If not in US dollar notes under Warren Buffet’s mattress, what is Berkshire Hathaway’s “$104bn cash pile invested in?

Sir, you conclude that “Regulators and governments would do well to study whether the huge increase in repurchases has damaged business growth and capital formation” “Record share buybacks should be raising alarms” November 8.

Of course they should but let us be very clear, since that has been going on for quite some time so, if they have not done it yet, then shame on them.

For instance in July 2014 Camilla Hall, in “Bankers warn over rising US business lending” wrote, “Charles Peabody, a bank analyst at Portales Partners in New York, has warned that while it is hard to extrapolate what is driving commercial and industrial lending, if it is to fund acquisitions or share buybacks it may not indicate a strengthening economy. “It is loan growth, just not sustainable,” he said.” 

And therein Hall also wrote, “A banking lending executive at a large regional lender said ‘Traditionally banks have been very cautious of that’.”Of course, you and I know Sir that banker should not be throwing the first stone, since bankers too have morphed, thanks to the risk weighted capital requirements, from being savvy loan officers into being financial engineers dedicated to minimizing the capital their bank is required to hold.

Also, in 2017, when discussing IMF’s Global Financial Stability Report, John Plender wrote: “Low yields, compressed spreads, abundant financing and the relatively high cost of equity capital, it observes, have encouraged a build-up of financial balance sheet leverage as corporations have bought back equity and raised debt levels…Rising debt has been accompanied by worsening credit quality and elevated default risk.”

But what really caught my attention today was your reference to Berkshire Hathaway’s “$104bn cash pile [it holds] keeping its powder mostly dry for future deals — if, say, the market correction continues.”

How do you keep that powder dry? Since most probably it is not in dollar notes under Warren Buffet’s mattress, what is it invested in? We know that in accounting terms “Cash” includes a lot of investments, but in the real life, “Cash” does not always turn out to be real cash. In Venezuela you could now fill a whole mattress with high denomination bolivar notes, and still not be able to buy yourself a coffee with it. 

In a world in which regulators have assigned a 0% risk weight to for instance the already $22tn and fast growing US debt, which, if nothing changes, would doom that safe-haven to become very dangerous, is not Cash just another speculative investment?

@PerKurowski

When the “filthy rich” buy assets, they might do it good or bad, but they are de facto voluntarily redistributing money.

Sir, Tim Harford writes “Researchers concerned about the concentration of money in the hands of a small number of people tend to focus on the income or wealth share of high earners”, “All things are not equal in measuring inequality” August 18.

Indeed, all things are not equal, the income or wealth shares of high earners, c'est pas la même chose.

The debates on inequality, promoted mostly by redistribution profiteers, conveniently ignore that the moment money, meaning Main-street purchasing power, is exchanged for an asset, it has effectively been redistributed, to the vendors of those assets.

So yes, governments can redistribute money, but that does not mean it can redistribute wealth as easy, and without possibly serious unexpected consequences.

Not long ago, someone really wealthy, by means of a sort of voluntary tax, froze US$ 450 million of his real purchasing power on a wall, by acquiring Leonardo da Vinci’s Salvator Mundi. How do you redistribute that painting? One way is to get another filthy rich to redistribute his money buying it, most probably for less. Another way might be cutting it in thousands of small-certified pieces and thereby allow many much less wealthy to buy these, and thereby perhaps redistribute much more than US$ 450 million. Should we proceed to hack up Salvator Mundi?

Sir, at the end of the day, the one question that always lingers is, who redistributes money the best? The usual answer “Me!” or “Us!”

@PerKurowski

Rana Foroohar. Please ask yourself a question and, if you cannot answer it, do ponder why.

Sir, I refer to Rana Foroohar’s “Three questions for the Fed’s Powell” February 26.

Ms. Foroohar (and you too Sir) should ask herself: why do regulators want banks to hold more capital against what, by being perceived as risky, has been made quite innocous, than against what, because it is perceived as safe, is so much more dangerous?

