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Mark Gongloff   |   June 18, 2014   10:46 AM ET

If you are somebody who counts gun makers among the victims of the Sandy Hook Elementary School massacre, then I have an investment opportunity for you.

It's called Freedom Capital Investment Management, a new money manager that claims to be "the first investment manager dedicated to Patriotic Responsible Investing." That means buying stocks of gun makers -- which some investors dumped after the deadly school shooting in Newtown, Connecticut -- along with companies that promote "Energy independence, cyber security, American military security, Second Amendment rights, and agricultural independence," according to the firm's website.

"The Newtown event was extremely tragic; however, demonizing legal businesses -- particularly those that provide munitions to our military, thereby protecting America and its freedoms -- is unacceptable," the firm writes.

Freedom Capital isn't yet ready to accept investors, according to its founder, investment banker Jeffrey McClure. But if all goes well, it could be in business by the end of the year, and McClure told The Huffington Post he expects strong demand.

"There's a massive amount of capital allocated to various impact investing, socially responsible investing, agenda-based investing, letting all kinds of folks invest capital along whatever guidelines," McClure said by phone. "And we see a tremendous opportunity for a large portion of the capital markets to have an opportunity they haven't had."

In case you have any doubt about where Freedom Capital stands, its bare-bones website features pictures of bald eagles, American flags, men with guns, men on horseback, fighter jets and more men with guns -- just to give you some idea of how much freedom we're talking about, exactly. Let's just say it's a lot of freedom.

freedom flags

Actual picture from Freedom Capital's website.

This sort of imagery might lead one to think that Freedom Capital is a joke of the sort Stephen Colbert or corporate pranksters The Yes Men might dream up, but it's legit. It has an SEC filing, a Crowdfunder page and everything.

McClure's prior experience includes founding an investment bank called The Bear Companies and a specialty-finance firm called Kodiak Funding, both of which built collateralized debt obligations (though not of the toxic mortgage variety) prior to the financial crisis.

Freedom Capital said it's mad about how the media have forced investors into "socially responsible investing," which avoids investing in companies that destroy people's health and the planet. The number of funds with "an agenda-driven investment thesis" has grown nearly nine-fold since 1995, with assets of $3.7 trillion, according to Freedom Capital.

"All of these funds have a liberal bias," Freedom Capital writes. "Not one of these funds has a patriotic strategy."

Freedom Capital has had enough of this sort of thing and wants to do something about it, with "robust marketing campaigns to identify and educate investors about the stronghold that the liberal left has on the management of US household wealth" and "a proactive patriotic investment alternative."

freedom ride

Another picture from the Freedom Capital website.

"Want to invest in Green Technology and renewable energy? There's a fund for that," Freedom Capital's website freedomsplains. "Want to invest in guns or weapons manufacturers? No funds available for that, sorry."

Actually, if your goal is to invest only in guns and weapons, then, no, there is probably no such fund right now. But you can buy plenty of stock in guns and weapons makers just by buying one of thousands of mutual funds available through your company's 401(k) plan. And you are always free to simply buy individual stocks in these companies.

And perhaps it's with good reason that people have pumped $3.7 trillion into socially responsible investment funds, and that until now no one has thought to create a fund like Freedom's. Because what's the opposite of socially responsible investing?

"We know some people operate with a different moral compass," McClure said, "but there's opportunities for those people to invest the way they want to invest, and that's what makes America America."

Incidentally, the gun maker that made one of the guns used in the Sandy Hook massacre is called Freedom Group. It has no relationship with Freedom Capital, aside from a dedication to, you know, freedom. Its private-equity owner, Cerberus Capital Management, announced plans to sell Freedom after the massacre, but hasn't managed to let go of its grip yet, despite getting a $1 billion offer, according to Crain's New York Business.

If Freedom Capital had been around at the time of the Newtown massacre, it might have profited, like Cerberus, from the huge boom in gun sales that followed. Gun enthusiasts have snapped up guns and ammo in anticipation of draconian gun-control laws, though Congress still has not enacted any in the 18 months since the massacre, during which time there have been 74 more school shootings, about 15 of which were Newtown-style killing sprees.

Mark Gongloff   |   June 13, 2014    9:53 AM ET

For the past several years, China has been building stuff at a mind-blowing pace. Just how mind-blowing? Here, let's let Bill Gates put it in perspective:

Think about this for a second. Between 1901 and 2000, the U.S. built an entire interstate highway system, the Golden Gate Bridge, the Hoover Dam and just about all of its skyscrapers -- to name just a few concrete-intensive things. China did all that, and almost half again, in just three years.

