax ever perpetrated. I think Obama's assertions in the interview that global warming is causing droughts or heat waves is laughable. It has been cold this October here. There was a snowstorm in London, the first in 86 years in October. There was a devastating freeze in China last winter creating havoc and devastation. Reportedly, there has been no warming since 1998.
Now I understand the need for a gasoline tax. You can't keep on paying to import 17 million barrels a day. Whether its $40 a barrel which equals 680 million dollars a day or $100 a barrel which equals $1.7 billion dollars a day, we can't do it.
But the electricity tax is another matter. That will devastate the economy.
http://www.wnd.com/index.php?fa=PAGE.view&pageId=79758 )
I expect that this green tax will equal the $500/$1,000 tax credit for most individuals.
The biggest problem with Obama's proposal is that raising the tax on electricity will be a job killer. Electricity costs are an important part of manufacturing costs. It would make U.S. products less competitive with products in other countries. And, if it was based on greenhouse gases emitted, the states which have coal plants would suffer enormously.
My own thinking is that while there may be somethng to it, global warming could be the biggest hoax ever perpetrated. I think Obama's assertions in the interview that global warming is causing droughts or heat waves is laughable. It has been cold this October here. There was a snowstorm in London, the first in 86 years in October. There was a devastating freeze in China last winter creating havoc and devastation. Reportedly, there has been no warming since 1998.
Now I understand the need for a gasoline tax. You can't keep on paying to import 17 million barrels a day. Whether its $40 a barrel which equals 680 million dollars a day or $100 a barrel which equals $1.7 billion dollars a day, we can't do it.
But the electricity tax is another matter. That will devastate the economy.
Redistribution in New Jersey
We have had two forms of redistribution in New Jersey. One program takes state dollars and pours that money into urban school districts. Those districts now spend 50% more than suburban districts. The other is redistribution in the form of a homestead rebate. The rebate is currently 20% of property taxes up to $10,000 with the maximum rebate being $2,000.
The redistribution in the form of educational funding has massively raised property taxes in suburban areas. Those districts receive little funding from the state because all the money goes to the urban districts. The urban districts are as bad as they were before this funding increase started twenty years ago.
The redistribution in the form of the homestead rebate was cut back this year. Taxpayers with income between 150,000 and $250,000 did not receive a rebate of 10% of their property taxes as they last year. Those with New Jersey gross income above $100,000 received 10% of their property taxes back, down from 15% in the prior year. I think the New Jersey experience is relevant to the redistribution issue.
The redistribution in the form of educational funding has massively raised property taxes in suburban areas. Those districts receive little funding from the state because all the money goes to the urban districts. The urban districts are as bad as they were before this funding increase started twenty years ago.
The redistribution in the form of the homestead rebate was cut back this year. Taxpayers with income between 150,000 and $250,000 did not receive a rebate of 10% of their property taxes as they last year. Those with New Jersey gross income above $100,000 received 10% of their property taxes back, down from 15% in the prior year. I think the New Jersey experience is relevant to the redistribution issue.
Saturday, October 25, 2008
529 Plans-The Next Big Problem Area
States have sponsored a variety of 529 plans. The idea was for a parent to pay for college through a tax-free account. The accounts have income tax advantages and provide phenomenal estate tax benefits.
There are two types of accounts. There are prepaid accounts in which a parent buys tuition credits in advance. And, there are savings accounts which are not that distinguishable from regular savings accounts except for the tax benefits.
The savings accounts do not present a problem that could bring down the system because the owners of those accounts take the losses. So if someone invested 50K and has 35K in the account because of market losses, it's a problem for them but not a problem for the system.
The prepaid accounts on the other hand represent a major problem for the universities if that money has been invested in the stock market. Basically, the idea was that the parent would pay the 529 fund 30K and receive tuition at today's price. The idea worked as long as the state's 529 prepaid plan made money on its investments. But it is unlikely that they have made money. So there is likely to be a very large shortfall with respect to what the fund has in the balance and its future committments to pay for college education.
My attitude is that the colleges should just have to swallow the shortfall. But that is my view and is not likely the view of those who will make the decisions.
There are two types of accounts. There are prepaid accounts in which a parent buys tuition credits in advance. And, there are savings accounts which are not that distinguishable from regular savings accounts except for the tax benefits.
The savings accounts do not present a problem that could bring down the system because the owners of those accounts take the losses. So if someone invested 50K and has 35K in the account because of market losses, it's a problem for them but not a problem for the system.
The prepaid accounts on the other hand represent a major problem for the universities if that money has been invested in the stock market. Basically, the idea was that the parent would pay the 529 fund 30K and receive tuition at today's price. The idea worked as long as the state's 529 prepaid plan made money on its investments. But it is unlikely that they have made money. So there is likely to be a very large shortfall with respect to what the fund has in the balance and its future committments to pay for college education.
