Not A Mystery

Once again we will attempt to bring clarity to an obscure topic.

Should traffic fines be calculated based on the driver’s income?

Aroused by our last post, readers have bombarded us with their thoughts regarding the $1,000,000 fine levied on a speeder in Switzerland last week.

Smoking Is Not Always Your Biggest Problem

After doing some research I discovered there’s more than just class warfare going on in the European countries that have in place a system called the Day-Fine.

A day-fine or day fine or unit fine is a unit of fine payment that, above a minimum fine, is based on the offender’s daily personal income. A crime is punished with incarceration for a determined number of days, or with fines … Jurisdictions employing the day-fine include Finland, Sweden, Switzerland, Denmark, Croatia, Germany, Mexico, and Macao.

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So, theoretically, the penalty is a certain number of days in jail or a fine instead. What will set off our right-wing friends at this point is the philosophical position adopted by the Europeans which says that incarceration is actually a financial punishment. In effect it prevents the scofflaw from working while they are in jail and not collecting their salary.

The next logical step is then to calculate a financial substitute for jail-time based on what the perp would be making while incarcerated.

And of course the European bureaucrats have this stuff nailed:

Usually, the day-fine is one half of daily disposable income. The daily disposable income is considered to be one 60th part of the person’s monthly mean income during the year, after taxes, social security payments and a basic living allowance of €255 per month have been deducted. In addition, every person for whose upkeep the fined person is responsible decreases the amount of daily fine by €3. The income of the person is calculated on the basis of the latest taxation data.

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Who could argue with that?

So my answer to the question of whether fines should be based on income?

Wait for it…

Why the f*ck not?

And while I’m at it, I’ll throw in my opinion that Bush’s tax cuts for the wealthy should be dropped. The argument from Repubs these days is that this will kill our small business entrepreneurs and destroy jobs. Well all you Rush Conservatives,  how about this stat:

Republicans … say Mr. Obama is about to spring a big tax increase on many small-business owners who file their taxes as individuals. Analyses from the Joint Committee on Taxation and the Tax Policy Center, a nonpartisan research organization, show that less than 3 percent of filers with small-business income pay at the top two income tax rates, and many of those are doctors and lawyers in partnerships.

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Now if we could just exempt the doctors, it would be perfect.

It’s always nice when we beat the “Grey Lady” to a major story.

OK, this isn’t really a major story, but we’ll wallow in the victory of our scoop.

Last month we wrote that Cheap Knock-Offs Are Giving Fine Counterfeits A Bad Name. And almost three weeks later, here is the NY Times’ lede paragraph,

After years of knocking off luxury products like $2,800 Louis Vuitton handbags, criminals are discovering there is money to be made in faking the more ordinary — like $295 Kooba bags and $140 Ugg boots. In California, the authorities recently seized a shipment of counterfeit Angel Soft toilet paper.

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The Times devoted column inches to ho-hum items like sunglasses, sneakers, and handbags.

But Who Really Cares About This Dreck?

Meanwhile, we had already focused on the much more intriguing category of Cheap Plonk.

The Plonk (Left) Even Sports A Photocopied Label

Once again authenticating our taste and sophistication.

To say nothing of news-forward copy.

Technology can be used to solve some of mankind’s thorniest problems.

I read about the “mosquito” several years ago. It’s a gizmo that emits an irritating, high-pitched sound that can be heard only by children and people into their early 20s, and is used to prevent teenagers congregating outside shops, schools and railway stations. It was invented by a  British Aerospace engineer, Howard Stapleton, who came up with the device after his daughter was intimidated by a gang of boys hanging around outside shops.

Brilliant.

Eats Mosquitoes

But nothing good goes unpunished.

An investigation by the Council of Europe found that the controversial “mosquito” device should be banned from Britain immediately … It found that “inflicting acoustic pain on young people and treating them as if they were unwanted birds or pests, is harmful [and] highly offensive.” …  Calls for a ban by Europe’s oldest political body are likely to be approved by the council’s parliamentary assembly in Strasbourg this week.

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After I got done chucking about “treating them [young people] as if they were unwanted birds or pests” I read the article a bit more carefully and got curious about what, exactly, is Europe’s oldest political body.

The Council of Europe, Europe’s oldest political body, aims to uphold human rights, democracy and the rule of law across the continent.

