Misery Economic Theater 2011

[Fusion_power]

I vote simply requiring that a buy or sell order be valid for an hour

This basic concept has been proposed repeatedly though most often as 1 to 5 minutes instead of an hour. It would significantly slow down the market process and make HFT profits pretty much disappear. That "ain't" gonna happen.

DarJones

[Christenson]

DarJones:
Are you saying the basic concept won't happen? Or that my hour is simply too extreme?

[Fusion_power]

I'm saying that anything that disrupts the profits of the market maker HFT's is not going to happen.

DarJones

[Christenson]

Originally Posted by Fusion_power

I'm saying that anything that disrupts the profits of the market maker HFT's is not going to happen.

DarJones

Unfortunately, probably 100% correct, for all the wrong reasons.

[ewmayer]

Originally Posted by Fusion_power

This basic concept has been proposed repeatedly though most often as 1 to 5 minutes instead of an hour. It would significantly slow down the market process and make HFT profits pretty much disappear. That "ain't" gonna happen.

Even 1-2 seconds minimal order lifetime would suffice to nip most HGT stub-quote schemes in the bud. But your point about anything which would kill HFT profits will never happen is likely correct.

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With tomorrow being Labor Day here in the U>S., let`s focus on private-sector-jobs-related themes, namely "what kinds of businesses create most of the jobs" and "what if anythign can government do to help spur private-sector job creation?".

First, a McClatchy survey casts doubt on frequent Republican claims about "excessive government regulation" stifling job creation

Regulations, taxes aren't killing small business, owners say

WASHINGTON — Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation.

"Government regulations are not 'choking' our business, the hospitality business," Bernard Wolfson, the president of Hospitality Operations in Miami, told The Miami Herald. "In order to do business in today's environment, government regulations are necessary and we must deal with them. The health and safety of our guests depend on regulations. It is the government regulations that help keep things in order."

The U.S. Chamber of Commerce is among the most vocal critics of the Obama administration, blaming excessive regulation and the administration's overhaul of health care laws for creating an environment of uncertainty that's hampering job creation.

When it's asked what specific regulations harm small businesses _which account for about 65 percent of U.S. jobs — the Chamber of Commerce points to health care, banking and national labor. Yet all these issues weigh much more heavily on big corporations than on small business.
...
McClatchy reached out to owners of small businesses, many of them mom-and-pop operations, to find out whether they indeed were being choked by regulation, whether uncertainty over taxes affected their hiring plans and whether the health care overhaul was helping or hurting their business.

Their response was surprising.

None of the business owners complained about regulation in their particular industries, and most seemed to welcome it. Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath.

My Comment: I`m not sure about the specific cliam about healthcare costs weighing more heavily on big than small businesses - but rest of the piece seems spot-on.

And career entrepreneur Henry Nothhaft has

A Labor Day Message for President Obama: We know that job growth comes from start-up companies, not established ones. Why not make life easier for them?

Dear Mr. President,

As you spend this Labor Day preparing your speech to the nation on job creation, I urge you to avoid ideologically loaded programs like a new stimulus that probably won`t get through Congress, and instead focus on a few practical, low-cost measures that we know will create lots of jobs quickly.

Despite all the hand-wringing and inaction over jobs the last three years, job creation itself is actually no mystery. We know how jobs are created, and by whom.

We know, for starters, that 100% of net job growth in the U.S. comes from entrepreneurial start-ups, as a Kauffman Foundation report documented in 2010. If you took start-ups out of the picture and looked only at large or incumbent businesses, job growth over the last 35 years would actually be negative. In the words of Kauffman`s Tim Kane, "When it comes to U.S. job growth, start-up companies aren`t everything. They`re the only thing."

So if we all know this, Mr. President, why aren`t you doing everything you can to nurture start-ups and make it easier for them to access capital, grow and hire people so they can develop the breakthrough products, services and medical advances that drive our national prosperity?

Earlier this year, you convened a summit of 20 of the nation`s top CEOs to discuss ways to create more jobs. Shortly thereafter you appointed General Electric CEO Jeffrey Immelt to chair your new jobs and competitiveness council.

I`m sure that Jeff Immelt is an excellent CEO. It took more than a little skill, after all, for GE to avoid paying even a penny of tax on $150 billion in revenues. But he and his fellow Fortune 100 CEOs don`t know much about job creation. In fact, they`re a "who`s who" of outsourcers of American jobs. Over the last 10 years, U.S. multinational firms cut their domestic work forces by 2.9 million while boosting hiring abroad by 2.4 million.

