John Berlau

Udall-Paul Legislation Spreads Freedom for Credit Unions and Entrepreneurs

by John Berlau on May 20, 2013 · 1 comment

in Deregulate to Stimulate, Economy, Regulation

By definition, if a bill is sponsored by Sens. Mark Udall, D-Colo., and Rand Paul, R-Ky., or any similarly odd ideological couples in the House, it more than meets the definition of bipartisan. For that, it should get a big kumbaya from the Beltway cognoscenti.

Yet the Udall-Paul bill, S. 968, should be cheered not just because of its bipartisanship, but because it actually spreads freedom. Those concerned with government eroding options for entrepreneurs should cheer this legislation, which lifts regulatory barriers to an untapped source of capital for startups: America’s credit unions.

Small business and startups pursue many diverse sources of funding. As traditional sources have dried up, many credit unions have stepped up to fill the void. As Rohit Arora, CEO of the Biz2Credit small business loan arranging service,  recently explained at FoxBusiness.com, “Following the mortgage bust, many big banks essentially turned off the spigot to small business lending. Credit unions decided to take advantage of this hole in the marketplace by increasing their small business loan-making.”

But because of government barriers to credit union business lending, thousands of entrepreneurial ventures may be unnecessarily deprived of the seed capital credit unions could provide to them. As Arora says,  “Credit unions are handcuffed by a lending cap of 12.25 percent of their assets imposed  by the Credit Union Membership Access Act of 1998. Thus,  many of  those who became active in small business lending quickly hit their limit.”

And this regulatory barrier is exactly what Udall-Paul, and its House companion H.R. 688, sponsored by Rep. Ed Royce, R-Calif., would fix. The legislation would raise the cap for business lending to 27.5 percent of a credit union’s assets. The modest hike in the lending cap would pay big dividends for entrepreneurs and the economy. The Credit Union National Association estimates this increase in the cap would create 138,000 jobs in the first year, a figure Pepperdine University economist David M. Smith calls “conservative and well within the bounds of a reasonable projection.”

[click to continue…]

How Online “Marketplace Fairness Act” Could Tax Your 401(k)

by John Berlau on May 6, 2013 · 9 comments

in Economy, Legal, Nanny State, Personal Liberty, Regulation, Trade

Today, the Senate likely will pass the Marketplace Fairness Act, which would force online retailers to collect sales taxes for states in which purchasers reside. Most have heard how this will hit us when we purchase goods over the Internet. But a lesser-known problem is the legislation also would enable states to levy new taxes on 401(k) and other savings vehicles.

How? The bill authorizes states to “require all sellers not qualifying for the small seller exception [$1 million in sales or less] to collect and remit sales and use taxes with respect to remote sales sourced to that Member State.” Yet “sellers” and “sales” are never specifically defined, and there are no specific exemptions for certain types of products or services.

Financial experts say this means states tax “sales” such as stock trades in a mutual fund or brokerage account, or even contributions to pension plans such as 401(k)s that were designed to be tax-free until retirement.

The American Society of Pension Professionals and Actuaries, a group of more than 11,000 retirement plan and benefits professionals, warns the bill “would allow states to impose a financial transaction tax that would apply to American workers’ 401(k) contributions and other transactions within worker’s accounts.” The group notes that “over 70 million workers could be affected” by such taxes, which “could significantly reduce workers savings over time, threatening their retirement security.” The group calls for “a clear exception” for transactions within a 401(k) account.

Yet this is not the only financial service the bill could enable states to tax, experts say. Grover Norquist of Americans for Tax Reform asks in a letter to Sen. Mike Enzi, R-Wyo., a chief GOP proponent of the legislation, “Will financial products that are sold over the Internet, such as portfolio management services, credit reporting service apps, or insurance service, fall under MFA taxation authority?”

The Securities Industry and Financial Markets Association (SIFMA), representing securities firms and asset managers,  issued a statement urging hearings  on the MFA’s impact on financial services. As written, “the bill could lead to unexpected costs being passed on to consumers of financial services, including sales taxes on services or state-level stock transaction taxes,” the group said.

Similarly, the Financial Services Roundtable, which represents banks, insurance companies and brokerage firms, states these concerns: “A transaction tax on financial services products will hurt retail investors, retired Americans, and small businesses, effectively making it more expensive for them to invest and plan for the long-term. Without hearings, these implications and others will not be properly addressed.”

These potential scenarios, taken seriously by financial policy experts, illustrate the inherent problem of the bill. Forcing a business without any physical presence in a state to tax that state’s consumers is taxation without representation. As my colleague Jessica Melugin, an adjunct fellow at the Competitive Enterprise Institute, has written, “This bill would undermine that federalist principle by allowing one state to reach into the borders of another and tax businesses that have no political voice in the taxing state.”

