Wednesday, March 15, 2006

Two Noticied News Items

This Author was struck by two articles today--one in the NYTimes and the other a Reuter story. The Times article cited Utilities collecting Federal and State taxes from Customers, then never turning the tax revenue over to the tax authorities. The Reuter article cited Bernacke's defense of Deriatives. Utilities use claimed losses from other elements of business operations to eliminate the need to pay the collected taxes to tax authorities. Bernacke claims Deriatives are a factor of Risk Management, and help Companies guard against risk for Stockholders.

The striking point about Utilities's claim of tax exemption consists of the fact business losses cited come from outside the tax jurisdiction of the initiating Tax Authority. It is simple enough to tell Utilities they can only use business losses incurred inside the tax jurisdication of the Tax Authority, to forestall the payment of tax revenues collected within the tax jurisdiction. Many would classify such regulation to be a Trade Barrier, except possibly for the Taxpayer and Consumer. I side with the Later, thinking Private Sector enterprise has no right to call a Charge taxation, when it is not.

The Bernacke claim of the risk management of Deriatives is a bit of Kentucky windage in and of itself, without mentioning they need not have connection with the Enterprize over which they are issued. They are highly reminiscent of the old 'Bucket Shops' of the Robber Barron era, which had no actual connection to Stock Markets. These were basically nothing more than Betting shops (think stylized Casinos), and Deriatives are basically nothing more than online Bucket Shops. One wonders if We need this type of knowledge concerning Risk Management. lgl

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