From NRO’s The Corner:
JP Morgan Chase + Bear Stearns
A great old firm got bought out today for peanuts. I was a partner before and after the Reagan administration. A sub-prime credit casualty.
Paulson and Bernanke have done exactly the right thing. It was a run on the bank. The Fed stopped it right there. No banking crisis.
The big Wall Street banks are in good shape, even with earnings losses they’re still well capitalized, profitable and solvent. Fed stopped it from spreading on Friday; JPMorgan takes them over tomorrow.
The Fed cut the discount rate today by a quarter point. It will reduce target the fed-funds rate on Tuesday. The banking system will function fine. That’s the key.
Paulson was good on the talkies today, emphasizing confidence in the banking system. He’s a capable guy who is working the phones and is in touch with everyone This is how to stop a crisis. Bush was right to put on an optimistic face on Friday in my interview and later in his speech to the N.Y. Economics Club.
Senator Schumer is calling Bush “Herbert Hoover.” But Hoover signed protectionist Smoot-Hawley, just as Hillary and Obama are today trying to break up NAFTA. Hoover signed a huge tax increase, just as Hill-Bama are preaching. The Dems are emulating Hoover. Bush is trying to stop it.
But the administration should be pushing for a strong dollar. That would help.
That is the one thing missing – the push for a strong dollar. On the other hand, the rest of the world will likely start to shore up the dollar pretty soon – a cheap dollar means exporting to America is getting vastly more expensive. For all the Euro-zone’s chest thumping about the Euro’s value vis a vis the dollar, they never really wanted it to be significantly more valuable than the dollar because a strong Euro means Europe has a harder time exporting to us, and a harder time keeping out US exports. Same thing with China, Japan – heck, the whole world. No one wants to be shut out of the US economy, and the falling US dollar is making it harder and harder to sell us stuff, while making it easier and easier for us to go the other way.
One of the best things we could do for strengthening the dollar would be to make the Bush tax cuts permanent – part of our problem is that foreign investors see HillBama and worry that next year we’ll see a very massive tax increase, thus making returns on US investments much smaller…so, much better, for now, to put the money in Euros, gold and oil futures…our task is to drag that money out of those three shelters from potential Democratic tax hikes.
Blogs For Victory 
Dasein: No, inflation is calculated on buying power and the increase or decrease in wages is instrumental to the inflation calculations. Specifically, the relationship of wages to productivity is the fuel that drives inflation.
I’m not sure it’s quite that simple, but I do agree with the concept — assuming the relationship is inverse: i.e., that higher productivity has a negative pressure on inflation. So, how do we enhance productivity? It’s not clear that adjusting the tax policies will have any effect. And if it does, the effect is at best indirect.
According to the BLS U.S. nonfarm productivity grew at a relatively low annual average rate of about 1.2 percent from 1973 to 1995. However, from 1995 to 2000, the rate increased to an annual figure of about 2.3 percent per year. From 2000 to 2004 U.S. productivity rose at an even faster annual average rate of 2.8 percent. Many economists attribute a considerable chunk of that growth to improvements in information technology — the deployment of PCs and their interconnectivity through the internet.
Previous improvements in productivity occurred for other reasons. In the 20th century, technology dramatically improved farm productivity. Biologists developed high-yield crops. Chemists developed improved fertilizers, insecticides and pesticides. The government built an interstate highway system that enabled growers to get fruits and vegetables to processing plants before they spoiled. The numbers are striking. In 1850, a single farm worker produced enough to feed four people. By 1980, the average farmer produced enough to feed 78 people.
So what’s next? It’s hard to say for sure. It seems to me that genetics and nanotechnology are pretty good bets. But one that seems to be a real no-brainer right now is improvements in energy productivity. There are a large number of ways to reduce the amount of energy consumed per unit of output — things that are inexpensive to implement, require little to no new technology, and offer big payoffs in the near term. Better energy productivity would also help the environment (by lowering emissions), help the trade imbalance, and improve our national security.
