The Heritage Foundation - Leadership for America

• The Killer Frost for Global Warming - Washington Times

Turn up the heat, somebody. The globe is freezing. Even Al Gore is looking for an extra blanket. Winter has barely come to the northern latitudes and already we’ve got bigger goosebumps than usual. So far the National Oceanic and Atmospheric Administration (NOAA) reports 63 record snowfalls in the United States…

• Automaker Bailout: Bad for Trade, Bad for the Economy - InsiderOnline

An important point to keep in mind about any and all bailouts: While corporate welfare is always a bad idea, the costs of such policies consist not in the transfer of wealth from taxpayers but in the less-productive allocation of resources that arises from the distortion of incentives that bailouts create…

• Oil Woes for the DOE - Adam Smith Institute

So, US crude oil production increased 182,000 barrels (or .01 percent) in 2007 compared to 2006. Good news, right? It would be, if that were not the first time production has increased since 1991, and only the tenth time that annual oil…

• Congress: Energy Prices are Falling, Please Don’t Do Anything! - Americans for Tax Reform

Take a look at the image to the left (it should open larger if clicked). Every time Congress tried a “compromise” or tried to raise taxes to lower energy costs (that backwards logic still makes my head spin), the cost of energy went up…

Great catch by Brian Faughnan over at Red State. He flags this Barney Frank interview with NPR:

But let me ask you about the first thing you said, Congressman, because you said you don’t think $25 billion is enough.

Right, I’m trying to explain to you how it works.

OK.

They get $25 billion — the federal government would be in the first position to be repaid. We will come ahead of the debt holders, the shareholders, etc. They file this plan on March 31. If, on March 31, the president does not believe that this is going to get them the viability with energy efficiency cars, they have to repay the loan; they get no more money. If they can show by March 31 a plausible way to go forward, then we would consider giving more money, again, under equally stringent conditions.

So this could be $50 billion, $75 billion, $100 billion?

Well, [insurance company] AIG, which I don’t think anyone would think was as important to the American economy as the auto industry … got $40 billion just now to make it up over $100 billion. To some extent, let’s not have a white-collar/blue-collar bias in our public policy. You know, those who say, hey, go bankrupt so you can cut back on what the unions have won — the unions have already made some concessions. But, you know, we’ve had enough anti-union activity, and enough increase in income inequality in this country. I don’t want to set a precedent that bankruptcy now is a way in which you undo what gains unions have been able to hold on to.

So there you have it. As we have repeatedly pointed out, this latest $25 billion request is not the first, and will not be the last time Detroit comes to Washington with their hand out. Throwing good money after bad in order to save high paying union jobs, only kills other more productive jobs elsewhere in the economy. The bailout parade must end. The Big Three must declare bankruptcy and reemerge leaner, meaner, and ready to compete in the 21st century

It’s hard to pick out the scariest part of the still unfolding story of how unionized state government workers violated Joe the Plumber’s privacy for political ends. The Columbus Dispatch reports today that President-elect Barack Obama supporter, donor, and director of Ohio’s Department of Job and Family Services Helen Jones-Kelley “had no legitimate agency function or purpose” for pilfering the files of Joe the Plumber. Last month the Dispatch reported that Jones-Kelley personally requested state employees to search Joe’s files after Joe publically criticized then-candidate Obama.

The Inspector General report also found that Jones-Kelley committed a “wrongful act” when she used her state e-mail account to raise campaign money for Obama. The report also faulted other agency employees for their role in the computer checks on Joe and concluded: “the circumstances surrounding the unauthorized searches are exacerbated in light of the director’s sending and receiving e-mail related to a political activity through state resources.”

Ohio State Auditor Mary Taylor has called on Democratic Gov. Ted Strickland to hold Jones-Kelley accountable: “I urge Gov. Strickland, who campaigned on the promise of running an ethical administration, to ask for the resignation or terminate Ms. Jones-Kelley immediately.” So far, Jones-Kelley has only received one month unpaid leave slap on the wrist as punishment.

Now we now how serious the left actually is about ethical government and protecting your privacy.

