Money & Politics with Larry Kudlow


  Wednesday, 20 Jan 2010 | 10:10 AM ET

Obama's TSA Nominee Withdraws

Posted By: AP

President Barack Obama's choice to lead the Transportation Security Administration withdrew his name Wednesday, a blow to an administration trying to explain how a man could attempt to blow up a commercial airliner on Christmas Day.

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  Wednesday, 20 Jan 2010 | 5:14 AM ET

Voters Send a Different Message as Republican Wins

Posted By: Adam Nagourney|The New York Times

Special elections come and go. And the party that wins the White House one year ordinarily loses seats in the next Congressional election that comes along.

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  Tuesday, 19 Jan 2010 | 3:49 PM ET

Scott Brown’s Great Tax-Cut Message

Posted By: Larry Kudlow
Stethescope and money
Stethescope and money

I know there have been a million blog posts about the Scott Brown race for the Senate. But I want to add a couple of points to the discussion.

When I interviewed Scott two weeks ago on CNBC, before any polls were out, what struck me about him was his breathtakingly clear message: low marginal tax rates, as per President John F. Kennedy, who was the first post-WWII supply-side president. There also was the pledge to vote against Obamacare, but it was so interesting to me that Scott touted the JFK tax cuts — a) because it was a Democratic tax-cut message and b) because the Ted Kennedy Democrats in Massachusetts and nationwide not only abandoned the JFK supply-side-growth message, they actively opposed it.

So here is Scott Brown appealing to tea-party Democrats, independents, and Republicans, principally by touting the last across-the-board Democratic tax-cut plan.

There are many other successful Scott Brown messages in play, including the terrorist message and the Obamacare message. But this tax-cut message — i.e., reducing marginal tax rates across-the-board for all taxpayers — really interests me as a great message.

Democrats aren’t the only ones who have lost this message. To a large extent, so has the GOP. And today, just as during the Reagan years, and reaching all the way back to JFK, the bipartisan allure of this supply-side message has virtually been lost in the discussion of the Massachusetts election.

Pundits are missing it, and so are the Republican congressional leaders. If Republicans want Democrats and independents to come back to their side, they should think about the fairest pro-growth message of them all: lower tax rates for everybody. Get out of the box of rich people and class warfare. For Democrats, that box has been a loser. But for timid Republicans always on the defensive, that box is a loser, too.

Reagan knew this, and that is why he touted JFK’s across-the-board tax cuts.

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  Friday, 15 Jan 2010 | 5:26 PM ET

Obama Rewards Losers, Punishes Winners

Posted By: Larry Kudlow
President Barack Obama
Photo by: Pete Souza
President Barack Obama

President Obama’s misbegotten bank tax is precisely the wrong policy at precisely the wrong time.

It will wind up backfiring across the board.


Because bank consumers and borrowers are the ones who will wind up paying this tax, creating an obstacle to economic recovery.

Obama is actually rewarding losers and punishing winners -- exactly the reverse of free-market capitalism.

Who’s being rewarded? Obama’s bank-tax penalty is being used to finance the failed government takeovers of GM, GMAC, and Fannie and Freddie. And let’s not forget the $75 billion failure of the so-called foreclosure loan-modification program. To this day, no one knows where that money went. But the big banks are going to be forced to finance this through a tax that will damage lending, stockholders, and consumers.

This is sheer political favoritism. Crony capitalism at its worst, with a sub-theme of bailing out Obama’s Big Labor political allies. It’s just like his bailout of the unions by exempting them from the so-called Cadillac insurance tax until 2018, all while the rest of us may have to suffer under that tax.

Speaking of political unfairness and favoritism, mortgage giants Fannie and Freddie will not pay a nickel of this tax. These government-sponsored enterprises were at the very center of the financial maelstrom, financing the government’s quotas and targets for unaffordable mortgages.

Think about this for a second. President Obama is out there bashing away at excessive bonuses. And yet Fannie and Freddie’s CEOs stand to make $6 million in the next year or two. Huh? These are big-government-owned bureaucrats. They ought to be paid like GS-18s.

