Excerpt from June 2015 Mortgage Industry Newsletter:

A while back Kroll Bond Rating Agency released a presentation that was shown at the Real Estate Symposium in Salt Lake City, UT. The presentation gave an overview of the market, discussing how low interest rates are causing home prices to rise and are encouraging sales of mortgages into the agency market but are not increasing mortgage lending, particularly purchase mortgages. Industry regulations and requirements are having an adverse effect on new 1-4 family mortgage loan originations, which are at a 12 year low. Commercial banks are also exiting the 1-4 family mortgage origination market as almost 80% of the compliance costs for small banks derive from residential lending. Bank revenues from mortgage sales, securitization and servicing were down $9.1 billion or 35.1% YoY. For more information regarding the presentation, contact info@kbra.com.

…Since Puerto Rico’s bonds are not subject to taxation at the state, local or federal level, portfolio managers have scooped them up to bolster returns, often without a lot of disclosure to clients regarding what, exactly, is going into their retirement accounts. As the fiscal crisis has grown more severe, retirees have begun to realize that their supposedly vanilla municipal funds might contain serious risks….. The continued inability to tame spending highlights Puerto Rico’s deficit of governance that has prolonged its recession and driven its debt to crisis levels. Regardless of whether Puerto Rico can file for bankruptcy, any American judge is going to demand that the territory engage in a program of fiscal consolidation that includes reducing payroll and eliminating superfluous expenses. Until such a program is adopted, expect the crisis to swell.”, Daniel Hanson, “Profligate Puerto Rico on the Brink”, The Wall Street Journal

“Could it be more clear after seeing the Greek and Puerto Rican debt crises? Excessive numbers of government employees (relative to the private sector), who make a lot more than their private sector counterparts and have lavish pension and benefits not enjoyed by the private sector, unrealistic government entitlement programs, and excessive regulations and taxes on what private sector survives, destroys peoples’ desire to work hard, take risks, and build their careers and/or firms to create real private sector jobs and real wealth. Whether its Greece or Puerto Rico (or Venezuela or Cuba), you can see the failed politics and economic policies of liberal democracies and socialists (when more people who vote are riding in the cart than willing to pull the cart). And what’s Greece and Puerto Rico’s solution once the markets no longer will allow them to borrow to live unsustainably beyond their means? To tax the private sector more!!!!! I am not a farmer, but I would think this would be analogous to “over-milking” a cow, doesn’t the cow eventually just wear out and give up and stop producing milk?”, Mike Perry

Opinion

Profligate Puerto Rico on the Brink

The governor says debts of $70 billion can’t be repaid. No wonder—serious solutions haven’t been tried.

Puerto Rico’s Capitol building in San Juan. Photo: Ricardo Arduengo/Associated Press

By Daniel Hanson

As Puerto Rico struggles under the weight of more than $70 billion in debt, it has become popular to draw parallels with Greece. But the comparison isn’t apt: For one thing, Greek leaders’ profligacy is tempered by their need to answer to the European Union.

Puerto Rico, on the other hand, is for the most part left to chart its own course, and the crisis in the Caribbean is so severe because its leaders have been so much less serious.

“The debt is not payable,” Alejandro García Padilla, the governor of the unincorporated American commonwealth, told the New York Times a few days ago. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

If only that were true. Gov. Padilla has stuck to a pledge not to lay off government workers, though more than two-thirds of the territory’s budget is payroll. The proposed budget—supposed to be approved Tuesday—for the fiscal year beginning July 1 contains no plans for head-count reductions. That budget still does not have enough votes to pass, despite the reality that the territory’s leaders could run out of cash by mid-July.

Puerto Rico’s debt crisis is the result of years of government mismanagement. Dozens of agencies and publicly owned corporations have run deficits year after year, making up the difference by borrowing from bond markets.

Since Puerto Rico’s bonds are not subject to taxation at the state, local or federal level, portfolio managers have scooped them up to bolster returns, often without a lot of disclosure to clients regarding what, exactly, is going into their retirement accounts. As the fiscal crisis has grown more severe, retirees have begun to realize that their supposedly vanilla municipal funds might contain serious risks.

The prospect that Puerto Rico might not repay its debts has sparked debate in Congress over a bill, H.R. 870, that would allow some of the commonwealth’s subsidiaries, like its electric and water utility companies, to file for bankruptcy. Investors feel cheated by the prospect that the territory, which issued its debt under a legal framework that excluded it from default, might walk away from its obligations.

Underlying the proposed legislation—and the governor’s comments—is the assumption that Puerto Rico would repay less than the face value of its bonds. Under the bankruptcy code, however, the territory first would have to prove that its eligible subsidiaries are insolvent. That means demonstrating a structural inability to pay, not simply an unwillingness to implement necessary reforms.

The lack of seriousness in Puerto Rican budgeting seems to suggest that the territory would not meet a legal test for insolvency. Overspending in Puerto Rico is a bipartisan phenomenon through at least five administrations—four Democrats and one Republican, former Gov. Luis Fortuño. In the past four years, when the fiscal crisis has been most severe, four successively larger budgets have been enacted. The budget proposed for the coming year is $235 million larger than last year’s and $713 million, or 8%, higher than four years ago. Austerity this is not.

Median household income in Puerto Rico hovers around $20,000, according to the U.S. Census Bureau, but government workers fare much better. Public agencies pay salaries on average more than twice that amount, a 2014 report from Banco Popular shows. Salaries in the central government in San Juan are more than 90% higher than in the private sector. Even across comparable skill sets, the wage disparity persists.

The administration seems to believe higher taxes are the answer. An increase in the island’s sales tax passed last month, to 11.5% from 7%, is projected to raise more than $1 billion in a year. This is the fifth tax increase since 2013, intended cumulatively to generate more than $4 billion. In reality, they have raised less than $1.5 billion in new money as more Puerto Ricans move their economic activity underground, businesses cut outlays, and the exodus to the U.S. continues.

In Greece, more than 150,000 government workers have been laid off amid a recession that has seen output decline by more than 25% and total employment drop by 17% since 2006. In Detroit, cuts to pensions, sales of public assets, and a reform of governance structures preceded negotiations with creditors over debt repayment. In both cases, government reform helped make the official sector more efficient.

In Puerto Rico, the decline in the real economy has been less than 8% over the past decade, and while total employment has declined 16%, the population has declined more than 10%, leaving the unemployment rate only slightly higher than it was in 2006. Yet the commonwealth continues to spend more on growth-inhibiting programs—regulations, fees and taxes—rather than on pro-growth stimulus initiatives like agency mergers, investment in business infrastructure and public-private partnerships.

