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from Breakingviews:

Gridlocked Congress might respond to docked pay

By Daniel Indiviglio and Richard Beales

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

If you don’t do the basics of your job, you shouldn’t get paid. It’s a simple concept, but lately it has been a foreign idea to the U.S. Congress. Federal lawmakers haven’t passed an annual budget in over 1,000 days. A new bill could apply a little financial pressure.

The “Pass a Budget Now Act” was introduced on Wednesday by Representative Bill Johnson. The Ohio Republican proposes to stop paying members of Congress after April 15 each year if no budget has passed, until it has. The lost pay would go toward paying off the rapidly growing U.S. debt.

California started a similar experiment when residents voted in favor of Proposition 25 in November 2010. John Chiang, the state’s comptroller, last year interpreted the rule as calling for a balanced budget. Lawmakers had passed something, but it didn’t balance and it was vetoed by Jerry Brown, the California governor. Pay was halted, and legislators later sued Chiang. But something worked: after less than two weeks, a balanced budget did pass.

The situation in Congress is of course different. Though an annual budget process is enshrined in law, some would argue federal lawmakers don’t in practice really need to use it - they can rely on so-called continuing resolutions to allocate funds, the strategy over the past few years. But a budget with both revenue and expense items set out in black and white might encourage fiscal prudence as well as forward planning. After all, establishing a budget is a step any credit counselor would recommend to someone with a debt problem.

Supporters of the new bill could even go further. Members of Congress collect some pretty generous perks, including travel - sometimes by government jet - and top-of-the-line healthcare. Wall Street knows financial incentives are powerful. Stop the paychecks and the perks, and dogma could suddenly take a back seat to pragmatism.

from Breakingviews:

Governments are now world’s financial engineers

By Antony Currie and Agnes T. Crane The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The last financial crisis was supposed to have killed off financial engineering. It certainly seems to have for the most part turned excess leverage and overly complex borrowing structures into a pariah. But Western authorities have embraced them with gusto.

Recent responses to the mess in Europe provide the latest examples. The European Financial Stability Facility, or EFSF, plans to employ a design that mimics credit derivatives, something European leaders have publicly skewered the private sector for using, to help the fund get a bigger bang for its buck. But with the future of the euro zone up in the air, engineering can’t make up for investor skepticism. The fund may raise just 700 billion euros, barely a third of the most optimistic earlier estimates.

Greece’s bailout, meanwhile, offers a sleight of hand to make investment bankers proud. The current package secures a manageable interest rate for the country, but only by forcing it to invest a chunk in safer bonds than its own.

In fact, many policy responses since the bust have been built with tools used during the heady bull-market days. In 2007, U.S. Treasury Secretary Hank Paulson wanted to relieve banks of problems caused by structured investment vehicles by creating a Super-SIV to mop them up. It never got off the ground.

Later efforts to help banks offload dodgy assets or fund new deals - PPIP and TALF, for example - required elaborate architecture and large doses of debt. They ended up being much smaller than initially touted.

The U.S. government has even adopted the worst of private-market practices in subprime mortgages. Not only does the Federal Housing Administration require minimal down payments, it has piled on leverage. Its capital reserves are just 0.24 percent, a staggering 417-to-one ratio that makes Bear Stearns and Lehman Brothers look ultra-conservative.

from Breakingviews:

Uncle Sam has a $1 trln repatriation concern

By Robert Cyran The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

American corporations have some $1.4 trillion stashed offshore. Lawmakers are looking at ways to return this cash at sharply lower tax rates to foster employment, growth and government revenue. Those goals seem ambitious, based on the last time a tax holiday was tried, in 2004. There’s also another snag: much of the money is stuck in Treasuries. The side effects of dumping all that paper are worth factoring into the equation.

Most of the funds trapped overseas are on the balance sheets of blue chip pharmaceutical, technology and consumer goods firms with significant foreign sales. They include Pfizer, Microsoft, Cisco Systems and Procter & Gamble. Bringing the money home would mean paying taxes of some kind or another, so companies are hoping for a break from the 35 percent rate under existing law.

Microsoft, for example, has some $56 billion of cash on its books, $51 billion of which is held outside the United States and almost entirely invested in Treasuries. Securities filings suggest this is typical of multinationals. Investing in U.S. government bonds mitigates currency fluctuations and there’s little risk of losing money. The liquidity of the market also makes it a hassle-free space for American companies to park their cash.

At least $1.4 trillion of U.S. corporate profits are held overseas, JPMorgan estimates. Not all the funds would be repatriated and some is held in other assets. But if even three-quarters of the total is in Treasuries, that would amount to $1 trillion - more than Japan’s investment, and almost the size of the Chinese government’s share.

Uncle Sam’s borrowing binge revealed the market’s capacity to absorb additional debt. And rates at or near historic lows mean investors at home and around the world are quite willing to buy up one of the few risk-free assets in a risky world. Yet given the scale of corporate holdings, any tax holiday would still have consequences.

At a minimum, the government would probably need to pay a little more interest to attract buyers. Economic theory further suggests the cost of borrowing for everything from mortgages to corporate loans would be dragged up. Many investors wouldn’t find the holiday a retreat at all.

from Bernd Debusmann:

American secrets and bizarre rules

Bernd Debusmann is a Reuters columnist. The opinions expressed are his own.

Does a secret stop being a secret when millions of people know it? Yes, says common sense. No, says the U.S. government, whose reaction to the WikiLeaks dump of classified diplomatic cables portrays a bureaucracy inhabiting a logic-free world all of its own.

