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Greenhouse Protection Racket

by Marlo Lewis on July 6, 2010 · 1 comment

in Odds & Ends

Climate policymaking in our Nation’s capital often resembles the heavy-handed dialogue of old-time mobster films.

“Are you gonna come along quietly, or do I have let the California Air Resources Board (CARB) muss ya up?” That was pretty much the line White House Environment Czarina Carol Browner took to obtain the auto industry’s support for the joint EPA/National Highway Traffic Safety Administration (NTSHA) greenhouse gas (GHG) emission/fuel economy standards rule. EPA is now in a position both to determine the stringency of fuel economy standards for the auto industry and to set climate policy for the nation. Yet the Clean Air Act provides no authority to regulate fuel economy and says nothing about greenhouse gases or global climate change. ”Badges? We don’t need no stinking badges.”  

Modus Operandi: Threaten in Order to Remove the Threat — for a Price

Here’s how the regulatory mugging went down. 

In February 2009, EPA Administrator Lisa Jackson commenced a rulemaking to reconsider Bush EPA Administrator Stephen Johnson’s denial of California’s request for a waiver to establish its own greenhouse gas emission standards program. Because the waiver would also allow other states to adopt the California program, because GHG emission standards are mainly fuel economy standards by another name, and because automakers would have to reshuffle the mix of vehicles delivered for sale in each “California” state to achieve the same average fuel economy in those states, Jackson’s proceeding threatened to subject automakers to inefficient, consumer-thwarting, regulatory patchwork.

In May 2009, Czarina Browner conducted secret negotiations with automakers, CARB Chairman Mary Nichols, and major environmental groups. Browner required participants to take a vow of silence and forbade anyone to take notes, violating the Presidential Records Act. The closed-door negotiations produced an “historic agreement” whereby automakers would support the EPA/NHTSA GHG/fuel economy standards rule and California and other states would deem compliance with the federal standards as compliance with their own.

In addition, observes Rep. Darrel Issa (R-Calif.), at the same time the Browner-led negotiations were taking place, ”the government was also engaged in bailout talks with General Motors (GM) and Chrysler,” resulting in “an ownership stake for the federal government of 61% of GM and 8% of Chrysler, respectively.” Whether Browner literally made the auto industry an offer it could not refuse, with the sweetener of financial assistance also contingent on the industry’s embrace of GHG regulation, we may never know.

This much is clear. By granting California’s request for a waiver, EPA created the threat of a regulatory patchwork, enabling the White  House to offer ”protection” in the form of the joint GHG/fuel economy standards rule. The protection “fee” was the auto industry’s unquestioning support for the joint rule and its prerequisite, EPA’s endangerment rule.

Thus, the Auto Alliance became the key industry lobby opposing Sen. Lisa Murkowski’s resolution to overturn EPA’s endangerment rule. The Alliance warned that if the endangerment finding were overturned, the “historic agreement” would unravel, confronting automakers with “the alarming possibility of having to comply with multiple sets of conflicting fuel economy standards.” 

That is correct, but only because EPA Administrator Jackson, reversing her predecessor’s decision, granted California a waiver to establish GHG emission standards for new motor vehicles. An obvious solution would be to overturn the waiver. After all, the Energy Policy and Conservation Act clearly prohibits states from adopting laws or regulations ”related to fuel economy,” and the California motor vehicle emissions program is basically a de facto fuel economy program. The waiver effectively repeals federal law, violating the separation of powers. Not that you’ll ever hear about that from Government Motors. Mum’s da woid.

Mirage of Regulatory Certainty

The auto industry is not the only target of the greenhouse protection racket. For years, the greenhouse gang has been saying that only cap-and-trade can end the intolerable ”regulatory uncertainty” facing the electric power sector, energy-intensive manufacture, and other CO2 emitters. But who created the uncertainty in first place if not the self-same advocates of cap-and-trade? If they were serious about relieving uncertainty, they would disavow the regulatory schemes for which they have been campaigning.

