Topic: Government and Politics

Strange Bedfellows?

Jon Walker at FireDogLake says I’ve got the wrong smoking gun:

The smoking gun was a manual put out by the CBO in May…It spelled out exactly how much regulation was “too much” regulation. It explained what was the magical threshold that would cause [CBO director] Doug Elmendorf to declare some private market part of the government budget. Now, I’m angry about this for different reasons than the Cato Institute. I think it is insane that there could be any level of regulation that would make the private market part of the federal budget. Either the money is going through the federal treasury or it is not. I don’t think the the CBO director should have the power to see gray areas on this issue…There is no real logic to it, he simply decided what he thought was enough regulation to make something part of the budget.

To be sure, Walker and I have different ideas when it comes to (1) health care reform.  (Not that you asked, but here are my ideas.)  We likewise disagree that (2) the CBO’s May 27 paper was the smoking gun.  That paper laid out the CBO’s (vague) criteria for including “private” financial transactions in the federal budget (and I duly linked to it in my ‘smoking gun’ post).  But the December 13 memo is the first documented instance of Democrats gaming those criteria.  And I disagree that (3) this was all Elmendorf’s decision, (4) the federal budget should reflect only money that passes through the Treasury (instead of all the money that the feds control), and (5) there’s no logic behind the CBO’s criteria.

All that said, there are a couple of areas where Walker and I agree.  For one, he writes:

More importantly, I don’t think something as important as regulation should be written to trick the CBO. It should be written to produce the best heath care system possible, not the best looking CBO score possible.

Hear, hear.  Yet congressional Democrats have been doing just that, gaming the CBO’s rules to hide the implicit subsidies their legislation would provide to large private insurance companies.

For another, he and I both agree that that legislation is little more than a bailout of large private insurance companies and would be worse than doing nothing.

My question for Walker, and for Howard Dean, and for Markos Moulitsas is: will they join me in calling for the Senate to obtain a CBO cost estimate of the off-budget part of the insurance-industry bailout (i.e., the individual and employer mandates)?  Do they think Senate Majority Leader Harry Reid should at least be up front with his base about what he’s asking them to swallow?  Do they think that We, the People deserve to know the whole truth about this bill?

The Audacity of Hypocrisy

In his ongoing effort to micromanage the U.S. economy President Obama used his Dec. 12 weekly radio address to promote his proposed Consumer Financial Protection Agency.  It will be filled with bureaucrats second-guessing entrepreneurs and is sure to improve the performance of our financial institutions – much in the manner of the SEC’s bureaucrats alertly nailing Bernie Madoff just 30 years into his Ponzi scheme.  Never mind that the federal government had much more to do with the financial meltdown than the banks did, the real knee-slapper in his address was his claim that the CFPA “would bring new transparency and accountability to the financial markets…” This, from a man demanding passage of a 2000-page health care reform bill that no one, including Mr. Obama, has read.  So much for transparency and accountability.

ObamaCare Cost Estimate Watch: Day #180

On Day #179 of the ObamaCare Cost Estimate Watch, Sen. Jim Webb (D-Va.) wrote in The Winchester Star of his involvement in the Senate health care debate:

At the start of this debate I was one of eight senators who called on Senate Majority Leader Harry Reid to post the text and complete budget scores of the health-care bill on a public web site for review at least 72 hours prior to both the first vote and final passage. This request was agreed to, affording proper transparency in the process.

On the contrary, as I explain in this Richmond Times-Dispatch oped, Reid did not comply with Webb’s request.

Indeed, a memo recently issued by the Congressional Budget Office suggests that Reid has been working very hard to conceal the legislation’s full cost all along.

Supreme Court Erases Legal Precedent for Auto Bailout

On Monday the Supreme Court released its last orders for the calendar year. Of particular note – apart from the non-release of the long-awaited decision in the Citizens United campaign finance case – the Court dismissed the cert petition in Indiana State Police Pension Trust v. Chrysler LLC as moot and vacated the underlying Second Circuit opinion. While this is not the ideal outcome – particularly for the Indiana creditors – it is in its own way an important decision preserving the integrity of bankruptcy law.

To recap: In January, Chrysler stood on the brink of insolvency. Purporting to act under the Emergency Economic Stabilization Act, the Treasury Department extended the car company a $4 billion loan using funds from the Troubled Asset Relief Program (TARP). Still in a bad financial situation, Chrysler initially proposed an out-of-court reorganization plan that would fully repay all of Chrysler’s secured debt.

