Including: JPMorgan’s tax situation and the blind auction to fix it, the psychological impact of a negative interest rate, and RT-Mart.

Good morning

The headlines:

  1. JPMorgan and Her Majesty’s Revenue Service.

    Link: let’s have an auction.

    JPM, for the last 20 years or so, has used an offshore trust to pay bonuses. Of course, it meant that the money couldn’t be repatriated into the UK. But that’s why the rich and finfabulous go on holiday. And anyway, by “repatriation” we mean “direct repatriation”: but there is always a murk of familial trusts that allows eventual capital distributions back into the homeland.

    The interesting part of the story is that JPM is now asking those past employees to help settle the tax bill. Via blind auction. Where you get to bid the tax rate that you’d like to pay. And if there’s not enough money at the end, the folks who submitted a less than average rate get excluded from the deal and face a 52% tax rate when the trust’s assets are liquidated.

    Game theory tells us, I suspect, that the employees should bid a tax rate of about 52%*.

    Either way, I’m saying that those bonuses have been spent. And those JPM employees are in for a sweaty and nervous Christmas.

    *If you say that the top end is 52% and the bottom is 0% and everyone bids equally, you expect a median tax rate of 26%. So you think that you should bid 26%, in order to be reasonably sure of being in the top half. But then you think that most rational people would think that as well, so you realise that the bottom end is actually 26%, which means that the median tax rate will be 39%. But then you think that most rational people would realise that too, which means that the bottom end is actually 39%. Which makes the median tax rate is actually 45.5%. But then… And so on up to 52%. 

  2. ECB apparently wants to cut rates again.

    Link: to what, exactly?

    It seems that a majority of the ECB board are in favour of cutting rates. From 0%. And now we head into the obviously negative territory.

    Of course, in the “real” world, real interest rates in Europe have been negative for some time. If inflation in the Eurozone has been floating at around 2%, it means that real interest rates have been in the region of -2%. And if the nominal rate gets dropped to -0.5%, well that’ll just make the real interest rate more deeply negative (-2.5%).


    I think that there is a “real” psychological difference between a nominal rate of 0% and a nominal rate of -0.5%. With inflation, you’re aware of the fact that you might be losing money in theory – but in your day-to-day, you can’t see it on your bank statement. But when that changes, and you see “-0.5%” at the top of your internet banking page and the word “interest charge” appearing on your transaction history, I think people become very “principled”. And outraged. And irrational.

    Suddenly: they are spending money because, you know, “how dare the bank take my money?!” That’s my reaction. And I know it’s irrational.

    Maybe it’s just signalling. In a general sort of “if you don’t spend your money, we’ll confiscate it” kind of way.

    And I may be leaping the gun slightly, because we’re talking about the ECB benchmark rate, not the actual rate that Barclays or Credit Suisse will be offering on your deposit.

    But still.

  3. RT-Mart versus Wal-Mart.

    Link: smells fishy.

    There’s a chinese version of Wal-Mart called RT-Mart. Just like there’s a chinese version of Paypal called Alipal. And a chinese version of Apple called Topple*.

    But RT-Mart is recreating the Wal-Mart model. And making it Chinese, including tanks where you can pick out the live sea bass that you’d like to take home (it really can’t get fresher than that), trays of hairy crab lying open on tables, and live turtles and frogs.

    In my head, I am SCREAMING the word “hygiene”. And I can’t say that I’d like the smell and soupy puddles of water lying everywhere. But then again, if I were Chinese and my frame of reference was open markets and amber peking ducks hanging off clothing racks, I doubt that would be a problem. And when you look at the pictures, it really doesn’t look so bad:

    Sun Art Retail Group, the owners of RT-Mart, have had a 70% increase in share price since they listed last year. And their expansion is way way way ahead of the foreign rivals (Tesco plans to open 16 hypermarkets next year; RT-Mart plans to open 105).

    It’s just a reminder that foreign firms who “must be in China” can’t really be in China. Because the Chinese are in China.

    Come to Africa.

    Before China does.

    *I’m joking about this last one. I’m not sure that it’s actually called “Topple”.

That’s all for now.

Have a good day.