On his blog, Gates suggested that all of this concrete had helped pull Chinese out of poverty. But all of this building has also left China with a huge and dangerous property bubble, massive ghost cities and empty housing.

Mark Gongloff   |   June 12, 2014    1:23 PM ET

Are you a wealthy Londoner with an appetite for risky investments and also delicious burritos? Then have we got a deal for you.

Chilango, a small Mexican-food chain operating in some of London's snobbiest neighborhoods, is raising cash by selling bonds that pay 8 percent interest per year for four years. That's a pretty high interest rate these days, more than the 5 percent junk bonds are paying.

As an added incentive, anybody who invests at least 10,000 British pounds, or nearly $17,000, gets a free burrito per week for each of those four years.

Here is some math: Chicken burritos at Chilango cost 5.99 British pounds, while pork burritos cost 6.99. If you enjoy consuming roasted dead pig, as I and The Wall Street Journal do, then investing in this bond will save you more than $600 per year in burritos.

chilango burrito

So far only 89 people have invested in the bonds, which are for sale at the crowdsourcing site Crowdcube. But after just a couple of days, the company is more than a third of the way to raising its target of 1 million pounds.

Before you clean out your 401(k) to jump on this opportunity, consider that probably only rich people could or should buy $17,000 in Chilango bonds. There is a good risk that you might not get your money back, or that you might show up hungry at a Chilango one day, burrito-paying bond in hand, and find the doors closed forever. The restaurant business is notoriously difficult. Perhaps, as Quartz notes, there is an unflattering reason Chilango is banging a tin cup on Crowdcube instead of getting a proper bank loan.

Still, Chilango's slick promotional video shows people lining (or "queueing," as they say over there) up around the block for burritos, so who knows? Early investors include former executives of the U.K. branches of Krispy Kreme and Domino's, who might be expected to know what they're doing.

And raising money this way is a clever PR stunt, at the very least. It follows in the footsteps of Naked Wines and other companies that have offered free stuff along with their bonds, Quartz notes. The company says it is using crowdfunding to better reach the masses. Investors should hope its ability to sell burritos is on par with its ability to sell itself.

Mark Gongloff   |   June 11, 2014   12:27 PM ET

Eric Cantor's political career is dead and Wall Street is sad.

The primary defeat Tuesday night of House Majority Leader Cantor (R-Va.) at the hands of Tea Party rival David Brat means Wall Street is losing one of its best buddies, a champion water-carrier for finance. And Wall Street wasted no time moaning about it.

"I thought it was stunning," Goldman Sachs CEO Lloyd Blankfein told CNBC on Wednesday, referring to Cantor's loss. "Eric Cantor in my view was a sensible politician who dedicated himself to public service."

"Many lobbyists on K Street whose clients include major financial institutions consider Cantor a go to member in leadership on policy debates," wrote Politico's MJ Lee and Zachary Warmbrodt.

An anonymous Wall Streeter told Politico that Cantor was “one of the few remaining House Republicans who understood the complicated and nuanced issues facing the financial services community," which is PR-speak for champion water-carrying.

And he was well-paid for that water-carrying, raking in more than $1 million in 2013-2014 from the finance, insurance and real estate industries, according to OpenSecrets.org. Goldman Sachs alone accounted for $26,600 of that. OpenSecrets doesn't have similar data for Dave Brat, who barely raised any money anyway. Cantor reportedly spent more money on fancy steaks than Brat spent campaigning.

As evidence of the depth of Cantor's loyalty, he was deeply concerned about the "mobs" of Occupy Wall Street. He was "incensed" by a proposal earlier this year by Rep. Dave Camp (R-Mich.) that the biggest banks should be taxed on their assets, to help curb their "too big to fail" advantages. Who could possibly get "incensed" by such a thing, except for bankers or their mouthpieces?

Scary bank-taxer Camp is leaving Congress at the end of his current term. But he could have a kindred spirit in Brat, who campaigned hard against Cantor's fealty to Wall Street.

"All the investment banks up in New York and D.C. or whatever, those guys should've gone to jail," Brat told fellow Tea Partiers in one campaign speech. "Instead of going to jail, where did they go? They went onto Eric's Rolodex. That's where they all are, and they're sending him big checks." (h/t Matt Stoller)

This line got a HUGE laugh from Brat's Tea Party audience and probably helped him win the primary.

