Good for All Americans: Decreasing Capital Gains Tax

As this video illustrates, every American would be better off if Congress decreased the capital gains tax instead of increasing it as recommended by President Obama.  In fact, it is hard to imagine a tax policy change that would be more detrimental to economic growth than increasing capital gains.  At this particular moment in our nation’s history — when we most need to create incentives for risk-taking and entrepreneurship — the right tax policy move would be to reduce capital gains taxes, not increase them.

Posted in Tax

American Needs the Fair Tax, Now!

I’ve been practicing and teaching in the income tax arena since 1987, almost a quarter of a century.  I got into the income racket — yes, racket is a fair way to describe it — at then Price Waterhouse, on the heels of the great Reagan tax code overhaul called the Tax Reform Act of 1986.

Over the ensuing two-and-a-half decades, I have watched with mingled horror and disgust as income tax-related code, regulations and related court decisions have mushroomed to the point where no human being is capable of fully comprehending the whole thing — ever.    I cannot imagine any tax professional believing this is the best tax system America has to offer.  It is high time for the Fair Tax. Continue reading

Bear Stearns Acquittals Send Message to DOJ, SEC

Not Guilty! Congratulations to Ralph Cioffi and Matthew Tannin on their acquittal, Tuesday, on securities fraud charges.  Responding, in June 2008, to pontification by the SEC on the arrests of Cioffi and Tannin (see video flashback, below)…

…I pretty much nailed the eventual outcome of these specious, politically motivated indictments in legal and market terms:

Apart from the eventual finding of guilt or innocence, the more I consider the FBI’s and SEC’s conduct in the arrests, the more I see it as a political show calculated not to enforce the law, but rather to satisfy the blood lust of investors and borrowers who should themselves be spanked for thinking they should be entitled to high returns (or sub-prime mortgages) without running high risks.

Ultimately, the prosecution of this case — which seems based almost entirely on e-mail traffic — will harm the markets more than help them by discouraging (a) expressions of optimism when times are tough and (b) candid give and take within firms. These, together, are essential to the functioning of financial markets. What would we think of a bank president who runs around Wall Street yelling at the top of his lungs that his bank’s cash balance is only a fraction of what it owes depositors?

We can thank this kind of prosecutorial overkill for banks’ current reluctance to make meaningful loans and for the reluctance of market players of various stripes to do what market players are supposed to do: take risks and speak optimistically about the future.

Congratulations, as well, to the Manhattan jury that so ably sniffed out this sham prosecution. Just imagine the outcome had Jeff Skilling been granted a change of venue to Manhattan. We can only hope that the U.S. Supreme Court will follow suit and unravel the absurdity of so-called “honest services fraud” by exonerating Mr. Skilling.

Mockery of Justice: Why SCOTUS Should Let Jeff Skilling Out of Jail

When a prominent Houston attorney advocates exonerating a convicted Enron executive you have to believe — as I have long argued — that something is seriously wrong with the conviction.  In his excellent post, The Reeling Prosecution in the Skilling Case, Houston Attorney Tom Kirkendall explains why the U.S. Supreme Court should (and likely will) let Jeff Skilling out of jail when it hears his case.

For those with short attention spans, the bottom line is that Jeff Skilling was convicted and sent to jail for 24 years (a sentence recently set aside by the 5th Circuit Court of Appeals in a weirdly self-contradictory opinion) because a Houston jury, poisoned by months of anti-Skilling and anti-Enron propaganda, decided that Skilling exercised bad business judgment as Enron’s CEO during the company’s death spiral. The jury’s theory, doubtless buttressed by years of education and experience running companies in the complex energy derivatives markets, was apparently that any business executive dumb enough or nice enough to try to rescue the jobs and retirement plans of thousands of employees from a perfect market storm had damn-well better save the company or get ready for the guillotine.

Skilling’s conviction and sentence are shocking. Compelling evidence of Skilling’s innocence (and the prosecution’s guilt) is provided by his 209-page Petition for Writ of Certiorari.

One prong of Skilling’s defense is that “honest services wire fraud,” codified at 8 U.S.C. § 1346, is chaotic nonsense that fosters politically-motivated witch hunts any time a big company’s stock plunges in value for whatever reason.  Kirkendall notes: Continue reading

Honest Services Fraud & Texas Justice to Get Skilling Grilling: Supreme Court Grants Certiorari in Skilling v. United States

With Wall Street agog over the DOJ’s biggest insider-trading sting ever and fully seven years since the Enron scandal broke, Jeff Skilling is back in the news.  The U.S. Supreme Court has agreed to hear Skilling’s appeal of his convictions in the Enron case for so-called “honest services fraud” and insider trading.  Needless to say, justice in these United States can take an excruciatingly long time to develop.

