basel III and tax cut

Basel III is kind of light on bank capital which give the financial sector a short term break. The market is rallying on the news. But is it good for the long tem health for the banking sector? We have to see. Loan demand is still very weak in U.S. and the spread is narrowing which is not very good for banks' profits. On the other hand, the loan quality is improving and loan loss provision is decreasing. I am neutral on the sector. I will buy Bank of America under 13 and sell them at high 14s.

U.S. congress is debating keeping Bush tax cuts. One question always raises heated debate is whether tax cut generate more government revenues. The conservatives say yes, and their evidences are Reagan and Bush tax cut brought more tax revenue to government. The liberal says no and the evidences cited before had more to do normal business cycle than tax cuts. My take is both of them are not honest or intellectually incompetent. There is an optimal point for tax rate to raise the most revenue. Just like you throw a ball, everthing being equal, the angle you throw determine the distance. Both zero degree and 90 degree get you nowhere. Of course the optimal point in economy is dynamic and can change over time. But my feeling is it change slowly .