Daily Archives: 22 March 2023

Wrong Answer

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The Biden/Regan Environmental Protection Agency has decided to get into individual municipalities’ business.

For the first time in 26 years, the US Environmental Protection Agency has issued new guidelines for drinking water safety. Municipal utilities will be required to install expensive filtration systems to lower the amount of PFAS in water supplies.

The cost of such “guidelines” will run to billions of dollars just for Illinois’ cities, towns, and villages. Multiply that by all the cities, towns, and villages across the US and our territories—the reach of the EPA—and we get a ton of costs.

PFAS (Per- and polyfluoroalkyl substance) and the related PFOS (perfluorooctanesulfonic acid) are chemicals that don’t appear to break down in anything approaching a useful time frame, and they are associated with a variety of cancers. That makes it useful to avoid ingesting them or inflicting them on our environment.

However.

While removal of these chemicals is a good idea, doing that alone and at the end of the production-use-disposal chain will cost the relevant jurisdictions vast sums in perpetuity. Too, after the chemicals are removed from our water supplies—what then? What will we do with those now concentrated perpetual chemicals? Nuclear waste at least breaks down after some, often extended, period of time.

Focusing on developing other materials that don’t require these chemicals, at the beginning of the production-use-disposal chain would be initially expensive and long-term far cheaper. But that wouldn’t maintain EPA power.

“The Fed Got Us Into the SVB Mess”

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That’s the headline on The Wall Street Journal‘s Sunday Letters section. There’s also this from a letter by Desmond Lachman of the American Enterprise Institute:

The real lesson from SVB’s failure is that things break when the Fed is forced to raise interest rates at an unusually rapid rate to regain inflation control.

And this, from another Letter-writer in that section:

…the Fed sowed the seeds of the current crisis as SVB stretched for yield in a zero-interest-rate environment and then failed to manage its duration risk. The Fed’s efforts to micromanage the economy creates unforeseen problems that continue to erupt.

No, and no.

There is much to criticize regarding the Fed’s interest rate moves, but they’re irrelevant to SVB’s and Signature Bank’s failures.

The Fed’s interest rate increases may have been done at an unusually rapid rate, but they still occurred over a period of months—12 of them in fact: the first increase in the current series was way back in March 2022. The Fed’s moves were part of the environment in which these two failed banks operated, nothing more. It was the management teams of two failed banks who failed to deal with the environment in which they operated.

The idea that the Fed’s moves—micromanaging our economy or other moves—created unforeseen problems is risible on its face. Any pupil in a high school economics class knows that bond (and other debt instrument) prices move in the opposite direction from interest rates: as rates rise, existing bond prices fall. SVB’s and Signature’s managers surely are high school graduates; they knew full well that their reserve holdings, held almost entirely in long-term Treasuries and mortgage-backed debt instruments, were falling in value for the entire year that the Fed had been raising interest rates. The failure of these two banks to pay attention to their reserves is entirely and solely the fault of those two banks’ management teams.