Stifling Regulation

I accept, I even believe, that conservatives really do love our country and that they want to be patriotic. But it seems to me that they don't always strive for logical consistency in their positions.

In a number of states in the past year, GOP controlled legislatures have passed and/or are trying to pass a range of restrictions on and regulations of voting and voter registration.

On the one hand, conservatives argue that business regulations stifle business. They argue that we should decrease or even eliminate such regulations.

At the same time, they actively promote increased regulation of voting in our country.

Since voting is at the core of democracy, by their own logic, they are stifling democracy.

It seems to me that stifling democracy is directly opposed to their intent and desire to be patriotic.

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Picking Winners And Losers

Some people think it is only a rhetorical question to ask: "Should our government be in the business of 'picking winners and losers?'"

I think it is a real question, not a foregone conclusion.

It was during my first year with the legal department of a large NY bank that I learned that, for corporate lending officers, it is a negative to have a 100% success rate - to never pick a borrower who failed. I learned that if you never make a loan which goes bad, you are being too conservative in pursuit of opportunity.

And working for large banks, I had plenty of opportunity to deal with the "troubled assets" folks; the bankers to whom corporate borrowers were transferred when suffering the slings and arrows of outrageous fortune.

Even before the fiascos of the Age of Definitives, commercial banks regularly made bad bets despite intensive credit analyses.[1]

Most conservatives like to argue that the government shouldn't be in the business of picking commercial "winners and losers" and they like to point to the failure of the solar company Solyndra LLC as proof. [2]

It occurs to me that if banks, the acknowledged experts in "picking winners and losers," get it wrong sometimes, how on earth can we blame the government when an occasional horse it has backed doesn't finish the course?

Those same conservatives love to argue that the government should follow business principles. (I disagree, because our government has much wider responsibilities than maximizing profits for a limited group of investors, but let's accept the idea for a moment and examine it.)

And proponents of capitalism also argue that investors deserve the lions share of profits because they have taken risks. [3]

So, on the one hand they argue that government should be run like a business, but on the other they say that government shouldn't take risks or "pick winners or losers" when that is precisely what business does routinely

There are some folks in this world with whom you just can't win, I guess.

The question isn't "Should our government be in the business of 'picking winners and losers?'"

The question is :"How should the government do so, when appropriate, in a responsible manner?"

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[1] Think of all the banks - and other business people - who picked Enron as a winner, and yet it turned out to be built on undetected frauds.

People need to be aware that the derivatives insanity mainly comes from the super-aggressive investment banking side of our newly combined "banks," not the commercial corporate banking side. The problem isn't with "too big too fail" - the problem is intermingling critical banking services such as our credit system and our payment systems with the high risk activities of investment banking - it hurts if a large investment banks fails – it is critical if our credit and payment systems fail

[2] It is a toss up whether conservatives trot out this "shouldn't be picking winners" arguments before or after they tell us this is an Obama administration scandal, ignoring the fact that the Bush Admin first started pushing it as a company to support.

[3] Totally ignoring the huge risk involving their very livelihoods that people take when they accept a job with a company. Typically, investors risk "extra cash" they have; workers risk their economic (and sometimes, physical) lives on the success or failure of the company they work for.

Critical Facts About Banking

It's too bad there is so much uninformed thinking about the bank "bailouts."

The seeds of the 2008 crisis were much the same as the seeds for the bank failures in 1929 and the Great Depression which followed - the combination of commercial banking functions (credit services and payment systems) with investment banking (forming investment pools of capital.)

The banking system we established after the crash divided commercial banking from investment banking.

Commercial banks handled deposits, extensions of credit (lending) and especially our payment systems - originally check clearing, but also wire transfers and generally almost all payments in the stream of commerce. (No payment systems, no commerce. High risk payment systems, high costs for commerce.)

These three functions are so important to a smoothly running economy that we deemed the large commercial banks to be covered by an implicit "guarantee" of our central bank. the Fed" as the "lender of last resort. (That did not mean all banks would be automatically bailed out if they were failing - it did mean that the fed would support them in times of need.)

Payment systems are particularly vulnerable to cascading system failures - and without effective and safe payment systems, our economy as we know it could not survive.

Commercial banks were covered by a comprehensive set of regulations geared to assure the "safety and soundness" of the banks and the banking system.

Commercial banks were considered low risk, and thus low investment return.

Investment banks pooled the money of investors (excess capital) and disperse it as investment capital.

With investment banking, there is not the systemic risk that the payment systems have, and the money is money intentionally put at risk in investments.

The investment banking sector was high risk, high reward, with relatively few regulations beyond attempts to reduce business fraud.

For reasons not really germane here, commercial banks were, profits wise, sucking wind starting in the late 80s.

The "fix" was to allow commercial banks and investment banks to merge (through the 'repeal' of that separation in the Glass-Steagall Act) - bringing the high risk functions of the investment banks under the Fed's "lender of last resort" function so necessary for the payment systems and the universal need for credit.

And thus, we had the inevitable investment banking failures of 2008 and the inevitably critical need for the "bailouts" to rescue the credit and payment system functions.

'Red Tape' and Republican-Lite

I'm still digesting President Obama's address on jobs last night.

