My quick thoughts on the Euro deal

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This is a tremendously complicated subject and not all details are known. But here are some of my quick thoughts on the matter.

  • If banks “voluntarily” take a 50% haircut on Greek debt, I do not believe that a €106 billion recapitalization of the banks will be enough. I don’t think the dealmakers considered quite how big of a hit that haircut will be to struggling banks.
  • It appears that roughly half of this €106 billion is already built in to existing bailout plans for Greece, Spain, Portugal, and Dexia. However, that leaves over €50 billion in equity capital to be raised by large EU banks, which will have a hard time doing so. Although they can sell assets and cut dividends, in the end some of that equity capital may have to come from France and other national governments.

What about China?

  • The main source of potential new money is China. In theory, China could contribute capital to the EFSF and thereby help expand its scope.
  • In fact, the terms and conditions of Chinese participation are far from complete, so we should not consider it a done deal. China is likely to want an easing of trade restrictions and currency concerns that may be difficult for European leaders to accept.

Two policies using immigration to boost investment

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Can foreigners be lured by favorable VISA treatment into creating new jobs and bolstering home prices in the U.S.?

Yesterday’s Boston Globe had an interesting article about a program designed to increase business investment in the United States.

The immigrant investor program, created in 1990 by Congress to compete with a similar initiative in Canada, helps foreigners slash through the red tape in the US immigration system while allowing businesses … to raise the money they need to expand.

Continue reading →

Design key to Canada’s pension plan
[Financial Times]

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Like many developed nations, Canada continues to refine its retirement system. As part of that effort, the provincial governments will soon authorise a new savings vehicle – Pooled Registered Pension Plans (PRPPs). With the right policy decisions, PRPPs will go a long way towards increasing retirement security for millions of Canadians.

Canada already has a sophisticated retirement savings system. It has a financially stable public pension programme, and it offers substantial tax benefits to private savings. Even with those incentives, however, less than half of all Canadian workers – highly concentrated in large employers – participate in a private plan.

Read the rest at the FT

A clarification of my thoughts on retirement and the deficit

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Advisor One reported on a speech that I made about retirement. For the most part they understand my positions, but I want to clarify some of what they reported.

Speaking in Boston on Monday evening at the 4th annual Retirement Income Symposium, Pozen first said that it’s “pathetic on how little we’ve agreed on to deal with our debt.” Charging that “We’ve only agreed on $1 trillion; we should be aiming for $5 trillion,” he then laid out a proposal to “to keep our GDP to debt ratio as it is over the next 10 years.” Continue reading →

Herman Cain and the Chilean Retirement System
[Huffington Post]

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Herman Cain has been busy lately touting his 9-9-9 tax plan, which I wrote about on Monday. He has countered criticisms that his plan is regressive by noting that the current 15.3% payroll tax (which applies to the first $106,800 of income) would be abolished—lowering the tax burden for the working class.

This analysis leaves many questions, the most important of which is the issue of paying for Social Security and Medicare—which the payroll tax currently funds. Mr. Cain’s apparent solution to this problem would be to gradually move away from Social Security towards the Chilean model where employers contribute a portion of their payroll to a private account. But this change would not solve the problems with the program.

Read the rest at the Huffington Post

Let’s Get Real About 9-9-9
[Huffington Post]

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Herman Cain is now considered a front-runner in the race for the Republican nomination. Mr. Cain’s meteoric rise in the polls has been driven by his proposed 9-9-9 tax plan, which would scrap the current tax code in favor of a 9% flat tax on personal income, sales, and “business income.” Mr. Cain is to be commended for trying to drastically reform the tax code, but his plan presents an unending list of problems.

Read the rest at the Huffington Post

Most Likely to Succeed:
Leadership in the Fund Industry
[Financial Analysts Journal]

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What is the critical factor for success in the U.S. mutual fund industry? Is it top-ranked investment performance, innovative products, or pervasive distribution? In our view, it is none of these factors, despite their obvious importance. Instead, the best predictors of success in the U.S. fund business are the focus and organization of the fund sponsor. We believe that the most successful managers over the next decade will be organizations with two characteristics: dedication primarily to asset management and control by investment professionals.

Read the rest (PDF)