Daily Archives: 15 May 2015

Banks, Government, and Risk

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Fed governor Jerome Powell, in remarks prepared for a conference of community bankers in New York, said banks under a certain asset level, “perhaps $10 billion,” should be exempt from Dodd-Frank compensation restrictions. The restrictions, which are being developed by the Fed and other agencies, are designed to remove encouragements for bankers to take excessive risk.

Couple things about this. Why $10 billion? Why not $20 billion? Why not $5 billion? Based on what logic is this limit chosen? Based on what logic is any limit chosen? How is “system risk” from bank failure, the putative rationale for Dodd-Frank at all, a lesser risk than government’s intervention into the market place?

The other thing is “excessive risk.” Based on what criteria? What constitutes “excessive?” Under what circumstance is risk excessive here, but not there? What about government’s excessive risk from the bailouts and “stimulus” package of the 2008-2009 period; risks from which our economy still has not recovered?

How is government—politicians and bureaucrats—better qualified to determine what is excessive than the businessmen and shareholders and investors involved? How are those politicians’ and bureaucrats’ solutions to actual business failure and economic dislocation better than the folks involved—including in the aggregate, the collected citizenry? We still haven’t recovered from those government men’s last set of solutions.

“We are severely concerned….”

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Indeed, we are. PRC Deputy Director of Foreign Ministry Information Department Hua Chunying said

We are severely concerned about relevant remarks made by the American side. We believe the American side needs to make clarification on that[.]

That’s in response to SecDef Ash Carter’s remarks that he’d asked his folks to look into potential responses to the PRC’s seizure and occupation of the South and East China Seas. In particular, those responses might

include flying Navy surveillance aircraft over islands and sending US Navy ships within 12 nautical miles of reefs that have been built up in recent months around the Spratly Islands.

We should be severely concerned. Those surveillance aircraft should be accompanied by fighter aircraft, and they should buzz the construction sites. And keeping the Navy a dozen miles away, instead of sailing up close and personal, seems awfully timorous to me.

Those islands, after all, are in international waters, and they’re in the Exclusive Economic Zones of Vietnam, Malaysia, and the Philippines—who have shown a willingness to resolve their dispute without military occupation. Thus, their aircraft and naval ships should be accompanying ours on those close approaches.

Our own action alone, though, would be a good start on a proper response to the PRC’s aggression.

Also creating severe concern—or should be—is this bit:

Privately, many diplomats and leaders in the region say they worry about the potentially destabilizing impact of a confrontation between Washington and Beijing.

No, guys, what would be destabilizing would be letting that PRC aggression go unchallenged.