U.S. Sunday Morning Political Show Highlight: Why Everyone Should Be Watching Bloomberg Government's Capital News

By Keith Edmund White, Editor-in-Chief

Bloomberg Government (or BGOV) has a new show, Capital Gains, which focuses on "business implications of government action." Hosted by Peter Cook, the show (1) adds depth to stories that talking heads usually just endlessly bandy about and (2) getting voices that wouldn't make the normal talk-show circuit but adds a needed viewpoint lacking from the national discussion.

In short, it's close to the web-news program I would one day would to produce.  And one you should watch. 

Side-note:  If BGOV and HuffPoTV teamed up, I think you could have, within 5 years, the first internet news channel that could compete and beat cable news for those who preferred Nate Silver's blog over ESPN this fall--and I know I would to watch it.

With so much focus on the emerging fiscal cliff, if you want a sense of how politicians are going to crunch the numbers of get past the ideologues carping more about strategy than policy, this is the show for you to watch.

Today Capital News/BGOV offers a fantastic segment with Aetna CEO on what a group of business leaders are advocating as part of a grand bargain, and a truly enlightening conversation with two Bloomberg number crunches on just how a fiscal deal can be reached--and common misconceptions of two leading ways to reign in Medicare spending.

The show re-airs on Bloomberg TV at noon and 5 PM, and I suspect by this evening or tomorrow morning, the full show will be available here.  In the meantime, watch some of the previous episodes.

In short, this is 'must-see' Sunday morning TV.

Want to know where to watch--online or otherwise--this fantastic program? From BGOV.com:

Bloomberg Government’s Capitol Gains airs Sunday mornings at 11:30AM EST on W*USA9 and on Bloomberg Television at 12:00PM EST and 5:00PM EST.

Follow Bloomberg Government and Peter Cook on Twitter at @BGov and @PeterCCook and follow the conversation at #CapitolGains.

Canada vs. USA: Canadians Are Wealthier, But Will 'Innovation Drain' Short Circuit Canada's Success?

By Keith Edmund White

In July, a study that found Canadians’ net wealth—averaging $363,202—surpassing that of their Southern neighbors by over $40,000 got a lot of airtime on cable news. 

But is this Canadian wealth-assent here to stay?

Well, first, let's see what Canada's getting right.  For that, check out Stephen Marche’s July 15^th Bloomberg article, Hardheaded Socialism Makes Canada Richer Than U.S.  He cites Canada’s superior Constitutional structure, rich natural resources, and smart policy choices as keys to Canada's wealth success (without much actual analysis).  But that's because his real thesis is much more narrow, and easier to identify:  Marche credits “[t]he stability of Canadian banks and the concomitant stability in the housing market.” But this, at least to me, falls under Canada's superior public policy choices, which--with some of my own reading between the lines--really looks like Marche liking Canada’s left-leaning, parliamentary democracy over America's log-jammed  republic that splits its executive and legislative functions.

But, however one might read into the article, is Marche’s ode to Canada fair?  Canada bucked the financial troubles that have plagued America—and, let's not forget, Europe.  And Marche does admit that a big part of that relative success owes to Canada's burgeoning energy sector (of which America is the biggest buyer).

But is Marche missing Canada's economic Achilles' heel? 

According to the Library of Parliament Research Services (the Canadian version of Congressional Research Services), Canadian citizens and policy makers have reason to fret over their long-term economic health.  Canada is falling behind when it comes to innovation: 

…Canada’s weak innovation performance can generally be traced to the overall poor business investment in innovation.  The panels (past reviews of Canada’s innovation performance) also showed that Canada’s relatively subpar productivity growth will put the nation’s prosperity in jeopardy, if left unaddressed.”  (The Business of Innovation in Canada:  Challenges and Responses, Dillan Theckedath, June 8, 2012)

I recommend reading the report (which may lead you to ponder how to properly define and measure innovation) to appreciate how hard defining, let alone discussing, how best to spur innovation can be.  But the report gives one implicit and one explicit takeaway.

Explicitly, it shows that Canadian industry--owing to Canada's large size but small population--does not encourage its industries to come up with innovative products of techniques.  And, with Canadian worker productivity already in the pits, its shows that Canada's wealth victory over the United States might have as much to do with America's bad choices as Canada's right choices.

But the reports implicit finding is probably more important.  When it comes to assessing whatever headlines may grab the attention of the talking-heads for a day, its important to remember that success tends to blur both what's right and wrong with a nation.  Was America’s rise in the 90s owing to particularly stronger political leadership than 2012--let alone a different constitutional framework?  I don't think so.

