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April 29, 2010
Adopt A Loser
The Democrats appear to be adopting another losing position when it comes to the Banking Bill. With crucial midterm elections nearing, Democrats have lost the advantage they've held for years as the party the public trusts to steer the economy.I wonder if that loss of trust has anything to do with the banking bill proposals? In theory (whose?) there are supposed to be strict limits on Government borrowing for bailouts. In practice? Well it may not work out that way. The Wall Street reform bill headed for a test vote on the Senate floor Monday night will allow the Federal Reserve to continue to pump trillions of dollars into major banks largely in secrecy, the co-author of House language that would open the central bank to an audit charged in a memo to the Senate.I'm convinced that there are never any accidents, oversights, or loopholes when it comes to drafting legislation. There are paid for holes and gratuitous holes. Never loop holes. Because if what Congress does is not intentional then what do we have? That would mean they do not even rise to the level of a Parliament of Whores. The bail out "loop hole" is not the only criticism of the bill. Relatively small institutions compared to the names often cited in the news, community banks typically operate in small towns, urban neighborhoods or the suburbs. Their remit usually involves funding small businesses that require credit in order to operate payrolls and to expand, and lending to families financing home purchases or college. Many of those familiar with the banking industry, overall, say that community banks bore little to no responsibility, on balance, for the financial meltdown that occurred in 2008. Nonetheless, an analysis of the Dodd bill indicates that if it passes, community banks will be subject to a whopping 27 new regulations that one individual who has worked with banks professionally and is closely tracking the legislation says "could threaten to put many community bankers out of business, thus reducing competition in the banking sector overall, and diminishing consumer choices."And that friends is how the government cartelizes the economy. They regulate the competition out of business.
Another handoff to unelected bureaucrats, this time at the SEC rather than at the Federal Reserve. They did so well with Madoff, why not give them the additional job of rewriting Amerian corporate governance? The "investors and pension holders" that Mr. Obama really has in mind are things like the New York and California state pension funds that have already been troubled by scandals and politicization. Shareholders have a role in corporations, as even good capitalists like Carl Icahn recognize. But using the proxy power to take control of companies away from management and directors and into the hands of radicals is straight out of the Saul Alinsky playbook.The question is: why are these economy wreckers doing what they are doing? Is it really revolution by legislation? Stupidity? Campaign donations? Or just help friends and hurt enemies. Section 972 of the bill authorizes the SEC to require firms to allow shareholders to nominate directors in proxy statement. Such proxy access turns corporate board elections from a process designed to ensure that each board has a good mix of skills and experience into a popularity contest where the long-term interests of the stockholders become secondary to political agendas or corporate raiders. The process can also be used by labor unions, politicians who manage public pension funds, and others to force corporations to respond to pet social or political causes.But that is not all. The real corker in my opinion is the silent Inspector General. You never heard what he didn't say? I think that is the point: Does nothing to address problems at Fannie Mae and Freddie Mac. These two government-sponsored housing giants helped fuel the housing bubble. When it popped, taxpayers--because of an implicit guarantee by the U.S. Treasury--found themselves on the hook for some $125 billion in bailout money. Not only has little of this amount been paid back, but the Treasury Department recently eliminated the cap on how much more Fannie and Freddie can receive. Yet the bill does nothing to resolve the problem or reform these government-run enterprises.I discussed some of that in The Best Congress Fannie Could Buy and Barney Frank Frankly Not Frank and ACORN Is Not About Nuts and probably a few other places. The root cause of all this is the belief that a badly run corporation sucked dry by unions and management can be reformed by government intervention. I admit of the possibility. I deny the likelihood. Cross Posted at Power and Control posted by Simon on 04.29.10 at 02:22 PM |
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"Democrats have lost the advantage they've held for years as the party the public trusts to steer the economy."
If it's a fact that "the public" ever trusted the Democrats to steer the economy, then it is no wonder we are toast. Not that I put any faith in the Repubs either. The idea that government can steer the economy is, at least to me, a false and dangerous one. So I won't even admit the possibility of reform by government intervention.
Take your example for instance, "a badly run corporation sucked dry by unions and management," and apply government intervention to the situation. What do you get; privatized profits for management, union members and investors, socialized losses for taxpayers, and a perpetually badly run company (Fannie and Freddie, the Post Office, etc.). All the incentives needed to improve production, to innovate, to cut waste and create a profit are out.
The new incentives basically revolve around the following: keep your voting block happy and expand the numbers in your voting block, but not enough to completely destroy and/or demoralize the productive people (suckers) who have to pay for the system one way or the other, usually through some mixture of the following; direct taxes - income, sales, property, etc. and indirect taxes like regulations, inflation and artificially elevated consumer prices (like GM products).
Trying to eliminate the possibility of failure from the market place is not just a fool's errand, it's the "road to serfdom."