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Archive for the ‘Governmental Intervention’ Category

The Tyranny of Governmental Bureaucracies

Posted by Steve Markowitz on September 16, 2016

Irrespective of good intentions, once started, government agencies and bureaucracies take on a life of their own in never-ending attempts to gain power, influence, and money.  A poster child for this is the US Department of Energy formed in 1977 during the presidency of Jimmy Carter.  Its primary mission was in response to the oil crises of the 1970s and America’s need to become less dependent on imported oil.

oil-importsAs indicated in the chart, at best the DOE could claim some early success in its primary mission. However, between 1985 and 2005 net imports of oil surged.  That did not stop the DOE’s employment from increasing from its initial 20,000 to today being over 100,000, when contract employees are included.

Progressives, who never find a government program they don’t like, would point to the significant drop in net oil imports since 2005.  That decrease, however, was the result of private industry ingenuity, specifically fracking technologies.  Since the election of Barack Obama, the federal government has done all it can in efforts to actually increase America’s dependence on imported oil, putting coal out of business, increasing drilling regulations, stopping pipelines, etc.

Steve Forbes published an op-ed in Forbes titled The Latest in the Never-Ending Assaults on Our Freedoms.  One of These Is Lethal that appropriately attacks the tyranny of government.  Forbes states that: “Even in democracies the natural tendency of government, unless stopped, is to expand its powers and extend its tentacles into every facet of its citizens’ lives–always in the name of helping them”.

Forbes uses the tobacco industry as an example of governmental overreach.  This includes:

  • The FDA’s (US Food and Drug Administration) has implemented regulations that will ultimately put out of business small manufacturers of premium cigars and makers of e-cigarette.
  • E-cigarettes, which are a safer alternative to cigarettes, will now be less safe by the new regulations that subjects all devices designed after February 15, 2007 to FDA approval. Prior to 2007, e-cigarette’s were crude and inferior, both in convenience and safety, to those produced today.  As a result, these regulations will limit consumer choices for safer and superior devices.
  • The smaller, boutique cigar manufacturers are been basically run out of business with the new regulations. The requirement of 5,000 hours of testing takes several years to complete, an expense the smaller companies cannot afford.
  • Pipe smokers are not immune to from the FDA’s lunacy. Tobacconists who mix special blends of pipe tobacco will have to go through an FDA registration process as if they were a tobacco manufacturer.  This added expense will put many of the blunders out of business.

It is not coincidental that the FDA’s tobacco regulations hurt small and newer producers of products and benefit the larger suppliers.  This is but another example of crony capitalism that inflicts our economy.  The incumbent suppliers have the mass in the political clout to push through laws that hinder potential competition.  Politicians benefit from this incestuous relationship through political contributions.  The bureaucracy and their governmental agencies profit through increased control, larger employee counts, and funding.  This is not a new phenomenon, but one that has been repeated throughout history in many countries and governments.  Following the money ultimately leads to the actual motivations behind governmental interventions in society and the economy.

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Incestuous Relationship Between Banks and Government

Posted by Steve Markowitz on September 9, 2016

The greatest economic calamity of contemporary time occurred in 2008.  While there were complex issues behind the economic meltdown, main culprit was an overvalued housing market that became a bubble.  When housing valuations began to fall, the bubble popped, the catalyst for the overall economic meltdown.

The housing bubble did not occur by chance or natural economic activity.  The fuel that fed this fire included:

  • Irresponsible Federal Reserve monetary policy that left interest rates too low for too long. This not only helped promote cheaper mortgages, but also cajoled investors into investing in mortgage-backed securities, seeking yield in very products.
  • Inappropriate lending practices were forced on commercial banks by the government in its pursuit of a social agenda, which included the Community Reinvestment Act of 1977. Through Fannie Mae and Freddie Mac, the government forced banks to lower lending standards so that individuals who could not afford mortgages received them.
  • The government also has an in incestuous relationship with banks. For example, it created legislation enabling commercial banks to become involved with very risky financial products that risked systemic damage to the economy; i.e. repeal of the Glass-Steagall Act late in the Clinton administration,  In addition, the Commodity Futures Modernization Act of 2000 allowed banks to become involved in the ultra-high-risk derivatives market.

