Libertarian Leanings

The Practical Effect of Raising Marginal Tax Rates

New York's Governor David Paterson, Senate Majority Leader Malcolm Smith, and Assembly Speaker Sheldon Silver have agreed upon an income tax increase for wealthy New Yorkers.  It must be quite an interesting form of government they have over there in New York State. 

'The budget agreement was reached yesterday after weeks of closed-door sessions between Paterson, Smith and Assembly Speaker Sheldon Silver. All three are Democrats from Manhattan.

No Republican Negotiators

It was the first budget since 1965 in which the Republican leader of the Senate wasn’t among the three top negotiators. Democrats won a 32-30 majority in the chamber in last November’s election.

The higher tax income rates are proposed to end after three years. Joint-filers with adjusted income above $300,000 would pay a top 7.85 percent, and those earning above $500,000 would pay 8.97 percent, the same top rate as neighboring New Jersey, the Division of Budget said. The possibility that a higher tax rate would lead wealthy New Yorkers to leave the state was debated in the months leading to the budget agreement.

New York’s existing top tax rate is 6.85 percent for joint filers with adjusted incomes above $40,000.'

This is what is known as progressive government.  Three guys go into a back room and decide who gets taxed and who gets bailed out.  But it's OK because they're really great guys.  After all they're Democrats. 

I suppose we can hope that our new post-partisan era turns out to be a short one.  Signs are, it might be.  Especially if other New Yorkers follow the lead of Rush Limbaugh:

'I'm leaving.  I am seriously... See, ladies and gentlemen, I would love to tell this story.  I don't think I should.  I don't think I should get personal, but I would love to tell my tax audit story of New York State and New York City since 1997.  It happens every year, but that's not the point.  I have to prove 14 different ways where I am every day of the year.  I have to prove 14 different ways, 'cause I pay New York state and city tax on a per diem.

When I am there working I pay whatever, you know, my rate is based on income for that day in New York.  And I try to go as little as possible. If it weren't for hurricanes down here, I would never go up there.  New York is the escape valve in case hurricanes are showing up in our area, because of the loss of electricity.  So I'll tell you what I'm going to do.  I'm going to look for an alternative studio somewhere outside New York, perhaps Texas -- another no-income-tax state -- and I'm going to get the hell over there, when a hurricane starts coming our way, 'cause I told Mayor Bloomberg: I'll be the first to lead the way.  You know, this is just... I'll sell my apartment. I'll sell my condominium. I'm going to get out of there totally, 'cause this is just absurd, and it's ridiculous -- and it isn't going to work. It's punishing the achievers for the mistakes and the lack of discipline on the part of a bunch of corrupt politicians that have run that city and state into the ground for I don't know how many years -- and I, for one, am not going to take the blame for it.'

There are plenty of ways to vote and that's one of them.

Done deal

Global warmists argue their position mostly by insisting there's no argument.  A relative of mine dismissed the idea that there could even be a discussion.  "It's science," he insisted.  What science it is, he didn't say, but for him and many others, man made global warming is a done deal. 

A Nashua Telegraph Guest Commentary opinion column points up how far along many of us have come to simply accepting that notion.  Contoocook resident Janet Ward, who would like shut down Public Service of New Hampshire’s Merrimack Station, wrote:

'The Climate Action Plan’s authors spent about a year crafting this plan while studiously avoiding making eye contact with the 800-pound gorilla in the state: Public Service of New Hampshire’s Merrimack Station.

Every single year this coal-burning power plant produces 3.7 million tons of carbon dioxide, a damaging pollutant that is a key cause of climate change.'

It's almost inconceivable that anybody could believe that carbon dioxide is "a damaging pollutant" -- at least anybody that's heard of photosynthesis.  In reality carbon dioxide is essential to the support of life on our planet.  Without it, life as we know it would not exist. 

'ScienceDaily (Mar. 12, 2008) —  A startling discovery by scientists at the Carnegie Institution puts a new twist on photosynthesis, arguably the most important biological process on Earth. Photosynthesis by plants, algae, and some bacteria supports nearly all living things by producing food from sunlight, and in the process these organisms release oxygen and absorb carbon dioxide.'

But carbon dioxide is said to be the cause of a "greenhouse effect" that global warmists say is responsible for rising worldwide temperatures.  No matter that there has been no scientific proof that there is such as a greenhouse effect. 