The fault here is not yours alone, Mr. President. When it comes to job creation, Washington is afflicted with a totally bipartisan cluelessness. For every Democratic Congress that passes a health-reform bill with new 1099 tax reporting requirements that impose heavy new costs on small businesses, a Republican-led Congress passes a Sarbanes-Oxley law that forces small firms to shoulder the onerous costs of new accounting rules meant to stop fraudulent behavior by big businesses. This despite the fact that small businesses pose zero risk to the economy.

Unfortunately, Mr. President, the only thing that Sarbanes-Oxley stopped was the ability of start-ups to pay the vastly increased costs of going public, thus crippling the IPO market and job creation (92% of which occurs after an IPO, according to the National Venture Capital Association). It certainly didn`t stop Wall Street banks—all of whom were compliant with Sarbanes-Oxley—from recklessly sinking the economy in 2008.
...
You and your Republican opponents could also spur job creation by withdrawing your support for a patent-reform bill that puts the needs of big technology firms ahead of the real job creators—entrepreneurial start-ups—and that continues to divert hundreds of millions of dollars annually in patent-office user fees to other purposes, like the Census.

By treating the patent office as a petty-cash drawer, Congress has starved it of funds and created a backlog of 1.2 million patent applications waiting for examination. Your own patent office director, David Kappos, says this backlog has cost the nation "millions of jobs."

As I noted in an article last year with retired chief judge Paul Michel of the U.S. Court of Appeals for the Federal Circuit, which handles patent appeals, simply clearing the patent backlog could create up to 2.25 million jobs by 2014. And it wouldn`t cost the taxpayer a dime, since the patent office is the only self-supporting agency of the federal government.

Finally, Mr. President, why are we the only major nation on Earth that refuses to offer tax and other incentives to manufacturers who set up shop here? Every other nation in the Organization for Economic Cooperation and Development does so. They know that manufacturing is the greatest economic force multiplier in the world, creating up to 15 jobs outside manufacturing for every position on the shop floor.

None of these measures requires bleeding the treasury. None is political. And all of them will work—quickly—to create literally millions of new jobs.

Mr. President, there`s still time for you to kick-start the engine of job growth. All you need to do is listen to the voices of entrepreneurs who create those jobs.

[ewmayer]

And speaking of unfair advantages enjoyed by mega-corporations, another McClatchy piece (here by way of the St. Petersburg Times - Florida, not Rudssia) lays it out nicely:

Wanted: Patriotic CEOs to stop corporate moochers

Some of the biggest corporations in the United States are moochers.

They're like the guy who shows up at your Labor Day picnic empty-handed. He drinks all your beer, eats four helpings of barbecue and leaves a huge mess for everyone else to clean up. Then he asks you for 20 bucks in gas money to get home.

A troubling number of U.S. corporations behave as moocher guests at our national cafeteria. They help themselves to all the taxpayer-funded goods and services we create and pay for together and leave patriotic small businesses and individual taxpayers with the bill.

According to a new report by the Institute for Policy Studies that I co-authored, 25 corporations among the top 100 firms paid their CEOs more in compensation than they paid in taxes. Twenty of them spent more on lobbying Congress than they paid in taxes.

Twenty of the 25 paid not one dime in federal taxes last year. Many use offshore tax havens to shift their profits overseas to avoid U.S. taxes. In fact, their hands are out, collecting millions in government subsidies.

This elite group of super-moochers includes Ford, eBay, Verizon, Boeing, Motorola, Honeywell, Dow Chemical, General Electric, Coca-Cola Enterprises, Prudential Financial, Capital One Financial and International Paper.

These companies utilize roads, ports, Internet broadband, weather services — our entire public infrastructure. They spin off products created from a foundation of Uncle Sam's investments, such as the Internet, drug research and innovation in aviation and science. They hire educated workers from our school systems — and complain when they don't have adequate skills.

When someone tries to steal their product or idea, they rush to the U.S. court system and law enforcement agencies for help and justice. They rest assured knowing their global assets are protected by the U.S. military and government agencies.

They claim to love America. They just don't want to pay for its upkeep. At the end of the cafeteria line, with their tray piled with food, they point to you and me and say, "They're picking up the tab."

Think about it: Where would Honeywell be without government research and contracts? Where would Boeing be without the U.S. taxpayer, including a recent contract for $35 billion in new planes?

These companies imply they should be relieved from taxes since they are creating U.S. jobs. But as new studies show, many of these same global firms are shifting jobs overseas as fast as they can.

