January 2012

“Robbery of the American People”

by Hans Bader on March 31, 2009

in Bailout Watch, Economy, Energy, Environment, Global Warming, International, Politics as Usual, Stimulus to Nowhere

“Nobel Prize-winning liberal economist Joseph Stiglitz points out that the Treasury Secretary Tim Geithner’s plan to have the government subsidize investments in ‘toxic assets’ creates a serious moral hazard: Private investors will pocket any gains, while the federal government promises to cover virtually all potential losses: ‘Quite frankly, this amounts to robbery of the American people.’”

It’s the London Telegraph that’s reporting this, though. U.S. newspapers are too busy running puff pieces about Barack and Michelle Obama — and describing critics of Obama’s $800 billion stimulus package, which the Congressional Budget Office admits will shrink the economy in the long run, as being opposed to what the papers dishonestly refer to as the “economic recovery plan.” (With a few exceptions, the press did not report the CBO’s finding that the stimulus will actually shrink the economy, which contradicts Obama’s false claim that failing to pass the bloated stimulus package would lead to “irreversible decline.”)

Although many economists oppose the Administration’s policies, the newspapers make it sound like only right-wingers object to the Obama Administration’s bailouts. They do that even though the liberal Nobel Laureate and economist Paul Krugman, a big Obama supporter, admitted that Obama’s trillion toxic-asset buy-up program is a rip-off best described as “heads I win, tails the taxpayers lose.”

The result is that although Obama has proposed record budget deficits (expanding deficits by $4.8 trillion to an eye-popping $9.3 trillion, despite tax increases of $1.9 trillion), public opinion polls show 52% of the public approves Obama’s handling of the deficit.

In 2008, Obama explained to the San Francisco Chronicle that electricity bills would “skyrocket” under his Administration due to its global-warming regulations. But the press by and large wasn’t interested in reporting it, since it would have hurt Obama’s chances of getting elected.

Now, the Obama Administration is backing a two trillion-dollar cap-and-trade carbon tax. But that, too, is getting little press coverage — as are Obama’s broken campaign promises, like his pledge of a “net spending cut” if elected.

The U.S. press has barely mentioned Treasury Secretary Geithner’s role in the destruction of the economy of Indonesia, a major oil-producing nation of 200 million people, in the 1990s (even though Australia’s long-time Prime Minister Paul Keating has been scathing in his criticism of Geithner).

Given their unwillingness to print interesting — but ideologically inconvenient — news, it’s no wonder that lots of newspapers, like the Seattle Post-Intelligencer, have folded in the past year. Biased coverage is boring coverage not worth paying for.

Verizon, AT&T See the Regulation Writing On The Wall

by Nick Brown on March 31, 2009 · 1 comment

in Regulation, Tech & Telecom

AT&T and Verizon are indicating that there is a chance that they will not seek funds from the broadband stimulus portion of the American Recovery Act.

Verizon Executive VP Thomas Tauke has stated that, “We don’t have any plans to apply; we also have not made a decision not to apply.”

Similarly, AT&T Senior Executive VP told reporters that, “We do not have our hand out seeking government funds.”  But, “[AT&T is] open to considering things that might help the economy and might help our customers at the same time.”

This reluctance to accept government funding shows that major ISPs realize that acceptance of stimulus funds puts them squarely under the FCC Network Neutrality principles.   These principles could bleed into the other networks—such as Verizon’s FiOS TV or AT&T’s U-Verse—that these large Internet players own.   Meaning this policy would be the camel’s nose under the tent.  I ‘ve previously referred to this potential phenonmenon as “Gateway Neutrality.”

Molly Peterson of Bloomberg News confirms that big ISPs realize the danger associated with accepting recovery funds:

AT&T, Verizon and Comcast Corp., the largest U.S. cable provider, say the rules are unwarranted and would hinder their ability to manage congestion on networks they have spent billions to build.

So, it could be that networks built with stimulus funds would have sub par service when compared to networks built without the funds.  This forces one to wonder what the point of the multi-billion-dollar subsidy is in the first place.

Additionaly, were ISPs forced to merge networks that ran under different principles—those that are neutral like Internet service and those that are very non-neutral like television or phone service—very costly problems could emerge.  Trying to slam together TV, Internet, and phone service into one neutral IP-based service could even prove to be financially impossible.

