January 2012

Banks Sued No Matter What They Do

by Hans Bader on November 30, 2008 · 4 comments

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk

Banks get sued for discrimination no matter what they do.  If they don’t make enough loans in low-income, predominantly minority neighborhoods, they get accused of “redlining,” and are subject to sanctions under politically-correct laws like the Community Reinvestment Act, which contributed to the financial crisis by pressuring lenders to make risky mortgage loans. 

But if they do make such loans, they get accused of “reverse redlining,” and get sued by the liberal special-interest groups and municipalities that encouraged them to make such loans during the mortgage bubble.  Baltimore and various borrowers have also brought “reverse redlining” lawsuits against banks.

The Washington Post reported yesterday that bond-rating agencies like Moody’s and Fitch are now getting sued, too, for “reverse redlining,” under the theory that they encouraged risky loans to low-income minorities (who subsequently regretted taking out those loans) by giving respectable ratings to the mortgage-backed securities produced by packaging those mortgage loans.  The plaintiffs include the National Community Reinvestment Coalition, which has been pressuring lenders to make risky loans to low-income minorities for years.  They blame the ratings-agencies for allowing lenders to make loans to minorities with “insufficient borrower income levels.”

I’ve been a big critic of the ratings agencies in the past, even before the current financial crisis, for their lousy record of rating many kinds of securities, but this suit is meritless, and ignores legal limits such as proximate causation to boot.

We wrote earlier about how federal affordable housing mandates and diversity pressures contributed to the financial crisis.  Those federal mandates, which helped bring about the collapse of the government-backed mortgage giants Fannie Mae and Freddie Mac, remain in force even after the nationalization of Fannie Mae and Freddie Mac, which continue to buy up risky loans at taxpayer expense.

Stimulus Follies

by Hans Bader on November 30, 2008 · 6 comments

in Economy, Legal, Politics as Usual, Precaution & Risk

President-elect Obama wants a massive stimulus package of $700 billion or more.  But previous attempts to artificially stimulate the economy have generally been failures.  The $160 billion in stimulus rebates early in 2008 failed to stimulate the economy, much less prevent the financial crisis that followed, even as they drove up the federal deficit and the national debt, while punishing hard work and providing pork for left-wing special interest groups.

During the Great Depression, Herbert Hoover and Franklin Roosevelt attempted to artificially stimulate the economy by pushing up wages — Hoover through pressure on industry, and Roosevelt through unionization and the cartel-enforcing National Recovery Act, which the Supreme Court later declared unconstitutional in the Schechter Poultry case.

The net result, according to economists, is that the Great Depression, which might otherwise have ended by 1936, instead lingered on until 1943 (a phenomenon for which President Roosevelt escaped responsibility, as he cleverly scapegoated and demonized industrialists and businessmen as “economic royalists” and “malefactors of great wealth,” and attacked critics as being unpatriotic).

By contrast, the sharp recession of 1920-21 swiftly ended and gave way to an economic boom, when the government did nothing to meddle in the economy.

As George Will notes in today’s Washington Post, “stimulus” measures largely failed in the Great Depression, policies that ”included encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers’ spending would be stimulative. Instead, corporate profits — prerequisites for job-creating investments — were excessively drained into labor expenses that left many workers priced out of the market.”

“In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that “much of the depth of the Depression” is explained by Hoover’s policy — a precursor of the New Deal mentality — of pressuring businesses to keep nominal wages fixed.”

Current bailout proposals also seek to artificially prop up wages.  Liberal lawmakers and the President-elect plan to bail out the automakers, at a cost to taxpayers of tens of billions of dollars.  But the automakers wouldn’t be going broke if they didn’t pay their workers so much more than the average American worker — a whopping $70 an hour.  The auto bailout proposals contain largely symbolic limits on CEO pay, but nothing limiting the inflated compensation packages of unionized auto workers — which exceed those of non-union auto workers at Toyota’s American factories by more than $20 per hour.  Even without such a bailout, the automakers would keep operating after filing for bankruptcy under Chapter 11 – using a bankruptcy discharge to get rid of their ruinously expensive labor contracts and liabilities to auto dealers under state laws designed to milk automakers for the benefit of dealers.  A taxpayer bailout only delays the day of reckoning and makes the painful adjustments needed for the auto industry’s survival even more painful when they finally happen.

