Chuck Schumer vs. Free Speech. By Joan Aikens, Lee Ann Elliott, Thomas Josefiak, David Mason, Bradley Smith, Hans A. von Spakovsky, Michael Toner and Darryl R. Wold
The 'Disclose' Act would make election law even more incomprehensible and subject to selective enforcement for political gain.
WSJ, May 19, 2010
Editor's note: The following article is co-authored by former Federal Election Commissioners Joan Aikens, Lee Ann Elliott, Thomas Josefiak, David Mason, Bradley Smith, Hans A. von Spakovsky, Michael Toner and Darryl R. Wold:
As former commissioners on the Federal Election Commission with almost 75 years of combined experience, we believe that the bill proposed on April 30 by Sen. Chuck Schumer and Rep. Chris Van Hollen to "blunt" the Supreme Court's decision in Citizens United v. FEC is unnecessary, partially duplicative of existing law, and severely burdensome to the right to engage in political speech and advocacy.
Moreover, the Democracy Is Strengthened by Casting Light On Spending in Elections Act, or Disclose Act, abandons the longstanding policy of treating unions and businesses equally, suggesting partisan motives that undermine respect for campaign finance laws.
At least one of us served on the FEC at all times from its inception in 1975 through August 2008. We are well aware of the practical difficulties involved in enforcing the overly complex Federal Election Campaign Act and the problems posed by additional laws that curtail the ability of Americans to participate in the political process.
As we noted in our amicus brief supporting Citizens United, the FEC now has regulations for 33 types of contributions and speech and 71 different types of speakers. Regardless of the abstract merit of the various arguments for and against limits on political contributions and spending, this very complexity raises serious concerns about whether the law can be enforced consistent with the First Amendment.
Those regulatory burdens often fall hardest not on large-scale players in the political world but on spontaneous grass-roots movements, upstart, low-budget campaigns, and unwitting volunteers. Violating the law by engaging in forbidden political speech can land you in a federal prison, a very un-American notion. The Disclose Act exacerbates many of these problems and is a blatant attempt by its sponsors to do indirectly, through excessively onerous regulatory requirements, what the Supreme Court told Congress it cannot do directly—restrict political speech.
Perhaps the most striking thing about the Disclose Act is that, while the Supreme Court overturned limits on spending by both corporations and unions, Disclose seeks to reimpose them only on corporations. The FEC must constantly fight to overcome the perception that the law is merely a partisan tool of dominant political interests. Failure to maintain an evenhanded approach towards unions and corporations threatens public confidence in the integrity of the electoral system.
For example, while the Disclose Act prohibits any corporation with a federal contact of $50,000 or more from making independent expenditures or electioneering communications, no such prohibition applies to unions. This $50,000 trigger is so low it would exclude thousands of corporations from engaging in constitutionally protected political speech, the very core of the First Amendment. Yet public employee unions negotiate directly with the government for benefits many times the value of contracts that would trigger the corporate ban.
This prohibition is supposedly needed to address concerns that government contractors might use the political process to steer contracts their way; but unions have exactly the same conflict of interest. So do other recipients of federal funds, such as nonprofit organizations that receive federal grants and earmarks. Yet there is no ban on their independent political expenditures.
Disclose also bans expenditures on political advocacy by American corporations with 20% or more foreign ownership, but there is no such ban on unions—such as the Service Employees International Union, or the International Brotherhood of Electrical Workers—that have large numbers of foreign members and foreign nationals as directors.
Existing law already prohibits foreign nationals, including corporations headquartered or incorporated outside of the U.S., from participating in any U.S. election. Thus Disclose does not ban foreign speech but speech by American citizen shareholders of U.S. companies that have some element of foreign ownership, even when those foreigners have no control over the decisions made by the Americans who run the company.
For example, companies such as Verizon Wireless, a Delaware corporation headquartered in New Jersey with 83,000 U.S. employees and 91 million U.S. customers, would be silenced because of the British Vodafone's minority ownership in the corporation. But competing telecommunications companies could spend money to influence elections or issues being debated in Congress.
The new disclosure requirements are unnecessary, duplicating information already available to the public or providing information of low value at a significant cost in reduced clarity for grass-roots political speech. In many 30-second ads, Disclose would require no fewer than six statements as to who is paying for the ad (the current law already requires one such statement). These disclaimers would take up as much as half of every ad.
The Disclose Act also creates new disclosure requirements for nonprofit advocacy groups that speak out. These groups already have to disclose their sponsorship, but Disclose requires them to go further and provide the government with a membership list. This infringes on the First Amendment rights of private associations recognized by the Supreme Court in NAACP v. Alabama. Groups can avoid this only by creating a new type of political action committee called a "campaign related activities account."
The result of these overly complex and unnecessary provisions is to force nonprofits to choose between two options that have each been found unconstitutional by the Supreme Court: Either disclose their members to the government or restrict their political spending to the campaign related activities account. This runs contrary to the explicit holding in Citizens United that corporations (and unions) may engage in political speech using their general treasuries.
These requirements will be especially burdensome to small businesses and grass-roots organizations, which typically lack the resources for compliance. So the end effect of all of this "enhanced disclosure" will be to ensure that only large corporations, unions and advocacy groups can make political expenditures—the exact opposite of what the sponsors claim to desire.
While the Disclose Act does include an exemption for major media corporations, it does not include websites or the Internet, which means the government can regulate (and potentially censor) political dialogue on the Web. Additionally, the law would require any business or organization making political expenditures to create and maintain an extensive, highly sophisticated website with advanced search features to track its political activities.
As a result, small businesses, grass-roots organizations, and union locals that maintain only basic websites would be discouraged from making any expenditures for political advocacy, because doing so would require them to spend thousands of dollars to upgrade their websites and purchase software to report information that is already readily available to the public from the FEC. Large companies and unions could probably meet this requirement, so once again the bill benefits large, institutional players over small businesses and grass-roots organizations.
The Disclose Act's abandonment of the historical matching treatment of unions and corporations will cause a substantial portion of the public to doubt the law's fairness and impartiality. It makes election law even more complex, more incomprehensible to ordinary voters, and more open to subjective enforcement by those seeking partisan gain.
Showing posts with label political corruption. Show all posts
Showing posts with label political corruption. Show all posts
Tuesday, May 18, 2010
Sunday, May 2, 2010
Free Speech for Some - Unions get a pass from new campaign finance disclosure rules
Free Speech for Some. WSJ Editorial
Unions get a pass from new campaign finance disclosure rules.WSJ, May 03, 2010
Democrats in Congress last week introduced White House-backed legislation that would indirectly reinstate free-speech restrictions that the Supreme Court declared unconstitutional in January. Backers say the measure will force disclosure of corporate money in politics, but the real goal is to muzzle criticism—at least from some people.
The legislation, sponsored by Democrats Charles Schumer in the Senate and Chris Van Hollen in the House, would prevent government contractors and corporate beneficiaries of the Troubled Asset Relief Program from spending money on U.S. elections. It would also ban U.S. subsidiaries of foreign companies from making political contributions if a foreign national owns 20% or more of the voting shares in the company, or if foreign nationals comprise a majority of the board of directors.
The provisions are designed to undermine this year's landmark Supreme Court Citizens United decision, which held that limits on independent campaign expenditures by corporations or unions violate First Amendment free speech guarantees. But, under the bill, unions with government contracts would not be subject to the same restrictions as corporations.
If, as proponents claim, their worry is that a company will use campaign contributions to win government contracts (pay-to-play), why does their bill not show equal concern that labor unions will support candidates with the goal of getting government contracts driven to union companies? The legislation also fails to impose limits on the foreign involvement of unions with global reach, such as the Service Employees International Union or the International Brotherhood of Electrical Workers.
It's no coincidence that the lead authors of these bills are the current head of the Democratic Congressional Campaign Committee (Mr. Van Hollen) and the immediate past head of the Democratic Senatorial Campaign Committee (Mr. Schumer). And it's no surprise that Republicans have been reluctant to sign on. The House bill has two GOP sponsors and the Senate bill has none.
When President Obama berated the High Court earlier this year for its free speech ruling, he was very specific about whose free speech he opposed. "This is a major victory for Big Oil, Wall Street banks, health insurance companies and other powerful interests," said Mr. Obama of the decision, suggesting that despite the good governance rhetoric, this legislation is not about muzzling spenders generally so much as specific spenders who don't always salute the Democratic agenda.
Unions get a pass from new campaign finance disclosure rules.WSJ, May 03, 2010
Democrats in Congress last week introduced White House-backed legislation that would indirectly reinstate free-speech restrictions that the Supreme Court declared unconstitutional in January. Backers say the measure will force disclosure of corporate money in politics, but the real goal is to muzzle criticism—at least from some people.
The legislation, sponsored by Democrats Charles Schumer in the Senate and Chris Van Hollen in the House, would prevent government contractors and corporate beneficiaries of the Troubled Asset Relief Program from spending money on U.S. elections. It would also ban U.S. subsidiaries of foreign companies from making political contributions if a foreign national owns 20% or more of the voting shares in the company, or if foreign nationals comprise a majority of the board of directors.
The provisions are designed to undermine this year's landmark Supreme Court Citizens United decision, which held that limits on independent campaign expenditures by corporations or unions violate First Amendment free speech guarantees. But, under the bill, unions with government contracts would not be subject to the same restrictions as corporations.
If, as proponents claim, their worry is that a company will use campaign contributions to win government contracts (pay-to-play), why does their bill not show equal concern that labor unions will support candidates with the goal of getting government contracts driven to union companies? The legislation also fails to impose limits on the foreign involvement of unions with global reach, such as the Service Employees International Union or the International Brotherhood of Electrical Workers.
It's no coincidence that the lead authors of these bills are the current head of the Democratic Congressional Campaign Committee (Mr. Van Hollen) and the immediate past head of the Democratic Senatorial Campaign Committee (Mr. Schumer). And it's no surprise that Republicans have been reluctant to sign on. The House bill has two GOP sponsors and the Senate bill has none.
When President Obama berated the High Court earlier this year for its free speech ruling, he was very specific about whose free speech he opposed. "This is a major victory for Big Oil, Wall Street banks, health insurance companies and other powerful interests," said Mr. Obama of the decision, suggesting that despite the good governance rhetoric, this legislation is not about muzzling spenders generally so much as specific spenders who don't always salute the Democratic agenda.
Friday, April 30, 2010
Ironing Out the Kinks in the Dodd Bill - Killing the $50 billion bailout fund would be a good start
Ironing Out the Kinks in the Dodd Bill. By PHILLIP SWAGEL
Killing the $50 billion bailout fund would be a good startWSJ, Apr 30, 2010
Imagine a future in which Sen. Chris Dodd's financial reform bill was law and a firm like AIG or Lehman Brothers failed. Without a vote of Congress, the government could guarantee the firm's debts or put money into the failing firm to keep it afloat and reduce the hit taken by creditors such as banks and pension funds that lent the firm money.
The temptation will be huge; after all, no government official will want to be blamed for allowing another post-Lehman meltdown. But so is the danger that risky behavior and bailouts will become more common.
This scenario is a key defect in the Dodd bill that the Senate has begun to debate. True, the shareholders of a failed financial firm would be wiped out, but creditors—the people who lent it the money that got it in trouble in the first place—will be bailed out. And this has real consequences, because if market participants know they can be rescued for imprudent behavior, they will likely behave more imprudently.
In coming days and weeks, as amendments to the Dodd bill are publicly offered and private negotiations proceed, removing the $50 billion bailout fund would be a good start. A more important way to address the problem of "too big to fail" is to have a resolution process centered on bankruptcy—and in which bailouts would require a vote of Congress. Bankruptcy would make it more likely that the division of resources would be in the hands of judges, not political officials using public money to support favored creditors. When GM and Chrysler were failing, the two firms were used as conduits for a transfer of TARP money to the auto unions.
Other aspects of the Dodd proposal are worrisome. One need not think too creatively to imagine a media-obsessed head of a new consumer financial protection agency looking to impose her will across all aspects of commerce, with attendant hits to lending for consumers and businesses, small and large. The idea of a systemic risk council empowered to gather data and ensure that no firm slips between regulatory cracks is useful—and on this there is bipartisan agreement. Yet regulators and bank supervisors have considerable power already and were not able to head off the recent crisis. Giving more power to a new regulatory agency is not a sure-fire solution and could have unintended negative consequences for jobs and growth.
The bill's approach to taking derivatives trading out of banks is similarly problematic. This trading takes place in large financial institutions for a reason: These are the firms with the expertise and large balance sheets needed to carry it out. And while derivatives can be misused, the bottom line is that they have socially useful purposes, including for financial firms. A community bank, for example, might legitimately want to use derivatives to offset some of the risk it faces from its lending for housing and commercial real estate in a local community. By hobbling this activity, the approach espoused by Sen. Dodd and Sen. Blanche Lincoln threatens to increase rather than limit risk.
Administration officials dissolve into mumbles when asked about the derivatives piece of the bill, suggesting that they recognize the problem. Hopefully they will have the courage to fix this even if it gives the appearance of seeming to "weaken" the bill.
Finally, financial regulatory reform will not be complete without addressing the awkward status of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) whose loan guarantees contributed to the housing bubble behind the crisis. It was appropriate to take over Fannie and Freddie to avoid further risk to the financial sector, but the continued conservatorship of the two firms means that taxpayers remain on the hook for their losses, including losses suffered intentionally to support the administration's public policy goals such as reducing foreclosures.
An appropriate future for Fannie and Freddie would focus them on the socially useful function of securitizing mortgages and thereby fostering housing liquidity. There might still be a role for a government backstop against another catastrophic decline in housing prices, but this public support should be made explicit and the GSEs should pay for it.
With the government standing behind Fannie and Freddie, their huge portfolios of mortgage-backed securities are no longer needed as a buyer of last resort for bundled mortgages to ensure that funding is available for housing. The portfolios were the channel through which Fannie and Freddie enjoyed private gains while imposing risks on taxpayers, and they were the source of systemic risk posed by the firms. The financial regulatory reform bill should ensure a new and sustainable model for Fannie and Freddie that makes explicit any public support for the firms and limits taxpayer exposure to future losses.
There is bipartisan agreement that financial reform is needed. But the details matter. On nonbank resolution, derivatives and consumer protection, the approach in the Dodd bill could well increase financial risks to the economy rather than heading them off. Fixing these issues, along with addressing the risks posed by Fannie and Freddie, will yield a reform that truly learns the lessons from the financial crisis.
Mr. Swagel is a visiting professor at the McDonough School of Business, Georgetown University, and nonresident scholar at the American Enterprise Institute. He was assistant secretary for economic policy at the Treasury Department from December 2006 to January 2009.
Killing the $50 billion bailout fund would be a good startWSJ, Apr 30, 2010
Imagine a future in which Sen. Chris Dodd's financial reform bill was law and a firm like AIG or Lehman Brothers failed. Without a vote of Congress, the government could guarantee the firm's debts or put money into the failing firm to keep it afloat and reduce the hit taken by creditors such as banks and pension funds that lent the firm money.
The temptation will be huge; after all, no government official will want to be blamed for allowing another post-Lehman meltdown. But so is the danger that risky behavior and bailouts will become more common.
This scenario is a key defect in the Dodd bill that the Senate has begun to debate. True, the shareholders of a failed financial firm would be wiped out, but creditors—the people who lent it the money that got it in trouble in the first place—will be bailed out. And this has real consequences, because if market participants know they can be rescued for imprudent behavior, they will likely behave more imprudently.
In coming days and weeks, as amendments to the Dodd bill are publicly offered and private negotiations proceed, removing the $50 billion bailout fund would be a good start. A more important way to address the problem of "too big to fail" is to have a resolution process centered on bankruptcy—and in which bailouts would require a vote of Congress. Bankruptcy would make it more likely that the division of resources would be in the hands of judges, not political officials using public money to support favored creditors. When GM and Chrysler were failing, the two firms were used as conduits for a transfer of TARP money to the auto unions.
