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OpenMarket: John Berlau

  • The 'Naked' Truth -- Short sellers are unsung financial heroes

    September 19, 2008
    At the peak of the real estate boom, there was one group of individuals who said the bubble was about to pop. They pointed to overvalued land and bad underwriting of loans. And they bet their own money on their beliefs. Who are these unsung prophets of the subprime bust: the much-maligned short-sellers, whom both Britain, as Iain Murray reported yesterday, and now the U.S. Securities and Exchange Commission temporarily want to ban in an effort to keep the share price of financials from going further down.

    On Thursday, John McCain foolishly called for the ouster of SEC Chairman Chris Cox because Cox hadn't cracked down on so-called "naked" short sellers and supposedly "kept in place trading rules that let speculators and...
  • Lehman bankruptcy: In capitalism, failure is not a dirty word

    September 15, 2008
    My reaction to Lehman Brothers' declaring of Chapter 11 bankruptcy and the refusal of Treasury Secretary Hank Paulson and others to take extraordinary Bear Stearns-like measures for the government to prop the firm up can be summed up in three words: It's about time!

    Business failure is not only a permissible outcome of capitalism, it's a necessary one. As the great economist Joseph Schumpeter has written, the process of "creative destruction" is essential for the market to function. For innovation to flourish and the standard of living of the populace to improve, the market must be free to reward success and punish failure.

    As Schumpeter wrote in his 1942 book Capitalism, Socialism and Democracy, there is an ongoing "process of industrial mutation — if I may use that biological term — that incessantly...
  • Uproar over Palin Fannie Mae comment is really the media's 'gaffe'

    September 15, 2008
    The weeks leading up to a Presidential election have always been called the "silly season." But the attacks from bloggers and the media on vice-presidential contender Sarah Palin's supposed "gaffe" in her reaction to the takeover of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac takes the political season to a new level of ridiculousness.

    On Saturday, September 6, when the takeover and billion-dollar taxpayer bailout announcement that would happen the next day was already being reported by the press as imminent, Palin remarked on the campaign stump about the GSEs: “They've gotten too big and too expensive to taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.”

    Fairly straightforward statement, as the nearly $6 trillion in mortgages on their books does make them very "big" and the...
  • Fannie and Freddie's government 'takeover' -- truth in advertising at long last

    September 8, 2008
    There are many words -- and most them not nice -- to describe the new government conservatorship and planned bailout of Fannie Mae and Freddie Mac. But "nationalization" and "end of the free market" are not accurately among them. One cliche is certainly true: a certain substance has hit the Fan (and Fred, for that matter). But so is another, there is really nothing new under the sun.

    Whatever the problems of this scheme, and there are many that we wil be dissecting, nationalization isn't among them. The state is simply being more explicit in backing entities that CEI has always characterized as creatures of big government.

    Fannie and Freddie can't really be nationalized, because they were never really private in the first place. Fannie was created as the government agency the Federal National Mortgage...
  • Thanks to Brad Beckstead, more entrepreneurs will have their day in court

    September 5, 2008
    As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead -- whose two-person accounting firm had been brought to a stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB -- the dissent of Judge Brett Kavanaugh could not have been more powerful.

    Judge Kavanaugh called the lawsuit "the most important separation-of-powers case regarding the President's appointment and removal powers to...
  • Sarbanes-Oxley -- Loved By Countrywide and Mozilo, Albatross to Legit Investors and Entrepreneurs, Challenged in Court -- response to Jane Bryant Quinn-

    August 17, 2008
    For more than two years, the Competitive Enterprise Institute has been involved in a constitutional challenge to the Public Company Accounting Oversight Board, the giant agency set up by the Sarbanes-Oxley Act of 2002 to create auditing rules under the law. CEI attorneys Sam Kazman and Hans Bader are of counsel to the plaintiffs in Free Enterprise Fund (FEF) v. PCAOB, and they have worked with the lead attorneys at the Jones Day law firm on the case. Representing both the FEF and Beckstead & Watts, a small Nevada accounting firm burdened by the PCAOB's mandates, we have argued that the agency violates the Constitution's Appointments Clause because it wields enormous power (and the individuals on its its five-member board actually get paid more than the president), yet its leaders are not subject to the Presidential appointment and Senate confirmation that the Constitution requires...
  • It's the (mixed) economy, Stupid. Berlau in Economist.com debate

    August 7, 2008
    Ain't it something!

    Congress just got through with passing a multi-billion dollar bailout to the government-sponsored housing enterprises Fannie Mae and Freddie Mac, which own half of America's mortgage debt. Fannie was created as a government agency in 1937 as part of the New Deal, and despite it and Freddie's restructuring some 40 years ago, it still maintained government privileges and other implicit subsidies (which have now been made explicit.)

    Yet amazingly, despite these two government-created behemoths at the center of the housing storm, many are gaining traction arguing that the housing mess somehow shows the failure of the "free market." What "free market?" The fact is that despite the partial deregulation of past decades, financial services remained one of the sectors most controlled by the state. The politicians now pointing their fingers at lenders making high-risk loans...
  • Frank bill mandates credit rating agencies to repeat subprime mistakes

    July 30, 2008
    Due to their failures in the subprime mess, it has long been expected that Congress would take up regulation of the credit rating agencies to attempt to make the ratings stronger.

    But the first rating agency bill to move forward -- the Municipal Bond Fairness Act sponsored by House Financial Services Committee Chairman Barney Frank, D-Mass. -- has the almost explicit goal of making the rating weaker for a certain type of security. Scheduled to be marked up in the financial services committee today, the bill would limit the risks agencies can look at in examining municipal bonds. It very purpose, according to a press release from Frank, is to "increase demand for certain municipal bonds and therefore lower borrowing costs for issuers." It would limit municipal bond ratings to long-term default,...
  • The HSA Revolution That's Already Here

    July 26, 2008
    The new book America's Health Care Crisis Solved has been praised as providing a detailed, free-market solution for healthcare's future. This it does, but what's almost as fascinating about the book is its description of what is going on in the present, with consumer-driven health savings accounts (HSAs). Almost without notice, HSAs have grown dramatically and have solved for millions of Americans the problem of healthcare's lack of portability.

    First, some background. In the 2003 law that was rightly derided for massively expanding Medicare with a new prescription drug benefit was a separate section that let many more working-age people to take advantage of HSAs. This provision allowed any adult under 65 to open a savings account for...
  • 'Kelo' Property Rights Protections gutted from housing bill (revised and corrected)

    July 24, 2008
    Of all the unintended consequences of the housing bill that passed the House yesterday -- of which there will likely be many -- one of the most ironic and far-reaching may be this: that whatever security marginal homewoners have from foreclosures, their homes will be far less safe from being taken by a bureaucrat through eminent domain.

    That's because the bill unveiled this week -- as the result of negotiations between House Financial Services Committee Chairman Barney Frank and Treasury Secretary Hank Paulson -- takes specific language protecting property rights from the housing bill that most recently passed the Senate and renders it almost meaningless. As a result, the billions of dollar in new grants the bill provides for "the production, preservation and rehabilitation" of housing units, could stimulate a bonanza of state and local property confiscation of the type green-lighted...

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