CLT UPDATE
Wednesday, June 30, 2010
Senator Brown, vote NO!
President Obama hailed the
financial bill that House-Senate negotiators finally vouchsafed
at 5:40 a.m. Friday, and no wonder. The bill represents the
triumph of the very regulators and Congressmen who did so much
to foment the financial panic, giving them vast new discretion
over every corner of American financial markets.
Chris Dodd and Barney Frank, those Fannie Mae cheerleaders,
played the largest role in writing the bill. Congressman Paul
Kanjorski even offered a motion to memorialize it as the
Dodd-Frank Act. It's as if Tony Hayward of BP were allowed to
write new rules on deep water drilling....
Oh, and Fannie Mae and Freddie Mac? They aren't touched at all,
even as they continue to lose billions of taxpayer dollars each
quarter.
In other words, our Washington rulers have taken 2,000 or so
pages to double and triple down on the old system that
failed....
The only certain result is that when the next mania and panic
arrive, and they will, Congress and the regulators will claim
they were all someone else's fault.
The Wall Street Journal
Review & Outlook
Monday, June 28, 2010
Triumph of the Regulators
The Dodd-Frank financial reform bill doubles down
on the same
system that failed
A new tax on financial
companies seemed like a good idea to Chris Dodd and Barney Frank
at 3 a.m. last Friday, but now their $19 billion levy is
threatening to blow up their 2,319-page financial bill. So
they're scrambling to replace that cash, but the bigger news
here is that Barney and Chris need to impose a bailout tax for
what they claim is a bill that will end bailouts....
All of this caused a revolt in the Senate, where Massachusetts
Senator Scott Brown was the first to declare his opposition
because of the tax. This is far from a full apology for his
earlier support for Dodd-Frank, but we assume he has learned
something from the way he's been taken for a ride by the
professionals. The other GOP supporters of Dodd-Frank—Maine's
Olympia Snowe and Susan Collins, and Iowa's Chuck
Grassley—should also be wary of standing with Senate liberals on
tax hikes....
Most absurd is the claim that any of this money, however it is
raised, will somehow be reserved for bank failures. Congress
will spend it immediately. Taxpayers will pay for bailouts like
they always do, when they happen, and this bill makes them more
likely.
The Wall Street Journal
Review & Outlook
Wednesday, June 30, 2010
The Bailout Tax
The latest reason to oppose Dodd-Frank
The U.S. Senate won't vote
until mid-July on a sweeping overhaul of U.S. financial
regulations, a delay that gives critics and lobbyists more time
to disrupt the measure.
Senate Majority Leader Harry Reid (D., Nev.) said Wednesday that
senators wouldn't vote on the 2,300-plus page bill until after
lawmakers' week-long July 4 recess. Democrats had hoped to push
the legislation through the House and Senate this week, but the
death of Sen. Robert Byrd (D., W.Va.) and the wavering of some
moderate Republican senators upset those plans....
Opposition from Sen. Scott Brown (R., Mass.), among others,
forced their hand, resulting in a proposal to use the $700
billion and Troubled Asset Relief Program and deposit insurance
fees to make up the cost....
Democratic leaders earlier this year experienced the pitfalls of
putting off a vote on highly politicized legislation when the
health-care bill was delayed by the passing of Sen. Edward
Kennedy (D., Mass.). Lawmakers eventually had to resort to a
number of procedural maneuvers to push the health-care deal
across the finish line, including the passage of a
"reconciliation" package to make changes to the legislation.
The Wall Street Journal
Wednesday, June 30, 2010
Senate Delay on Financial Bill Gives Critics an Opening
Barbara Anderson's Membership Message
Dear Citizen for Limited Taxation;
When it comes to federal issues, CLT
is closely aligned to Grover Norquist's
Americans for Tax Reform based
in Washington DC. Today, ATR's Center for Fiscal Responsibility (CFA)
sent a vote alert to the House of Representatives urging members to vote
against the Financial Regulatory Reform Package, H.R. 4173. CFA wrote:
"The bill fails to protect
taxpayers from the possibility of future bailouts. As we explained
in our alert, the bill does not hold Fannie and Freddie accountable
and it is likely to increase government intervention in the
financial industry. From our alert:
"The bill was recently amended to
end the Troubled Asset Relief Program, better known as TARP, to make
this government takeover of the financial market more politically
palatable. While we have been consistent advocates for eliminating
the revolving government slush fund known as TARP, this bill does
nothing to address the underlying problems with the government’s
propensity for bailing out private industry – the bill may end TARP
early, but the legislation is silent on the possibility of future
bank bailouts."
