Office of Thrift Supervision on AIG

Scott M. Polakoff, Senior Deputy Director and Chief Operating Officer, Office of Thrift Supervision testified before the U.S. Senate's Committee on Banking, Housing, and Urban Affairs on 5 March 2009. For whatever reason, his testimony didn't get much play in the so-called mainstream media. I prefer to think that because his easy-to-read and easy-to-follow testimony is so far from the "failure of government regulation" narrative, that the only alternative is to bury the story.

Congress is burying the story, also. The very committee before which Mr Polakoff testified flat-out dropped the ball, either from inattention, incompetence, or, most likely, by letting political and other concerns outweigh the public benefit.

"Consistent with changing business practices and how conglomerates then were managed, in late 2003 OTS embraced a more enterprise-wide approach to supervising conglomerates. This shift aligned well with core supervisory principles adopted by the Basel Committee and with requirements adopted by European Union (EU) regulators that took effect in 2005, which required supplementary regulatory supervision at the conglomerate level. OTS was recognized as an equivalent regulator for the purposes of AIG consolidated supervision within the EU, a process that was finalized with a determination of equivalence by the French regulator, Commission Bancaire."

So, how do individuals in the Congress (such as the grandstanding Sherrod Brown (D-OH), member of the very same U.S. Senate Banking, Housing and Urban Affairs committee) conclude that AIG was unregulated?

“At AIG, it was not enough to insure lives or property or health,” Brown said today at the hearing. “A largely unregulated corner of the company decided it would make enormous bets on exotic financial arrangements—providing insurance where there were no actuarial tables and almost no actual experience. You would think that such a colossal miscalculation would lead to contrition. In the world of Wall Street, you would be wrong.”

Senator Brown, AIGFP didn't, actually, live in "a largely unregulated corner of the company", according to the testimony of the U.S. agency charged with supervision and regulation. But you already knew that, based on Mr Polokoff's testimony 12 days earlier. Also, actuarial tables are appropriate for life insurance, not for other forms of insurance (such as credit default swaps).

Also, Senator Brown, I wouldn't "think that such a colossal miscalculation would lead to contrition", I would think that such a colossal miscalculation would lead to reorganization of the company under U.S. bankruptcy laws. Why didn't we take that step? It sure would have saved a lot of money. In the end, we're going to wind up reorganizing AIG anyway, it'll just be after a previously unbelievable amount of taxpayer wealth has been squandered by a profligate administration and congress.

Nunchaku

I can't help but think of Rainn Wilson's character Dwight Schrute in NBC's The Office, whenever I hear about nunchaku.

Eugene Volokh brings us, today, the story of Maloney v. Cuomo, a Second Amendment case concerning the state of New York's 1974 ban on nunchaku. Mr. Maloney, the petitioner in this case, seeks to appeal his case to the SCOTUS, which provides an opportunity to incorporate the 14th Amendment against the states.

Interesting reading...start here:

The Volokh Conspiracy - Kirkland & Ellis Will Ask Supreme Court To Consider Incorporation of Second Amendment, in the Second Circuit's Nunchaku Case:

Personal and economic freedom in the United States: a study

Over at the Volokh Conspiracy, Jonathan Adler posts a link to Freedom in the 50 States: An Index of Personal and Economic Freedom, recently published by the Mercatus Center at George Mason University (here in Northern Virginia).

See the data behind the study here.

I'm heartened that Virginia ranks [relatively] high on personal freedom (relative, that is, to many other states) and also relatively high on economic freedom.

Passenger rail economics (and subsidies)

Over at Cato @ Liberty, a piece on Crédit Mobilier as a Model for High-Speed Rail.

Why, if we have such large subsidies for Amtrak, do we think that high-speed rail is affordable? What's changed?

Priorities and their constituencies

Use of sloppy, imprecise language and [intentional] misreading of the U.S. Constitution are favorite gripe of mine, particularly when the abuse of the Constitution is at the hands of our representatives in the Congress.

