January 30, 2015 3:31 PM
“Wall Street Chips Away at Dodd-Frank,” blared a recent front-page headline in The New York Times about bipartisan measures that have passed the U.S. House of Representatives and/or been signed into law that ever-so-slightly lighten the burden of the so-called financial reform rammed through Congress in 2010. “GOP Pushes More Perks For Wall Street...” reads the home page of The Huffington Post under the picture of establishment pillar, Jamie Dimon, CEO of JP Morgan Chase.
Yet, what these articles don’t say is that the firms putting their resources on the line to challenge Dodd-Frank in court are the furthest thing from Wall Street high rollers. They are decades-old firms selling stable, time-tested financial products to everyday consumers.
At first glance, the national insurance firm MetLife and the Texas community bank State National Bank of Big Spring might seem to have little in common. But they both are solid financial firms that never took a bailout and never had their hand in the toxic mortgages—spurred on by the government-sponsored enterprises Fannie Mae and Freddie Mac and mandates of the Community Reinvestment Act—that caused the financial crisis.
And now, the firms are both doing their customers and all Americans a favor by bringing suit against Dodd-Frank’s Financial Stability Oversight Council (FSOC), one of the many opaque entities in Dodd-Frank that lack accountability to Congress and the public.
In its lawsuit brought this month, MetLife raised many of the same constitutional issues as did State National Bank in its pending legal challenge brought in 2012 in collaboration with the Competitive Enterprise Institute, at which I work. CEI and the conservative seniors group 60 Plus Association are co-plaintiffs with the bank, and CEI attorneys are working with the esteemed C. Boyden Gray—the former White House Counsel—in providing representation to the parties.
In an open letter to its customers that ran in full-page ads in The New York Times, Washington Post, and Wall Street Journal, MetLife CEO Steven Kandarian explained his objections to the firm being designated as a “systemically important financial institution,” or SIFI, by FSOC. “We do not believe MetLife poses systemic risk, and we are concerned that our designation will harm competition among life insurers and lead to higher prices and less choice for consumers.” In that sense, a court victory for MetLife would greatly benefit the public as well.
To its credit, MetLife is rejecting not only the burdens of being designated a SIFI but also the benefits—benefits that seem to eagerly embraced by both MetLife’s competitors (such as the infamous AIG) as well as the biggest banks. Being designated a SIFI means the federal government considers MetLife to be “too big to fail,” making it subject to the same Dodd-Frank bailout regime set up for big Wall Street banks like Goldman Sachs and JPMorgan Chase.
As CEI, 60 Plus Association, and the State National Bank argue in our legal challenge to the Dodd-Frank Act, the SIFI designation confers on a firm a strong competitive advantage, as investors and creditors know the government won’t let it fail.
We argue that the tiny State National Bank “is injured by the FSOC’s official designation of systemically important nonbank financial companies, because each additional designation will require the Bank to compete with yet another financial company—i.e., a newly designated nonbank financial company—that is able to attract scarce, fungible investment capital at artificially low cost.”
January 29, 2015 12:13 PM
It was just announced that Sens. Rand Paul (R-Ky.) and Barbara Boxer (D-Calif.) would introduce the Invest in Transportation Act of 2015. The bill aims to offer an incentive to U.S. companies that are currently keeping $2 trillion in foreign earnings overseas to return some of these earnings. The repatriated earnings would then be subject to a favorable tax rate of 6.5 percent. While tax repatriation may be a good idea, it has nothing to do with infrastructure. Any tax revenue collected on returned overseas earnings should flow into the general treasury, not used to bail out the Highway Trust Fund.
This huge violation of the user-pays/user-benefits principle is surprising given Sen. Paul's reputation as a libertarian-leaning fiscal conservative. The user-pays principle is the bedrock of sound transportation policy, as it offers a number of advantages over general revenue finding, including:
- Fairness: Highway users benefit from the improvements their user fees generate.
- Proportionality: Users who drive more pay more. Users who impose disproportionate costs, such as heavy trucks, are charged more.
- Funding Predictability: Highway use and therefore highway user revenues do not fluctuate wildly in the short-run.
- Signaling Investment: Revenue roughly tracks use, which provides policy makers with an important signal as to how much infrastructure investment is needed to maintain a desired level of efficiency.