My attitude is that the colleges should just have to swallow the shortfall. But that is my view and is not likely the view of those who will make the decisions.
Wednesday, September 24, 2008
A Rolling Loan Gathers No Loss
One of the major accounting principles during the S&L fiasco was that a rolling loan gathers no loss. If you have a bad loan, you simply exchanged it for another bank's bad loan. In that way, an S&L could fool an auditor into thinking that the loan exchanged had actually been paid off.
My thoughts are that the same type of scams are very prevalent today. It's possible that some of these collateralized debt obligations could be exchanged in the same types of scams. Let's say Lehman had bad CDOs that they were underwriting. And Merrill had bad CDOs. Let's say Lehman sells the underwritten securities to Merrill Lynch in one transaction and then buys bad CDOs Merrill Lynch is underwriting in exchange. Or buy CDOs in Merrill's existing portfolio.
Now you might say this is crazy. How could Lehman be stupid enough to buy bad CDOs so that they could keep underwriting more CDOs and book the profits on those underwritings? That's suicidal. Are Lehman employees stupid enough to buy 1 billion dollars in CDOs to obtain 40 million in underwriting revenue. No, but they are smart enough to realize that Lehman can book profits on those underwriting revenues. And, the employees are well aware of how much in bonuses they can make.
Its possible that once the losses reached 5 to 10 billion dollars on the CDOs at Lehman, then management decided the hell with it. They were going to lose their jobs if they did the honorable thing and stopped this spiraling explosion. So they decided to try and prop things up so that they could keep on raking in bonuses and have a chance to unload their stock before the whole thing collapsed.
What leads me to this theory is Lehman's investments in CDOs went up from 57 billion in Nov. 2006 to 89 billion in Nov. 2007. Now what could have possibly prompted Lehman to do this?
The only reason I can think of to keep on buying CDOs at that time was to help out their underwriting. Otherwise, what they were doing was pure stupidity.
The mistake some observers make is that they believe that employees and firms will act rationally. However, for the people in the Lehman underwriting department, the behavior is rational. They can make huge bonuses from each offerring. So they
have an incentive to push through "swaps' to do so. For the company, the behavior isn't rational. But its the employees and management whose motives control.
My thoughts are that the same type of scams are very prevalent today. It's possible that some of these collateralized debt obligations could be exchanged in the same types of scams. Let's say Lehman had bad CDOs that they were underwriting. And Merrill had bad CDOs. Let's say Lehman sells the underwritten securities to Merrill Lynch in one transaction and then buys bad CDOs Merrill Lynch is underwriting in exchange. Or buy CDOs in Merrill's existing portfolio.
Now you might say this is crazy. How could Lehman be stupid enough to buy bad CDOs so that they could keep underwriting more CDOs and book the profits on those underwritings? That's suicidal. Are Lehman employees stupid enough to buy 1 billion dollars in CDOs to obtain 40 million in underwriting revenue. No, but they are smart enough to realize that Lehman can book profits on those underwriting revenues. And, the employees are well aware of how much in bonuses they can make.
Its possible that once the losses reached 5 to 10 billion dollars on the CDOs at Lehman, then management decided the hell with it. They were going to lose their jobs if they did the honorable thing and stopped this spiraling explosion. So they decided to try and prop things up so that they could keep on raking in bonuses and have a chance to unload their stock before the whole thing collapsed.
What leads me to this theory is Lehman's investments in CDOs went up from 57 billion in Nov. 2006 to 89 billion in Nov. 2007. Now what could have possibly prompted Lehman to do this?
The only reason I can think of to keep on buying CDOs at that time was to help out their underwriting. Otherwise, what they were doing was pure stupidity.
The mistake some observers make is that they believe that employees and firms will act rationally. However, for the people in the Lehman underwriting department, the behavior is rational. They can make huge bonuses from each offerring. So they
have an incentive to push through "swaps' to do so. For the company, the behavior isn't rational. But its the employees and management whose motives control.
Tuesday, August 5, 2008
Stimulus Rebates and Energy Prices
In response to the proposed stimulus rebates, Mike Huckabee said: Whose economy are we stimulating? Ours or China's. I would go further than Mr. Huckabee and suggest that we have also done a lot to stimulate the Venezuelan, Iranian, Saudi Arabian and other oil producing economies too with the stimulus rebates.
What is my theory? That the stimulus rebates were created to increase demand for goods. And, that by artificially driving up demand for goods, the stimulus rebates increased demand for the diesel oil that is required to ship those goods. (Not to mention directly increasing the individual's amount of money that he can spend on gasoline.) Thus, if demand for goods increased by 100 billion dollars more than what otherwise would have been shipped as a result of the stimulus rebates and the diesel oil required to ship such goods is 7-10 billion dollars, such an increase in demand above what otherwise would have been the case caused the price of oil to rise rather than fall. Therefore, its not simply a coincidence that the highest oil prices in history coincided with the stimulus payments.
