by | ARTICLES, CONSTITUTION, ELECTIONS, FREEDOM, GOVERNMENT, OBAMA, TAXES
What happens when the government uses its power to give money from one group of people to another group of people? It’s happening. It’s not supposed to happen. See, in our Constitution, the government has the right do things — limited things — in order to safeguard the rights of the people. Our Constitution relates to individual rights; it’s not a document on democracy. Unfortunately, these lines are becoming more blurred all the time.
Maybe democracy as a system of government by itself cannot work; in other words, if a democracy allows two foxes and a chicken to vote on what to have for dinner, it reveals a fatal flaw — because it allows an unfortunate outcome. Of course the two foxes are going to vote on having the chicken for dinner!
At the same time, democracy is the only best form of government if the majority protects the rights of the minority, whether it’s racial, economic, or whatever — those rights must be protected. But this applies to all. In the same way, a democracy voting to allow the lower 51% to usurp the property of the upper 49% is just as intolerable as usurping rights based on gender, religion, or race.
You can elect a Chavez or a Castro in a duly elected election, but you can’t allow him to just use the fact that he got a majority of the people’s as an excuse to abuse a minority of the people. People just can’t vote to take all the money for themselves.
You could have a referendum on whether the richest people (making over $200,000/year) should give their money to those making under $200,000. You could vote that… but not really because people also have the right to their own property. What then? How do you resolve this kind of conflict?
There is no mandatory, compulsory requirement to vote. If our Founding Fathers want to put voting in the Constitution they could have, but they didn’t. On the other hand, our Constitution specifically does not allow our government to take money from somebody and give it to someone else. Our Constitution merely gives the Federal government enumerated powers, and it in no way allows us to take money from some people and give it to someone else that the government has deemed more worthy.
When Barack Obama stated for the first time that he would take money from one group and give it to another — when he announced he was going after millionaires and billionaires to pay their fair share — it was the first time he verbally stated something unconstitutional.
In contrast, the states are allowed to make laws to do that — they don’t have Constitutions with enumerated powers as in the case of the federal Constitution.. States can legally, actually vote that more wealthy people must give money to less wealthy people. If and when that happens, people have the right to move within the United States to a different state with different laws — but yet still remain a US citizen. You can see the effect of this mentality even now, as high tax states have seen a population exodus to states that are less punitive.
So, what do when it is happening at the federal level? Vote for a new president? Perhaps that will change it. But how do we curb the effects of people receiving more and more wealth transfers and benefits? The unintended consequence of such policy is that the recipients will learn to always vote for the person that will create or continue policy that will benefit the voter in a tangible, direct, and economic way. As a result, the elections become less fair and based on being an informed citizen, and more on “How can I benefit? What’s in it for me?”
In this way, it logically follows that the argument could be made that you shouldn’t be able to vote if you have a conflict of interest. The suggestion of curtailing voting rights from those who are recipients of such egregious and unconstitutional policy is indeed drastic. But perhaps it should be a consideration for those who are too short-sided to see the long-term problems for this country — because the idea that our federal government can economically abuse a segment of the population for monetary gain is also radical.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, TAXES
Earlier in the month, Steven Russolillo correctly reported on weak business investment as a key reason for poor economic growth. However, it was incredibly frustrating that as an economic writer, Russolillo, could actually suggest this was a surprising phenomenon. It’s not surprising. In fact, it’s downright predictable. The Obama Administration has been steadily undermining businesses for years and this is the fallout of their policies.
Even though Russolillo should have known this, he could have also easily interviewed any number of business owners for his article; if he did, he would have found a multitude of reasons for weak business investment, including 1) anti-business attitudes; 2) threats of higher taxes; 3) actual higher taxes; and 4) increased government regulations. Instead, Russolillo made the rookie mistake of only talking to fellow economists, the ones who look at data and trends instead of actually being in the trenches of everyday business activity.
Russolillo acts as if low rates are the only key to business spending; they’re not. Businesses won’t spend if they continue to feel the threat of the government’s heavy-hand. Better to keep the company stabilized than attempt to stretch and expand and invest; you have no idea what new regulation or new tax will continue to wreak havoc on your long-term business plans and cash flow — they way this administration has done for the last seven years.
Businesses are tired of being treated as an both a source of extra government revenue and a playground for intrusive, burdensome policies that hurt, rather than help, our economy. It’s a no-brainer to anyone who is anyone in the business world why businesses are hesitant to invest; it’s a shame that more economists don’t know how to engage in critical thinking and basic journalism.
by | ARTICLES, BLOG, FREEDOM, GOVERNMENT, OBAMA, POLITICS
My good friend Don Boudreaux recently wondered aloud about the possibility of a Trump presidency, where he writes,
“I can understand and appreciate why some people believe that Donald Trump would be a less-dangerous president than would Hillary Clinton. (Although I no longer hold that view, I once did. And I concede that my current reckoning of the relative risks might be mistaken.) But I cannot understand why any sensible person believes that a Pres. Trump would serve any good purpose (beyond a Pres. Trump preventing there being a Pres. H. Clinton). I cannot understand why any sensible person thinks that a Pres. Trump will diminish rent-seeking and otherwise make the U.S. government less hostile than it currently is to Americans’ freedoms and prosperity.
