U.S. Financial Reform: The Big Picture.

The U.S. financial reform bill has passed the house; but with the death of Senator Robert Byrd, the final bill won't pass the Senate until after the fourth of July recess, so the final-final details are not know as of yet and I have yet to find any article that goes into any great detail on the specifics in the new bill. In the meantime, I will take a broad and short overview on the subject and try to put it into perspective and context into the bigger picture by looking at what situation lead to the creation and passage of this bill, whose ideal this bill was, who the major authors of this bill were, and the very words of the people who authored this bill and the words of the President himself. Note that this post only covers the U.S. financial reforms as opposed to the coming Global financial reforms which I have read would have a greater impact on the banking industry,

As financial reform nears completion, the big Wall Street firms are turning their attention to new global banking rules that, if approved in their current form, would squeeze profits and lead to lower share prices[...]The reforms, which are being hammered out by the Basel Committee of global banking regulators, could make anything found in the US banking reforms look mild...

What lead to the creation and passage of this bill? The recent global economic recession. As made clear in "The House That Uncle Sam Built" that can be found in the required reading section and this nice video by Thomas Sowell, this recession was caused by government involvement and interference in the economy through its central banking policies and its involvement in the housing market. (A little side note of interest is the role that the system of credit played in the overall economic situation the world is in and the fact that the 30-year mortgage was made possible by government backing up these mortgages.) So what is the solution to a problem that was caused by government interference in the private sector? More government involvement and regulation by the very same people who authored the recent recession. Who would these people be? Barney Franks and Chris Dodd.

At the heart of the recent recession was the busting of housing bubble that was created by the government and more specifically through Barney Frank and Chris Dodd involvements in the housing market. Have they admitted that they made some very bad decisions and have they took responsibility for their part in the housing mess? No. These two are some of the major authors of this bill. So how can this bill be a good thing? What did the recent government involvement in the economy that lead to the collapse of the housing market lead to? A more active role for the government in the private sector.

What will this bill do? According to Chris Dodd, "No one... No one will know, until this is actually in place, how it works. We believe we have done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done." Implied in the statement that it took a crises to get this bill passed, is the fact that gaining these new regulatory powers have been a goal before the recession started. So is this bill designed to deal with what caused the recession or is it designed to do some other "job"? (This sounds crazy and a little scary, but these are the very words of some of our representatives and shows the mentality of some of our Representatives. Also of note is this admission by Franks.)

According to this article,

The legislation puts a lot of faith in the watchful eye of regulators to prevent another financial crisis. New agencies would police consumer lending, the invention of financial products and the trading of exotic securities known as derivatives. Bank supervisors would have the power to seize large, troubled financial firms whose collapse could threaten the entire system. The bill calls for banks to hold more money in reserve to weather economic storms but leaves the details to regulators.

A lot of faith in the watchful eyes of the regulators. Who are the regulators? "Some administration officials acknowledged that leaving so much decision-making in the hands of regulators could open the process to lobbying by the financial industry. Many bank supervisors, in fact, work inside the headquarters of the biggest financial firms and have close relationships with the executives of the companies they regulate." Having the very same people in the industries regulating that industry presents conflicts of interest. Whose interest are the regulators going to look out after? The regulators are more likely to us their government position of influence and authority to benefit their particular business or industry at the expense of everybody else, and this has the effect of combing together the normally opposing interest of government and private business. This is crony capitalism: it is the melding of government and big business. (I have read that small community banks will face new challenges as a result of finreg, and this will help do away with the smaller banks by placing them on an unfair playing field with the larger banks and has the effect of consolidating banking in the hands of a few large banks, so this bill helps to perpetuate "too big to fail".)

Here is President Obama's words after the passage of the bill,

We are poised to pass the toughest financial reforms since the ones we created in the aftermath of the Great Depression. Early this morning the House and Senate reached an agreement on a set of Wall Street reforms that represents 90% of what I proposed when I took up this fight. Now, let me be clear. Our economic growth and prosperity depend on a strong, robust financial sector, and I will continue to do what I can to foster and support a dynamic private sector. But we've all seen what happens when there is inadequate oversight and insufficient transparency on Wall Street.

What was created after the aftermath of the great depression? A larger and more active role for the government in the private sector economy. Note that the President does not believe in the private sector. When he was working in it he referred to it as "working behind enemy lines". The President got 90% of what he wanted. Looking at his political ideology and his view on what role the government should play in the economy, I would question if what he wants is actually good for the free market and freedom in general.

