The Senate's 60 Vote Requirement Shows That It is Still Useful

In a development of a type that I had begun to think was no longer possible, the Senate earlier today appears actually to have accomplished a modest reduction in the Federal government's provision of infinite insurance for everything.  The fight is not necessarily over, but there is real reason to hope that this has worked.

The program in question is called TAG -- the "Transaction Account Guarantee" Program.  You haven't heard of it?  This is the program by which the Federal government, through the FDIC, lifted all limits and agreed to go to infinity on guarantees of  bank deposits.  Up until the financial crisis in 2008, the FDIC only insured bank accounts up to $250,000, itself a way excessive amount.  During the panic in 2008 the government got buffaloed into thinking that infinite bank account guarantees would calm everything down and make the world perfect again.  So TAG was enacted, supposedly as a two year program.  In 2010, in the way of all Federal programs, it then got extended, for a second two years.  That extension runs out at the end of 2012, and hence we have the Senate taking up the question of extension. 

This is Federal insurance that by definition backs up people (and companies and governmental entities) with over $250,000 in the bank -- they're all rich!  It covers some $1.5 trillion of deposits.  Is there any hope that this wouldn't be continued like all other Federal handouts?

Turns out there is hope.  Senator Pat Toomey (R, PA) raised a "point of order," arguing that the extension had budget impact and should only be heard as part of budget-related matters.  Senator Johnson (D, SD) moved to waive the point of order.  That motion required 60 votes to pass.  The vote was 50 - 42 in favor, not enough to pass.  Note that if majority vote would do it, this would have passed.  By the way, if that motion had passed, the next motion would have been "cloture," otherwise known as a motion to cut off a filibuster.  That also requires 60 votes under current rules, and presumably the result would have been the same 50 - 42.  So at least for the moment this Federal giveaway to the rich appears to be dead.

The big backers of this were the American Bankers Association, and needless to say their head, Frank Keating, immediately came out with a statement seeking to keep the thing alive:

“We’re disappointed that the Senate failed to vote on a temporary extension,” American Bankers Association President and Chief Executive Officer Frank Keating said in a statement. “The TAG program has been fully funded by the banking industry at no taxpayer expense and millions of small businesses and municipal depositors would have valued its continuation during this period of economic recovery.”

(Keating was a conservative Republican governor of Oklahoma from 1994 - 2003, but unfortunately has now gone over to the dark side as a lobbyist.)  Keating's argument is eerily similar to the arguments made for years by the proponents of Federal flood insurance -- Hey, the premiums fully fund this program!  That is, until they don't.  In the case of flood insurance, the premiums covered it until Hurricane Katrina in 2005, when suddenly the program needed a $20 billion bailout; and now, how about another $20 billion after Sandy for the flood insurance program alone, and by the way another $60 billion of "supplemental" appropriations on top of that.  Same for deposit insurance.  So far the premiums have covered it.  Oh, except for the S&Ls, whose Federal insurer (FSLIC) got a bailout of around $160 billion to cover losses from the 80s through 2004.   Just wait until a systemic crisis of the same sort hits the banks insured by the FDIC.  Current insured amounts exceed $10 trillion, with TAG representing an additional $1.5 trillion.  Believe me, when the real crisis hits, the premiums will look like a drop in the bucket.  And, the crisis will hit.  It's just a question of when.

To be fair to those pushing for extension of TAG, there is another argument put forward, namely that without TAG the big banks have a huge advantage over small banks in attracting big deposits, since the big banks will be deemed "too big to fail" under the Dodd-Frank law.  It's not a ridiculous argument by the little banks, but there are many better solutions, including, in my order of preference, (1) remove "too big to fail," (2) make Federal deposit insurance applicable only to bank funds invested in designated non-risky instruments, and (3) break up the big banks.

The Union Movement In Its Death Throes

The big news in labor relations this week is the passage in Michigan of so-called right-to-work legislation, and its signing by Governor Rick Snyder.  Experience in the 23 states that previously had right-to-work laws indicates that this legislation, if it sticks, will have a very negative influence on union membership, revenues, and ultimately, influence.