But what's this "red tape" business, Mr President?

Is there a GOP jingle you don't buy into?

In case you didn't notice, "Red tape" is just another, underhanded way of referring to and slighting regulations.

Regulations save lives, Mr President. They save our environment, they protect our economy. And they protect jobs!

"Job killing regulations?" Pure right wing jingoism.

Regulations are checks and balances on, inter alia, corporations getting away with risky and even deadly self-serving acts to maximize profits for investors. Corporate self-interests are not always aligned with our country's self-interests.*

"Job killing regulations?" Go ahead, gut the EPA. We don't need all those jobs in the tourism and outdoor sports industries. We don't need all those "waste management" jobs.

Mr President, do you really think we don't need all that stuff that regulations protect? Sure, go ahead, buy into another GOP short-sighted, pro-business anti-people and anti-country idea. Whatever is good maximizing corporate profits is good for America, right?

Please Mr President, don't keep buying into right wing ideas and issue framing

For Pete's sake, don't you understand that you're losing support because in 2008 53% of the American people thought they were voting for a Democrat?

Please, understand, you caught a dangerous economic infection when you were hanging out with those Chicago School of Economics types. And that infection is going to kill your second term. And the American economy, as well.

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* Re "self-interests"

Please compare:

"Maximize Investor Profits"

with

"To:

• form a more perfect Union,
• establish Justice,
• insure domestic Tranquility,
• provide for the common defence,
• promote the general Welfare, and
• secure the Blessings of Liberty to ourselves and our Posterity"

Will His Coffin Be Nailed Shut Tonight?

What the heck, I may as well go out on a limb and thrill my many followers:

I'm afraid that without bold action and proposals, in tonight's "jobs" address to Congress President Obama will be nailing the lid shut on his re-election chances in 2012

I believe President Obama has failed as president because too many of his policy initiatives have been modified to reflect extreme positions in the right wing.

He has failed to deliver a vision of governance or leadership to the American people and has become little more than an echo chamber for failed GOP economic ideas.

Some speak of his leadership of the American people as a whole.

A very large majority of the American people supported the public option in the health care bill. After a few tepid references to the public option in some early speeches, he never pushed for it - again, what the majority of people wanted.

More than 70% of the American people want tax increases on the richest, and he hasn't even asked for that, much less pushed for it.

It seems as if Obama can't even follow the American people, much less lead them.

I view this as a leadership failure of unprecedented degree.

The majority of American people are shouting for him to stand up to the GOP and become a leader.

This is almost certainly his last chance to do so.

The private sector has not produced job growth over the past 11 years despite tax cuts and deregulation.

I believe that if Obama limits himself to hoping that jobs will mysteriously appear if he and we just continue to embrace GOP policies, to hoping that the private sector will somehow be induced to create jobs through tax cuts, he will have nailed the coffin lid shut on his re-election chances in 2012, because those GOP policies implemented over the past 11 years haven

n't created jobs. More of the same will lead to the same results.

Bush's Stimulus Package II

Yesterday I posted a message about Bush's Stimulus Package, but the graphic left a bit to be desired.

This chart shows the year to year growth (changes) in federal spending.

Note that Bush increased spending significantly - which, by another name, is a stimulus package. This graph shows how much stimulative growth in spending we saw under Bush.*

Also note that the Obama 2009 spike includes (i) TARP spending which was enacted during Bush's administration, and the Recovery Stimulus package, which was enacted to combat the effects of Bush's Recession. We can differ on how much of the 2009 spending is the responsibility of Bush and how much the responsibility of Obama. See, e.g., http://rjw-progressive.blogspot.com/2011/08/whose-debt-is-it.html

* (Note that my source from which these figures were calculated does not indicate if they include the "off-balance sheet" spending on the Iraq and Afghanistan wars, which were not included in Bush's budgets, but were paid for with "supplemental appropriations" and noit included in the budget itself. My source was http://www.usgovernmentspending.com/downchart_gs.php?year=1990_2011&view=9&expand=&un

its=b&log=linear&fy=fy11&chart=F0-fed&bar=0&stack=1&size=m&title=&state=US&color=c&local=s)

Bush's Stimulus Package

I have a conservative friend who got all excited when he found out that federal revenues grew during the BushII admin "even with the tax cuts."

Like all good conservatives, he seems to think that the fact that Bush also significantly increased federal spending, thus stimulating the economy, is a fact better left unmentioned and unrecognized. In fact, he called bringing up the increased spending and the stimulus effect of it "twisting the logic."

So, I charted growth in[1] revenues as a percentage of GDP from 93-2008. I also through in a line of GDP growth during those years. which is pretty much a steady increase. (The slopes of the 2 curves don't necessarily match; the significant fact on GDP here is that it pretty steadily grew until Bush's Recession hit)

Through the Clinton years, revenues as a percent of GDP grew at a stead.

Of course, when Bush cut taxes, the revenues as a percent of GDP dropped.

If you assume revenue growth would have pretty much continued on the Clinton era path (as projected with the green line in the graph) you can see just how much revenue we lost because of the Bush tax cuts.

[1] On edit, per correction in first comment made.