In fact, a pair of German math and physics professors claim the proof is on the other side of the argument.  Professor Gerhard Gerlich, who teaches Mathematical and Physics at the Technical University Carolo-Wilhelmina in Germany, and his colleague, ProfessorRalf D. Tscheuschner published a paper that thoroughly discredits the theory.  Their paper is entitled, Falsification Of The Atmospheric CO2 Greenhouse Effects Within The Frame Of Physics.  

'The atmospheric greenhouse effect, an idea that many authors trace back to the traditional works of Fourier (1824), Tyndall (1861), and Arrhenius (1896), and which is still supported in global climatology, essentially describes a fictitious mechanism, in which a planetary atmosphere acts as a heat pump driven by an environment that is radiatively interacting with but radiatively equilibrated to the atmospheric system. According to the second law of thermodynamics such a planetary machine can never exist. Nevertheless, in almost all texts of global climatology and in a widespread secondary literature it is taken for granted that such mechanism is real and stands on a firm scientific foundation. In this paper the popular conjecture is analyzed and the underlying physical principles are clarifed. By showing that (a) there are no common physical laws between the warming phenomenon in glass houses and the fictitious atmospheric greenhouse effects, (b) there are no calculations to determine an average surface temperature of a planet...'

For those of us who are not physicists, the professors offer common sense explanations along with their mathematical arguments. 

'However, as this heat transmission is less important compared to the convection, nothing remains of the absorption and reflection properties of glass for infrared radiation to explain the physical greenhouse effect. Neither the absorption nor the reflection coefficient of glass for the infrared light is relevant for this explanation of the physical greenhouse effect, but only the movement of air, hindered by the panes of glass.'

In other words, a glass greenhouse traps heat by preventing the air inside from circulating higher into the atmosphere where it cools down.  "Greenhouse gases" do nothing to inhibit the circulation of air, nothing to prevent cooling by convection.  For the sake of convenience to their argument, the global warmists ignore the effect of convection altogether.  What choice do they have, really?  It makes their settled science look pretty unsettled.

One Consequence of Disgraceful Political Grandstanding

Jake DeSantis, Executive Vice President of the A.I.G. - Financial Products, has submitted his resignation.  His letter to A.I.G. CEO Edward M. Liddy really puts the spotlight on the positively disgraceful behavior of the Obama administration, Congress, and the Attorneys General of New York and Connecticut.  Liddy doesn't come off looking all that well, either.

'I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

[...]

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.'

Mr. DeSantis will donate his after tax bonus, which amounts to $742,006.40, "directly to organizations that are helping people who are suffering from the global downturn."  Or maybe it will be only $74,200.64 if Congress passes and Obama signs that vindictively inspired ex post facto Bill of Attainder which levies a 90% tax on Jake DeSantis and a few of his colleagues.

Maryland Democrat seeks control of the press

Senator Benjamin Cardin, Democrat from Maryland, has proposed a newspaper industry rescue.  Having destroyed their own credibility and sustainability by flacking for the Democrats, financially troubled newspapers, under this bill, will become wards of the party, dependent on party goodwill for their government subsidies tax exempt status.

'By Thomas Ferraro

WASHINGTON (Reuters) - With many U.S. newspapers struggling to survive, a Democratic senator on Tuesday introduced a bill to help them by allowing newspaper companies to restructure as nonprofits with a variety of tax breaks.

"This may not be the optimal choice for some major newspapers or corporate media chains but it should be an option for many newspapers that are struggling to stay afloat," said Senator Benjamin Cardin.

A Cardin spokesman said the bill had yet to attract any co-sponsors, but had sparked plenty of interest within the media, which has seen plunging revenues and many journalist layoffs.

Cardin's Newspaper Revitalization Act would allow newspapers to operate as nonprofits for educational purposes under the U.S. tax code, giving them a similar status to public broadcasting companies.

Under this arrangement, newspapers would still be free to report on all issues, including political campaigns. But they would be prohibited from making political endorsements.

Advertising and subscription revenue would be tax exempt, and contributions to support news coverage or operations could be tax deductible.'

Yippee... NPR in print. 

