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Crony Capitalism? Thanks, Big Government

2012-02-08T11:20:00.000-08:00

Bill Frezza wrote in Forbes:

What we need most are leaders who can deliver that hope we were promised for years ago.

Would a farmer who put out a trough of slop be surprised if it attracted a bunch of pigs? Yet activists who promote enlarging the size and scope of government always seem to be shocked when one program after another is hijacked by corporations that find it easier to seek favors in Washington than customers in the marketplace. And, despite knowing that such corruption is inevitable, mainstream media consistently dismiss those who advocate curtailing government powers as corporate stooges.

What leads anyone to believe that unconstrained power can be channeled in ways that don’t favor the politically connected? Congressmen routinely arrive in Washington with modest means and leave as millionaires. If campaign donations are not buying legislative favors, what are they buying? Yet politicians who repeatedly put out the slop troughs, then theatrically rail against the pigs, are rarely penalized at the polls.

No matter how often it is used, credulous citizens continue to believe the “too big to fail” fear-mongering propaganda that both parties use to justify squandering public funds to socialize losses and privatize gains. How many times does a court economist have to be wrong about the impact of expensive economic interventions before we add him to the unemployment rolls? Yet we let the government operate under accounting principles that would land private businesses in jail.

If protesters are angry that Wall Street interests control the government, why do they want to increase the government’s role in the economy? For some reason they think that banging on drums and spouting incoherent slogans is more effective in influencing politicians than the proven practice of putting them on the payroll. Everyone knows the flow of campaign contributions from crony capitalists would stop in a minute if money could no longer buy legislative and regulatory favors. Yet anticorporate activists keep fruitlessly trying to cut off the flow of money instead of working to ban the favors that attract it.

How does the failure to distinguish between honestly earning profits by meeting customers’ needs and getting rich by looting the public treasury make it possible to end the latter practice without destroying the former? If we can’t define and promote a sustainable form of capitalism weaned from government corruption, where are the jobs the nation needs supposed to come from?

As class-warfare-inspired protests grow, while police are instructed to look the other way, violence is becoming a widespread means of political expression. Will Oakland, Portland and other cities burn when springtime rekindles the Obamaville encampments that serve as the most potent symbol of this failed presidency? Politicians, union leaders and other opportunists don’t seem to realize that encouraging this mindless thuggery will eventually blow up in their faces. One hopes the American public will recoil when innocent people are killed solely because they work for politically disfavored corporations, rather than shrug it off as collateral damage, as did the Greeks.

When the government hands out taxpayer money to crony capitalists promising “green” jobs, advocates seem to think this will magically turn them into effective innovators. How can experimental technologies based on ideological fantasies achieve sustainability by being rushed to market for political reasons? Crippling the evolution of proven energy businesses through capricious regulations and endless environmental reviews won’t make our energy future more secure, our economy more robust or high-paying jobs more plentiful.

And who can forget the role the military-industrial complex played in pioneering the crony capitalist business model? There has never been a more effective technique of cementing the support of politicians than strategically distributing both bases and manufacturing plants in each and every congressional district. Even as top military leaders mount feverish campaigns to avoid the budget ax, we can’t stop building weapons systems that their generals don’t even want.

As voters weigh the competing narratives of where our country went wrong and how to get it back on track, perhaps they will gain sufficient clarity to deliver a watershed election. What we need most are leaders who can deliver the hope we were promised four years ago, giving us a chance to generate the kind of prosperity we created for ourselves 30 years ago, the last time the American people realized that hyperactive government is the problem and not the solution.

And the Crisis Winner Is? Government

2012-02-08T11:05:00.000-08:00

David Malpass wrote in WSJ:

From Greece to Washington to New York state, there's no effective mechanism to control spending.

Across Europe and the United States, the fiscal crisis is setting up an epic battle among government services, pensioners, government employees, creditors and taxpayers. There is simply not enough money coming in to pay all the promises politicians have made. The shortfalls and fights are challenging our democracies and shifting wealth from the private sector to ever bigger government.

The hope has been that Europe's debt crisis would force government downsizing in time to meet cash flow requirements. Newfound fiscal discipline would provide a silver lining to the debt crisis. But that's not working out.

Germany's insistence on centralized fiscal discipline for the euro zone will lead to a massive expansion of bureaucracies in Brussels, Frankfurt and Berlin. They'll include temporary and permanent bailout funds, dangerously intrusive powers for the International Monetary Fund and the European Central Bank, endless summits, new taxes on property, and recessions.

With Europe's government structures assured of getting even bigger, the U.K. reacted immediately by opting out. U.S. lawmakers are already objecting to the European plan to expand the IMF. As in Greece, IMF programs are antigrowth, imposing austerity on the private economy, not the government. Greece has raised value-added and property taxes, then projected revenue increases that never materialize in order to keep payments flowing to creditors and the government's entourage.

Governments on both sides of the Atlantic are trying to use the crisis to grow rather than shrink. News of Europe's fiscal incompetence abounds, but Washington had no budget at all in 2010 or 2011 and the federal deficit grew at record pace. President Obama sailed through 2011 without any significant spending cuts or government downsizing.

With year-end approaching, the federal budget horizon has contracted to two weeks. Common practice is for Congress and the president to spend as much as possible in December and then adjourn, hoping voters will forget about it after New Year's Eve.

Economic Downturn Took a Detour at Capitol Hill

2012-02-08T11:02:00.000-08:00

Eric Lichtblau wrote in the New York Times:

When Representative Ed Pastor was first elected to Congress two decades ago, he was comfortably ensconced in the middle class. Mr. Pastor, a Democrat from Arizona, held $100,000 or so in savings accounts in the mid-1990s and had a retirement pension, but like many Americans, he also owed the banks nearly as much in loans.

Today, Mr. Pastor, a miner’s son and a former high school teacher, is a member of a not-so-exclusive club: Capitol Hill millionaires. That group has grown in recent years to include nearly half of all members of Congress — 250 in all — and the wealth gap between lawmakers and their constituents appears to be growing quickly, even as Congress debates unemployment benefits, possible cuts in food stamps and a “millionaire’s tax.”

Mr. Pastor buys a Powerball lottery ticket every weekend and says he does not consider himself rich. Indeed, within the halls of Congress, where the median net worth is $913,000 and climbing, he is not. He is a rank-and-file millionaire. But compared with the country at large, where the median net worth is $100,000 and has dropped significantly since 2004, he and most of his fellow lawmakers are true aristocrats.

