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OpenMarket: John Berlau

  • House GOP 'Rapid Recovery' plan spurs growth by changing long-term expectations

    October 31, 2008
    As soon as the elections are over, Congressional leaders are planning to have a "break the bank" party. On top of the $700 billion bailout that unfortunately both Republicans and Democrats supported, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid plan to call Congress back into a "lame duck" session in mid-November to pass a $300 billion "stimulus" package. The attitude seems to be, what's $300 billion for "Main Street" after we just approved $700 billion for Wall Street fat cats?

    But all the package is really likely to do is add $300 billion to Main Street's public debt without spurring economic growth. There is no reason to believe that the hodgepodge of programs Pelosi and Reid want the stimulus to fund -- from food stamps to unemployment benefits to infrastructire -- will be any more successful at jumpstarting the economy than the hundreds of billions spent...
  • It wasn't bailout that caused Monday's market surge -- 3 other factors

    October 14, 2008
    Since the $700 billion bailout was first proposed, whatever the stock markets did, much of the press took that as a sign that the market wanted more government intervention. The markets sinking on Sept. 29, the day the House voted down the first bailout bill (although much of the sinking was before the bailout was defeated), was a sign that markets needed the bailout. Then, when it went up about 500 points the next day, it was somehow explained as anticipation of Congress passing a new bailout.

    The press was somewhat at a loss for words when the market tanked all last week, just after the bailout had been passed. But yesterday, when the Dow Jones Industrial Average zoomed up 900 points, the explanation was that the markets just loved the forthcoming global bailouts and partial nationalizations. Comedy Central's Stephen Colbert, as he so often does, cleverly mocked this conventional...
  • The international mark-to-market contagion -- sending global markets in a downward

    October 10, 2008
    Bailouts. Global interest rate cuts. More bailouts. Global government liquidity injections into banks. Direct government buying of commercial paper. And even more types of bailouts.

    But nothing seems to stop the downward spiral of equity and credit markets throughout the world that have been accelerating this week. But there is one intervention the governments of the world haven't tried yet: Standing up to the high priests of the accounting profession and suspending requirements of mark-to-market accounting for illiquid assets.

    Markets are more connected across the world than ever before, but, more importantly, so are accounting rules. Over the past decade or so the U.S. Financial Accounting Standards Board (FASB) and the European International Accounting Standards Board (IASB) -- private professional organizations that basically have a monopoly on setting the accounting rules that...
  • Obama denigrates Delaware in debate

    October 8, 2008
    Poor little Delaware. In every presidential election since 1992, she has been in the "blue" column voting for the Democratic candidate. She has long had a Democratic governor. Although she is represented at large by moderate GOP Rep. Michael Castle in the U.S. House, her Senate representation has been 100 percent Democrat since Tom Carper defeated the late Sen. William Roth in 2000.

    And of course, her other U.S. Senator, Joe Biden, is now the Democratic Party's vice presidential candidate. Yet this didn't prevent this bluest of blue states from getting a thrashing in Tuesday night's debate from none other than the Democratic Party front-runner, Barack Obama.

    In a strange, little-noticed tangent that Obama got onto in responding to a health care question and attacking opponent John McCain for being a deregulator in every policy area (...
  • Lehman Bros hearing -- Rep. Maloney blames deregulation, ignores her own role as Fannie's enabler

    October 6, 2008
    At the hearing being held today by the House Oversight and Government Reform Committee, in which former Lehman Brothers CEO Dick Fuld is now testifying, an earlier panel attempted to look at the causes of Lehman's collapse and the broader credit cirisis. And this gave an opportunity to committee members to ride their various hobby horses.

    Rep. Carolyn Maloney's horse and "whipping boy" was deregulation. She blamed the entire crisis on deregulation, and specifically the repeal of the Depression-era Glass-Steagall law that separated commercial and investment banking. The repeal was done through the Gramm-Leach-Bliley Act, which Maloney neglected to say was passed on an overwhelmingly bipartisan vote and signed by President Bill Clinton in 1999. Clinton, in fact, recently defended the law, saying it didn't contribute much to the...
  • Market down on bailout -- Don't compound damage with overregulation of 'Main Street'

    October 3, 2008
    Today -- five days after a courageous independent vote against Treasury Secretary Hank Paulson's $700 billion bailout for Wall Street -- the U.S. House of Representatives disappointingly approved the same basic measure. Many of the bill's other "sweeteners", such as earmarks and a regressive increase in deposit insurance for upper income bank customers --will also cost taxpayer hundreds of billions of dollars.

    All this week I and my colleagues have pointed out ways this bailout could, in addition to being costly, be counterproductive for the economy. Wall Street may have been feeling this "buyers' remorse" today as the Dow Jones Industrial Average pared back ealier gains to end the day down by 150 points. As Yahoo Finance noted, "financial stocks, which had traded sharply higher on the promise the bill would be passed, fell after the House vote on profit-taking and as the market...
  • Another bad bailout idea -- raising deposit insurance cap is regressive and counterproductive

    October 1, 2008
    As the Wall Street crisis has expanded, politicians are falling all over themselves arguing on behalf of the "little guy" against "fat cats." But in reality, the main elements of "rescue" plans receiving a bipartisan push would represent a massive transfer of wealth from little guys and gals to fat cats' pockets.

    First, there was Treasury Secretary Hank Paulson's $700 billion bailout the House defeated on Monday, but to be revived in the Senate as early as Wednesday night. Then there is the upper-income wealth transfer that will now be added as the cherry on top of this bailout: raising deposit insurance to bank accounts of $250,000 or more.

    According to the Associated Press, both Barack Obama and John McCain on Tuesday backed lifting the deposit insurance cap to $250,000 from the current $100,000 maximum. And Federal Deposit...
  • Republican Study Commitee plan now best viable alternative

    September 29, 2008
    The stunning defeat of the Hank Paulson's socialism-for-Wall Street bailout on Monday has just made planks of a pro-free market alternative much more viable. As Open Market has noted before, The Republican Study Comittee, a caucus of pro-market members of the GOP Congress, has presented such a plan that would be much more effective at stopping the contagion than the Paulson bailout, and many of its provisions would not cost taxpayers a dime.

    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...
  • Bailout fails -- Move on to Mark-to-Market Reform

    September 29, 2008


    Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don't stick the rest of us with their losses.

    It's not hyperbole to say the Republican and Democratic backbenchers who defied both parties' leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that...
  • $700 billion to worsen economy? -- Berlau in American Spectator

    September 29, 2008
    Here are excerpts from my story in today's American Spectator Online on how the $700 billion bailout could actually make things worse -- in terms of resulting inflation and even a further contraction in credit due to the government purchases' interaction with the mark-to-market accounting rules. To read the piece in its entirety, click here.

    ""The government has to do something to keep markets from falling and the economy from getting worse." How many times have you heard that mantra this past week from President Bush, Treasury Secretary Hank Paulson, Democrat leaders, the news media, and even some ostensibly conservative periodicals?

    But what if the bailout, as originally proposed and in its latest incarnation, would spend $700 billion of taxpayers' money and actually make the economy worse? Believe it or not, there...

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