Pres. Trump’s politically incorrect harrumphing and mad verbal ejaculations will no doubt give heartburn to “Progressive” academics with offices on the Charles and to “Progressive” editorialists with offices in Manhattan. But so what? Is a man such as Trump – a man so ignorant of civics, so boastfully boorish, so openly contemptuous of the rule of law, so flamingly ignorant of economics, so nastily bullying, so full of nativist fallacies, so fond of (and skilled at) rousing the rabble, and so megalomaniacal – likely to be someone who does positive good does not do great harm? Uh-uh.”
On the other hand, one could argue that the most important reason to vote for Trump is a chance to not screw up the Supreme Court for generations.
If Hillary wins and brings a Democrat Congress, we are in a Socialist regulatory state. If Trump wins, with a Republican Congress, the Congress will not pass any of his agenda.
by | BLOG, FREEDOM, GOVERNMENT
Randy Holcombe wrote an eloquent essay last month on the subject of “Black Lives Matter.” It’s a worthwhile piece to reproduce in its entirety.
“My initial reaction to the Black Lives Matter movement, like many old white guys, was that All Lives Matter. But recent events have changed my thinking on this.
My old thinking: Racial discrimination is a reality, but race is just one of many personal characteristics on which people discriminate. Good-looking people tend to be favored over ugly people. Tall people tend to be favored over short people. People with British accents tend to be favored over people with Southern accents.
Everyone should be treated as an individual and not judged based on personal characteristics over which they have no control. That doesn’t always happen, but a free society does not force people to deal with others except on terms that are mutually agreeable. If someone discriminates based on race or any other characteristic, those discriminated against must deal with this as best they can. People can’t be forced to drop their biases.
My new thinking: When those who hold racial biases also hold government-issued firearms and are given a mandate to go after the bad guys, this is life-threatening to those who the people with the guns and the mandate are biased against. Everyone who is reading this is well aware of the number of video recordings of white cops killing black victims who posed no immediate threat to anyone.
On the rare occasions when I’m stopped by the police, I’m a bit nervous about it. If I were black, I would have good reason to be terrified.
I place some of the blame for the current situation on the war on drugs, and some on the way police are trained.
As for the war on drugs, any victimless crime requires that law enforcement actively search for violators, because those violating the law are trying to keep their activities hidden, and nobody has an incentive to report the activity. Victims of robberies or muggings report those crimes to the police and want the police to help them. Buyers and sellers of drugs want to hide what they are doing from the police, who then have to come up with various pretenses to try to detect drug activity.
It creates an adversarial relationship between police and citizens. All citizens. Because the police don’t know whether you’re a drug dealer or a drug user, everyone’s privacy is subject to violation and everyone is a suspect. But if police suspect that some races are more likely to be involved in drug activity than others (even if it is true), those people are subject to more invasive policing, and the relationship between those people and the police is even more adversarial.
As for the way police are trained, I have a minimal amount of firearms training, most of it from law enforcement personnel, and my views are partly based on that training. I admit up front my training is minimal and welcome anyone to provide more information and set me straight if I’m wrong. Two things have bothered me about the training I’ve received.
First, there was an emphasis on using a firearm to get a “bad guy.” That’s the term that was used over and over again. I’ll agree that muggers, home invaders, and carjackers are bad guys. Because of the law enforcement background of the people who ran the courses I took, I assume that they are trained using the same language. Their job is to get the bad guy. This type of training creates an adversarial mindset among law enforcement personnel, in contrast to “the policeman is your friend” type of propaganda we’ve heard.
When the police stop someone for questioning, the officer’s mindset isn’t “I’m your friend,” it is “there is a good chance this is a bad guy. That’s why I’m questioning him.” Combine that with a racial bias, and it’s bad for blacks.
Second, I’ve done some scenario training, also run by law enforcement personnel, and the heavy emphasis in the training I had was on shooting quickly to neutralize the threat. Something bad was always happening in those scenarios. It was never a mistake to draw and shoot quickly. The mistake was to fail to recognize the threat until the “bad guy” had the upper hand.
Think about the recent police shootings in this context. Police are trained that they are going after bad guys, and they are trained to react quickly to neutralize any perceived threat. Those police were just doing what they have been trained to do.
The war on drugs combined with the nature of police training makes police view themselves in an adversarial relationship with citizens. Combine this with the increasing militarization of the police, and the police start to look more like an occupying force rather than the protector of our rights.
The situation is unfortunate for everyone, but when a group of people find themselves more suspect just because of their race, it’s especially bad for them. Sure, all lives matter. But black lives are the ones most threatened by the ever more adversarial police state.”
by | BLOG, BUSINESS, GOVERNMENT, TAXES
Massachusetts launched a new (modest) fee within the transportation industry with the stated attempt at modernization. But this isn’t that at all. It is a nickel taken for every transaction from one group of companies, and the proceeds will benefit another group of companies — their own competitors.
This new fee is imposed on “transportation network companies, or TNCs, such as Uber, Lyft, and Fasten. When Governor Charlie Baker signed a law earlier this month regulating TNCs, it included a little-discussed component. For every trip, the TNCs will have to contribute a nickel to a new fund to support modernization, training, and improvement of the taxi and livery industry. The 5-cent fee will stay in effect until the final day of 2021.”
Imagine having to involuntarily contribute to a fund whose stated purpose is the very companies/industry with whom you compete! That’s exactly what is happening here. It’s estimated that the nickel fee will generate about $15 million in revenue over the next few years, collected by Mass Development, the state economic development agency.
