I have never understood why the idea of usury was never applied to credit card APR's, overdraft fees and my favourite, "pay-day" loans.
There had been a Banking Regulation in the United States, Reg Q, that limited the interest rate banks could pay on savings deposits. In a twisted logic this regulation was intended to stop loan-sharking. I will admit, I never understood the connection except in an inverse relationship.
Somehow, a limit on the interest that could be paid on deposits was intended to limit that which could be charged on loans. Of course in a regulated banking system a maximum spread between deposit and loan rates could be set. But how that would have any impact on an unregulated and illegal loan-sharking world is beyond me.
What appears to have happened is that the banks, especially over the last couple of years in response to revenue losses resulting from the financial crisis and the introduction of new regulations have started to move into the loan-sharking space.
Yes, this might strike many as somewhat of an exaggeration. The common image of the loan shark is someone who lends you $10,000 today and demands to be paid $20,000 in two weeks. And yes, there is usually the added incentive of the threat of violence in the event of non-payment.
Now look at payday loans which initially were licensed by "non-standard" lenders. In the name of free market capitalism these lenders were allowed to provide loans to those that didn't qualify for standard loans from banks. In a 2001 report comparing short-term "payday" loans it was found that the rates charged by legal non-standard lenders in California were often considerably higher than the interest rates charged by Chicago crime syndicates for the same loan.
Fast forward to the present. The Franks-Dodd Regulation has instituted limitations on first-year credit card fees and on late fees and restrictions on APR increases as well as the outright prohibition of overdraft fees without opt-in. It was found that some banks charged as much as $300 a day for the use of an overdraft facility on top of the interest charged.
The first response by many banks was to unilaterally raise their APR's, despite the fact that losses and their costs of funding-look to see what your bank deposits earn-have come down. As the banks come under more political and regulatory pressure the terms for APR's will presumably start to decrease on their standard products. The response of the banks has been to go down the credit curve in their search for more profitable areas to exploit.
Banks that claim they could never offer a sub prime credit card with a 30% APR have felt no qualms in moving into the lucrative unsecured loans market that is virtually indistinguishable from the payday loan market, except that they are marketed as "deposit advance loans". They are offered to customers with checking accounts, which is intended to demonstrate that they are not shady loan providers operating in a non-regulated area with shoddy documentation. Now they are above board in charging APR's of 200% and more.
They go further however. To avoid being accused of usury, they don't charge interest rates, but rather flat fees. These too, like the term "deposit advance" loans are another example of changing the name but not the activity. The effective annualized compound interest rate is easily in the triple-digit range.
The only positive in all of this is somewhat ironic. By moving into the "payday" space banks are gathering in people who had no access to bank credit. Despite the fact that the rates charged are exorbitant, they are not accompanied by insinuation or even overt threats of physical violence. It is interesting to see what was an illegal activity be brought into the mainstream, despite the predatory aspects of the activity.
It leaves me in this holiday season wondering what other illegal activities would benefit from being brought into a legal, regulated framework...
Seasons Greetings!
Thursday 23 December 2010
Wednesday 22 December 2010
Putting Some Bite into the European Union Eastern Partnership....
It might surprise a number of readers that in addition to concerns on the health of the Euro and the European Union (EU) there is an ongoing undercurrent of how the EU and Russia are interacting in the former East Bloc and Soviet republics.
Following WWII the Soviet Union essentially created a buffer zone consisting of former nations which were allowed to maintain an external semblance of independence such as Poland and those countries which were physically absorbed into the USSR such as the Baltics, Belarus, Moldavia, the Ukraine, Georgia and the various republics in the Caucasus.
Given the recent preoccupation with the Euro and the EU in general there has been a lot of talk with very little action on the "West's" part while Russia continues to re-establish its control in these countries.
Russia has taken advantage of its economic weight and the ambivalence surrounding the role of NATO to actively pursue pro-Russian policies in the former Soviet space. It has played both sides of the "good cop/bad cop" role in trying to influence the ongoing discussion as to the efficacy of NATO in its current format/membership as well as the burning question of allowing former Soviet Republics such as the Ukraine, Moldavia and Georgia to join or not.
Part of the European response has been the creation of the relatively toothless tiger known as the European Union Eastern Partnership (EUEP). Its major support has come from Poland-a nation that is very concerned with Russia's activities on its borders and dreams of former Polish glory and Sweden, a nation also reflecting on past grandeur, that last graced the European stage in the 18th century culminating in a string of wars against Russia, each one more disastrous than the last.
Now suddenly albeit subtly, Germany, which has its own share of East European history, has entered the fray flexing its muscles. Generally the Germans have been somewhat accommodating to the Russians working closer with them then many of the other members of the EU would like. But German interest in the region is potentially a significant boost to the EUEP.
Germany is a financial powerhouse and has been the conduit through which much of Russia's actions both economically-pipelines and energy transit agreements- as well as politically have been co-ordinated.
It was therefore somewhat surprising that Werner Hoyer, German Minister of State in the Foreign Ministry spent yesterday in Moldavia meeting with the Moldovan Minister of Foreign Affairs and European Integration Iurie Leanca.
Moldavia is in the throes of forming a ruling coalition following contentious parliamentary elections in November. The EUEP under Poland and Sweden have been pushing for a pro-EU party while Russia is working to install a pro-Russian government.
Now the Germans have apparently thrown their considerable weight into the pro-EU camp. This is significant as it pits Germany against Russia and will prove to be an interesting case in determining who has more power in influencing the affairs of those states in the border regions of Europe and Russia.
Following WWII the Soviet Union essentially created a buffer zone consisting of former nations which were allowed to maintain an external semblance of independence such as Poland and those countries which were physically absorbed into the USSR such as the Baltics, Belarus, Moldavia, the Ukraine, Georgia and the various republics in the Caucasus.
Given the recent preoccupation with the Euro and the EU in general there has been a lot of talk with very little action on the "West's" part while Russia continues to re-establish its control in these countries.
Russia has taken advantage of its economic weight and the ambivalence surrounding the role of NATO to actively pursue pro-Russian policies in the former Soviet space. It has played both sides of the "good cop/bad cop" role in trying to influence the ongoing discussion as to the efficacy of NATO in its current format/membership as well as the burning question of allowing former Soviet Republics such as the Ukraine, Moldavia and Georgia to join or not.
Part of the European response has been the creation of the relatively toothless tiger known as the European Union Eastern Partnership (EUEP). Its major support has come from Poland-a nation that is very concerned with Russia's activities on its borders and dreams of former Polish glory and Sweden, a nation also reflecting on past grandeur, that last graced the European stage in the 18th century culminating in a string of wars against Russia, each one more disastrous than the last.
