Advocates of cap-and-trade argue that it is preferable to a simple carbon tax because it fixes a national cap on carbon emissions and it “hides the ball” ”” it doesn’t use the word “tax” ”” even though it amounts to one. So it can get through Congress. That was true as long as no one thought cap-and-trade could ever pass, but now that it might under Mr. Obama, opponents are not playing hide the ball anymore.

In the past two weeks, you could hear a chorus of Republicans, coal-state Democrats, right-wing think tanks and enviro-skeptics all singing the same tune: “Cap-and-trade is a tax. Obama is going to raise your taxes and sacrifice U.S. jobs to combat this global-warming charade, which many scientists think is nonsense. Worse, cap-and-trade will be managed by Wall Street. If you liked credit-default swaps, you’re going to love carbon-offset swaps.”

Some of the refrains from this song have a very catchy appeal. They could easily kill this effort. So, if the Obama team cares about the “ends” of a stronger America and a more livable planet, as much as the “means,” I hope it will consider an alternative strategy, message and messenger.

Read it all.

Hawaii has suffered one of the worst winters for tourism in recent years and has appealed to the state’s most famous native son — President Obama — to help turn its fortunes around.

Hotel occupancy rates in the winter were the lowest in at least five years, and in February — traditionally the state’s busiest month — the rate dropped to 75%. That was the lowest level since 1991, during the Persian Gulf War, when it fell to 69.7%, according to Smith Travel Research.

Read it all.

During World War I, Americans were exhorted to buy Liberty Bonds to help their soldiers on the front.

Now, it seems, they will be asked to come to the aid of their banks ”” with the added inducement of possibly making some money for themselves.

As part of its sweeping plan to purge banks of troublesome assets, the Obama administration is encouraging several large investment companies to create the financial-crisis equivalent of war bonds: bailout funds.

Read it all.

The White House has an oft-overlooked religious ally for solving the country’s social problems through greatly expanded government programs, if a new survey of senior pastors in mainline Protestant churches is a good indication.

Republican politicians and commentators have opposed President Obama’s economic stimulus initiatives and proposals to improve health care, education and the budgets of middle-class Americans as an overly expensive shift to “big government” bordering on socialism. But three-quarters of pastors in seven mainline denominations agreed in the mid-2008 survey that the federal government “should do more to solve social problems such as unemployment, poverty and poor housing.”

Most of the queried clergy accepted the likely price of such reforms. Some 67 percent favored government-guaranteed health insurance “for all citizens, even if it means raising taxes.” Moreover, 69 percent said that more environmental protection is needed, even if it raises prices and costs jobs.

Read it all.

A Pentecostal bishop who has challenged Democrats on abortion and a representative of a national gay rights group are among nine new members of a White House advisory council.

President Obama announced the appointments of Bishop Charles E. Blake and Harry Knox on Monday, filling out a 25-person roster that is part of the White House Office of Faith-Based and Neighborhood Partnerships.

Read it all.

The pricing of the toxic assets of the banks is in line with the pricing of other risky assets. There is no evidence that prices of credit instruments are now reflecting fire sales or distress selling. The evidence, if anything, suggests that the prices are actually on the high side. This means that the liquidity rationale of the Keynesians has no basis in fact.

The findings are sure to be contested in the literature, as most research is. In the end, they will prove robust. They will hold up.

The debate on bank bailouts is broader than economics. It goes to a question of justice. Should one group, taxpayers, be forced to pay for the mistakes of another group, bankers? It goes to a question of freedom versus socialism and fascism. Should banks operate in a profit and loss system and bear the losses that they incur, or should they not, in which case the financial system becomes more socialist and fascist? Even before addressing these questions, if the Keynesian policy does not do what it is claimed, then in economic terms the Keynesian case falls.
The government and FED claim that the financial system lacks liquidity. They say that there is a market pricing defect or failure. This, they say, is why the bad loans (toxic assets) held by the banks are worth more than the prices that they are fetching in the market. These prices, they claim, are fire sale prices. The remedy, they call for and implement, is for the Treasury and FED to supply the banks with liquidity, i.e., bail them out. Thus, the government and the FED are directing trillions of taxpayer dollars to shore up weak banks by buying their bad loans rather than overseeing a judicial-like process of re-organizing the banks and cleaning out these loans in established bankruptcy-like procedures.