But the dramatic decline of private sector unionism long pre-dated this latest legislation, and is highly likely to continue, even if the Michigan unions can succeed in somehow rolling back the legislation.  While right-to-work legislation is a serious negative for private sector unions, their much bigger problem is that companies, once unionized, fail to grow, then decline, and ultimately die.  Unions are not shrinking because they get voted out, or even because of inability to organize new workplaces.  Unions are shrinking because their conduct drives their employers out of business.

First, some broad numbers.  According to widely reported Labor Department statistics available for example here from the New York Times, the rate of union membership in the United States declined from 35% in the mid-1950s, to 20.1 % by 1983, to just 12.3% by 2009.  And that massive decline masks even more dramatic figures for the private sector, since during this period the rate of unionization in the public sector was increasing, reaching 36.2% in 2009, and leaving just 6.9% of private sector workers in unions.

Can anyone actually name an example of a union getting voted out of any workplace with a significant number of employees?  It does occur, but that is by no means the main source of the union decline.

Consider the auto industry.  According to data here, membership in the UAW has plummeted from over 1.5 million in the 1970s to around 300,000 today.  Has the union been voted out of GM, Ford or Chrysler?  Of course not.  What has occurred is that the combination of high wages, expensive health and pension benefits, and restrictive work rules made GM, Ford, Chrysler and many of their suppliers, uncompetitive in the marketplace.  They have closed plant after plant and their unionized workforces are a fraction of what they were at the peak.  That created openings for the likes of Toyota, Honda, Nissan, BMW, Mercedes and Hyundai. all of which greatly expanded manufacturing in the United States, and all or nearly all in the right-to-work states.  None of them would go anywhere near Michigan.  Back in Michigan, GM and Chrysler exist on government life support, the City of Detroit has lost well over half its population since the 1950s, and even the State of Michigan as a whole lost population between the 2000 and 2010 censuses, the only state to do so.  Not having a right-to-work law has preserved existing privileges of Michigan's union members and leaders, but has not prevented rapid decline of the union movement in the state.

Very similar stories exist in other formerly heavily-unionized industries, such as steel and tires -- huge declines in the unionized companies, accompanied by the rise of non-union competitors, often in right-to-work states.  New York is the state with the highest remaining rate of private-sector unionization, at over 20%.  But here is a report from the New York Times on September 3, 2012 on ongoing dramatic declines in private sector union jobs in New York City. 

The number of city residents with union jobs in the private sector has dropped by nearly 20 percent since the recession started in 2008, the report by scholars at the City University of New York shows. That amounts to a loss of about 95,000 union jobs, and a decline twice as steep as that for the rest of the nation, said Ruth Milkman, a sociology professor who wrote the report with Laura Braslow. . . . 

“I saw this happen in California in the 1990s,” Professor Milkman said. Such a sharp decline is difficult to turn around because the businesses created after a recession are less likely to be unionized than the older ones that failed in the downturn, she said.

And it only takes a little looking around to see where some of the next declines in unionization are going to occur.  How about the U. S. Postal Service?  They have gone from mostly-unionized 909,000 employees in 1999 to just 617,200 in early 2012, and they are hemorrhaging employment at the rate of 30,000 - 50,000 per year.  Will they even still be in existence in 2020?  Hostess just closed with a loss of over 18,000 mostly-unionized jobs.  If anything the trend is accelerating toward the end.

Already The Government Has Found Its Next Big Shakedown

Just a short week ago, the Second Circuit finally clamped down on the government's biggest ongoing shakedown of industry, the so-called "off label marketing" restrictions of the FDA.  That one had netted them well over $10 billion in fines over the last decade for conduct that now appears to have been completely legal all along, indeed protected by the Constitution.  Well, now that that one is gone, what is going to replace it?

Already we know!  This morning virtually every news source had the story:  British banking giant HSBC settled with Federal authorities after an investigation of so-called "money laundering."  According to Reuters:

HSBC Holdings Plc agreed to pay a record $1.92 billion in fines to U.S. authorities for allowing itself to be used to launder a river of drug money flowing out of Mexico and other banking lapses.

Mexico's Sinaloa cartel and Colombia's Norte del Valle cartel between them laundered $881 million through HSBC and a Mexican unit, the U.S. Justice Department said on Tuesday.

$1.92 billion -- that's real dough!  Only a couple of the off-label drug prosecutions reached that level.  So what is this thing about "money laundering" enforcement?