What’s worse is that there is no actual plan on how the money will be spent support modernize, train, and improve the taxi and livery industry — it’s still up in the air. But since the fee is now a given, this article here gives a wealth of interesting suggestions for the agency; it simultaneously exposes the fact that the Massachusetts bureaucrats are engaging in crony capitalism at its finest. Why is the government in the business of picking winners and losers among businesses?
by | ARTICLES, BLOG, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
This is an excellent editorial piece from the Wall Street Journal discussing the surprise announcement that Aetna, one of the leading insurers in this country, was withdrawing from the vast majority of Obamacare exchanges. But instead of sitting up and seriously considering this massive defection as a wake-up call (unlike all the previous failures), the Democrats want to blame Aetna itself in order to safeguard the narrative that Obamacare is working perfectly well. I have reproduced the piece in its entirety below; it’s worth the read.
“Democrats claimed for years that ObamaCare is working splendidly, though anybody acquainted with reality could see the entitlement is dysfunctional. Now as the law breaks down in an election year, they’ve decided to blame private insurers for their own failures.
Their target this week is Aetna, which has announced it is withdrawing two-thirds of its ObamaCare coverage, pulling out of 536 of 778 counties where it does business. The third-largest U.S. insurer has lost about $430 million on the exchanges since 2014, and this carnage is typical. More than 40 other companies are also fleeing ObamaCare.
The mass exodus will leave consumers consigned to the exchanges with surging premiums and fewer options, but don’t mention these victims to Democrats. They’re trying to change the subject by claiming Aetna is retaliating because the Justice Department is trying to block Aetna’s $37 billion acquisition of Humana.
The 2010 ObamaCare law makes it nearly impossible for non-mega insurers to operate, and a tide of regulations has encouraged consolidation. Aetna says the Humana tie-up will create economies of scale that could sustain the money-losing exchange policies.
But Massachusetts Senator Elizabeth Warren is now emoting on Facebook that “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.” This week the Administration also released a July 5 letter from Aetna in response to a Freedom of Information Act request. Democrats claim the document shows CEO Mark Bertolini conditioning Aetna’s ObamaCare cooperation on merger approval.
This is some gall. Aetna was answering a June 28 “civil investigative demand,” in which Justice’s antitrust division specifically asked how blocking the merger would “affect Aetna’s business strategy and operations, including Aetna’s participation of the public exchanges related to the Affordable Care Act.”
Soliciting sensitive internal information that Aetna is legally compelled to provide—and then making it public to sandbag the company—is the behavior of political plumbers, not allegedly impartial technocrats. If police tried this, it’d be entrapment.
Mr. Bertolini had merely replied that the legal costs of an antitrust suit would strain Aetna’s performance. The insurer would have “no choice but to take actions to steward its financial health” and “face market realities,” such as reducing unprofitable business. Public companies have a responsibility to shareholders, and the wonder is that any insurer is still part of the exchanges.
ObamaCare’s troubles aren’t the result of any business decision. The entire industry is caught in the law’s structural undertow. Despite subsidies, overall enrollment is flat, there’s too much monthly churn, and the exchanges aren’t attracting enough healthy people to make the economics work.
Blame the law’s architects, not Mr. Bertolini, who must wonder what happened to the political goodwill he has tried to bank over the years. Aetna was inclined to accept the exchanges as loss leaders to support ObamaCare’s mission of universal coverage. The company led ObamaCare’s industry pep squad in 2009 and 2010.
The calculation then was that subsidies would open a new market, and consumers would be mandated to buy their products. But in the final frenzy to pass the law, Democrats decided that insurers made too much money and they imposed price controls on profit margins. Now insurers are accused of declining to throw away more money.
The ObamaCare implosion means that about a quarter of U.S. counties will have only one or two plans, and in some zero. Areas in Arizona, North Carolina, Pennsylvania and Texas seem to be hardest hit, though the extent of the damage is still emerging.
Democrats figure they have insurers over a barrel because a Hillary Clinton Presidency is coming. She’s running on higher subsidies for beneficiaries, a taxpayer bailout for the industry, and a “public option” akin to Medicare for the middle class. In health care the solution to a problem caused by government is always more government, which will create new problems and beget more government.
Republicans have no obligation to participate. They had no hand in creating this mess and they’ve been mocked by Democrats and the media for years for warning about ObamaCare’s flaws and trying to repeal and replace the law. Assuming the GOP holds at least the House, they should insist that any “fixes”—which are fast becoming inevitable—create a rational health-care market. Democrats deserve to be held accountable for the collapse of their ideas.”
by | ARTICLES, BLOG, BUSINESS, CONSTITUTION, ECONOMY, ELECTIONS, FREEDOM, GOVERNMENT, HYPOCRISY, OBAMA, OBAMACARE, POLITICS, TAXES
Aetna’s decision to withdraw from 11 out of 15 state exchanges is a big deal; it follows the paths of UnitedHealth Group and Humana, both large insurance companies who have also chosen to cut ties with Obamacare. (Incidentally, the DoJ is trying to block a Aetna-Humana merger; are they worried about competition?)
A short analysis by Market Watch provides some insight into the decision and the current state of Obamacare:
**Aetna explained the decision as a way to “limit our financial exposure moving forward,” after pretax losses of $200 million in the second quarter and losses totaling $430 million on individual products since January 2014. The company did not specify what portion of the losses was attributable to individual public plan offerings.
**The company criticized the ACA’s “inadequate” risk-adjustment mechanism, which is meant to limit insurers’ losses as they start covering sicker individuals. It’s a common criticism from health insurers, which have long said that the risk-pool program isn’t working the way it’s supposed to, though others say big insurance companies should instead change their model to keep costs down.