Other aspects of the Dodd proposal are worrisome. One need not think too creatively to imagine a media-obsessed head of a new consumer financial protection agency looking to impose her will across all aspects of commerce, with attendant hits to lending for consumers and businesses, small and large. The idea of a systemic risk council empowered to gather data and ensure that no firm slips between regulatory cracks is useful—and on this there is bipartisan agreement. Yet regulators and bank supervisors have considerable power already and were not able to head off the recent crisis. Giving more power to a new regulatory agency is not a sure-fire solution and could have unintended negative consequences for jobs and growth.
The bill's approach to taking derivatives trading out of banks is similarly problematic. This trading takes place in large financial institutions for a reason: These are the firms with the expertise and large balance sheets needed to carry it out. And while derivatives can be misused, the bottom line is that they have socially useful purposes, including for financial firms. A community bank, for example, might legitimately want to use derivatives to offset some of the risk it faces from its lending for housing and commercial real estate in a local community. By hobbling this activity, the approach espoused by Sen. Dodd and Sen. Blanche Lincoln threatens to increase rather than limit risk.
Administration officials dissolve into mumbles when asked about the derivatives piece of the bill, suggesting that they recognize the problem. Hopefully they will have the courage to fix this even if it gives the appearance of seeming to "weaken" the bill.
Finally, financial regulatory reform will not be complete without addressing the awkward status of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) whose loan guarantees contributed to the housing bubble behind the crisis. It was appropriate to take over Fannie and Freddie to avoid further risk to the financial sector, but the continued conservatorship of the two firms means that taxpayers remain on the hook for their losses, including losses suffered intentionally to support the administration's public policy goals such as reducing foreclosures.
An appropriate future for Fannie and Freddie would focus them on the socially useful function of securitizing mortgages and thereby fostering housing liquidity. There might still be a role for a government backstop against another catastrophic decline in housing prices, but this public support should be made explicit and the GSEs should pay for it.
With the government standing behind Fannie and Freddie, their huge portfolios of mortgage-backed securities are no longer needed as a buyer of last resort for bundled mortgages to ensure that funding is available for housing. The portfolios were the channel through which Fannie and Freddie enjoyed private gains while imposing risks on taxpayers, and they were the source of systemic risk posed by the firms. The financial regulatory reform bill should ensure a new and sustainable model for Fannie and Freddie that makes explicit any public support for the firms and limits taxpayer exposure to future losses.
There is bipartisan agreement that financial reform is needed. But the details matter. On nonbank resolution, derivatives and consumer protection, the approach in the Dodd bill could well increase financial risks to the economy rather than heading them off. Fixing these issues, along with addressing the risks posed by Fannie and Freddie, will yield a reform that truly learns the lessons from the financial crisis.
Mr. Swagel is a visiting professor at the McDonough School of Business, Georgetown University, and nonresident scholar at the American Enterprise Institute. He was assistant secretary for economic policy at the Treasury Department from December 2006 to January 2009.
Wednesday, April 28, 2010
Attacking the motives of critics is not presidential
It's Only Called the Bully Pulpit. By Karl Rove
Attacking the motives of critics is not presidential.
WSJ, Apr 29, 2010
President Barack Obama's speech last week at New York Cooper's Union showcased two unattractive verbal leitmotifs. The first was the president's reliance on straw-man arguments. America, he said, need not "choose between two extremes . . . markets that are unfettered by even modest protections against crisis, or markets that are stymied by onerous rules."
Mr. Obama was right in calling this "a false choice." Who is suggesting that Wall Street should not be regulated?
The other, more troubling rhetorical device was Mr. Obama's labeling his opponents as "special interests," and demanding that they stop disagreeing with him and get on board his legislative express. Speaking to bank executives, he decried the "furious effort of industry lobbyists to shape" financial regulation legislation—a barb aimed at the investment bankers in the audience who have hired lobbyists. The president urged "the titans of industry" to whom he was speaking "to join us, instead of fighting us."
While criticizing political opponents is standard operating White House procedure, the practice of summoning critics to bully them in public is unpresidential and worrisome.
Before his health-care bill passed, Mr. Obama sent a tough letter to health-insurance CEOs and then castigated them 22 times in a follow-up prime-time televised speech. This is behavior worthy of a Third World dictator—not the head of a vibrant democracy.
Mr. Obama has also excoriated drug and health-insurance companies, while remaining content to have them spend tens of millions of dollars on ads supporting his health-care bill. This smacked of Chicago-style shake-down politics.
Too often, Mr. Obama disparages those who disagree with him as having venal, illegitimate motivations. In his Cooper Union speech he berated the "battalions of financial industry lobbyists" for their "misleading arguments and attacks." He blamed their "withering forces" for buckling "a bipartisan process" that had "produced . . . a common-sense, reasonable, non-ideological approach."
Maybe the renowned lecturer of constitutional law at the University of Chicago should reacquaint himself with Federalist No. 10. James Madison, a father of the Constitution, suggested that there are "two methods of curing the mischiefs of faction."
One was to destroy "the liberty which is essential to its existence"—something that is anathema to our democratic system. The other was to give "to every citizen the same opinions, the same passions, and the same interests," which is impossible.
"The latent causes of faction are thus sown in the nature of man," Madison wrote. Recognizing this led the Founders to create a system in which competition between interests restrains government, cools passions, and forces political compromise. This has kept our politics floating around the center.
Mr. Obama's attacks on his critics are not only unbecoming; they undermine a political process that would otherwise trend toward occasional bipartisan compromise. They are also hypocritical. Mr. Obama said in New York last week that "a lack of consumer protections and . . . accountability" created the credit crisis. As a senator in 2005, he joined Sen. Chris Dodd (D., Conn.) to threaten to filibuster a GOP effort to rein in Fannie Mae and Freddie Mac when it was still possible to diminish the role those companies would play in the financial crisis. He later voted for the Fannie and Freddie reforms after the two went belly up in 2008.
But it is the president's intimidation that is most troubling. Mr. Obama has the disturbing tendency to question the motives of those who disagree with him, often making them the objects of ad hominem attacks. His motives, on the other hand, are pure.
Mr. Obama often makes it seem illegitimate to challenge his views, and he isn't content to argue issues on the merits. Instead, he wants to make opponents into pariahs. And it's not just business executives who are on the receiving end. We've also seen this pattern with the administration's attacks on the tea party movement and those who attended town-hall meetings last summer on health care.
This is a bad habit—and a dangerous one. The presidency is a very powerful office, and presidents need to be careful not to use it to silence dissenting voices.
Mr. Obama will learn these efforts don't work. In a big, free nation like ours, people want to debate the issues. They don't take kindly to arrogant leaders who believe it is their right to silence the opposition—by either driving them out of the legislative process or pushing them out of the public debate with fiery rhetoric. Through the anonymity of a ballot box and beyond the power of presidential intimidation, voters can express their discontent and they will.
Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).
Attacking the motives of critics is not presidential.
WSJ, Apr 29, 2010
President Barack Obama's speech last week at New York Cooper's Union showcased two unattractive verbal leitmotifs. The first was the president's reliance on straw-man arguments. America, he said, need not "choose between two extremes . . . markets that are unfettered by even modest protections against crisis, or markets that are stymied by onerous rules."
Mr. Obama was right in calling this "a false choice." Who is suggesting that Wall Street should not be regulated?
The other, more troubling rhetorical device was Mr. Obama's labeling his opponents as "special interests," and demanding that they stop disagreeing with him and get on board his legislative express. Speaking to bank executives, he decried the "furious effort of industry lobbyists to shape" financial regulation legislation—a barb aimed at the investment bankers in the audience who have hired lobbyists. The president urged "the titans of industry" to whom he was speaking "to join us, instead of fighting us."
While criticizing political opponents is standard operating White House procedure, the practice of summoning critics to bully them in public is unpresidential and worrisome.
Before his health-care bill passed, Mr. Obama sent a tough letter to health-insurance CEOs and then castigated them 22 times in a follow-up prime-time televised speech. This is behavior worthy of a Third World dictator—not the head of a vibrant democracy.
Mr. Obama has also excoriated drug and health-insurance companies, while remaining content to have them spend tens of millions of dollars on ads supporting his health-care bill. This smacked of Chicago-style shake-down politics.
Too often, Mr. Obama disparages those who disagree with him as having venal, illegitimate motivations. In his Cooper Union speech he berated the "battalions of financial industry lobbyists" for their "misleading arguments and attacks." He blamed their "withering forces" for buckling "a bipartisan process" that had "produced . . . a common-sense, reasonable, non-ideological approach."
Maybe the renowned lecturer of constitutional law at the University of Chicago should reacquaint himself with Federalist No. 10. James Madison, a father of the Constitution, suggested that there are "two methods of curing the mischiefs of faction."
One was to destroy "the liberty which is essential to its existence"—something that is anathema to our democratic system. The other was to give "to every citizen the same opinions, the same passions, and the same interests," which is impossible.
"The latent causes of faction are thus sown in the nature of man," Madison wrote. Recognizing this led the Founders to create a system in which competition between interests restrains government, cools passions, and forces political compromise. This has kept our politics floating around the center.
Mr. Obama's attacks on his critics are not only unbecoming; they undermine a political process that would otherwise trend toward occasional bipartisan compromise. They are also hypocritical. Mr. Obama said in New York last week that "a lack of consumer protections and . . . accountability" created the credit crisis. As a senator in 2005, he joined Sen. Chris Dodd (D., Conn.) to threaten to filibuster a GOP effort to rein in Fannie Mae and Freddie Mac when it was still possible to diminish the role those companies would play in the financial crisis. He later voted for the Fannie and Freddie reforms after the two went belly up in 2008.
But it is the president's intimidation that is most troubling. Mr. Obama has the disturbing tendency to question the motives of those who disagree with him, often making them the objects of ad hominem attacks. His motives, on the other hand, are pure.
Mr. Obama often makes it seem illegitimate to challenge his views, and he isn't content to argue issues on the merits. Instead, he wants to make opponents into pariahs. And it's not just business executives who are on the receiving end. We've also seen this pattern with the administration's attacks on the tea party movement and those who attended town-hall meetings last summer on health care.
This is a bad habit—and a dangerous one. The presidency is a very powerful office, and presidents need to be careful not to use it to silence dissenting voices.
Mr. Obama will learn these efforts don't work. In a big, free nation like ours, people want to debate the issues. They don't take kindly to arrogant leaders who believe it is their right to silence the opposition—by either driving them out of the legislative process or pushing them out of the public debate with fiery rhetoric. Through the anonymity of a ballot box and beyond the power of presidential intimidation, voters can express their discontent and they will.
Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).
Saturday, April 24, 2010
Miss Me Yet? The Freedom Agenda After George W. Bush
Miss Me Yet? The Freedom Agenda After George W. Bush. By Bari Weiss
Dissidents in the world's most oppressive countries aren't feeling the love from President Obama.WSJ, Apr 24, 2010
Dallas
No one seems to know precisely who is behind the "Miss Me Yet?" billboard—the cheeky one featuring a grinning George W. Bush that looks out over I-35 near Wyoming, Minn. But Syrian dissident Ahed Al-Hendi sympathizes with the thought.
In 2006, Mr. Hendi was browsing pro-democracy Web sites in a Damascus Internet café when plainclothes cops carrying automatic guns swooped in, cuffed him, and threw him into the trunk of a car. He spent over a month in prison, some of it alone in a 5-by-3 windowless basement cell where he listened to his friend being tortured in the one next door. Those screams, he says, were cold comfort—at least he knew his friend hadn't been killed.
Mr. Hendi was one of the lucky ones: He's now living in Maryland as a political refugee where he works for an organization called Cyberdissidents.org. And this past Monday, he joined other international dissidents at a conference sponsored by the Bush Institute at Southern Methodist University to discuss the way digital tools can be used to resist repressive regimes.
He also got to meet the 43rd president. In a private breakfast hosted by Mr. and Mrs. Bush, Mr. Hendi's message to the former president was simple: "We miss you." There have been "a lot of changes" under the current administration, he added, and not for the better.
Adrian Hong, who was imprisoned in China in 2006 for his work helping North Koreans escape the country (a modern underground railroad), echoed that idea. "When I was released [after 10 days] I was told it was because of very strong messaging from the White House and the culture you set," he told Mr. Bush.
The former president, now sporting a deep tan, didn't mention President Obama once on or off the record. The most he would say was, "I'm really concerned about an isolationist mentality . . . I don't think it lives up to the values of our country." The dissidents weren't so diplomatic.
Mr. Hendi elaborated on the policy changes he thinks Mr. Obama has made toward his home country. "In Syria, when a single dissident was arrested during the administration of George W. Bush, at the very least the White House spokesman would condemn it. Under the Obama administration: nothing."
Nor is Mr. Hendi a fan of this administration's efforts to engage the regime, most recently by deciding to send an ambassador to Damascus for the first time since 2005. "This gives confidence to the regime," he says. "They are not capable of a dialogue; they don't believe in it. They believe in force."
Mr. Hong put things this way: "When you look at the championing of dissidents . . . and even the rhetoric, it's dropped off sharply." Under Mr. Bush, he says, there were many high-profile meetings with North Korean dissidents. "They went out of their way to show this was a priority."
Then there is Marcel Granier, the president of RCTV, Venezuela's oldest and most popular television station. He employs several thousand people—or at least he did until Hugo Chávez cancelled the network's license in 2007. Now, he's struggling to maintain an independent channel on cable: Mr. Chávez ordered the cable networks not to carry his station in January. Government supporters have attacked his home with tear gas twice, yet he remains in the country, tirelessly advocating for media freedom.
Like many of the democrats at the conference, Mr. Granier was excited by Mr. Obama's historic election, and inspired by the way he energized American voters. But a year and a half later, he's disturbed by the administration's silence as his country slips rapidly towards dictatorship. "In Afghanistan," he quips, "at least they know that America will be involved for the next 18 months."
This sense of abandonment has been fueled by real policy shifts. Just this week word came that the administration cut funds to promote democracy in Egypt by half. Programs in countries like Jordan and Iran have also faced cuts. Then there are the symbolic gestures: letting the Dalai Lama out the back door, paltry statements of support for Iranian demonstrators, smiling and shaking hands with Mr. Chávez, and so on.
Daniel Baer, a representative from the State Department who participated in the conference, dismissed the notion that the White House has distanced itself from human-rights promotion as a baseless "meme" when I raised the issue. But in fact all of this is of a piece of Mr. Obama's overarching strategy to make it abundantly clear that he is not his predecessor.
Mr. Bush is almost certainly aware that the freedom agenda, the centerpiece of his presidency, has become indelibly linked to the war in Iraq and to regime change by force. Too bad. The peaceful promotion of human rights and democracy—in part by supporting the individuals risking their lives for liberty—are consonant with America's most basic values. Standing up for them should not be a partisan issue.
Yet for now Mr. Bush is simply not the right poster boy: He can't successfully rebrand and depoliticize the freedom agenda. So perhaps he hopes that by sitting back he can let Americans who remain wary of publicly embracing this cause become comfortable with it again. For the sake of the courageous democrats in countries like Iran, Cuba, North Korea, Venezuela, Colombia, China and Russia, let's hope so.
Ms. Weiss is an assistant editorial features editor at the Journal.
Dissidents in the world's most oppressive countries aren't feeling the love from President Obama.WSJ, Apr 24, 2010
Dallas
No one seems to know precisely who is behind the "Miss Me Yet?" billboard—the cheeky one featuring a grinning George W. Bush that looks out over I-35 near Wyoming, Minn. But Syrian dissident Ahed Al-Hendi sympathizes with the thought.