The continued inability to tame spending highlights Puerto Rico’s deficit of governance that has prolonged its recession and driven its debt to crisis levels. Regardless of whether Puerto Rico can file for bankruptcy, any American judge is going to demand that the territory engage in a program of fiscal consolidation that includes reducing payroll and eliminating superfluous expenses. Until such a program is adopted, expect the crisis to swell.

Mr. Hanson is an analyst at Height Securities in Washington, D.C., which advises clients with financial interests in Puerto Rico.

Opinion

The President Against the Historian

Michael Oren’s candid account of Obama’s Mideast policy has won him the right enemies.

Michael Oren, Israel’s former ambassador to the United States, in 2012. Photo: Bloomberg

By Bret Stephens

Michael Oren, Israel’s former ambassador to the United States, has written the smartest and juiciest diplomatic memoir that I’ve read in years, and I’ve read my share. The book, called “Ally,” has the added virtues of being politically relevant and historically important. This has the Obama administration—which doesn’t come out looking too good in Mr. Oren’s account—in an epic snit.

The tantrum began two weeks ago, when Mr. Oren penned an op-ed in this newspaper undiplomatically titled “How Obama Abandoned Israel.” The article did not acquit Israel of making mistakes in its relations with the White House, but pointed out that most of those mistakes were bungles of execution. The administration’s slights toward Israel were usually premeditated.

Like, for instance, keeping Jerusalem in the dark about Washington’s back-channel negotiations with Tehran, which is why Israel appears to be spying on the nuclear talks in Switzerland. Or leaking news of secret Israeli military operations against Hezbollah in Syria.

Mr. Oren’s op-ed prompted Dan Shapiro, U.S. ambassador in Tel Aviv, to call Mr. Netanyahu and demand he publicly denounce the op-ed. The prime minister demurred on grounds that Mr. Oren, now a member of the Knesset, no longer works for him. The former ambassador, also one of Israel’s most celebrated historians, isn’t even a member of Mr. Netanyahu’s Likud party, which makes him hard to typecast as a right-wing apparatchik.

But it’s typical of the administration that no Israeli slight is too minor not to be met with overreaction—and not only because Mr. Obama and his entourage have thin skins. One of the revelations of “Ally” is how eager the administration was to fabricate crises with Israel, apparently on the theory that strained relations would mollify Palestinians and extract concessions from Mr. Netanyahu.

To some extent, it worked: In 2009, Mr. Netanyahu endorsed a Palestinian state, an unprecedented step for a Likud leader, and he later imposed a 10-month moratorium on settlement construction, a step not even Labor Party leaders like Yitzhak Rabin ever took.

But no Israeli concession could ever appease Mr. Obama, who had the habit of demanding heroic political risks from Mr. Netanyahu while expecting heroic deference in return. In 2010, during a visit from Joe Biden, an Israeli functionary approved permits for the housing construction in a neighborhood of Jerusalem that Israel considers an integral part of the municipality but Palestinians consider a settlement.

The administration took the Palestinian side. Hillary Clinton spent 45 minutes berating Mr. Netanyahu over the phone. Deputy Secretary of State Jim Steinberg “summoned” Mr. Oren to Foggy Bottom and read out his list of administration demands. What follows is one of the more memorable scenes in “Ally.”

“Steinberg added his own furious comments—department staffers, I later heard, listened in on our conversation and cheered—about Israel’s insult to the president and the pride of the United States. Then came my turn to respond.

“ ‘Let me get this straight,’ I began. ‘We inadvertently slight the vice president and apologize, and I become the first foreign ambassador summoned by this administration to the State Department. Bashar al-Assad hosts Iranian president Ahmadinejad, who calls for murdering seven million Israelis, but do you summon Syria’s ambassador? No, you send your ambassador back to Damascus.’ ”

“Ally” is filled with such scenes, which helps explain why it infuriates the administration. Truth hurts. President Obama constantly boasts that he’s the best friend Israel has ever had. After reading Mr. Oren’s book, a fairer assessment is that Mr. Obama is a great friend when the decisions are easy—rushing firefighting equipment to Israel during a forest fire—a grudging friend when the decisions are uncomfortable—opposing the Palestinian bid for statehood at the U.N.—and no friend at all when the decisions are hard—stopping Iran from getting a bomb.

Best friends are with you when the decisions are hard.

***

Since “Ally” was published, Mr. Oren has been denounced in near-hysterical terms in the media, Israeli and American. In Israel the carping is politics as usual and in the U.S. it’s sucking-up-to-the-president as usual. The nastiest comments came from Leon Wieseltier, the gray eminence of minor magazines, and the most tedious ones came from the Anti-Defamation League, that factory of moral pronouncement. When these are the people yelling at you, you’ve likely done something right.

Mr. Oren has. His memoir is the best contribution yet to a growing literature—from Vali Nasr’s “Dispensable Nation” to Leon Panetta’s “Worthy Fights”—describing how foreign policy is made in the Age of Obama: lofty in its pronouncements and rich in its self-regard, but incompetent in its execution and dismal in its results. Good for Mr. Oren for providing such comprehensive evidence of the facts as he lived them.

…They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece’s four main banks…When it became clear that a radical Syriza government under Mr. Tsipras would come to power, many investors quickly turned heel, dumping their Greek government bonds and bank stocks in large numbers before and after the election. But a brave, hardy few stayed put — around 40 to 50, local brokers estimate — taking the view that while the new left-wing government could hardly be described as investor friendly, it would ultimately agree to a deal with Europe. It would be a bumpy ride for sure, but for those taking the long view that Greece would remain in the eurozone, holding on to their investments as opposed to selling them in a panic seemed the better course of action. For now, at least, that seems to be a terrible misjudgment, especially if Greece defaults and leaves the euro…Many of these forays were made during the heady days of 2013 and early 2014, when the view was that, in a rock bottom global interest rate environment, risky Greek assets looked attractive, especially if the reform process continued. Among the most dubious of these was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson’s hedge fund took last year in the Athens water monopoly. The company had little debt and was set to be privatized, making it an attractive prospect at the time. But the privatization process is now frozen and the monopoly is struggling to collect payment on its bills from government entities that are nearly broke, making it unlikely that Mr. Paulson will get much of his money back.”,

“These guys, like Paulson, are some of the “geniuses” who executed the Big Short on mortgage securities and U.S. financial institutions and I believe, through formal or informal coordination of trades, drove these assets and housing well below long-term fair value, and destroyed companies, homes, jobs, and lives in the process. They won big, but winning big also means you are willing to take on big risks. Here, while their Greek bets are small in comparison to the size of their funds, they are losing big and as the article notes, “for now, it seems to be a terrible misjudgment.” These guys aren’t geniuses, they don’t know what the future holds, and they are as fallible as the rest of us.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Panic Sets in Among Hardy Hedge Fund Investors Remaining in Greece

By LANDON THOMAS Jr.

