Monthly Archives: May 2017

The Durbin Amendment and Price Fixing

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Senator Dick Durbin (D, IL) added to Dodd-Frank an amendment that mandated the maximum price large banks could charge merchants who process debit-card payments.  The House’s Financial Services Committee, in marking up Chairman Jeb Hensarling’s Financial Choice Act, included repeal of the Durbin Amendment.

Naturally, Durbin has demurred, and he did so, among other place, in a Letter to the Editor of The Wall Street Journal.

It’s no secret that Wall Street hates the swipe-fee law that I authored in 2010. This law finally reined in the debit swipe-fee price-fixing that Visa and MasterCard were doing on behalf of banks. The old rigged system permitted Visa and MasterCard to fix the same fees for all card-issuing banks, and without competition the fees always went up. It was a market failure and merchants and their customers ended up paying for it.

And

The 2010 reform law said that if the nation’s top 1% of biggest banks are going to let Visa and MasterCard price-fix their swipe fees, then the fees must be reasonable and proportional to the cost of conducting the transaction.

Wow.  Price fixing is OK as long as it’s Big Government doing to fixing, says the Progressive-Democrat from Illinois.  No.  There exist, already, laws against such collusion; all that’s necessary, were the banks actually colluding as Durbin claims, is to enforce existing law.  There is neither need nor excuse to expand Government by writing a new law to fix a failure from enforcing existing law.

Market failure?  Again, no.  Not every burble, bubble, or dislocation represents a market failure; indeed, they’re the normal volatility of a thriving free market.  Or they would be with less government interference so we actually had a free market.  Far from a market failure, this failure is another failure of Big Government’s central planning for our market.  It’s time—long past time—to dump the Durbin amendment.

It’s time—long past time—for competition to reenter the credit and debit card free market niche and to let the free market “fix” the prices.  It’s time—long past time—for Big Government to leave the market.

Puerto Rico’s Bankruptcy

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Andrew Scurria and Heather Gillers have a piece in The Wall Street Journal that discusses various considerations now that the story of Puerto Rico’s bankruptcy is “just beginning for investors.”  One remark in particular caught my eye.

Complicating matters, Puerto Rico hasn’t yet decided which creditors have priority in a restructuring.

This lack of forethought, even of understanding, is illustrative of how Puerto Rico got into this mess in the first place.

The question shouldn’t center on creditors; the order of priority of debt type should be the primary criterion, with creditors within each type treated equally.  This prioritization should have been defined long ago, too.

Ideally, these failures will be redressed coming out of the present proceedings.

Handling Classified

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FBI Director James Comey had this about Huma Abedin and her role in the ex-Secretary of State Hillary Clinton (D) classified email scandal:

Somehow, her [Clinton’s] emails were being forwarded to Anthony Weiner, including classified information.  His then-spouse, Huma Abedin, appears to have had a regular practice of forwarding emails to him for him to print out for her, so she could deliver them to the secretary of state.

Comey justified his lack of action with this:

We didn’t have any indication that she had a sense of what she was doing was in violation of the law[.]

There is, however, no requirement for mens rea under the relevant law; if nothing else Abedin’s actions fit the law’s gross negligence felony charactistic.

With such a bold, declarative statement about what Abedin was doing, then, I have to wonder why there’s been no indictment and subsequent prosecution.

Probably for the same reason he declined to bring a case against Clinton after having said her actions were excessively careless: it’s not politically expedient.

Military Academies as Professional Sports Farm Teams

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Or not.  Secretary of Defense James Mattis has reversed an Obama administration late 2016 move that

allowed academy students with exceptional sports talent to bypass active-duty and serve out their time in the military reserves to play in professional leagues.

Dana White, Pentagon spokesman, on the matter:

Our military academies exist to develop future officers who enhance the readiness and the lethality of our military services.  Graduates enjoy the extraordinary benefit of a military academy education at taxpayer expense.

Unfortunately, the new policy still lets these Academy-trained officers to apply for a waiver after just two years on active duty.  An Academy grad, like ROTC grads, normally have rather longer commitments.  An Air Force Academy graduate, for instance, must on entering the Academy

accept an appointment and serve as a commissioned officer in the Air Force for at least eight years after graduation, five of which must be active duty and the remainder can be served as inactive reserve. You will become eligible to request a separation from the Air Force after five years of service.

Mattis’ move is a good start, but Academy graduates should serve their full commitment, not just two years of it.

Having honored their commitment, only then should they be able to move on. Special treatment is uncalled for.

You’d have thought that to be obvious.

Long Maturity Debt Instruments

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Treasury Secretary Steven Mnuchin is kicking around the idea of instituting long-maturity debt instruments, specifically, 50-year and 100-year US bonds.

Treasury’s Borrowing Advisory Committee, though, demurs.  This committee, made of movers and shakers of financial institutions that are themselves movers and shakers in the bond market,

does not see evidence of strong or sustainable demand for maturities beyond 30 years.

They ask a not unreasonable question, too:

what types of investors would buy ultralong bonds….

On that, the US has tried long(er) maturity bonds before—50-year instruments to finance the Panama Canal and 40-year instruments in the Eisenhower and Kennedy administrations to, in Eisenhower’s words, stretch out the national debt, for instance.

Over the years, however, the Treasury concluded it could most efficiently finance large amounts of debt through regular auctions of 30-year bonds.

That’s not the only possible market for Treasury ultra-long bonds, though.  Just one venue might include investors, especially institutional investors, looking for ways to hedge really long-term risk.  Government ultra-longs might be one way.  The question, from Government’s perspective, thus is irrelevant.

Any lack of demand for such long maturities—in any venue—simply means that such debt instruments wouldn’t be bought.  That should be a market decision, made by American individual investors, not a centrally controlled market decision made by Government.

It’s also a cheap experiment to run: it would cost Government nothing to offer to borrow at such lengths when no one would lend at such lengths.