Now suddenly albeit subtly, Germany, which has its own share of East European history, has entered the fray flexing its muscles. Generally the Germans have been somewhat accommodating to the Russians working closer with them then many of the other members of the EU would like. But German interest in the region is potentially a significant boost to the EUEP.
Germany is a financial powerhouse and has been the conduit through which much of Russia's actions both economically-pipelines and energy transit agreements- as well as politically have been co-ordinated.
It was therefore somewhat surprising that Werner Hoyer, German Minister of State in the Foreign Ministry spent yesterday in Moldavia meeting with the Moldovan Minister of Foreign Affairs and European Integration Iurie Leanca.
Moldavia is in the throes of forming a ruling coalition following contentious parliamentary elections in November. The EUEP under Poland and Sweden have been pushing for a pro-EU party while Russia is working to install a pro-Russian government.
Now the Germans have apparently thrown their considerable weight into the pro-EU camp. This is significant as it pits Germany against Russia and will prove to be an interesting case in determining who has more power in influencing the affairs of those states in the border regions of Europe and Russia.
Saturday 18 December 2010
It's All About the Narrative
It is interesting to see how terms from specific disciplines make their way into the vernacular of the media over time.
For me the first real example of this was on a return to the USA in the early 90's on a business trip and I noticed that what had previously been terminology reserved for the financial industry had been assumed by the news broadcasts and the newspapers. Walking down the street in New York the snippets of conversation from little old ladies to young fashionistas all seemed to be totally preoccupied with things financial.
Recently as the entire family got together for the holidays I found that the idea of the "narrative" was common across different academic courses as my son spoke of the narrative within political science and history, and my daughter discussed the role of the narrative in the medical context.
My wife too chimed in as in her recent Masters Degree in Design History she said after the first couple of weeks she was being driven to distraction by an apparent preoccupation with the idea of the narrative in the History of Design.
I for my part can't remember having been confronted with the concept in my various degrees from over 30 years ago, and certainly not within the context of a trading floor or even the boardrooms of various financial institutions.
And yet this weekend in both the International Herald Tribune and the London Sunday Times the term was used by two very different writers to describe totally different situations all in the same vein as regards the importance of understanding the narrative.
My interest is that I generally think of the narrative in terms of literature, and more specifically fiction, so although I now understand the use of the concept, it did seem somewhat removed from what is actually happening-in the first instance.
But the more I reflect upon it, the more useful it becomes.
I have just finished reading "The Best and the Brightest", and although the term was not used explicitly, I find myself using it to understand what the underlying (hi)story of the relevant participants and its significance, whether it was on an individual basis, within a political party or government office, or on a national level.
The next book on the agenda is "The Selling of the President". After the dog's breakfast of the Johnsonioan entry in the the Vietnam conflict with all its myriad narratives I look forward with some trepidation to see how Madison Avenue, whose sole purpose is to create narratives, propelled Richard M Nixon into the White House.
For me the first real example of this was on a return to the USA in the early 90's on a business trip and I noticed that what had previously been terminology reserved for the financial industry had been assumed by the news broadcasts and the newspapers. Walking down the street in New York the snippets of conversation from little old ladies to young fashionistas all seemed to be totally preoccupied with things financial.
Recently as the entire family got together for the holidays I found that the idea of the "narrative" was common across different academic courses as my son spoke of the narrative within political science and history, and my daughter discussed the role of the narrative in the medical context.
My wife too chimed in as in her recent Masters Degree in Design History she said after the first couple of weeks she was being driven to distraction by an apparent preoccupation with the idea of the narrative in the History of Design.
I for my part can't remember having been confronted with the concept in my various degrees from over 30 years ago, and certainly not within the context of a trading floor or even the boardrooms of various financial institutions.
And yet this weekend in both the International Herald Tribune and the London Sunday Times the term was used by two very different writers to describe totally different situations all in the same vein as regards the importance of understanding the narrative.
My interest is that I generally think of the narrative in terms of literature, and more specifically fiction, so although I now understand the use of the concept, it did seem somewhat removed from what is actually happening-in the first instance.
But the more I reflect upon it, the more useful it becomes.
I have just finished reading "The Best and the Brightest", and although the term was not used explicitly, I find myself using it to understand what the underlying (hi)story of the relevant participants and its significance, whether it was on an individual basis, within a political party or government office, or on a national level.
The next book on the agenda is "The Selling of the President". After the dog's breakfast of the Johnsonioan entry in the the Vietnam conflict with all its myriad narratives I look forward with some trepidation to see how Madison Avenue, whose sole purpose is to create narratives, propelled Richard M Nixon into the White House.
Friday 17 December 2010
Is It Politics Or Is Dr Steinmeir Correct?
Yesterday the leader of the Opposition in the German Parliment stood up and made a speech outlining the denouement of the Euro.
In his address he predicted that the European Central Bank (ECB) is on its way to becoming the "bad bank" for the Eurozone, taking more and more high-risk and overvalued assets stemming from the "eventual core countries" onto its books in order to salvage the Euro while debt restructuring would take place in the periphery zone countries.
Now I am a confirmed supporter of the Euro and the European Union. I believe the launch of the Euro was perhaps done a bit too early. I would have preferred to have seen the introduction of a unified tax, labor law and budget policy for the entire EU before the roll-out of the Euro, but the politics didn't allow for that.
It is ironic that if it were not for the financial crisis we wouldn't have the present Euro crisis. These crisis' however are forcing the issue on the Euro.
Dr Steinmeir is an opposition politician, specifically Chairman of the Social Democratic Party of Germany (SPD) and as such his rhetoric has recently been more populist than usual as he senses the opportunity to regain power in the next election.
This makes it difficult to differentiate between his political posturing, and perhaps a proper analysis of where we are.
But in this case I think he has touched on the keystone to the whole process. There will be a certain amount of debt restructuring. This was echoed at the EU Leaders' Summit in which they announced “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
Although this is being discussed as a compromise and being downplayed, the fact is that bondholders will take some pain in this. The question will be high up the capital structure the pain goes. There is little doubt that the holder of perpetual subordinated debt will get hurt. It remains to be seen if all subordinated debt and even if senior debt holders will be impacted.
The question of moral hazard would appear to be back in the limelight-which would be the beginning of a more rational allocation of loss which to date has been to the taxpayers.
In his address he predicted that the European Central Bank (ECB) is on its way to becoming the "bad bank" for the Eurozone, taking more and more high-risk and overvalued assets stemming from the "eventual core countries" onto its books in order to salvage the Euro while debt restructuring would take place in the periphery zone countries.
