Home > Uncategorized > Free to Choose? Not So Much.

Free to Choose? Not So Much.

Obama’s assault on the economy continues, with news this week of a couple of new bills he signed into law. The first bill is, when not frightening, somewhat amusing. Let’s look at the amusing parts first.

The bill, which was sponsored by Sen. Thomas Carper, D-Del., and Rep. Patrick Murphy, D-Pa., is intended to give Obama and the dems some talking points to use during the November elections. It’s ostensible goal is to reduce bad payments by the government, which last year reached 110 billion. These bad payments include things like fraud, wrong people paid, wrong amounts paid, etc. Obama wants to reduce that number to 50 billion by 2012. Apparently, Obama doesn’t mind waste, just any more waste than 50 billion. When one runs a 1.4 trillion dollar deficit, I suppose saving 60 billion is a worthwhile goal, regardless of what it does to the constitution.

The amusing parts include a requirement for more agencies to report waste and produce corrective action plans with targets to reduce errors and a requirement for agencies to conduct audits on their programs. Neither requirement, by the way, requires anybody to do anything; the bill just requires agencies to make plans to eventually do things.

The scary part, and the part that may very well be unconstitutional, also gives agency heads authority to use any recovered money for purposes not currently allowed, including improving their financial management, supporting the agency’s inspector general or for the original intent of the funding. There are concerns that this provision might violate the constitutional requirement that all spending bills originate in the House. Currently, any money not spent on the purposes for which it was budgeted must be returned to the treasury. This didn’t stop Obama, however, when he managed to create a rotating slush fund under TARP.

Then there was the unemployment payment extension bill. Disregarding the fact that there was no way to pay for it included in the bill, Obama is expected to sign the $34 billion, six-month renewal of unemployment insurance for the chronically jobless. Which is, I suppose, sadly ironic given almost 10 percent unemployment that shows no signs of improving. Democrats tout the economy-boosting effect of unemployment checks since most beneficiaries spend them immediately, and they say paying for them with cuts to other programs dilutes the stimulative effect. “Extending unemployment insurance isn’t just the right thing to do. It’s also the smart thing to do for our economy,” said Sherrod Brown, D-Ohio. One is almost rendered speechless by the cognitive dissonance embodied in Brown’s statement.

If Pelosi et al., are right that unemployment benefits are a boost to the economy and are a “smart thing,” then why are they on the defensive about 10 percent unemployment? Surely there is a number, that economists could deduce, that would represent the optimum number of unemployed people. Maybe, since unemployment benefits, according to Pelosi, “create(s) jobs faster than almost any other initiative you can name,” we should be shooting for 100 percent unemployment. That way, we’d be sure to create all the jobs we need!

Then, there is the 2000 page whopper of a financial regulatory bill. When I was in law school, we used to joke that the Americans with Disabilities Act should be called the “Full Employment for Lawyers Act.” Between the Obamacare bill and this bill, perhaps this administration should be called the full employment for lawyers administration. The list of powers that feds grab in this bill is staggering. Let’s look at a few of them.

• A council of regulators will identify threats to the system. The Treasury secretary will lead the council. The council will have authority to review both banks and nonbank companies, such as insurers and credit unions. Onsite supervision by Federal Reserve regulators is required.

• The law provides a way for the council to close big companies. Companies the council feels could eventually pose a threat must write a “funeral plan.” If regulators decide a company is endangering the system, they could dismantle it and sell off the pieces. This applies to private companies. The idea is to prevent panic from spreading. The Treasury would pay the company’s obligations. Treasury would be repaid with industry fees and money raised from the failed company’s shareholders, bondholders and asset sales. But taxpayers could end up on the hook, the Congressional Budget Office says.

• Regulators decide how much capital banks must have to cover unexpected big losses. The law instructs regulators to raise these standards, but they’ll have broad discretion.

• A new office at Treasury will monitor the insurance industry and help decide if an insurer is big enough to warrant tighter oversight. Today, insurers are regulated by the insurance commissions of each state in which they operate.

• A new agency will oversee consumer products and services, from mortgages to check cashing. It will regulate many nonbank companies, such as payday lenders.

• The regulator will police companies that dominate consumer finance, such as credit card companies and the biggest banks. The agency will write rules and ban products it deems unsafe.

So we get a few new agencies, and slew of new regulators, and no guarantee of success. The regulators themselves are unpoliced, except by any particular administration. There exists still a possibility that we will continue to be taxed for future bailouts. But Obama will be able to claim something accomplished, no matter how ineffective or nebulous.

Oddly enough, the bill doesn’t include a fix for Fannie Mae and Freddie Mac. Those two companies are at the heart of the mortgage finance system. They buy mortgages from lenders and resell them to investors. When their investments lost money, the government had to intervene. The bailouts have cost taxpayers $145 billion so far. As was previously discussed in this blog, could there be a reason these two economic giants failed to be included? Or is that just my cynical mind detecting the smell of something rotten?

Categories: Uncategorized
  1. August 8, 2010 at 3:54 am

    Great info, thanks for useful post. I am waiting for more

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