General Electric CEO Jeffrey Immelt advises President Barack Obama on how to create jobs in America. He was paid $15.3 million last year as his company paid no U.S. taxes and collected $3.3 billion in refunds. In the past three years, GE has closed more than a dozen U.S. factories and eliminated 19,000 American jobs. In the past decade, the percentage of GE's global work force based in the United States has declined from 54 percent to 46 percent.

Many companies avoid disclosing the breakdown of their work force between the United States and other countries. They don't want the public to know how aggressively they are outsourcing jobs. Once-patriotic U.S. firms now view the United States as a platform for shifting capital, jobs and profits around the world to their narrow advantage.

And on a lighter note...

Tom Toles' latest editorial cartoon

Debt Counseling Meeting"

[fivemack]

I am curious as to the definition of 'pays no taxes' that the writer of the above extract used; Coca-Cola's form 10K

http://www.thecoca-colacompany.com/i...m_10K_2010.pdf

includes a $2,384 million line item for taxes paid in the year 2010, an effective rate of 16.7%

'Our effective tax rate reflects tax benefits derived from significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35 percent.'

'Based on current tax laws, the Company’s effective tax rate in 2011 is expected to be approximately 23.5 percent to 24.5 percent before considering the effect of any unusual or special items that may affect our tax rate in future years.'

GE similarly is paying about 16.8% on GE earnings; the issue there is that GE Capital Services is an enormous financial organisation which a few years ago made a prodigiously large loss, and this loss provides an enormous tax credit to GE.

[Christenson]

A simpler question, in case Mr Immelt is reading:
A dozen years ago, I worked for a very dysfunctional unit of GE. Everyone with eyes could see the operation going downhill, the spurning of customers, that some vice-presidential heads needed some serious knocking. Noone sent from headquarters could seem to turn it around, they all fled instead. You screwed up, now GE-FANUC is almost gone.

Do you have the ears to hear the folks on the ground? In that case, you are doing terrible by both your employees and your stockholders.

In my current job, I could use GE-Fanuc products...but they'd raise my engineering costs through the roof, and I couldn't get anyone from sales to talk to me when I was there anyway.

[ewmayer]

Originally Posted by fivemack

I am curious as to the definition of 'pays no taxes' that the writer of the above extract used; Coca-Cola's form 10K

http://www.thecoca-colacompany.com/i...m_10K_2010.pdf

includes a $2,384 million line item for taxes paid in the year 2010, an effective rate of 16.7%

GE Capital indeed did provide a big write-off to GE ... but that was mainly for the 2009 tax reporting period, not 2010.

You need to be very careful about the numbers the corporations point to in such cases. Without looking into the specifics of the Coca-Cola numbers, I'll stick to GE. Here is a March piece from Business Insider which takes a claim from GE PR that the NYT (which broke the GE-paid-no-U.S.-taxes-in-2010 story a few days previously) was "way off base" and follows it up - hilariously (underlines mine):

WHO'S FULL OF CRAP? GE, The New York Times, And The Hazards Of "Tweeting The Record Straight"

Henry Blodget | Mar. 28, 2011, 4:29 PM

We spent much of this afternoon sparring with GE's public affairs division on Twitter over a New York Times report that GE paid no US taxes last year.

GE had taken to Twitter to blast the New York Times for "misleading" everyone about this fact.

So, naturally, when we saw that GE was trying to set the record straight, we asked some specific questions of GE--because we wanted to determine whether the New York Times was wrong or whether GE was just trying to spin everyone.

Either was fine with us, by the way -- especially after New York Times editor Bill Keller's latest lecture this weekend about why the New York Times is great and everyone else sucks.

Bill Keller's message in his latest lecture was "We believe in verification rather than assertion."

So when we got a tweet from GE public affairs this morning telling us to stop repeating the NYT's "misleading attack" that GE paid no US taxes in 2010, we naturally wanted to find out whether Bill Keller was full of it.

We had, after all, gotten that "misleading attack" directly from a New York Times story from last Friday about how little tax GE pays.

The third paragraph of that story said the following:

"[GE's] American tax bill? None."

That sentence couldn't have been clearer. So we were surprised to get these tweets from GE this morning:

@BusinessInsider - Stop the misleading attacks. No Taxes?? GE paid $2.7 billion in cash taxes alone in 2010. http://bit.ly/goMKB9

@hblodget Consolidated tax rate last few yrs is lower than historical avg & statutory rate, but @NYTimes grossly oversimplified the facts

We asked GE whether the New York Times had, in fact, "grossly oversimplified the facts" or had just gotten them wrong.

