Readers Report
Weighing the Odds of Bush's Gamble
There's a basic inconsistency between the goals of the Bush tax changes and their predicted results as set forth in "Gambling on growth" (Cover Story, Feb. 17). Much like the Reagan tax cuts, "Bushonomics" holds that reducing the taxes on investment income will promote economic growth and greater tax revenues. But, unlike the Reagan tax cuts, the Bush reductions are now focusing on categorical exclusions of investment income--dividends now, a greater portion of capital gains later. As a result, even if the market starts booming, most of the dividend and capital-gain income of individuals, whose taxability in the late '90s was a key element in the surge of federal income, will not be taxable. Moreover, firms will be tempted to pay an increasing portion of executive compensation in lower-taxed stock options or in dividends.
Jonathan Gellman
Bronx, N.Y.
The Reagan plan for lowering tax brackets gave a direct incentive to the entrepreneurs and innovators to work harder and thus give the economy an accompanying boost. The various Bush savings plans and the tax-free dividends proposals emphasize the return on capital as opposed to the return on human endeavor. The incentive to invest capital would take a more circuitous and, arguably, more uncertain route towards accelerating the economy.
Sailesh S. Kapadia
Wexford, Pa.
You made a good set of points in your recent cover story that Bush is taking a large political risk with his new budget. However, it is scary to see you suggest that letting people choose how to spend their money by lowering taxes is viewed as a gamble. One of the most basic freedoms we have is the liberty to decide for ourselves how to spend the fruits of our work.
While the federal government has a critical role in defense and the unity of this nation, Bush is entirely correct in scaling back the massive federal bureaucracy in areas like health care, and letting the people and the states choose what to do with their dollars.
Chris Waldorf
Atlanta
While it is important to consider President Bush's tax cuts in terms of their economic theory and effect, we should not lose sight of an underlying political tactic. Relentless tax-cutting is a pitch for votes. The unspoken suggestion is that taxes on our hard-earned income pay to support welfare. It ignores the fact that, overwhelmingly, taxes pay for defense, health, roads, social security, education, and the other necessities of a safe, civil society.
Gerald Galison
New York
Tools for Measuring Germany's Well-Being
Re "The decline of Germany" (Special Report, Feb. 17): In spite of a weak economy and little political reform, Germany led the world in machine tool shipments in 2001 with shipments of $7.7 billion, exceeding Japan's $7.6 billion. The U.S. came in a poor fourth, behind Italy, with shipments of $2.9 billion. Machine tools are a leading indicator of the well-being of a nation and its manufacturing capabilities. With some reforms, I would give Germany a better chance to recover than the U.S.
Albert B. Albrecht
Richmond, Ind.
The Record on Ira Rennert
Your article regarding Ira Rennert and The Renco Group ("Ira Rennert's house of debt," Finance, Feb. 17) contained a number of inaccurate statements regarding them and falsely implied that Mr. Rennert had engaged in dishonest conduct. This letter addresses the two most significant misstatements. The article inaccurately relies on these two erroneous assertions to imply that the losses on various bonds issued in recent years by Renco companies are emblematic of Mr. Rennert's business history from 40 years ago, while ignoring the impact of the depressed condition of the market for natural resources industries.
First, your article falsely states that Mr. Rennert was effectively banned from the securities industry. The fact that Mr. Rennert's and his company's NASD registration was revoked in the early 1960s due to violations of SEC net capital rules is undeniable. However, as established by all the facts and information regarding this event, the revocation of the registration was not a significant news event when it occurred, and had no effect on the right of Mr. Rennert to participate in the securities industry. It meant only that his registration as a principal of the brokerage firm was terminated, and that he could not act as a principal of a firm until he re-registered as such. The revocation did not have any other consequences, or place any restrictions on Mr. Rennert's ability to participate in the securities markets.
Second, your article puts Mr. Rennert in a false light, comparing him to "discredited star analysts and bankers" who have admitted to disseminating false and misleading analyst reports to the public in connection with enhancing their firms' investment banking business. Such a comparison is inaccurate and unfair to Mr. Rennert. The sole factual basis of the NASD action was that a small brokerage firm lost money and hence some of its shareholder capital in a business environment in which small brokerage firms found it very hard to compete. At no time has it ever been alleged--by regulators or anyone else, for that matter--that any malfeasance or fraud took place or that any customer lost money or was even the slightest bit in jeopardy due to the decrease in the firm's capital prior to the firm being voluntarily closed. To imply otherwise by comparing this decades-old regulatory matter to the kinds of investigations now taking place on Wall Street is not just untrue, but also wrongly taints Mr. Rennert's character and reputation.
Michael C. Ryan
Corporate Counsel
Renco Group Inc.
Cadwalader, Wickersham & Taft
New York
Editor's note: BusinessWeek stands by its story. According to the NASD, people whose licenses have been revoked, like Mr. Rennert, face serious regulatory hurdles if they attempt to reenter the securities industry in any capacity, not just as a principal. Our references to discredited analysts and bankers clearly refer to their ability to continue to take investors' money. Only Mr. Ryan connects Mr. Rennert to questionable analyst practices. We state: "As Rennert's career shows, people who are penalized by the securities industry can easily--and legally--slip into other financial services and continue to take funds from investors." Finally, we did not ignore the depressed condition of the market for natural resources. The article clearly said that Renco Group's debt levels became problematic when "commodity prices started sliding in the late '90s."
What Does an A+ Mean in Life Insurance?
We agree that consumers should check the financial strength of the insurance company offering life insurance or annuities ("Is your life insurer on life support?" BusinessWeek Investor, Jan. 27), but the accompanying chart comparing insurance rating scales is misleading to consumers.
The characterization of an A+ rating from Standard & Poor's as "third-tier" is based on a nine-year-old report issued by the General Accounting Office that was disputed when it was published, and is today even less reflective of reality. Insurers rated A+ or higher by Standard & Poor's are considered very strong and rank in the top one-third of the industry.
In addition, your story wrongly implies that we rate only 80 life insurers, in comparison to A.M. Best Co.'s ratings on 1,074 companies. As of Feb. 18, 2003, we had assigned letter ratings to 825 U.S. life and health insurers.
Steve Dreyer
Standard & Poor's
New York
Editor's note: The writer directs North American insurance ratings for Standard & Poor's, which, like BusinessWeek, is a division of the McGraw-Hill Companies. The GAO table was used to illustrate the array of letter ratings.
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Copyright 2003, Bloomberg L.P.
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