Charles Schwab, the US retail brokerage, lent clients nearly $190bn against their portfolios in the third quarter, the Wall Street Journal reports. The growth is a tax play, not a bet on rising prices, and the US Treasury bears the cost of the incentive.

Harvested losses offset capital gains, so the Treasury collects less today. The tax is deferred, not cancelled, since lower purchase prices mean bigger gains later. The exception is shares that heirs inherit, which resets their cost basis (the price used to work out the gain). Schwab holds the shares as collateral, so it is repaid first. Clients carry the downside: in a sharp fall, brokers can sell holdings without asking.

Congress gave the Federal Reserve power over margin lending in the Securities Exchange Act of 1934, after the 1929 crash. The Fed’s Regulation T caps initial borrowing at 50% of a purchase. But it limits each account, not the total owed across accounts.

The Gist AI Editor

Schwab margin loans near $190 billion as tax-loss strategy spreads

Margin loan balances at Charles Schwab reached nearly $190 billion in the third quarter, according to the Wall Street Journal. The growth is fueled by one tax-loss harvesting strategy. Margin loans are borrowing against the value of investments a client already holds.

The incentive is simple. Investors borrow to hold more stocks, sell the losing positions to cut their tax bills, and keep the larger exposure. Schwab earns interest on every dollar lent. Wealthy clients get tax savings. The risk lands on the whole market. If prices fall, lenders demand repayment, and investors may have to sell at the same time.

SoftBank in talks to buy Allied Universal

SoftBank is in talks to buy US security group Allied Universal, the Financial Times reported. The report says Masayoshi Son wants to speed up his bets on robotics and AI. A large security-guard workforce could give SoftBank a ready customer base and a place to deploy robots. Capital is moving from pure software toward physical labor markets, where wage costs are the main expense.

Hermès uses Zip Code data to target US suburbs

Hermès is analyzing Zip Code data to find pockets of growing affluence in the American suburbs, the Wall Street Journal reported. The brand is following where new wealth has settled, not where luxury shops have traditionally clustered. That lowers the cost of finding buyers outside big-city flagship districts.

Non-obvious angle: nobody tests how science funding works

A new study of the National Science Foundation by Matt Flaherty argues that the NSF, NIH and the wider federal government should invest far more in metascience, which means research on how research gets funded. It says the NSF could run experiments on reforms, such as funding people instead of projects or paying directly for replication, and measure which work best. Billions are allocated each year without controlled comparisons of the methods used.

Stay tuned for the next Gist—your edge in a shifting world. The Gist remains independent and reader-supported. If you value news free from corporate or state interests, consider supporting our mission with a donation.

All the President’s Election Excuses
— Wall Street Journal

A Popular Tax-Saving Trade is Juicing Wall Street’s Borrowing Binge
— Wall Street Journal

New Matt Faherty study of the NSF
— Marginalrevolution

Hermès Is Targeting a New Emerging Market: The American Suburbs
— Wall Street Journal

Trump Press Secretary Zacharia Out
— Bloomberg

Hong Kong’s wine boom, uncorked
— Financial Times

EU leaders defer the 2028 budget and Ukraine funding to November and December

Two days of talks in Brussels ended without the decisions that mattered. According to Politico, leaders clashed over climate rules, migration and Ukraine’s long-term financing, then pushed the bloc’s long-term budget and Ukraine’s financial needs to further summits in November and December. The delay keeps spending envelopes open, so net contributors and farm- and cohesion-fund recipients can keep bargaining over shares. Kyiv has to plan its finances without a committed multi-year EU figure.

Trump suspends Russia sanctions tariffs days before they take effect

About a month after signing the package, Trump froze its tariffs by decree shortly before they were due to start, citing “national interest” at this time (ZDF). The penalties are on hold indefinitely. Moscow keeps its export revenue intact for now. The suspension widens the gap with EU capitals, which are drafting their own sanctions and need to decide whether to act without Washington.

Spain defends its migrant regularisation plan as von der Leyen presses the EU pact

Prime Minister Pedro Sánchez rejected criticism of Spain’s mass regularisation, saying “words do not match reality” (Euronews). Ursula von der Leyen called for full implementation of the EU migration and asylum pact. The dispute is over who controls status decisions: a national legalisation lets people move and work legally, which is what other governments object to. Migration was one of the summit’s open fault lines (Politico).

Non-obvious angle: austerity works least where it is most needed

New cross-country evidence from CEPR covering OECD economies finds fiscal consolidation costs output only modestly and briefly on average. But consolidations begun at high debt are markedly more contractionary. In more than half of episodes, the debt ratio was higher three years later. Starting conditions matter more than the choice between spending cuts and tax rises. That is a caution for high-debt EU members facing the budget talks.

Italy: CWT travel agency plans 190 job cuts

Unions want the redundancies withdrawn. The business travel firm has promised an answer early next week (Il Sole 24 Ore).

Catch the next Gist for the continent’s moving pieces.

Sanchez rejects criticism of Spain’s migration policy: ‘Words do not match reality’
— Euronews

EU leaders clash over migration, Ukraine and budget in Brussels — but delay big decisions
— Politico Europe

CWT, primo incontro sui 190 esuberi
— Il Sole 24 Ore

Fiscal consolidation: Temporary costs versus lasting scars
— CEPR

Long-serving ABC broadcaster Robyn Williams to leave The Science Show after 51 years
— The Guardian

Aktuelles zum Krieg in der Ukraine
— ZDF