**Of Aetna’s exchange membership this year, more than half is new, with those needing expensive care making up “an even larger share” in the second quarter, the company said.
**Coupled with the risk pool, this makes premiums costlier and “creates significant sustainability concerns,” the company said.
The affect of these withdrawls means fewer insurers and fewer choices for consumers than when the law first began several years ago. That’s not good. The law needs some reform. MarketWatch notes, “The Centers for Medicare and Medicaid Services has indicated a willingness to make changes to the risk-pool mechanism, although it’s unclear whether legislation to that end would be passed.
Any fixes will also depend on strong enrollment figures. Premiums have increased for 2017, but the financial penalty for not having health insurance has also increased. Whether that penalty, an average of $969 per household, according to a Kaiser analysis, will prompt increased enrollment is a “big wild card,” according to a co-author of the Kaiser report. A rise in premium costs “suggests additional enrollment growth is not a given,” said Riggs, having potential negative implications for hospital and managed care, along with investors in those spaces.”
Will this have an impact on the 2016 election? It will be interesting to see — especially since the open enrollment period is slated to begin on November 1, just days before the 2016 election. The cost of premiums, especially if they are substantially higher, may affect people’s voting decisions. Of course, don’t put it past the Administration to delay open enrollment until Nov 15 and shift everything by two weeks, in order to avoid a “November surprise”. The only thing that’s not a surprise at this point is that the law continues to founder considerably, at the expense and disruption of everyday citizens.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, HYPOCRISY, POLITICS
I recently posted an article from the National Review, which was an update from a previous article written 20 years ago — in 1995 — on the same subject: Hillary Clinton’s too-good-to-be-true commodity trading luck. The article provides an excellent analysis on all the things inconsistent with Hillary’s trade activity from the 1970s, documented the inconsistencies with Hillary’s explanations of how she seemingly got lucky, defied the odds, and made large sums of money.
Here’s a primer on commodity trading, and why Hillary Clinton’s trade deals are important for this election cycle. It’s very clear for anyone that Hillary really didn’t do any trading as she claimed; she allowed her broker to execute trades on her behalf.
With commodity trading: say you want 100 shares of X. You buy it with your trader, the trader goes down to the floor, does the transaction, it gets recorded under your name, and that’s that. So for instance, if you are buying futures — say 1000 head of cattle at a certain price — you are not actually buying the cattle, you are buying a future price. That means, you buy what you think the price will be at a certain point in time. With commodity trading you have the right to buy or sell these contracts, you have margins in which to operate,, and you can end up earning money or losing money if the price fluctuates widely.
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Now back in the day when Hillary was trading, the futures were often handled differently than they are currently. The brokers were so busy, they didn’t have the time or ability to record who did what in real-time like they do today; it was done after the market closed — but that’s also when a lot of buying and selling. happened. So Hillary Clinton’s broker, who had tied to Tyson Food and was a cattle producer could engage in beneficial trading; folks like him were always buying and selling futures because they were directly in the market.
The National Review article (Clinton’s Cattle Futures) is important because it provides a very detailed explanation of Hillary’s transactions. Hillary Clinton really wasn’t buying cattle; she was getting payoffs through her broker and who was just throwing profits into her account.
Three important points can be gleaned from the information. First, Hillary told everyone that anyone could have profited from the type of trading she (supposedly) did. But she really didn’t do the trading; in fact, it’s quite obvious that she didn’t even understand what kind of transactions were taking place. Most of her deals were actually downward movements when the market in general was going up, but she didn’t know that. It’s called trading on the short side — and no rational, inexperienced trader would know to or understand the thought of trading against the market trends, yet she did on several occasions, quite lucratively. Even today, she talks about riding a strong market, showing she doesn’t obviously understand that much of her profits were made by doing the exact opposite.
The second important point was the margin. Especially today, but even back then, no professional broker would allow you to execute a trade and any penny of movement that would make you lose thousands or cause your balance to be severely in the negative. For their own sake, they’d make sure you had collateral your account, and you need to have decent margin in case the cattle price changed 4-5 cents (which would translate into thousands). But Hillary Clinton regularly made trades with risks in the thousands, even if she only had hundreds in her account — and even negative on occasion. Hillary and Bill also lived on meager salaries with very little (if any) collateral. The fact that she was allowed to trade with consistently little-to-no margin is actually a violation of trade rules because it also puts the trader at risk — there’s no way any regular customer could do that.
3) The third salient point is in regard to the trading activity. There were a series of trades that she bought within 10% of the lowest price of the day, and when she sold, she sold within 10% of the highest price of the day. As any serious trader knows, there is no way anyone could consistently do that — unless there was help. If the broker was waiting at the end of the day, he could put the buys at below price and sells at the high price, so that she always made money; it is quite plausible this was the case, due to the record keeping methods and the name misspelling (HILARY) substantiate this.
It’s quite annoying to read the National Review article and consider how it squares up with the people who investigated Hillary’s trades at one point and declared there was no problem. Given what we know now, do these experts still think they were correct, or do they know they were bamboozled along with the rest of us.
There’s no possibility Hillary is telling the truth in this matter.
by | BLOG, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, TAXES
I always like to periodically check in on what’s going on in the world of federal debt and federal tax collections. The good folks over at CNS News consistently report the figures that come out of the U.S. Treasury so we can periodically see how our federal finances are doing. Here’s the latest snapshot:
During the 90 full months President Barack Obama has completed serving in the White House—February 2009 through July 2016–the U.S. Treasury collected approximately $19,966,110,000,000 in tax revenues (in non-inflation-adjusted dollars), according to the Monthly Treasury Statements.
