Author Archive
Homeownership Myths
In a recent Washington Post op-ed, Professor Joseph Gyourko, chair of the Wharton School’s Real Estate Department, lists what he sees as the five biggest myths about homeownership. Given the central role of federal housing policy, particularly Fannie Mae and Freddie Mac, in our recent financial crisis, it is worth following Professor Gyourko’s suggestion and question whether a national policy of ownership, all the time for everyone, really makes sense.
Professor Gyourko’s five myths:
1. Housing is a great long-term investment.
2. The homebuyer tax credit makes buying a house more affordable.
3. Homeowners are better citizens.
4. It’s safe to buy a house with a very low downpayment.
5. Owning is always cheaper than renting.
You’ll have to read the op-ed to see his explanations. An important qualification on his analysis is that in many cases what can be good for the buyer, such as putting no money down, may not be good for the economy if it results in additional foreclosures.
Executive Comp Restrictions Could End Up Costing the Taxpayer
The Obama administration’s announcement this week on cash compensation for those seven institutions receiving “extraordinary assistance” has generated the all-too-predictable responses. Either you think executives at the entities are bad and greedy and should be punished, or you believe this is just the first step in an all-out class war. Sadly the real victim in all these efforts has been, and continues to be, the taxpayer.
Now that the taxpayer is the most significant shareholder in these companies, the top priority for Washington, as representative of the taxpayer, should be to see these companies return to profitability. Quite simply, if these companies are not profitable, that loss will fall on the taxpayer, as shareholder.
And of course, without the ability to retain talent, it is all the more likely that these companies will not maintain profitability. I suspect the competitors of these seven are already eyeing their best talent. And let’s not kid ourselves, leaving these companies stocked with mediocre employees will not help taxpayers get their money back.
In trying to punish the bailed-out companies, we are also punishing ourselves. This is one of the very reasons we should never have bailed them out in the first place: once we are the owners, there fate and ours are linked.
Regulation and Competition among Mortgage Brokers
With the House Financial Services Committee moving forward with a bill to increase the regulation of our consumer credit markets, particularly our mortgage market, it is worth asking the question: what’s the best protection for consumers, regulation or competition?
Let’s take the example of mortgage brokers. They’ve often been targeted as one of the causes of the crisis. The story goes that they just made the loans and passed it along to the lenders and/or Wall Street and so, didn’t care about the quality of the loan.
The response of government, first at the state then the federal level, has been to subject mortgage brokers to increased oversight and licensing, with the intent to keep the “bad actors” out of the marketplace. How well did this all work out?
According to Professor Morris Kleiner and Minn Fed Economist Richard Todd, not exactly the way you’d want. What the economists found was that tighter regulation on who can become a mortgage broker is actually associated ”with higher broker earnings, fewer brokers, fewer subprime mortgages, higher foreclosure rates, and a greater percentage of high-interest-rate mortgages.”
It seems the barrier to entry created by these licensing requirements reduced competition in a manner that caused far more harm to consumer than any protections provided by increasing the “quality” of mortgage brokers.
Federal Reserve as Cash Cow
Scheduled for consideration before the House Financial Services Committee this week is a draft bill creating a Consumer Financial Protection Agency.
While there is a lot wrong with the bill — after all it is based on the premise that somehow consumers were tricked into not making a downpayment or re-financing thousands out of their homes, and then walking away — perhaps the most important provision, and the least discussed, is funding the agency by a transfer of cash from the Federal Reserve. Section 119 of the bill requires the Federal Reserve to transfer an amount equal to 10 percent of its expenses to the new agency’s Director.
This I believe is the first time in history that Congress is using the Federal Reserve to simply fund another agency. Why stop there, how about have the Fed just prints trillions of dollars to pay for the rest of the government? If Congress believes this agency will benefit the public, then the agency should be funded by the public, by a direct appropriations raised by taxes.