And if could not come up with a truly convincing answer, then that should give her a clue on that something very strange is going on in the field of bank regulations.

And if she had gotten to that point, then it should not be too hard for her to begin to understand how those different capital requirements, which allows for some assets to be leveraged much more than others, might distort the allocation of credit to the real economy… and thereby affect its “real non-financialised growth”

And at that point she would surely add, that same question she could not answer, to those three she proposes to ask Powell.

Foroohar also references companies “buying up the higher-yielding bonds of riskier companies at a favourable spread and holding those assets offshore [and that now after] President Donald Trump’s new tax rules… They will simply be able to move their money wherever they want, whenever they want, in cash.”

“Cash”? In order to become cash, all those assets the companies have bought and held offshore must be sold. Would that not have any consequences?

@PerKurowski

The worst problem with the dangerously growing debt is what it has not financed

Sir, Pascal Blanque and Amin Rajan write: “for central banks, global debt is like the sword of Damocles — an ever-present danger. It stands at about 330 per cent of annual economic output, up from 225 per cent in 2008… No one knows all the cracks into which excess liquidity has seeped — or what risks are being stored up”, “Beware the butterfly: global economies are on borrowed time” January 7.

Sir, if central bankers are only now waking up to this fact, then you must agree with that we are in much bigger problems that we thought.

Central bankers, lacking in character and not wanting to live up to their own responsibilities, dared not do anything but to push the 2007/08 crisis cart down the road, with their QEs and low interest rates. For someone who argued back in 2006 the benefits of a hard landing, that is bad enough.

But it’s so much worse than that. Blanque and Rajan argue that “Debt means consumption brought forward while low rates mean the survival of zombie borrowers and companies… High debt is not intrinsically bad so long as it is used to fund investments that deliver profits or create financial assets worth more than the debt. Data on this score are hard to come by.”

And there lies the fundamental problem. Because of risk weighted capital requirements for banks, bank credit has been used to finance “safer” present consumption; to inflate values of mostly existing assets; and way too little to finance “riskier” future production. It amounts to having placed a reverse mortgage on our past and present economy, in order to extract all of its value now, not caring one iota about tomorrow, and much less about that holy social intergenerational contract Edmund Burke spoke about.

It is clear the experts Blanque and Rajan have yet not understood what happened as they write: “The origins of the current worries predate the 2008 crisis which was caused when lending standards went from responsible to reckless: the siphoning of money into dodgy ventures such as subprime mortgages, covenant-light loans or sovereign lending based on creative accounting.”

The truth is that without truly reckless regulatory standards, those which allowed banks to leverage over 62.5 time to 1 with securities rated by human fallible rating agencies AAA; and, at least in Europe, allowing banks to lend to a 0% risk weighted sovereign like Greece against no capital at all, nothing of the above would have happened.

What to do? In my mind, in order to extricate the world of this problem, we need first to rid us completely of the credit distorting risk weighted capital requirements; and second, to be able to manage the transition to for instance a 10% capital requirements against all assets, including sovereigns, without freezing the whole credit machinery, perhaps bank creditors would have to accept, in partial payment of their credits, negotiable non redeemable common fully voting shares issued by the banks. If that helps to bring back undistorted bank vitality, it might be the best shares to have ever.

PS. Blanque and Rajan reference “S&P 500 corporates… stashing cash reserves outside the US.” What cash? Treasurers have not stacked away cash under corporate mattresses. Those surpluses are all already invested in assets, of all sorts, and which could suffer losses just like any other assets.

@PerKurowski

Edward Luce, what do you mean, is Mark Zuckerberg not paying the taxes he should pay, or is he just no taxed enough?

Sir, I come from a nation, Venezuela, where those in power have wasted hundreds of times more fiscal revenues than the amount of taxes citizens might have evaded. So I am no fan of the redistribution profiteers.