Largely insulated from the country’s economic downturn since 2008, members of Congress — many of them among the “1 percenters” denounced by Occupy Wall Street protesters — have gotten much richer even as most of the country has become much poorer in the last six years, according to an analysis by The New York Times based on data from the Center for Responsive Politics, a nonprofit research group.

Congress has never been a place for paupers. From plantation owners in the pre-Civil War era to industrialists in the early 1900s to ex-Wall Street financiers and Internet executives today, it has long been populated with the rich, including scions of families like the Guggenheims, Hearsts, Kennedys and Rockefellers.

But rarely has the divide appeared so wide, or the public contrast so stark, between lawmakers and those they represent.

The wealth gap may go largely unnoticed in good times. “But with the American public feeling all this economic pain, people just resent it more,” said Alan J. Ziobrowski, a professor at Georgia State who studied lawmakers’ stock investments.

There is broad debate about just why the wealth gap appears to be growing. For starters, the prohibitive costs of political campaigning may discourage the less affluent from even considering a candidacy. Beyond that, loose ethics controls, shrewd stock picks, profitable land deals, favorable tax laws, inheritances and even marriages to wealthy spouses are all cited as possible explanations for the rising fortunes on Capitol Hill.

What is clear is that members of Congress are getting richer compared not only with the average American worker, but also with other very rich Americans.

$5 Trillion and Change

2012-02-08T10:57:00.000-08:00

WSJ edit:

Obama's four years have seen the four highest deficits since 1946.

The political strategy behind Obamanomics was always simple: Call for "stimulus" to rescue the economy, run up the debt with the biggest spending blitz in 60 years, and then when the deficit explodes call for higher taxes. The Congressional Budget Office annual review released yesterday shows this is all on track.

CBO reports that annual spending over the Obama era has climbed to a projected $3.6 trillion this fiscal year from $2.98 trillion in fiscal 2008, or more than 20%. The government spending burden has averaged 24% of GDP, up from an average of about 20%. This doesn't include the $2 trillion tab for ObamaCare.

All of this has increased the federal debt by about $5 trillion in a mere four years. Thanks to higher revenues, the federal deficit will decline to $1.08 trillion in 2012, or 7% of GDP. But that is still the highest deficit since 1946—except for the previous three years. In other words, the four years of the Obama's Presidency will mark the four highest years in spending and deficits as a share of the economy since Harry Truman sat in the Oval Office.

And don't forget the national debt held by the public—the kind we have to pay back. On President Obama's watch, CBO says public debt will climb this year to 72.5% of the economy from 40.3% in 2008. This isn't as high as Italy or Greece, but it's rising fast toward the 90% level that begins to debilitate an economy.

We pause from this gloom for some good news: Despite the abuse they've taken, House Republicans have made some fiscal progress. CBO estimates that overall federal spending in 2012 will grow by only $3 billion, or less than 1%, which compares with double digit increases during the Obama-Pelosi years. Republicans have also tried to reform entitlements, but Democrats wanted a $1 trillion tax hike ransom for even modest cuts, which was wisely rejected.

The other part of the fiscal story is that revenues have been in the tank for five years. In 2012 revenues will hit $2.52 trillion down from $2.57 trillion in 2007. Revenues are still only 16.3% of GDP, about two percentage points below the norm.

The drought has two main causes. First, the anemic recovery in jobs and investment isn't spinning off enough new output (1.7% growth last year) to boost tax receipts anywhere near their historic level.

S.E.C. Is Avoiding Tough Sanctions for Large Banks

2012-02-08T10:54:00.000-08:00

Edward Wyatt wrote in New York Times:

Even as the Securities and Exchange Commission has stepped up its investigations of Wall Street in the last decade, the agency has repeatedly allowed the biggest firms to avoid punishments specifically meant to apply to fraud cases.

By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.

An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios.

JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.” Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers.

Only about a dozen companies — Dell, General Electric and United Rentals among them — have felt the full force of the law after issuing misleading information about their businesses. Citigroup was the only major Wall Street bank among them. In 11 years, it settled six fraud cases and received 25 waivers before it lost most of its privileges in 2010.

By granting those waivers, the S.E.C. allowed Wall Street firms to have powerful advantages, securities experts and former regulators say. The institutions remained protected under the Private Securities Litigation Reform Act of 1995, which makes it easier to avoid class-action shareholder lawsuits.

And the companies continue to use rules that let them instantly raise money publicly, without waiting weeks for government approvals. Without the waivers, the companies could not move as quickly as rivals that had not settled fraud charges to sell stocks or bonds when market conditions were most favorable.

Other waivers allowed Wall Street firms that had settled fraud or lesser charges to continue managing mutual funds and to help small, private companies raise money from investors — two types of business from which they otherwise would be excluded.

“The ramifications of losing those exemptions are enormous to these firms,” David S. Ruder, a former S.E.C. chairman, said in an interview. Without the waivers, agreeing to settle charges of securities fraud “might have vast repercussions affecting the ability of a firm to continue to stay in business,” he said.

S.E.C. officials say that they grant the waivers to keep stock and bond markets open to companies with legitimate capital-raising needs. Ensuring such access is as important to its mission as protecting investors, regulators said.

To Increase Jobs, Increase Economic Freedom

2012-02-08T10:50:00.000-08:00

John Mackey wrote in the WSJ:

Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders, including employees and communities.

Is the United States exceptional? Of course we are! Two hundred years ago we were one of the poorest countries in the world. We accounted for less than 1% of the world's total GDP. Today our GDP is 23% of the world's total and more than twice as large as the No. 2 country's, China.

America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.

The success of economic freedom in increasing human prosperity, extending our life spans and improving the quality of our lives in countless ways is the most extraordinary global story of the past 200 years. Gross domestic product per capita has increased by a factor of 1,000% across the world and almost 2,000% in the U.S. during these last two centuries. In 1800, 85% of everyone alive lived on less than $1 per day (in 2000 dollars). Today only 17% do. If current long-term trend lines of economic growth continue, we will see abject poverty almost completely eradicated in the 21st century. Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders—customers, employees, suppliers, investors and communities.

So why is our economy barely growing and unemployment stuck at over 9%? I believe the answer is very simple: Economic freedom is declining in the U.S. In 2000, the U.S. was ranked third in the world behind only Hong Kong and Singapore in the Index of Economic Freedom, published annually by this newspaper and the Heritage Foundation. In 2011, we fell to ninth behind such countries as Australia, New Zealand, Canada and Ireland.

