Midterm Impact on Financial Regulation

With Republicans taking the majority (but far short of control at 60) in the Senate and increasing their majority in the House, the regulation of our financial markets may see renewed attention, with particular focus on reforming Dodd-Frank. My former employer Senator Richard Shelby takes the Chair on the Senate Banking Committee, while Congressman Jeb Hensarling retains his leadership role on House Financial Services.

In my nearly twenty years following financial services, we have not had two chairmen more skeptical of government oversight of our financial markets. While neither could be called “libertarian,” both are suspicious of big government as well as big finance.  Both agree that “Too Big To Fail” is a real issue and one created by the actions of government, not the market.

Sen. Shelby, for instance, has repeatedly said “no one is too big to fail” - what he means here is that no company should be getting a bailout.  It was for that reason he led the charge in the Senate against the TARP, and also for that reason he voted against the Chrysler Bailout in 1979.  Shelby also led the efforts to reform Fannie Mae and Freddie Mac, warning years before their failure of the various flaws inherent in a mortgage model of privatized gains and socialized losses.  Shelby also tried to bring more competition to the credit rating agencies, passing legislation in 2006 to reduce barriers to entry in that market.

The above, however, should not be read to overstate the case.  Both Rep. Hensarling (who apparently had a subscription to the Cato Journal in college) and Sen. Shelby would like to see the federal safety net behind our financial markets reduced, allowing a greater role for market discipline.  Perhaps even more rare in D.C., they both believe their chairmanships come not just with privilege but great responsibility.  If it were simply up to these two to agree, I have confidence that our system of financial regulation would be greatly improved, reducing bailouts and increasing stability.  

But it isn’t up to these two. There are numerous protectors of the status quo in both major political parties.  Both would also have to reach agreement with the Obama Administration, which seems quite comfortable with bailouts and regulatory discretion.  Ultimately, the many obstacles our Founding Fathers wisely put in place for legislation will prove too high for Shelby and Hensarling to implement all but modest reform.  

But at least financial regulation is unlikely to get any worse.

The 2014 Marijuana Ballot Initiatives

In yesterday’s election, Alaska (52-48%), Oregon (54-46%), and the District of Columbia (69-31%) all passed ballot initiatives that legalize marijuana under state (district) law.  This comes on top of the 2012 legalizations in Colorado and Washington.

Florida’s medical marijuana law failed, but only because it was a constitutional amendment and therefore needed 60 percent support to pass; 58 percent of voters endorsed the measure.

Two big tests remain for marijuana legalization. In 2016, another 5-10 states will consider legalization (plausibly Arizona, California, Delaware, Hawaii, Maine, Maryland, Massachusetts, Montana, Nevada, New York, Rhode Island, and Vermont).  If legalization is successful in most of these states, the pressure for federal legalization will ramp up.

In January 2017, the country will have a new president. That person could order the Attorney General to enforce federal prohibition regardless of state law. That seems unlikely if more states legalize and public support expands.

But until federal law explicitly legalizes marijuana, the risk of interference continues.

Every Middle East Mistake Causes the United States to Intervene Again

Washington again is at war in the Middle East. Unfortunately, pressure for military intervention will grow with Republican control of the Senate.

The likely result of any new conflicts will be similar to America’s past interventions. The United States will be intervening again in a few years to try to clean up the mess it is creating today.

The United States is not bombing the Islamic State out of necessity. Rather, Washington is acting in response to past mistakes. ISIL exists only because the Bush administration invaded Iraq.

The Obama administration’s decision to attack the Islamic State makes no policy sense. So far, ISIL has focused on creating a quasi-government in the Middle East and has not targeted America.

Of course, the Islamic State killed two U.S. citizens who fell into its hands in truly monstrous behavior. But these murders are no different than similar barbarities committed by others around the globe. Such personal tragedies are no reason to go to war.

If successful in creating a viable “caliphate,” ISIL’s leaders might turn towards terrorism, but doing so would risk their quasi-state by bringing America’s wrath down upon it. Moreover, Iraq demonstrated the foolishness of launching preventive wars based on fantasies disguised as forecasts. The United States is more likely to turn the Islamic State to terrorism now by making war on it, encouraging it to retaliate.

Perhaps the worst aspect of Washington’s policy is absolving nearby states of their responsibility to destroy ISIL. These countries will not act if the United States bails them out.

