Democrats to Push Republicans on Tough Votes

In spite of continued appeals to bipartisanship, the White House finally seems realize that congressional Republicans aren’t interested in compromise. Its new strategy: making a campaign issue of what the Democrats claim is Republic intransigence.

The opposition has attempted to block major policy initiatives in both houses of Congress throughout the past year while certain Republican senators long filibustered all administration nominees for high office. Indeed, Majority Leader Harry Reid of Nevada is blamed for failing to get anything done in the Senate. After a year of fierce public debate, a health-care reform bill was finally passed but climate change and energy are still on the drawing boards.

Having apparently given up hope that a mere majority will suffice to enact such ambitious legislation, Democrats now intend to make Republicans vote for a series of modest bills which they expect will be popular with the voters. Republican lawmakers who persist in their opposition against supposedly moderate policies will be left to explain themselves to their constituency.

Reid, for instance, is set to offer a pared-down jobs bill in response to rising unemployment. Rather than budgeting so much as $154 billion for job creation, as was originally intended, Reid’s bill focuses mostly on tax provisions and will cost about $15 billion. Speaker of the House Nancy Pelosi has already expressed her enthusiasm for the plan, stating on Friday that her members “look forward to reviewing” the package.

Administration officials as well as congressional staff members indicate that during the following weeks, the House will vote to lift the antitrust exemption for health insurance companies; enact measures to assist small businesses; extend unemployment benefits; and levy a fee on previously bailed out banks.

A resolution introduced last week by Representatives John Larson and Linda Sánchez of Connecticut and California respectively to block Social Security privatization might also be brought to a vote. The resolution, which has found over twenty co-sponsors, is exactly the sort of tough political vote that Democrats have rarely pushed their opposite numbers on since they won back Congress four years ago.

The strategy is not without risk though. There are congressional Democrats who question some of the policies to be voted on, the proposed Wall Street fee among them. And if the Republicans ever decide to resort to principle rather than satisfying themselves with scaremongering populism, they could well make a strong case against these anti-business measures.

New START Delayed Again

Further delays in the signing of a new START between Russia and the United States cast doubt upon nuclear arms reduction once again.

The two nuclear powers proved unable to reach agreement in December of last year and again in January in spite of claims that 95 percent of the treaty had been prepared. On February 1, American and Russian negotiators convened in Geneva, Switzerland to work out their differences but so far, little progress appears to have been made.

The Russians are objecting to revised American plans to construct a missile defense system in Eastern Europe. Last year, American president Barack Obama agreed to withdraw his intent to built the system largely in the Czech Republic to appease Russian fears about further NATO entrenchment upon its former sphere of influence. With Iran’s nuclear enrichment program advancing however, current American planning is to operate the missile shield from Poland and Romania. Read more “New START Delayed Again”

Vague Pledge of Support for Greece

European Union leaders convened in Brussels Thursday to discuss the Greek debt crisis. European Council President Herman Van Rompuy promised that the eurozone would provide “determined and coordinated action if needed” to preserve the currency’s stability although Greece, according to Van Rompuy, “did not ask for any financial support.”

Europe’s southern member state has been struggling with grave fiscal deficits and a heavy debt burden, sparking fear that at some point, the country might actually have to declare bankruptcy. The summit is meant to assure financial markets that the EU won’t let that happen. Van Rompuy spoke of the eurozone’s “shared responsibility” but whether this vague pledge of support did the trick is doubtful. After the Council President read his statement, the euro slipped slightly to an eight-month low of $1.37. The currency traded at $1.51 last December.

Van Rompuy stated that Greece will adopt “additional measures” to gets its budget under control. “We call on the Greek government to implement all these measures in a rigorous and effective manner,” he said.

No concrete aid was announced though. European leaders are reluctant to actually bail out Greece. Especially Germany, which, as Europe’s largest economy, would be forced to take the brunt of such a rescue effort, doesn’t care much to help out the nation that for many years violated European rules against overspending.

At the same time, Europe is wary of letting the International Monetary Fund extend help for such interference would be seen a sign of weakness on the union’s part.

Gingrich Explains What’s Wrong Today

Former Speaker of the House Newt Gingrich appeared on Comedy Central’s The Daily Show last night to talk about what’s wrong in American politics today.

