I much appreciate your posts condemning the financial skullduggery at home and abroad, Mr. Peretz. You talked to the Great One recently, I assume you will again. Maybe you can put a populist bug in his ear. Though I realize the constraints, as you editorialize. Maybe impart to him the suggestion that my long - time friend Mike G. made to me last night with relish: John Edwards for A.G.

Mr P, when, if ever, will your man step up and denounce the obscene tax treatment of the 2-and-20 scamming hedgehogs' gazillions?

He's the hedgehogs' darling this year. He's swimming in money and doesn't need the millions he's received from these punks. Why doesn't he give the money back, support taxing their carried interest as normal income and promise to spend the $40+ billion gained thereby on, say, providing health insurance for all citizens?

Oh wait, he's a new kind of leader, I forgot. Besides, he's not in favor of UHC. My goof.

A little context - the Germans and the Swiss are especially irate about the subprime debacle because many of their formerly-conservative banks have in recent years dramatically increased their exposure to US assets-- especially derivatives like CMOs. So millions of Swiss and German shareholders are now learning, to their amazement, that their staid little bank which held a large portion of their retirement funds is now writing down tens of billions in losses in the US derivatives markets. Hence the fury from not just the SPD types but the haute bourgeoisie in Frankfurt and Zurich.

Separately, could we stop applying the irritating and distorting label of "populist" to every sensible proposal for reforming our Rube Goldberg tax code? A 15% tax rate for people who earn gazillions from the latest Fed-engineered asset bubble, or its collapse, is idiotic, full stop.

Tep, for those of us who have been in the banking business for a long time -- 30 years for me in one capacity or another -- this has all happened before many times -- oil bubbles, sovereign risk bubbles, hotel bubbles, S&L debacle.  I used to do a lot of business with Continental Illinois National Bank & Trust Co. of Chicago.  How many people even remember the name?  It was a very fine bank, great people.  I think it was the oil bubble that got them, but I really can't recall.

The monetarists worry about too much money chasing too few goods, in the sense of consumption goods. That leads to BAAAAAAD inflation.  But, being ideologues and royalists at heart, they never worry about too much money chasing too few investments which produces bubbles and crashes.  Nor do the mind having the public bail out the losers.  

If it hadn't been the sub-prime market, it would have been something else.  With the US pumping out budget deficits and trade deficits by the trillions, there is inevitably going to be more investment funds than real investment opportunity.  Too much money, rates go down, investors start chasing higher yields that are a phantom.  This is the result.  So it has ever been.  So it ever will be -- until we get a government in the US that knows what it is doing.

By the way, I couldn't agree more about the ridiculous situation of hedge fund managers being allowed to treat their fee income as long-term capital gains.  Absurd.  I say that as someone who runs a hedge-fund, although our trading style is so rapid that we only have short-term gains that are treated essentially as ordinary income (no rate break).  The IRS should never have accepted this interpretation in the first place.

I remember Continental, Penn Center etc. But the capital markets and market players had not yet triumphed then. What's new and different is the way the moneyfiddlers have managed to exploit all the various ways that our tax code privileges capital and disadvantages labor-- not just big labor but small labor, and work generally.

That neither party chooses to cut down on these various scams underscores my problem with the Tweedledum and Tweedledee nature of US party politics today.

Tep, I guess you're talking about capital gains.  Do you want to encourage investment rather than spending?  Then you give investment a tax preference.  In fact, every time the capital gains tax is lowered, the economy grows.  I understand how one might be resentful of fat cats and their tax preferences -- not just capital gains, but oil/gas/coal depletion allowances -- but there's sound economic justification.

I say this as one who, llke you, defaults to labor over capital.  I'm pretty much a Marxist in that respect.  But insofar as labor is heavily invested in capital through pension funds, the capital gains tax preference favors them as well as the fat cats.

Now, if you really want an outrage, try those hedge fund loopholes:  www.thecarpetbaggerreport.com/.../13166.html

The hedgehogs' carried interest is income, not capital gains, and should be treated as such. They know this, we know this, Chuck Schumer knows this, but no one in our party has the guts to end the scam and incur the wrath of Lambert, Schwartzman and the other scammers.

The economy grew just fine the last time that capital gains taxes were raised too.  In any case, the fees earned by hedge-fund managers for their management services are not bona fide capital gains.  They are fees for services.  That the investors have capital gains is a different issue.  In no other realm that I can think of are people able to transfer their own tax characteristics to someone else in the course of paying for services.

There is not really much justification for preferred capital gains rates.  It is not a matter of preferring investment over spending as it is not spending that is taxed but income.  Rather, preferred capital gains rates prefer capital over labor.  That is, if you earn your income from capital, you get to keep more of it than if you earn your income by work.  That is morally reprehensible.  If we taxed labor less heavily, we could expect both more spending, which fuels growth, and more widespread savings.  

For the plutocrats who run our country, their preference for the owners of capital to the owners of labor is really all the justification they need.  The rest is just mystification.  

"For the plutocrats who run our country, their preference for the owners of capital to the owners of labor is really all the justification they need.  The rest is just mystification"

That sums it up.

It would be interesting to trace the post-political careers of each party's former senators, aides, national committee chairmen, and governors during the last 30 years. Wonder how many pursued moneyfiddling careers? 30%? 50%?

As for laborers, what are they cryin' about? Didn't we give them cheap credit, cheap mortgages and big-box stores stuffed with cheap Chinese-made crap? Who do they think they are, demanding good schools, excellent public services, strong communities, health insurance and secure pensions?

Let 'em sell houses to each other.