CLT generally figures that if Barney
Frank drafted this bill, after almost destroying the entire world
economy with his support for Fannie Mae and Freddie Mac, it can't be a
good thing. According to The Wall Street Journal, the failure of
Fannie Mae and Freddie Mac has "already cost taxpayers $145 billion and
counting" -- but Fannie and Freddie "aren't touched at all" by this
Dodd-Frank Wall Street Reform and Consumer Protection Act -- "even
as they continue to lose billions of taxpayer dollars each quarter."
Sen. Scott Brown has been working with
Frank to protect Massachusetts from some of the worse aspects of the
bill, and to remove recently added tax increases; having been successful
at this, it is unclear if he will support the final version. CLT
suspects that any concessions made by the Democrats will last only long
enough to get his vote, so we are asking that he vote 'No.'
CLT members who want to reach
Senator Brown can call his office at
617-565-3170 or 202-224-4543.
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Barbara Anderson |
The Wall Street Journal
Monday, June 28, 2010
Review & Outlook
Triumph of the Regulators
The Dodd-Frank financial reform bill doubles down on the same system
that failed
President Obama hailed the financial bill that House-Senate negotiators
finally vouchsafed at 5:40 a.m. Friday, and no wonder. The bill
represents the triumph of the very regulators and Congressmen who did so
much to foment the financial panic, giving them vast new discretion over
every corner of American financial markets.
Chris Dodd and Barney Frank, those Fannie Mae cheerleaders, played the
largest role in writing the bill. Congressman Paul Kanjorski even
offered a motion to memorialize it as the Dodd-Frank Act. It's as if
Tony Hayward of BP were allowed to write new rules on deep water
drilling.
The Federal Reserve, which promoted the housing mania and failed utterly
in its core mission of monitoring Citigroup, will now have more power to
regulate more financial institutions and more ability to dictate the
allocation of credit.
The Treasury, which bailed out institutions willy-nilly without
consistent rules, will now lead the Financial Stability Oversight
Council that will have the arbitrary power to define which financial
companies pose a "systemic risk" and which can be shut down without
recourse to bankruptcy. Willy-nilly will now be the law.
And the SEC, which created the credit-ratings oligopoly and missed
Bernie Madoff, will get new powers to decide how easy it should be for
union pension funds to get their candidates on corporate proxy ballots.
Oh, and Fannie Mae and Freddie Mac? They aren't touched at all, even as
they continue to lose billions of taxpayer dollars each quarter.
In other words, our Washington rulers have taken 2,000 or so pages to
double and triple down on the old system that failed.
Perhaps the most striking irony is that even in 2,000 pages Congress
isn't precisely defining new bank powers. That task will be left to the
regulators in the coming weeks and months, a reality that some in the
media are finally figuring out. They are now reporting, with notable
alarm, that this means bank lobbyists will be able to influence those
rules behind the scenes. What did reporters think would happen in a
system built not around clear parameters of what institutions can and
cannot do, but instead entirely on regulator discretion?
Take the Volcker Rule, which proscribes banks that accept insured
deposits from engaging in the riskiest kinds of trading. This makes
sense in theory but the rule's execution will depend on how regulators
define and enforce it. It's hardly reassuring when the Davis Polk &
Wardwell law firm has to write a seven-page memo, as it did on Friday,
explaining how this rule-making will proceed. The Volcker Rule may work
in restraining excessive risk-taking. Or it may merely drive that
risk-taking into other institutions that will attract the best and
brightest drawn to the higher profits such trading can gain.
Consider as well the doctrine of "too big to fail," which FDIC Chair
Sheila Bair says this bill will end. It is true that, thanks mainly to
Ms. Bair and Alabama Republican Richard Shelby, Dodd-Frank puts more
constraints on bailouts than Treasury Secretary Tim Geithner or Fed
Chairman Ben Bernanke wanted.
But the Fed (with the consent of the Treasury Secretary) can still use
its emergency lending authority to rescue a firm as long as it also
provides loans to similar institutions at the same time. The bill also
gives access to the Fed discount window to the new clearinghouses that
are supposed to handle most derivatives trades. So the same exchanges
that are supposed to reduce the riskiness of derivatives trades will
know the feds will bail them out if they get into trouble.