Of course, the Federal Reserve, which is having its most profitable year ever, was probably the main culprit in all this, with its negative-real-interest-rate easy-money policy, which amounted to throwing red meat to a pack of sharks in the deepest waters. But this tax punishes and penalizes the biggest banks, institutions that have already met their obligations by paying down TARP, with interest, and by providing taxpayers with a tidy profit on the stock warrants they held.

Now, this is not to condone the major mistakes made by the big banks. They were overleveraged, borrowed way too much, and sold highly flawed mortgage bonds and other complex derivatives. And the banks should not be paying big bonuses for 2009 -- not for the period during which they were TARPed. That’s their biggest mistake.

However, with the banks having paid down TARP, the U.S. government should not be waging war against them. Somebody ought to tell the White House that al-Qaeda is the real enemy, not the banks.

At the same time, taxing the living hell out of the banks will not promote economic recovery and long-term prosperity.

President Obama says he wants to stop risky bets. Well look, the way to accomplish that is through higher capital requirements, stricter limits on leveraged borrowing, and an end to the policy of “too big to fail.” Across-the-board FDIC insurance assessments are a much better way of maintaining a bank safety net.

Instead, Team Obama wants to place a 15-basis-point tax on the banks, essentially layering it on non-insured bank funding. It amounts to a tax on future lending, shareholder equity value, and the consumers of bank services who will pay the tax costs passed on by the banks. It’s just like the corporate tax: Businesses don’t pay taxes, people do.

And consider this: One dollar of bank capital generally works out to around ten dollars of potential bank loans. That means this $90 billion tax proposal could very well cut off a staggering $1 trillion of future bank lending when credit demand picks up.

That’s how this works. This tax will slow down profits and capital. And the diminished capital will mean fewer loans when loan demand picks up. It’s exactly the reverse of what we need to grow our economy.

And the unfairness continues. Insurer MetLife, a bank holding company, and the regional Hudson City Bank Corp., both of which never took a dime of TARP money, will be penalized by this tax. That just ain’t fair.

President Obama’s crony politics rewards losers and penalizes winners. He is engaging in sheer, raw, left-wing, class-warfare politics. It’s yet one more reason why the Democrats are going to get clobbered at the polls come November.

Voters know a smoked turkey when they see one. Remember, you can fool some of the people some of the time, but you can’t fool all the people all the time.

Mark my words, all of this left-wing demagoguery, political favoritism, and crony capitalism will not end well for the Obama Democrats.

On CNBC.com now

Questions? Comments, send your emails to: lkudlow@kudlow.com

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  Thursday, 14 Jan 2010 | 1:39 PM ET

Can We Stop the Attack on Bankers?

Posted By: Larry Kudlow
The Financial Crisis Inquiry Commission, day two.
The Financial Crisis Inquiry Commission, day two.

The financial crisis being investigated down in Washington right now, with bankers on the hot seat amidst huge media coverage, has been over for six months now — at least. That’s one reason why the KBW bank index has recovered 140 percent over the last 10 months.

It’s important to take a hard look at the numerous causes of the crisis. There’s no question that bankers made big mistakes in overleveraging and borrowing to buy and sell various mortgage-related securities and other complex derivatives. They know it. That’s why they fessed up, almost semi-groveling, at the hearing yesterday. But the big boys have paid down their TARP, and they’ve turned a tidy taxpayer profit in the process.

So, is it possible that we can put an end to this obsessive national attack on bankers? Ultimately, the bankers will play a key part in the economic-recovery solution. Al Qaeda is our enemy. Not the bankers.

Now take a look at the following chart. It looks more complicated than it really is. What it shows is job losses during all the post-WWII recessions, two years after the jobs peak.

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  Wednesday, 13 Jan 2010 | 11:59 AM ET

Did I Say Dumb Tax Policy?

Posted By: Larry Kudlow

The S&P 500 dropped for the first time in 2010 yesterday, falling nearly 1 percent and ending a six-day New Year’s rally. You want to know why? It wasn’t China’s mild credit-tightening move to raise reserve requirements on their banks. That’s actually a good idea. It may help calm the threat of Chinese overheating. What knocked stocks down \(including a 2 percent drop in the bank index and big losses all around for the major banks\) is the new White House proposal for a $120 billion tax hike on banks.

