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OpenMarket: John Berlau

  • $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...
  • Kudos to Republican Study Committee for bailout alternative

    September 25, 2008
    Those of us (and CEI is among the "us"!) who oppose Treasury Secretary Henry Paulson's $700 billion bailout of Wall Street have been challenged to come up with an alternative to stop the credit contagion. The Republican Study Comittee, a caucus of pro-market members of the GOP Congress, has just answered this challenge. They have presented such an alternative that would be much more effective at stopping the contagion than the Paulson bailout, and it 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...
  • Paulson bailout would worsen contagion-spreading accounting rules

    September 22, 2008
    My colleague Hans Bader is correct that most of the aims of Treasury Secretary Henry Paulson's $700 billion bailout -- stopping the "contagion" of securitized loans that have become illiquid -- could be achieved if mark-to-market accounting rules were "immediately relaxed by federal agencies like the SEC that enforce them." As I wrote in my Wall Street Journal op-ed this weekend, because the mark-to-market rules require writedowns of performing loans based on the last sale of similar assets, good "banks holding mortgages that haven't been impaired often have to adjust their books based on another bank's sale -- even if they plan to hold their loans to maturity." (And commenter "Topcat" misses the point...
  • The 'Naked' Truth -- Short sellers are unsung financial heroes

    September 19, 2008
    At the peak of the real estate boom, there was one group of individuals who said the bubble was about to pop. They pointed to overvalued land and bad underwriting of loans. And they bet their own money on their beliefs. Who are these unsung prophets of the subprime bust: the much-maligned short-sellers, whom both Britain, as Iain Murray reported yesterday, and now the U.S. Securities and Exchange Commission temporarily want to ban in an effort to keep the share price of financials from going further down.

    On Thursday, John McCain foolishly called for the ouster of SEC Chairman Chris Cox because Cox hadn't cracked down on so-called "naked" short sellers and supposedly "kept in place trading rules that let speculators and...
  • Lehman bankruptcy: In capitalism, failure is not a dirty word

    September 15, 2008
    My reaction to Lehman Brothers' declaring of Chapter 11 bankruptcy and the refusal of Treasury Secretary Hank Paulson and others to take extraordinary Bear Stearns-like measures for the government to prop the firm up can be summed up in three words: It's about time!

    Business failure is not only a permissible outcome of capitalism, it's a necessary one. As the great economist Joseph Schumpeter has written, the process of "creative destruction" is essential for the market to function. For innovation to flourish and the standard of living of the populace to improve, the market must be free to reward success and punish failure.

    As Schumpeter wrote in his 1942 book Capitalism, Socialism and Democracy, there is an ongoing "process of industrial mutation — if I may use that biological term — that incessantly...
  • Uproar over Palin Fannie Mae comment is really the media's 'gaffe'

    September 15, 2008
    The weeks leading up to a Presidential election have always been called the "silly season." But the attacks from bloggers and the media on vice-presidential contender Sarah Palin's supposed "gaffe" in her reaction to the takeover of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac takes the political season to a new level of ridiculousness.

    On Saturday, September 6, when the takeover and billion-dollar taxpayer bailout announcement that would happen the next day was already being reported by the press as imminent, Palin remarked on the campaign stump about the GSEs: “They've gotten too big and too expensive to taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.”

    Fairly straightforward statement, as the nearly $6 trillion in mortgages on their books does make them very "big" and the...
  • Fannie and Freddie's government 'takeover' -- truth in advertising at long last

    September 8, 2008
    There are many words -- and most them not nice -- to describe the new government conservatorship and planned bailout of Fannie Mae and Freddie Mac. But "nationalization" and "end of the free market" are not accurately among them. One cliche is certainly true: a certain substance has hit the Fan (and Fred, for that matter). But so is another, there is really nothing new under the sun.

    Whatever the problems of this scheme, and there are many that we wil be dissecting, nationalization isn't among them. The state is simply being more explicit in backing entities that CEI has always characterized as creatures of big government.

    Fannie and Freddie can't really be nationalized, because they were never really private in the first place. Fannie was created as the government agency the Federal National Mortgage...
  • Thanks to Brad Beckstead, more entrepreneurs will have their day in court

    September 5, 2008
    As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead -- whose two-person accounting firm had been brought to a stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB -- the dissent of Judge Brett Kavanaugh could not have been more powerful.

    Judge Kavanaugh called the lawsuit "the most important separation-of-powers case regarding the President's appointment and removal powers to...
  • Sarbanes-Oxley -- Loved By Countrywide and Mozilo, Albatross to Legit Investors and Entrepreneurs, Challenged in Court -- response to Jane Bryant Quinn-

    August 17, 2008
    For more than two years, the Competitive Enterprise Institute has been involved in a constitutional challenge to the Public Company Accounting Oversight Board, the giant agency set up by the Sarbanes-Oxley Act of 2002 to create auditing rules under the law. CEI attorneys Sam Kazman and Hans Bader are of counsel to the plaintiffs in Free Enterprise Fund (FEF) v. PCAOB, and they have worked with the lead attorneys at the Jones Day law firm on the case. Representing both the FEF and Beckstead & Watts, a small Nevada accounting firm burdened by the PCAOB's mandates, we have argued that the agency violates the Constitution's Appointments Clause because it wields enormous power (and the individuals on its its five-member board actually get paid more than the president), yet its leaders are not subject to the Presidential appointment and Senate confirmation that the Constitution requires...
  • It's the (mixed) economy, Stupid. Berlau in Economist.com debate

    August 7, 2008
    Ain't it something!

    Congress just got through with passing a multi-billion dollar bailout to the government-sponsored housing enterprises Fannie Mae and Freddie Mac, which own half of America's mortgage debt. Fannie was created as a government agency in 1937 as part of the New Deal, and despite it and Freddie's restructuring some 40 years ago, it still maintained government privileges and other implicit subsidies (which have now been made explicit.)

    Yet amazingly, despite these two government-created behemoths at the center of the housing storm, many are gaining traction arguing that the housing mess somehow shows the failure of the "free market." What "free market?" The fact is that despite the partial deregulation of past decades, financial services remained one of the sectors most controlled by the state. The politicians now pointing their fingers at lenders making high-risk loans...

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