Cain Charges Are Clearly Vague

We all know that Herman Cain is strongly denying the sexual harassment charges written up in the Politico story. And he has said that he was falsely accused while at the National Restaurant Association.

But there’s a sentence in the Politico story that I wanted to point out to everyone. It makes no sense at all: “There were also descriptions of physical gestures that were not overtly sexual but that made women who experienced or witnessed them uncomfortable and that they regarded as improper in a professional relationship.”

What does this mean?

The gestures weren’t overtly sexual, but the women were uncomfortable and believed the gestures were improper in a professional relationship. These are all second-hand testimonies from “close associates” of the women accusers, but I don’t know what standards are being talked about.

I mean, based on this sort of thing, anybody could think anything about almost anything. I’m not blasting the Politico people per se. I just don’t understand the meaning of what they’re reporting.

Basically, if Herman Cain faces new and additional charges, I guess he’s gonna have a big problem. But right now this is just too vague for me. It may well be that it was cheaper to send the women packing with a settlement than go through a long hearing with huge legal fees. I just don’t know.

But with so many of Cain’s fellow board members and co-workers praising him, as Politico reported, I just don’t think there’s much behind this.

One-on-One with Charles Dallara

Fresh back from Brussels, former assistant US Treasury Secretary Charles Dallara. He is the managing director for the Institute of International Finance. He was the lead negotiator for the banks and the private creditors regarding the Greek debt.

Rick Perry: Flat Tax is 'Tax Cut for Everyone'

GOP presidential candidate Rick Perry, who unveiled his 20 percent flat tax Tuesday, said his economic plan will “lower taxes across the board” and pull back every regulation that has been implemented since the 2008 financial crisis. He also dismissed criticism that it would raise taxes on the middle class.

“This is a tax cut for everyone in this country. Those who want to pick this apart, those that want to play class warfare, that’s their business,” Perry said. “Let’s not get down in the weeds here from the standpoint of going and saying this person over here is going to get a little bit different tax.”

The Texas governor is hoping his “Cut, Balance and Grow” plan will help jump-start his fading presidential campaign. He’s now trailing four other contenders for the 2012 Republican nomination in a new CBS/New York Times poll. He stands at 6 percent, Herman Cain is leading the pack with 25 percent and Mitt Romney is in second place with 21 percent.

His plan calls for a 20 percent flat rate on individual and corporate income and has a $12,500 exemption per person. It will keep deductions for mortgage interest, charitable deductions and local taxes.

“We need to get America working,” Perry said. “We need a president who understands that the way to get this country back on track is by lowering the tax burden and particularly the regulatory climate and that’s what this plan does.”

In fact, he plans on “pulling back every regulation that’s gone into effect since 2008.” He would repeal Dodd Frank, section 404 of the Sarbanes-Oxley Act—which requires companies to provide an auditor's report on the adequacy of their internal controls—and “Obamacare.”

“Let me tell you, if you do just those things, put this flat tax in place and the stock market would go through the roof,” he said. “But more importantly, there are going to be a lot of people who don’t have a job today that will have one.”

Perry also vowed that his economic plan, which cuts government spending and overhauls the Social Security program, will balance the budget by 2020.

And if you don’t like the flat tax, you can stay in the old system, he said.

As for his rivals, Perry dismissed Herman Cain’s 9-9-9 plan, saying the new sales tax “will not happen.” He said Mitt Romney’s economic plan "nibbles around the edges.”

“We need to clearly put in a tax structure that’s flat, that’s simple, that’s fair,” he said.

What Needs to Happen in Europe

The fear level in the market is so high right now that there has to be some solution to the greater problems before we can start to look at bank stocks on a fundamental basis, Rochdale Securities’ Dick Bove said in an interview on The Kudlow Report.

Stocks suffered their worst loss in two weeks on Monday after comments from Germany's finance minister caused investors to fear Europe's solution to its debt crisis may not come fast enough.

The solution, Bove said, starts with the recapitalization of European banks.

“The problem is you cannot resolve the Greek problem without debt forgiveness and you can’t give Greece debt forgiveness unless you allow the banks to writedown the Greek debt,” he said. “And you can’t allow the writedown of the Greek debt until you get equity capitalization of those banks.”

And that equity recapitalization has to come from the private sector, he added.

“I’m taking about the private sector putting the money into those banks to rebuild the capital similar to what happened in the United States in the last crisis here in 2008 and similar to happened in the United States in the late 1980s, early 1990s,” Bove said.

Once that debt forgiveness happens, he said, the Europeans can start to rebuild their economies.

One-on-One with Governor Rick Perry

I had the pleasure of interviewing Gov. Rick Perry last night on The Kudlow Report. The GOP presidential hopeful said he wants to dramatically increase oil and gas exploration and in the process create more than a million jobs.

Dexia and the European Wake-up

Yesterday’s massive 330-point stock market rally was generally linked to an expected Merkel-Sarkozy summit in a couple of weeks to nail down a new European rescue plan for bad government debt and troubled banks. But I think the more immediate cause of yesterday’s rally was the news that European leaders are rescuing the underwater bank Dexia. This bank-rescue mission looks to me like a new model to save all the European banks from the risk of catastrophic meltdown and contagion.

There are some key principles in the rescue -- nationalization, good-bank/bad-bank breakup, asset sales, and long-term guarantees of bank deposits and liabilities -- that could make Dexia a seminal event if it is saved. And it appears as though the authorities are road-testing the rescue as a model for bigger banks that may be in deeper trouble.