As Melugin concludes in a Washington Times op-ed, state sovereignty does not just mean protection from the interference of the federal government. It also means freedom from encroachment of other states. “The legislation does away with the crucial notion that one state’s sovereignty stops where another state’s begins,” she writes. ”Under this cartel, state tax laws extend everywhere commerce happens on the Internet.”

And as we are just now finding out, that “everywhere” could include your 401(k) account, individual retirement account, and mutual fund. So to borrow a phrase from investing, the House needs to undertake some much-needed due diligence on this bill, rather than rusbhing it through as the s0-called upper chamber likely will do.

Housing Nominee Watt Flunks Privacy And Transparency Tests

by John Berlau on May 1, 2013 · 1 comment

in Legal, Politics as Usual, Privacy

Two prerequisites for any nominee for government posts is dedication to transparency in government and a respect for the privacy of citizens. Before we get to any other issue about Rep. Mel Watt, D-N.C.,  President Obama’s expected nominee to be director of the Federal Housing Finance Agency, which oversees the government housing entities Fannie Mae and Freddie Mac, we must first get past his troubling record on two issues regarding these concerns in which he was on the opposite side of bipartisan good-government coalitions.

During the debate leading up to the passage of the Dodd-Frank financial regulatory overhaul in 2o10, Watt supported nearly all of the legislation’s costly mandates on the private sector. But he thought having the Federal Reserve go through a simple audit of its books by the Government Accountability Office, which nearly every other agency goes through, would place too much of a “burden” on this government entity. So Watt helped gut the provision supported by then-Rep Ron Paul, R-Texas, and Sen. Bernie Sanders, I-Vt., and a huge left-right coalition that included the Competitive Enterprise Institute, to audit the Fed.

Then the next year Watt became a co-sponsor of the Stop Online Piracy Act. When privacy concerns were raised, again from the left and right (and again including CEI), Watt pooh-poohed what he called the “hyperbolic charges.” SOPA was soon dropped because of online activism based on legitimate privacy and innovation concerns.

More to come on Watt’s other troubling views.

Did Hensarling Force Obama’s Hand On “Recess” Appointments?

by John Berlau on May 1, 2013

in Economy, Features, Labor, Nanny State, Personal Liberty, Regulation

Post image for Did Hensarling Force Obama’s Hand On “Recess” Appointments?

They called it a “stunt” early last week when House Financial Services Committee Chairman Jeb Hensarling (R-Texas) refused to allow Consumer Financial Protection Bureau (CFPB) director Richard Cordray to testify due to the constitutional cloud over Cordray’s appointment. But this “stunt” just may have forced the Obama administration’s hand in submitting a brief later in the week urging the Supreme Court to resolve the issue.

In a statement, Hensarling announced that the committee could not “legally accept testimony from Richard Cordray … until he is validly appointed as the bureau’s director.” In the letter that Hensarling sent to Cordray, Hensarling cited the ruling of the U.S. Court of Appeals for the D.C. Circuit in Noel Canning v. National Labor Relations Board that three “recess” appointments to the labor board made the same day and in the same manner as Cordray’s appointment were ruled unconstitutional. “It is clear,” Hensarling wrote, “as a number of legal scholars have concluded, that your appointment was also unconstitutional.”

This is exactly what the Competitive Enterprise Institute, and our co-plaintiffs the 60 Plus Association and the State National Bank of Big Spring (Texas), argue in our lawsuit challenging the constitutionality of the CFPB and other elements of Dodd-Frank, the so-called financial reform law rammed through Congress in 2010. Neither Cordray nor the NLRB officials were valid “recess” appointments, because the Senate was in pro-forma session, gaveling in and out every three days and ready for legislative business should it occur (including changes to payroll tax legislation Congress made during these sessions).

The Obama administration’s action was unprecedented. As noted by the nonpartisan Congressional Research Service and reported by Politico, during the 2007-08 pro forma sessions when the Democrats controlled both houses, President Bush “made no recess appointments between [Democrats’] initial pro forma sessions in November 2007 and the end of his presidency.” As I asked on OpenMarket on January 4, 2012, the day the recess appointments were made, “If any adjournment or break the Senate takes can be defined as ‘recess,’ can the president make appointments when the Senate is in formal session and gavels out for the evening?” Or could a recess even be declared when the Senate adjourns for a bathroom break?!

