Monthly Archives: November 2015

“You might say, “well, the world’s private bankers could have held more capital than what their government/central bankers told them to hold.” That’s just not true, economically. No large, publicly-traded bank could hold materially more capital than their government regulators demanded,…

…because the competitive marketplace would dictate they could not produce adequate returns on capital and would therefore be pushed out of business by other bankers who would hold just enough, but no more capital. The article below downplays the bank capital issue, but the amazing reality is the world’s Too Big to Fail Banks, after all these years, are still undercapitalized to the tune of $1.2 trillion!!! Restructuring debt (so that it is clear that it will absorb losses before depositors and government guarantors like the FDIC) is a big deal. And to me it shows clearly, it was (as Greenspan said plainly in his 2009 paper “The Crisis”) the world’s central bankers (our governments), who deliberately chose to keep our banks undercapitalized, such that many would not survive a once-or-twice in a century financial crisis, without support of their sovereign governments. In other words, the bank failures and bailouts were caused by deliberate decisions by our governments/central bankers and NOT by private bankers.”, Mike Perry, former Chairman and CEO, IndyMac Bank

“Banks have been hit with another big, scary number in the battle to end “too big to fail”: $1.2 trillion. This is the headline number for how many bonds the world’s biggest lenders need to meet rules unveiled on Monday.”, Paul J. Davies, “Small Price for Banks to Combat ‘Too Big To Fail’”, The Wall Street Journal, November 10, 2015

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Heard on the Street

Small Price for Banks to Combat ‘Too Big To Fail’

European, U.S. banks should be able to meet new bond requirements at relatively little extra cost

Extra capital buffers charged for things like being globally systemically important, which for HSBC already means an extra 2.5% equity requirement, aren’t part of the calculation regarding the amount of equity and debt banks must have to cover very large losses. PHOTO: TIM IRELAND/ASSOCIATED PRESS

By Paul J. Davies

Banks have been hit with another big, scary number in the battle to end “too big to fail”: $1.2 trillion. This is the headline number for how many bonds the world’s biggest lenders need to meet rules unveiled on Monday.

In reality, however, many European and U.S. banks don’t have a big hole to fill to meet requirements for bonds that can take losses or be converted into equity. Legal changes in much of Europe, or natural replacement of maturing senior debt with bonds that are only marginally different, will get them most of the way there.

For shareholders, then, the fallout won’t be great. But there is danger if banks breach the new rules: Dividends will be automatically restricted until they are met again.

The one big surprise in the rules on Total Loss-Absorbing Capacity was that the four biggest Chinese banks no longer get an exemption, although they do have six more years than developed market lenders to meet the requirements.

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The rules are designed to ensure that any big bank can and will cover very large losses with existing equity and debt, minimizing the chances of taxpayers being called upon to bail it out.

To achieve this, banks must have equity and various kinds of bonds that amount to at least 16% of their risk-weighted assets by 2019 and then 18% by 2022. Chinese banks have until 2025 and 2028.

However, some equity doesn’t count toward this percentage. Extra capital buffers charged for things like being globally systemically important, which forJ.P. Morgan and HSBC already means an extra 2.5% equity requirement, aren’t part of the calculation.

Eligible bonds can include junior debt, such as contingent convertible bonds, and senior unsecured debt so long as it will definitely take losses before depositors and derivatives liabilities.

In the U.S. and U.K., senior bonds issued by a holding company (rather than an operating bank that holds deposits) are already mostly eligible. U.K. banks have begun issuing more debt from holding companies, while Swiss groups have created holding companies to do that job.

In Germany, where banks don’t have holding companies, new legislation will make all bank senior debt junior to depositors and derivatives. Analysts expect most other European countries to do the same.

Taking all of this into account, European and U.S. banks currently need to issue extra debt worth about $280 billion by 2019 and $455 billion by 2022, according to the Bank for International Settlements.

The four Chinese banks face a bigger challenge: They must raise $287 billion by 2025 and $378 billion by 2028.

For Europeans, the cost of this extra debt is limited: on average just 2% of forecast earnings for 2017, according to Citigroup analysts.