The Austrian position is that the financial system does not lack liquidity. The bad loans were overpriced to begin with, largely because the FED and government engineered a speculative bubble. The bubble burst. The loans were repriced in the market. The loans are now worth what they are bringing in the market. Thus, the government has no liquidity justification for bailing out the banks. The government’s economic rationale has no merit. Many banks are insolvent. On the economic merits, they should be allowed to fail, not bailed out.

This may seem arcane but it really does matter. Read it all–KSH.

Mr. Obama is betting that the totality of economic policies his team and the Federal Reserve have put in place will act, like radiation therapy, to halt the spread and reduce the size of the cancerous tumors eating away at our financial system ”” and stimulate enough new growth and optimism so that Phase II will be small enough to get past Congress and the public.

As Treasury Secretary Timothy Geithner told ABC News, “If we get to that point” ”” where more funds are needed ”” “we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively.”

Have no doubt, Phase II is coming. At best, it will require hundreds of billions of dollars more, at worst more than a trillion, to deal with more bad loans and toxic assets weakening the economy ”” problems that Phase I can’t fully absorb. Because unemployment is still rising ”” ensuring that the initial spate of mortgage defaults, which came from loans to people who could never repay, will be followed by another spate of defaults from those who could repay but now can’t because the deteriorating economy has stripped them of their jobs, their businesses or their credit lines.

Read it all.

Listen to it all from NPR. Note especially what he says about the so-called “Geithner plan” to rescue the banks. At some point it is going to dawn on more people that significant questions need to be asked about this plan and whether it is the right approach, since so many thoughtful industry participants and observers do not think so. But maybe that is just yours truly, since I am worried about the plan–KSH

It was a dramatic show of muscle, targeting two of the erstwhile Big Three, and the economic mainstay of the city of Detroit and the state of Michigan, which rank among the top five political pillars of the Democratic Party. Michigan’s Democratic governor, Jennifer Granholm, protested that Wagoner was being made a scapegoat. But Sen. Carl Levin commented that when Obama met with members of the Michigan delegation, he made plain that “there wasn’t much point in arguing whether or not it was fair or unfair, wise or unwise. It was a decision that he didn’t ask us about; he informed us.”

You can hear in the comments of Levin and other members of Congress the sounds of grudging admiration for a fellow politician who has shown them he has more backbone than they expected.

Read it all.

But despite calls for unity from Mr. Obama and the British prime minister, Gordon Brown ”” the host of the Group of 20 meeting that formally begins Thursday ”” the French and German leaders held a joint, and combative, news conference to underscore their differences with the Anglo-American approach to the crisis.

While President Nichoals Sarkozy of France did not repeat an earlier threat to walk out of the conference ”” “I just got here,” he joked ”” he made it clear he would reject an agreement that puts off stringent new regulations on banks, tax havens, and hedge funds.

“The decisions need to be taken now, today and tomorrow,” Mr. Sarkozy said. “This has nothing to do with ego. This has nothing to do with temper tantrums. When it comes to historic moments, you can’t circumvent them.”

Read it all.

The president’s budget makes clear that a huge expansion of government is not just about today’s economic downturn. Once the recession is behind us, this budget will continue pushing for more and more government in our everyday lives.

Instead of tightening Uncle Sam’s belt the way so many American families are cutting back these days, the president’s proposal spends so aggressively that it essentially adds $1 trillion to the debt, on average, every year.

Except for some accounting gimmicks, the budget makes no attempt to cut wasteful spending or find savings. It ignores reform for major entitlement programs such as Medicare and Social Security, which are on track to cost us $67 trillion more than we have over the next 75 years.

Read it all.

…the controversy surrounding the Notre Dame invitation highlights growing strains in an important political relationship. In the last election, while evangelical Christians generally remained loyal to the Republican nominee, Catholics decisively shifted their votes toward Obama. In 2004, George W. Bush won the Catholic vote by five percentage points. Obama carried it by nine points in 2008. A number of Catholic thinkers set out a “pro-life, pro-Obama” position — disagreeing with Obama’s pro-choice views but trusting in his moderate instincts and conciliatory temperament.