In 2006, Mr. Hendi was browsing pro-democracy Web sites in a Damascus Internet café when plainclothes cops carrying automatic guns swooped in, cuffed him, and threw him into the trunk of a car. He spent over a month in prison, some of it alone in a 5-by-3 windowless basement cell where he listened to his friend being tortured in the one next door. Those screams, he says, were cold comfort—at least he knew his friend hadn't been killed.
Mr. Hendi was one of the lucky ones: He's now living in Maryland as a political refugee where he works for an organization called Cyberdissidents.org. And this past Monday, he joined other international dissidents at a conference sponsored by the Bush Institute at Southern Methodist University to discuss the way digital tools can be used to resist repressive regimes.
He also got to meet the 43rd president. In a private breakfast hosted by Mr. and Mrs. Bush, Mr. Hendi's message to the former president was simple: "We miss you." There have been "a lot of changes" under the current administration, he added, and not for the better.
Adrian Hong, who was imprisoned in China in 2006 for his work helping North Koreans escape the country (a modern underground railroad), echoed that idea. "When I was released [after 10 days] I was told it was because of very strong messaging from the White House and the culture you set," he told Mr. Bush.
The former president, now sporting a deep tan, didn't mention President Obama once on or off the record. The most he would say was, "I'm really concerned about an isolationist mentality . . . I don't think it lives up to the values of our country." The dissidents weren't so diplomatic.
Mr. Hendi elaborated on the policy changes he thinks Mr. Obama has made toward his home country. "In Syria, when a single dissident was arrested during the administration of George W. Bush, at the very least the White House spokesman would condemn it. Under the Obama administration: nothing."
Nor is Mr. Hendi a fan of this administration's efforts to engage the regime, most recently by deciding to send an ambassador to Damascus for the first time since 2005. "This gives confidence to the regime," he says. "They are not capable of a dialogue; they don't believe in it. They believe in force."
Mr. Hong put things this way: "When you look at the championing of dissidents . . . and even the rhetoric, it's dropped off sharply." Under Mr. Bush, he says, there were many high-profile meetings with North Korean dissidents. "They went out of their way to show this was a priority."
Then there is Marcel Granier, the president of RCTV, Venezuela's oldest and most popular television station. He employs several thousand people—or at least he did until Hugo Chávez cancelled the network's license in 2007. Now, he's struggling to maintain an independent channel on cable: Mr. Chávez ordered the cable networks not to carry his station in January. Government supporters have attacked his home with tear gas twice, yet he remains in the country, tirelessly advocating for media freedom.
Like many of the democrats at the conference, Mr. Granier was excited by Mr. Obama's historic election, and inspired by the way he energized American voters. But a year and a half later, he's disturbed by the administration's silence as his country slips rapidly towards dictatorship. "In Afghanistan," he quips, "at least they know that America will be involved for the next 18 months."
This sense of abandonment has been fueled by real policy shifts. Just this week word came that the administration cut funds to promote democracy in Egypt by half. Programs in countries like Jordan and Iran have also faced cuts. Then there are the symbolic gestures: letting the Dalai Lama out the back door, paltry statements of support for Iranian demonstrators, smiling and shaking hands with Mr. Chávez, and so on.
Daniel Baer, a representative from the State Department who participated in the conference, dismissed the notion that the White House has distanced itself from human-rights promotion as a baseless "meme" when I raised the issue. But in fact all of this is of a piece of Mr. Obama's overarching strategy to make it abundantly clear that he is not his predecessor.
Mr. Bush is almost certainly aware that the freedom agenda, the centerpiece of his presidency, has become indelibly linked to the war in Iraq and to regime change by force. Too bad. The peaceful promotion of human rights and democracy—in part by supporting the individuals risking their lives for liberty—are consonant with America's most basic values. Standing up for them should not be a partisan issue.
Yet for now Mr. Bush is simply not the right poster boy: He can't successfully rebrand and depoliticize the freedom agenda. So perhaps he hopes that by sitting back he can let Americans who remain wary of publicly embracing this cause become comfortable with it again. For the sake of the courageous democrats in countries like Iran, Cuba, North Korea, Venezuela, Colombia, China and Russia, let's hope so.
Ms. Weiss is an assistant editorial features editor at the Journal.
Thursday, April 22, 2010
Federal Prez: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed."
The New Master of Wall Street. WSJ Editorial
Obama surveys the financial kingdom that may soon be his.WSJ, Apr 23, 2010
President Obama is a gifted man, but until yesterday we hadn't known that his achievements include having predicted the financial panic of 2008. It was a "failure of responsibility that I spoke about when I came to New York more than two years ago—before the worst of the crisis had unfolded," Mr. Obama said yesterday in a speech on financial reform at Cooper Union in New York City. "I take no satisfaction in noting that my comments have largely been borne out by the events that followed."
We wish for the sake of our 401(k) we had noticed this Delphic call, not least when Senator Obama was opposing the reform of Fannie Mae and Freddie Mac. But let's not fight over history. The current reality is that the President had better be very, very smart because the reform bill he is stumping for would give him and his regulators vast new sway over financial markets and risk-taking.
This is the most important fact to understand about the current financial reform debate. While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government. The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.
The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts. A new super council of regulators will be created with vast new powers to determine which firms pose a "systemic" financial risk, to set high capital and margin levels, to veto certain kinds of business for certain firms, and even to set guidelines for banker compensation—or maybe not. The point is that these crucial questions will be settled not by statute, but by regulatory discretion after the law passes.
If you think Wall Street beats a path to the Beltway now, wait until the banks seek to influence how regulators will define, say, "proprietary trading." Whatever its flaws, the Glass-Steagall Act of 1932 clearly defined the difference between a commercial and investment bank. This time, the rules will be written by regulators at Treasury, the Federal Reserve, the CFTC, SEC and FDIC, among others. As he so often does, Mr. Obama yesterday denounced "the furious efforts of industry lobbyists to shape" the bill "to their special interests." But if his reform passes, this lobbying is certain to continue, more furiously.
Consider the esoteric matter of derivatives, most of which seem headed for daily settlement on exchanges and a clearinghouse if the bill passes. But not all derivatives. The new master of this universe would be Gary Gensler, a Goldman Sachs alumnus who now chairs the Commodity Futures Trading Commission. Under the bill moving through the Senate, he would decide which derivative transactions must be "cleared" and traded via electronic exchanges, and which can continue to be traded over-the-counter.
Perhaps Mr. Gensler is as wise as King Solomon, or at least John Paulson. Perhaps, like Mr. Obama in 2008, he—and his successors—will be able to foresee the next crisis and determine the derivatives contracts that pose the most future risk. He will need to be, because under such a reform some of the risk of a transaction moves from the two financial parties (say, J.P. Morgan and Goldman) to the clearinghouse—which will almost certainly be "too big to fail" if enough trades go awry in the next crisis.
Or consider the Senate provision, too little discussed, to let the SEC give shareholders more clout over corporate board elections. This would federalize what has long been state predominance in corporate law, while giving the largest and most activist investors far more leverage to impose their agendas on business.
In practice, this means giving more influence over corporate decisions to labor unions and their political surrogates who run the large public pension funds. Their goals are as likely as not to include political causes such as easier unionization, cap-and-trade regulation, or disinvestment in this or that unpopular business or country. This, too, comes down to giving more power to the political class to run business—in this case, even nonfinancial businesses.
The people who oppose these and other provisions do so for a variety of reasons, some principled, some self-interested. But they have every right to fight them. Yet Mr. Obama once again yesterday cast such opposition as dishonest: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate," he said. "A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth."
Perhaps Mr. Obama should consult Democrat Ted Kaufman of Delaware, who said recently on the Senate floor that "by expanding the [federal] safety net—as we did in response to the last crisis—to cover ever larger and more complex institutions heavily engaged in speculative activities, I fear that we may be sowing the seeds for an even bigger crisis in only a few years or a decade." Mr. Kaufman wants to break up the biggest banks, which may well be preferable to making them wards of the Treasury. Is he lying too?
As in health care, Democrats are intent on ramming this reform through Congress, and Republicans ought to summon the will to resist. Absent that, the only certain result is that Washington will be the new master of the financial universe.
Obama surveys the financial kingdom that may soon be his.WSJ, Apr 23, 2010
President Obama is a gifted man, but until yesterday we hadn't known that his achievements include having predicted the financial panic of 2008. It was a "failure of responsibility that I spoke about when I came to New York more than two years ago—before the worst of the crisis had unfolded," Mr. Obama said yesterday in a speech on financial reform at Cooper Union in New York City. "I take no satisfaction in noting that my comments have largely been borne out by the events that followed."
We wish for the sake of our 401(k) we had noticed this Delphic call, not least when Senator Obama was opposing the reform of Fannie Mae and Freddie Mac. But let's not fight over history. The current reality is that the President had better be very, very smart because the reform bill he is stumping for would give him and his regulators vast new sway over financial markets and risk-taking.
This is the most important fact to understand about the current financial reform debate. While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government. The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.
The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts. A new super council of regulators will be created with vast new powers to determine which firms pose a "systemic" financial risk, to set high capital and margin levels, to veto certain kinds of business for certain firms, and even to set guidelines for banker compensation—or maybe not. The point is that these crucial questions will be settled not by statute, but by regulatory discretion after the law passes.
If you think Wall Street beats a path to the Beltway now, wait until the banks seek to influence how regulators will define, say, "proprietary trading." Whatever its flaws, the Glass-Steagall Act of 1932 clearly defined the difference between a commercial and investment bank. This time, the rules will be written by regulators at Treasury, the Federal Reserve, the CFTC, SEC and FDIC, among others. As he so often does, Mr. Obama yesterday denounced "the furious efforts of industry lobbyists to shape" the bill "to their special interests." But if his reform passes, this lobbying is certain to continue, more furiously.
Consider the esoteric matter of derivatives, most of which seem headed for daily settlement on exchanges and a clearinghouse if the bill passes. But not all derivatives. The new master of this universe would be Gary Gensler, a Goldman Sachs alumnus who now chairs the Commodity Futures Trading Commission. Under the bill moving through the Senate, he would decide which derivative transactions must be "cleared" and traded via electronic exchanges, and which can continue to be traded over-the-counter.
Perhaps Mr. Gensler is as wise as King Solomon, or at least John Paulson. Perhaps, like Mr. Obama in 2008, he—and his successors—will be able to foresee the next crisis and determine the derivatives contracts that pose the most future risk. He will need to be, because under such a reform some of the risk of a transaction moves from the two financial parties (say, J.P. Morgan and Goldman) to the clearinghouse—which will almost certainly be "too big to fail" if enough trades go awry in the next crisis.
Or consider the Senate provision, too little discussed, to let the SEC give shareholders more clout over corporate board elections. This would federalize what has long been state predominance in corporate law, while giving the largest and most activist investors far more leverage to impose their agendas on business.
In practice, this means giving more influence over corporate decisions to labor unions and their political surrogates who run the large public pension funds. Their goals are as likely as not to include political causes such as easier unionization, cap-and-trade regulation, or disinvestment in this or that unpopular business or country. This, too, comes down to giving more power to the political class to run business—in this case, even nonfinancial businesses.
The people who oppose these and other provisions do so for a variety of reasons, some principled, some self-interested. But they have every right to fight them. Yet Mr. Obama once again yesterday cast such opposition as dishonest: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate," he said. "A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth."
Perhaps Mr. Obama should consult Democrat Ted Kaufman of Delaware, who said recently on the Senate floor that "by expanding the [federal] safety net—as we did in response to the last crisis—to cover ever larger and more complex institutions heavily engaged in speculative activities, I fear that we may be sowing the seeds for an even bigger crisis in only a few years or a decade." Mr. Kaufman wants to break up the biggest banks, which may well be preferable to making them wards of the Treasury. Is he lying too?
As in health care, Democrats are intent on ramming this reform through Congress, and Republicans ought to summon the will to resist. Absent that, the only certain result is that Washington will be the new master of the financial universe.
Cash for Tanners - A new subsidy for hitting the beach
Cash for Tanners. WSJ Editorial
A new subsidy for hitting the beach.WSJ, Apr 23, 2010
Liberté, égalité, St. Tropez. That could be the motto of the European Union's "social tourism" project, which advocates subsidized holidays for the underprivileged. According to European Commissioner Antonio Tajani, visiting foreign countries is a "right," and one that could soon be financed by EU taxpayers. This gives a whole new meaning to the concept of "paid vacation."
The EU last year launched a €1 million project to promote social tourism throughout the Continent. The program, which goes by the slight misnomer Calypso—the lonely nymph from Greek mythology was famously confined to an island—seeks, among other things, to identify and promote measures governments have already taken to help the needy to go on holiday. Calypso specifically targets the disabled, poor families, senior citizens and "youth," a group that in geriatric Europe includes people up to 30 years of age.
Cash for tanners is also being touted as good economic policy. At a "Calypso Awareness Building Meeting" in October, the main theme was "Social Tourism: An Opportunity to Overcome the Crisis?" The conference highlighted the example of the Spanish government, which already helps more than one million senior citizens go on organized trips at a cost of €75 million. Thanks to the VAT and other taxes, Madrid claims it's getting back €1.70 for every euro spent.
It probably didn't occur to the sages in Spain that without the subsidies, the seniors would have either still gone on vacation, spent the money on other goods or services or saved it, which would have made it available for other investors. The subsidies merely directed spending to a politically favored purpose without creating additional wealth.
At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." With 19% unemployment and rising, Madrid will no doubt have ample demand for its new growth industry. And given the European policy arc in Congress, look for vacation subsidies here too.
A new subsidy for hitting the beach.WSJ, Apr 23, 2010
Liberté, égalité, St. Tropez. That could be the motto of the European Union's "social tourism" project, which advocates subsidized holidays for the underprivileged. According to European Commissioner Antonio Tajani, visiting foreign countries is a "right," and one that could soon be financed by EU taxpayers. This gives a whole new meaning to the concept of "paid vacation."
The EU last year launched a €1 million project to promote social tourism throughout the Continent. The program, which goes by the slight misnomer Calypso—the lonely nymph from Greek mythology was famously confined to an island—seeks, among other things, to identify and promote measures governments have already taken to help the needy to go on holiday. Calypso specifically targets the disabled, poor families, senior citizens and "youth," a group that in geriatric Europe includes people up to 30 years of age.
Cash for tanners is also being touted as good economic policy. At a "Calypso Awareness Building Meeting" in October, the main theme was "Social Tourism: An Opportunity to Overcome the Crisis?" The conference highlighted the example of the Spanish government, which already helps more than one million senior citizens go on organized trips at a cost of €75 million. Thanks to the VAT and other taxes, Madrid claims it's getting back €1.70 for every euro spent.
It probably didn't occur to the sages in Spain that without the subsidies, the seniors would have either still gone on vacation, spent the money on other goods or services or saved it, which would have made it available for other investors. The subsidies merely directed spending to a politically favored purpose without creating additional wealth.
At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." With 19% unemployment and rising, Madrid will no doubt have ample demand for its new growth industry. And given the European policy arc in Congress, look for vacation subsidies here too.
Sunday, February 28, 2010
Why Financial Reform Is Stalled - Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress
Why Financial Reform Is Stalled. BY PETER J. WALLISON
Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress.WSJ, Mar 01, 2010
According to the media's narrative about Washington, the Obama administration's financial regulation proposals have not gotten through Congress because the town is gridlocked by partisan warfare. It's a simplistic story that does not require much thought to generate or accept.
Here's a better explanation: The proposals are not grounded in a valid explanation of what caused the financial crisis, reflect the same impulse to control a sector of the economy that underlies its health-care and cap-and-trade proposals, and more than anything else reflect Rahm Emanuel's iconic motto for all statists that a good crisis should never go to waste.