Does he mean it? If elected, will Brat get busy putting bankers in jail? We'll see. Even after his victory on Tuesday, though, he said, “the Republican Party has been paying too much attention to Wall Street and not enough to Main Street."

In any event, these are not the messages bankers like to hear.

The wailing and gnashing of teeth over Cantor's departure could be heard even in the stock market, where the Dow Jones Industrial Average fell nearly 1 percent Wednesday morning, partly because of the practical implications of Brat's victory: If it moves Republicans even more to the right, then it's likely we'll get more existential crises over stuff like the debt ceiling.

But there is also an emotional explanation, as Joshua Brown, "The Reformed Broker," tweeted:

Mark Gongloff   |   June 11, 2014    7:39 AM ET

The recovery might soon start to feel like a real recovery: There are hints that wages could finally start growing again after a long rut.

Stagnant wages have left most Americans feeling like the five years since the Great Recession officially ended weren't much of a recovery at all. This chart of wage growth pretty much tells the whole story:

No matter how many million jobs have been created in the past five years, no matter how many new records the Dow Jones Industrial Average has set, no matter how many billions of dollars Uber is worth, your stagnant wages speak the loudest, and they tell you this hasn't been much of a recovery.

There are some signs that this story might be about to change. Conor Sen, a portfolio manager at New River Investments and a prolific tweeter and blogger, tweeted this chart on Tuesday. It shows how wages and job openings typically track each other over time, and how there's a big gap between the two right now:

Job openings have been on the rise, so wages should be, too, according to Sen and Business Insider's Joe Weisenthal. The idea is that when companies have jobs to fill, they'll pay up to fill them.

For all our sakes, let's hope so. Even Wall Street might be starting to grumble about how lousy pay is hurting the economy.

Meanwhile, small businesses report they are increasingly hard-up for employees and plan on raising wages soon, according to another couple of charts Weisenthal published, from the National Federation of Independent Business:

In the first chart, the thick line shows how much small businesses have raised pay in the past three months. The thin line shows how much they plan to raise pay in the next three months. Both lines have almost climbed back to pre-recession levels, which is good news.

small biz comp

The second chart shows how "labor quality" is a rising problem for small businesses. Good help is hard to find, in other words -- meaning they might be willing to pay more for it.

small biz probs

Businesses have stepped up their hiring a bit in recent months, a hopeful sign. But the overall pace of hiring is still far below where it was before the recession, the Economic Policy Institute, a think tank focused on labor issues, noted on Tuesday.

There were 4.5 million job openings in March, but 9.8 million people trying to fill them, the EPI pointed out. In other words, there were more than two workers for every job opening. In a normal economy, those numbers would be closer to even. It's hard to imagine wages surging while there's still this much slack in the job market. But maybe we're at least seeing the early hints of such a surge.

Mark Gongloff   |   June 6, 2014    2:48 PM ET

Now do you believe we're in a new tech bubble?

Uber, a controversial car-hiring app, just raised $1.2 billion in fresh investor cash, giving it a total value of either $17 billion, according to the company, or $18.2 billion, according to The Wall Street Journal. Really, though, what difference does a billion here or a billion there make any more, when money no longer has meaning?

Uber, the value of which has quadrupled in less than a year, is now the most expensive member of the WSJ's "Billion Dollar Startup Club," made up of companies being financed by venture capital that are worth more than $1 billion. There are now more than 30 such companies, most of them in tech, including Airbnb ($10 billion), Dropbox ($10 billion) and Pinterest ($5 billion).

Would you like some dubious comparisons to help you put these outlandish numbers in perspective? Of course you would.

Uber is the second most-valuable startup in history, after Facebook, according to the WSJ.

Uber is now worth more than half of the companies in the Standard & Poor's 500-stock index, including dozens of banks, oil companies and technology companies. It is worth more than Chipotle or Whole Foods. It is worth more than ancient-economy companies like Alcoa and Clorox.

Uber is now worth more than all the personal real estate in the crowded Washington, D.C., suburb of Falls Church, Virginia, according to the real-estate research firm Redfin.

Uber is now worth more than two times the net worth of billionaire/real-life-Iron-Man Elon Musk (as measured by Forbes).

Uber is worth more than George Lucas, Steven Spielberg, Donald Trump and H. Ross Perot combined.