Greeks lined up outside the National Bank of Greece. The prime minister said the banks would not open on Monday. Credit Eirini Vourloumis for The New York Times

ATHENS — For investors around the world looking at Greece, there was but one question Sunday: What is going to happen when the markets open?

On Sunday night, the prime minister, Alexis Tsipras, said in a televised address that Greece’s banks and stock market would be closed on Monday, as Athens tries to avert a financial collapse.

But the question of what happens when the markets do open is particularly acute for the hedge fund investors — including luminaries like David Einhorn and John Paulson — who have collectively poured more than 10 billion euros, or $11 billion, into Greek government bonds, bank stocks and a slew of other investments.

Through the weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working round the clock comforting and cajoling his frantic hedge fund clients.

“People are freaking out,” said Mr. Papapolitis, 32, his eyes red and his voice hoarse. “They have made some really big bets on Greece.

But there is no getting around the truth of the matter, he said. Without a deal with its European creditors, the country will default and Greek stocks and bonds will tank when the markets open.

David Einhorn is among the hedge fund investors who have collectively poured more than 10 billion euros into Greek bond, bank stocks and other investments. Credit Mike Segar/Reuters

On the ground here, the surprise decision of Mr. Tsipras, to hold a referendum has turned what was a bank jog into more of a sprint, with most Greeks anticipating the move to close the banks on Monday.

Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins.

The yields on Greek government bonds, now around 12 percent, are expected to soar as investors rush to unload their positions in a market that of late has become extremely hard to trade.

Bank stocks, when the stock market opens, will also be hit with a selling wave, as they cannot survive if the European Central Bank withdraws its emergency lending program.

There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago.

When it became clear that a radical Syriza government under Mr. Tsipras would come to power, many investors quickly turned heel, dumping their Greek government bonds and bank stocks in large numbers before and after the election.

But a brave, hardy few stayed put — around 40 to 50, local brokers estimate — taking the view that while the new left-wing government could hardly be described as investor friendly, it would ultimately agree to a deal with Europe. It would be a bumpy ride for sure, but for those taking the long view that Greece would remain in the eurozone, holding on to their investments as opposed to selling them in a panic seemed the better course of action.

For now, at least, that seems to be a terrible misjudgment, especially if Greece defaults and leaves the euro.

Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds.

The largest investors include Japonica Partners in Rhode Island, the French investment funds H20 and Carmignac, and an assortment of other hedge funds like Farallon, Fortress, York Capital, Baupost, Knighthead and Greylock Capital.

A number of hedge funds have also made big bets on Greek banks, despite their thin levels of capital and nonperforming loans of around 50 percent of assets.

They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece’s four main banks.

Big positions have also been taken in some of Greece’s largest companies. Fortress Capital bought $100 million in discounted debt belonging to Attica Holdings, Greece’s largest ferryboat holder. York Capital has taken a 10 percent stake in GEK Terna, a prominent Greek construction and energy firm.

In 2014, Blackstone’s credit arm bought a 10 percent chunk of the Greek real estate developer Lamda Development. And Third Point, one of the earliest, most successful investors in Greek government bonds, has set up a $750 million Greek equity fund.

Many of these forays were made during the heady days of 2013 and early 2014, when the view was that, in a rock bottom global interest rate environment, risky Greek assets looked attractive, especially if the reform process continued.

Among the most dubious of these was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson’s hedge fund took last year in the Athens water monopoly. The company had little debt and was set to be privatized, making it an attractive prospect at the time.

But the privatization process is now frozen and the monopoly is struggling to collect payment on its bills from government entities that are nearly broke, making it unlikely that Mr. Paulson will get much of his money back.

To be sure, many of these hedge funds are enormous, and their Greek investments represent a fairly small slice of their overall portfolio.

Mr. Papapolitis, who used to work at the law firm Skadden, Arps, Slate, Meagher & Flom in New York structuring exotic real estate deals, moved back to Greece in 2008 and has led some of the biggest hedge fund deals in the market.

Of the same age and generation as many of his clients, he feels their pain.

“These guys are my friends,” he said. “They invested in Greece when the economy was improving. And now this happens — I feel obliged to be there for them.”

He is not the only point man for hedge funds coming to Greece.

Timeline: Greek Debt Crisis

What you need to know »

• December 2009 Credit ratings agencies downgrade Greece on fears that it could default on its debt.
• May 2010 Europe and Greece reach a $146 billion rescue package, conditional on austerity measures. Some economists say the required cuts could kill the patient.
• January 2015 Greek voters choose an anti-austerity party. Alexis Tsipras becomes prime minister.
• May 2015 Greece quells fears of an imminent default, authorizing a big loan payment to the I.M.F.
• June 2015 Greece defers a series of debt payments until the end of the month.

Last week, a group of about 12 of the largest remaining hedge funds arrived in Athens to attend a seminar organized by George Linatsas, a founding partner of Axia Ventures, an investment bank that specializes in Greece, Cyprus, Portugal and Italy, as well as shipping.

With all the large investment banks and law firms having largely given up on Greece, Mr. Linatsas and his team of analysts became the main port of call for hedge funds that started buying Greek government bonds in 2012.

Then, the bonds were trading at 12 cents on the euro and they soon shot up to 60 cents, making billions of dollars for those early investors.

“People made their careers on that trade,” Mr. Linatsas said. “The problem now is politics and whether there is a government that can take this country to the next stage.”

The outlook seems grim.

Indeed, in recent months these investors have spent little time breaking down balance sheets or discounting cash flows. Instead, they have spent every effort trying to figure out what the Syriza government is up to.

Some have tried to get an edge by listening to Greek radio. Others have hired firms to study video clips of Mr. Tsipras and his finance minister, Yanis Varoufakis, to try and discern whether they are telling the truth.

And an increasing number have resorted to begging journalists for inside scuttlebutt.

Because few Syriza officials will meet with the investors, a large number of them have banded together, an unusual occurrence in an industry that puts the highest of premiums on secrecy. They exchange tips and theories via emails when they are apart and over wine-soaked dinners in Athens during their frequent trips here.

At times, the swankiest hotel in town, the Hotel Grande Bretagne (or G.B. as it is commonly known) is so full of hedge fund executives (mostly in their 30s) that some have called it the G.G.B. — the acronym for Greek government bonds.

In recent days, as it was becoming clear that the Syriza government was not going to accept the latest proposal from its creditors, stress and anxiety, in some cases, turned to outright anger.

“I just can’t believe these guys are willing to torch their own country,” one investor with a large holding of Greek bonds lamented in an email. “They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don’t get paid because banks shut — what are they going to do?”

A version of this article appears in print on June 29, 2015, on page B1 of the New York edition with the headline: Panic Sets In Among Hardy Hedge Fund Investors Remaining in Greece.