[click to continue…]

Dodd-Frank’s Burden On Credit Unions Highlighted At Hearing

by John Berlau on April 12, 2013

in Deregulate to Stimulate, Economy, Features, Regulation

Post image for Dodd-Frank’s Burden On Credit Unions Highlighted At Hearing

At a recent speech before a convention of the Credit Union National Association (CUNA), new Sen. Elizabeth Warren (D-Mass.) made the pitch that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was achieving its goal of reining in Wall Street while “level[ing] the playing field” for credit unions.

On the law’s creation of the Consumer Financial Protection Bureau (CFPB), which Warren first proposed and then organized as an adviser to President Obama, Warren proclaimed: “The agency works for consumers. It also works for the lenders and small financial institutions, like credit unions.”

Yet at a Wednesday congressional hearing, those who manage credit unions begged to differ with Warren’s assessment. They maintained that credit unions were struggling against a sea of red tape from both the CFPB and from other provisions of Dodd-Frank sold as going after “big banks,” such as the Durbin Amendment’s price controls on debit card interchange fees.

“Although I recognize the need for appropriate regulation, too often credit unions end up paying the price for abusive practices perpetrated by non-credit union entities,” testified Mitch Reiver, general counsel for Melrose Credit Union in Queens, New York, at the hearing before the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit.

[click to continue…]

JOBS Act — What’s Been Implemented — Is Working; Now Implement The Rest!

by John Berlau on April 8, 2013

in Deregulate to Stimulate, Economy, Employment, Features

Post image for JOBS Act — What’s Been Implemented — Is Working; Now Implement The Rest!

CEI Research Associate Evan Woodham contributed to this post.

Another round of disappointing jobs numbers released last Friday shows more than ever that massive spending “stimulus” isn’t working in getting the U.S. economy going. We must, in the phrase coined by my Competitive Enterprise Institute colleague Iain Murray, “liberate to stimulate.”

But not only is the U.S. government piling on ever-more regulation on all sectors of the economy, it is stalling on implementing even modest bipartisan regulatory relief passed into law.

On April 5 of last year, President Obama signed the Jumpstart Our Business Startups Act. Risking heat from allies, I praised the president for this action in conservative venues such as National Review, because I believe that good public policy actions should be praised no matter who the actor is.

But on its first birthday, much of the JOBS Act might as well still be in the womb. That’s because except for provisions that went into effect automatically — and these are working well, as I will get to in a minute — liberalized rules under the JOBS Act have been inexcusably delayed by the Securities and Exchange Commission (SEC).

[click to continue…]

Bipartisan Dodd-Frank Derivatives Deregulation Advances In House — And Main Street Cheers

by John Berlau on March 20, 2013

in Deregulate to Stimulate, Economy

This afternoon, members of the House Agriculture Committee with strikingly different views on many issues came together to provide much need regulatory relief from the albatross of Dodd-Frank. The seven bipartisan bills that just cleared the committee, six of which passed on a voice vote, reflect a growing recognition by both parties that the 201o law intended to reform Wall Street has claimed Main Street farms and factories as some of its biggest victims.

In implementing derivative regulations pursuant to Dodd-Frank, the Commodity Futures Trading Commission, led by Obama-appointed Chairman Gary Gensler, has taken actions that have stoked bipartisan outrage. Its definition of “swap dealers” facing costly new requirements — such as implementing very expensive technology to provide “real time” price quotes – is so broad that it may have ensnared even small farm co-ops. And months after American Airlines filed for bankruptcy in part due to fuel costs, both airlines and manufacturers may be required to lay out billions more in cash to buy derivatives to hedge oil prices.

The bills voted out of the committee today with bipartisan support are a first step toward sanity and certainty. They would ease margin requirements, which force those buying derivatives to put up immediate cash rather than using assets as collateral, for”end users” of derivatives such as airlines and manufacturers. And they would force the CFTC to only regulate as swap dealers those entities that have a certain number of participants, sparing most farm co-ops from the agency’s reach.

[click to continue…]

What Cyprus (Initially) Got Right — Remembering The 2008 WaMu Capital “Run”

by John Berlau on March 20, 2013

in Bailout Watch, Economy, International, Regulation

There’s no shortage of criticism of the Cyprus “bail-in” — the one-time tax the government had proposed levying on insured and uninsured depositors to rescue the nations’ banks.

And there is no shortage of criticisms that I could levy either on Cyprus and the EU’s slapdash approach, which now looks like it will be rejected by the Cyprus parliament. The biggest being that the failing financial institutions should have been put through a bankruptcy system rather propped up — whether through this levy or general taxation. Having said that, the initial Cyprus approach could have been much worse, and what comes next may be much more likely to spread contagion.

