Congress

Group AG Chief Executive Brady Dougan is scheduled to testify Wednesday at a U.S. Senate subcommittee hearing on offshore tax evasion, a move that comes as the Swiss bank seeks to settle allegations it helped Americans evade their obligations. According to a witness list made public on Monday, Robert Shafir and Hans-Ulrich Meister, who jointly run Credit Suisse’s private banking and wealth management division, as well as Romeo Cerutti, the bank’s general counsel, will join Mr. Dougan at the hearing. A separate panel will include Kathryn Keneally, U.S. assistant attorney general for the Justice Department’s tax division. The hearing will focus on “efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes on billions of dollars in hidden assets,” according to a press release from the U.S. Senate Permanent Subcommittee on Investigations, which is conducting the hearing. [WSJ]

There’s a fun new meta-debate over insider-trading, beyond the not-so-simple question of what is and isn’t. Read more »

  • 21 Jun 2013 at 5:01 PM

Congressmen Have Some Advice For Ratings Agencies

The ideal financial regulatory regime would go like this:

  • Regulators would tell market participants not to screw up.
  • Market participants would not screw up.
  • Peace and harmony would reign throughout the land.

This is ideal not only because of the peace and harmony but also because it omits any work by the regulators. Why choose whether to set capital ratios based on risk-weighted or total assets when you can just tell banks not to lose any money? If they never lose money then it doesn’t matter how thinly capitalized they are.

These guys know what I’m talking about: Read more »

  • 21 May 2013 at 11:06 AM

Senate Discovers There’s A Tax Code

Here’s a math problem: what does this sentence, from John McCain, tell you?

“Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders,” he said in Monday’s pre-hearing comments.

The answer, of course, is that Apple is among the most profitable companies in America.1 If you have a lot of profits, you can not pay taxes on a lot of them, and still pay lots of taxes on a different lot of them. There is much focus on the exceptions, but for the most part I’d guess that “biggest taxpayers” and “biggest tax avoiders” are both highly correlated to “biggest profits.” Warren Buffett pays more taxes than his secretary, but at a lower rate.

The Senate, not being known for its quickness with math, is holding hearings today on the avoiding part; here you can read (pdf) the committee’s report. Apple does two main things to avoid taxes that the committee doesn’t like:

  • It incorporated two of its main foreign subsidiaries, Apple Operations International (AOI) and Apple Sales International (ASI), in Ireland. Those subsidiaries are, however, managed and controlled in the U.S. by their California-based directors. The U.S. taxes corporate income based on place of incorporation; Ireland taxes corporate income based on place of management and control. So if you’re incorporated in Ireland and managed and controlled in the U.S. you pay taxes nowhere, as AOI does and ASI more or less does. This is … honestly isn’t the surprise that everyone doesn’t do this?2 I’m incorporating myself in Ireland as we speak.
  • It entered a cost sharing agreement that gave ASI the economic rights to Apple intellectual property outside of America, in exchange for ASI funding a share of Apple’s California-based R&D proportional to its share of Apple’s total sales. Apple is in the business of manufacturing cheap electronic components in China, slapping expensive cool on them in California, and selling the package for $500. ASI effectively got the California cool at cost, rather than paying retail, which means that the international share (some 60%) of the profits of that cool are, for tax purposes, “earned” abroad (in a zero-tax subsidiary!) rather than in California.

That’s the main stuff; there’s some stupid stuff too.3 Apple’s response is a lot of blather that boils down to: Read more »

There’s nothing surprising, exactly, about this chart that Fitch sent out today, but it’s still sort of stark:

Once there was a land where bank debt was AA, AAA if it was particularly good or A if it was particularly dicey. Now AA is the new AAA and BBB is commonplace. The idea of risk-free unsecured lending to banks, implicit in things like Libor discounting, is over.

Right? I don’t entirely understand this proposal by House Republican John Campbell to require banks to “hold substantially more capital,” though the gist is basically that there’s a move to require banks to do more of their funding via long-term holdco debt. Here is a puzzling summary: Read more »

Once upon a time, the United States Postal Service was a big deal. It was sort of founded by Benjamin Franklin. The Postmaster General was a Cabinet-level post. Now, like so many arms of our government, it’s a financial albatross that hemorrhages money as a statutory requirement.

Since Congress doesn’t appear to be in any hurry to do anything about it, USPS is taking what it thinks is a dramatic step and holding on to your first-class mail for an extra day. This will save $2 billion a year, the Post Office says, or roughly 13% of the $15.9 billion it lost last year. And it’s drummed up a nifty if specious legal argument for the move.

Under a Congressional mandate that has been in place since 1981, the Postal Service is required to deliver mail six days a week. But post office officials argue that since the government is operating under a stopgap budget measure, known as a continuing resolution, that mandate does not apply, giving them the authority to make the changes without Congressional approval.

The whole thing doesn’t seem likely to evince much opposition from those who are not employed by the USPS. Or our elected representatives, defending, on the one, less important hand, what they think is important to their constituents, and on the other, more important, hand, their own dignity in interminably delaying a solution to the problem. Read more »

  • 18 Jan 2013 at 4:45 PM

G.O.P. Rethinks ‘Make U.S. Default’ Strategy

Jonesing for the rush of another ride off a fiscal cliff? The guys who run the House of Representatives are going to disappoint you, again. Read more »

It wasn’t pretty or timely and didn’t seem to make anyone happy, but the fiscal cliff is no more… for another two months. Read more »