Edward Luce writes: “America’s new economy elites tend to cloak their self-interest in righteous language. Talking about values has the collateral benefit of avoiding talking about wealth. If the rich are giving their money away to good causes, such as inner city schools and research into diseases, we should not dwell on taxes. Mr Zuckerberg is not funding any private wars in Africa. He is a good person. The fact that his company pays barely any tax is therefore irrelevant.” “The Zuckerberg delusion” November 16.

What does Luce mean? Is Zuckerberg not paying the taxes he should pay or is he not taxed sufficiently. If the first Zuckerberg should be fined or even go to jail, if the second Luce is close to being defamatory and should suffer some consequences. 

And Luce also holds “The next time Mr Zuckerberg wants to showcase Facebook, he should invest some of his money in an actual place.”

What on earth does Luce mean? That Zuckerberg does not have his money invested in an actual place? That Zuckerberg keeps his wealth all in cash stashed away under his mattress?

I am clearly against how much rents are derived from monopolistic positions, and would of course like to see that kind of rent capturing to be diminished. But I also believe that once wealth has been created, and that wealth has been allocated to different assets, one should not come to the conclusion that redistributing these would actually result in something better.

It is so typical for wealth-redistributors to suggest, like Luce does, that Zuckerberg would do better funding “a newspaper to make up for social media’s destruction of local journalism” without given a single thought to what would then have to be defunded.

What is most conspicuously absent in the aggressive let’s redistribute the wealthiest wealth proposals, is an explanation of how that is done and of what that implies.

For instance, let us assume Mr Zuckerberg has a $200 million dollar Picasso hanging on the wall. How do you convert that painting into food, health services, education or money for the poor, without having to find another wealthy buyer of that Picasso?

And, if you did cash in the $200 million, how much would reach the less wealthy and how much would just enrich the redistribution profiteers… perhaps making them the neo-wealthy?

The fact is that if Zuckerberg had a $200 million dollar Picasso he has, in a sort of voluntary tax, frozen alternative purchasing capacity on his wall. In this case leading for art to be seen as a good investment, and most probably down the line causing some artists down to get some more income for their art. 

But Sir you would also probably agree with Luce in that journalists are worthier than painters. And I don’t hold that against you… because that’s life. Let anyone not wanting to redistribute something more to himself, cash if you are poor and goodwill if you are Zuckerberg, throw the first stone.

PS. I am an ardent defender of a Universal Basic Income because I find that to be the most efficient way to finance, among others, the creation of decent and worthy unemployments. But that redistribution method also needs to be clear on the implications of what is being redistributed. How much would exist in the Frenchman Thomas Piketty’s Paris’ Museum of Louvre, had it not had been for the existence of the odiously wealthy?

@PerKurowski

You redistribution profiteers: There’s very little cash in “cash”; and wealth is mostly just frozen purchasing power

Sir, Eric Platt writes about “the lack of detail…typical of the 30 large US-domiciled companies analysed by the FT that hold more than $10bn of cash and other securities on their balance sheets”, “Patchy disclosure gives investors little to chew on” September 28.

The article should help to indicate to you how little real cash there really is in all that cash to which so many, time after time, including FT, have referred to in terms of that it should be repatriated, so as to put to better use.

As we can see, the fact is that most of the $262bn of cash and cash equivalent held by Apple has already been deployed, one way or another; which means that even if Apple does not use it for its own purposes, that does not mean it is not being used by others for other purposes.

Sir, the whole very valid debate about offshore wealth and growing inequality, would be greatly sanitized by the acceptance of the facts that there is very little cash in “cash”; and that wealth is mostly just frozen purchasing power.

Perhaps then we would also be allowed to discuss such political incorrect issues such as what assets would not exist but because of great wealth and great inequalities.

Then perhaps we could at last focus more on the much more important cause of fighting unproductive unequal wealth creation, than about how to getting our hands on wealth after it has been created.