The Plan

Timothy Geithner takes to the Wall Street Journal editorial page to explain his plan to save the economy.  The plan is a Public-Private Investment Program that will purchase real-estate related loans.  Banks will be able to sell pools of loans to dedicated funds.  Investors will compete for the opportunity to participate in those funds and take advantage of government provided financing.  The dedicated funds will have three characteristics:

First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

Already I see a problem.  What if somebody makes money on the deal?  Ah!  Reading on we encounter what might be an answer!

Moving forward, we as a nation must work together to strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants who we need to do their part to get credit flowing to working families and businesses -- large and small -- across this nation.

This requires those in the private sector to remember that government assistance is a privilege, not a right. When financial institutions come to us for direct financial assistance, our government has a responsibility to ensure these funds are deployed to expand the flow of credit to the economy, not to enrich executives or shareholders. These provisions need to be designed and applied in a way that does not deter the participation by the private sector in generally available programs to stabilize the housing markets, jump-start the credit markets, and rid banks of legacy assets.

This is sure to be a really clever design -- one which attracts investors who are assured that they won't be enriched.  Good luck with that one.  Timothy continues...

We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.

Shall we ask the AIG execs who stayed on to wind down the Financial Products division about the rule of law?  No doubt, they are laughing out loud at the part about the government keeping its word.  Or they would be if they weren't in mortal terror of being overheard by the hordes that surround their houses.

The only thing he knows

After just two months in office, President Obama is back on the campaign trail.  It's a little early, but it's what he knows how to do. 

'Obama's Campaign Army on Road Again
Volunteers Rally Support for Budget Plan

 By Peter Slevin and Michael Laris
Washington Post Staff Writers
Sunday, March 22, 2009; Page A01

EVANSTON, Ill., March 21 -- As she headed into the morning sunshine to talk up President Obama's $3.6 trillion budget proposal, Althea Thomas counted herself a citizen and a partisan picking up where she left off Nov. 4, backing the president she helped elect.

"It's the change we all voted on," said Thomas, one of about 40 volunteers who fanned out from the Democratic Party headquarters here with clipboards, pledge cards and a sense of mission that flowed from their support of Obama when he was a candidate.

The Obama administration and the Democratic National Committee opened a new chapter Saturday in their ambitious project to convert the energy from last year's campaign into a force for legislative reform on health care, climate change, education and taxes.

More than 1,200 groups from Maine to Hawaii spent the day gathering signatures in support of Obama's economic plan, the first step in building what the White House hopes will be a standing political army ready to do battle.'

It's a revolutionary tactic, the one that Obama is using to bring on the hope and change.  He is re-deploying his grass-roots army in support of administration policy, almost exactly the same way he sent them into the streets in support of his candidacy.  It's a step beyond Ronald Reagan's strategy of appealing directly to the American people from his bully pulpit.  Reagan's appeals were his own.  Obama, on the other hand, seems to be outsourcing his to campaign volunteers.  To be sure, he's tapping a well of enthusiasm, but how it works out remains to be seen.

'In Reston, one voter paused to tell public school teacher Pat Hynes that Obama is "way out of his league" and that the canvassing project was "a waste of our time and our attention spans."

Obama is presiding over "the largest con game I have ever seen or heard of in my life," said the man, a retired federal agent who declined to give his name. "There's a difference between campaigning and governing. . . . We're looking for leadership. That's not leadership."'

But that voter may not be representative of the majority of those being asked to sign pledge cards.  And voters who volunteer to sign pledge cards will likely be willing to contact their representatives.  What Senator or Congressman will resist constituents' requests to spend buckets and buckets of money?  A plurality of voters have an unfavorable view of the Obama budget, but will they take the time to tell their congressmen? 

To those of us not in the throes of infatuation, Obama has been worse than merely unimpressive.  He is downright scary.  We really don't want to go where Obama says he wants to take us, but we may get there anyway.  He doesn't know where his policies will take us, but he does know what will get us there.  It's the only thing he really does know -- campaigning.

Update:  On the bright side(?) maybe he is even more oblivious to the unintended consequences than anybody ever imagined.

'The tax plan approved by the House as revenge against a handful of obscenely greedy AIG executives would slam tens of thousands in the financial industry, many of them New Yorkers, who have nothing to do with AIG or any other wrongdoing.

And that would be just start of the collateral damage.