Most economists agree that actions of the Fed, government legislation and banker greed were responsible for creating the housing bubble and subsequent banking crisis.  Significant lip-service was offered by politicians for corrective action, including the massive Dodd-Frank legislation of 2010.  However, this legislation is causing more problems in the banking system.  The crisis was caused by banks supposedly being too big to fail.  With Dodd-Frank, the largest banks have gotten bigger.

The 2008 economic meltdown brought on a liquidity crisis that threatened the world’s banking system.  Central banks and governments used massive interventions and stimulative policies to offset the crisis.  These policies may initially have been successful in staving calamity, but have since lost effectiveness.  Eight years later while central bank interest rates remain near zero, economic growth is anemic.  This prolonged economic stagnation i a major reason behind growing social disorder in many countries.

Given the scope of the economic damage, it is telling that not one banker has been indicted or imprisoned for unethical behavior.  In addition, bank executives who were enriched during the bubble years have not had to make any restitution.  The incestuous relationship between bankers, governments and central banks make such punishment unlikely.

To appease the masses, politicians have created the illusion of corrective action.  This includes the above-mentioned Dodd-Frank Act.  In addition, the Justice Department creates an illusion of bank retribution by levying massive fines on large bank.  According to an Andy Koenig’s Wall Street Journal op-ed titled Look Who’s Getting That Bank Settlement Cash, these payments include:

  • $5.1 billion settlement with Goldman Sachs
  • $3.2 billion settlement with Morgan Stanley
  • $7 billion with Citigroup
  • $13 billion with J.P. Morgan Chase
  • $16.65 billion Bank of America

business-relationshipWhile the settlements might make it seem like the greed and poor business practices have been addressed, reality is different.  First, the banks involved were bailed out by the US government through the TARP program.  One could make the argument that the penalties were actually inflicted on the US taxpayers who funded TARP.  In addition, the penalties on the banks affected earnings and shareholders long after the perpetrators of the actions received large bonuses, none of which was returned.

Koenig points to another troubling aspect of the government’s bank “retribution” program.  None of the collected funds have gone to those damaged by the bank’s behavior.  Instead, the Justice Department forces the banks to give the funds to nonprofit organizations drawn from a federal government approved list.  This includes some such as Catholic Charities that are typically nonpolitical.  However, it also includes La Raza, the National Urban League, and the National Community Reinvestment Coalition who are known to have Progressive political agendas that include voter registration programs, community organizing and significant lobbying efforts.  This is but a political shakedown, an abuse of power that does not offer redress to or appropriate punishment to those responsible for the problems.

Those on the Left of the political aisle seem satisfied with the federal government’s role in distributing fines from banks, as a majority back causes they agree with.  However, this is a slippery slope that one day will benefit the opposite political causes.

Conservatives have also been acquiescent to the government’s movement of money from banks to political and social causes.  This demonstrates that the political elites are more concerned with consolidating power in Washington than following the rule of law or the Constitution.

The more power collected in Washington the greater will be the abuse of power.

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Obama’s Legacy: Increased Executive Branch Power

Posted by Steve Markowitz on August 14, 2016

When asked about Barack Obama’s legacies, supporters will universally list Obamacare as number one.  As for the problems the country faces, Obama has had a Teflon coat with supporters either ignoring the issues or blaming them on his predecessors.  Problems include the growth of international terrorism, the Middle East in flames, and significantly increased racial tensions in the Country.  Under the radar is perhaps one of the most dangerous Obama legacy; significantly increased power within the presidency and executive branch of government.

The New York Times published an article by Applebaum and Schear titled Once Skeptical of Executive Power, Obama Has Come to Embrace It that chronicles Obama’s power grab.  The article concludes that Obama, who prior to becoming president was publicly critical of executive power, has since embraced it stating: “Mr. Obama will leave the White House as one of the most prolific authors of major regulations in presidential history.”

