August 4th – International News Round-Up (Part I)

Opioid Crisis

Vice

Very thorough article on the nature of what we call the opioid epidemic in the United States and the fact that it’s really about more than just opioids and it’s a lot deadlier than people think. It’s also true that this affects poorer people disproportionately. Most people agree that middle America is already having a tough time with the exodus of manufacturing jobs. Those started leaving in 90s, I believe.

Jobs

Washington Post

Manufacturing jobs might not be dead in America. They might have just migrated to the coast. Trump also said that he wanted to make encouraging people to move, a part of the outreach to his voter base. He wants to send the message that if you want jobs, you might have to move for it. There’s a hitch though (it’s also mentioned in the article). The 2008 mortgage crisis made the homes of individuals worthless. Most of them lost their homes. Some of them managed to pay off the debt, but are stuck with homes that nobody wants to buy. That’s an enormous sunk cost to just leave lying around.

LGBT

Vice

I think that is we have a romantic view of what it might be to part of communities such as the furry community. It seems to be a way for people to connect sexually in a manner that makes them feel more comfortable. For young LGBT kids, as the article points out, the furry community can be very important. I get all of that, and I think that it’s pretty great, but I can’t help feeling like our sexuality is slipping further and further into the realm of the imagination. Our ideas of sexuality have changed so drastically over the past century. Just think about that for a second. In all the years of human existence, even modern human existence, we haven’t seen a period of such rapid change. There’s no way all of this will turn out to be positive in the long term.

Dutch Furries Gorichem (Image Source: Wiki Commons)
Dutch Furries Gorichem (Image Source: Wiki Commons)

Real Estate

Richard Green

It is not that difficult–if you have access to capital.  Here are the steps:

(1) Buy an apartment complex for $10,000,000 at a 4.5 percent cap rate with a 35 percent downpayment; finance $6,500,000 with an interest only loan at 3.5 percent that comes due in five years.

(2) Let’s say 35 percent of the value of the property is land and the remainder is improvements. Improvements on apartments are depreciated on a straight line basis over 27.5 years.  So taxable income is

450,000-227,500 (interest) – 236,363 = -13,863 or a taxable loss.

Meanwhile, cash flow is 222,500 per year.  So one gets cash while taking a tax loss.

(3) It gets better.  Suppose when refinancing happens in five years, the property has gained 20 percent in value.  Now one gets a 65 percent LTV loan on a $12,000,000 property–and gets to pull $1,300,000 out of the property.  Suppose NOI has also gone up 20 percent.  Sow now taxable income is

540,000-273,000-236,363 = 30,636.

Assume that the owner’s all in marginal tax rate is 50 percent.  In exchange for a one time $1,300,000 in cash and cash flow of $267,000, the owner pays a little over $15,000 in taxes and 3.5 percent in interest on the extra money.  No matter how one looks at it, this is a tax rate on cash of less than 10 percent.

It keeps going for 27.5 years, at which point the owner can defer taxes via a like-kind exchange. All of this is perfectly legal.  And it explains why salaried workers pay more in taxes than owners of capital.

Race

Vice

Affirmative action is controversial in any country that it is practiced in. In India, it’s a bit (very) different. Government institutions have quotas to fill. Also, we deal with caste, and not race. Very different monster, but that’s a story for another day.

I know you’re not a lawyer, but what’s your sense of how this might play given the Supreme Court has repeatedly said some consideration of race is kosher?
It’s very difficult to know what the Supreme Court would decide given the recent personnel changes. But even before, it’s a very divisive topic. One judge could change the ruling. And the Supreme Court has already made it more difficult for institutions to implement affirmative action. They want some more accountability. So an institution cannot just say they gave admission to a minority student because they want diversity. That’s not enough. The institution has to bring evidence that it tried every other option available that is race-neutral to increase racial and ethnic diversity, like implement various programs, before they started using affirmative action. The court sees the benefit of diversity but would prefer that people achieve that with race-neutral means. Of course, that’s quite impossible. And that’s a very important point to keep in mind. But the institution has to prove they tried.

So the University of Texas did a great job demonstrating they had these programs, which is why the court granted them the option to continue with Affirmative Action. There will be another institution that is less diligent in designing race-neutral admissions policies before they do racial preferences. I don’t know what the court decision will be then.”

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