Now I am a confirmed supporter of the Euro and the European Union. I believe the launch of the Euro was perhaps done a bit too early. I would have preferred to have seen the introduction of a unified tax, labor law and budget policy for the entire EU before the roll-out of the Euro, but the politics didn't allow for that.
It is ironic that if it were not for the financial crisis we wouldn't have the present Euro crisis. These crisis' however are forcing the issue on the Euro.
Dr Steinmeir is an opposition politician, specifically Chairman of the Social Democratic Party of Germany (SPD) and as such his rhetoric has recently been more populist than usual as he senses the opportunity to regain power in the next election.
This makes it difficult to differentiate between his political posturing, and perhaps a proper analysis of where we are.
But in this case I think he has touched on the keystone to the whole process. There will be a certain amount of debt restructuring. This was echoed at the EU Leaders' Summit in which they announced “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
Although this is being discussed as a compromise and being downplayed, the fact is that bondholders will take some pain in this. The question will be high up the capital structure the pain goes. There is little doubt that the holder of perpetual subordinated debt will get hurt. It remains to be seen if all subordinated debt and even if senior debt holders will be impacted.
The question of moral hazard would appear to be back in the limelight-which would be the beginning of a more rational allocation of loss which to date has been to the taxpayers.
Wednesday 15 December 2010
Brief Note to "A Communist"
It was brought to my attention that the 8 demands in the "Communist" post were very poorly written and, given that I had not put them in quotation marks there was a question if I were perhaps forgetting proper grammar.
Rest assured, they were copied directly from the advisory letter I had read, and so the grammar within the 8 demands was not mine. I was remiss and should have put them in quotation marks.
Mea Culpa
Rest assured, they were copied directly from the advisory letter I had read, and so the grammar within the 8 demands was not mine. I was remiss and should have put them in quotation marks.
Mea Culpa
German Financial Hegemony in Europe
This weekend the European Union (EU)Leader's Summit will take place. News is emerging that Germany will push for a change to the Lisbon Treaty and create a permanent rescue fund for the euro zone rather than the European Financial Stability Facility (EFSF) which expires in 2013.
German success is not guaranteed-all 27 EU members have to approve it. It will the first step in the German plan to redesign the EU in a more rational fashion. Their goal is the creation of a structure which will allow member states whose currency is the euro may establish amongst themselves a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under said the mechanism will be made subject to strict conditions.
To succeed will require some compromise on the part of the Germans-they have already withdrawn their requirement that any states which fail to follow EU fiscal rules will be "automatically" subject to penalty fines and there will be others.
The real goal is evolve to a fiscal union which would also include synchronization of tax, labor law and budget policies-under German control.
It would appear that Germany's willingness to push the idea of a fiscal union despite the fact it would undoubtedly involve some level of fiscal transfers from Germany to the poorer states is predicated on the immediate creation of the permanent fund, which, like the EFSF would be an institution independent of the EU bureaucracy and actually therefore under German control.
I am not troubled by this. I have lived in Germany, and the UK. I have travelled extensively in Western Europe and more recently to former East Germany and Poland. "Germany works" is the best description I can think of.
Many people will see the spectre of Germany's past in this "power grab". I do not. Europe has evolved and will continue to so. It is a functioning democracy, which cannot necessarily be said for all of the EU's members, and certainly not Russia and many of the members of the CIS.
And, in comparison to the opinion of my courtly Baptist lawyer friend the honorable Spencer Bachus, you won't find any German politicians suggesting that the role of the Federal Government is to "serve the banks".
Strangely the German idea of a Social/Market Economy means they still think they are there to serve the people!
German success is not guaranteed-all 27 EU members have to approve it. It will the first step in the German plan to redesign the EU in a more rational fashion. Their goal is the creation of a structure which will allow member states whose currency is the euro may establish amongst themselves a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under said the mechanism will be made subject to strict conditions.
To succeed will require some compromise on the part of the Germans-they have already withdrawn their requirement that any states which fail to follow EU fiscal rules will be "automatically" subject to penalty fines and there will be others.
The real goal is evolve to a fiscal union which would also include synchronization of tax, labor law and budget policies-under German control.
It would appear that Germany's willingness to push the idea of a fiscal union despite the fact it would undoubtedly involve some level of fiscal transfers from Germany to the poorer states is predicated on the immediate creation of the permanent fund, which, like the EFSF would be an institution independent of the EU bureaucracy and actually therefore under German control.
I am not troubled by this. I have lived in Germany, and the UK. I have travelled extensively in Western Europe and more recently to former East Germany and Poland. "Germany works" is the best description I can think of.
Many people will see the spectre of Germany's past in this "power grab". I do not. Europe has evolved and will continue to so. It is a functioning democracy, which cannot necessarily be said for all of the EU's members, and certainly not Russia and many of the members of the CIS.
And, in comparison to the opinion of my courtly Baptist lawyer friend the honorable Spencer Bachus, you won't find any German politicians suggesting that the role of the Federal Government is to "serve the banks".
Strangely the German idea of a Social/Market Economy means they still think they are there to serve the people!
Tuesday 14 December 2010
A Communist Under Every Stone-or Maybe That's Really a Fascist
I just received a copy of an investment advisory letter from a "libertarian" company. Forgetting the fact that it is alarmist/sensationalist bordering on the rabid it is also insidious.
In its zeal to rid us of (any?)government interference it ran through 8 demands from Marx's Communist Manifesto and 'translated' them into modern vernacular. They are:
1. Abolished property rights and applied all rents towards public purposes. [Modern corollary: Don't pay your property taxes, lose your house. So who really owns your house?]
2. Levied a heavy, progressive income tax to equalize wages. [Modern corollary: Combined federal and state marginal income and payroll taxes approach (or surpass) 50% in many U.S. states.]
3. Abolished all rights of inheritance. [Modern corollary: The estate tax.]
4. Confiscation of the property of all emigrants. [Modern corollary: The 2008 "Hero's Act" which forces people leaving the U.S. to pay the equivalent of their estate taxes on the global assets before they turn in their passports.]
5. Centralize access to credit in the hands of the State by means of a national bank and an exclusive monopoly. [Modern corollary: Fannie Mae and Freddie Mac, which make more than 90% of all of the mortgages in the U.S. and have dominated the market for mortgages for decades.]
6. Centralization of the means of communication and transport in the hands of the State. [Modern corollary: AT&T was a legal monopoly for decades. Amtrak is a ward of the states. The government owns all the roads. And the State controls all air traffic.]
