Tag: Janet Yellen

The Silicon Valley Bank Bailout

Mary Pat Campbell

Link: https://www.wsj.com/articles/the-silicon-valley-bank-bailout-chorus-yellen-treasury-fed-fdic-deposit-limit-dodd-frank-run-cc80761e?st=vt2heieydvfhixo&reflink=desktopwebshare_permalink

Excerpt:

The Treasury and Federal Reserve stepped in late Sunday to contain the financial damage from Friday’s closure of Silicon Valley Bank, guaranteeing even uninsured deposits and offering loans to other banks so they don’t have to take losses on their fixed-income assets.

This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes.

Wall Street and Silicon Valley were in full panic over the weekend demanding that the Treasury and Fed intervene to save the day. It’s revealing to see who can keep a cool head in a crisis—and it wasn’t billionaire hedge-fund operator Bill Ackman or venture investor David Sacks, both frantic panic spreaders.

The Federal Deposit Insurance Corp. closed SVB, and the cleanest solution would be for the agency to find a private buyer for the bank. This has been the first resort in most previous financial panics, and the FDIC was holding an auction that closed Sunday afternoon.

….

But there is political risk from a bailout too. If the Administration acts to guarantee deposits without Congressional approval, it will face legitimate legal questions. The White House may choose to jam House Speaker Kevin McCarthy if markets aren’t mollified. But Mr. McCarthy has a restive GOP caucus as it is, and a bailout for rich depositors will feed populist anger against Washington.

The critics have a point. For the second time in 15 years (excluding the brief Covid-caused panic), regulators will have encouraged a credit mania, and then failed to foresee the financial panic when the easy money stopped. Democrats and the press corps may try to pin the problem on bankers or the Trump Administration, but these are political diversions.

Author(s): WSJ Editorial Board

Publication Date: 12 Mar 2023

Publication Site: WSJ

Yellen Said “No Bailout” But It’s a Huge Bailout of the Banking System

Mary Pat Campbell

Link: https://mishtalk.com/economics/yellen-said-no-bailout-but-its-a-huge-bailout-of-the-banking-system

Excerpt:

It won’t matter but I am pleased the Journal blasted Bill Ackman and venture investor David Sacks,  as “frantic panic spreaders“.

There’s more in the article about how Rohit Chopra, an Elizabeth Warren acolyte on the FDIC board, is hostile to bank mergers on ideological grounds, perhaps preventing a merger.

The Journal speculates how Biden might illegally act to guarantee all deposits or pressure House Speaker Kevin McCarthy.

….

Once again, the Fed kept interest rates too low, too long, encouraged speculation, then bailed out the banks.

Spare me the sap about this was a depositor bailout not a bank bailout. 

When you value assets at par so that banks don’t have losses, what the hell is it.

Author(s): Mike Shedlock

Publication Date: 12 Mar 2023

Publication Site: Mish Talk

Why Bond Liquidity May Be Headed for Trouble

Mary Pat Campbell

Link: https://www.ai-cio.com/news/why-bond-liquidity-may-be-headed-for-trouble/

Excerpt:

Reduced liquidity for bonds is getting to be a problem, according to Treasury Secretary Janet Yellen.

At a speech before the Securities Industry and Financial Markets Association annual meeting Tuesday, she reiterated an earlier observation that diminished ability to sell bonds is worrisome. Still, at SIFMA, she sought to temper her concern by adding that traders aren’t facing snags executing orders, with the biggest negative impact of lessened liquidity confined to higher transaction costs.

…..

The gauge for bond volatility, the Merrill Lynch Option Volatility Estimate, aka MOVE index, has jumped some 40% since mid-August. Other than a spike in March 2020 at the onset of the pandemic, the index (it launched in 2019) has been fairly placid—until 2022 and the beginning of big rate hikes. This all is reminiscent of the stock market’s fast-paced volatility lately.

Another related difficulty for bonds:  the imbroglio resulting from the Federal Reserve’s interest rate increases and the resulting strong dollar risk worldwide. That has promoted a rush by other central banks to match the Fed and jack up rates. To Richard Farr, chief market strategist at Merion Capital, one risk of this trend is that Treasury bonds will end up hurt.

Author(s): Larry Light

Publication Date: 26 Oct 2022

Publication Site: ai-CIO

Nancy Pelosi Says a Wealth Tax on Billionaires’ Unrealized Gains is On the Way

Mary Pat Campbell

Link:https://mishtalk.com/economics/nancy-pelosi-says-a-wealth-tax-on-billionaires-unrealized-gains-is-on-the-way

Excerpt:

In the scramble to find a tax hike that all 50 Democrat Senators could support, Senator Kyrsten Sinema OKs a Tax on Billionaires’ Unrealized Gains.

