Press Briefing

Dec 14, 2010

Estimating a Structural Model of Herd Behavior in Financial Markets. By Marco Cipriani and Antonio Guarino. IMF Working Papers
http://www.imf.org/external/pubs/cat/longres.cfm?sk=24496.0

Readout of President Obama's Meeting with the UN Security Council Permanent Representatives http://goo.gl/fb/V4hw8

Europe Needs a Tea Party - The euro isn't what ails the continent
http://online.wsj.com/article/SB10001424052748703727804576017261419831724.html

Remarks by the President at Holiday Reception for the Diplomatic Corps
http://goo.gl/fb/RBKc4

Operational risk - consultative papers issued by the Basel Committee
http://www.bis.org/press/p101210.htm

Press Briefing by Press Secretary Robert Gibbs, 12/13/2010
http://goo.gl/fb/BEhp6

Are Obama's Lefty Foes Racist? - The question turns out to be more than a joke
http://online.wsj.com/article/SB10001424052748703727804576017380223128082.html

Why Investors Need China in Their Portfolios - China represents more than 10% of the world's GDP, adjusted for purchasing power, but few investors have anywhere near a 10% China allocation.
http://online.wsj.com/article/SB10001424052748704457604576011564281603104.html

How About a Moon Base? - NASA's great engineers can pull it off without vast amounts of money. They merely need to be given the mission
http://online.wsj.com/article/SB10001424052748703296604576005580106794122.html

Smarter Measures in Fight against Piracy
http://www.cfr.org/publication/23611/smarter_measures_in_fight_against_piracy.html

Federal Judge Henry Hudson on the constitutionality of ObamaCare's individual health-insurance mandate in Commonwealth of Virginia v. Sebelius
http://online.wsj.com/article/SB10001424052748703727804576017751107976090.html

Statement by the President on the Senate Vote on Middle-Class Tax Cuts
http://goo.gl/fb/VXF12

The Fed's Policy Is Working. By Jeremy Siegel
The rise of long-term Treasury interest rates is evidence that investors are bullish on growth
WSJ, Dec 14, 2010
http://online.wsj.com/article/SB10001424052748703766704576009621740764118.html

The recent surge in long-term Treasury yields has led many to say that the Fed's second round of quantitative easing is a failure. The critics predict that QE2 may end up hurting rather than helping the economic recovery, as higher rates nip in the bud any rebound in the housing market and dampen capital spending. But the rise in long-term Treasury rates does not signal that the Fed's policy has backfired. It is a sign that the Fed's policy is succeeding.

Long-term Treasury rates are influenced positively by economic growth—which encourages consumers to borrow in anticipation of higher incomes and causes firms to seek funds to expand capacity—and by inflationary expectations. Long-term Treasury rates are affected negatively by risk aversion: Seeking a safe haven, investors pile into Treasury bonds, running up their prices and lowering their yields.

The Fed's QE2 program has raised expectations of growth and inflation, sending long-term Treasury rates up. It has also lowered risk aversion, which implies rising long-term rates. The evidence for a decline in risk aversion among investors is the shrinkage in the spreads between Treasury and other fixed-income securities, the strong performance of the stock market, and the decline in VIX, the indicator of future stock-market volatility. This means that expectations of accelerating economic growth—and a reduction in the fear of a double-dip recession—are the driving forces behind the rise in rates.

Those who look only at interest rates to judge whether monetary policy is too loose or too tight are making a mistake that monetary economists have long warned against. As a colleague of Milton Friedman at the University of Chicago in the 1970s, I remember him stressing that the extremely low interest rates of the early 1930s were not indicative of an easy monetary policy. They were instead the result of the Fed's drastically tight policy, which did not provide enough reserves to failing banks and drove the economy into the Great Depression.

Similarly, the double-digit interest rates that we witnessed in the 1970s were not indicative of the Fed's brave stance against inflation but of a far-too-easy policy that inflated the money supply and heightened inflationary expectations.

I admit that expectations of economic growth recently have been boosted by President Obama's agreement with congressional Republicans to extend the Bush tax cuts. But long-term Treasury rates were rising even before Mr. Obama announced his policy switch. The combined impact of the tax cuts and the Fed's QE2 policy will continue to stimulate the economy and send long-term interest rates higher. For this reason, it is likely that the Fed will not complete all of its purchases by the middle of next year. It may instead begin the process of draining reserves and raising short-term rates much earlier than most forecasters now anticipate. But monetary tightening will only begin if the pace of the economic recovery accelerates significantly next year, which I believe is increasingly likely.

We should not look only at interest rates to judge whether monetary policy is working. Indeed, in the present situation, if long-term rates were not rising, it would be a sign that the economy is in serious trouble—a sign that investors are worried about deflation and a decline in economic activity.

Mr. Siegel is a professor of finance at the University of Pennsylvania's Wharton School.


Nominations Sent to the Senatehttp://goo.gl/fb/fSkIr

'Billionaires On the Warpath'? - The GOP needs to address the class-warfare argument in moral termshttp://online.wsj.com/article/SB10001424052748703727804576017851441620350.html

The President, First Lady on Child Nutrition Bill
http://goo.gl/fb/cgKOK

The DREAM Act and American Commerce
http://goo.gl/fb/GMCuf

ObamaCare Loses in Court - A victory for liberty and the Constitution in Virginia
http://online.wsj.com/article/SB10001424052748703727804576017672495623838.html

Press Briefing

Dec11, 2010

Liu Xiaobo: I Have No Enemies: My Final Statement
http://nobelprize.org/nobel_prizes/peace/laureates/2010/xiaobo-lecture_en.html

President Obama Strongly Urges Passage of the Framework Agreement on Middle Class Tax Cuts
http://www.whitehouse.gov/the-press-office/2010/12/11/weekly-address-president-obama-strongly-urges-passage-framework-agreemen

The Collapse of the Guantanamo Myth - This week a Democratic Congress ratified Bush-era policy by refusing to fund any effort to shut the detention facility
http://online.wsj.com/article/SB10001424052748704457604576011390769140846.html

Remarks by President Obama and Former President Clinton
http://goo.gl/fb/R4Kmq

Subsidy Trains to Nowhere
http://online.wsj.com/article/SB10001424052748703440004575548494055265092.html

Readout of Vice President Biden's Call to Iraqi Prime Minister Nouri al-Maliki
http://goo.gl/fb/7UlUb

No hay acuerdo sobre los impuestos [1]

Parece ser que el miércoles, el vicepresidente Joe Biden dijo a los demócratas de la Cámara de Representantes que el acuerdo sobre impuestos era del tipo “lo tomáis o lo dejáis”, que no podía ser enmendado. Pero la noche del jueves, después de muy fuerte oposición de su base izquierdista, el presidente federal Barack Obama tarareaba una canción diferente, diciéndole a National Public Radio: “Mi sentir es que va a haber debate entre los líderas de la Cámara y el Senado [federales] acerca de los elementos presentes finalmente en el paquede [de medidas legislativas]. Tenga en cuenta que en realidad no redactamos una propuesta de ley”.

Bueno, ahora el líder de la mayoría en el Senado, Harry Reid (D–NV), ha presentado un proyecto de ley que deja muy claro que las negociaciones están en buena medida abiertas... al menos para la izquierda. Politico informa de que para comprar los botos de las senadoras Maria Cantwell (D–WA) y Barbara Boxer (D–CA), Reid ha añadido subsidios para compañías de energías eólica y solar que eran originalmente parte del primer y fallido “estímulo” de Obama. Y el senador Tom Harkin (D–IA) también ha intercambiado su voto por más subsidios para el etanol. Otros “edulcorantes” añadidos paa comprar votos izquierdistas en el Senado federal incluyen subsidios para electrodomésticos eficientes energéticamente y descuentos en transporte público para empleados.

Y la propuesta sólo puede empeorar. El jueves los demócratas de la Cámara votaron oponerse al acuerdo de impuestos de Obama. La speaker Nancy Pelosi (D–CA) dijo a Politico: “En reunión del grupo parlamentario, los demócratas de la Cámara han apoyado una resolución para rechazar el plan republicano del Senado tal como está ahora. Continuaremos el debate con el presidente y nuestros colegas demócratas y republicanos en los días sucesivos para mejorar la propuesta antes de que llegue a la Cámara para votación”. Y por “mejorar la propuesta”, la Speaker Pelosi sólo puede querer decir más impuestos y más gasto.

El acuerdo al que originalmente llegaron los republicanos tenía algo de buena política económica, pero también muchas medidas dañinas. La naturaleza temporal, dos años, del acuerdo no provee de certidumbre de largo plazo que necesitan los negocios para planificar las inversiones de largo plazo que crean crecimiento económico significativo y empleos. Permitir que vuelva el impuesto sobre las herencias (“death tax”), aunque sea a menor tasa de la inicial, no dará a las pequeñas empresas el alivio que una derogación permanente les daría. Por último, el acuerdo original prevé una costosa prórroga de 57 000 millones de dólares para subsidios de desempleo que no se deducen de otras partidas. Todo este gasto extra debería haberse eliminado para que fuese una propuesta de ley limpia. En vez de eso, la izquierda está añadiendo más gasto y subsidios a la misma.

Este otoño, el presidente Obama hizo campaña por todo el país prometiendo subir los impuestos a los creadores de empleo de América. En contraste, los conservadores hicieron campaña con la promesa de no permitir a la izquierda subir los impuestos a nadie el próximo primero de enero. El pueblo americano eligió la posición conservadora en lo que el propio presidente Obama calificó de “paliza bien dada”. La propuesta de impuestos presentada por Reid no es por la que los conservadores prometieron luchar en campaña electoral. Y la ley sólo empeorará en la medida en que más y más votos progres sean comprados con más y más gasto que aumente el déficit. Los impuestos no deben aumentarse al pueblo americano. El Congreso y el Presidente harían bien en marginar todos los demás asuntos irrelevantes de este debate y fijarse primordialmente y por encima de todo en impedir subidas de impuestos.

References

[1] Morning Bell: There is No Tax Deal, by Conn Carroll. Heritage, Dec 10, 2010. http://blog.heritage.org/2010/12/10/morning-bell-there-is-no-tax-deal

This translation was published, edited, as: "Impuestos: No hay acuerdo," http://www.libertad.org/impuestos-no-hay-acuerdo/

Press Briefing

Dec 09, 2010

Health Reform Wins Another Round in Court
http://www.whitehouse.gov/blog/2010/12/08/health-reform-wins-another-round-court

White House: The Framework for a Tax Agreement Is a Good Deal for Working Families
http://www.whitehouse.gov/blog/2010/12/08/framework-a-tax-agreement-a-good-deal-working-families


Giving Credit Where It's Due. WSJ Editorial
Speculators didn't destroy Greece
Dec 09, 2010, The Wall Street Journal, page 13
http://online.wsj.com/article/SB10001424052748703493504576007050934987050.html

Well, what do you know? Credit-default swaps didn't cause Greece's fiscal collapse last spring after all.

