President Obama’s plan to revamp financial regulations triggered immediate criticism Wednesday from both the political left and right over the expanded policing authorities given to the Federal Reserve while business groups grumbled about a powerful new agency charged with protecting consumers against abusive lending.
The broad plan would step up regulation of nearly every financial institution while extending government control to markets and players such as hedge funds that escaped supervision in the past. But it keeps much of the patchwork quilt of regulatory agencies created in the last century as the government responded to financial crises like the one that precipitated the current overhaul last fall.
The only regulator to get the ax was the Office of Thrift Supervision, whose lax regulation of Countrywide and other freewheeling mortgage lenders helped cause a meltdown in mortgage lending that continues to this day and precipitated the worst global financial crisis and recession since World War II.
The Fed would receive enhanced power to regulate, lend to and close down companies outside its traditional banking domain, if their failure could endanger the economy or financial system. But the Fed would have to get the Treasury’s agreement to any rescue that puts taxpayer dollars at risk, and it would lose its power to write regulations protecting consumers against abuses. Those powers would be taken over by the new consumer agency.
Friday, June 19, 2009
Thursday, June 18, 2009
Wednesday, June 17, 2009
But the poll suggests Mr. Obama faces challenges on multiple fronts, including growing concerns about government spending and the bailout of auto companies. A majority of people also disapprove of his decision to close the military prison at Guantanamo Bay, Cuba.
Nearly seven in 10 survey respondents said they had concerns about federal interventions into the economy, including Mr. Obama’s decision to take an ownership stake in General Motors Corp., limits on executive compensation and the prospect of more government involvement in health care. The negative feeling toward the GM rescue was reflected elsewhere in the survey as well.
A solid majority — 58% — said that the president and Congress should focus on keeping the budget deficit down, even if takes longer for the economy to recover.
…
The results come after weeks of Republican hammering of Mr. Obama for spending too much and taking on too many issues, arguments that appear to be resonating with some voters.
Mr. Obama’s overall job approval and personal ratings have slipped, particularly among independent voters. His job approval rating now stands at 56%, down from 61% in April. Among independents, it dropped from nearly two-to-one approval to closely divided.
Sunday, June 14, 2009
Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be “wasted.” Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now.Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That’s more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers’ expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.
With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.
But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.
About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base — which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash — by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position.
The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95% of the monetary base — has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base. Yikes!
Bank reserves are crucially important because they are the foundation upon which banks are able to expand their liabilities and thereby increase the quantity of money.
Banks are required to hold a certain fraction of their liabilities — demand deposits and other checkable deposits — in reserves held at the Fed or in vault cash. Prior to the huge increase in bank reserves, banks had been constrained from expanding loans by their reserve positions. They weren’t able to inject liquidity into the economy, which had been so desperately needed in response to the liquidity crisis that began in 2007 and continued into 2008. But since last September, all of that has changed. Banks now have huge amounts of excess reserves, enabling them to make lots of net new loans.
The way a bank or the banking system makes new loans is conceptually pretty simple. Banks find an entity that they believe to be credit-worthy that also wants a loan, and in exchange for the new company’s IOU (i.e., loan) the bank opens up a checking account for the customer. For the bank’s sake, the hope is that the interest paid by the borrower more than makes up for the cost and risk of the loan. The recently ballyhooed “stress tests” on banks are nothing more than checking how well a bank can weather differing levels of default risk.
What’s important for the overall economy, however, is how fast these loans are made and how rapidly the quantity of money increases. For our purposes, money is the sum total of all currency in circulation, bank demand deposits, other checkable deposits, and travelers checks (economists call this M1). When reserve constraints on banks are removed, it does take the banks time to make new loans. But given sufficient time, they will make enough new loans until they are once again reserve constrained. The expansion of money, given an increase in the monetary base, is inevitable, and will ultimately result in higher inflation and interest rates. In shorter time frames, the expansion of money can also result in higher stock prices, a weaker currency, and increases in commodity prices such as oil and gold.