Anyway, you get the idea: It's worth a lot of money. Whatever money is.

We have warned you repeatedly of a tech bubble in the past couple of years, and we continue to be correct.

The good news is that this tech bubble is probably not anything you should worry about just yet, unless you live in the parts of California that these absurd mountains of cash have rendered uninhabitable. You, normal investor, are probably not really at risk of getting too badly burned when all this goes kablooey the way you were in the dot-com bubble. The tech-heavy Nasdaq index is still far away from the record it set back then.

Then again, it's early yet.

Mark Gongloff   |   June 6, 2014   11:43 AM ET

We have finally recovered all the jobs lost in the Great Recession. That's good, but not nearly good enough. In fact, we might still be missing 7 million jobs.

The U.S. economy added 217,000 jobs in May, the Bureau of Labor Statistics reported on Friday. There are now nearly 138.5 million people on non-farm payrolls -- a high that finally tops the previous record of nearly 138.4 million set in January 2008. We've finally gotten back all the jobs we lost in the recession -- five years after the recession officially ended.

We can now retire this chart from Calculated Risk blogger Bill McBride, which Business Insider has long called "The Scariest Chart Ever." It shows how miserably long it has taken us to recover all of the recession's job losses, and how historically awful the recovery has been:

scariest ever

Unfortunately, we have a ready replacement for the Scariest Chart Ever, which shows the job market is still in a deep, deep hole. It's from the Economic Policy Institute, a think tank focused on labor issues. The EPI estimates that, in order to keep up with population growth, we should really have 7 million more people working today than we do:

jobs gap

"We are far, far from healthy labor market conditions," EPI economist Heidi Shierholz wrote on the EPI's Working Economics blog on Thursday.

In other words, the economy and job market have been growing for the past five years, but not nearly fast enough to give everybody a job that needs one. Discouraged after years of not being able to find work, people have slinked off to the sidelines and given up trying to find a job, resulting in millions of people not being counted in the official unemployment numbers. If these people came back, the unemployment rate would be 9.7 percent instead of 6.3 percent:

You could possibly quibble with the EPI's methodology. In figuring out how many workers are missing from the labor force purely because of discouragement about the economy, the EPI tries to strip out the effect of Baby Boomer retirements. To do this, EPI economists use a 2007 BLS forecast of future retirements, which might no longer be relevant -- it's possible the recession caused a shift in these numbers.

In other words, it's possible that more people than the EPI realizes have left the labor force, never to return. The Fed has been thinking about this possibility for quite a while.

Still, there is no doubt that at least some of the millions of people missing from the labor force are waiting for new jobs to come along. The job market still has a long way to go to get those people off the sidelines.

Mark Gongloff   |   May 23, 2014    2:11 PM ET

What is it with economists and spreadsheets? Another monumental work of economic research may have big data errors, if a new report by the Financial Times is true.

The blockbuster book by French economist Thomas Piketty, Capital In The Twenty-First Century, contains "many unexplained data entries and errors in the figures underlying some of the book’s key charts," FT writers Chris Giles and Ferdinando Giugliano claimed in a story published on Friday (subscription required).

Piketty defended the book at length in a response published on the FT's website.

The alleged errors don't seem to be as damning to the entire premise of Piketty's book as were the spreadsheet errors of Harvard economists Ken Rogoff and Carmen Reinhart, authors of an infamous study used to justify strict austerity measures in the U.S. and Europe. But they could undermine the book's reputation for analytical rigor. They will certainly lead to a frenzy of new scrutiny.

In a deeper dive on the specific errors, Giles noted what he described as fundamental problems with some of Piketty's numbers on wealth inequality.

"I discovered that his estimates of wealth inequality -- the centrepiece of Capital in the 21st Century -- are undercut by a series of problems and errors," Giles wrote. "Some issues concern sourcing and definitional problems. Some numbers appear simply to be constructed out of thin air."

Giles also said that the spreadsheets Piketty provided as source material for his book have "transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source."

This is an attack on one of the key pillars of Piketty's book, which claims that inequality is destined to return to the heights seen in earlier centuries unless governments intervene. The best-selling book has been embraced by liberals as a call to action to against inequality, and attacked by conservatives as a call for socialism and wealth redistribution. But nothing so far has dented the book's reputation for serious number-crunching.

In his detailed response, Piketty did not confirm or deny that there were any big errors in his data, but said his raw data sources had to be adjusted in some cases to paint a smoother picture, or to fill in gaps.