Anna,
I have read Friedman and no where does he advocate “printing money” as a solution to tight money policies. I’ll refer you to a paper by Friedman in which he speaks of the Optimum Quality of Money. Then check the press release on the Term Securities Lending Facility. The focus is on the asset side of the balance sheet, not the equity side.
The reason we have a Fed is to make the money available when needed and to tighten credit when needed. The Fed is not now “printing money” by any measurement. Fiscal availability isn’t a bailout; it’s what the Fed does. The Fed is using current Treasury funds to offer the interest reductions. Your theory falls under the weight of the simple fact that Bernanke has resisted all efforts by the Keynesians to “print money.”
The S&L was execrated by high interest rates as the Fed couldn’t make enough money available to buy out the lost assets of the depositors. Let’s not forget that the Prime Rate exceeded 20% prior to the Carter recession and remained double digit through the 80’s.
Although I generally agree with your assesment that we should be open market oriented, the Fed has the responsibility to keep the monitary supply consistantly corrected.
18. anarchist “If you did that right now you would destroy the banking system….”
You would not destroy the banking system. The banks did that to themselves. Now they are looking to Uncle Sam to save them.
The problem is, the people (Taxes) invest into shoring up the damn, but they dont get an equitable position. The same banks that back credit card debt are involved in the Mortgage crisis when you walk through a few revolving doors called corporations and LLC’s.
26. Dasein Libsbane
The reason we have a Fed ….
————-
If you go back to before the capitalists remade the US Monetary system, it worked just fine without Federal Banks. They are like children in a nuclear factory pushing buttons. This was created by the easy source of cash that they can borrow from the Fed Reserve (which was running tight on the Gold Standard in 1971, so they revamped to a paper product). If banks had to operate on thier own capital, the mortgage crunch would have never happened (they would be more prudent and careful about what they invested in).
The Dollar has dropped for the last 37 years because of that.
Another one we can thank Nixon for.
Dasein, ok, you’re right, the fed doesn’t print money, it’s prints fiduciary media(writes checks unbacked by money). They trade as a perfect money substitute, so what’s the difference?
The S&L crisis was also even more exacerbated by the Depository Institutions Deregulation and Monetary Control Act of 1980, which deregulated the S&L institutions while leaving the moral hazard of an implicit bailout. That was the underlying cause of the crisis.
The Term Securities Lending Facility that you mention is doing the exact same thing that happened with the S&L bailout, swaping bad debt for good. When the S&L firms failed, the taxpayers where left with the bill. The federal government is currently holding hundreds of billions of dollars of questionable debt, if the owners start failing, the fed’s out of alot of money. But don’t worry, they’ll just take it out of your paycheck in taxes.
“the point isn’t what policies this person has or the other person has. ” Joe
You’re joking right? Instituting the tax increases that Obama, Clinton, and the dems in congress are proposing will be just what Hoover did to percipitate the Great Depression. Increasing taxes at this point will bring the same result…depression.
“The point is it is downright foolish to say the economy is in the tank because “foreign investors see HillBama and worry that next year we’ll see a very massive tax increase”. Joe
Wrong again. Confidence in the dollar will not be strengthened if investors, foreign and domestic see that Hillbama tax increases will be instituted. Os in addition to a depression you will have a collapse of the dollar.
“Raise the Fed rate to 5% to stave off inflation and let the economy cycle itself back into growth.” Carlton Pryor
It will stave of inflation, but by solving a problem that doen’s exist it will slow the economy. On the plus side it will strengthen the dollar.