Harry Reid’s Nuclear Implosion

How sweet it is. Less than a year ago—on November 21st, to be exact—Harry Reid went nuclear. As he’d threatened, in order to get a few of President Obama’s D.C. Circuit Court nominees past a Republican filibuster—staged because that court for years had had more judges than its workload required—Reid unleashed what had come to be called “the nuclear option.” He ended the availability of the filibuster for most executive branch nominations, not by the two-thirds vote that Senate rules had long required but by a simple majority. With yesterday’s mid-term election results now in, it looks like Reid will have enjoyed his win for less than a year. As I wrote at the time, here, here, and here, stating the obvious, what goes around comes around.

Not that he didn’t get some substantive results over that short period, mind you: After a D.C. Circuit panel struck a major blow against Obamacare in July, for example, followed only hours later by a Fourth Circuit decision going the other way, thus setting up a circuit split suited for Supreme Court resolution, the full DC Circuit, on which Obama’s new appointees were now sitting, vacated the panel’s decision just six weeks later, thus removing the circuit split. The Supreme Court is likely to take up the issue in time in any event, as other circuits weigh in on it. But timing is important on a matter like this. We’ll see.

The larger issue, however, is that there will be other nominations over the next two years, and not only for life-time appointments on our federal courts. There is, for example, a looming vacancy at the Department of Justice: Attorney General Eric Holder has said he will stay on until his successor is confirmed. Among those under serious consideration for that post is one Thomas Perez, whose stints as the current secretary of labor and, before that, as assistant attorney general for civil rights have raised enough concerns to keep the new Republican Senate Judiciary Committee’s staff occupied for some time.

And where will those remaining Democratic senators who voted for Harry Reid’s nuclear option be sitting? Why on the minority side, watching Republicans enjoy their newly acquired power not only to hold and control hearings but, should a Republican win the White House in 2016, to confirm nominees by the vote of a mere majority—all because of Harry’s hubris. But it wasn’t Harry’s alone. As the Wall Street Journal editorializes this morning, after his victory speech following his 2012 re-election, President Obama walked off the stage and made separate calls to Nancy Pelosi and House Democratic campaign chairman Steve Israel, telling them “he would spend the next two years helping Democrats retake the House in 2014.” In politics as in life, hubris has its price. We will now have a proper vetting of the president’s nominees, and that is good.

The Endangered Species Act Isn’t Meant to Ignore the Human Species

While California endures its worst drought in a century, a small, finger-sized fish with no known redeemable qualities, the delta smelt, has become the centerpiece of extensive litigation. The U.S. Fish and Wildlife Service (FWS) classifies the delta smelt as “threatened,” and since 2008 it has said that large amounts of water should not be pumped out of the delta smelt’s habitat—the wetlands north of San Francisco—and into the state’s drought-stricken central and southern regions.

That “imported” water from northern California has become vital to the state’s important agricultural business, and the FWS’s decision has substantially harmed California’s farms, farm-laborers, and millions of others dependent on the water supply. In short, in order to protect the 3-inch fish, the state has pumped billions of gallons of water straight into the ocean rather than using it to help California’s struggling farmers.

The farmers, represented by the Pacific Legal Foundation, filed a lawsuit in response to these draconian measures to save the irrelevant fish. The farmers argued that the FWS should not have ignored the harsh financial and human costs of the FWS’s “reasonable and prudent alternatives” to pumping water out of the northern wetlands. The U.S. Court of Appeals for the Ninth Circuit disagreed, holding that the FWS’s decisions deserve deference and that the “FWS is not responsible for balancing the life of the delta smelt against the impact of restrictions” on water pumping. Congress, wrote the court, has already decided that the FWS should protect endangered species “whatever the cost.”

In an attempt to get the Supreme Court to review their case, the farmers argue that the circuit court misread the history of the Endangered Species Act (ESA) and should not have ignored the economic impact of so-called “reasonable and prudent alternatives.” Cato, joining the National Federation of Independent Business, filed a brief in support of their petition. We argue that the ESA has changed since the Supreme Court ruled, in 1978, that species must be protected “whatever the cost.”

The ESA has been amended many times and now commands the FWS to take “into consideration the economic impact” of its proposals. Moreover, the 1978 case that required species to be protected “whatever the cost” has been limited by subsequent decisions.

Finally, we argue that the Ninth Circuit’s decision is in conflict with the Fourth Circuit, which in 2013, vacated an FWS determination because it failed to take into account the economic impact of the reasonable and prudent alternative. This conflict between circuits should be rectified by the Supreme Court, and the ESA should be rightly interpreted as requiring the FWS to take into account the economic impacts of its decisions.

No offense to the delta smelt, but we prefer human beings.

The Supreme Court will decide whether to take the case of Stewart & Jasper Orchards v. Jewell later this year or early in 2015.

