Tag Archives: political economy

Yellen and Law

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The Wall Street Journal editors wrote Thursday about Treasury Secretary Janet Yellen’s…flip-flopping…on making whole, or not, nominally uninsured depositors in the wake of SVB’s failure and the government takeover of Signature Bank. Their subheadline accurately summarized the matter.

Are all deposits insured or not? Only [Yellen] seems to know.

The editors’ lede was this:

Treasury Secretary Janet Yellen on Thursday walked back her comments from the day before that walked back her remarks the day before about providing a de facto guarantee on all US bank deposits.

The editors then asked the question: Who’s on first?

An especially a propos followup came just a bit later in that routine: “Q: When you pay off…who gets the money? A: Every dollar of it.”

Legally, in answer to the subheadline question is no; only deposits of $250k or less are insured. But what’s a law to a Progressive-Democrat? Only a suggestion, to be ignored at convenience.

Gainful Employment

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In her Wednesday Wall Street Journal op-ed, Judy Shelton wrote extensively about the Federal Reserve Bank’s spotty performance in combatting the latest round of inflation, effort in which the Fed has been engaged for the last year.

Then she concluded her piece with this:

In other words, when capital is allocated through meaningful price signals that reward long-term investment in productive economic opportunities, people become gainfully employed and real growth leads to greater prosperity.

True enough as far as it goes. However, the Fed’s impact on capital allocation isn’t the only factor.

Congressional/Presidential—which is to say our elected representatives—spending and taxing policies are equally important, if not more so, factors. Our current welfare structure, based on high and increasing taxing and high and increasing spending, pays too many able-bodied to not work, and that reduces the number of folks ready to become gainfully employed. With the number of workers artificially reduced, the ability to allocate capital is limited.

Studying for the Test

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Instead of studying the material. In a Monday Wall Street Journal op-ed, Michael Faulkender and Tyler Goodspeed, University of Maryland Finance Professor and Fellow at Stanford University’s Hoover Institution, respectively, wrote about bank stress tests and their resulting uniformity of banks’ risk management techniques. Citing a Boston Federal Reserve study, they noted that

banks that performed poorly on the mandated Dodd-Frank stress tests subsequently adjusted their portfolios such that they more closely resembled the portfolios of banks that performed well. The average institution’s portfolio is more diversified, but the system is more uniform. By requiring all of the biggest financial institutions to adhere to the same measures, pass the same tests, and follow the same practices, America has lost diversification in the entire banking sector.

Dodd-Frank, in essence, required individual banks to do better at diversifying their individual portfolios. But that business of all of them having to pass the same test means that all the banks have much the same portfolios, diversified over much the same instruments.

This is the complement of teaching the test rather than teaching the material and then testing that knowledge. Banks are (regulatorily pushed into) learning the test rather than learning the material and then acing the test.

Uniformity is dangerous for species in a biological ecology, and uniformity is dangerous for categories of businesses in an economical ecology.

Mistake

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Treasury Secretary Janet Yellen wants to extend the Federal government’s intrusion into our banking system.

Our intervention was necessary to protect the broader US banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion[.]

No, it wasn’t. No, it would not be.

Businesses thrive or fail on their managers’—individual Americans acting in concert with other individual Americans—performance or failure to perform. We individual Americans thrive, or not, on our own decisions, made out of our own obligations and determination to get ahead.

It isn’t government’s job to inure us individual Americans or our businesses from the vagaries of the marketplace or—especially—from our own poor decision-making. It’s government’s job to create and enforce a framework within which our free market can operate freely, and within which personal responsibility, whether as individuals or as business managers, can operate freely.

If our decisions are without consequence, we are neither operating freely nor in accordance the requirements of our personal responsibility.

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.