Where Adam Smith Was Wrong

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Wednesday January 11, 2012 · 5:34 AM PST

2012/01/11 · 05:34

I grew up on Adam Smith’s The Wealth of Nations. I was a CPA, corporate executive, and top-5 business school MBA from Mitt Romney’s era, and Smith was God. But one strange, often repeated phrase nagged at me. What was this “carrying trade” that Smith harped on, over 35 times?

The phrase is central to his über-capitalist argument about comparative advantage, and time has proven him dead wrong. And what Republican Rick Perry now calls the“vulture capitalist” arose to contaminate my idealization of Almighty Smith.

JohnEmil

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Tuesday January 10, 2012 · 5:36 AM PST

2012/01/10 · 05:36

So we have only seen the trailer of the Newt-financed takedown of Bain Capital, but it appears that even Republicans are confused about whether private equity capital firms like Bain practice "good capitalism" or "bad capitalism." So far, in my experience, both sides have missed the story here, the relationship of Bain to its "cash cow" takeovers. The first story here is that most of the takeovers are NOT "troubled companies," rather are these profitable "Cash cows."

I was in the senior management of a cash cow company that went through three ownership changes over my nineteen years of tenure, the last being a Bain-like equity capital firm, each trying a "flavor-of-the-day" theory for extracting value from the company. "Cash Cows" were first named in the classic Boston Consulting Group matrix that divided the business world into four groups depending on market share and growth - cash cows, stars, question marks and dogs. Cash cows are characterized by low growth and a decent market niche.

JohnEmil

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Wednesday January 04, 2012 · 12:02 PM PST

2012/01/04 · 12:02

There is a good reason why equity capital firms such as Bain have flourished in more recent years. Their business model depends on three specific tax breaks, and without them, they are much less attractive to investors.

In short, Bain and other equity capital firms are simply tax arbitrageurs. The tax breaks are:

JohnEmil

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Friday January 28, 2011 · 6:46 PM PST

2011/01/28 · 18:46

For all of the talk from left and right about budget cuts, I remain amazed that so many people are missing the basic “K Street - Congressman in Your Pocket” reality of how government discretionary spending actually happens.

Virtually every significant project paid for by the U. S. government has at least two people intensely invested in its continued funding – a lobbyist and a member of Congress put there with money from said lobbyist.

This is why we see comments like this from a “budget-cutting conservative” concerned about the multibillion-dollar amphibious Expeditionary Fighting Vehicle panned by many military leaders:

JohnEmil

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Sunday December 26, 2010 · 3:17 PM PST

2010/12/26 · 15:17

Mitt is not going away, perhaps because the competitive field looks so bland (Daniels or Pawlenty) or crazy-ideological (the list is too long). So, folks, we need to see Mitt’s tax return. And since he won’t disclose it, I will attempt, as a CPA, to reconstruct it in plain English. If his wealth did NOT come from these basics, then his CPAs are incompetent (and my bet is they are not).

Let me first note that I grew up as a George Romney Republican, and I still remember him fondly. The scholarship programs he set up paid for my education, and his strong manufacturing policies got me a first-rung job in the auto industry. But George didn’t survive his truth-telling about Vietnam, and he certainly would be tea-partied out on a rail today.

So, back to Mitt, who has used several very profitable tax preferences to the personal benefit of hundreds of millions of dollars over the years. Some of these are available to the general public, but in forms that save most of us, by design, maybe hundreds of dollars. The best way to get these preferences through Congress historically has been to give many taxpayers a sop, while giving the big money contributors a far better return on their investment in campaign contributions.

JohnEmil

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Friday October 17, 2008 · 1:11 PM PDT

2008/10/17 · 13:11

The flat tax is still a likely rabbit-in-the-hat trick for McCain. We need to have a good alternative at the ready.

Here is a plan that would establish more fairness without necessitating any significant process or ideology changes:

Tag for sunset all tax deductions and credits that effect fewer than X% of filers. I would propose 0.1% (one out of a thousand) but even one out of ten-thousand would have an effect.

JohnEmil

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Wednesday October 15, 2008 · 4:07 PM PDT

2008/10/15 · 16:07

Missing in all of the hooplah on both sides of the Acorn voter registration issue is the real key question:

Why is any of this complication about over registration necessary at all?

All citizens of age have a constitutional right to vote. Yet we have a 230-year history of PREVENTING large demographics from voting, with obstacles of every sort thrown in the way: sex, race, property ownership, poll taxes, and more.

JohnEmil

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Saturday October 11, 2008 · 1:26 PM PDT

2008/10/11 · 13:26

Arlo Guthrie had the best-known recording of Tom Paxton's great song, "I'm Changing My Name to Chrysler" back in a previous era of corporate bailouts:

JohnEmil

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Saturday October 04, 2008 · 2:32 PM PDT

2008/10/04 · 14:32

Here is the moment John McCain proved that he would sacrifice his prized honor in order to get the endorsement of Jerry Falwell. He is explaining to Tim Russert, not very convincingly, why he no longer believes that Falwell and Robertson are "agents of intolerance."

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JohnEmil

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Wednesday October 01, 2008 · 8:04 AM PDT

2008/10/01 · 08:04

I haven't seen the old National Lampoon cover resurrected in the bailout discussion: "If you don't buy this magazine, we'll kill this dog." (Google it)

Unfortunately, there is some truth here. The marginal businesses in your neighborhood who depend on short-term credit lines to meet payroll are among the first getting squeezed here. They will be "shot" if this bailout fails. The big guys WILL be protected. No one can do much about that.

JohnEmil

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Sunday September 28, 2008 · 5:46 PM PDT

2008/09/28 · 17:46

I saw William Greider on Book TV today and it reminded me of an article he wrote in Rolling Stone just before the Savings and Loan bubble burst in the early 1980s. I was teaching college finance at the time and consulting with a troubled credit union, a "canary in the mineshaft" of the coming S&L troubles.

Greider nailed the problem so well, I became one of the few business professors in the country, I suspect, requiring students to read Rolling Stone.

JohnEmil

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Wednesday September 24, 2008 · 5:26 AM PDT

2008/09/24 · 05:26

A kind commenter of my health care diary suggested that I comment as a fiscal conservative CPA on "the fiscal mess of the week(century?)."

The Big-X auditors were flat-footed wrong on their audits of many of these Wall Street firms, and they should have seen it coming. The profit from the high fees bought them off, however.

Three years ago I taught a dozen continuing education courses for CPAs (required in every state) and asked at each site, "What is the next big "unforeseen calamity" akin to the S&L screw-up (also an auditor problem)?" Universally, they said, "We no longer understand how to audit derivative contracts. They have intentionally become too complex to audit."

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Where Adam Smith Was Wrong

Mitt, Bain and Cash Cows

Bain Survives on Three Tax Breaks

Why substantial cuts won’t happen

How Mitt Made His Money

An alternative to the flat tax

Missing the point on Acorn

Arlo and Paxton are laughing today

The watershed moment

The dog dies...

William Greider - Prophet

A CPA says "Sue the auditors!"