Businesses lobbying for cap-and-trade in the name of certainty should read the fine print. The Waxman-Markey and Kerry-Boxer bills, for example, have multiple escalater clauses setting the stage for dramatic increases in regulatory stringency well beyond the bills’ explicit emission reduction targets.  Similarly, the bills’ “findings” presenting the “scientific” rationale for cap-and-trade are not mere rhetorical fluff but precedents for litigation targeting emission sources considerably smaller than those explicitly identified as “covered entities.” Enact such legislation, and the only certainty is that regulatory burdens will grow unpredictably.

Too Clever by Half

Last but not least, cap-and-taxers sell their policy as protection from litigation-driven greenhouse gas regulation under the Clean Air Act.  The sales pitch goes something like this: “Pretty nice company you got deah, shame if sumpin’ bad waz to happen to it. Everybody needs protection. You need protection. It’s called Kerry-Lieberman.” Note the familiar pattern. The gang pushing cap-and-trade as protection from EPA are the same folks who sued EPA to regulate greenhouse gases and who vilified Sen. Murkowski and others for attempting to stop EPA.

This is all too clever by half. If cap-and-trade dies in the 111th Congress, which seems increasingly likely, the Obama administration and its allies on the Hill will take sole ownership of the compliance costs, job and GDP losses, and “absurd results“ arising from EPA regulation of greenhouse gases under the Clean Air Act. 

Democratic leaders may not recognize it yet, but they have painted themselves into a corner. They have become the Party of Endangerment — the party endangering the U.S. economy by championing the endangerment rule, with all its cascading regulatory effects.

Media Give Disgraced Politician Eliot Spitzer a Soapbox to Lecture the Public

by Hans Bader on June 4, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Legal, Mobility, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Eliot Spitzer, who was forced out as Governor of New York after paying prostitutes tens of thousands of dollars and then violating federal finance laws in trying to cover it up, is now apparently going to replace respected journalist Campbell Brown in a prime slot on CNN.  Earlier, the leading liberal website Slate hired him as one of its financial commentators.

As attorney general of New York,  Spitzer was an overbearing, hypocritical bully who used the threat of prosecution and lawsuits to force profitable companies to dump their highly-competent CEOs, resulting in declining profits and losses to shareholders at companies like AIG, which the taxpayers later bailed out at a cost of $170 billion.

Spitzer is just the latest liberal crook given a soapbox by the liberal media.  The Washington Post just gave former auto czar Steve Rattner space to boast about the supposed success of the auto bailouts, even as the SEC was moving to ban him from Wall Street for three years because of his unethical conduct.  (Rattner whined about how critics of the bailout like Senator Charles Grassley, who exposed how General Motors was using taxpayer money to make a phony “repayment” of part of what taxpayers gave GM, were “elasticizing the facts,” even though the government’s own inspector general for the TARP bailout program confirmed what Senator Grassley was saying.)

And the Washington Post earlier gave former Fannie Mae head Franklin Raines a soapbox to lecture Fannie Mae’s critics, after he was fined for massive accounting fraud at Fannie Mae, which had to be bailed out by taxpayers shortly afterwards thanks to the risky practices he promoted.

As I noted at the time in a letter to the editor, “Mr. Raines stepped down as Fannie Mae’s CEO after a ‘$6.3 billion accounting scandal’ that rivaled Enron’s; in a settlement with the government, he and other Fannie Mae executives agreed to pay fines and forgo millions in stock, pension and other benefits. . .Yet The Post gave Mr. Raines a soapbox to make the same arguments against reforming Fannie Mae that he and Fannie’s lobbyists have made for years. Mr. Raines, a liberal power broker, derided “ideologues in the Bush administration” who, he said, tried to “undermine” Fannie Mae. Those officials were in truth warning about Fannie Mae’s risky practices.”

The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs).  “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk. ”From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do. Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.

(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals. Dodd is the chief drafter of the financial “reform” bill.)

At the direction of the Obama administration, Freddie Mac recently ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

The federal government has sunk over $50 billion into General Motors itself, $17 billion more into its finance arm GMAC, $15 billion into Chrysler, and spent billions more on the wasteful cash-for-clunkers program and pension bailouts for GM spin-offs.  Even if GM manages to recover, taxpayers will never get most of this money back.   (Taxpayers may get back some of the money sunk directly into GM itself, in an IPO, if all goes according to plan; but the remaining money sunk into related entities, and indirectly used to prop up GM, will never be repaid, even if GM recovers.)

