Chairman Barney Frank

A Republican Sweep Might Not Stop Online Gambling

by Michelle Minton on October 18, 2010

in Nanny State, Personal Liberty, Tech & Telecom

Many analysts and pollsters are predicting a Republican sweep of the coming midterm elections in the House. While Rep. Barney Frank (D-Mass.) seems untouchable, there are no guarantees and in fact, some claim that his challenger, 35-year-old Marine Corps veteran Sean Bielat, is just a few points behind Frank in polling data.

The end of Congressman Barney Frank would very likely be the end of his bill, HR 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, which he has championed (through several incarnations and sessions).

While some advocates of decriminalized Internet gambling fear that the loss of its main champion will kill any possibility of legalization in the next session, their fears may not be warranted.

Last week Chris Krueger,  political strategy analyst with Concept Capital, appeared on CNBC and had this to say about the odds of decriminalizing Net gambling in the wake of a Republican sweep (video available here):

Keep in mind with Internet gaming there’s this pretty decent shot I think that in a lame duck session assuming the democrats lose both the house and senate Barney Frank this could really be his last chance he’s the primary sponsor of this bill. The trump card for Internet gaming for lack of a better word is that it raises 42 billion dollars over 10 years. That’s a big offset that you can tack onto an expensive tax extenders bill or even some sort of a transportation bill…

So in the lame duck with a Republican sweep the odds would go up that an Internet gaming ban lift could get through. Next year though without Barney Frank in his position of leadership I think it faces some long odds. But again it raises 42 billion dollars over 10 years and you can’t discount that in a congress that’s really going to be starved for revenue raisers.

So, while legalization of Internet gambling may still have a shot in a Republican-controlled House and Senate, I doubt that the version we would see would be any more free market than Barney Frank’s current bill. Most likely, it will look something like decriminalized alcohol sales after prohibition with the government retaining a death-grip on the neck of the industry for as long as it can.

Bonus pay bill: CBO predicts huge costs to private sector, broad swaths of employees affected

by John Berlau on July 31, 2009

in Bailout Watch, Deregulate to Stimulate, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Regulation, Zeitgeist

After the nonpartisan Congressional Budget Office (CBO) calculated the enormous costs of an all-encompassing health care scheme with a bloated public option, members of Congress from both parties asked for more due diligence before rubber stamping the plan.

 Yet today, the U.S. House of Representatives may rush through another piece of poorly designed command-and-control legislation that the CBO just yesterday said could have its own tremendous costs.  Though advertised as giving shareholders more “say” over CEO pay, the “Corporate and Financial Institution Compensation Fairness Act of 2009 [H.R. 3269],” would give the government the power to ban performance bonuses for a wide variety of employees – including even office assistants and clerks – at a wide variety of firms.

 

On Thursday, July 30, the CBO Cost Estimate for the bill, sponsored by House Financial Services Chairman Barney Frank (D-Mass.), found that its mandates would place untold costs on the private sector that could reach upwards of $139 million a year. The CBO report starkly states: “The requirements of H.R. 3269 would impose several private-sector mandates … on publicly traded companies, financial institutions, institutional investment managers, and national securities exchanges and associations.” CBO adds that “because the cost of some of the mandates would depend on federal regulations yet to be established,” the total cost of the mandates may exceed the $139 million a year that under the Unfunded Mandates Reform Act, requires special scrutiny for its effects on the private sector.

 

As CEI has repeatedly stated, regulatory costs should be seen as a tax. And this tax on publicly traded companies – that would frustrate the incentive pay necessary to foster growth in entrepreneurial firms– may put a damper on the recent gains of the stock market and slow an economic recovery.

 

Here is a summary, but by no means all-inclusive list, of destructive provisions of the bill

 

  1. Broad powers to ban a broad array of bonuses for a broad set of employees at a broad definition of “financial services” firms.

 

Section 4 of HR 3269 establishes direct control of bonus pay for all employees of “financial institutions.” Federal regulators could ban what they deem “unreasonable incentives” that lead to “undue risks” for any employee, including a bank teller or a secretary.

 

This mandate would cover a variety of firms, not necessarily financial. The bill defines “financial institutions” to include banks, credit unions, broker dealers, investment advisers as well as well as any other entity that “federal regulators, jointly, by rule, determine should be treated as a covered financial institution for purposes of this section.”

 

These provisions would also likely coincide with sections of HR 3126, establishing a Consumer Financial Protection Agency that would regulate the pay of all employees involved in consumer credit, regardless of industry. This could include cashiers who take credit card applications. The two bills constitute and unprecedented government intrusion into private sector payments.

 

The connection between pay structure and “systemic risk” is tenuous. If financial products pose risk to the system, those products themselves are what should be under more scrutiny. Limiting incentive pay could itself likely lessen financial stability by reducing firms’ ability to reward long-term performance

 

 

 

  1. Why mandate costly say-on-pay mechanisms that shareholders have voted down at many firms?

 

The bill mandates what is called “say on pay” – the annual nonbonding affirmation of pay for top executives at all public companies. What the bill’s supporters overlook is that shareholders now have the freedom to establish say-on-pay at the firms they own, yet they have mostly rejected these schemes to regulate pay when they were placed the proxy ballot.

 

Only a few firms’ shareholders have approved say-on-pay resolutions when they have been on the ballot. Say-on-pay has been rejected by shareholders at companies from Disney to Abbot Labs. This means that most investors thought the process was a waste of time and company resources.

