Author Archives: eehines

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.

Courage

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Republic of China President Tsai Ing-wen is making a formal diplomatic trip to Belize and Guatemala. En route, she’ll make “transit stops” in New York on the way out and in Los Angeles on the way back.

While in New York, Tsai is expected to meet with House Speaker Kevin McCarthy (R, CA).

The People’s Republic of China’s government men are dismayed. No mind. If President Joe Biden (D) had any courage, Tsai would make an additional transit stop, this one in DC, in the Oval Office, to meet with Biden.

But he doesn’t, so she won’t.

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.

Terrorists in the Mix

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CBP agents have caught 70 illegal aliens who are also terrorists on the government’s terrorist watchlist (including one who illegally entered through our northern border). That’s just in the five months of the current fiscal year, and those 70 compare with the 98 caught in the entirety of the prior fiscal year. This year’s pace, according to my third-grade arithmetic, works out to 168 terrorists that might be caught over the full course of this year.

That’s also only the ones we know about. Left uncounted, because unknown, are the number of terrorists in the vast numbers of illegal aliens flowing across our borders that escape CBP capture and detention and those among the vast numbers of illegal aliens flowing across our borders undetected.

Nor do we know how many terrorists are among the illegal aliens that CBP does capture but that the Biden administration orders released under President Joe Biden’s (D) Catch and Release program.

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.