Volcker has an idea from 1933

Today at NYU Stern School of Business Paul Volcker gave a conference that indicated some one is actually thinking about how to fix the bank problem. Up until today the Bad Bank theory has been the talked about solution. However the “Bad Bank” solution is not a solution at all. The Bad Bank idea was designed to ‘clean’ the balance sheets by transferring the toxic debt to a separate entity, a bad bank. Once the toxic debt is off the balance sheet, the theory is that the banks can get back to lending. The “Bad Bank’ idea is a feasible solution for the near term crisis.

But what about the long term?

Paul Volcker says that commercial banks and investment banks should be separated. Under this idea the commercial banks would be focused on providing depository services and access to credit to consumers. The investment banks can then operate with more risk due to the indirect impact of their actions on the commercial bank customer.

Ever heard of the Glass-Steagall Act?
One of the major fixes of the financial system after the great depression was the Glass-Steagall Act. In 1933 this legislation was introduced to give more power to the FED, while also separating the banks by type of business (commercial & investment).

So what happened?
In 1999 Phil Gramm (R- Texas) and Jim Leach (R- Iowa) drafted legislation that effectively repealed the Glass Steagall Act. This bill was passed on party-line votes in the house and senate, and eventually signed into law by Bill Clinton.

So, it looks as if the Big O and the gang are going to end up with legislation that will eventually put us back to what fixed the first Depression, the separation of banks.

The Republicans screwed the pooch on this one!

10.25% Sales Tax!

On April 1st the State of California will increase the sales tax rate 1%. This tax increase will put the Los Angeles County sales tax rate at 9.25%. The worst hit cities are Pico Rivera and the City of South Gate, both of whom will now see a 10.25% sales tax rate.

It makes no sense to me that these two cities are paying the highest tax rates in the state. These areas are desperately poor and they have some of the worst infrastructure in the Los Angeles County area. It is hard not to think like a supplysider when I see this type of thing occurring.

Meanwhile, here in a Republican Orange County, we have one of the lower sales tax rates at 8.75% and the County is much more affluent and functioning. It would be foolish of me to correlate the tax rate to the productivity of a geographic area, maybe it's just a coincidence.

Here is a run-down of some of the increased tax rates:

Republican Counties
Orange County 8.75%
Kern County 8.25%
San Joaquin County 8.75%
Riverside County 8.75%
Merced County 8.25%

Democratic Counties
San Francisco County 9.50%
Los Angeles County 9.25%
Alameda County 9.75%
Santa Cruz County 9.00%
Contra Costa County 9.25%
Marin County 9.00%





http://www.boe.ca.gov/news/pdf/l212b.pdf

Money Ball - Arizona Style

In the latest issue of Fortune Magazine was a great article on the Arizona Diamondbacks CEO Derrick Hall.

Derrick Hall seems like a great CEO for baseball. He and his moneyball GM Josh Byrnes focus on maximizing their clubs performance on a Bill Webb type statistical decision making process. Having their team in a midlevel market makes it hard for them to attract solid talent at discount prices. Because of this, like the Oakland A's, they have to get maximum productivity for every dollar spent. As a result, most of their talent is derived through minor league prospecting and training.

http://money.cnn.com/2009/02/18/magazines/fortune/birger_baseball.fortune/index.htm

Interesting Chart

I found this chart referenced on The Big Picture blog by Barry Ritholtz.



I guess you can say we have overextended ourselves.