At present, banks are doing just what we would expect them to do. They are making new loans and increasing overall bank liabilities (i.e., money). The 12-month growth rate of M1 is now in the 15% range, and close to its highest level in the past half century.
With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It’s a catch-22.
It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn’t a pretty picture.
Now the Fed can, and I believe should, do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base. It should contract the monetary base back to where it otherwise would have been, plus a slight increase geared toward economic expansion. Absent this major contraction in the monetary base, the Fed should increase reserve requirements on member banks to absorb the excess reserves. Given that banks are now paid interest on their reserves and short-term rates are very low, raising reserve requirements should not exact too much of a penalty on the banking system, and the long-term gains of the lessened inflation would many times over warrant whatever short-term costs there might be.
Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury’s planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.
In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it’s a Hobson’s choice. For me the issue is how to protect assets for my grandchildren.
Friday, June 12, 2009
Presser from Boise State President Bob Kustra:
When the Presidential Oversight Committee of the Bowl Championship Series (BCS) meets next week (June 15-19 in Colorado Springs), perhaps it will consider how to apply the same values espoused and celebrated by American higher education across the nation to the most recognizable pastime and the biggest business on many university campuses — intercollegiate football. There is considerable irony in the fact that in the highest temple of political correctness, American higher education, the BCS worships the false idols of monopoly, inequity and greed at the expense of the virtues of fairness, access and competition.
The BCS is a fundamentally flawed system that is unfair in its access, governance and revenue distribution. Historically, there were a handful of power brokers in intercollegiate football that showed up year after year for postseason play in the traditional bowl games, and in those days few questioned the system.
The landscape of college football has changed dramatically over the years, especially for mid-major programs, due to the limitations on scholarships, increased marketing opportunities and the bounty of televised games that appear weekly as a result of the universities of Oklahoma and Georgia suing the National Collegiate Athletic Association (NCAA) in 1984 over its television plan, because it violated antitrust laws. There is no question that parity among college football teams is greater than ever before in its modern history.
So you would think that when Boise State opens its football season against the University of Oregon on September 3, the dream of a national championship would beat in the heart of every player, coach, alumnus and fan. Instead, there will only be a faint pulse thanks to the constraints placed upon us by the BCS. An estimated 6,000 student-athletes play for football teams that have no realistic chance of competing in a BCS bowl, given the hurdles placed in the path of the non-BCS conferences and teams.
How can this happen when the NCAA sponsors 88 championships in almost every sport from bowling to water polo? The glaring exception is football! The NCAA does not sponsor a championship for the Football Bowl Subdivision — formerly Division I-A. This so-called championship has fallen into the hands of the commissioners of the six BCS automatic qualifying conferences. They wrote the exclusionary BCS rule that created six automatic qualifying conferences — Atlantic Coast, Southeastern, Big East, Big Ten, Big 12, and Pac-10 — and gives to the six conference commissioners the authority to send their respective champions to a BCS bowl regardless of how their won/loss records stack up against the champions of the non-automatic qualifying conferences — Conference USA, Mid-American, Western Athletic, Sun Belt, and Mountain West.
To take a page from recent history, in 2004 Boise State went undefeated and finished the season No. 9 in the BCS, yet was excluded from a BCS bowl while No. 13 Michigan and No. 21 Pittsburgh qualified. In 2006, Boise State went undefeated and finished the season ranked No. 8 in the BCS and was invited to the BCS Fiesta Bowl where the Broncos defeated Oklahoma in one of the greatest games ever played. In 2008, Boise State went undefeated and finished the season No. 9 in the BCS, yet was passed over for a BCS bowl while No. 10 Ohio State, No. 12 Cincinnati and No. 19 Virginia Tech were all chosen for BCS bowls.
In 2008, the University of Utah made the most convincing case for BCS reform when the Mountain West Conference school completed a 12-0 regular season, but was not given the opportunity to compete for the national championship. Utah was eliminated by a system — not a team — and further proved its championship status in a convincing BCS bowl victory over Alabama.