The administration appears to have begun its regulatory reform effort with the idea propagated by candidate Barack Obama that the financial crisis was caused by deregulation. There was never any evidence for this. The banks, which were in the most trouble, are the most heavily regulated sector of the economy and their regulation has only gotten tighter since the 1930s.
Since its proposals first met with congressional opposition, the administration has been impervious to contrary evidence, and to this day it continues to lunge for ideas that will further government control of the financial system without giving them serious thought. So we have the spectacle of Paul Volcker, having recently persuaded Mr. Obama to back the idea of restricting proprietary trading by banks or bank holding companies, telling a puzzled Senate Banking Committee he can't really define proprietary trading but knows it when he sees it. Didn't anyone in the White House ask him what it was before the president moved to restrict it?
So it goes with the rest of the administration's plan. More power to Washington, but neither a persuasive analysis of why that additional control was necessary nor a recognition of the fairly obvious consequences.
For example, the central element of the administration's reforms was to give more power to the Federal Reserve. That agency was to become the regulator of all large nonbank financial companies deemed likely to cause a systemic breakdown if they fail. These companies—securities firms, hedge funds, finance companies, insurers, bank holding companies and even the financing arms of operating companies—were to be regulated like banks.
It didn't take long for both Democrats and Republicans in Congress to see the flaws in this scheme. The Fed had been regulating the largest banks and bank holding companies for over 50 years—among the very companies that would be considered systemically important—yet it failed to see the risks they were taking or the impending danger.
How, then, did it make sense to give the Fed the vast additional power to regulate all the largest nonbank financial companies? Wouldn't designating particular companies as "systemically important," and subjecting them to special Fed regulation, signal to the markets that these companies were too big to fail? How was that a solution to the too-big-to-fail problem? And wouldn't these big companies—designated as too big to fail—then have the same preferred access to credit that enabled government-sponsored enterprises Fannie Mae and Freddie Mac to drive all competition from their market?
Then there is the proposal to give a government agency the authority to take over and "resolve" failing financial firms. Here, the administration has pointed to the chaos that followed the bankruptcy of Lehman Brothers in September 2008. To prevent that kind of breakdown, the administration says all large and "interconnected" financial firms in crisis should be dealt with by a government agency, rather than by a judge in bankruptcy proceedings.
The term "interconnected" is important here. It implies that when one large firm fails it will carry others down with it, causing a systemic crisis. But that is clearly not the lesson of Lehman. Although the company went suddenly and shockingly into bankruptcy, none of its large financial counterparties failed. The systemic significance of "interconnectedness" proved to be a myth.
To be sure, there was a freeze-up in lending after Lehman. But that episode demonstrated the power of moral hazard—the tendency of government action to distort private decision-making. After Bear Stearns was rescued by the Fed in March 2008, market participants assumed that all companies larger than Bear would be rescued in the future. As a result, they did not take the steps to protect themselves against counterparty failure that would have been prudent in a panicky market. When Lehman was not rescued, all market participants immediately had to review the credit standing of their counterparties. No wonder lending temporarily froze.
The same failure to understand the power of moral hazard is what makes the administration's call for a resolution authority most inapt and troubling. Although the administration has argued, and some in Congress believe, that moral hazard and too-big-to-fail would be curbed by a resolution authority, the opposite is true. Both would be enhanced.
This is because the principal danger of moral hazard—the key to its adverse effects on private decision-making—is its impact on creditors and counterparties. The fact that shareholders and managements will lose everything in a government resolution is largely irrelevant. What really matters are the lessons creditors draw about how they will be treated. And it is clear creditors will be treated far more favorably in a government resolution process than in a bankruptcy.
To understand why this is true, consider the administration's reasons for preferring a government resolution process. The claim is that large, interconnected firms will drag down others when they fail. The remedy for this is to make sure their creditors and counterparties are fully paid when the takeover occurs. That's why the Fed made Goldman Sachs and others whole when it rescued the insurance giant AIG. It's also what distinguishes a government resolution process from a bankruptcy, where a stay is imposed on most payments to creditors when the bankruptcy petition is filed.
Creditors will realize that by lending to large companies that might be taken over and resolved by the government, their chances of being fully paid are better than if they lend to others that might not. Thus a resolution authority will enhance moral hazard not reduce it—and as creditors increasingly assume that large firms will be rescued, the too-big-to-fail phenomenon will grow, not decline. In the end, a resolution authority becomes, in effect, a permanent Troubled Asset Relief Program.
The image of partisan gridlock standing in the way of sensible financial regulation is wildly misleading. Twenty-seven Democrats in the House voted against the Barney Frank bill that mostly mirrored the administration plan. Democrats and Republicans in the Senate Banking Committee revolted against the first bill offered by Chairman Chris Dodd. That bill adopted most of the administration's flawed ideas.
Now Mr. Dodd is trying to negotiate a Plan B. But the longer he channels the White House, the longer it will take to get a bill that both Democrats and Republicans can support.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress.WSJ, Mar 01, 2010
According to the media's narrative about Washington, the Obama administration's financial regulation proposals have not gotten through Congress because the town is gridlocked by partisan warfare. It's a simplistic story that does not require much thought to generate or accept.
Here's a better explanation: The proposals are not grounded in a valid explanation of what caused the financial crisis, reflect the same impulse to control a sector of the economy that underlies its health-care and cap-and-trade proposals, and more than anything else reflect Rahm Emanuel's iconic motto for all statists that a good crisis should never go to waste.
The administration appears to have begun its regulatory reform effort with the idea propagated by candidate Barack Obama that the financial crisis was caused by deregulation. There was never any evidence for this. The banks, which were in the most trouble, are the most heavily regulated sector of the economy and their regulation has only gotten tighter since the 1930s.
Since its proposals first met with congressional opposition, the administration has been impervious to contrary evidence, and to this day it continues to lunge for ideas that will further government control of the financial system without giving them serious thought. So we have the spectacle of Paul Volcker, having recently persuaded Mr. Obama to back the idea of restricting proprietary trading by banks or bank holding companies, telling a puzzled Senate Banking Committee he can't really define proprietary trading but knows it when he sees it. Didn't anyone in the White House ask him what it was before the president moved to restrict it?
So it goes with the rest of the administration's plan. More power to Washington, but neither a persuasive analysis of why that additional control was necessary nor a recognition of the fairly obvious consequences.
For example, the central element of the administration's reforms was to give more power to the Federal Reserve. That agency was to become the regulator of all large nonbank financial companies deemed likely to cause a systemic breakdown if they fail. These companies—securities firms, hedge funds, finance companies, insurers, bank holding companies and even the financing arms of operating companies—were to be regulated like banks.
It didn't take long for both Democrats and Republicans in Congress to see the flaws in this scheme. The Fed had been regulating the largest banks and bank holding companies for over 50 years—among the very companies that would be considered systemically important—yet it failed to see the risks they were taking or the impending danger.
How, then, did it make sense to give the Fed the vast additional power to regulate all the largest nonbank financial companies? Wouldn't designating particular companies as "systemically important," and subjecting them to special Fed regulation, signal to the markets that these companies were too big to fail? How was that a solution to the too-big-to-fail problem? And wouldn't these big companies—designated as too big to fail—then have the same preferred access to credit that enabled government-sponsored enterprises Fannie Mae and Freddie Mac to drive all competition from their market?
Then there is the proposal to give a government agency the authority to take over and "resolve" failing financial firms. Here, the administration has pointed to the chaos that followed the bankruptcy of Lehman Brothers in September 2008. To prevent that kind of breakdown, the administration says all large and "interconnected" financial firms in crisis should be dealt with by a government agency, rather than by a judge in bankruptcy proceedings.
The term "interconnected" is important here. It implies that when one large firm fails it will carry others down with it, causing a systemic crisis. But that is clearly not the lesson of Lehman. Although the company went suddenly and shockingly into bankruptcy, none of its large financial counterparties failed. The systemic significance of "interconnectedness" proved to be a myth.
To be sure, there was a freeze-up in lending after Lehman. But that episode demonstrated the power of moral hazard—the tendency of government action to distort private decision-making. After Bear Stearns was rescued by the Fed in March 2008, market participants assumed that all companies larger than Bear would be rescued in the future. As a result, they did not take the steps to protect themselves against counterparty failure that would have been prudent in a panicky market. When Lehman was not rescued, all market participants immediately had to review the credit standing of their counterparties. No wonder lending temporarily froze.
The same failure to understand the power of moral hazard is what makes the administration's call for a resolution authority most inapt and troubling. Although the administration has argued, and some in Congress believe, that moral hazard and too-big-to-fail would be curbed by a resolution authority, the opposite is true. Both would be enhanced.
This is because the principal danger of moral hazard—the key to its adverse effects on private decision-making—is its impact on creditors and counterparties. The fact that shareholders and managements will lose everything in a government resolution is largely irrelevant. What really matters are the lessons creditors draw about how they will be treated. And it is clear creditors will be treated far more favorably in a government resolution process than in a bankruptcy.
To understand why this is true, consider the administration's reasons for preferring a government resolution process. The claim is that large, interconnected firms will drag down others when they fail. The remedy for this is to make sure their creditors and counterparties are fully paid when the takeover occurs. That's why the Fed made Goldman Sachs and others whole when it rescued the insurance giant AIG. It's also what distinguishes a government resolution process from a bankruptcy, where a stay is imposed on most payments to creditors when the bankruptcy petition is filed.
Creditors will realize that by lending to large companies that might be taken over and resolved by the government, their chances of being fully paid are better than if they lend to others that might not. Thus a resolution authority will enhance moral hazard not reduce it—and as creditors increasingly assume that large firms will be rescued, the too-big-to-fail phenomenon will grow, not decline. In the end, a resolution authority becomes, in effect, a permanent Troubled Asset Relief Program.
The image of partisan gridlock standing in the way of sensible financial regulation is wildly misleading. Twenty-seven Democrats in the House voted against the Barney Frank bill that mostly mirrored the administration plan. Democrats and Republicans in the Senate Banking Committee revolted against the first bill offered by Chairman Chris Dodd. That bill adopted most of the administration's flawed ideas.
Now Mr. Dodd is trying to negotiate a Plan B. But the longer he channels the White House, the longer it will take to get a bill that both Democrats and Republicans can support.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
Thursday, January 14, 2010
Don't Shoot the Pollster - Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent
Don't Shoot the Pollster. By PATRICK CADDELL AND DOUGLAS E. SCHOEN
Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent.
WSJ, Jan 15, 2010
Polling is both an art and a science, but recently it's also become a subject of political intimidation.
One shot was fired by White House Press Secretary Robert Gibbs on Dec. 8, when he dismissed Gallup's daily tracking of President Obama's job approval. It had hit a record low of 47%, and Mr. Gibbs called the results meaningless:
"If I was a heart patient and Gallup was my EKG I'd visit my doctor. If you look back I think five days ago. . . there was an 11 point spread, now there's a one point spread. . . I'm sure a six-year-old with a crayon could do something not unlike that. I don't put a lot of stake in, never have, in the EKG that is the daily Gallup trend. I don't pay a lot of attention to meaninglessness."
Polling is a science because it requires a range of sampling techniques to be used to select a sample. It is an art because constructing a sample and asking questions is something that requires skill, experience and intellectual integrity. The possibility of manipulation—or, indeed, intimidation—is great.
A recent case in point is what has happened to Scott Rasmussen, an independent pollster we both work with, who has an unchallenged record for both integrity and accuracy. Mr. Rasmussen correctly predicted the 2004 and 2008 presidential races within a percent, and accurately called the vast majority of contested Senate races in 2004 and 2006. His work has sometimes been of concern for Republicans, particularly when they were losing congressional seats in 2004 and 2006.
Most recently, Mr. Rasmussen has been the leader in chronicling the decline in the public's support for President Obama. And so he has been the target of increasingly virulent attacks from left-wing bloggers seeking to undermine his credibility, and thus muffle his findings. A Politico piece, "Low Favorables: Democrats Rip Rasmussen," reported on the attacks from blogs like the Daily Kos, Swing State Project, and Media Matters.
"Rasmussen Caught With Their Thumb on the Scale," cried the Daily Kos last summer. "Rasmussen Reports, You Decide," the blog Swing State Project headlined not long ago in a play on the Fox News motto.
"I don't think there are Republican polling firms that get as good a result as Rasmussen does," Eric Boehlert, a senior fellow with the progressive research outfit Media Matters, said in a Jan. 2 Politico article. "His data looks like it all comes out of the RNC."
Liberals have also noted that Rasmussen's daily presidential tracking polls have consistently placed Mr. Obama's approval numbers around five percentage points lower than other polling outfits throughout the year. This is because Rasmussen surveys likely voters, who are now more Republican in orientation than the overall electorate. (Gallup and other pollsters survey the entire adult population.) On other key issues like health care, Rasmussen's numbers have been echoed by everyone else.
Mr. Rasmussen, who is avowedly not part of the Beltway crowd in Washington, has been willing to take on issues like ethics and corruption in ways no other pollsters have been able to do. He was also one of the first pollsters to stress people's real fear of the growing size of government, the size of the deficit, and the concern about spending at a time when these issues were not really on Washington's radar screen.
The reaction against him has been strident and harsh. He's been called an adjunct of the Republican Party when in fact he has never worked for any political party. Nor has he consulted with any candidates seeking elective office.
The attacks on Rasmussen and Gallup follow an effort by the White House to wage war on Fox News and to brand it, as former White House Director of Communications Anita Dunn did, as "not a real news organization." The move backfired; in time, other news organizations rallied around Fox News. But the message was clear: criticize the White House at your peril.
As pollsters for two Democratic presidents who served before Barack Obama, we view this unprecedented attempt to silence the media and to attack the credibility of unpopular polling as chilling to the free exercise of democracy.
This is more than just inside baseball. As practicing political consultants, both of us have seen that the established parties try to stifle dissent among their political advisers and consultants. The parties go out of their way to try to determine in advance what questions will be asked and what answers will be obtained to reinforce existing party messages. The thing most feared is independence, which is what Mr. Rasmussen brings.
Mr. Gibbs's comments and the recent attempts by the Democratic left to muzzle Scott Rasmussen reflect a disturbing trend in our politics: a tendency to try to stifle legitimate feedback about political concerns—particularly if the feedback is negative to the incumbent administration.
Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is the author of "The Political Fix" just out from Henry Holt.
Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent.
WSJ, Jan 15, 2010
Polling is both an art and a science, but recently it's also become a subject of political intimidation.
One shot was fired by White House Press Secretary Robert Gibbs on Dec. 8, when he dismissed Gallup's daily tracking of President Obama's job approval. It had hit a record low of 47%, and Mr. Gibbs called the results meaningless:
"If I was a heart patient and Gallup was my EKG I'd visit my doctor. If you look back I think five days ago. . . there was an 11 point spread, now there's a one point spread. . . I'm sure a six-year-old with a crayon could do something not unlike that. I don't put a lot of stake in, never have, in the EKG that is the daily Gallup trend. I don't pay a lot of attention to meaninglessness."
Polling is a science because it requires a range of sampling techniques to be used to select a sample. It is an art because constructing a sample and asking questions is something that requires skill, experience and intellectual integrity. The possibility of manipulation—or, indeed, intimidation—is great.
A recent case in point is what has happened to Scott Rasmussen, an independent pollster we both work with, who has an unchallenged record for both integrity and accuracy. Mr. Rasmussen correctly predicted the 2004 and 2008 presidential races within a percent, and accurately called the vast majority of contested Senate races in 2004 and 2006. His work has sometimes been of concern for Republicans, particularly when they were losing congressional seats in 2004 and 2006.
Most recently, Mr. Rasmussen has been the leader in chronicling the decline in the public's support for President Obama. And so he has been the target of increasingly virulent attacks from left-wing bloggers seeking to undermine his credibility, and thus muffle his findings. A Politico piece, "Low Favorables: Democrats Rip Rasmussen," reported on the attacks from blogs like the Daily Kos, Swing State Project, and Media Matters.