During yesterday's NPR story on the repeal of the Congress' "Don't Ask, Don't Tell" policy, NPR reporter Mary Louise Kelly opened the piece with:

For those anxious for the Clinton-era law that prohibits openly gay people from serving in the military to be repealed, the wait may be longer than expected.

Longer than expected? Why's that?

While he was on the campaign trail, President Obama promised to work to repeal "don't ask, don't tell." And in January, on the eve of becoming White House press secretary, Robert Gibbs reiterated that Obama would repeal the law.

But Obama can't simply sign an executive order to overturn the law — he has to persuade Congress to change it.

If Robert Gibbs really reiterated that [President] Obama would "repeal the law", I'm hoping that now Mr. Gibbs is in the White House, he has a better grip on the executive powers given to the president by Article II of the U.S. Constitution [hint: the president has no power to repeal a law].

That [obvious] fact aside, why does the 111th Congress need any persuasion?

And Sen. Carl Levin (D-MI), who chairs the Armed Services Committee, says he does not expect the issue to be an early priority for lawmakers.

"I'm going to be working with colleagues to see how much support there is for it," Levin says. "And where along the process we can take that issue up. I just don't think we can give that a high priority, given the situation that we face," like the wars in Iraq and Afghanistan, and the economic meltdown.

That's rich. The Congress is spending time on the so-called District of Columbia House Voting Rights Act (S. 160 and H.R. 157), including a procedural vote today in the Senate. Given the fact the DC House Voting Rights Act has NOTHING to do with either the wars in Iraq and Afghanistan, or the over-hyped, crisis du jour, "economic meltdown", Sen Levin's explanation seems oddly incomplete. 

Rep. Ellen Tauscher (D-CA), who is sponsoring legislation as early as next week in the House to lift the ban, says it's a significant priority, but not necessarily while Congress is "triaging the effects of very bad tax policy from the Bush administration," and "people are losing their homes and their jobs."

I'd ask Rep. Tauscher why, if "Congress is 'triaging the effects of very bad tax policy from the Bush administration'", the Congress has time to spend on arguably unconstitional legislation that will likely tie up the federal courts.

Also, I hasten to remind readers that the U.S. Constitution contains the following passage: 

"Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

...." -- U.S. Constitution, Article I, Section 8.

Constitutionally speaking, the tax policy to which Rep. Tauscher (D-CA) refers is tax law, passed by the U.S. Congress. Blaming bad tax law off on the administration does real damage to our citizen's understanding of their constitution, and causes people like me to question if our representatives have read the document lately. Note: the venerable Sen. Byrd (D-WV) is known to carry a pocket version of the U.S. Constitution wherever he goes.

Secretary Gates is then quoted:

" 'Don't ask, don't tell' is law — it is a political decision," Gates says. "And if the law changes, we will comply with the law."

Yep. It's a political decision, made by the U.S. Congress, in accordance with Article I of our constitution. The Congress needs nothing from the administration to change this law.

And Tauscher says the argument about igniting a controversial debate is nonsense.

"I would only say that it is always the right time to right a wrong," she says. "And this has been a very big wrong."

The congresswoman calls repealing the law "the last big piece of civil rights legislation left."

Tauscher plans to introduce the legislation, but she's still waiting to see when the Obama White House will start fighting to allow gays to serve openly in the U.S. armed forces.

Okay, this is really too much. The administration is unneeded in this discussion, since we're talking about legislation, not regulation. Rep. Tauscher is waiting for the administration to "start fighting"? With what, and with whom? The U.S. Congress? Come on. The Congress is stalling, and it ought to fess up on the issue, instead of generating a smoke screen behind which it can hide.

“America is ready to get rid of the 'don't ask, don't tell' policy. All that is required is leadership.” -- President Barack Obama, in a speech to the Human Rights Campaign in November 2007

Actually, all that is required is legislation, and the 111th Congress certainly has proven their ability to pass legislation. So, Rep. Tauscher, let's see some of that leadership that the people in your district sent you to Washington, D.C. to demonstrate. Let the debate begin.