It emerged in 1949 from the ashes of World War II and now includes all European countries apart from Belarus … The council oversees the European Court of Human Rights … Lately, the council has become preoccupied with the problems of terrorism, organised crime, money laundering and human trafficking.

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Which should now be amended to, ” … the problems of terrorism, organised crime, money laundering, human trafficking and mosquitoes … “

Ribbit.

You’d think a barrel would just be a barrel.

But no, it turns out that a barrel of oil is 30% smaller than a barrel of wine. F2U Rio Linda a barrel of oil holds 42 gallons, while a barrel of wine holds 60 gallons.

I discovered this the other day while standing in front of a restaurant’s urinal in Healdsburg, California which is in the midst of Wine Country. If you are a guy you know that restaurants typically post ‘theme’ documents at strategic spots in their restrooms so that you can educate yourself while relieving yourself.

This was perhaps the very first form of multi-tasking.

Yes, I Stopped What I Was Doing To Snap This Pic With My iPhone

But I digress.

If you do the math, a ‘leak’ of 40,000 barrels of oil a day, is equivalent to a ‘leak’ of only 28,000 barrels of wine.

That sounds a lot better for several, mostly obvious, reasons.

Some might call this obfuscation, but I call it creative.

I’m surprised BP isn’t quoting the size of their spill using a wine barrel standard with a footnote to that effect on the second page of their press releases.

Close on the hooves of our Skinny Cow report comes further bovine news from Wall Street, which we’ll put under the category of Fatted Calves.

Fatted calf is a metaphor or symbol of festive celebration and rejoicing for someone’s long-awaited return. It derives from the parable of the prodigal son in the New Testament. In biblical times, people would often keep at least one piece of livestock that was fed a special diet to fatten it up, thus making it more flavorful when prepared as a meal. Slaughtering this livestock was to be done on rare and special occasions. Thus when the prodigal son returns, the father “kills the fatted calf” to show that the celebration is out of the ordinary.

The CDO's May Be Synthetic, But The Meat Tastes Great

Yesterday we learned that Goldman Sachs and John Paulson are accused by the SEC of fattening up a bunch of clueless investors.

The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs for securities fraud on Friday, charging the bank with creating and selling mortgage-backed securities that were designed to fail.

According to the complaint, Goldman let John Paulson, a prominent hedge fund manager, select mortgage bonds that he wanted to bet against because they were most likely to lose value and packaged those bonds into the “Abacus” investments, which were sold to investors like pension funds. As those securities plunged in value, Goldman and the Paulson hedge fund made money on their negative bets, while the Goldman clients who bought the investments lost billions of dollars.

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Strangely, this whole episode came to light not thru regulatory oversight, but from a recently published book on the financial meltdown “The Greatest Trade Ever“ by Gregory Zuckerman.

Unfortunately, even though the regulators are now on the case, they have come after the gourmets with civil instead of criminal charges.

We’ll take whatever we can get, “Cin cin”.

Now that speculation has begun on the cause of Saturday’s tragic plane crash in western Russia that killed Poland’s president Lech Kaczynski and many of the government’s leaders, it’s tempting to imagine that the pilots were pressured into landing against their better judgement.

Investigators examining the crash appeared to be focusing on why the pilot did not heed instructions from air traffic controllers to give up trying to land in bad weather in western Russia on Saturday morning. [And] whether the pilot had felt under pressure to land to make sure that the Polish delegation would not be late for a ceremony on Saturday in the Katyn forest, where more than 20,000 Polish officers and others were massacred by the Soviets during World War II.

… attention has been drawn to the pilot’s state of mind because of a previous incident involving the Polish president, Lech Kaczynski, who died along with numerous other senior Polish government and military officials in the crash. In August 2008, during Russia’s brief war with Georgia, Mr. Kaczynski got into a dispute with a pilot flying his plane to the Georgian capital, Tbilisi, according to reports at the time. Mr. Kaczynski demanded that the pilot land despite dangerous conditions, but the pilot disagreed and diverted to neighboring Azerbaijan.

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We all have a tendency to ‘simple’ answers, and it’s tempting to lay the blame on Lech Kaczynski and the pilot, even though we may never know the truth of the matter. Certainly many aircraft accidents are caused by the pilot’s frame of mind, where stress or the desire to achieve a certain goal clouds judgement.