Bankruptcy expert and George Mason University School of Law professor Todd Zywicki makes a concise case for why GM must enter bankruptcy before the federal government gets involved:

GM (or the others, but I’ll use GM to illustrate the point) presents an unusually good case for Chapter 11 reorganization. GM is, in fact, the textbook example of what Chapter 11 was invented to do. GM almost certainly will not liquidate, and if it does, then this will almost certainly be beneficial from a social perspective because it will illustrate that the resources are better deployed elsewhere in the economy.
…
The basic idea of a financially failed enterprise is that there are economic rents or “going-concern surplus” from the current deployment of assets. The idea of a Chapter 11 reorganization is to preserve this going-concern surplus or economic rents.

GM is a classic example of a firm that looks like a financially failed rather than economically failed. We have both physical capital and human capital with high firm and industry-specific value, namely factories and uniniozed work forces, which value would be lost if those assets were redeployed. It also has at least some going-concern value in its goodwill and namebrands.

What GM needs to do is shed labor contracts, retirement contracts, and modernize its distribution systems by closing many dealerships. It appears to need new management as well. Bankruptcy gives them the opportunity to do all that.

So GM will almost certainly reorganize, as will the other car companies. GM does not look like an economically-failed typewriter manufacturer at this point, but rather a financially-failed company that needs to reorganize and go forward.

When selling his vision for health care reform to the American people, President-elect Barack Obama promised: “I will establish a new national health plan, similar to the plan available to federal employees and members of Congress, that gives every American the opportunity to buy affordable health coverage.” The Heritage Foundation has long been an advocate for organizing a national health exchange based on the same model that delivers care to members of Congress; the Federal Employees Health Benefits Program (FEHBP). The problem is that both Obama’s plan and the plan recently released by Sen. Max Baucus (D-MT) contain key differences from the FEHBP that will completely undermine its success.

Under the FEHBP, national and local private health plans compete on a level playing field for the business of members of Congress and thousands of federal government employees. The FEHBP has relatively few mandated benefits, which allows for both more choice in the types of plans available and keeps a lid on costs. The Obama plan, in particular, moves away from this model by significantly increasing the number of mandated specific benefits. This would send already rising insurance premiums through the roof. Worse, the Obama plan clearly intends to bring price controls into the health care sector. Obama promises Americans will be charged “fair” premiums and “minimal co-pays.” Presumably, Congress would define these terms. This would put the federal government in the business of deciding what constitutes a fair price and a proper co-payment for benefits and ser­vices, leading to some type of centralized rate set­ting or standardization of payments for providers. In the FEHBP, prices are market-based. No price regulation is imposed on plans or services.

Much more distressing, though, is the creation in both the Baucus and Obama plans of a government-run health care plan that would compete alongside the private plans. The FEHBP contains no such government entrant into the marketplace. The government-sponsored health exchange would naturally write the rules of competition to benefit the government plan. Imagine if baseball umpires and the New York Yankees both worked for George Steinbrenner. The Red Sox or Rays wouldn’t stand a chance. If you think a government entrant in the marketplace will not inevitably turn into a monopolistic financial disaster, then we’ve got two failed mortgage financing giants we’d like to sell you.

Responding to a campaign supporter in New Mexico this summer, Obama said, “If I were designing a system from scratch, I would probably go ahead with a single-payer system.” The Obama plan does not scrap our entire health care system in favor of a brand new government-run system, but it is definitely a deliberate first step down that path.

Quick Hits:

• The Suez Canal faces the threat of a dramatic decline in traffic as shipping companies shift to other sea routes to avoid Somali pirates.
• Small community banks have emerged as the fiercest critics of the FDIC’s plan to guarantee $1.4 trillion in bank debt.
• Despite banning key opposition candidates, Hugo Chavez is still expected to suffer losses in Venezuela’s upcoming elections.
• Argentina’s Senate approved a government takeover of that nation’s private pension system.
• Despite an inspector general report finding that Obama supporter and Department of Job and Family Services director Helen Jones-Kelley “had no legitimate reasons” to check on Obama critic Joe the Plumber, Gov. Ted Strickland (D-OH) stood by her.

Heritage Senior Research Fellow James Gattuso appeared on Hardball with Chris Matthews last night to talk with Pat Buchannan about the auto bailout. Gattuso has also written about the bailout.

 In the interview Pat Buchanan stated

Heritage is completely subsidized. … You get all this money from big fat corporations.