So far, Obama has done little to justify this faith. His initial actions on life issues — funding overseas abortion providers, removing restrictions from federally funded medical experimentation on human embryos, revisiting conscience protections for pro-life health-care professionals — have ranged from conventional to radical. And this may be one reason Obama’s support among Catholics has eroded. According to the Pew Research Center, the percentage of Americans who disapprove of Obama’s job performance increased by nine points from February to March. Among Catholics as a whole, his disapproval rating jumped 14 points. And among white, non-Hispanic Catholics, the figure doubled — from 20 percent to 41 percent.

Catholics are having second thoughts, but it could get much worse. If the president and Congress are not careful on several issues, these concerns could open a major rift between the Catholic Church and the Democratic Party.

Read it all.

The government may seek to ease General Motors into what it calls a “controlled” bankruptcy, somewhere between a prepackaged bankruptcy and court chaos, by persuading at least some creditors to agree to a plan that would cleave the company into two pieces, according to people briefed on the matter.

Instead of signing on every creditor as is typically required in prepackaged deals, administration officials are using as leverage the promise of taxpayer financing. Many regard the government as the only lender willing to step up with money ”” in bankruptcy or out.

“They’re going to have tremendous power,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. “They can call off the money and the whole thing fails.”

Read it all.

Searching for a broad international consensus in advance of a meeting of the Group of 20 countries to debate the global economic crisis, President Obama played down reports of discord Wednesday, saying that reports of international divisions had been “vastly overstated.”

But, he said at a joint news conference in London with Prime Minister Gordon Brown, the nature of the crisis demanded an integrated response.

“We can only meet this challenge together,” he said.

Read it all. I caught the joint news conference during the morning run. Fascinating to be sure–KSH.

That’s what “Market to Mother Nature” accounting is all about. It begins with the premise that the distinction between the G-20 and the Copenhagen climate change negotiations is totally artificial. They are just flip sides of the same global problem ”” how we as a world keep raising standards of living for more and more people in ways that will not, as a byproduct, have both the Market and Mother Nature producing huge amounts of toxic assets.

The old system, which has reached its financial and environmental limits, worked like this: We built more and more stores in America to sell more and more stuff, which was made in more and more Chinese factories powered by more and more coal that earned more and more dollars to buy more and more U.S. T-bills that got recycled back to America in the form of cheap credit to build more and more stores and more and more houses that gave rise to more and more Chinese factories. …

This system was a powerful engine of wealth creation and lifted millions out of poverty, but it relied upon the risks to the Market and to Mother Nature being underpriced and to profits being privatized in good times and losses socialized in bad times. This capitalist engine doesn’t need to be discarded; it needs some fixes. For starters, we need to get back to basics ”” accountable lending, prudent saving, reasonable leverage and, most important, more engineering of goods than just financial products.

Read it all.

… by enmeshing the White House so deeply into G.M., Obama has increased the odds that March’s menacing threat will lead to June’s wobbly wiggle-out. The Obama administration and the Democratic Party are now completely implicated in the coming G.M. wreck. Over the next few months, the White House will be subject to a gigantic lobbying barrage. The Midwestern delegations, swing states all, will pull out all the stops to prevent plant foreclosures. Unions will be furious if the Obama-run company rips up the union contract. Is the White House ready for the headline “Obama to Middle America: Drop Dead”? It would take a party with a political death wish to see this through.

Furthermore, there’s no reason to think the umpteenth restructuring will produce compelling results. Cost control without a quality revolution will make little difference. There’s no reason to think Americans are going to flock to G.M. cars. (The president lauded their fantabulousness, but G.M. sales fell 51 percent during the first two months of this year while the overall market declined by 39 percent.) Politically expedient environmental demands will make the odds of profitability even more remote.

Corporate welfare rarely works when the government invests in rising firms. The odds are really grim when it tries to subsidize fading ones. (In the ’80s, Chrysler already had the successful K-car in the pipeline.)

The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever.

Read it all. This worries me–I sincerely hope he is wrong..

If you look at Mr Obama’s top priorities, you get a sense of just how little the Europeans are prepared to give him. More help in Afghanistan? Most Europeans will do the bare minimum. A co-ordinated fiscal stimulus? Sorry, Europe is out of cash as well as troops.

Europe’s grudging attitude to the new president is not only discourteous. It is unwise and self-defeating. Mr Obama is an internationalist. But the American public is war weary and preoccupied by the domestic economic disaster. If even a liberal, internationalist president seems to be getting nothing out of America’s allies, then protectionist and isolationist voices in Congress will only get louder.

