Topic: Government and Politics

Save Free Enterprise—Starting Now

As Dan Mitchell noted below, the U.S. Chamber of Commerce has launched a “Campaign for Free Enterprise” to stop the “rapidly growing influence of government over private-sector activity.” Chamber president Thomas Donohue told the Wall Street Journal that an “avalanche of new rules, restrictions, mandates and taxes” could “seriously undermine the wealth- and job-creating capacity of the nation.”

Indeed. Given the scope and extent of the Obama administration’s assaults on private enterprise — national health insurance, energy central planning, pay czars, abrogation of contracts, skyrocketing spending, and so on – free enterprise can use all the help it can get. I welcome the Chamber to the fight.

But it would be nice if the Chamber had joined the fight for economic freedom a bit earlier, say back in February when many of us were trying to stop the administration’s massive “stimulus” spending bill. That bill’s official cost is $787 billion; with interest, it would be about $1.3 trillion; and if you assume that its temporary spending increases will be extended, it will cost taxpayers about $3.27 trillion over 10 years.

Back then, Donohue had a few criticisms of the bill, but

The bottom line is that at the end of the day, we’re going to support the legislation. Why? Because with the markets functioning so poorly, the government is the only game in town capable of jump-starting the economy.

Or they might even have started defending free enterprise last fall, instead of going all-out to push the TARP bailout through Congress.

Converts to the cause of limited government are always welcome. But we might not need a $100 million Campaign for Free Enterprise if American business had opposed big government when the votes were going down in Congress. Still, better late than never.

Fed to BoA: ‘We Will Not Leave You in the Lurch’

Thursday, the House Committee on Oversight and Government Reform questioned Ken Lewis about Bank of America’s purchase of Merrill Lynch and the subsequent injection of tens of billions of taxpayer funds into Bank of America.

While much of the hearing focused on Lewis’ leadership of Bank of America, the hearing also touched upon the more important questions of government regulators pressuring BoA to purchase Merrill even after BoA realized that Merrill’s losses were greater than expected.

One of the basic tenets of sound regulation, exercised in the public interest, is that regulators remain at “arm’s length” from the entities they regulate. As defined by Black’s Law Dictionary, “arm’s length” relates to “dealings between two parties who are not related or not on close terms and who are presumed to have roughly equal bargaining power; not involving a confidential relationship.”

If anything, it appears that BoA and the federal government were in a bear hug, rather than at arm’s length. As described in Lewis’ notes on one of his many conversations about the Merrill deal with Fed Chairman Ben Bernanke, Bernanke told Lewis, “We will not leave you in the lurch.” Given the funds subsequently injected into BoA, one can say that Chairman Bernanke is at least a man of his word.

One of the significant problems arising from extensive government ownership of private entities is that in regulating those entities, the government no longer has the ability to be a neutral, objective arbitrator. Whether it is BoA or GM, government officials will come under increasing pressure to see a positive return on the taxpayer’s investment. One should not be surprised if that pressure manifests itself by government officials favoring the very companies they have invested in.

While BoA has been saved, it appears that the rule of law has been “left in the lurch.”

So-Called Stimulus Could Lead to $50 Billion of Fraud

MarketWatch reports that experts are predicting about $50 billion of fraud will result from the $787 billion pork-barrel spending bill approved by Congress earlier this year. That’s a huge amount of fraud being financed with borrowed money, but there is a silver lining to this dark cloud. Using basic math, that means only $737 billion of the so-called stimulus can be classified as waste:

Swindlers, con men, and thieves could siphon off as much as $50 billion of the government’s planned stimulus package as the money begins flooding the economy in coming months, according to David Williams, who runs Deloitte Financial Services Advisory and counsels clients on fraud prevention.

…Earlier this month, FBI Director Robert Mueller warned the nation to brace for a potential crime wave involving fraud and corruption related to the economic stimulus package. “These funds are inherently vulnerable to bribery, fraud, conflicts of interest, and collusion. There is an old adage, that where there is money to be made, fraud is not far behind, like bees to honey,” Mueller said.

The Co-op Cop-out

Faced with rising opposition to a so-called “public option” in health care reform, some Democrats are floating the idea of establishing health insurance “co-operatives” as an alternative. Opponents of a government takeover of the health care system should not be fooled.

