Archives: February, 2010

Fed Governor Starting to Make Sense

By
Mark A. Calabria

Despite still defending the Fed’s bailouts, Fed Governor Kevin Warsh gave a speech this morning offering a few insights about reforming our financial system that seem to be lost on both Obama and Bernanke.

A few highlights:

The mortgage finance system is owed far stricter scrutiny to gather a fuller appreciation of the causes of the crisis. The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, for example, were given license and direction to take excessive risks.

One has to hope that both Bernanke and Obama are listening.  The silence of the Obama administration on fixing Fannie and Freddie is nothing short of shocking and irresponsible.  Any commitment to real reform has to include the GSEs.

Granting new powers to resolve failing firms in the discretionary hands of regulators is unlikely, in the near-term, to drive the market discipline required to avoid the recurrence of financial crises.

…Some newly-empowered and untested regulatory structure is not likely – in and of itself – to be sufficient to tackle institutions that are too-big-to-fail, particularly as memories of the crisis fade. Regulation is too important to be left to regulators alone.

I believe these two points cannot be stated more strongly:  what we need is more market discipline, rather than less.  Putting the entire weight of our financial system on the backs of our financial regulators is a crisis just waiting to happen.  Sadly the direction of both President Obama and Congress seems to be in undermining market monitoring of firms and relying solely on regulators to “get it right” – the very same regulators who were asleep at the wheel prior to the last crisis.

Topics: 
Finance, Banking & Monetary Policy

Wednesday Links

  • David Boaz debates at The Economist: Is Obama failing? “In many ways, Obama has just doubled down on George W. Bush’s policies of bailouts, takeovers, expanded Fed powers and nationalizations. In a recession he is adding debt, taxes and regulation to the burdens already felt by business.” Readers can vote and join the debate.
Topics: 
General, Government and Politics

Liberty, Even for People You Don’t Like

By
Jason Kuznicki

In a conversation about “Don’t Ask, Don’t Tell,” Peter Sprigg of the Family Research Council admitted that he wants to re-criminalize sodomy:

…which is easy for him to say, of course, because he’s unlikely to be affected by the law. As someone who is likely to be affected by the law, I’m tempted to criminalize Peter Sprigg. Liberty is never more negotiable than when it’s liberty for someone you don’t like.

What is it that I don’t like? I don’t like putting people in cages. Whenever we can reasonably avoid it, we should. Liberty means liberty even for people we think are weird, or disgusting, or immoral – provided that they do not hurt us or our own legitimate interests. Lawrence v. Texas, for which the Cato Institute filed an amicus brief, is one of the most important expressions of this idea in our time.

Once liberty applies only to the things that we like, we have abandoned the true idea of liberty entirely. From that point on, you and I, as enforcers, must cling ever more tightly to arbitrary power. If we don’t, then someone else may come along, take that power, and criminalize us. A free society leaves the misfits alone, because sooner or later, everyone is a misfit, in some way or another.

Topics: 
Law and Civil Liberties

Charters No Substitute for Private Innovation

By
Adam B. Schaeffer

I wrote about this private school in South Carolina last year. The Voice for School Choice has a new video highlighting the great work of the Eagle Military Academy, which works with many kids the public schools cannot or will not educate.

There’s a lot of talk lately about the transformative power of some charter schools, and it’s easy to lose sight of the fact that many secular and religious private schools have been saving kids all along with no public funds and little or no recognition from the elite opinion class.

We need to open up choice to these schools as well, not just public charter schools that cannot provide the breadth and depth of experiences offered by private schools.

Public charter schools are no substitute for full school choice through education tax credits.

Topics: 
Education and Child Policy

Obama Small Business Lending Fund Likely A Bust

By
Mark A. Calabria

President Obama has announced his intention to use $30 billion in TARP funds to create a new small business lending fund.  In all likelihood, this is $30 billion the taxpayers will never see returned.

