Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
NC Pension Deal: How Wall Street Ends Up Getting Cash Meant for Main Street (David Sirota, International Business Times) A corrupt system, populated with corrupt people: Public pension plans use an extractive crony system to take hundreds of millions a year out of public pension funds. The system includes even national figures such as Erskine Bowles, co-chair of the famous (infamous?) Simpson-Bowles Fiscal Commission which presumed to "save" the U.S. from itself. But who can save America from parasites like Bowles? See Retirement Investigation (State Employees Association of North Carolina). See also next article.
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Peter Diamond Thinks the Beveridge Curve Might Not Tell Us Much of Anything (Josh Zumbrun, Real Time Economics, The Wall Street Journal) The Beveridge Curve nominally (theoretically) predicts that unemployment falls as the job vacancy rate declines. That's the theory. Reality is something else altogether. Obviously there are more variables involved in the unemployment rate than just job vacancies. This is just a representative sample of the imperfect thinking of economists who like to use linear, simple relationships to try to represent a nonlinear, complex world. For research details see Shifts in the Beveridge Curve (Peter A. Diamond and Aysegul Sahin, New York Fed).
Burger King May Move to Canada for the Donuts (Matt Levine, Bloomberg) It turns out the entire inversion idea doesn't work too well when the Burger King - Tim Hortons merger is analyzed. (Inversion is what happens when a U.S. company reorganizes operations so that much of its income from the U.S. is transferred to another country with lower taxes and is not subjected to U.S. corporate income taxes until and if the money returns to the U.S.) With it's headquarters in Canada, Burger King would no longer pay U.S. taxes on it's Canada earnings but still would pay on U.S. earnings. Which comes to a question: Why does the U.S. tax foreign earnings of domestically headquartered companies in the first place? No other country does that. It would make sense to move to a global corporate tax system where what the U.S. does would be prohibited. Each country could tax income within its borders at whatever rate they wished but no income in other countries would be taxed. Of course, to work the use of shell corporations that abuse intellectual property ownership would also have to be prohibited. An example of that is given by Levine:
... if you are a drug company, it costs you like a dollar to make a pill, and you sell it in the U.S. for $10,000. You might say, "well OK then I have $9,999 of net income in the U.S.," but again you are being naive. The right answer is:
Your U.S. subsidiary makes a pill for $1.
Your U.S. subsidiary licenses the patent on that pill from your Bermuda subsidiary for $9,995.
Your U.S. subsidiary sells the pill for $10,000.
Your U.S. subsidiary has $4 of net income, which is taxable.
Your Bermuda subsidiary has $9,995 of net income, which is not.
It's more complicated than that, but that's the general idea. If the parent company is a U.S. company, then eventually that Bermuda sub's net income will be taxable in the U.S. anyway. But if the parent company is Canadian or Dutch or Swiss or whatever, then the Bermuda sub's income will never be taxed.
See also next article.
Buffett greases $11B Burger King-Tim Hortons deal (Reuters, CNBC) The acquisition of Canada's Tim Hortons by U.S. Burger King has been confirmed. The deal will be worth about $11 billion, with $3 billion in preferred equity financing from Warren Buffett. While it has been suggested that Buffett is being unpatriotic and encouraging an inversion, CNBC says that the deal will actually create at least the same and probably increased tax revenue for the U.S. See also Is the Burger King-Tim Hortons Deal About More Than Taxes? (Vauhini Vara, The New Yorker).
2,061 of Citigroup’s Subsidiaries Go Missing (Pam Martens, Wall Street on Parade) This is another blockbuster piece of investigative journalism from a top financial researcher. Pam Martens has dug through Citigroup's SEC filings and finds 2,061 subsidiaries that were listed in reports that were listed in corporate filings in 2008 were gone from official reports with no accounting for what happened to them. From the article:
Martens finds Citi subsidiaries mentioned in the news in recent years but which cannot be found in Citigroup official filings. One of these is LavaFlow ECN, reported in a case the "SEC brought and settled" last month which was described as "the largest ECN and the largest ATS (Alternative Trading System) as measured by dollar volume executed". Another case she has reported here is Citi Match which Citigroup described in a press release as "the largest dark pool in Europe during February" ( of 2011).
Martens has documented $378 billion of capital guarantees from the government in 2008 ($45 billion of that was the publicly very visible TARP funding) plus an additional number of below market rate emergency loans from 2008 to 2010 totaling more than $2 trillion (totally hidden from public view until 2011 when a 3-year old Bloomberg freedom-of-information suit forced the Fed to disclose.
Econintersect: John Lounsbury was following the SEC filings of Citigroup in 2009 and 2010 and wrote a number of articles which argued that the visible numbers indicated the bank could not still be in business based on what was disclosed. We now know that they were a multi-trillion dollar rescue project of the government and the Federal Reserve.
Read Pam Martens revealing report - these are the facts that are given short shrift in the mainstream press (or ignored completely).
Developers offer hefty discounts in strained China homes market (Gabriel Wildau, Financial Times) Prices have been falling in China's formerly hot residential markets so far this year and it looks like they will fall a lot further: A leading property developer is offering discounts up the Rmb 2 billion ($325,000). According to the FT there may be a major rush for the exits in a couple of months; "September and November will be a peak period for new housing completions". This comes as inventory has already hit an all-time record at the end of July.
Is Fluoride in Private Wells Causing an IQ Decline? (Dina Fine Maron, Scientific American) Numerous studies from around the world indicate that fluoride levels in drinking water above the U.S. Environmental Protection Agency (EPA) designated maximum safe exposure level is not only damaging to teeth and bone strength, but also results in an average diminution of IQ by 7 points. Lower levels of fluoride have beneficial effects of diminishing tooth decay but higher levels should be avoided. In some U.S. areas excessive fluoride levels exist in water from private wells, often from areas with granite bedrock, and for many excess fluoride is consumed unwittingly. Does that include those who have studied at Dartmouth College? The school's Alma Mater, Men of Dartmouth, contains the verse:
They have the still North in their hearts, The hill-winds in their veins, And the granite of New Hampshire In their muscles and their brains.
What You Can Expect After The Next Correction (MA Capital Management, Seeking Alpha) MA Capital Management is headed by Monty Agrawal who contributes to GEI. The next time the market corrects may well be the time that there is no bounce in the stock market. A Japanese experience may await because there is no interest rate string left to push the market higher.
Life doesn’t make trash (Itai Yanai and Martin Lercher, Aeon) Most of the human genome doesn't appear to be used for anything. Is it mostly just "dead wood, biologically inert junk"? Not at all. The thinking that leads to that possibility is linear and the relationships are decidedly non-linear. Should economists be introduced to genetic logic?
The Plan to Build a Massive Online Brain for All the World’s Robots (Daniela Hernandez, Wired) At Stanford University, backed by the National Science Foundation and the office of Naval Research as well as corporate participants Google, Microsoft and Qualcomm, an effort is well underway to create a common information and rationalizing function for all robots to share (called RoboBrain). Other universities involved are at Cornell, Brown and Cal Berkeley. The endeavor has the objective of building a shared artificial intelligence that will be able to understand written and spoken communication, process visual information and learn to react to surroundings as humans do. The brain function will be available anywhere for any robot to use as a knowledge and function resource> Econintersect: Will we soon have to deal with robots who have their heads in the cloud(s)?
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