During those same 90 months, the federal debt rose from $10,632,005,246,736.97 to $19,427,694,579,786.64—an increase of $8,795,689,333,049.67.
In July, according to the Monthly Treasury Statement released today, the federal government took in $209,998,000,000 in taxes and spent $322,813,000,000—running a one-month deficit of $112,815,000,000.
So far in fiscal 2016, according the Treasury statement, the federal government has collected approximately $2,678,824,000,000 in taxes and spent approximately $3,192,487,000,000—running a deficit of $513,662,000,000 for the first ten months of the fiscal year.
Given that the Bureau of Labor Statistics has reported that there were 151,517,000 people employed in the United States in July, the $19,966,110,000,000 in taxes the Treasury has collected during Obama’s first 90 full months in office equals approximately $131,775 per worker.
The $8,795,689,333,049.67 in additional debt the federal government incurred during Obama’s first 90 full months in office equals approximately $58,051 per worker.
The Treasury only needs to pull in another $33.89 billion in taxes to reach the $20 trillion mark for Obama’s presidency. (The $19,966,110,000,000 the Treasury pulled in during the first 90 full months of Obama’s presidency equals approximately $221,845,666,666.67 per month).
During the first 90 full months George W. Bush was president (February 2001 through July 2008), according to the Monthly Treasury Statements, the Treasury collected approximately $16,048,182,000,000 in taxes.
(From February 2001 through January 2009, the Treasury collected $17,251,191,000,000 in taxes. Bush was inaugurated on Jan, 20, 2001 and left office on Jan. 20, 2009, when Obama was sworn in.)
The $16,048,182,000,000 in taxes the Treasury collected during Bush’s first 90 full months in office equaled approximately $110,273 for each of the 145,532,000 persons who had a job as of July 2008.
During the first 90 full months of George W. Bush’s presidency, the debt rose from $5,716,070,587,057.36 to $9,585,479,639,200.33—an increase of $3,869,409,052,142.97. That equaled approximately $26,588 in added debt for each of the 145,532,000 persons who had a job as July 2008.
Here, according to the numbers published in the Monthly Treasury Statements, are the total receipts the Treasury has brought during the 90 full months President Barack Obama has completed in office:
Feb. 2009-Sept. 2009: $1,330,887,000,000
Fiscal 2010: $2,161,728,000,000
Fiscal 2011: $2,302,495,000,000
Fiscal 2012: $2,449,093,000,000
Fiscal 2013: $2,774,011,000,000
Fiscal 2014: $3,020,371,000,000
Fiscal 2015: $3,248,701,000,000
Oct. 2015 – July 2016: $2,678,824,000,000
90 Month Total: $19,966,110,000,000
by | ARTICLES, BLOG, BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, HYPOCRISY, POLITICS, QUICKLY NOTED
A must read, food-for-thought from National Review:
Herd Instincts
Is Hillary Clinton a better commodities trader than George Soros, or did she just get really, really lucky? Both explanations leave something to be desired.
By Caroline Baum & Victor Niederhoffer — June 1, 2016
Editor’s note: A version of this article originally appeared in the February 20, 1995, issue of National Review.
When Newt Gingrich told a Republican audience recently that his lucrative book deal paled in comparison with Hillary Clinton’s cattle-trading profits, the Speaker’s comments were greeted with wild applause and raucous laughter. Opened to public scrutiny less than a year ago, Mrs. Clinton’s one hundred-fold return from trading futures has already become part of popular lore. Whenever anyone is suspected of making a fast buck nowadays, the First Lady’s adventure in commodities trading is bound to come to mind.
On October 11, 1978, the future First Lady, a neophyte investor with an annual income of $25,000, opened a commodity-futures account with a deposit of $1,000. Her first trade was the short sale of ten live-cattle contracts at a price of 57.55 cents a pound: a commitment to deliver in December of that year 400,000 pounds of cattle with a market value of $230,200. One day later, she bought the contracts back at a price of 56.10 cents, just 0.15 cent above the low of the day, pocketing $5,300 for a return of 530 per cent.
Mrs. Clinton continued to be a net winner at the game. By the time she closed her trading account ten months later, she had racked up $99,541 in profits, a spectacular 10,000 per cent return on her initial investment of $1,000. Either Mrs. Clinton was a better trader than the legendary George Soros, whose best-ever annual return in thirty years of trading was 122 per cent, or she was led by an invisible hand.
During a press conference last April, the First Lady attributed her success to her advisor James Blair’s “theory that because of the economy in the early part of the 1970s, a lot of cattle herds had been liquidated, so that there was going to be a big opportunity to make money in the late Seventies.” After examining Mrs. Clinton’s trading records, Leo Melamed, the father of financial futures and former chairman of the Chicago Mercantile Exchange, and Jack Sandner, the Merc’s current chairman, found nothing irregular except, on occasion, insufficient margin in her account. Anyone could have done as well, these gentlemen said, given the doubling of cattle prices during her year of trading. Mr. Melamed called the brouhaha over the First Lady’s financial affairs “a tempest in a teapot.” Mr. Sandner attributed her success to her “trading the biggest bull market in the history of cattle. If someone caught that trend and traded it well, they could make an extraordinary amount of money, a lot more than $100,000, on a small investment.”