That's the conclusion of a study by the European Commission. The paper was drafted in the run-up to the Greek bailout, but has belatedly come to light following a freedom of information request from the Dutch newspaper Het Financieele Dagblad [http://www.fd.nl/artikel/20852357/geen-enkel-bewijs-speculaties-tegen-eurolanden]. Last March, as Greek bonds tumbled and the price of credit-default swaps on the country's debt soared, Greek Prime Minister George Papandreou repeatedly blamed "speculators" whose "abuses" of the CDS market and the bond markets were, he claimed, to blame for Greece's predicament.

So the Angela Merkel of Germany and French President Nicolas Sarkozy joined Mr. Papandreou in calling on the European Commission to investigate whether over-the-counter credit-default swaps—which pay the buyer if a debtor can't or won't make his payments—were being used to manipulate the sovereign debt markets.

The Commission's report looked at the prices of CDS and the yields on government bonds and concluded that, if anything, credit default swaps seemed to be underpricing the risk of default. What's more, the paper says, in many ways the CDS market in Europe is more liquid and more transparent than the market in the underlying bonds. The paper also cautions that restricting or even banning "naked" CDS on government bonds, as some EU leaders proposed last spring, would raise the cost of borrowing in Europe by denying investors a way of hedging their exposure.

In other words, the Commission's inquest into sovereign credit-default swaps found a market, free from nefarious influences and largely unregulated, working more or less as you'd expect. No wonder Brussels buried the findings.




Statement by the President on Tax Cuts and Unemployment Benefits
http://www.whitehouse.gov/the-press-office/2010/12/06/statement-president-tax-cuts-and-unemployment-benefits

Excerpts:

Now, Republicans have a different view.  They believe that we should also make permanent the tax cuts for the wealthiest 2 percent of Americans.  I completely disagree with this.  A permanent extension of these tax cuts would cost us $700 billion at a time when we need to start focusing on bringing down our deficit.  And economists from all across the political spectrum agree that giving tax cuts to millionaires and billionaires does very little to actually grow our economy.

This is where the debate has stood for the last couple of weeks.  And what is abundantly clear to everyone in this town is that Republicans will block a permanent tax cut for the middle class unless they also get a permanent tax cut for the wealthiest Americans, regardless of the cost or impact on the deficit.

[...]

So, sympathetic as I am to those who prefer a fight over compromise, as much as the political wisdom may dictate fighting over solving problems, it would be the wrong thing to do.  The American people didn’t send us here to wage symbolic battles or win symbolic victories.  They would much rather have the comfort of knowing that when they open their first paycheck on January of 2011, it won’t be smaller than it was before, all because Washington decided they preferred to have a fight and failed to act.

Make no mistake:  Allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family. And that could cost our economy well over a million jobs.

At the same time, I’m not about to add $700 billion to our deficit by allowing a permanent extension of the tax cuts for the wealthiest Americans.  And I won’t allow any extension of these tax cuts for the wealthy, even a temporary one, without also extending unemployment insurance for Americans who’ve lost their jobs or additional tax cuts for working families and small businesses -- because if Republicans truly believe we shouldn’t raise taxes on anyone while our economy is still recovering from the recession, then surely we shouldn’t cut taxes for wealthy people while letting them rise on parents and students and small businesses.

[...]

In exchange for a temporary extension of the tax cuts for the wealthiest Americans, we will be able to protect key tax cuts for working families -- the Earned Income Tax Credit that helps families climb out of poverty; the Child Tax Credit that makes sure families don’t see their taxes jump up to $1,000 for every child; and the American Opportunity Tax Credit that ensures over 8 million students and their families don’t suddenly see the cost of college shooting up.

[...]

I have no doubt that everyone will find something in this compromise that they don’t like.  In fact, there are things in here that I don’t like -- namely the extension of the tax cuts for the wealthiest Americans and the wealthiest estates.  But these tax cuts will expire in two years.  And I’m confident that as we make tough choices about bringing our deficit down, as I engage in a conversation with the American people about the hard choices we’re going to have to make to secure our future and our children’s future and our grandchildren’s future, it will become apparent that we cannot afford to extend those tax cuts any longer.

1,000-man militia being trained in north Somalia

 1,000-man militia being trained in north Somalia
http://www.usatoday.com/news/world/2010-12-01-somalia_N.htm

Key political risks to watch in Angola and the Gulf of Guinea

Key political risks to watch in Angola
http://www.internationalpathfindersolutions.com/key-political-risks-to-watch-in-angola.html

Key political risks in the Gulf of Guinea
http://www.internationalpathfindersolutions.com/key-political-risks-in-the-gulf-of-guinea1.html

Ping Pong Robot Learns by Doing

Ping Pong Robot Learns by Doing

http://spectrum.ieee.org/automaton/robotics/artificial-intelligence/ping-pong-robot-learns-by-doing

New derivatives rules could punish firms that pose no systemic risk

Nov 29, 2010

The Hangover, Part II. WSJ Editorial
New derivatives rules could punish firms that pose no systemic risk.
WSJ, Nov 29, 2010
http://online.wsj.com/article/SB10001424052748704104104575622583155296368.html

Not even Mel Gibson would want a role in this political sequel. Readers will recall the true story of Congressman Barney Frank and Senator Chris Dodd, two pals who stayed up all night rewriting derivatives legislation.

The plot centered around the comedy premise that two Beltway buddies would quickly restructure multi-trillion-dollar markets to present their friend, President Barack Obama, with an apparent achievement before a G-8 meeting. As in the movies, the slapstick duo finished rewriting their bill just in time for the big meeting in Toronto last June.

But after the pair completed their mad-cap all-nighter, no hilarity ensued. That's because Main Street companies that had nothing to do with the financial crisis woke up to find billions of dollars in potential new costs. The threat was new authority for regulators to require higher margins on various financial contracts, even for small companies that nobody considers a systemic risk. The new rules could apply to companies that aren't speculating but are simply trying to protect against business risks, such as a sudden price hike in a critical raw material.

Businesses with good credit that have never had trouble off-loading such risks might have to put up additional cash at the whim of Washington bureaucrats, or simply hold on to the risks, making their businesses less competitive. Companies that make machine tools, for example, want to focus on making machine tools, not on the fluctuations of interest rates or the value of a foreign customer's local currency. So companies pay someone else to manage these risks. But Washington threatens to make that process much more costly.

Messrs. Frank and Dodd responded to the uproar first by suggesting that the problem could be fixed later in a "corrections" bill and then by denying the problem existed. Both proclaimed that their bill did not saddle commercial companies with new margin rules. But as we noted last summer, comments from the bill's authors cannot trump the language of the law.

Flash forward to today, and the Commodity Futures Trading Commission (CFTC) is drafting its new rules for swaps, the common derivatives contracts in which two parties exchange risks, such as trading fixed for floating interest rates. We're told that CFTC Chairman Gary Gensler has said privately that his agency now has the power to hit Main Street with new margin requirements, not just Wall Street.

Main Street companies that use these contracts are known as end-users. When we asked the CFTC if Mr. Gensler believes regulators can require swap dealers to demand margin from all end-users, a spokesman said, "It would be premature to say that a rule would include such a requirement or that the Chairman supports such a requirement."

It may only be premature until next month, when the CFTC is expected to issue its draft rules. While the commission doesn't have jurisdiction over the entire swaps market, other financial regulators are expected to follow its lead. Mr. Gensler, a Clinton Administration and Goldman Sachs alum, may not understand the impact of his actions outside of Washington and Wall Street.

In a sequel to the Dodd-Frank all-nighter, the law requires regulators to remake financial markets in a rush. CFTC Commissioner Michael Dunn said recently that to comply with Dodd-Frank, the commission may need to write 100 new regulations by next July.

"In my opinion it takes about three years to really promulgate a rule," he said, according to Bloomberg News. Congress instructed us to "forget what's physically possible," he added. The commission can't really use this impossible schedule as an excuse because Mr. Gensler had as much impact as anyone in crafting the derivatives provisions in Dodd-Frank. No surprise, the bill vastly expands his agency's regulatory turf.

And if anyone can pull off a complete overhaul of multi-trillion-dollar markets in a mere eight months, it must be the CFTC.

Just kidding. An internal CFTC report says that communication problems between the CFTC's enforcement and market oversight divisions "impede the overall effectiveness of the commission's efforts to not only detect and prevent, but in certain circumstances, to take enforcement action against market manipulation." The report adds that the commission's two primary surveillance programs use incompatible software. Speaking generally and not in response to the report, Mr. Gensler says that the agency is "trying to move more toward the use of 21st century computers," though he warns that "it's a multiyear process." No doubt.

The CFTC report also noted that "the staff has no standard protocol for documenting their work." If we were tasked with restructuring a complex trading market to conform to the vision of Chris Dodd and Barney Frank, we wouldn't want our fingerprints on it either.

The report was completed in 2009 but only became public this month thanks to a Freedom of Information Act request from our colleagues at Dow Jones Newswires. Would Messrs. Dodd and Frank have responded differently to Mr. Gensler's power grab if they had realized how much trouble the CFTC was having fulfilling its traditional mission? We doubt it, but it certainly would have made their reform a tougher sell, even to the Washington press corps.

Congress should scrutinize this process that is all but guaranteed to result in ill-considered, poorly crafted regulation. In January, legislators should start acting, not like buddies pulling all-nighters, but like adults who understand it's their job to make the tough calls, rather than kicking them over to the bureaucracy with an arbitrary deadline.

Press Briefing

Nov 27, 2010

Against Ridley, Bill Gates: Africa Needs Aid, Not Flawed Theories - http://on.wsj.com/eME4cP

Africa Needs Growth, Not Pity and Big Plans. By MATT RIDLEY

WSJ, Saturday, November 27, 2010

http://online.wsj.com/article/SB10001424052748704648604575621122887824544.html

Bill Gates likes my book "The Rational Optimist." Really, he does. Even though he dislikes my points about Africa and climate change, these take up, as he notes, just one chapter. The rest he summarizes fairly and intelligently, and I appreciate that. It's great for an author when anybody reviews a book "well" in both senses of the word.