The reforms we need to make are extensive. I want to make a few suggestions that, as an independent, I hope will stimulate thinking and constructive discussion among concerned Americans no matter what their politics are.

Most importantly, we need to radically cut the size and cost of government. One hundred years ago the total cost of government at all levels in the U.S.—local, state and federal—was only 8% of our GDP. In 2010, it was 40%. Government is gobbling up trillions of dollars from our economy to feed itself through high taxes and unprecedented deficit spending—money that could instead be used by individuals to improve their lives and by entrepreneurs to create jobs. Government debt is growing at such a rapid rate that the Congressional Budget Office projects that in the next 70 years public money spent on interest annually will grow to almost 41.4% of GDP ($27.2 trillion) from 1.4% of GDP ($204 billion) in 2010. Today interest on our debt represents about a third of the cost of Social Security; in only 20 years it is estimated that it will exceed the cost of that program.

Only if we focus on cutting costs in the four most expensive government programs—Defense, Social Security, Medicare and Medicaid, which together with interest account for about two-thirds of the overall budget—can we make a significant positive impact.

Our defense budget now accounts for 43% of all military spending in the entire world—more than the next 14 largest defense budgets combined. It is time for us to scale back our military commitments and reduce our spending to something more in line with our percentage of the world GDP, or 23%. Doing this would save more than $300 billion every year.

Social Security and Medicare need serious reforms to be sustainable over the long term. The demographic crisis for these entitlement programs has now arrived as 10,000 baby boomers are projected to retire every day for the next 19 years. Retirement ages need to be steadily raised to reflect our increased longevity. These programs should also be means-tested. Countries such as Chile and Singapore successfully privatized their retirement programs, making them sustainable. We should move in a similar direction by giving everyone the option to voluntarily opt out of the governmental system into private alternatives, phasing this in over time to help keep the current system solvent.

In addition, tax reform is essential to jobs and prosperity. Most tax deductions and loopholes should be eliminated, combined with significant tax rate reductions. A top tax rate of 15% to 20% with no deductions would be fairer, greatly stimulate economic growth and job creation, and would reduce deficits by increasing total taxes paid to the federal government.

Why would taxes collected go up if rates go down? Two reasons—first, tax shelters such as the mortgage interest deduction used primarily by more affluent taxpayers would be eliminated; and secondly, the taxable base would increase considerably as entrepreneurs create new businesses and new jobs, and as people earn more money. Many Eastern European countries implemented low flat tax rates in the past decade, including Russia in 2001 (13%) and Ukraine in 2004 (15%), and experienced strong economic growth and increased tax revenues.

Corporate taxes also need to be reformed. According to the Organization for Economic Cooperation and Development, the U.S.'s combined state and federal corporate tax rate of 39.2% became the highest in the world after Japan cut its rates this April. A reduction to 26% would equal the average corporate tax rate in the 15 largest industrialized countries. That would help our companies to use their capital more productively to grow and create jobs in the U.S

Government regulations definitely need to be reformed. According to the Small Business Administration, total regulatory costs amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes collected last year. While some regulations create important safeguards for public health and the environment, far too many simply protect existing business interests and discourage entrepreneurship. Specifically, many government regulations in education, health care and energy prevent entrepreneurship and innovation from revolutionizing and re-energizing these very important parts of our economy.

A simple reform that would make a monumental difference would be to require all federal regulations to have a sunset provision. All regulations should automatically expire after 10 years unless a mandatory cost-benefit analysis has been completed that proves the regulations have created significantly more societal benefit than harm. Currently thousands of new regulations are added each year and virtually none ever disappear.

According to a recent poll, more than two-thirds of Americans now believe that America is in "decline." While we are certainly going through difficult times our decline is not inevitable—it can and must be reversed. The U.S. is still an extraordinary country by almost any measure. If we once again embrace the principles of individual and economic freedom that made us both prosperous and exceptional, we can help lead the world towards a better future for all.

The Talented Mr. Gensler

2012-02-08T10:43:00.000-08:00

This article appeared in the WSJ:

Jon Corzine's regulator wants you to know he's been very busy.

'I simply do not know where the money is," Jon Corzine told Congress on Thursday. The man who led MF Global into bankruptcy claimed ignorance as to why more than $1.2 billion in client funds is still missing. But the former Democratic Senator and Governor did disclose some interesting details about his relationship with his primary regulator and former Goldman Sachs colleague, Gary Gensler.

Mr. Gensler, chairman of the Commodity Futures Trading Commission, repeated several times at a hearing last week that it had been 14 years since they had worked together at Goldman.

Mr. Corzine provided more recent history. According to his testimony, the two met at the CFTC in Washington in May 2010. In November of that year Mr. Gensler was a guest lecturer at a course taught by Mr. Corzine at Princeton. The next month the two met again at the CFTC. In June of this year, they both participated in an investment conference and in July they were on a conference call together with CFTC staff. In September, a little more than a month before MF Global's collapse, Messrs. Gensler and Corzine attended a wedding of mutual friends.

This history, and the little matter of $1.2 billion in missing client funds, is making it difficult for MF Global's chief regulator to conduct political damage-control by distancing himself from the disaster that occurred under his supervision. So on Monday, Mr. Gensler broke the glass on the Obama Administration's standard tool for public-relations emergencies: Blame George W. Bush.

Dusting off a proposal that had been languishing for months, Mr. Gensler and his colleagues voted unanimously to tweak the list of financial instruments that are appropriate for the investment of customer funds at futures merchants like MF Global.

"From 2000 to 2005, the commission granted exemptions to this list, loosening the rules for the investment of customer funds," said Mr. Gensler, perhaps hoping that reporters would mistakenly conclude that the MF Global outrage is somehow related to Bush-era regulatory decisions, or perhaps a mistake in the waning days of the Clinton Administration. Speaking of his new regulation, Mr. Gensler said, "I believe that this rule is critical for the safeguarding of customer money."

Really? As critical, say, as the long-standing regulations against removing funds from segregated customer accounts—the bedrock rules that the CFTC failed to enforce at MF Global?

The new rule appears to have nothing to do with the MF Global failure, but it may not do much harm. The regulation is intended to prevent, for example, a futures broker from keeping too much client money in a particular money-market fund, though the rule will still allow greater concentration in large funds than in smaller ones.

Monday's rule will also prevent firms from investing customer funds in foreign sovereign debt, allowed in certain circumstances since the Clinton days. This rule change appears to have political appeal, given Mr. Corzine's investments in European government debt. But the reform loses its punch when one realizes that the bonds Mr. Corzine bought would be off limits for customer accounts even under the old rules.