Of course after watching Ben Bernanke turn the Fed’s balance sheet into a slush fund for Wall Street, it was only going to be a matter of time before someone in Congress decided to use that slush fund for their own purposes. So much for transparency in government.
What’s Wrong With Being A Renter?
A recent New York Times piece focusing on the financial health of the Federal Housing Administration (FHA), offered a couple of examples of borrowers who would not have gotten mortgages, but for FHA’s low downpayment and underwriting requirements.
Take for instance a Ms. Shimon, mentioned in the piece. If she had to come up with a larger than 3.5 percent downpayment, she “would still be a renter,” in the words of the New York Times. Yes, my reaction was probably the same as yours; no, not that, not a renter, anything but being a renter. I am trying to remember at what point in our history did being a renter become a social stigma, or some sort of disease to be cured? Of course, the article does not explain why it would be bad if Ms. Shimon had stayed a renter, because apparently the New York Times assumes all decent, upstanding people own their own homes.
Now yes, there are dozens of academic studies that show owning your own home is associated with being a better citizen, better educational and health outcomes for your children, and greater savings on the part of owners. But it is important to remember that none of these studies show that homeownership causes these outcomes, just that on average, homeownership is associated with these outcomes. More importantly, the marginal homeowner, who would not have bought a home without some sort of subsidy, is likely to be quite different than the average homeowner.
Some, like my home-building friends, might justify ever-expanding homeownership because it creates construction jobs. But so does building apartments. If we had a shortage of apartments, then maybe encouraging people to buy homes would relieve pressure on the rental market. But the glut of apartments is almost as big as the glut in homes. Rental vacancy rates are near historic highs in much of the country. Even with declining home prices, in many places it still makes more financial sense to rent.
The federal government’s obsession with homeownership was one of the contributing factors to the financial crisis. It is time we recognized renting as a viable option for many households, and starting treating renters as if they were as equal citizens as anyone else.
Limitations of Bank Capital Regulation
Politicians and bank regulators across the world have come to the conclusion that excessive leverage, that is too much debt relative to equity, contributed to the depth of our recent financial crisis. Their solution: require banks to have more capital. If only it were so easy.
As Raghuram Rajan points out in a recent piece for the Financial Times, “banks will not be passive in the face of regulatory change.” Indeed, they will not. For instance, if you simply double a bank’s minimum required capital, the bank could respond by doubling the risk of loans on its portfolio. You move capital 8% to 16%, the bank can makes loans that default with expected losses at 16% and you haven’t done anything to reduce the risk in the system.
The problem with excessive leverage in our financial system was not that there was too much debt, but that debt-holders believed they would be bailed-out and hence provided little to no monitoring of bank activities. Reducing leverage does not increase the incentives of debt-holders to monitor, in fact it may reduce it, because debt-holders will now believe there is an even bigger cushion before they take any losses.
Why is it important for debt-holders to monitor the behavior of banks anyway? Because they are the largest piece of a bank’s capital structure. With an 8% equity stake, debt makes up 92% of the capital structure; with even a 16% equity stake, debt is still 84% of the capital structure. If there is no market discipline on debt-holders, then we essentially have no market discipline.
So how then to give debt-holders the appropriate incentives to monitor bank behavior? Quite simple, put them on the hook for losses. Rajan suggests we create “contingent capital” – debt that would convert to equity if capital levels fell below a certain level. While the devil is in the details, providing some system to impose losses on debt-holders is essential if we ever want to have functioning financial markets. Simply raising capital requirements does not solve that problem.
Credit Card Act Is Affecting the Job Market
Despite the economic stimulus and various financial bailouts, our economy continues to shed jobs. One of the reasons for continued job losses is the decline in new hires, especially the lack of new hiring by small business.
As bank analyst Meredith Whitney discusses in the Wall Street Journal [$], all the major credit programs created by Congress and the Federal Reserve have been targeted at big corporations and Wall Street firms. However, small companies, especially start-ups and partnerships, do not issue bonds in the debt markets, nor do they borrow from Goldman Sachs. So these firms have been left out in the cold, as federal credit inventions have favored corporate America.
