Investcafe.org

The Times reports today that France has obtained a list of 3,000 account holders at Swiss banks.  This is only days after France and Switzerland reached an agreement to exchange information on French citizens who hold Swiss bank accounts. 

Just last week the U.S. Department of Justice and the I.R.S reached a deal with Switzerland to get the names of 4,450 U.S. account holders who may be suspect of hiding income and assets from Uncle Sam.

And the week before that Britain and Liechtenstein inked a new tax cooperation agreement to allow British account holders the opportunity to disclose their hidden accounts.  British citizens must disclose their accounts to get some leniency for tax evasion and those who do not will be forced to move their money out of Liechtenstein and face the full consequences – back taxes, penalties and possible legal action.

These three events are not coincidental and clearly indicate a growing trend among nations to shore up badly needed tax revenues.  The question is what will happen when the global economy picks up again.  There are hundreds of millions, if not billions, of dollars at stake for countries like the United States, Britain, France, Germany and Italy.

Once the tax coffers begin to rely on an increased taxpayer participation rate it would be hard to notice any dramatic reduction.  But that is where I think we could see an eventual pullback to the traditional tax evasion scheme.  It is always that slow and gradual change that proves to be the hardest to see.  A slow but sustained effort to chip away at these new rules and agreements could be just what the banks ordered.

The motivations behind hiding assets from tax authorities can vary from the outright criminal to well justified.  For those parties that use offshore havens to sustain their criminal activities I share no sentiment with you.  Those activities include money laundering, tax evasion and fraud.

In the case of tax evasion I take additional exception, as I liken it to you living under my roof and refusing to help pay the rent.    Regardless of the extent to which one may agree or disagree with the tax code, the fact should not be lost that citizenship has its privileges AND responsibilities.  One of those responsibilities being that of helping to pay for the government that protects you, defends your way of life and makes it possible for you to create any wealth in the first place.  Grievances with tax rules should be funneled through the appropriate channels – call your senator not your offshore banker. 

If you are one of those 4,450 lucky winners on that UBS list then you might want to call your local I.R.S agent too, as the Sep. 23 deadline for disclosing those secret accounts is getting close.

Tweet This Post

The Federal Reserve Bank of San Francisco has posted a “Fed Chairman Game” on their website.  It lets you set monetary policy for 16 quarters.

The game starts you off with the fed funds rate set at 4.50%, unemployment at 4.75% and inflation at 2.14%.  I played a few times and got hit with events like energy price spikes and stimulus programs.  I lost the first two tries but on the third go-round I decided to keep the fed funds rate around 3% ahead of inflation while also keeping an eye on th unemployment rate.  I am happy to say that I got to keep my job at the end of the game.

Give it a go and see how you do.  Click here to access the game.

Fed Chairmain Game

Tweet This Post

Technology Review reports today about a new energy aware internet routing process.  Some folks at MIT, Carnegie Mellon and Akamai looked into energy price fluctuations and data center loads across the country to see if there could be any cost savings to rerouting data from high cost data centers to lower cost ones.  Their results have shown that large Internet companies like Google, Microsoft and Amazon could save up to 40% on their electricity bills – millions of dollars in savings.

They don’t mention any details as to how the ’smart routing algorithim’ works but my guess is that they are using decision tree learning with a heuristic algorithm like ID3 or C4.5.  Their model would probably need some way to factor in arbitrage opportunities within the electricity markets on a real time basis while simultaneously tracking data-center loads.  One of the problems they mention that holds this technology back is that most data-centers today lack the ability to throttle power usage with loads – in other words, the servers need to be able to consume a fraction of their full load power when idle.

What are some potential implications for the future?

New market opportunities for those firms that can offer the hardware solutions to make servers ‘energy elastic’.

This could be a boon for the software cloud, as network computing could take advantage of these routing systems to find the least costly resource.  Remember back in college when you had to use one of the computer labs?  It was basically a room full of computer stations made available for everything from creating presentations to developing software applications.  Now imagine if each of the computers in that room costs a different amount to use.  The ideal thing to do would be to walk around the room to find the cheapest one – of course making sure that it has the needed capabilities.  I can imagine a situation where cloud software would locate the least costly computing resource for a given task anywhere around the country or world just as I would walk around that computer lab searching for the cheapest available station.

I’m speculating here but could this lead to a normalization of electricity prices across the country as data centers compete for locating and using lower cost centers?  I was only able to find one 2005 article mentioning that data centers consumer about 1.5% of all U.S. electricity.  I think it would be a fair guess that today’s number might be closer to 2% or higher.  If so then how would that impact states that currently have lower electricity rates?  Lots of potential externalities here to contemplate.