Meanwhile, the FDIC Chairman will be free to choose which creditors to
rescue and which to punish when a company goes into "resolution," even
discriminating among creditors who bought the same bond issue. Expect
union pension funds to fare better than other creditors when the feds
roll up a bank in the future.
In the same way, Congress also added a last-minute, dead-of-night $19
billion tax on some financial institutions to pay for the implementation
of these vast new regulatory powers. Who will pay this tax? Whoever the
council of regulators decides should pay. The tax can hit any financial
firm with more than $50 billion in assets (excluding banks that have
deposit insurance, and Fannie and Freddie or any government-sponsored
enterprise) and hedge funds that manage more than $10 billion.
This will take $19 billion out of financial firms that supply capital to
growing companies, and it will punish precisely the firms that have
attracted the most capital because of their better-than-average
performance. This is only one of many new ways that Dodd-Frank will
reduce the supply and raise the cost of credit across the economy. Think
of how last year's limits on credit card fees have already reduced the
supply of consumer credit and are leading to the end of free checking
for all but wealthy bank customers.
We could go on, but perhaps the best summary is to hail Dodd-Frank as
the crowning achievement of the Obama "reform" method. In the name of
responding to a crisis, the bill greatly increases the power of
politicians and regulators without addressing the real causes of that
crisis. It makes credit more expensive and punishes business without
reducing the chances of a future panic or bailouts.
The only certain result is that when the next mania and panic arrive,
and they will, Congress and the regulators will claim they were all
someone else's fault.
The Wall Street Journal
Wednesday, June 30, 2010
Review & Outlook
The Bailout Tax
The latest reason to oppose Dodd-Frank
A new tax on financial companies seemed like a good idea to Chris Dodd
and Barney Frank at 3 a.m. last Friday, but now their $19 billion levy
is threatening to blow up their 2,319-page financial bill. So they're
scrambling to replace that cash, but the bigger news here is that Barney
and Chris need to impose a bailout tax for what they claim is a bill
that will end bailouts.
This is the real reason that the tax came out of nowhere in the middle
of the night after having been rejected earlier by the Senate. And on
Monday the Congressional Budget Office made it official when it released
its cost estimate for the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
CBO estimates that the bill's vaunted "Orderly Liquidation Authority,"
which is being sold as tough medicine for failing banks and their
creditors, will cost taxpayers $20.3 billion between now and 2020. CBO
estimated how likely it is that one or more big financial firms will
fail, how many tax dollars the Federal Deposit Insurance Corporation
would likely pour into these losers to assist creditors, and how much
taxpayers might recover as this "resolution process" proceeds.
Why $20.3 billion? CBO isn't releasing its assumptions, but it hardly
matters because the number can't possibly be more than a guess. The
failure of Citigroup alone could cost many times that, much as the
failure of Fannie Mae and Freddie Mac has already cost taxpayers $145
billion and counting. That $20.3 billion is best understood to be the
potential cost discounted to what you might call the net present
political value.
The $19 billion Dodd-Frank bailout tax was especially pernicious because
it essentially left it to regulators to decide who would pay. The sages
at the new Financial Stability Council would make the call, guided by,
among other factors, a particular company's "importance as a source of
credit for households, businesses, and State and local governments" and
"the company's importance as a source of credit for low-income,
minority, or underserved communities and the impact the failure of such
company would have on the availability of credit in such communities."
Imagine the corruption and favoritism possibilities.
All of this caused a revolt in the Senate, where Massachusetts Senator
Scott Brown was the first to declare his opposition because of the tax.
This is far from a full apology for his earlier support for Dodd-Frank,
but we assume he has learned something from the way he's been taken for
a ride by the professionals. The other GOP supporters of
Dodd-Frank—Maine's Olympia Snowe and Susan Collins, and Iowa's Chuck
Grassley—should also be wary of standing with Senate liberals on tax
hikes.
Last night, House and Senate negotiators rewrote Dodd-Frank into
something they hope can earn 60 Senate votes. One Democratic proposal is
to save money by limiting the Administration's ability to make new
commitments under the Troubled Asset Relief Program. As New Hampshire
Senator Judd Gregg pointed out, this is an excellent idea on its own,
and should not be paired with a plan to spend the same dollars on a
separate bailout program.