“I have no doubt that my historical data series can be improved and will be improved in the future," Piketty wrote, "but I would be very surprised if any of the substantive conclusion about the long-run evolution of wealth distributions was much affected by these improvements."

Piketty also pointed out that subsequent studies have backed up many of his conclusions, including the idea that wealth has become more concentrated in the U.S. in recent decades.

Giles seemed unsatisfied with these responses, declaring the entire premise of Piketty's book on shaky ground.

But, just as with the initial discovery of errors in Reinhart and Rogoff's work, this controversy has only begun. People will be pulling apart Piketty, and the FT, for months and maybe years to come.

Credit Suisse Proves It Really Is Too Big To Jail

Mark Gongloff   |   May 20, 2014    9:28 AM ET

Pleading guilty to criminal charges is proving so harsh and damaging to Credit Suisse that its stock price is only up 1 percent Tuesday morning. Must be nice to be too big to truly prosecute.

The Swiss bank pleaded guilty Monday evening to conspiring to help U.S. customers evade taxes, the first such guilty plea by a major financial institution in years. Not long ago, prosecutors, regulators, banks and shareholders all feared that having a major bank like Credit Suisse plead guilty could have catastrophic consequences for the bank and the global economy. Now they know better -- everything will be just fine.

"We continue to be hopeful and encouraged that there will be very little impact," Credit Suisse CEO Brady Dougan, who will keep his job as part of the bank's deal with prosecutors, said in a conference call Tuesday morning.

That should certainly make banks think twice before committing more crimes: It will make them think that doing crimes, and even copping to them, is not such a big deal.

credit suisse

No wonder shareholders are cheering and Wall Street analysts are keeping their "buy" ratings on the stock: Top bank executives will get to keep their jobs, the bank can pin the whole thing on a handful of underlings, and it won't have to give up a list of client names to the government. Credit Suisse will have to let an independent monitor keep an eye on it, but that's a minor inconvenience at worst. The guilty plea could cost the bank some clients here and there, but investors and analysts are betting there won't be much impact. The most painful part of the deal, the $2.6 billion in fines, is manageable, less than one quarter's revenue.

Government sources boasted to The New York Times about how a Credit Suisse lawyer begged them for mercy "with a quiver in his voice" before they brought down the hammer of swift, merciless justice -- the "force of the law," as the NYT's headline puts it. In the end, this lawyer was basically Brer Rabbit begging not to be tossed into the briar patch -- the bank got exactly what it wanted.

At the same time, our brave prosecutors were doing some begging of their own, pleading with regulators not to use a Credit Suisse guilty plea as a reason to force the bank to stop doing business, which would have rattled the financial system.

We're probably going to hear a lot from the Justice Department about how this case proves prosecutors have finally solved the problem of "too big to jail." Not by a long shot.

Big Bank Hit With Criminal Charges

Mark Gongloff   |   May 19, 2014   10:11 AM ET

The U.S. government has finally backed up its boast that no bank is too big to jail, if by "jail" you mean "vigorously slap on the wrist."

The Justice Department on Monday filed criminal charges accusing Swiss banking giant Credit Suisse of conspiring to help U.S. customers dodge taxes. The bank pleaded guilty to the charges, breaking from a recent tradition of letting banks defer prosecution. Credit Suisse also agreed to pay about $2.6 billion to settle the claims brought by the Justice Department, the Federal Reserve and New York State.

"This case shows that no financial institution, no matter its size or global reach, is above the law," Attorney General Eric Holder said in a press release announcing the settlement.

Though the government is undoubtedly proud of itself for successfully managing to prosecute a large bank -- with the first guilty plea for a big financial firm since 1989, The New York Times notes -- this by all accounts is turning out to be the most toothless criminal plea imaginable. It's hard to imagine it will deter future crimes.

Prosecutors and regulators have done everything they could to make this criminal case easy on Credit Suisse. The bank will not lose its ability to do business in the United States, The Wall Street Journal has reported. Its top executives, including CEO Brady Dougan and Chairman Urs Rohner, will keep their jobs.

Meanwhile, there is no indication that any more people will be criminally charged in the case beyond the small handful of lower-level bankers who have already been indicted. Dougan has claimed that bank management was unaware of what these underlings were doing and did not encourage tax evasion. The U.S. government could always bring more charges. For now, though, it has apparently decided to punish the bank's shareholders instead of its managers.