Maureen Dowd on crisis management

Maureen Dowd's column in the New York edition of today's NYT focuses on the administration's approach to describing (and managing) our present economic state of affairs. She makes some interesting (and comment-worthy) points.

In reference to [former] President Bill Clinton's suggestions regarding President Obama's engagement with the American people (and, for that matter, people outside of America whom we expect to loan us a HUGE amount of cash):

Instead, he implies, the president’s warnings of calamity, designed to gin up support for borrowing and printing trillions to shore up the sagging economy, might actually be dragging down our already sagging self-esteem.

It's less self-esteem than it is perception and confidence. We make  decisions based on perceptions of the future. Given a choice between saving, investing [speculating?] in the market (equities or bonds), paying down the mortgage [cost avoidance], or spending, we consciously or unconsciously select between those alternatives based on what we think [feel?] will happen. The alarmist drum-beat of late appears to be a cynical attempt to defuse opposition to the $US 8,000,000,000.00+ deficit spending bill.

It’s hard to muster moxie with stocks shriveling, Chris Dodd talking nationalization, and Paul Volcker making Chicken Little sound cheery — “I don’t remember any time, maybe even in the Great Depression,” he said, “when things went down quite so fast, quite so uniformly around the world.”

Yes, the market has retreated. That's what a market correction does - the market was overpriced for a long time, propped up by massive government intervention and misregulation (e.g., unprecedented and artificially-low interest rates, loan guarantees, nationalized financial institutions, bail-outs). The market will stop dropping as soon as assets are perceived to be priced correctly - no sooner, and no later. Hand-wringing (by politicians or columnists) isn't helpful.

We dutifully cut back on Starbucks macchiatos, designer water and even Girl Scout cookies, but we keep hurtling down.

Strangely tone-deaf for Maureen Dowd. The complaint in the MSM (and amplified by the administration and the Congress) is that AMERICANS ARE HURTING! It isn't about fewer caffè lattes, or drinking [heaven forbid!] tap water, it's about all the people being thrown out of their homes by craven bankers. Isn't it?

Many Americans lost a paper fortune when the equity market's valuation fell. Some of that fortune will come back, and some won't.

Many Americans are now structurally or cyclically unemployed. Individuals in real estate, housing, and related industries will need to shift industries, at least temporarily.

Many Americans lost another paper fortune if they owned a home (particularly in the big housing bubble states: California, Florida, Nevada, Arizona, Colorado). People who thought that the tremendous run-up in housing prices was sustainable were foolishly delusional. Remember, we even had cable television programs dedicated to house flipping (note: this show is still running new episodes! What's with that?). What were people thinking? I can't know what they were thinking then, but now they're thinking about getting bailed out.

Two words come to mind: moral hazard.

While W. and Dick conjured an alternative reality about Iraq, our avaricious bankers created an alternative reality about our financial system. Now our busted trust is not so easily fixed.

Aha. The obligatory shot at President Bush and Vice President Cheney. BDS is tough to cure. Did "avaricious bankers" really create an alternative reality about our financial system? Did these "avaricious bankers" force us to think that a 100% increase in the value of a home over a period of just a few years was at all realistic or sustainable? I'm inclined to believe that it is the avaricious consumer who ran those home prices up, then vacuumed home equity out as quickly as possible, who is responsible for this mess as the interventionist and over-regulatory policies of our government.

In an Associated Press article headlined “Obama Plans Eclipsing New Deal Spending,” the Rutgers University political science professor Ross Baker notes, “Not surprisingly, people are wary of some very expensive proposals with no guarantee of success or even a high probability of how well they’ll work.”

Wariness = uncertainty, which leads to sitting on the economic sidelines. Note that savings rates have increased significantly -- that, and chipping away at the mountain of credit card debt racked up by profligate Americans, is a good thing. [Note: at the end of 2008, consumer credit outstanding was a whopping $US 2,596,000,000,000.00].

