Archive for April, 2009

The TARP Trap

Tuesday, April 21st, 2009

So let’s see…

A bunch of banks are in trouble, having gotten involved in questionable business practices (forced upon them by misbegotten government regulations — but that’s another story…). A large number of banks are facing insolvency, and if too many of them go down, the whole economy could crash.

So the government swooped in and saved the day with the TARP program, in which they basically gave a gigantic pile of cash to the banks so they could stay afloat.

I trust this is sounding pretty familiar so far.

Here’s the bit you might not have heard. A bunch of the banks, especially the larger ones (The Northern Trust, TCF, and Wells Fargo among them), were not in trouble. They took their hits in the crash, but were not facing failure. Some of them were in fact in pretty strong positions. So when the government came calling with a TARP check, they said “We don’t need it.”

The government said, “Take it anyway.”

Banks: “But we don’t need it. Really. We don’t need it, nor do we want it. We’ll be fine, thanks.”

Government: “Take it anyway. We want banks to have more cash on hand so they can make more loans. Also, if people know which banks, specifically, are close to failure, it will cause a run on those banks, and that could cause an economic disaster. Take the money.”

Banks: “But we don’t….”

Government: “You don’t have a choice. You’re too prominent. It’s a PR thing. We’re making you take it.”

Banks: *sigh* “…Fine.”

Government: *writes check* “Okay, now that you’ve got the money, there are a bunch of new rules you have to follow that we just made up.”

Banks: “These new rules are going to make it harder to do business or hold onto the top talent. No thanks.”

Government: “Sorry. Anyone who took the money has to follow the new rules, plus any others that we come up with later.”

Banks: “Well then we’re just going to give the money back.”

Government: “Not so fast. We won’t accept it. You’re not allowed to give it back.”

Banks: “But we didn’t want it in the first place!”

Remember Kids: When you hear the words, “We’re the government; we’re here to help,” slam the door and lock it.

US News & World Report: Why Goldman Sachs Should Repay Its TARP Money

Treasury Secretary Hank Paulson ordered nine of the nation’s biggest banks to accept a big pot of bailout money last fall, whether they felt they needed it or not. It signaled they were all in the same mess together, and that there was no stigma associated with getting bailout money. For the dozens of smaller banks that ended up needing a bailout, that reduced the chance that depositors and trading partners would abandon them, making failure self-fulfilling. Where would they go, after all – to a bigger bank that was also getting bailed out?

Wall Street Journal:
Obama Wants to Control the Banks

Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest.[…] But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists.

CNS News: Treasury Won’t Say If It Has Refused to Allow Banks to Give Back ‘Bailout’ Money

?When we took the money, it was because only the good banks were going to get the money, the strong banks,? [TCF Financial spokesman Jason] Korstange told CNSNews.com. ?We believe that we are and we know that we are a strong bank and that?s why they came to us and asked that we take it (TARP money).

?Then public perception, quite frankly, led by some of the politicians, changed–it became bailout money and it completely changed the perception of what (the TARP program) is.?

After Congress began considering additional limits on executive pay and closer inspections of participating banks, TCF decided to get out as soon as it could.

?Once that happened, the politicians decided they could run the banks (and) that they could tell us all the things we can and cannot do,? Korstange said. ?So we just said, ?Hey, we don?t need this, we didn?t need it at the beginning, and we?ll give it back to you.?”

CNN Money:
Bankers: Take your TARP money back

Brian Garrett, chief executive of Bank of the Bay in San Francisco… and other bank executives complain the Treasury’s program to stabilize banks during these turbulent times is actually weighing down their potential for growth.

They’re especially concerned the limits on executive compensation – imposed in February, four months after Treasury starting sending out checks – could make it difficult to hold on to star talent who may jump to financial institutions that are not receiving any Government assistance.

Bloomberg.com: Wells Fargo Assails TARP, Calls Stress Test ?Asinine?

Even though Wells Fargo didn?t want the money, it must comply with the same rules that the government placed on banks that did need it, he said.

?Is this America — when you do what your government asks you to do and then retroactively you also have additional conditions??

Forbes: Strings On The TARP

Treasury Secretary Henry Paulson basically forced major U.S. banks like Goldman Sachs and Citigroup to accept billions of dollars to flood the financial system with cash–with relatively minimal restrictions.

San Francisco Chronicle: What banks are doing with TARP funds

One notion he wants to dispel is that taking TARP money means you’re troubled.