Those at all familiar with the area will already know that the term "money laundering" is the government's catch phrase employed to give an air of sleaziness to the perpetrators and legitimacy to itself; but "money laundering" enforcement has little to do with the "laundering" of money, whatever that is, and everything to do with the government's forced enlistment of the banks into spying on the citizenry in all financial transactions.  The field was created by the so-called Bank Secrecy Act of 1970 (which should more appropriately have been called the Bank Non-Secrecy Act, since it requires reporting to the government on private financial transactions).  As amended through today, the Bank Secrecy Act requires banks to collect identification information on each client and to report to the government on any transactions deemed "suspicious," whatever that means.  If the government so asks, the bank is not allowed to tell the customer that he is being spied on, and indeed, it is a crime to tell the customer.

Sometimes this is sold to the public as part of the war on terror.  That is nonsense, since acts of terrorism do not require large amounts of money (see, e.g., 9/11).  Almost all "money laundering" enforcement is really about the Drug War, and as you can see from the above quote, that's what this one against HSBC is about.

So how is money laundering enforcement doing at winning the war on drugs?  Well, according to this article from Marijuana Business News, the U.S. marijuana market is estimated to be approximately $100 billion annually -- approximately the same size as the market for "brewed beverages," i.e., beer and ale.  OK, maybe that's an exaggeration and it's only $50 billion.  How much of that money finds its way into the U.S. banking system?  I have my answer:  ALL OF IT!

The fact is that money laundering enforcement doesn't put the slightest dent in the drug business.   We have allowed the government to deputize the banks to spy on us all 24/7 behind our backs to enable an exercise in total futility.  How do those devious drug dealers manage to evade all the spying?  Well, here is a great article from the Wall Street Journal in 2007, reporting on the activities of two functionaries of a Colombian drug kingpin.

At 8:50 a.m.  on March 15, 2006, Luis Saavedra and Carlos Roca began going from bank to bank in Queens, New York, depositing cash into accounts held by a network of other people, according to law-enforcement officials.  Their deposits never exceeded $2,000.  Most ranged from $500 to $1,500.  Around lunchtime, they crossed into Manhattan and worked their way up Third Avenue, then visited two banks on Madison Avenue.  By 2:52 p.m., they had placed more than $111,000 into 112 accounts, say the officials, who reconstructed their movements from seized deposit slips.  Confederates in Colombia used ATM cards to withdraw the money in pesos, moving quickly from machine to machine in a withdrawal whirlwind, the officials say.  "The organization at its height was moving about $2 million a month," estimates Bridget Brennan, Special Narcotics Prosecutor for New York City.

These two guys were caught by the luck of a tip by an informant.  Meanwhile, if you think the banks can do anything effective to stop this, you are just kidding yourself.  Despite endless costly efforts at "money laundering" compliance, any given bank takes in anywhere from tens of millions to billions of dollars annually in "drug money," otherwise known as small amounts of cash.  So every few years the Feds will come around and shake down each bank for a some millions or billions of dollars.  Dare anyone tell them that the Drug War is effectively over?

The Worst United States Senator

OK, there are a lot of candidates for that title.  But can anyone beat the appalling senior Senator from New York, Charles "Chuck" Schumer?

With its large financial and business community, New York still ranks among the wealthiest states, even after decades of decline relative to the other states caused by uncompetitive state and local taxes.   New York is home to large numbers of high income earners, given the numbers of professionals in fields like banking, law, accounting, entertainment, and so forth.  According to data from the Tax Foundation, over 3.6% of New York tax filers reported AGI above $200,000 in 2009, compared to an average of around 2.5% for the other states; and the disparity is undoubtedly greater at the highest incomes.

Because our Federal income tax structure is progressive, it is inevitable that New York (and the other high income states, like California, New Jersey and Connecticut) will pay disproportionately more Federal income tax than lower-income states.  Our former senior Senator, Moynihan, published regular reports demonstrating that New York sent far more money to Washington than it got back. 

Our current senior Senator, Schumer, needless to say, has discontinued these reports.  They would reflect badly on you-know-who.  Where does he stand on increasing income taxes?  Why, of course, he is leading the charge.  From the New York Times of October 9, 2012:  "Schumer Shakes Up Deficit Talks With Call to Raise Taxes on the Rich."

