President Obama should take a cue from his hero, Abraham Lincoln. During the Civil War Lincoln never hesitated to fire generals he thought weren't up to the task. Obama should do the same thing with his economic commanders. Clearly Treasury Chief Timothy Geithner has been about as effective in fighting the credit crisis as George McClellan or Joe Hooker were in fighting Robert E. Lee's Army of Northern Virginia. Geithner has been in the midst of this crisis since it erupted in the summer of 2007. You would think he'd have been ready for decisive, bold action as soon as Obama took the oath of office. Instead, he has discouraged markets with his vague generalities.
Why hasn't he persuaded the President to do away with the debilitating accounting principle of mark-to-market? Roosevelt suspended it in 1938, but it came back under the auspices of the Bush Administration. With that political pedigree, getting rid of it should be a no-brainer. More substantively, mark-to-market has been demolishing financial balance sheets with book losses. Banks have more cash than ever before, but their regulatory capital (the amount of capital required by regulators for industries like banks and life insurance) is continually being eviscerated by lawsuit-fearful auditors and stupidly aggressive bank regulators. As Brian Wesbury and Robert Stein said on Forbes.com, "The accounting rules force banks to take artificial hits to capital without reference to the actual performance of loans."....
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