The Times also states:

  • “Blocked for most of his presidency by Congress, Mr. Obama has sought to act however he could. In the process he created the kind of government neither he nor the Republicans wanted — one that depended on bureaucratic bulldozing rather than legislative transparency.”
  • “The Obama administration in its first seven years finalized 560 major regulations — those classified by the Congressional Budget Office as having particularly significant economic or social impacts. That was nearly 50 percent more than the George W. Bush administration during the comparable period, according to data kept by the regulatory studies center at George Washington University.”
  • “The Obama Era …. And it has imposed billions of dollars in new costs on businesses and consumers.”

obamaThe Times offers concern with the growth of the executive branch and regulations quoting Robert Hahn, a regulatory expert at Smith School at the University of Oxford: “The big issue that I grapple with is that the regulatory state keeps growing.  And as it keeps growing, when does it become too much?”  We have already crossed that chasm.  On the economic front the country has been in the midst of the slowest recovery since the Great Depression.  Socially, the dissatisfaction in the inner cities is at a level not seen in decades.

Since embracing increased executive authority, Barack Obama has spoken arrogantly of this power stating: “an increasingly dysfunctional Congress: … Where they won’t act, I will.”  In addition: “Whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.”  These are remarkable statements from someone supposedly expert in the Constitution.  The Constitution divides our government into three branches, equally dividing power.  Its purpose is clear, to stop any branch or individual from having their way with law, irrespective of the validity or quality of their proposed action.

While the Obama power grab and myriad of regulations are negatively impacting the country now, there is a more sinister impact to come.  Future presidents will be intoxicated by power and likely bring more authority to the Executive Branch, at the expense of individual freedom for Americans.

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Unintended Consequences of Dodd-Frank Act

Posted by Steve Markowitz on January 17, 2016

 

In reaction to the 2008 financial meltdown, the government came up with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Signed into law in 2010 by President Obama, its name implies consumer protection.  Reality does not match the implication.

The 2008 financial meltdown occurred because of bad behavior on the part of consumers, lenders and financial institutions.  This led to the possibility that major financial institutions would fail worldwide leading to governmental bailouts of mega banks and other corporations, justified by the claims that the institutions were too big to fail.  It is impossible to determine the accuracy of this claim.  However, the possibility of systemic economic failure in itself seemed to justify the interventions.

Successful capitalism demands that the imprudent borrowers, lenders, and shareholders should have suffered catastrophic losses as a result of their behavior that so badly damaged society.  Instead the bailouts saved those who most deserved punishment.  Worse this has led to increased likelihood of such imprudent behavior being repeated.  Instead of allowing this appropriate economic response, the government gave us the Dodd-Frank Act, which is not only ill-conceived, but too complex to fully comprehend, let alone its consequences.

If indeed the banks were too big to fail the government should have responded by breaking them up so that they could not cause systemic damage to the economy in the future.  Not only have the banks not been broken up, but Dodd- Frank resulted in banking consolidation with the large banks becoming even larger and more dangerous to greater society.  This increases the potential need for even larger bailouts in the future.

Some of the unintended consequences of Dodd Frank remain unknown.  Others, such as banking consolidation, are apparent.  Another consequence was announced earlier this month by insurance giant MetLife.  They will divest a large part of their US life-insurance business, which generates approximately a fifth of their total revenues.  Because this MetLife falls within the purview of Dodd-Frank, it was required to increase its capital base.  Instead of taking this step MetLife will make the announced divestiture with its spokesman saying: “aAn independent new company would be able to compete more effectively and generate stronger returns for shareholders…[and] this risk of increased capital requirements contributed to our decision to pursue the separation of the business.”

The fact that MetLife is making a divestiture of a major business unit is not in itself problematic.  However, making this decisions based on governmental regulations is an inefficient way to regulate economic activity.  This divestiture will allow both MetLife and the newly created life insurance company to skirt Dodd-Frank and will likely result in weaker companies providing life insurance to consumers increasing consumer risk.