Why would the senior Senator from one of the wealthiest states lead the campaign for disproportionately higher taxes on his own constituents?  Not because it is the interest of his constituents or of New York State as a whole. The opposite -- because it is the personal interest of Schumer to centralize as much money as possible in Washington and then make himself into a godfather passing out the goodies to grateful special interests in return for campaign contributions, fealty and votes.

And he makes no secret that this is what he is doing.  Go to his web site and go through the endless lists of minor handouts that he has passed out to one special pleader after another.  The latest include handouts for historic buildings in Schenectady and Rochester, a few hundred thousand dollars for something called a "job engine" at a college in Poughkeepsie, and on and on.  Nobody could possibly figure out how much all these are worth, but without a doubt we are paying double to triple for what we get back.  How can that be a good thing?  It's all about campaign contributions and getting Chuck Schumer's name in the headlines as often as possible.

There's no level of economic destructiveness to which he will not lower himself.  At the "New York" section of his web site we have one after another protectionist measure to hobble foreign competition for the benefit of some particular New York industry: a "silicon metal" producer in Niagara Falls, two furniture makers, a candle maker in Syracuse, apparel makers in New York City, and on and on.  Does he not know that the internationalization of world commerce is what drives New York's main economic engine?  It doesn't matter -- no campaign contributions, no headlines in that.

And how about agricultural subsidies?  Surely, Schumer must realize that New York is among the most highly urbanized states, and expenditures of taxpayer moneys on agricultural subsidies are a big net loss for his constituents.  Well, no. Here is the Agriculture section of his website, bragging about obtaining one minor benefit after another on behalf of the small number of New York farmers.  He even brags about helping the dairy industry by keeping dairy prices up!  Does he realize that that represents a major burden on poor mothers trying to buy milk for their children?  Doesn't matter; their votes are already securely bought.

Charles Schumer is the purest symbol of what is wrong with the United States Congress.  The entire New York press eats out of his hand, parroting his brain-dead press releases and never doing the math to conclude that this is all a huge net loss to us.  Will anything change next time he is up for election?

Fiscal Cliff Cognitive Dissonance

All the political talk is of the so-called "fiscal cliff" -- the combination of pending tax increases and spending cuts scheduled to take place on the first of the new year absent action by Congress.

But does Congress have any real ability actually to take on spending cuts?  Even as they are supposedly discussing that subject, everyone who is suffering any bit of downside in life is asking for a bailout from Washington, and the punditocracy reacts to those requests as if of course they will be fulfilled, no matter the cost.  Let's look at a partial current list.

Housing

The bailout of Fannie and Freddie cost the Federal taxpayers some $188 billion just a few years ago, according to the Wall Street Journal here.  Supposedly those black holes are winding down over the next several years.  So did the government learn its lesson and get out of the business of guaranteeing essentially every mortgage issued?  Of course not.  They just transferred that function over to another agency, the FHA.  How's that going?  Well, needless to say, they "need" a bailout.  According to the Washington Post on November 18, when Fannie and Freddie started shrinking:

The FHA’s portfolio swelled to more than $1 trillion. Critics charged that the FHA lacked the capital and managerial capacity to handle this massive expansion and that the resulting losses would end up costing taxpayers billions — accusations that the agency repeatedly dismissed as exaggerated.  Right now the critics are starting to look pretty prescient.

Already the FHA has had losses, leaving it with some $16 billion of negative net worth, according to the Post.  But that's just the start:

Indeed, the FHA’s predicament is worse than the $16.3 billion figure suggests. If interest rates remain low, more high-quality loans will be refinanced out of the FHA’s portfolio, leaving the agency with the dregs. 

This could easily turn into a one hundred billion dollar problem, or maybe two.  Does Congress have any ability to say no?  According to the Post, "an FHA bailout may be inevitable."  You probably thought that Congress had a say in the appropriation of money, but in the new world, bailouts are just "inevitable."
 Student loans

Now that outstanding student loan debt has gotten to the magic threshold of $1 trillion, it must be time for a bailout there too.  Representative Hansen Clarke, Democrat of Michigan, has introduced the Student Loan Forgiveness Act to wipe most of that clean.  College Insurrection predicts that this bailout will consume most or all of the tax increases that President Obama is demanding in the fiscal cliff negotiations.  Maybe -- but don't they know about all the other bailouts that they "must" pay for? 