In 1993, Republican Senators filibustered President Clinton’s “stimulus package,” correctly arguing that it was just pork for special interest groups that was unnecessary for an economic recovery (which then occurred without any “stimulus,” despite cuts in deficit spending).  Today, however, Democrats have such a commanding majority in the Senate that a similar filibuster may not be possible.

Health Care Bureaucrats Take Care of Themselves

by Doug Bandow on November 30, 2008 · 12 comments

in Healthcare, International

For years observers have noted the phenomenon of public school teachers sending their kids to private schools–especially in cities with the worst and deadliest public facilities.  Teachers at government schools might not be able to teach their own kids, but they can send them to safer, better private alternatives.  So it appears to be with health care in Great Britain.

Reports the Daily Telegraph:

The money was used to bring in physiotherapists to help workers recover from muscular-skeletal injuries at West Suffolk Hospital in Bury St Edmunds.

Bosses said it prevented them from leapfrogging NHS patients and enabled them to return to work more quickly.

However, the private treatment, which amounted to £12,116 for 271 appointments over the past year, was described by critics as “shocking”.

Mark Wallace of the TaxPayers’ Alliance said: “Their staff should have to wait like everybody else.

“Perhaps if they experienced it as their customers – that is the taxpayer – experienced it, they might be a little keener to improve their waiting times.”

Frances Jackson, a patient who receives physiotherapy treatment from the hospital, said: “It’s great that staff are being catered for because there is a need for it – they do get work-related injuries which can lead to osteoarthritis.

“But what about everybody else? There’s an amazing amount of people who can’t afford private physiotherapy.

“They need to appoint more physiotherapists and bring the waiting lists down.”

Jan Bloomfield, executive director of workforce and communications at the hospital, said: “In line with national best practice, and with policies adopted by other major employers, we offer a physiotherapy service to help staff with specific work-related problems.

“Staff must meet very precise criteria to receive the service, which offers good value for money as it helps them get back to work quickly so they can continue to provide high quality care to our patients, avoiding the need to draft in expensive locum care.”

She added: “Funding for the service is generated by our occupational health team, who go into businesses to advise on health and safety, and is not taken from budgets set aside for patient care.

“We are currently looking at whether it would be cost-effective to extend the service to offer different types of rehabilitation to staff.”

You’ve got to love it.  The NHS has to provide high-quality private care to its own employees to ensure that they can provide high quality care to their patients–high quality care which they apparently are unable to provide to each other!  Example number 577 of self-serving government bureaucracy at work!

You’ve Just Got to Love Britain’s Health Care Bureaucrats

by Doug Bandow on November 29, 2008 · 8 comments

in Healthcare, International

First the National (Un)Health Service said if you wanted a drug that it wasn’t willing to provide–too expensive for the purpose of saving your miserable life!–and decided to buy it yourself, then you would lose ALL medical care under the NHS.  That is, if you wanted a potentially life-saving treatment, you might have to bankrupt your family to pay for the rest of your treatment.  Just love those bureaucrats.  How I want that kind of treatment here, but I digress.

Under fire from just about everyone, NHS reversed itself. Now you can buy the drugs and continue your treatment under NHS.  But what about families that did ruin themselves financially under the old rules?  Reports the Daily Mail:

The health service is set to face a string of compensation claims from cancer patients after its U-turn on top-up payments.

It comes after yesterday’s landmark announcement that patients who buy their own life-extending medication will no longer lose their free NHS care.

Previously those who paid for drugs not available on the NHS were excluded from the health service.

Patients will now be allowed NHS care as long as they pay for the cost of any staff time, tests and scans associated with the extra drugs they buy.

But many cancer patients have already spent their life savings on treatment that will now be available free.

Simon Swaffield of Swaffields solicitors said: ‘If I was a cancer patient I would be distinctly galled that I had blown my life savings, knowing that if I had been diagnosed later I would not have.