Even if GM recovers, it will not be because of its ability to fairly compete (the Obama administration used the bailout to protect excessive union wages), but rather because of good luck (Toyota’s recent safety issues have driven car-buyers away from it to GM and Ford) and special favors from the government (the Obama administration artificially reduced GM’s costs by ripping off bondholders who had loaned the company money, and dumping costly pension obligations of GM spin-offs onto taxpayers).

CEI in the News for May 11, 2010

by Richard Morrison on May 12, 2010

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=dKqr9ONxacg 285 234]

LibertyWeek 71: The Politics of Booze

by Richard Morrison on November 30, 2009

in CEI Projects, Podcast

Your hosts Richard Morrison and Jeremy Lott welcome guests Gregory Conko and Garrett Peck to Episode 71 of the LibertyWeek podcast. We start with an update on the latest in the Climate-Gate scandal and the impact of nanny state policies in New York City, then move on to Monsanto’s antitrust worries and finish with an interview with Garrett Peck, the author of The Prohibition Hangover: Alcohol in America from Demon Rum to Cult Cabernet (buy your copy here).

Markets vs. Special Interests

by Ryan Young on October 12, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Environment, Global Warming, Healthcare, Insurance, Politics as Usual, Regulation, Stimulus to Nowhere

Detractors of capitalism decry that it caters to special interests. The opposite is actually true. Just look at what’s happened in the last year.

Most of Wall Street came to government asking for a bailout when the government-created housing bubble popped.

The Big Three automakers also went to Washington for largesse when their customers came to prefer Toyotas and Hondas.

Health insurance companies stand to make a killing if Obamacare passes.

T. Boone Pickens and Al Gore would make millions from environmental legislation.

Ludwig von Mises explained the reason for all of this corrupt behavior with a single sentence back in 1949: “It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference.”
-Human Action, 4th Edition, p. 337.

UAW Gives Taxpayers the (Gettel)finger

by Ivan Osorio on July 27, 2009 · 1 comment

in Bailout Watch, Economy, Labor

Considering the enormous amounts of cash that the federal government has hurled at the auto industry since the start of the financial crisis, recipients of government largess in Detroit should at least have the common courtesy of telling taxpayers what they’re doing with their money. Unfortunately, United Auto Workers boss Ron Gettelfinger doesn’t seem to think that applies to him or his union. So kudos are in order to Rep. Jeb Hensarling for calling out Gettelfinger and the UAW on this:

The lone member of Congress on an oversight panel reviewing the use of the $700 billion Troubled Asset Relief Program criticized the decision of the United Auto Workers union not to testify at today’s hearing in Detroit on the auto industry bailout.

Rep. Jeb Hensarling, R-Texas, who is member of the Congressional Oversight Panel, said the UAW refused to testify at today’s hearing at Wayne State University.

The panel confirmed that it sought the testimony of the UAW. Alan Reuther, the UAW’s legislative director, didn’t immediately return a call seeking comment.

Hensarling said he was “disappointed” that UAW President Ron Gettelfinger did not accept invitation to testify.

“He was able to rearrange his schedule to come and ask for TARP money,” he noted.

[...]

“The UAW came before Congress and pleaded for billions of taxpayer assistance. Their ownership stakes in Chrysler and GM look suspicious at best and like sweetheart deals at worst. It’s outrageous they would benefit from the taxpayers’ money and then refuse to testify about it,” Hensarling said in a statement before the opening of today’s hearing.

It’s beyond outrageous; it’s disgraceful — especially in light of the preferential treatment the union has gotten from the government vis-a-vis other bondholders. Even more disgraceful is the fact that the White House and Congress are unlikely to do anything about it. At least now we know what the UAW thinks of the rest of us.

Adding Insult to Auto Dealers’ Injury

by Ivan Osorio on July 10, 2009

in Bailout Watch, Economy

If anything could make finding yourself out of business overnight any worse, it is to have to pay a penalty for it. That’s what now threatens some GM and Chrysler dealers whose factory agreements are not being renewed as part of those companies’ government-led restructuring. Many of those soon-to-be-defunct dealers may find themselves exposed to having to pay withdrawal penalties into the union pension funds into which they will no longer pay.

