Bits of wisdom from the FT

On the new EU banking arrangement, here is Wolfgang Münchau:

If you study the details of what was agreed last week, the substance evaporates. The common supervisory structure will affect only about 100 to 150 banks out of a total of 6,000 – those with assets of more than €30bn. The ECB can usurp supervisory powers from national regulators but the rules of engagement are not clear. Wolfgang Schäuble, the German finance minister, said when he left the meeting that the ECB would need to make a well-argued case. But it is not clear how this would work in practice.

If you can get through the link there is much more, all devastating.  There is of course no banking union whatsoever and no set of mutual guarantees.  And this:

What happened was that the OMT has killed any appetite for a fiscal union, and has turned the banking union into a phantom.

The effect of the OMT will be negative in the long run because it has provided policy makers with a false sense of security. That was not the intention but the effect.

Let’s not leave Larry Summers out of the mix:

…the richest taxpayers actually make relatively little use of deductions and credits.

It is an excellent piece on tax reform.


The Europeans are still in trouble because the monetary union was designed to get into trouble. The Eurocrats wanted a system that no one could escape from and which would require further moves towards Federalism the moment the inevitable happened. It did. So they seem to have tried to square a circle by having a Banking Union (which the Euro-bureacracy demands) that is not really a Banking Union (which Germany and a few others oppose).

Will it be enough to fool the markets into thinking something has been done? Actually the markets seem surprisingly calm which can only mean they think a real solution has been found. But if it has, I wish someone would explain it to me.

Man, I was wondering when the next eurogeddon post would arrive - no holiday season is complete without one.

Isn't that the characteristic of all the major solutions and fixes that have come out of Europe for the last two years? More effort and results from the catering services than the policy itself.

I still don't get the argument that "carried interest" means partnerships should be taxed differently in the investment industry than in other industries. It's also seems weird that the target in the "money and brains" arrangement is the "brains" instead of the "money" half. Almost like the target of the policy is not on rich people but on excessive mobility INTO the ranks of the super wealthy. Which makes sense if you assume that rank jealousy is the source of the policy dispute.

My personal view is that rank jealousy of young, upstart, slick-haired finance guys ("hey, didn't bankers CAUSE the financial crisis?! QED") makes it politically possible to tax them, but that politicians are mostly motivated to tax anything they perceive as a new source of sudden wealth (and not motivated by jealousy itself). They like to tax new things because it increases their power and maybe the new source of wealth will resort to lobbying and political obeisance to reduce the effect of new taxes or rules. Example: Microsoft failing to pay homage to Washington until after the antitrust case, whereas today it regularly pays bipartisan tribute and recognizes the suzerainty of Washington. (Made-up rumor: next year Google will deliver thirty virgins to the Hart Senate Office in exchange for calling off the FTC and DOJ).

It's easier for politicians to pursue a group of people if the group is perceived as upstart or choatic to the existing social order. So legislators allow millionaire and billionaire families to maintain family offices, grandfather trusts, and university endowments with many billions of dollars, but fight to tax the upstart finance guys who invest a lot of that money. And the Buffett tax focuses on people in the $1M to $2M income range, rather than sticking it to people in the $100M-plus range. It's not real class warfare, it's just rhetoric used to gussy up extortion.

Sorry, in case nobody clicked through to FT, Larry Summers brought up carried interest (and capital gains) as targets for greater taxation. Thus, my reaction above.

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