The settlement comes a little more than a year after Holder confessed that some banks are just too huge and interconnected and important to the global economy to threaten with criminal prosecution. Criminal charges have been death blows for other companies, like the accounting firm Arthur Andersen, and prosecutors have long feared that taking down a big bank that way would bring down the entire economy.

Holder, realizing too late what a horrible message he had just sent to the big banks -- they can get away with anything, basically -- soon recanted his remarks. He and other prosecutors have since repeatedly claimed that, in fact, no bank is too big to prosecute.

Prosecutors have been searching ever since for a bank to serve as an example. Credit Suisse won the lottery, though France's BNP Paribas may soon follow, according to the NYT and other reports. The long arm of the law does not yet reach American banks, apparently.

But Credit Suisse will apparently not be an Arthur Andersen-style prosecution. As The New York Times reported last month, prosecutors have been canvassing other regulators to make sure a big bank could plead guilty without any sort of life-threatening consequences. Credit Suisse is reportedly not going to lose its charter to do business in the U.S. and seems unlikely to face any other serious business repercussions as a result of this plea.

So what we have, in the end, seems to be a version of the anemic civil settlements and deferred-prosecution agreements that banks always get when they commit crimes. As usual, it is little more than the cost of doing business: Credit Suisse will make that $2.5 billion back with just a couple of quarters' worth of profits.

For now, the government's message to banks remains the same: Go ahead and break the law. If worse comes to worst, your low-level bankers will take the fall, and your shareholders will pick up the tab.

This post has been updated with additional facts and comments from the Justice Department.

Reason No. 567,397 The Market Is Rigged

Mark Gongloff   |   May 14, 2014   12:50 PM ET

For at least the past 16 years, stock market traders have apparently been profiting from sneak peeks at the most important monetary policy decisions in the world. But the markets are not rigged! No, sir.

Interest rate decisions by the Federal Reserve's policy committee between 1997 and 2013 were regularly leaked, generating hundreds of millions of dollars in profits for traders who got the information ahead of the rest of the market, according to a new study by Gennaro Bernile, Jianfeng Hu and Yuehua Tang of Singapore Management University, first reported by Bloomberg.

"Consistent with information leakage, we find robust evidence of informed trading during lockup periods ahead of the Federal Open Market Committee (FOMC) monetary policy announcements," the authors wrote.

Reporters at Fed headquarters in Washington have long gotten Fed policy statements before they are released to the public, giving them some time to write stories. They're under orders not to leak the data, obviously, but people have suspected for a while that the information was getting out anyway. The Fed tightened its controls in October, including blocking lines that connected reporters to the Internet in the Fed "lockup" room.

On a brighter note, the study found no evidence of traders getting leaks of government economic data, like the monthly inflation or jobs reports. But there are clearly holes in that system, too, and it's the subject of an FBI probe that launched last year.

The study's findings come in the middle of a heated debate about whether the stock market is "rigged" against small investors, as Michael Lewis recently claimed in his book Flash Boys. The high-frequency traders profiled in that book routinely take advantage of their speed, and occasional early peeks at news and data, to run ahead of slower traders to make big profits. Some, like me, call this rigging the market in favor of some traders over others -- although it has no impact on individual investors who just keep their money in index funds and forget about it (my preferred approach).

This particular study, however, focuses on a different, more old-fashioned kind of rigging. It's trading on material information you get in a non-kosher fashion. Even in this instance, some might consider this a victimless crime -- trading of this sort only makes markets more efficient, after all.

But it also contributes to the erosion of investor faith in markets. Again, that may or may not be a bad thing, depending on your perspective. To the extent it gets people to stop foolishly trying to trade against professionals who probably have an information advantage, it's a good thing.

The Government Just Made It Easier To Buy A Home

Mark Gongloff   |   May 13, 2014   11:26 AM ET

The U.S. government is about to make it easier for you to get a mortgage.

Mel Watt, the new head of the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, said on Tuesday that he had told the government mortgage giants to make more credit available to home-buyers, instead of retreating from the mortgage market as they have been doing since the financial crisis.

Watt made some changes to Fannie and Freddie policy that could get more housing credit flowing, at a time when many first-time buyers are still shut out of the market. Fannie and Freddie don't make loans, but they buy them from banks, giving them government backing. They guarantee about half of all the mortgages in the U.S.