7. Free education for all children in public schools. [Note the emphasis on public schools. Paying for education isn't enough. What counts is indoctrinating the kids in glorifying the State.]
8. A common agricultural policy to maximize the productivity of the land. [Modern corollary: Massive ethanol and agricultural subsidies.]
What was great, as well as totally scary was how he concluded that democracy was actually communism and this was the root evil inherent in our governments.
What I don't know is what the author of the report really thinks for the gist was actually that you should buy gold and silver and, because in their view shorting a stock is "no big deal at all – no different than buying a stock", you should short the largest home builder in America!
Now I know if you are trying to stampede people into investment decisions you have to first scare the bejesus out of them so it might be that the anti-democracy diatribe was merely posturing-they didn't offer an alternative-and maybe their readers don't reflect on the underlying message.
Except that is perhaps exactly what is wrong with America. It's always blame something/someone else. And in the pursuit of Mammon it is perfectly acceptable to saw on the limb you are sitting on. How else do you explain getting rid of democracy as a means of making money?
So in the end capitalism is a political movement...
In its zeal to rid us of (any?)government interference it ran through 8 demands from Marx's Communist Manifesto and 'translated' them into modern vernacular. They are:
1. Abolished property rights and applied all rents towards public purposes. [Modern corollary: Don't pay your property taxes, lose your house. So who really owns your house?]
2. Levied a heavy, progressive income tax to equalize wages. [Modern corollary: Combined federal and state marginal income and payroll taxes approach (or surpass) 50% in many U.S. states.]
3. Abolished all rights of inheritance. [Modern corollary: The estate tax.]
4. Confiscation of the property of all emigrants. [Modern corollary: The 2008 "Hero's Act" which forces people leaving the U.S. to pay the equivalent of their estate taxes on the global assets before they turn in their passports.]
5. Centralize access to credit in the hands of the State by means of a national bank and an exclusive monopoly. [Modern corollary: Fannie Mae and Freddie Mac, which make more than 90% of all of the mortgages in the U.S. and have dominated the market for mortgages for decades.]
6. Centralization of the means of communication and transport in the hands of the State. [Modern corollary: AT&T was a legal monopoly for decades. Amtrak is a ward of the states. The government owns all the roads. And the State controls all air traffic.]
7. Free education for all children in public schools. [Note the emphasis on public schools. Paying for education isn't enough. What counts is indoctrinating the kids in glorifying the State.]
8. A common agricultural policy to maximize the productivity of the land. [Modern corollary: Massive ethanol and agricultural subsidies.]
What was great, as well as totally scary was how he concluded that democracy was actually communism and this was the root evil inherent in our governments.
What I don't know is what the author of the report really thinks for the gist was actually that you should buy gold and silver and, because in their view shorting a stock is "no big deal at all – no different than buying a stock", you should short the largest home builder in America!
Now I know if you are trying to stampede people into investment decisions you have to first scare the bejesus out of them so it might be that the anti-democracy diatribe was merely posturing-they didn't offer an alternative-and maybe their readers don't reflect on the underlying message.
Except that is perhaps exactly what is wrong with America. It's always blame something/someone else. And in the pursuit of Mammon it is perfectly acceptable to saw on the limb you are sitting on. How else do you explain getting rid of democracy as a means of making money?
So in the end capitalism is a political movement...
Friday 10 December 2010
The Alchemy of Alpha
And let's not forget what kind of financial mumbo jumbo got us in to this financial mess in the first place. A while back there was an article on Bloomberg that "Magnetar Capital LLC, the $7 billion hedge-fund firm that profited in 2007 from wagers that subprime-housing debt would tumble, told investors it didn’t help banks create mortgage-linked investments "built to fail". The firm offered limited input on the selection of securities in the deals and made bets that would pay off if they soured, as part of a “market neutral" portfolio designed to profit no matter what happened according to a letter to clients from Evanston, Illinois-based Magnetar."
So the wizards at Magnetar have a market neutral portfolio that makes money regardless of what happens? I guess they can also turn lead into gold.
So the wizards at Magnetar have a market neutral portfolio that makes money regardless of what happens? I guess they can also turn lead into gold.
Thursday 9 December 2010
The Poverty of GOP Politics and that Wily Obama
The news that the White House caved in to the Republicans and was already explaining that this was a "good deal" was initially disconcerting. In the name of stimulating the economy the Republicans gave themselves a healthy paycheck in terms of current income and estate tax. Smelled distinctly like "what's good for me is good for the economy"!
It is being sold that the GOP held Obama "hostage" trading extending unemployment benefits for another 13 months and the cuts he wanted for middle-class families in exchange for maintaining the Bush-Tax Cuts to the wealthy and restoring low tax rates on large inheritances for the next two years.
Strangely that bastion of liberal thought the Wall Street Journal (WSJ) came out with an article highlighting the stimulus effect of this agreement. Essentially they suggest that the package could effectively add some $900 billion to the economy.
National Economic Council Director Lawrence Summers was quoted saying "This gave us a chance to do what most people thought wasn't going to be possible in this environment, which is to provide a real forward lift to the economy relatively quickly".
So after reflection I think it is a clever bit of politics by the Obama White House. If the economy picks up, as everyone is suggesting it will, this could carry Obama into a second term.
Some conservative Republicans apparently agree. Sens. Jim DeMint (R., S.C.) and Tom Coburn (R., Okla.) were dismayed that the tax package wouldn't require spending cuts to cover the cost of extending unemployment benefits. Of course it would never occur to the esteemed senators that not extending the tax cuts would have done the same thing- but their real fear is that despite not getting spending cuts there will be a beneficial effect to the economy, and that is not really in their interest.
But then again they aren't really interested in a rational discussion. It would seem that the Budget Deficit is only a problem to such ideologues if they have to pay for it.
It is being sold that the GOP held Obama "hostage" trading extending unemployment benefits for another 13 months and the cuts he wanted for middle-class families in exchange for maintaining the Bush-Tax Cuts to the wealthy and restoring low tax rates on large inheritances for the next two years.
Strangely that bastion of liberal thought the Wall Street Journal (WSJ) came out with an article highlighting the stimulus effect of this agreement. Essentially they suggest that the package could effectively add some $900 billion to the economy.
National Economic Council Director Lawrence Summers was quoted saying "This gave us a chance to do what most people thought wasn't going to be possible in this environment, which is to provide a real forward lift to the economy relatively quickly".
So after reflection I think it is a clever bit of politics by the Obama White House. If the economy picks up, as everyone is suggesting it will, this could carry Obama into a second term.
