"Wall-Street-Bonus" Lew to Replace "Tax-Avoider" Geithner at Treasury

 

Barack Obama vilifies both “Wall Street speculators “who pay themselves big bonuses when times are bad” and the  greedy top Two Percenters who do not pay “their fair share” by exploiting tax loopholes.  With such strongly articulated views, his nominee for Secretary of Treasury, Jack Lew, and his current Secretary of Treasury, Timothy Geithner, appear to be unlikely choices for such a sensitive cabinet position.

Jack Lew collected over two million dollars for his short stint at the collapsing Citigroup. Tim Geithner, whose earnings placed him in the top two percent,  conveniently forgot to pay a substantial portion of his taxes. Although the sums of money involved in the Lew and Geithner cases are small, they are of enormous symbolic value. They show that Obama is prepared to accept behavior from his closest associates that he  demagogues for others in his public persona.

Lew’s confirmation hearings will explore his stint as CEO of Citigroup’s alternative investments group from January 2008 until he lined up a new job in the state department before the end of the year.

go to forbes.com

Someone Must Eventually Say No. Warnings on the Europe Crisis

Yesterday’s Wall Street rally was indicative of a world investment community desperate for a shred of good news. The U.S. employment figures were better than expected and a consortium of central banks, the Fed included, agreed to prop up European banks with temporary funding.

Everyone now knows the meaning of “moral hazard” – a term foreign to the business vocabulary twenty years ago. It first came to the fore with the Asian Crisis of the summer of 1997. Buyers of bonds of the emerging Asian economies, expecting a lender of last resort, sought to profit from high interest Asian bonds and fixed dollar exchange rates. The two most recent episodes of moral hazard are the U.S. mortgage disaster and the toxic debt of  Ireland, Greece, Portugal, and now Italy. In both cases, investments were made assuming a lender of last resort. Things are different from 1997: We have no credible lenders of last resort who can make whole creditors who stand to lose not billions but trillions.

Moral hazard and lenders of last resort are addictions. We realize their costs only after the fact, and then we must agree to yet another bailout. Otherwise the costs are too high.

We now stand at a watershed in Europe. Creditor countries and Eurocrats tell Germany, the European Central Bank, and the IMF that the costs of yet another bailout are small compared to the alternative. Apparently, the world’s central banks yesterday caved in, at least partially. Only the German voter and perhaps the European Central Bank are left standing against the bail-out consensus. It is argued that somehow the European Union needs time to discipline the spendthrift Greeks, Portuguese, and Italians. But the central bank signal to them is “continue as is. Pretend to change your ways. You are too big too fail, so don’t worry.”

Overlooked in all the confusion is that the central bank loans and European emergency funds are tiny compared to the total bailout costs. Sufficient funding can only be had if private lenders participate. But so far, there are no signs of interest on their part. A more likely result is that private speculators will test the resolve of European governments and central banks to back toxic debt.

Once Soros and others enter the ring, my bets are on the private speculators. Taxpayers around the globe will pay dearly, and we will learn again that moral hazard has substantial costs. We will then immediately forget this lesson until the next catastrophe.

China's Flawed Case For One-Party Rule

In democracies, leaders who make bad and even disastrous decisions are punished at the ballot box.



Robert Lawrence Kuhn, an international investment banker, biographer, corporate strategist and paid advisor to the Chinese government, is the face of China's PR campaign for the Chinese Communist Party's (CPC) 90th anniversary. The publication of his China Daily article "China 'best served'' with CPC at the helm" as two-page advertising supplements in the New York Times and Wall Street Journal shows China's desire to legitimize itself in the eyes of the international community.

Kuhn is not the only advocate of Chinese-style one-party rule. Among those joining him are New York Times journalist Thomas Friedman and investor-philanthropist George Soros. Both praise the CPC's sound and timely decision making. Some scholars also argue that "benevolent" one-party rule is better for poor countries that cannot afford "messy" democracies at early stages of development. They point to contemporary China, South Korea and Taiwan in their early years as cases in point. (Both South Korea and Taiwan transitioned to democracy within two decades. The CPC has exercised one-party rule for more than a half century with no end in sight.)

for rest of article at Forbes.com