This, however, is not the case. According to our most recent annual report (for 2007, page 28), less than five percent of our $45.6 million in income from contributions that year came from corporate donors. 58 percent of our contributions ($26.5 million) came from individuals and 37 percent ($16.9 million) from foundations.

…We see Buchanan’s employer already has their hand in the taxpayer till to the tune of $140 billion

With Election Day not yet a month past, the Democrat’s promise of fiscal responsibility has already been ditched. Wednesday, The Hill newspaper reported:

Even the most ardent deficit hawk among House Democratic leaders says the cost of overhauling the nation’s healthcare system will be heaped on top of the snowballing federal debt, at least initially…. “Our objective is going to be [to] have a pay-go-compliant policy over the longer term,” Hoyer said in an appearance at the National Press Club. “That may not be possible in the short term, given where we are.”

This reinforces the rumor that the Democrats may do away with Pay-As-You-Go (PAYGO) budgeting rules for the next Congress. The PAYGO rules attempt to force Congress to make the same budgetary trade-offs that we make every day: If you can’t afford something, don’t buy it.

Before the Democrats took power, they were strong supporters. House Majority Leader Steny Hoyer (D-MD) pronounced in March that,

We’re absolutely committed to pay-go… The Speaker is committed to pay-go. I’m very committed to pay-go. Our caucus is committed to pay-go.

Apparently, the concept of budget trade-offs, which the Democrats were so committed to less than a year ago, no longer applies when their party is about to be in the White House.

• Ann Curry Cites Gross ‘Mis-Example’ of Climate Change - NewsBusters.org

The glacier on Mt. Kilimanjaro is melting. If you were watching NBC “Nightly News” Nov. 19 you probably would think that ice is declining because of “climate change.”…

• Auto Industry Aid Deal Reached; Waxman Ousts Dingell - Shopfloor.org

WASHINGTON (Reuters) - Four U.S. senators have reached a bipartisan agreement on a bill to assist the struggling automotive industry, the lawmakers announced in a joint statement on Thursday…

• Celebrate Coal (or, How I Just Tripled My Carbon Footprint) - OpenMarket.org

Our individual carbon footprints are a function of consumption, which, in turn, is a derivative of individual wealth. Accordingly, my carbon footprint should be small, because I am poor. As an adult, I’ve never lived in a space larger than a room, and I don’t drive…

• Russia to Cut Corporate Taxes, Washington Dithers - The Tax Foundation

File this under “What’s wrong with this picture?” Bloomberg is reporting that Russian Prime Minister Vladimir Putin has announced a sweeping economic package to “prevent the kind of financial crises that shook the country after the collapse of the Soviet Union.”…

• Peekaboo, I See a Challenge to Sarbanes-Oxley in the Supreme Court - Cato @ Liberty

An intriguing case that alleges a high-profile violation of the president’s exclusive power to appoint and remove government officials is winding its way through the courts. Free Enterprise Fund v. Public Company Accounting Oversight Board…

There are already so many good reasons Congress should deny the Big Three a bailout, but the cost it will inflict on America’s free trade leadership could be the most dire. The Wall Street Journal’s Matt Slaughter writes:

Will a U.S.-government bailout go ignored by policy makers abroad?

No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies’ U.S. employment, R&D and related activities. That would be bad for America.

Rising trade barriers would also hurt the Big Three, all of which are multinational corporations that depend on foreign markets. In 2007, GM produced more motor vehicles outside North America than in — 5.02 million, or 54% of its world-wide total. That year in China, the world’s second-largest and fastest-growing automobile market by volume, GM continued to lead in market share and became the first global auto maker to surpass the one-million mark in single-year unit sales in China.

Earlier this week, President-elect Barack Obama told a crowd of globe trotting jet setters in Beverly Hills, “The science is beyond dispute, and the facts are clear.” Obama was referring to all the doom and gloom scenarios the enviro/left spews about the dangers of global warming. Obama is a busy man these days, so he probably missed a new study in Nature Geoscience. The Australian Broadcasting Corporation reports:

Climate change may not be as severe as predicted, suggests an international study that shows current modelling of carbon dioxide emissions from soils are overestimated by as much as 20%.