As if to underline that Monday was a political exercise to deflect blame and make the CFTC look busy in the wake of the disaster, the commission also invited market players to seek exemptions from the new rule on a case-by-case basis. So the reforms are "critical," but well-connected players can still lobby Mr. Gensler to avoid them.

This bureaucratic eyewash is not going to satisfy MF Global clients who have had their funds frozen, if not plundered. The CFTC chairman sought and received vast powers under the Dodd-Frank law on the premise that he and his staff had the wisdom and knowledge to re-engineer derivatives trading. CFTC regulators have now failed at a much less complicated task, and one of central importance to customers.

In classic Washington fashion, Mr. Gensler is nonetheless using his agency's regulatory failure in MF Global to impose still more rules and argue for still more power. A better response would be to acknowledge that the political system has already entrusted too much power to regulators, who can never be all-knowing and all-seeing but are often vulnerable to political influence from executives or firms they know and like. Investor beware: Regulators cannot protect you.

The EPA's Fracking Scare

2012-02-08T10:36:00.000-08:00

WSJ edit:

Breaking down the facts in that Wyoming drinking water study.

The shale gas boom has been a rare bright spot in the U.S. economy, so much of the country let out a shudder two weeks ago when the Environmental Protection Agency issued a "draft" report that the drilling process of hydraulic fracturing may have contaminated ground water in Pavillion, Wyoming. The good news is that the study is neither definitive nor applicable to the rest of the country.

"When considered together with other lines of evidence, the data indicates likely impact to ground water that can be explained by hydraulic fracking," said the EPA report, referring to the drilling process that blasts water and chemicals into shale rock to release oil and natural gas. The news caused elation among environmentalists and many in the media who want to shut down fracking.

More than one-third of all natural gas drilling now uses fracking, and that percentage is rising. If the EPA Wyoming study holds up under scrutiny, an industry that employs tens of thousands could be in peril.

But does it stand up? This is the first major study to have detected linkage between fracking and ground-water pollution, and the EPA draft hasn't been peer reviewed by independent scientific analysts. Critics are already picking apart the study, which Wyoming Governor Matt Mead called "scientifically questionable."

The EPA says it launched the study in response to complaints "regarding objectionable taste and odor problems in well water." What it doesn't say is that the U.S. Geological Survey has detected organic chemicals in the well water in Pavillion (population 175) for at least 50 years—long before fracking was employed. There are other problems with the study that either the EPA failed to disclose or the press has given little attention to:

• The EPA study concedes that "detections in drinking water wells are generally below [i.e., in compliance with] established health and safety standards." The dangerous compound EPA says it found in the drinking wells was 2-butoxyethyl phosphate. The Petroleum Association of Wyoming says that 2-BE isn't an oil and gas chemical but is a common fire retardant used in association with plastics and plastic components used in drinking wells.

• The pollution detected by the EPA and alleged to be linked to fracking was found in deep-water "monitoring wells"—not the shallower drinking wells. It's far from certain that pollution in these deeper wells caused the pollution in drinking wells. The deep-water wells that EPA drilled are located near a natural gas reservoir. Encana Corp., which owns more than 100 wells around Pavillion, says it didn't "put the natural gas at the bottom of the EPA's deep monitoring wells. Nature did."

• To the extent that drilling chemicals have been detected in monitoring wells, the EPA admits this may result from "legacy pits," which are old wells that were drilled many years before fracking was employed. The EPA also concedes that the inferior design of Pavillion's old wells allows seepage into the water supply. Safer well construction of the kind normally practiced today might have prevented any contaminants from leaking into the water supply.

• The fracking in Pavillion takes place in unusually shallow wells of fewer than 1,000 to 1,500 feet deep. Most fracking today occurs 10,000 feet deep or more, far below drinking water wells, which are normally less than 500 feet. Even the EPA report acknowledges that Pavillion's drilling conditions are far different from other areas of the country, such as the Marcellus shale in Pennsylvania. This calls into question the relevance of the Wyoming finding to newer and more sophisticated fracking operations in more than 20 states.

The safety of America's drinking water needs to be protected, as the fracking industry itself well knows. Nothing would shut down drilling faster, and destroy billions of dollars of investment, than media interviews with mothers afraid to let their kids brush their teeth with polluted water. So the EPA study needs to be carefully reviewed.

But the EPA's credibility is also open to review. The agency is dominated by anticarbon true believers, and the Obama Administration has waged a campaign to raise the price and limit the production of fossil fuels.

Natural gas carries a smaller carbon footprint than coal or oil, and greens once endorsed it as an alternative to coal and nuclear power. But as the shale gas revolution has advanced, greens are worried that plentiful natural gas will price wind and solar even further out of the market. This could mean many more of the White House's subsidized investments will go belly up like Solyndra.

The other big issue is regulatory control. Hydraulic fracturing isn't regulated by the EPA, and in 2005 Congress reaffirmed that it did not want the EPA to do so under the Safe Drinking Water Act. The states regulate gas drilling, and by and large they have done the job well. Texas and Florida adopted rules last week that followed other states in requiring companies to disclose their fracking chemicals.

But the EPA wants to muscle in, and its Wyoming study will help in that campaign. The agency is already preparing to promulgate new rules regulating fracking next year. North Dakota Governor Jack Dalrymple says that new EPA rules restricting fracking "would have a huge economic impact on our state's energy development. We believe strongly this should be regulated by the states." Some 3,000 wells in the vast Bakken shale in North Dakota use fracking.

By all means take threats to drinking water seriously. But we also need to be sure that regulators aren't spreading needless fears so they can enhance their own power while pursuing an ideological agenda.

Fed Signals That a Full Recovery Is Years Away

2012-02-08T10:31:00.000-08:00

Binyamin Appelbaum wrote in the New York Times:

The Federal Reserve, declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to spur growth.

The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.

The economy expanded “moderately” in recent weeks, the Fed said in a statement released after a two-day meeting of its policy-making committee, but jobs were still scarce, the housing sector remained deeply depressed and Europe’s flirtation with crisis could undermine the nascent domestic recovery.

The Fed forecast growth of up to 2.7 percent this year, up to 3.2 percent next year and up to 4 percent in 2014, but at the end of that period, the central bank projected that the recovery would still be incomplete. Workers would still be looking for jobs, and businesses would still be looking for customers.