Ultimately, nothing can guarantee that no bank will ever be bailed out again. But these rules will help to reduce the chances dramatically—and for only a small price. That can’t be bad.

 

“Even if you had rich parents, it probably won’t be enough for your kids. President Kennedy’s father was one of the richest men in America, and his kids, Jack, Bobby, Ted, Eunice et al, had plenty of money…

…The third generation had to sell the 4.0 million square foot moneymaking Merchandise Mart in Chicago, and the fourth generation is no longer wealthy.  A recent study showed that 79% of family wealth is destroyed by the second generation, and the loss of wealth exceeds 90% after three generations.  Barron’s looked at 1880’s millionaire William Henry Vanderbilt.  His wealth was estimated to be over $300 billion in today’s dollars, yet by 1973, just two generations, not a single heir was worth even $1.0 million.”, Excerpt from a November 16, 2015 Financial Services Industry Newsletter

“I think these stats bode well for America and free market capitalism. Free and fair competition in the marketplace, even if its not perfect and needs to improve (think crony capitalism), reorders wealth more fairly and faster than any economic system I know.”, Mike Perry

 

“All of us have been frustrated trying to understand voluminous laws, rules, and regulations, and I just ran across something the remarkable James Madison and Alexander Hamilton wrote in Federalist Paper 62,…

…distributed in 1788 at the Constitutional Convention: “It will be of little avail to the people that the laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood.”  He continues on how bad it will be, “… if they be revised or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow.” It’s as if these Founding Fathers foresaw laws like Dodd-Frank 225 years ago.  The Act is over 2,300 pages and mandates over 400 regulations and 200 studies, not something Madison or Hamilton would have approved of.”, Excerpt from November 2015 Mortgage Industry Newsletter

“Whenever we read that a bank or lender has been charged with redlining, we’re immediately skeptical. Almost all mortgage loan originators are heavily if not entirely commissioned, and in all our years in and around this business, we can’t imagine a single one foregoing a commission…

…because of even the most racist views.  Yes, it’s a simplistic view, but we think it cuts to the heart of arguments that certain classes of people are denied credit strictly because of their race or ethnicity.”, Excerpt from November 2015 Mortgage Industry Newsletter

“November 12, 2015, Mr. Thomas J. Curry, Comptroller of the Currency, Subject: Appeal of FOIA Denial #2016-XXXX-F: Dear Mr. Curry: I understand Exemption 8 of the FOIA and appreciate its importance for examination reports for existing financial institutions…

…However, IndyMac Bank has not existed since July 11, 2008. IndyMac was purchased out of FDIC receivership in 2009 by private investors and merged with two other failed, financial institutions into a new financial institution called One West Bank. And recently One West Bank was sold and merged into CIT Bank. It has been more than seven years. Nothing in this 2007 examination report could possibly relate to or be of interest to CIT Bank or its regulators. The FOIA has a general presumption of mandatory disclosure. As I understand it, Congress intended the exemptions to protect against disclosure of information which would substantially harm national defense or foreign policy, individual privacy interests, business proprietary interests, and the efficient operations of government functions. And an agency has the authority to construe the exemptions as discretionary rather than mandatory when no harm would result from the disclosure of the requested information. Chrysler Corp. v. Brown, 441 U.S. 281, 293 (1979).

I believe the 12-page, 2007 Summary CAMELS report for IndyMac Bank that I requested warrants your discretion under FOIA and its spirit. The 2009 Material Loss Report on IndyMac Bank, prepared by the Inspector General, United States Treasury, has already publicly-disclosed the historical numerical CAMELS ratings for IndyMac Bank, including those related to this 2007 report. However, I believe this publicly available report was biased, inaccurate, and not prepared in accordance with Generally Accepted Government Auditing Standards (GAGAS), as it claimed. It didn’t interview management or directors and included and acknowledged the FDIC staff’s assistance, despite the fact that the FDIC itself, as receiver, could be the source of some or all of the insurance fund’s loss. This is a clear violation of GAGAS. They only reviewed loans in default and did not perform any statistical sampling that would have allowed them to draw a valid conclusion with regard to IndyMac’s underwriting standards and performance. Again, a violation of GAGAS. This report also stated that IndyMac Bank’s management did not resolve previous regulatory matters in a timely manner. This is an outright lie and any historical IndyMac Bank CAMELS report (including the 2007 summary I requested) would show it as such. Finally, they didn’t even reconcile and account for the sources of the material loss to the FDIC insurance fund, as required by law.

