The Great Debate UK

from The Great Debate:

California, harbinger of hard U.S. choices

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

California's fiscal train wreck should be watched warily by investors in U.S. Treasuries; as the start of a trend among states seeking bailouts, as a source of pressure on Federal funds and as a harbinger of hard choices at national level.

California voters last week rejected a finance bolstering proposal, setting the stage for billions of dollars worth of  cuts in services, layoffs and a shortened school year.

It also leaves the state with a budget shortfall of more than $21 billion, an exacerbated seasonal revenue shortfall and a fragile reputation in the bond market.

These are just about the last things a state needs when unemployment is high and recession is deep, but California is trapped between its own high cost base, bond investors unwilling to give it the benefit of the doubt and a Federal government that is loath to play Santa Claus. Of the three, the last is most likely to give way, and if the U.S. does widen the bailout it is already giving to states it will have potentially profound consequences.

from The Great Debate:

Failure is the only success in stress test

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

The stress test of banks now underway in the U.S. is one exam in which failure will be the only true measure of success, at least in terms of speeding a recovery.

The U.S. will release some information about the methodology of the stress test of 19 major banks on Friday according to reports, with results slated for release in some form on May 4.

from The Great Debate:

Summers’ compensation intensifies reform doubt

John Kemp Great DebateThe weekend revelation National Economic Council chief Lawrence Summers received almost $5.2 million in salary and other compensation last year from hedge fund DE Shaw and Co, and hundreds of thousands more in speaking fees from other banks, has dealt another blow to the administration's fast-waning credibility on financial reform.

Summers and protege Treasury Secretary Timothy Geithner have already attracted criticism for a strategy many commentators believe is unduly favorable to Wall Street.