“What Bush and Treasury Sec’y Henry Paulson have done with Bear Stearns is to nationalize an investment bank.” Carlton Pryor
Nationalize Bear Sterns???? You obviously don’t understand what the FED did. Bear Sterns was neither bailed out or nationalized. They will no longer exist, and their sharholders have suffered huge losses. The liquidity that the Fed pumped in is a LOAN. JP Morgan Chase assumes the liability. A bankruptcy of Bear Sterns could have caused a run on the banks. The Fed acted responsibly. The markets reacted favorably by finishing the on the plus side.
Lets admit that historically the father -son Bush admins will be remembered in future condensed history books, for the iraq wars and large banking problems causing two recessions.
“One of the best things we could do for strengthening the dollar would be to make the Bush tax cuts permanent” – Mark
The tax cuts did not help the Dollar over the last few years. In fact, the Dollar is down against most major currencies. All of the sudden it is going to matter?
P.S. on a immediate note this isnt over ;which financial institution will dissolve from the landscape next. How much of american landscape will truly be be left as american assests
“You cannot have unchecked growth in an economy without expecting corrections”
Thank you, Concerned Citizen. It is so frustrating to read these posts constantly whining about “the economy”, written by people who obviously haven’t got the slightest idea of any economic principles.
Even the most basic of ideas, such as that when inventory goes up and demand goes down, prices plummet, are beyond them. It never occurred to any of them that the housing boom could not possibly continue forever—what were we going to do with all those houses? At some point the market is saturated, and the sellers stop being the beneficiaries. Then it becomes a buyer’s market, as there is more competition for the housing dollar, and after a few years of this the inventory is diminished and the building starts up again. What could be more obvious?
The whine about those pesky “rich” blocking the passage of the fair tax is just more Liberal surliness. The current version of a consumption tax is pretty new, it hasn’t even been proposed yet, and most of America hasn’t even heard of it.
I like it because it would put control of my money back where it belongs—-in my own hands. If I want to save more money, I buy less—but with before-tax dollars, not with heavily taxed money as is the case now. So I have the freedom to choose when and how I pay my taxes, and how much I pay.
The other change I think we have to start working on is the realization of the importance of the 10th Amendment. It has been largely ignored since the 1930’s, and that dismissal has contributed to the upside-down form of governance we have today.
I’d like to see the Federal taxes on goods top out at about 5%, maybe even less, and have the Feds butt out of education, welfare, agriculture, and whatever else it is pouring money into. These should all be the baliwicks of the states, and the states should impose their own consumption taxes to cover these expenses.
According to the Constitution, the Feds should be involved in national defense, international diplomacy, and interstate commerce. Period.
If something is not specifically delgated to the Federal Government, it is the business of the states. That’s what the documents say, and we need to start immediately to get back to that before we get any more upside-down.
“You people keep mentioning this impending tax increase by Hillary and Obama (stop using HillBama- it’s childish and quite moronic) when there is no proof that one exists.” Un come on
1. In addition to the $80 Billion tax on the wealthy to be redistributed to lower income individuals, Obama’s campaign says he would pay for his proposals by closing corporate tax loopholes, fighting international tax havens and raising the top rate on capital gains and dividends.
2. Speaking to a group of alternative energy investors in Washington, D.C., Clinton proposed to sock oil companies with $20 billion in new taxes driving up costs for oil producers that they would inevitably pass along to consumers.
3. Clinton on taxes: “So, yes, we have to change the tax system. And we’ve got to get back to having those with the most contribute to this country.” Translation higher taxes for anyone earning six figures.
4. Clinton also said that she would raise taxes to prevent the outsourcing of U.S. jobs. She fails to explain how a raise in taxes would prevent companies from moving offshore or outsourcing. Higher taxes would increase outsourcing and the exodus of manufacturing overseas.
5. Clinton: “I want to restore the tax rates we had in the ’90s. That means raising taxes on corporations and wealthy individuals.”
1. Dividend and capital gains tax cuts, are slated to expire. Obama and Hillary are opposed to renewal. This represents a defacto increase in taxes. and will result in an economic slowdown that will be a disaster in view of our present economic condition.