This biased and inaccurate 2009 Material Loss Report by the U.S. Treasury’s IG, combined with the FDIC-R’s bogus 2011 civil lawsuit against me alleging I was a negligent banker, to create a public perception of IndyMac Bank and its management that was materially false and misleading. (The FDIC-R’s suit was settled in December 2012. As part of the civil settlement, I denied its allegations and the FDIC acknowledged, that they did not allege, that I caused IndyMac Bank to fail or the insurance fund to suffer a loss. I paid no fines or penalties.) I was not a negligent banker. I was the opposite of a negligent banker.

It was wrong for the U.S. Treasury’s Inspector General to produce such a biased and inaccurate report and it was wrong for the FDIC-R to sue me with false allegations and leverage this false civil lawsuit and its personal financial risk, into a banking ban. I believe this one 12-page document will shed important new and positive light on IndyMac Bank regulator’s views and on its management. It will also show that the Material Loss Report was biased and inaccurate and the FDIC-R’s claims against me were false and frankly outrageous. Its public release might even help change the incorrect view that greedy and reckless bankers were the “root-cause” of the financial crisis. (It is changing. The truth is now being revealed almost every week, by think tanks, economists, and other financial experts.) It is a document that deserves to be in the public domain, so that others can make their own judgments. Really, everything related to IndyMac Bank and other institutions that failed during the financial crisis, deserves to be in the public domain, so that they can be read and studied and written about by anyone.” Sincerely, Michael W. Perry, Former Chairman and CEO, IndyMac Bank and Bancorp

Dear Michael Perry,
The status of your Appeal request #2016-XXXXX-AP has been updated to the following status 'Received'. To log into the PAL Application click on the Application URL below.

https://foia-pal.occ.gov

Sincerely, 
Office of the Comptroller of the Currency

“November 10, 2015, Dear Mr. Perry: This in response to your letter dated November 6, 2015, which was received in my office on November 9, 2015, for processing under the Freedom of Information Act (FOIA), 5 U.S.C. 552…

…You requested a copy of IndyMac Bank, F.S.B., Presentation of Examination Findings, Examination Date: January 8, 2007, Meeting Date March 9, 2007, Office of Thrift Supervision. Full Scope Risk-Based Examination Procedures, Holding Company Examination, Comprehensive Federal Regular Examination: Compliance Review, Safety & Soundness Review. Commonly known as CAMELS. Your request is denied in full. Examination reports and any materials that relate to the bank examination are exempt from public disclosure under subsection (b) (8) of the FOIA…If you consider any of the above to be an improper denial of your request, you may appeal such denial to the Comptroller of the Currency…”, Sincerely, Jacqueline F. England, Acting Manager, Disclosure Services & Freedom of Information Act Officer, Communications Division, Office of the Comptroller of the Currency, #2016-XXXXX-F

FINAL RESPONSE Re – 2016-XXXXX-F

“So a commitment to tolerance can coexist on campus with a commitment to free speech and open debate. What a concept.” The Wall Street Journal Editorial Board

November 11, 2015, The Wall Street Journal

Opinion

An Adult on Campus

Mitch Daniels offers a lesson to college administrators.

A view of the Purdue campus on September 26, 2015 in West Lafayette, Indiana. PHOTO: GETTY IMAGES

We’ve been wondering all week what happened to the grown-ups on American university campuses, and it appears we have a sighting.Mitch Daniels, the president of Purdue University, spoke up Wednesday about the children’s revolt at Yale and Missouri in a letter “to the Purdue community.”

It deserves to be quoted at length: “Events this week at the University of Missouri and Yale University should remind us all of the importance of absolute fidelity to our shared values. First, that we strive constantly to be, without exception, a welcoming, inclusive and discrimination-free community, where each person is respected and treated with dignity. Second, to be steadfast in preserving academic freedom and individual liberty.