Gingrich, who spearheaded the so-called Republican Revolution of the 1990s which ended over forty years of Democratic rule in the House of Representatives, remarked that both parties have allowed government spending to spin out of control. “We’ve gotten into a cycle of spending money on a scale that’s unsustainable,” he said, admitting that the process begun while George W. Bush was in office.

Under President Clinton, Gingrich worked with the Democratic administration to keep spending under control, balance the budget and actually pay off part of the country’s national debt. Why didn’t Republicans do the same under Bush, asked Stewart, who, for six years, could count on Republican majorities in both House of Congress. They lowered taxes but didn’t downsize government. “And they got punished for it,” Gingrich replied.

A radical reconstruction of the entitlement programs currently financed by the American government is necessary to truly bring down costs, said Gingrich. Without reforming Medicare, Medicaid and Social Security, government will continue to run deficits because Republicans, according to the party elder, rather lower taxes and borrow to keep “the smallest possible share of the economy going to the government.”

New Consumer Protection Agency

The upcoming financial regulatory reform bill currently under consideration with the United States Senate Banking Committee will probably call for an agency dedicated to protecting consumers from abusive financial practices and products, reports The Huffington Post. Committee chairman Christopher Dodd of Connecticut is expected to release the latest version of the bill later this month.

According to The Huffington Post, the agency will be authorized to regulate mortgages, credit card policies and consumer loans with a budget of its own, separate from the congressional appropriations process “so it can’t be harmed by lawmakers bent on taking away its power.” In other words: the agency will be able to set its own budget and determine its own policies, with the Senate allowed to confirm candidates nominated by the White House for its executive.

The proposal comes after months of bipartisan negotiations with Dodd and the committee’s ranking Republican, Richard Shelby of Alabama, spearheading the two camps. Where Dodd championed an agency solely tasked to protect consumers, Shelby was anxious about establishing a new institution independent of existing financial oversight.

Last Friday, Dodd admitted that he and Shelby had “reached an impasse” but it would appear that the senior Senator from Connecticut won the argument for, so claims The Huffington Post, “the new organization’s decisions will likely not be subject to vetoes by the regulators in charge of overseeing the health of banks and the financial system as a whole.” That way, it can focus on protecting consumers without having to worry about fellow regulators overruling its decisions for the sake of safeguarding banks.

The danger involved in establishing an array of oversight and protection agencies for different segments of the same market is that each becomes fixated on its own special interest, losing sight of the sector’s interests on the whole — let alone, the economy’s interests on the whole.

There is also a good argument to be made against consumer protection in principle. Such statues elevate the consumer to a status superior to that of the producer for although “consumer protection” applies to everyone, the implication that there exists a separate caste of “consumers” in society opens the door to the creation of a multitude of “protective” agencies, each with varying degrees of independence but all obstructing the workings of the free market — which, of course, is precisely their purpose.

There ought to be no special group rights of any kind; only individual rights which apply equally to all men. All men are protected from injury or fraud, not just “consumers”. If a business willfully injures or cheats men, it is a matter to be proved and punished in a court of law. There is no justice in preventive law which presumes businessmen guilty until proven innocent — especially not when such law is practiced by agencies that can operate almost free of congressional oversight. Who then protects society against the corruption, cupidity and vindictiveness of its so-called protectors?

The Toyota Recall

Things haven’t been going too well for Toyota lately. World’s largest automaker was forced to recall a number of vehicles in November of last year already when the incursion of a wrong floor mat was found to cause pedal entrapment. Last month, the company announced a recall of so much as 1.8 million cars from across Europe and 2.3 cars from the United States after a problem with the accelerator pedal was discovered. Eight different models are affected by the problem, sales of which have been suspended. An additional 1.1 recalls were issued last Thursday.

Tadashi Arashima, chief executive of Toyota Motor Europe, understands “that the current situation is creating concerns” which he deeply regrets. No accidents resulting from the malfunctioning accelerator pedals have been reported yet. “The potential accelerator pedal issue only occurs in very rare circumstances,” according to Arashima. Nevertheless, the company is taking millions of cars off the market.