When Congress approved $700 billion for TARP, it was supposed to buy troubled mortgage securities from banks. But the bill’s language was broad, and former Treasury Secretary Henry Paulson decided in October he would use $250 billion to buy preferred stock in banks to bolster their capital.

In late October, Paulson forced the nation’s nine largest banks to accept a total of $125 billion, regardless of their health.

Chicago “Tea Party” photos

Friday, April 17th, 2009

I was at the “Tea Party” rally in Chicago on Wednesday, and I did take pictures.

NOTE: The “gallery” is at a temporary link. If you wish to link these photos from another site, please link to this page.

Here is a gallery of the photos I took. Please note that photo #27 was taken after about half the crowd had dispersed — so if that looks like a lot of people to you, you can imagine what it was like when the thing was in full swing!

Don’t Mess With Texas

Thursday, April 16th, 2009

First Idaho, now Texas. Perhaps with a little luck (and several million angry citizens), this will become a trend….

State of Texas
H.C.R. No. 50
By: Creighton
Filed: 02/17/2009

CONCURRENT RESOLUTION

WHEREAS, The Tenth Amendment to the Constitution of the United States reads as follows: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people”; and

WHEREAS, The Tenth Amendment defines the total scope of federal power as being that specifically granted by the Constitution of the United States and no more; and

WHEREAS, The scope of power defined by the Tenth Amendment means that the federal government was created by the states specifically to be an agent of the states; and

WHEREAS, Today, in 2009, the states are demonstrably treated as agents of the federal government; and

WHEREAS, Many federal laws are directly in violation of the Tenth Amendment to the Constitution of the United States; and

WHEREAS, The Tenth Amendment assures that we, the people of the United States of America and each sovereign state in the Union of States, now have, and have always had, rights the federal government may not usurp; and

WHEREAS, Section 4, Article IV, of the Constitution says, “The United States shall guarantee to every State in this Union a Republican Form of Government,” and the Ninth Amendment states that “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people”; and

WHEREAS, The United States Supreme Court has ruled in New York v. United States, 112 S. Ct. 2408 (1992), that congress may not simply commandeer the legislative and regulatory processes of the states; and

WHEREAS, A number of proposals from previous administrations and some now pending from the present administration and from congress may further violate the Constitution of the United States; now, therefore, be it

RESOLVED, That the 81st Legislature of the State of Texas hereby claim sovereignty under the Tenth Amendment to the Constitution of the United States over all powers not otherwise enumerated and granted to the federal government by the Constitution of the United States; and, be it further

RESOLVED, That this serve as notice and demand to the federal government, as our agent, to cease and desist, effective immediately, mandates that are beyond the scope of these constitutionally delegated powers; and, be it further

RESOLVED, That all compulsory federal legislation that directs states to comply under threat of civil or criminal penalties or sanctions or that requires states to pass legislation or lose federal funding be prohibited or repealed; and, be it further

RESOLVED, That the Texas secretary of state forward official copies of this resolution to the president of the United States, to the speaker of the house of representatives and the president of the senate of the United States Congress, and to all the members of the Texas delegation to the congress with the request that this resolution be officially entered in the Congressional Record as a memorial to the Congress of the United States of America.

As a side note: someone else pointed out recently that Texas entered the Union by way of a treaty with the U. S. Federal Government, and as such, Texas has the legal authority to secede from the Union simply by ending the treaty.

(Hat Tip: Cold Fury)

…and boy are my arms tired!

Wednesday, April 15th, 2009

Just got back from the Chicago “Tea Party” rally. I’ll have some photos and such for y’all later on.

“Shut Up”, he explained.

Tuesday, April 14th, 2009

I’ve written about this in the past, but Andrew Klavan puts it so much more entertainingly (and with pictures!). Check this out….

Hat Tip: Cold Fury

Quote of the Day

Tuesday, April 7th, 2009

Very nice:

There is only one natural right: to do as you will. There is only one natural duty: to accept the consequences. The rest of society is a negotiation

“Labrat” at Atomic Nerds

Charity and the efficiency of Government

Thursday, April 2nd, 2009

I came across an article yesterday touting the grand efficiency of government over that of private charity(!) and thought that it was as eminently fisk-worthy as anything I’ve seen in many moons. Let’s get started, shall we?

A Tax Plan Charities Should Back

By Joel Berg
The Washington Post
Saturday, March 28, 2009; Page A13

Some of the nation’s largest charities — and the lobbyists they pay to represent them — have been hyperventilating over President Obama’s proposal to marginally roll back the amount of the tax deduction that the very wealthiest Americans can take for donating to charity.