"Rasmussen Caught With Their Thumb on the Scale," cried the Daily Kos last summer. "Rasmussen Reports, You Decide," the blog Swing State Project headlined not long ago in a play on the Fox News motto.
"I don't think there are Republican polling firms that get as good a result as Rasmussen does," Eric Boehlert, a senior fellow with the progressive research outfit Media Matters, said in a Jan. 2 Politico article. "His data looks like it all comes out of the RNC."
Liberals have also noted that Rasmussen's daily presidential tracking polls have consistently placed Mr. Obama's approval numbers around five percentage points lower than other polling outfits throughout the year. This is because Rasmussen surveys likely voters, who are now more Republican in orientation than the overall electorate. (Gallup and other pollsters survey the entire adult population.) On other key issues like health care, Rasmussen's numbers have been echoed by everyone else.
Mr. Rasmussen, who is avowedly not part of the Beltway crowd in Washington, has been willing to take on issues like ethics and corruption in ways no other pollsters have been able to do. He was also one of the first pollsters to stress people's real fear of the growing size of government, the size of the deficit, and the concern about spending at a time when these issues were not really on Washington's radar screen.
The reaction against him has been strident and harsh. He's been called an adjunct of the Republican Party when in fact he has never worked for any political party. Nor has he consulted with any candidates seeking elective office.
The attacks on Rasmussen and Gallup follow an effort by the White House to wage war on Fox News and to brand it, as former White House Director of Communications Anita Dunn did, as "not a real news organization." The move backfired; in time, other news organizations rallied around Fox News. But the message was clear: criticize the White House at your peril.
As pollsters for two Democratic presidents who served before Barack Obama, we view this unprecedented attempt to silence the media and to attack the credibility of unpopular polling as chilling to the free exercise of democracy.
This is more than just inside baseball. As practicing political consultants, both of us have seen that the established parties try to stifle dissent among their political advisers and consultants. The parties go out of their way to try to determine in advance what questions will be asked and what answers will be obtained to reinforce existing party messages. The thing most feared is independence, which is what Mr. Rasmussen brings.
Mr. Gibbs's comments and the recent attempts by the Democratic left to muzzle Scott Rasmussen reflect a disturbing trend in our politics: a tendency to try to stifle legitimate feedback about political concerns—particularly if the feedback is negative to the incumbent administration.
Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is the author of "The Political Fix" just out from Henry Holt.
Don't Like the Numbers? Change 'Em
Don't Like the Numbers? Change 'Em. By MICHAEL J. BOSKIN
If a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison.
WSJ, Jan 14, 2010
Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.
The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation "one of the greatest achievements of the twentieth century." Yet politicians from Europe to South America are now clamoring for alternatives that make them look better.
A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper—and attributed it entirely to France's higher taxes.
With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are loco.
There is historical precedent for a "socialist GDP." When President George H.W. Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).
In Argentina, President Néstor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt.
America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. President Richard Nixon even thought there was a conspiracy against him at the Bureau of Labor Statistics. But President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.
The administration has introduced the new notion of "jobs saved" to take credit where none was ever taken before. It seems continually to confuse gross and net numbers. For example, it misses the jobs lost or diverted by the fiscal stimulus. And along with the congressional leadership it hypes the number of "green jobs" likely to be created from the explosion of spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debt, regulations and diktats.
The president and his advisers—their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget "line-by-line")—consistently imply that their new proposed regulation is a free lunch. When the radical attempt to regulate energy and the environment with the deeply flawed cap-and-trade bill is confronted with economic reality, instead of honestly debating the trade-offs they confidently pronounce that it boosts the economy. They refuse to admit that it simply boosts favored sectors and firms at the expense of everyone else.
Rabid environmentalists have descended into a separate reality where only green counts. It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.
Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein—among the most celebrated scientists of all time—did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.
The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar. Thus, only spending with large societal benefits is justified, a criterion unlikely to be met by much current spending (perusing the projects on recovery.gov doesn't inspire confidence).
Even more blatant is the numbers game being used to justify health-insurance reform legislation, which claims to greatly expand coverage, decrease health-insurance costs, and reduce the deficit. That magic flows easily from counting 10 years of dubious Medicare "savings" and tax hikes, but only six years of spending; assuming large cuts in doctor reimbursements that later will be cancelled; and making the states (other than Sen. Ben Nelson's Nebraska) pay a big share of the cost by expanding Medicaid eligibility. The Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.
One piece of good news: The public isn't believing much of this out-of-control spin. Large majorities believe the health-care legislation will raise their insurance costs and increase the budget deficit. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.
As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.
Squandering their credibility with these numbers games will only make it more difficult for our elected leaders to enlist support for difficult decisions from a public increasingly inclined to disbelieve them.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
If a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison.
WSJ, Jan 14, 2010
Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.
The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation "one of the greatest achievements of the twentieth century." Yet politicians from Europe to South America are now clamoring for alternatives that make them look better.
A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper—and attributed it entirely to France's higher taxes.
With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are loco.
There is historical precedent for a "socialist GDP." When President George H.W. Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).
In Argentina, President Néstor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt.
America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. President Richard Nixon even thought there was a conspiracy against him at the Bureau of Labor Statistics. But President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.
The administration has introduced the new notion of "jobs saved" to take credit where none was ever taken before. It seems continually to confuse gross and net numbers. For example, it misses the jobs lost or diverted by the fiscal stimulus. And along with the congressional leadership it hypes the number of "green jobs" likely to be created from the explosion of spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debt, regulations and diktats.
The president and his advisers—their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget "line-by-line")—consistently imply that their new proposed regulation is a free lunch. When the radical attempt to regulate energy and the environment with the deeply flawed cap-and-trade bill is confronted with economic reality, instead of honestly debating the trade-offs they confidently pronounce that it boosts the economy. They refuse to admit that it simply boosts favored sectors and firms at the expense of everyone else.
Rabid environmentalists have descended into a separate reality where only green counts. It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.
Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein—among the most celebrated scientists of all time—did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.
The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar. Thus, only spending with large societal benefits is justified, a criterion unlikely to be met by much current spending (perusing the projects on recovery.gov doesn't inspire confidence).
Even more blatant is the numbers game being used to justify health-insurance reform legislation, which claims to greatly expand coverage, decrease health-insurance costs, and reduce the deficit. That magic flows easily from counting 10 years of dubious Medicare "savings" and tax hikes, but only six years of spending; assuming large cuts in doctor reimbursements that later will be cancelled; and making the states (other than Sen. Ben Nelson's Nebraska) pay a big share of the cost by expanding Medicaid eligibility. The Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.
One piece of good news: The public isn't believing much of this out-of-control spin. Large majorities believe the health-care legislation will raise their insurance costs and increase the budget deficit. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.
As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.
Squandering their credibility with these numbers games will only make it more difficult for our elected leaders to enlist support for difficult decisions from a public increasingly inclined to disbelieve them.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
Health Experts and Double Standards - Jonathan Gruber, Peter Orszag and the press corps
Health Experts and Double Standards. WSJ Editorial
Jonathan Gruber, Peter Orszag and the press corps.
The Wall Street Journal, page A18, Jan 14, 2010
The press corps is agonizing, or claims to be agonizing, over the news of Jonathan Gruber's conflict of interest: The MIT economist has been among the foremost promoters of ObamaCare—even as he had nearly $400,000 in consulting contracts with the Administration that weren't disclosed in the many stories in which he was cited as an independent authority.
Mr. Gruber is a health economist and former Clinton Treasury hand, as well an architect of Mitt Romney's 2006 health plan in Massachusetts that so closely resembles ObamaCare. His econometric health-care modelling is well-regarded. So his $297,600 plum from the Department of Health and Human Services in March for "technical assistance" estimating changes in insurance costs and coverage under ObamaCare, plus another $95,000 job, is at least defensible.
However, this financial relationship only came to wide notice when Mr. Gruber wrote a commentary for the New England Journal of Medicine, which has a more stringent disclosure policy than most media outlets. Last week the New York Times said it would have disclosed Mr. Gruber's financial ties had it known when it published one of his op-eds last year. Mr. Gruber told Politico's Ben Smith that "at no time have I publicly advocated a position that I did not firmly believe—indeed, I have been completely consistent with my academic track record."
We don't doubt Mr. Gruber's sincerity about his research, though the same benefit of the political doubt wasn't extended to, say, Armstrong Williams when it was revealed that the conservative pundit had a contract with the Department of Education during the No Child Left Behind debate. Any number of former Generals-turned-TV-analysts were skewered in the New York Times in 2008 merely because of continuing contact—and no financial ties—with the Pentagon.
The political exploitation of Mr. Gruber's commentary is another matter. His work figured heavily into a recent piece by Ron Brownstein in the Atlantic Monthly that the Administration promoted as an antidote to skepticism about ObamaCare's cost control (or lack thereof). White House budget director Peter Orszag has also relied on a letter from Mr. Gruber and other economists endorsing the Senate bill.
In a December conference call with reporters, Mr. Orszag said that "I agree with Jon Gruber that basically everything that has been put forward in health policy discussions for a decade is in this bill." He also praised "the folks who have actually done the reporting and read the bill and gone through and done the hard work to actually examine, rather than just going on buzz and sort of loose talk, but actually gone through and looked at the specific details in the bill," citing Mr. Brownstein in particular. Which is to say, the journalists who had "done the reporting" were those who agreed with the Gruber-White House spin.
Mr. Orszag never mentioned Mr. Gruber's contract. Nor did HHS disclose the contract when Mike Enzi, the ranking Republican on the Senate health committee, asked specifically for a list of all consultants as part of routine oversight in July. His request noted that "Transparency regarding these positions will help ensure that the public has confidence in the qualifications, character and abilities of individuals serving in these positions."
We're not Marxists who think everyone's opinion depends entirely on financial circumstances. But if Mr. Gruber qualifies as a health expert despite his self-interest, then the studies of self-interested businesses deserve at least as much media attention. The insurer WellPoint has built a very detailed and rigorous model on the likely impact of ObamaCare, using its own actuarial data in regional markets, and found that insurance costs will spike across the board. The White House trashed it, and the press corps ignored it.
This is a double standard that has corroded much of the coverage of ObamaCare, with journalists treating government claims as oracular but business arguments as self-serving. We'll bet Messrs. Orszag and Brownstein that WellPoint's analysis will more closely reflect the coming insurance reality than the fruits of Mr. Gruber's government paycheck.
Jonathan Gruber, Peter Orszag and the press corps.
The Wall Street Journal, page A18, Jan 14, 2010
The press corps is agonizing, or claims to be agonizing, over the news of Jonathan Gruber's conflict of interest: The MIT economist has been among the foremost promoters of ObamaCare—even as he had nearly $400,000 in consulting contracts with the Administration that weren't disclosed in the many stories in which he was cited as an independent authority.
Mr. Gruber is a health economist and former Clinton Treasury hand, as well an architect of Mitt Romney's 2006 health plan in Massachusetts that so closely resembles ObamaCare. His econometric health-care modelling is well-regarded. So his $297,600 plum from the Department of Health and Human Services in March for "technical assistance" estimating changes in insurance costs and coverage under ObamaCare, plus another $95,000 job, is at least defensible.
However, this financial relationship only came to wide notice when Mr. Gruber wrote a commentary for the New England Journal of Medicine, which has a more stringent disclosure policy than most media outlets. Last week the New York Times said it would have disclosed Mr. Gruber's financial ties had it known when it published one of his op-eds last year. Mr. Gruber told Politico's Ben Smith that "at no time have I publicly advocated a position that I did not firmly believe—indeed, I have been completely consistent with my academic track record."
We don't doubt Mr. Gruber's sincerity about his research, though the same benefit of the political doubt wasn't extended to, say, Armstrong Williams when it was revealed that the conservative pundit had a contract with the Department of Education during the No Child Left Behind debate. Any number of former Generals-turned-TV-analysts were skewered in the New York Times in 2008 merely because of continuing contact—and no financial ties—with the Pentagon.
The political exploitation of Mr. Gruber's commentary is another matter. His work figured heavily into a recent piece by Ron Brownstein in the Atlantic Monthly that the Administration promoted as an antidote to skepticism about ObamaCare's cost control (or lack thereof). White House budget director Peter Orszag has also relied on a letter from Mr. Gruber and other economists endorsing the Senate bill.
In a December conference call with reporters, Mr. Orszag said that "I agree with Jon Gruber that basically everything that has been put forward in health policy discussions for a decade is in this bill." He also praised "the folks who have actually done the reporting and read the bill and gone through and done the hard work to actually examine, rather than just going on buzz and sort of loose talk, but actually gone through and looked at the specific details in the bill," citing Mr. Brownstein in particular. Which is to say, the journalists who had "done the reporting" were those who agreed with the Gruber-White House spin.
Mr. Orszag never mentioned Mr. Gruber's contract. Nor did HHS disclose the contract when Mike Enzi, the ranking Republican on the Senate health committee, asked specifically for a list of all consultants as part of routine oversight in July. His request noted that "Transparency regarding these positions will help ensure that the public has confidence in the qualifications, character and abilities of individuals serving in these positions."
We're not Marxists who think everyone's opinion depends entirely on financial circumstances. But if Mr. Gruber qualifies as a health expert despite his self-interest, then the studies of self-interested businesses deserve at least as much media attention. The insurer WellPoint has built a very detailed and rigorous model on the likely impact of ObamaCare, using its own actuarial data in regional markets, and found that insurance costs will spike across the board. The White House trashed it, and the press corps ignored it.
This is a double standard that has corroded much of the coverage of ObamaCare, with journalists treating government claims as oracular but business arguments as self-serving. We'll bet Messrs. Orszag and Brownstein that WellPoint's analysis will more closely reflect the coming insurance reality than the fruits of Mr. Gruber's government paycheck.
Friday, October 23, 2009
The Chamber of Commerce is only the latest target of the Chicago Gang in the White House
The Chicago Way. By KIMBERLEY A. STRASSEL
The Chamber of Commerce is only the latest target of the Chicago Gang in the White House.
WSJ, Oct 23, 2009
They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. That's the Chicago way.
–Jim Malone,
"The Untouchables"
When Barack Obama promised to deliver "a new kind of politics" to Washington, most folk didn't picture Rahm Emanuel with a baseball bat. These days, the capital would make David Mamet, who wrote Malone's memorable movie dialogue, proud.
A White House set on kneecapping its opponents isn't, of course, entirely new. (See: Nixon) What is a little novel is the public and bare-knuckle way in which the Obama team is waging these campaigns against the other side.
In recent weeks the Windy City gang added a new name to their list of societal offenders: the Chamber of Commerce. For the cheek of disagreeing with Democrats on climate and financial regulation, it was reported the Oval Office will neuter the business lobby. Obama adviser Valerie Jarrett slammed the outfit as "old school," and warned CEOs they'd be wise to seek better protection.
That was after the president accused the business lobby of false advertising. And that recent black eye for the Chamber (when several companies, all with Democratic ties, quit in a huff)—think that happened on its own? ("Somebody messes with me, I'm gonna mess with him! Somebody steals from me, I'm gonna say you stole. Not talk to him for spitting on the sidewalk. Understand!?")
The Chamber can at least take comfort in crowds. Who isn't on the business end of the White House's sawed-off shotgun? First up were Chrysler bondholders who—upon balking at a White House deal that rewarded only unions—were privately threatened and then publicly excoriated by the president.
Next, every pharmaceutical, hospital and insurance executive in the nation was held out as a prime obstacle to health-care nirvana. And that was their reward for cooperating. When Humana warned customers about cuts to Medicare under "reform," the White House didn't bother to complain. They went straight for the gag order. When the insurance industry criticized the Baucus health bill, the response was this week's bill to strip them of their federal antitrust immunity. ("I want you to find this nancy-boy . . . I want him dead! I want his family dead! I want his house burned to the ground!")
