Capital Commerce

Fannie Mae and Freddie Mac are in full retreat today, taking the market with them. Jaret Seiberg at the Stanford Group outlines in a note what Uncle Sam might do if the situation worsens for the "companies":

1) If failure were imminent, [the Fed would agree to buy] debt issued by the troubled enterprise. This would address short-term liquidity problems that would occur if investors refused to buy the debt of an insolvent or nearly insolvent [government-sponsored enterprise].... Congress would pass legislation to inject capital into the troubled enterprise in exchange for warrants or equity. This would heavily dilute existing shareholders. As the troubled GSE recovers, the government would sell its equity stake.

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Larry Kudlow drops a mega-bombshell in his blog regarding John McCain's support of a cap-and-trade system to limit carbon emissions:

After writing favorably about Sen. McCain's recent economics speeches, where he clearly shifted toward the supply-side both on tax cuts and producing more energy, I went back last evening and carefully read his 15-page policy pamphlet called "Jobs for America." Here's what I found: There is no mention of cap-and-trade. None. Nada.... So I picked up the phone and dialed a senior McCain official to make sure these old eyes hadn't missed it. Sure enough, on deep background, this senior McCain advisor told me I was correct: no cap-and-trade. In other words, this central-planning, regulatory, tax-and-spend disaster, which did not appear in Mac's two recent speeches, has been eradicated entirely—even from the detailed policy document that hardly anybody will ever read.... Even though a McCain presidency might resurrect cap-and-trade, it will be a much different format. More important, the campaign is cognizant of the conservative rebellion against it. That's enough for me.

Me: McCain's support for cap-and-trade was really the last obstacle preventing him from giving Americans a clear-cut choice on the energy issue. Barack Obama is for making Americans pay more for energy in an effort to fight climate change; McCain wants to make energy more affordable. At the same time, McCain can say he's for reducing carbon emissions and energy independence by focusing on technology and innovation (and more drilling in the short term) as solutions rather than costly and growth-killing regulations. So what will Americans care more about, global warming or jobs? I don't think that's much of a contest these days, especially when 60 percent of us think the global economy is in a recession. (As I write this, I am listening to the theme from Band of Brothers. Maybe this will be McCain's Bastogne moment, a critical turning point for his campaign.)

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John McCain has ticked most of the economic boxes that conservatives like. Keep Bush tax cuts? Check. Free trade? Check. Cut spending? Check. Cut corporate taxes? Check. Here is Larry Kudlow (Maximum Friend of the Blog) on McCainomics:

Increasingly McCain is shifting his positions towards the supply-side: across-the-board tax cuts, keeping the Bush tax rates on investment, slashing the corporate tax rate, doubling the child deduction for family dependents, cutting pork-barrel spending, and producing more energy.... In general, the senator is developing a good supply-side message for economic growth, with a big focus on tax cuts and new energy production. Obama is for tax hikes and opposed to energy production. These are important contrasts. Now it's up to the Republican standard bearer to keep hammering these key points on the campaign trail.

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Holman Jenkins makes a really smart point in the WSJ this morning:

Bailouts, remember, are an informal substitute for bankruptcy, with its messy and prolonged division of the leftovers. Bailouts create moral hazard, all right, but how much really? Bear Stearns shareholders' experience isn't one other shareholders are keen to repeat. Meanwhile, the real moral hazard disaster lies elsewhere—in the degree to which, in order to avoid being confronted with the bailout question, Washington has relied on monetary policy to contain incipient financial markets crises.

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