First of all, the problem facing small business, outside of the massive uncertainty being created by Washington, is one of credit availability, not cost.  For those who can get credit, its quite cheap, arguably too cheap.  So if the president doesn’t intend to lower the cost of credit, the plan must be to lower the quality; using the $30 billion to cover expected credit losses.  Of course, we tried throwing lots of taxpayer money at unsustainable homeownership, is there any reason to believe throwing taxpayer money at unsustainable businesses is going to work any better?

Using TARP funds for this program is also somewhat disingenuous.  This program adds $30 billion to the deficit regardless of whether it’s funded by TARP or by Congressional appropriations.  Taking from the TARP only allows the President to keep treating the TARP as his personal slush fund.  Nowhere in the TARP legislation can you find language authorizing the use of funds to cover credit losses on new loans.  Being a constitutional scholar, the President should know very well that the spending power rests with Congress, not the President.  If we are to have a new small business lending program, it should be designed and funded by Congress, not bureaucrats at the Treasury Department.

Historically the two main sources of small business start-up funding have been home equity and credit cards.  Clearly the availability of home equity has declined.  Sadly as well, with the passing of credit card “reform” the availability of credit card lending has also declined.  If the President truly wants to help small business, then the first thing to do is ask Congress to repeal the credit card bill and then just get out of the way.

Topics: 
Finance, Banking & Monetary Policy

Look Who’s Talking Now

By
Roger Pilon

Today Politico Arena asks:

Should officials be talking about the Christmas-day bomber talking and what does it prove?

My response:

Amid growing bipartisan criticism of the Obama administration’s handling of the Christmas Day bombing, the Manhattan KSM trial, and much else in its approach to terrorism, it’s pretty clear that the White House put out the news last evening that Abdulmutallab is now talking simply to quiet that criticism.  After all, that’s a story only because Abdulmutallab had not been talking.  And why wasn’t he talking?  Because shortly after he was arrested and briefly questioned by agents with no terrorism-related expertise, he was Mirandized and lawyered up, like any common criminal – consistent with the Obama administration’s law-enforcement approach to terrorism.  And so he clammed up – and we were now put in the unseemly position of having to bargain with him to get intelligence.  If this issue were not so serious, you’d have to call the Obama-Holder operation the Keystone Cops.

Topics: 
General, Law and Civil Liberties

Why the Slow Recovery?

By
David Boaz

“Wealthy Face Higher Taxes.” That’s the headline that greeted two million American businesspeople Tuesday when they opened their Wall Street Journals. Inside, another banner head: “Big Firms Would Face Deeper Tax Bite.” Turn to the New York Times: “A Red-Ink Decade/Obama Budget Sees Years of Deficits.” The Financial Times: “Obama to target overseas tax breaks.” Investor’s Business Daily: “Higher Taxes for All in Obama Budget, $1.6 Tril 2010 Deficit.” And the Washington Post (not that many productive people get that on their doorstep): “Obama budget would spend billions more.”

And President Obama wonders why banks aren’t lending, employers aren’t hiring, and investors are holding back? As the Economic Policy Institute illustrates, this is the slowest recovery of any postwar recession.

[chart: Current downturn is far worse than any other in post-War period]

Let’s hope the Obama administration soon learns that higher taxes, more regulation, a larger share of GDP shifted to government, fears of Fed monetization of soaring debt – not to mention newspaper reports of Obama budgeteers “flipp[ing] through the tax code, looking for ideas” – can only discourage employers, investors, and entrepreneurs. Robert Higgs has cited the role of “regime uncertainty” in prolonging the Great Depression, as investors worried about what FDR might do next. Will Wilkinson points to Treasury Secretary Tim Geithner’s saying “businesses want certainty. They need certainty so they can make long-term plans today.” Unfortunately, Will says, “Creating completely irresponsible, economically chilling regime uncertainty would appear to be the basic modus operandi of the Obama administration.”

Taxes, regulation, and uncertainty – and Obama asks why businesses aren’t lending, investing, and hiring.

Topics: 
Finance, Banking & Monetary Policy, Government and Politics, Tax and Budget Policy

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