This summer Arizona Sen. Jon Kyl criticized stimulus dollars. Obama cabinet secretaries sent letters to Arizona Gov. Jan Brewer. One read: "if you prefer to forfeit the money we are making available to the state, as Senator Kyl suggests," let us know. The Arizona Republic wrote: "Let's not mince words here: The White House is intent on shutting Kyl up . . . using whatever means necessary." When Sens. Robert Bennett and Lamar Alexander took issue with the administration's czars, the White House singled them out, by name, on its blog. Sen. Alexander was annoyed enough to take to the floor this week to warn the White House off an "enemies list."
House Minority Whip Eric Cantor? Targeted for the sin of being a up-and-coming conservative voice. Though even Mr. Cantor was shoved aside in August so the Chicago gang could target at least seven Democratic senators, via the president's campaign arm, Organizing for America, for not doing more on health care. ("What I'm saying is: What are you prepared to do??!!")
And don't forget Fox News Channel ("nothing but a lot of talk and a badge!"). Fox, like MSNBC, has its share of commentators. But according to Obama Communications Director Anita Dunn, the entire network is "opinion journalism masquerading as news." Many previous White House press officers, when faced with criticism, try this thing called outreach. The Chicago crowd has boycotted Fox altogether.
What makes these efforts notable is that they are not the lashing out of a frustrated political operation. They are calculated campaigns, designed to create bogeymen, to divide the opposition, to frighten players into compliance. The White House sees a once-in-a-generation opportunity on health care and climate. It is obsessed with winning these near-term battles, and will take no prisoners. It knows that CEOs are easily intimidated and (Fox News ratings aside) it is getting some of its way. Besides, roughing up conservatives gives the liberal blogosphere something to write about besides Guantanamo.
The Oval Office might be more concerned with the long term. It is 10 months in; more than three long years to go. The strategy to play dirty now and triangulate later is risky. One day, say when immigration reform comes due, the Chamber might come in handy. That is if the Chamber isn't too far gone.
White House targets also aren't dopes. The corporate community is realizing that playing nice doesn't guarantee safety. The health executives signed up for reform, only to remain the president's political piñatas. It surely grates that the unions—now running their own ads against ObamaCare—haven't been targeted. If the choice is cooperate and get nailed, or oppose and possibly win, some might take that bet.
There's also the little fact that many Americans voted for this president in thrall to his vow to bring the country together. It's hard to do that amid gunfire, and voters might just notice.
("I do not approve of your methods! Yeah, well . . . You're not from Chicago.")
The Chamber of Commerce is only the latest target of the Chicago Gang in the White House.
WSJ, Oct 23, 2009
They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. That's the Chicago way.
–Jim Malone,
"The Untouchables"
When Barack Obama promised to deliver "a new kind of politics" to Washington, most folk didn't picture Rahm Emanuel with a baseball bat. These days, the capital would make David Mamet, who wrote Malone's memorable movie dialogue, proud.
A White House set on kneecapping its opponents isn't, of course, entirely new. (See: Nixon) What is a little novel is the public and bare-knuckle way in which the Obama team is waging these campaigns against the other side.
In recent weeks the Windy City gang added a new name to their list of societal offenders: the Chamber of Commerce. For the cheek of disagreeing with Democrats on climate and financial regulation, it was reported the Oval Office will neuter the business lobby. Obama adviser Valerie Jarrett slammed the outfit as "old school," and warned CEOs they'd be wise to seek better protection.
That was after the president accused the business lobby of false advertising. And that recent black eye for the Chamber (when several companies, all with Democratic ties, quit in a huff)—think that happened on its own? ("Somebody messes with me, I'm gonna mess with him! Somebody steals from me, I'm gonna say you stole. Not talk to him for spitting on the sidewalk. Understand!?")
The Chamber can at least take comfort in crowds. Who isn't on the business end of the White House's sawed-off shotgun? First up were Chrysler bondholders who—upon balking at a White House deal that rewarded only unions—were privately threatened and then publicly excoriated by the president.
Next, every pharmaceutical, hospital and insurance executive in the nation was held out as a prime obstacle to health-care nirvana. And that was their reward for cooperating. When Humana warned customers about cuts to Medicare under "reform," the White House didn't bother to complain. They went straight for the gag order. When the insurance industry criticized the Baucus health bill, the response was this week's bill to strip them of their federal antitrust immunity. ("I want you to find this nancy-boy . . . I want him dead! I want his family dead! I want his house burned to the ground!")
This summer Arizona Sen. Jon Kyl criticized stimulus dollars. Obama cabinet secretaries sent letters to Arizona Gov. Jan Brewer. One read: "if you prefer to forfeit the money we are making available to the state, as Senator Kyl suggests," let us know. The Arizona Republic wrote: "Let's not mince words here: The White House is intent on shutting Kyl up . . . using whatever means necessary." When Sens. Robert Bennett and Lamar Alexander took issue with the administration's czars, the White House singled them out, by name, on its blog. Sen. Alexander was annoyed enough to take to the floor this week to warn the White House off an "enemies list."
House Minority Whip Eric Cantor? Targeted for the sin of being a up-and-coming conservative voice. Though even Mr. Cantor was shoved aside in August so the Chicago gang could target at least seven Democratic senators, via the president's campaign arm, Organizing for America, for not doing more on health care. ("What I'm saying is: What are you prepared to do??!!")
And don't forget Fox News Channel ("nothing but a lot of talk and a badge!"). Fox, like MSNBC, has its share of commentators. But according to Obama Communications Director Anita Dunn, the entire network is "opinion journalism masquerading as news." Many previous White House press officers, when faced with criticism, try this thing called outreach. The Chicago crowd has boycotted Fox altogether.
What makes these efforts notable is that they are not the lashing out of a frustrated political operation. They are calculated campaigns, designed to create bogeymen, to divide the opposition, to frighten players into compliance. The White House sees a once-in-a-generation opportunity on health care and climate. It is obsessed with winning these near-term battles, and will take no prisoners. It knows that CEOs are easily intimidated and (Fox News ratings aside) it is getting some of its way. Besides, roughing up conservatives gives the liberal blogosphere something to write about besides Guantanamo.
The Oval Office might be more concerned with the long term. It is 10 months in; more than three long years to go. The strategy to play dirty now and triangulate later is risky. One day, say when immigration reform comes due, the Chamber might come in handy. That is if the Chamber isn't too far gone.
White House targets also aren't dopes. The corporate community is realizing that playing nice doesn't guarantee safety. The health executives signed up for reform, only to remain the president's political piñatas. It surely grates that the unions—now running their own ads against ObamaCare—haven't been targeted. If the choice is cooperate and get nailed, or oppose and possibly win, some might take that bet.
There's also the little fact that many Americans voted for this president in thrall to his vow to bring the country together. It's hard to do that amid gunfire, and voters might just notice.
("I do not approve of your methods! Yeah, well . . . You're not from Chicago.")
Monday, September 28, 2009
Subprime Uncle Sam - The FHA makes Countrywide Financial look prudent
Subprime Uncle Sam. WSJ Editorial
The FHA makes Countrywide Financial look prudent.
WSJ, Sep 29, 2009
The Treasury has announced new "capital cushion" requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies.
One place to start is the Federal Housing Administration, the nation's insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
[table The Federal Housing Administration leverage ratio http://s.wsj.net/public/resources/images/ED-AK249_1fha_D_20090928180420.gif]
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA's worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.
All of this means the FHA is making a trillion-dollar housing gamble with taxpayer money as the table stakes. If housing values recover (fingers crossed), default rates will fall and the agency could even make money on its aggressive underwriting. But if housing prices continue their slide in states like Arizona, California, Florida and Nevada—where many FHA borrowers already have negative equity in their homes—taxpayers could face losses of $100 billion or more.
So far Congress has pretended that these liabilities don't exist because they are technically "off budget." They stay invisible until they move on-budget when a Fannie Mae-type cash bailout is needed. The Obama Administration is at least finally catching on to these perils and last week proposed some modest reforms. These include appointing a "chief risk officer" at FHA, tightening home appraisals, requiring that FHA lenders have audited financial statements, and increasing the capital requirement of FHA lenders to $1 million up from $250,000. The scandal is that these basic standards weren't in place years ago.
Unfortunately, Washington won't touch more significant reforms for fear of angering the powerful nexus of Realtors, mortgage bankers and home builders. As we've written for years, the FHA's main lending problem is that it requires neither lenders nor borrowers to have a sufficient financial stake in mortgage repayment. The FHA's absurdly low 3.5% down payment policy, in combination with other policies to reduce up-front costs for new homebuyers, means that homebuyers can move into their government-insured home with an equity stake as low as 2.5%. The government's own housing data prove that low down payments are the single largest predictor of defaults.
Private banks know this. Burned on subprime mortgages, they are back to requiring 10% or even 20% down payments. Congress should at least require a 5% down payment on loans that carry a taxpayer guarantee. If borrowers can't put at least 5% down, they can't afford the house.
As for rooting out fraud that contributes to high loss rates, the obvious solution is to drop the 100% guarantee on FHA mortgages. Why not hold banks liable for the first 10% of losses on the housing loans they originate, a reform that has been recommended since as far back as the early Reagan years? No other mortgage insurer insures 100% loan repayment. Alas, while offering its minireforms, the Obama Administration reassured its real-estate pals that FHA insurance will continue to carry "no risk to homeowners or bondholders."
Which means all the risk is on taxpayers. David Stevens, the FHA commissioner, nonetheless declared this month: "There will be no taxpayer bailout." That's also what Barney Frank said about Fannie and Freddie.
The FHA makes Countrywide Financial look prudent.
WSJ, Sep 29, 2009
The Treasury has announced new "capital cushion" requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies.
One place to start is the Federal Housing Administration, the nation's insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
[table The Federal Housing Administration leverage ratio http://s.wsj.net/public/resources/images/ED-AK249_1fha_D_20090928180420.gif]
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA's worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.
All of this means the FHA is making a trillion-dollar housing gamble with taxpayer money as the table stakes. If housing values recover (fingers crossed), default rates will fall and the agency could even make money on its aggressive underwriting. But if housing prices continue their slide in states like Arizona, California, Florida and Nevada—where many FHA borrowers already have negative equity in their homes—taxpayers could face losses of $100 billion or more.
So far Congress has pretended that these liabilities don't exist because they are technically "off budget." They stay invisible until they move on-budget when a Fannie Mae-type cash bailout is needed. The Obama Administration is at least finally catching on to these perils and last week proposed some modest reforms. These include appointing a "chief risk officer" at FHA, tightening home appraisals, requiring that FHA lenders have audited financial statements, and increasing the capital requirement of FHA lenders to $1 million up from $250,000. The scandal is that these basic standards weren't in place years ago.
Unfortunately, Washington won't touch more significant reforms for fear of angering the powerful nexus of Realtors, mortgage bankers and home builders. As we've written for years, the FHA's main lending problem is that it requires neither lenders nor borrowers to have a sufficient financial stake in mortgage repayment. The FHA's absurdly low 3.5% down payment policy, in combination with other policies to reduce up-front costs for new homebuyers, means that homebuyers can move into their government-insured home with an equity stake as low as 2.5%. The government's own housing data prove that low down payments are the single largest predictor of defaults.
Private banks know this. Burned on subprime mortgages, they are back to requiring 10% or even 20% down payments. Congress should at least require a 5% down payment on loans that carry a taxpayer guarantee. If borrowers can't put at least 5% down, they can't afford the house.
As for rooting out fraud that contributes to high loss rates, the obvious solution is to drop the 100% guarantee on FHA mortgages. Why not hold banks liable for the first 10% of losses on the housing loans they originate, a reform that has been recommended since as far back as the early Reagan years? No other mortgage insurer insures 100% loan repayment. Alas, while offering its minireforms, the Obama Administration reassured its real-estate pals that FHA insurance will continue to carry "no risk to homeowners or bondholders."
Which means all the risk is on taxpayers. David Stevens, the FHA commissioner, nonetheless declared this month: "There will be no taxpayer bailout." That's also what Barney Frank said about Fannie and Freddie.
Thursday, August 6, 2009
Autocracy and the Decline of the Arabs
Autocracy and the Decline of the Arabs. By FOUAD AJAMI
The Arab world is plagued by despots. But don’t expect the U.N. to give President Bush any credit for challenging this order.
WSJ, Aug 06, 2009
‘It made me feel so jealous,” said Abdulmonem Ibrahim, a young Egyptian political activist, of the recent upheaval in Iran. “We are amazed at the organization and speed with which the Iranian movement has been functioning. In Egypt you can count the number of activists on your hand.” This degree of “Iran envy” is a telling statement on the stagnation of Arab politics. It is not pretty, Iran’s upheaval, but grant the Iranians their due: They have gone out into the streets to contest the writ of the theocrats.
In contrast, little has stirred in Arab politics of late. The Arabs, by their own testimony, have become spectators to their history. A struggle rages between the Iranian theocracy and the Pax Americana for primacy in the Persian Gulf and the Levant. The Arabs have the demography—360 million people by latest count—and the wealth to balance Iran’s power. But they have taken a pass in the hope that America—or Israel, for that matter—would shatter the Iranian bid for hegemony.
We are now in the midst of one of those periodic autopsies of the Arab condition. The trigger is the publication last month of the Arab Human Development Report 2009, the fifth of a series of reports by the by the United Nations Development Program (UNDP) on the state of the contemporary Arab world.
The first of these reports, published in 2002, was treated with deference. A group of Arab truth-tellers, it was believed, had broken with the evasions and the apologetics to tell of the sordid condition of Arab society—the autocratic political culture, the economic stagnation, the cultural decay. So all Arabs combined had a smaller manufacturing capacity than Finland with its five million people, and a vast Arabic-speaking world translated into Arabic a fifth of the foreign books that Greece with its 11 million people translates. With all the oil in the region, tens of millions of Arabs were living below the poverty line.
Little has altered in the years separating the first of these reports from the most recent. A huge oil windfall came into the region, and it was better handled, it has to be conceded, than earlier oil windfalls. But on balance the grief of the Arabs has deepened, and the autocracies are yet to be brought to account. They remain unloved, but they remain in the saddle.
In a clever turn of phrase, The Economist recently wrote of an Arab Rip Abu Winkle awakening from a slumber into which he had fallen in the early 1980s to marvel at how little has changed. He would find Hosni Mubarak still at the helm in Cairo, the policeman Zine el-Abidine Ben Ali in Tunisia, and Moammar Gadhafi in Libya. He would miss Hafez Assad in Damascus, but he would be reassured that his son Bashar had inherited his father’s dominion. He would of course find the same dynasties in Jordan and in the Arab states of the Peninsula and the Gulf.
Wily rulers, the men at the helm may have failed their peoples. They may have denied them decent educational systems. They may not have figured out a way into the modern world economy. But they have mastered the art of political survival. “He who eats the sultan’s bread, fights with the sultan’s sword,” goes an Arabic maxim. The economic dominance of the rulers, the absence of the countervailing power of property and the private sector, has increased the awesome power of the governments and their security establishments.
It is no mystery, this sorrowful decline of the Arabs. They have invested their hopes in states, and the states have failed. According to the UNDP’s report, government revenues as percentage of GDP are 13% in Third World Countries, but they are 25% in the Middle East and North Africa. The oil states are a world apart in that regard: the comparable figures are 68% in Libya, 45% in Saudi Arabia, and 40% in Algeria, Kuwait and Qatar. Oil is no panacea for these lands. The unemployment rates for the Arab world as a whole are the highest in the world, and no prophecy could foresee these societies providing the 51 million jobs the UNDP report says are needed by 2020 to “absorb young entrants to the labor force who would otherwise face an empty future.”