“Two years ago, a student-led initiative created the ‘We Are Purdue Statement of Values,’ which was subsequently endorsed by theUniversity Senate. Last year, both our undergraduate and graduate student governments led an effort that produced a strengthened statement of policies protecting free speech. What a proud contrast to the environments that appear to prevail at places like Missouri and Yale. Today and every day, we should remember the tenets of those statements and do our best to live up to them fully.”

So a commitment to tolerance can coexist on campus with a commitment to free speech and open debate. What a concept.

“This is sensitivity but also intolerance, and it is disproportionately an instinct on the left. I’m a pro-choice liberal who has been invited to infect evangelical Christian universities with progressive thoughts, and to address Catholic universities where I’ve praised condoms and birth control programs…

…I’m sure I discomfited many students on these conservative campuses, but it’s a tribute to them that they were willing to be challenged. In the same spirit, liberal universities should seek out pro-life social conservatives to speak. More broadly, academia — especially the social sciences — undermines itself by a tilt to the left. We should cherish all kinds of diversity, including the presence of conservatives to infuriate us liberals and make us uncomfortable. Education is about stretching muscles, and that’s painful in the gym and in the lecture hall.”, Nicholas Kristoff, “Mizzou, Yale, and Free Speech”, The New York Times, November 12, 2015

The Opinion Pages

Mizzou, Yale and Free Speech

Concerned Student 1950 supporters protesting at the University of Missouri on Monday. Credit Daniel Brenner for The New York Times

Nicholas Kristof

On university campuses across the country, from Mizzou to Yale, we have two noble forces colliding with explosive force.

One is a concern for minority or marginalized students and faculty members, who are often left feeling as outsiders in ways that damage everyone’s education. At the University of Missouri, a black professor, Cynthia Frisby, wrote, “I have been called the N-word too many times to count.”

The problem is not just racists who use epithets but also administrators who seem to acquiesce. That’s why Mizzou students — especially football players — used their clout to oust the university system’s president. They showed leadership in trying to rectify a failure of leadership.

But moral voices can also become sanctimonious bullies.

“Go, go, go,” some Mizzou protesters yelled as they jostled a student photographer, Tim Tai, who was trying to document the protests unfolding in a public space. And Melissa Click, an assistant professor who joined the protests, is heard on a video calling for “muscle” to oust another student journalist (she later apologized).

Tai represented the other noble force in these upheavals — free expression. He tried to make the point, telling the crowd: “The First Amendment protects your right to be here — and mine.”

We like to caricature great moral debates as right confronting wrong. But often, to some degree, it’s right colliding with right.

Yes, universities should work harder to be inclusive. And, yes, campuses must assure free expression, which means protecting dissonant and unwelcome voices that sometimes leave other people feeling aggrieved or wounded.

On both counts we fall far short.

We’ve also seen Wesleyan students debate cutting funding for the student newspaper after it ran an op-ed criticizing the Black Lives Matter movement. At Mount Holyoke, students canceled a production of “The Vagina Monologues” because they felt it excluded transgender women. Protests led to thewithdrawal of Condoleezza Rice as commencement speaker at Rutgers and Christine Lagarde at Smith.

This is sensitivity but also intolerance, and it is disproportionately an instinct on the left.

I’m a pro-choice liberal who has been invited to infect evangelical Christian universities with progressive thoughts, and to address Catholic universities where I’ve praised condoms and birth control programs. I’m sure I discomfited many students on these conservative campuses, but it’s a tribute to them that they were willing to be challenged. In the same spirit, liberal universities should seek out pro-life social conservatives to speak.

More broadly, academia — especially the social sciences — undermines itself by a tilt to the left. We should cherish all kinds of diversity, including the presence of conservatives to infuriate us liberals and make us uncomfortable. Education is about stretching muscles, and that’s painful in the gym and in the lecture hall.

