financial crises

Six Reasons to Downsize the Federal Government

1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.

The New Year and Financial Crises

The New Year is likely to bring renewal of financial problems in the European Union. In Greece, the crisis was fiscal in origin and spread to Greek banks and banks in other countries that had lent to Greek banks and the Greek government. In Ireland, the crisis began with problem real-estate loans at Irish banks. That spread to European banks, mainly British, that had lent to Irish banks.

For Financial Stability, Fix the Tax Code

There seems to be near universal agreement that the excessive use of debt among both corporations, particularly banks, and households contributed to the severity of the financial crisis.  However, other than the occasional refrain that banks should hold more capital, there has been little discussion over why corporations choose to be so highly leveraged in the first place.  But then such a discussion might lead us to the all too obvious answer – the federal government, via the tax code, encourages, even heavily subsidizes corporate leverage.

Administration Reform Plan Misses the Mark

The Obama Administration is presenting a misguided, ill-informed remake of our financial regulatory system that will likely increase the frequency and severity of future financial crises. While our financial system, particularly our mortgage finance system, is broken, the Obama plan ignores the real flaws in our current structure, instead focusing on convenient targets.

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