At OpenMarket we often say that government should never be in the business of picking winners.  It appears the winners at broadband build-out will be those who avoid picking government.

AIG Chief Loves Vicious Left-Wing Terrorist?

by Hans Bader on March 31, 2009 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Stimulus to Nowhere

AIG Financial Products CEO Gerry Pasciucco wears a T-shirt emblazoned with the face of Che Guevara — the Cuban “revolutionary” and henchman of Fidel Castro who tortured children and called himself “Stalin II” (after Joseph Stalin, the Soviet dictator who tortured, murdered and starved to death more than 20 million people). Maybe it reflects his ideological leanings. Pasciucco has given a lot of money to liberal politicians — $2300 to Obama, $2000 to Chris Dodd, Connecticut’s ethically-challenged senior senator, $1000 to the Democratic Senatorial Campaign Committee, and $1000 to liberal Ned Lamont, who unsuccessfully tried to bump off Joe Lieberman (D-CT) from the left.

I guess I should expect leftists to end up running what is essentially a nationalized company (taxpayers have spent $170 billion to bail out AIG). But it’s not a good sign. Freddie Mac was badly managed, but when the Feds took over, and started emphasizing liberal political goals over profitability, they really ran it into the ground, and Obama made it run up $30 billion in additional losses just for bailing out irresponsible mortgage borrowers.

Obama famously told Joe the Plumber he would “share the wealth around.” And he has done so on an unprecedented scale. Goldman Sachs, the wealthy Wall Street firm that is one of the biggest liberal donors, received billions from the taxpayers that it didn’t even need, through the AIG bailout, which was used to pay off AIG’s customers at absurdly generous rates (undercutting claims that AIG managers like Pasciucco have done such a good job that they deserve a fat bonus).

And the Administration has redistributed trillions more in wealth through a proposed budget that is expected to increase future budget deficits by $4.8 trillion, a pork-filled, economy-shrinking $800 billion stimulus package, and a trillion dollar toxic-asset buy-up program that will plunder taxpayers to enrich politically-connected banks (all of which contradict Obama’s campaign promise of a “net spending cut“).

After blocking limits on pay that would have covered just AIG, Congressional liberals are now moving to impose pay caps on all publicly-traded companies, not just those that receive federal funds. Companies will now have an incentive to curry favor with their Congressional masters by making lots of additional campaign contributions — just the way AIG did, giving most of its money to liberal lawmakers since 2003).

Meanwhile, the EEOC, charged with enforcing workers’ rights, is systematically violating federal labor and employment laws.

The EEOC: “The Fox Guarding the Henhouse”

by Hans Bader on March 31, 2009 · 4 comments

in Economy, Employment, Labor, Sanctimony

“The Equal Employment Opportunity Commission, responsible for ensuring that the nation’s workers are treated fairly, has itself willfully violated the Fair Labor Standards Act on a nationwide basis with its own employees, an arbitrator has ruled.”

The EEOC has a much worse record of labor and civil-rights violations than most corporations and agencies with a similar-size workforce.

The EEOC was found guilty of systematic, illegal, reverse discrimination (discrimination against white males) in Jurgens v. Thomas, 29 Fair Empl. Prac. Cas. (BNA) 1561, 1982 WL 409 (N.D.Tex.1982). When he was head of the EEOC, Clarence Thomas tried but apparently failed to end the reverse discrimination that went on in the agency.

The EEOC also has had a lot of sexual harassment lawsuits against it (and I am talking about real sexual harassment, not weak claims based on a couple of off-color jokes, the sort of trivial thing the EEOC itself might unsuccessfully sue a private employer over).See, e.g., Spain v. Gallegos, 26 F.3d 439 (3rd Cir.1994).

In short, the EEOC is like “the fox guarding the henhouse.” See John Berlau, “Discrimination at the Opportunity Commission,” Insight, May 19, 1997.

The EEOC continued to discriminate against white male employees, including those white males, like attorney Joseph Ray Terry, that it sent to defend affirmative action in court. See, e.g., Terry v. Gallegos, 926 F.Supp. 679 (W.D. Tenn. 1996) (court ruled that agency discriminated against attorney Joseph Ray Terry, who has long argued in court on behalf of affirmative action).

