Posts filed under “Really, really bad calls”

Updating Mankiw

Last week, in response to a NYT column by Greg Mankiw, I posed several questions about what I took to be holes in the column’s premise. Namely, that small changes in tax rates had outsized impact on human behavior. The questions also challenged the Harvard Professor (and former CEA chair)’s assertion that this marginal increase in tax rates would significantly reduce his incentive to work.

Rather than merely call the thesis nonsense, I instead posed a series of questions, the answers to which demonstrated how disengenuous the professor’s argument was.

This week, he responded. In an addendum. To “some blogger.”

If you thought the original column was disingenuous, check out the response:

Addendum: Some blogger named Barry Ritholtz poses a bunch of questions for me, which I won’t bother taking the time to answer. Unless, of course, he offers to incentivize me sufficiently. For free, however, I will answer one of them: “You teach at Harvard and live in ‘Taxachusetts.’ If state taxes are so important, have you considered teaching at Yale, and living in much lower state tax land of Connecticut?”

First of all, the top state income tax rate is higher in Connecticut than it is in Massachusetts.

Second, Yale? Are you serious? Yale?

The point, which Mankiw so deftly ignored, was that in the real world, people do not respond aggressively to minor incentives (such as marginal changes in income tax).

As to the corporate rate of taxation at 35% — this week, we learned that Google’s profit machine only pays 2.4% tax.
But as to his Connecticut comment, it was not only disingenuous — it was (mostly) wrong.

Before 1991, Connecticut had no income tax; Up until 2010, their rates were considerably lower than Massachusetts. The change in CT for 2010 is on income > $500,000 rate of 6.5%. So my point being that if marginal rate changes really impacted people’s behavior dramatically, then those incentives would have had him living in CT for most of the past few decades.

As to the actual tax rates, here is what I dug up from the intertubes:

Massachusetts Tax Rates
Income – 5.3%
Capital Gains 12%

Dividends 5.3%

Optional Tax Rate 5.85%

Income – 3 or 4 or 5%
Any income > $500,000 rate of 6.5%.
Capital Gains – 7%
Dividends and interest income are taxed between 1-14% (from 54k to 100k)

So prior to the recent change, the answer was that Massachusetts was appreciably higher than CT.

After the 2010 changes, the answer depends upon your gross income, as well as your cap gains. CT still has a lower tax rate for earner under $500k, and a lower effective tax rate for earners between $500k and XXX (try slapping that into a spreadsheet and see what the numbers are).

Even since the CT 2010 tax increase, the state you pay more in will be a function of exactly how much your income is and from what sources.

But the point is for the past 30 years, taxes were lower in Connecticut than Massachusetts, and yet he worked in Mass.

But forget Yale — if we are to really believe the thesis about marginal incentives, then what about Dartmouth? Consider New Hampshire’s tax rate is ZERO. The state has no general income, sales or use taxes. The only tax that would apply is a 5% tax on dividends and interest income of more than $2,400 ($4,800 for joint filers).

Thus, why is the good professor so motivated by a 3% change in marginal rates, but not a 5.3% reduction (plus elimination of a 12% cap gains) ?

There is yet another alternative explanation: Perhaps the chatter about his unwillingness to work due to the impact of a 3% increase in taxes is purely unmitigated academic balderdash.

Even at Hahvahd, they must know how to spell the word “bullshite” . . .

Category: Really, really bad calls, Taxes and Policy, Weblogs

Chamber of Commerce to Buy US Elections

Fantastic chart, very consistent with my view that politics has been utterly corrupted by dirty corporate money. If you want to understand why the Banks and investment houses are so influential in DC, why Financial Regulation was so milquetoast (or why Deregulation occurred in the first place), look no further: > click for ginormous chart…Read More

Category: Digital Media, Politics, Really, really bad calls

Welcome to life in the Grifter Archipelago

Matt Taibbi’s new book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America, comes out next month. There is an excerpt at that is well worth your time to read: “America is quite literally for sale, at rock-bottom prices, and the buyers increasingly are the very people who scored big…Read More

Category: Bailouts, Really, really bad calls

What is more important than survival? On planet Earth, nothing. The most basic rule of life is SURVIVE. The Biological imperative of living things is to perpetuate their existence — survive, procreate, further the species. It is hardwired in the DNA of every living organism. Those that do not succeed in satisfying these imperatives are…Read More

Category: Bailout Nation, Bailouts, Corporate Management, Really, really bad calls

Foreclosure Fraud For Dummies, 1: The Chains and the Stakes

This is the first of a 5 part series from Mike Konczal, a former financial engineer, is a fellow with the Roosevelt Institute, who also blogs at New Deal 2.0, and is working on financial reform, the 21st century economy, structural unemployment, inequality, risk sharing, consumer access to financial services and more generally what it means to have a social contract in a financialized, post-industrial economy.


