Here's How to End the Panic
Steve Forbes

The Bush administration must take two steps immediately to quickly halt the unending, enervating credit crisis: shore up the anemic dollar and, for the time being, suspend "marking to market" those new financial instruments, such as packages of subprime mortgages.

The weak dollar is pummeling equities, disrupting the economy, distorting global trade and giving hundreds of billions of dollars in windfall revenues--through skyrocketing commodity prices--to our adversaries such as Iran and Venezuela. Not since Jimmy Carter has the U.S. had a President so oblivious to the damage done by an increasingly feeble greenback.

The Federal Reserve can rally the markets for a day or two by finding some new mechanism through which to lend more money to banks and other financial institutions. But this is the proverbial Band-Aid for a patient who is beginning to hemorrhage.

The Administration acts as if the dollar were like the sun, its rising and falling beyond any control. Countless times experience has shown that notion to be false. The U.S. Treasury Department could buy dollars in the currency exchange markets. Our allies would gladly cooperate with such an operation; their exports are being hurt more and more. The Fed could mop up some of the excess liquidity it has created since 2004, even as it makes targeted loans to beleaguered banks and financial houses.

The other measure: The Treasury Department and the Fed should get together with the SEC, the Comptroller of the Currency and other bank regulators and announce that financial institutions for the next 12 months will no longer write down the value of exotic financial instruments (primarily packages of subprime mortgages). Instead, writedowns will occur only when there have been actual losses on those assets. If a mortgage defaults, a bank will then--and only then--recognize the loss.

It's preposterous to try to guess what these new instruments are worth in a time of panic. Such assets are being marked down to increasingly arbitrary low levels. But when a bank books such a loss, it must replenish depleted capital, even though cash flows for most financial firms are still positive. Worse, when forced by panicky regulators and lawsuit-fearing accountants to write down the value of these securities, institutions will dump assets in a market where there are temporarily few or no buyers. The result is a spiraling disaster. So let's have a time-out on markdowns until we actually have real experience in what kind of losses are actually going to occur.

These two steps would quickly end the panic. Until that happens, expect more trouble.

Iraq

The White House has announced that it will be withdrawing troops from Iraq in coming months, a consequence, it says, of the surge's success. The outgoing President, however, is making a mistake that could undermine what the new strategy has achieved--growing stability and an enormous setback to Islamic terrorism.

The withdrawals may have political appeal, but the danger is that they will put even more strain on our overstretched military in Iraq. The new strategy of cleaning out neighborhoods of insurgents and then leaving sufficient forces--ours and the increasingly better-trained Iraqis--behind to prevent the bad guys from coming back has been extraordinarily successful. But the insurgents, though badly squeezed, are still a force to be reckoned with.

Why take a chance by pulling out some of the troops? In fact, we should be increasing the size of our Army and the Marine Corps. We need more troops in Afghanistan, and we need more in Iraq to make sure the job gets done thoroughly. And who knows what new crisis in another part of the world may require U.S. forces?

One of the enduring mysteries of the Bush Administration is why after 9/11 it never truly beefed up the U.S. military, why it tried to fight the war against Islamic fanaticism on the cheap. Our troops have performed heroically, despite repeated tours of duty in Iraq and Afghanistan. Clearly many of them are paying the price of those repeated deployments in unnecessarily strained family issues. Those in the Reserves and National Guard are also paying a price in repeated absences from their civilian jobs.

The Democrats would make the Bush drawdown even more severe. Thankfully John McCain, a former career military man who currently has a son in the Marines and another attending the U.S. Naval Academy, won't make such a catastrophic mistake.

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Muslim Success Story

Kosovo, with a predominantly ethnic Albanian Muslim population, has grabbed headlines by declaring independence. Skeptics wonder if the new state can make it economically. But there's one Muslim country in the oft-tumultuous Balkans that's already doing things right: Albania. During the past two years Albania's government has enacted a number of exciting and eye-opening reforms.