“What did we learn today? Things are bad, and they’re not improving at the rate that they want them to improve,” said Kevin Logan, chief United States economist at HSBC. “That’s what they concluded — ‘We’ve eased policy a lot, but we haven’t eased it enough.’ ”

The economic impact of the low-interest rate extension, however, is likely to be modest. Many businesses and consumers can’t qualify for loans, a problem the Fed’s efforts do not address. Moreover, long-term rates already are at record low levels and, like pushing on a spring, the going gets harder as it nears the floor. Finally, the Fed already was widely expected by investors to hold rates near zero well into 2014, limiting the benefits of a formal announcement.

“I wouldn’t overstate the Fed’s ability to massively change expectations through its statements,” the Fed’s chairman, Ben S. Bernanke, said at a press conference Wednesday after the announcement. “It’s important for us to say what we think and it’s important for us to provide the right amount of stimulus to help the economy recover from its currently underutilized condition.”

The Fed’s plans for interest rates were unveiled amid a barrage of statements the central bank released Wednesday as part of its campaign to improve its transparency. And while it pleased some investors in the markets, it left others befuddled. The Dow Jones industrial average, which had been down in the morning, began rising steadily after the Fed released its statement at about 12:30 p.m. Wednesday. The Dow finished the day up 81.21 points at 12,756.96.

First came the Fed’s traditional statement, released after each meeting of its policy-making committee, which said that the central bank intended to hold short-term rates near zero “at least through late 2014.”

Ninety minutes later, the Fed published for the first time the predictions of the committee’s members on when they would raise interest rates. It showed that 11 of the 17 members expected the Fed to raise rates by the end of 2014. Taken together, the documents suggested that the Fed expected to keep rates near zero until late 2014, but probably not any longer than that.

Since the beginning of the financial crisis in 2007, the Fed has alternated bursts of activity with periods of rest, concluding several times that it had done enough only to find the economy still struggling to recover. The Fed announced last summer that the central bank intended to keep interest rates near zero through at least the middle of 2013, and that it would seek to reduce long-term interest rates through changes in the kinds of investment securities it holds. Since then, two meetings had passed without the introduction of any new programs.

The Fed’s latest action came after a run of better-than-expected economic data, suggesting to some analysts that the pace of growth might begin to rise without any further help. The Fed also is under relentless assault from Republican presidential candidates who have said that its policies are doing little good and will eventually spur inflation.

And there is growing criticism that the Fed’s policies are unfairly taking money from savers, including many seniors who planned their retirements around the interest rates that low-risk assets like bank deposits used to pay.

Mr. Bernanke said Wednesday that the Fed was aware of this, but it was acting again because it still did not believe that it has done enough. At the same time, he suggested that the Fed was not on the verge of more drastic measures, like further expanding its portfolio of mortgage-backed securities.

Such purchases remain under consideration, Mr. Bernanke said, but only “if we see that the recovery is faltering or if we see that inflation is not moving towards target.”

As part of its transparency campaign, the Fed also published Wednesday a statement of its long-term goals, formalizing its longstanding commitment to maintain inflation at about 2 percent a year. The Fed also said that it was equally committed to minimizing unemployment, but that its exact goal would vary based on economic circumstances. It said the goal now was to reduce unemployment below 6 percent.

The new forecast showed that the Fed expects to hit its inflation target over the next three years, but to fall well short of its goals for unemployment. The Fed projected that unemployment would drop no lower than 8.2 percent this year, just slightly below the current rate of 8.5 percent, and no lower than 7.4 percent by the end of next year. By the end of 2014, the Fed still expects that at least 6.7 percent of people actively interested in working would not be able to find jobs.

In light of those projections, it was unclear why so many members of the policy-making committee expected to raise interest rates by the end of 2014.

Asked why the committee would seek to raise rates in such a situation, Mr. Bernanke said that he did not imagine it would.

“We’re certainly willing to look for different ways to provide further support for the economy if in fact we have this unsatisfactory situation,” he said.

As for the forecasts, he said, “there is no mechanical relationship between these projections” and the committee’s decisions.

Some analysts cautioned that the Fed’s statements and predictions were being given too much weight.

“Here’s what all Fed promises are worth: nothing, if the data tell them to do something different,” said Ian Shepherdson, chief United States economist at High Frequency Economics.

Furthermore, Mr. Bernanke’s Fed is now making projections about decisions that could be made under the leadership of someone else. Mr. Bernanke’s current term ends in early 2014.

“I wouldn’t feel bound by anything the previous chairman had done,” Mr. Shepherdson said. “And three years is a very, very long time.”

How Regulators Herded Banks Into Trouble

2011-12-06T05:55:00.000-08:00

Peter J. Wallison wrote in WSJ:

Blame the Basel capital standards for over-investment in mortgage-backed securities and now government debt.

For many in the U.S., the worrisome events occurring in Europe recall the 2008 financial crisis. If Greece or some other country should fail to meet its debt obligations, the result could be much like the 2007 mortgage meltdown in the United States. Many banks and other financial institutions in Europe, and some in the U.S., may be weakened by the loss in value of the sovereign debt they hold. Why is all this happening again?

The important factor in both the American and European cases is what is known to scholars as a common shock—a sharp decline in the financial condition and regulatory capital of a large number of financial institutions because a widely held asset has suddenly lost its value.

In the U.S., this shock came when the 10-year housing bubble deflated and U.S. financial institutions were weakened by a sudden loss in value of the mortgage-backed securities (MBS) they were holding, especially those based on subprime mortgages. Mark-to-market accounting did the rest, requiring banks to write down the value of their MBS assets until they appeared unstable or insolvent.

In Europe, the problem is similar and so is its source. Europe's banks, like those in the U.S. and other developed countries, function under a global regulatory regime known as the Basel bank capital standards. Basel is the Swiss city where the world's bank supervisors regularly meet to consider and establish these rules. Among other things, the rules define how capital should be calculated and how much capital internationally active banks are required to hold.

The welfare state’s reckoning

2011-12-06T05:39:00.000-08:00

Robert J. Samuelson wrote in the Washington Post:

We Americans fool ourselves if we ignore the parallels between Europe’s problems and our own. It’s reassuring to think them separate, and the fixation on the euro — Europe’s common currency — buttresses that mind-set. But Europe’s turmoil is more than a currency crisis and was inevitable, in some form, even if the euro had never been created. It’s ultimately a crisis of the welfare state, which has grown too large to be easily supported economically. People can’t live with it — and can’t live without it. The American predicament is little different.

Government expansion was one of the 20th century’s great transformations. Wealthy nations adopted programs for education, health care, unemployment insurance, old-age assistance, public housing and income redistribution. “Public spending for these activities had been almost nonexistent at the beginning of the 20th century,” writes economist Vito Tanzi in his book “Government versus Markets.”