 

Active shareholders have other, more effective ways to align pay with performance, such as through their votes on the structure of compensation plans. So why should Congress impose on them a pay mechanism they don’t want. If Congress has to impose say-on-pay, it should go with a substitute measure by Rep. Scott Garrett, R-N.J., to allow shareholders to opt-out or have pay approval every three years rather than annually.

 

Bottom line: The bill threatens to curtail incentive pay that is crucial to growth and innovation.

 

The American public is justifiable upset at executives of bailed out firms taking bonuses. But they understand incentive pay is needed for everyone from mid-level employees to CEOs for firms to be successful. The heightened concern about Apple Inc. CEO Steve Jobs’ health demonstrates that investors know what a crucial skill set it take to run a top company. Just as the American public is not envious of actors and athletes that make high salaries because of their talents, they recognize that talents should be rewarded in the corporate boardroom too. This bill would limit shareholder choices, reduce incentives for a variety of employees, and put a damper on innovation and economic growth.

Why Not a Wal-Mart Bank?

by John Berlau on December 15, 2008 · 2 comments

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

Seems like every business these days is becoming what’s called a “bank holding company” — seeking the shelter of the federal government’s deposit insurance and the ability to balance risks with more diversified lending and consumer deposits. Firms quickly granted “bank holding company” approval from authorities over the past few months range from the brokerages Goldman Sachs and Morgan Stanley to credit card company American Express.

So many businesses are suddenly getting BHC approval that columnist and blogger Michelle Malkin has joked: “MichelleMalkin.com is no longer a blog. I am putting in an application to the Fed to become a bank holding company, too.”

But ironically, many barriers still exist to legitimate retailers starting their own banking operations. Ever since Wal-Mart Stores Inc. filed an application a few years back seeking approval to form a limited banking facility to process its own credit and debit card transactions, the anti-Wal-Mart forces and much of the established banking industry led a revolt against not just Wal-Mart but any retailer forming its own bank.

House Financial Services Committee Chairman Barney Frank sponsored a bill that would have curtailed the abiility of retailers to form industrial loan corporations (ILCs), specialized banks that had existed in the retail industry since the ’80s. The bill didn’t clear Congress but in reaction, The Federal Deposit Insurance corporation put a moratorium on new and pending ILC application for more than a year, and has been slow-walking ILC approvals ever since. Wal-Mart withdrew its application in 2007.

But the recent financial upheaval and lingering recession have thrown many of the arguments against a Wal-Mart bank — even a full-service one — out the window. In fact in his column today in the financial forum Minyanville, Jordan Stein predicts that “by 2018, we’ll be banking at Wal-Mart (WMT), investing with Wal-Mart financial advisors, and applying to Wal-Mart for our mortgages.”

There have been two main arguments against a Wal-Mart bank. One is that allowing retailers like Wal-Mart to have their own banking operations would greatly add systemic risk to the deposit insurance fund and financial system in general. The other is that allowing Wal-Mart to get into banking would mean ruinous competition for Mom-and-Pop community banks.

Let’s look at these arguments in the context of the financial crisis. It’s now kind of hard to argue that a Wal-Mart bank would add any significant systemic risk to the banking system, given the incredibly stupid risks that many of the biggest established banks have taken.

Wal-Mart, by contrast, looks like an especially prudent company. Not only are consumers flocking there for bargains, but so are investors, as the company’s stock price hasn’t tumbled nearly as much as other firms of its size. (Full disclosure, like millions of other Americans, I shop at Wal-Mart and also own shares of its stock). As Stein writes in Minyanville, “as we enter the Age of Austerity, where prudent spending replaces conspicuous consumption, Wal-Mart’s latest slogan — ‘Save money. Live better.’ — will be adopted in practice by vast swaths of the population.”

As an industrial loan corporation, Wal-Mart would be covered by deposit insurance, and the deposit insurance system, as CEI has long argued, needs overall reform. But retailer-owned banks would be paying premiums that would shore up the insurance fund and, according to experts, would not be adding any significant risk.

As American Enterprise Institute scholar Peter Wallison has written: “If there is any risk to a bank’s solvency, it is greater when a bank is affiliated with a securities firm–a permitted affiliation under GLBA [the Gramm-Leach-Bliley Act passed in 1999]–than when it is affiliated with nonfinancial firms such as retailers or manufacturers. … They are subject to the risk of loss, of course, but in the absence of fraud, they are not subject to the kinds of quick implosions that occur in the financial industry when there is a loss of market confidence.”

As for the populist argument, would allowing a Wal-Mart bank any more of a threat to community banks than allowing Wall Street behemoths Goldman and Morgan to open branches and take deposits, as the Federal Reserve recently did when it granted them BHC status? And the most important populist argument for policy makers should be the consumers and small businesses that would benefit from the choice and competition in banks for their saving and borrowing.

As MSN money coumnist Liz Pulliam Weston wrote a few years back: “Imagine for a moment if the world’s biggest retailer put the pricing squeeze on one of the world’s more profitable businesses: financial services. Who would pay the price? Perhaps: Mortgage lenders who surprise their borrowers with last-minute junk fees. Banks that nickel and dime their small account holders to death.”

Over the years, CEI certainly hasn’t been crazy about everything Wal-Mart has done, particularly some of its so-called green initiaives. But there’s no doubt that a Wal-Mart bank would make the open market that much more “open.”

Bailout fails — Move on to Mark-to-Market Reform

by John Berlau on September 29, 2008 · 13 comments

in Bailout Watch, Economy

Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.

It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.

Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.

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