Some conservative Republicans apparently agree. Sens. Jim DeMint (R., S.C.) and Tom Coburn (R., Okla.) were dismayed that the tax package wouldn't require spending cuts to cover the cost of extending unemployment benefits. Of course it would never occur to the esteemed senators that not extending the tax cuts would have done the same thing- but their real fear is that despite not getting spending cuts there will be a beneficial effect to the economy, and that is not really in their interest.
But then again they aren't really interested in a rational discussion. It would seem that the Budget Deficit is only a problem to such ideologues if they have to pay for it.
An Aside on the Courtly Mr Bachus
A couple of days ago I highlighted the depths to which American politics have fallen with the prospect of Mr Bachus ascending the Chair of the House Financial Services Committee.
So it has come to past. And just what are his financial credentials you might be inclined to ponder? Bachus is one of the top fundraisers for the National Republican Congressional Committee, which is dedicated to electing Republicans to Congress. It would appear then that his financial acumen is in knowing rich people.
The other bullet in his pistol is that he bolstered support by vowing to enable his subcommittee chairmen to advance their agendas under his chairmanship, eliciting their backing and heading off other potential challengers for the committee gavel.
The result of this is that we now have a Chairman of the House Financial Services Committee who was elected because he is a good fundraiser and had told all his challengers that although he wants to be the Chairman, they get to grind their respective axes.
And just we do expect from this august body?
They want to stem the funding for the Consumer Financial Protection Bureau and overhaul its structure-i.e. cripple it.
They want to "immediately take a look page by page at the job-killing provisions in the Dodd-Frank Act because vigorous oversight is going to be essential to make sure they don't use regulation to advance their agenda, so we are going to have a sustained effort to using oversight to keep them in check." (The syntax is Mr Bachus'.) Sounds like we have a war between regulation and oversight although in GOP speak regulation is socialism, and oversight means keeping the socialists out!
Lastly they are going to privatise Fannie and Freddie. Funny the timing on this. I am sure the bad debts of the GSE's will remain in the public sphere, and a new and improved version of Fannie and Freddie will show up in private hands.
If this were a bad novel I might even find it humorous.
So it has come to past. And just what are his financial credentials you might be inclined to ponder? Bachus is one of the top fundraisers for the National Republican Congressional Committee, which is dedicated to electing Republicans to Congress. It would appear then that his financial acumen is in knowing rich people.
The other bullet in his pistol is that he bolstered support by vowing to enable his subcommittee chairmen to advance their agendas under his chairmanship, eliciting their backing and heading off other potential challengers for the committee gavel.
The result of this is that we now have a Chairman of the House Financial Services Committee who was elected because he is a good fundraiser and had told all his challengers that although he wants to be the Chairman, they get to grind their respective axes.
And just we do expect from this august body?
They want to stem the funding for the Consumer Financial Protection Bureau and overhaul its structure-i.e. cripple it.
They want to "immediately take a look page by page at the job-killing provisions in the Dodd-Frank Act because vigorous oversight is going to be essential to make sure they don't use regulation to advance their agenda, so we are going to have a sustained effort to using oversight to keep them in check." (The syntax is Mr Bachus'.) Sounds like we have a war between regulation and oversight although in GOP speak regulation is socialism, and oversight means keeping the socialists out!
Lastly they are going to privatise Fannie and Freddie. Funny the timing on this. I am sure the bad debts of the GSE's will remain in the public sphere, and a new and improved version of Fannie and Freddie will show up in private hands.
If this were a bad novel I might even find it humorous.
Tuesday 7 December 2010
When Poachers Become Gameskeepers. Part II
In Part II we move across Atlantic to the UK. As a main tenet of their respective party platforms the Conservatives under David Cameron played on their "hard on crime" credentials, and the Liberal Democrats on the importance of education for the nation and therefore were strongly against raising tuition at public universities.
Recently Ken Clarke, the Conservative Minister for Justice, was shown touring a prison as part of his penal reform policy. He essentially said that fewer criminals will go to prison because imprisonment has done nothing to stop re-offending rates and so is more likely to be a school for crime as opposed to a house of behavioural reform.
Ironically there is truth in what he said. "Warehousing" criminals at great expense and essentially doing nothing to rehabilitate them is in the vernacular of the Conservatives "not good value for money".
In opposition, the Conservatives drew up plans to build 5,000 new prison places and promised to meet a Labour pledge of 96,000 prison places by 2014. Now the Ministry of Justice is facing budget cuts of up to 33% over the next four years. Maybe the budget deficit is driving this new found enlightenment.
I actually think Mr Clarke is correct and I would much prefer to see community sentences. Conservative MPs and law-and-order campaigners will dismiss community sentences and other non-custodial sentences as a soft and ineffective response to crime. Maybe they want to reintroduce Chain Gangs? In any event they should focus on the second part of their crime manifesto, "hard on the sources of crime"!
My last crossover is the Liberal Democrats. In their election manifesto they were going to scrap university tuition fees during first degrees. A good portion of Liberal Democrat support comes from students. Nick Clegg caught their attention in the pre-election debates allowing him to position himself as a new voice with modern policies.
Now they are part of a government introducing a bill to significantly increase tuition fees. Vince Cable, the deputy leader of the Liberal Democrats and Minister for Business has gotten his knickers into a real twist. He first said he would vote for the bill, and then half-reversed himself into nomansland and suggested that like many Lib Dem MP's he too would abstain from voting.
The question of tuition for public universities is an important one and I am not suggesting it is a simple decision. There are many nuances to be considered as to how this fits into the overall social policy of a political party, but surely the education (policy) of a nation should not be used merely as a political slogan to gain election.
We shall see how they vote on this lynchpin of their election platform this coming Thursday.
Recently Ken Clarke, the Conservative Minister for Justice, was shown touring a prison as part of his penal reform policy. He essentially said that fewer criminals will go to prison because imprisonment has done nothing to stop re-offending rates and so is more likely to be a school for crime as opposed to a house of behavioural reform.
Ironically there is truth in what he said. "Warehousing" criminals at great expense and essentially doing nothing to rehabilitate them is in the vernacular of the Conservatives "not good value for money".
In opposition, the Conservatives drew up plans to build 5,000 new prison places and promised to meet a Labour pledge of 96,000 prison places by 2014. Now the Ministry of Justice is facing budget cuts of up to 33% over the next four years. Maybe the budget deficit is driving this new found enlightenment.
I actually think Mr Clarke is correct and I would much prefer to see community sentences. Conservative MPs and law-and-order campaigners will dismiss community sentences and other non-custodial sentences as a soft and ineffective response to crime. Maybe they want to reintroduce Chain Gangs? In any event they should focus on the second part of their crime manifesto, "hard on the sources of crime"!
