What if Steve Forbes Had Won the Election?

To the annals of contra factual history which range from Churchill's "What if Lee had won at Gettysburg", to SNL's what if Napoleon had a B-52 bomber, I have my own addition: What if Steve Forbes had won the primary and general elections in 2000? How would the world differ from the world we live in now?

Steve Forbes would not have negotiated away the supply side tax cuts in 2001. He would not have let the Democrats insist that only tax cuts for the poor and middle class be implanted immediately. He would not have agreed to defer the tax cuts of the entrepreneurial and investor class into the indefinite future. He would have (and did) recognize that we had already entered a recession before he entered the White House and would have used that fact to push the tax cuts through. The Forbes Boom would have started in 2001, not 2003. Two years of stagnation and jobs loss could have been avoided.

There would not have been a flood of excess money supply in 2003 either. The tax cuts would have made that kind of hyper stimulation through the printing press unthinkable. Even if Greenspan would have been tempted to flood the globe with dollars, Forbes would have put rhetorical (which is perfectly legitimate; the Fed is independent, but not quarantined) pressure on them to do the right thing. No cash flood means no housing bubble.

It also means no collapsing dollar, and no oil price bubble, which means no recession now.

Steve Forbes would not have signed Sarbanes Oxley. He would have rightly pointed out that Enron was a beneficiary of overregulation of financial and energy markets; that Enron gamed the regulator system to their advantage. Forbes would have vetoed Sarbox. His SEC would have jailed the Arthur Andersen partners directly responsible for the fraud, but not destroyed the global 85,000 person firm. With no Sarbox and no Enron overreaction, we would not have foisted any 'mark to market' nonsense onto financial statement preparers. The short sellers would be allowed to operate, but they would not have been allowed to write the rule book. Lehman would not have failed. The modest downturn in housing related securities (with no Fed money gusher to fill a big bubble) would have been ridden out by the vast majority of banks as had happened in the 1980s.

Steve Forbes would not have concluded that Wall Street had "gotten drunk." He would have concluded that the regulators and central bankers had slipped them a Mickey. And if they had gotten drunk, he would have prescribed AA, not prohibition. Forbes would not have waited until his sixth year to veto corrupt spending. He would not have waited until his 7th year to issue an executive order forbidding earmarks. He would have saved the Republican congress from itself.

The boom would be continuing. His chosen successor would be leading in the polls. The Dow would be rising. Unemployment would be dropping. The US would be spreading prosperity to the world right now, not financial chaos.

Mark To Market Still Lives (Unfortunately)

Mark to Market was upheld Friday.

No, it was not suspended as some media outlets had originally reported.

Yes, early Friday afternoon there were reports that the FASB, the board which determines the rules for financial accounting in the United States, had suspended the practice commonly known as 'fair value' or 'mark to market' accounting. This is false.

And still other outlets implied that although the rules were not suspended, they were nevertheless loosened somewhat. This is also false.

I talked to Neal McGarity, the helpful and gregarious spokesman for FASB, who explained that the board action today was a reaffirmation of a document released jointly by the SEC and the FASB on Sept. 30. "It's not a new stance or new material, it's cross referenced to existing material."

The problem here is that most journalists don't understand how FASB works.

The Financial Accounting Standards Board, is, well, a board. They vote on the proposals put before them. Since there had been so much confusion about the mark to market rules, the staff drafted a statement ten days ago, clarifying the existing rules. But that's not official until the board votes. Friday the board voted, and 5 to 0 they said, in essence, mark to market still applies, but where the market has broken down, financial officers may consider other factors.

In my opinion, that's not good enough.

The current environment is a mix of the storming of the Bastille and a Salem witch hunt. CFOs and auditors are going to want to be perfectly sure. After "Sarbox," the penalty for overestimation is measured in years served, not fines paid. Until the SEC suspends the rules, or failing that, provides some kind of safe harbor (a very clear set of rules which when followed keeps one out of cell block 8) the panic will continue.