Exclusionary rules that produce such unfair results can only be made by a governance structure as unfair as the result, and that is certainly the case when it comes to the Presidential Oversight Committee of the BCS. George Orwell, aiming at the hypocrisy of those who claim equality for all, but reserve power for a small elite, is famous for his Animal Farm quote, “All animals are created equal, but some animals are more equal than others.” So it is with the BCS power structure. The 65 schools in the automatic qualifying conferences have six votes, one for each conference, but the 51 schools in the non-automatic qualifying conferences have ONE vote total! And in a gesture to days gone by, Notre Dame has one vote as an independent all to itself.
Nowhere is the inequality of the BCS system more evident than in revenue distribution. The formula is heavily weighted toward the automatic qualifying conferences that are guaranteed a spot in a BCS game and walk away with the $18 million payout that goes with it. The automatic qualifying conferences and Notre Dame receive 90 percent of the $132 million generated by the BCS bowls, a monopoly that if uncovered in the business world would be cause for a Department of Justice antitrust investigation. If a non-automatic conference qualifies for a BCS game, 82 percent of the revenue goes to the automatic qualifying conferences and Notre Dame while the non-automatic qualifying conferences receive 18 percent of the revenue. Annually, non-automatic qualifying conferences are only guaranteed 9 percent of the total revenue to split among 51 schools. If there is a bottom line to the current BCS position, it is the monopolistic control the BCS has over the millions of dollars earmarked for the chosen few.
When the BCS meets next week, they will do so under the scrutiny of congressional oversight. Both U.S. House and Senate committees have expressed continued interest in applying the principle of fairness to intercollegiate football. The U.S. Senate Antitrust Subcommittee with the urging of Senator Orrin Hatch of Utah will be scheduling hearings soon to investigate the antitrust implications of the BCS system. Congressman Joe Barton of Texas has introduced legislation in our nation’s capital that would prevent the BCS from labeling a game a national championship unless it is the outcome of a playoff system. That is not a foreign concept for the NCAA that earns most of its revenue from its performance-based Final Four basketball tournament.
The time has come for the Football Bowl Subdivision to go the way of the other three divisions of NCAA football, basketball and its other sports and base its national championship on actual play rather than opinion polls and computers. A playoff system that is organized by the NCAA and fairly addresses access, governance and revenue distribution is the next step. Even the President of the United States has publicly endorsed a playoff system. Only then will there be alignment between the values of fairness and access so often invoked in higher education and the policies and practices of the BCS and the NCAA.
Awesome, got to love those against-the-grain Bronco-type guys!
Wednesday, June 10, 2009
“See in this world there are two kinds of people my friend. Those with loaded guns and those who dig”- The Good, The Bad and The Ugly
207 patriots, freedom fighters and defenders of the Constitution.
207 warriors in the battle against centralized tyranny.
207 people willing to put their neck on the line and say enough is enough.
207 to rein in spending, rein in the bailouts, rein in the massive centralized government power grabs.
HR1207, the Federal Reserve System and our national debt. A three way standoff. An epic battle. The only question is who has the loaded gun and who digs?
If the Freedom Movement fails, if HR1207 dies our National Debt will bury us alive, bringing the whole system down with it. If HR1207 fails it will leave us with the biggest centralized planning system of them all to rule our lives- The Federal Reserve System. The system that intentionally creates inflation, destructively wild economic swings and a devalued monetary exchange.
A free humanity would be the victim, left to suffer the wrath of the progressives and centralized social planners. Free will grafted to predetermined outcomes and social regulation. Liberty shackled, held hostage to forced charity to another. Freedom, chained and bound by a debt than can never be repaid.
Has your representative Co-Sponsored HR1207 yet?
Have you signed the Audit The Fed petition?
Have you checked out the Campaign For Liberty?
We only need 10 more House Co-Sponsors.
10!!
Again, I ask, have you checked out the Campaign For Liberty’s HR1207 resource page?
“In the beginning of a change, the Patriot is a scarce man, Brave, Hated, and Scorned. When his cause succeeds however,the timid join him, For then it costs nothing to be a Patriot”- Mark Twain
Monday, June 8, 2009
Supreme Court Justice Ruth Bader Ginsburg on Monday delayed Chrysler’s sale of most of its assets to a group led by Italy’s Fiat, but didn’t say how long the deal will remain on hold.