My last crossover is the Liberal Democrats. In their election manifesto they were going to scrap university tuition fees during first degrees. A good portion of Liberal Democrat support comes from students. Nick Clegg caught their attention in the pre-election debates allowing him to position himself as a new voice with modern policies.
Now they are part of a government introducing a bill to significantly increase tuition fees. Vince Cable, the deputy leader of the Liberal Democrats and Minister for Business has gotten his knickers into a real twist. He first said he would vote for the bill, and then half-reversed himself into nomansland and suggested that like many Lib Dem MP's he too would abstain from voting.
The question of tuition for public universities is an important one and I am not suggesting it is a simple decision. There are many nuances to be considered as to how this fits into the overall social policy of a political party, but surely the education (policy) of a nation should not be used merely as a political slogan to gain election.
We shall see how they vote on this lynchpin of their election platform this coming Thursday.
When Poachers Become Gameskeepers. Part I
It is a very interesting phenomenon to watch how the former opposition parties act when they suddenly find that their electoral rhetoric has got them into power.
The first tidbit is the recent move by three prominent House Republicans to introduce a bill which would deny states and localities the ability to sell tax-exempt bonds unless they report their pension-fund liabilities to the Treasury Department.
Now I would be the first to say that the pension-fund liabilities of the states and localities are quite large and represent an over sized burden on their finances. This would be true even if they were allowed to continue accounting for their liabilities under current laws, and would become overwhelming if the laws were changed to reflect accounting in the private sector.
And these current laws? They allow plans to assume they can earn high investment returns without any risk. According to official reports in 2008 the states as a whole had an estimated $452 billion gap in their funding. If they had to report under private sector pension law which values liabilities according to likelihood of payment rather than expected return on pension assets this gap would increase to $3 trillion.
The federal government regulates corporate pension funds and we have a federal agency, the Pension Benefit Guaranty Corp, which is supposed to bail them out. Sounds like over-regulation and government interference to my "Tea-Party/Republican" ears.
In this bill Devin Nunes (R) of California, and the bill's co-sponsors, Paul Ryan(R) of Wisconsin, expected to chair the House Budget Committee, and Darrell Issa (R), likely chair of the Committee on Oversight and Government Reform want to have Federal Government interfere in states' finances!
In a time when the Republican/TeaPartiers are clamouring for less interference from Washington and demanding independence and the "right to fail" these three scions of the Republican structure appear to have no difficulty trampling over states' rights which I am sure was part of their election platform!
For the record, I am not a strong supporter of states' rights. We fought a Civil War over them and although many Americans like to think they are sacrosanct to their ideal of local control I believe it creates a patchwork of laws and regulations which promotes competition within the US rather than providing for a unified front in the national interest. I also believe that the current accounting standards are ridiculous for the public pension funds, and questionable for the private funds.
But that is an aside.
The first tidbit is the recent move by three prominent House Republicans to introduce a bill which would deny states and localities the ability to sell tax-exempt bonds unless they report their pension-fund liabilities to the Treasury Department.
Now I would be the first to say that the pension-fund liabilities of the states and localities are quite large and represent an over sized burden on their finances. This would be true even if they were allowed to continue accounting for their liabilities under current laws, and would become overwhelming if the laws were changed to reflect accounting in the private sector.
And these current laws? They allow plans to assume they can earn high investment returns without any risk. According to official reports in 2008 the states as a whole had an estimated $452 billion gap in their funding. If they had to report under private sector pension law which values liabilities according to likelihood of payment rather than expected return on pension assets this gap would increase to $3 trillion.
The federal government regulates corporate pension funds and we have a federal agency, the Pension Benefit Guaranty Corp, which is supposed to bail them out. Sounds like over-regulation and government interference to my "Tea-Party/Republican" ears.
In this bill Devin Nunes (R) of California, and the bill's co-sponsors, Paul Ryan(R) of Wisconsin, expected to chair the House Budget Committee, and Darrell Issa (R), likely chair of the Committee on Oversight and Government Reform want to have Federal Government interfere in states' finances!
In a time when the Republican/TeaPartiers are clamouring for less interference from Washington and demanding independence and the "right to fail" these three scions of the Republican structure appear to have no difficulty trampling over states' rights which I am sure was part of their election platform!
For the record, I am not a strong supporter of states' rights. We fought a Civil War over them and although many Americans like to think they are sacrosanct to their ideal of local control I believe it creates a patchwork of laws and regulations which promotes competition within the US rather than providing for a unified front in the national interest. I also believe that the current accounting standards are ridiculous for the public pension funds, and questionable for the private funds.
But that is an aside.
Monday 6 December 2010
The Big Easy
The Fed has been attacked from almost every quarter following their announcement of QEII. The biggest complaint appears to be how much inflation they are building into the system. This might be true, at some point down the road. But the question today is much more one of trying to keep the ship afloat.
Let me give an example. Over the past few weeks the Swedish Central Bank (Riksbank) has withdrawn about SEK300 billion (~US$45 billion)of "crisis" loans from the market. Short term interest rates and mortgages shot up instantly in response. Sweden is actually one of the more healthy nations in Europe. If the ECB were to close the "back door" to countries such as Ireland, Portugal, Spain and Greece-imagine the chaos.
Greece, Portugal and Ireland (their combined GDP account for just over half that of Spain’s) took 61% of all loans provided by the ECB last month, up from 51% the previous month!
OK. I know QE and the Central Bank Repo Facility aren't exactly the same thing, but they are certainly close enough to be mentioned in the same breath. The Fed is trying to maintain liquidity and manage interest rates to keep them low.
Yes the market has backed up in protest of the announcement of QEII. Small wonder. Every acolyte to Milton Friedman or the Austrian School was screaming that the Fed's intervention was ideologically wrong. They are all focused on a narrowly defined monetary base and believe markets should determine equilibrium interest rates. Just who is this market? Whose interest are they protecting? Have you ever met an investor who put (any) national interest ahead of their desire for profit?
They rant and rave about the price instability inherent in the Fed's policy crossing inflationary bridges of the future while forgetting the problems of today. Yes, they are all worried that when inflation starts the Fed will be unable to contain it. Yes they point out that the Fed is too worried on deflation as they accused it in 2003, and yes they are quick to point out that as late as 2006 the Fed was still relatively unconcerned that a housing bubble was forming. And lastly, for good measure, they also like to slap the Fed for overreacting to the fears of oil-based inflation in mid-2008.