The simple truth is that the Arab world has terrible rulers and worse oppositionists. There are autocrats on one side and theocrats on the other. A timid and fragile middle class is caught in the middle between regimes it abhors and Islamists it fears.
Indeed, the technocrats and intellectuals associated with these development reports are themselves no angels. On the whole, they are unreconstructed Arab nationalists. The patrons of these reports are the likes of the Algerian diplomat Lakhdar Brahimi and the Palestinian leader Hanan Ashrawi, intellectuals and public figures whose stock-in-trade is presumed Western (read American) guilt for the ills that afflict the Arabs. Anti-Americanism suffuses this report, as it did the earlier ones.
There is cruelty and plunder aplenty in the Arab world, but these writers are particularly exercised about Iraq. “This intervention polarized the country,” they say of Iraq. This is a myth of the Arabs who are yet to grant the Iraqis the right to their own history: There had been a secular culture under the Baath, they insist, but the American war begot the sectarianism. To go by this report, Iraq is a place of mayhem and plunder, a land where militias rule uncontested.
For decades, it was the standard argument of the Arabs that America had cast its power in the region on the side of the autocrats. In Iraq in 2003, and then in Lebanon, an American president bet on the freedom of the Arabs. George W. Bush’s freedom agenda broke with a long history and insisted that the Arabs did not have tyranny in their DNA. A despotism in Baghdad was toppled, a Syrian regime that had all but erased its border with Lebanon was pushed out of its smaller neighbor, bringing an end to three decades of brutal occupation. The “Cedar Revolution” that erupted in the streets of Beirut was but a child of Bush’s diplomacy of freedom.
Arabs know this history even as they say otherwise, even as they tell the pollsters the obligatory things about America the pollsters expect them to say. True, Mr. Bush’s wager on elections in the Palestinian territories rebounded to the benefit of Hamas. But the ballot is not infallible, and the verdict of that election was a statement on the malignancies of Palestinian politics. It was no fault of American diplomacy that the Palestinians, who needed to break with a history of maximalist demands, gave in yet again to radical temptations.
Now the Arabs are face to face with their own history. Instead of George W. Bush there is Barack Hussein Obama, an American leader pledged to a foreign policy of “realism.” The Arabs express fondness for the new American president. In his fashion (and in the fashion of their world and their leaders, it has to be said) President Obama gave the Arabs a speech in Cairo two months ago. It was a moment of theater and therapy. The speech delivered, the foreign visitor was gone. He had put another marker on the globe, another place to which he had taken his astounding belief in his biography and his conviction that another foreign population had been wooed by his oratory and weaned away from anti-Americanism.
The crowd could tell itself that the new standard-bearer of the Pax Americana was a man who understood its concerns, but the embattled modernists and the critics of autocracy knew better. There is no mistaking the animating drive of the new American policy in that Greater Middle East: realism and benign neglect, the safety of the status quo rather than the risks of liberty. (If in doubt, the Arabs could check with their Iranian neighbors. The Persians would tell them of the new mood in Washington.)
One day an Arab chronicle could yet be written, and like all Arab chronicles, it would tell of woes and missed opportunities. It would acknowledge that brief interlude when American power gave Arab autocracies a scare, and when a despotism in Baghdad and a brutal “brotherly” occupation in Beirut were laid to waste. The chroniclers would have to be an honest lot. They would speak the language of daily life, and the truths that Arabs have seen and endured in recent years. On that day, the “human development reports” would be discarded, their writers seen for the purveyors of double-speak and half-truths they were.
Mr. Ajami, a professor at the School of Advanced International Studies at Johns Hopkins University and an adjunct fellow at Stanford University’s Hoover Institution, is the author, among other books, of “The Arab Predicament: Arab Political Thought and Practice since 1967 (Cambridge University Press, 1981).
The Arab world is plagued by despots. But don’t expect the U.N. to give President Bush any credit for challenging this order.
WSJ, Aug 06, 2009
‘It made me feel so jealous,” said Abdulmonem Ibrahim, a young Egyptian political activist, of the recent upheaval in Iran. “We are amazed at the organization and speed with which the Iranian movement has been functioning. In Egypt you can count the number of activists on your hand.” This degree of “Iran envy” is a telling statement on the stagnation of Arab politics. It is not pretty, Iran’s upheaval, but grant the Iranians their due: They have gone out into the streets to contest the writ of the theocrats.
In contrast, little has stirred in Arab politics of late. The Arabs, by their own testimony, have become spectators to their history. A struggle rages between the Iranian theocracy and the Pax Americana for primacy in the Persian Gulf and the Levant. The Arabs have the demography—360 million people by latest count—and the wealth to balance Iran’s power. But they have taken a pass in the hope that America—or Israel, for that matter—would shatter the Iranian bid for hegemony.
We are now in the midst of one of those periodic autopsies of the Arab condition. The trigger is the publication last month of the Arab Human Development Report 2009, the fifth of a series of reports by the by the United Nations Development Program (UNDP) on the state of the contemporary Arab world.
The first of these reports, published in 2002, was treated with deference. A group of Arab truth-tellers, it was believed, had broken with the evasions and the apologetics to tell of the sordid condition of Arab society—the autocratic political culture, the economic stagnation, the cultural decay. So all Arabs combined had a smaller manufacturing capacity than Finland with its five million people, and a vast Arabic-speaking world translated into Arabic a fifth of the foreign books that Greece with its 11 million people translates. With all the oil in the region, tens of millions of Arabs were living below the poverty line.
Little has altered in the years separating the first of these reports from the most recent. A huge oil windfall came into the region, and it was better handled, it has to be conceded, than earlier oil windfalls. But on balance the grief of the Arabs has deepened, and the autocracies are yet to be brought to account. They remain unloved, but they remain in the saddle.
In a clever turn of phrase, The Economist recently wrote of an Arab Rip Abu Winkle awakening from a slumber into which he had fallen in the early 1980s to marvel at how little has changed. He would find Hosni Mubarak still at the helm in Cairo, the policeman Zine el-Abidine Ben Ali in Tunisia, and Moammar Gadhafi in Libya. He would miss Hafez Assad in Damascus, but he would be reassured that his son Bashar had inherited his father’s dominion. He would of course find the same dynasties in Jordan and in the Arab states of the Peninsula and the Gulf.
Wily rulers, the men at the helm may have failed their peoples. They may have denied them decent educational systems. They may not have figured out a way into the modern world economy. But they have mastered the art of political survival. “He who eats the sultan’s bread, fights with the sultan’s sword,” goes an Arabic maxim. The economic dominance of the rulers, the absence of the countervailing power of property and the private sector, has increased the awesome power of the governments and their security establishments.
It is no mystery, this sorrowful decline of the Arabs. They have invested their hopes in states, and the states have failed. According to the UNDP’s report, government revenues as percentage of GDP are 13% in Third World Countries, but they are 25% in the Middle East and North Africa. The oil states are a world apart in that regard: the comparable figures are 68% in Libya, 45% in Saudi Arabia, and 40% in Algeria, Kuwait and Qatar. Oil is no panacea for these lands. The unemployment rates for the Arab world as a whole are the highest in the world, and no prophecy could foresee these societies providing the 51 million jobs the UNDP report says are needed by 2020 to “absorb young entrants to the labor force who would otherwise face an empty future.”
The simple truth is that the Arab world has terrible rulers and worse oppositionists. There are autocrats on one side and theocrats on the other. A timid and fragile middle class is caught in the middle between regimes it abhors and Islamists it fears.
Indeed, the technocrats and intellectuals associated with these development reports are themselves no angels. On the whole, they are unreconstructed Arab nationalists. The patrons of these reports are the likes of the Algerian diplomat Lakhdar Brahimi and the Palestinian leader Hanan Ashrawi, intellectuals and public figures whose stock-in-trade is presumed Western (read American) guilt for the ills that afflict the Arabs. Anti-Americanism suffuses this report, as it did the earlier ones.
There is cruelty and plunder aplenty in the Arab world, but these writers are particularly exercised about Iraq. “This intervention polarized the country,” they say of Iraq. This is a myth of the Arabs who are yet to grant the Iraqis the right to their own history: There had been a secular culture under the Baath, they insist, but the American war begot the sectarianism. To go by this report, Iraq is a place of mayhem and plunder, a land where militias rule uncontested.
For decades, it was the standard argument of the Arabs that America had cast its power in the region on the side of the autocrats. In Iraq in 2003, and then in Lebanon, an American president bet on the freedom of the Arabs. George W. Bush’s freedom agenda broke with a long history and insisted that the Arabs did not have tyranny in their DNA. A despotism in Baghdad was toppled, a Syrian regime that had all but erased its border with Lebanon was pushed out of its smaller neighbor, bringing an end to three decades of brutal occupation. The “Cedar Revolution” that erupted in the streets of Beirut was but a child of Bush’s diplomacy of freedom.
Arabs know this history even as they say otherwise, even as they tell the pollsters the obligatory things about America the pollsters expect them to say. True, Mr. Bush’s wager on elections in the Palestinian territories rebounded to the benefit of Hamas. But the ballot is not infallible, and the verdict of that election was a statement on the malignancies of Palestinian politics. It was no fault of American diplomacy that the Palestinians, who needed to break with a history of maximalist demands, gave in yet again to radical temptations.
Now the Arabs are face to face with their own history. Instead of George W. Bush there is Barack Hussein Obama, an American leader pledged to a foreign policy of “realism.” The Arabs express fondness for the new American president. In his fashion (and in the fashion of their world and their leaders, it has to be said) President Obama gave the Arabs a speech in Cairo two months ago. It was a moment of theater and therapy. The speech delivered, the foreign visitor was gone. He had put another marker on the globe, another place to which he had taken his astounding belief in his biography and his conviction that another foreign population had been wooed by his oratory and weaned away from anti-Americanism.
The crowd could tell itself that the new standard-bearer of the Pax Americana was a man who understood its concerns, but the embattled modernists and the critics of autocracy knew better. There is no mistaking the animating drive of the new American policy in that Greater Middle East: realism and benign neglect, the safety of the status quo rather than the risks of liberty. (If in doubt, the Arabs could check with their Iranian neighbors. The Persians would tell them of the new mood in Washington.)
One day an Arab chronicle could yet be written, and like all Arab chronicles, it would tell of woes and missed opportunities. It would acknowledge that brief interlude when American power gave Arab autocracies a scare, and when a despotism in Baghdad and a brutal “brotherly” occupation in Beirut were laid to waste. The chroniclers would have to be an honest lot. They would speak the language of daily life, and the truths that Arabs have seen and endured in recent years. On that day, the “human development reports” would be discarded, their writers seen for the purveyors of double-speak and half-truths they were.
Mr. Ajami, a professor at the School of Advanced International Studies at Johns Hopkins University and an adjunct fellow at Stanford University’s Hoover Institution, is the author, among other books, of “The Arab Predicament: Arab Political Thought and Practice since 1967 (Cambridge University Press, 1981).
Sunday, July 26, 2009
Morality and Charlie Rangel’s Taxes
Morality and Charlie Rangel’s Taxes. WSJ Editorial
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009
Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.
Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.
The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.
Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.
Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.
Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)
Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.
The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.
The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.
All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009
Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.
Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.
The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.
Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.
Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.
Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)
Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.
The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.
The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.
All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.
Wednesday, July 22, 2009
Intimidator in Chief: Bullying CBO
Bullying CBO. WSJ Editorial
Intimidator in Chief
WSJ, Jul 23, 2009
The Washington Post recently ran a story quoting Democrats as bragging that President Obama has deliberately patterned his legislative strategy after LBJ’s, circa 1965.This may explain the treatment of Douglas Elmendorf, the director of the supposedly nonpartisan Congressional Budget Office who last week told Congress that you can’t “save” money on health care by having government insure everyone.
For that bit of truth-telling, he was first excoriated by Senate Majority Leader Harry Reid. Then he was summoned, er, invited to the White House for an extraordinary and inappropriate meeting Monday with President Obama and a phalanx of economic and health-care advisers.
Writing on his blog after news of the meeting became public, Mr. Elmendorf diplomatically noted that “The President asked me and outside experts for our views about achieving cost savings in health reform.” No doubt he did. But Mr. Elmendorf, a Democrat, will also have received the message that continuing apostasy will not be good for his future political career.
As Douglas Holtz-Eakin, the Republican who ran CBO from 2003 to 2005, put it, “The only appearance could be that they’re leaning on him. CBO was created for Congress, for independent analysis. The White House did him [Elmendorf] a terrible disservice.” On second thought, perhaps we’re being unfair to LBJ, whose method was a combination of muscle and flattery. Mr. Obama learned his methods in Chicago.
Intimidator in Chief
WSJ, Jul 23, 2009
The Washington Post recently ran a story quoting Democrats as bragging that President Obama has deliberately patterned his legislative strategy after LBJ’s, circa 1965.This may explain the treatment of Douglas Elmendorf, the director of the supposedly nonpartisan Congressional Budget Office who last week told Congress that you can’t “save” money on health care by having government insure everyone.
For that bit of truth-telling, he was first excoriated by Senate Majority Leader Harry Reid. Then he was summoned, er, invited to the White House for an extraordinary and inappropriate meeting Monday with President Obama and a phalanx of economic and health-care advisers.
Writing on his blog after news of the meeting became public, Mr. Elmendorf diplomatically noted that “The President asked me and outside experts for our views about achieving cost savings in health reform.” No doubt he did. But Mr. Elmendorf, a Democrat, will also have received the message that continuing apostasy will not be good for his future political career.
As Douglas Holtz-Eakin, the Republican who ran CBO from 2003 to 2005, put it, “The only appearance could be that they’re leaning on him. CBO was created for Congress, for independent analysis. The White House did him [Elmendorf] a terrible disservice.” On second thought, perhaps we’re being unfair to LBJ, whose method was a combination of muscle and flattery. Mr. Obama learned his methods in Chicago.
Friday, July 17, 2009
Is Food Aid for Africa Working?
Is Food Aid for Africa Working?: A Wall Street Journal reporter asks if western food aid policies are truly providing aid. By Brian Doherty
Reason Magazine, Jul 17, 2009
Although billions have been spent on foreign development and food aid to Africa in the decades since World War II, over half a billion people remain undernourished in Africa today according to the U.S. Department of Agriculture—a number that's 53 percent higher than it was in 1992 when the government first began accumulating such figures.
While the reasons for continuing poverty are manifold, Western government programs such as food aid and agriculture and ethanol subsidies deserve their share of the blame. So argues the new book Enough: Why the World's Poorest Starve in an Age of Plenty (PublicAffairs), written by Wall Street Journal reporters Roger Thurow and Scott Kilman, each of whom have years of experience writing page-one stories for the Journal on African matters, particularly African famine.
Unlike anti-aid anaylsts such as William Easterly and Dambisa Moyo, Thurow and Kilman see plenty of room for more (intelligent) action on the part of Western governments. In fact, Kilman argues that genuine agricultural development aid has yet to be sufficiently and intelligently attempted.
But their reporting in the Journal and in Enough provides vivid examples of the ways both aid policy and U.S. farm policy hurts, not helps, the long-term well-being of Africans as they struggle for self-sufficiency.
Senior Editor Brian Doherty spoke with Scott Kilman in July.
See interview in the link above.
Reason Magazine, Jul 17, 2009
Although billions have been spent on foreign development and food aid to Africa in the decades since World War II, over half a billion people remain undernourished in Africa today according to the U.S. Department of Agriculture—a number that's 53 percent higher than it was in 1992 when the government first began accumulating such figures.
While the reasons for continuing poverty are manifold, Western government programs such as food aid and agriculture and ethanol subsidies deserve their share of the blame. So argues the new book Enough: Why the World's Poorest Starve in an Age of Plenty (PublicAffairs), written by Wall Street Journal reporters Roger Thurow and Scott Kilman, each of whom have years of experience writing page-one stories for the Journal on African matters, particularly African famine.
