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Written by Stumo
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Tuesday, 30 October 2007 |
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How to you ferret out subsidies in China when the biggest companies
are government owned? Where does the government stop and the
company begin?
The Chinese steel industry is in major growth
mode. That would be fine if it were because of that mythical
beast, "comparative advantage." But that mythical beast exists
only in children's books, like the troll under the bridge in "Billy
Goats Gruff." Their steel industry grows from massive subsidies.
The European steel industry is looking for 25% to 40% duties on cold-rolled and galvanized steel to neutralize China's actions.
The
free traders will shout something about "protectionism" and "trade
war". But what does the dispute have to do with free trade except
to seek it? And how is it a way when you merely neutralize the
unfair conduct of the other, but not punish it?
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In the news
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Key Flaws in the Bailout Legislation
On compensation, which is central to reforming the banks, and equity participation, which is essential for insulating the taxpayers from loss, the legislation is not what is being advertized by the Administration and the Speaker.
The bailout hardly restricts executive compensation. Those provisions are vague, except for golden parachutes, and really only apply to banks the government would take over.
For banks and securities companies that sell bad assets to the Treasury through the normal auction process, restrictions on compensation really only apply to golden parachutes for the top five officers--compensation that only applies if the banks fail and the CEO is pushed out. Restrictions on compensation do not apply to work performed by incumbent employees until a bank goes bust.
Hence the banks will be free to continue to pay excecutives through bonus systems that encourage reckless decisions as and get banks in further trouble. Only after banks get in trouble again, can the government get involved in compensation and management practices.
The same flaws apply to government warrants (equity positions in the banks).
If the government buys $100 billion of toxic paper from Citigroup, for example, and Citigroup recovers for now, the government will be able to do little to alter its management practices or participate in the benefits of its recovery. Only if Citigroup fails, after the bankers have been paid again, will the government be able to get involved in its business practices or get an equity stake--only when the bank is near worthless.
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