So far so good; although already he’s taking some random pot-shots by pointing out the existence of lobbyists, as though hiring someone to represent you to government so that you can spend your time doing your job is somehow corrupt….

Of course, conservatives who oppose any tax hikes for the rich also oppose it.

And again with the suggestion that this is somehow sinister. Allow me to translate this sentence: “People who oppose tax hikes oppose tax hikes.” Well, Duh.

While these voices have created the impression that all nonprofit organizations oppose the plan, the reality is that many charitable organizations, especially ones that serve low-income populations, such as the one I run, strongly support it.

A straw man argument. There is no issue, anywhere, ever, that is universally supported or opposed. (Actually, that’s by definition, as if it were either of those, it would not be an “issue”.) So the grand revelation that some people support something is neither grand, nor a revelation.

According to the Urban Institute-Brookings Institution Tax Policy Center, the proposal would affect only 1.2 percent of U.S. households — those in the top two tax brackets. Nearly 99 percent of households would be unaffected.

Hey, man, we’re just sticking it to the Evil Rich™, so what’s the problem? Just remember, that’s how income taxes got started in the first place — as a 1% tax on the extremely rich. But once the principle was established that such taxes were okay at all, it was easy for the politicians to slowly bump the numbers up.

The plan would merely restore the deduction rate to Reagan-era levels.

This is a lie. Well, okay, it’s a statistic deliberately designed to mislead — same thing.

The top income tax rate at the end of the Reagan years was 28%, and people in that tax bracket could deduct that entire amount — 28% — from their taxes. Today the top tax bracket is 39%, and people can currently deduct the entire amount. Obama wants to change it so people paying 39% income tax can only deduct 28% of charitable giving. He is reducing the deduction for charitable giving from 100% to 72%. Simply put: Obama wants to start taxing that which was previously untaxed.

Both Obama, and Mr. Berg in writing this article, are claiming that Obama is trying to make it the same as it was under Reagan. This would be hysterical if it weren’t so outrageous.

Since the largest donors (such as Bill Gates and Warren Buffett) already give more than they can deduct, and numerous studies show that tax deductions are a relatively minor reason that the wealthiest Americans donate to charities, total charitable contributions are likely to decline by only about 1.3 percent if the proposal is enacted, the Center on Budget and Policy Priorities calculates.

Again, it isn’t the specific amount, it’s the principle. This tax is custom-designed to reduce the amount of charitable giving and put more such “charity” under the thumb of government. The basis of the socialist leftist agenda: Make as many people as possible dependent on government.

Combined with other progressive Obama tax proposals, that change would not only start to redress the inequality gap that has engulfed America in recent decades

Again, if you’re a leftist, the fact that someone might make more that someone else is anathema; and it is up to government to determine what income is “fair”, rather than simply allowing people to earn based on what others are willing to pay them.

but would also help to pay for many effective domestic programs, including efforts that fight hunger and improve nutrition; boost public education; improve health care and make it more affordable; and create jobs for low- and middle-income families. In other words, the funding would greatly reduce struggling families’ need for charitable aid.

…by making them more dependent on government. To Mr. Berg here, this is a priori a good thing. Charity is bad, forcible government redistribution is good… if you’re a socialist.

Well, that and the fact that study after study has shown that conservatives give far more to charity than leftists do. This has been a political black eye that they would love to remedy by reducing conservative giving any way they can.

When the wealthiest Americans donate to charities, they are most likely to give to universities, hospitals and cultural institutions from which they and their families may benefit. Such organizations often have budgets and executive salaries equal to or larger than those of mid-size corporations, stretching the definition of “nonprofit group.”

Translation: “Those mean-ol’ rich people aren’t giving to the charities that I want them to, so let’s have the government take money from them at gunpoint, and give that money to the “right” charities. ‘Cuz we all know that only rich people benefit from libraries and hospitals and museums. And… AND!… the guy running a big city museum that employs hundreds and serves millions makes more money than I do running my organization that you’ve never heard of, and that’s not fair.”

While anti-poverty organizations such as mine do receive some funding from the wealthiest Americans (for which we are extremely grateful), the bulk of our private donations comes from middle-income families.

Translation: “I’m the ‘right’ kind of charity, so this new tax won’t affect me much. I’m cool with that.”