Writers thinking of producing 21st century novels emulating the works of Franz Kafka are well advised to closely follow Washington's problems in coming to grips with what kind of information should be open to whom and when.

Anyone with a computer and an internet connection can see the 1,500-odd classified cables released so far by the anti-secrecy organization WikiLeaks, which holds more than 250,000 messages exchanged between the U.S. Department of State and American embassies around the world. Five news organizations, including the New York Times, have reported on the cables in great detail. But the fact that the information is in the public domain makes no difference to the government's view of its classified nature.

So, government workers were told, in the first week of the WikiLeaks data dump, that "unauthorized disclosure of classified documents (whether in print, on a blog or on websites) do not alter the documents' classified status or automatically result in declassification of the documents. To the contrary, classified information, whether or not already posted on public websites or disclosed to the media, remains classified, and must be treated as such by federal employees and contractors, until it is declassified by an appropriate U.S. government authority."

There's an authority specifically set up for the declassification of documents, under an executive order President Barack Obama signed a year ago. It's called the National Declassification Center and it is dealing with a backlog of more than 400 million (yes, 400 million) classified documents. They date back 25 years or more and are kept in cardboard boxes holding 2,500 pages each in storage vaults the size of several football fields at the U.S. National Archives in College Park, Maryland.

The classified-stays-classified view of documents made public has produced an element of anguish among federal employees, including the more than 200,000 who work under the umbrella of the sprawling Department of Homeland Security. One of its workers expressed the vexation of many in an email to Steven Aftergood, a veteran anti-secrecy campaigner who puts out a weekly newsletter, Secrecy News, for the Federation of American Scientists.

from Breakingviews:

Obama could use another deal maker by his side

The remainder of the Obama presidency may hinge on whether the White House can reach a grand agreement with Republicans on critical tax and budget issues. The departure of White House chief of staff Rahm Emanuel to run for Chicago mayor makes that a bit harder. As befits a former investment banker, he understood how to close a deal. Negotiating skills are still in high demand at the White House.

On a West Wing organizational chart, the profane and pugilistic Emanuel was Obama's tough-guy bouncer, controlling the flow of people and information into the Oval Office. He was -- as a humorous name plate in his office read -- the Under Secretary for Go [Expletive] Yourself. But Emanuel was much more. He was Obama's economic consigliere, virtual shadow Treasury secretary, and de facto prime minister.

Indeed, it would be impossible to write an accurate financial history of the past two years without acknowledging the critical role Emanuel played. While still an Illinois congressman and House leader during the autumn of 2008, Emanuel helped push the $700 billion bank bailout bill through a reluctant Congress.

Once in the Obama White House, Emanuel massaged and manipulated the wonkery of the Obama economics team into a politically workable form. When some advisers pushed hard for a $1.2 trillion stimulus in early 2009, Emanuel downsized it, knowing that his old mates in Congress would balk such a lush package.

And it was "Rahmbo" to the rescue after the stock market tanked in response to Treasury Secretary Timothy Geithner's February 2009 speech on the banking crisis. Obama ordered Emanuel to whip the understaffed Treasury team into fighting trim. And that was just fine with the banks. They considered Emanuel -- who made millions in a previous guise as a managing director at Wasserstein Perella -- a fellow traveler.

So Wall Street is sad to see him go. Republicans should be, too -- at least those who desire fiscal reform. Emanuel was a big believer that politics is the "art of the possible." Obama will be under plenty of pressure from his unhappy liberal base to appoint a successor who will be the guardian of traditional liberal principles. But that's a recipe for gridlock. America needs a closer, not an ideologue, whispering in the president's ear.

from The Great Debate:

WikiLeaks and the psychology of leaking

The following is a guest post by Kerry Sulkowicz, a psychiatrist and psychoanalyst who is the managing principal of Boswell Group LLC. He advises business and political leaders on the dynamics of authority and governance, leadership transitions, and psychological due diligence. The opinions expressed are his own.

With the publication last week of WikiLeaks’ trove of classified documents on the Afghanistan war, the focus has been on the devastating picture they provide of the war. But a critical piece of the puzzle is not being addressed: what are the motivations of the leakers?

According to WikiLeaks’ founder, Julian Assange, the documents reveal “the more pervasive levels of violence” and “the general squalor of war.” Sadly, that’s no surprise.

What’s not so obvious is why people leak confidential material. We have yet to hear from Pfc. Bradley Manning, the Army intelligence analyst who was arrested on charges of leaking a video of an American helicopter attack in Iraq to WikiLeaks, and who is suspected of leaking all the other material. According to WikiLeaks, its goal is to reveal “unethical behavior” by governments and corporations through “principled leaking.”

Undoubtedly, the belief that you are doing something good drives many to leak documents. The WikiLeaks website cites the famous Supreme Court decision that “only a free and unrestrained press can effectively expose deception in government.” Only the most paranoid and controlling would disagree. There is certainly no shortage of deceptive behavior in business and government, and WikiLeaks is far from the only organization devoted to exposing it.

Was leaking the Afghan war documents in the public's best interest? Click here to take our poll.

But we aren’t always fully aware of what makes us do the things we do. So should we accept the explanations of their actions at face value? Separate from any effect, good or bad, that these revelations have on the situation in Afghanistan and in Washington, leaking is a narcissistic act. The attention bestowed on the leaker can at times overshadow the value of the news that has been leaked. Pfc Manning has gone from a position of obscurity to the center of a national storm.