The modern welfare state has reached a historic reckoning. As a political institution, it hasn’t adapted to change. Politics and economics are at loggerheads. Vast populations in Europe and America expect promised benefits and, understandably, resent any hint that they will be cut. Elected politicians respond accordingly. But the resulting inertia poses an economic threat, one already realized in Europe. As deficits or taxes rise, the risk is that economic instability will increase, growth will decline, or both. Paying promised benefits becomes harder. Or austerity becomes unavoidable.

The paradox is that the welfare state, designed to improve security and dampen social conflict, now looms as an engine for insecurity, conflict and disappointment. Facing the hard questions of finding a sustainable balance between individual protections and better economic growth, the Europeans have spent years dawdling. The parallel with our situation is all too obvious.

How the U.S. Will Become a 3rd World Country (Part 2)

2011-12-01T06:06:00.000-08:00

Ron Hera published in GoldSeek.com:

The United States is quickly coming to resemble a post industrial neo-3rd-world country. Unemployment, lack of economic opportunity, falling real wages and household incomes, growing poverty and increasing concentration of wealth are major trends in the U.S. today. Behind these growing problems are monetary inflation created by the Federal Reserve’s monetary policies, federal government deficit spending and the dominant influence of “too big to fail” banks and large corporations in Washington D.C., which has altered the direction of law in the United States. To make matters worse, the U.S. government faces a historic fiscal crisis.

High unemployment, lack of economic opportunity, low wages, widespread poverty, extreme concentration of wealth, unsustainable government debt, control of the government by international banks and multinational corporations, weak rule of law and counterproductive policies are defining characteristics of 3rd world countries. Other factors include poor public health, nutrition and education, as well as lack of infrastructure—factors that deteriorate rapidly in a failing economy

Apparently ineffective regulation and relatively little law enforcement action by the federal government in the wake of the sub-prime mortgage meltdown resulted in widespread speculation that special interests had taken priority over the rule of law. Critics have also charged that the federal government’s policies threaten to eliminate what remains of the American middle class.

Rakoff's SEC Rebuke

2011-11-30T07:11:00.000-08:00

WSJ edit:

By all means let's settle the Citigroup case in court.

Federal Judge Jed Rakoff's rejection Monday of a $285 million settlement between Citigroup and the Securities and Exchange Commission is playing in some circles as a great populist victory against Wall Street. But it looks to us more like a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan.

The case concerns a $1 billion mortgage debt deal that Citigroup Global Markets sold in early 2007, just before the housing bubble burst. The SEC alleged in October that Citigroup's marketing materials were "materially misleading" because they didn't disclose that the bank had "exercised significant influence over the selection of the assets and had retained a $500 million proprietary short position of the assets it had helped select."

Rather than fight in court, the two sides settled on the fine and a promise that Citi would reform its practices, without admitting or denying guilt. The SEC pockets the cash and a political trophy to appease those who want more bankers punished. Citigroup avoids what it called in its filing to Judge Rakoff the "devastating consequences" of "litigating with a regulator" in today's marketplace. Citigroup notes, for instance, that Goldman Sachs's stock price dropped 24% before it settled a similar SEC case in 2010.

Judge Rakoff's order raises important questions about these settlements. In a 15-page opinion, he rips the parties for not providing "any proven or admitted facts upon which to exercise even a modest degree of independent judgment." In other words, a regulator can't ask a judge to sign off on a deal that's supposedly in the public interest without showing proof. Doing so would "not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary."

The judge demonstrates little sympathy for Citigroup, noting "there is little real doubt" the bank "contests the factual allegations of the Complaint." If anything, he seems to want Citigroup to admit error and pay a steeper price, rather than a "very modest penalty" and "inexpensive prophylactic measures for the next three years." In a four-page order in October, the judge asked why the SEC wasn't asking for a higher penalty, akin to the $535 million Goldman paid last year.

But Judge Rakoff also doesn't spare the SEC, wondering why the settlement doesn't "commit" the agency "to returning any of the total of $285 million obtained from Citigroup to the defrauded investors." And he notes a settlement would deal "a double blow" to defrauded investors, who would be prevented from pursuing further litigation.

Judge Rakoff may fall on the side of the antibank populists, given his musings on "the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives" and his characterization of a $95 million civil penalty as "pocket change." But he's doing a public service in forcing the SEC and Citigroup to come clean about what really happened—or go to court to settle the matter in public view.

Why Amazon Can't Make A Kindle In the USA

2011-11-29T15:49:00.000-08:00

Steve Denning contributed this article to Forbes:

I recently noted how conventional cost accounting inexorably focuses executives’ attention on increasing short-term profits by cutting costs.

The same thing happens in economics. Take a recent study that set out to shed light on the role of Chinese businesses vis-à-vis American consumers. Galina Hale and Bart Hobijn, two economists from the Federal Reserve Bank of San Francisco, did a study showing that only 2.7% of U.S. consumer purchases have the “Made in China” label. Moreover, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. So the study trumpets the finding that China has only a tiny sliver of the U.S. economy.

So no problem, right?

Well, not exactly. The tiny sliver happens to be the sliver that matters. What economists miss is what is happening behind the numbers of dollars in the real economy of people.

How whole industries disappear

Take the story of Dell Computer [DELL] and its Taiwanese electronics manufacturer. The story is told in the brilliant book by Clayton Christensen, Jerome Grossman and Jason Hwang, The Innovator’s Prescription :

ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: “We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.”

Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However, the next time ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:

Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focus on on those activities that are profitable and by getting out of activities that are less profitable.

Read The Tea Leaves Correctly

2011-11-29T15:00:00.000-08:00

Ken Fisher wrote this article in Forbes:

Bull markets don’t depend on job growth.

Today’s biggest investor fear boils down to one thing: recession. While there’s no guarantee that there won’t be a double dip, I can tell you with certainty that another recession now would be unprecedented when you consider the historical evidence.

We have never had a recession after the traditional leading economic indicator (LEI) index has been high and rising for five months. But that’s what is happening today on an absolute and year-over-year basis. For those keen on comparing 2011 with the ugliness of 2007–09, note that the LEI back then had been falling for three years.

One component of the leading economic indicators is the yield curve. Bond investors keep a close eye on this as it illustrates the spread or difference between long-term interest rates and short-term ones. It’s always been low or gone negative before a recession. Now the spread is 220 basis points, or 2.2%. In 2007 it was negative. The Fed is foolishly trying to push the spread down by selling short-term bonds and buying the same amount of long-term, but it’s not working.