A little education on the effect of capital gains tax cuts on the economy can be had at the following link:
Click to access IPI%20-%20CapGainsKey.pdf
Finally both Obama and Clinton are planning on increasing taxes on those EVIL corporations. What they and the rest of you leftist morons don’t seem to realize is that our economy does not function in a vacuum. As the following table shows, in 2006 we were tied with Japan for the highest corporate tax rate. Please note that 39.3 was the Federal tax rate plus the average state tax rate in 2006. While the top federal corporate tax rate is now 38 percent, state corporate tax rates add anywhere from less than 1 percent to 12 percent to that figure, resulting in vastly different statutory tax rates based on a company’s location. U.S. companies unlucky enough to be headquartered in Iowa face a top statutory corporate tax rate of 50 percent, while Washington State corporations face only the 38 percent federal rate. So we now have the HIGHEST CORPORATE TAx RATE IN THE WORLD, over 50% higher than the average of industrial countries. Also note that almost every country, except the US, REDUCED their tax rates from 2000 to 2006. This trend continues.
2000 2006
Japan 40.9 39.5
United States 39.4 39.3
Germany 52 38.9
Canada 44.6 36.1
France 37.8 35
Spain 35 35
Belgium 40.2 34
Italy 37 33
New Zealand 33 33
Greece 40 32
Netherlands 35 31.5
Luxembourg 37.5 30.4
Mexico 35 30
Australia 34 30
Turkey 33 30
United Kingdom 30 30
Denmark 32 28
Norway 28 28
Sweden 28 28
Portugal 35.2 27.5
Korea 30.8 27.5
Czech Republic 31 26
Finland 29 26
Austria 34 24
Switzerland 24.9 21.3
Poland 30 19
Slovak Republic 29 19
Iceland 30 18
Hungary 18 16
Ireland 24 12.5
OECD Average 33.6 28.7
So an increase in corporate tax rates that both Obama and Clinton will have a negative impact on our economy, on our competitiveness, and the wilingness of companies and individuals to invest in the US.
“The tax cuts did not help the Dollar over the last few years.” Brian in Boston
In fact individual tax cuts substantially helped to get us out of a recession and stimulate our economy. Our dollar was not helped by the failure to follow up with corporate tax cuts, like ALL other industrial countries.
BTW: Corporate investment means JOBS. You want jobs? Reduce the corporate tax rate.
How many years can a mountain exist, before it is washed to the sea?
Its Karma, no? There is a time to build and a time to tear down, a time to get, a time to lose….to everything there is a season.
Hillary and Obama should take a lesson from the following article from 2007:
http://www.cato.org/pub_display.php?pub_id=8382
“In the past, governments saw corporations as cash cows that could be milked for money anytime politicians wanted to buy votes. But because of capital mobility, lawmakers are being forced to curtail their greed lest the geese that lay the golden eggs fly across the border.”
“The United Kingdom just announced a plan to drop its rate from 30 percent to 28 percent. Germany is in the process of reducing its rate from nearly 40 percent to less than 30 percent. The new French President wants to bring his nation’s corporate rate down from 33 percent to 28 percent.”
Your leftsits want to strangle the golden goose, and then feed off its dead carcass.
Obama and Clinton are counting on the main platform of the Democrat party…class warfare, as well as an uninformed electorate to win in November.
While the entire world is reducing corporate tax rates you leftist morons think that by raising ours we are somehow going to magically attract capital for jobs. You leftists are economic simpletons and idiots.
CW bleats; “They deliberately sabotaged our economy.”
You do come up with the goofiest things imaginable, CW. I know, you hear it on the radio and it kinda maybe makes some sense the way it is said, and most of all it feeds into your rampant BDS, so you come here and try to regurgitate it and you just end up sounding about as smart as a box of hair.
