Opinion

The Great Debate

Financial reform bill puts GOP in dilemma

- John Kemp is a Reuters market analyst. The views expressed are his own -

Financial reform legislation is set to reach the Senate floor as early as this week. With U.S. President Barack Obama and Senate Majority Leader Harry Reid holding most of the cards, pressure on Senate Republicans and Wall Street to find a compromise is becoming intense.
(more…)

from James Pethokoukis:

The myth of Lehman, part two

John Taylor has maintained that it was the government's reaction to Lehman that freaked out financial markets. Now Luigi Zingales and John Cochrane make a similar pitch in the WSJ:

On Sept. 22, bank credit-default swap (CDS) spreads were at the same level as on Sept. 12. (CDS spreads are the cost of buying insurance against default.) On Sept. 19, the S&P 500 closed above its Sept. 12 level. The Libor-OIS spread—which captures the perceived riskiness of short-term interbank lending—rose only 18 points the day of Lehman's collapse, while it shot up more than 60 points from Sept. 23 to Sept. 25, after the TARP testimony. (Libor—the London Interbank Offer Rate—is the rate at which banks can borrow unsecured for three months.)

Why? In effect, these speeches amounted to "The financial system is about to collapse. We can't tell you why. We need $700 billion. We can't tell you what we're going to do with it." That's a pretty good way to start a financial crisis.

  •