Tag Archives: government

Federal Overreach

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As C Boyden Gray and Jim R Purcell note in a recent Wall Street Journal op-ed, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is an especially egregious example, an Act that arrogates vast power to the Federal government and then concentrates it in the Executive Branch.

As they note,

Dodd-Frank created both the Financial Stability Oversight Council and the Consumer Financial Protection Bureau, giving each agency effectively unlimited power. The FSOC can declare a financial firm “systemically important”—that is, too big to fail—based on “any” “risk-related factors” that it “deems appropriate.” And the CFPB can punish even responsible lenders who in good faith offer loans that the bureau later deems to be “unfair,” “deceptive” or “abusive.”

Demonstrating just how far this overreach is intended to go, the illegally appointed head of the CFPB, Richard Cordray, has instructed Congress that it is “probably not useful” to define in advance what an “abusive” lending practice is.  No, he’s just going to use his enormous, and unconstrained, his enforcement powers to retroactively punish lenders based on his carefully ex post definition of the “facts and circumstances” of each of their cases.  Nice company you got there.  Be too bad if something was to happen to it.

That this overreach is deliberate is demonstrated by the Act’s cynical elimination of any pretense of control by any branch of the government over these two Executive Branch bureaucracies, and the Act’s cancelation of even the most ephemeral separation of the three branch’s powers.

The CFPB is not subject to Congress’s “power of the purse,” which James Madison knew to be Congress’s “most complete and effectual weapon.”  Instead, Dodd-Frank lets the CFPB claim more than $400 million from the Federal Reserve each year and prohibits Congress from even reviewing that budget.  The president’s control over the CFPB is limited because by law he can remove the agency’s director only under strictly limited circumstances.  Finally, Dodd-Frank limits the courts’ review of CFPB’s legal interpretations.

And

The FSOC is similarly free from checks and balances.  For example, when the Council—a working group of the Treasury secretary, Federal Reserve chairman, comptroller of the currency, and other unelected regulators—anoints a financial institution as too big to fail, the courts are prohibited from even reviewing whether the regulators properly interpreted the applicable laws.

And that illegal appointment?  Cordray was given a recess appointment while the Senate was in session.

So much for the Constitution, that document that’s more than 100 years old and hard to understand.  So much for the Rule of Law.

RTWT.

But It’s the Wrong Problem

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Ron Williams, a former Chairman and CEO of Aetna Inc, in a recent Wall Street Journal op-ed, described his evolution toward opposition of Obamacare’s Individual Mandate, which he had supported initially.  He then offered a couple of alternatives to the Individual Mandate; however his alternative solutions are as erroneous as the Individual Mandate is an overreach of Federal government power.  The reason for his error is that he’s pursuing the wrong problem.

Williams says

As a society, we have a moral obligation to ensure everyone has access to affordable health care.  We must find a way to cover those who are no longer healthy but need care.

No.  There is a difference between health care and health insurance; the two are conflated far too often—sometimes cynically and deliberately, sometimes out of genuine ignorance, and sometimes just out of careless thought.  People who are no longer healthy do not need health insurance; they need health care.  We must find a way to help them to get that care.  Moreover, this social obligation is not at all a government obligation, or even a legitimate government task.  Society is not our government—it is us.

When government butts out of our affairs, when it leaves our money in our hands, it becomes a lot easier for us as individuals to see to our obligations ourselves, and in our own way.  Then we can do more of what we need to do—directly, or through our local communities, or through our churches and private charities, or some combination of these.  Government legitimately comes into play only as a last resort, not the first resort—or only resort, as some would have it—and the Federal government must be last among these.  New York’s tax funds, to the extent they’re involved at all, should go first to New York’s poor, not first into a general national pile from which, for instance, Illinois or California might draw ad lib.

On top of that, competitively sold health insurances policies, sold nationwide rather than within 50 different state jurisdictions, would be a powerful market solution that would potentiate our ability as a society to act on this imperative.

How is this Possible?

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In an apparent attempt to obviate the need to move forward with a Congressional contempt citation of the Attorney General of the United States, that AG, Eric Holder, last Thursday sent a letter to the Chairman of the House Committee on Oversight and Government Reform, Congressman Darrell Issa (R, CA).  In this letter, Holder offers to provide to the Committee many of the “Fast and Furious” documents subpoenaed and heretofore withheld by Holder, and Holder offered personally to brief Issa in the subject.

This is a good start, but there’s more to this story.  Here’s an amazing paragraph from that letter [emphasis added].

The record in this matter reflects that until allegations about the inappropriate tactics used in Fast and Furious were made public, Department leadership was unaware of those tactics.  Indeed, as the documents we provided to the Committee relating to the drafting of the February 4 letter reflect, Department leaders were assured by the heads of Department components in the best position to know the true facts that the allegations being made were “categorically false.”  However, over a period of months in 2011, as documents to be provided to the Committee were collected and reviewed, and as witness testimony before the Committee was evaluated, Department leadership learned more and began to assess the facts of this matter independently.  The Department’s understanding of the facts underlying Fast and Furious became more developed, particularly as evidence came to light that was inconsistent with the initial denials provided to Department personnel.  Over time, Department leadership came to recognize that Fast and Furious was fundamentally flawed, as I noted in my October 7, 2011 letter to you and other members of Congress….