In The Times, Eric Dash reported that Wall Street is losing confidence in Washington’s vague and shifting plans, sending shares of bank companies plunging to new lows on Friday.

"Washington" = the administration + the Congress. "Washington" doesn't have plans; the administration and the Congress, on the other hand, have plans and interventionist policies. Shares of banks and bank holding companies are heading down to their real valuation. The sooner we get there, the better. Let's rip the metaphorical bandage off all at once, instead of prolonging the damage.

He spoke for those who want a pound of flesh. With the Wall Street bailout, Mr. Obama at least gave bankers a bit of the belt, and capped their pay. But homebuyers who wanted more than they could afford seem to be getting a free ride.

More moral hazard. Why on earth should we think that the federal government should be in the pay-setting business? This is poor political theater, and even worse public policy. The federal government has no business attempting to pick winners and losers in the marketplace. And while I'm at it, since professional sports teams are often subsidized by the public, shouldn't we cap those salaries?

Yet Obama is oozing empathy compared with his attorney general, who last week called us “a nation of cowards” about race.

I've ignored the AG Holder remarks -- he's stepping on the administration's news cycle (and message).

We need leaders to help us through our crises, not provide us with crude evaluations of our character. And we don’t need sermons from liberal virtuecrats, anymore than from conservative virtuecrats.

I agree.

In the middle of all the Heimlich maneuvers required now — for the economy, Iran, Pakistan, Afghanistan, health care, the environment and education — we don’t need a Jackson/Sharpton-style lecture on race. Barack Obama’s election was supposed to get us past that.

Whether or not we need a Jackson/Sharpton-style lecture, we're going to get it [routinely]. Witness the frivolous discussion over the NY Post cartoon this week (which also stepped all over the administration's message and killed another news cycle -- I wonder what would happen if President Obama told Reverend Sharpton to simply shut up).

Terminology, and why it matters (Part 2)

Advice, from Copious Dissent, regarding words and phrases that we need to strike from our daily discourse. Well worth reading and sharing with others....

Copious Dissent - Your Daily Dose of Liberty

Terminology, and why it matters....

I watch The NewsHour with Jim Lehrer many nights for several reasons: the analysis is generally more thoughtful, and individual segments are longer, providing more context. There is a distinct leftist bent to the coverage, but it's not the shallow and superficial coverage available from the so-called broadcast networks or the shrill shoutfest at cable outlets such as MSNBC or CNN.

I had a few minutes, earlier this evening, to send a short note to the folks at The NewsHour with Jim Lehrer, which I'll share here:

Selection of terminology is important to clearly and concisely explain complex subjects, such as the economic situation facing our country (and the world). I'm bothered by a selection of terminology that obscures, intentionally or not, the source of the treasure that will be spent. For instance, one of tonight's stories has the following lede on your web site:

"Nine weeks after automakers made their first plea to Congress for emergency aid, General Motors and Chrysler submitted new restructuring strategies and requests for additional federal funds that could bring the government's total tab to $39 billion."

Use of the term "federal funds" obscures the fact that funding will come from two sources: taxpayers and bondholders. While bondholders are important, and have a critical stake in the problem, taxpayers will bear the full brunt of any decisions made to "stimulate" the economy. Additionally, the phrase "government's total tab" can easily be interpreted by inattentive citizens as being somehow different from "taxpayer's total tab". Using the more accurate phrase will help avoid misinterpretation, and continue to remind taxpayers that they (and not "the government") are picking up the tab here, and are accountable for the decisions made by their elected representatives.

By the way, "bailing out" General Motors and Chrysler is a bad economics and bad public policy. It was a bad idea in December, and it's a bad idea now. Taxpayer intervention in market forces that are trying to establish the fair value of these companies will postpone (and increase the cost) of the inevitable.

Nelson County, VA

Two beautiful days in Nelson County, this weekend. The pond was still frozen from the last few weeks of chilly weather, but I was able to break the ice up this afternoon, to give the fish a break (and a little O2).