Ginsburg said in an order that the sale is “stayed pending further order,” indicating that the delay may only be temporary.Chrysler LLC has said the sale must close by June 15, or Fiat Group SpA has the option to walk away, leaving the Auburn Hills, Mich., automaker with little option but to liquidate.
A federal appeals court in New York approved the sale Friday but gave opponents until 4 p.m. EDT Monday to try to get the Supreme Court to intervene. Ginsburg issued her order right before the deadline.
Ginsburg could decide on her own whether to end the delay, or she could ask the full court to decide. It is unclear when she or the court will act.
Chrysler said it had no comment until it receives further information from the court.
Chrysler claims the agreement with Fiat is the best deal it can get for its assets and is critical to the company’s plan to emerge from Chapter 11 bankruptcy protection.
But a trio of Indiana state pension and construction funds, which hold a small part of Chrysler’s debt, have been fighting the sale, claiming that it unfairly favors Chrysler’s unsecured stakeholders ahead of secured debtholders like themselves.
As part of Chrysler’s restructuring plan, the automaker’s secured debtholders will receive $2 billion, or about 29 cents on the dollar, for their combined $6.9 billion in debt. The Indiana funds bought their $42.5 million in debt in July 2008 for 43 cents on the dollar.
The funds also are challenging the constitutionality of the Treasury Department’s use of money from the Troubled Asset Relief Program to supply Chrysler’s bankruptcy protection financing. They say the government did so without congressional authority.
Consumer groups and individuals with product-related lawsuits also are contesting a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the “New Chrysler” partnered with Fiat is created.
Individuals with claims against “Old Chrysler” would have to seek compensation from the parts of the company not being sold to Fiat. But those assets have limited value and it’s doubtful that there will be anything available to pay consumer claims.
There are so many problems with TARP. So many unconstitutional acts of government.
The injustices of the TARP Bailouts
- placing unsecured stakeholders above secured creditors in a bankruptcy re-organization
- pushing TARP as a legal mechanism to buy up “troubled assets” (remember that line?) from mortgage corporations and then turning around and using those funds for direct “capital infusions” and common and preferred stock purchases, thus often assuming majority control and ownership.
- voiding consumer safety laws for the security of its own “capital infusion”
- eliminating auto dealerships based on donations to political candidates
- putting a 31 year old in charge of the bankruptcy reorganization of the auto industry despite no prior experience in the field
- refusing to disclose which banks have received “capital infusions” (bailouts)
- refusing to allow banks that were forced to accept bailout monies to repay them
- changing the terms and conditions of the bailouts after they were given
Why we should be hopeful
Legal Summary of the TARP Legislation
Constitutional Law Professor Blog: Problems with TARP and Auto Maker Bailouts
Freedom Works: TARP is Unconstitutional
CATO: Is The Bailout Constitutional?
The Heritage Foundation: The Housing Bailout: Constitutional Infirmities Remain, but a Ray of Hope
The problem is that were application of the TARP legislation is not blatantly unconstitutional (for failing to follow the proper legal intent of the legislation- that is purchasing of bad loans) it clearly is not included within the scope of the TARP model (bailouts of credit card companies & auto makers).
What We Can Do To Support A Sound Economy
This fight can be won. But let us not let our guard down: these cases will mearly open the door to highlighting the real culprit behind inflation, economic destruction and slavery to debt- The Federal Reserve System. But that is a story for another day (although if you are interested check out and support Ron Paul’s ‘Audit The Fed’ bill- H.R.1207. Also, LewRockwell.com- The Case Against The Fed).
But in the meantime know that we still have a message to send. We must still be boycotting those who have benefited from the theft of the taxpayers. We must boycott any financial institution that received TARP monies, General Motors Government Motors and Chrysler. We must refuse to purchase from any company that has participated in tyranny.
We must stand united: we demand the Constitution, not socialism!