Ironically, Terry, after winning his reverse discrimination suit, argued that the Civil Rights Act of 1964 preempted California’s state constitutional amendment banning reverse discrimination. I and the other attorneys who represented the amendment’s sponsors successfully argued that it did not. Although a trial judge agreed with him, the federal appeals court for the Ninth Circuit overturned that decision, and upheld the amendment, known as Prop. 209. That court also rejected claims by the ACLU that Prop. 209, by mandating equal treatment for whites, Asians, and males, and thus prohibiting many forms of affirmative action, itself violated the Equal Protection Clause of the Constitution. See Coalition for Economic Equity v. Wilson, 122 F.3d 692 (9th Cir. 1997). (The ACLU also argues that free speech, privacy, jury trial, and other constitutional rights need to be restricted to protect minorities).

The world would be a better place if the EEOC spent more time rooting out discrimination in its own ranks, and less time trying to ban offensive words protected by the First Amendment, and less time suing the Salvation Army for requiring employees to speak English (a lawsuit far more harmful than the EEOC’s silly lawsuit against Hooters).

The EEOC seems hypocritical, but perhaps no more so than a President who harps endlessly on “responsibility” while proposing a budget that would increase projected deficits by $4.8 trillion to $9.3 trillion, flouting his repeated campaign promise to implement a “net spending cut” if elected (plus a pork-filled $800 billion stimulus package that will shrink the economy).

Capitalist-David rally versus Goliath-protests for Socialism

by Michelle Minton on March 31, 2009 · 19 comments

in Deregulate to Stimulate, Economy, International, Personal Liberty

During the G20 summit something like 40,000 plus protesters slated to descend upon London. Of that number, there is a small but growing and prodigiously brave group of idealists planning to throw their message and bodies into the breach. They are not there to demand government action against climate change, stricter business regulations, nor are they requesting money for the poor, hungry, or infirm. Their message is simple, but profound: Get out of our way.

This small band, comprised mostly of university students and recent graduates wants only to communicate the message to the world that capitalism is not to blame for the current economic crisis. In fact, they want people to know that interventionist policies are what got us into the mess in the first place and increased state intervention is unacceptable.

“The point must be made, essentially, that we do not live in a Capitalist system and certainly not a Laissez-Faire Capitalist system. The sectors of the economy that failed were the most regulated sectors of a ‘mixed-economy’,” said Rory Hodgson, University of York student and protest organizer.

Perhaps because those still in university and recent graduates have the most to lose that they are willing to risk physical harm in order to oppose the ever-tightening choke-hold the government has on the economy. But we should all be as worried about the future and willing to fight the increasing anti-capitalist sentiment and the vulnerability of individual liberty.

Organic Pesticides Fail EU Safety Review

by Greg Conko on March 30, 2009

in Agriculture, Environment, Precaution & Risk, Regulation, Zeitgeist

Ask people who buy organic food what they like about it, and chances are, most will say “they’re grown without pesticides.” As I’ve pointed out repeatedly, that’s not actually true. While organic farmers do not use synthetic pesticides, they do use a variety of chemicals to control insects and plant diseases — including such potentially dangerous substances as copper sulfate, rotenone, pyrethrum, ryania, and sabadilla. These “organic” pesticides are derived from minerals or plants, are lightly processed, and thus are considered to be “natural” for the purposes of organic agriculture. Yet, ounce for ounce, most are at least as toxic or carcinogenic as many of the newest synthetic chemical pesticides.

Now comes news from the UK’s Farmer’s Guardian newspaper that “[n]early half of the pesticides specially approved for use in organic farming [in the European Union] have failed EU safety tests and more could follow as the rules are tightened.” Conclusions of the risk assessments conducted by the European Food Safety Authority (EFSA) under EU Plant Protection Products regulations first implemented in 1996 can be found here.

According to the Farmer’s Guardian, EFSA “has approved just 14 of the 27 organic pesticides put before it … although many have received a derogation for continued use.” Still, because more stringent rules are due to be promulgated next year, the European crop protection (i.e. pesticide) industry expects that more of the organic pesticides will be found unsafe.