A “co-op” can be defined as a business owned and controlled by its workers and the people who use its services, in this case presumably the people whom it insures. In that sense, government provision of some sort of legal framework or seed money to help establish health insurance co-ops seems relatively harmless but also relatively pointless. The U.S. already has some 1,300 insurance companies. Adding a few more would accomplish…what?

It is suggested that the “co-ops” would be nonprofits, and therefore would offer better service and lower costs. But many insurance companies, including “mutual” insurers and many “Blues,” are already nonprofit companies. Furthermore, states already have the power to charter co-ops, including health insurance co-ops. In fact, health care co-ops already exist. Health Partners, Inc. in Minneapolis has 660,000 members and provides health care, health insurance, and HMO coverage. The Group Health Cooperative in Seattle provides health coverage for 10 percent of Washington State residents.

If the new co-ops operate under the same rules as other nonprofit insurers, why bother?

And there’s the rub. Supporters of government-run health care have no intention of letting the co-ops be independent enterprises. In fact, Sen. Charles Schumer (D-NY) makes it clear, for example, that the co-op’s officers and directors would be appointed by the president and Congress. He insists that there be a single national co-op. And Congress would set the rules under which it operates.  As Sen. Max Baucus (D-MT) says, “It’s got to be written in a way that accomplishes the objectives of a public option.”

If a “co-op” is run by the federal government under rules imposed by the federal government with funding provided by the federal government, that is government-run health insurance by another name.

Bachus Plan a Good Start toward Ending Bailouts

Today Congressman Spencer Bachus, along with several of the Republican members of the House Financial Services Committee, offered a plan for reforming our financial system and ending future government bailouts of the financial sector

At the heart of the financial crisis has been the Federal Reserve’s willingness to invoke its powers under Paragraph 13-3 of the Federal Reserve Act to bail out firms like Bear Stearns and AIG — all without a single vote from Congress or any form of public debate. Almost 10 months after the initial AIG bailout by the Fed, there is still no plan for resolving that firm, and no strategy for recovering the taxpayers investment.

While some might pretend that the Fed puts no taxpayer funds at risk under the use its 13-3 powers, it is the American taxpayer who ultimately stands behind any Federal Reserve actions. In focusing on 13-3, the Bachus proposal rightly targets the largest, and least accountable, source of the bailouts. The Bachus proposal would require the Treasury secretary to approve any 13-3 actions and allow Congress the ability to disapprove such actions. While a complete repeal of 13-3 would be preferred, the presented reforms are a step in the right direction.

Another feature of the Bachus plan is to require large, non-financial firms to be resolved under the bankruptcy code, and not under a regime of continuing bailouts or political manipulation. Despite whatever flaws it may have, the bankruptcy process is one that is separated from politics. As we have witnessed in the recent government restructuring of U.S. auto companies, allowing Washington to resolve firms is an invitation for violating contracts and rewarding political constituencies.

The Bachus plan also addresses the two institutions at the center of our mortgage crisis: Fannie Mae and Freddie Mac. Their model of private profits and public losses has become an expensive one, with little public benefit. Any reform proposal that does not deal with Fannie and Freddie does not merit being called reform. The Bachus plan would rightly begin phasing out the privileged status of Fannie and Freddie.

Who’s Running the American Economy Now?

Who’s the top dog in American business these days? Washington, says the Washington Post:

That’s one of the main themes of this week’s Capital Connection conference put on by the Mid-Atlantic Venture Association… . This time, policy wonks and government insiders will also be there.

Reed E. Hundt, former Federal Communications Commission chairman, and Tommy G. Thompson, former Health and Human Services secretary, will be speaking, as will VentureBeat blog author Matt Marshall and GigaOm author Om Malik, two well-known technology bloggers. Washington hasn’t been a frequent stop for them in the past.

It’s just one more sign of the region’s growing clout in the business and technology world. This is where stimulus dollars are doled out, where the economic recovery is taking shape, and where regulations — many of which directly affect businesses — are being crafted and rewritten. Of course, lawyers and lobbyists are getting a great deal of business helping folks find ways to tap into stimulus money… .

Companies familiar with the Beltway culture are well-positioned to benefit from the government’s increased role in nearly every sector… .

The conference, which is open to the public for the first time, demonstrates the growing nexus between the business community and the government, said Julia Spicer, MAVA’s executive director.

“The spread between the two worlds has tightened a bit,” she said. “The economy is the real focal point” of the conference, “and the government has a definite role in that.”