Now, the Detroit automakers overextended their dealer networks — but that is no justification for penalizing local auto dealers for GM’s and Chrysler’s mistakes. To address this potential problem, Rep. John Kline (R-Minn.) has introduced the Auto Dealers Pension Fairness Act (H.R. 2793), which would direct the Presidential Task Force on the Auto Industry to report to Congress on which dealers are to be closed and bar pension withdrawal penalties until 60 days after the Task Force reports to Congress –  and thus allow Congress to determine a course of action.

This is only fair, but I’m not holding my breath waiting for any unions to endorse it. Many union pension plans are severely underfunded — due in large part to union pension fund managers’ use of funds to pursue political agendas at public company shareholder meetings — and this would only add to their troubles.

For more on union pension funds, see here, here, here, and here.

LibertyWeek 46: The Great Porn Wall of China

by Richard Morrison on June 9, 2009

in CEI Projects, Podcast

Your faithful host Richard Morrison welcomes back special guest co-hosts William Yeatman and Michelle Minton for Episode 46 (listen HERE!). We start with the investors that are getting worked over by the politically-distorted bankruptcy of Chrysler, the ascension of the Swedish Pirate Party to the European Parliament and the Great Porn Wall of China. We then move on to proof that beer is better for you than water, a sign that airline travel may get more expensive, and an example of how voters deal with corrupt politicians. Finally, we wind things up with some very educational Olympic News.

Stimulus Package Shrinks Economy, Destroys Private Sector Jobs

by Hans Bader on May 31, 2009 · 2 comments

in Bailout Watch, Economy, Employment, International, Labor, Odds & Ends, Politics as Usual, Precaution & Risk, Stimulus to Nowhere, Trade

Most of the $800 billion stimulus package has yet to be spent, but it’s already harming the economy, both by triggering trade wars that have cost at least 40,000 jobs, and by driving up interest rates for businesses that need to borrow money to expand or create jobs. (The government is keeping down interest rates on its own debt by printing vast sums of money to buy its own bonds, in order to finance the exploding national debt, which will result in massively higher taxes).

As economist Arnold Kling explains, “most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy. According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now,” when the economy will already be in recovery, and “when the economy will need little, if any, stimulus. This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending. Of course, if the real goal is to promote government at the expense of civil society” through “political favoritism, then the stimulus is working exactly as intended.”

1.2 million Americans have lost their jobs since Obama signed the stimulus package into law. The Congressional Budget Office predicted it would shrink the economy “in the long run” (contrary to Obama’s claim that it would prevent “irreversible decline“), but create jobs in the short run.

But the stimulus package turned out to be harmful even in the short run, because it was so badly designed. It poured money into sectors of the economy where no help is needed because unemployment is low, while siphoning money out of sectors where unemployment is high. Moreover, “states hit hardest by the recession are getting the least amount of stimulus spending.”

The stimulus package is just one example of the Obama Administration running up the national debt to bail out the more fortunate while sticking less fortunate people with the bill. The auto bailouts are another. They run up the national debt to keep unskilled auto workers enjoying wages and benefits that are much better than those enjoyed by the average American (while ripping off pension funds and bondholders). As Mickey Kaus notes, “Why should the government tax unskilled workers making $18 an hour, who haven’t bankrupted their employers, in order to protect unskilled workers making $28 an hour, and who have bankrupted their employers, from having to take a pay cut?” (Actually, the Chrysler autoworkers are making far more than $28 an hour, when you factor in benefits).

The stimulus package has directly destroyed tens of thousands of jobs. A provision in the stimulus package that blocked a mere 97 Mexican truckers from U.S. roads “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs. And its vague “buy American” provisions, despite doing little to promote purchases of U.S. products, managed to ignite a trade war with Canada.

Obama’s policies echo those of Herbert Hoover, who helped spawn the Great Depression through his protectionism and tax increases. One of Obama’s own advisers admits that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” Even the Washington Post, which endorsed Obama and once supported his auto bailouts, now has soured on them and their waste of taxpayer money.