Unfortunately the redistribution profiteers, those who need to instigate hate against wealth and inequality in order to maximize the value of their franchise, will fight tooth and nails in order to stop such debate taking place.

https://perkurowski.blogspot.com/2016/10/i-tweeted-how-do-you-morph-200-million.html

https://perkurowski.blogspot.com/2015/08/if-we-are-going-to-squeeze-rich-let-us.html

@PerKurowski

When frozen in other types of “cash”, it is hard to free up cash to spend on good causes without losing much value

Sir, I refer to “Debt Collectors” September 16, in which Eric Platt, Alexandra Scaggs and Nicole Bullock search to explain what could happen to the “portfolio of cash, securities and investments worth roughly $840bn, held outside the US by just 30 US companies, because of tax reform designed to … encourage American companies to bring back jobs and profits trapped overseas”.

The article, though it refers to difficulties such as the “repatriation process itself could involve selling bonds” and the impact of that on interest rates, fails to illustrate the whole truth.

The reality is that all that “cash”, as well as all that “cash” held by other wealthy (for instance in Panama) except for the less than 1% that could be in real cash, is in other assets like securities investments, perhaps even in art collections.

So, in order to convert all that “cash” into real cash, those other assets have to be sold to others who are then required to give up their real cash for these. And, in that process, clearly a lot of the value of the “cash” would just change hands or disappear.

Why are these difficulties of converting “cash” into cash not more discussed? Because doing so would be sort of inconvenient for those redistribution profiteers who try to sell their politically beneficial envy, for instance that present in the “one percenters being against all us 99 percenters” theme.

What is a £20 million flat in London or a US$200 million Picasso hanging on a wall but the voluntary freezing of millions in alternative purchase power that could be out there in the economy competing for consumer goods… and generating inflation? Is a lowering of the value of hard-assets the inflation driver central banks want?

PS. Of course the above does not take away one iota of the need to relentlessly pursue those who have accumulated “cash” assets illegally, and might hold these in places like in Panama.

https://teawithft.blogspot.com/2016/04/tett-get-it-whats-stashed-away-in.html

https://perkurowski.blogspot.com/2016/10/i-tweeted-how-do-you-morph-200-million.html

http://perkurowski.blogspot.com/2016/01/the-wealth-of-62-richest-equals-that-of.html

Are taxes on petrol correctly used? Repatriation of what “cash”? End users/payers of infrastructure should be present

Sir, Gillian Tett, discussing the financing of president Trump’s plan for infrastructure writes: “One sensible, overdue step would be to raise the petrol tax to pay for infrastructure; another would be to use proceeds from repatriated overseas corporate cash.” “Private money might yet save Trump’s infrastructure plans” May 26.

First, more taxes on petrol just means that more money goes into the same fiscal pocket to be channeled in often quite non-transparent ways to uses that might or might not include the building of infrastructure. The best use of taxes, such as those on petrol, which by the way constitutes de facto a discriminatory import tax on gas, is to transparently help fund a Universal Basic Income scheme.

Second, “cash”, what cash? Could Ms. Tett believe that high denomination bills stored under corporate treasurers’ mattresses represent that cash? Before opining anything about what “cash” could do, I suggest she finds out how that “cash” is currently deployed. Who knows, it might all be invested in gilts.

Finally, I have witnessed decent privatizations and infrastructure PPPs in my life, but I have also seen those that are only ugly expressions of crony statism. In this respect at the negotiation and executions phases of any privatization, any public infrastructure project, or any PPP, future users, or otherwise payers for the projects or the services, should be present… and their names publicly recorded as having represented the citizens.

Too often most of us see something very wrong that makes us reflect: “This would not have been the case had my grandfather or grandmother overlooked what was going on.”

@PerKurowski

Just as there is room for higher taxes, there is also room for much lower margins for the redistribution profiteers

Sir, Rana Foroohar writes: “It is likely that companies would put any extra money from a lower rate on repatriation of foreign cash into share buybacks. The 2003 dividend tax did not increase investment, but the 2004 repatriation holiday bolstered buybacks 21.5 per cent.” “The case for higher taxes” May 22, 2017

What? Does she mean that the “foreign cash” is in cash (stashed away under a mattress) and not already deployed in assets like for instance US Treasury Bills?