…Hurray!!! You are supporting personal choice/liberty, free-market competition and democratic capitalism. P.S. Fascinating and hypocrtical that California is willing to take the billions in capital gains tax revenues that firms like Uber generate on the one hand and then actively work to destroy their business model (by ruling their drivers are employees) on the other.”, Mike Perry

In an Uber World, Fortune Favors the Freelancer

By TYLER COWEN

With the rise of companies like Uber, entrepreneurs in a variety of fields are extending the concept of connecting customers and workers in what is sometimes called the new sharing economy. There are now online services for private tutors, dog walkers and delivery of packages and groceries, among numerous other options, and it is likely that these ventures will expand.

Many taxi drivers dislike the competition from Uber, but we need to think more systematically about the winners and losers as these new institutions develop. The greater convenience they provide consumers is obvious, but is this generally a good or bad thing for people on the other side of the market, the workers? One recent study, by Jonathan V. Hall of Uber and Alan B. Krueger, a professor of economics at Princeton, supported by Uber, suggested that Uber drivers earned more than typical taxi drivers and chauffeurs. A study of Airbnb by the economist Gene Sperling, in conjunction with Airbnb, found that the service helped supplement middle-class incomes.

In New York, a demonstration in support of Uber outside the offices of the Taxi & Limousine Commission in Lower Manhattan. Credit Michael Appleton for The New York Times

Recently the California Labor Commissioner’s Office ruled that one Uber driver was an employee rather than an independent contractor. Uber is appealing the ruling, and it has prevailed in some other states. We don’t yet know how the laws surrounding these services will develop, but the economic efficiencies of institutions like Uber and Airbnb appear to be robust.

Such services are likely to continue to spread. If they do, what else is there to say about their broader implications? In the absence of a lot of systematic data, how might economists think through the effects of these new developments?

On the positive side, the so-called sharing economy allows workers to use their time more flexibly. Drivers can earn money without working full time, and without having to wait around at taxi stands for the next passenger. The workers can use their newly acquired spare time for other purposes, including studying for college, teaching themselves programming or simultaneously offering themselves out for different sharing services: If no one wants a ride, go help someone with repairs around the house.

In short, these developments benefit those workers who are willing and able to turn their spare time to productive uses. These workers tend to be self-starters and people who are good at shifting roles quickly. Think of them as disciplined and ambitious task switchers. That describes a lot of people, but of course, it isn’t everybody.

That’s where some of the problems come in. Uber drivers are much more likely to have a college degree than are taxi drivers or chauffeurs, according to the Hall and Krueger study. It found striking differences between the two groups: 48 percent of Uber drivers have a college degree or higher, whereas that figure is only 18 percent for taxi drivers and chauffeurs.

Only some workers benefit when each hour, or each 15-minute gap, is up for sale. One way to put the general principle is this: The more efficient market technologies become, the more important are human capabilities and backgrounds in determining who prospers and who does not.

To get a better handle on how some workers might lose, consider a hypothetical situation in which such services — and all freelancing and outsourcing services — do not exist. Let’s say a software company receives periodic contracts to execute projects, but it has to rely entirely on current full-time staff. The company then must train its workers to handle a wide variety of possible projects, and so the amount and cost of corporate in-house education go up. But all things being equal, because this training costs something to the company, worker wages will be lower.

In this case, those workers who benefit will be those who need that push from the in-house education to acquire new knowledge. But some self-starting workers might have learned the material on their own anyway. Those workers receive more in-house education than they need, which, in turn, means they are paid lower wages and might well be worse off than they would have been in an economy that encourages self-training and freelance opportunities. One implication is that if the Uber idea spreads, it could discourage corporate training and may require that workers have stronger educational backgrounds. Ideally, formal education should refocus to prepare people for subsequent self-instruction and retraining.

Workers are likely to be evaluated in different ways, too. The Uber driver, who can be rated by customers on the web after a ride, without face-to-face interaction, has a stronger incentive to be nicer, and to offer a clean vehicle and bottles of water, compared with a traditional cabdriver.

At the moment, one problem with many online ratings is that the information isn’t all publicly useful; for instance, a good Uber rating remains within Uber and cannot easily be exported to market a driver for other jobs or opportunities. Perhaps in the future workers might have the option of being certified by Uber or other services in a more general and publicly verifiable manner. That could make such services useful for upward mobility, and it might make their credentials competitive with those of some lower-tier colleges and universities.

Even if we don’t know how important all of the new services will be, it’s already clear that many consumers like them. It’s also evident that at least some workers can benefit from the new arrangements, although the effect on the less educated workers seems to be an important issue.

Still, we shouldn’t be trying to turn back the clock, but rather figuring out how to make the best of this fascinating but sometimes unsettling new world. We are just getting started.

A version of this article appears in print on June 28, 2015, on page BU6 of the New York edition with the headline: In an Uber World, Fortune Favors the Freelancer

…“It is hard to find a better example of what is sometimes disparagingly called ‘administrative creep’ than this expansion of the S.E.C.’s internal enforcement power,” Jed S. Rakoff, a United States District Court judge, said in a speech last November…..“What’s getting lost in all this discussion is that our foremost mission must be to protect investors and hold wrongdoers accountable,” Mr. Ceresney said in a statement on Thursday”, Gretchen Morgenson, “Crying Foul on Plans to Expand the S.E.C.’s In-House Court System”, The New York Times

“Why do these article never have quotes from current and former officials (CEOs, CFOs, etc. who have to sign and certify SOX) of publicly-traded firms and only from lawyers and judges who have worked for or work with the S.E.C. or investor advocates (like public pension funds) who are hostile to public company officials? Is this right? Of course its not right. Its un-American. You notice that Mr. Ceresney doesn’t talk about the rights and liberties of the individuals his agency pursues, despite the fact that those rights, under the Constitution, are superior to the S.E.C.’s mission. When are we going to start holding government officials, especially ones who are lawyers, accountable for respecting and enforcing the Constitutional rights of individual Americans, as they pursue their various “missions”?”, Mike Perry, former Chairman and CEO, IndyMac Bank

Business Day

Crying Foul on Plans to Expand the S.E.C.’s In-House Court System

By GRETCHEN MORGENSON

As the top cop on Wall Street, the Securities and Exchange Commission usually enjoys broad support for its work fighting fraud in the nation’s financial markets. But a recent agency stance has generated such criticism that even some of the S.E.C.’s high-powered alumni are calling for a do-over.

The initiative emerged almost two years ago when Andrew J. Ceresney, the S.E.C.’s enforcement director, outlined the agency’s plans to bring more regulatory lawsuits to its in-house judges. While the agency still brings a majority of its cases in federal courts — 63 percent so far this fiscal year, up from 57 percent the previous year — the S.E.C.’s promise to expand the use of its internal tribunals has generated intense opposition. Perhaps even more crucially, so has its filing of highly complex cases there.