Unlike the Butterfly Effect where a single event can lead to many different seemingly unrelated outcomes, aircraft accidents are invariably the result of multiple small mistakes that cascade into a final tragedy. And whereas the Butterfly Effect leaves us powerless in the face of random events, in this case any one of a number of small changes in the situation would probably have prevented the crash.

Like everything else in life, we try to learn and move on. So the next time I’m on a flight about to take off and in a hurry to get home, when the pilot comes on and says we have a mechanical problem, patience will be my middle name. I will also remember the victims of the Katyn Massacre, whose story I would not have known except for this tragedy.

Note: As a private pilot with an instrument rating, I do have a dog in this hunt when it comes to affixing blame before the facts are known.

Last week we noted ATT’s whining about a $1 billion [non-cash] charge they were being forced to take because of Obamacare. In fact the new law just eliminated a 7-year old scam allowing them to ‘double-dip’ by taking a tax deduction on healthcare premiums that were actually being paid (for them) by the government.

A simple back-of-the-envelope calculation showed us ATT had saved so much money over the past 7 years, that the new $1 billion charge still left them with a $1.6 billion profit. Not a bad return on a smallish lobbying investment.

But now we learn that by their own standards of what is material information ATT shouldn’t even have brought the matter to anyone’s attention in the first place.

So, This Is The New AT&T

Turns out that ATT has been mum (F2U Rio Linda, that means ‘silent’) about another significant liability making that $1 billion write-off look like chump change.

AT&T Inc. is seeking to dismiss a long-running pension case alleging age discrimination that seeks $2.3 billion in damages, according to documents filed this week in a federal court. The suit alleges a 1998 pension change effectively froze the pensions of 40,000 older management employees at AT&T, in some cases for years, but not those of younger employees …  Legal papers filed Monday… include the first publicly disclosed estimate for potential damages. The $2.3 billion potential claim dwarfs the well-publicized $1 billion noncash charge the company will take to reflect the recent loss of its deductions for health-care subsidies it receives from the government.

But because this case includes an age-discrimination claim, under federal law the judge could send it to a jury trial. If a jury found that the company willfully discriminated against older workers, it could award punitive damages that would double the size of the claim to $4.6 billion.

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So how is it, you might ask, that ATT neglected to tell their shareholders about this potential damage to their share price?

Last May, the Securities and Exchange Commission asked AT&T why it hadn’t disclosed its potential exposure in the pension case. AT&T responded that it didn’t think the case met the reporting threshold for disclosure, SEC filings show.

I guess the SEC will need to re-write their regulations so that we take into account politics when deciding what is and is not material.

But wait, it gets even better.

To butress their case ATT revealed that even if they lost a $2.3 billion cash judgement it would have no real impact because the retirement account is so well-funded it could simply absorb that hit. At the same time we are being told that the Obamacare $1 billion non-cash write-off could trigger a loss of such magnitude that ATT might have to cancel or cut back retiree health benefits.

This simply boggles the mind. Or maybe not.

As we approach April 15th., otherwise known as Tax Day, it’s time once again to mention the staggering corruption of the US Senate, the world’s ‘greatest deliberative body’.

For well over three years (!) there has been an attempt to get rid of a loophole in the tax code granting hedge fund managers a lower tax rate than ordinary people who work for a salary. A gift that cuts their tax rate in half, assuming they even pay any taxes.

And what group is proudly standing in the way of tax reform? The US Senate, whose members are worried about damage to their own cash hoards.

The World's Greatest Body, Deliberating

Is corruption too strong a word? I don’t think so; especially at this time of year when I am writing my own check to Uncle Sam.

Riding high on the bank bailout, hedge fund managers posted record paydays in 2009 … the top 25 managers earned $25.3 billion in 2009 … [meanwhile] the government reported that unemployment was stuck at 9.7 percent, with 15 million Americans out of work … To add insult to injury, some hedge fund managers and, more commonly, private equity fund managers are able to pay a much lower rate of tax than the typical working professional.

The tax disparity results from an outdated rule that lets a money manager in a private partnership treat a chunk of his fees as if they were long-term capital gains, taxed at a special low rate of 15 percent. Fees for managing someone else’s money should be taxed as ordinary income, like wages and salary, at rates as high as 35 percent.

