June 19, 2014 9:49 AM
Over at The Freeman, I take a look at how technology has been democratizing access to capital, bringing news ways of raising money to people who need it but don’t have it. I outline some of the many tools people now have for accepting, raising, or borrowing funds.
June 19, 2014 9:46 AM
The Export-Import Bank is up for reauthorization in September. If the vote fails in Congress, the Bank and its $140 billion portfolio will cease to exist. In an effort to appeal to free-market types who oppose Ex-Im, the Aerospace Industries Association is invoking Ronald Reagan. A page two ad in today’s Politico and an accompanying fact sheet sent to every member’s office on Capitol Hill prominently feature Reagan’s image and include quotes of the Gipper praising Ex-Im.
The fact sheet even notes that Reagan increased the cap on Ex-Im’s lending portfolio by 14 percent from 1981-86, from $8.8 billion to $12 billion. Then again—Reagan cut Ex-Im in 1983 and again in 1988. And over Reagan’s entire time in office, Ex-Im’s cap actually shrank in real terms. You can check the numbers yourself with the Minneapolis Fed’s handy inflation calculator.
June 18, 2014 8:39 AM
This morning, Richard Cordray, head of the Consumer Financial Protection Board, testifies to a House Committee on the Board's semi-annual report. One of the Board's prime focuses has been the payday lending industry, which it was empowered to regulate by the Dodd-Frank Act of 2010 (and CEI has concerns about the way it is going about that).
However, the industry is under a quite separate assault from the Department of Justice and other banking regulators, who are aggressively investigating the banks that provide its financial oxygen in an initiative known as Operation Choke Point. While the CFPB was involved at a very early stage, according to internal DOJ memos, it appears to have dropped out. Cordray should face some questions on this. Here are a few he perhaps should be asked:
Q1: “You have said that you are aware of Operation Choke Point that the Department of Justice is coordinating ostensibly to investigate fraud among banks and payday lenders. Do you believe it is possible that such a broad sweep investigation as Choke Point might deter banks from doing business with legitimate payday lenders?”
If Cordray answers in the negative, he should be shown the complaint recently filed in federal court by payday lenders. There is plenty of evidence this is happening.
June 16, 2014 4:31 PM
Defying conventional wisdom as he often does, Pulitzer prize-winning pundit George F. Will disputed the notion that in the wake of the shocking primary loss of House Majority Leader Eric Cantor (R-Va.), even less in Congress will get done.
“I’ll tell you something that may get done now because of this and that is deauthorizing – refusing to reauthorize -- the Export-Import Bank.” Will said on “Fox News Sunday” (hat tip to National Review for providing the clip.)
Will went on to state his view that “the Export-Import bank played as large a role in that election as immigration did.” Michael Barone also lists Cantor’s support of reauthorizing the Export-Import Bank as a reason for the stunning loss.
While political prognostication is admittedly not OpenMarket’s expertise, the Export-Import Bank – a government backstop for foreign businesses buying goods from large U.S. corporations -- does seem to fit the “cronyism” charges of Cantor’s victorious opponent Dave Brat. And though not an issue in the Brat-Cantor race, the Senate Banking Committee’s GSE “reform” legislation known as Johnson-Crapo would fit that bill as well.
June 16, 2014 12:29 PM
The Kronies are back with a video about the Export-Import Bank, one of the federal government’s largest corporate welfare programs. While the video is less than subtle, it makes the rent-seeking and deal-making surrounding the Bank very clear. Fortunately, the Bank’s charter expires on September 30 of this year. Ex-Im will cease to exist unless Congress votes to reauthorize it. CEI’s Iain Murray recently weighed in on the Ex-Im fight here.
June 5, 2014 3:22 PM
Are hedge funds dangerous? Depends on who you ask -- and where you look. For most investors, they're no riskier than other assets -- just ask Eastman Kodak shareholders. But this week, the Guardian featured a brief discussion of hedge funds that shines a light on type of investor whose involvement in hedge funds is more questionable: public pension funds seeking higher returns.
