Tag: regulations

Hoenig for FDIC

On July 8th, Sheila Bair will step down as Chair of the Federal Deposit Insurance Corporation (FDIC).  While I believe she’s gotten a lot wrong (such as not preparing the fund for the coming crisis), she has been about the only voice among senior bank regulators for actually ending too-big-to-fail.  With her departure, we might lose that one voice.  Later this year, Kansas City Fed President Tom Hoenig is also scheduled to leave his current position.

Hoenig has actually gone beyond Bair in trying to address too-big-to-fail, having called for the largest banks to be broken up.  While I don’t believe that should be our first approach, having an advocate for both the taxpayer and the overall economy at the helm of the FDIC could make a significant difference.

Given that Section 2 of the Federal Deposit Insurance Act requires the FDIC to have a bipartisan board, President Obama is faced with the choice of either appointing a non-Democrat or asking Vice-Chair Marty Gruenberg to leave.  While I have no idea as to Hoenig’s politics, he’d likely be able to pass that test.

Hoenig has also been willing to publicly challenge Bernanke on a number of issues.  Given the narrow group-think among regulators that contributed to the crisis, having a loud, credible, independent voice among bank regulators is solely needed.  Hoenig again fits that bill.  His appointment would also offer Obama a chance to show that he is not completely beholden to the Geithner “never seen a bailout I didn’t like” worldview.

Perhaps with Hoenig at the helm, we can actually begin a debate about reducing the moral hazard created by the Federal Reserve.  While Bair was all too willing to see both insurance coverage and regulatory powers of the FDIC expanded, Hoenig strikes me as open-minded to the very real excess bank risk-taking that is encouraged by the existence of the FDIC.

Government Cheese

Self-anointed elites have been relentless in prodding government planners to apply their enlightened solutions for the purported benefit of the ignorant masses. As a result, the federal government has become a Super Nanny monitoring and guiding the intimate activities of the nation’s 300 million inhabitants. However, the government is not altruistic and does not have the solutions for how people should live their lives.

The amalgamation of programs and regulations that constitute the federal government is basically a reflection of the myriad special interests that have won a seat at Uncle Sam’s table. Government consists of fallible men and women who are naturally susceptible to pursuing policies that have less to do with the “general welfare” and more to do with rewarding the privileged birds incessantly chirping in their ears.

One result is that government programs often work at cross purposes. A perfect illustration is the confused U.S. Department of Agriculture, which spends taxpayer money subsidizing fatty foods while at the same time setting nutritional guidelines with the purported aim of getting Americans to eat healthier.

The New York Times explains:

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

Your tax dollars are being used by the USDA to help Domino’s Pizza (and Taco Bell, Pizza Hut, Wendy’s, and Burger King according to the article) sell its product. Of course, the government isn’t trying to help these fast food giants so much as it’s trying to help a particularly favored special interest: farmers.

While calls to get rid of subsidies for Dairy Management would obviously be on target, the better move would be to get rid of the entire USDA, which the New York Times comically refers to as “America’s nutrition police.” The USDA has been around for almost 150 years, and yet Americans have never been fatter. If there’s a solution to America’s obesity “problem,” it won’t be found in Washington. In a free society, the only solution is to make individuals responsible for the consequences of their own decision-making.

See these essays for more on downsizing the U.S. Department of Agriculture.

Campaign Finance: Don’t Confuse Me with the Evidence

Today POLITICO Arena asks:

Is it worrisome that Americans spend on political advocacy – determining who should make and administer the laws – much less than they spend on potato chips, $7.1 billion a year?

My response:

For decades among modern liberals it has been an article of faith – devoid of evidence – that money corrupts politics and that there is too much money in politics – “unconscionable” amounts, we’ve been told, repeatedly. Thus the crusade to restrict and regulate in exquisite detail every aspect of campaign finance, beginning in earnest with the Federal Election Campaign Act of 1971 and culminating with the Bipartisan Campaign Reform Act of 2002 (McCain-Feingold). Yet after every new restriction along that tortuous course, ever more money has flowed into our political campaigns. But for all that, they’re no more corrupt than they’ve ever been. In fact, the best evidence of the fool’s errand that campaign finance “reform” has been all along is found in comparisons between states with little and states with extensive campaign finance regulations: When it comes to corruption, there’s not a dime’s worth of difference between the regulated and the unregulated states.