“It is hard to find a better example of what is sometimes disparagingly called ‘administrative creep’ than this expansion of the S.E.C.’s internal enforcement power,” Jed S. Rakoff, a United States District Court judge, said in a speech last November. The agency says its in-house courts, overseen by administrative law judges, are not only fair but also more efficient. Their judges are more knowledgeable about securities laws, and cases heard in these venues are resolved much more quickly than in district courts. An evidentiary hearing must occur within four months and may happen as little as one month after a proceeding begins.

But this court system’s efficiencies may put defendants at a disadvantage that undermines the case for streamlining administration. They are allowed limited discovery — no depositions, for example — and cannot make counterclaims. And if someone wants to appeal a decision by an administrative law judge, that person must go back to the commission. Failing that, a defendant can go to a circuit court of appeals, but judges there are wary of overturning rulings by those who are considered experts.

Given that administrative law judges are employees of the S.E.C., defendants wonder if they can be fair. And is it right for defendants to be investigated, prosecuted and judged by officials of the same agency?

“What’s getting lost in all this discussion is that our foremost mission must be to protect investors and hold wrongdoers accountable,” Mr. Ceresney said in a statement on Thursday.

But the questions of fairness are real and seem to be bolstered by the S.E.C.’s win/loss record in its home court versus its performance in district courts.

So far this year, the S.E.C. has a better record in federal court. It won all four of its cases there while prevailing in four out of five proceedings administratively, an 80 percent success rate.

But that’s a small sample, and over the longer term the S.E.C. wins more often in its home courts. From 2012 through June 25, 2015, it succeeded on average in 92.7 percent of matters heard by its internal judges, versus a 77 percent success rate in federal courts. Against individuals, its success rate over the period is 84.7 percent in cases heard administratively, 76 percent in district courts.

The agency stresses that when it wins a case before an administrative law judge, it may not get everything it wants. In three recent cases, for example, administrative law judges denied the S.E.C.’s requests to bar an individual from the securities industry. In-house judges have also denied requests for penalties and monetary relief.

Responsibility for the S.E.C.’s expanding internal court system lies with Congress. When the agency was founded, its administrative law judges presided only over suspensions or expulsions of members or officers of national securities exchanges because that was the extent of the agency’s enforcement work.

But Congress has added to the S.E.C.’s enforcement powers over the years — generally in response to financial debacles, like the accounting frauds of 2001 and the mortgage debacle of 2008. Oversight of these new kinds of cases has gone to the agency’s internal court system, expanding its purview.

Recently, the S.E.C. has raised hackles by bringing to its speedy internal courts highly complex cases that took the agency years to investigate.

In court filings, lawyers for Patriarch Partners, an investment firm specializing in distressed companies, detailed the problem. They said the S.E.C.’s investigation of Patriarch and its owner, Lynn Tilton, went on for five years, during which it collected 2.4 million pages of documents and took sworn testimony from 19 witnesses.

Now it’s Patriarch’s turn to respond. But it has only a few months to prepare its defense.

The S.E.C. is also facing lawsuits from a handful of defendants, including Patriarch, who contend that its administrative court system violates Article II of the United States Constitution. Lawyers making these arguments say the Constitution requires the head of a federal agency — in this case, the S.E.C.’s commissioners — to appoint individuals to adjudicate disputes. But the S.E.C. commissioners do not appoint administrative law judges, making the system improper, they say.

This month, a federal judge in Georgia agreed that the process for appointing internal judges at the S.E.C. was most likely unconstitutional and stopped an insider trading case brought by the S.E.C. before an administrative law judge. The S.E.C. is fighting these challenges, which also raises questions. “Taxpayers’ money should be spent to improve the system, not wasted attempting to defend it,” said Lewis D. Lowenfels, a securities law expert in New York.

The S.E.C. could change its policy on internal judges. And Stanley Sporkin, a former enforcement director at the S.E.C. who was also a federal judge in Washington, said he thinks it should. “I don’t want to see the S.E.C. limited in what it can do,” Judge Sporkin, now a partner at Weil, Gotshal & Manges, said in an interview last week. But problems with the administrative law judges should be remedied, he said.

Among his suggestions: When the S.E.C. is pursuing a defendant for damages, which could be hefty, it should offer the option of a jury trial in federal court.

Marvin Jacob, a former S.E.C. official and retired Weil, Gotshal & Manges partner who served on the New York State Commission on Judicial Conduct, has another idea: Keep the S.E.C.’s administrative law judges independent from the commission, sidestepping the constitutional issue raised by Patriarch and others.

The S.E.C. could do what New York’s judicial conduct commission does, Mr. Jacob said. Overseeing the conduct of 3,400 judges across New York, it uses internal adjudicators who have been selected from a roster of retired judges, judicial hearing officers and lawyers. They are not commission employees.

Advocates for the people and firms targeted by the S.E.C. will always fight back, of course. But in this matter, the agency’s foes seem to be gaining traction.

“The S.E.C. is a great agency, and it’s got to have the power to deal with these matters as they come up,” Judge Sporkin said. “But it’s got to be careful in the way it’s used.”

Correction: June 27, 2015
An earlier version of this column described incorrectly the defense mechanisms allowed to respondents. While they cannot take depositions or make counterclaims, they can conduct limited discovery; it is not the case that they cannot conduct discovery at all.

A version of this article appears in print on June 28, 2015, on page BU1 of the New York edition with the headline: Crying Foul on In-House S.E.C. Courts.

Calpers’s Disclosure on Fees Brings Surprise, and Scrutiny

By ALEXANDRA STEVENSON

Ted Eliopoulos, the chief investment officer of Calpers, which is cutting back on its use of external money managers. Credit Peter DaSilva for The New York Times

Earlier this year, a senior executive of the California Public Employees’ Retirement System, the country’s biggest state pension fund, made a surprising statement: The fund did not know what it was paying some of its Wall Street managers.

Wylie A. Tollette, the chief operating investment officer, told an investment committee in April that the fees Calpers paid to private equity firms were “not explicitly disclosed or accounted for. We can’t track it today.”

It was an unusual disclosure. In the world of public pension funds, Calpers is a big fish. It manages $300 billion in retirement funds for 1.6 million teachers, firefighters, police officers and other state employees and is generally credited with being the most sophisticated investor in the pension world.

For J. J. Jelincic, a member of the Calpers board, the disclosure raised a red flag. “I am disturbed that we don’t disclose the carry,” Mr. Jelincic said, referring to carried interest, the industry term for private equity performance fees. “I am appalled and, actually, I’m not sure I believe the staff when they say they don’t know what the carry is,” he added.

