Tag: bailouts

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free trade & free markets moral hazard

Is It Still Capitalism?

capitalism, mixed economy, socialism, corporation, bank

Is it still capitalism if the capital is guaranteed?

“The U.S. government will guarantee all customer funds in Silicon Valley Bank (SVB) after a series of bad decisions and a run on deposits led to the bank’s collapse,” explains Elizabeth Nolan Brown in Reason. 

Technically, the bank isn’t being bailed out. Its customers are. And that’s a lot more popular than bailing out banks directly. There are more bank customers who vote than bankers who vote — though there is probably more political donations from banks directly seeking banking policy “correctives” than bank customers doing the same. That’s almost apodictically true.

The most bizarre element? While the FDIC, the federal agency that insures depositors of this and similar banks, is designed to guarantee depositors’ capital up to a certain limited amount ($250,000, more or less), the regulatory triumvirate of Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chair Martin Gruenberg declare that “all depositors of this institution will be made whole.” 

All.

Even the super-rich.

The key concept, here, is moral hazard — “The decision creates bad incentives for financial institutions and their customers” is how Ms. Brown puts it. We’ve been through all of this before. Is there really any question? The answers are in.

So, to the opening, Is it still capitalism if the capital is guaranteed? — if even Prince Harry’s fortune will be guaranteed — the answer is No.

Sorta. 

It’s a special kind of capitalism. State-​dominated capitalism; Neo-​mercantilism; f***-ism. Use whichever term.

As we contemplate a profit-​and-​loss system without loss, and how the losses will be made up within the financial system, just remember that the federal government playing the role of Savior is not itself costless, and … its debt keeps growing. And the Ultimate Result of all this still looms.

Immoral hazard.

This is Common Sense. I’m Paul Jacob.

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folly free trade & free markets meme moral hazard national politics & policies too much government

Why government is (almost) never the solution…

big government, solutions, toxic assets, bank bailout, meme, illustration, Jim Gill, Paul Jacob, Common Sense

When you systematically reward failure, incompetence and irresponsibility…what results should you expect?

Bank Bailout

QE — Toxic Asset Government Purchases

Moral Hazard

Click below to get a high resolution version of this image:

big government, solutions, toxic assets, bank bailout, meme, illustration, Jim Gill, Paul Jacob, Common Sense

 

Categories
free trade & free markets national politics & policies too much government

Preparing for a Bailout

In his 2012 State of the Union speech, President Obama declared, “It’s time to apply the same rules from top to bottom: No bailouts, no handouts and no cop-outs.”

Yes. He said that. But in reality, the handouts and cop-​outs have kept on coming, like the solar wind.bucket for bailout

A Washington Examiner editorial notes that while “Obama blasted the influence of insurance lobbyists and vowed to take on the industry … as president, he passed a health care law that funnels more than $1 trillion in subsidies to insurers, and fines Americans who do not purchase their products.”

Go ahead: call that a handout.

But what about bailouts?

While newspapers like The Washington Post insist that Obamacare is exempt from such an eventuality, there remains the part of the Affordable Care Act known as the risk corridor programs. These reimburse “insurance plans for claims that cost significantly more than premiums that new subscribers paid in,” according to The Post’s Wonkblog. The goal is to protect health insurance companies from the risks they face in the new Obamacare exchange.

Companies that make money will pay into a fund that will be used to bail out companies that lose money. But, after obvious complaints about limits, the Centers for Medicare and Medicaid Services (CMS) pushed a mandate that the program be revenue neutral, that the money paid out not exceed that paid in.

Last Friday, in 435 pages of regulations, CMS abandoned this call for budget neutrality. Instead, the regulation states, “In the unlikely event of a shortfall for the 2015 program year, HHS recognizes that the Affordable Care Act requires the secretary to make full payments to issuers.”

A taxpayer bailout: fully in place.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets too much government

Bailout Follies

Economic news, these days, seems to be driving home some very old economic wisdom — about foolishness.

