Malpass hits nail on head

In his most recent Forbes opinion, Bear Stearns Chief Economist David Malpass hits the nail on the head.

He points to "the uncertainty in U.S. tax rates and the scheduled tax rate increases" as underlying explanations of what ails U.S. markets here in the last months of 2007.

We agree, and point out that we sounded the same note last week in a blog post entitled "What's really troubling the market?"

While the media is full of pundits proclaiming that the "deepening credit problems" are the major issue of the moment, it is naive to think that the market has not been pricing in the current credit problems for many months.

Certainly the problem has been front-page news since the summer, and professional market participants have been making models incorporating the extent of these credit problems and write-downs for some time. It is very possible that there will be some "write-ups" later, when the damage turns out to be less severe than the more pessimistic models anticipated.

Rather, it is more likely that the forward-looking market is now looking ahead to 2008.


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