Tag Archives: regulation

Systemic Importance and Institutions

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Minneapolis Federal Reserve President Neel Kashkari is on the right track, but he’s not there yet.  He’s one of a very small number of financial regulators (of any sort of regulator, come to that) who has the self-assurance and intellectual honesty to say, and to mean, things like

I start with the assumption that regulators are going to miss the next crisis.  We’re going to miss it.

He’s got a solution to that, too, but it’s only a partial solution, and that incompleteness stems from a fundamental lack of understanding.

The lesson he drew [from the Panic of 2008] is that if you want to reduce the risk that taxpayers will have to finance another rescue, financial giants need to be much better fortified before the next panic hits.

This is a start (we can argue with specific levels of fortification, of capital reserves, that are suitable, but the principle is sound), but he needs also to recognize the other side of this cash coin: businesses, including banks and systemically important institutions, need to be allowed to fail without taxpayer monies.  We have a perfectly fine bankruptcy system that works admirably well.

But the lack of understanding that regulators have of their capabilities, even with Kashkari’s degree of understanding as a start, makes much of that two-part solution less than fully relevant.  The lack of understanding is this: if the regulators can’t predict the next financial (or any other) crisis, if they can’t characterize what it will look like, on what basis do they presume to be able to predict the institutions that are/will be important to those crisis systems?

Loosening Financial Regulations

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Felix Hufeld, President of Germany’s Federal Financial Supervisory Authority, is worried about an outcome of Donald Trump’s election.  He’s concerned that financial regulations laid on in the aftermath of the Panic of 2008, regulations that expanded the reach of Government into men’s financial lives, will begin to be loosened during a Trump administration.

Barely 10 years after the start of the financial crisis I once more hear the bugle calls of deregulation.

And I have the impression that these sounds are becoming louder.  That is not without risk.

To live life is to live with risk.  The thing about risk, though, is that the more Government tries to mandate rules against it, the more Government increases the risks that ordinary folks must live with.

Hufeld has this much right, though:

The [financial] industry, just as politics and regulators, are in need of predictability and continuity—not regulatory volatility[.]

Indeed.  Regulations need to be vastly reduced, Government gotten out of the way of free markets and the free citizens operating in them.  And then politicians and regulators need to leave the remainder alone and stable and not constantly be adding regulations and “tweaking” others.

The problem Hufeld and other bureaucrats of the Left—both in Europe and in the US—have is that they can’t conceive the idea the ordinary citizens are fully capable of making their own financial decisions without Government holding their hands.

Or these bureaucrats worry about their own loss of power were ordinary folks freed to make their own financial decisions without Government holding their hands.

Or both.

Freedom’s Just Another Word

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…as far as the PRC is concerned.

The good citizens of Hong Kong had elections for their representatives in the city-state’s Legislative Council, and two folks who participated in protests two years ago against PRC intrusion into Hong Kong government affairs were elected.

Never mind the voice of the people.  They have none wherever the PRC can reach.

The Standing Committee of China’s National People’s Congress said people elected to the city’s legislature cannot retake their oaths of office if their first attempt was invalidated for being insincere, not solemn, or deliberately misread.

Naturally, the ones who decide whether an attempt was insincere, not solemn, or deliberately misread are those of the PRC’s government and their puppets allies in the Legislative Council.  And so, Yau Wai-ching and Sixtus Leung are being barred—by the PRC—from taking their oaths of office, after their first attempt was blocked by the Council’s leadership because the two were too lippy to suit them, and before a Hong Kong court could adjudicate the matter.

So much for freedom in PRC satraps.  So much for the PRC’s commitment vis-à-vis Hong Kong, made as part of Great Britain’s handover of Hong Kong.

Mao-ist China Returns?

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People’s Republic of China President Xi Jinping has been consolidating his power and centralizing control of the PRC in his hands for a while.

Now he’s seizing more direct control of the nation’s economy.  Xi has removed Lou Jiwei, the PRC Minister of Finance from office.  Lou was “reform-minded” (read: more open and freely operating domestic markets with a more rational tax régime), but that conflicted with Xi’s demand for more government control over those same domestic markets.  Xi has reassigned Lou to run the nation’s pension fund.  The fund is in a disastrous condition; this is simply a move to set Lou up for failure and removal from government altogether.

Look for Li Keqiang, the PRC’s Premier of the State Council (so far) and nominal number two in the government, to go next.

All that’s remaining is to see whether these folks go into peaceful “retirement” or they’re given reeducation coursework to complete in a quiet rural environment.

Nor does this bode well for the PRC’s international behavior generally, nor does it indicate any interest in Xi’s improving relationships with American government officials.  This consolidation simply makes it easier for him to pursue his economic warfare against us through his government’s cyber attacks and cyber spying against our businesses, our nation’s economic infrastructure, and our nation’s government.

A Couple of Litmus Tests

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The two major party Presidential candidates have them.  All Presidents and candidates who wish to nominate Supreme Court Justices have them; some are more or less legitimate than others.

Democratic Party Presidential candidate Hillary Clinton’s wants:

The kind of people that I would be looking to nominate to the court would be in the great tradition of standing up to the powerful, standing up on behalf of our rights as Americans[.]

Read that again.  Clinton wants Justices who put social agendas ahead of the actual law before them, ahead of the text of the Constitution, ahead of the Justices’ own oaths of office, which swear them to uphold and defend the Constitution, not ignore it, or “reinterpret” it.

Republican Party Presidential candidate Donald Trump’s wants:

[Justices who would] interpret the Constitution the way the founders wanted it interpreted.

Notice that.  Justices who will do the opposite of what Clinton’s choices will do: rule on the basis of what the law and the Constitution actually say, rather than on what the Justices might wish had been said.

There’s just one more litmus test that I would add, one as general and carefully nonspecific as Trump’s: lose deference to the other branches of the Federal government.  The founders also wrote the Judicial branch as the equal of the Legislative and Executive branches.  No deference is owed, no deference is legitimate.  Deference subordinates what is intended to be a coequal branch of the government to the other two.  Besides, a law is Constitutional, or it is not; that does not depend in any way on who says it.   Further, a matter before the Court comports with the law and the Constitution on its merits, or it does not; that does not depend on who is bringing or defending the matter.

One of these two will be nominating Justices in the next term—at least one, likely three, and maybe four or five.  The next President will determine the tenor of the Court and the viability of our legal system for generations.

It’s clear which set of choices are better for the present and long term health of our nation.