One of the wrenching upheavals lately has unfolded at Yale. Longtime frustrations among minority students boiled over after administrators seemed to them insufficiently concerned about offensive costumes for Halloween. A widely circulated video showed a furious student shouting down one administrator, Prof. Nicholas Christakis. “Be quiet!” she screams at him. “It is not about creating an intellectual space!”

A student wrote an op-ed about “the very real hurt” that minority students feel, adding: “I don’t want to debate. I want to talk about my pain.” That prompted savage commentary online. “Is Yale letting in 8-year-olds?” one person asked on Twitter.

The Wall Street Journal editorial page denounced “Yale’s Little Robespierres.” It followed up Wednesday with another editorial, warning that the P.C. mind-set “threatens to undermine or destroy universities as a place of learning.”

I suggest we all take a deep breath.

The protesters at Mizzou and Yale and elsewhere make a legitimate point: Universities should work harder to make all students feel they are safe and belong. Members of minorities — whether black or transgender or (on many campuses) evangelical conservatives — should be able to feel a part of campus, not feel mocked in their own community.

The problems at Mizzou were underscored on Tuesday when there were death threats against black students. What’s unfolding at universities is not just about free expression but also about a safe and nurturing environment.

Consider an office where bosses shrug as some men hang nude centerfolds and leeringly speculate about the sexual proclivities of female colleagues. Free speech issue? No! That’s a hostile work environment. And imagine if you’re an 18-year-old for whom this is your 24/7 home — named, say, for a 19th-century pro-slavery white supremacist.

My favorite philosopher, the late Sir Isaiah Berlin, argued that there was a deep human yearning to find the One Great Truth. In fact, he said, that’s a dead end: Our fate is to struggle with a “plurality of values,” with competing truths, with trying to reconcile what may well be irreconcilable.

That’s unsatisfying. It’s complicated. It’s also life.

A version of this op-ed appears in print on November 12, 2015, on page A35 of the New York edition with the headline: Mizzou, Yale and Free Speech

“As the Washington Post economist Robert Samuelson reported last week, a Brookings Institution study found that even if the top income tax rate were increased to 50 percent from 39.6 percent, it would cover less than a quarter of the deficit for the 2015 fiscal year, let alone generate funds for increased investment…

…If we want to invest now in more infrastructure – as we should do – and make sure we don’t overburden the next generation to pay for all the retiring baby boomers, something will have to give, or as Samuelson put it: “If middle-class Americans need or want bigger government, they will have to pay for it. Sooner or later, a tax increase is coming their way. There is no tooth fairy.””, Thomas L. Friedman, “Voters, You Can Have Everything!”, The New York Times, November 12, 2015

“I recently said on this blog that: the rich have to pay for the security of our homeland and the poor and the middle class have to pay for themselves, over their lifetimes, by borrowing when they are young (for education, for a home, for an entrepreneurial business activity, etc.) and paying it back (and paying more taxes) as they become older and wealthier. Friedman and Samuelson essentially agree.”, Mike Perry

The Opinion Pages

Voters, You Can Have Everything!

Thomas L. Friedman

I confess, as much as I am troubled by Donald Trump’s anti-immigrant, anti-free-trade tirades, I do find The Donald’s campaign strategy truly interesting. He’s not, as people say, an “anti-politician.” He’s actually caricaturing politicians. And like any great caricaturist, Trump identifies his subject’s most salient features and then exaggerates them.

In Trump’s case the feature he’s identifying is the ease with which career politicians look right into a camera and lie or embellish. Since so many politicians had come to Trump’s office seeking his money or endorsement when he was just a businessman, and told him whatever they thought he wanted to hear, he’s obviously an expert in their shtick. And so Trump has just taken the joke to the next level.

Indeed, if I were writing a book about this campaign, it would open with Trump’s Sept. 27 CBS “60 Minutes” interview. Trump touts his plan for universal health care, telling Scott Pelley, “I am going to take care of everybody.” And when Pelley asks how, Trump gives the greatest quote so far of the 2015 campaign:

“The government’s gonna pay for it. But we’re going to save so much money on the other side. But for the most [part] it’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors, with great companies — and they can have their doctors, they can have plans, they can have everything.”