Wasteful Obama Auto Bailouts Disturb Even Liberal Washington Post

by Hans Bader on May 30, 2009 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Labor, Politics as Usual, Regulation, Stimulus to Nowhere

Even the liberal Washington Post, which endorsed Obama and has not backed a Republican for president since 1952, is getting fed up with the Obama Administration’s wasteful and politicized bailouts of General Motors and Chrysler. Today, it laments the
“imminent transformation of General Motors into a government-owned company, infused with upward of $50 billion in federal money.” “It doesn’t take much imagination to forecast the political pressures that will buffet the government-as-auto-executive. We’ve seen one effect already in the preferential treatment of the autoworkers’ union at the expense of private creditors. . . . the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. And politics will now divert the company’s attention away from making cars consumers actually want. “Influential members of Congress will insist on jobs in their districts; environmentalists will want electric cars; overseas sourcing will be frowned upon. How such decisions affect profits could become secondary.”

That’s what happened in Britain in the 1970s. The government took over and attempted to bail out the country’s auto industry, and ruined it in the process, destroying whatever chance it had left to survive. The British auto industry ended up being run mainly to benefit the unions, and produced politically-correct cars drivers didn’t want.

Earlier the Post argued that Obama “should stop bullying the company’s bondholders”: “While the Obama administration has been playing hardball with bondholders, it has been more than happy to play nice with the United Auto Workers. How else to explain why a retiree health-care fund controlled by the UAW is slated to get a 39 percent equity stake in GM for its remaining $10 billion in claims while bondholders are being pressured to take a 10 percent stake for their $27 billion?” “If this were a typical bankruptcy, the company would be allowed by law to tear up its UAW collective bargaining agreement and negotiate for drastically reduced wages and benefits. That’s not going happen. Phrased another way: The government won’t let that happen.” Instead, the government is moving towards “financial engineering that ignores basic principles of fairness and economic realities to further political goals.”

The automakers would have been better off simply filing for bankruptcy last fall rather than seeking a taxpayer-funded bailout. The bailouts have cost taxpayers tens of billions, but made it harder to fix the root causes of the crisis facing the Detroit automakers, such as excessive labor costs.

The federal government poured billions of dollars into Chrysler, which then went bankrupt and now is in the process of merging with Fiat. But Chrysler may never revive, thanks to absurdly generous compensation for the company’s union employees. The Obama Administration has refused to cut union wages substantially, though it had no compunction about ripping off the pension funds and other lenders who loaned money to Chrysler to try to keep it afloat. Even union members seem surprised by how little they were asked to sacrifice. (The Administration is also seeking to rip off GM bondholders to benefit the union).

Moderate Democrat Mickey Kaus, who reluctantly voted for Obama, notes that the federal bailout may yet fail because of Obama’s failure to reduce excessive labor costs:

“Before the deal, Chrysler’s UAW workers made $28 an hour. After the deal, they’ll make $28 an hour. They gave up a scheduled increase in wages, plus a couple of scheduled bonuses. That explains why Chrysler’s Belvidere, Illinois workers told TV station WIFR that ‘the plan is not nearly as drastic as they expected.’ …As for Chrysler’s ‘chance for long-term success,’ it appears vanishingly small. Italian manufacturer FIAT is supposed to save Chrysler with new products, but according to a recent Automotive News article, ‘four of the six new vehicles from Fiat will enter the small-car segment,’ which is highly competitive but ‘covers only 14 percent of the entire U.S. light-vehicle market.’ . . . Pathetically, Chrysler hopes that even if they don’t save the company the new small cars will ‘[b]urnish the environmental image of Chrysler brands,’ says Automotive News. Unfortunately, the pipeline for those brands’ other, larger, products–burnished or not–is pretty much empty. If Chrysler workers were paid, say, not $28 an hour instead of $24–still not bad–the firm might actually have a ‘chance for long term success’ through charging lower prices. But that wasn’t a sacrifice Obama was ready to ask (even if Belvidere workers were apparently willing).”

In addition to leaving General Motors and Chrysler saddled with excessive costs and union ownership, Obama harmed them by radically ratcheting up federal CAFE fuel-economy standards, which affect them more than their foreign competitors. 50,000 jobs could be lost. And his global-warming regulations will destroy countless jobs and cut “household purchasing power,” reducing auto sales and Chrysler’s chances of survival.

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