On the economic front Prime Minister Sali Berisha proudly points to Albania's now having the smallest government per capita in Europe. It has enacted a 10% flat tax on both personal incomes and business profits. This rate is lower than Albania's previously low maximum rates of 23% on individual incomes and 25% on profits. Social security levies have been lowered by 31%. Tariffs with European countries have been eliminated. Government personnel has been cut by almost 30%, and the cost of procurement is down 20%. Total revenues have surged from 22% of GDP to 27%. Not surprisingly, the IMF strongly advised Albania against slashing tax rates. "So did many of our budget people," chuckled Berisha. Such advice was profitably ignored.

To make government more efficient, the prime minister initiated a program with Estonia--a pioneer in this--to bring high tech to tax collection and government contracts.

Foreign direct investment--albeit from a low base--is growing impressively, having tripled in 2006 and nearly doubling again in 2007.

Albania boasts a plethora of minerals, including chrome, nickel and iron, and has an abundance of freshwater from the surrounding mountains. The government is promoting tourism, claiming its coasts are more beautiful than those of Bulgaria and the Riviera.

Albania is vigorously pursuing membership in NATO, figuring that would give foreign investors more confidence in investing in this once isolated and poverty-stricken country. It is also strengthening ties with the EU. The government has made a successful, vigorous attack on pervasive corruption and crime, including the trafficking in women for Europe's burgeoning prostitution market. As Prime Minister Berisha pointed out, "Corruption was almost an industry." The nation's prosecutor-general was dismissed for insufficient zeal and not tackling organized crime. Berisha's government has, impressively, been going after members of the prime minister's ruling coalition.

The government has worked to make it easier to do business in Albania, instituting a "one-stop shop" for registering a business. Education is also being emphasized, particularly by the private sector.

Since the fall of communism, Albania has been a stalwart U.S. ally, even supplying troops to help us in Iraq. Its economic and anticorruption successes are models for other Muslim nations.

Spitzeresque Pitch

The Dustice department is targeting roger clemens for criminal investigation for allegedly lying before a congressional committee in February. When will this ghastly farce end? It's no coincidence that two players who could face jail time in the steroids scandal are among the game's most disliked figures. They are not being pursued because they used steroids; prosecutors hope to nail both of these men on perjury charges.

The rule of law is being distorted like a pretzel here. Other, less unpopular players either weren't questioned or were given a pass. If Congress was serious about the use of performance-enhancing drugs, it would have questioned every player, trainer, owner and top baseball union official. Baseball Commissioner Bud Selig would have been asked--under oath--what he knew and when, as well as what rumors he had heard.

Major League Baseball didn't even get around to testing players until four years ago. The steroid controversy is riddled with hypocrisy. After the disastrous 1994--95 baseball strike Major League Baseball collectively averted its eyes from the players' growing drug use because bulked-up bodies meant more home runs. Selig made no real effort to ban powerful performance enhancers, and union leaders vigorously resisted any kind of testing.

Two years ago, to mollify critics, Selig contracted former Senator George Mitchell to conduct an investigation. Mitchell is a director of the Boston Red Sox, so it came as no surprise that his report named twice as many Yankees as Red Sox players. His list of suspected players was acknowledged to be woefully incomplete. Moreover, Mitchell refused to release the supporting documents.

Selig had already sullied his own reputation. When he initially became baseball commissioner he retained his financial interest in the Milwaukee Brewers. Allegedly to enhance the team's value he had it transferred from the American League to what he felt was the more lucrative National League. That's why the National League has 16 teams and the American League 14. Not content with that bit of self-dealing, Selig then tried to force the Minnesota Twins out of business, knowing the Twins competed with the Brewers for fans in that part of the country.

The entire steroids affair is an ethical and moral disgrace. Baseball should appoint a new commissioner and the players union a new leader. Testing for banned substances--which should include blood samples, not just urine samples--should be more frequent and truly unannounced. And investigations of past usage and prosecutions connected with them should cease.

The affair is also emblematic of prosecutorial excesses, of too quickly seeking to appease an anxious, angry crowd's cry for blood when things are going wrong or people feel the world is spinning out of control. From Eliot Spitzer's grossly abusing his public powers (behavior sadly imitated by numerous other state and local officials), to the Justice Department's trying to make it impossible for accused executives to get proper defense counseling, to Congress' grandstanding with demagogic hearings to inflame and win favor with the public, the rule of law and that essential sense of proportion are being shredded.

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