According to an industry spokesperson, “Organic farmers already have limited options for crop protection and if more products are removed productivity could fall and prices could increase.” Of course, since the organic industry has been touting itself as a “pesticide free” alternative to conventional agriculture, this would just mean that what they’re producing conforms more closely to the hype.

Billions More for Failed Bailouts

by Hans Bader on March 30, 2009 · 3 comments

in Bailout Watch, Economy, Legal, Politics as Usual, Stimulus to Nowhere

Ironically, by getting rid of General Motors CEO Rick Wagoner, the Obama Administration has made it even harder for it to demand the painful changes needed to make the company competitive — meaning that the billions of additional dollars the Administration plans to dump on GM will likely be wasted (the way that England’s attempt to bail out its automakers failed, wasting billions). As Mickey Kaus notes,

“After visibly defenestrating GM CEO Rick Wagoner, and moving to replace the board of directors, won’t Obama now ‘own’ the GM problem? If the company shuts down in the near future, costing tens of thousands of blue collar jobs, it will be under executives implicitly or explicitly chosen by Obama. It will be Obama’s failure, not simply GM’s failure, no? . . . Doesn’t that make it harder, not easier, for the administration to walk away and force the company into bankruptcy? And doesn’t that, in turn, make extracting the necessary concessions (by threatening bankruptcy) more difficult as well?”

Moreover, only bankruptcy — not a bailout — can save the automakers from having to pay billions of dollars in payoffs to redundant, politically-connected, car dealers. Those payoffs are mandated by exploitative state laws that ought to have been preempted long ago.

While getting rid of Wagoner, the Obama Administration has stuck by incompetent Treasury Secretary Tim Geithner, even though Geithner played a key role in the disastrous $170 billion AIG bailout, and previously shaped economic policies that helped destroy the economy of Indonesia, an important oil-producing nation of 200 million people, in the 1990s.

Meanwhile, the Obama Administration has been using AIG to artificially juice up banks’ profits, and indirectly the stock market, in order to give Obama the political capital needed to pass his deficit-exploding budget, which will increase projected deficits by $4.8 trillion to $9.3 trillion, breaking his campaign promise of a “net spending cut” in a big way. (The AIG bailout has also been used to shower money on Goldman Sachs, which does not need the money, and which has given millions to liberal politicians like Obama).

The automakers were bailed out using money from the bank bailout, which was written so broadly that its supporters say it can be used for almost anything. George Will argues that such a standardless law violates the Constitution‘s non-delegation doctrine. We earlier argued the same thing.

AIG employees gave hundreds of thousands of dollars to ethically-challenged Connecticut Senator Chris Dodd, who helped draft the stimulus and bank-bailout bills (and inserted the language that protected their bonuses). That includes $160,000 from employees in the division that later drove AIG into insolvency.

In the Wall Street Journal, scholars debate the principal causes of the mortgage bubble and subsequent financial crisis. Economics professor David Henderson says “the main fed culprits are the beefed up Community Reinvestment Act and the run-amok Fannie Mae and Freddie Mac.” An investment banker cites “mortgage fraud, the Bush administration’s weak-dollar policy and Lehman bankruptcy decisions, and Congress’s reckless housing policies through Fannie Mae and Freddie Mac and the Community Reinvestment Act.” Economists Judy Shelton and Gerald O’Driscoll and law professor Todd Zywicki say that the Fed’s monetary policy was the single biggest factor. Historian Clayton Cramer previously argued that regulations adopted under the Community Reinvestment Act spawned the mortgage crisis.

Congressional leaders blocked Senator Judd Gregg’s modest measure to limit the explosion of the national debt. Meanwhile, House Speaker Nancy Pelosi (D-Cal.) has been busy quarantining harmless library books in the name of child safety.

In other news, PETA, which claims to care about animals, has been busy killing pets.

