Last week Cato hosted a policy forum on “Bringing Transparency to the Federal Reserve,” featuring Congressman Ron Paul. As mentioned in CQ Politics, Rep. Paul’s bill, HR 1207, has been gaining considerable momentum in the House, with currently 244 co‐sponsors, ranging from John Boehner to John Conyers Jr. In fact, the Senate companion bill was introduced by Senator Bernie Sanders.
Fed Chairman Ben Bernanke discussed the very topic of Federal Reserve Transparency at Cato’s annual monetary conference in the Fall of 2007.
After praising moves toward greater transparency at the Fed, Bernanke argued that “monetary policy makers are public servants whose decisions affect the life of every citizen; consequently, in a democratic society, they have a responsibility to give the people and their elected representatives a full and compelling rationale for the decisions they make.”
Chairman Bernanke also goes on to argue that “improving the public’s understanding of the central bank’s objectives and policy strategies reduces economic and financial uncertainty and thereby allows businesses and households to make more‐informed decisions.” Bernanke’s full remarks can be found in the Spring 2008 issue of the Cato Journal.
Over the last two years, we have seen an almost tripling of the Federal Reserve’s balance sheet to $2.3 trillion, resulting from the bailouts of AIG and Bear Stearns and the creation of 14 new lending programs.
Our recent forum, and Rep. Paul’s bill, bring much needed debate and focus to the issue of Fed’s inner‐workings.
Little noticed in the recently enacted credit card bill was a provision prohibiting retailers and financial institutions from issuing gift cards that expired with a set time, except under certain circumstances. While card issuers had been using expiration dates to estimate and manage their liabilities, many States had been “collecting” the value of these unused cards as “abandoned property”, as discussed in today’s Wall Street Journal.
Some states have even been going after cards with no expiration date, arguing that if you leave that gift card sitting around your house or in your wallet for too long, then you’ve abandoned. What’s next, funds sitting unused in your bank account will next be considered abandoned. The States that require unused gift cards, or unused portions, to be turned over require retailer and card processors to maintain databases tracking card amounts and usage.
There is some comfort, however, in knowing that some States do allow you to re‐claim your “abandoned gift dollars,” for instance of the $9.6 million collected by New York State last year in unused gift cards, rightful owners were able to recover $2,150.
Today the Obama Administration released a 152‐page draft bill to create a new Consumer Financial Product Commission. While intended to protect against consumer confusion and reduce the likelihood of future financial crises, the proposed agency will at best have little impact and at worst contribute to the next financial crisis, with the added effect of decreased homeownership and increased litigation.
The president promises that “those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past,” The president ignores that those “ridiculous contracts” and “fine print” are the result of previous rounds of so‐called consumer protections. The disclosures one receives with a mortgage or a credit card are those mandated by some level of government. They don’t call those credit card disclosures a “Schumer Box” because they were invented by a baron of industry. In addition to the government‐mandated disclosures that have failed, are the endless amount of fine print added to protect companies from frivolous litigation. The Obama approach to that problem is to increase the amount of litigation.
If the president were serious about avoiding the next housing bubble and financial crisis, he would propose eliminating some of the various federal policies that contributed to the housing bubble. For instance, how about requiring real down payments when the taxpayer is on the hook – as with Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). Talk about bad incentives; under FHA, a borrower can put almost nothing down and if the loan goes bad, the government covers the lender for 100 percent of their losses. No wonder we had a housing bubble. In addition, the proposed agency does nothing to address the underlying causes of any type of credit default: unemployment, unexpected health care costs or divorce.
Once again, when given the opportunity to address the real flaws in our financial system, the administration chooses to appease the special interests and provide a distraction from the underlying causes of our current financial crisis.
As I mentioned yesterday, the U.S. Supreme Court surprised many people by ordering a reargument in the case of Citizens United v. Federal Election Commission. Specifically, the Court called for the parties to the case to address the question of overruling Austin v. Michigan Chamber of Commerce.
The Court decided Austin v. Michigan Chamber of Commerce in 1989. The state of Michigan had prohibited corporations from spending money on electoral speech. In the case in question, the Chamber of Commerce wished to pay for an advertisement backing a candidate for the House of Representatives. The Chamber took this action on its own and not in tandem with the candidate or his party. Paying for the ad was a felony under Michigan law.
A majority of the Court in 1989 said the Michigan law did not violate the First Amendment. However, the majority had a problem. Previous cases permitted limits on funding electoral speech only in pursuit of a compelling state interest: the prevention of quid pro quo corruption or its appearance. The Court had also ruled that independent spending by groups could not corrupt candidates.
So the majority needed a novel rationale for approving Michigan’s suppression of speech. The majority concluded that speech funded by corporations would distort the democratic process and that the state could prohibits such outlays to prevent harms done by “immense wealth.” In other words, the Austin majority tried to redefine “corruption” as “inequality of influence.” That revision had its own set of problems. Buckely v. Valeo, the Ur‐decision in campaign finance, had excluded equality as a compelling state interest justifying regulation of campaign finance.
It is easy to see why the Buckley Court had rejected equality of influence as a reason for restricting political speech. Imagine Congress could prohibit speech that had “too much influence.” But how could that be determined? A majority in Congress would be tempted to suppress speech that threatened the power of that majority. Paradoxically, the equality rationale would strengthen those who already held power while vitiating representative government. The First Amendment tries to prevent that outcome.
