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A Vote Against Geithner for Treasury Secretary
Tweet Share on Facebook January 22, 2009 Comment (21)Superstrategist Ed Yardeni casts a vote against Tim Geithner for treasury secretary:
Thumbs down for Tim Geithner. That’s my vote. I don’t think he is qualified to be Treasury Secretary. He works too hard. Indeed, he is a workaholic. I prefer public servants who can get their jobs done during normal business hours. If they are working much longer hours, there is a good chance that they don’t know what they are doing. Or else, they aren’t spending enough quality time with their families and thinking about the important issues and the big picture. Geithner is a micro-manager. He gets lost in the details.
Think about it: Despite all those weekends he spent trying to end the financial crisis, it has gotten worse under his watch as President of the FRBNY. He was Hank Paulson’s right hand man during the intense last-minute negotiations to fix Bear Stearns, Lehman, AIG, Merrill, and Citigroup. He has been one of the TARP pack. The new administration believes that Geithner’s experience is a valuable asset in dealing with the financial crisis. I’m not convinced based on his past accomplishments. WARNING: In this case, past performance may be indicative of future results
I hate to be petty, but it does bother me when public officials cheat on their taxes. Among Geithner's missteps: He claimed that payments made for summer camp for his children were tax deductible because they qualified as dependent care. Give me a (tax) break! Everyone knows the dependent care credit is aimed at helping middle-class working parents afford the cost of daily child care, not at helping pay for expensive retreats. An accountant told Geithner in 2006 that overnight camps were not eligible for a tax break, according to the Senate Finance Committee report. Still, Geithner failed to file amended tax returns and pay his back taxes until shortly before being nominated by Obama. The Treasury Secretary is the boss of IRS employees, who are immediately sacked if they are caught cheating on their taxes.
So long Bazooka Hank. Hello TurboTax Tim. The one big plus for Geithner: He isn’t a Goldman guy.
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Should Obama Help Banks or Homeowners?
Tweet Share on Facebook January 21, 2009 Comment (5)My guy Andy Busch of BMO Capital Markets attacks the nationalization issue:
Circling this back to Geithner, there is a fundamental choice facing the US government and today we'll see how the designee responds. The choice is over whether the government should nationalize the banks or not. It is a choice over skill sets and profit incentives. As supported by the takeover of Fannie Mae and Freddie Mac, the US struggles with how to manage these entities. To take over a bank and make decisions on how to lend or how to dispose of assets or how to manage a "for-profit" entity, the US Treasury or FDIC or Federal Reserve would be out of their depth.
This takes us back to the central question of how to resolve the banking crisis in the United States. So far, the US government has addressed the symptoms of the disease and not the disease itself. The symptoms include credit, liquidity, and toxic assets. The cures have been acronyms, backstops, and discussions of forming a "bad bank".
The disease remains housing and home prices.This is why I expect new TARP money to flow towards the housing market and to reduce the supply of foreclosures. Here's an idea: why not declare that as of January 1st 2009, all homes in foreclosure will be purchased by TARP? This attacks the supply or inventory problem forcing prices down. It would take away a major negative driver of bank assets. Yes, but it still means the government has to do something with those homes.
The best solution would be to follow the RTC model by putting the properties together and then holding a fire sale to clear the market. The government would take the loss between what they pay for the homes and what they sell them for to the market.It's this loss that no one wants to take or absorb. While the US taxpayer is on the hook for it, this solution attacks the central problem. More importantly unlike an acronym or a "bad bank", it will stabilize home prices. Taxpayers can live with nationalizing or socializing home owner losses from the real estate market much easier than they can live with taxpayer losses from the banking industry. Let's see which political party picks up on this first ...
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Do We Need Obama's Stimulus Plan?
Tweet Share on Facebook January 21, 2009 Comment (12)So we find out, at least according to the Congressional Budget Office, that only $136 billion of the $355 billion in proposed infrastructure spending would actually be spent by the end of 2010. Yet we are in a rush to approve it. Maybe it's time to look at all the other factors that will boost the economy, courtesy of Dan Clifton, superanalyst at Strategas:
With the average price of a barrel of oil at $99 in 2008, stable oil prices in 2009 could “save” the U.S. economy almost $450 billion dollars. Similarly, the decline in conforming mortgage rates could provide an additional $135 billion stimulus. Additionally, nearly $170 billion in proposed tax cuts for individuals, delivered through the withholding process, should help consumers work towards stabilizing their balance sheets.
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Why Speculation and Asset Bubbles Are Good
Tweet Share on Facebook January 19, 2009 Comment (5)A good time for a reminder on the usefulness of asset bubbles, from a paper by Kevin Lansing of the San Francisco Fed:
History tells us that periods of major technological innovation are typically accompanied by speculative bubbles as agents overreact to genuine advancements in productivity. Excessive run-ups in asset prices can have important consequences for the economy because mispriced assets imply some form of capital misallocation. Innovations to technology are also considered by many economists to be an important driving force for business cycles. ... The idea that speculation may yield benefits to society has a long history. Regarding the merits of speculation, J. Edward Meeker (1922, p. 419), the economist of the New York Stock Exchange, wrote: “Of all the peoples in history, the American people can least afford to condemn speculation...The discovery of America was made possible by a loan based on the collateral of Queen Isabella’s crown jewels, and at interest, beside which even the call rates of 1919-1920 look coy and bashful. Financing an unknown foreigner to sail the unknown deep in three cockleshell boats in the hope of discovering a mythical Zipangu [land of gold] cannot, by the wildest exercise of language, be called a ‘conservative investment.’ ”
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Pethokoukis Web Picks
Tweet Share on Facebook January 19, 2009 Comment1) Mark Perry compares the 1981-82 recession to the current downturn. We forget what a huge task Ronald Reagan had before him.