I just love that last line: “They can have their doctors, they can have plans, they can have everything!

And the best part is that it was not said on “Saturday Night Live.” It was on “60 Minutes.” Poor Jeb Bush, he just can’t go that far. He’s just a standard-issue political exaggerator. (See his economic plan.) Trump is the caricature, the industrial version. That’s why you can’t tell the difference when he’s on “S.N.L.” or on “60 Minutes.”

Mario Cuomo famously said: “‘You campaign in poetry. You govern in prose.’” Trump says, in effect: That’s for normal hack politicians. I will campaign in fantasy and govern in prose. Why not?”

Given how ludicrous some of the G.O.P. presidential tax plans are, Trump seems to have started a you-can-have-everything arms race. Even Bernie Sanders is promising free tuition at public colleges, more Social Security benefits and free child care to be paid mostly by taxing the top 1 percent — no trade-offs necessary for the middle class.

And the new House speaker, Paul Ryan, who isn’t even running, has joined in. Ryan described Obama’s decision to kill the Keystone XL pipeline project as “sickening,” adding: “If the president wants to spend the rest of his time in office catering to special interests, that’s his choice to make. But it’s just wrong.”

That is truly Orwellian: At a time when the G.O.P. has become a wholly owned subsidiary of the oil and gas industry, Ryan accuses Obama of catering to special interests; he calls the president’s decision to block a pipeline to transport tar sands oil, one of the dirtiest fuels in the world, “sickening” and labels combating climate change a “special interest.” This guy belongs in the Republican debates.

Alas, though, the next president will not be governing in fantasy — but with some cruel math. So the gap between this campaign and the morning after is likely to make for one really cold shower.

Start with geopolitics. The size of the governance hole that would have to be filled to simultaneously destroy the Islamic State, or ISIS, defeat Syria’s dictator, Bashar al-Assad, and rebuild Syria, Iraq, Yemen and Libya into self-sustaining governments is staggering. And yet the cost of doing too little — endlessly bleeding refugees into our allies Turkey, Jordan, Lebanon and the European Union — is also astronomical. When the cost of action and the cost of inaction both feel unaffordable, you have a wicked problem.

Not only do the tax-cutting plans offered by the leading Republican candidates create eye-popping deficits, but some Democratic tax hike proposals don’t quite add up, either. As the Washington Post economics columnist Robert Samuelson reported last week, a Brookings Institution study found that even if the top income tax rate were increased to 50 percent from 39.6 percent, it would cover less than a quarter of the deficit for the 2015 fiscal year, let alone generate funds for increased investment.

If we want to invest now in more infrastructure — as we should do — and make sure we don’t overburden the next generation to pay for all the retiring baby boomers, something will have to give, or as Samuelson put it: “If middle-class Americans need or want bigger government, they will have to pay for it. Sooner or later, a tax increase is coming their way. There is no tooth fairy.”

And finally, with carbon dioxide levels in the atmosphere having just reached heights not seen in millennium, if we want to “manage the unavoidable” effects of climate change and “avoid the unmanageable” ones, it will surely require a price on carbon — soon.

So enjoy the fun of this campaign while it lasts, because the next president will not be governing in poetry or prose or fantasy — but with excruciating trade-offs. The joke is on us.

A version of this op-ed appears in print on November 11, 2015, on page A35 of the New York edition with the headline: You Can Have Everything!

“Mrs. Fiorina was in the ballpark when discussing Fannie Mae and Freddie Mac. But the GOP hopefuls could stand to practice explaining how liberal economic policies—not conservative principles of limited government –

…nearly brought down the nation’s financial system.”, Karl Rove, “A Good Debate, but Not for Trump”, The Wall Street Journal, November 12, 2015

Opinion

A Good Debate, but Not for Trump

He was the night’s biggest loser: full of contradiction and without depth.

By Karl Rove

Tuesday night’s Republican presidential debate was the best so far. The moderators emphasized substance and the candidates complied, most doing themselves some good—the biggest exception being Donald Trump.

Four contenders again put in fine performances: In the main debate, Sen. Marco Rubio, Sen. Ted Cruz and former Hewlett-Packard CEO Carly Fiorina; in the preliminary round, Gov. Chris Christie.

