Category Archives: political economy

Community Banks, Big Banks, and Government Regulation

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First, the value of community banks, as illustrated by this anecdote from an Iowa bank’s President:

We have a good story to tell. According to the latest annual report from the Iowa Bankers Association, Iowa’s banks helped keep the state’s economy humming by, among other things, safeguarding $56 billion in deposits and using those funds to lend nearly $42 billion to help Iowa residents and businesses. Iowa banks also paid $158 million in taxes, made $39 million in community donations, and sponsored financial education programs in more than 129 schools.

For perspective, this compares to Iowa’s estimated 2012 GDP of $158 billion.

Despite this value-add, though, here’s what Uncle Sugar is doing to these smaller banks, courtesy of Dodd-Frank:

This expanding multitude of [Dodd-Frank] rules is…why some banks have decided not to offer certain types of consumer loans and more accommodating repayment terms.  A recent survey of Iowa bankers reveals that 89 percent of respondents say the regulatory environment has impacted their ability to provide credit; 81 percent say it has hurt their customers’ ability to understand financial products; and 68 percent say it has caused them to consider eliminating financial products.

As Spirit of Enterprise notes, this favors big banks, who can afford the costs of staff whose sole function has no relation to a banks’ actual business, but instead centers on compliance with government mandates, and it’s driving these community banks out of the industry.  Defending Enterprise puts it this way, and rather than seeing him as cynical, I agree with him:

Once heavy new banking regulation became inevitable, Wall Street and the Democrats insured that the government would make the big banks even bigger by driving the small banks out of business. One might argue that these were “unintended” consequences. We respectfully submit that these consequences were so predictable, akin to the timing of the rising of the sun or at least tomorrow’s weather, that they were, in fact, intended.

Federal Control(s)

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This is how the central government gets its subordinate states ensnared in the Federal power trap.  Much has been written already on the entrapment of the states in the Medicaid, education, and so on honeypots, with the Feds having gotten the states dependent on Federal monies for those programs, and then using that addiction to control the states’ behavior vis-à-vis those programs—and other useful state considerations—lest those funds have something happen to them (albeit descriptions have not been this blunt).

Here’s an explicit example, this time aimed at New Orleans and through this city the state of Louisiana.

Engineers consider it a Rolls Royce of flood protection—comparable to systems in seaside European cities such as St. Petersburg, Venice, Rotterdam and Amsterdam.  Whether the infrastructure can hold is less in question than whether New Orleans can be trusted with the keys.

The Army Corps estimates it will take $38 million a year to pay for upkeep, maintenance and operational costs after it’s turned over to local officials.

Local flood-control chief Robert Turner said he has questions about where that money will come from.  At current funding levels, the region will run out of money to properly operate the high-powered system within a decade unless a new revenue source is found.

“That’s been the eternal problem with flood-protection systems,” said Thomas Wolff, an engineer at Michigan State University.  “You build something very good and then give it to local interests who are not as well-funded.”

However, the Feds will blame the locals for the failure:

Congressional investigations found the old Orleans Levee Board more interested in managing a casino license and two marinas than looking after levees.  Though the Army Corps of Engineers had responsibility for annual levee inspections, the local levee boards were responsible for maintenance.  Still, the boards spent millions of dollars on a fountain and overpasses rather than on levee protection.

Never mind that the locals have a local economy that needs looking after, else there’s nothing for a (Cadillac) Federal program to…protect.

As Richard Fernandez notes in his post,

The problem with free stuff is that someone has to pay for it.

And when the Federal government sighs and says, “OK, we’ll pay,” it then also exerts control over the program being centrally funded and over the entity “benefiting” from that program.  And so the entity and its citizens also “pay for it,” with their freedom of action.

So much for federalism.

An Obamacare Outcome

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Dr Peter Weiss, a practicing physician, describes one.

I have now posted a notice in my office and each exam room stating exactly what Obamacare will cover for those yearly visits.  Remember Obama promised this as a free exam—no co-pay, no deductible, no charge.  That’s fine and dandy if you are healthy and have no complaints.  However, we are obligated by law to code specifically for the reason of the visit.  An annual exam is one specific code; you can not mix this with another code, say, for rectal bleeding.  This annual visit covers the exam and “discussion about the status of previously diagnosed stable conditions.” That’s the exact wording under that code—insurance will not cover any new ailment under that code.