The levies are so draconian that major banks that took bailout money are threatening to give it back - defeating the purpose of jump-starting the economy with an influx of cash.

Businesses with so-called TARP money in their accounts would also be put at a great competitive disadvantage to firms that have none. Those include foreign banks that will poach top Americans with higher pay.

As the financial capital of the world, New York would take the hardest hit. The city and state stand to lose millions in needed tax revenues.'

While Obama vents his phony outrage at the AIG bonuses, there is real outrage growing over the idiotic House tax bill.  But the chances for this ex post facto Bill of Attainder making it through the Senate look pretty slim at the moment.  Of course, by blocking that bill Senate would be saving Obama from the absurdity of his sanctimonious indignation.

War or Law Enforcement

In an interview with CNN former Vice President Dick Cheney said that the Obama administration has made the country more vulnerable to a terrorist attack by changing America's approach to fighting terrorism.  The Obama administration prefers law enforcement over a wartime approach.

'Citing "enhanced interrogation" techniques, government wiretapping and other Bush initiatives as instrumental in preventing terrorist attacks, Mr. Cheney said that rolling back those programs will undermine U.S. intelligence gathering.

"I think those programs were absolutely essential to the success we enjoyed of being able to collect the intelligence that let us defeat all further attempts to launch attacks against the United States since 9/11," he said in an interview on CNN's "State of the Union."

"President Obama campaigned against it all across the country. And now he is making some choices that, in my mind, will, in fact, raise the risk to the American people of another attack," Mr. Cheney said.

Mr. Cheney said the plan to close the Guantanamo Bay prison in Cuba is one of the Obama decisions that reflect a "law enforcement" as opposed to a "wartime" view of terrorism.

"We made a decision after 9/11 that I think was crucial. We said, 'This is a war - it's not a law enforcement problem,' " Mr. Cheney said. "Once you go into a wartime situation and it's a strategic threat, then you use all of your assets to go after the enemy ... you use your intelligence resources, your military resources, your financial resources, everything you can in order to shut down that terrorist threat against you.

"When you go back to the law enforcement mode, which is what I sense they're doing, closing Guantanamo and so forth, they are very much giving up that center of attention and focus that's required, and that concept of military threat that's essential if you're going to successfully defend the nation against further attacks," he said.

The White House had no immediate comment on Mr. Cheney's evaluation of President Obama's decisions.'  

'But Mr. Obama has said that moves such as closing the detention facility at the U.S. Naval Base Guantanamo Bay will enhance U.S. security by strengthening the U.S. image abroad. He also has said that the Bush-era practice of holding suspected terrorists as enemy combatants has been a failure because none of them has been successfully prosecuted.'

When past presidents have spoken of the need to project an aura of American strength, they never meant that we should project a strengthened touchy, feely image. 

While Obama signals his intent to back away from a wartime strategy, India has begun to move in the opposite direction.  According to the Asia Times,  India has begun to reassess its military capabilities with an eye toward "non-state actors".

'According to a senior defense official, the army has traditionally been manpower intensive, which is an anachronism. "It needs to shed manpower and replace it with high-end technologies. This hasn't happened due to inadequate resource allotment," said the official.

In his report "Indian Army: 2020" - a blueprint for the army of the future - General S Padmanabhan wrote that it is threats from non-state groups armed with weapons of mass destruction (WMD) that India needs to watch out for. "These elements could be acting on their own initiative or, at the behest of a sponsor nation," he said. "This dimension of WMD would warrant a war-like response from us."'

Sounds remarkably like the discussion leading up to the invasion of Iraq.  The WMD dimension "would warrant a war-like response."  For state sponsors the beauty of terrorism lies in the plausible deniability that it affords.  Sponsors may assume a pose of innocence while their proxies go on the attack.  For a brief moment the invasion of Iraq took that away.  Iraq and other state sponsors were challenged to demonstrate that they did not support or harbor terrorists, or seek weapons of mass destruction.  Libya renounced its nuclear weapons program, Syria pulled out of Lebanon.  They were persuaded by the overthrow of Saddam Hussein.

But that was then and this is now, and with Congress safely in anti-war Democrat hands, sponsors of terrorism have much less to fear.  Obama and his friends in congress extend the offer to give them back their cover.  Instead holding state sponsors accountable by threat of military action, the Democrat regime signals its intent to go after the pawns who plan the attacks and try to prosecute them in court.  The War on Terror is done.  Now it's Law and Order, with a heavy dose of wishful thinking.