President Obama has included a provision to end that special treatment in his most recent budget. For three years running, the House has passed a bill to close the loophole. In the Senate both Democrats and Republicans have resisted, all for fear of losing lucrative campaign donations.

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It does get even better for the fund managers. What’s not reported, because it adds some complexity to the story, is that capital gains have another wonderful trait when it comes to taxes. Unlike ordinary income, capital gains can be offset with capital losses.

Then the tax rate goes to Zero.

So here, free of charge, is my suggestion to lower the temperature of our political debates.

Replace the metaphor for our clash of ideas, which is currently WAR, with something else.

And since the Democrats and Republicans can’t yet agree on anything, I will offer up a custom metaphor for each side.

The Repubs will henceforth think of, and refer to the Dems as their Red-Headed Stepchild. And the Dems will begin to picture their Crazy Uncles when they think of the Repubs.

I think you’ll agree that these images surely elevate our current political debate.

Lowering The Political Temperature One Metaphor At A Time

The Republicans already think the Democrats are Socialists/Communists, so the Red color fits. And there is even an (admittedly remote) link to the Democratic’s Iconic Donkey if we replace it with a Rented Mule. Even better, the Repubs will love the image …

“Beating you like a red-headed stepchild” refers to a terrible beating. It is a variation of “beating you like a rented mule.”

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On the flip (sic) side, President Obama has already used the Crazy Uncle metaphor during the Presidential Campaign. Although he was referring to Rev. Jeremiah Wright, we know he was really thinking about the Republicans.

And when Mitch McConnell smiles, there is an uncanny resemblance to Steve Balmer.

Although Uncle Mitch hasn’t been smiling much these days.

The usual suspects are shocked, shocked they say, over last week’s annoncement by ATT and several other large corporations that they would have to take (non-cash) write-offs because of new rules in ‘ObamaCare’ taking effect immediately.

In ATT’s case the number was $1 billion.

The charges relate to prescription-drug benefits for retirees. Companies that provide this benefit, as AT&T does, receive a federal subsidy, plus they can deduct the value of this subsidy from their taxes. The health overhaul cancels the deductibility of the subsidy.

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Omigod. We all knew this was going to cost us, but we never imagined it would happen within days! The destruction of capitalism is even closer than we thought.

A little digging however, turns up the fact that the current health care bill just reverses a payoff to those same companies made 7 years ago.

The charges are related to a 2003 law providing a prescription-drug benefit under Medicare. At the time it was adopted, some companies were threatening to drop drug coverage for their retirees, since this would now be available through Medicare. Congress voted them a 28% tax-free subsidy for continuing to provide coverage to retirees eligible for Medicare.

The subsidies caused the cost of companies’ obligations for retiree benefits to decline. AT&T, for example, saw its obligation drop by $1.6 billion at the time.

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A back-of-the-envelope calculation says that the $1.6 billion gift to ATT compounded over the past 7 years is worth something like $2.65 billion today if we grant the financial wizards at ATT the ability to get 7.5% return on their capital. Not so bad. That’s still $1.65 billion of extra profit to keep compounding into the future.

What’s really going on here, is that the corporations taking these write-offs are signaling that they may use this ‘increase in costs’ as an excuse to cut back on their retirees’ health benefits. To be generous we’ll call their statements a case of mis-direction.

Which brings to mind the classic game of mis-direction:

The three-card Monte game itself is very simple. To play, a dealer places three cards face down on a table [and] … shows that one of the cards is the target card, e.g., the Queen of Spades, and then rearranges the cards quickly to confuse the player [who] … is then given an opportunity to select one of the three cards. If the player correctly identifies the Queen of Spades, the player wins an amount equal to the amount bet; otherwise, he loses his stake.

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Mis-Direction Is The Name Of This Game

It would be nice if corporations would call a spade a spade, but that’s not in the cards.

[Tip: If you clicked the WSJ link and want to get past Rupert's pay-wall, here's your key.]

Republicans might want to start thinking about who leads their parade.

Our enemy is now clearly defined. We know who they are: Anybody with a D beside their name. There’s no moderate Democrat or pro-life Democrat. There’s no Blue Dog, lap dog, hot dog, back dog Democrat. If it’s a D, they are the enemy, and they need to be reacted to as such.” -Rush Lambaugh

Turns Out That Politics And Entertainment Don't Always Mix

F2U Rio Linda, the good news is that Act II promises even more entertainment.