American politics appears to be broken. Polarisation, excessive reliance on the judiciary to make laws, and gridlock in Washington, resulting in episodic fiscal cliffs, suggest a malaise. I've just read a piece in the American Interest by the ever-insightful Francis Fukuyama on what is wrong with American political institutions. He delves into the historical development of American politics and finds that the current problems are deep-seated. He highlights two particular problems - (a) the rise of lobbyists and special interest groups and (b) the usurpation by the judiciary of law making. Fukuyama is pessimistic about the future of American politics. According to him, the last time the US found itself with such a malaise, it took the Civil War to change the political trajectory of the country.
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...