2) Gary Becker reminds us of the following: "Of course, at some point new taxes in some form have to be collected to pay for infrastructure and other stimulus spending. The sizable adverse effects on incentives of these taxes also have to be weighted against any value produced by the infrastructure (and other) stimulus spending."
3) Howard Gleckman on Obama and entitlement reform.
4) Growthology and cities and innovation.
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Nancy Pelosi: Raise Taxes. Raise Taxes Now.
Tweet Share on Facebook January 19, 2009 Comment (29)Madam Speaker Nancy Pelosi didn't get the memo -- you know, the one that says tax increases during a recession is a terrible idea. This is her on Fox News:
I don't want them to wait two years to expire. We had campaigned in saying what the Republican Congressional Budget Office told us: Nothing contributed more to the budget deficit than the tax cuts for the wealthiest people in America.
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Obama Inauguration: He Needs to Make the Case for Capitalism
Tweet Share on Facebook January 19, 2009 Comment (4)Economist Daren Acemoglu of MIT has a guest post in the WSJ's econ blog where he simply explains why doing everything possible to make economies grow as fast as possible is a good thing -- and why free markets are crucial to that effort. As tempting as it will be for President Obama to blame the private sector for the recession as he boosts the role of government, it will be the private sector that will ultimately return American to prosperity and raise our standard of living in the future. A bit from Acemoglu:
The policy responses of the past several months have made matters worse in this regard. It is one thing for the population at large to think that markets do not work as well as the pundits promised. It is an entirely different level of disillusionment for them to think that markets are just an excuse for the rich and powerful to fill their pockets at the expense of the rest. A successful plan should reassure the public that it is not just a bailout for the bankers and entrenched executives. It should also be accompanied by a clear articulation of where we went wrong and why we should still rely on free markets. And that part of the story starts by recognizing that free markets are not unregulated markets, that we need strong institutions and appropriate regulation to support a viable capitalist system, and that our future prosperity depends on economic growth and economic growth depends on the continued survival of the capitalist system.
Me: And this would be a good start in reinvigorating the private sector.
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How to Rebuild the American Economy
Tweet Share on Facebook January 17, 2009 Comment (8)My pal Jeff Cornwall has a must-read post on how innovation can flower duing an economic downturn, all based on a talk he heard from venture capitalist Tim Draper. Here is a juicy bit:
He does worry that the current drift toward socialism is hurting America. He sees the movement to socialism in America not only in our public policy, but in the language of our culture. "Opportunity" is being replaced by "entitlement", "business solutions" by "government intervention", "earnings" by "rights", "let losers die" by "bailout", and "freedom" by "regulation." ... He closed with this thought. "Never forget: entrepreneurs are heroes. Our economy will be rebuilt, not recovered but rebuilt, by entrepreneurs."
Me: I like, I like! Heroic Capitalism is the path of prosperity. This is completely missing from Obamanomics.
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Study: Race Not a Factor in 2008 Election
Tweet Share on Facebook January 17, 2009 Comment (8)This study on race and the 2008 election concludes the following:
Overall, we conclude that racial attitudes did not play a major role in determining the outcome of the 2008 Presidential election ... We find little evidence that Obama underperformed relative to congressional Democrats in states that have a white electorate with stronger racial bias. We also find little evidence that turnout was higher among segments of the electorate that are predicted to be more racially biased."
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Will Capitalism Turn China Into a Democracy?
Tweet Share on Facebook January 17, 2009 Comment (6)Democracy first, market economy later. At least that is the conclusion of this paper, Democracy, Market Liberalization and Political Preferences.
The main result of this paper is that in transition countries democracy increases popular support for the market, while economic liberalization does not influence support for democracy. Our data do not support the widespread view that democracy needs naturally emerge as a by-product of capitalism. Instead, our results indicate that building democratic institutions can act as an ingredient in favor of market liberalization, whereas early market development is no guarantee of subsequent popular support for democracy, particularly in less developed countries of our sample in Central Asia and the former Soviet Union. These observations are consistent with the empirical fact that market economies can live without democracy, whereas there is no historical evidence of a democratic society without a market economy (Dahl, 1982b). One explanation for this is certainly that preferences of citizens do not, by definition, matter in autocracies.28 Our results illustrate an alternative explanation, which is that the determinants of the support for democracy have to be found elsewhere: market liberalization, in itself, is not sufficient to trigger the demand for democracy. One tentative explanation for the positive relationship between democracy and support for a market economy, which is explored in more details in a related paper (Grosjean and Senik, 2008), can be found in the impact of democracy on income distribution. We find support for the hypothesis that although rising income inequality in itself triggers backlash against reforms, extending democratic rights appears as a credible promise of future income redistribution (Acemoglu and Robinson, 2000, 2002, Acemoglu et al., 2007b) and acts as a positive ingredient in reinforcing adhesion to the economic reform process.
Me: I am fairly certain is that the failure of capitalism will surely make China less democratic. The current economic slowdown is causing increasing social unrest and more opression in response.