Even if the largest tax deductions are kept in place only for anti-poverty organizations, a compromise that would directly benefit groups such as mine, there are at least two reasons I still don’t think that would be wise public policy:

First, such tax deductions are a highly inefficient way to fund social programs. It is far more cost-effective for the government to simply increase supplemental nutrition benefits (formerly food stamps) that are immediately redeemed at for-profit food stores than it is to give massive tax deductions that only marginally increase donations to feeding charities, which then have to split such donated money between administrative costs and food purchases.

Because of course the government is not bureaucratic at all, and spends money far more efficiently than private charities do. Right? Hello? I’m pretty sure whatever this guy is smoking is illegal in all 50 states.

Let’s look at government “efficiency” for a moment: Let’s say that I donate $1,000 to Charity A. Charity A will have some overhead, but X% of that money will go directly to the cause that Charity A supports.

Now let’s suppose that the government steps in and takes that $1,000 from me taxes. They, in their infinite wisdom, determine that Charity A is, in fact, a worthwhile program, and gives that money to Charity A — the exact same charity I was going to give to in the first place. It’s a wash, right? Because Charity A got the same money? Well, no it isn’t. See, somebody has to pay the government bureaucrats who collected the money from me, and the ones who decided to give it to whatever program, and the ones who actual did the transfer to that program. Let’s call those expenses Y. Instead of the cause receiving X% of my $1,000, they now receive X% minus Y — government always gets its cut. This is not “more efficient”.

Then again, it’s not really about efficiency — it’s about control.

Second, voluntary private charity is a less equitable way to solve community problems.

According to whose definition? Like much of leftist theory, this is one of those things that only works out “if the right people are in charge” It seems to me that the people in a community have a better idea of how to solve that community’s problems than some bureaucrat in Washington DC.

Oh wait, Mr. Berg did not say it was more effective, he said it was more equitable. Equality of outcome is more important than an effective society. It’s okay if we fail, so long as everyone fails equally.

While many people assume that the rich amass their wealth on their own, the truth is that their business interests are almost always aided by public efforts such as roads, bridges and ports through which they ship their goods or public schools that educate their workforces.

And they pay for it asshole! Gaaaahhh!!! Why are you acting like the rich don’t pay taxes? Charitable giving has absolutely nothing to do with roads and bridges, and you damned well know it. Property taxes pay for schools. In Illinois the tolls alone more than pay for the roads.

Given that even the wealthiest benefit greatly from this modern “public commons,” it is wrong to give them unilateral power to decide whether their taxpayer-subsidized donations should go to, say, well-heeled operas or lavish care of pets rather than to organizations that meet more pressing communal needs.

This doesn’t even need translation: Mr. Berg believes it is wrong to “give” people the power to decide where they want to spend their own money. To a leftist, it’s never, ever your money — anything you have is “given” to you, and government merely “allows” you to keep it. To a socialist, this is good and proper.

It is fashionable these days to say that “the community,” not government, should solve social problems. Yet no nonprofit leader, myself included, was elected by the community as a whole. Elected officials, whether we like them or not, are picked by voting citizens.

Unless your name is Saddam Hussein* no elected official is elected by the community as a whole. The difference is that government is all-or nothing; whereas with charity, you can give to the charity you like, and I can give to the charity I like. It’s called “the free market” — a concept with which you are apparently unacquainted.

In America, the government is the most legitimate voice of the entire community.

HAHAHAHAHAHAHAHAHAHAHAHAHAHA! *snort* The most legi…. aheh. Pull the other one, Comrade, it has bells!

The Obama administration should stick to its guns in fighting for tax equity, and Congress should support the effort.

Again, you seem to have a funny understanding of the word “equity”. Tax “equity” would mean that everyone pays the same rate. What you are looking for is “income equity”, where everyone is taxed to a point where they effectively all make the same — where the CEO makes the same “fair” rate as the street sweeper. It’s not even socialism at that point; that’s communism.

If charities want to prove that they value the public interest over their self-interest, they, too, should get on board.

Why? If charities value serve the public interest, the public will value them, and those will be the charities that get the voluntary donations. If your organization can only get good donations from the government, that is a sure sign that it is not valued by the public. Charities that are effective get donations, spend them effectively, and thrive. Charities that are *not* effective do not get as many donations, do not spend them as wisely, and fail. This is why organizations such as The March of Dimes have survived for decades — because individual people see the value in what they do, see the effectiveness of their organization, and donate to that cause.

[Hat Tip: Steve B.]

*: Saddam received 100% of the “vote” in the last election before the USA invaded. I suspect that the election might have been just a teensy bit slanted.