It is worth explaining why I chose Africa and climate change as the "two great pessimisms of today." The answer is simple: Whenever I speak about optimism and someone in the audience protests, "But surely you cannot think that we can ever solve..." the subjects that most frequently cross their lips next are African poverty and global warming. Mr. Gates also mentions potential threats from super-intelligent computers and pandemics. Maybe he is right to worry about them, but I have yet to be persuaded that either is more than a small risk.

Mr. Gates dislikes my comments on climate change, which I think will be less damaging than official forecasts predict, while the policies designed to combat climate change will be more damaging than their supporters recognize. I argue that if we rush into low-carbon technologies too soon, because we think the problem is more urgent than it is, we risk doing real harm to ecosystems as well as human living standards—as the biofuel fiasco all too graphically illustrates. The rush to turn American corn into ethanol instead of food has contributed to spikes in world food prices and real hunger, while the rush to grow biodiesel for Europe has encouraged the destruction of orangutan habitat in Borneo.

I also argue, however, that it is highly unlikely, given the rate at which human technology changes, that we will fail to solve the problem of man-made climate change even if it does prove more severe than I expect. For example, the world is on a surprisingly steady trajectory toward decarbonization. The number of carbon atoms we burn per unit of energy we generate is falling as we gradually switch from carbon-rich fuels like wood and coal to hydrogen-rich fuels like oil and especially gas. At current rates, we would be burning almost no carbon by about 2070, though I suspect that point will never actually be reached.

The question that I pose in the book is whether optimism is likely to be right. In essence, neither Mr. Gates nor I think that the problem of man-made climate change is going to prove insoluble or fatal to civilization. We disagree only on how urgent it is to devote massive expenditures to dealing with it, which would put poverty reduction at risk. I think that direct spending to alleviate malaria, which now kills a million people a year and whose incidence is likely to increase as a result of global warming by less than 0.03% per year, is a far higher priority. So does Mr. Gates, judging by his foundation's spending.

It is on Africa that Mr. Gates throws his sharpest barbs. Yet, once again, I think that we agree on the most important point, namely, that Africa can have a good future. "Development in Africa is difficult to achieve," he writes, "but I am optimistic that it will accelerate."

Yes! I don't believe that "everything will be just fine in Africa," but I do think that Africa's real and profound problems can be overcome. My targets are the ubiquitous pessimists who say that, whatever we do, Africa is doomed to remain stuck "in deepest, darkest poverty," in the words of one environmentalist.

Yet, with exceptions such as Somalia and the Congo, economic growth is gaining momentum all over the continent, birth rates are dropping and poverty is falling, as the Spanish economist Xavier Sala-i-Martin has documented. Lots of people deserve credit for this, among them Bill Gates. His foundation, as far as I can tell, does exactly what I suggest in the book by concentrating on solving real medical and humanitarian problems.

----

AID TO AFRICA

* $44 billion

Official development aid given to Africa in 2008

* $3.3 billion

Official development aid given to Ethiopia, Africa's top recipient of aid, in 2008

* 41% Aid to Africa that went to social services, including education and health care, in 2008

* 19% Aid to Africa that went to economic development in 2008

* $7.2 billion

Amount of development aid given by the U.S. to Africa in 2008

* 58% Africans living on less than $1.25 a day in 1996

* 50% Africans living on less than $1.25 a day in 2009

* $510 Gross domestic product per capita in sub-Saharan Africa in 2000 (in 2000 dollars)

* $623 Gross domestic product per capita in sub-Saharan Africa in 2008 (in 2000 dollars)

Sources: Organization for Economic Cooperation and Development, World Bank

---

Far from saying that aid "doesn't work, hasn't worked and won't work," I actually say this in my book: "Some of the most urgent needs of Africa can surely be met by increased aid from the rich world. Aid can save lives, reduce hunger, deliver a medicine, a mosquito net, a meal or a metalled road."

I go on to say that "statistics, anecdotes and case histories all demonstrate that the one thing aid cannot reliably do is to start or accelerate economic growth." Now here I admit that Mr. Gates does have a point. Unintentionally, I have given him and perhaps other readers the impression that, in my view, combating malaria or AIDS does not pay economic dividends. It does.

What I do take issue with is economic aid designed to stimulate economic growth. For example, a 2006 study by Simeon Djankov of the World Bank (now deputy prime minister of Bulgaria) and his colleagues concluded that "foreign aid has a negative impact on the democratic stance of developing countries and on economic growth by reducing investment and increasing government consumption." Economic aid diverts resources into projects that fail, puts money into the pockets of corrupt government officials and crowds out the efforts of entrepreneurs. In one example, only 13% of educational aid to Uganda reached schools; the rest was siphoned off by rent-seeking officials.

I am disappointed that Mr. Gates is so defensive about "top-down" aid. Just as everything from software design to education can benefit from bottom-up crowd sourcing in which elites no longer determine what happens, so surely humanitarian aid can benefit too, however much vested interests in governments and in big agencies dislike this trend.

Likewise, Mr. Gates takes issue with my assertion that the economy of the future will be post-corporatist and post-capitalist. I know that these radical ideas are not to everybody's taste, and he is right that most innovation takes place within existing companies. But it is very striking that some of the most far-reaching innovations over the past several decades have come from driven, visionary outsiders like Mr. Gates, Mark Zuckerberg and Sergey Brin rather than from corporate research and development departments. What is more, these innovations have been achieved with much less capital investment up front than in the days of Andrew Carnegie and Henry Ford.

It is true that there is still a vast amount of work needed to bring ideas to market, and this requires cash and corporate organization. But increasingly, corporations are turning themselves into virtual entities, arranged around flexible networks of suppliers, retailers and researchers, rather than monolithic bodies sitting in fixed plants. That seems to me to make the word "capitalist" somewhat misleading.

Mr. Gates thinks I underplay the role of education, government, patents and science in the innovation that drives economic improvement. Maybe, but I make a carefully argued case that most of the existing commentary overplays the role of these institutions and that innovation is sometimes hindered by these institutions, too, especially by patents and government monopolies.

Am I saying that we should cease worrying about trends that might cause problems? Of course not. I am arguing that we should worry about real problems, including Africa's plight, but that we should do so in the knowledge that we have solved many such problems before and can do so again. I am certainly not saying, "Don't worry, be happy." Rather, I'm saying, "Don't despair, be ambitious"—though I admit it's not nearly as snappy a song lyric.

—Matt Ridley's many books include, most recently, "The Rational Optimist" and "Francis Crick." His website is rationaloptimist.com .

It Gets Better: Office of Personnel Management Director John Berry http://goo.gl/fb/BNSwk

Time for 'Demographic Stress Tests' - By 2030, Germany's ratio of public debt to GDP could be twice what Greece's is today. Japan, the United States and others face similar challenges http://on.wsj.com/henGKZ

A Worthy Immigration Bill - The Dream Act rewards military service and student achievement http://on.wsj.com/eZ5Jvm

Capital Punishment and Human Fallibility - Then-Gov. George W. Bush would almost certainly have stayed Claude Jones's execution had he known that a DNA test had been requested  http://on.wsj.com/ew5pWJ

Blog Post: A Few Interesting Things About the White House's Email List http://goo.gl/fb/jaLPK

A Geneticist's Cancer Crusade - The discoverer of the double-helix says the disease can be cured in his lifetime. He's 82. http://on.wsj.com/fOmOhW

Video: West Wing Week: 11/26/10 or "The Turkey Behind the Turkey" http://goo.gl/fb/DHY0G

1-800-Trial-Bar - Dialing for lawsuits with the Labor Department and American Bar Association http://on.wsj.com/ft9Qcf

Weekly Address: President Obama Delivers Thanksgiving Greeting http://goo.gl/fb/liJ0t

Al Gore's Ethanol Epiphany - He concedes the industry he promoted serves no useful purpose http://on.wsj.com/hsXYwo

Press Briefing

Nov 22, 2010

Kristina Schake to Join First Lady's Office as Communications Director http://goo.gl/fb/LySJf

Op-Ed by Vice President Joe Biden in the New York Times: "What we must do for Iraq now" http://goo.gl/fb/a9n15

Lifting Euro Area Growth: Priorities for Structural Reforms and Governance
http://www.imf.org/external/pubs/ft/spn/2010/spn1019.pdf

Statement by the President at end of the EU-U.S. Summit http://goo.gl/fb/WbYDQ

DREAM Act Gathers Momentum http://goo.gl/fb/f8FIu

Dick Lugar vs. the GOP - The senior Republican's contrarian streak may be a sign that he's raring for the fight of his political life
http://online.wsj.com/article/SB10001424052748704170404575624664226055500.html

White House White Board: Your Health Care Dollars http://goo.gl/fb/IxLZj

The Doctor Con - The AMA gets its payment fix—for all of four weeks
http://online.wsj.com/article/SB10001424052748704170404575624643400449172.html

Press Conference of the President after NATO Summit http://goo.gl/fb/KkgOe

Remembering JFK in an Age of Terror - He offered no apology for our strength, declaring we have both the 'will and weapons' to defend freedom
http://online.wsj.com/article/SB10001424052748703506904575592783814697048.html

President Obama at NATO: "And Today We Stand United in Afghanistan" http://goo.gl/fb/YiLEZ

The EPA Permitorium - The agency's regulatory onslaught has stopped new power generation
http://online.wsj.com/article/SB10001424052748704658204575610924168519824.html

Larry Summers in the WSJ
http://online.wsj.com/article/SB10001424052748703628204575619250079601996.html

Higher Taxes Won't Reduce the Deficit - History shows that when Congress gets more revenue, the pols spend it
http://on.wsj.com/dwd4e8

In China's Orbit
http://online.wsj.com/article/SB10001424052748704104104575622531909154228.html

The 'Build America' Debt Bomb - The state and city fiscal mess is getting worse, yet the Obama administration wants Congress to make new taxpayer-subsidized bonds permanent
http://digs.by/b2nCYc

North Korea Nuclear Claims Set Off Scramble http://on.wsj.com/9SBIeG

Scourge of Humankind - High-profile efforts to fight malaria confront an ever-changing enemy that has evolved alongside man http://on.wsj.com/dmmeI6

India's GDP to grow at 9.3% on avg till 2030: StanChart
http://www.moneycontrol.com/news/economy/india39s-gdp-to-grow-at-93avg-till-2030-stanchart_500370.html