Adding insult to injury is that not only has Washington subsidized credit to large firms, it has taken actions that restrict the credit available to small firms and start-ups. The prime example of this is the Credit Card Reform Act signed by President Obama in May.
As Whitney reports, “Credit cards are the most common source of liquidity to small businesses, used by 82 percent as a vital portion of their overall funding.” In restricting the usage of credit cards and reducing the ability to risk-base price, Washington has eliminated the most important source of credit to small business.
Of course, being unable to project their future health care costs, or tax burdens (yes, they are going up, but by how much), many small businesses have either been forced to or chosen to sit on the sidelines of our economy. Washington needs to recognize that Wall Street and corporate American are not the sum of our economy, if we hope to turn the employment situation around.
Fixing Fannie Is Essential
This past week witnessed continued debate in congressional committees over changes to our financial regulatory system. Perhaps catching the most attention was Fed Chairman Ben Bernanke’s appearance before House Financial Services.
Sadly missing from all the noise this week was any discussion over reforming those entities at the center of the housing bubble and mortgage meltdown: Fannie Mae and Freddie Mac.
While many, including Bernanke, have identified the “global savings glut” as a prime force behind the historically low interest rates that drove the housing bubble, often missed in this analysis is the critical role played by Fannie and Freddie as channels of that savings glut. After all, the Chinese Central Bank was not plowing its reserves into Countrywide stock; it was putting hundreds of billions of its dollar reserves into Fannie and Freddie debt. Fannie and Freddie were the vehicle that carried excess world savings into the United States.
Had this massive flow of global capital been invested in productive activities, or even just prime mortgages, it is unlikely tha we would have seen such a large housing bubble. Instead, what did Fannie and Freddie do with its Chinese funds? It invested those funds in the subprime mortgage market. At the height of the bubble, Fannie and Freddie purchased over 40 percent of private-label subprime mortgage-backed securities. Fannie and Freddie also used those funds to lower the underwriting standards of the “prime” whole mortgages it purchased, turning much of the Alt-A and subprime market into what looked to the world like prime mortgages.
Given the massive leverage (at one point Freddie was leveraged 200 to 1) and shoddy credit quality of mortgages on their books, why were the Chinese and other investors so willing to trust their money to Fannie and Freddie? Because they were continually told by U.S. officials that their losses would be covered. At the end of the day, Fannie and Freddie were not bailed out in order to save our housing market; they were bailed out in order to protect the Chinese Central Bank from taking any losses on its Fannie/Freddie investments. Adding insult to injury is the fact that the Chinese accumulated these large dollar holdings in order to suppress the value of their currency, enabling Chinese products to be more competitive with American-made products.
While foreign investors have been willing to put considerable money into Wall Street, without the implied guarantees of Fannie and Freddie, trillions of dollars of global capital flows would not have been funneled into the U.S. subprime mortgage market. As Washington seems intent on continuing to mortgage America’s future to the Chinese, that at minimum it seems that fixing Fannie and Freddie might help insure that something more productive is done with that borrowing.
Geithner Ignores Bailout History
Perhaps the biggest problem with the Obama plan to “reform” our financial system is the impact it would have on the market perception surrounding “too big to fail” institutions. In identifying some companies as “too big to fail” holders of debt in those companies would assume that they would be made whole if those companies failed. After all, that is what we did for the debt-holders in Fannie, Freddie, AIG, and Bear. Both former Secretary Paulson and Geithner appear under the impression that moral hazard only applies to equity, despite debt constituting more than 90% of the capital structure of the typical financial firm.
Geithner believes he’s found a way to solve this problem – he’ll just tell everyone that there isn’t an implicit subsidy, and there won’t be a list of “too big to fail” companies. Great, why didn’t I think of that. After all, the constant refrain in Washington over the years that Fannie and Freddie weren’t getting an implicit subsidy really prepared the markets for their demise.
