Category Archives: markets

More Government Overreach

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This time, by the Federal Reserve Bank. As most of you already know, the Fed runs “stress tests” to determine whether financial institutions can survive an economic dislocation of the magnitude of the Panic of 2008. Among other things, if the institution fails the stress, the Fed dictates to the institution the dividends it will be allowed to pay until the conditions leading to the alleged failure are corrected.

That’s a serious overreach; it is a government entity presuming to intrude itself into a private enterprise decision, a decision that the free market is fully capable of sanctioning or accepting without Big Government involvement.

It’s worse than that, though. Fed Board of Governors member Daniel Tarullo has exposed the more massive overreach.

Even though we do not publicly release the models, we have put systems in place to ensure oversight and accountability[.]

The Fed uses non-peer reviewed, secret models to make its assessments. Because of that secretiveness, we have no way of assessing the adequacy of the Fed’s “oversight and accountability” of those models. We also have no way of assessing the accuracy—even the legitimacy—of those models.

Tarullo’s excuse?

…disclosing the models could give banks an opportunity to game them….

Because the financial institutions don’t already game the system. Like nobody ever games any system. No, of course we do. It’s what competition does. Gaming—free market competition—is innovation, prosperity production. And, yes, the instability of creative destruction, which leads to breakout innovation and prosperity production.

It’s a disingenuous excuse for a disingenuous practice. The deliberate lack of transparency of this arm of the Big Government is of a piece with the general secretiveness of this Big Government.

It’s necessary secretiveness, however. If the public knew more about these models, knew something of how they work (or fail to work), we might do more than force corrections to them. We might do away with the Fed’s interference in private business decisions altogether, and that would reduce the power of the men in Big Government.

National Sovereignty

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There’s sovereignty, and there’s sovereignty. Michael Graetz, in Thursday’s Wall Street Journal, talked about the European Union’s extra-legal tax crime creation and its retroactive application of its newly minted crime to a number of multinational corporations. Interestingly, the “felonious” multinationals are American, so far.

These companies’ offenses? Tax agreements they entered into with the governments of Luxembourg and the Netherlands (and with Ireland…).

Graetz went into considerable detail about the nature of the so-called crimes in his piece. What’s interesting to me, though, is that these agreements were entered into in good faith on both sides: the multinationals on the one side and supposedly sovereign nations’ governments on the other side. However, the European Commission says it’s sovereign over these nations, and their solemn agreements cannot be allowed to stand.

This is the price of doing business—or trying to do business in good faith—with a fundamentally socialist polity—even if that polity has not the sovereign superiority it purports to arrogate to itself. On the other hand, this is the damage done by erstwhile sovereign nations surrendering even a part of their sovereignty to a supra-national construct.

Economic Contest

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It’s not yet an economic war. Russia is beginning the contest with Turkey after that nation was so impertinent as to shoot down a Russian fighter-bomber that was the latest Russian aircraft to violate Turkish airspace, this time refusing to leave despite multiple requests and warnings.

…Moscow took aim at Turkey’s economy, ordering tougher checks on its food imports.

This isn’t a contest that Russia can win, though. The Turkish economy is in sounder shape than Russia’s, and Turkey isn’t particularly dependent on exports to Russia. Russia, though, already has banned food imports from the rest of Europe over the latter’s sanctions that responded to Russia’s invasion and occupation of significant parts of Ukraine. This latest move, delicate though it is, simply makes Russia more dependent on domestic food production.

To be sure, this isn’t all the posturing Russian President Vladimir Putin is doing. He’s also shipped a number of near state-of-the-art S-400s, long-range anti-aircraft missiles, to his base in Syria, and he’s moved his guided missile cruiser, Moskva, which also is equipped with SAMs, closer to Syria. Both deployments put Turkish aircraft operating over a significant portion of Turkey in Putin’s gunsights.

This is a contest that Russia needn’t be allowed to win, either. If Putin continues to violate other nations’ airspace in his efforts to prop up his client Bashar al-Assad, those two isolated deployments can become targets themselves.

A Thought on Immigration

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Greg Ip has a piece on demographics in Sunday’s Wall Street Journal.

Next year, the world’s advanced economies will reach a critical milestone. For the first time since 1950, their combined working-age population will decline…and by 2050 it will shrink 5%. The ranks of workers will also fall in key emerging markets, such as China and Russia. At the same time the share of these countries’ population over 65 will skyrocket.

There are two competing factors that dominate those statistics: people are living longer, in particular in retirement, and women are bearing fewer children over their lifetimes. As Ip put it,

[C]ompanies are running out of workers, customers, or both. In either case, economic growth suffers.

The solution to this, of course, is immigration. Blocking immigration because—pick a reason—means we won’t have the labor force we need for, among other things, saving our retirement safety net in substantially its current form or privatizing it.

We’ll have to get our immigration kit in order promptly, though, and be prepared actively to compete for them, much as our private enterprises already have to compete for employees.

By 2050, the world’s population will have grown 32%, but the working-age population (15 to 64 years old) will expand just 26%.

The competition will sharpen:

Among advanced countries, the working-age population will shrink 26% in South Korea, 28% in Japan, and 23% in both Germany and Italy….

That competition cannot be based on how many goodies our government can hand out; our existing and unaffordable Progressive/Democrat welfare state is the outcome of that. No, our competitive advantage is, and must be, centered as it always has been, on our individual liberties and the opportunities our freedoms create.

This is a national security matter, too. Absent a growing, vibrant labor force, we won’t have the economic wherewithal to fund a capable military establishment, much less equip it with the technology required to stay globally dominant—or even strong enough to defend us.

Certainly, we need to secure our borders, and we need to do an efficient, prompt job of vetting those we let in. And those we let in do need to either be satisfied with green cards/work permits, or they need to assimilate into American culture as part of their gaining citizenship.

But we must have those immigrants, just as we’ve needed—and gained—them at critical junctures throughout our history.

American Companies Beholden to Foreign Governments?

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Now it appears that the Obama administration is taking yet another step to make us look like Europe: he’s negotiating an agreement that could end up requiring American companies, domiciled in America and operating in America, to report to European Union authorities.

Recall the European Court of Justice’s ruling last month that European citizens’ personal data that winds up being stored in the US as a result of various business deals is too exposed and the 15-yr-old, successful data-transfer Safe Harbor agreement between the US and the EU. This is the arrangement that’s being renegotiated, and potentially included in the new agreement is this:

American businesses could be required to report requests by US intelligence services for the data of European users under a trans-Atlantic data-transfer pact now being negotiated, according to the European Union’s justice commissioner.

Worse, it seems to be one-sided: EU companies in the US aren’t being required under this new deal to make similar reports to US authorities.

Hmm….