Daily Read - 2/8/10

NPR has an interview with former Treasury Secretary Hank Paulson, where says things would have been much worse for everyone if the government had not intervened in the financial system.  "If the system had collapsed, many, many Main Street companies, not Wall Street companies, but Main Street companies of all size would have had trouble raising the money to fund themselves...we easily could have had unemployment of 25 percent."  President Obama likes to talk about Main Street versus Wall Street, but the truth is that they are interdependent.  He also keeps saying something needs to be done, but nearly 16 months after the collapse of Lehman Brothers, Congress is still spending most of their time trying to punish bankers instead of reforming the system, after spending 2009 working on health care.  While trying to not "let a crisis go to waste", they let a year go to waste, and are working on another one.

An Economist article uses China as an example of the dangers of too much government intervention in credit markets - too much credit when its not needed, and too little when it is:

Big credit decisions in China are not advanced by any one bank, nor any one banker. Credit is infused and withdrawn by central diktat. That process has extraordinary appeal to state planners but is horribly inefficient for individual institutions. In recent weeks, for example, as the screws on lending have tightened, favoured industrial companies have been getting urgent calls from their bankers demanding that they immediately scoop up their credit needs for months to come, or be subject to a freeze of uncertain duration. Firms that manage to load up on credit still suffer because they bear interest costs long before the money is actually needed.

In the US, the government pushed hard for more credit just when it was not needed - during a massive housing bubble.  As Democrats and others continue to point fingers at bankers as the cause of our financial crisis, the Wall Street Journal's lead editorial reminds us of New York Attorney General Andrew Cuomo's contribution.  When he worked for HUD in 1999, he raised the target forloans for low- and moderate-income families that Fannie and Freddie were required to purchase from 42 percent to 50 percent, while encouraging lower underwriting standards.  "It's a sign of Washington's continuing failure to examine its own failures."  Cuomo would prefer we focus on his fraud lawsuit against Bank of America, filed last week.  But, "Mr. Cuomo has arguably done far more harm to taxpayers and investors than the defendants have."

A column in the Washington Post asks "Why are liberals so condescending?"  It argues "American liberals, to a degree far surpassing conservatives, appear committed to the proposition that their views are correct, self-evident, and based on fact and reason, while conservative positions are not just wrong but illegitimate, ideological and unworthy of serious consideration."  Surprisingly, 65% of readers seemed to agree when asked "Who is more condesceding (chart at right).  In case you're wondering, I answered "both."

George Will's column in the Washington Post yesterday, and Robert Samuelson's column in today's Post summarized some ideas for restoring fiscal sanity in Washington.  Samuelson says "We can no longer just tinker. We need to ask whether government spending serves genuine public purposes or merely benefits favored constituencies."  Will summarizes ideas proposed by Rep. Paul Ryan (R-Wis) focusing on tax and entitlement reform that go beyond mere tinkering.  Although his tax ideas might be considered extreme, something extreme needs to be done.  "Since the 1986 tax simplification, the code has been recomplicated more than 14,000 times -- more than once a day."  Ryan would also raise the retirement age to reduce government spending - "The system was never intended to do what it is doing -- subsidizing retirements that extend from one-third to one-half of retirees' adult lives."  Congress and the President need to realize America's current situation requires identifying ways to pay fewer benefits to less people, not more benefits to more people, regardless of the political consequences.

The President is making gestures, such as saying "he would sit down with Republican and Democratic lawmakers this month to exchange ideas on an issue [health care] that has deeply divided the parties."  But, an aide to the President says "We're not starting over. We're coming in with our plan."  (WSJ)  Too bad - I was hoping for a change.

Are Americans "childish" and "ignorant"?  Slate's Jacob Weisberg thinks so, according to his article.  Weisberg's article used poll results to make a case that American ignorance was causing paralysis inside the Beltway.  I guess he doesn't believe in democracy.  However, Derek Thompson at the Atlantic analyzes some flaws in using polling data to make such points, and that there are rational explanations for the way Americans opinions change over time.