Kracked Up Over Krakatoa: Models Have It All Wrong
http://www.worldclimatereport.com/index.php/2010/11/17/kracked-up-over-kratatoa-models-have-it-all-wrong/

Press Briefing

Nov 20, 2010

Weekly Address: Senators Opposing New START "Want to Trust But Not Verify" http://goo.gl/fb/EP3sH

Our Economy Can’t Afford More GM “Success” Stories
http://blog.heritage.org/2010/11/19/morning-bell-our-economy-cant-afford-more-gm-success-stories

Top 10 Must-Have Government Apps http://goo.gl/fb/2hO9l

How to Succeed in Teaching Without Lifetime Tenure - The Franklin W. Olin College of Engineering attracts 140 applicants for every faculty position. And they can even be fired. http://on.wsj.com/9yz02W

RT CNN Obama says Russia, U.S. agree to cooperate on missile defense and to work closely in Afghanistan. http://on.cnn.com/c7X0qu

Why I Still Believe in the Future - I believe, above all else, in reason—in the power of the human mind to cope with the problems of life http://on.wsj.com/cpKa8l

Helping Middle-Class Families Pursue Justice http://goo.gl/fb/8feLY

Science and the Drilling Ban - An inspector general's report shows science played little role in the moratorium http://on.wsj.com/c4gKJc

Tuesday Talks: Health Care Reform Implementation with Nancy-Ann DeParle http://goo.gl/fb/jKhhg

Cap and Retreat - Chicago Climate Exchange, the largest U.S. carbon market, collapses http://on.wsj.com/bKsSVW

Read-out of the President's Bilateral Meeting with President Saakashvili of Georgia http://goo.gl/fb/KUXEW

Statement by the President on the Senate Passage of the Claims Settlement Act http://goo.gl/fb/5MKH8

The Fed's Bipolar Mandate - Time to repeal the Humphrey-Hawkins Act of 1978 http://on.wsj.com/cJaUin

Read-out of the President's Conversation with President Gul of Turkey http://goo.gl/fb/BaPO0

The Fed's Bipolar Mandate http://on.wsj.com/cJaUin

Press Briefing

Nov 17, 2010

U.S. Government Cholera Outbreak and Hurricane Preparedness Update
http://www.usaid.gov/helphaiti/cholera/crfs_111510.html

Tuesday Talks: The National Medals Laureates of Science, Technology and Innovation http://goo.gl/fb/q6Tix

Cutting Earmarks http://goo.gl/fb/lfpZV

Press Gaggle by the President en route Andrews Air Force Base http://goo.gl/fb/2Vm2V

APEC/Yokohama: The Leaders' Growth Strategy http://goo.gl/fb/Aebfw

Washington's Equal Pay Obsession - There's no epidemic of gender discrimination. So why is Congress proposing another law?
WSJ, Nov 16, 2010
http://online.wsj.com/article/SB10001424052748703326204575616450950657916.html

Women in the workplace don't face rampant pay discrimination, and yet the Senate may soon pass a bill—already passed in the House—premised on the erroneous charge that they do. The Paycheck Fairness Act (PFA) would be a harmful addition to the many federal laws that already protect women and men from labor-market discrimination.

The original Equal Pay Act of 1963 made it illegal for firms to pay different wages to women and men who performed equal work on jobs in the same establishment. Title VII of the 1964 Civil Rights Act outlawed discrimination against women and minorities in all aspects of employment, including hiring, promotion and compensation. Additional protections came with the 1978 Pregnancy Discrimination Act; the 1991 amendments to Title VII, which boosted penalties for discrimination; and the 2009 Lilly Ledbetter Act, which essentially eliminated the time limit for filing discrimination claims.

In addition, for more than 40 years two major federal agencies have been dedicated to fighting labor-market discrimination: the Equal Employment Opportunity Commission and the Office of Federal Contract Compliance.

Why do we need still more legislation? The reason, say the bill's sponsors, is that women earn 77% as much as men, according to the Bureau of Labor Statistics. But this figure refers to the annual earnings of full-time, year-round workers. It doesn't compare comparable men and women, and it doesn't reflect that full-time men work 8%-10% more hours per week than full-time women.

It also doesn't reflect what research of mine and others have shown: Men typically accumulate more continuous work experience and therefore acquire higher productivity in the labor market. In fact, the gender gap shrinks to between 8% and 0% when the study incorporates measures such as work experience, career breaks and part-time work.

The most important source of the gender wage gap is that women assume greater responsibility for child-rearing than men. That influences women's extent and continuity of work, which affects women's skills and therefore wages. In addition, women often seek flexible work schedules, less stressful work environments, and other conditions compatible with meeting the demands of family responsibilities. Those come at a price—namely, lower wages.

The PFA ignores research showing that factors other than discrimination explain the current gender wage gap. The bill would force employers to raise women's pay by sharply reducing their ability to defend what they believe is a justified differential in pay based on merit.

Under the existing Equal Pay Act, an employer charged with gender discrimination in pay can defend himself or herself by offering evidence that the differential is based on nondiscriminatory factors such as work experience and education. But the PFA limits the use of these bona fide factors by requiring that employers demonstrate that they are job-related necessities.

The PFA also empowers complaining employees to propose alternative methods of determining pay that, if accepted by courts, would presumably be imposed on employers. This unprecedented shift in bargaining power would lead to endless lawsuits.

So would the PFA's changes to the rules governing class-action lawsuits. Under the Equal Pay Act, workers are included in class-action suits only if they opt in. Under the PFA, they would be included automatically—just for being women in a firm that is being sued. And the act provides for compensatory and punitive damages, apparently without limit.

A particularly ridiculous provision would authorize grants to "eligible entities"—supporters of the bill like the American Association of University Women—for training women in negotiation skills. Men are excluded. But if women are the equal of men, why do only they need such training?

So the PFA is not fair, sensible or warranted, and it will impose great costs on employers. Some firms undoubtedly discriminate against women, but their number is small and the federal government's existing antidiscrimination apparatus is more than adequate. This new legislation would simply provide a feast for lawyers—and, by increasing the cost of employing women, would likely harm its intended beneficiaries.

Ms. O'Neill is a professor of economics at Baruch College and an adjunct scholar at the American Enterprise Institute.


APEC Leaders Declaration: "The Yokohama Vision - Bogor and Beyond" http://goo.gl/fb/6fIGG

Trans-Pacific Partnership: Progress Towards a Regional Agreement http://goo.gl/fb/xSYB6

Remarks by President Obama and President Medvedev of Russia After Bilateral Meeting http://goo.gl/fb/1cHt8

Statement by the President on the release of Aung San Suu Ky http://goo.gl/fb/kAse9

Conservatives on Federal President's Asia trip: A Failing Agenda Fails
http://blog.heritage.org/2010/11/15/morning-bell-a-failing-agenda-fails

Alzheimer's Disease: Nearly 100 New Medicines - New treatments needed to avert "national crisis"
http://www.innovation.org/index.cfm/FutureOfInnovation/NewMedicinesinDevelopment/Alzheimer%27s_Disease

The Obamacare Burden To Your State Budget
http://blog.heritage.org/2010/11/12/morning-bell-the-obamacare-burden-to-your-state-budget

Press Briefing

Nov 15, 2010

Remarks to the Young Leaders Dialogue Conference
http://www.state.gov/r/remarks/2010/150841.htm

Cameron Speaks to China - A worthy first effort by the British Prime Minister
http://online.wsj.com/article/SB10001424052748703805004575606762540186610.html

Obama Acts Like a Republican on Social Security: http://progressive.org/radio/12nov10.html (audio)

Forget any 'Right to Be Forgotten' - Don't count on government to censor information about you online
http://online.wsj.com/article/SB10001424052748704658204575610771677242174.html

From the archives | Aung San Suu Kyi Interview, March '97 issue of The Progressive magazine: http://www.progressive.org/mag_intv0397

In Defense of Ben Bernanke - To create the fearsome inflation rates envisioned by the more hysterical critics, the Fed would have to be incredibly incompetent, which it is not.
http://online.wsj.com/article/SB10001424052748704658204575611052418939656.html

The Senate shouldn't ratify the New Strategic Arms Reduction Treaty without guarantees that the administration will modernize weapons and improve missile defense
http://online.wsj.com/article/SB10001424052748703514904575602992172574172.html

Gary Locke and Larry Summers: America's Broadband Opportunity - Today the administration is freeing up a chunk of new wireless spectrum
http://online.wsj.com/article/SB10001424052748703848204575608872054624914.html

Fan and Fred's New Boss - Another 'affordable housing' advocate
http://online.wsj.com/article/SB10001424052748704658204575610920770030704

Federal President's Weekly Address: Exports & Earmarks
http://goo.gl/fb/h2kme

The Accidental Statist - Obama says the crisis made him do it
http://online.wsj.com/article/SB10001424052748703514904575602410060970630.html

Press Briefing

Nov 13, 2010

President Obama Lays Out His Priorities on Tax Cuts
http://goo.gl/fb/pn9VU

The Adventures of Samuel Clemens - Twain's autobiography, finally available after a century, is a garrulous outpouring—and every word beguiles
http://online.wsj.com/article/SB10001424052702303341904575576672011487264.html

Vice President Biden Honors "Those Who Served and Sacrificed"
http://goo.gl/fb/KooTF

An administration elected with a mandate to stabilize misread the situation and believed the country wanted the deep changes that liberals have wanted for decades
http://online.wsj.com/article/SB10001424052748704658204575610810332410800.html

The Trouble With Robo-Lending - There's a lot to be said for bankers knowing their customers. Too bad the financial reform bill does nothing to restore that tradition.
http://online.wsj.com/article/SB10001424052748704658204575610770240874674.html

The Radical School Reform You've Never Heard Of - With 'parent trigger,' families can forcibly change failing schools
http://online.wsj.com/article/SB10001424052748704462704575609781273579228.html

Obama: Pelosi an “Outstanding Partner”
http://thecaucus.blogs.nytimes.com/2010/11/12/obama-pelosi-an-outstanding-partner/

Al Qaeda Discovers the Mail Bomb - How about not overreacting for a change?
http://online.wsj.com/article/SB10001424052748703848204575608493572325302.html

How Insurgencies End
http://www.rand.org/pubs/monographs/MG965/

Liberated in Colorado - Disclosure vs. democracy
http://online.wsj.com/article/SB10001424052748704658204575610902777852436.html

Are ETFs a Menace—or Just Misunderstood?
http://online.wsj.com/article/SB10001424052748704865704575610833659564558.html