In last year’s decision in Davis v. FEC, the Court again rejected the equality rationale for campaign finance laws. More and more the Austin decision is looking like bad law.
Justices Kennedy and Scalia, both current members of the Court, wrote dissents in Austin. Justice Thomas has called for Austin to be overruled in other contexts. Neither Justices Roberts nor Alito is likely to vote to uphold Austin (or the relevant parts of McConnell v. FEC for that matter). But it would seem that either or both of them were unwilling to strike down a precedent without a formal hearing. That hearing will come on September 9 with a decision expected by Thanksgiving.
Almost six years after the Court utterly refused to defend free speech in McConnell v. FEC, the Roberts Court may be ready to vindicate the First Amendment against its accusers in Congress and elsewhere.
A new study of Florida’s tax credit scholarship program was announced yesterday, reporting test scores both for private school students in the program and for low‐income public school students. The report notes that scholarship kids were much more disadvantaged than even the low‐income public school students, and it wasn’t able to control for those differences, so it produced no really meaningful findings. In other words, it didn’t have the data to find out what impact the scholarships are having academically.
By reporting the unadjusted test scores (and the lack of a significant difference between them for public and private school kids) it has raised some eyebrows. Jay Greene has a good explanation of why we should just wait until the study’s author, David Figlio, has some meaningful data before getting too excited.
For me, a key point is that the scholarship kids are receiving a maximum of $3,950 while Florida public schools spent upwards of $11,150 per pupil in 2007–2008. Public schools are spending nearly three times as much per pupil and have nothing to show for it. Is Florida doing so well economically that they can afford to blow tens of billions of dollars for no reason at all? Every year? I had no idea.…
Incidentally, I calculated the per pupil spending figure myself from the published spending and enrollment data on the Florida DOE’s website. The St Petersburg Times story by Ron Matus quotes a public school figure of $7,000 per student, which is one of those make believe numbers that politicians and officials come up with that only represents a fraction of what is spent. I’d be surprised if the Times keeps reporting that number in the future, given how detached it is from reality.
The Obama administration has just carried out one of its standard rituals — choosing a new commander of NATO. But why are we still in NATO?
Reports the New York Times:
When Adm. James G. Stavridis took over the military’s Southern Command in late 2006, his French was excellent but he spoke no Spanish. Not content to rely on interpreters, he put himself on a crash course to learn the language.
Over the next three years, his fluency was measured not only in the high‐level meetings he conducted in the native tongue of his military hosts. He also read the novels of Gabriel García Márquez, the Nobel laureate from Colombia, in the original rich and lyrical Spanish.
Now Admiral Stavridis’s boss, Defense Secretary Robert M. Gates, has given him a new assignment, which starts Tuesday.
“Jim must also learn to speak NATO,” Mr. Gates said.
As the new American and NATO commander in Europe, Admiral Stavridis, 54, becomes the first naval officer appointed to a position previously held by famed ground‐warfare generals.
It is two jobs in one, as he oversees all American forces under the United States European Command and — far more important today — serves as the supreme allied commander, Europe, NATO’s top military position. He takes the NATO command as the future viability of the alliance is tested by whether he can rally members to make good on their promises to the mission in Afghanistan.
Adm. Stavridis obviously is a talented officer. Alas, his chance of winning more meaningful support from the Europeans for the mission in Afghanistan is nil. The Europeans don’t want to fight, especially in a conflict which they don’t view as their own.
But the most important question these days should be: why does NATO still exist — at least, a NATO dominated by America? No one, not even Russia, threatens “Old Europe.”
Moreover, Europe is well able to defend itself. The continent has a collective GDP more than ten times that of Russia, and even larger than that of America. Europe’s population, too, is bigger than those of both Russia and the U.S. The Europeans needed America’s military aid during the Cold War. But no longer.
What of the Eastern Europeans, who worry more about Moscow? We should wish them well, but we have no cause to threaten war on their behalf. Security guarantees should not be distributed like party favors, inexpensive gifts for friends and acquaintances alike. Rather, security guarantees should be issued to defend America. It is hard to make the argument that, say, Albania, is relevant to America’s security, let alone vital to it. Two decades after the end of the Cold War, we should start reshaping our alliance commitments to reflect our vital interest.
As my colleague Doug Bandow pointed out this morning, today’s Washington Post has an analysis about the uncertain prospects of GM ever making taxpayers whole again. It is a very similar analysis to the one I gave in this L.A. Times Dust‐Up installment four weeks ago, although I find prospects unlikely, rather than just uncertain.
If GM emerges from bankruptcy next month in accordance with the pre‐packaged Obama plan (as expected), taxpayers will be on the hook for $50 billion. That $50 billion will buy taxpayers a 60 percent stake in the company, which according to the laws of mathematics means that GM has to be worth $83.33 billion for the taxpayers to get their equity back without making a dime in capital gains or interest. In the L.A. Times, I asked:
How and when will that ever happen? At its peak in 2000, GM’s value (based on its market capitalization) stood at $60 billion. Thus, the minimum benchmark for “success” will require a 38% increase in GM’s value from where it was in the heady days of 2000, when Americans were purchasing 16 million vehicles per year. U.S. demand projections for the next few years come in at around 10 million vehicles. Taxpayer ownership of GM is something we should all get used to, and the “investment” is only going to grow larger. Think Amtrak.