Just look at the slaughter across the board: BofA, Citi, Morgan Stanley, Goldman, JPMorgan — all of them down 2.5 to 3.5 percent. This had nothing to do with China. What it’s all about is a ridiculous bank-tax proposal that is anti-growth, anti-capital, anti-profits, anti-shareholders, and anti-bank-lending.

The worst part about the proposal is that at the end of the day it’s going to be bank consumers who wind up paying the tax. Banks will pass the tax along.

But there are many more problems with this absurd bank-tax-hike proposal. Think of this: The U.S. government bailed the banks out with TARP. Then the banks repaid TARP last year, including the stock warrants that provided a handsome taxpayer profit from the banks. And now the government wants to tax them? In other words, help the banks get healthy, and then punish them? I don’t understand it.

And here’s yet another ridiculous part of this story: The largest banks that de-TARPed, and are regaining their health, are now, with this tax, supposed to cover the government-owned failures like GM, GMAC, AIG, and Fannie and Freddie, which are running up huge deficits because they may be on the taxpayer dole in perpetuity. In other words, the healthy banks that made good decisions and paid down TARP are now getting taxed so that the government can finance the bad actors. This makes no sense at all.

Look, the big guys have de-TARPed. Now it’s time to get off their backs. As I wrote yesterday, bankers should not get bonuses for the period in which they were TARPed . But for the new year, since the bankers met their TARP obligations, Team Obama should leave them alone. Let the bankers help the economy grow, create wealth, and create jobs.

It gets worse. On top of all this bank-tax stupidity, House and Senate Democrats now want to apply a Medicare payroll tax hike to fund Obama’s health-care plan. This would include taxing investments like capital gains and dividends rather than just wages. The wage hike is bad enough. And Obama’s health plan is bad enough. But applying this tax to investments simply raises the cost of capital, lowers the return on risk-taking, and damages prospects for economic-recovery growth.

What is Team Obama thinking?

I’ve never seen anything so dumb. No wonder stocks sold off yesterday, especially bank stocks.

If these tax hikes actually get through Congress and the White House in the weeks ahead, the stock market is going to sink no matter how good the fourth-quarter profits picture.

We cannot, and will not, tax our way into prosperity. It won’t happen.

Did I say dumb policy?

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  Wednesday, 13 Jan 2010 | 11:17 AM ET

Jobs Growth Talk About Spin, Not Substance: Lindsey

Posted By: Natalie Erlich

Government news on employment is more about spin than actual substance, Lawrence Lindsey, former director of the National Economic Council and CEO of the Lindsey Group told CNBC on Wednesday.

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  Tuesday, 12 Jan 2010 | 1:00 PM ET

Bernanke’s Days May Be Numbered

Posted By: Larry Kudlow

Will Fed Vice Chairman Donald Kohn replace Ben Bernanke?

It's certainly possible, because Bernanke currently has four Senate holds on his nomination. In other words, there may not be a vote by January 31st when his term as chairman expires.

Take a look at what Senators Judd Gregg and Chris Dodd had to say on CNBC's Squawk Box Monday morning:

Gregg: I think a point which listeners might be interested in is what happens to Bernanke’s position if he’s not confirmed by the end of January?

Dodd: By the end of January, if we don’t confirm him, then he could not serve as chairman. He could serve as a member of the board, but you’d then have to have the vice chairman become the chairman.

Bottom line is Bernanke's got trouble because of the four senators who have placed a hold on his nomination. That means a floor debate about Bernanke that will require a 60 vote cloture roll call even before they get to vote up or down on the actual nomination. In other words, they’ve got to vote on closing down the debate. So it could delay a full vote well past January 31st when Mr. Bernanke’s term expires.

A key point in all this is that many believe Donald Kohn—a brilliant economist—is nonetheless, even more dovish than “Helicopter Ben.”

Adding fuel to the flames, in yesterday's Wall Street Journal, distinguished Stanford economist John Taylor who joined me on the Kudlow Report last week, pushed back against Bernanke's Taylor Rule criticism from two Sunday's ago, when Bernanke attempted to absolve the central bank from any easy money bubble culpability earlier in the decade.