Iranian hip-hop artists risk it all to express their desire for political and religious freedom
http://online.wsj.com/article/SB10001424052748703805004575606580855611258.html

@theprogressive: "The Republicans want to decrease the debt and lower taxes at the same time. And then they’ll try to lose weight by eating ice cream." Durst

Embarrassment in Seoul - The world won't follow slow-growth, weak-dollar America
http://online.wsj.com/article/SB10001424052748704462704575609770024501384.html

Press Briefing

Nov 12, 2010

The Human Cost of Recessions: Assessing It, Reducing It
http://www.imf.org/external/pubs/ft/spn/2010/spn1017.pdf

Sec Sebelius: The Beginning of the End of the Tobacco Epidemic
http://www.whitehouse.gov/blog/2010/11/10/beginning-end-tobacco-epidemic

Pelosi's Troop Defections - Even longtime liberals are exasperated by Ms. Pelosi's stubbornness in clinging to the remnants of her former power
http://online.wsj.com/article/SB10001424052748703848204575608901587928526.html

West Wing Week: "OCONUS - Outside the Continental United States" http://goo.gl/fb/Jqbpx

The Four Ps of Global Business Expansion - For most of the past century, U.S. multinationals have functioned as American companies with overseas operations. That won't do anymore.
http://online.wsj.com/article/SB10001424052748703514904575602933928110168.html

Cross-Cutting Themes in Employment Experiences during the Crisis
http://www.imf.org/external/pubs/ft/spn/2010/spn1018.pdf

The High Price of Journalism in Putin's Russia - Five of my colleagues at Novaya Gazeta have been murdered. No one has been brought to justice.
http://online.wsj.com/article/SB10001424052748703805004575606461059832950.html

President Obama and President Yudhoyono Press Availability http://goo.gl/fb/dg6gZ

Israel's Ultra-Orthodox Welfare Kings - There is no precedent in Jewish history for a whole community devoting itself to Torah scholarship
http://online.wsj.com/article/SB10001424052748703848204575608473772263624.html

Remarks by President Obama and German Chancellor Merkel before Bilateral Meeting
http://goo.gl/fb/Fuj5Q

Can Anything Serious Happen in Cancun? - The upcoming climate summit promises more proposals that ignore economic reality
http://online.wsj.com/article/SB10001424052748703848204575608311276024450.html

Remarks by President Obama and President Hu of China Before Bilateral Meeting
http://goo.gl/fb/x0KAH

Jan F Qvigstad: On making good decisions
http://www.bis.org/review/r101111c.pdf

The 8,011-Person Crisis - ObamaCare's pre-existing condition program is a bust
http://online.wsj.com/article/SB10001424052748703805004575606891744060162.html

President Obama to America's Veterans: "We Remember."
http://goo.gl/fb/6oEGn

Should Advanced Countries Adopt a Fiscal Responsibility Law?
http://www.imf.org/external/pubs/cat/longres.cfm?sk=24345.0

A Deficit of Nerve - Obama's commission has ideas that Republicans can use
http://online.wsj.com/article/SB10001424052748703848204575608610971091280.html

On the Chinese Currency Issue: Narrative and Reality
http://www.brookings.edu/opinions/2010/1110_chinese_currency_kharas.aspx

A Growth Agenda for the New Congress - For now: Extend the Bush tax cuts, repeal ObamaCare, support free trade. After 2012: Enact a flat tax, stabilize prices, balance the budget, give politicians incentive pay.
http://online.wsj.com/article/SB10001424052748703514904575602912888140050.html

Commission of millionaires attacks Social Security
http://act.boldprogressives.org/cms/survey/ssletter_main/?source=typ-fb&referring_akid=.294363.E4OQlY

Obama's Gifts to the GOP - Republicans own the political center for now. Not because they deserve it.
http://online.wsj.com/article/SB10001424052748703848204575608453836688106.html

White House White Board: The President in Asia & the National Export Initiative
http://goo.gl/fb/3al6I

The Alaska Vote Count
http://online.wsj.com/article/SB10001424052748703805004575606702552775666.html

Press Briefing

Nov 11, 2011

Indonesia's Example to the World
http://goo.gl/fb/m03Rt

Federal President Has a Listening Problem - The idea that government can spend our way to prosperity doesn't make sense to voters
http://online.wsj.com/article/SB10001424052748703805004575606531967171108.html

Tuesday Talks: Veterans Day
http://goo.gl/fb/8xynY

George W. Bush's Fuzzy Math
http://online.wsj.com/article/SB10001424052748703805004575606573027045824.html

Nuclear Regulation in Dynamic Times: A Conversation with NRC Chairman Gregory Jaczko
http://www.brookings.edu/events/2010/1013_nuclear_energy.aspx

How About a Partnership Stimulus? - To help rebuild America's roads and airports, let's tap the billions of dollars of private capital looking for safe returns
http://online.wsj.com/article/SB10001424052748704635704575604563679175190.html

U.S. Assistance to the Palestinian Authority
http://www.state.gov/r/pa/prs/ps/2010/11/150812.htm

The $30 Bonanza - The Supremes hear a major arbitration case. Trial lawyers pant.
http://online.wsj.com/article/SB10001424052748704635704575604342012494842.html

Market structure developments in the clearing industry: implications for financial stability
http://www.bis.org/press/p101110.htm

White House Statement on the Initial Bowles-Simpson Bipartisan Fiscal Commission Proposal
http://goo.gl/fb/Cirz6

Joel Klein's Report Card - If you can reform schools there . . .
http://online.wsj.com/article/SB10001424052748703805004575606481103226208.html

Remarks by the President at the University of Indonesia in Jakarta, Indonesia
http://goo.gl/fb/e5O4D

Wind Jammers at the White House - A Larry Summers memo exposes the high cost of energy corporate welfare
http://online.wsj.com/article/SB10001424052748704635704575604502103371986.html

Recovery Through Retrofit
http://goo.gl/fb/KXLnl

How to Shut Down Fannie and Freddie. By Emil W Henry Jr
The Treasury Department can stop rubber-stamping their debt issuance at any time
WSJ, Nov 11, 2011
http://online.wsj.com/article/SB10001424052748704635704575604570042260954.html

Although Fannie Mae and Freddie Mac played a central role in causing the recent economic crisis, they are absent from the reform plans of Congress and the Obama administration. So these two government-sponsored enterprises (GSEs) remain mired in conservatorship, as extensions of the federal government. Bureaucrats now steer the primary provider of secondary market liquidity for our $10 trillion housing finance market.

The administration has offered many explanations for the delay: Housing finance is complex, says Treasury Secretary Tim Geithner, so he's consulting Congress and has assembled "academic experts, consumer and community organizations, industry participants and other stake holders" to review the matter.

But the Treasury doesn't need Congress or an academic assessment in order to tackle the most important reform goal: eliminating the GSEs and moving their activities to the private sector. Mr. Geithner himself can immediately reshape the mortgage markets—by withholding his approval of new debt issuances by the GSEs. That's the best way to begin curtailing the GSEs, and it can be done unilaterally.

Congress chartered the GSEs and in their charters required that the Treasury secretary approve all of their new debt. For decades, the Treasury exercised this duty, and the GSEs submitted each new debt issuance to the department for prior approval.

But the Clinton administration found this process cumbersome and a strain on Treasury staff. It established a new process that weakened the administrative approval process for GSE securities offerings. This hands-off approach represented an abdication of Treasury's essential oversight powers.

The bloating and strategic drift of the GSEs began soon thereafter. Within a decade, there were vast failings in Fannie's and Freddie's accounting, corporate governance and risk management—including the cessation of basic disclosure practices such as annual reports. Even after the Sarbanes-Oxley law, which forced public companies to adhere to a new oversight paradigm, the GSEs escaped with minimal scrutiny. Insolvency was a matter of time.

By the mid-2000s, the GSEs' process of debt approval had devolved to a simple notification of the Treasury, without any formal process of approval. The pace of debt issuance was so rapid that such notifications came to the Treasury weekly, typically on one piece of paper that simply listed proposed issuances without supporting data (such as income statements or balance sheets) upon which to make informed judgments.

If the Obama administration is serious about addressing the GSEs, it should re-establish a rigorous process to review all GSE debt issuance. That process should require the GSEs to provide Treasury with full financial data and justification for issuances, including statistics that show the creditworthiness of the agencies after each offering. In addition, the Treasury secretary should have to approve all new debt issuances personally.

The administration should also announce that in 2012 the Treasury will begin to deny a portion of GSE debt issuances with the goal of reducing their debt 50% by 2015 and 100% by 2018. This eight-year period of adjustment would allow the private markets ample time to provide secondary market liquidity.

There will be a private market ready to absorb the securities currently held by the GSEs. Private companies won't be able to borrow as cheaply as the GSEs could (thanks to their implicit government guarantee), but there will still be plenty of profit left to capture in the market for mortgage securities.

Large banks may be wary of this solution because the federalization of the GSEs has offered them a stable vehicle for off-loading their mortgages. Policy makers, meanwhile, will worry about impairing the recovery if a private market is slow to materialize. But the alternative is keeping the flawed system whereby liquidity depends upon distorted price discovery, permanent subsidization, and the economic judgments of bureaucrats.

To allow Fannie and Freddie to exist in any form—even on a smaller basis—would again give them an unfair funding advantage. Buyers of their debt would again pay up for implicit government support. And, once again, we'd have the market distortions, risk-taking and obscene political patronage that caused so much economic chaos.

Mr. Henry, the CEO of Henry, Tiger, LLC, was an assistant secretary of the Treasury from 2005 to 2007.