Hurricane Sandy

After the governors of New York, New Jersey and Connecticut put in demands for the Federal government to pay to make everything perfect again after the big storm, the Obama administration has now made its request for funding to Congress:  $60.4 billion.  Oh, that's also about the same amount as the projected first year revenue from the Obama tax increases.  It's also pretty much the same amount as the figures so far demanded by the governors of the three affected states -- amounts which I have previously shown are wildly excessive.  But don't worry, the Senators from New York and New Jersey immediately came forward to say that this is just a start and we're going to want a lot more.  

In a joint statement, Sens. Charles E. Schumer (D-N.Y.), Kirsten Gillibrand (D-N.Y.), Robert Menendez (D-N.J.) and Frank R. Lautenberg (D-N.J.) said the request “doesn’t cover all of New York and New Jersey’s needs” but does cover “a large percentage. We believe this will be the first of several supplementals that will be necessary as our states’ needs become more clear, and we look forward to working with the White House on those as well,” the senators said in the statement.

Detroit, etc.

Meanwhile the City of Detroit is running out of money and may miss payroll some time in the next few weeks.  What's the answer?  Obviously, a bailout from Washington.  From Red State:

[Detroit] City Councilwoman JoAnn Watson is demanding America give the city bailout bacon to erase Detroit’s $200 plus million deficit as a quid pro quo for Detroit’s overwhelming presidential election support of Obama.

OK, $200 million is chump change in this game, but it is also only the beginning.  And if Detroit gets its bailout, how far behind will be Illinois, and then California?  I can safely predict that within this next Obama term, all of those entities, and many more, will be in Washington demanding their bailouts.

There's nothing actually real about the deficit negotiations in Washington until someone realizes that this is just not possible.

They Think We Control The Weather By Using Less Electricity

Meteorologist Art Horn, writing at ICECAP, has a collection of quotes from political leaders who have somehow convinced themselves that we can control the weather by using less electricity or driving less or otherwise restricting our lives.

President Obama (at the 2012 Democratic convention):

More droughts and floods and wildfires are not a joke. They’re a threat to our children’s future. And in this election you can do something about it.

Secretary General Ban Ki-moon of the United Nations: on November 12, 2012:

Finally, let me say we all know the difficulties in attributing any single storm to climate change. But we also know this: extreme weather due to climate change is the new normal. This may be an uncomfortable truth, but it is one we ignore at our peril.

Even Mayor Bloomberg of New York (on November 1):

Our climate is changing. And while the increase in extreme weather we have experienced in New York City and around the world may not be the result of it, the risk that it might be, given this weeks devastation, should compel all elected leaders to take immediate action.

Here's the key paragraph of Horn's article at ICECAP:

In all of the above statements the implied or stated method for controlling the weather is to reduce emissions of carbon dioxide. The thinking, if you want to call it that, is this. Reducing the amount of carbon dioxide in the air from 0.04% of the atmosphere to some arbitrary amount, say 0.03% or the level at the beginning of the industrial revolution in 1850, will somehow bring the weather back to “normal”. This reduction would be a whopping 0.01%. They have no idea how this reduction will actually change the weather back to how it should behave but they are sure it will work. They are so sure that they believe we should dismantle everything that has provided us with reliable, affordable energy up to this point and try something new. The EPA is already working hard to close the coal companies

Well, it's not just Obama, Ban and Bloomberg.  The list of those in power who believe that we can control the weather by restricting human activity would appear to include almost all European heads of state (Vaclav Klaus of the Czech Republic has been an exception), and in the U.S., not only the EPA, but also the Supreme Court (see Massachusetts v. EPA).

How's the evidence for that going?  From wattsupwiththat today:

A problem: nearly one third of CO2 emissions occurred since 1998, and it hasn’t warmed

Here's the chart of temperatures since 1979 (from satellites, as compiled by Remote Sensing Systems available at climate4you):

Anybody can see that the peak was in 1998 and that it's downhill from there.  I thought in science you make a hypothesis, and then if the evidence contradicts the hypothesis you must abandon it.  At what point must we declare this hypothesis disproved?  Anyway, our politicians don't seem to think that evidence has anything to do with the question.

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