I looked up the rulings that led to the decrease in regulations on “predatory lending”. It is very complex, and I didn’t have time to really dissect it—but one thing is clear, and that is that the ruling was intended to affect credit card companies, to clear up conflicting regulations among states that were interfering with the ability of credit card companies to fairly assess penalties to high-risk card holders without penalizing the good payers, and had the unintended effect of reducing regulations on lending.
Now, as the Left pretty much OWNS “unintended consequences” you should be able to see how this can happen. Oh, that’s right—when one of your “fixes” endes up creating more problems than it solved (think ethanol, folks…) you just slope off to tilt at different windmills, leaving chaos in your wake. And this is what happened with the ruling that allowed predatory lending to go pretty much unchecked. This time it happened with a conservative at the helm, at least at the help of the country if not at the helm of the government agency involved, but it is the same concept.
It is stupid beyond stupid to claim that it was a purposeful act, with the goal of “sabotaging” the economy. Yes, I know there is a certain pathology that gets off on saying the most vicious thing possible, with no concern for truth or fairness, but this is getting really old.
“Our dollar was not helped by the failure to follow up with corporate tax cuts, like ALL other industrial countries.” -phnx
You went on a tangent with my original quote siting that the author of article made an incorrect statement.
I agree with you on the corporate tax cuts, but I also believe that we need to close the loopholes, such as the ability to hide money offshore.
Going back to the original statement why the Dollar is weak, the Chicago Federal Reserve has an article stating why currencies are weak or strong and it says nothings about tax rates:
http://www.chicagofed.org/consumer_information/strong_dollar_weak_dollar.cfm
Factors Contributing to a Strong Currency
* Higher interest rates in home country than abroad
* Lower rates of inflation
* A domestic trade surplus relative to other countries
* A large, consistent government deficit crowding out domestic borrowing
* Political or military unrest in other countries
* A strong domestic financial market
* Strong domestic economy/weaker foreign economies
* No record of default on government debt
* Sound monetary policy aimed at price stability.
Factors Contributing to a Weak Currency
* Lower interest rates in home country than abroad
* Higher rates of inflation
* A domestic trade deficit relative to other countries
* A consistent government surplus
* Relative political/military stability in other countries
* A collapsing domestic financial market
* Weak domestic economy/stronger foreign economies
* Frequent or recent default on government debt
* Monetary policy that frequently changes objectives.
The fed rate does not need to be raised as the price of fuel has acted as a surrogate increase. As gas goes up, since it is the lifeline of our economy, it is akin to raising the fed rate to keep inflation in check.
“but I also believe that we need to close the loopholes, such as the ability to hide money offshore.” Brian
Brian, hiding money offshore is not a loophole…its ILLEGAL. You have to declare any foreign assets.
“the Chicago Federal Reserve has an article stating why currencies are weak or strong and it says nothings about tax rates” Brian
So you conclude that corporate tax rates aren’t important??? You obviously don’t understand economics much less how corporate tax policy affects economic strength and strength of currencies.
* Lower interest rates in home country than abroad. High interest rates attract passive investment
* Higher rates of inflation Needless to say, but our inflatin rate is Low.
* A domestic trade deficit relative to other countries. This is certainly a problem, which BTW is partially solved by a weak currency…markets tend to correct themselves when left alone.
* A consistent government surplus . HOW DOES THIS OCCUR???? High taxes
* Relative political/military stability in other countries. We have one of the most stable countires in the world.
* A collapsing domestic financial market. Although a correction is occuring, our domestic financial markets can hardly be considered collapsing.
* Weak domestic economy/stronger foreign economies. Our domestic econmomy is producing and has produced more jobs over the past 7 years than all of Europe combined.
* Frequent or recent default on government debt. The US has NEVER defaulted on debt.
* Monetary policy that frequently changes objectives. Our monetary policy is stable.
ERGO…reduce corporate taxes and investment will flow into rather than away from the US. This will strengthen the economy in comparison to other countires and strengthen the dollar as well.