It’s the return of malaise.
More confidence building, from the “indispensable” tax dodger who is now in charge of collecting our taxes:
Where was Geithner the Technocrat when you needed him? Because that is just what the markets need right now: a detailed, technocratic explanation of the way forward. This might have been the clincher as far as investors are concerned: “We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it.” In other words, “We have have concrete and high detailed plan to develop a concrete and highly detailed plan. We’ll get back to you.”
Oh, and it would be nice if he could do all that without painting such an unremittingly bleak picture of the economy. But more important is to change the mark-to-market accounting rules that are needlessly driving the financial system into the ground. Former FDIC Chairman William Issac has told the Securities and Exchange Commission that every money center bank in the 1980s would have gone bust had they been forced to sharply write down the value Latin American debt: “If we had followed today’s approach during the 1980s, we would have nationalized nearly all of the largest banks in this country and thousands of additional banks and thrifts would have failed. I have little doubt that the country would have gone from a serious recession into a depression.” Sound familiar?
And along with that change, how about embracing the private sector as the surest path back to prosperity? Cut corporate taxes. Suspend capital gains taxes. Indeed, one reason why Geithner may have been so vague about the bank rescue plan is that ultimately the plan may entail such high government borrowing that announcing it now would have derailed the current $800 billion Obama stimulus plan.
And wouldn’t that be a shame?
Speaking of cutting corporate tax rates, what would really help would be to simply eliminate them. A simple reduction in rate does nothing to reduce the high costs of bookkeeping and accounting that are made necessary by the need to sort out taxable deductions from other expenses. I’m sure that this is a huge drag on the economy (though it would still exist, unfortunately, for individuals). Eliminating the tax completely would free up vast amounts of corporate wealth for more productive activity.
[Mid-afternoon update]
Well, people do laugh at clowns:
The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets — which they referred to as “legacy assets” — but wouldn’t be asking Congress for money. Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn’t provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side. By guaranteeing the assets, Geithner hopes he can persuade the private sector to purchase a portion of them.
Financial messes like this are fundamentally a crisis of confidence. The Dow plunged 400 points after the news conference. I think that the Geithner pick is turning out to be a disaster, on multiple levels.
[Another update]
More thoughts from Megan McArdle:
I don’t envy Geithner his position. But he’s known this was coming for months. I expected a little more than telling us that he wanted to spend a lot of money to help banks clean up their balance sheets. We knew that much already.
I’m glad I don’t have his job, but I wish that someone else did. And the buck stops with the man who appointed him.
I’d like to see elimination, but barring that I’d be happy with replacing the tax on “Income” (an accounting fiction) with a tax on “Revenue” (dollars in). That would net 98% of the efficiency gains of elimination.
But of course the tax system is 1/2 of Congress’s toolkit for handing out bennies to their campaign contributors, and it’s 90% of their social engineering playground. They’d never give that up.
I’d like to see elimination, but barring that I’d be happy with replacing the tax on “Income” (an accounting fiction) with a tax on “Revenue” (dollars in).
That would put a lot of businesses out of business.
I’d rather just see a national retail sales tax (after the abolition of the corporate income tax, personal income tax, capital gains tax, and Social Security tax). Whatever amount was necessary to keep essential Federal operations running (military, police, judges, etc).
Sure, it’d be regressive against the poor, but not terribly much (cap it at 5% maybe). The poor can join Costco if a 5% tax is such a burden.
>>I’d like to see elimination, but barring that I’d be happy with replacing the tax on “Income” (an accounting fiction) with a tax on “Revenue” (dollars in).
> That would put a lot of businesses out of business.
Yup, but that might be a feature.
Certainly eliminating all of the “tax farms” would be a good idea.
The big problem is that it would discriminate against low-margin biz.
Maybe it should be a tax on salaries and equipment purchases and rentals.