It also caught the attention of Edward A. H. Siedle, a pension fraud investigator and a former lawyer at the Securities and Exchange Commission. Mr. Siedle, who has investigated public funds like those in North Carolina, Alabama and Rhode Island, and corporate retirement plans for Walmart, Caterpillar and Boeing, is seeking to investigate Calpers with the help of crowdfunding. He wants to determine, among other things, how much Calpers pays in private equity fees. He plans to pay for his project by raising $750,000 from the public through the online platform Kickstarter.

“The money manager knows to a penny what the fees are,” Mr. Siedle said. “The only explanation is that the pension fund has chosen not to ask the question because, from an accounting and legal perspective, those numbers have to be readily available. They are intentionally not asking because if the fees were publicly disclosed, the public would scream.”

Calpers paid $1.6 billion in fees to Wall Street in 2014, according to its annual report. The figure, however, does not include how much it paid in carried interest. Both Mr. Siedle and Mr. Jelincic say that figure could be as much as an additional $1 billion a year.

Private equity firms typically charge investors a management fee of 1 to 2 percent of assets and about 20 percent of any gains each year. But fees for transactions, costs for monitoring investments and legal fees are not readily disclosed. Those undisclosed fees result in a substantial weight on returns, according to a recent study by CEM Benchmarking.

Faced with ballooning deficits and lackluster performance, state pension funds nationwide are beginning to examine more closely how much they are paying Wall Street to manage their investments. Calpers for the first time this year will begin to make more payments to retirees than it receives from contributions and its investments. Pennsylvania is facing a $50 billion shortfall in its pension fund.

In New York City, the comptroller, Scott M. Stringer, commissioned a study of the city’s five pension funds that showed external managers fell more $2.5 billion short of benchmark returns over 10 years.

Mr. Siedle’s firm, Benchmark Financial Services, recently published a crowdfunded investigation into Rhode Island’s public employee pension fund. In an 81-page report, Mr. Siedle outlined how the pension fund had incurred $2 billion in preventable losses from investments in outside real estate, private equity and hedge funds. Seth Magaziner, Rhode Island’s treasurer, has disputed the report.

“Treasurer Magaziner strongly agrees with the need for greater transparency and lower fees by alternative investment managers doing business with public pension funds,” Shana Autiello, a spokeswoman for Mr. Magaziner, said.

In addition to wanting to examine the fees that Calpers pays, Mr. Siedle also wants to scrutinize the relationship its executives and placement agents — middlemen it hires to help it find money managers — have with Wall Street to determine whether any conflicts of interest exist. He plans to spend nine months sifting through Calpers’s public disclosures and will also comb through the private offering documents that external money managers give to consultants who advise Calpers.

Calpers said it was trying to address the lack of transparency around fees. In April, Mr. Tollette, the chief operating investment officer, told the investment committee that Calpers planned to require greater disclosure from the private equity firms it invests in, adding that this was an industrywide problem. Calpers is also working on a reporting program that would track data from each external firm with which it has investments.

“Calpers has long been a leader in advocating for fee economies and transparency, including in private equity,” Joe DeAnda, a spokesman for Calpers, said. “A necessary element in that effort is additional disclosure and reporting from the general partners managing the funds,” he added.

The public scrutiny comes as Calpers seeks to simplify what it has called a complex and expensive portfolio. This month, Ted Eliopoulos, the chief investment officer, said that over the next five years, Calpers would cut by more than half the 212 external money managers it invests with for private equity, real estate and global equity funds. It will reduce the number of private equity firms to 30 from 98, giving those firms $30 billion to manage. Calpers has put its money with some of the biggest private equity firms in the world, including TPG, Blackstone, Carlyle and Kohlberg Kravis Roberts.

Last year, as part of its move to slim down its external investments, Calpers decided to liquidate $4 billion of hedge fund investments.

The S.E.C. has started to look more closely at private equity firms to understand how they value their assets and charge fees. The agency, which has conducted examinations of private equity firms, found that more than 50 percent of the time there were violations of law or weaknesses in a firm’s controls.

Mr. DeAnda, the Calpers spokesman, said fund officials had been “actively engaging with some of our private equity partners to help improve the disclosure and data available and have been closely monitoring the regulatory announcements and attention around this subject.”

Mr. Siedle’s investigation will not be the first for Calpers. In 2009, it hired the law firm Steptoe & Johnson to look at its use of placement agents as part of a wider pay-to-play scandal across the industry. The investigation, which cost Calpers $11 million, uncovered evidence of bribery and corruption. The S.E.C. accused Federico R. Buenrostro Jr., the Calpers chief executive from 2002 and 2008, and Alfred J. R. Villalobos, a former board member turned placement agent, with fraud. The United States attorney in San Francisco charged the two men with criminal fraud. Mr. Buenrostro pleaded guilty last year to conspiracy to commit bribery and fraud. Mr. Villalobos, who pleaded not guilty, committed suicide this year.

Seeking to put the controversy behind it, Calpers adopted new policies and disclosure requirements. It continues to use placement firms.

A version of this article appears in print on June 26, 2015, on page B5 of the New York edition with the headline: Calpers’s Disclosure on Fee Uncertainties Brings Surprises, and Scrutiny.

…Professor Moser recalled that a businessman who had to declare bankruptcy in her hometown in Germany committed suicide. “In Europe, failure is regarded as a personal tragedy,” she said. “Here it’s something of a badge of honor. An environment like that doesn’t encourage as much risk-taking and entrepreneurship.”, James B. Stewart, “A Fearless Culture Fuels U.S. Tech Giants, The New York Times

Business Day

A Fearless Culture Fuels U.S. Tech Giants

Steve Jobs, left, and Steve Wozniak of Apple in 1976. Three of the biggest American companies grew from technology ventures in the last half-century. Europe has no such entries among its top 10. Credit DB Apple/Deutsche Presse-Agentur/Corbis

By JAMES B. STEWART

With this month’s announcement that the European Union is investigating Amazon for possible anticompetitive behavior in the sale of e-books, antitrust fervor in Europe seems to have hit fever pitch. Apple, Google and Facebook are all subjects of investigation, and Amazon is now the focus of at least three separate inquiries.

Europe’s top antitrust regulator, Margrethe Vestager, wants us to believe it’s just coincidence that so many targets are American tech companies: “This just reflects that there are many strong companies in the U.S. that influence the digital market elsewhere,” she told Bloomberg this month.

But even if true, why would that be? Why hasn’t Europe fostered the kind of innovation that has spawned hugely successful technology companies?

Put another way, when have United States regulators investigated and filed suit against a European technology company for market dominance? (Answer: never.)