What is my theory? That the stimulus rebates were created to increase demand for goods. And, that by artificially driving up demand for goods, the stimulus rebates increased demand for the diesel oil that is required to ship those goods. (Not to mention directly increasing the individual's amount of money that he can spend on gasoline.) Thus, if demand for goods increased by 100 billion dollars more than what otherwise would have been shipped as a result of the stimulus rebates and the diesel oil required to ship such goods is 7-10 billion dollars, such an increase in demand above what otherwise would have been the case caused the price of oil to rise rather than fall. Therefore, its not simply a coincidence that the highest oil prices in history coincided with the stimulus payments.
Friday, July 25, 2008
Bribery 301
So this is how a pharmaceutical company bribers doctors and hospitals to approve and pay for certain drugs. They make contributions to a doctor's private foundation. The doctor invests it with a crooked businessman in the hopes of a big payoff.
The Chicago Sun Times has the story. But they have no idea what is really going on. The pharmaceutical companies had no intention of investing in the doctor's research. This was a payoff. Pure and simple? Why are we paying 17% of GDP for healthcare? Because of these types of scams.
http://www.suntimes.com/news/watchdogs/1072480,CST-NWS-watchdog24.article
While on the county payroll, a top urologist at Cook County Hospital solicited nearly $1 million from drug companies over the last decade for his private foundation.
Dr. Paul S. Ray's pitch was that the money would go toward medical research and education.
Dr. Paul S. Ray has been granted immunity from prosecution to testify against Tony Rezko in a still-pending criminal case. (Courtesy)
But most of the money hasn't gone to health care at all. Instead, Ray invested it -- mostly in Tony Rezko.
Rezko is the convicted influence-peddler who had been a prodigious fund-raiser for politicians including Sen. Barack Obama, Gov. Blagojevich and the late Cook County Board President John Stroger, the ultimate boss of the county hospitals.
Ray had long worked with Stroger's godson, Orlando Jones, a top administrator at Cook County Hospital who became Stroger's chief of staff. Jones eventually left county government for a job with Rezko. Last September, after he had been questioned by the FBI, Jones committed suicide.
Ray set up the Paul S. Ray Urology Education and Research Foundation 16 years ago. It began investing with Rezko's companies in 2002, according to reports Ray filed with the Internal Revenue Service. The foundation invested $500,000 with Rezko Concessions, which operated Panda Express and Papa John's Pizza restaurants. It also put $100,000 into a proposed housing development Rezko unsuccessfully sought to build on a 62-acre site along the Chicago River in the South Loop.
Ray, 63, of Chicago, also invested his own money with Rezko, spending millions to buy real estate and Papa John's Pizza restaurants from Rezko.
Ray's Rezko deals didn't turn out well:
• • Ray's foundation appears to have lost the $500,000 it invested with Rezko Concessions -- nearly half of the foundation's assets. But the foundation apparently got back the $100,000 invested in Rezko's failed South Loop development.
• • Ray is battling lawsuits over two deals with Rezko. One was filed by Jabir Muhammad, a son of Nation of Islam founder Elijah Muhammad, claiming Rezko and Ray fraudulently took ownership of the South Side mansion where Muhammad lives. The other involves a $646,949 loan Ray allegedly got from a Rezko associate, Elie Maloof, to buy the Papa John's restaurants that Rezko owned in Wisconsin.
• • Ray's purchase of those restaurants is part of a second, still-pending criminal case against Rezko. Federal prosecutors say Rezko engaged in a conspiracy so Ray could buy the Papa John's stores in Wisconsin. Ray -- who has not been charged -- has been granted immunity from prosecution to testify against Rezko.
Sources say Ray has lost at least $3 million on his deals with Rezko. After 25 years, Ray resigned June 30 as chief urologist for the county's hospitals, including Stroger Hospital, which replaced Cook County Hospital. Ray's attorney, Thomas A. Durkin, declined to comment.
Cook County officials did not answer questions about Ray -- including whether he had permission to set up the foundation that he once ran from his county office, whether the foundation did studies or research on county patients and why the foundation paid Jones an $8,319 consulting fee in 2002 while Jones was John Stroger's chief of staff.
GlaxoSmithKline, the pharmaceutical giant, has been the biggest supporter of Ray's foundation, giving more than $420,000 since 1998. A GlaxoSmithKline spokesman said the company paid Ray's foundation and the county hospital to conduct clinical research.