How could this be allowed to happen in the so carefully regulated markets of the Western World? Shouldn’t agencies as the National Highway Traffic Safety Administration and the National Transportation Safety Board in the United States as well as the dozens of similar organizations across Europe and in Japan protect the consumer from this sort of corporate irresponsibility? Shouldn’t the regular safety inspections as required by law, which demand of citizens that they pay up every so many years for the knowledge of driving a safe vehicle, have noticed this flaw in Toyota’s latest models? How is it possible that millions of unsafe cars hit the roads across Europe and America in spite of all the taxpayers’ money spent on trying to prevent exactly that?

The reality, of course, is that unless perhaps in a totalitarian state that controls every single aspect of production and sales, no amount of regulation can prevent that mistakes are made.

Does that mean that regulatory agencies are useless altogether? No. The fact that a private automaker as Toyota takes care of its own problems, does.

Safety defects and production errors will probably always happen. But the free market provides the most efficient and the most righteous mechanism for solving it. Toyota demonstrates that. Rather than risking lawsuits and a shattered consumer trust in its products, the company is acting rationally and responsibly by recalling millions of cars even if, in the short run, it suffers financially. It needs no government bureaucrat to protect the public safety. In a free market, prestige, especially for corporations that operate worldwide, is a powerful asset. If the consumer loses confidence in the reliability of its products, even the largest automaker in the world can go bankrupt — which is precisely why Toyota will go a long way to ensure that such confidence is maintained.

Reid: Republicans Undermining National Security

By filibustering administration nominees for State and Homeland Security Department job vacancies, Republicans are playing “games” while the nation remains under terrorist threat, so said Majority Leader Harry Reid this Tuesday morning on the floor of the Senate.

Reid is frustrated with the opposition’s tactics. He says they have both “exloited” and “abused” Senate rules to grind government to a halt. Indeed, according to the Nevada senator, “Republicans have repeatedly asked fearful families to put their concerns on hold while they score political points.”

Positions that remain unfilled include that of undersecretary of defense for personnel and readiness, the assistant secretary of state for intelligence and research, the undersecretary of homeland security for intelligence and analysis and the United States representative to the Conference on Disarmament. For each, the White House has submitted candidates that are “exceptionally qualified,” said Reid.

“For political reasons, a handful of Republican senators are standing between these experts and their offices,” Reid complained — which is true. “And that means they are also standing between the American people and their security,” he added — which is something of a fearmongering exaggeration that few people are likely to take seriously.

Volcker Wants Smaller Banks

Paul Volcker, former head of the Federal Reserve (1979-1987), currently serves as chairman of the Obama Administration’s newly formed Economic Recovery Advisory Board. Volcker is widely credited with ending the stagflation crisis of the 1970s through aggressive government action and was allegedly fired by President Ronald Reagan when he refused to go along further with his administration’s deregulatory efforts.

Since the start of the financial meltdown, Volcker has been critical of banks, arguing that more regulation of the sector at large is required while commercial banks mustn’t engage in riskier activities as proprietary trading, private equity and hedge fund investments. He recently reiterated his position in an op-ed in The New York Times, writing about the reforms he believes necessary: among them, “appropriate capital and liquidity requirements for banks; better official supervision on the one hand and on the other improved risk management and board oversight for private institutions” as well as “a review of accounting approaches toward financial institutions.”

Yet “some central structural issues have not yet been satisfactorily addressed,” notes the former central banker. “A large concern” of his “is the residue of moral hazard from extensive and successful efforts of central banks and governments to rescue large failing and potentially failing financial institutions.” As Nicole Gelinas previously argued though, it is precisely these efforts that have “hammer[ed] home the idea in bondholders’ minds that the firms […] are too big to fail, that the government will bail them out again the next time they screw up.”

Volcker seems to agree. He complains that, “The phrase ‘too big to fail’ has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times” which makes them less averse to taking risks they otherwise wouldn’t. Volcker’s solution: “more effective fail-safe arrangements.”

The most effective of “fail-safe arrangements” is, however, no arrangement whatsoever except the workings of the free market. If it weren’t for government bailouts and guarantees, which spiked last year but have in fact been in place for many decades, most banks wouldn’t have engaged in the sorts of businesses which led them to the brink of bankruptcy in the first place. The ones that had nonetheless, would have failed eventually, leaving plenty of healthy companies to claim their place on the market.