RELATED: The Dirty Business of the Billary Machine, Again
Yet Mrs. Clinton bucked the trend and traded it well. Most of her trades, including her first two, her last two, and her single most profitable trade (in dollar terms) were initiated from the short side, anticipating a decline in cattle prices. Short selling by the public is extremely rare, especially on a first trade. When one considers that both the investor and her trading advisor were using a herd-reduction theory to capitalize on the biggest bull market in cattle in history, the success of her short sales raises a bright red flag.
In other situations where the legitimacy of a transaction is suspect, the courts are guided by the common-law doctrine, enunciated by Supreme Court Justice Antonin Scalia in the 1994 case BFP v. Resolution Trust Corporation, that “a transfer of title for a grossly inadequate (or in some cases grossly excessive) consideration would raise a rebuttable presumption of actual fraudulent intent.” Except for a press conference or two attended by sympathetic journalists not familiar with commodities trading, the First Lady has done nothing to rebut that presumption.
IN SEARCH OF SLIME
Cases of fraud are notoriously hard to prove. In the investigation of a suspected fraud, the prosecutor does not expect to uncover a document outlining the terms of an illicit financial transfer between two parties. Similarly, an insurance investigator does not expect to find an arsonist standing on the fire-ravaged premises with match and empty gasoline can in hand.
But the clues are there. Despite their best efforts, perpetrators of fraud usually leave a slimy trail — what fraud investigators refer to as badges or indicia. As the Tennessee Supreme Court put it in the 1835 case Floyd v. Goodwin, “Fraud has to be ferreted out by carefully following its marks and signs, for fraud will in most instances, though ever so artfully and secretly contrived, like the snail in its passage, leave its slime by which it may be traced.”
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Insurance investigators have an objective list of marks and signs that they look for when a presumption of fraud exists. In cases where arson is suspected, one of the first questions a fire investigator tries to answer is: Was the pet removed from the premises? Medical fraud might be indicated when the medical bills in question are photocopies, or if they fail to itemize office visits and treatments. In cases of automobile-accident fraud, one marker would be a claimant’s attempt to discourage an insurance investigator from looking at the damaged vehicle.
As far as we know, there are no indicia for commodities-trading fraud. So we took it upon ourselves to develop a checklist of fraud indicators that would apply to a broad range of financial trickery. We are confident that any investment activity that scores high on our test merits a red flag. We have rated the likely legitimacy of Mrs. Clinton’s activities on a scale ranging from 1 (highly likely) to 10 (highly unlikely) for each often criteria.
1. Were the returns excessive as measured against a normal yardstick of performance? Yes. As discussed above, Mrs. Clinton’s annual return was more than eighty times George Soros’s in his best year. As far as we know, no non-professional has ever achieved a return of that magnitude. Stanley Kroll, a well-known commodities broker who worked at three major firms at that time, has written that none of his retail customers turned a profit. Neither did those of any of his colleagues at other firms. Even Mrs. Clinton’s trading advisor, Jim Blair, who says he was “damn good” at making money in commodities, suffered a $15 million trading loss shortly after his pupil stopped trading. Score: 10 points.
2. Has there been any effort to suppress investigation of the transaction? Yes. Mrs. Clinton was adamantly opposed to the appointment of a special prosecutor to look into her and her husband’s financial dealings, including her own trading activities, during the late 1970s and 1980s. She attempted to deflect attention from the matter by explaining away her newfound wealth as a gift from her parents, until the Clintons’ 1978 and 1979 tax returns were made public and the actual source of her windfall profit was revealed. Furthermore, despite our repeated and friendly requests to both the First Lady’s and the White House’s press representatives, none of our questions concerning the elementary details of Mrs. Clinton’s trades and the availability of original documentation has been answered. Score: 10 points.
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3. Are crucial records of the transaction missing or available only in duplicate form? Yes. The purchase and sale confirmations for Mrs. Clinton’s two most profitable trades are lost or missing. Her first, extraordinary transaction is also among the missing. The details were furnished by the Chicago Mercantile Exchange. Mrs. Clinton has no independent recollection of her first trade, which produced a 530 per cent return overnight. You can be sure that Fernando Valenzuela hasn’t forgotten the five shutouts in his first seven games as a rookie pitcher for the Los Angeles Dodgers in 1981. Score: 10 points.
4. Did the suspect alter his story regarding the activity in question? Yes. The White House furnished ever-changing versions of Mrs. Clinton’s trading activities. First, we were told she did her own research, relying primarily on the Wall Street Journal, and placed all of her own trades. Then mentor James Blair played an advisory role, but she made the decisions, determined the size, and placed all the trades. As it now stands, she relied on Blair’s advice, and he placed most of her trades. When queried, the First Lady said the confusion was the result of the way the story was communicated to the press. Score: 10 points.
5. Were a good portion of the purchases and sales executed near the most favorable prices of the day? Yes. As noted, Mrs. Clinton’s first trade of ten live-cattle contracts (sold short) was followed by a purchase at a price just 0.15 cent above the day’s low. The odds of a retail trader buying at a price 15 points off the intraday low on a ten-contract trade are about the same as those of finding the Dead Sea Scrolls on the steps of the State House in Little Rock.
Many of Mrs. Clinton’s subsequent transactions were executed near the day’s extremes, including her last big trade in July 1979. At a time when her account was $18,000 under water, she managed to sell fifty live-cattle contracts 0.12 cent from the high on a day when prices dropped by the 1.5-cent limit. Her very last trade was a purchase of fifty cattle contracts just 0.05 cent above the low of the day. Such precision trading would be enviable for a trader who spends every second of the trading day glued to the screen. It is a dazzling coup for a non-professional like Mrs. Clinton, who had many other claims on her time, such as litigating for the Rose Law Firm, serving on corporate boards, crusading for children’s rights, chairing the Legal Services Corporation, and performing various duties as the governor’s wife. Until Hillary’s diaries and Rose’s time sheets become public and reveal her whereabouts between the opening and closing of the cattle pit each day she traded, we cannot award her a perfect score. Score: 8 points.