But all those regulations have accomplished two things that should give liberals pause. First, by virtue of their sheer complexity and cost, they pose a serious impediment to those who would challenge incumbents, who already have a major leg up on reelection. And second, because we cannot limit private campaign contributions and expenditures altogether, thanks to the First Amendment, the regulations have led to money being diverted away from candidates and parties and into other, often unknown, hands, over which the candidates and parties have no control – by design. As a result, we see candidates today having to disavow messages underwritten by people who would otherwise, but for the regulations, have given directly to the candidate or the party. But that outcome was absolutely predictable – and was predicted. Two good reasons to end this campaign finance regulation folly and let individuals and organizations contribute and spend as they wish. What are we afraid of, freedom?

Take Off the Blinders: Diversity Demands Educational Freedom

Yesterday, FoxNews.com posted a story on what appears to be a growing problem for public school systems across the country: accommodating Muslim holidays. Unfortunately, the report didn’t contain the solution to the problem. It did, though, contain a very succinct discussion of the root of the problem; an example of the good intent that causes people to ignore the problem; and the kind of “solution” that is ultimately at odds with the most basic of American values.

A quote from New York City mayor Michael Bloomberg captured the essence of the problem:

One of the problems you have with a diverse city is that if you close the schools for every single holiday, there won’t be any school.

There you have the basic conundrum in a nutshell: Whenever you have a diverse population – whether in a hamlet, city, state, or nation – and everyone has to support a single system of government schools, you cannot possibly treat all people – or even most of them – equally. Either there are winners and losers, or nobody gets anything.

Understanding why public schooling  can’t handle diversity – why, simply, one size can’t fit all – is really basic common sense. So why isn’t there more outrage over, or even just recognition of, the utter illogic of our education system? Mohamed Elibiary, President and CEO of the Freedom and Justice Foundation, illustrated the attitude that likely causes lots of Americans to wear blinders:

I’m a little torn. I want Muslims to be getting the same recognition as other Americans, but at the same time I don’t want to see public education systems be a battleground between religious identities, because then we’re missing the point of why we have a public education system to begin with.

No doubt many people truly believe as Elibiary does: that a major purpose of public schooling is to bring diverse people together and, by doing so, unify them. It’s a fine intention, but also a classic case of intent not matching reality. Indeed, the reality is often very much the opposite. Rather than unifying people, public schooling has repeatedly forced religious conflict (as well as conflict over race, ethnicity, political philosophy, curriculum, and on and on).

It started almost on Day One, when Horace Mann, a Unitarian, was locked in conflict with Calvinists over what kind of Protestantism the state’s nascent “common schools” would teach. When Roman Catholics began arriving in America in large numbers, battles – sometimes deadly – erupted over who would get what kind of Christianity in the public schools. When Tennessee outlawed the teaching of evolution, the Scopes “Monkey Trial” fired the first big blast in the war over the teaching of human origins, a fight we are still very much in. In the latter part of the twentieth century, the fighting moved to what, if any, religious expression is permissible in public schools. And now, we’re getting fired up over whose holidays will get the most deference from government schools. It almost seems like war without end.

Finally, the article gropes at – but doesn’t grab – the solution to our education and diversity problem. Says Georgetown University professor Bradley Blakeman:

That’s the beauty of having a school district responsive to the localities as opposed to blanket rules that affect multiple jurisdictions, states or even countries. One size doesn’t fit all when it comes to these kinds of rules and regulations. We’re not a homogeneous nation, which makes us so great.

Blakeman is heading in the right direction (even as federal policy pushes us the opposite way): The closer that control of education gets to individual people, the more easily it can be tailored to unique needs, values, and desires. Unfortunately, Blakeman fails to identify the obvious last step: completely decoupling government funding from provision of education. In other words, instituting universal educational choice. Making matters worse, Blakeman for all intents and purposes concludes that as long as decisions are made at the local level, and the majority gets its way, everything is fine:

A school should reflect the beliefs and practices of the community that they serve. And if school boards are sensitive to their populations, that’s fine, provided the decisions of the board reflect the majority opinion of its community.

It may sound harsh, but one way to describe this is simply ”tyranny of the majority” – whatever the majority wants, it gets, as long as it is the local majority. It’s a solution that completely ignores that ours is not supposed to be a nation of majority rule, but rule of law that protects individual freedom. And, of course, one of the most basic protections is the prohibition on government tipping the scales in favor of one religion, two religions, or no religion at all. 

This solution also fails, by the way, to address the problem at hand: School districts – not states or Washington – having to accommodate diverse populations. In other words, ”local control” is ultimately no solution at all.

Universal choice is, quite simply, the only system of education compatible with the most basic of American values – individual liberty – and the only way to avoid constant, divisive battles over who will get what out of the schools. Hopefully, people will come to realize that before our conflicts get even worse.