Any such development would be disastrous for Europe. The US remains the core of the global economy and the guarantor of security in Europe. The continent’s leaders have a huge interest in fostering and fanning the new American internationalism represented by Mr Obama. Instead, they seem to be doing their utmost to pour cold water on it.

Read it all.

As an assertion of government control over a huge swath of the industrial landscape, President Obama’s decision to reshape the automobile industry has few precedents.

In essentially taking command of General Motors and telling Chrysler to merge with a foreign competitor or cease to exist, Mr. Obama was saying that economic conditions were sufficiently dire to justify a new level of government involvement in the management of corporate America.

His message amounted to an inversion of the relationship that had helped define the rise of American manufacturing might in the 20th century; now, Mr. Obama seemed to be saying, what is good for America will have to be good enough for General Motors.

Read it all.

Thursday’s meeting of the Group of 20 in London is supposed to be an opportunity for world leaders to agree on common solutions to the global financial crisis and come up with ways to prevent another one from happening in the future. Yet as the summit approaches, observers seem to be more focused on the past — specifically, on two previous international attempts to reorder troubled markets, one a model of success and the other of failure.

Read it all.

Chancellor Angela Merkel of Germany, an avowed friend of the United States and the leader of the European Union’s biggest economy, is diplomatic about the coming visit by President Obama. But she is clear that she is not about to give ground on new stimulus spending, stressing the need to maintain fiscal discipline even as she professes to want to work closely with the new American president.

Speaking in her modern concrete-and-glass Chancellery building last week, she underscored the points of drama that may well delineate the three summit meetings during Mr. Obama’s first trans-Atlantic trip since he was elected.

“International policy is, for all the friendship and commonality, always also about representing the interests of one’s own country,” Mrs. Merkel said in an interview with The New York Times and The International Herald Tribune.

Read it all.

Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause””Lehman was small relative to Citigroup or Bank of America””is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider…

To break this cycle, the government must force the banks to acknowledge the scale of their problems….

Read it all.

The White House on Sunday pushed out the chairman of General Motors and instructed Chrysler to form a partnership with the Italian automaker Fiat within 30 days as conditions for receiving another much-needed round of government aid.

The decision to ask G.M.’s chairman and chief executive, Rick Wagoner, to resign caught Detroit and Washington by surprise, and it underscored the Obama administration’s determination to keep a tight rein on the companies it is bailing out ”” a level of government involvement in business perhaps not seen since the Great Depression.

President Obama is scheduled to announce details of the auto package at the White House on Monday, but two senior officials, offering a preview on condition of anonymity, made clear that some form of bankruptcy ”” a quick, court-supervised restructuring, as they described it ”” could still be an option for one or both companies.

Read it all.

Take a look.

After experiencing a few emerging-market crises, I get the sense of watching the same movie over and over. All too often, a tragic part of that movie is the failure of the countries’ policymakers to hear the loud cries of canaries in the coal mine. Before running up further outsized budget deficits, should we not heed the markets that now see a 10 percent probability that the U.S. government will default on its sovereign debt in the next five years? And should we not be paying close attention to the Chinese central bank governor’s musings that he does not feel comfortable with the $1 trillion of U.S. government debt that the Chinese central bank already owns, let alone adding to those holdings?

In the twilight of my career, when I am hopefully wiser than before, I have come to regret how the IMF and the U.S. Treasury all too often lectured leaders in emerging markets on how to “get their house in order” — without the slightest thought that the United States might fare no better when facing a major economic crisis. Now, I fear time is running out for our own policymakers to mend their ways and offer real leadership to extricate the United States from its worst economic calamity since the 1930s. If we insist on improvising and not facing our real problems, we might soon lose our status as a country to be emulated and join the ranks of those nations we have patronized for so long.

Read it all.

You wake up in the morning and once again the financial weather report calls for the Apocalypse followed by brief showers of despair. Seeking a ray of hope, you turn on the television and settle in to watch a Capitol Hill hearing. There in the hot seat is the man who holds the entire U.S. economy in his hands. And he looks like Harry Potter….