Sen. Paul joins a list of Republicans such as Sen. Roy Blunt (R-Mo.) who have endorsed similar unprincipled repatriation-based infrastructure funding in the past. Unfortunately, Sens. Paul and Blunt have good company in the current Congress. As it stands, the GOP's "conservative" solutions to Highway Trust Fund insolvency include raising the federal gas tax, a tax repatriation bailout, and creating a dangerous new non-user "drilling for roads" revenue stream. There is not even discussion of reducing outlays from the Highway Trust Fund to meet projected revenues. In fact, the last time the Republican-controlled House of Representatives was able to vote on a non-binding motion to instruct that simply stated Congress would not spend more surface transportation money than it was projected to collect in user taxes, it received just 82 votes. No, every serious proposal from congressional Republicans involves bailouts, bailouts, and more bailouts.
Meanwhile, President Obama has endorsed expanded highway tolling and leveling the financing playing field for public-private partnerships, two important measures long supported by free-market conservatives and libertarians. Will Congress's self-described fiscal conservatives embrace markets, spending restraint, and federalism, or will they support road socialist policies that move them to the left of the Obama White House?
January 29, 2015 9:40 AM
Here’s a letter I wrote to the Pittsburgh Post-Gazette that appears in today’s paper:
The Post-Gazette’s editorial board calls on Congress to reauthorize the Export-Import Bank because the agency supposedly nets the government a profit (“Save the Ex-Im Bank: A Frugal Congress Must Keep a Revenue Generator”).
This is misleading for two reasons.
First, Ex-Im’s self-reported profits are largely the result of creative accounting practices. A recent Congressional Budget Office study using industry-standard fair-value accounting rules (“Fair-Value Estimates of the Cost of Selected Federal Credit Programs for 2015-2024,” May 2014) found that Ex-Im loses an average of $200 million per year.
Second, even if Ex-Im did make a $675 million profit last year, this is less than two-tenths of 1 percent of last year’s $483 billion budget deficit.
If Ex-Im’s goal is to raise revenue, it is spectacularly ineffective.
Congress should let this corruption-enabling program expire and turn its attention elsewhere.
Competitive Enterprise Institute
January 28, 2015 3:34 PM
In a partial victory for all those campaigning against the abuse of power known as Operation Choke Point (see our comprehensive study here), the Federal Deposit Insurance Corporation (FDIC) has issued guidance to its supervisory staff that restricts some of the methods used to advance Choke Point.
Operation Choke Point is a Department of Justice initiative aimed at “choking off” the financial oxygen of businesses the administration disapproves of, with a special focus on payday lending. It threatens banks that do business with these industries with burdensome investigations and subpoenas, which has led to banks closing accounts with legal businesses that have had a perfect banking record.
One of the ways Choke Point has proceeded has been via supervisors issuing veiled threats or direct but unwritten comments that suggest a banking institution should stop doing business with a client. As a result, there has been no paper trail within the administration directly linking the closure of bank accounts with Operation Choke Point.
This new memorandum purports to put a stop to that. It tells its staff that recommendations for closure of bank accounts should not be made through informal comments, and that banks should not be informally criticized for their relationships. All such recommendations now need to be put in writing.
Furthermore, “reputational risk” alone is no longer to be considered grounds for recommending the termination of a banking relationship. Previous FDIC guidance on “reputational risk” was the source of the much-talked about list of industries targeted by Operation Choke Point. The withdrawal of the list by FDIC several months ago may have led to an even broader interpretation of “reputational risk,” with suggestions that even coal mines have been the target in some areas.
That these two guidelines had to be put in writing is an implicit admission by FDIC that its staff has been guilty of these practices. The instruction to cease such arbitrary behavior is a victory for campaigners against executive abuse, and in particular for Rep. Blaine Luetkemeyer (R-Mo.), a former banking examiner who took his complaints directly to the head of the FDIC.
FDIC, however, is only half the battle. The investigating attorneys at the Department of Justice who began the Operation still retain the power to issue subpoenas that can cause havoc to any bank that receives one. That threat remains, and banks will still be wary of doing business with companies that might possibly attract one. Until the DOJ is brought in line, Operation Choke Point will likely continue.
January 27, 2015 1:43 PM
Alcohol is a favorite target for health nannies and politicians looking to boost revenue. Excessive drinkers, they say, cost society millions or billions of dollars! Because society incurs the costs of the irresponsible minority, they assert, society has the right to try and curtail this voluntary behavior. Of course, whenever campaigners quote figures about the exact dollar-amount alcohol consumption “costs” society, they rarely include estimates of the benefits of alcohol consumption for both individuals and societies. That may have to change in the wake of a new study.
