Boumedine Legislation

From the National Institute of Military Justice, U.S. Rep. John Shadegg (R-AZ) introduced the Boumedine Jurisdiction Correction Bill, H.R. 6274, yesterday.

The bill proposes to provide a habeas equivalent to persons held "in the part of Cuba leased to the United States" (McMurdo Station in Antarctica would apparently still be fair game).

It also gives exclusive jurisdiction to "[T]he courts established under the Uniform Code of Military Justice and operating in that part of Cuba."

Follow up to come...

Global Oil Flows

The Financial Times has a nifty flash presentation on global oil here (you can register for free).

One of the neat features is that it shows rough global oil flows. A bit of quick addition shows the following:

• U.S. oil from Middle East--2.276 million barrels per day (bpd)
• U.S. oil from elsewhere--9.748 million bpd
• Rest of the world's oil from Middle East--10.796 million bpd

This begs the question of how "strategic" U.S. interest is in the Middle East actually is, especially in comparison to the "strategic interest" of the rest of the world.

New blog

I have updated my links to include International Law Prof Blog.

It is what its name suggests, and features Mark Wojcik (Chicago, John Marshall Law School), Cindy Galway Buys (Carbonadale, Southern Illinois University School of Law), Michael Peil (St. Louis, Washington University School of Law), and Cyndee Todgham Cherniak (Toronto, Lang Michener LLP).

I am very proud to say that I studied EU Law under Dean Peil, who also coached me for moot court. Best wishes to all the International Law Profs!

Who's to blame for high oil prices, take two

There is a new candidate for who to blame for high oil (and other commodity) prices--institutional investors.

As reported in the FT, George Soros is expected to tell Congress that:

rising oil prices are the result of a number of fundamental changes and factors in the market, but that the relatively recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble.

The Problem with "The Problem With the Corporate Tax"

Not to overly rely on the Sunday NY Times for material, but I couldn't help remarking on "The Problem With the Corporate Tax," by N. Gregory Mankiw (Harvard econ prof., Bush and Romney adviser).

The gist of the article:

"In fact, a corporate rate cut would help a lot of voters, though they might not know it."

While recognizing that the proposed McCain reduction of the rate from 35 to 25 percent would cost the federal budget $100 billion a year, and derisively acknowledging that "Populist critics deride this train of logic as "trickle-down economics," he nonetheless argues that lower corporate taxes would be better for everyone.  

How???

Well, the main argument is a variation of trickle-down--he frames corporations not as tax-payers, but as tax-collectors, essentially collecting taxes on the persons who hold equity in the corporations.  Now, one could argue that this is in fact fair because presumably everyone who purchased those shares (or otherwise gained equity) knew what the tax rate was when they did so.  Specifically, they could have taken equity in a non-corporate business, e.g. formed a partnership, but of course people who work in finance or who don't work (live off investments) couldn't always put money in a non-corporate entity--oh well...

Second, it turns out that a corporate tax is actually a tax on labor.  Mankiw points to a study by William C. Randolph of the CBO that 70 percent of the corporate tax burden is borne by labor, and an Oxford study that each $1 increase in a company's tax bill reduces real wages by 92 cents.  Of course, no one is stating that if corporate taxes were decreased, these companies would suddenly raise wages--no, the increase in profitability would instead go to those same equity holders in the corporation.

He also points to suggestions in the Randolph study that "the domestic owners of capital can escape most of the corporate income tax burden when capital is reallocated abroad in response to a the tax."  This, of course, says nothing about what happens if we fail to decrease the tax rather than merely leave it at the current rate.  Additionally, it fails to recognize that the U.S. is projected to continue to be the largest recipient of foreign direct investment by far for years to come, and that up until the very recent past, there has been such a surplus of capital that it has had to move to an entirely synthetic economy, i.e. derivatives, in order to find sources to suck it up.

So, if you are a pessimist and think the U.S. economy is on an irreversible descent, and will no longer be a source for foreign investment, and our only hope is to make it cheaper for corporations, as opposed to other business entities, to conduct business, then you might agree with Mankiw.  If not, should the U.S. reduce its income by $100 billion a year when it has large outstanding debts?

Credit swaps again = insurance

Gretchen Morgenson has another story on the front page of the Sunday NY Times business section on credit derivatives, and those instruments are again described as "insurance contracts."  

I am really surprised there has not been a deluge of people writing in to nuance this description and assure regulators that, of course, these instruments may look like insurance (and are supposedly used like insurance), but are in no case whatsoever actually insurance.

The story, "First Comes the Swap.  Then It's the Knives," is a great read, and begins to reveal some of the dispute between investment bank Paramax and hedge fund UBS.

Share links to other CDO unwinding litigation in the comments....

Futures, I mean insurance, I mean futures...

The Sunday NY Times business section had two stories which had an interesting overlap.

First, Gretchen Morgenson, in reporting on how Fairfax Financial Holdings profited from credit derivatives, described those financial instruments as "insurance contracts that allow investors to bet for or against a corporation's bonds." (Good luck getting anyone in the financial industry to give you an opinion in writing calling a derivative "insurance.").

The second piece, by Nelson Schwartz, reported on Congressional efforts to control energy prices. Of note, Rep. John B. Larson proposed legislation that would ban unregulated (over the counter) trading in energy futures where the parties would not take delivery of the commodity, i.e. the positions would be settled in dollars. This proposal is fascinating in its own right, but where it gets very interesting, and how it really relates to the first article is in this quote from John Damguard, the president of the Futures Industry Association.

"The over-the-counter markets are a very important part of the way industry and institutions manage risk."

Well, he certainly makes over the counter deals sound a lot like insurance. Of course, most of the trades entered are not for true hedging purposes, e.g. futures purchased by airlines, but are instead large, heavily leveraged bets sold by traders and investment banks to investors seeking above market returns. And of course, if these deals were actually "insurance" as opposed to speculation, they (and the dealers who package and sell them) would fall under an entire class of regulation.

So, if we shouldn't regulate over the counter deals because they fill a important need of managing risk, then why aren't they regulated as insurance? It seems like the insurance industry should get on this one, and use a favorable bill to steal part of an industry away from Wall Street.