And with that in mind, American readers should not assume that America's current economic weaknesses mean everything is going wrong at home.  In fact, America i an innovation leader, a characteristic that might just propel America's economic motor to--once again--be the envy of the world.

RBC 'Wash' Suit Heading to Court, and Will This All Depend on CRA’s Tax Assessment?

By Keith Edmund White, Editor-in-Chief 

RBC turned down settlement offer from the Commodities Futures Trading Commission (CFTC), prepares for court battle, and lays forth the broad outlines of its defense.  And guess what?  RBC's snagged a pretty good lawyer.  For people wondering why is this news, check out my earlier CFTC-RBC post.

RBC's 'Wash' Suit Lawyer Talks To the Press

Bloomberg and The Star, splitting updates from RBC’s defense attorney, report that the Royal Bank of Canada (RBC) has opted to fight CFTC’s charges in court, and even turned down a settlement offer from the CFTC.  This leads me to suspect that the settlement offer was rather high, which—in turns—increases the odds that the CFTC is looking for big financial penalty from the Manhattan federal district court.

The Bloomberg article also begins to outline how RBC may defend itself in court.  At Bloomberg, RBC’s defense attorney Arthur W. Hahn chats with Doug Alexander and Silla Brush, and appears to lay out two lines of defense: 

“No Injury.”  Hahn argues that there was “no injury” to the market from RBC's allegedly 'wash' transactions. What does this mean?  Well it appears to implicitly concede two chief points of the CFTC’s complaint:  that (a) RBC’s OneChicago LLC exchange transaction were between RBC and its affiliate, and (b) that senior RBC officials set the prices on the trades. Doesn’t look good, but Hahn’s cournter:  “The trades all took place art absolutely appropriate calculable market prices” and hence there was “no injury…” What this leaves out? The small fact that RBC was the only market participant, which to me seems the real crux of this case.  

RBC Followed the Rules.  Hahn also states that RBC’s transactions were “within standard rules and the guidances put out” by the CFTC. 

The Star’s Madhavi Acharya and Tom Yew give two additional insights from Hahn:

CFTC Changed the Rules on RBC After the Fact.  The Star talks to Hahn too, and adds this interesting gloss that could work in a jury trial: 

RBC says that it informed the regulator and the exchange, OneChicago, as far back as 2005 that it was making large block trades between various subsidiaries.

“We called the exchange and fully detailed everything we were doing and we wanted to make sure this is okay. We had essentially a green light. We proceeded to do these exact trades as we described them, all the way through 2010,” Hahn said. 

“They now would like to take a different position. Our view is that’s fine. Change the rule but don’t bring in enforcement action after the fact.”   

Will This All Come Down to a Canadian Tax Ruling? The Star also gives us this nugget of insight from former CFTC general counsel and current D.C.-based partner for Arnold & Porter LLP:

“The question is whether the tax scheme is legitimate. If it’s not, the whole thing looks very unsavoury,” Waldman said. “If the tax scheme is legitimate, then it’s an issue of the trading mechanisms that were used and what was said to the regulator.” 

Naturally, the Canada Revenue Agency isn't talking.

A Bit More On RBC's Lawyer, and my Burning Market-Of-One Quandary for Him (and the CFTC)

Finally, here’s more on RBC’s attorney David W. Hahn.  He’s a long-time “super lawyer” partner at Katten Muchin Rosenman LLP, A Northwestern law grad, and worked for Senator Paul Douglass (a finance committee member back in the 60s).  Not only has he taken on suits like this on both sides of the ‘v’, Katten LLP’s website boasts their knowledge of CFTA’s recent legislative changes and regulatory moves (which serves as a good introduction to the statute sections and regulations that will be defining this case).

The burning issue (maybe):  Perhaps Hahn or someone at CFTA will catch this post and explain to me how the injury of price distortion works in a one-participant market setting, or simply showthat my ‘injury’ focus in utterly misplaced.

Securities Lawyers Get the Best Discovery Process Settings?  And, on a lighter note, I hope Hahn gets a nice trip out what's shaping up to be a deeply contested and consequential court battle.  RBC's tax-avoidance/alleged 'wash' trading scheme taking place between RBC subsidies in Toronto, Europe, the Bahamas, and the Cayman Islands, suggesting--perhaps--a more pleasant-than-not discovery process.  Sadly, I suspect most of the documents and witnesses with be flown in Chicago.