The Treasury rejected this proposal and instead insisted on a plan that would completely eradicate Chrysler’s secured debt, hinging billions of dollars in additional TARP funding on Chrysler’s acquiescence. When Chrysler’s first lien lenders refused to waive their secured rights without full payment, the Treasury devised a scheme by which Chrysler, instead of reorganizing under a chapter 11 plan, would sell its assets free of all secured interests to a shell company, the New Chrysler.

Chrysler was thus able to avoid the “absolute priority rule,” which provides that a court should not approve a bankruptcy plan unless it is “fair and equitable” to all classes of creditors. The forced reorganization amounted to the Treasury redistributing value from senior, secured creditors to debtors and junior, unsecured creditors. The government should not have been allowed, through its own self-dealing, to hand-pick certain creditors for favorable treatment at the expense of others who would otherwise enjoy first lien priority.

While the Court’s ruling prevents the creditors from collecting what would have otherwise been considered their rightful portion of the liquidation, it also erases a terrible precedent from the federal judiciary’s books and reaffirms years of settled bankruptcy law. A decision upholding the Second Circuit’s ruling would have undercut the established practices of bankruptcy and introduced even more uncertainty into a still-uneasy market.

To put it more broadly, the bankruptcy laws are in place to ensure that debts are paid in an established and fair manner and not at the whim of whatever political actors happen to be in power at the time. Taking away that assurance stifles investment and thereby hurts the economy.

Cato joined the Washington Legal Foundation, the Allied Educational Foundation, and George Mason law professor Todd Zywicki on a brief supporting the creditors’ petition that you can read here.  And you can watch Cato’s policy forum on the auto bailout here.

The Problem Is Spending, not Deficits

Reckless spending increases under both Bush and Obama have resulted in unprecedented deficits. Congress will soon be forced to increase the nation’s debt limit by an astounding $1.8 trillion. Government borrowing has become such a big issue that some politicians are proposing a deficit reduction commission, which may mean they are like alcoholics trying for a self-imposed intervention.

But all this fretting about deficits and debt is misplaced. Government borrowing is a bad thing, of course, but this video explains that the real problem is excessive government spending.

 

Fixating on the deficit allows politicians to pull a bait and switch, since they can raise taxes, claim they are solving the problem, when all they are doing is replacing debt-financed spending with tax-financed spending. At best, that’s merely taking a different route to the wrong destination. The more likely result is that the tax increases will weaken the economy, further exacerbating America’s fiscal position.

Spending Dissimulation

I was going to call this blog “spending hypocrisy,” but I really needed a stronger word. Maybe ”spending dissimulation” or ”spending deceit”?

Last Wednesday, Senators Kent Conrad (D-ND) and Judd Gregg (R-NH) introduced legislation for a Bipartisan Fiscal Task Force “to address the nation’s long-term budget crisis.” Conrad said “now is the time to act,” and Gregg said:

Congress feels entitled to spend with a blank check and little regard for the future of our economic stability . . . we are swimming in a sea of red ink that will drown any chance our children have for prosperity or even a decent standard of living. It is no longer enough for Congress to simply talk about reform; it is time for action and leadership.

It sounds convincing and 27 senators signed on to the effort to tackle the government’s skyrocketing debt problem. But that was last week, which was so long ago.

Yesterday, the Senate passed a massive $1.1 trillion pork-filled spending bill. The bill funds most domestic agencies for the rest of the current fiscal year, and includes an average 10-percent spending increase for the activities funded.

Voting for a 10-percent increase in the face of this year’s $1.5 trillion deficit is exactly the sort of extreme irresponsibility that supporters of the Conrad/Gregg Task Force want to counteract, right?

Then why did the following nine senators co-sponsor the Task Force and then go ahead and vote in favor of the massive spending increase yesterday?

Senator Michael Bennet (D-CO)
Kent Conrad (D-ND)
Senator Amy Klobuchar (D-MN)
Senator Joseph Lieberman (D-CT)
Senator Ben Nelson (D-NE)
Senator Bill Nelson (D-FL)
Senator Jeanne Shaheen (D-NH)
Senator Mark Udall (D-CO)
Senator Mark Warner (D-VA)

Didn’t they think that their votes were recorded?  And do they really expect us to believe that they are sincere in controlling the budget?