In order to get banks to lend a little more, Watt ordered Fannie and Freddie to give banks more protection against the risk of being forced to buy back mortgages that go bad. That could make banks a little more willing to lend to riskier borrowers.

Watt also decided not to lower the size of the mortgages Fannie and Freddie can buy from banks, saying lower limits could hurt housing credit.

"[O]ur overriding objective is to ensure that there is broad liquidity in the housing finance market and to do so in a way that is safe and sound," Watt said.

The announcement is a big change from Watt's predecessor, Edward DeMarco, who had focused mainly on trying to shrink Fannie and Freddie.

This news should be a nightmare for Republican critics who have tried for years to kill Fannie and Freddie. Both companies have been in "conservatorship," a kind of temporary government control, since nearly collapsing in the crisis. President Barack Obama has joined Republicans and some Democrats in trying to pass laws that will end Fannie and Freddie and replace them with a private system. All such efforts have failed so far, and there's little chance of anything like them passing any time soon.

Republicans often claim that Fannie and Freddie caused the housing crisis by lowering their standards too much and taking on too much risk. But the agencies merely followed Wall Street and other major housing players in taking bigger risks, and were certainly not the worst actors ahead of the crisis. The agencies needed a $188 billion bailout, but have since returned $213 billion to the government.

In fact, they have played a major role in helping the housing market claw out of the pit of the crisis. A recent analysis by Credit Suisse found that ending Fannie and Freddie and forcing private lenders to take on more housing risk would raise mortgage rates and crimp housing credit, especially for first-time and low-income buyers.

Nobody wants to see a return to the dumb, old days when borrowers could get a mortgage just by fogging a mirror. But nobody wants to snuff out the housing recovery, either.

Geithner Accused Of Lying In New Tell-All Book

Mark Gongloff   |   May 12, 2014   11:24 AM ET

Tim Geithner did not exactly become America's Sweetheart during his tenure as our financial-crisis Treasury secretary. And his new memoir isn't winning him many more friends.

In fact, two people discussed in Geithner's new book, Stress Test, out on Monday, say Geithner is lying about them: conservative Harvard economist Glenn Hubbard, a former Mitt Romney adviser and massive weasel in the film "Inside Job," and Neil Barofsky, former head of the watchdog agency that kept an eye on the government's bank bailout.

"Mr. Geithner stands by his accounts in Stress Test," Geithner spokeswoman Jenni LeCompte wrote in an email to The Huffington Post.

Hubbard told Politico that a passage in Geithner's book, in which Hubbard is quoted as saying "of course we have to raise taxes" in order to balance the federal budget, is a big lie.

“Geithner is making it up,” Hubbard told Politico. “It’s pretty simple. It’s not true."

According to Geithner's book, he and Hubbard had a chat, which must have had all the warmth of a dead python in a meat locker, in the heat of Romney's presidential run in early 2012. Geithner claims that Hubbard whined to him about President Barack Obama not supporting the Simpson-Bowles deficit-reduction plan. Geithner says he shot back that "you guys" -- meaning maybe Romney, or conservatives generally -- had to agree to some tax increases first. Geithner claims that Hubbard responded with the conservative heresy that "of course" taxes would have to go up.

And Geithner is standing by that story, according to spokeswoman LeCompte, who told Politico and HuffPost: “Mr. Geithner’s memory on this exchange is crystal clear.”

Geithner's story sort of makes Romney look like a hypocrite, given that he had signed an Americans For Tax Reform pledge never to raise taxes, no matter what. Then again, it was only his adviser suggesting that taxes would be raised, and a no-tax-hike-ever pledge is ludicrous in any event.

In fact, the Simpson-Bowles plan, which Hubbard has endorsed repeatedly, calls for raising tax revenue, Vox's Matt Yglesias points out -- which would seem to make Geithner the winner of this particular argument.

Barofsky, the former Treasury Department special inspector general overseeing the Troubled Assets Relief Program (TARP), the $700 billion bank bailout, has a longer list of problems with Geithner's book.

Barofsky published his own book in 2012, Bailout (full disclosure: I have a blurb on the paperback edition), which roundly trashed Geithner as being more worried about protecting Wall Street than taxpayers or struggling homeowners. Barofsky described some unpleasant encounters with Geithner, including one that devolved into an f-bomb testing ground.

Geithner gets even in his own book. He claims that Barofsky was unqualified for the job of running the watchdog agency, also known as SIGTARP. He also claims that SIGTARP hurt the government's efforts to sell the bailout to the American people (as if the Treasury wasn't already hurting itself on that front) by warning the government faced potential losses of $23.7 trillion.