Volcker’s, and the Obama Administration’s, intend is to downsize banks to prevent an “individual failure” to be “so destructive for the economy.” The truth is that an individual failure hardly ever is. The reason that the financial sector is now blamed for causing the crisis in the first place is because many banks led government incentives and guarantees influence their policies. The result? Dismal failure.

Not according to Volcker though. He argues that the “implied moral hazard” of providing a public safety net for private businesses “has been balanced by close regulation and supervision.” Yet regulation and what is deceivingly labeled “supervision” are the moral hazards we are talking about, sir!

Unsurprisingly, what is proposed is more regulation, in the form of restricting the amount of capital and leverage which a “limited number” of investment banks and perhaps insurers would be allowed to hold. This implies the punishment of success: whenever a bank is “too big”, it becomes subject to special regulation which curtails its freedom of enterprise.

The former Fed chairman does appear to suggest an interesting reform of bankruptcy law to prevent that banks should ever be deemed “too big to fail” again: the concept of a “living will” which would not protect stockholders and management but assure that creditors would suffer only “to the extent that the ultimate liquidation value of the firm would fall short of its debts.”

Volcker proposes the creation of an “appropriately designated agency” that “should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure.” Who determines when a bank is “systemically critical”? The new “resolution authority” supposedly. This doesn’t appear to entail “structural reform” therefore. Rather, once again, the financial sector would fall victim to the arbitrary decisionmaking of bureaucrats who, by whatever standard, determine whether a bank is “too big” for their liking — effectively not solving anything.

Obama Fires Back

Speaking to House members of the Republican Party in Baltimore, Maryland this Friday, President Barack Obama defended the measures which his administration has enacted over the past year as cameras rolled. The president took questions, corrected misstatements and blamed Republicans for distorting the true intentions and effects of his policies. So successful was his performance that Republican aides anonymously admitted that televising the encounter had been a “mistake”. The Huffington Post delighted in Obama’s “schooling” of Republicans whereas Fox News cut away from the broadcast twenty minutes before it ended.

After delivering a speech in which he reiterated the importance of continued dialogue between the party in power and the opposition, the president took questions, from Congressman Michael Pence for instance. Pence pointed at high job losses and wondered why the administration wouldn’t advocate tax cuts. Obama responded by reminding the congressman that hundreds of thousands of American lost their jobs already before his administration took office. The stimulus subsequently did include tax cuts which benefited a great majority of the American people. Such “component parts of the Recovery Act,” said the president, “are consistent with what many of you say are important things to do.” Which is perfectly true.

It were Bush era policies which caused the recession in the first place and economically, in spite of all the rhetoric, there is really little difference between the major parties nowadays. Neither speaks in favor of free markets. Neither opposes massive government interventions in private businesses nor renewed protectionist measures that are intended to safeguard American jobs but actually hurt trade and investment. Indeed, Obama bluntly admitted, “I am not an ideologue.” He is a pragmatist in the fullest sense of the word which means that his administration won’t fight anything that isn’t “practical” — except that in order to determine “practicality”, one still needs some sense of morality.

Congresswoman Marsha Blackburn of Tennessee confronted the president on health-care reform and claimed that the Republicans had, in fact, many alternatives to offer that would not create “more government, more bureaucracy, and more cost for the American taxpayer.” Obama recognized that and reminded the congresswoman that several Republican proposals, as allowing insurance companies to sell across state lines, have been adopted by Democrats. “But the caveat is, we’ve got to do so with some minimum standards,” he said, “because otherwise what happens is that you could have insurance companies circumvent a whole bunch of state regulations about basic benefits.”

Yet such state regulations are exactly part of the reason why health insurance is so expensive in the United States. Rather than adjusting a health-care reform bill to existing obstructions, the president should not blame insurers beforehand but allow them to operate throughout the entire country, as is the norm in most other lines of business, while acknowledging what created the problem in the first place: intrusive government regulation.