Well you can't have it both ways unless of course the underlying message is that these Monetarists are just ranting against the Fed because Prof. Bernanke isn't one of 'theirs'. Bernanke is actually concerned about the economy today; about unemployment; and about the state of the housing market. He keeps mentioning that he is doing what he can to try and keep the ship afloat, while asking for help from the fiscal side.
As if the ridiculous state of affairs currenly obtaining in Washington is demonstrating any sense of urgency or even understanding. The recent mid-term elections set the stage for a Congress that will do little to address the growing deficit, crumbling infrastructure, widening rich-poor divide or the need to come to grips with 21st century industries before we become a third world nation.
Yes, QEII is part of the Big Easy. As is QE in the UK, and the ECB's "Back Door". And if we didn't have all the Fed Bailouts, the UK Bailouts, and the EU bailouts, despite all the ideological noise, we would have had the Great Depression.
Bernanke might be the lesser of two evils-he isn't a saint-but he is at least keeping the engine going while the erstwhile captains screw around.
Let me give an example. Over the past few weeks the Swedish Central Bank (Riksbank) has withdrawn about SEK300 billion (~US$45 billion)of "crisis" loans from the market. Short term interest rates and mortgages shot up instantly in response. Sweden is actually one of the more healthy nations in Europe. If the ECB were to close the "back door" to countries such as Ireland, Portugal, Spain and Greece-imagine the chaos.
Greece, Portugal and Ireland (their combined GDP account for just over half that of Spain’s) took 61% of all loans provided by the ECB last month, up from 51% the previous month!
OK. I know QE and the Central Bank Repo Facility aren't exactly the same thing, but they are certainly close enough to be mentioned in the same breath. The Fed is trying to maintain liquidity and manage interest rates to keep them low.
Yes the market has backed up in protest of the announcement of QEII. Small wonder. Every acolyte to Milton Friedman or the Austrian School was screaming that the Fed's intervention was ideologically wrong. They are all focused on a narrowly defined monetary base and believe markets should determine equilibrium interest rates. Just who is this market? Whose interest are they protecting? Have you ever met an investor who put (any) national interest ahead of their desire for profit?
They rant and rave about the price instability inherent in the Fed's policy crossing inflationary bridges of the future while forgetting the problems of today. Yes, they are all worried that when inflation starts the Fed will be unable to contain it. Yes they point out that the Fed is too worried on deflation as they accused it in 2003, and yes they are quick to point out that as late as 2006 the Fed was still relatively unconcerned that a housing bubble was forming. And lastly, for good measure, they also like to slap the Fed for overreacting to the fears of oil-based inflation in mid-2008.
Well you can't have it both ways unless of course the underlying message is that these Monetarists are just ranting against the Fed because Prof. Bernanke isn't one of 'theirs'. Bernanke is actually concerned about the economy today; about unemployment; and about the state of the housing market. He keeps mentioning that he is doing what he can to try and keep the ship afloat, while asking for help from the fiscal side.
As if the ridiculous state of affairs currenly obtaining in Washington is demonstrating any sense of urgency or even understanding. The recent mid-term elections set the stage for a Congress that will do little to address the growing deficit, crumbling infrastructure, widening rich-poor divide or the need to come to grips with 21st century industries before we become a third world nation.
Yes, QEII is part of the Big Easy. As is QE in the UK, and the ECB's "Back Door". And if we didn't have all the Fed Bailouts, the UK Bailouts, and the EU bailouts, despite all the ideological noise, we would have had the Great Depression.
Bernanke might be the lesser of two evils-he isn't a saint-but he is at least keeping the engine going while the erstwhile captains screw around.
Friday 3 December 2010
Thank You Tom Friedman- Really
For anyone who hasn't seen Mr Friedman's Op-Ed in Tuesday's NY Times* please take the time to download and read it. I often disagree with Mr Friedman as I have discussed before, but in this case he has written a clever article which succinctly highlights what's wrong with America.
Really.
* http://www.nytimes.com/2010/12/01/opinion/01friedman.html?emc=eta1
Really.
* http://www.nytimes.com/2010/12/01/opinion/01friedman.html?emc=eta1
Thursday 2 December 2010
If It Were Only So Easy Mr Gross
I just read Bill Gross's Investment Outlook, December 2010. He painted a very clear picture of what we should do to "level the playing field", and unfortunately, what we are doing.
It was an interesting piece in which he explained that the problem is that the global economy is suffering from a lack of aggregate demand. Basically the developed countries can't produce products cheaply enough for them to be made domestically. As those jobs are exported there is an increase in domestic unemployment in manufacturing, which when combined with an "unproductive" service industry essentially results in a severe reduction of global demand on the part of the developed world.
This is exacerbated by the industrial policies of the developing world which tend to focus on export to debt-laden developed nations rather than promoting domestic consumption.
So no demand from the developed world makes the global economy creak.
There is nothing new there. Mr Gross's solution is for the developed world-or more specifically the US-to start making things instead of paper (service industries and debt). Ok. But this will require a massive decrease in wages if US production is to compete with the developing world. Mr Gross suggests that Chinese labor works for 10%less then its American counterparts.
I don't know where he gets his figures. 10% doesn't sound insurmountable. But even if it is the correct number then to function properly it would have to be borne by the workforce and management, which might impact profits and even result in a decline in GDP, but an increase in employment.
It would mean deflation. It would mean a decrease in tax revenues if taxes hold steady, and would probably require a decrease in social spending if we were to start to address our national debt burden. It would mean substantive reforms would have to be initiated, for the benefit of the nation, at the cost of sacrifice and hard work.
It would mean a major change in the way Americans live, and I would welcome it. So did Bill Gross, with one major difference. He seemed to think the problem with America is healthcare. Funny how his true colors come out while he is enjoining us all to work harder for less money...
It was an interesting piece in which he explained that the problem is that the global economy is suffering from a lack of aggregate demand. Basically the developed countries can't produce products cheaply enough for them to be made domestically. As those jobs are exported there is an increase in domestic unemployment in manufacturing, which when combined with an "unproductive" service industry essentially results in a severe reduction of global demand on the part of the developed world.
This is exacerbated by the industrial policies of the developing world which tend to focus on export to debt-laden developed nations rather than promoting domestic consumption.
So no demand from the developed world makes the global economy creak.
There is nothing new there. Mr Gross's solution is for the developed world-or more specifically the US-to start making things instead of paper (service industries and debt). Ok. But this will require a massive decrease in wages if US production is to compete with the developing world. Mr Gross suggests that Chinese labor works for 10%less then its American counterparts.