Teetotalers like those over at Alcohol Justice (formerly the Marin Institute) promote the idea of “charging for harm.” That is, they think we should increase the taxes on alcohol—charging all drinkers to pay for the “harms” of the few. The estimates for the exact dollar cost of alcohol consumption to society vary significantly, depending on the region and year. As Christopher Snowdon put it in his Wages of Sin Taxes study:
The studies that produce these figures are dominated by “costs” which are neither financial nor borne by the taxpayer. They include hypothetical estimates of the value of a life year lost, earnings forgone due to premature mortality, and expenditure by the consumer on the product itself. These figures are usually inflated, but even when they are plausible they cannot be used to justify sin taxes because these “costs” affect only the individual; they are not paid by the taxpayer.
This month the European Heart Journal published a study on the effects of alcohol consumption on the heart. As the American Council on Science and Health wrote,
After analyzing the data, Dr. Gonçalves and colleagues reported that, compared to alcohol abstainers, men who consumed up to 7 drinks per week had a significant 20 percent reduced risk of HF. Women in that category of drinkers also had a reduced risk of HF, but only by about 5 percent.
This study provides even more evidence to the growing heap that light and moderate alcohol consumption is not only harmless for most adults, but may be beneficial to health. It is still true that excessive consumption of alcohol can have negative consequences, which is true of almost everything. But it is irresponsible for researchers to continue to ignore the benefits of responsible alcohol consumption or to suggest that total abstinence would be best for individuals or societies. Whether or not a person drinks and how much they drink should be a decision he or she makes on their own, perhaps with the advice of a physician. Certainly, it should not be up to professors, social engineers, or politicians looking to raise revenue.
January 26, 2015 9:39 AM
The Niskanen Center is a new libertarian think tank that we at CEI look forward to working with on a number of issues. However, one where we are unlikely to agree is on the virtues of a real-world tax on carbon emissions. Sarah E. Hunt had a post last week over at the Niskanen Center's Climate Unplugged blog arguing that Senate EPW chairman Jim Inhofe's recent defense of the federal gas tax as an infrastructure user tax is at odds with his antipathy to a carbon tax.
Now, I have criticized Sen. Inhofe's blindspot on infrastructure spending in the past, as he has long admitted he is "a big spender in two areas: national defense and infrastructure." But is Sen. Inhofe's position on the federal excise taxes on motor fuels really contradictory? Under closer examination, the answer is no.
Sen. Inhofe supports fuel taxes in the way they have been used since 1956, when Congress greatly expanded the federal-aid highway programs to construct the Interstate Highway System. Built upon the user-pays/user-benefits and pay-as-you-go principles, Congress directed the proceeds from highway user taxes into the Highway Trust Fund, which was intentionally designed to bypass the general treasury and annual appropriations battles. Multi-year highway (and later transit) program reauthorization legislation then specified outlays to various formula-based disbursement programs that flow to state departments of transportation, with Congress setting total outlays to approximate projected revenues over that period.
Of the four major fuel tax increases since the modern federal-aid system was established, two were solely infrastructure revenue-raisers, one was half user-tax and half deficit reduction, and one, the last increase in 1993 that brought the current rate up to 18.4 cents per gallon of gasoline, was intended solely for deficit reduction. That 4.3-cent increase from 1993 aimed at deficit reduction was redirected to the Highway Trust Fund in 1997. This is where the federal gas tax rate sits today.
Note that promoting environmental benefits appears nowhere above. Regardless of your position on federal fuel taxes, they have never been used for any purpose other than dedicated infrastructure funding and, very occasionally and temporarily, deficit reduction.* In recent years, the traditional federal-aid system has started to break down, with Congress refusing to either reduce outlays to meet projected revenues or increase the fuel tax rates. Instead, Congress has bailed out the Highway Trust Fund with over $50 billion in general funds over the past decade, moving the U.S. in a road socialist direction.
January 26, 2015 7:22 AM
Even in a shortened work week due to Martin Luther King Day, federal agencies still put out 40 final regulations and more than 50 proposed regulations, covering everything from pet stores to drywall.
On to the data:
- Last week, 40 new final regulations were published in the Federal Register, the same number as the previous week.
- That’s the equivalent of a new regulation every four hours and 12 minutes.
- So far in 2015, 118 final regulations have been published in the Federal Register. At that pace, there will be a total of 1,967 new regulations this year, which would be far less than the usual total.
- Last week, 1,271 new pages were added to the Federal Register.
- Currently at 3,857 pages, the 2015 Federal Register is on pace for 64,284 pages, which would be the lowest page count since 1992.
- Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published so far this year, none in the past week.