….

The proposal by Senator Elizabeth Warren is a genuine wealth tax and easily could be tossed by the Supreme Court.  Warren obviously does not give a damn. 

Regardless, expect legal challenges based on the 16th Amendment.

The proposal taxes unrealized gains. But is there “income” before gains are realized? The courts will decide if this goes forward, but the idea is dubious at best.

Author(s): Mike Shedlock

Publication Date: 24 Oct 2021

Publication Site: MishTalk

Yellen, IRS Push Democrats to Require Banks to Report Taxpayers’ Annual Account Flows

Mary Pat Campbell

Link: https://www.wsj.com/articles/yellen-irs-push-democrats-to-require-banks-to-report-annual-account-flows-11631727020

Excerpt:

Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig pressed lawmakers Wednesday to give the Internal Revenue Service more information about taxpayers’ bank accounts, as the Biden administration tries to salvage its tax-compliance proposal.

In letters to lawmakers, the administration officials again asked Congress to require banks to report annual inflows and outflows from bank accounts with at least $600 or at least $600 worth of transactions, a proposal aimed at letting the IRS target its audits more effectively. It would generate about $460 billion over a decade to cover the costs of Democrats’ planned expansion of the social safety net and climate-change policies, according to the administration.

But after a flurry of opposition from banks and credit unions, House Democrats omitted the proposal from their list of tax-policy changes this week. That was a sign that it lacked the support in the party to advance, though a scaled-back version raising about half as much money could still emerge from ongoing talks between administration officials and Congress.

Author(s): Richard Rubin and Orla McCaffrey

Publication Date: 15 Sept 2021

Publication Site: Wall Street Journal

A G-7 Deal on a Global Minimum Tax for Companies Faces Hurdles

Mary Pat Campbell

Link: https://www.wsj.com/articles/a-g-7-deal-on-a-global-minimum-tax-for-companies-faces-hurdles-11623016756

Excerpt:

An agreement by wealthy countries to impose minimum taxes on multinational companies faces a rocky path to implementation, with many governments likely to wait to see what others, especially a divided U.S. Congress, will do.

Treasury Secretary Janet Yellen hailed the deal, reached by finance ministers of the Group of Seven leading rich nations over the weekend in London, calling it a return to multilateralism and a sign countries can tighten the tax net on profitable firms to fund their governments.

…..

In countries with parliamentary systems, governments can quickly deliver on pledges, turning them into local laws and regulations. In the U.S., however, a slim Democratic majority in the House, an evenly split Senate, antitax Republicans and procedural hurdles complicate passage.

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Buy-in will also have to come from a broader group of 135 countries in what is known as the Inclusive Framework. Some countries with very low tax rates — such as Ireland, with a 12.5% charge on profit — are reluctant to sign up. The U.S. has proposed tax changes that would penalize companies from countries that don’t impose the minimum taxes.

Author(s): Richard Rubin, Paul Hannon, Sam Schechner

Publication Date: 6 June 2021

Publication Site: Wall Street Journal

Illinois fires first salvo in lobbying effort to revise ARP guidance

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202105131555SM______BNDBUYER_00000179-66e7-df04-a57d-f6f7664e0001_110.1

Excerpt:

Illinois? borrowing through the Federal Reserve?s Municipal Liquidity Facility provided a lifeline for critical services during the COVID-19 pandemic, so the state should be allowed to use its incoming federal coronavirus relief money to pay it off, Comptroller Susana Mendoza tells the federal government.

The state?s $3.8 billion of short-term borrowing, including $3.2 billion through the Federal Reserve?s Municipal Liquidity Facility ?was essential for the continued performance of government services during the most fiscally challenging times for the state?s cash flow during the pandemic, all directly related to the COVID-19 crisis,? Mendoza wrote in a letter to Treasury Secretary Janet Yellen.

?We want to promptly repay federal taxpayers for the crucial help they provided us during the pandemic,? wrote Mendoza, the elected constitutional officer who manages state debt, pension, and bill payments. The state?s updated American Relief Plan share is $8.1 billion.

Mendoza fired off the letter Wednesday, two days after the release of a 151-page guidance on how states, local governments, and tribes can spend their shares of the $350 billion Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund that?s built into the American Rescue Plan.

The guidance imposes a sweeping ban on using funds to cover principal and interest repayment, even when the borrowing was directly related to the COVID-19 crisis.