To sum up, there has been a very deep and protracted global recession caused by government involvement in the private sector, I know it was a little more complicated than this but this is basically what happened. Then to solve this problem, the government will give itself a larger role to play in the economy by creating new regulatory powers for itself. And of course these new powers were made up by the very same individuals who brought about the U.S. housing policy that lead to the collapse of the housing market. Was the private sector to blame? Yes, but the errors that the private sector made were the result of bad government incentives and pressure to give loans to people that should not have gotten them. As Mises stated about government intervention in the private sector, "If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the shortcomings of earlier interventions, they will find eventually that they have adopted socialism." I will try to do a post on all of the smaller details like "too big to fail"; bailouts, this bill makes bailouts more likely; evil credit default swaps and derivatives, the argument against them is similar to the argument against speculators; Fannie Mae and Freddie Mac, this bill does not address these two entities that back over 96% of all mortgages and were at the heart of the financial meltdown and which are now a "public policy instrument of the government" , and etc...

Merkel The Champion of RTP

I saw this off of Google news and was blown away. Here's a political leader that is advocating for everything that Jeff believes governments should be doing during this crisis, is rubbing it in Obama's face, and somehow is a Europhile.

Unfortunately this is going to be brief since I have to undergo a badgering by a bunch of Car salesmen (but I'm being a smart shopper and already got them to start throwning incentives before I've even made it to the test drive!). But I think this simple article lays out several basic economic arguments, 1) Obama argues, and is correct, that domestic consumption is the largest factor in a robust economy (why the Chinese will ultimately fall, but that's for another post). His method of achieving that, however, is to utilize Gov't spending financed by higher debt. Ultimately, this method as all of us amateurs at RTP know, is unsustainable (if we haven't already reached that point). Germany's plan, which has been tried and true since she resumed being the economic engine of Europe, maybe more prone to fluctuations in the market (when demand is low), but doesn't leave the Gov't staggering over a large debt service.

The only nasty bit is the Eurocentrists push for a financial transactions tax, I want to say this is preferable than the regulations that Obama is pushing for on Wall Street. Maybe someone should research Obama's plan and I'll try to write more about the European one?

Some Updates on Green Power

Back in November, I wrote an article linking to a crash course on power density and how the power density of various sources showed the untenability of the favorite green power sources: wind, solar, and tidal, as well as the traditional green source of hydro, as primary sources of power, as opposed to coal, gas, and nuclear.  The link was to the Energy Tribune website, which is a generally anti-green site, based on, you know, reality, but still, it does have an agenda.  I have an agenda too.  Now a new link, this time from an economic magazine, Forbes, which explains the same thing, but brings out the economics of it some more.  It covers the same ground the Energy Tribune article covers regarding power density, but adds something that I wasn't aware of; the percent of energy we get from Green Power is actually lower now than it was in 1949!

In 1949 nearly 91% of America's total primary energy came from coal, oil, and natural gas. The balance came from renewables, with hydropower being a dominant contributor. By 2008 the market share for coal, oil and natural gas, along with nuclear, had grown to 92.5% of total primary energy in the U.S. with the remainder coming from renewables.

How is this possible considering the hundreds of billions of dollars we (that would be electricity rate payers and US taxpayers) have been shelling out for green power in the last two decades?  Well, some things make it a little less shocking: 1949 was probably about the end of the massive hydroelectric dam construction projects that were built during Roosevelt's New Deal, and also, our total energy use was far lower than it is today (just owing to the fact that we had so many fewer people).  The green energy in 1949 was probably close to 100% hydro, and as was seen in the Energy Tribune article, hydro is the best-performing of the green power sources.  Also, nuclear power came on line after 1949, so it helps inflate the amount of 'non-renewable' sources.  Still, there has been little or no nuclear construction since the early '80's.  We've spent billions in taxes, had our electricity rates jacked up, and have pretty much nothing to show for it.  Sort of like an Obama Stimulus program - hey!  If the money we spent had been spent in increasing our 'non-renewable' (scare-quotes because I don't know how you call nuclear energy non-renewable) power sources, we would be sitting very pretty from a power resource point of view.  So, basically the only conceivable benefit of all this effort is at least we are doing something to prevent global warming (see other RTP&GG posts in November & December), and what about all those green jobs we were promised!  Well, that brings me to the next links:

Via Hot Air:  Reality (not theory) blows serious holes in liberals' dreams of a green paradise in Spain, Germany, & Denmark, where everywhere it's tried, shovelling taxpayer money into green industry ends up costing the overall economy jobs and digging each country deeper into debt.  Oh, and not changing their dependence on 'non-renewable' fuels.

From the Spanish report:

“The premiums paid for solar, biomass, wave and wind power – - which are charged to consumers in their bills — translated into a $774,000 cost for each Spanish “green job” created since 2000, said Gabriel Calzada, an economics professor at the university and author of the report.
‘The loss of jobs could be greater if you account for the amount of lost industry that moves out of the country due to higher energy prices,’ he said in an interview.”