Even more bizarre is Geithner’s assertion that the government can force these institutions to hold higher capital, maintain more liquidity and be subjected to greater supervision, all without anyone knowing who exactly these companies are. Does the Secretary truly believe that these companies’ securities disclosures won’t include the amount of capital they are holding? Whether there is an official list or not is besides the question, market participants will be able to infer that list from publicly available information and the actions of regulators.
One has to wonder whether Geithner spent any of his time at the NY Fed actually watching how markets work. Before we continue down the path of financial reform, maybe it would be useful for our Treasury Secretary to take a few weeks off to study what got us into this mess. We’ve already been down this road of denying implicit subsidies and then providing them after the fact. Maybe it’s time to try something different.
FDIC Plan to Borrow from Banks Just Back-door Way of Putting the Taxpayer on the Hook
With the declining balance of the Federal Deposit Insurance Fund, and more bank failures likely in the days ahead, the FDIC is looking for novel ways to avoid borrowing from Treasury to cover its expected shortfalls. One proposal being floated is to have the FDIC borrow from healthy banks to cover the costs of bank failures. Without borrowing from either the Treasury or the banks, FDIC would likely have to raise insurance premiums on all insured banks.
While the scheme is imaginative, it is in reality no different than borrowing from the Treasury. Banks, in exchange for a loan, would receive a government bond. Does anyone doubt that these bonds would not simply be backed by the FDIC, but also backed by the Treasury? In effect the plan is no different than FDIC borrowing from the Treasury and the Treasury selling bonds to the banks to cover the FDIC’s borrowing. Why the FDIC and Treasury would prefer a direct FDIC borrowing from banks is that it hides the real cost of the borrowing from the American taxpayer.
If we are going to continue to put the taxpayer on the hook for the behavior of the banks, let’s at least be honest about it.
CAP’s Proposal to Add ‘Public Members’ to Corporate Boards Is Flawed
Today the Center for American Progress rolled out its proposal that we add “public directors” to the boards of companies that have been bailed out by the government. CAP scholar Emma Coleman Jordan argues that “public directors will provide a corrective to the boards of the financial institutions that helped cause the crisis.”
One has to wonder whether Ms. Jordan has ever heard of Fannie Mae and Freddie Mac. If she had, she might recall that a substantial number of the board members of Fannie and Freddie were so-called “public” members appointed by the President. Perhaps she can ask CAP adjunct scholar and former Fannie Mae executive Ellen Seidman to review the history of those companies for her.
Republicans Just as Guilty of Flawed Keynesian Thinking
The core of Keynesian economic policy is that the government must come in and replace reductions in private sector demand with public sector demand, therefore bringing overall demand back to its previous level. One of the many flaws in this thinking is in assuming that the previous level of demand was “correct” and getting us back to that level is the appropriate policy response.
Take the example of the housing market and the government response. The primary response of Republicans in Washington has been to offer tax credits and other incentives to replace the drop in demand for housing. Witness Senator Johnny Isakson’s recent comments on why we need to extend the $8,000 homebuyer tax credit: “If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession.”
This analysis could not be more wrong. The tax credit largely acts to keep housing prices from falling further. However, that is how markets are supposed to clear in an environment of excess supply. If there’s too much housing, the way to address that is to allow housing prices to fall, which attracts buyers back into the market.
We should also recognize that the tax credit does not help the buyer, it helps the seller, by allowing the seller to charge that much more for the price of the home.
Why Wall Street Loves Obama
Was it just me, or did there seem to be a whole lot of applause during Obama’s Wall Street speech? Remember this was a room full of Wall Street executives. The President even started by thanking the Wall Street execs for their “warm welcome.”
While of course, there was the obligatory slap on the wrist, that “we will not go back to the days of reckless behavior and unchecked excess,” but there was no mention that the bailouts were a thing of the past. Indeed, there is nothing in Obama’s financial plan that would prevent future bailouts, which is why I believe there was such applause. The message to the Goldman’s of the world, was, you better behave, but even if you don’t, you, and your debtholders will be bailed out.