Your Health Insurance, Designed by Lobbyists

Christopher Weaver of Kaiser Health News has an excellent article in today’s Washington Post on the various government agencies that will now be deciding what health insurance coverage you must purchase, and how many of those decisions will ultimately fall to lobbyists and politicians:

For years, an obscure federal task force sifted through medical literature on colonoscopies, prostate-cancer screening and fluoride treatments, ferreting out the best evidence for doctors to use in caring for their patients. But now its recommendations have financial implications, raising the stakes for patients, doctors and others in the health-care industry.

Under the new health-care overhaul law, health insurers will be required to pay fully for services that get an A or B recommendation from the U.S. Preventive Services Task Force…[which] puts the group in the cross hairs of lobbyists and disease advocates eager to see their top priorities – routine screening for Alzheimer’s disease, diabetes or HIV, for example – become covered services.

And it’s not just the USPSTF that will be deciding what coverage you must purchase:

[P]lans must also cover a set of standard vaccines recommended by the Advisory Committee on Immunization Practices, as well as screening practices for children that have been developed by the Health Resources and Services Administration in conjunction the American Academy of Pediatrics. Health plans will also be required to cover additional preventative care for women recommended under new guidelines that the Department of Health and Human Services is expected to issue by August 2011.

The chairman of the USPSTF says the task force will try “to stay true to the methods and the evidence… the science needs to come first.”  A noble sentiment, but as my colleague Peter Van Doren likes to say, “When politics and science conflict, politics wins.”  Witness how industry lobbyists have killed or neutered every single government agency that has ever dared to produce useful comparative-effectiveness research.  (You’re next, Patient-Centered Outcomes Research Institute!)

When government agencies are making non-scientific value judgments–e.g., are these studies reliable enough to merit an A or B recommendation? what should be the thresholds for an A or B recommendation? will the benefits of mandating this coverage outweigh the costs?–politics does even better.  Witness Sen. Barbara Mikulski (D-Md) overruling a USPSTF recommendation when she “inserted an amendment in the [new] health-care law to explicitly cover regular mammograms for women between 40 and 50. “

Speaking of value judgments, the one flaw in Weaver’s article is that it inadvertently conveys a value judgment as if it were fact.  He writes that the mandate to purchase coverage for preventive services is “good news for patients” and that 88 million Americans “will benefit.”  Whether the mandate is good news for patients depends on whether patients value the added coverage more than the additional premiums they must pay.  (The administration estimates that premiums for affected consumers will rise an average of 1.5 percent.  One insurer puts the average cost at 3-4 percent of premiums.  Naturally, some consumers will face above-average costs.)  Whether the benefits outweigh the costs is ultimately a subjective determination. (The best way to find out, as it happens, is to let consumers make the decision themselves.)

Cisneros Rewriting HUD History

In a recent speech to real estate interests, former Clinton HUD secretary Henry Cisneros preposterously claimed that the recent housing meltdown “occurred not out of a governmental push, but out of a hijacking of the homeownership process by some unscrupulous interests.”

The only criticisms Cisneros could muster for the government’s housing policies over the past 20 years were that regulations weren’t tough enough and it should have focused more on rental subsidies.

The reality is that Cisneros-era HUD regulations and policies directly contributed to the housing bubble and subsequent burst as a Cato essay on HUD scandals illustrates:

  • Cisneros’s HUD pursued legal action against mortgage lenders who supposedly declined higher percentages of loans for minorities than whites. As a result of such political pressure, lenders begin lowering their lending standards.
  • On Cisneros’s watch, the Community Reinvestment Act was used to pressure lenders into making more loans to moderate-income borrowers by allowing regulators to deny merger approvals for banks with low CRA ratings. The result was that banks began issuing more loans to otherwise uncreditworthy borrowers, while purchasing more CRA mortgage-backed securities. More importantly, these lax standards quickly spread to prime and subprime mortgage markets.
  • The Clinton administration’s National Homeownership Strategy, prepared under Cisneros’s direction, advocated “financing strategies, fueled by creativity and resources of the public and private sectors, to help homebuyers that lack cash to buy a home or income to make the payments.” In other words, his policies encouraged the behavior that he now calls “unscrupulous.”
  • Cisneros’s HUD also put Fannie Mae and Freddie Mac under constant pressure to facilitate more lending to “underserved” markets. It was under Cisneros’s direction that HUD agreed to allow Fannie and Freddie credit toward its “affordable housing” targets by buying subprime mortgages. Fannie and Freddie are now under government conservatorship and will cost taxpayers hundreds of billions of dollars.