Cap-and-trade and carbon tariffs — the economic downside

by Fran Smith on March 30, 2009

in Economy, Energy, Environment, International, Trade

Today the lead editorial in the Wall Street Journal takes a hard look at some of the negative economic consequences of touted cap-and-trade programs to reduce CO2 emissions and the possibility of carbon tariffs to protect U.S. businesses.  Not only would such programs cost “heavy-industry” jobs already suffering in the global recession but also could lead to trade wars as developing countries retaliate:

So in addition to all the other economic harm, a cap-and-trade tax will make foreign companies more competitive while eroding market share for U.S. businesses. The most harm will accrue to the very U.S. manufacturing and heavy-industry jobs that Democrats and unions claim to want to keep inside the U.S. A cap-and-tax plan would be the greatest outsourcing boon in history. And it may even increase CO2 emissions overall, because the developing nations where businesses are likely to relocate — if they don’t simply close — tend to use energy less efficiently than does the U.S.

Meanwhile, carbon trade barriers would almost certainly violate U.S. obligations in the World Trade Organization. Since carbon energy cuts across so many industries, a tariff would presumably have to hit tens of thousands of products. Any restriction the U.S. imposes on imports can also just as easily be turned around and imposed on U.S. exports, whatever their carbon content.

See a post last Friday with questions from House Ranking Members on committees with oversight in these areas.

With or Without You

by John Berlau on March 30, 2009 · 1 comment

in Bailout Watch, Culture, Deregulate to Stimulate, Features, Mobility, Nanny State, Odds & Ends, Politics as Usual, Zeitgeist

The ouster of General Motors CEO Rick Wagnoner by the Obama administration isn’t the first time in the recent history of bailouts that the government has forced out a CEO. That first happened in September when Bush admnistration Treasury Secretary Henry Paulson forced out American International Group CEO Robert Willumstad in favor of Paulson’s friend Edward Liddy.

The lesson from AIG is that replacing a CEO is no panacea. There is no love lost for the poor managment of Rick Wagoner. He is the one who went to the government hat in hand, and when the government is paying the piper, it can call the tune. But replacing him won’t solve GM’s long-term problems of too many brands of autos and too large of a workforce. And it is increasingly clear that the bailout itself is an impediment to effective restructuring.

The prospect of an ever-increasing supply of tax dollars is leading parties with auto industry contracts — unions, bondholders, dealers and others — to play a game of chicken. No one wants to renegotiate a contract when they think the government will come in with more money to cover the losses. And the Obama administration, as with AIG, does not have the power of a bankruptcy court to discharge debt.

Allowing the companies to go into bankruptcy is what should have been done from the start. As with multiple businesses such as airlines that have succesfully emerged from Chapter 11 bankruptcy, debts could be discharged and the companies could be restructured in bankruptcy court.

To say that consumers would be discouraged at buying a car in bankruptcy misses the point. Consumers might be more likely to buy a car from a company restructured by a bankruptcy court, as they buy tickets from once-bankrupt airlines, than to buy a vehicle from zombie companies dependent on the next government bailout. This delay likely hurts “satellite” companies like auto parts makers more than a bankruptcy would.

In the meantime, the government should lift antitrust barriers and leave all options on the table for mergers. The merger with Chrysler and Fiat that the government is encouraging may not be the most effective. GM and Chrysler had long considered merging, but may have been blocked because the combined company would be deemed by antitrust regulators to have too large a share of the “light truck” market, never mind that this market itself is shrinking. Given the precarious state of the companies, they should be given a blanket antitrust waiver to make the combinations they deem best for their viability.

The government should also delay the imposition of the recently announced increase in Corporate Average Fuel Economy standards. This flawed mandate that adds costs and reduces choices even in a good economy, could be a lethal blow in times such as these.

Let’s drop both the auto bailouts and the mandates. The American auto industy, which has produced such wonderful innovations for so many decades, is too important to be “saved” by Washington’s central planners.”

GM CEO to Resign

by Ryan Young on March 29, 2009

in Bailout Watch, Economy

Rick Wagoner is stepping down, apparently on White House orders.

New leadership may well be a good move for GM. But that is a decision for GM’s board and shareholders to make. They have years of auto industry experience.

They also have a vested stake in the matter. If they fail, they lose the shirts off their backs. They have all the incentive in the world to choose wisely.

President Obama and the Presidential Task Force on Autos have none of these advantages.

Their line of thinking seems to be that GM is not fit to run itself. Given GM’s recent performance, they may well be right.

But how on earth does that imply that Washington can do better? The logic just doesn’t follow.

This mindset is arrogance. It is hubris.

Worse, it is poison to an already ailing economy.

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