What? Does she mean that was has bolstered the immense buyback we have seen over the last decade has more to do with repatriation than with the low interest rates imposed on markets by the Fed, by means of QEs and bank regulations?

Clearly there is room for higher taxes, but never ever crazy 83% ones, and not those that enrich the redistribution profiteers, but those that would allow to initiate the payment of a Universal Basic Income, perhaps starting at only $300 per month, and then taking it from there.

That could help growth and that could help reduce inequality.

@PerKurowski

Our societal radar does not record sufficiently many crucial problems and less do we discuss their possible solutions

Sir, Gillian Tett refers to JD Vance’s “Hillbilly Elegy” April 28.

The author, having faced “a family and culture in crisis” and in order to “combat a culture of instability, irresponsibility, anger and pessimism, made worse by opioid addiction’ suggests, besides the reintroduction of [some] military service, giving extended family members easier adoption rights over troubled children, enabling people receiving housing vouchers to move beyond poverty-stricken ghettos, and, most crucially, encouraging business to work with schools and community colleges to reshape education for teenagers, with more mentoring and apprenticeships.”

Ms. Tett concludes, “These are profoundly sensible steps. But they are also notably not measures that are getting much attention from Trump, let alone from the Democrats. Therein lies the tragedy of America today.”

Absolutely, it is a tragedy, but not only of America. Too much is not recorded timely by our social radars, or if identified then becomes horribly distorted, most often by those who want to profit, monetary or political, from the solutions.

For example: The world is facing structural unemployment, among other by robots and automation becoming more and more efficient. But was that talked about during the last election? No! It was not as politically juicy as going after, or defending, immigrants. If it had been discussed the Mexican wall could have been a non-issue.

In such a jobless world, in order to remain viable societies, we would have to create decent and worthy unemployments, which would probably have to include some sort of universal basic income? But was that talked about during the last election? No!

Also, for our economies to be able to move forward we have to stop current insanely risk adverse bank regulations, that refinances up to the tilt the safer present and past, while refusing financing the riskier future. Is that distortion discussed? No way Jose! If you do they might not invite you to Davos.

Instead populists agitate for instance with realities such as some few billionaires holding more wealth than half of the world’s population…while conveniently ignoring how un-transferrable such wealth really is… or scream about all the “cash stashed away” as if that cash was cash.

To have a chance to leave something reasonably workable to our grandchildren, we need to dramatically realign many incentives and fight those who are marketing solutions only to profit on these. In that respect here follows some of my wishes:

That we are able to keep the fiscal income lean since that is the only way to guarantee the fiscal spending does not get mean.

That we fight tooth and nail against all redistribution profiteers. By for instance creating carbon taxes that helps to save the environment, but that have all its revenues shared directly, equally, among citizens.

That we develop guidelines that help us classify credits, and as a consequence debts, into legitimate or odious.

That we make the pension plans of academics of the universities entirely contingent on how it goes for their students. As a minimum their pension funds should hold all the education loans that were given out in order to pay their salaries.

And of course, please, we must get rid of the so useless and so dangerous risk weighted capital requirements for banks.

@PerKurowski

Why refer to “cash repatriation” when you know it is not cash? Are there some should-not-be-named motives for it?

Sir, Gillian Tett writes: “Mr Trump will need widespread Republican support if he wants to enact his promised tax reforms, cash repatriation or $1tn infrastructure spending plan.” “Trump’s stealthy deregulation delights business” March 3.

“Cash repatriation”? When will Ms. Tett, like most other discussants of this, understand that we really should not be talking about “cash repatriation”. All those exiled profits, or at least 99,99% of these, have already been deployed in assets different from cash under the mattress. These assets to be repatriated might indeed already have been repatriated, like if for instance they are held in bonds of the sovereign to which the repatriation takes place. 