The president also repeatedly called for “clear rules” and “transparency” – but where exactly in his plan is the clear line dividing who will or will not be bailed out? That’s the part Wall Street loves the most; they can all say we’ve “learned the lesson of Lehman: Wall Street firms cannot be allowed to fail.” At least that’s the lesson that Obama, Geithner and Bernanke have taken away. The truth is we’ve been down this road before with Fannie and Freddie. Politicians always called for them to do their part, and that their misdeeds would not be tolerated. Remember all the tough talk after the 2003 and 2004 accounting scandals at Freddie and Fannie? But still they got bailed out, and what new regulations were imposed were weak and ineffective.
As if the applause wasn’t enough, as Charles Gaspario points out, financial stocks rallied after the president’s speech. Clearly the markets don’t see his plan as bad for the financial industry.
It would seem the best investment Goldman has made in recent years was in its employees deciding to become the largest single corporate contributor to the Obama Presidential campaign. That’s an investment that continues to yield massive dividends.
Reform Needed, but Obama Plan Would Result in More Financial Crises, not Less
Today President Obama took his financial reform plan to the airwaves. While there is no doubt our financial system is in need of financial reform, the President’s plan would make bailouts a permanent feature of the regulatory landscape. Rather than ending “too big to fail” — the President wants us to believe that with additional discretion and power, the same Federal Reserve that missed the boat last time will save us next time.
The truth is that the President’s plan will result in a small number of companies being viewed by debtholders as “too big to fail”. These companies would see their funding costs decline, allowing them to gain market-share at the expense of their rivals, making these firms even larger. Greater concentration in our financial services industry is the last thing we need, yet the Obama plan all but guarantees it.
Obama also chooses myth’s over facts. The President claims that de-regulation and competition among regulators caused the crisis. The facts could not be more different. Those institutions at the center of the crisis — Fannie Mae, Freddie Mac, Bear Stearns, Lehman –could not choose their regulator.
The President’s plan chooses convenient targets and protects entrenched interests, rather than address the true underlying causes of the crisis. At no time have we heard the President discuss the expansionary monetary policies that helped fuel the bubble. Nor has the President talked about the global imbalances — the global savings glut that poured surplus savings from the rest of the world into the US. But then the President appears to hope that loose monetary policy and continued American consumption funded by China will get him out of his own political problems with the economy. It is especially striking that the President makes little mention of the housing bubble, as if it was only the bust that was the problem.
The President continues to say he inherited this crisis. While true, he did not inherit the same individuals — Tim Geithner and Ben Bernanke — who were at the center of creating the crisis. All Obama needs to do is find a position for Hank Paulson and he will have completely re-assembled the Bush financial team.
Without real reform — fixing Fannie and Freddie, scaling back the massive subsidies for leverage in our tax code, loose monetary policy – it will only be a matter of time before the next crisis hits. If we implement the President’s plan, we will, however, guarantee that the next crisis will be even larger and severe than the current one.
Filed under: Finance, Banking & Monetary Policy; Regulatory Studies
One Regulator to Rule Them All
Part of the dominant narrative in Washington on the causes of the financial crisis is that competition among financial regulators allowed financial institutions to choose the weakest regulator, and also encouraged regulators to weaken their supervision and enforcement in order to attract more entities toward their charter. Hence the response of several prominent Democrat congressional leaders and the Obama administration calling for an elimination of both the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC), and their merger into a single “super” bank regulator.
But is this narrative based on fact or analysis, or simply mere assertion? Let’s start with a few counter-factuals: Fannie and Freddie could not choose their regulator, nor could Bear or Lehman. The worst-performing U.S. institutions at the very center of the crisis had no choice in their regulator.