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6. Was there anything unusual about the suspect’s behavior or anything irregular about the activity in question? Yes. As mentioned earlier, Mrs. Clinton, a neophyte investor with nearly no savings, traded the biggest bull market in the history of cattle primarily from the short side. Her first three transactions were short sales. The irregularities connected with her first trade alone should have tripped the security system. The commission of $500 and bid-asked spread of around $600 on such a trade came to more than her entire initial equity of $1,000. So from the moment she entered her first transaction she had already lost more than she could afford to lose. Unlike that of most traders, Hillary’s trading activity rebought and sold everything from one and two lots to sixty contracts at a time. In her waning days as a speculator, she day-traded fifty contracts at a time when she already had an open position of 65 contracts. Score: 10+ points.
7. Was the risk in the trading program inconsistent with the customer’s net income and net worth? Yes. Mrs. Clinton’s 1978 earned income of $24,250 from the Rose Law Firm partnership and husband Bill’s $26,500 as Arkansas attorney general are considerably lower than the minimums set by most brokerage houses for opening a commodities-trading account. If for some reason Mrs. Clinton had lost rather than won $100,000, where would she have come up with the money?
On three separate occasions (in November 1978, December 1978, and July 1979), the value of Mrs. Clinton’s open positions was well in excess of $1 million for days at a time, and in two cases for up to three weeks. A 2 to 5 per cent move — the sort of move that occurs about once every two weeks — in the wrong direction would have wiped out not only the Clintons’ net income for the year but also their entire net worth. Their joint political aspirations would have gone up in smoke if the governor-elect had been forced to declare personal bankruptcy as a result of his wife’s speculations in commodities futures. Score: 10 points.
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8. Was the suspect in a position to do a favor for any of the other parties involved? Yes. Hillary’s advisor, James Blair, was not only a family friend, but also counsel of Tyson Foods, the largest chicken processor in the world and Arkansas’s biggest employer. According to a 1994 article in The New York Times Magazine, the company’s chairman, Don Tyson, viewed “politics as a series of unsentimental transactions between those who need votes and those who have money . . . a world where every quid has its quo.” Clearly Tyson had money, and he put it on Bill Clinton in 1978. In return, as reported in The New York Times Magazine, he expected the new governor to raise the legal truck-weight limit in Arkansas so that Tyson Foods could compete with out-of-state poultry truckers.
Blair may also have been balancing an item in his own account. In the early months of the Carter Administration, Bill Clinton coordinated federal patronage in Arkansas, and one of his first moves in this area was to recommend Blair for the chairmanship of the Federal Home Loan Bank Board.
In Keys to Crookdom, written in 1924, George C. Henderson comments: “The great grafter does not buy government officials after they are elected, as a rule. He owns them beforehand,” And, in a prescient conclusion: “Occasionally good and faithful servants are rewarded by attorneys’ fat fees, gifts and market tips in addition to emoluments of the office.” Score: 10 points.
9. Was there any history of illegal, irregular, or unethical behavior on the part of the broker? Yes. Red Bone, the broker of record for both Mr. Blair and Mrs. Clinton, was suspended from trading for a year, even before he left Tyson Foods to run the Refco brokerage office in Springdale, Arkansas, for trying to comer the egg futures market. In 1979, Red was disciplined by the Chicago Mercantile Exchange for “serious and repeated violations of record-keeping functions, order-entry procedures, margin requirements, and hedge procedures.” Refco was fined $250,000, at the time the largest fine ever levied for commodity-trading violations.
One of Refco’s Springdale brokers at the time has admitted under oath that the firm was buying and selling blocks of contracts and allocating them to customers after the market closed. In one instance, after being chastised by their superiors in Refco’s Chicago headquarters, the brokers had to set back the time-stamp clock before stamping the day’s trades to give the appearance that account allocations had been properly made. Score: 10 points.
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10. Were rules, regulations, and normal operating procedures violated? Yes. Mrs. Clinton insists that despite the advice she received from James Blair, she maintained a non-discretionary account. Any non-broker who places an order for a customer is, by definition, acting in a discretionary capacity and must file the appropriate documents. And in view of Mrs. Clinton’s busy schedule and the precision timing of many of her trades, it is likely that Mr. Blair placed the orders without consulting with her. Yet no discretionary forms were ever filed. Finally, it is inconceivable that a prudent broker would assume all of the risk exposure for a client who did not have the funds to support her positions without a third-party guarantee. Score: 10 points.
Hillary’s total score on our financial hanky-panky scale is 98 out of 100, catapulting her to the top of the class for potential commodities fraud. A detailed examination of her trades seemed in order. We started with records of each purchase and sale confirmation and all of the monthly statements that were provided by the White House. Next we looked at the high, low, open, and close on each of these days to see how her fills compared to what was available. Finally, we calculated the unrealized gains, required margin, available equity, and commitments outstanding for each day during Mrs. Clinton’s ten months of trading.
FAVORABLE TREATMENT?
