Category Archives: regulation

The Fed’s Change of Subject

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Richard W. Fisher and Harvey Rosenblum, President and CEO and  Executive Vice President and Director of Research, respectively, of the Federal Reserve Bank of Dallas, wrote in Wednesday’s WSJ op-ed pages,

The phrase “too big to fail” is misleading. It really means too complex to manage. Not just for top bank executives, but too complex as well for creditors and shareholders to exert market discipline. And too big and complex for bank supervisors to exert regulatory discipline when internal management discipline and market discipline are lacking.

This is a cynically Alinsky-esque change of subject.  “Too big to fail” and “too complex to manage” are entirely separate concepts.  While there is some overlap—size does contribute to complexity—”too big to fail” is a purely political concept created to justify increased government interference in the private management of private enterprises.  “Too complex to manage” is at once a management and an economic concept.  It’s the managers who cannot keep up with the complexities of their enterprise (or, in fact they can; government has nothing legitimate to say here), and it is a free market economy that will demonstrate and react to the overcomplexification in a wholly appropriate manner: the truly too complex, and so poorly managed, enterprises will fail.

The proof of the political purpose of “too big to fail” is in that phrase “too big and complex for bank supervisors to exert regulatory discipline.”  But they add to that proof:

TBTF is a misnomer in another way. The phrase creates the impression that these banks cannot fail. … Suffice it to say, institutions holding one-third of U.S. banking system assets did essentially fail in 2008-09….  They were quasi-nationalized—bailed out….

Oh, and

…TBTF banks…contributed to reducing the impact of the Federal Reserve’s accommodative monetary policy.

The typical Progressive meme: it’s not my fault; it’s that other guy’s fault.  Never mind that the Fed’s “accommodative monetary policy” not only was, and is, not necessary, the inflation threat the Fed is creating with this policy is enormously and increasingly dangerous.

They also write, dismissively, that while principles (e.g., of “market capitalism”) count, economic performance also counts.  They use that superpositioning to justify government pressure to break up enterprises that the Fed (not the free market) considers too big.  In doing so, they ignore the fact that it is free market principles that maximize the capacity for performance.  They ignore the fact that while concentration can cause severe dislocation when the concentrated entities fail, the bankruptcy system of our particular free market system works very well.  That bankruptcy system has a habit of breaking up too complex, and/or “too big” enterprises that have failed—Merrill Lynch comes to mind, which was reduced in size and acquired by another enterprise; as does Lehman Brothers, which was allowed to disappear altogether and its assets sold to a multiplicity of other enterprises; and AIG, which is undergoing breakup and shrinkage today.  And the bankruptcy produces results far faster than can the government—just look at how many of our nationalized banks, and car companies, still have significant government ownership positions.

Government has to run things.  The free market system has to be centrally managed.  Our existing bankruptcy system has to be bypassed.  All this because government Knows Better.  A free market can’t be allowed to make its own decisions; that’s too messy for our antiseptic Progressive patróns.  And too far beyond their control.

Maybe It’s Time

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Andrew Ackerman and Jeffrey Sparshott described in The Wall Street Journal last week the status of the government’s recovery of TARP funds doled out during the bailouts.

Two things struck me:

Treasury has turned a profit on the Capital Purchase Program, the main federal effort to help stabilize financial markets. It invested a little less than $205 billion in 707 banks, and as of mid-February had gotten about $211 billion back.

However,

More than three years after the launch of TARP, the federal government still owns stakes in about 350 banks.

They continued on that last:

While the biggest institutions have long since paid back their rescue funding, many smaller banks have been slow to shed government aid.

The divide in part reflects the difficulties faced by many Main Street banks, often saddled with poorly performing commercial real-estate loans and limited ability to raise new funds. Together with weak regional economies and a tough lending environment, the banks haven’t been able to exit TARP.

Maybe it’s time for the Feds to exit them from TARP.  Maybe it’s time to get government out of the way, let these banks fail, and let them recover and move on.

Information Privacy

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In a burst of good sense, the Federal Trade Commission is on the right track.  Earlier this week, it “issued a strong call for commercial-data collectors to adopt better privacy practices and called for Congress to pass comprehensive privacy legislation.”  While I have no great confidence in Congressional skill at protecting our privacy, this would be a better choice than leaving our information to the tender mercies of “commercial-data collectors.”  As FTC Chairman, Jon Leibowitz, notes,

Simply put, your computer is your property.  No one has the right to put anything on [your computer] that you don’t want[.]

The FTC’s initial solution, though, is at best naïve.  Putting a “Do Not Track” button into Web browsers is doomed to failure as Google’s decision to ignore even user-deliberate attempts to prevent their browsers from yielding up personal information demonstrates.  Such a button will not prevent the data collection; it can only rely on a “Pretty please, Mr Data taker, don’t take my data” plea.  Beyond that, the data collectors already are weasel-wording the meaning of “Do Not Track.”  The online-ad industry, for instance, has decided it means “Do Not Target,” and it will still collect your data for “market research,” “product development,” and the like.  Oh, and “trust us.”