GE temporarily went silent.

So we asked again.

And again.

Eventually, GE piped up, with a non-answer. And so, for the next half-hour, we kept asking GE ever narrower and more precise questions to try to make sure they weren't just spinning us (which initially they appeared to be doing). One of the theories that emerged, for example, was that the New York Times had been referring to "federal income tax," while GE's Public Affairs department had been pointing to global taxes, taxes paid in dollars, payroll taxes, state taxes, local taxes, and other taxes, rather than federal income tax.

For a while, we assumed that that's what GE was doing--spinning to cover up the fact that it had paid no federal income taxes by pointing out that it had paid payroll taxes, state taxes, and so forth.

But then GE finally tweeted the following:

GE paid significant U.S. fed income tax in 2010, along w/ $1B+ in payroll, state & local

Now, that statement, you will presumably agree, seems entirely inconsistent with the sentence in the New York Times article that said GE's US tax bill was "none."

In which case, the New York Times story is wrong, and Bill Keller has a correction to issue.

But having spent the last half-hour trying to get a straight answer out of GE, another thought occurred to us. What if the NYT story wasn't wrong?

What if what GE's wordsmiths had been so clever in their spinning that what they actually meant was that GE "paid" US income taxes that were later refunded by the US government, the same way most Americans "pay" taxes with each paycheck and then get a refund at the end of the year? (Which obviously is not what everyone thinks that sentence means.)

Or what if what GE's clever wording meant that GE executives had paid federal income tax?

In those cases, @GEpublicaffairs folks would be guilty of the most insidious kind of spin: The kind that looks as though it's straight-up truth from a party that has been wronged but is actually a bunch of crap.

So we asked @GEpublicaffairs very simple questions about those "significant federal income taxes" that GE says it paid in 2010.

And @GEpublicaffairs went silent again.

And stayed silent.

For the rest of the afternoon.

So eventually, we had to conclude that @GEpublicaffairs had probably just been shamelessly spinning, that GE had paid no federal income taxes (net), and that that we had busted them on it. So GE's public affairs folks had had no choice but to disappear.

My Comment: There are 2 Updates to the above article, which essentially confirm the "GE shamelessly spinning" hypothesis.

So Tom, see if you can figure out if Coca-Cola similarly *paid* several $Bln in taxes, but had most or all of that offset by later refunds and credits. Because the PDF you cite and similar statement`s by the company sound suspiciously like GE`s "we paid so much" claims which conveniently omit "how much we paid, after factoring in refunds and credits:

Atlanta Journal Constitution: Corporate giants find ample shelter

Coca-Cola’s “current” federal tax expense — not counting “deferred” taxes that might not be paid for decades, if ever — was $470 million last year. That was only 6.5 percent of the $7.2 billion in pre-tax profits that Coca-Cola reported for its U.S. operations in annual disclosures to investors last year. (A Coca-Cola spokesman said the company actually paid federal income taxes “significantly higher” than $470 million last year. It also said its federal tax rate worked out to 38 to 39 percent because its taxable income was lower than the $7.2 billion reported to shareholders, but didn’t release supporting figures.)

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Interesting week coming up in Europe - Mish has a preview of key events. I will be watching the decision of the German Constitutional Court on the legality of the Eurozone bailouts (and the entire EFSF mechanism) with great interest.

[Fusion_power]

Re taxes and spin, the difference between a piece of half-raw castrated bull meat and a sizzling hot juicy rib-eye steak is just a matter of semantics.

DarJones

[fivemack]

OK, I was wrong; I thought that a company registered in the US would be paying all its taxes in the US (indeed, that that was why the US might want to have multinationals registered there).

This is the issue that extremely-multinational companies whose main expansions are outside the US can keep the profits from their subsidiaries outside the US, use them to fund expansion outside the US or simply keep them in a pot, and not pay US tax on them unless they need to bring them back to the US. If I read the Coca-Cola report correctly (and what better thing to do on Labor Day than read 10-K filings) this is a loophole which was closed briefly in 2005, and has been re-opened 'temporarily for a one-year period' annually since then. Coke declares much lower profit margins on its US activities than on its world-wide ones (and North America is its third-largest business area) which is suspicious, though that might be because they bought the US bottler out presumably of US money.

I don't quite understand how Coca-Cola can pay dividends (which at least in theory come out of profits) without having to bring the profits in; I suppose they've got almost perfect credit and so can borrow extremely cheaply in the US from multi-national banks using the external-profits as collateral, and pay their 2.5% dividend yield with the borrowed money.