In typical governmental action, Dodd-Frank attempts to corral horses that already left the barn.  Like Sarbanes-Oxley before it, Dodd-Frank will increase the cost of doing business, create more regulatory jobs, and be a boon for the accounting and legal industries.  Ultimately, consumers will suffer and the politicians and bureaucrats that gave us this mess with be retired on huge government pensions.

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US Judge Stops Windmills from Killing Bald Eagles

Posted by Steve Markowitz on August 21, 2015

Progressives have demonstrated over the years a willingness to protect wildlife irrespective of consequences to society or the economy.  In some cases they have used various wildlife protection laws including the 1940 Bald and Golden Eagle Protection Act and 1918 Migratory Bird Treaty Act.  Interpreting and enforcing regulations are left to various government agencies including windmillthe U.S. Fish and Wildlife Service.  However, bureaucrats often politicize their interpretation by selective enforcement.

This week the Wall Street Journal published a story of selective enforcement by the U.S. Fish and Wildlife Service (FWS).  Obama appointed US District Judge Lucy H. Koh has slapped down the FWS for allowing the wind industry to legally kill Bald and Golden Eagles for up to 30 years.  The judge found that the agency violated the National Environmental Policy Act in 2013 by not doing the required environmental impact assessment and limiting permits to a maximum of five years.

It is common knowledge that wind generators kill birds.  A 2008 study estimated that one facility in northern California killed dozens of eagles and thousands of raptors and non-raptors annually.

It seems that to the Left, saving endangered species is important only if it does not interfere with their political agenda that includes promoting green energy.  This selective enforcement of regulatory edicts shows that crony capitalism is alive and well in the Obama administration.

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Government Pursues Bad Mortgage Policies with Veterans

Posted by Steve Markowitz on July 17, 2015

Various policies and practices led to the 2008 financial meltdown that nearly took down the world’s economic order.  Many were related to the inappropriate use of debt.

Beginning in the mid-1990s, the Federal Reserve began aggressively using low interest rate policies to offset economic downturns.  This included the Asian markets’ turmoil in the late 1990s, the Datacom and Dot com busts, as well as the economic downturn caused by 9/11.  While these low interest rate policies offered short-term benefits, in the long term they created significantly damage to the economy.

Downturns are a necessary part of economic cycles.  They are often caused when supply and demand of goods and/or services go out of balance.  During downturns excess goods and services are sold off and depressed prices, which ultimately leads to rebalancing supply and demand and then economic growth as more goods and services are required.

The low interest rate Fed policies, along with governmental bailouts, led to huge imbalances including the housing bubble.  With historically low interest rates and lax lending practices, housing prices appreciated on an unsustainable path.  Then, when appreciation turned to depreciation, millions could no longer pay their mortgages leading to the collapse of 2008.

Under typical conditions an economic calamity as encountered in 2008 suffices to “teach” a generation to avoid unsound economic practices.  However, these are not normal times. After 2008 Federal Reserve and central banks doubled down on the low interest rate policies.  While they tempered the effect of the meltdown in the short term, there are responsible for the lackluster recovery, the slowest since the Great Depression.

Pied PiperThe American government often uses interest rate policies to implement social manipulation pursued by Progressives.  The 2008 housing bubble was fed by the government promoting mortgages to income brackets that could not afford to make the monthly payments.  Millions then lost their homes and any equity in them. They would have then better served not purchasing the houses in the first place, but were cajoled into doing so by governmental intervention.  However, even this lesson has not been learned.

Once again the government is promoting imprudent mortgage policies, this time to veterans.  The company NewDay USA promotes as a benefit in one of the headings on its website newdayusa.com states: We’re a Different Kind of Lender.  As a Veteran, You Can Borrow Up to 100% of the Value of Your Home, Not Just 80%.”  NewDay USA goes on to say: ”With up to 100% of your home’s value available, including mortgage balance, you could qualify for thousands of dollars more from NewDay USA.”