This fast and Furious operation was conducted under the auspices of the DoJ.  These data, concerning the misbehavior, were in the DoJ’s hands all along.  “Department leadership” (read: Holder) didn’t know these data?  How is he leading his Department if he can’t even get his own subordinates to talk to him?  How is he leading his Department if, alternatively, he chooses to be ignorant of the data in his subordinates’ hands until outside agencies force him to look at them?

What level of competence produces this quality of performance?

Finally, keep in mind that the House Committee didn’t begin its own investigation until well after Agent Terry’s murder.  Holder could have put this whole matter to rest—indeed he could have avoided all of  this hoo-raw, all of this expenditure of taxpayer money—if only he’d listened to the Clue Bird when it presented him with the murder of a government agent, presented him with a murder victim with weapons his own Department was turning over to drug cartels near the body.

The complete Holder letter can be seen here.

Lending in Europe

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I don’t often take issue with The Wall Street Journal, but a recent column by David Wessel cries out for a response.  His column is a description of the potential for an unraveling of the euro zone and of the euro itself, and of what needs to be done to preserve them both.

Wessel notes that [emphasis mine]

Today, banks in one euro-zone country are reluctant to lend to banks in another for fear that they won’t get repaid.  Bank lending among euro-area banks at the end of 2011 was 60% below the 2008 peak.  Money is moving not through usual bank-to-bank channels but only through the European Central Bank.  The urge…has given way to a rush to “ring-fence” assets and liabilities within individual countries.

He notes further that

Banks and investors are increasingly unwilling to buy bonds of governments other than their own.  Stronger northern European banks are reluctant to lend to customers and governments in southern and Eastern Europe.

You bet—see that bit about not expecting to be repaid.  Surely, it is no surprise that one enterprise declines to do business with another, or with a government, that the first views as unreliable.  Such a decision is entirely reasonable—it’s how sound businesses stay sound, for their own good, for the good of their employees, for the good of their larger community.

Wessel then quotes an example offered by Philipp Hildebrand, a former Swiss central banker, in an effort to show the unfairness of the situation:

Consider two similar companies, one Austrian and one Italian, that produce the same thing and sell to customers in Tirol in Austria.  The difference: the Italian firm, through no fault of its own, has to pay six percentage points more to borrow money.  “It kills whatever effort you make on structural reform,” [Hildebrand] said.

This is certainly too bad for the Italian firm and for the Italian government’s effort at reform, but where is the unfairness of the advantage to the Austrian firm?  The Italian firm operates under a government whose policies work against that firm’s ability to honor its obligations.  Further, how does this obligate in any way the German or Dutch or Finnish—or Austrian—taxpayer?

Beyond Europe’s new bailout of Spanish banks, there is talk of strengthening the authority of a pan-European banking supervisor…and creating a pan-European deposit-insurance fund so Italian depositors won’t move euros from Italian banks to safer German ones.

But this is insane.  In the first place, why shouldn’t Spanish depositors, or Italian depositors, or…—taxpayers all—move their money to safer locations?  Why should the taxpayers in those safer locations be on the hook for making other nations’ debtors, including those governments, whole?  There’s a very good reason some banks are safer than others, some economies sounder than others.  Some took—and take—better care of their fiscal responsibilities.

Banks are hunkering down at home.  National regulators are acting to protect their banks from the rest of Europe.  Governments are rebuilding old walls to protect taxpayers from bailing out others’ banks.

Why should they not?  By what remotest stretch of imagination should a sound bank be required to lend to an unsound bank—see the bit above about repayment expectations?  Why should taxpayers of one nation be required to throw their own hard-earned money into the bottomless pit of the profligate—see the bit above about repayment expectations?

And if this means the breakup of the euro zone and its currency, well, I’ve written about that elsewhere.

How “Green” Energy is Working out for Germany

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We’re getting an empirical lesson in the effectiveness of an economy whose energy is intended to come entirely from “green” sources.  The Obama administration would do well to observe closely the in-progress German demonstration.

Germany’s electricity prices have risen 10% in the last few years, since the beginning of the German push to rely exclusively on these sources and to walk away from coal, which Germany has in abundance.  That might not seem like much of an increase, but it hurts.

The Federation of German Consumer Organizations estimates that roughly 10% of German households are having trouble paying for their energy.  Some have been pushed over the threshold and can no longer pay—and their electricity is being turned off altogether: nearly 200,000 recipients of Hartz IV, a German benefits program for long-term unemployed, had their power cut off in 2011 because of unpaid bills.  There’s more: the Economy Ministry has estimated that prices will increase an additional 3-5 euro cents per kilowatt hour in the next year, just to finance renewable energy subsidies and grid expansion.  Those increases amount to an additional €105-€175 ($130-$220) for a family of three.

There are more cost increases to come.  The Federal Network Agency, a wide-ranging regulatory agency with its fingers in electricity, gas, telecommunications, post and railway markets, will announce this fall that rates will increase by 30%-50% above current levels.  Consumer “contributions” to renewable energy subsidies will rise by more than FGCO’s estimate of 3-5 cents; the FNA says the rise will be closer to 4.7-5.3 euro cents per kilowatt hour—plus VAT, they remind us.  Hartz recipients, and potentially programs like Hartz, will be hard-pressed to meet these increases.

We don’t need these headaches in the US.