Crisis Mode: The US Government Needs to Stop Inventing Crises That Threaten Shutdown or Default

Posted on September 27, 2011 by Bob Pozen

Yesterday, the Senate resolved its debate about offsetting disaster relief spending, averting a shutdown of the Federal Government. This dispute over a few billion dollars ended the third major political crisis of 2011 after the shutdown crisis in April and the unprecedented debt ceiling debate in July and August.

But even though this quarrel was resolved, the next crisis is only a few months away. Congress must approve its 2012 budget by November 18; per the August budget deal, Congress must find $21 billion in cuts. This is a relatively small amount—which leaves open the possibility that cultural issues could come into play, as Planned Parenthood and NPR did in the April budget fight. Furthermore, the Supercommittee’s proposal to cut $1.2 trillion over ten years will be due to Congress at about this time; it will need to be approved by December 23. In other words, we could have a prolonged crisis on our hands.
Continue reading →

A Blog for Finance Wonks and Aspiring Professionals

Posted on September 27, 2011 by Bob Pozen

Up until today, this website has served as a collection for various op-eds and other articles that I have written for publications like the New York Times and Wall Street Journal. Those articles will stay—you can find them by clicking on the “articles” tab in the menu. But now that I have a little bit more time on my hands, with only one full-time job instead of two, I have decided that it is time to start blogging.

Throughout my work, I come across interesting and thought-provoking news stories that apply to my fields of expertise, and a blog is really the best way to pass them along to you, together with my analysis. I will also occasionally provide some original analysis or ideas. These grow out of my unique role straddling the worlds of private business (as former Chairman of MFS Investment Management), academia (as Senior Lecturer at Harvard Business School), and government (through advisory roles in the Romney administration and as head of the SEC).

You should expect to see material on many issues. In the past, I’ve written about:

• Financial regulation: How should the ratings agencies be reformed?
• The mutual fund industry: How are money market funds being affected by low interest rates and new regulation?
• Tax policy: How should the tax code be reformed?
• Many other issues of public and fiscal policy: What adjustments need to be made to Social Security, and how can these pass Congress?
• Also, I should mention that I wrote an article for the HBR about personal productivity (pdf) about a year ago. That article has gotten a fair bit of play, so I’ll make sure to keep passing on my thoughts on how to become more productive, personally and professionally.

I’ll do my best to post as often as I can. I hope this blog can be helpful to policy wonks, aspiring professionals, and members of the financial industry.

How to Bring Our Companies’ Foreign Profits Back Home [New York Times]

Posted on September 19, 2011 by Bob Pozen

AS Congress starts the next round of debt ceiling negotiations, the United States Chamber of Commerce and other business groups are advocating tax relief for foreign profits of corporations based in the United States. Those profits are now subject to a 35 percent corporate tax rate, but the tax can be totally avoided as long as the United States corporations hold the profits in their accounts at foreign banks.

The current system needs reform: it generates minimal tax revenue while deterring American corporations from using their foreign profits to build facilities in the United States.

Business interests are calling for a so-called tax holiday, in which American corporations would be allowed to transfer their foreign profits to their American bank accounts at a tax rate under 6 percent for one year. Such a holiday would raise revenues and create jobs in the United States, according to the WinAmerica Campaign, a coalition of companies including Apple, Google and Pfizer.

But the last time such a holiday was tried, in 2004, it raised less than $19 billion and did not substantially increase jobs. Most of the repatriated profits went to corporate shareholders, through dividends or stock repurchases.

Read the rest at nytimes.com

Judging success in funding medical research [Philanthropy Journal]

Posted on September 7, 2011 by Bob Pozen

Many charities are funding applied medical research — trying to turn scientific discoveries into new treatments.

How can the governing boards of these charities determine whether their efforts have been successful?

It is not realistic to judge applied research on whether it produced a cure for a major disease.

But it also is not sufficient to say: “Our scientists and smart and hardworking, so continue to give them grants.”

US must learn from others’ pension plans [FT]

Posted on August 29, 2011 by Bob Pozen

The retirement system in the US today requires that Americans make lots of choices. Individuals must decide for themselves how much they will save, how they will invest those savings, how they will tap into them once they stop working – and even whether they will save for retirement at all or just rely on social security.

This laisser faire approach has worked well for some but leaves many others unprepared for retirement. Half of all US workers, many of them lower-income, don’t even have access to a retirement plan at work.

Short selling bans are a mistake [FT]

Posted on August 13, 2011 by Bob Pozen

On Thursday four European countries – France, Italy, Spain and Belgium – announced temporary bans on short selling of specified financial stocks. These bans are mistakes, as shown by the US experience in 2008; they do not prevent declines in financial stocks, but do impose significant costs on capital markets.

Download the PDF.

A debt plan Republicans can support [Washington Post]

Posted on July 20, 2011 by Bob Pozen

In the negotiations on the debt ceiling, Vice President Biden initially pushed for a $2.4 trillion deal — with $2 trillion in spending cuts and $400 billion in revenue raisers. Although President Obama recently suggested a larger deal with higher tax rates for the wealthy, Republicans have uniformly rejected that idea.