The need for overt controls that actually block the collection rather than relying on begging and the good offices of the collectors is demonstrated by, even more than the equivocations, the rank cynicism of those collectors and their objections.  The Wall Street Journal article at the first link cites the Executive Vice President of the Direct Marketing Association, Linda Woolley—whose group represents many of those data hounds—as saying her Association opposes

giving consumers access to marketing information because it would be expensive, difficult to keep secure and the type of data used by marketers doesn’t harm consumers.

Sorry, Madam, your costs aren’t relevant to my privacy.  You don’t get to hide from me what you’re trying to take from me because that might hurt your pocketbook.  As to your plaint that such data would be “difficult to keep secure,” it’s not secure now.  You’re already taking it without our permission, and often without our knowledge, and as Google has demonstrated, and as Apple has demonstrated with its unauthorized tracking via our smart phones.  Worse, your view of “security” is markedly different from ours.  And on what basis should we believe your claim that the data you’re taking from us to be “used by marketers” doesn’t harm us when you’re at such pains to hide those data from us?

Woolley says,

We are very wary about taking the information out of the information economy[.]

Since it’s not your information in the first place, and we’re only looking to recover that which you’ve taken without authorization, no data are being taken “out of the information economy.”  Your argument could be used by the burglar, who having successfully stolen the jewelry from our house, also is “wary of taking…out of [his] economy.”

A Thought on Regulations

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The Heritage Foundation has an interesting article about the costs of President Obama’s regulations.  I want to talk briefly about one aspect of that article, and to disagree a bit with the Foundation.

One of the outcomes of the Obama explosion of regulations is a concomitant explosion in red tape, and the Foundation suggests a solution to this.  The article at the above link cites an article by  James Gattuso and Diane Katz as containing the proper response: additional congressional oversight, claiming that such a thing is necessary to protect us and our economy from overregulation.  Moreover, Congress should require congressional approval of “new major rules promulgated by agencies, establish a congressional office of regulatory analysis, and establish a sunset date for federal regulations in order to ensure that substantive review of existing regulations continually occurs.”

Gattuso and Katz have it partially right.  There is no need for additional bureaucracy, Congressional or otherwise, to “oversee” us or our government.  That’s how we got Obamacare and Dodd-Frank and how we got the EPA foisted onto us.  The oversight is our duty as citizens, and we’ve been derelict in carrying out that duty.  It’s on us finally to get off our duffs and do our job.

There’s also no need for a “congressional office of regulatory analysis.”  That’s just more red tape waiting to happen.  If we want to know what a proposed regulation might cost, we already have an Office of Management and Budget in the Executive branch and a Congressional Budget Office in the Legislative branch to give us (perhaps conflicting) estimates.  These estimates then can help inform Congressional debate—see below.

The other two ideas are quite sound.  Every new rule proposed should be subject—individually, not in groups—to Congressional debate and Congressional approval, or rejection.  Moreover, every rule approved should be sunsetted: it should automatically expire after five years (to minimize the impact of political cycles).  If renewal is desired, then see above for proposed rules.

Some will object that this will greatly slow down the pace of rule-making, or that it interferes with Executive branch powers.  As to the first, what’s the downside of that slower pace?  As to the second, there is no such Executive branch power.  Executive regulatory rule-making authority is nothing more than a Congressional delegation of a limited capacity to the Executive branch, and that delegation can be withdrawn quite easily.

Bookkeeping

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Related to the Health and Human Services mandate to provide—and so to buy—contraception and abortion health insurance coverage at no cost to the “purchaser” is another final rule from HHS that requires those plans that cover abortion to collect a separate fee of $1 or more directly from the policy customers, with the money collected being used for abortion coverage.  The administration’s claim is that doing it this way means that abortions are not subsidized with taxpayer subsidies.

However.

Congressman Chris Smith (R, NJ) correctly observes,

Requiring the segregation of funds into allocation accounts—a mere bookkeeping exercise, is a cheap political trick designed to circumvent longstanding prohibitions on taxpayer funding of abortion.

Moreover, as Smith also notes, the rule pushes insurance companies obscure information about the surcharge in their benefits materials, so that customers are not readily able to discriminate among policies that do and do not cover abortions.  We’re all still subsidizing abortions, which violates the consciences and religious teachings of many of us.

With regard to the government as middleman denial, we’re all taxpayers—at least those of us who work and so must buy these policies and this coverage under that other HHS rule.  The idea that the Federal government isn’t acting as middleman in the collection and transfer of the funds doesn’t alter at all the fact that it is us taxpayers’ money that’s being used to subsidize abortion coverage.  But the premise that government isn’t middleman in this set of transactions is itself fictitious: it’s government that’s mandating the funds transfer; it is the necessary middleman here.

Finally, the dishonesty of this bookkeeping separation of the money is easily illustrated with a thought experiment.  Imagine a woman who has, in her mind, three needs: pay the rent, buy food, and get an abortion.  Imagine further that each of these items costs $1 and that the woman has only $2 to her name.  Now imagine a government man approaches the woman and says to her, “Here’s $1.  The only string attached is that you may not use this dollar to get an abortion.”  With the $3 the woman now has, she goes out and gets all three: she pays the rent, buys food, and get the abortion.  Prove the taxpayers’ dollar, which the government man gave the woman, was not used to get the abortion, when without that third dollar, she could not get all three, and with it, she actually did get all three.  That third dollar made it possible.