‘I would encourage people to apply for refunds. It is a fairly logical next step for patients in this position.’

America’s health care system is messed up.  But turning the entire system over to government ensures that Americans will lack the health care they need and will end up paying a lot more for whatever care the government deigns to provide.  Not a good deal on any measure!

DeLorean disproves domsayers in debate over auto bankruptcies

by John Berlau on November 28, 2008 · 8 comments

in Bailout Watch, Economy, Intellectual Property, Mobility, Politics as Usual

In the debate about bailing out the Big 3 automakers, it is said that we just can’t allow a bankruptcy. Despite the fact that Chapter 11 bankruptcies have taken place for retailers such as Circuit City and many airlines such as U.S. Airways, autos are said to be different because of the duration of time that people hold on to their cars for.

Horrific senarios are painted of consumers not being able to get parts for their automobiles if manufacturers are no longer in existence. But of all the many admittedly complicated aspects of a bankruptcy of General Motors (the company the Congressional hearings established was in the most trouble), these consumer issues provide the least reason for worry.

In a Chapter 11 bankruptcy, GM would most likely be reorganized into a new company, sans the current management and heavy costs. This is something that has proved impossible so far due to lax management, generous union contracts, and state dealer franchise laws that make car companies pay an arm and a leg to sever a relationship with a car dealer. A bankruptcy could finally force the tackling of these tough issues.

But even if no reorganized company emerges, the production of parts for consumers with existing GM models will almost certainly continue. All that would need to occur is the relatively simple process of the bankruptcy court transferring the GM’s intellectual property rights to a company that wants to manufacture its parts. To see how this would work, it is instructive to look at thriving reproduction parts industry for a car that hasn’t been made since the ’80s: the DeLorean.

The DeLorean Motor Company operated from the mid-’70s to the early ’80s. The company filed for bankruptcy protection in 1982 and the company went into liquidation instead of reorganization, and no new DeLoreans have been made since.

But there is still an active interest in the cars, and the sporty DeLorean DMC-12 was immortalized in the 1985 movie “Back to the Future” and its sequels. According to Wikipedia, “A very large number of the original cars are still on the road after over 25 years; most estimates put it at 6,500 cars surviving out of just over 9,000 built.”

So what happens when these cars need a new part, with the company that makes the cars no longer in business. Well, their drivers can get original and reproduction parts from the new DeLorean Motor Company. This is a new firm with entirely different owneship that acquired the trademark to the original company’s name as well as the rights to its designs.

According to the new DeLorean Motors’ web site, “when the supply of any part is exhausted or becomes no longer available, we endeavor to have the parts remanufactured using our set of the original engineering drawings.” They even sell “new build” DeLoreans using a combination of original and reproduction parts.

Going back even further, one can even buy new reproduction parts for a Studebaker, a car last made in the ’60s. An Indiana company called Studebaker International Inc. performs, according to its web site, “drilling, machining and assembly of parts” for nearly all models of Studebaker.

Of course a lot more people have GM cars than DeLoreans or Studebakers, but this fact cuts in favor of GM consumers. If there can be a thriving business in parts for cars that exist in this limited amount, entrepreneurs will rush to fill the needs of the owners of millions of GM cars on the road.

Resolving warranties is slightly more complicated, but a bankruptcy court would likely award warranty service contracts priority among the debts to be paid. And most warranties are backed by insurance companies, anyway, in the case of a firm’s bankruptcy. More on this in another post.

Imagine that: More Research Suggests that More Research is Needed

by Doug Bandow on November 28, 2008 · 2 comments

in Environment, Global Warming

It seems that methane hasn’t been behaving as the climate models suggest. Hmmm … another problem for the alarmists who believe that the world is about to burn up. After they figure out methane, maybe they can get to work explaining why there’s been no increase in temperature over the last decade–yet even as the temperature stabilizes global warming is supposedly causing all sorts of dastardedly climate disasters around the world. Something here does not compute.