Cisneros now serves as the executive chairman of an institutional investment company focused on urban real estate. Might that explain why Cisneros is now a fan of subsidizing rental housing?

“Unscrupulous” would be a good word to describe the millions of dollars Cisneros has made in the real estate industry following his exit from government.

From the Cato essay:

In 2001, Cisneros joined the board of Fannie Mae’s biggest client: the now notorious Countrywide Financial, the company that was center stage in the subprime lending scandals of recent years. When the housing bubble was inflating, Countrywide and KB took full advantage of the liberalized lending standards fueled by Cisneros’s HUD. In addition to the money he received as a KB director, Cisneros’s company, in which he held a 65 percent stake, received $1.24 million in consulting fees from KB in 2002.

When Cisneros stepped down from Countrywide’s board in 2007, he called it a “well-managed company” and said that he had “enormous confidence” in its leadership. Clearly, those statements were baloney—Cisneros was trying to escape before the crash. Just days before his resignation, Countrywide announced a $1.2 billion loss, and reported that a third of its borrowers were late on mortgage payments. According to SEC records, Cisneros’s position at Countrywide had earned him a $360,000 salary in 2006 and $5 million in stock sales since 2001.

Plowing Through the Defenses of National Education Standards

Arguably the most troubling aspect of the push for national education standards has been the failure – maybe intentional, maybe not – of standards supporters to be up front about what they want and openly debate the pros and cons of their plans. Unfortunately, as Pioneer Institute Executive Director Jim Stergios laments today, supporters are using the same stealthy approach to implement their plans on an unsuspecting public.

Standing in stark contrast to most of his national-standards brethren is the Fordham Institute’s Mike Petrilli, who graciously came to Cato last week to debate national standards and is now in a terrific blog exchange with the University of Arkansas’s Jay Greene. Petrilli deserves a lot of credit for at least trying to answer such crucial questions as whether adopting the standards is truly voluntary, and if there are superior alternatives to national standards. You can read Jay’s initial post here, Mike’s subsequent response here, and Jay’s most recent reply right here.

I’m not going to leap into most of Jay and Mike’s debate , though it covers a lot of the same ground we hit in our forum last week, which you can check out here. I do want to note two things, though: (1) While I truly do appreciate Mike’s openly grappling with objections to what might be Fordham’s biggest reform push ever, I think his arguments don’t stand up to Jay’s, and (2) I think Mike’s identifying national media scrutiny as what will prevent special-interest capture of national standards is about as encouraging as BP telling Gulf-staters ”we’ve got a plan!”

Let’s delve into #2.

For starters, how much scrutiny does the national media give to legislating generally? Reporters might hit the big stuff and whatever is highly contentious, but even then how much of the important details do they offer? Think about the huge health care debate that just dominated the nation’s attention. How many details on the various bills debated did anybody get through the major media? How much clarity? Heck, sometimes legislators were debating bills that even they hadn’t seen, much less reporters. Of course, the health care bill was much bigger than, say, the No Child Left Behind Act, but remember how long after passage of NCLB it was before the Department of Education, much less the media, was able to nail down all of its important parts?

Which brings us to a whole different layer of policy making, one major media wade into even less often than legislating: writing regulations. How many stories have you read, or watched on TV news, about the writing of regulations for implementing anything, education or otherwise? I’d imagine precious few, yet this is where often vaguely written statutes are transformed into on-the-ground operations. It’s also where the special interests are almost always represented – after all, they’re the ones who will be regulated – but average taxpayers and citizens? Don’t go looking for them.

Finally, maybe it’s just me, but I feel like I keep hearing that daily newspapers are on their way out. Of course they might be replaced by cable television news, but those outlets almost always fixate on just the few, really big stories of the day – war, economic downturns, murders, golfers’ affairs, celebrity arrests – and education can rarely compete for coverage. And that seems likely to remain the case even if the education story is as scintillating as, say, federal regulators reducing the content of national standards by five percent. Indeed, education is so low on the reporting totem poll that the Brookings Institution has undertaken a crusade to save its life, and has noted that right now “there is virtually no national coverage of education.”

Wait, virtually none? Uh-oh. If national media scrutiny is supposed to be the primary bulwark protecting national standards from the special-interest capture that has repeatedly doomed state standards, the fact that almost no such coverage actually takes place really doesn’t give you a warm-fuzzy, does it? And if special-interest capture can’t be prevented – if standards can’t be kept high – then the entire raison d’etre of national standards crumbles to the ground.  

Which helps explain, of course, why national standards supporters are typically so eager to avoid debate: Their proposal is hopelessly, fatally flawed.