We have to fix the fundamentally sound aspects of our economy

Meet the Press brings us the words of Dr. Christina Romer, Chair of the president's Council of Economic Advisers, in which the wisdom and brilliance of Obama administration stands revealed! 

'MR. GREGORY:  There's an effort across the administration to sound more confident about the economy.  The president, speaking on Friday, said this:

(Videotape, Friday)

PRES. OBAMA:  If we are keeping focused on all the fundamentally sound aspects of our economy, then we're going to get through this.  And I'm very confident about that.

(End videotape)

MR. GREGORY:  And yet last year during the campaign, Senator John McCain said something similar.  This is what he said back then.

(Videotape, September 15, 2008)

SEN. JOHN McCAIN (R-AZ):  You know that there's been tremendous turmoil in our financial markets and Wall Street, and it is--it's--people are frightened by these events.  Our economy, I think--still, the fundamentals our--of our economy are strong, but these are very, very difficult time.

(End videotape)

MR. GREGORY:  So back then during the campaign when Senator McCain talked about the strong fundamentals of the economy, it was then-candidate Obama and his team that roundly criticized McCain, saying he was out of touch, he didn't get it, he didn't understand how bad the economy was.  And yet now the president's talking about the strong fundamentals of the economy.  So what's different between then, the campaign, and now, except for the fact that the economy's gotten dramatically worse?'

Yes, do tell.  Besides being worse, what is different, exactly?  Ah, well, nothing really -- about the economy that is.  It's the situation that's different  A different focus.

'DR. ROMER:  I think when the president says he's focusing on fundamentals, what he means is, is we're focusing on, on fixing the fundamentals; that we've always said we're not looking at the ups and downs of the stock market, we're looking for those crucial indicators:  when are jobs turning around, when are sales turning around, when do we see consumers coming to life?  That's the kind of thing that--certainly that I'm looking at in terms of when's the economy going to be doing better and, and when can we see some hope.'

This administration will focus on fixing the fundamentally sound aspects of the economy.  I confess, that's what I've been afraid of.  There's this liberal penchant for finding brilliance in paradox, and there's a good chance liberals will find brilliance in the theory that it's the fundamentally sound aspects that need to be fixed.  Hello, Great Depression.

Our paradox does provide opportunity for the administration to showcase its mastery of nuance.  And how fortunate for the Obama administration.  It hasn't been all that impressive with the more mundane aspects leadership, like filling out cabinet posts.

'MR. GREGORY:  Right.  So what's the problem?  Where are they?  You just had four people withdraw their nomination, including, including Rodge Cohen, who is one of the most senior people on Wall Street as a lawyer with Sullivan & Cromwell, who's advised all of these, all of these banks, and now he's pulled out.

DR. ROMER:  I think one thing to realize, the--that the Obama administration is doing business in a different way.  And we do have very strict rules on, you know, sort of the, the kinds of vetting requirements and whether you can have been a lobbyist and things like that.  And it does tie your hands on some of the people you can hire.  But we think the, the administration has made the decision it's worth it to have honesty and accountability and, and a sense of confidence for the American people.'

It must be those new vetting requirements that are giving them fits.  The one about paying taxes must be particularly problematic, since hardly anyone has been nominated since that troublesome tax paying requirement went into effect.  Rest assured though, we American people are really confident in the honesty and accountability of our White House team.

Or maybe we miss the true brilliance of the Obama administration.  Like a con artist with a talent for measuring a mark, the Obama administration has its measure of the American people.  No need to worry about the contradictions.  The American people are willing to believe.

Obama gets an F, Geithner an F-

President Barack Obama and his Treasury Secretary Timothy Geithner get failing grades on their handling of the economy from a panel of economists surveyed by The Wall Street Journal.

The economists' assessment stands in stark contrast with Mr. Obama's popularity with the public, with a recent Wall Street Journal/NBC poll giving him a 60% approval rating. A majority of the 49 economists polled said they were dissatisfied with the administration's economic policies.

On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.

WSJ's Kelly Evans and Phil Izzo talk about the survey:

The Buffett solution

It's worth a listen, although according to the Wall Street Journal, much of the reporting on Warren Buffett's comments has failed to pick up on it.  Here's the plan.