The view, reported in the latest Nature Geoscience journal, is based on a study of Australian soils that finds the amount of carbon dioxide (CO2) released by Australian soils is much lower than previously believed.
…
The team found by including realistic estimates of charcoal in their climate prediction models, the amount of CO2 predicted to be released from two Australian savannah regions under a 3ºC warming scenario was 18.3% and 24.4% lower than previously calculated.

Senior Policy Analyst Dave Kreutzer discusses the economic cost of the proposed regulations of the EPA. You can make a difference. The Heritage Foundation has set up a Web site called StopEPA.com and we are encourageing everyone to visit the site and submit a comment to the EPA to let them know what you think. Time is running out. Only eight days left to make your voice heard.

UPDATE: Read the column posted by Dr. Feulner on Redstate.com

Earlier this week we documented how Treasury Secretary Hank Paulson’s erratic behavior has become perhaps the single most disruptive force in the global economy. But he is just one of many government actors throwing more uncertainty into an already volatile marketplace. Federal Deposit Insurance Corporation Chairwoman Sheila Bair has been pushing her own plan for propping up housing prices. Despite their integral role in creating this whole mess in the first place, Fannie Mae and Freddie Mac continue their home price inflation efforts as well.

Not wanting feel left out, the Federal Housing Administration also has their own mortgage relief program. It too has been largely unsuccessful: During the first month of the program (launched Oct. 1), FHA received applications from only 111 borrowers. Now they want to change the program. In defense of this change, an anonymous official told the Washington Post:

When you have a plan a day you create confusion in the marketplace. . . . We’ve got to determine if there are ways to enhance the efforts that we’ve already taken.

If only this official had stopped at “confusion in the market place” he’d be dead on. All these government new government programs, program changes, and yes, even program “enhancements” are not helping. They hurt. When no one knows how the rules of the game are going to change — and they seem to change from week to week — the rational way for business and consumers to respond to is to hunker down and wait for the storm to pass.

Failure is a part of U.S. business culture. That is why Americans feel extremely comfortable buying tickets from bankrupt airlines, electronics from bankrupt retailers, and apartments from bankrupt builders. To paraphrase a popular bumper sticker: bankruptcy happens. Bankruptcy does not have to be the end for any business. Instead bankruptcy, under Chapter 11, offers court-supervised protection from creditors so that a business can reorganize itself into a new successful form. The larger and more complicated a company is, however, the more preparation it must do before it can enter Chapter 11. In fact the executives of businesses facing tough economic times have a fiduciary duty to their shareholders and creditors to develop a bankruptcy plan. Only the most irresponsible executives would shirk this duty, and only the most conniving would do so knowingly as part of an effort to blackmail the American taxpayer. Enter General Motors CEO Rick Wagoner.

Testifying before Congress yesterday, Wagoner admitted that GM has “put virtually all effort into avoiding” bankruptcy and has not worked out a detailed contingency plan. By contrast, Chrysler CEO Robert Nardelli said his company has “looked at all aspects” of a potential bankruptcy filing and has “gone through advisers to help us think this through.” The Wall Street Journal reports:

Because of its refusal to make plans for a bankruptcy, GM is “courting a Lehman-like situation,” said a person familiar with the matter. Lehman Brothers, the storied investment bank, collapsed into a court-protected reorganization unprepared to remain in business. “They are on the train tracks and won’t get off them,” the person said.

In other words, by willfully failing to plan, Wagoner is trying to maximize the pain a GM bankruptcy would cause so that Congress is forced to act. Giving in to Wagoner’s cynical game of chicken would be a disaster for the economy. If the possibility of a federal bailout did not exist, Wagoner would have no choice but to spend the last months acting responsibly and preparing for GM’s bankruptcy. Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. By granting GM its desired bailout, the federal government would only encourage other CEOs to act as irresponsibly as Wagoner.

When examining most patents, the United States Patent and Trademark Office requires only a written description of an invention and its uses. But any applicant claiming to have invented a perpetual motion machine must also submit a working model for examination. If Congress, or the Obama Administration, grants GM its bailout, they will have created a perpetual bailout machine, one that prompts every troubled industry in the country to abandon its fiduciary duty to plan for the worst and, instead, come to Washington demanding a handout.

