Tag Archives: political economy

I Have a Question

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A Swiss Parliamentary report that is a post mortem on the demise as an independent enterprise of Switzerland-headquartered Credit Suisse blames lax controls by the Swiss Financial Market Supervisory Authority for the bank’s failure, a laxity that occurred despite that same agency’s repeated investigations into the growing weaknesses and failures to perform in the bank. The report also identifies weak bank management and managers as a major contributor to the failure.

Part of the correction to Credit Suisse’s failure was forcing Switzerland-headquarted UBS to “acquire” Credit Suisse. Only now, too, is the regulator proposing increasing capital holding requirements at UBS.

The report is largely correct on the agency reasons for the failure. Whether the forced acquisition works remains an open question: not enough time has passed to make that determination.

My question is this: why did Credit Suisse need saving at all, even if as a subordinate entity owned by another bank?

Leave aside my disdain for Government dictating to private enterprises what they must buy (or not buy), and leave aside the fact that our own government’s hands are unclean in that regard, vis., the Obama administration diktats during the Panic of 2008.

Why not let Credit Suisse simply fail and reorganize itself through bankruptcy or disappear altogether? Given the report’s identification of the weakness of the management team that was running Credit Suisse into the ground, the bank’s unfettered failure would have been an object lesson pour l’encouragement des autres that no bank, no business entity, was zu groß zum Scheitern.

Certainly the turmoil from the bank’s outright failure would have been large, but even at that, the outcome would have done far more to strengthen the Swiss banking system and its larger economy, and done it for a much longer duration.

“Our Question is: Why?”

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That’s The Wall Street Journal editors’ question, and it’s mine, too, regarding further interest rate cuts. The editors posit a number of reasons for not cutting further, but mine is simpler. It’s a refrain I’ve done before.

Inflation, which is the Fed’s Directed Operational Requirement, already is within noise distance of its longtime 2% target, and now is bouncing around noisily. The Fed’s target benchmark interest rate setting already is at a level historically consistent with its 2% target. It’s time for the Fed to sit down and be quiet and let the market bounce around, as it does and as it self-corrects. The bouncing, within very broad limits, is just the noise of a free market operating normally and prosperously.

How Can He Trust Them?

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Former President and current President-elect Donald Trump (R) is being inundated with visits from CEOs who in the past have castigated him, his policies, his character, his integrity, even censoring him outrageously (excuse the redundancy). Some are even throwing millions of dollars at him his inaugural fund.

Titans of the business world are rushing to make inroads with the president-elect, gambling that personal relationships with the next occupant of the Oval Office will help their bottom lines and spare them from Trump’s wrath.
In the weeks since the election, Trump and his advisers have been flooded with calls from C-suite executives who are eager to get face time with the President-elect and his team at Mar-a-Lago, the private Florida club where the transition team conducts much of its planning for the second term.

Even as they smile in his face, though, they’ve already shown their true colors with their prior attacks. They’re only mouthing words of approbation today in hopes of avoiding the consequences of their disingenuosity.

How can Trump trust them? He can’t. He can use them, but he should keep in mind an old maxim: keep his friends close and his enemies closer.

At bottom,

Il capo d’azienda e mobile, qual piuma al vento
In pianto o in riso è mensognero

Not Necessarily

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The Supreme Court has the case of Seven County Infrastructure Coalition v Eagle County, which concerns an 88-mile railway bringing oil and farm goods out of rural Utah. It’s wholly contained within Utah. Colorado’s Eagle County is suing to block the Utah railway on the claim that the National Environmental Policy Act required the Surface Transportation Board to

analyze possible impacts as far away as the Gulf Coast, where the exported oil might be refined, and the environmental effects of “long-term employment and commercial activity” resulting from the railway.

The DC Circuit (! not the 10th Circuit, which includes both Utah and Colorado) agreed with Eagle County, which is why the case now is in front of the Supreme Court.

The Seven County argument is that

it shouldn’t have to analyze the environmental impact of anything not directly associated with railroads. It should be responsible only for the “proximate effects” of development over which it has regulatory authority.

The WSJ editors went on at length about why and how circuit ruling should be reversed, but they began with this:

[E]stablishing a predictable principle to guide future decisions about infrastructure development and prevent further litigation will be difficult. Litigants will have to parry a barrage of unpredictable hypotheticals….

Not necessarily. The guiding principle is clearly laid out by the Seven Counties: if the alleged environmental impact of a thing isn’t directly associated with that thing, there’s no analysis needed of that allegation. Full stop.

Regarding those “unpredictables,” there already is case law barring speculative lawsuits. Indeed, the Supreme Court already has repeatedly held that agencies needn’t consider indirect and unpredictable impact, most recently in Department of Transportation v Public Citizen. If litigation still gets out of hand, SLAP sanctions are available.

Eagle County’s case is just another of those quibbles for interference’s sake that the Court needs to stoutly chastise along with reversing the DC Circuit’s ruling.

Prop Up That Industry

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German Chancellor Olaf Scholz wants more government pressure on support for battery cars, their manufacture, and their sale to an uninterested public.

German chancellor Olaf Scholz has called for the introduction of Europe-wide measures to increase uptake of electric vehicles, in a speech at Ford Motor Corp’s factory in Cologne, just weeks after the US car maker outlined plans to lay off 4,000 of its European workers.
In the speech at Ford’s EV factory on Tuesday, Scholz argued Germany should work to facilitate the “leap forward” towards “electromobility” by providing “support” for the country’s car industry, including by subsidizing energy costs for EV battery makers.

And this bit of contradiction:

Scholz said the support for the car industry should also aim to protect worker’s jobs….

He can’t have it both ways, except through government-mandated featherbedding. It takes fewer workers to build an electric motor and a battery car than it does an ICE motor and an ICE-powered car. It takes fewer suppliers to supply fewer parts, and fewer employees at each supplier, to provide the simpler components of a battery car than the more complex components of an ICE car.

The ripples go on from there: secondarily, all those mom-and-pop stores—diners, grocery stores, bars, entertainment venues, and so on—will get fewer customers from those smaller work forces at the EV factories and supplier plants, resulting in fewer mom-and-pops and fewer employees in surviving mom-and-pops.

No. If the battery car industry still needs overt government fiscal subsidies and mandates aimed at pressuring consumers to spend their own money on even subsidized battery cars, those vehicles and that industry aren’t ready for operation.

The only legitimate support for battery cars is the consumers’ interest in buying them in a free, competitive market shorn of government pressures. That interest isn’t yet there.