And of course, this was not simply a U.S. crisis. Northern Rock had no ability to choose its regulator. The UK, like much of the world, does not have multiple bank supervisors, but only a single supervisor. In fact, only three developed countries have multiple bank supervisors: the United States, Germany and Liechtenstein. If this was a crisis driven by competition among bank regulators, then most of the world would have been spared.
What is the factual basis for merging the OTS and the OCC? Apparently the proposal rests upon the observation that both AIG and Countrywide owned thrifts at the time of their failure. In addition, the failure of thrift IndyMac was one of the largest bank failures to date. Therefore, the OTS must have been the weak link. However, both AIG and Countrywide acquired federally chartered thrifts late in the game; their failures were already “baked in the cake” long before they acquired thrifts. And in both cases: 1) the thrifts were very small parts of their balance sheets, and 2) the failure of AIG and Countrywide did not result from their thrift subsidiary. In relation to IndyMac, most of the entities regulated by the OTS specialize in mortgage finance, hence it should not be surprising that in the aftermath of a housing bubble, those engaging in mortgage finance fail at a greater rate.
Also it is worth remembering that prior to the savings and loan crisis, when there really was a significant difference between bank and thrift charters, thrifts could not choose to maintain their current business model and also flip charters.
Since the case for merging regulators seems pretty weak, here’s an easy solution to address concerns regarding charter shopping: require the FDIC to base deposit insurance premiums on the historical and expected losses by charter.
AFL-CIO Wants to Tax Stock Trades…to Stop Speculation
Earlier this week, the AFL-CIO, building upon a suggestion made last week in the UK, proposed that the federal government impose a 1/10 of 1 percent tax of all stock trades. The union group argues that such a tax would reduce non-productive speculative activity in the stock market.
First of all, we have all sorts of transfer taxes on housing, and yet we still had a housing bubble. So much for small taxes stopping speculative activity. If an investor expected to double his money, it seems quite a stretch to believe that such a small tax would discourage him.
More importantly, our recent financial crisis was not triggered by too much equity (like stocks) but by too much debt. In taxing stock transactions, we only add to the already favorable treatment of debt compared to equity, encouraging even greater leverage in our financial system.
The real purpose of this tax on speculation becomes apparent when the AFL-CIO suggests what the money should be used for…building new infrastructure that would require the hiring of unionized workers. The AFL-CIO should stop hiding behind the spin of stopping speculation and directly engage in the real debate: the massive size of our federal government and the unsustainable fiscal path we are on.
Bailouts Make Money, If You Ignore Losses
Just when you think the headlines could not get any more absurd, the Wall Street Journal declares today that the “Bailouts Yield Returns Amid Risk.” while yesteday’s Financial Times lets us know that the Federal Reserve is turning a profit on its lending programs.
What is missing from these headlines is that while some loans and investments have provided a positive return to taxpayers, the overall programs themselves are estimated to cost the taxpayers hundreds of billions. Overall the government has received about $30 billion in dividends, premiums for guarantees, and interest payments: $7 billion in TARP dividends from banks, $14 billion for the Federal Reserve from purchases of mortgage-backed securities and other investments, and $9 from the FDIC’s bank debt guarantee program.
While $30 billion may sound like a substantial amount of money, it is less than a tenth of the $356 billion that the Congressional Budget Office tells us we will never see back from TARP. And the Fed’s income from purchasing Fannie and Freddie securities will also amount to about a tenth of the ultimate losses we are likely to suffer from bailing out those entities. In regard to the FDIC’s debt guarantee program, premiums are paid up front, making that look like income, while the guarantees will remain outstanding for several years. Given that there is currently almost $340 billion in FDIC guaranteed bank debt outstanding, all it would take is a loss rate of 2.6% on that debt to wipe out any premiums collected so far.
Before Washington starts to spend all its newfound earnings, we should all stop and remember that these bailouts continue to leave the taxpayer in a pretty big hole.