Democrats also voted to raise the fees banks pay for federal deposit
insurance, which would be one more in a series of fee increases on banks
struggling to rebuild capital and maintain lending. A $5.6 billion
special levy early in the financial panic was followed by a December
2009 requirement that banks prepay $46 billion in assessments for future
years. The fees will rise again in January under current rules, and a
separate part of Dodd-Frank encourages future increases by permanently
raising to $250,000 the insurance coverage for individual accounts.
This would also mean that commercial banks could essentially end up
paying to bail out large hedge funds. The new Orderly Liquidation
Authority was explicitly created for nonbanks, since the Federal Deposit
Insurance Corporation already has a resolution process for commercial
banks. Dodd-Frank would thus codify the mistakes of 2008, with bank
deposit insurance supporting the rescue of all manner of uninsured
adventures in the capital markets.
Most absurd is the claim that any of this money, however it is raised,
will somehow be reserved for bank failures. Congress will spend it
immediately. Taxpayers will pay for bailouts like they always do, when
they happen, and this bill makes them more likely.
The Wall Street Journal
Wednesday, June 30, 2010
Senate Delay on Financial Bill Gives Critics an Opening
By Michael R. Crittenden and Corey Boles
WASHINGTON—The U.S. Senate won't vote until mid-July on a sweeping
overhaul of U.S. financial regulations, a delay that gives critics and
lobbyists more time to disrupt the measure.
Senate Majority Leader Harry Reid (D., Nev.) said Wednesday that
senators wouldn't vote on the 2,300-plus page bill until after
lawmakers' week-long July 4 recess. Democrats had hoped to push the
legislation through the House and Senate this week, but the death of
Sen. Robert Byrd (D., W.Va.) and the wavering of some moderate
Republican senators upset those plans.
Rep. Barney Frank (D., Mass.) said the House would likely vote on the
legislation later Wednesday.
Key architects insisted the delay wouldn't affect the legislation, the
product of months-long negotiations between Congress, the Obama
administration, and top regulators. Sen. Christopher Dodd (D., Conn.)
told reporters he believed Democrats had enough support to pass the
measure, while Mr. Frank said further changes to the bill wouldn't be
made.
"No, it's not amendable," Mr. Frank said shortly before Mr. Reid's
announcement. "We don't plan on reopening the bill."
Rank-and-file lawmakers and lobbyists both suggested that a failure by
the Senate to vote this week provides an opportunity to upset the
delicate balance struck by House and Senate negotiators following a
marathon 20-hour session last week.
Rep. Brad Miller (D., N.C.) said every interest group will have the
opportunity to try and persuade just one senator who supports the bill
to withhold their vote until further changes are made. "We don't want
that to go on," Mr. Miller said.
Rep. Luis Gutierrez (D., Ill.) said he was concerned that the need to
secure 60 votes of support to clear Senate procedural hurdles could lead
to future problems.
"We have this eternal, revolving 60-vote standard we have to reach.
Every prima donna gets to say 'I want to change this,' " Mr. Gutierrez
said.
Messrs. Dodd and Frank already had to make a significant change to the
bill in recent days after some moderate Senate Republicans balked at the
inclusion of an $18 billion assessment on large banks and hedge funds to
pay for the wholesale changes to U.S. financial market.
Opposition from Sen. Scott Brown (R., Mass.), among others, forced their
hand, resulting in a proposal to use the $700 billion and Troubled Asset
Relief Program and deposit insurance fees to make up the cost.
Lobbyists hoping to scale back particular provisions of the legislation
said they would use the delay to continue to pressure lawmakers.
"Even though it's an uphill battle, we continue to work to attempt to
make changes to the bill that lessens the impact on credit unions," said
Dan Berger, chief lobbyist for the National Association of Federal
Credit Unions.
Democratic leaders earlier this year experienced the pitfalls of putting
off a vote on highly politicized legislation when the health-care bill
was delayed by the passing of Sen. Edward Kennedy (D., Mass.). Lawmakers
eventually had to resort to a number of procedural maneuvers to push the
health-care deal across the finish line, including the passage of a
"reconciliation" package to make changes to the legislation.
—Victoria McGrane and Damian Paletta contributed to this report.
Citizens for Limited Taxation
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▪ Marblehead, MA 01945
▪ 508-915-3665
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