The Homa Files

Ken’s Take: Over the weekend, engaged in a family debate.  Everybody agreed that the AIG FP hedgers were scum. Rest of family thought the bonuses should be reclaimed by whatever means it takes.  Period.  I argued that once contracts are broken to allow retroactive, punitive taxation is ok’d for one group of folks, there’s no room for complaint when the guns get pointed at you.  We’ll see …

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Excerpted from WSJ, “A Smoot-Hawley Moment?”, March 23, 2009

Bottom line: The Congressional action on AIG and banks is oppressive, unjust and tyrannical.

When does a single policy blunder herald much larger economic damage?

Sometimes it’s hard to know ahead of time. Few in Congress thought the Smoot-Hawley tariff was a disaster in 1930, but it led to retaliation and a collapse of world trade.

The question amid Washington’s AIG bonus panic is whether Congress’s war on private contracts and the financial system is a similarly destructive moment.

It is certainly one of the more amazing and senseless acts of political retribution in American history.With such a sweeping assault on contracts and punitive taxation,

Congress is introducing an element of political risk to economic decisions that is typical of Argentina or Russia. The sanctity of U.S. contracts has long been one of America’s competitive advantages in luring capital, a counterpoint to our lottery tort system and costly regulation.

Meanwhile, the 90% tax rate marks a return to the pre-Reagan era when Congress and the political class behaved as if taxes didn’t matter to growth or incentives. It is a revival of the philosophy of redistributionist “justice” in the 1930s, when capital went on strike for an entire decade.

Full editorial:
http://online.wsj.com/article/SB123776465612908965.html

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This entry was posted on March 23, 2009 at 8:00 am and is filed under Financial Crisis, Obama Administration. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.