Quick Hits:

• All three auto executives opted to fly their company jets to the capital for their hearings this week.
• The NYPD is pressuring the Justice Department for a faster turnaround for getting warrants under the Foreign Intelligence Surveillance Act.
• The first independent investigation of the suspected nuclear site in Syria that Israel destroyed last year has bolstered U.S. claims that Damascus was building a secret nuclear reactor.
• Federal employee unions see a huge opportunity to push their agenda with Obama as president.
• Iran has now produced roughly enough nuclear material to make, with added purification, a single atom bomb.

On this date (November 19) in 1863, Abraham Lincoln gave perhaps the greatest speech in American History, the Gettysburg Address.  The text of the speech is short, less than 300 words, a fitting reminder to contemporary politicians that, sometimes, the most succinct speeches are the most meaningful.

Perhaps the brevity of Lincoln’s remarks can be explained by the only inaccuracy in the Gettysburg Address: namely the assertion that “The world will little note, nor long remember what we say here….”  In Lincoln’s view, it was the actions of the brave soldiers who fought rather than his rhetoric which conveyed the appropriate message.

In this speech, Lincoln aptly summarized the first principles of our founders.  First, he argued that America was dedicated to the proposition that all men are created equal, meaning that they are endowed with equal rights by their Creator – thus the statement that America was “conceived in liberty.”  Second, Lincoln asserted that we must devote ourselves to protecting ”government of the people, by the people, for the people.”  By this, he meant that we must defend the American tradition of self-government by republican and constitutional institutions.

The Civil War was fought to ensure that a country founded on these ideas could ”long endure.”  Today, our first principles are under assault from a long tradition of progressivism which tramples on the equal rights of the individual and undermines republican government, seeking to replace it with an unaccountable bureaucratic state.

It is up to us to study the wisdom of our founding principles, and to dedicate ourselves to the always-unfinished work of defending our American heritage of liberty and self-government.  Those who have sacrificed so much more in the past to save our first principles deserve nothing less than our full effort in these present struggles.

Popular Mechanics devotes their latest cover story to the science of ground-based interceptors. PM writes:

America’s missile shield is designed to destroy incoming ballistic warheads with interceptors. President-elect Obama’s leading contenders for the job as Secretary of Defense have this week sent signals that the next administration would continue the Missile Defense Agency program, and Obama expressed support for it during his campaign. To learn more about missile defense, PM visited an Alaskan Army base where soldiers keep defensive missiles locked and loaded in case a rogue nation makes its move. But will the system work?

Also from the story:

When an interceptor escapes the Earth’s atmosphere, its booster stacks fall away, leaving a tiny spacecraft to finish the suicide mission. This 152-pound, 55-in.-long kill vehicle hurtles through space, using lateral thrusters to steer toward a blunt-force collision with the enemy warhead. “You’ve probably heard it said that we’re trying to hit a bullet with a bullet,” says Col. George Bond, who coordinates Missile Defense Agency (MDA) operations in the Alaska region. “But this is really a brilliant bullet, backed by some of the most powerful radars in the world and a very sophisticated communication system.”

The Congressional restrictions on energy leasing in 85 percent of America’s territorial waters, which have been renewed annually since 1982, were allowed to lapse this year. They expired on September 30th, and since overlapping White House restrictions were rescinded by President Bush a few months ago, nearly all of our federally controlled waters are now open for energy leasing.

Senator Harry Reid has already implied he wants to reinstate the ban, saying “We look forward to working with the next president to hammer out a final resolution of this issue.” Not so fast, Senator Reid. Some of your colleagues don’t necessarily feel the same way you do.

Just yesterday, House Majority Leader Steny H. Hoyer of Maryland told reporters,

I don’t think there is any intent at this point in time … to return to the same position we were in” before the ban was lifted.”

While those words are encouraging, it certainly won’t be an easy path to extract 19 billion barrels of oil and 84 trillion cubic feet of natural gas. One reason is that anti-energy activists will file administrative appeals and lawsuits to block lease sales. Another problem is that the 111th Congress may not reinstate offshore drilling bans, but they may impose new restrictions that take these resources away. American Petroleum Institute’s Cathy Landry explains,

When they’re talking about ‘parameters,’ we should point out that putting arbitrary limits on development, whether that’s [prohibiting drilling within] 100 miles from shore, or whatever they’re thinking, could take some of the most promising domestic resources off the table.”

This chart, courtesy of the Institute for Energy Research, reaffirms Landry’s statement.