NewDay USA could not make this offer without the backing and support of the US government.  This crony capitalism not only benefits the stakeholders at NewDay USA, but also places at risk their customers, veterans who served their country.  It is imprudent for any homeowner to not have at least 20% equity in their home.  This equity cushion not only helps ensure that their mortgage payments will be set at a reasonable level given their income, but it will make it more likely that their homes’ value will remain above the market price during inevitable downturns.

Some politicians back imprudent policies with good intentions, but little understanding of economics; the fools.  Others promote such policies for less benign reasons including crony capitalism; the greedy.  Neither serve the country well.

New Day

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Congressman Trey Gaudi Versus IRS Commissioner Koskinen

Posted by Steve Markowitz on July 2, 2014

Last week IRS Commissioner John Koskinen was in front of a congressional committee concerning the IRS scandal.  During the interrogation Koskinen had an attitude that showed disdain for Congress and the American people.

Koskinen ran into a buzz saw when questioned by former prosecutor, Congressman Trey Gowdy, Republican, SC.  In the exchange Koskinen, who was not the IRS Commissioner during the time the scandal occurred, went to bat for the IRS claiming there was no evidence of criminal wrongdoing.  The exchange below is endemic of the ruling class of politico-bureaucrats in Washington DC.  It goes beyond arrogance and approaches tyranny by the IRS.

Gowdy – “You have already said multiple times today that there was no evidence that you found of any criminal wrongdoing.  I want you to tell me what criminal statutes you’ve evaluated.”

Koskinen – “I have not looked at any.”

Gowdy – “Well then how can you possibly tell our fellow citizens that there’s not criminal wrongdoing if you don’t even know what statutes to look at?”  ….   “How would you know what elements of the crime existed?  You don’t even know what statutes are in play.”

And:

Gowdy – “It was Jay Carney that perpetuated the myth that it was two rogue agents in Ohio, it wasn’t any of us.  Was that accurate?”

Koskinen – “Not that I know of”.

Gowdy – “So that was inaccurate and that came from the White House.  Who said there’s not a smidgen of corruption?”

Koskinen – “My understanding is that was the president”.

Gowdy – “So that’s Jay Carney and the president both inserting themselves into the IRS scandal,” Gowdy said. “And you want to blame us for bringing the White house into it?

Koskinen – “I haven’t blamed you at all”.

Gowdy – “You just did, commissioner.  You just did.”

 

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Student Loan Bubble

Posted by Steve Markowitz on June 25, 2014

Evidence of bubbles is becoming more apparent by the day. The first-quarter GDP figures were revised downward today by the Commerce Department by 2.9%. Irrespective of this ominous indicator, the stock market went up. These two opposing occurrences in one day indicates that risk fear has evaporated from investors who believe that with ever continuing Federal Reserve lose money policies the market will to rise indefinitely. These investors sound eerily similar to those that invested in the housing bubble in the early 2000’s. It did not and pretty for that group

Equity valuations are not the only bubble that is growing. Another one with dangerous implications for the economy is student loan debt that now exceeds $1 trillion, greater than the total Americans’ credit card debt. This excessive debt has been saddled on younger Americans who are having difficulty finding jobs. It will be a weight on their shoulders for years to come further inhibiting long-term economic growth.

Successful businessman and Dallas Mavericks owner Mark Cuban was interviewed by Inc. Magazine where he correctly stated the dangers of the student loan bubble:

“It’s inevitable at some point there will be a cap on student loan guarantees.  And when that happens you’re going to see a repeat of what we saw in the housing market: when easy credit for buying or flipping a house disappeared we saw a collapse in the price housing, and we’re going to see that same collapse in the price of student tuition, and that’s going to lead to colleges going out of business.”

The brief video clip below states a problem, which to a great extent, has been of the making of the US government and its interventions into the student loan program. Not only has the government’s involvement saddled younger Americans with unnecessary debt, but it’s facilitating of this debt has led to significantly increased cost of higher education further exasperating this debt issue. Had student loans not been subsidized and backed by the government, higher educational institutions would have been forced to create more economic ways to educate (serve) their customers, students.

When the higher education bubble pops we can look for a taxpayer bailout that will further inhibit long-term economic growth. As we search for reasons why the current recovery is the most anemic since the Great Depression, we can look at the government interventions and regulations as primary causes.

