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OpenMarket: Subsidies and Bailouts

  • Historian: Housing Nominee Mel Watt Helped Spawn the Subprime Crisis

    May 6, 2013
    In the Daily Caller, historian and presidential biographer Charles C. Johnson writes that "Housing nominee Mel Watt helped create the subcrime crisis.”  Watt has been nominated by President Obama to be director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.  As John Berlau discussed earlier, Watt's record also flunks privacy, transparency and government-accountability tests.
  • Obama: A Sweet Pension for Himself, But Not For America's Savers or Investors

    May 6, 2013
    In The Washington Post, Allan Sloan points out that while President Obama wants to cap American citizens' IRAs at $3 million or substantially less—discouraging saving and investment in the process—Obama's own-taxpayer-subsidized retirement benefits are worth more than twice as much, a generous $6.6 million. A sweet pension for me, but not for thee, seems to be Obama's thinking.  Discussing the president's "proposal to limit the value of 401(k)s,...
  • New York Times: Obama Administration Discrimination Settlement Was "Magnet For Fraud" That Enriched Trial Lawyers

    April 26, 2013
    Obama RacineA page 1 New York Times story today describes how the Obama administration, despite opposition from civil servants, radically expanded a legal settlement that had already become a "magnet for fraud," paying out vast sums of money over baseless claims of discrimination at the Agriculture Department in the Pigford case. As the Cato Institute's Walter Olson notes, its story "today breaks vital new details about how career government lawyers opposed Obama appointees’ insistence on...
  • Amtrak And The Progressive Sleight Of Hand

    April 19, 2013
    Progressives have always assumed that if something is good, it must be provided through coercive force by a central government. This is illustrated in progressive support for continuing large Amtrak subsidies. Various liberal policy outfits including the Brookings Institution and the Center for American Progress have been recently celebrating the mild uptick in the government-subsidized passenger railroad’s ridership levels. The train served a record 32.1 million passengers in 2012, a 55-percent increase since 1997. In earlier times, liberal advocates would have congratulated themselves on the success of a government program’s drive to self...
  • Cyprus Is A Lesson For U.S. Policy Makers: Too Big To Fail Is Not Inevitable

    April 2, 2013
    American financial regulators could take a lesson from their European counterparts. The recent EU bail-in/bailout of Cyprus, despite its dangers, shows that reducing moral hazard in the banking industry without provoking bank runs is possible. As I write in Forbes, Cyprus is one of the most insolvent Euro member states.
    Non-performing loans [in Cyprus] (NPLs) are 15.5 percent of gross loans, which is comparable to Italy (13 percent), Ireland (19 percent), and even Greece (21 percent). But the real problem is Cyprus’s staggering inability to absorb losses. NPLs account for an enormous 264 percent of tier 1 capital—a level so high that not even basket case Greece, at 217 percent, can compare.
    Cyprus got this way because...
  • What Cyprus (Initially) Got Right -- Remembering The 2008 WaMu Capital "Run"

    March 20, 2013
    There's no shortage of criticism of the Cyprus "bail-in" -- the one-time tax the government had proposed levying on insured and uninsured depositors to rescue the nations' banks. And there is no shortage of criticisms that I could levy either on Cyprus and the EU's slapdash approach, which now looks like it will be rejected by the Cyprus parliament. The biggest being that the failing financial institutions should have been put through a bankruptcy system rather propped up -- whether through this levy or general taxation. Having said that, the initial Cyprus approach could have been much worse, and what comes next may be much more likely to spread contagion. There is one fundamental thing the initial plan got right. Depositors must not be considered sacrosanct in a bank failure, and, conversely, a bank's contractual obligations to creditors such as bondholders cannot be ignored. The...
  • Dallas Fed’s Fisher And CPAC’s Fishy Too-Big-To-Fail Event

    March 16, 2013
    If the Conservative Political Action Conference’s (CPAC) organizers wanted a speaker or panel on the causes of the financial crisis and what to do about too-big-to-fail financial insitutions, they could have chosen from among many conservative and libertarian experts who not only issued prescient warnings about government policies that egged on reckless behavior through subsidies, regulations, and flawed monetary policies, but also offered detailed free-market solutions to prevent future financial crises and taxpayer-funded bailouts Such experts include John Allison, president and CEO of the Cato Institute, former chairman and CEO of BB&T Corp, and author of The Financial Crisis and Free Market Cure; Peter Wallison, counsel to the Reagan White House in the 1980s, co-director...
  • SEC Charges Illinois With Securities Fraud And Lets It Off With A Warning

    March 13, 2013
    This week, Illinois became only the second state in U.S. history to by charged with securities fraud by federal regulators (New Jersey was the first, in 2010). On Monday, the Securities and Exchange Commission (SEC) accused Illinois of deceiving investors regarding the health of its state employee pension funds, in a series of bond offerings from 2005 to 2009. In its cease-and-desist complaint, the SEC claimed:
    Specifically, in numerous bond offerings from approximately 2005 through March 2009, the State misled bond investors by omitting to disclose information about the adequacy of its statutory plan to fund its pension obligations and the risks created by the State’s Structural Underfunding of its...
  • Stirrings of Pension Reform in Montana

    February 20, 2013
    Pension obligations' strains on state budgets have made pension reform a priority for state policy makers across the nation. Over the last couple of years, states from Utah to Rhode Island have implemented pension reforms once considered politically nigh-impossible. Montana may soon join the ranks of states with pension shortfalls where fiscal reality trumps politics as usual. Last week, Montana legislators...
  • CalPERS: Model Of Pension Dysfunction

    February 20, 2013
    Few state governments are as in as much fiscal trouble as California's, so it's not surprising that few state pension funds have been as mismanaged as the California Public Employee Retirement System (CalPERS). But worse than that, CalPERS -- along with its sister fund, the California State Teachers' Retirement System -- has led the nation in implementing shoddy investment and management practices that have exacerbated led to billions of dollars in losses and foregone revenue. Now, as policy makers in other states consider ways to address their own pension deficits, CalPERS -- the nation's largest pension fund, with about $230 billion in assets under management -- offers an example of exactly what not to do. They would do well to read "The Pension Fund that Ate California,"  Steven Malanga's article on the fund...


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