API’s recently released primer, Policies for America’s Future: Restoring Our Economic
Strength and Shaping Our Energy Future, is a thorough, informative guide on accessing oil and natural gas in the United States and offers some good policy recommendations. Check it out here.

• Obama Should Back Missile Defense - DC Examiner

During the campaign, Barack Obama was ambiguous, at best, on whether as chief executive he would support completing development and deployment of the U.S anti-ballistic missile defense system first proposed in 1983 by President Reagan…

• Mike Bloomberg Learns That His Title Is Mayor, not Tax Tsar - The Tax Foundation

My recent Fiscal Fact on New York City’s budget shortfall erroneously claimed that the Mayor had the authority to cancel a scheduled $400 property tax rebate without any legislative approval. In fact, the cancellation would require approval from the City Council…

• The Environmental Motor Company - WSJ.com

When is $25 billion in taxpayer cash insufficient to bail out Detroit’s auto makers? Answer: When the money is a tool of Congressional industrial policy to turn GM, Ford and Chrysler into agents of the Sierra Club and other green lobbies…

• Card Check: What Do We Know Really Know? - Shopfloor.org

We’ve got a round-up of latest news and commentary on the anti-democratic Employee Free Choice Act over at the Point of Law blog, “Employee Free Choice Act, the maneuvering,” with a focus on the legal aspects…

• Recycling Gets a Hearing - NEI Nuclear Notes

Annette Carey does a good job in the TriCity Herald of covering a public meeting that occurred there covering the possibility of recycling used nuclear fuel. Sponsored by the Global Nuclear Energy Partnership (GNEP) in Pasco, Washington…

President-elect Barack Obama will probably just use the Environmental Protection Agency’s rulemaking power “as a political bludgeon” to force Congress to pass a massive energy tax, but it is still helpful to push back against the EPA’s carbon capping plans. Yesterday The Heartland Institute posted their official comment on the EPA plan, including this summary:

Much of the scientific evidence put forth by the staff of EPA in the proposed ANPR and its supporting Endangerment Technical Support Document has taken the melodramatic form of climate alarmism without the balance of scientific and economic rationale that should have equal weight in determining any environmental policy undertaken by the Environmental Protection Agency or the U.S. government with such a dramatic impact on U.S. economic and energy security. There appears to be a significant omission of climate science data published after 2006 as well as a coherent review of the opposing views in the scientific literature. This is in violation of the Information Quality Act requirements.

It’s widely known that while there is some variation, in most states Medicaid reimburses physicians at significantly lower rates than private insurers. As we’ve previously highlighted, research indicates that these low rates of payment affect physicians’ decisions to treat Medicaid patients.

While low reimbursement is a serious problem in Medicaid that ultimately compromises access and thus quality of care for those receiving public assistance, a new study published yesterday by Health Affairs finds that administrative burdens—in particular payment delays— can also have a significant effect on physicians decisions to accept Medicaid patients.

In the words of Health System Change Senior Fellow Peter Cunningham (coauthor of the study with Ann O’Malley), here’s the key take-away:

Medicaid payment rates matter, but the hassle factor also matters, and this study strongly suggests that higher Medicaid fees won’t have the desired effect of increasing access if physicians have to wait months to get paid.

Reporting on Fannie Mae’s and Freddie Mac’s new program to reduce monthly mortgage payments for those people who have missed at least 90 days worth of payments, The San Francisco Chronicle’s Kathleen Pender reports:

Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.

“This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”

How many people will take advantage of this once-in-a-lifetime opportunity? One study shows that as many as 20% of homeowners in the California’s Bay Area owe more  than their home is worth. That’s a lot of morons who may soon get wise to the government give away. And what happens when all these people take the government up on their offer? Financial Times reports:

Most mortgage securities on banks’ books are now marked at a fraction of their par value. Analysts and bankers had been hoping the worst was over, but recent events have called that assumption into question, raising the prospect of further writedowns – on top of the $1,000bn made by global institutions. “The unintended consequences of a series of government actions are putting further pressure on the valuation of mortgage assets,” a senior US banker said.

Wall Street executives estimate the Treasury’s U-turn on using the Tarp and efforts to modify loans had caused a fall of about 5-10 per cent in the value of some mortgage assets. An index of subprime mortgage derivatives, the Markit ABX index, fell 17 per cent in the past week.