Republicans propose alternative free market solution
With Congress knotted over the $700 Billion plan to bailout problem bonds, based on sub-prime mortgage problems ... President Bush called John McCain and Senator Obama to the White House for a meeting with leaders on Thursday. Interestingly enough Obama agreed to this meeting, which could frame him as supportive of the President. I believe that meeting takes place late this afternoon, so the markets will probably wander around in waiting today.
In the meantime Republicans have proposed an alternative plan, much more free market based, that eliminates the capital gains tax and the "mark to market" requirement that is causing healthy banks to become unhealthy in the eyes of investors. See WSJ op-ed.
The RSC plan is chock-full of measures to remove barriers to economic growth and market-distorting subsidies. It would suspend capital gains taxes to put trillions of dollars of capital in the economy, and set Fannie Mae and Freddie Mac, which as CEI has documented were at the root of this crisis, on the road to full privatization.
Most importantly for the crisis at hand, the RSC plan would make regulatory agencies suspend the mark-to-market accounting rules that a range of experts agree are spreading the contagion by forcing solvent banks’ to “write down” their assets, based on the last fire sale of a highly leveraged bank. As Gary Gorton, finance professor at Yale and member of the National Bureau of Economic Research has written, “With no liquidity and no market prices, the accounting practice of ‘marking-to-market’ became highly problematic and resulted in massive write-downs based on fire-sale prices and estimates.”
Although I am highly supportive of President Bush, I am worried that Democrats will take any chance they can get to create massive agencies that won't go away down the road. I'm willing to listen to alternatives today, but understand the brevity of the situation and that today and tomorrow a decision has to be made. If Republicans can't get support for the alternative, then I'd like to see John McCain seal the deal today and make Bush's plan happen. If Republicans start to get some support, I'd love to see the Maverick jump in with them and dare Obama to back Bush's plan over a market based plan. What an amazing day today is.
4 comments:
Mark to market was what caused Enron to go out of control. It's always amazing how reforms sometimes cause even greater problems.
Our representatives in Washington need to be very careful that the fix doesn't cause even more problems.
We also don't want to fall into a trap and allow our country to become even more indebted to China and Saudi Arabia. The US could win in the short term, but lose in the long term.
Chris, I've come full circle this week. At first, very supportive of the President and his advisors stepping in and doing whatever it takes to keep the markets liquid.
Then little by little beginning to question why we're throwing $2,100 per citizen at bonds that aren't all that bad off, but are being destroyed because no one wants to change a rule. Would sure cost a lot less to change the "mark to market" rule.
Enron too wasn't as bad as they got made out to be, sure they played too many games once things got bad, but on the surface a great American idea ... deregulate and bust up utility monopolies.
Many dems and republicans were screaming that the 700 can't or wouldn't get done quickly. I'm glad some smart representatives were cautious in taking their time in making sure we weren't just selling off the farm.
Deregulation is great, competiton is wonderful and keeps prices low, but Eron was playing lots of games when they were climbing up the latter, not just when the roof was crashing in. Their traders were the most aggressive ever...which in theory is wonderful, but they'd splash their own mothers throat to make another million...and said it on camera. That kind of culture is very dangerous and not part of a free market solution I want to be part of.
Hey there Chris, I totally agree with you that the US could win in the short term but won't sustain it for a long time.
Post a Comment