“There aren’t many European tech firms with market power in the U.S. worth talking about,” said Scott Hemphill, visiting professor of antitrust and intellectual property at the New York University School of Law. “So it’s not a surprise that they don’t get much attention from U.S. antitrust authorities.”

Here’s a stark comparison: In the United States, three of the top 10 companies by market capitalization are technology companies founded in the last half-century: Apple, Microsoft and Google. In Europe, there are none among the top 10.

Yet if any region of the world could compete successfully with the United States in technological prowess, it would seem to be Europe. The European Union has venerable universities, a well-educated work force, affluent and technically skilled consumers and large pools of investment capital.

Europe has a long history of world-changing inventions, including the printing press, the optical lenses used in microscopes and telescopes and the steam engine.

But recently? Not so much. King Digital Entertainment, creator of the video game sensation Candy Crush and now based in London, was founded a decade ago in Sweden, which has emerged as a hotbed of video game innovation. A German, Karlheinz Brandenburg, is credited with the invention of the MP3 format for digital music, and the telecommunications application Skype was created by a group of two Scandinavians and three Estonians. But Apple created the iPod MP3 player and eBay bought Skype in 2005. (It’s now owned by Microsoft.)

This hasn’t gone unnoticed in Europe. Last month, the European Union unveiled its “Digital Single Market” strategy aimed at fostering European entrepreneurs and easing barriers to innovation. European countries have tried to replicate the critical mass of a Silicon Valley with technology centers like Oxford Science Park in Britain, “Silicon Allee” in Berlin and Isar Valley in Munich, and “Silicon Docks” in Dublin.

“They all want a Silicon Valley,” Jacob Kirkegaard, a Danish economist and senior fellow at the Peterson Institute for International Economics, told me this week. “But none of them can match the scale and focus on the new and truly innovative technologies you have in the United States. Europe and the rest of the world are playing catch-up, to the great frustration of policy makers there.”

Petra Moser, assistant professor of economics at Stanford and its Europe Center, who was born in Germany, agreed that “Europeans are worried.”

“They’re trying to recreate Silicon Valley in places like Munich, so far with little success,” she said. “The institutional and cultural differences are still too great.”

There are institutional and structural barriers to innovation in Europe, like smaller pools of venture capital and rigid employment laws that restrict growth. But both Mr. Kirkegaard and Professor Moser, while noting that there are always individual exceptions to sweeping generalities about Europeans and Americans, said that the major barriers were cultural.

Often overlooked in the success of American start-ups is the even greater number of failures. “Fail fast, fail often” is a Silicon Valley mantra, and the freedom to innovate is inextricably linked to the freedom to fail. In Europe, failure carries a much greater stigma than it does in the United States. Bankruptcy codes are far more punitive, in contrast to the United States, where bankruptcy is simply a rite of passage for many successful entrepreneurs.

Professor Moser recalled that a businessman who had to declare bankruptcy in her hometown in Germany committed suicide. “In Europe, failure is regarded as a personal tragedy,” she said. “Here it’s something of a badge of honor. An environment like that doesn’t encourage as much risk-taking and entrepreneurship.”

When David Byttow, co-founder of the anonymous social app Secret, announced this spring that he was shutting down the San Francisco-based start-up, he didn’t seem the least bit chastened. “I believe in failing fast in order to go on and make only new and different mistakes,” he wrote in a blog post.

There is also little or no stigma in Silicon Valley to being fired; Steve Jobs himself was forced out of Apple. “American companies allow their employees to leave and try something else,” Professor Moser said. “Then, if it works, great, the mother company acquires the start-up. If it doesn’t, they hire them back. It’s a great system. It allows people to experiment and try things. In Germany, you can’t do that. People would hold it against you. They’d see it as disloyal. It’s a very different ethic.”

Europeans are also much less receptive to the kind of truly disruptive innovation represented by a Google or a Facebook, Mr. Kirkegaard said.

He cited the example of Uber, the ride-hailing service that despite its German-sounding name is a thoroughly American upstart. Uber has been greeted in Europe like the arrival of a virus, and its reception says a lot about the power of incumbent taxi operators.

“But it goes deeper than that,” Mr. Kirkegaard said. “New Yorkers don’t get all nostalgic about yellow cabs. In London, the black cab is seen as something that makes London what it is. People like it that way. Americans tend to act in a more rational and less emotional way about the goods and services they consume, because it’s not tied up with their national and regional identities.”

One of Europe’s greatest innovations was the forerunner of the modern university: Bologna, founded in 1088. But as centers of research and innovation, Europe’s universities long ago ceded leadership to those in the United States.

With its emphasis on early testing and sorting, the educational system in Europe tends to be very rigid. “If you don’t do well at age 18, you’re out,” Professor Moser said. “That cuts out a lot of people who could do better but never get the chance. The person who does best at a test of rote memorization at age 17 may not be innovative at 23.” She added that many of Europe’s most enterprising students go to the United States to study and end up staying.

She is currently doing research into creativity. “The American education system is much more forgiving,” Professor Moser said. “Students can catch up and go on to excel.”

Even the vaunted European child-rearing, she believes, is too prescriptive. While she concedes there is as yet no hard scientific evidence to support her thesis, “European children may be better behaved, but American children may end up being more free to explore new things.”

None of this will be easy to change, even assuming Europeans want change. “In Europe, stability is prized,” Professor Moser said. “Inequality is much less tolerated. There’s a culture of sharing. People aren’t so cutthroat. Money isn’t the only thing that matters. These may be good things.” But Europeans can’t have it both ways. She said that successful innovators quickly discover it’s hard to break through these cultural norms.

Mr. Kirkegaard agreed. “Europeans are conservative with a small ‘c,’” he said. “They pretty much like things the way they are.”

A version of this article appears in print on June 19, 2015, on page B1 of the New York edition with the headline: A Fearless Culture Fuels Tech .

…is worth a heck of a lot more than $600; you can hail a car, trade stocks, call your mom, all without being chained to a desk.

Everyone should stop focusing on an entrepreneur’s wealth and instead focus on the value the customers gained from his products.”, Andy Kessler, “The Capitalist as the Ultimate Philanthropist”, The Wall Street Journal

Opinion

The Capitalist as the Ultimate Philanthropist

The Ford Foundation vows to fight inequality but will have a hard time beating Henry’s example.

Henry Ford With His Model T. Photo: Getty Images

By Andy Kessler

On June 11, the $11 billion Ford Foundation announced that it will pour its resources—about $500 million in giving a year—into fighting inequality. “We are talking about inequality in all its forms—in influence, access, agency, resources, and respect,” Darren Walker, the charity’s president, wrote in a letter.