Before jumping off the policy roof and ruining the economy, maybe we should be sure that catastrophic climate change looms. Observes Rick Hodgin of Trendwatch::

One thing does seem very clear, however; science is only beginning to get a handle on the big picture of global warming. Findings like these tell us it’s too early to know for sure if man’s impact is affecting things at the political cry of “alarming rates.” We may simply be going through another natural cycle of warmer and colder times – one that’s been observed through a scientific analysis of the Earth to be naturally occurring for hundreds of thousands of years.

Wasteful “Stimulus” Packages by Government Don’t Work

by Doug Bandow on November 27, 2008 · 4 comments

in Bailout Watch, Economy, Politics as Usual

Only in Washington could politicians and bureaucrats dump more than $2 trillion into bail-out money holes and then claim that the federal government needs to spend several hundred billion more to “stimulate” the economy.  If a little of something fails, goes the mantra in Washington, do a lot of it!  Especially if it is money.

But the Japanese government tried the same strategy to bring the country out of its economic slump, with disastrous results.  Editorializes Investors Business Daily:

In the marketplace, money naturally gravitates toward real needs, signaled by the willingness of people to pay for goods and services out of their own pockets.

In government spending, money follows power. It is channeled by key officeholders to favored constituencies. So when a national government tries to breathe life into an economy with massive spending, the result is massive economic inefficiency.

It’s an undying Democratic Party myth that Franklin Roosevelt’s New Deal spending helped end the Great Depression (or at least relieved suffering). The hard fact is that unemployment stayed well into the double digits until the early stages of World War II.

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Filling the Federal Money Hole

by Doug Bandow on November 27, 2008

in Bailout Watch

The Onion explains Washington, D.C. to those Americans who still have a naive civics class view of government.  Why is it important to continue filling the great “money hole”?  The Onion’s top political analysts tell us.  And they do a better job than most of the talking heads on TV!

Holiday foods and natural carcinogens

by Fran Smith on November 26, 2008 · 1 comment

in Environment, Odds & Ends, Precaution & Risk

I always enjoy the Thanksgiving Holiday Dinner Menu from the American Council on Science and Health. It lists the natural carcinogens and toxins that exist in just about every food we’ll eat on Thanksgiving — and throughout the year — but notes that none of those cause human health problems at those levels.

As ACSH points out:

ACSH’s Holiday Dinner Menu highlights the chemicals — and the carcinogens — that Mother Nature herself has put in our food. These natural carcinogens, like synthetic chemicals, have been shown to cause cancer only in very high doses, given over a lifetime to lab animals. They are present in such small amounts in our foods that they do not endanger consumers.

Here are some examples of the foods and the naturally occurring carcinogens:

– heterocyclic amines, acrylamide, benzo(a)pyrene, ethyl carbamate, dihydrazines, d-limonene, safrole, and quercetin glycosides (roast turkey with stuffing)

– furfural, ethyl alcohol, allyl isothiocyanate (broccoli, potatoes, sweet potatoes)

– coumarin, methyl eugenol, acetaldehyde, estragole, and safrole (apple and pumpkin pies)

– ethyl alcohol with ethyl carbamate (red and white wines)

Credit Spiral

by Iain Murray on November 26, 2008 · 16 comments

in Bailout Watch, Economy, Personal Liberty

So, say you’ve had a good relationship with a credit card company and been paying off substantially more than minimum payment over recent months. You’ve also completely paid off other credit cards in recent months. You then get a notice from the credit card company saying they’re reducing your credit limit, right before Christmas. Would you be more than a little miffed?

Well, I certainly was. The behavior of a certain large company surprised me today as I have always tried to maintain the best possible business relationship with that particular company. On inquiring, we were told that it was primarily because of the fall in the value of our house leading to a less positive debt ratio report from a credit rating agency, and that this could not be challenged because it was company policy.

This is, of course, precisely the sort of generic modeling that led to the credit problems in the first place. By relying more on actuarial models of risk than on an informed judgment based on an established business relationship, at least partly because of governmental concerns about possible bias in the lenders’ decision-making, the credit problems spiraled out of control. If you don’t know who is a risk and who isn’t, you’re reduced to making ill-informed general decisions that affect people on essentially an arbitrary basis (and if that isn’t prejudice, I don’t know what is).

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