Tag Archives: markets

Spotify and Crony Capitalism

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Spotify AB wants to do an initial stock offering, an IPO, on the New York Stock Exchange, and the company wants to do it without benefit of bank underwriters.  Oddly, the NYSE has to ask the SEC for permission to amend its own rules to allow this.  Even more strange, the SEC is dithering over granting that permission—to allow the private enterprise, the NYSE, to conduct its own business as it sees fit, and more proximately, to allow the private enterprise, Spotify, to conduct its business as it sees fit.  The SEC is claiming, with a straight face, that it has until the middle of February to make up its mind.

That the Government agency even thinks it needs to think about this is shady.  Government mandating bank involvement in a private enterprise company’s public offering? That would be textbook crony capitalism.

The SEC had concerns that Spotify’s direct listing could open the door for other companies with potentially risky financial profiles to access the public markets without giving investors sufficient protection[.]

Caveat emptor.  Government-favored bankers Us investors don’t need the protection of Big Brother. I understand that personal responsibility is anathema to Government bureaucrats, but this is a shield too far.

The SEC needs to reject such…stuff…stop dithering, and grant the permissions out of hand.

The Question is a Non Sequitur

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John McKinnon and Brent Kendall, in their Wall Street Journal piece, asked Is FTC Up to the Task of Internet Regulation?

His piece is about the split between what the FCC (the erstwhile “regulator” of the Internet, courtesy of the Obama administration) and the FTC are qualified to regulate.

The question is a bit of a non sequitur, though. The Internet is merely a transport medium, and it needs very little regulation. The FTC is fully up to the task of regulating (ideally with a similarly light touch) trade, which is independent of the medium—highway, railroad, snail mail, or electronic—over which the traded products are transported.

And: lightly regulated commerce is highly conducive to innovation.  Just look at our communications system since the breakup and deregulation of Ma Bell.  And the Internet between its inception and the Obama FCC-imposed impediment.

“major distortive impact on international trade”

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That’s the claim of European nations–Germany, France, Italy, Spain, and the UK—as they worry about the drop in corporate tax rates that the House and Senate bills propose.

Well, of course.  They also don’t like the highly competitive tax rates applied by Ireland and Luxembourg and routinely excoriate those nations for having the temerity of competing via tax treatment for business.  While the nations bleat about double taxation and how European businesses operating in the US would be at a tax disadvantage compared to US companies operating in the US, here’s the nub of the thing:

Even without those provisions, the reform would leave US businesses facing lower domestic-tax rates than some of their European peers, putting governments under pressure to reciprocate.

The horror.  And those nations—and the EU generally—still have not justified either their high tax rates or their high spending rates that underlie those tax rates.  The nations also have exposed their hypocrisy:

[T]he proposed “base erosion and anti-abuse tax provision” contained in the Senate bill could harm international banking and insurance businesses because it would treat cross-border financial transactions between a company and a subsidiary as nondeductible, subjecting it to a 10% tax[.]

Never mind that the EU already is attacking the international banking industry (and the insurance industry won’t be far behind) by demanding a tax on all financial transactions (currently masqueraded as a tax on investment transactions, but what else does an international bank do?), which itself can only depress international banking.  But hey, it’s a tax, so it’s all good.  Or so insist the Know Betters of EU Big Government.

The UK’s concern is especially interesting both as that nation drifts away from Thatcherism, even in its allegedly Conservative coalition and as the UK stands to make out like bandits in international trade following Brexit and the loss of EU fetters on its economy (always assuming the timid May government doesn’t surrender the farm in the face of EU intransigence).

Individual Mandate and Risk Pools

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Louise Radnofsky and Stephanie Armour had a piece in The Wall Street Journal that looked at the small and shrinking impact of removing the Individual Mandate (or more accurately, removing the penalty Supreme Court-created tax imposed for not satisfying the IM) on the health coverage providing industry.  The piece is worth the read, but there was one remark quoted at the end that wants a particular look.

“Making the risk pool stable is a vital part” of keeping individual insurance premiums in line with the overall cost to cover a person insured through a larger group or employer, said Andy Slavitt, a top health official in the Obama administration.

You bet. However, in order to stabilize a risk pool, it’s necessary to understand risk pools. A healthy young man does not have the same risks as an elderly man or woman, and so he does not belong in either of their risk pools, either of them in his, and neither of those two in each other’s. A healthy woman of child-bearing age does not share the same risks as a post-menopausal woman, and neither share the same risks as a man of any age. None of those three groups belong in the same risk pool as any of the others.

Health-related risk pools, to be effective and accurate at estimating future health coverage costs and so arriving at reasonable fees for accepting the transfer of the risks involved, need to be reasonably homogeneous.  Belonging to the species homo sapiens is not sufficiently homogeneous.

Another Reason

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…to push for lowered State tax rates, empirically observed.

There are signs home buyers in metropolitan New York are pausing to consider the effects of proposed federal tax law changes, setting the stage for a possible chill in the market, brokers say.

The changes, in versions of bills in both the House and the Senate, likely would increase the cost of home ownership and reduce after-tax discretionary income for many mostly affluent home buyers in New York and other states with high state and local income and property taxes, brokers and analysts say.

This isn’t entirely true, though.  The reduced deductibility of mortgage interest will lead to lowered house prices (and through that, downward pressure on rents, even in rent-controlled New York City) through two pathways.  One is reduced demand for house ownership.  The other is through a lesser interest deduction being factored into a house’s price—this one will impact primarily, the high-end houses bought with jumbo mortgages, contra those brokers and analysts.

Or a high-tax State can do nothing and suffer the consequences.

One couple, who looked for homes in the area last year, is coming down to see a house on an island off Miami Beach listed for $22.5 million over the summer, Mr [Jeff, a Miami broker] Miller said.

“People I have been working with were on the fence,” he said. “Now they want to move [to Florida]. The new tax bill was the nudge they needed to push them over.”

These are exactly the high-income, high-asset folks whose pockets high-tax States like New York want to pick.