Posted in Governmental Intervention | Tagged: , , , , , , | 2 Comments »

The Affordable Boat Act

Posted by Steve Markowitz on November 1, 2013

Blog reader David forwarded this bit of humor for Friday.  At first it caused a smile, which quickly turned into a frown when this writer considered how deeply the Country has traveled down the path of dependency on big government and governmental infringement into our individual liberties.

The Affordable Boat Act

sailboatsThe U.S. government has just passed a new law called: “The Affordable Boat Act” declaring that every citizen MUST
purchase a new boat, by April 2014.  These “affordable” boats will cost an average of $54,000-$155,000 each.  This does not include taxes, trailers, towing fees, licensing and registration fees, fuel, docking and storage fees, maintenance or repair costs.

This law has been passed, because until now, typically only wealthy and financially responsible people have been able to purchase boats.  This new law ensures that every American can now have a “affordable” boat of their own, because everyone is entitled to a new boat. If you purchase your boat before the end of the year, you will receive 4 “free” life jackets; not including monthly usage fees.

In order to make sure everyone purchases an affordable boat, the costs of owning a boat will increase on average of 250-400% per year.  This way, wealthy people will pay more for something that other people don’t want or can’t afford to maintain.  But to be fair, people who can’t afford to maintain their boat will be regularly fined, and children (under the age of 26) can use their parents boats to party on until they turn 27; then must purchase their own boat.

If you already have a boat, you can keep yours (just kidding; no you can’t).  If you don’t want or don’t need a boat, you are required to buy one anyhow.  If you refuse to buy one or can’t afford one, you will be regularly fined $800 until you purchase one, or face imprisonment.

Failure to use the boat will also result in fines.  People living in the desert, ghettos, inner cities or areas with no access to lakes are not exempt. Age, motion sickness, experience, knowledge, nor lack of desire are acceptable excuses for not using your boat.

A government review board (that doesn’t know the difference between the port, starboard or stern sides of a boat) will decide everything, including; when, where, how often and for what purposes you can use your boat along with how many people can ride your boat, and determine if one is too old or healthy enough to be able to use their boat.  They will also decide if your boat has outlived its usefulness, or if you must purchase specific accessories (like a $500 compass), or a newer and more expensive boat.  Those who can afford yachts will be required to do so…it’s only fair.  The government will also decide the name for each boat.  Failure to comply with these rules will result in fines and possible imprisonment.

Government officials are exempt from this new law.  If they want a boat, they and their families can obtain boats free, at the expense of taxpayers. Unions, bankers and mega companies with large political affiliations are also exempt.

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Harris-Perry Blames Republicans for Detroit’s Bankruptcy

Posted by Steve Markowitz on July 20, 2013

MSNBC’s Melissa Harris-Perry is at it again.  After Detroit declared bankruptcy she incredibly tied this into Republican economic policies stating (emphasis added):

We can talk about the micro-story of Detroit, but it seems to me that Detroit, as always, is standing for all kinds of things about America.  In the case of Detroit, the reason that the tax base has become so small is because a loss of population, right?  So folks out, they are not there to pay the taxes on the homes in the kind of deterioration is what you see in the numbers you’ve suggested.  But this lack attack space is also exactly the kind of thing that many Republicans would impose on us, even when our cities have sufficient populations, even when our communities have sufficient populations.  This is what it looks like when government is small enough to drown in your bathtub, and is not a pretty picture.

Harris-Perry is either a total ideologue, devoid of serious logic, or combination of both.  A year ago this Blog posted the article Comparing Atomic Bomb and Progressive Destruction with photos of the destroyed city.  Yes, Detroit’s loss of population is the reason behind its disintegrated tax base.  However, the populace left the city because it was being destroyed by government intervention and social experimenting that were dismal failures.  Detroit is the poster child for the failures of progressive/liberal social policies in the United States.  It is amazing how many believe that the government’s bailouts and interventions of banks, General Motors and others will be more successful.  Now that’s real faith!

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