Thursday, November 19, 2009

Dodd, At It Again



Financial 'Reform': Sen. Chris Dodd's proposed overhaul would replace the Federal Reserve with a "super regulator" to oversee the banking and financial industries. Will it work? Consider the source.

Along with fellow Democrat Barney Frank, now chairman of the House Financial Services Committee, Dodd, who heads the Senate Banking Committee, has done as much to damage this nation's financial system as anyone — and that includes all the CEOs and subprime scoundrels as well as former Fed chief Alan Greenspan, whom many blame for lax oversight and too-loose credit in the run-up to the meltdown.

What did Dodd do? In recent decades, he and his fellow Democrats created a system of perverse incentives by unleashing the Community Reinvestment Act to force banks to make bad loans, then encouraging Fannie Mae and Freddie Mac to finance the scheme with taxpayer-guaranteed borrowing.

It led to Fannie and Freddie virtually taking over the mortgage industry. It also led to the financial meltdown that began in 2007, from which we're still trying to escape. Now Dodd wants to "fix" what he and his pals broke.

In particular, Dodd's bill would shrink the duties of the Fed. As the Washington Post put it, his plan "would impose the most fundamental change in the Fed's mission since the Great Depression, leaving it responsible for little besides setting monetary policy."

For those who ask "so what?" — let's start with the obvious: The Fed did not create the financial crisis, though it's possible that holding interest rates at a 40-year low for nearly a year in 2003 and 2004 contributed to its severity. No, our system melted down because the banks did what they were told by Dodd and others in Congress: lend money, even when it was financially unwise to do so.

Dodd and other believers in government's omnipotence think regulators can know at all times what's going on in the economy — and control it. They can't. The economy is far too complex — and the temptations to corruption and greed far too great.

As economist Don Boudreaux wrote: "These unavoidable realities of the human condition will result in the One Big Regulator ... injecting into financial markets systematic risks far greater than those that already exist."

Dead on. It will, in short, be worse than what we currently have.

By handing off the Fed's risk-management, consumer-protection and bank-regulation responsibilities to a new super agency, we wouldn't just be shuffling responsibilities — we'd also be fostering the dangerous delusion that all our economic ills require massive new bureaucracies to cure them.

Why would Dodd & Co. do this? One reason might be that the Fed by law is highly independent. So the senator and others in Congress can't tell it what to do, or even threaten it through the budget. This builds resentment in Congress. And as we all know, Congress is all about control. Having once ruined our financial system, they now seek even more control.

The Fed isn't perfect, but it is independent. And a number of studies in recent years have shown that central banks around the world do a better job when they're free of direct political pressure.

We may take issue with the Fed's role in bank bailouts, or its conduct of interest-rate policy, but we don't think those would be corrected by having a super regulator in charge. Quite the contrary.

Perhaps Dodd expects us to forget his role in the 2007-09 financial fiasco — how he was part of Congress' oversight of the banking system as he and others in the legislative branch accepted sweetheart loans from the very banks they were supposed to oversee.

Well, we haven't. Such incompetence and venality cost us trillions of dollars in bailouts, phony stimulus and TARP funding. Our financial system doesn't need more oversight of this sort.

Stimulus Fraud



The Economy: We knew something was funny when the White House claimed that 640,000 to 1 million jobs had been created from this year's stimulus. What we didn't know was that it would turn into a massive fraud.

Not only have 640,000 new jobs not been created from the stimulus — an absurd claim, given the economy's loss of nearly 4 million payroll positions this year — but it now seems that even the jobs themselves are fictional.

Thanks to the digging of a number of data sleuths, it turns out that many of the jobs reported by states come from made-up congressional districts.

This would be funny if it weren't a criminal waste of public funds. And yet, G. Edward DeSeve, who runs the government's economic recovery program, says the errors are "relatively few" and "don't change the fundamental conclusions one can draw from the data."

Excuse us? The "relatively few" errors are in fact thousands in number. But that's the pernicious place we find ourselves today — a public official defending shoddy accounting that looks an awful lot like fraud to the tune of billions of dollars.

One example: the 15th Congressional District of Arizona, where 30 jobs were salvaged with $761,420 in spending, according to, the official government Web site. As ABC News reports: "There is no 15th Congressional District in Arizona; the state has only eight districts."

States as diverse as Kansas, New Mexico, New Hampshire, Ohio, Minnesota and West Virginia also reported phony jobs.

Stimulus jobs were also reported in 35 congressional districts in Washington, D.C., and four U.S. territories. The problem: None of those jurisdictions even has congressional districts.

All told, according to the useful Web site, some $6.4 billion was spent to "create or save" 30,000 jobs in phantom districts. That comes out to about $225,000 per nonexistent job. And that's only what's been found so far.

The Washington Examiner's bogus-job count is even higher — at 75,343, a figure likely to climb as more are discovered.

Some cases were egregious. California's state university system took in $268.5 million in stimulus funds, claiming it "saved" 26,000 jobs. It has since admitted that few, if any, jobs were really at risk.

The government's response to all this? "Human beings make mistakes," shrugged Recovery Board spokesman Ed Pound on Monday. But by Tuesday, as the furor grew, the board's DeSeve was vowing to go through reports with a "fine-tooth comb."

But this should have been done all along. The official Web site vows that stimulus spending will "be subject to unprecedented transparency and accountability," and that inspectors general of 28 federal agencies will "continually review" their spending.

To our knowledge, however, none of the errors was found by an inspector general. All were discovered by private individuals curious about what their tax dollars were being spent on.

Imagine for a moment a CEO standing before the public and claiming similar bookkeeping errors. He'd be arrested for fraud, frog-marched from his office, tried, convicted and left to rot in jail.

We said from the start that the stimulus and TARP programs would be an invitation to fraud, waste and abuse. Sadly, this has proved true. Yet no one is likely to suffer so much as a reprimand.

As the White House talks about another stimulus, Americans need to know that the promises of transparency and openness in the first program haven't been kept. And that billions of their tax dollars are being wasted.