Financial Crisis, and What the Candidates Should Do

By September 19, 2008Economy

R. Glenn Hubbard, dean of Columbia University’s Graduate School of Business, recommends a course of action of presidential candidates, Congress and regulators in an outstanding Washington Post column today, “What the Candidates Can Do.”

First, it is clear that openness to foreign investment in U.S. firms and economic opportunity for financial services outside the United States will help to resolve many financial institutions’ problems. Second, rebuilding the internal net worth and capital of major financial institutions is essential to relieving credit stresses. Taxes on savings — including dividend, capital gains and corporate taxes — are at least partly capitalized in the value of existing assets. Raising capital taxes — undesirable economic policy at any time — would also raise macroeconomic concerns for righting Wall Street‘s ship. Clarity about the extension of the 2001 and 2003 tax cuts, which bolster collateral values, along with a corporate tax cut, would yield a potent tonic. Third, the financial meltdown that engulfed Lehman and AIG, and policymakers’ uncomfortable responses to it the past several months, clearly highlight the need for regulatory reform.

A good prescription (and consistent with the priorities NAM Executive Vice President Jay Timmons laid out in a Shopfloor post yesterday.)

Hubbard, the former chairman of the President’s Council of Economic Advisors, also makes a point about the next stage of regulation, in the process deflating some of the populist rhetoric that seems popular:

We need regulatory reform, but the problem is actually not too little regulation — both lightly and heavily regulated institutions are in trouble. We must put in place smarter regulation. Regulation itself is not blameless in the growth of high-risk mortgage lending. A key step would be to broaden capital and liquidity requirements and increase them during financial booms to push back against excessive risk taking.



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  • Dan says:

    If a candidate wants to be serious about saving “main Street” and the middle-class, then thsy shpuld argue for a moratorium on the IRS impact on individuals and small business oeners. Neither candidate seems to be aware of the damage perpetrated by the IRS, mostly due to the excessive and immoral penalties and interests to those who can least afford to respond to them. The IRS is clearly on of the greatest impediments toward a successful national economy. Neither McCain or Obama seem to understand that the by impeding small business and the middle-class that sponsors entrepreneurship they impede the best answer to correcting the economy. Small business, therefore the middle class entrepreneur are responsible for creating 95% of jobs in the U.S., yet bail-outs cloaked as rescues go to major corporations. When will the candidates and the government wake up? If the same money that went into the bail-out had been directed as relief to “Main Street” and middle-class, the correction would be accelerated and the long term affect would be more substantial. First step though is to re-design a the IRS so that it is in itself a cost effective department of the people’s government, Put a moratorium in place on collection of taxes taken from “Main Street”, re-direct its efforts to specifically focus on businesses that our $200 million plus in revenues. Last, correct the abusive practices of immoral penalty and interest charges on individuals and small business owners. These charges are a death blow to many families who earnestly wish to pay their taxes, but cannot due to this immoral practice by the government. Families and small business owners cannot just print more money to get out debt. Maybe the candidates and Congress have forgotten that every family does not have a mint of their own. Lastly, please stop providing relief to those who have assaulted, raped and murdered “Main Street”. Instead, give relief to the victims, individuals, families, entrepreneurs and small business. Wouldn’t that make more sense? John, Obama, are you listening…are you thinking?

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