Here is another little-noticed piece of evidence. Since World War II we haven’t experienced a recession until after corporate profits per employee had declined for at least six months. Currently just the opposite is happening. This indicator is continuing to rise.

Deflation Has Arrived

2011-11-29T14:58:00.000-08:00

A. Gary Shilling wrote in Forbes:

Markets seem to hang on Bernanke's every word, but does anyone actually read the press releases issued each month by the Fed's Federal Open Market Committee? The FOMC, of course, is the group within the Fed that actually carries out the central bank's monetary policy.

Three paragraphs down in its Sept. 21 FOMC release it says: "To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate [‘to foster maximum employment and price stability'], the Committee decided today to extend the average maturity of its holdings of securities."

Now why would the Fed go long on its purchases of Treasurys, extending maturities and pushing down long rates, if it feared inflation? It wouldn't. Its actions speak loudly: The Fed is more worried about deflation than inflation.

To the Fed deflation means substantial and chronic drops in the prices of goods and services. This could turn into a self-feeding downward spiral as buyers wait for lower prices. It's a death spiral for any economy.

In my book The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth And Deflation (John Wiley & Sons, 2010) I talk about different types of deflation. Five are already present in the U.S. economy.

The first is deflation in financial assets. With the collapse in the subprime residential mortgage market in 2007, we have seen a swoon in stocks and bonds from investment-grade to junk and municipal bonds.

Virtually all financial assets have declined, with the exception of safe-haven Treasurys. Massive monetary and fiscal stimuli revived them in 2009, but financial assets are sinking again.

Financial-asset deflation is also rampant in Europe. Sovereign debt prices have been hit hard by the euro zone crisis and rating downgrades.

The recent pummeling of banks stocks is a clear indication that financial assets are deflating. Bank of America and Citigroup are down 55% and 46%, respectively, year to date.

Montgomery council panel wants to take on more debt

2011-11-29T14:47:00.000-08:00

Erin Cunningham wrote at Gazette. Net:

A Montgomery County Council committee recommends borrowing about $2 billion — $180 million more than Executive Isiah Leggett (D) said is fiscally responsible — during the next six years to pay for construction projects.

The committee voted 2-1 on Monday to take on $320 million in debt in each year of the county’s six-year building plan, $1.92 billion total. Leggett recommended borrowing $295 million each year.

The county’s most recent capital budget called for $4 billion — about half from borrowing money — in construction projects. The spending affordability guidelines considered by the council committee represent a portion of the funding for those projects.

Council President Valerie Ervin (D-Dist. 5) of Silver Spring and Councilman Hans Riemer (D-At large) of Silver Spring, voted for the greater amount. Councilwoman Nancy M. Navarro (D-Dist. 4) of Silver Spring was opposed.

A spokesman for Leggett would not say whether the capital budget he plans to propose in January would include the higher level of borrowing if the full council approves that level next month.

“We believe [$295 million] is the right level to be at,” Lacefield said. “I think the assumption is we’re going to submit a capital budget that we think is at the right level.”

He said the committee’s recommendation takes the county in the wrong direction.

“We’ve got to be reducing our capital spending,” Lacefield said. “We’ve got to be reducing the amount of debt service we pay for in the operating budget, and we’ve got to be protecting our AAA bond rating.”

In August, Leggett announced his intention to reduce the amount of money the county borrows for construction projects by $150 million during the next six years to reduce the county’s debt and rein in spending as the economy recovers.

Riemer disagreed with Leggett’s proposal, saying building costs are, in some cases, 30 percent lower than they have been in the past. He said it is a good time to build, which, in turn will create jobs and needed revenue.

The county’s Director of Management and Budget Jennifer Hughes disagreed with that assessment.

“It’s very hard to jump start an economy at such a localized level,” she said.

Ervin said the council could scale back the capital budget when it considers spending guidelines again in February.

However, a council adviser said that would be a first.

“There’s no way the council is going to lower the guidelines in February,” said Glenn Orlin, deputy council staff director.

Navarro, chair of the Government Operations and Fiscal Policy Committee, said adding projects to the capital budget in the fall and removing them next year will be more difficult — and more troubling to agencies and the community that are expecting the construction projects.

In August, Leggett called on county agencies to recommend cuts to their capital spending plans. The largest share — $33.9 million — would come from Montgomery County Public Schools.

ecunningham@gazette.net

Secret Fed Loans Gave Banks $13 Billion

2011-11-29T13:58:00.000-08:00

Bob Ivry, Bradley Keoun and Phil Kuntz wrote in Bloomberg:

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

Judge Blocks Citigroup Settlement With S.E.C.

2011-11-29T13:36:00.000-08:00

Edward Wyatt wrote in the New York Times:

Taking a broad swipe at the Securities and Exchange Commission’s practice of allowing companies to settle cases without admitting that they had done anything wrong, a federal judge on Monday rejected a $285 million settlement between Citigroup and the agency.

The judge, Jed S. Rakoff of United States District Court in Manhattan, said that he could not determine whether the agency’s settlement with Citigroup was “fair, reasonable, adequate and in the public interest,” as required by law, because the agency had claimed, but had not proved, that Citigroup committed fraud.

As it has in recent cases involving Bank of America, JPMorgan Chase, UBS and others, the agency proposed to settle the case by levying a fine on Citigroup and allowing it to neither admit nor deny the agency’s findings. Such settlements require approval by a federal judge.

While other judges are not obligated to follow Judge Rakoff’s opinion, the 15-page ruling could severely undermine the agency’s enforcement efforts if it eventually blocks the agency from settling cases in which the defendant does not admit the charges.

The agency contends that it must settle most of the cases it brings because it does not have the money or the staff to battle deep-pocketed Wall Street firms in court. Wall Street firms will rarely admit wrongdoing, the agency says, because that can be used against them in investor lawsuits.

The United States of EPA

2011-11-28T06:56:00.000-08:00

WSJ edit:

Ms. Jackson's agency takes over automobile design.

Here's one good way to consider the vote in 2012: It's about whether to re-elect President Lisa Jackson, the head of the Environmental Protection Agency, which these days runs most the U.S. economy.

The EPA heaved its weight against another industry this month, issuing a regulation to sharply increase fuel economy. Under this new rule, America's fleet of passenger cars and light trucks will have to meet an average of 54.5 miles per gallon by 2025, a doubling of today's average of about 27 mpg. By the EPA's estimate the rule will cost $157 billion, meaning the real number is vastly greater.