Video: President's Town Hall with Students in Mumbai
http://goo.gl/fb/1sVeF

The 1099 Democrats - The Democrats decoupled from business—and lost the election
http://online.wsj.com/article/SB10001424052748703805004575606750168419176.html

Shame on Holder and Panetta for Not Going after CIA Destruction of Torture Evidence
http://progressive.org/wx111010.html

Stop Smearing Federalism - From consumer advocacy to gay marriage, liberals routinely embrace federalism. So why do they keep comparing it to slavery?
http://reason.com/archives/2010/11/10/stop-smearing-federalism

Respecting the Dignity and Human Rights of People on the Move: International Migration Policy for the 21st Century
http://www.state.gov/g/prm/rls/rmks/2010/150557.htm

Fixing Transit: The Case for Privatization
http://www.cato.org/pub_display.php?pub_id=12543

Panel Chairmen Recommend Cutting Federal Spending by $200 Billion
http://online.wsj.com/article/SB10001424052748703805004575606643067587042.html

Press Briefing

Nov 10, 2010

Geithner, Shanmugaratnam, Swan: A Four-Point Plan for the G-20 - Strengthen global growth, keep it balanced, let currencies adjust, avoid protectionism
http://online.wsj.com/article/SB10001424052748703523604575605472860000524.html

Rand Paul and Earmarks
http://online.wsj.com/article/SB10001424052748704635704575604680661943738.html

Late-Breaking Races Swing in Democrats’ Favor
http://goo.gl/fb/O18tG

Super Marius vs. the World - A CEO doesn't find takers for more transparent resource markets
http://online.wsj.com/article/SB10001424052748704635704575604332598231738.html

Strengthening an Emerging Industry While Helping Families Save Money
http://goo.gl/fb/4xZDR

Not as Easy as A,B,C - Fighting crime in one of Manhattan's rougher neighborhoods
http://online.wsj.com/article/SB10001424052702304410504575561150018734606.html

You’re Invited “Inside The White House”
http://goo.gl/fb/hWb7K

How to Outmaneuver Iran in Iraq - The Sunni-backed bloc needs to be brought into the government, and the U.S. shouldn't be shy about saying so
http://online.wsj.com/article/SB10001424052748703514904575602341835694642.html

State Dept: Making Progress in Combating Piracy Off the Horn of Africa
http://blogs.state.gov/index.php/entries/progress_piracy/

From Jakarta to Jerusalem - Obama's puzzling settlement demarche
http://online.wsj.com/article/SB10001424052748704635704575604720195910014.html

Response of the United States of America to Recommendations of the United Nations Human Rights Council
http://www.state.gov/s/l/releases/remarks/150677.htm

A Better G-20 Agenda - The real source of global 'imbalances' and how freer trade can help
http://online.wsj.com/article/SB10001424052748703514904575603432548236498.html

President Barack Obama’s First Two Years: Policy Accomplishments, Political Difficulties
http://www.brookings.edu/papers/2010/1104_obama_galston.aspx

The GOP's Racial Challenge - Republicans can't win in the future without more nonwhite votes
http://online.wsj.com/article/SB10001424052748703514904575602942138252552.html

Dispatch from the Reddest State
http://progressive.org/rc110910.html

If You Give a Solar or Wind Company a Subsidy
http://www.instituteforenergyresearch.org/2010/11/09/if-you-give-a-solar-or-wind-company-a-subsidy/

Saving Lives in Laos: United States Leadership in Clearing Landmines and Unexploded Ordnance
http://www.state.gov/r/pa/prs/ps/2010/11/150696.htm

A Happy Meal ban is nothing to smile about - The proposal to ban meals with toys in San Francisco is based on some dubious assumptions about obesity and health
http://www.spiked-online.com/index.php/site/article/9871

Press Briefing

Nov 09, 2010

White House and State Department Issue Statements on Burma’s Elections
http://blogs.state.gov/index.php/site/entry/statements_on_burmas_elections

The President's Indonesia Opportunity - It isn't enough to declare that we aren't at war with Islam, as true as that is
http://online.wsj.com/article/SB10001424052748703514904575602323794337784.html

State Sec Clinton Highlights the Importance of U.S. Trade at Port of Melbourne
http://blogs.state.gov/index.php/site/entry/travel_diary_clinton_trade

The virtues and hazards of going 'all in' at moments of crisis - Review of Bush's Decision Points
http://online.wsj.com/article/SB10001424052748703514904575602542935259532.html

Business Summit in Mumbai http://goo.gl/fb/2JEGE

Union Card Checkmate - Voters in four states protect the secret ballot
http://online.wsj.com/article/SB10001424052748704353504575596790376536822.html

Remarks by the President to the Joint Session of the Indian Parliament in New Delhi… http://goo.gl/fb/uQ0PD

The ACLU Stands Up for Pro-Lifers—Really - Unelected commissions shouldn't pass judgment on campaign claims
http://online.wsj.com/article/SB10001424052748703514904575602612279218480.html

Have a Question About the Economy and Job Growth? Ask us.
http://goo.gl/fb/ba6bH

Blair: Making Muslim Integration Work
http://online.wsj.com/article/SB10001424052702303362404575580700415413596.html

Remarks by the President and the First Lady in Town Hall with Students in Mumbai http://goo.gl/fb/jKyAu

Burma's Hollow Election - A sham vote to please outsiders
http://online.wsj.com/article/SB10001424052748704013504575601692672025922.html

The National Export Initiative: U.S. - India Transactions http://goo.gl/fb/qR1QU

The Fed's reckless notion that it can simultaneously raise inflation and lower interest rates presumes bond buyers are fools. They aren't.
http://online.wsj.com/article/SB10001424052702303467004575574610003111250.html

A US-India Partnership on Open Government http://goo.gl/fb/0611I

Palin's Dollar, Zoellick's Gold - An unlikely pair elevate the monetary policy debate
http://online.wsj.com/article/SB10001424052748703514904575602231815453378.html

The Lord’s Resistance Army of Today. By Ledio Cakaj
http://www.enoughproject.org/publications/lords-resistance-army-today

Obama's Best Speech - In India, the president defended free markets, free trade and free societies
http://online.wsj.com/article/SB10001424052748703514904575602103901437396.html

Press Briefing

Nov 08, 2010

Remarks At the Australia-United States Ministerial
http://www.state.gov/secretary/rm/2010/11/150663.htm

'Net Neutrality' Goes 0 for 95 - Regulating the Web wasn't a political winner last week
http://online.wsj.com/article/SB10001424052748704353504575596562893007720.html

An Interview with W. S. Merwin, Poet Laureate (raw transcript)
http://progressive.org/Rampellx1110.html

Rubio Republicans - Republican candidates can talk tough on immigration and still do well with Hispanic voters if they can convincingly promote a message of economic opportunity
http://online.wsj.com/article/SB10001424052748703514904575602533618329228.html

Rand Paul’s Lack of Class
http://progressive.org/wx110810.html

Dawa and the Islamist Revival in the West, by Nina Wiedl
http://www.currenttrends.org/research/detail/dawa-and-the-islamist-revival-in-the-west

President Obama Promotes U.S.-India Partnership on Open Government
http://blogs.state.gov/index.php/site/entry/obama_u.s.-india_open_government

The Damascus Mirage - Team Obama's Syrian education
http://online.wsj.com/article/SB10001424052748704462704575590550032278816.html

Remarks by the President on the October Jobs Report
http://goo.gl/fb/bcRYz

The Great Transmission Heist - The latest scheme to subsidize solar and wind power to the detriment of rate payers
http://online.wsj.com/article/SB10001424052702304772804575558400606672006.html

Press Gaggle on the President's Upcoming Trip to Asia by Press Secretary Gibbs, Deputy National Security Advisor Froman, Deputy National Security Advisor Rhodes and Treasury Under Secretary for International Affairs Brainard
http://www.whitehouse.gov/the-press-office/2010/11/01/press-gaggle-presidents-upcoming-trip-asia-press-secretary-gibbs-deputy-

California: The Lindsay Lohan of States - Sacramento is headed for trouble again, and it shouldn't expect a bailout
http://online.wsj.com/article/SB10001424052748703506904575592612400443370.html

Secretary Clinton's Visit to Australia Highlights Collaboration
http://www.state.gov/r/pa/prs/ps/2010/11/150519.htm

How Medicare Killed the Family Doctor - Low government payment rates became the private-sector benchmark, resulting in fragmented care
http://online.wsj.com/article/SB10001424052748704353504575596140752021042.html

Attacks on President Obama Going to Asia: A Long Trip from Reality
http://goo.gl/fb/3rW2u

The New Malaise and How to End It - Given what ails the economy, additional monetary policy measures are poor substitutes for more powerful pro-growth policies
http://online.wsj.com/article/SB10001424052748704353504575596762375409760.html

Press Briefing

Nov 07, 2011

Weekly Address: President Obama Calls for Compromise and Explains his Priorities
http://goo.gl/fb/HazXr

Assessing "The Vision of the Jihaadi Movement"
http://onwarandwords.wordpress.com/2010/11/04/assessing-the-vision-of-the-jihaadi-movement/

Defending GM's Wagoner, Round Two - How GM failed and Ford survived is not a tale of either Obama genius or CEO incompetence
http://online.wsj.com/article/SB10001424052748703506904575592332874766368.html

A Short History of Midterm Elections - If the past is indeed prologue, then Republicans shouldn't get too cocky
http://online.wsj.com/article/SB10001424052748703805704575594343435477562.html

Iowa's Total Recall - Voters give activist judges the boot. Lawyers are shocked.
http://online.wsj.com/article/SB10001424052748704353504575596441490066762.html

Governors and the Development of the Pragmatic Caucus
http://www.brookings.edu/interviews/2010/1030_governors_katz.aspx

The Pelosi Minority - The Speaker decides to reward herself for an epic defeat
http://online.wsj.com/article/SB10001424052748704353504575596602409404626.html

RT @theprogressive: "Republicans say they’re offering up an olive branch. But it looks more like a painted paralyzed asp with the anesthetic wearing off"

The president as intellectual and political philosopher - Review of James T. Kloppenberg's Reading Obama
http://online.wsj.com/article/SB10001424052748703805704575594430946553428.html

Comments on Jesus Fernandez-Villaverde's Recomendaciones de Lectura: Ley Dodd-Frank

Spanish - comentary on Jesus Fernandez-Villaverde's Recomendaciones de Lectura: Ley Dodd-Frank, Oct 22, 2010, http://www.fedeablogs.net/economia/?p=7059 :

hola, el artículo referido habla de "[c]entralised clearing of derivatives" y dice que, junto con "the push for greater transparency of prices, volumes, and exposures–to regulators and in aggregated form to the public–" los mercados deberían estar mejor capacitados "to deal better with counterparty risk, in terms of pricing it into bilateral contracts, as well as understanding its likely impact."

De ninguna forma se ve en ese artículo, basado en la introducción del libro que van a publicar los autores, que haya alguna preocupación por que los centralized clearinghouses puedan ser "the ultimate too big to fail organization."

Abundando en esa preocupación, un artículo en WSJ (European Clearing Reform Dealt Late Setback, Nov 01, 2010, http://online.wsj.com/article/SB10001424052748704141104575588451106445976.html) revela los últimos desarrollos en Europa al respecto:

"
[...]