We do need strong leadership. The world is in chaos. There are riots from Greece to China. Iceland has collapsed, and Mexico teeters on the edge. Pakistan is broke, melting down and awash in nukes. Yes, the stock market soared with Geithner’s toxic asset plan, but didn’t he and Obama dismiss Wall Street’s response when the first version of the bank bailout landed with a thud last month? Don’t we hate Wall Street? Obama and Geithner subsidize hedge funds on Monday and come back with heavy regulations on Thursday. What gives?

Gradually it becomes clear. This is not just a global economic crisis. It’s a global leadership crisis. Obama is still finding his footing, Gordon Brown is on his way out, Hugo Chávez is nuts and Wall Street management is larcenous. Isn’t there someone somewhere with decent values, a firm hand on the tiller and at least one big new idea? Where have all the leaders gone?

Read it all.

With a bit of bookkeeping legerdemain borrowed from the Bush administration, the Democratic Congress is about to perform a cover-up on the most serious threat to America’s economic future.

That threat is not the severe recession, tough as that is for the families and businesses struggling to make ends meet. In time, the recession will end, and last week’s stock market performance hinted that we may not have to wait years for the recovery to begin.

The real threat is the monstrous debt resulting from the slump in revenue and the staggering sums being committed by Washington to rescuing embattled banks and homeowners — and the absence of any serious strategy for paying it all back.

Read it all.

President Obama is facing challenges to American power on multiple fronts as he prepares for his first trip overseas since taking office, with the nation’s economic woes emboldening allies and adversaries alike.

Despite his immense popularity around the world, Mr. Obama will confront resentment over American-style capitalism and resistance to his economic prescriptions when he lands in London on Tuesday for the Group of 20 summit meeting of industrial and emerging market nations plus the European Union.

The president will not even try to overcome NATO’s unwillingness to provide more troops in Afghanistan when he goes on later in the week to meet with the military alliance.

He seems unlikely to return home with any more to show for his attempts to open a dialogue with Iran’s leaders, who have, so far, responded with tough words, albeit not tough enough to persuade Russia to support the United States in tougher sanctions against Tehran. And he will be tested in face-to-face meetings by the leaders of China and Russia, who have been pondering the degree to which the power of the United States to dominate global affairs may be ebbing.

Read it all.

Jimmy Carter came to Notre Dame in 1977. So did Ronald Reagan in 1981 and George W. Bush in 2001.

The University of Notre Dame has a tradition of inviting new presidents to speak at graduation. But this year’s selection of President Barack Obama has been met by a barrage of criticism that has left some students fearing their commencement ceremony will turn into a circus.

Many Catholics are angered by Obama’s planned appearance at the May 17 ceremony because of his decisions to provide federal funding for embryonic stem cell research and international family planning groups that provide abortions or educate about the procedure.

Read it all.

An interesting array of editorial opinion on the subject.

Update: in yesterday’s Financial Times Jeffrey Sachs did not like the plan:

The idea of “private sector price discovery” is therefore flim-flam. There would be price discovery if the government’s loan had to be repaid whether or not the asset paid off in full. In that case, the investor would bid $360,000. But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers.

The banks could be saved without saving their shareholders ”“ a better deal for taxpayers and without the moral hazard of rescuing shareholders from the banks’ bad bets. Most simply, the government could provide loans to buy the toxic assets on a recourse basis, therefore without the hidden subsidy. Alternatively, the plan could give the taxpayers an equity stake in the banks in return for cleaning their balance sheets. In cases of insolvency, the government could take over the bank, the much dreaded nationalisation, albeit temporary. At the end of the Bush administration, Congress voted for the $700bn (€517bn, £479bn) troubled asset relief programme (Tarp) on the assurance the taxpayer would get fair value for money (for example, by taking equity stakes in the rescued banks). The new plan does not offer that.

The Obama administration will detail on Thursday a wide-ranging plan to overhaul financial regulation by subjecting hedge funds and traders of exotic financial instruments, now among the biggest and most freewheeling players on Wall Street, to potentially strict new government supervision, officials said.

The Treasury secretary, Timothy F. Geithner, will outline the broad revamping of the regulatory system, which goes further than expected, in a hearing on Thursday. He is expected to say that the new rules are necessary to prevent a repeat of the excesses that nearly wrecked the global financial system and plunged the economy into a recession.

The plan, which would require congressional approval, would give the government vast new powers over “systemically important” banks and other financial institutions that are so big that their collapse would jeopardize the economy as a whole.

Read it all.