The fuel-economy rule is classic Obama EPA. Until this Administration, fuel standards were the remit of Congress, via its Corporate Average Fuel Economy (CAFE) program. In 2007, the legislative branch raised those standards with a bill requiring the U.S. fleet to hit 35 miles per gallon by 2020, a 40% increase. The industry is struggling to keep pace with those steep requirements.

President Jackson is now casting aside 35 years of Congressional prerogative. Because the Obama EPA has declared carbon dioxide a "pollutant," and because cars emit CO2, Ms. Jackson is citing the Clean Air Act in her bid to commandeer Detroit. While the EPA officially worked with the National Highway Traffic Safety Administration (Nhtsa, the agency previously in charge of efficiency standards), it's clear the EPA is calling the shots.

At least when Nhtsa was overseeing efficiency, it was charged by Congress with taking into account vehicle safety and a rule's effect on the economy and consumer demand. The EPA can't be bothered with such detail.

The great pipeline sellout

2011-11-19T05:42:00.000-08:00

Charles Krauthammer wrote in the Washington Post:

In 2008, the slogan was “Yes We Can.” For 2011-12, it’s “We Can’t Wait.” What happened in between? Candidate Obama, the vessel into which myriad dreams were poured, met the reality of governance.

His near-$1 trillion stimulus begat a stagnant economy with 9 percent unemployment. His attempt at Wall Street reform left in place a still-too-big-to-fail financial system, as vulnerable today as when he came into office. His green-energy fantasies yielded Solyndra cronyism and a cap-and-trade regime not even a Democratic Congress would pass.

And now his signature achievement, Obamacare, is headed to the Supreme Court, where it could very well be struck down. This comes just a week after its central element was overwhelmingly repudiated (by a 2-to-1 margin) by the good burghers of Ohio.

So what do you do when you say you can, but, it turns out, you can’t? Blame the other guy. Charge the Republicans with making governing impossible. Never mind that you had control of Congress for two-thirds of your current tenure. It’s all the fault of Republican rejectionism.

Hence: “We Can’t Wait.” We can’t wait while they obstruct. We can’t wait while they dither with my jobs bill. Write Congress today! Vote Democratic tomorrow!

We can’t wait. Except for certain exceptions, such as the 1,700-mile trans-USA Keystone XL pipeline, carrying Alberta oil to Texas refineries, that would have created thousands of American jobs and increased our energy independence.

For that, we can wait, it seems. President Obama decreed that any decision must wait 12 to 18 months — postponed, by amazing coincidence, until after next year’s election.

Why? Because the pipeline angered Obama’s environmental constituency. But their complaints are risible. Global warming from the extraction of the Alberta tar sands? Canada will extract the oil anyway. If it doesn’t go to us, it will go to China. Net effect on the climate if we don’t take that oil? Zero.

Danger to a major aquifer, which the pipeline traverses? It is already crisscrossed by 25,000 miles of pipeline, enough to circle the Earth. Moreover, the State Department had subjected Keystone to three years of review — the most exhaustive study of any oil pipeline in U.S. history — and twice concluded in voluminous studies that there would be no significant environmental harm.

So what happened? “The administration,” reported the New York Times, “had in recent days been exploring ways to put off the decision until after the presidential election.” Exploring ways to improve the project? Hardly. Exploring ways to get past the election.

Obama’s decision was meant to appease his environmentalists. It’s already working. The president of the National Wildlife Federation told The Post (online edition, Nov. 10) that thousands of environmentalists who were galvanized to protest the pipeline would now support Obama in 2012. Moreover, a source told The Post, Obama campaign officials had concluded that “they do not pick up one vote from approving this project.”

Sure, the pipeline would have produced thousands of truly shovel-ready jobs. Sure, delay could forfeit to China a supremely important strategic asset — a nearby, highly reliable source of energy. But approval was calculated to be a political loss for the president. Easy choice.

Military health-care reform leaves wounded warriors entangled in more red tape

2011-11-19T05:39:00.000-08:00

Steve Vogel wrote in WSJ:

Reforms meant to streamline military health care for severely wounded service members have in many cases worsened the bureaucracy, causing duplication, confusion and turf battles, according to families, congressional overseers and advocates for veterans.

After reports that troops recovering from catastrophic wounds at Walter Reed Army Medical Center and other facilities were getting lost in the military’s system, a high-profile commission recommended in 2007 that every severely wounded service member be assigned a federal recovery coordinator. This “single point of contact” was to cut red tape and shepherd the wounded through recovery and the transition back to military duty or civilian life.

But at least a dozen Defense Department and Department of Veterans Affairs programs have sprung up to coordinate the care.

The proliferation of programs and case managers, intended to better manage health care, “may actually have the opposite effect,” Debra Draper, health-care director for the Government Accountability Office, told a congressional committee last month.

A Rand Corp. study released last week found more than 200 programs sponsored or funded by the Defense Department to help troops with psychological health and traumatic brain injury, leading to significant duplication within and across branches of service.

The bureaucratic problems for the severely wounded can range from additional paperwork to conflicting guidance.

In one situation, five case managers were working on the same life insurance problem for one person, according to a GAO report.

In another, one service member with multiple amputations was advised by his federal coordinator to retire in order to get VA services, but a military coordinator set a goal for him to remain on active duty, greatly confusing the family.

Banks Quietly Ramping Up Costs to Consumers

2011-11-15T11:22:00.000-08:00

Eric Dash wrote in the New York Times:

Even as Bank of America and other major lenders back away from charging customers to use their debit cards, many banks have been quietly imposing other new fees.

Need to replace a lost debit card? Bank of America now charges $5 — or $20 for rush delivery.

Deposit money with a mobile phone? At U.S. Bancorp, it is now 50 cents a check.

Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank. Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. Everything, it seems, has a price.

“Banks tried the in-your-face fee with debit cards, and consumers said enough,” said Alex Matjanec, a co-founder of MyBankTracker.com. “What most people don’t realize is that they have been adding new charges or taking fees that have always existed and increased them, or are making them harder to avoid.”

Banks can still earn a profit on most checking accounts. But they are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.

Put another way, banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

Even the much-maligned debit usage charges have effectively been bundled into higher monthly fees on checking accounts. Bank of America abandoned its $5 a month debit card usage fee in late October amid a firestorm of criticism. Yet, it more quietly raised the cost of its basic MyAccess checking account by more than $3 a month earlier this year. Monthly maintenance fees now run $12 a month, up from $8.95.