There is one fundamental thing the initial plan got right. Depositors must not be considered sacrosanct in a bank failure, and, conversely, a bank’s contractual obligations to creditors such as bondholders cannot be ignored. The controversy should also open a much-needed debate about the role of ever-expanding deposit insurance in spreading moral hazard, as it encourages a lack of due diligence among customers of banks.

[click to continue…]

Dallas Fed’s Fisher And CPAC’s Fishy Too-Big-To-Fail Event

by John Berlau on March 16, 2013 · 1 comment

in Bailout Watch, Deregulate to Stimulate, Economy, Features, Insurance, Regulation

Post image for Dallas Fed’s Fisher And CPAC’s Fishy Too-Big-To-Fail Event

If the Conservative Political Action Conference’s (CPAC) organizers wanted a speaker or panel on the causes of the financial crisis and what to do about too-big-to-fail financial insitutions, they could have chosen from among many conservative and libertarian experts who not only issued prescient warnings about government policies that egged on reckless behavior through subsidies, regulations, and flawed monetary policies, but also offered detailed free-market solutions to prevent future financial crises and taxpayer-funded bailouts

Such experts include John Allison, president and CEO of the Cato Institute, former chairman and CEO of BB&T Corp, and author of The Financial Crisis and Free Market Cure; Peter Wallison, counsel to the Reagan White House in the 1980s, co-director of the American Enterprise Institute’s program on financial policy studies, member of the Congressionally chartered Financial Crisis Inquiry Commission, and author of the new book Bad History, Worse Policy: How a False Narrative About the Financial Crisis Led to the Dodd-Frank Act; and Fred Smith, founder and chairman of the Competitive Enterprise Institute, where I work, and board member of CPAC’s parent organization, the American Conservative Union.

All of them sounded the alarms about the dangers of the government-sponsored housing enterprises Fannie Mae and Freddie Mac and mandates such as the Community Reinvestment Act, which encouraged banks to lower standards for borrowers in the name increasing home ownership. In congressional testimony in 2000, Smith warned that if anything goes wrong with the entities, taxpayers could be on the hook for “$200 billion tomorrow.” At the time, his warning was dismissed as exaggerating Fannie and Freddie’s risk, but it turns out he actually underestimated the amount for which taxpayers would later be on the hook.

Yet for CPAC’s single event on the financial crisis , held today, featured none of these experts. Instead, the sole speaker was Federal Reserve Bank of Dallas President Richard Fisher, who also has been a longtime Democratic operative with a decidedly big-government approach to financial regulation. Trying to appeal to the conservative audience, Fisher opened his speech with an anecdote about meeting President Ronald Reagan in 1984. He didn’t mention his having served in the Carter and Clinton administrations or his unsuccessful 1994 run as a Democrat against Sen. Kay Bailey Hutchison (R-Texas), in which he took standard liberal positions, including opposing school vouchers and supporting the Clinton “assault weapons” ban.

[click to continue…]

Sequester Show May Not Have Jumped The Shark, But Its Format Has Changed

by John Berlau on March 8, 2013

in Deregulate to Stimulate, Economy, Features, Politics as Usual, Stimulus to Nowhere

Post image for Sequester Show May Not Have Jumped The Shark, But Its Format Has Changed

Are you watching the Sequester Show? In today’s Wall Street Jorunal, my friend Kim Strassel says the sequester drama has “jumped the shark,”  a phrase used when a TV show loses popularity. As I have pointed out in OpenMarket before, the phrase originated with “Happy Days,” in which many a fan pinpointed the exact moment of the show’s descent to an episode in which Fonzie literally jumped over a shark with water skiis.

Yet, I’m not sure “jump the shark” is the best phrase to describe what’s happened with the Sequester Show. It may not have jumped the shark, but changed formats and become even more popular — albeit to the detriment of the Obama administration.

Specifically, the show changed its format from melodrama to comedy. Try as it might,  the Obama administration just couldn’t convince the public of all the disasters that must occur because of a 2-percent cut in government spending. Many families and businesses have had to cut much more  in these rough last few years. Then free-market activists, followed by GOP politicians, began to point out all the waste that could be cut using Twitter hashtags such as #CutWaste and #SequesterThis (the latter of which was popularized by Competitive Enterprise Institute Fellow Bill Frezza).

Noting the disastrous stunt of suspending public White House tours, Strassel’s piece contained some excellent examples of waste and extravagance at the executive mansion. For instance, the White House pays almost $300,000 a year for three White House calligraphers.

[click to continue…]

← Previous Entries