The Supreme Court’s grant of certiorari in Skilling v. United States should be good news for Americans accused of white collar fraud in the current wave of anti-Wall Street hysteria.  It is a sign that justice may at long last get its day in court, even in politically-charged cases like Skilling’s which grew out of the collapse of Enron.  I have consistently argued — see Jeff Skilling Is Innocent — that Skilling’s convictions were themselves a fraud, riddled with prosecutorial misconduct and jury bias and founded on a specious legal theory, “honest services fraud,” that criminalizes optimism essential to economic growth.

Here, for the record, are the questions to be heard by the Supreme Court:

1. Whether the federal “honest services” fraud statute, 18 U.S.C. § 1346, requires the government to prove that the defendant’s conduct was intended to achieve “private gain” rather than to advance the employer’s interests, and, if not, whether § 1346 is unconstitutionally vague.

2. When a presumption of jury prejudice arises because of the widespread community impact of the defendant’s alleged conduct and massive, inflammatory pretrial publicity, whether the government may rebut the presumption of prejudice, and, if so, whether the government must prove beyond a reasonable doubt that no juror was actually prejudiced.

Not every economic catastrophe is caused by a crime.  Markets naturally move up and down in cycles. Prosecutors and politicians should have the courage to make this clear to investors who too often expect someone else to pay every time the market turns against them.

Watch Out for Falling Chinese Derivatives: Banks Run for Cover as China Hedges Fuel Bets

As this story from Chinese markets shows, financial derivatives are often not what they seem.  If you plan to use derivatives to hedge risks, don’t forget the counterparty risks inherent in the derivatives themselves.

Highlighting once again the risks of doing business with state-owned Chinese companies, banks and the derivatives market took another hit on September 7 when the Chinese government encouraged state-owned airlines and shippers, including China Eastern Airlines Corp., Air China Ltd. and China Ocean Shipping (Group) Co., to legally challenge their fuel derivatives contracts with foreign banks.

The contracts were used by these companies to hedge against what they expected to be a steep rise in fuel prices.  When the prices fell — as they sometimes do in a market — the companies ended up losing millions.  The losses are premised on the assumption that the companies are legally bound by the derivative contracts. This assumption should have been questioned back in March 2009 when, according to China Daily, China’s State-owned Assets Supervision and Administration Commission (SASAC) “tightened the rules” governing State-owned enterprises’ (SOEs) use of derivatives under Chinese law.  Those who did not question then are certainly doing so now.

Continue reading

“Contrived Facade of Enforcement”: Judge Rips SEC Over BofA Settlement

Earlier this year, I shared misgivings of other commentators that Mary Schapiro’s tenure at FINRA rendered her too conflicted to Chair the SEC.  Judge Rakoff’s scathing September 14 order in SEC v. Bank of America adds weight to the argument.  Judge Rakoff rejected the SEC’s settlement, ordering the parties to prepare for trial on February 1. Continue reading

Did Accountants Really Let Us Down? Floyd Norris Misfires on FASB & IASB Role in Recession

Who ruined your retirement portfolio? In his September 10, 2009 New York Times’ column, Accountants Misled Us Into Crisis , Floyd Norris points the finger at standard-setting accountants at the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

Norris appears convinced that if the FASB and IASB had written the “right” accounting standards the “right” way (especially to require banks to report their assets at “fair” value), banks could not have become so weak as to threaten the financial system.  If only reality were that simple.  Four factors argue against Norris’ view. Continue reading

The United States should support Honduras against Manuel Zelaya

Some have asked for my views on the Honduran so-called “coup” in which the former Honduran President, Manuel Zelaya, was removed from office upon the order of the Honduran Supreme Court.   Having read the relevant documents in the original Spanish, I agree with Miguel Estrada that the removal was both legal and necessary.

For reasons set forth in more detail in Estrada’s Los Angeles Times op-ed (July 10), in the Corte’s Comunicado Especial (linked to the picture below), and in the documents supporting it, those who are full informed have every reason to applaud la Corte Suprema de Justicia Hondureña for legally and properly sending a would-be Hugo Chavez packing.

Corte Suprema

Like me (and unlike Barack Obama) Estrada speaks Spanish, actually works as an attorney and has read the Honduran Constitution and other official documents by which the Honduran Supreme Court legally ordered the removal of then-President Zelaya.  Americans (and Europeans) who think they know que pasa in Honduras would do well to read what Estrada has to say. Continue reading