The Republican candidates on the main stage at the Nov. 10 debate in Milwaukee.

The Republican candidates on the main stage at the Nov. 10 debate in Milwaukee. PHOTO: SCOTT OLSON/GETTY IMAGES

A naturally gifted performer, Mr. Rubio came off as visionary and knowledgeable, an agent of change focused on the future. He was fluid on economics and answered a foreign-policy attack by Sen. Rand Paul with a global tour de force.

Polished by years of college debate, Mr. Cruz had the night’s best line. He said that immigration is an economic issue, and that the politics around it would “be very, very different if a bunch of lawyers or bankers were crossing the Rio Grande. Or if a bunch of people with journalism degrees were coming over and driving down the wages in the press.”

Mrs. Fiorina, who prospered in past debates but failed afterward to solidify her gains, again had sizzle. But she offered steak, too: “zero-base budgeting,” “a three-page tax code,” “a top-to-bottom review of every single regulation on the books.”

Jeb Bush went in facing the most pressure and came through, reassuring supporters with his best performance so far. He whacked Hillary Clinton for saying that President Obama’s economic policies “get an A,” declaring that a weak jobs picture, growing poverty and increasing dependency on food stamps “may be the best that Hillary Clinton can do, but it’s not the best America can do.”

Mr. Bush scored points in an exchange with Donald Trump on foreign policy by saying, “We’re not going to be the world’s policeman, but we sure as heck better be the world’s leader.” He also effectively labeled Mr. Trump’s plan to deport 12 million illegal immigrants as impossible, impractical and harmful.

Ben Carson played defense, which was more than sufficient. At the evening’s start he dismissed questions about his biography by saying, “I have no problem with being vetted. What I do have a problem with is being lied about.” He then delivered a zinger, saying that Mrs. Clinton privately told her daughter and an Egyptian official that the 2012 Benghazi attack was the work of terrorists, while publicly blaming it on an anti-Muslim Internet video. “Where I came from,” Mr. Carson said, “they call that a lie.” The crowd roared its approval.

Govs. Bobby Jindal (in the undercard debate) and John Kasich (on the main stage) were energetic. But they damaged themselves—Mr. Jindal by mocking Mr. Christie, whom he said deserved “a ribbon for participation, and a juice box”; Mr. Kasich by sounding petulant as he tried to barge into the conversation.

But the night’s biggest loser was Mr. Trump, who revealed himself as full of contradiction and without depth. He had some good lines, including on immigration: “We’re a country of laws. We either have a country or we don’t have a country.” But what he said next was nonsensical: Illegal immigrants “are going to have to go out—and hopefully they get back.” We should forcibly remove 12 million people, only to invite them back?

In addition, after arguing for months that illegal immigration pushes down Americans’ wages, Mr. Trump said he opposes raising the minimum wage to $15 an hour. Wages, he said, are already “too high,” which hurts U.S. competitiveness, adding that Americans would “have to work really hard” for bigger paychecks.

Mr. Trump’s worst moment came when he attacked the Trans-Pacific Partnership trade deal, saying that Chinese currency manipulation is “not even discussed in the almost 6,000-page agreement.” Mr. Paul did the takedown: “We might want to point out, China is not part of this deal.” Laughter from the crowd.

None of this will prove fatal. But it adds to the growing perception that though The Donald offers bluster and entertainment, he lacks what it takes to be president.

Tuesday’s debate shed light on important differences among the candidates on taxes, immigration, trade, defense and foreign policy. It also exposed a collective weakness: Republicans must have a much better answer when the Democratic nominee inevitably blames them for the 2008 financial collapse.

Mrs. Fiorina was in the ballpark when discussing Fannie Mae and Freddie Mac. But the GOP hopefuls could stand to practice explaining how liberal economic policies—not conservative principles of limited government—nearly brought down the nation’s financial system.

Mr. Rove helped organize the political-action committee American Crossroads and is the author of “The Triumph of William McKinley: Why the 1896 Election Still Matters,” outNov. 24 from Simon & Schuster.