Last Gasp of a Dinosaur?

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”


The just-released “synthesis” report from the U.N.’s Intergovernmental Panel on Climate Change (IPCC) could be the last gasp of this clumsy dinosaur. 

Containing no new science, the new IPCC offering is just a rehash of its series of Fifth Assessment Reports that have been released over the past year or so.

When the IPCC’s “science” portion of the Assessment was released last fall, it was immediately faulted for being based upon climate models which have greatly overpredicted the amount of climate change that has been occurring largely because they completely missed the slowdown of the rate of global warming that has taken place over the past two decades. The IPCC tried a few band-aid-type solutions to keep its cold blood, but they were too little, too late. With its dismal track record exposed, no one should possibly take the IPCC future projections seriously, including the folks down at 1600 Pennsylvania Avenue.

More and more, people are calling for the United Nations to render the IPCC dinosaur to the strata of history, reaching a crescendo with this “new” report.

The Synthesis Report was shaped by the climate alarmists who were enraged that the IPCC even feebly admitted that its future projections were likely on the high side of things. Instead, they demanded a strong statement from the IPCC that could be used to force fossil fuel restrictions on the unwilling (which partially explains the ham-handed  release two days before pivotal U.S. elections). So despite no new science and another year—making now 16 out of the past 16 years—in which the global average temperature has fallen beneath IPCC projections, the IPCC released what has been called its “starkest” and “most important” report yet

From The (predictable) Guardian:

“Science has spoken. There is no ambiguity in the message,” said the UN secretary general, Ban Ki-moon, attending what he described as the “historic” report launch. “Leaders must act. Time is not on our side.” He said that quick, decisive action would build a better and sustainable future, while inaction would be costly.

Ban added a message to investors, such as pension fund managers: “Please reduce your investments in the coal- and fossil fuel-based economy and [move] to renewable energy.”

Hopefully, such talk from the U.N. will spark the rest of us to get what we deserve, that is, an end to this government-funded U.N. charade claiming to represent the “consensus of scientists.”  With luck, the extinction this dinosaur will herald the extinction of all the government-funded climate change “assessments,” ushering in the rise of Homo sapiens.

Yes, Florida, the Constitution Protects Property Rights

David and Susan Kentner own residential lots along San Carlos Bay in Sanibel, Florida. Because their property is along the high-tide line, the Kentners enjoy an age-old common-law right to build docks over the water abutting their property, subject to reasonable regulation. But Sanibel passed an ordinance forbidding the Kentners and others from taking advantage of this common-law right. The city claimed that the ordinance was necessary to protect seagrass, which it called an “invaluable natural resource.”

Whether or not seagrass is invaluable, the city passed the ordinance without considering whether seagrass was actually present in the areas subject to the ordinance and whether modern technology could effectively be used to avoid harming the seagrass. Moreover, there is evidence that the city passed the ordinance in order to satisfy the aesthetic preferences of certain interest groups and to enhance the property values of other dock-holders. On top of that, in 2006 the city issued itself an exemption to build a dock in San Carlos Bay, explaining that it should be allowed to build a dock because no seagrass was found on the site.

The Kentners, represented by the Pacific Legal Foundation, challenged the ordinance on the ground that it did not substantially advance any legitimate government interest. In other words, the Kentners claimed that the ordinance violated the due-process rights to their property, which is lawyer-speak for laws that don’t have a good-enough justification. Both the trial and appellate judges held that property rights aren’t “fundamental rights” protected by due process, thus ruling that the government didn’t need a good reason to pass these restrictions. In other words, property rights simply don’t enjoy protection against irrational government regulations.

On appeal to the Supreme Court, the Kentners argue that the lower courts were mistaken in treating property rights as no-class—not even second-class—rights. In support of the Kentners’ petition to have the Supreme Court hear the case, Cato joined the National Federation of Independent Business, Owners Council of America, and Rutherford Institute on a brief arguing that the lower courts were gravely mistaken in classifying property rights as not deserving of due-process protections. The Fourteenth Amendment, after all, explicitly says that no state shall deny “life, liberty, or property” without due process of law.

Further, the Court should review the case to clarify and solidify longstanding precedents that treat property rights as on par with other rights. After all, if the government is allowed to violate property rights with no justification whatsoever, then any ordinance that confiscates, destroys, or restricts property will be simply unassailable, regardless of how unreasonable or shocking it may be. The high court should take this case to reaffirm that property rights are indeed constitutionally protected and cannot be abridged with impunity by opportunistic, corrupt governments.

The Supreme Court will decide later this year or early in 2015 whether to take Kentner v. City of Sanibel.