"Barofsky's desire to prevent perfidy was untainted by financial knowledge or experience," Geithner writes. "He assumed our motives were self-evidently sinister, as if we had helped banks for fun and profit rather than to cure a metastasizing financial crisis."

Barofsky disputes those claims and many others. In a post on LinkedIn on Friday, Barofsky wrote that Geithner is being misleading about that $23.7 trillion warning. He suggested that Geithner might be lying when he claims that another former Treasury secretary, Hank Paulson, apologized to Geithner for "bequeathing me Barofsky."

"Mr. Geithner refuses to allow facts to get in the way of good hyperbole," Barofsky wrote, repeating his assertion that Geithner cared more about helping Wall Street than Main Street.

Geithner, in the book and in many interviews, has maintained that rescuing Wall Street and preventing a run on the banks was necessary to stop a meltdown that might have consumed Main Street. It's been a brutally tough sell, given that the real economy suffered a grueling recession and dismal recovery, bank profits have rebounded nicely, and only one banker has gone to jail for wrongdoing during the crisis.

Piketty Is Right: These Wealthy Men Make Billions For Basically Doing Nothing

Mark Gongloff   |   May 6, 2014    9:38 AM ET

In the future foretold by French economist Thomas Piketty, the rich will keep getting richer by doing basically nothing, living off the income generated by their already massive wealth.

For many hedge-fund managers, that future is now.

The world's 25 best-paid hedge-fund managers took home more than $21 billion in 2013, mostly for charging enormous fees for keeping an eye on huge piles of money, according to a new tally by Institutional Investor's Alpha magazine.

It's a job most hedge funds do quite badly: The industry returned just 7.4 percent last year, according to Bloomberg, badly lagging the Standard & Poor's 500-stock index, which gained 30 percent.

But such poor performance doesn't come cheaply to investors, with hedge funds typically charging fees of 2 percent of total assets under management and 20 percent of profits. Last year was the fifth straight year that hedge funds trailed the S&P 500, by Bloomberg's tally. But fund managers probably don't give a damn one way or another: They get their significant cut whether they beat the market or not.

piketty

Take Steven Cohen. (Please!) The No. 2 manager on Institutional Investor's best-paid list took home $2.4 billion last year, even as he and his firm, formerly known as SAC Capital, battled insider-trading allegations, and even though his main fund lagged the market with a 20.5 percent return. Cohen had better returns in the old days, which helped justify his unusually steep 50-percent cut of investors' profits. Cohen, who was not personally charged with insider trading, from now on will just manage his own substantial wealth, estimated at about $11 billion.

Some managers did a better job earning their keep: Last year's No. 1 earner, David Tepper of Appaloosa Management, enjoyed returns of 42 percent and took home $3.5 billion for his troubles. Still: $3.5 billion dollars!! That is the benefit of managing a $20 billion mountain of money. No. 3 on the list was John Paulson of Paulson & Co. -- famous for making billions betting against mortgages ahead of the financial crisis. He took home more than $2 billion last year. He made some good bets, but it helped that he did so with a $20 billion cash pile.

Even when these people aren't managing money, they're still taking home grain silos full of cash: Renaissance Technologies founder James Simons was fourth on the pay list with $2.2 billion, despite not managing any of Renaissance's $25 billion since 2010.

"Those with sizable fortunes -- even people who are no longer managing money on a day-to-day basis -- can qualify for the ranking based simply on gains on their own capital invested in their own funds," Institutional Investor wrote.

This is pretty much the sort of thing Thomas Piketty warned us about. In his blockbuster book, Capital In The 21st Century, the economist points out that returns on capital typically outpace economic growth. That means the already wealthy will just keep getting wealthier without really having to do much, while the rest of us will fall further and further behind.

The exorbitant paychecks of men like Cohen and Tepper help explain how the top 0.01 percent of earners in this country are leaving even their fellow 1 percenters in the dust, widening an already yawning income gap. The chart below, from the World Top Incomes Database, which Piketty helped compile, tells the story:

unequal top

To make matters even worse, some of this vast income is being taxed at just the 15 percent capital-gains rate. Piketty has called for a global tax on wealth to slow down runaway inequality. Simply doing away with the loophole that lets hedge-fund billionaires keep so much of their often poorly gotten wealth could be a good start.