'In fact, the nationalization of Fannie and Freddie is water over the dam. The men's perspective may be one of pain, but it is historical pain.

Now comes Warren Buffett, a big investor in Wells Fargo, M&T Bank and several other banks, who, during his marathon appearance on CNBC Monday, clearly called for suspension of mark-to-market accounting for regulatory capital purposes.

We add the italics for the benefit of a House hearing tomorrow on this very issue. Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It's not so fine for regulatory purposes. It doesn't just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform.

What happens next is exactly what we've seen: Their share prices collapse; government feels obliged to inject taxpayer capital into banks simply to achieve an accounting effect, so banks can meet capital adequacy rules set by, um, government.

(This sounds silly, but has been a big part of government's response so far.)

CNBC, sadly, has been playing a loop of Mr. Buffett's remarks that does a consummate job of leaving out his most important point. Nobody cares about the merits of mark-to-market in the abstract, but how it impacts our current banking crisis. And his exact words were that it is "gasoline on the fire in terms of financial institutions."

Depressing bank stocks today, he said, is precisely the question of whether banks will be "forced to sell stock at ridiculously low prices" to meet the capital adequacy rules.

"If they don't have to sell stock at distressed prices, I think a number of them will do very, very well."

He also proposed a fix, which CNBC duly omitted from its loop, namely to "not have the regulators say, 'We're going to force you to put a lot more capital in based on these mark-to-market figures.'"'

In the overnight lending arena which is where the credit freeze was said to have begun, mark to market accounting would presumably still be in effect.  Thus a lender's credit department would still be able to accurately assess the credit worthiness of borrowers.  But with the suspension of mark to market accounting for regulatory purposes, regulators would have no grounds for forcing banks to raise capital, which implies that the government would have less reason for pumping in money to capitalize banks.

Buffet is not alone in his thinking.  Econlog has a very good analysis of the mark to market rules by economist Jeff Hummel. 

'Economists now realize that reserve requirements, designed to make banks more LIQUID, have the unintended reverse impact during a panic, tying up cash that banks need to pay out in order to stem the panic. As a result, reserve requirements are fast disappearing as a tool of bank regulation. Similarly, capital requirements, designed to make banks more SOLVENT, also have the reverse impact during a crisis. What follows is Less's analysis:

"Any discussion of mark-to-market accounting must differentiate between the beneficial effects of honestly reporting assets at what they are actually worth and the destructive impact of inflexible regulations that utilize the principle. Current discussions have blurred the distinction.'

The House Financial Services Committee will hold hearings tomorrow.

'Washington, DC – Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today announced that the Subcommittee will hold a hearing to examine the mark-to-market accounting rules that many contend have exacerbated the current troubles in the financial industry and in the broader economy. The standard requires companies to value assets they hold at current market values. For assets that are frozen and have a diminished current market value but may recover value in the future, the standard has proven problematic. Companies are then forced to write-down billions in assets, which can lead to further write-downs elsewhere.

“Illiquid markets have resulted in great difficulty in valuing sizable assets.  Some have therefore complained about fair value accounting and sought to eliminate it.  While companies need stability, investors still need accurate information.  We therefore cannot allow for fantasy accounting that wishes away bad assets by merely concealing them,” said Chairman Kanjorski.  “As a result, we will seek at this hearing to engage in a constructive, thoughtful conversation with a diverse range of viewpoints aimed at identifying fair-minded, incremental, and achievable fixes to this problem.  In short, I want to find a way – within the existing independent standard-setting structure – to still provide investors with the information needed to make effective decisions without continuing to impose undue burdens on financial institutions.  Each of our anticipated witnesses will have the opportunity to contribute as we all pursue consensus solutions together to this thorny, contentious issue.”'

In other times I might dredge up some miniscule hope that a solution will be forthcoming.  The Committee is chaired by Barney Frank, Democrat from Massachusetts.  Democrats complain that our current crisis is the result of laissez faire capitalism.  Those in favor of a suspension of mark to market rules see it as a consequence of regulation.  Chances that the Committee will recommend easing regulations seem prettly slim, since the opportunity to take over the economy stands before them.  Why spoil it by fixing the problem?  After all, that would be letting a good crisis go to waste.