Regulators were this week expected to approve a so-called "interoperability" arrangement between four of Europe's largest clearing houses [...]. However, at least one national regulator—thought to be the U.K.'s Financial Services Authority—raised concerns over the deal at the eleventh hour and has postponed its approval until the end of this month at the earliest, these people said. Those worries are understood to center on risk-management issues.

[...]

[A] source close to one of the clearers said the FSA had contacted the four central counterparties, advising them that the meeting at which the decision was expected to be made would be delayed until the end of November. The FSA wasn't available to comment.

In February this year, the regulator sent a private letter to the central counterparties in which it outlined concerns that the clearing houses needed to account for a number of risks created by interoperability. These included additional counterparty credit risk, technical, and liquidity risk. The FSA hasn't prescribed any measures, however, and has left it up to the central counterparties to work out how to address these issues.

[...]

Responding to industry pressure, LCH.Clearnet, SIX x-clear, EuroCCP and EMCF agreed to link their technology systems in the first half of last year but concerns regarding the threat of "contagion risk" between clearers—namely that the clearers could spread systemic risk across borders—led the Dutch, Swiss and U.K. regulators to halt the project last November.
"

Por supuesto, no he encontrado la carta de FSA en su website. Si alguien puede añadir más información, por favor, sería de agradecer.

---
European Clearing Reform Dealt Late Setback, by Michelle Price
WSJ, Nov 01, 2010
http://online.wsj.com/article/SB10001424052748704141104575588451106445976.html

AMSTERDAM—A long-awaited agreement between four of Europe's leading clearing houses, which was expected to be signed off as early as this week and would have opened up competition in the market after years of pressure from banks and investors, has been postponed by European regulators at the last minute, according to people familiar with the matter.

Regulators were this week expected to approve a so-called "interoperability" arrangement between four of Europe's largest clearing houses: the London-based LCH.Clearnet; the Swiss clearer SIX x-clear; EuroCCP in London; and the Netherlands-based European Multilateral Clearing Facility, according to senior sources in the market infrastructure industry attending the Sibos conference in Amsterdam last week.

However, at least one national regulator—thought to be the U.K.'s Financial Services Authority—raised concerns over the deal at the eleventh hour and has postponed its approval until the end of this month at the earliest, these people said. Those worries are understood to center on risk-management issues.

Interoperability is important because it would open up the fragmented post-trade market infrastructure to competition and reduce costs for market participants and, ultimately, for investors and pension funds.

Interoperability between clearers would allow trading firms to choose which clearing house they want to clear their trades, instead of being—as they are now—forced through the clearer chosen by the exchange or platform on which they are trading.

Most exchanges and trading venues in Europe route their trades through a single clearer. All-in trading costs are consequently as much as 10 times higher than in the U.S. The lack of open competition means that fees for clearing and settlement account for the majority of trading costs for investors and market participants.

The industry hopes that interoperability could have the same impact on clearing and settlement as the 2007 markets in financial instruments directive did on equities trading, or Mifid. Mifid triggered a wave of new entrants into the equities market, increasing competition and reducing trading fees across the industry.

The head of one trading venue said last week at the Sibos international banking conference in Amsterdam: "We are expecting the go-ahead for full interoperability between these four clearers to come—at last—in the first week in November." Sources close to two of the clearers involved confirmed the expected announcement.

However, a source close to one of the clearers said the FSA had contacted the four central counterparties, advising them that the meeting at which the decision was expected to be made would be delayed until the end of November. The FSA wasn't available to comment.

In February this year, the regulator sent a private letter to the central counterparties in which it outlined concerns that the clearing houses needed to account for a number of risks created by interoperability. These included additional counterparty credit risk, technical, and liquidity risk. The FSA hasn't prescribed any measures, however, and has left it up to the central counterparties to work out how to address these issues.

The concept of interoperability was first mooted by the former European Commissioner for the internal market, Charlie McCreevy, who imposed a code of conduct on the industry in 2006. However, a combination of vested interest and protectionism by incumbent clearers meant the code was broadly ignored.

Responding to industry pressure, LCH.Clearnet, SIX x-clear, EuroCCP and EMCF agreed to link their technology systems in the first half of last year but concerns regarding the threat of "contagion risk" between clearers—namely that the clearers could spread systemic risk across borders—led the Dutch, Swiss and U.K. regulators to halt the project last November.

In August, the clearing houses re-submitted a detailed plan that addressed these concerns by including provisions for more robust risk management between the clearers. It is understood the regulators have yet to finish their analysis relating to the cash collateral provisions designed to address their concerns over contagion.

"Interoperating in cash equities is not tremendously difficult," one person close to the discussions said. "The problem has been that during the reviews that the regulators have been performing during the last year, the analysis produces a list of questions and the answers generate more questions, so it's been a fairly circular process."

Press Briefing

Nov 05, 2010

An Undeserved Win for the GOP - Conventional wisdom says the president was too liberal and tried to do too much. Nonsense.
http://online.wsj.com/article/SB10001424052748703506904575592900976030696.html

William Galston, former domestic policy adviser to President Bill Clinton, writing at tnr.com, on the independent vote
http://online.wsj.com/article/SB10001424052748703805704575594410054850060.html

The G-20 Seoul 2010 Summit: Strengthening the Global Recovery
http://www.brookings.edu/reports/2010/1102_g20_summit.aspx

The Two Left Coasts - Why the GOP wave didn't wash over New York and California
http://online.wsj.com/article/SB10001424052748703506904575592291628618242.html

Global Agriculture and Food Security Program Partners Announce Second Round of Grants
http://www.treas.gov/press/releases/tg945.htm

The GOP's 2012 Game Plan
http://online.wsj.com/article/SB10001424052748703805704575594810781693940.html

Will Post-Elections Australia Pursue a Course Independent of the United States?
http://www.eastwestcenter.org/publications/search-for-publications/browse-alphabetic-list-of-titles/?class_call=view&mode=view&pub_ID=3596

Boehner: What the Next Speaker Must Do - Secrecy, arrogance, and the abuse of power have shattered the bonds of trust between the people and their elected leaders. Repairing that trust requires sweeping change, beginning with an end to earmarks.
http://online.wsj.com/article/SB10001424052748703805704575594280015549088.html

Criticizing the Inspectors
http://www.whitehouse.gov/blog/2010/11/03/criticizing-inspectors


The German Ecological-Industrial Complex. By Malte Lehming
This 'good' ideology increases inequality more than neo-liberal policies ever could
WSJ, Nov 04, 2010
http://online.wsj.com/article/SB10001424052748704141104575588121224451544.html

Berlin - Germans are the most eager sorters of trash. They dutifully bring their light bulbs and batteries to special recycling points, introduced deposits on bottles and cans seven years ago, build tunnels under highways so frogs can safely cross. They fight for every endangered tree and animal. More and more windmills dominate the landscape. Environmental studies is taught in school, and the German chancellor's work for climate protection is one of her trademarks.

Historically and psychologically, this close connection to ecology is understandable. The Germans need some sort of ideology. They've had bad experiences with fascism and communism and had to be painstakingly educated in the ideals of freedom and democratic virtue. So ecology was the right idea at the right time. Germans believe it gives them a vision that puts them, for the first time, on the right side of history, the side of the good and of the future.

This explains the inexorable rise of the Greens. For the last five weeks, the party has been polling ahead of the Social Democrats (SPD), replacing them as the second strongest political force. Only slightly behind the ruling Christian Democratic Union (CDU), the Greens could even appoint the chancellor in a coalition with the SPD if national elections were held today.

The Greens' voters long ago stopped coming primarily from the left-wing alternative milieu. Their strongest supporters now come from the well-off middle class. According to the polling institute Forsa, 37% of German civil servants would vote Green. Among upper-level civil servants the figure is as high as 41%. Nearly one in three self-employed voters supports the environmental party. Green voters are "well-off post-materialists": Their average household income is higher than that of the supporters of any other party. Workers and retirees go elsewhere.

That said, all of Germany's other parties have long-since discovered ecology as well. Chancellor Angela Merkel was once the federal environmental minister, as was (SPD) leader Sigmar Gabriel. Even the market-friendly Free Democrats (FDP) have turned greenish. The governing CDU-FDP coalition recently adopted the world's most ambitious climate-protection program. "Clean Energy For Everyone" was the slogan. Wind parks in the sea, solar plants, energy storage facilities, energy-saving renovations: The goal is that by 2050, Germany should be able to power itself almost entirely through regenerative energy while the carbon dioxide emissions of all buildings will be reduced to zero.

This will be enormously expensive, but that doesn't bother the Germans. Energy prices have already risen drastically, and Mrs. Merkel has prepared the country for rent increases. "Of course, at first glance not everyone likes that," she says, but in the long run everyone will gain. There is consensus that current generations must bear the main burden of ecologically restructuring Germany's energy system. We're the good guys.

And these days, being good even pays off. Given the increasingly global regulations to curb pollution and carbon emissions, exporting countries hope to make environmentally friendly technology the leading industry of the 21st century. In 15 years, according to a government-sponsored study, green technology will overtake the automobile industry as Germany's core industry. A multi-billion-dollar market has developed, and Germany is the leader in many emerging branches, with a worldwide market share in green technology of around 16%. Some 1.5 million Germans already work in the green industry.

Ecology has become an economic "stimulus" program of sorts. Consumers are forced to buy new versions of expensive everyday products—from refrigerators to cars—not because of age or deterioration, but because they no longer conform to the most recent environmental standards. These norms also serve as wonderful import-defense weapons. No dirty plastic dolls from China can enter, no gene-manipulated food may be purchased. Germany's purity law has turned into a type of national environmentalism. Our morality protects our markets.

But it's the consumer who pays the piper. Climate-friendly retrofitting of Germany's buildings might cost some €2.5 trillion. Building owners can transfer these costs to tenants. That means that rents will rise steeply for years. In Berlin alone, according to estimates by tenants' associations, nearly one in three households will have to move because they will no longer be able to afford their old apartments. This will primarily affect the unemployed and those with low income.

You have to be able to afford ecology. The Greens can, but weaker social groups will suffer. Expensive organic products, kerosene surcharges, gas price increases, higher parking fees, rising energy prices and rents—ecology makes the poor poorer. And for those who can no longer afford to fly to Mallorca, the Greens graciously recommend taking a vacation at home. That will boost domestic tourism.

Those who believe they are on the right side of history may view the social consequences of radical environmentalism, in coldly arrogant tones, as unavoidable collateral damage. And wasn't it always unpleasant for Germany's well-off to share the beaches in exotic vacation locales with simple workingclass families, just because of those cheap charter flights?