HUD Helps to Set the Ground for Next Round of Mortgage Fraud
Just when you were thinking it was safe to go back into the mortgage market, today’s Wall Street Journal is highlighting the next source of mortgage fraud, the Federal Housing Administration’s (FHA) reserve mortgage program. In a typical reverse mortgage, the bank sends the borrower a monthly check (or a lump sum payment at the beginning of the loan).
It seems that some creative individuals have figured they could deed a run-down house to an elderly individual, and then get a reserve mortgage on that property; leaving them with the cash and the government with the run-down worthless property. Of course, this requires getting an appraiser to go along with the value of the home, but since the Clinton HUD decided to do away with FHA control of appraisers and let the lender pick the appraiser, that sadly hasn’t been much of an obstacle.
The great thing for lenders is that if the loan goes bad, or the value of the house falls below the mortgage amount, FHA – backed by the taxpayer – picks up the tab. Of course, the borrower is required to pay an insurance premium to cover any potential shortfalls. But just like in any other federal insurance program, when these’s a shortfall beyond funds collected via premiums, we taxpayers are left on the hook. I could go on about what a great job Washington does running insurance programs; suffice to say, Washington does a pretty poor job.
If Washington were serious about cracking down on predatory lending and mortgage fraud, Congress should end the practice of allowing lenders to put 100% of their losses to the taxpayer. Maybe that would provide the correct incentives for the lender to actually make sound loans.
FTC to Protect Us from Multi-Colored Beer Cans
Recently Anheuser-Busch hit upon the marketing idea of selling Bud Light beer in cans decorated with the college-team colors. As the Federal Trade Commission (FTC) doesn’t have much else to do - it’s not like there’s been say fraud going on in the mortgage market – it quickly turned its attention to the issue, expressing “grave concern” that these team-colored cans would encourage underage and binge drinking.
As quoted in the Wall Street Journal, FTC attorney Janet Evans said “this does not appear to be responsible activity.” What’s not responsible is the FTC wasting taxpayer resources wondering what color beer cans we are drinking out of. When I was an underage drinker, the last thing on my mind was the color of the can. The ultimate purpose of the marketing campaign is to shift demand away from boring, non-team color beer cans toward team color cans. If beer drinkers (or can collectors) get some pleasure out of a certain colored can, where’s the fraud or deception in that?
The real purpose of FTC’s interest is revealed in the comments of the Licensing Resource Group, which represents the colleges in protecting their logos. Almost all the colleges that have asked Anheuser-Busch to stop selling the cans have cited trademark concerns. Yet none of the cans have any team logos. While no one would dispute the right of a college to control the use of its team logo, is it really reasonable to conclude that the colleges also own the rights to the use of certain colors?
Embracing Bushonomics, Obama Re-appoints Bernanke
In re-appointing Bernanke to another four year term as Fed chairman, President Obama completes his embrace of bailouts, easy money and deficits as the defining characteristics of his economic agenda.
Bernanke, along with Secretary Geithner (then New York Fed president) were the prime movers behind the bailouts of AIG and Bear Stearns. Rather than “saving capitalism,” these bailouts only spread panic at considerable cost to the taxpayer. As evidenced in his “financial reform” proposal, Obama does not see bailouts as the problem, but instead believes an expanded Fed is the solution to all that is wrong with the financial sector. Bernanke also played a central role as the Fed governor most in favor of easy money in the aftermath of the dot-com bubble — a policy that directly contributed to the housing bubble. And rather than take steps to offset the “global savings glut” forcing down rates, Bernanke used it as a rationale for inaction.
Perhaps worse than Bush and Obama’s rewarding of failure in the private sector via bailouts is the continued rewarding of failure in the public sector. The actors at institutions such as the Federal Reserve bear considerable responsibility for the current state of the economy. Re-appointing Bernanke sends the worst possible message to both the American public and to government in general: not only will failure be tolerated, it will be rewarded.
Cato on Facebook
Cato on Twitter
Cato on YouTube
Cato Tweets