I am especially interested in the deposit and liability guarantees. I think these will be part of a big Euro-TARP capital-injection program based on the EFSF rescue fund of the ECB and IMF. In other words, like the FDIC, Treasury, and Fed guarantees of all bank and money-market funds in late 2008, the Europeans may do likewise as Greece defaults. The rescue funds will then support the banks, probably inject some debt capital or preferred shares, and then with those guarantees have the banks raise private-equity capital in the marketplace as soon as possible.

Dexia looks to me like the first example of the European wake-up. As such, it triggered a big bank-stock rally which led to the overall market rise.

One thing I don’t favor is a bailout of the sovereign countries. Greece should default, at least in a structured way, with large bond haircuts. Portugal, Italy -- they should not be bailed out. But the banks will have to be bailed out, as distasteful as that may be, in order to avoid a global catastrophe.

This is where the troika support is necessary, and the principle of guaranteeing all deposits and liabilities will be very helpful.

A final thought: I am persuaded that the ECB should cut rates and move to quantitative easing as part of the solution to the deep financial stresses that are pulling down the European economy. And I have a sneaking suspicion that Ben Bernanke will move to QE if the ECB does, even though it hasn’t worked up to now. Maybe this talk of pouring in money to raise nominal GDP will be the Fed’s new raison d’être.

But if the ECB runs a big QE to pump in liquidity (following the Bank of England), then the dollar is going to keep shooting up, imparting deflationary pressures on the U.S. economy that we cannot afford.

Whether Bernanke thinks in these terms remains to be seen.

One-on-One with Jack Welch

Yesterday I spoke to the legendary Jack Welch, former Chairman and CEO of GE. In addition to his comments on a variety of issues, I began asking Mr. Welch about the very sad passing of Steve Jobs. Take a listen:

One-on-One with Bank of America's Brian Moynihan

I had the chance to sit down with Bank of America CEO Brian Moynihan yesterday at the Washington Ideas Forum. We cover a lot of ground. Take a listen:

Chris Christie's Decision

So, Gov. Chris Christie gracefully, elegantly, and forcefully decided to stay out of the race.

Fortunately, the logic was consistent with past statements these many months that he has a job to do in New Jersey, he can’t leave that job unfinished, and he’s not going to walk away from the people who elected him. He has a loyalty to the state of New Jersey.

In the end, he said, “Now is not my time.”

No one will know that for sure, but if that’s what the governor believes, then he is right. I think he showed a lot of character in his news conference. And Chris Christie is full of good character.

Also, he continues to criticize President Obama. Christie said he has failed the leadership test. On the attack, Christie said, “Make sure President Obama is a one-termer.”

So you can bet Governor Christie will be on the campaign trail fighting to make Obama a one-termer. He’s not going to endorse in the GOP primary yet. But he’ll be on the hustings. I go back to what I think was the key point in Christie’s Reagan Library speech: Obama’s class-warfare, soak-the-rich policies are dividing the country, demonizing success, and sending a demoralizing message.

I hope Christie keeps the drumbeat going.

Still Front End of Recession

The stronger-than-expected ISM manufacturing-index reading for September might normally suggest that the economy, at least for now, has dodged a recession bullet. After zero jobs and zero real consumer spending in August, which put the stalled economy on the front end of recession, the ISM number is the first major September reading.

But economist Michael Darda says hold the applause: Inside the ISM, new orders and order backlogs either flat-lined or declined and remain below 50 -- the DMZ recession marker on the index.

Darda believes weak data in the U.S., plus the ongoing European crisis, plus the China slowdown, plus widened corporate credit spreads and stressful financial conditions, all point to a declining economy and additional stock market drops.

Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) is also on the bear side. He has a falling weekly leading index that signals recession is inevitable. “It’s either just begun, or it’s right in front of us,” he told CNN Money.

Tough stuff.

But another deepening economic problem is a lack of confidence. Scott Rasmussen, one of the nation’s best political pollsters, also publishes important and accurate consumer-confidence indexes. On a monthly basis, he is showing a huge confidence drop of 26 percent, from 88.3 last January to 65.6 through August. His reasons? There are several.

First, the majority of Americans believe we are still in recession and that the recession is dragging on. Second, the housing market is a killer (for the economy, as well as consumer sentiment). According to Rasmussen, fewer than half believe their homes are worth more than their mortgages. Only 23 percent expect their home values to go up this year. And with the market still at fall 2008 levels, people are obviously much less well off than they used to be.

And there’s more. Today, only 29 percent rate their finances as good or excellent. The night before Lehman collapsed, 43 percent rated their finances as good or excellent.

And on the political front, while people are rejecting Obama, they are also rejecting both political parties and the entire political process. According to Rasmussen, 73 percent don’t expect any deficit reduction before the 2012 election. Folks want any deal to include mostly spending cuts, but expect it will include mostly tax hikes. And if tax hikes are agreed to, 62 percent say the money will be spent on new programs rather than deficit reduction.

On top of all that, economist Alan Reynolds reminds us that the president’s so-called jobs plan proposes large and permanent increases in the highest income-tax rates in order to “pay for” a small and temporary cut in payroll taxes. Reynolds goes on to say that permanently higher tax rates on income to pay for temporarily lower tax rates on payrolls is not stimulus by anybody’s definition.

And of course, taxing millionaires and billionaires -- especially the Warren Buffet plan to raise the minimum tax rate on capital gains -- demonizes success and makes war on capital formation. Gov. Chris Christie calls this a demoralizing message.

So for now, I’ll stay with my take: We’re still on the front end of a recession.