What this means:

If you are here for that annual exam, you will not be covered if you want to discuss any new ailment or unstable condition.  I cannot bait and switch to another code—that’s illegal.  We, the physicians, are audited all the time and can lose our license for insurance fraud.

Yeah.  A separate appointment, separately scheduled for your new ailment.  Further, during your scheduled annual, note that bit above: “discussion about the status of previously diagnosed stable conditions.” That’s the exact wording under that code….  Your doctor’s discussion concerning your annual’s results are largely scripted by Uncle Sugar.  Talk about snake oil.

Oh, and good luck scheduling that separate appointment.  Keep in mind that your doctor, if you get to keep him at all, is part of a shrinking collection of doctors, and their work loads are exploding from all the new patients Obamacare is foisting off on them.  There are only so many hours in a day.

 

RTWT

Republicans and Talking to Folks

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Neil King and Victoria McGrane have some thoughts.  They cite various conservatives, for instance:

[A]ctivists—including tea-party activists but also some mainline Republicans—say the party should adopt a more populist tone, one that places more emphasis on ways Republican policies would help the middle class.

And

The critique from these Republicans suggests that the party should change some policies—such as adopting a more skeptical posture toward big banks—as well as the way it talks about economic issues.

And

Mr. Romney’s lopsided loss among the country’s expanding universe of minority voters has fanned fears within the party that its main challenge is demographic, though others dismiss that worry as secondary.

But these are short-sighted and outright wrong.  The “others” are right; the problem is Republicans’ and conservatives’ general failure to talk to all Americans, regardless of ethnicity.  Republicans and conservative need to get out and talk to people in the neighborhoods in which they live—all of those neighborhoods—as I pointed out here and here.

Ex-Mississippi Governor and erstwhile GOP Chairman Haley Barbour has the right of it.  He understands that conservative policies aren’t the problem.

We do very well when our policies for economic growth and job creation are put in place.  But we often don’t talk about those policies in ways that the middle class and working class see as in their interest.

And they don’t talk at all about those policies where Americans physically live.

The other critiquers, though (the ones who are concerned with the content of the message as well as where it’s delivered), also have a point—apart from attempts to change those policies.

The Republicans’ approach to dealing with the nation’s largest financial firms illustrates the tension.  GOP leaders oppose the Dodd-Frank financial-overhaul law as regulatory overreach and want it scrapped, partly because they say it codifies certain institutions as being too big to fail.  But so far, they haven’t rallied around an alternative means to reining in the big banks.

Or establishing the need for government to “rein in” the big banks.  Which points up another aspect of message content.  In addition to their failure clearly to articulate what they would do differently vis-à-vis Dodd-Frank, their mantra concerning Obamacare is woefully inadequate:  “Repeal and replace.”  Replace with what?

Unfunded Liabilities

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We’ve already seen counties and cities brought low and into bankruptcy by their blithe accumulation of future liabilities that they have no hope of honoring.  Jefferson County, AL, comes to mind, from a bond sale they had every reason to believe, a priori, that they could not honor in the future.

So does Stockton, CA’s bankruptcy, flowing from a public union pension and insurance program that they, also, must have known in advance that they could not support in future.

These are well understood, and the data that would have predicted these failures easily available to any who cared enough to look—and to face the impending problem squarely.

What of our nation’s debts, though?  Chris Cox and Bill Archer describe in a recent Wall Street Journal the hidden—and unfunded—liabilities at the Federal level that make our public national debt of $16 trillion look minor.

These hidden, but too real liabilities—debts—include

the unfunded liability of Medicare, $42.8 trillion

the unfunded liability of Social Security, $20.5 trillion

the unfunded liability of federal employees’ future retirement benefits, $23.5 trillion

But these data are carefully hidden from public scrutiny.  Federal Treasury “balance sheets” don’t include things like the debt represented by those Medicare, Social Security, and retirement unfunded liabilities.  No, the data are carefully squirreled away in the individual social welfare accounts.  You have to know where to look and what to look for—knowledge that heavily trained and experienced folks like Cox and Archer have, but which our politicians know the average American constituent lacks.

This is a time bomb that demands out entitlement programs be brought to heel, our entitlement mentality as a nation to be curbed.  Else we’ll go the way of Stockton.  And for a nation, that won’t be pretty.  Think of Greece today.  Think of Weimar Germany of the last century.