The Taylor Rule clearly shows that the Fed's target interest rate was way too low in 2002-2005. Too low, too long. In fact, real interest rates during that period were negative. As far as Wall Street trading risk and borrowing leverage is concerned—that was of course all part of the meltdown—negative real interest rates are like throwing gobs of bloody red meat to a pack of hungry sharks.

This Bernanke reconfirmation story gets trickier and trickier with each passing day. More to be revealed.

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Questions? Comments, send your emails to: lkudlow@kudlow.com

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  Tuesday, 12 Jan 2010 | 12:50 PM ET

My Solution to the Banker Bonus Brouhaha

Posted By: Larry Kudlow

I have a few thoughts concerning the burgeoning public backlash against big banker bonus announcements expected in the weeks ahead. This backlash of course stems from taxpayer fury over banks which were rescued by taxpayer-financed TARP money.

A recent Rasmussen poll revealed that 61 percent believe the government should regulate the level of pay and bonuses for company executives who were on the public dole. However, if the bailed out banks do pay their money back, then another 64 percent say the government should actually stay on the sidelines and not regulate compensation.

Here's my thought: the banks need to step up the plate, fess up, and thank the American taxpayers for their largesse. It’s a public relations move. They’ve never really done that. Taxpayers deserve a thank you. That's point number one.

Point number two: in June of last year, JPMorgan and Goldman Sachs , joined by eight other banks, all paid down TARP. So, my humble opinion is that these banks ought to receive their bonuses, whatever that number may be, for the second half of the year, but not the TARP-ed up first half of the year.

As for the other big banks like Citi, Bank of America , and Wells Fargo , they didn't de-TARP until the end of 2009. So why should they get any bonuses at all? And if they do get any bonuses, these bonuses should be minuscule.

In other words, let the banks that paid back their TARP money in June take a half-year bonus. The ones that didn’t should forego 2009, and look forward to 2010.

On CNBC.com

Questions? Comments, send your emails to: lkudlow@kudlow.com

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  Monday, 11 Jan 2010 | 3:44 PM ET

Enough Is Enough—Time to 'De-stimulate'

Posted By: Larry Kudlow

We’ve got to get America working again. That's the message in my latest column, De-stimulate .

That's right. De-stimulate. As in get rid of higher taxes, regulations, healthcare mandates, EPA mandates, spending and borrowing worries, etc, etc. This big government morass is creating so much uncertainty and confusion that even our profitable businesses are afraid to hire new workers. Why? Because government is muddying the water and making it too darn expensive. That’s the problem.

President Obama's green jobs plan announced this past Friday? It’s an outrage. $2.3 billion dollars for 17,000 jobs? Do the math. That comes to a whopping $135,000 per job! Un-be-lieve-able. We’re going to wind up paying for this flood of ineffective stimulus spending in higher taxes down the road. Let us keep our own money thank you very much.

Here’s another outrage: Stop the EPA from its new $90 billion dollar smog regulatory plan that frankly, will be infinitesimal in whatever benefits it generates. And why haven’t we reversed the ban on oil and gas drilling, with crude at $83 and retail gas edging closer to $3 bucks a gallon? We should be embarking on an all-out drill, drill, drill campaign. Guess what? That would create jobs.

My friend Steve Moore at the WSJ has been talking about tax chaos. He’s exactly right. Why don't we just lower tax rates for individuals, businesses, and capital gains? That would be real stimulus. That's the missing link, that’s the invisible hand that has worked so well, and so often in the past. But it has been flatly rejected by Team Obama.

Look, we have enough monetary stimulus from the Fed. Plenty. We have very profitable corporations. Stocks are rising. There is an economic recovery taking place right now, but it's only half a recovery loaf if more people aren't going back to work.

That is precisely why I want to get rid of the whole loaf of these anti-jobs polices pouring out of Washington. It’s time to de-stimulate.

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About Money & Politics with Larry Kudlow

  • Here at Money & Politics we still believe that free market capitalism — on the supply-side — is the best path to prosperity. Here you’ll find Larry Kudlow’s thoughts and perspective on all the hot topics moving Washington and Wall Street.

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  • Lawrence Kudlow is a CNBC senior contributor. Previously, Kudlow was anchor of CNBC's prime-time program "The Kudlow Report"

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