The Greens like to portray themselves as fighting against the excesses of capitalism. Now it's clear that the ecological-industrial complex increases inequality more than neo-liberal policies ever could.

Mr. Lehming is op-ed page editor of Der Tagesspiegel. Belinda Cooper translated this essay from the German.





Holographic Video Brings Star Wars-Style 3D Telepresence a Step Closer
http://spectrum.ieee.org/tech-talk/computing/hardware/holographic-video-telepresence

Press Briefing

Nov 04, 2010

Holographic Video Brings Star Wars-Style 3D Telepresence a Step Closer
http://spectrum.ieee.org/tech-talk/computing/hardware/holographic-video-telepresence

A Way Forward for Obama - What the president can do if he wants to remain relevant
http://online.wsj.com/article/SB10001424052748703506904575592192122802022.html

Court should nullify Arizona immigration law
http://progressive.org/mpsanchez110410.html

The GOP will have operational control of the Senate more often than Majority Leader Harry Reid will
http://online.wsj.com/article/SB10001424052748703506904575592690262053182.html

Life-Saving Treatments: Made in the U.S.A.
http://goo.gl/fb/Db6bJ

Martyrs to ObamaCare - Health care blows a hole in the Democratic majority
http://online.wsj.com/article/SB10001424052748703506904575592712665123730.html

Arms Control and International Security: Remarks to the National Model UN Conference
http://www.state.gov/t/isn/rls/rm/150366.htm

More Monetary Cowbell - "I got a fever, and the only prescription is more quantitative easing!"
http://online.wsj.com/article/SB10001424052748703506904575592591109709212.html

The New START Treaty: It's Time for the Senate to Vote
http://www.state.gov/t/avc/rls/150374.htm

GOP: Unlock the American Economy - A genuine pro-growth economic agenda requires more than spending restraint
http://online.wsj.com/article/SB10001424052748703506904575592580602147668.html

Lessons of the Election
http://progressive.org/rc110310.html

President James Madison on the limits of federal power over the economy: veto message on the Internal Improvements Bill, 1817
WSJ, Nov 03, 2010
http://online.wsj.com/article/SB10001424052748704141104575588521206221584.html

The legislative powers vested in Congress are specified and enumerated in the eighth section of the first article of the Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers, or that it falls by any just interpretation within the power to make laws necessary and proper for carrying into execution those or other powers vested by the Constitution in the Government of the United States.

"The power to regulate commerce among the several States" can not include a power to construct roads and canals, and to improve the navigation of water courses in order to facilitate, promote, and secure such a commerce without a latitude of construction departing from the ordinary import of the terms strengthened by the known inconveniences which doubtless led to the grant of this remedial power to Congress.

To refer the power in question to the clause "to provide for the common defense and general welfare" would be contrary to the established and consistent rules of interpretation. . . . It would have the effect of subjecting both the Constitution and laws of the several States in all cases not specifically exempted to be superseded by laws of Congress. . . . Such a view of the Constitution, finally, would have the effect of excluding the judicial authority of the United States from its participation in guarding the boundary between the legislative powers of the General and the State Governments. . . .

I am not unaware of the great importance of roads and canals and the improved navigation of water courses, and that a power in the National Legislature to provide for them might be exercised with signal advantage to the general prosperity. But seeing that such a power is not expressly given by the Constitution, and believing that it can not be deduced from any part of it without an inadmissible latitude of construction and a reliance on insufficient precedents; believing also that the permanent success of the Constitution depends on a definite partition of powers between the General and the State Governments, and that no adequate landmarks would be left by the constructive extension of the powers of Congress as proposed in the bill, I have no option but to withhold my signature from it.


What You Missed: Tuesday Talk on the President’s Trip to Asia
http://goo.gl/fb/Y2DpI

Dan Rather on MSNBC: Mitch McConnell 'Wants to Cut Out Obama's Heart and Feed His Liver to the Dogs'
http://www.mrc.org/biasalert/2010/20101103032018.aspx

International Cooperation: Furthering US National Space Policy and Goals
http://www.state.gov/t/avc/rls/150316.htm

State Bailouts? They've Already Begun - Bond subsidies and transfers have allowed states to avoid making tough decisions. It won't last.
http://online.wsj.com/article/SB10001424052702304173704575578203887408076.html

Radio Renegades - Review of Adrian Johns' Death of a Pirate
http://online.wsj.com/article/SB10001424052702303284604575582773700520824.html

Press Briefing

Nov 03, 2010

State Dept: Addressing Today's Nuclear Threats
http://www.state.gov/t/isn/rls/rm/150287.htm

On Capitol Hill, Anything Goes
http://online.wsj.com/article/SB10001424052748703708404575586581040981148.html

Statement by the Press Secretary on the Case of Ms. Sakineh Mohammadi Ashtiani
http://goo.gl/fb/TTFu0

Arizona Christian School Tuition Organization v. Winn - A crucial case on tax credits for scholarships to religious schools
http://online.wsj.com/article/SB10001424052702303362404575580572837153924.html

Statement by the President on the 10th Anniversary of Crews Aboard the International Space Station
http://goo.gl/fb/7RfPl

High Rollers at the Fed. WSJ Editorial
The central bank becomes a Treasury profit center—for now.
WSJ, Wednesday, November 3, 2010
http://online.wsj.com/article/SB10001424052702304741404575564733097905488.html?mod=WSJ_newsreel_opinion

The Federal Reserve's Open Market Committee seems poised today to make a historic decision to expand its balance sheet by as much as $1 trillion or more to boost inflation and reduce unemployment. We've said before that we think this is a monetary mistake, but the public and Congress should also be aware that it increasingly carries fiscal risks.

In conducting monetary policy, the Fed has historically stuck to the purchase of short-term Treasury securities and other highly safe assets. That changed amid the financial panic, as the Fed grew its balance sheet to $2.1 trillion in 2009 from $900 million in 2007. That expansion was controversial but it was defensible on grounds that the central bank was fulfilling its duty as lender of last resort during a liquidity squeeze. Roughly $1 trillion of the new assets were in short-term credit facilities, including foreign central bank swaps.

In 2008, the Fed began its dive into riskier assets by adding securities from Bear Stearns and AIG totaling about $70 billion, Fannie Mae and Freddie Mac debt of $45 billion and over $200 billion in Fan and Fred-guaranteed mortgage-backed securities. But those purchases remained a small part of the Fed's portfolio and were widely viewed as emergency measures amid a crisis. As it turned out, the Fed was only warming up.

Today the Fed's balance sheet of more than $2.3 trillion has no term auction facilities, commercial paper funding facilities or liquidity swaps. In their place mortgage-backed securities have ballooned to $1.1 trillion, U.S. Treasurys to $821 billion and Fannie Mae and Freddie Mac debt to $154 billion.

In the short-term, these investments have proven to be a revenue windfall for the U.S. government. In the first six months of 2010, the Fed says this portfolio produced net earnings of some $36.9 billion. Most of those earnings came from Treasurys, Fannie-Freddie debt and mortgage-backed securities (MBS). This compares to $16 billion in the first six months of 2009.

The Congressional Budget Office reports that in fiscal 2010, which ended September 30, the Fed earned $76 billion, a 121% increase from a year earlier. To put that in perspective, $76 billion is more than a third of the $192 billion that the corporate income tax raised in fiscal 2010. The Fed has become one of the Treasury's biggest cash cows, helping to mask the real size of the budget deficit.

As you may have read, however, there is no free lunch, and this revenue stream is the result of taking new risks. Before 2008, short-term government debt was the Fed's traditional instrument of monetary policy. Today the Fed's mortgage-backed portfolio has a maturity of more than 10 years, and nearly half of its portfolio of Treasurys is now greater than five years.

This means greater interest rate risk, as outlined in a new paper in the American Institute of Economic Research, "The World's Most Profitable Corporation," by former Atlanta Fed President William Ford and Walker Todd, a former New York Fed lawyer specializing in monetary affairs. The authors estimate that if interest rates on 30-year fixed-rate MBS were to rise to 5% from 4%, "the Fed's current portfolio of such bonds ($1.079 trillion) would decline in value by about $162 billion—nearly three times the $57 billion of capital on the Fed Banks' consolidated balance sheet in mid-October 2010."

The Fed's new risk profile also shows up in its capital to asset ratio. Messrs. Ford and Todd point out that the Fed's short-term portfolio has allowed it to carry only a 4% ratio of capital to assets compared to an 8% ratio at commercial banks. But since 2008, while the portfolio has become more risky, the capital ratio has dropped. The authors says that today the New York Fed's capital ratio is a measly 1.45%, which means a leverage ratio of 69 to 1 and the entire Fed system has a ratio of 2.46% or 47 to 1.

More leverage together with extended maturities means that if there is a sharp rise in the yield of long-term bonds, perhaps due to rising inflation expectations, the Fed's balance sheet could look very ugly, very fast. Fed officials will rightly argue that they are able to hold these long-term assets to maturity without having to realize losses. But what if the Fed has to sell assets to drain liquidity from the economy faster than it might prefer, and thus take losses on its portfolio? The revenue gain for the government would become losses. Imagine how delighted that would make Congress, not to mention complicating the political task of Fed tightening.

Everybody loves the Fed when it is easing money, as all but a few of us did during the credit boom and housing bubble of the mid-2000s. The trouble comes when the bill comes due. One task of the next Congress should be to better inform the public about the risks the U.S. central bank is taking, ostensibly on our behalf.


Readout of the President's Call with President with Yemeni President Saleh
http://goo.gl/fb/cWdIq

The GOP Can Outsmart ObamaCare - How Republicans can create a national insurance charter, deregulate health insurance and save ObamaCare from itself
http://online.wsj.com/article/SB10001424052748704462704575590344022699132.html

The President's Foreign Trip
http://goo.gl/fb/OmqH0

DeMint: Remember what the voters back home want—less government and more freedom
http://online.wsj.com/article/SB10001424052748704141104575588612828579920.html

Monetary and Fiscal Policy Interactions in the Post-war U.S.
http://www.imf.org/external/pubs/cat/longres.cfm?sk=24322.0

EPA Regulations Could Cause Potentially Serious Capacity Problems Coal
http://www.instituteforenergyresearch.org/2010/11/02/epa-regulations-could-cause-potentially-serious-capacity-problems/

Strengthening Fragile Families
http://www.brookings.edu/reports/2010/1027_fragile_families_foc.aspx

Flashback: Media Decried Voters in 1994, Argued Conservatives Had "No Mandate"
http://www.mrc.org/biasalert/2010/20101102034417.aspx