In an essay on banking from the 19th century, a writer quipped, “The ultimate result of shielding men from folly, is to fill the world with fools.” This basic lesson — that it is dangerous to shore up bad practices with bailouts and specially tuned central banking policies — is being borne out, once again, in the American economy. Thank the L.A. Times’s sad, sad article “Forget too big too fail: some banks now too small to succeed.” The article’s blurb nicely synopsizes smaller, non-​bailed-​out banks’ plight: “Small banks are finding it increasingly tough to survive, in part because of the cost of complying with regulations stemming from the financial crisis.”

Remember that 2008’s financial implosion led to a double whammy of governmental overkill:

  1. Bailouts for the biggest fools and
  2. Regulations for everybody, including the wisest players.

The former kept the fools in place and ready to do more damage, since their folly had basically been rewarded. The latter burdens all players, but the costs are hardest for smaller outfits to bear, while bigger outfits can easily jump those regulatory hurdles.

The details of all this constitute “news,” but the principles are old (I’ve discussed them here many times). Bailouts reward the biggest fools, and regulations protect the biggest players from competition from smaller ones.

Yes, indeed, the ultimate result of shielding bankers from the effects of their folly is to fill the world with foolish bankers.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets too much government

Equal Bailouts?

A new Pew Report tells us that Americans think that the rich got the biggest benefits — government handouts — after the collapse of financial markets in 2008. That’s my perception, too.

The banker class — including, perhaps focusing on, financial intermediaries on Wall Street — sure made out like the proverbial banditti, many of whom had their fortunes handed back to them after they lost billions and billions in 2008 and 2009.

Other programs bailed out Big Auto, to the advantage of stockholders and managers and union workers, but not to the discernible advantage of consumers or creditors or the bulk of non-​union workers.

And yet, consider the extent to which government intervention in the labor market — including tax breaks, mortgage re-​deals, and extended unemployment insurance — “helped” middle class and lower middle class workers and families. These programs had huge consequences, leading hordes to forego (hard-​to-​find) paid work for (comparatively easy-​to-​find) paid inactivity.

Americans are split on the lesson to be drawn from what they perceive as “scant signs of recovery” and government’s apparent lack of interest in “helping the poor”:

Although Americans were worried about the economic system, they remain starkly divided over federal regulations to control it. Nearly half thought that government regulation of markets did not go far enough, while almost as many said government regulation had already gone too far.

I’m in the latter camp. Government as Big Brother Bailout for businesses and families and individuals seems to just scuttle the necessary reshuffle our economy needs.

We don’t need more of the wrong response. We need less.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies too much government

Bakers’ Bailout

Bailouts aren’t just for big businesses any more.

Just a few years ago the “too big to fail” argument meant spending trillions on financial institutions and auto companies. Now it appears that rewarding failure — indeed, outright perverse dealing — has a new and eager beneficiary: the federal loot goes directly to unions.

Well, a union, at least. The Bakery, Confectionery, Tobacco Workers & Grain Millers International, whose brinksmanship shut down Hostess, Inc., has former Twinkie techs pulling in money earmarked in a specific way:

This week, the Labor Department decided to shower Hostess workers with Trade Adjustment Assistance, a multibillion-​dollar pork barrel program that was beefed up as a bone to Democrats, who were blocking passage of three free-​trade treaties in Congress in 2012.

TAA is a lavish program doled out by the Labor Department for laid-​off workers who’ve lost their jobs due to “global trade.”

Of course, those 18,500 Hostess jobs were not lost to global trade. They were lost to union pig-​headedness. The AFL-​CIO-​affiliated union was warned that without some cuts, the company would go under. The Teamsters entreated the bakers’ union to play ball. But no deal happened. And Hostess went under.

If the union’s negotiation tactic appeared as risky as a banker’s credit default swap portfolio on mortgage-​backed securities, it’s now proved to be as un-risky as the same. The union may not be “too big to fail,” but it appears to be “too well-​connected to fail.” The Obama administration is intent on throwing money at the group’s outrageous folly.

And so we continue to reward idiocy, well into the 21st century.

This is Common Sense. I’m Paul Jacob.