This is a series giving a basic explanation of the current foreclosure fraud crisis: This is Part One. Parts Two, Three, Four, and Five. will all be posted the each day rest of the week at The Big Picture.

The current wave of foreclosure fraud and the consequences for the economy are difficult to follow. As such, I’m going to write a few posts to simplify what is going on so you can follow stories as they unfold.  This is very 101 level, and will include a reading list of blog posts and articles at each stage to help provide depth.   (Special thanks to Yves Smith and Tom Adams for walking me through much of this.)  Let’s make three charts of the chains involved in the process. The first is what is currently going on with foreclosure fraud (click through for larger).

As you can see, in judicial review states like Florida the courts require that servicers, or those who administer the bonds that are full of mortgages (securitization, residential mortgage backed securities, RMBS, are all phrases for them), say that they have everything necessary in order to have standing to bring a foreclosure. They need to have the note for a mortgage, which is supposed to be in the trust – part of the mortgage backed securities – that they administer.

What is breaking down here? In Florida, a judicial review state, it was found that one person was notarizing documents far faster than anyone could reasonably have. Forged documents necessary for the foreclosure process like the note were found. A separate court system was set up to resolve these foreclosures faster at the expense of allowing serious challenges to the documents. Here’s Smith on how kangaroo these courts look up close. Here’s WaPo on one individual and the nightmare of trying to challenge an invalid foreclosure. Keep him in mind when you hear about deadbeats and whatnot: the current system is designed to make it difficult for anyone to challenge their case.

Meet the robo-signer who kicked it off here at this WaPo story. I almost feel bad for this patsy; the real battle here is between junior and senior tranche holders, and this doofus could end up in jail in order to keep John Paulson rich. After reading about this guy I’m asking our elites to take care of their patsies better. (Can we get a Financial Patsy Fordism social contract movement going? If you are going to be a patsy for GMAC, you should be paid enough able to be able to buy GMAC’s services or something.)

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Category: Credit, Really, really bad calls

Shared Profits, Not Losses

> The MSM article of the day is a NYT takedown of JP Morgan’s raping and pillaging of various cities and pension funds. The accusation: Shared profits, client’s losses. When hedge funds do this, the private placement memorandum covers the terms. It is less clear that a brokerage firm can do this legally. This follows…Read More

Category: Derivatives, Investing, Really, really bad calls

10 Questions for Greg Mankiw

Last week, I was surprised by an unusually disingenuous article by Greg Mankiw in the Sunday NYT column – “I Can Afford Higher Taxes. But They’ll Make Me Work Less.” As I read it, I was struck how disconnected it was from the real world. I have been meaning to get to it, but the…Read More

Category: Really, really bad calls, Taxes and Policy

You may have missed this hard hitting McClatchy article over the weekend. It essentially accuses then Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson of “willful inaction in late 2006 and 2007 during a period when lending criteria were disintegrating in favor of so-called “liars’ loans,” for which applicants weren’t required to document their…Read More

Category: Derivatives, Real Estate, Really, really bad calls

Transparent Government: NY

SeeThroughNY is a site run by right wing think tank Manhattan institute. It scrapes publicly available data to show the salaries and pensions of just about everyone in NYS who is on the public payroll, from the Governor to cops & firemen to your local teachers: SeeThroughNY: A place for taxpayers to download, share, analyze…Read More

Category: Legal, Politics, Really, really bad calls

Why Foreclosure Fraud Is So Dangerous to Property Rights

There seems to be a misunderstanding as to why the rampant and systemic foreclosure fraud is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists (i.e., the WSJ Editorial Board) excusing horrific conduct by the banks. Others are excusing endemic property…Read More

Category: Credit, Foreclosures, Legal, Real Estate, Really, really bad calls, Regulation, Taxes and Policy