James Pethokoukis

John Taylor on the Lehman anniversary

October 1, 2009

From his blog:

Two weekends ago the big news was the one-year anniversary of the Lehman Brothers bankruptcy and the ensuing panic. But when you look at the data, the real one-year anniversary of the panic is closer to now.

Accepting a nuclear Iran

October 1, 2009

Tom Barnett gives a reality check:

There are very few secrets left in this world, but never any shortage of revelations! Major spy services have been interested in the Qom site for years, and as we know, anything the West knows, the East ends up knowing too. So if we knew, they knew, the Israelis knew, and–by extension–the rest of the Big Five knew, for whom was this a revelation? Why, the approving or disapproving public, of course. There is a lot of PR going on with this whole dynamic, and it impresses me as little as the diplomacy. It’s like the entire world needs to wrap its head around the reality that Iran’s getting nukes and there’s next to nothing that can be done about it, except for delaying it–possibly–for a bit with air strikes. So we’re moving through the anger and denial and heading toward the real bargaining and acceptance. Helen Kubler-Ross would be proud.

Break up the risk-rating cartel

October 1, 2009

The meltdown of America’s financial system hasn’t exactly been a testimonial to the efficacy of public-private partnerships. Indeed, those kinds of linkages were at the heart of the problem.Government efforts to increase home ownership contributed to a housing bubble. Hybrid institutions Fannie Mae and Freddie Mac are now under federal conservatorship.And just as the White House and Congress are doing little to disentangle government from housing and the failed GSEs, they seem to be more or less committed to the status quo when it comes to the credit rating agencies.For the rating agencies are another example of government support gone awry. Anointed by government as the overseers of credit-worthiness, the agencies supplied overly optimistic assessments of mortgage debt securities that were eagerly gobbled up by yield-hungry financial institutions. Then those securities imploded.Representative Paul Kanjorski, a Pennsylvania Democrat who is shepherding the ratings agency piece of financial reform through the House Financial Services Committee, relies on the old standbys of more oversight and more regulation.Under his plan, for instance, the Securities and Exchange Commission could review the procedures and methodologies of the rating firms and fine executives for violations.The firms would be prohibited from consulting with companies whose debt they rate. Boards would have to have more independent directors. And then there’s the weird idea of imposing a sort of collective responsibility on the firms, allowing one to be sued for another’s mistakes.Rules, rules and more rules — but none that would either end the dominance of the issuer-paid ratings model or the firms’ government-backed role as a risk-rating cartel.There are alternatives, however. Congress could create a better environment for an investor-paid model by removing regulatory biases toward the designation of Nationally Recognized Statistical Rating Organizations.Alex Pollock, former president of the Home Loan Bank of Chicago, has proposed that a group of institutional investors set up and capitalize their own agency. But that is unlikely to happen if the current system continues to be geared toward the oligarchy of issuer-paid firms.And a free-market proposal from New York University’s Stern School of Business would let financial institutions take advice from whatever sources they want, as long as the regulator approved.But other than that, as the report advises. “the bond-advisory information market would be opened to new ideas — about business models, methodologies, and technologies — and new entry in a way that has not been true since the 1930s.”That’s what we need: a new system for a new financial era.

How’s the private sector doing?

October 1, 2009

Not so good. As this GDP chart from my pal Donald Marron shows:


More on America and the VAT

October 1, 2009

The oh-so-smart Andrew Samwick on the chances of a VAT over at the Capital Gains and Games blog:

Is Obama ignoring Wall Street?

October 1, 2009

This from Ed Yardeni, keying off a recent Charlie Gasparino’s column:

There is no one in the Obama administration like Robert Rubin, who had the ear of President Clinton. Rubin convinced Clinton that the Bond Vigilantes would riot if he pursued policies that would lead to a structural federal deficit, i.e., one that would widen despite a growing economy. So far, the Bond Vigilantes haven’t gone on a rampage despite projections of $10tn in deficits over the next 10 years. So it is no wonder that Obama’s political advisors are acting as though they’ve been handed a blank check by the bond market. However, the longer they ignore the economic advisors, the greater is the likelihood that the blank check will bounce.

Stop using tax cuts as industrial policy

October 1, 2009

Larry Kudlow is dead solid perfect here:

But here’s what I don’t like about this story: Big, central-planning, government-directed tax preferences for housing, like the $8,000 dollar tax credit for new buyers. Or even the popular mortgage interest deduction. And let’s not forget perhaps the biggest one of all: Home sales are basically capital-gains-tax free. That passed back in 1997. Many people (including myself) believe it helped create the bubble.

The untried economic solution: tax cuts

October 1, 2009

If Germany can do it, why not America? More evidence of the wonder-working power of tax cuts, this time from Robert Barro and Charles Redlick:

Obama’s unilateral move on climate change

October 1, 2009

OK, so the White House has greenlit the EPA to go forward with new rules, as the NYTimes puts it,  “to regulate greenhouse gas emissions from hundreds of power plants and large industrial facilities.”  I think this lobbyist quotes in the article gets the politics right:

IMF ups its estimate for 2010 global growth

October 1, 2009

Another unsurprising economic forecast that portends continued high US unemployment next year.