Why the Size of Government Matters

Ilya Somin evaluates the relative merits of larger government and smaller government, and addresses the quantity and quality issue discussed by President Obama during his inaugural address.

"Quantity has a quality all its own", but that's not an argument for a larger, more muscular government.

The Volokh Conspiracy - Why the Size of Government Matters:

So, whatever happened to the last big infrastructure bill?

Remember the infrastructure bill that was rushed through the Congress in response to the I-35W bridge collapse in Minnesota? Ilya Somin, over at the Volokh Conspiracy wonders (as do I)...read more at:

The Volokh Conspiracy - -#1233088443#1233088443

American Recovery and Reinvestment Act of 2009

The on-again, off-again Congressional Budget Office (CBO) report on the so-called stimulus package (H.R. 1) was posted on the CBO Director's blog today.

Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period. That spending includes outlays from discretionary appropriations in Division A of the bill and direct spending resulting from Division B.

How do you spend $92B intelligently in only six months (the time remaining in this fiscal year)? Didn't we just have an acrimonious debate about spending incident to the Iraq War? I may be missing something important here, but it seems to me that the folks who were so concerned about wasteful spending and contracting abuses in the past are getting ready to open the floodgates.

In addition, CBO and the Joint Committee on Taxation (JCT) estimate that enacting the provisions in Division B would reduce revenues by $76 billion in fiscal year 2009, by $131 billion in fiscal year 2010, and by a net of $212 billion over the 2009-2019 period.

In combining the spending and revenue effects of H.R. 1, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion in 2011, and by $816 billion over the 2009-2019 period.

Outlays increase. Income decreases. We eat the difference. Ugh.

But wait, it gets better!

The budgetary impact of the bill stems primarily from three types of transactions: Direct payments to individuals (such as unemployment benefits), reductions in federal taxes, and purchases of goods and services (either by the federal government directly or indirectly via grants to states and local governments). CBO estimates that impacts from the first two categories of transactions would occur fairly rapidly. In the third category, CBO estimates slower rates of spending than historical full-year spending rates in 2009 for a number of reasons:

• The bill’s enactment would likely occur nearly half way through the fiscal year.
• Previous experience suggests that agencies have difficulty rapidly expanding existing programs while maintaining current services; the funding in H.R. 1 for some programs is substantially greater than the usual annual funding for those activities.
• Spending can be delayed by necessary lags for planning, soliciting bids, entering contracts, and conducting regulatory or environmental reviews.
• Agencies face additional challenges in spending funds for new programs quickly because of the time necessary to develop procedures and criteria, issue regulations, and review plans and proposals before money can be distributed.

Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in funding and resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, states, and other recipients of funding would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to spend added funds quickly as they expend their normal resources. The seasonal nature of some spending also affects the speed at which activities can be conducted; for example, major school repairs are generally scheduled during the summer to avoid disrupting classes.

In short, there's no way this money will be spent without waste -- perhaps a LOT of waste.

Read all about it, here:

Director’s Blog » Blog Archive » American Recovery and Reinvestment Act of 2009

Guantánamo

Two interesting posts, recently, on the subject of Guantánamo and the ordered closing, here and here.

America passes a milestone! « Fabius Maximus

Ugh. According to the folks at Contrary Investor, there are more people employed by government than are employed in the manufacturing and construction industries. 

America passes a milestone! « Fabius Maximus

Coal Harbour, BC

We had a nice breakfast at the Best Western in Campbell River this morning, then headed into town. We found a good parking lot (meaning: off the street, not too snowy, and a place I didn't have to back into / out of so I wouldn't get stuck), then we hiked around town for an hour or so. There wasn't much open (Boxing Day), but it was nice anyway.

It had been snowing since breakfast, and there was a couple of inches on the ground when we left town. The road north was in pretty good shape, though there were patches of ice from time to time.

We arrived in Port Hardy about 1500, and scoped out the town. Between seasonal closings (most of the hotels in town looked closed for the season) and Boxing Day closures, there wasn't much open.