Unlike anti-aid anaylsts such as William Easterly and Dambisa Moyo, Thurow and Kilman see plenty of room for more (intelligent) action on the part of Western governments. In fact, Kilman argues that genuine agricultural development aid has yet to be sufficiently and intelligently attempted.
But their reporting in the Journal and in Enough provides vivid examples of the ways both aid policy and U.S. farm policy hurts, not helps, the long-term well-being of Africans as they struggle for self-sufficiency.
Senior Editor Brian Doherty spoke with Scott Kilman in July.
See interview in the link above.
Tuesday, July 14, 2009
Obama Gets It Right on Africa - We'd be glad if the government only skimmed 20%
Obama Gets It Right on Africa. By BRET STEPHENS
We'd be glad if the government only skimmed 20%.
WSJ, Jul 14, 2009
http://online.wsj.com/article/SB124753013433935785.html
There's a striking passage in "Dreams From My Father," in which a young Barack Obama, on safari in Kenya, gets an unembellished picture of everyday African life from his driver, a man named Francis.
"[Francis] said he enjoyed his work with the travel agency but disliked being away from his family. 'If I could, I might prefer farming full-time,' he said, 'but the KCU makes it impossible.'
"'What's the KCU?' I asked.
"'The Kenyan Coffee Union. They are thieves. They regulate what we can plant and when we can plant it. I can only sell my coffee to them, and they sell it overseas. They say to us that prices are dropping, but I know they still get one hundred times what they pay to me. The rest goes where?' Francis shook his head with disgust. 'It's a terrible thing when the government steals from its own people.'"
Terrible indeed. And perhaps it was an echo of Francis's voice that shaped Mr. Obama's speech last Saturday in Ghana, by far the best of his presidency.
Here's some of what Mr. Obama said: "No business wants to invest in a place where the government skims 20% off the top." "The purpose of foreign assistance must be creating the conditions where it's no longer needed." "The West is not responsible for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants." "We must support strong and sustainable democratic governments." "America can also do more to promote trade and investment." "We have a responsibility to support those who act responsibly and to isolate those who don't, and that is exactly what America will do." "History shows that countries thrive when they . . . create space for small and medium-sized businesses that create jobs."
All this is not only true, it's groundbreaking. Since British Prime Minister Harold Macmillan gave his "Wind of Change" speech (also in Ghana) nearly 50 years ago, Western policy toward Africa has been a matter of throwing money at a guilty conscience (or a client of convenience), no questions asked. The result, as Mr. Obama pointed out, was that countries such as Kenya, which had a larger GDP than South Korea in 1961, "have been badly outpaced."
Maybe it took a president unburdened by that kind of guilt to junk the policy. Or maybe it simply took a conversation with some of the Francises of Africa -- the politically invisible middle classes held down by their own kleptocratic rulers. Whatever the case, Africa will be well served if Mr. Obama can make good on his rhetoric.
Now if only Mr. Obama would apply those same principles to the rest of his agenda, foreign and domestic.
For instance, if trade and investment are good ideas for the U.S.-Africa relationship, why has the Obama administration dragged its feet on free-trade agreements with Colombia and South Korea? Or, if the U.S. owes Africa no apologies for its recent disasters, why has Mr. Obama gone to such lengths to apologize to Iran for the 1953 Mossadegh coup, and, in his Cairo speech, to the entire Muslim world for the politics of the Cold War? Or if Mr. Obama wants to "isolate" irresponsible actors, why does he continue to promise engagement with Iran, Syria, Russia and perhaps North Korea no matter how they behave?
Similarly, while U.S. government officials don't usually demand bribes (at least outside of Illinois), the U.S. corporate tax rate, at 39%, is the second highest in the industrialized world. That's about 10 percentage points higher than the OECD average, or nearly twice the 20% "bribe tax" that scandalizes Mr. Obama.
As for creating "space for small and medium-sized businesses," it's ironic that Mr. Obama would make this point on the same weekend that House Ways and Means Chairman Charlie Rangel is calling for a 3% surtax on the wealthy -- many of whom, as Scott Hodge of the Tax Foundation notes, happen to be business owners. These are the same people now facing the prospect of next year's expiration of the Bush tax cuts and the return to the 55% top rate on estate taxes, another scourge of small-business owners.
Finally, if the $2.3 trillion the West has given in foreign aid over the past five decades -- a "stimulus" package if ever there was one -- has done nothing to raise Africa out of poverty, why does Mr. Obama think that any amount of stimulus spending is going to revive America's economic fortunes? At least in Africa's case, the West could periodically forgive its debts. Who will forgive ours?
In his conversation with Francis, Mr. Obama records his lament that Kenya's "big men" fail to take responsibility for their country:
"'Attitudes aren't so different in America,' I told Francis."
"'You are probably right,' he said. 'But you see, a rich country like America can perhaps afford to be stupid.'"
Somebody make this guy treasury secretary.
We'd be glad if the government only skimmed 20%.
WSJ, Jul 14, 2009
http://online.wsj.com/article/SB124753013433935785.html
There's a striking passage in "Dreams From My Father," in which a young Barack Obama, on safari in Kenya, gets an unembellished picture of everyday African life from his driver, a man named Francis.
"[Francis] said he enjoyed his work with the travel agency but disliked being away from his family. 'If I could, I might prefer farming full-time,' he said, 'but the KCU makes it impossible.'
"'What's the KCU?' I asked.
"'The Kenyan Coffee Union. They are thieves. They regulate what we can plant and when we can plant it. I can only sell my coffee to them, and they sell it overseas. They say to us that prices are dropping, but I know they still get one hundred times what they pay to me. The rest goes where?' Francis shook his head with disgust. 'It's a terrible thing when the government steals from its own people.'"
Terrible indeed. And perhaps it was an echo of Francis's voice that shaped Mr. Obama's speech last Saturday in Ghana, by far the best of his presidency.
Here's some of what Mr. Obama said: "No business wants to invest in a place where the government skims 20% off the top." "The purpose of foreign assistance must be creating the conditions where it's no longer needed." "The West is not responsible for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants." "We must support strong and sustainable democratic governments." "America can also do more to promote trade and investment." "We have a responsibility to support those who act responsibly and to isolate those who don't, and that is exactly what America will do." "History shows that countries thrive when they . . . create space for small and medium-sized businesses that create jobs."
All this is not only true, it's groundbreaking. Since British Prime Minister Harold Macmillan gave his "Wind of Change" speech (also in Ghana) nearly 50 years ago, Western policy toward Africa has been a matter of throwing money at a guilty conscience (or a client of convenience), no questions asked. The result, as Mr. Obama pointed out, was that countries such as Kenya, which had a larger GDP than South Korea in 1961, "have been badly outpaced."
Maybe it took a president unburdened by that kind of guilt to junk the policy. Or maybe it simply took a conversation with some of the Francises of Africa -- the politically invisible middle classes held down by their own kleptocratic rulers. Whatever the case, Africa will be well served if Mr. Obama can make good on his rhetoric.
Now if only Mr. Obama would apply those same principles to the rest of his agenda, foreign and domestic.
For instance, if trade and investment are good ideas for the U.S.-Africa relationship, why has the Obama administration dragged its feet on free-trade agreements with Colombia and South Korea? Or, if the U.S. owes Africa no apologies for its recent disasters, why has Mr. Obama gone to such lengths to apologize to Iran for the 1953 Mossadegh coup, and, in his Cairo speech, to the entire Muslim world for the politics of the Cold War? Or if Mr. Obama wants to "isolate" irresponsible actors, why does he continue to promise engagement with Iran, Syria, Russia and perhaps North Korea no matter how they behave?
Similarly, while U.S. government officials don't usually demand bribes (at least outside of Illinois), the U.S. corporate tax rate, at 39%, is the second highest in the industrialized world. That's about 10 percentage points higher than the OECD average, or nearly twice the 20% "bribe tax" that scandalizes Mr. Obama.
As for creating "space for small and medium-sized businesses," it's ironic that Mr. Obama would make this point on the same weekend that House Ways and Means Chairman Charlie Rangel is calling for a 3% surtax on the wealthy -- many of whom, as Scott Hodge of the Tax Foundation notes, happen to be business owners. These are the same people now facing the prospect of next year's expiration of the Bush tax cuts and the return to the 55% top rate on estate taxes, another scourge of small-business owners.
Finally, if the $2.3 trillion the West has given in foreign aid over the past five decades -- a "stimulus" package if ever there was one -- has done nothing to raise Africa out of poverty, why does Mr. Obama think that any amount of stimulus spending is going to revive America's economic fortunes? At least in Africa's case, the West could periodically forgive its debts. Who will forgive ours?
In his conversation with Francis, Mr. Obama records his lament that Kenya's "big men" fail to take responsibility for their country:
"'Attitudes aren't so different in America,' I told Francis."
"'You are probably right,' he said. 'But you see, a rich country like America can perhaps afford to be stupid.'"
Somebody make this guy treasury secretary.
Monday, July 13, 2009
The Media and the First Amendment - The Washington Post scandal is really about double standards
The Media and the First Amendment. By BERT GALL and STEVE SIMPSON
The Washington Post scandal is really about double standards.
WSJ, Jul 13, 2009
Our nation's capital is abuzz over the Washington Post's recent indiscretion. The newspaper planned to host a now-canceled salon at the home of Katharine Weymouth, the Post's publisher. For $25,000, lobbyists and corporate executives would be granted exclusive access to members of the Obama administration, Congress, and Post journalists.
Pundits have condemned the Post for acting as an influence peddler. But other news publications routinely host similar events. This shouldn't come as a shock. Media corporations have always had the privilege of influencing politics without the restrictions -- like campaign finance laws -- that other corporations face.
So while this episode has been treated as a scandal of journalistic ethics, it is really about double standards. When other business corporations attempt to influence politics -- by running political ads during elections -- editorial boards rush to condemn the corporations for "buying" elections or "unduly" influencing candidates. We should be concerned, the boards say, because those corporations have too much influence over the political debate. The public needs strict campaign finance laws to protect it from that influence.
The New York Times recently featured an editorial about the Supreme Court's current major campaign finance case, Citizens United v. Federal Election Commission (2009). The editorial counseled the high court against overturning precedent, referring to Austin v. Michigan Chamber of Commerce (1990). That case allows the government to prevent corporations from spending money on electoral advocacy. According to the Times, eliminating the government's power to ban corporate political speech "would be a disaster for democracy."
But if excessive influence is a reason to censor the speech of every other kind of corporation, then it is also a reason to censor the speech of media corporations. After all, the media spend millions of dollars each year on news stories about candidates and editorials endorsing them. This press is worth a lot. For example, the Washington Post's endorsement of Creigh Deeds is widely credited as the biggest factor in his rise from obscurity to victory in Virginia's Democratic gubernatorial primary this year.
So where are the editorials calling for limits on the amounts of "money" -- in the form of coverage and editorials -- media companies devote to candidates?
Of course, you'll hear no such thing from the nation's newspapers and media outlets. Media companies are exempt from campaign finance laws. Many in the press think that the First Amendment entitles them to special protections that don't apply to anyone else.
This is wrong. The Supreme Court has repeatedly made clear that the media's right to free speech is no greater than anyone else's. And in Austin and other campaign finance cases, the Supreme Court noted that the media's exemption from campaign finance laws was discretionary, not mandatory.
In short, the press's favored status is only as strong as Congress says it is, at least under current First Amendment jurisprudence. If, in the wake of the Post scandal, the public begins to believe that media companies are as corrupt as the press claims other corporations are, Congress's view on the matter could change. Alternatively, Congress may come up with some other reason to start limiting the freedom of the press. Congress is currently considering a bill that would throw struggling newspapers an economic lifeline by allowing them to operate as nonprofits -- thereby making their advertising and subscription revenue tax-exempt. The catch? Newspapers that take the deal would no longer be able to endorse political candidates.
This precarious position -- free speech at Congress's discretion -- is not exactly a recipe for a strong and independent press. It's tempting to think that media companies that have called for limits on everyone else's speech will ultimately get what they deserve when Congress gets around to censoring theirs. But that would be a mistake.
The press remains one of the most important bulwarks against tyranny. The solution is to protect free speech on principle, regardless of the identity of the speaker. Banning a corporation from spending its own money for political advocacy is censorship, plain and simple. The sooner the press understands this, the safer its rights -- and ours -- will be.
Messrs. Gall and Simpson are senior attorneys at the Institute for Justice.
The Washington Post scandal is really about double standards.
WSJ, Jul 13, 2009
Our nation's capital is abuzz over the Washington Post's recent indiscretion. The newspaper planned to host a now-canceled salon at the home of Katharine Weymouth, the Post's publisher. For $25,000, lobbyists and corporate executives would be granted exclusive access to members of the Obama administration, Congress, and Post journalists.
Pundits have condemned the Post for acting as an influence peddler. But other news publications routinely host similar events. This shouldn't come as a shock. Media corporations have always had the privilege of influencing politics without the restrictions -- like campaign finance laws -- that other corporations face.
So while this episode has been treated as a scandal of journalistic ethics, it is really about double standards. When other business corporations attempt to influence politics -- by running political ads during elections -- editorial boards rush to condemn the corporations for "buying" elections or "unduly" influencing candidates. We should be concerned, the boards say, because those corporations have too much influence over the political debate. The public needs strict campaign finance laws to protect it from that influence.
The New York Times recently featured an editorial about the Supreme Court's current major campaign finance case, Citizens United v. Federal Election Commission (2009). The editorial counseled the high court against overturning precedent, referring to Austin v. Michigan Chamber of Commerce (1990). That case allows the government to prevent corporations from spending money on electoral advocacy. According to the Times, eliminating the government's power to ban corporate political speech "would be a disaster for democracy."
But if excessive influence is a reason to censor the speech of every other kind of corporation, then it is also a reason to censor the speech of media corporations. After all, the media spend millions of dollars each year on news stories about candidates and editorials endorsing them. This press is worth a lot. For example, the Washington Post's endorsement of Creigh Deeds is widely credited as the biggest factor in his rise from obscurity to victory in Virginia's Democratic gubernatorial primary this year.
So where are the editorials calling for limits on the amounts of "money" -- in the form of coverage and editorials -- media companies devote to candidates?
Of course, you'll hear no such thing from the nation's newspapers and media outlets. Media companies are exempt from campaign finance laws. Many in the press think that the First Amendment entitles them to special protections that don't apply to anyone else.
This is wrong. The Supreme Court has repeatedly made clear that the media's right to free speech is no greater than anyone else's. And in Austin and other campaign finance cases, the Supreme Court noted that the media's exemption from campaign finance laws was discretionary, not mandatory.
In short, the press's favored status is only as strong as Congress says it is, at least under current First Amendment jurisprudence. If, in the wake of the Post scandal, the public begins to believe that media companies are as corrupt as the press claims other corporations are, Congress's view on the matter could change. Alternatively, Congress may come up with some other reason to start limiting the freedom of the press. Congress is currently considering a bill that would throw struggling newspapers an economic lifeline by allowing them to operate as nonprofits -- thereby making their advertising and subscription revenue tax-exempt. The catch? Newspapers that take the deal would no longer be able to endorse political candidates.
This precarious position -- free speech at Congress's discretion -- is not exactly a recipe for a strong and independent press. It's tempting to think that media companies that have called for limits on everyone else's speech will ultimately get what they deserve when Congress gets around to censoring theirs. But that would be a mistake.
The press remains one of the most important bulwarks against tyranny. The solution is to protect free speech on principle, regardless of the identity of the speaker. Banning a corporation from spending its own money for political advocacy is censorship, plain and simple. The sooner the press understands this, the safer its rights -- and ours -- will be.
Messrs. Gall and Simpson are senior attorneys at the Institute for Justice.
Subscribe to:
Posts (Atom)
Posts