Oh, the irony. I won’t join the public intellectuals having hissy fits over how people choose to give away their money, beyond being annoyed that since the Ford Foundation is tax-exempt, we’re all subsidizing it. Here’s the real problem: The foundation is getting exactly backward what its namesake, Henry Ford, understood. Society benefits from making, not giving.

The bulk of the Ford Foundation’s assets came when it received 88% of the nonvoting shares in the Ford Motor Company, most after Henry Ford died in 1947. Ford hated inheritance taxes, then a punitive 70%. In 1956 Ford Motor went public at $3.2 billion. Most of the shares sold were from the Ford Foundation, about a quarter of its holdings. The foundation’s charter stated the money should go “for scientific, educational and charitable purposes, all for the public welfare.” How times have changed.

This story matters because people have lost sight of where foundations got the money they’re donating. Ford Motor was worth $3 billion 60 years ago because it was profitable and investors had high expectations, not because the company raised wages to $5 an hour, a popular myth. Ford Motor was profitable because Henry Ford created scalable assembly lines, reduced the cost of the Model T to under $300, and sold 15 million of them.

Model Ts made millions of businesses and workers more productive and created that “public welfare” that the Ford Foundation struggles to achieve. Ford Motor created wealth for society, as well as for Henry Ford, and you can’t do the latter without the former.

Think about it: No one would invest $300 in a Ford unless he thought that he could make at least that much using it—to deliver milk, to get to work, whatever. At least 15 million drivers made that choice, and the rest of Americans benefited from cheaper milk and Corn Flakes. In other words, the Ford Motor company increased living standards, and as a result its owner became fabulously wealthy. This may have increased the perception of inequality, yet everyone was better off.

A company’s profits are the minimum value of the work it does for you and for society. Google, to take another example, generates huge profits. CEO Larry Page has an estimated net worth of $30 billion. But Google offers you a valuable service, and society benefits to the tune of trillions, yes trillions, of dollars in commerce that happens thanks to Google searches, mail and maps. Similarly, an iPhone 6 is worth a heck of a lot more than $600; you can hail a car, trade stocks, call your mom, all without being chained to a desk.

Everyone should stop focusing on an entrepreneur’s wealth and instead focus on the value the customers gained from his products. I can’t dig for oil, let alone frack, but I am happy to pay Exxon a premium for my high-test gas. Collectively, we are richer because of Exxon. So inequality is not a bug of capitalism; it’s a feature.

The Ford Foundation plans to focus on six areas of inequality: civic engagement and government; creativity and free expression; gender, ethnic and racial justice; inclusive economics; Internet freedom; and youth opportunity and learning. Hard to argue against all that namby pamby. But none are productive, none drive profits, and none will achieve the huge leaps in public welfare that Henry Ford pulled off so long ago.

At the end of the day, there are only four things you can do with your money: You can spend it, pay it to the IRS, give it away or reinvest it. Consumption is on the receiving end of productivity—furthering personal instead of public welfare. Government spending is by definition not productive, as you realize every time you step into a DMV. Same goes for charitable giving—no profit means no measure of value or productivity.

And so the most productive thing someone can do with his money—the only thing that will increase living standards—is invest. If the Ford or Clinton foundations really wanted to help society, they’d work on lowering barriers to business formation and cutting the regulatory chains that inhibit productive hiring in the U.S. and globally. But what fun is that? Better to boast about reducing inequality, public welfare be damned.

Mr. Kessler, a former hedge-fund manager, is the author of “Eat People” (Portfolio, 2011).

…The greatest strength of America is that it wasn’t founded on any identity such as religion, ethnicity, gender or race, but rather on great ideas, such as inalienable rights and self-government. Millions of people who came here, including myself, can claim to be Americans because we embrace these ideas and as such are united as one people. If we Americans continue letting identity politics replace ideas, we will eventually fall apart as a nation.”, Helen Raleigh, Littleton, Colo., “The Wall Street Journal: Letters to The Editor”

Opinion Letters

Identity Politics and Bumping Alexander Hamilton

Hamilton’s incredibly farsighted vision and his policies underlay our nation’s remarkable economic trajectory.

Richard Brookhiser’s “First Aaron Burr, Now Jack Lew” (op-ed, June 20) hits exactly the right points. I was saddened to learn that Secretary Lew had decided to jettison our nation’s financial founder without so much as an acknowledgment of his predecessor’s extraordinary achievements. While the term “single-handedly” is often misused, in Hamilton’s case it accurately describes the way in which this visionary conceived and executed a plan to turn a bankrupt, revenue-less, fledgling republic into an investment-grade credit. Hamilton’s incredibly farsighted vision of our financial and economic system saw our nation as an industrial and commercial superpower, and his policies underlay our nation’s remarkable economic trajectory. If anyone deserves to be featured on our nation’s legal tender, he does.

If an existing occupant of our currency portraits needs to be sacrificed for the sake of inclusion, I would be all for replacing Andrew Jackson with a woman or a person of color. Jackson was a slave owner and enthusiastic slaughterer of Native Americans, so is he not a more appropriate candidate for this switch?

Peter Furci

Roslyn, N.Y.

Among all the Founding Fathers, I identify most with Hamilton because I am an immigrant as he was. Hamilton is a quintessential example of the American dream. He embodied an archetype we immigrants are so familiar with: an impoverished young man who immigrates to America, driven by ambition who reinvents himself through hard work and education, and ultimately succeeds. Teddy Roosevelt referred to him as “the most brilliant American statesman who ever lived.” There is no better way to honor him than by having his handsome portrait on the $10 bill.

Jack Lew’s announcement about having a woman on the $10 bill is another example of how identity politics has reached a new high in this country, and it is practically ruining the core of America. How is it a sign of progress if the best way we can honor a woman is to diminish the importance of an highly accomplished man?

The greatest strength of America is that it wasn’t founded on any identity such as religion, ethnicity, gender or race, but rather on great ideas, such as inalienable rights and self-government. Millions of people who came here, including myself, can claim to be Americans because we embrace these ideas and as such are united as one people. If we Americans continue letting identity politics replace ideas, we will eventually fall apart as a nation.

Helen Raleigh

Littleton, Colo.

I suggest that Secretary Lew consider replacing Abraham Lincoln with a woman on the $5 bill. Lincoln already has a guaranteed spot on the penny.

Whatever bill gets a new face, I hope the woman Treasury picks will have some connection to finance rather than yet another voting-rights heroine: for example Elinor Ostrom, the first woman to win the Nobel prize for economics, Mary Roebling, first woman governor of the American Stock Exchange, or Maggie Walker, the first woman (and African-American) banker.

Linda Delfs

Albany, N.Y.

To properly reflect the current state of our culture, I suggest we replace the picture of Alexander Hamilton on the $10 bill with the latest picture of Caitlyn Jenner.

Bill Babich

Wichita, Kan.