Unfortunately, Congresswoman Blackburn failed to bring this up. Her party has polluted the health-care debate by presenting it as “some Bolshevik plot,” as the president put it. He scolded the Republicans for inventing such fantasies and accusing the Democrats of not involving them in the decisionmaking process. “You’ve given yourselves very little room to work in a bipartisan fashion because what you’ve been telling your constituents is, this guy is doing all kinds of crazy stuff that’s going to destroy America.”

Some civility “instead of slash and burn would be helpful,” said Obama. “The problem we have sometimes is a media that responds only to slash-and-burn-style politics.”

Congressman Jeb Hensarling of Texas was last up to ask the president about America’s mounting public debt. “We know that under current law, that government — the cost of government is due to grow from 20 percent of our economy to 40 percent of our economy,” said Hansarling, “right about the time our children are leaving college and getting that first job.” The national debt, meanwhile, “has increased 30 percent,” according to the Texas representative.

Obama retorted by reminding those present that his administration inherited a $1.3 trillion deficit, compared to the $200 billion surplus left by the Clinton Administration in 2000. True — the George W. Bush presidency left quite the financial mess to be dealt with. That, however, does not excuse the massive spending which Obama also favors.

Altogether, apart from some beatings which the Republicans more than deserved for playing politics rather dirty in recent years, Obama’s tone was far from belligerent. Indeed, repeatedly he stressed that his administration was open to new ideas and cooperation.

As admirable as one might think of the president’s search for consensus, every time he opens the door for bipartisanship, the Republicans will retreat further, demanding that he and the Democrats sacrifice more of their principles which subsequently sours their public approval ratings.

People don’t want a president who appears to be without convictions. They voted Obama into office because they didn’t think the Republicans were doing much of a stellar job at governing under President Bush. If he truly wants to reform health care, reform the financial sector, bring more transparency to government while repairing America’s shattered relationships overseas, he shouldn’t seek advice so much from the very people who failed to do so during the past eight years.

Obama Champions Small Business

One of the stated goals of President Obama’s Financial Crisis Responsibility Fee is to reduce the size of financial institutions. Ideally, his administration would like to do some modern trust busting to make sure that banks won’t ever be “too big to fail” again. Who decides when a bank is “too big”? The same government that is now trying to break them up: the goverment of whim.

In his State of the Union address, the president cherished small businesses which, “through sheer grit and determination,” have weathered the recession and are ready to create jobs — which is the foremost objective of the Obama Administration this year. But, “even though banks on Wall Street are lending again, they are mostly lending to bigger companies.” Small businesses are in desperate need of credit and Wall Street bankers aren’t giving it to them.

So, the president proposes taking $30 billion of the money which Wall Street “repaid” and invest it in community banks. Of course, that money was borrowed by the American government in the first place and should now be used to pay back the loans, else that $30 billion gets added to America’s already mounting public debt. The president is aware of the problem. “If we don’t take meaningful steps to rein in our debt,” he said, “it could damage our markets, increase the cost of borrowing, and jeopardize our recovery.” But besides offering a spending freeze that won’t affect the most expensive of projects — defense, Medicare, Medicaid and Social Security — Obama volunteered no solution.

The president did announce a new small business tax credit, “one that will go to over one million small businesses who hire new workers or raise wages.” And, “while we’re at it,” Obama intends to eliminate all capital gains taxes on small business investments.

All of this is good news for small businesses and good news for the American economy at large, but there’s an uncomfortable assumption at the basis of these soon-to-be policies: that “small” businesses are good and deserve protection whereas “large” companies are to be mistrusted and fought.

Whenever a small business is successful it grows and will, in time, become a “large” business, by whatever definition one holds. The Obama Administration’s crusade against large banks and big business is, in fact, a crusade against success therefore which denies the natural order of the free market.

In a free market, businesses that satisfy their customers’ demands will know success and grow while competitors that don’t fail. By bailing out financial institutions and automobile manufacturers which for years maintained flawed policies, the American government chose to protect failing businesses against their successful competitors. As much as Obama’s State of the Union proposals favor many entrepreneurs, it follows the same skrewed logic: that companies on the verge of collapse need help while they and the people must be protected from big business. This line of thought denies the very reason why some companies go under and it ignores the very reason why others became big in the first place.