Freedom Line Blog

The Heritage Foundation has a helpful list of the Obama Administration’s many anniversaries this month:

The Obama Administration has seen its fair share of milestones this month. Yesterday marked the first anniversary of the Dodd Frank Wall Street Reform and Protection Act, Obamacare is just over one year old, it has been more than 800 days since the Democrat-controlled Senate passed a budget, and the Consumer Financial Protection Bureau opened its doors on Thursday–the first new federal agency in nearly a decade. You’ll notice that no one is celebrating any of them.

Liberals are aghast that regulating the economic activity of millions of people is going so slow, while business owners and the unemployed are living in constant fear of growth-killing rules.

Happy Anniversaries, Mr. President!  Your laws are destroying America.

Alex Pollock’s contribution in The American, a publication for the American Enterprise Institute (AEI), is much needed medicine for the regulatory fever about to be unleashed when the Dodd-Frank “financial reform” bill is implemented.

The key to understanding boom-and-bust cycles, according to Pollock, is realizing the limits of a mathematical model’s ability to predict the future.  To quote Pollock quoting a colleague, “The model works until it doesn’t.”  That is, until someone falsifies the model by acting in a way contrary to the model’s assumptions.  Then everybody who uses the model is out a lot of money.

So, if profit-hungry businesses can’t figure out a way to avoid losing money, what in the world makes the denizens on Capitol Hill think they can create a federal agency with such powers?

Hubris and stupidity.  Political cultivation of those qualities is a science unto itself.

Weekend Bonus Link: For another theory of the business cycle, click here.

Of course, they’re not framing it that way.  Sen. Tom Harkin (D-IA) and other Democratic Senators have proposed an amendment to the financial reform package to cap customer ATM fees.  But CNNMoney reports, “some experts suggest that capping fees might result in more harm than good for consumers.”

I realize the free market is too difficult for Senators to understand, but do we really need an “expert” to explain what the consequence of this would be?  ATM’s are a convenience because we’re too busy or lazy to walk inside our bank.  I know my bank doesn’t charge me to use their ATM’s, but other banks will charge me for the convenience of using theirs.  Banks provide more ATM’s because they know that people will go to the closest ATM in a pinch, even if it’s not their bank’s machine.  Customer gets convenience.  Bank makes a few bucks.

By capping these fees, banks will have far less incentive to provide extra ATM’s.  So the next time you are strapped for cash, there may not be a cashbox right around the corner.  And guess what?  Not only will competitor banks cut back their ATM’s, but so will your own bank where, if you’re like me, you can withdraw your cash for free.

Stop trying to help, Congress.  You’ve done far too much already.

After an erratic end to last week’s trading filled with ‘typos’ and frozen stocks, the Dow and markets all over the world are rallying on news that the European Central Bank will create a trillion dollar fund to buy government and private debt to keep lending liquid.  With the help of the IMF and the Euro-using nations, the fund will prop up troubled governments.

The response of surging stock markets does not mean this is a wise and sound policy.  Investors merely feel the momentary comfort that there will be enough stability in the short term for money to be made.  But this plan is little different from the $50 billion rainy day bailout fund batted around the debate for financial reform here in the United States, other than the sources of funding.

Such measures create perverse incentives for market actors, whether a country like Greece, or private firm like Goldman Sachs, saying, “Go ahead, and continue to take big risks.  Don’t worry about the consequences.  We’ve got your back.”  Why should Greece tackle its massive public sector union crisis?  Why wouldn’t Wall Street firms go out on a limb for a big potential gain, if there were a multi-billion dollar bailout fund to catch them if they fall?

Markets are all about incentives.  Rainy day bailout funds create the wrong incentive.

As Goldman Sachs is reeled into court for potential securities fraud, a bigger fish is still swimming free and wreaking havoc on the public.  Freddie Mac, one half of the not-so-dynamic duo of government-backed mortgage peddlers, took another massive hit during the first quarter of the year.  The company, which is largely owned by the federal government after the 2008 bailouts, is set to ask for an additional $10.6 billion in “federal aid,” aka more bailouts.

With assistance and pressure from Washington to make housing affordable for all, one can see how Freddie Mac thinks that money grows on trees.  Unfortunately, all of us in the real world, from whom the government is funded, should be concerned how “We the Taxpayers” are going to come up with another $10 billion to flush down the toilet.  Not to mention why.

More troubling, while Goldman Sachs is getting grilled at congressional hearings, financial reform legislation, which unleashes a broadside against banks, but not a single provision addressing the troublesome Fannie and Freddie, will soon be ushered to a vote.  The Kansas City Star’s E. Thomas McClanahan stated it well:

“Wall Street’s excesses sent the markets and the economy off a cliff, but the seeds of the debacle were planted by politicians and richly fertilized by their creations: Fannie and Freddie…”

The shenanigans on Wall Street may or may not have brushed up against the law, but the opportunity and incentive would not have existed had the federal government and its lending arms, Fannie and Freddie, not insisted on giving mortgages to folks who could not afford them.  Congress should remember as they point a finger at Wall Street that four fingers are pointing back at them.

An addendum to our Liberty Update commentary piece this week, which highlights the absurdity of Obama advocating greater power for government and the Securities and Exchange Commission (SEC) over the American economy.

We noted in our commentary that the latest Pew Research poll shows an American electorate increasingly distrustful of government since Obama entered the White House.  We also noted that the SEC’s recent record of utter incompetence in stopping Ponzi schemes like that of Bernie Madoff, as well as its inability to foresee or prevent the latest economic bubble, suggest that the last thing the struggling American economy needs is even more centralized government control.

We couldn’t have timed our commentary more perfectly, as America wakes up this morning to the news that SEC personnel were wasting thousands upon thousands of hours surfing for pornography rather than actually doing the job that our tax dollars pay them to do.  As one example, an SEC accountant attempted to access a blocked porn site 16,000 times, and many of the SEC staffs’ actions occurred even after the financial bubble burst.

Yet Obama, the man with such paltry private-sector experience or knowledge, sanctimoniously lectures us that he and the SEC should be granted even more authority?

Remember all the pieties in the early days of the Obama Administration about how there would be a higher wall between special interests and the White House than ever before? Those of us who know the realities of Washington never expected much from those promises. After all, there is a limited pool of talented people in our nation’s capital.  When they’re not working in the public sector, they have to make up for it with the higher pay that comes from private sector jobs. Keeping those folks from jumping back and forth would dramatically reduce the federal government’s talent pool.

But while the potential for this promise to be broken could be seen a mile away, who would’ve guessed that it would have happened in a fashion so embarassing to the White House? Just a few days after the Securities and Exchange Commission announced that it was going after Goldman Sachs for dodgy shorting practices — an event that (coincidentally, we’re told) came in the midst of the Administration’s push for new banking regulations — Politico reports that Obama’s former White House Counsel, Greg Craig, has been retained by Goldman to help them navigate the rocky shoals of the Beltway.

One wishes some enterprising member of the White House Press Corps would put the question to the President: “Is your former White House counsel part of the corrupt Washington infrastructure you deplore or does the private sector have legitimate grievances with how it’s being treated by your administration?” It has to be one or the other.