I don't know where he gets his figures. 10% doesn't sound insurmountable. But even if it is the correct number then to function properly it would have to be borne by the workforce and management, which might impact profits and even result in a decline in GDP, but an increase in employment.
It would mean deflation. It would mean a decrease in tax revenues if taxes hold steady, and would probably require a decrease in social spending if we were to start to address our national debt burden. It would mean substantive reforms would have to be initiated, for the benefit of the nation, at the cost of sacrifice and hard work.
It would mean a major change in the way Americans live, and I would welcome it. So did Bill Gross, with one major difference. He seemed to think the problem with America is healthcare. Funny how his true colors come out while he is enjoining us all to work harder for less money...
Wednesday 1 December 2010
Heaven Help "US" from Bachus and Co.
I have been pretty focused on the gyrations of the European Sovereign Markets and the forecasters of doom by the assembled masses of anti-Europeans and anti-Euro pundits that I took my eye off the ball for moment in the US.
So to catch up I read some articles and interviews with Mr Spencer Bachus and his equally eloquent sidekick Mr Randy Neugebauer.
Wow!
In an article in American Banker Mr Neugebauer, the House Financial Service's Committee Vice-Chairman stated he wants to focus on regulatory oversight. He was quoted as saying " We just passed this huge new piece of legislation, and now all these agencies and regulators that are impacted are going to be writing rules to implement that, and I'm very concerned."
That's good to know. Mr Neugebauer was first a banker, and then became a real estate developer. His claim to fame is that he understands how a mortgage loan works from the lender's side, and the borrower's. This makes him particularly sympathetic to arguments that Dodd-Frank is overly burdensome.
It is interesting that Mr Neugebauer talks continually about the consumer, and yet in all his discussions the consumer is the developer and/or small businessman, not the end-buyer. His professional constituency are the small bankers and businessmen whose major complaint is the way the consumer bureau is handled, funded and managed as it will "probably raise the cost of capital for the borrowers (i.e. the developers) and reduce the profitability of the financial institutions (i.e. the small bankers).
Neugebauer would like to revisit the creation of the Consumer Financial Protection Agency by "eliminating it,restricting its funding or separating it from the Federal Reserve Board".
That's some visit.
His other pet peeve is Fannie and Freddie. He wants to terminate them and foster the development of a fully private mortgage market. This despite being named along with Mr Bachus as the "guardians" of Fannie and Freddie by none other then the Wall Street Journal!
The editorial focused on the fact that in 2007 Neugebauer coauthored an amendment that limited the GSE regulator restricting Fannie and Freddie's control over their own portfolios specifically with regards to purchasing and managing risky mortgages.
So it would appear that he wants to get rid of them, after stuffing them with toxic waste.
His ability to contradict himself would be funny, if he weren't an important member of the Financial Services Committee. First he argued that he has always preferred a focus on capital rather than overly prescriptive regulations for regulators. Then he says "not that they didn't need strong regulations — I felt like they needed a stronger regulator."
Well which is it Mr Neugebauer?
And then we have Mr Bachus. The "courtly Baptist lawyer" contended that the final bill “won’t address a lot of the root causes” of the financial meltdown, including the structures of Fannie Mae and Freddie Mac. So now it's not the bankers, the shoddy mortgage originators or the creation of NINJA and self-certified mortgages that caused the financial crisis, but rather Fannie and Freddie!
Bachus goes on to say that the bill delves deeply into “day-to-day operational matters,” which he called part of the past two years’ “command-and-control environment up here, where the government begins to intrude in things that are traditionally left up to the corporation.”
Well Mr Bachus, whereas I appreciate your concern that the government might not have all the answers-we did have eight years of GW-it is eminently clear to me that the decisions that were traditionally left up to the corporations have been totally discredited.
Heaven help us once Bachus and Neugebauer get started.
So to catch up I read some articles and interviews with Mr Spencer Bachus and his equally eloquent sidekick Mr Randy Neugebauer.
Wow!
In an article in American Banker Mr Neugebauer, the House Financial Service's Committee Vice-Chairman stated he wants to focus on regulatory oversight. He was quoted as saying " We just passed this huge new piece of legislation, and now all these agencies and regulators that are impacted are going to be writing rules to implement that, and I'm very concerned."
That's good to know. Mr Neugebauer was first a banker, and then became a real estate developer. His claim to fame is that he understands how a mortgage loan works from the lender's side, and the borrower's. This makes him particularly sympathetic to arguments that Dodd-Frank is overly burdensome.
It is interesting that Mr Neugebauer talks continually about the consumer, and yet in all his discussions the consumer is the developer and/or small businessman, not the end-buyer. His professional constituency are the small bankers and businessmen whose major complaint is the way the consumer bureau is handled, funded and managed as it will "probably raise the cost of capital for the borrowers (i.e. the developers) and reduce the profitability of the financial institutions (i.e. the small bankers).
Neugebauer would like to revisit the creation of the Consumer Financial Protection Agency by "eliminating it,restricting its funding or separating it from the Federal Reserve Board".
That's some visit.
His other pet peeve is Fannie and Freddie. He wants to terminate them and foster the development of a fully private mortgage market. This despite being named along with Mr Bachus as the "guardians" of Fannie and Freddie by none other then the Wall Street Journal!
The editorial focused on the fact that in 2007 Neugebauer coauthored an amendment that limited the GSE regulator restricting Fannie and Freddie's control over their own portfolios specifically with regards to purchasing and managing risky mortgages.
So it would appear that he wants to get rid of them, after stuffing them with toxic waste.
His ability to contradict himself would be funny, if he weren't an important member of the Financial Services Committee. First he argued that he has always preferred a focus on capital rather than overly prescriptive regulations for regulators. Then he says "not that they didn't need strong regulations — I felt like they needed a stronger regulator."
Well which is it Mr Neugebauer?
And then we have Mr Bachus. The "courtly Baptist lawyer" contended that the final bill “won’t address a lot of the root causes” of the financial meltdown, including the structures of Fannie Mae and Freddie Mac. So now it's not the bankers, the shoddy mortgage originators or the creation of NINJA and self-certified mortgages that caused the financial crisis, but rather Fannie and Freddie!
Bachus goes on to say that the bill delves deeply into “day-to-day operational matters,” which he called part of the past two years’ “command-and-control environment up here, where the government begins to intrude in things that are traditionally left up to the corporation.”
Well Mr Bachus, whereas I appreciate your concern that the government might not have all the answers-we did have eight years of GW-it is eminently clear to me that the decisions that were traditionally left up to the corporations have been totally discredited.
Heaven help us once Bachus and Neugebauer get started.
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