- The total estimated compliance cost of 2015’s economically significant regulations is $477 million for the current year.
- Twelve final rules meeting the broader definition of “significant” have been published so far this year.
- So far in 2015, 21 new rules affect small businesses; four of them are classified as significant.
January 26, 2015 7:21 AM
Bad things can happen when an agency (like the Education Department) throws caution to the wind and regulates based on slanted media coverage from National Public Radio, rather than facts and evidence.
Checks and balances exist for a reason. When agencies impose new obligations on the institutions they regulate, they are supposed to first give the public notice of their proposed rule, and an opportunity to comment on it. This requirement, mandated by the Administrative Procedure Act, enables members of the public to point to legal or factual mistakes that may have precipitated the agency’s proposed rules.
But under the Obama administration, the Education Department has ignored these requirements. In “Dear Colleague” letters and “guidance” documents issued without any prior notice or comment, it has imposed on colleges a series of detailed, prescriptive, and controversial rules for responding to allegations of sexual harassment or assault—rules very much at odds with the deferential tenor of the Supreme Court’s Gebser and Davis decisions.
Those rules include procedures, time tables, and evidence rules that sharply contrast with those previously used by many colleges for all categories of offenses. This has pressured colleges to create a costly, specialized bureaucracy on campus to handle sexual offenses, rather than using one disciplinary system for all offenses.
In recent investigations, the Education Department has interpreted this “guidance” as mandating “interim measures” against accused students who have yet to be found guilty of anything, and as restricting certain evidence of innocence that would be permitted in court, as law professor David Bernstein noted at the in the Volokh Conspiracy, and I describe in the Daily Caller.
This unfair micro-management of college discipline has led to a series of costly lawsuits against colleges by students claiming they were unfairly expelled as a result. For example, in Wells v. Xavier University, 7 F. Supp. 3d 746 (S.D. Ohio 2014), a judge allowed a student’s lawsuit claiming the college used unfair procedures to expel him to appease the Education Department’s Office for Civil Rights, where I used to work.
But it now appears that the Education Department’s rules micromanaging college discipline were precipitated by a deceptive NPR report about the University of Wisconsin’s purported mishandling of a sexual assault claim. That report, jointly produced with the Center for Public Integrity, made statistical claims that would later be debunked, and ignored evidence of accused students’ innocence that any judge—female or male, liberal or conservative—would take seriously, and would be admissible in any sexual assault prosecution in America. (See, e.g., State v. Garron (2003).)
January 23, 2015 12:12 PM
In previewing his 2015 State of the Union Address, President Obama said … "2014 was the fastest year for job growth since the 1990s. Unemployment fell faster than any year since 1984."
In fact, the President opened the 2015 Address, asserting that America was “turn[ing] the page.”
Others see things very differently. Growth emerging from a painfully low baseline is not turning a page. Unemployment is “down” because statistics omit those who’ve given up looking for work. Over 92 million Americans are not working.
Labor force participation sits at a 36 year low, with nearly 12 million having dropped out during the Obama administration. Data point to high debt per capita, the highest part-time and temporary-job creation rates. A popular blog laments the “slow death of American entrepreneurship”
Headlines tell painful tales. Investor’s Business Daily in January 2015 reports on businesses dying faster than they’re being created, something the Washington Post had noted in 2014. Likewise a Brookings study on small business formation noted declining rates, as did a Wall Street Journal report on business ownership rates among the young.
And if businesses aren’t being created, neither are jobs. One recruiter described to the Wall Street Journal how regulations impact jobs, while others point to an inverse correlation between regulation and innovation. And the anecdotes parallel the statistics. In food service, regulations are driving restaurants out of business and even sending them abroad.
January 21, 2015 4:21 PM
The debate over the chemical Bisphenol A (BPA) has raged for years, with environmental activists continually hyping the risks associated with it. Used to make hard-clear plastics and resins that line food containers such as soda cans or canned fruits and veggies, humans have been exposed to trace levels of the chemical for decades without evidence of any ill effects. And a recent review of the science by the European Food Safety Authority (EFSA) confirms this reality. It concludes:
EFSA’s comprehensive re-evaluation of bisphenol A (BPA) exposure and toxicity concludes that BPA poses no health risk to consumers of any age group (including unborn children, infants and adolescents) at current exposure levels. Exposure from the diet or from a combination of sources (diet, dust, cosmetics and thermal paper) is considerably under the safe level (the “tolerable daily intake” or TDI).
That’s a pretty strong assurance of safety coming from a government agency that is usually extremely cautious.