Backed up by legions of data, we were prepared to rebut the First Lady’s contention that “there isn’t any evidence that anybody gave me any favorable treatment.” Our analysis of the data and other documents yielded these observations:
1. Mrs. Clinton’s account was under-margined by $50,000 to $80,000 during a one-month period beginning November 10, 1978. Again in July 1979, her margin requirements were approximately $100,000 for several days, when there was negative equity (minus $30,000) in the account. A normal rule of thumb for commodity traders is to maintain equity of at least five times the margin requirement. Mrs. Clinton routinely reversed this ratio, maintaining equity around one-fifth of her required margin.
2. Her total equity would have been wiped out on three occasions, taking into account the commissions due and the cost of exiting the trades. On July 17, the commissions and bid-asked spreads on newly opened positions, added to her existing deficit going into the day, could have totally wiped out the family’s net worth, even without any market move against her.
3. Her name was misspelled “Hilary” on all the official brokerage statements she produced, raising the question of whether the statements were ever mailed to the detail-oriented attorney.
4. Her first two monthly statements reveal identical misalignments and faulty keystrokes on certain letters, raising doubts as to their authenticity. It wouldn’t take a great stretch of the imagination to conclude that they were generated simultaneously in an effort to cover the slimy trail.
5. Withdrawals from her account consistently kept her equity below $15,000. After each big win, she withdrew the spoils. Finally, after making about $100,000 in four days in July 1979, she closed her account down. Such behavior is inconsistent with human nature, as observed any day in Las Vegas or Atlantic City, as well as with Mrs. Clinton’s insistence that she reinvested her profits.
6. Two-thirds of her trades showed a profit by the close of the day she entered them, and 80 per cent of her trades, on both the long and the short sides, were ultimately profitable, percentages that are rarely achieved by the most successful professionals.
7. Commissions and slippage of her trades totaled more than 37 times her initial equity.
8. Most of her 33 trades were for five or ten lots. But on three occasions Mrs. Clinton traded fifty or sixty contracts, positions that would normally require about $1 million in equity to support. Each of these trades was entered at extraordinarily favorable levels relative to the price range of the day and was highly profitable by day’s end. On two of the large trades the overnight profits pushed a negative equity into the black. Had Mrs. Clinton lost on any of the large trades, the implications for her “investment program” would have been dire.
9. For a two-week period in July 1979, the equity in her account swung from negative $31,000 to positive $62,000. Finally, after the purchase of fifty contracts just a gnat’s eyelash above the low of the day, the account was closed with a withdrawal of $60,000, bringing total withdrawals to more than $99,000. Mrs. Clinton was allowed to trade like a millionaire, in the process violating numerous rules and procedures that industry professionals have developed to prevent financial catastrophe to customer and brokerage house alike.
10. More egregious than any of these other red flags of commodity-trading fraud was the size of Mrs. Clinton’s commitments. From day one, the size of her positions was wildly out of line with the equity available to absorb loss. On November 13, 1978, with $13,000 in her account, she controlled a position of 62 contracts with an underlying market value of $1.9 million. On December 11, 1978, she had $6,000 in her account and a ninety-contract position valued at $2.3 million. And on her third to last day of trading, July 17, 1979, she had 115 contracts outstanding with a market value of $3.2 million. The equity in her account was a negative $18,000.
The fluctuations in the price of Hillary’s cattle commitments taken in 1978 and 1979 averaged 1 per cent a day from close to close and 2 per cent from high to low. On unusual days, once or twice a month, cattle prices fluctuate by 4 or 5 per cent. All commodity traders know that they must be sufficiently liquid to withstand such extreme swings and avoid financial ruin. One 4 or 5 per cent adverse fluctuation in Mrs. Clinton’s position would have constituted five times her annual income and five times her net worth. And this is just a one-day move. Commodities have a nasty habit of moving against you for several days in a row, right to the point where you are forced to liquidate. But whenever Mrs. Clinton was on the brink of ruin, she managed to pull a rabbit out of a hat.
The outlook was not bright for her in the middle of July 1979. The total equity in her account was a negative $31,245. She owed $65,000 in margin requirement. On July 17, she doubled up, selling fifty more contracts just 0.12 cent off the day’s high of 68.72, and covering it that same day for a profit of $10,400. At the time, her required margin was $115,000 and her total cash due to the broker was $135,000. Most speculators know that doubling up when one’s position is seriously under water is a one-way ticket to ruin. Only if she had held a confirmed, round-trip ticket would someone in Mrs. Clinton’s position have been willing to risk the farm in such a high-stakes game. Providentially, three days later, on her last day of trading, the whole situation was resolved. Cattle closed down the limit again, and Mrs. Clinton covered her short position down by just 0.05 cent above the limit. She ended her career as a speculator with a final flourish to rival her first trade.
After extensive research, we have satisfied ourselves that Mrs. Clinton was neither naive nor lucky nor particularly talented as a trader. Even individuals who have never visited a futures exchange or traded one futures contract will, upon examination of the evidence, be convinced that Mrs. Clinton’s representation of the events 15 years later is highly implausible.
After a concerted attempt to follow the path and uncover the truth, we are still left with one gnawing question. Hillary Clinton earned profits of $99,541. What happened to the other $459?
Editor’s Note: This article as originally printed and reprinted mistakenly said that James Blair declared bankruptcy. In fact it was his broker, Robert “Red” Bone, who declared bankruptcy.
— Caroline Baum is a financial columnist with Dow Jones Telerate. Victor Niederhoffer is a commodities speculator. The authors wish to thank Jay McKeage and Jon Normile for their assistance. This article originally appeared in the February 20, 1995, issue of National Review.