Lorraine called around to find us a great place to stay -- we wound up at a bed and breakfast in Coal Harbour, BC, not too far from Port Hardy. After we checked in, we headed back to Port Hardy to get a bite to eat. We stopped to see if we could grab a geocache outside of town, but it was snowed in. Ugh.

Lorraine had spied a sports bar when we were in town in the afternoon, so we headed back there to see what they had to eat. The bar was, indeed, open, but they hadn't received their food shipment because of the weather, so all they had was booze. Time for Plan B, which turned out to be a convenience store (again). The Subway was open, but we couldn't go back to Virginia and report that we had a Subway dinner while north of 50 deg.

The convenience store had frozen dinners, and we got a few other things while we were there.

Campbell River, BC

2033 PST Thursday, 25 December 2008

We took a nice, leisurely drive from Vancouver to the West Vancouver ferry terminal this afternoon. The scenery was terrific, and the skies cleared enough to give us a few glimpses of the mountains north of the city.

We took the 1500 ferry to Nanaimo, arriving just before 1700. We headed directly north, along the coast, to Campbell River. We got a room at the Best Western Austrian Chalet after scoping out the town to see if there was ANY place open for dinner (there wasn't). After we checked in to the hotel, we went back south about 3 km to the 7-11 to see if we could get something edible. The 7-11 had a Pizza Hut Express in it, but we decided to get something that we could make on the stove in our motel room, instead. We'll find a pizza place tomorrow, in Port Hardy.

The roads were in good shape today; there were a few icy spots, but in general everything was fine.

We'll be heading north, tomorrow, to Port Hardy.

Vancouver, BC (part 2)

0954 PST Thursday, 25 December 2009

We got up about 0900, and we're ready to head out for breakfast. It looks pretty chilly on the street, but we're all bundled up and ready for a hike.

Vancouver, BC

2334 PST, Wednesday, 24 December 2008

We arrived in Seattle a little after 1800, and got through the rental car check-in process and on the road about 1920. After an uneventful drive north, we arrived in Vancouver a little after 2300.

We're staying at the Hotel Le Soleil, and we're blown away by the quality. We got a GREAT deal through hotels.com, and are in a two-room suite on the 12th floor, with a great view.

On the road (well, in the air) again

1330 EST Wednesday, 24 December 2008.

Lorraine and I did the car / train / aircraft thing this morning. We had our timing just right, leaving the house in time to park at the office at 0830, then arriving at Union Station in time for the 0930 MARC train to BWI. Our flight from BWI was delayed somewhat by weather in Chicago, but we left okay at about 1310 EST.

Today was my first experience with MARC. It's okay -- it's like Greyhound on rails: no frills, drab colors, but it gets you from A to B.

BWI is pretty nice these days. I first flew through BWI in the summer of 1977, on my way to pick up USS VOGE (FF 1047) in Naples, Italy. BWI, like Dulles International, was much smaller in those days, and seemed pretty remote to me. Airline traffic is much higher now, especially with Southwest operating from BWI as a hub, and the area around the airport has grown significantly.

Air travel has changed in subtle ways since the days I was on the road about 50% of the time. Flights are more full, airlines charge for everything (luggage? pillows? blankets? snacks?), and security is MUCH tighter.

Continued lack of consumer credit...er, what?

Imagine my surprise to learn this evening that there is a lack of consumer credit, and this lack of consumer credit means that Chrysler LLC is taking at least a month off. My surprise is a result of the seemingly endless stream of credit card offers I receive, along with assurances from my credit union (the best in the world, for my money) that auto loans are available for as low as 3.75% APR.

So, which is it? Continued lack of consumer credit, or continued consumer apathy about Chrysler vehicles?

Are people with decent credit ratings now being shown the door? Really?

I'd really appreciate it if someone would do a credible study to determine exactly WHO can't get credit in this environment, because I live in such an insular community that I don't know anyone in that condition.