Category Archives: Economics

Miscellaneous economy stuff

Punishing Success

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You’ve earned your wages; husbanded them carefully; spent wisely, living within your means; paid your debts promptly and in full. As a result, you’ve gained an excellent credit rating.

Your reward? An artificially inflated mortgage cost, courtesy of the Progressive-Democratic Party-run Executive Branch, and redistribution of the fruits of your success, arbitrarily, to those who haven’t done those things.

A Biden administration rule is set to take effect that will force good-credit home buyers to pay more for their mortgages to subsidize loans to higher-risk borrowers.
Experts believe that borrowers with a credit score of about 680 would pay around $40 more per month on a $400,000 mortgage under rules from the Federal Housing Finance Agency that go into effect May 1, costs that will help subsidize people with lower credit ratings also looking for a mortgage, according to a Washington Times report Tuesday.

But. But, but, but. The Federal Housing Finance Agency, the Biden administration entity responsibility for this nonsense has long sought to give consumers more affordable housing options.

Under the new rules, consumers with lower credit ratings and less money for a down payment would qualify for better mortgage rates than they otherwise would have.

This is silly. The transfer of wealth from those who’ve earned good credit scores to those who have not will not make the latter better credit risks. It will increase the rate of default.

Here’s a thought: cut back on the regulations related to banking, lending, housing, landlording, construction, and utilities so as to bring down the cost of housing generally. See if that will give consumers more affordable housing options.

Stop punishing success; instead, encourage folks to work toward success.

Progressive Idiocy

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The New York City Council is striking again. These wonders are pushing their cutely named Choose 2 Reuse bill, which

aims to improve sustainability in the restaurant business, but would add some friction to a customer experience that is typically defined by its convenience. Consumers would be asked to later return their reusable food containers, knives, forks, and chopsticks either through delivery or logistics partners who come to pick them up or in person via receptacles at participating restaurants. The bill doesn’t require reusable beverage containers.

It’s interesting that the City Council excludes beverage containers. There was a time when beverage containers—soda bottles, for instance—could be returned for a return of a deposit paid when the (sodas) were sold, a practice that enabled more than a few boys and girls to earn a bit of extra money by collecting up the bottles and doing the return. And there never was a problem cleaning the then-glass bottles for reuse, nor was there a liability problem arising from the reuse of inadequately cleaned bottles.

That sort of thing fell into disfavor when tin, and later aluminum, cans proved easier and cheaper to manufacture (and wend their way through the bottling process)—and far from being one-use disposable, they could be recycled through a different chain.

Now NYC is bent on reverting to that greater cost—never minding that one-use food containers for takeout are easily manufactured for breakdown and return to the soil when disposed of in landfills. Or in many jurisdictions, converted to mulch for DIY gardeners. Or recycled for yet other non-food related uses.

Now, in addition to the added costs inflicted on restaurants and consumers alike, the Wonders of the Council also want to expose the city’s restaurants to liability through suits centered on real or imagined food poisoning from allegedly inadequately cleaned-for-reuse containers and utensils. Even stipulating that utensils would no longer be included (presumably by restaurant choice; nothing in the proposed bill suggests this)—requiring consumers to use their own—the containers would need to be made sturdy enough to survive the restaurant’s dishwashers—or to survive the consumers’ dishwashers, should they be offered a discount for doing the cleaning for the restaurant. And which the restaurant would have no guarantee that the consumer had cleaned the containers well enough to meet the government standards imposed on the restaurant.

A Tax Picture

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This is for the benefit of those who demand the Evil Rich “pay their fair share.” The rest of us—us ordinary Americans—already know the facts of the matter.

As noted at the bottom of the graph, the data are from the Congressional Joint Committee on Taxation, which is comprised of nonpartisan tax specialists. WSJ staff did the analysis.

Those Evil Rich, boy, they’re only paying 39% of the total income taxes remitted, nearly two-and-a-half times their proportion of income earned across the nation, while the working poor are paying a whopping 6%, or just under a third of their proportion of income earned.

No wonder no Progressive-Democratic Party politician, or anyone on the Left, is willing to say what “fair share” is.

“Auditors Didn’t Flag”

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Silicon Valley Bank’s third-party auditors did not mention the underlying risk to SVB’s viability in its report, which the group issued two weeks before the bank’s collapse.

When KPMG LLP gave Silicon Valley Bank a clean bill of health just 14 days before the lender collapsed, the Big Four audit firm flagged potential losses on loans as a so-called critical audit matter. But the audit opinion was silent on what actually brought down the bank—its unrealized bond losses and ability to hold them given a reliance on potentially flighty deposits.
“The auditors failed to mention the fire in the basement or the box of dynamite on the first floor, but they did point out the peeling paint on the flower box,” said Erik Gordon, a University of Michigan business professor. “How could they miss the interest-rate risk?”

And this from Martin Baumann, ex-Chief Auditor at the Public Company Accounting Oversight Board and who had a leading role in designing the new measure:

Silicon Valley Bank’s unrealized losses in its bond portfolio appear to “meet every definition of a possible critical audit matter[.]”

A critical audit matter is a tool intended to help investors decode risks and uncertainties buried in financial statements, to make audit opinions actually useful.

Thus, how could the auditors have missed the larger risk? Why did they?

Or did they? Maybe this is a demonstration of the weakness of auditors being paid by the auditees for the audits.

One apparent weakness in the PCAOB’s existing requirements, though, is that banks can hide the risks in their portfolios by (re)characterizing some or all of their bond holdings as “hold to maturity” rather than as marketable and so required to report their (fluctuating) market value. But when the bonds are being held in even partial satisfaction of reserve requirements, maybe those “hold to maturity” bonds still should have their current market value reported to the public. After all, SVB had no intention of selling even its “marketable” long-term bonds. That is, until it began to experience deposit withdrawals at rates it could not fill without selling those long bonds immediately, and so at losses driven by the environment’s rising interest rates.

So—again I ask: why did SVB’s auditors not report that interest rate risk? KPMG may well have a valid reason for its silence on that risk, but it should say what that risk is.

In any event, it would be useful to see the timesheets of those auditors—when I worked as a defense contractor, my timesheets were required to be submitted with 10-minute intervals—so we in the public can know what those auditors were doing instead of their jobs.

Ignore Them

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The People’s Republic of China’s latest weapon in its economic war against the West, and against the United States in particular, is to slow-walk merger approvals on anti-trust grounds when either party to the merger, or its result, does or would do business within the PRC.

As preconditions for approving some of the transactions, the people said, officials at the State Administration for Market Regulation, China’s antitrust regulator known as SAMR, have asked companies to make available in China products they sell in other countries—an attempt to counter the US’s increased export controls targeting China.
The Chinese demands could put US companies in an impossible position as Washington has enacted legislation restricting American companies’ ability to sell to China and expanding certain types of production there.

And this, especially [emphasis added]:

For multinationals, it doesn’t take much for a merger to trigger a Chinese antitrust review. For instance, if two companies in a deal have revenue of more than $117 million a year from China, the merger needs Beijing to sign off.

This is an easy enough conundrum to solve. The two companies, along with the merged result, could simply stop doing business within the PRC and with businesses domiciled within the PRC, rendering that nation’s slow-walk irrelevant from the PRC’s lack of standing to object.

Companies should already be stopping doing business inside the PRC or with businesses domiciled in the PRC, so a merger agreement that asserts “no business to be done in the PRC” seems completely straightforward.