Ray's foundation has taken in more than $1.2 million since 1998 and spent $583,000. The biggest expense: more than $160,000 for travel, conferences and meetings. The foundation also reported spending $26,000 on unspecified "contracted services" and $25,799 on "recruiting fees/medical study.'' Much of the other money went for computers and office supplies, Ray told the IRS.
Ray was one of the people Rezko tried to get Blagojevich to appoint to the Illinois Health Facilities Planning Board, the state agency that must approve major medical construction projects.
Last summer, Ray landed in the national spotlight when Obama, seeking to distance himself from Rezko, gave to charity $6,000 that Ray had contributed to Obama's U.S. Senate campaign.
The Chicago Sun Times has the story. But they have no idea what is really going on. The pharmaceutical companies had no intention of investing in the doctor's research. This was a payoff. Pure and simple? Why are we paying 17% of GDP for healthcare? Because of these types of scams.
http://www.suntimes.com/news/watchdogs/1072480,CST-NWS-watchdog24.article
While on the county payroll, a top urologist at Cook County Hospital solicited nearly $1 million from drug companies over the last decade for his private foundation.
Dr. Paul S. Ray's pitch was that the money would go toward medical research and education.
Dr. Paul S. Ray has been granted immunity from prosecution to testify against Tony Rezko in a still-pending criminal case. (Courtesy)
But most of the money hasn't gone to health care at all. Instead, Ray invested it -- mostly in Tony Rezko.
Rezko is the convicted influence-peddler who had been a prodigious fund-raiser for politicians including Sen. Barack Obama, Gov. Blagojevich and the late Cook County Board President John Stroger, the ultimate boss of the county hospitals.
Ray had long worked with Stroger's godson, Orlando Jones, a top administrator at Cook County Hospital who became Stroger's chief of staff. Jones eventually left county government for a job with Rezko. Last September, after he had been questioned by the FBI, Jones committed suicide.
Ray set up the Paul S. Ray Urology Education and Research Foundation 16 years ago. It began investing with Rezko's companies in 2002, according to reports Ray filed with the Internal Revenue Service. The foundation invested $500,000 with Rezko Concessions, which operated Panda Express and Papa John's Pizza restaurants. It also put $100,000 into a proposed housing development Rezko unsuccessfully sought to build on a 62-acre site along the Chicago River in the South Loop.
Ray, 63, of Chicago, also invested his own money with Rezko, spending millions to buy real estate and Papa John's Pizza restaurants from Rezko.
Ray's Rezko deals didn't turn out well:
• • Ray's foundation appears to have lost the $500,000 it invested with Rezko Concessions -- nearly half of the foundation's assets. But the foundation apparently got back the $100,000 invested in Rezko's failed South Loop development.
• • Ray is battling lawsuits over two deals with Rezko. One was filed by Jabir Muhammad, a son of Nation of Islam founder Elijah Muhammad, claiming Rezko and Ray fraudulently took ownership of the South Side mansion where Muhammad lives. The other involves a $646,949 loan Ray allegedly got from a Rezko associate, Elie Maloof, to buy the Papa John's restaurants that Rezko owned in Wisconsin.
• • Ray's purchase of those restaurants is part of a second, still-pending criminal case against Rezko. Federal prosecutors say Rezko engaged in a conspiracy so Ray could buy the Papa John's stores in Wisconsin. Ray -- who has not been charged -- has been granted immunity from prosecution to testify against Rezko.
Sources say Ray has lost at least $3 million on his deals with Rezko. After 25 years, Ray resigned June 30 as chief urologist for the county's hospitals, including Stroger Hospital, which replaced Cook County Hospital. Ray's attorney, Thomas A. Durkin, declined to comment.
Cook County officials did not answer questions about Ray -- including whether he had permission to set up the foundation that he once ran from his county office, whether the foundation did studies or research on county patients and why the foundation paid Jones an $8,319 consulting fee in 2002 while Jones was John Stroger's chief of staff.
GlaxoSmithKline, the pharmaceutical giant, has been the biggest supporter of Ray's foundation, giving more than $420,000 since 1998. A GlaxoSmithKline spokesman said the company paid Ray's foundation and the county hospital to conduct clinical research.
Ray's foundation has taken in more than $1.2 million since 1998 and spent $583,000. The biggest expense: more than $160,000 for travel, conferences and meetings. The foundation also reported spending $26,000 on unspecified "contracted services" and $25,799 on "recruiting fees/medical study.'' Much of the other money went for computers and office supplies, Ray told the IRS.
Ray was one of the people Rezko tried to get Blagojevich to appoint to the Illinois Health Facilities Planning Board, the state agency that must approve major medical construction projects.
Last summer, Ray landed in the national spotlight when Obama, seeking to distance himself from Rezko, gave to charity $6,000 that Ray had contributed to Obama's U.S. Senate campaign.
Subscribe to:
Posts (Atom)