The article also mentions that energy companies could negotiate with large internet firms in advance of expected peak loads to mitigate potential outages or problems.  Energy companies could essentially ’shape’ their loads to prevent failures or outages.

A problem I see with this technology is that if it is used extensively in a decentralized manner then most of the cost savings could evaporate quickly.  I know what you are thinking here, “but that is to be expected.  Its simple supply and demand here – increase the use of product x over product y until the marginal cost reaches marginal benefit”. 

Here is my problem:
If every party acted independently and outside of a central market or clearinghouse then the anticipated savings would be lost to transactions costs.  These transactions costs being those associated with moving data from one place to another and doing so with incomplete information. Take for example if an underutilized data center pops up on the radar of ten or so Internet companies.  They each, independently and unbeknownst to the others, make the move to the new data center.  This surge in load may lead to an increase in costs and therefore mute any cost savings.  There could even be a potential for some Internet companies to have to move yet again - further increasing the cost of the move.

I think that a centralized market or clearinghouse for this type of transaction would facilitate this form of intelligent routing.  Of course, I am no expert in data center economics or how or if some of these problems or opportunities are realistic.  But with my limited knowledge they would be questions I would ask.

Tweet This Post

The Times and NPR have written recently about employers using credit checks as an additional means to screen potential new hires.  I’ve heard about these on rare occasion but it seems that a trend may be developing whereby one’s personal financial situation becomes a hiring tool.  This is an interesting issue that poses some important questions:

• Should potential employers have access to your financial history?
• What relevance does one’s credit score have on employment candidacy?
• What protections have been put in place to prevent abuse?
• Who (what federal agency) is representing the interests of the candidate?
• Are employers opening themselves up to potential legal problems by making hiring decisions based on personal and confidential financial information?
• What kinds of externalities can we expect from this activity?

Lets start with the most basic question – why should potential employers have access to this information?  The most compelling argument I have seen is that potential employers can use a credit report to gauge a candidate’s decision-making abilities.  It goes like so: the likelihood that a candidate who has a history of delinquencies, collections, foreclosure or perhaps a bankruptcy will make similarly poor decisions in their professional life is higher than a candidate with a clean credit history with few or no blips. In other words, the argument says, “hey, this person has taken good care of his/her financial reputation and demonstrated responsibility over the long term”.

While I may appreciate and even agree with that claim, I cannot reconcile that argument against a more important claim – that personal financial and medical information is too sensitive to be used for anything other than what they were originally intended for – doctors need your medical record to provide health care and banks need it to decide whether they should lend you money for that car or business idea. Why did I throw in medical information? Because I consider both to be the last bastions of personal privacy afforded us by the government from prying employers, insurance companies, marketing agencies and the like.  Although HIPAA has made progress with Protected Health Information it seems that our credit history is slowly becoming a one-stop shop for anyone willing to write Experian, TransUnion or Equifax a check.

Another area of concern is what happens to this information once it is obtained by potential employers?  Who in the organization has access to this information?  In today’s world of Twitter and Facebook how long will it be before we hear about someone tweeting about a candidate’s bankruptcy?  What happens after a candidate has been hired?  Will the employer have an obligation (read unintended consequence) to disclose any of this information to other parties?

Perhaps my strongest concern for using credit reports as a way to screen job candidates is the long-term and compounding (yet to be determined) socioeconomic effect.  Hans Rossling’s enlightening presentation at the 2006 TED Conference comes to mind.  Watch it below.

What we should be cognizant of is that this is a slippery slope we have started.  I know that my car insurance provider accesses and (whether they acknowledge it or not) utilizes my credit score to determine my premiums.  Although I have yet to be asked by a potential employer for my credit report it may only be a matter of time.  What will be next?  Will credit scores be required for admission to colleges and universities? Hey, the admissions departments could argue that it would help them keep their graduation rates high.

I can imagine a situation where pervasive use of credit reports for employee screening could perpetuate a gradual segregation of those who have had the success or luck in maintaining their credit in good standing from those who have not.  I can imagine watching Hans Rossling’s presentation 10 years from now as he shows the ‘completely new world’ we live in, where those with good credit have access to every definition of economic opportunity one could conceive while those with poor credit are left to struggle for whatever remains as they descend into a self reinforcing spiral.

Tweet This Post