The first essay -- subtly titled, "Hedge funds: the mysterious power pulling strings on Wall Street" -- provides more heat than light. Author Chris Arnade describes hedge funds as shadowy entities that thrive on secrecy as a means of exaggerating performance in order to earn lavish compensation for fund managers.
The bottom line: investors, sophisticated or not, can't know in detail what many hedge funds are doing. But as long as the mystique exists, perhaps many don’t want to know.
In his response, Timothy Spangler clears away some of Arnade's imaginary fog. As he explains, hedge fund manager compensation isn't all that mysterious.
Hedge fund managers who earn large amounts of money from their clients do so for one simple reason. For every $1 of profit they earn on their client’s account, they get to keep 20 cents. This is called a performance fee. No profits, no performance fees.
So the astute manager who turns $100 into $200 gets to keep $20 as compensation. The client gets his or her original $100 back plus the $80 of profit. No profit, no performance fees. Its fairly clear incentive arrangement and aligns interests between manager and client in an unambiguous way.
May 15, 2014 8:10 AM
Today, after delays and much opposition from many quarters on different grounds, the Johnson-Crapo housing finance overhaul is set to be voted on by the Senate Banking Committee. If it clears, the vote will likely be narrow.
The Competitive Enterprise Institute coordinated a letter opposing the legislation signed by 26 leaders of conservative and free-market groups. Here are four key reasons to why Johnson-Crapo, named for Senate Banking Chairman Tim Johnson (D-S.D.) and and Ranking Member Mike Crapo (R-Idaho), is such a monstrosity.
April 29, 2014 3:43 PM
Today, in a surprise move, the Senate Banking Committee postponed the vote it had been set to mark up for Johnson-Crapo. Reports vary as to whether this bill is "dead on arrival" or coming up soon with amendments (mostly to bring around liberal Democrats).
One thing is clear, though. The bill is losing momentum, and the proverbial Congressional clock is ticking.
Today's delay is great news for ordinary American taxpayers and shareholders who would have been ripped off by Johnson-Crapo and its creation of the Federal Mortgage Insurance Corportation, or Feddie Mic. The Competitive Enterprise Institute (CEI) has for decades warned about the risk to taxpayers and the economy posed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. In 2000, CEI founder and then-president (now chairman) Fred Smith warned in Congressional testimony that if anything went wrong, Fannie and Freddie could put taxpayers on the hook for $200 billion. Many thought he was exaggerating then, but he turned out to have underestimated it.
Needless to say, we would support any true reform of the GSEs that reduces the government's role in the housing market. Unfortunately, after examining the Johnson-Crapo legislation, we have concluded it would actually make the situation worse. It replaces Fannie and Freddie with an even bigger government backstop in the form of the Feddie Mic, which could hold the bag for as much as 90 percent of losses from mortgage-backed securities.
April 23, 2014 12:56 PM
Senior Fellow John Berlau argues that a bill from Senators Tim Johnson and Mike Crapo intended to reform Fannie Mae and Freddie Mac would only make things worse.
March 20, 2014 8:57 AM
Ever since the phrase appeared in Shakespeare's Romeo and Juliet, "A rose by any other name would smell as sweet," and its variations, have become familiar expressions. A corollary is that garbage by any other name would stink just as badly, if not worse.
The latter phrase seems applicable to the "reform" of the government-sponsored housing enterprises Fannie Mae and Freddie Mac just introduced by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho). The media often describe this plan as "ending" Fannie and Freddie.
And yes, it does "end" them in the sense that there will no longer be entities named Fannie and Freddie. But most of their functions would simply be transferred to a new giant government entity called the Federal Mortgage Insurance Corporation. Not only would the government's role in subsidizing and micromanaging housing not be reduced, in some ways it would substantially be increased.
The legislation would create, for the first time, an explicit taxpayer guarantee of the GSEs' $5.6 trillion in debt. The "affordable housing trust fund," a slush fund for "housing advocacy" groups such as ACORN with political agendas until it was closed due to Fannie and Freddie's financial woes, would be reopened and parked in the new FMIC.
Worst of all, and sending the worst possible signal to potential private sector investors in the housing market, Fannie and Freddie common and preferred shareholders would be wiped out permanently under the bill's Section 604.