So, to refer to “cash repatriation”, can only feed the illusion that this would signify a fundamental way to correct for the world problems, like that of growing inequality. Under some circumstances, if the redistribution recipients exchange inefficiently those repatriated assets, it could in fact worsen some of our problems.

Sir, now why would some like to feed such “cash-repatriation-is-a-solution illusion? You tell me!

Does this mean that I am against the repatriation of assets booked abroad as a result of corporate profits? Of course not! If there is where these, by law or by incentives should go, that’s how it should be.

@PerKurowski

Not only criminals and tax-evaders, but also ordinary people can be against restrictions on cash.

Sir, referring to how the existence of cash creates difficulties for central banks imposing negative interests. you mention “economist Kenneth Rogoff, one of the… restrictions on the use of cash noted proponents, is still receiving death threats for raising the idea. “The growing challenge to central banks’ credibility” September 24.

Frankly, that phrases it as only assassins and bad people would be for blocking the idea of restricting cash. I am sure that non-violent, non-criminal, not-tax evading ordinary people can also find the restriction of cash very problematic.

Just as an example, if governments mistreat cash, with inflation, they mistreat all holders of it equally, but if there was no cash and all monetary assets and their movements were identifiable, they could be very selective in who they want to mistreat or not.

Does this mean in any way or form that I condone the bad uses of cash? Of course not, that would be worse than silly.

PS. Central banks that only want banks to harvest what’s “safe” and not sow what’s “risky”, do not deserve any credibility. 

@PerKurowski ©

Are you shocked seeing the Financial Times report on banks not doing anything but storing cash, and want to help?

Sir, I refer to your front-page “Big bills: Plans to hoard banknotes pose tricky problem over storage”; and Claire Jones’ and James Shotter’s “Note of caution as Europe’s banks seek to stockpile cash” August 17.

It is shocking; we all know that is not how it should be. That is money not earning what it needs to accumulate in order to pay pensions for the older of tomorrow. That is money not invested in creating the jobs of tomorrow for the young.

Just like John A Shedd said: “A ship in harbor is safe, but that is not what ships are for.”, “Money held by banks in their safes is safe (sort of) but that is not what banks are for”

Do you want to help change that? Then please support the discussion of the following:

Until banks have 8 percent in capital against absolutely all assets, including cash and including loans to infallible sovereigns, the banks should not be allowed to repurchase their own shares, or to pay out more than 20% of their net after tax profits in dividends.

With that I guarantee you some real action in banks lending to the real economy; and that could lead to real economic recovery, real possibilities to build up pension funds, and real jobs for our children and grandchildren.

Forget about QEs, fiscal stimulus and negative interest rates; and let “risky” SMEs and entrepreneurs get the credits to have a go at it.

@PerKurowski ©

Though redistribution profiteers believe it and demagogues want you to believe it, there are no “huge piles of cash”

Sir, the word “cash” appears 8 times in Eric Platt’s “US tech cash pile soars to $504bn as groups seek to avoid tax hit on profits” May 21. And huge cash piles are referenced to in terms of “companies hoarding cash”. 

All as if it was some cash stacked away under some mattresses. Its not, there might not even be a single dime of cash; most and perhaps all of it has already been deployed to do something; it might be invested in shares or bonds, perhaps even in long-term municipal infrastructure bonds  J   

And so what should these “cash hoarders” that currently do not want to take investment risks do? 

  

Why do not bank regulators start with ending their risk-weighted capital requirements, those that effectively tell banks not to take risks but to keep it safe?

Sir, the truth is that legions of dumb redistribution profiteers searching for business opportunities, believe there are plenty of Ali Baba caves to be found.

And the problem is that demagogues and populists, like our Chavez and yours whoever, use that to further their own causes. FT, stop collaborating with them!

@PerKurowski ©