From the German report:

“While employment projections in the renewable sector convey seemingly impressive prospects for gross job growth, they typically obscure the broader implications for economic welfare by omitting any accounting of off-setting impacts. These impacts include, but are not limited to, job losses from crowding out of cheaper forms of conventional energy generation, indirect impacts on upstream industries, additional job losses from the drain on economic activity precipitated by higher electricity prices, private consumers’ overall loss of purchasing power due to higher electricity prices, and diverting funds from other, possibly more beneficial investment.”

As I keep saying, if you're not promoting nuclear energy, you're not serious about green power, you're just pushing some other agenda, which I believe our own Jeff could explain well.

A Response to the Imaginistas

I've been wrestling with a response to the very good article and very good comments in the last post.  I still haven't come up with a response that's adequate, but I don't feel like working more, so I'll throw up what I got.  If you guys rip it to shreds, I'll just say, I could have written it a lot stronger...but I didn't, so there!

Anyway, have at it!

IMAGINE

Isn't that sweet?

Jeff's interesting previous post has gotten a lot of thoughtful comments from everybody. This is what this blog's all about! To greatly over-simplify their comments, Jeff seems to think World Government is inevitable and that it is not necessarily a good thing, Melkor seems to think World Government is inevitable and that it is a good thing. I've got my thoughts about whether it is good or bad, but it's the inevitability that I am taking exception to.

I've got to say, I think Melkor's ideal view is theoretically good, but when you put real people with real cultures and selfish motives (in other words, typical humans) in these positions of authority then the theoretically beneficial system becomes a ' what can it do for me and mine ' system. I think Melkor's IMF is the most perfect super-national actor, but that's one good actor among many bad actors, or maybe a better phrase would be 'one selfless actor among many selfish actors'.

The United States works as sort of a super-national system only because the many states that constitute it are (or were) basically one primarily English culture (those that were brought here forcibly, or immigrated from other cultures were absorbed into the culture until recently), with one language and one culture (more or less). When a place like Louisiana suffers a disaster, we have a sense of community and rally to its support, gladly supporting our government. Not because it makes economic sense for us to do so, but because they are kin. They are culturally our brothers. That is an important thing that both Melkor and Jeff seem to be ignoring in their praise (or at least idea of inevitability) of world management organizations. Same when a portion of the country is economically depressed. We are not terrbily upset that our tax dollars are spent helping to build up that area (even if, as RTP&GGrs, we think that the area should figure out how to pull itself up out of the mud). By contrast, the EU is made up of many countries and speak different languages and have varying cultures. It's no accident that Germany is highly efficient/prosperous/clean, while Greece is a 3rd-world backwater. The Europeans, or at least the elite of Europe see what the US has going for it and are trying to turn Europe into the same type of place. However, it is my opinion, that this won't truly be done until Europe is culturally as uniform as the United States. The German elite may want desperately to keep helping the Greeks live their lazy socialist welfare-state lifestyle in order to hold the EU together, but I predict that the typical German will not stand for this forever, unlike the way the West Germans have consistently stood and supported their slacker East German brethren. I predict Angela Merkel will pay at the ballot box whenever her party is up for elections next (though I'm not sure how dearly as she already is the European version of a conservative, and choosing the Social Democrats or Greens would only aggrevate the situation (uhm, but to parenthesize even further, Republicans and Bush were rightly slammed for their profligate spending and we sure showed them by electing Obama and Democrats into power, so who knows!)). Europeans from different countries do not view each other as brothers. They view each other as people to do business with who talk differently and act differently. Also, they each have their own army and cannot be brute-forced into cooperating if they really don't want to. That is another huge difference. If the Greeks say "fuck you" to the EU and continue their welfare-state ways, they may be penalized economically, but the EU cops (ha!) aren't going to march in and confiscate their businesses and property. If anything, the elites will bend over backwards to bail them out some more. If a Federal bailout were to happen in the case of a defaulting California, California would cooperate regarding the conditions or else.

Taking this to the next level we go to the UN where not much of anything works and it is basically the tyranny of the many leaches harrassing the few providers. It only exists at all because of the rich countries' magnanimous contributions (possibly liberal-elites' -misplaced- guilt about colonialism) and again, a desire of the elites of the rich countries to have this 'Imagine'-like one-world paradise. That the poor countries hold out their hands and take this magnanimity while at the same time spitting in the elites' faces is a source of both amusement and anger to me.  The Imaginistas in the US and Europe may be able to Imagine there are no borders, but the rest of the world will laugh at them and take their money and land.  The rest of the world cares very much.

The problem with the world-wide governing authorities is that cultures are different around the world. We don't have one people with similar interests, we have many people with divergent interests, all looking out for each group's own best interests.