In Richistan, I wrote about a new political divide emerging among the wealthy. While most Lower Richistani’s ($1 million to $10 million in net worth) were voting Republican, most Middle-and Upper Richistanis (those worth $10 million plus and $100 million plus) were voting Democrat.

Lower Richistanis tended to vote almost exclusively based on taxes. But Upper Richistanis placed a higher priority on longer-term societal issues like health care, the environment and education, which are traditional Democrat issues. Some say Upper Richistanis can afford to minimize taxes, since they have plenty of money even after the government takes its share. Others say the ultra-rich have better tax attorneys so they don’t care as much about tax rates. Read more »

As lawmakers appeared to reach a tentative deal on a Treasury rescue proposal for troubled assets, Steve Quinn, associate professor of economics at Texas Christian University in guest post for Real Time Economics, looks back at Britain’s experience in the 18th century to offer an alternative plan.

The current financial crisis began with the idea that pooling diverse obligations could create a less volatile, more liquid security. Debasement of standards by loan originators and repackaging by bankers, however, has left these securities unmarketable and the financial system in a credit crisis. Now, the Treasury, the Fed and Congress seek ways to bring liquidity to assets originally created to be liquid.

This proposal takes a page from history and suggests creating liquidity through an enormous debt-for-equity swap. Creditors, such as banks and hedge funds, would swap assets for an equity share of the pool created by the amalgamated assets. All the stock would be identical, so the operation would create large amounts of a new, homogeneous asset. In execution, the Treasury could set swap prices by auction to reflect risk, but a simpler approach would offer a 1:1 swap of shares for book value. Obviously, the most toxic obligations will join, and a large amount of homogeneous stock will be created. A secondary market and price will quickly emerge.

Read more »

Following Iceland’s banking meltdown, international financial markets have identified Hungary as another country potentially at risk of a crisis. Hungarian central bank governor András Simor spoke to Journal reporter Marcus Walker about why he thinks the market’s fears about Hungary are wrong.

WSJ: How vulnerable is Hungary to the global financial turmoil?

SIMOR: This crisis has led to a reassessment of risk all over the world, and to tighter liquidity around the world. It affects every country, but it especially affects countries that have balance of payment needs and Hungary, as a growing economy, naturally has a financing need on the market.

If the U.S. and the European authorities are successful, that will have a positive impact on countries like Hungary as well. I believe it’s only a question of time until they prove to be successful.

That of course does not mean we can just sit back and wait until the authorities around the world solve the problem. Read more »

Bernanke

Congress just put a $700 billion hot potato back on Federal Reserve Chairman Ben Bernanke’s lap, and without the tool the Fed had sought to make its job easier: the ability to pay interest on bank reserves.

That could leave the Fed with little choice but to eventually lower interest rates again to keep the economy from spiraling into a deep recession.

The House of Representatives on Monday rejected legislation that would enable the Treasury Department to purchase up to $700 billion illiquid mortgage-linked assets.

Bernanke had backed the measure, telling lawmakers last week: “Our judgment at this point is only Congress can take the actions necessary to stabilize the financial system.” So much for that.

The failure of the Troubled Assets Relief Program, or TARP, which still could be resuscitated, puts even more pressure on the Fed’s liquidity programs to keep credit markets afloat.

“If the legislation is indeed moribund…then the baton will pass quickly to the Fed and other central banks to deal with the fallout — which would be further tightening of credit conditions and upward pressure on borrowing spreads,” said Global Insight economist Brian Bethune, in a research note.

Read more »

A roundup of economic news from around the Web.

Economist Debate: The Economist is hosting a debate on how best to re-regulate the system after the credit crisis. The participants are Myron Scholes advocating a light touch, and Joseph Stiglitz arguing for stronger regulation. Scholes writes: There is now a rising chorus among regulators, politicians and academics claiming that the freedom to innovate in the financial domain should be curtailed.” Stiglitz writes: “The current crisis is caused, in part, by inadequate regulation. Unless we have an adequate regulatory system—regulations and a regulatory structure that ensures their implementation—we are bound to have another crisis.”

Read more »

As lawmakers appeared to reach a tentative deal on a Treasury rescue proposal for troubled assets, Steve Quinn, associate professor of economics at Texas Christian University in guest post for Real Time Economics, looks back at Britain’s experience in the 18th century to offer an alternative plan.

The current financial crisis began with the idea that pooling diverse obligations could create a less volatile, more liquid security. Debasement of standards by loan originators and repackaging by bankers, however, has left these securities unmarketable and the financial system in a credit crisis. Now, the Treasury, the Fed and Congress seek ways to bring liquidity to assets originally created to be liquid.

This proposal takes a page from history and suggests creating liquidity through an enormous debt-for-equity swap. Creditors, such as banks and hedge funds, would swap assets for an equity share of the pool created by the amalgamated assets. All the stock would be identical, so the operation would create large amounts of a new, homogeneous asset. In execution, the Treasury could set swap prices by auction to reflect risk, but a simpler approach would offer a 1:1 swap of shares for book value. Obviously, the most toxic obligations will join, and a large amount of homogenous stock will be created. A secondary market and price will quickly emerge.

Read more »

The President of the United States makes $400,000 plus benefits and that seems a fair wage for someone with an MBA.

Until thing get sorted out, all CEOs (private and public) should voluntarily limit their remuneration to that equal or less than $400,000. And no golden parachutes, options or other BS.

That goes for all of Big Franchising’s CEOs:

• Franchisors (business format and product),
• franchise bar,
• bankers,
• suppliers,
• sales agents, and
• media.

Senior citizens have been hit pretty hard in recent months, as those invested in stocks feel the sharpest pain in retirement accounts and those living on fixed incomes have dealt with spiraling inflation costs, but today it looks like they may have gotten a small break.

As part of its annual review of Social Security benefits, the government said more than 55 million Americans will see a 5.8% boost in their benefits in 2009, the largest jump in 27-years. The increase is tied to the consumer price index increases from July through September from one year to the next. Read more »