Author(s): Yvette Shields

Publication Date: 13 May 2021

Publication Site: Fidelity Fixed Income News

A Better Corporate Tax for America

Mary Pat Campbell

Link: https://www.wsj.com/articles/a-better-corporate-tax-for-america-11617813355

Excerpt:

If you’re a U.S. firm that does business abroad, the TCJA essentially gives you an easy — but perverse — choice: You can move your foreign profits and operations to America, where the corporate tax rate is 21%, or you can keep them anywhere else in the world, where the U.S. will charge you around half that. It’s not a hard call, especially because the minimum tax is calculated based on a firm’s total global profits rather than looking at what the company earns in each different country. With no one looking at individual jurisdictions, corporations can shift and book profits wherever they can get the lowest tax bill. The TCJA also makes the first 10% of returns earned by foreign assets tax exempt, a powerful incentive for companies to offshore factories and jobs. It isn’t an overstatement to say that today most firms would prefer to earn income anywhere but America.

The U.S. isn’t the only loser in this race to the bottom. So are our corporations. The global competition for low rates allows American firms to pay less taxes — or none at all — but they still pay a significant cost. Over the next 10 years, more than $2 trillion of the U.S. corporate tax base will flow out of the country because of the broken system I’ve described. Our tax revenues are already at their lowest level in generations, and as they continue to drop, the country will have less money to invest in airports, roads, bridges, broadband, job training, and research and development.

Author(s): Janet Yellen

Publication Date: 7 April 2021

Publication Site: Wall Street Journal

Janet Yellen Proposes Bold Idea: The Same Minimum Corporate Tax Around The World

Mary Pat Campbell

Link: https://www.npr.org/2021/04/05/984461923/janet-yellen-proposes-bold-idea-the-same-minimum-corporate-tax-around-the-world

Excerpt:

It’s an idea that has been debated widely across global capitals: impose the same minimum corporate tax rate all over the world to prevent companies from shopping around for the country that can offer the smallest tax bill.

Now, it has a powerful new adherent. Treasury Secretary Janet Yellen on Monday expressed support for a minimum tax rate, providing the vital backing of the U.S. government.

Yellen, in a speech, said a minimum global tax rate would stop what she described as a “30-year race to the bottom” that has allowed big corporations to avoid contributing fully to vital national needs.

Author(s): Scott Horsley

Publication Date: 5 April 2021

Publication Site: All Things Considered on NPR

Financial Report of the United States Government, 2020

Mary Pat Campbell

Link: https://www.fiscal.treasury.gov/files/reports-statements/financial-report/2020/fr-03-25-2021-(final).pdf

Graphic:

Excerpt:

The government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2020
“bottom line” net operating cost of $3.8 trillion.
o From Chart 4, total government tax and other
revenues decreased slightly by $49.4 billion (1.4
percent) to about $3.6 trillion for FY 2020. This
net decrease was due primarily to a $51.6 billion
decrease in individual tax revenue, compared with
an offsetting decrease and increase in corporate
and other tax revenue, respectively.
o Together, individual income tax and tax
withholdings, and corporate taxes accounted for
about 88.8 percent of total tax and other revenues
in FY 2020. Other revenues include Federal
Reserve earnings, excise taxes, and customs
duties.

Publication Date: March 25, 2021

Publication Site: Treasury Department

Elizabeth Warren Still Wants a Wealth Tax. It Still Won’t Work.

Mary Pat Campbell
Elizabeth Warren Still Wants a Wealth Tax. It Still Won’t Work.

Excerpt:

Warren is spending this week talking up her “Ultra-Millionaire Tax Act.” It’s essentially a refreshed version of the same idea she proposed during her failed bid for the Democratic presidential nomination. The current measure, like the old one, would tax the net worth of American households with more than $50 million in assets to the tune of 2 percent annually, with an additional 1 percent tax for households worth more than $1 billion. Warren favored the wealth tax in 2019 when the economy was generally doing pretty well. But now, she says, it’s needed “because of the changes in this country under the pandemic.”

….

Yellen is right, by the way, that Warren’s plan would have “implementation problems.” That’s a polite way of saying it wouldn’t work. The wealthy tend to have difficult-to-value assets, and forcing the IRS to value them every year in order to assess the tax would, in the words of one tax expert, be an “administrative nightmare.” 

Author(s): Peter Suderman

Publication Date: 2 March 2021

Publication Site: Reason

Why Does Janet Yellen Suddenly Sound Like Trump on Trade?

Mary Pat Campbell
Why Does Janet Yellen Suddenly Sound Like Trump on Trade?

Graphic:

Excerpt:

Fewer workers are employed in manufacturing, but the average worker is earning far more per hour. This is a problem? Meanwhile, American manufacturing output is significantly higher today than it was when the WTO was established. In fact, even at the lowest point of last year’s COVID-19 recession, manufacturing output was still higher than it had been in any year before 1997.

Author(s): Eric Boehm

Publication Date: 12 February 2021

Publication Site: Reason