Coyote Blog

From today's WSJ:

A House subcommittee will hold an "oversight" hearing today on the new Consumer Financial Protection Bureau, the über-regulator that will soon have jurisdiction over most of the country's credit-making institutions. We put "oversight" in quotes because Congress has little say over either the new bureau or its unofficial czar, Elizabeth Warren.

This unprecedented lack of accountability is by Ms. Warren's design. The bureau was the Harvard professor's idea, and she lobbied the Obama Administration and Congress to make it part of the 2010 Dodd-Frank financial reform. That law calls it an "independent bureau," akin to an independent agency like the Securities and Exchange Commission. But that's deceptive. Unlike other agencies, it isn't subject to annual Congressional appropriations.

Incredibly, the law says the bureau's director gets to set her own annual budget by requesting a share of the "combined earnings of the Federal Reserve System." The total she can request is capped this year at 10% of the Fed's total operating expenses (which in 2009 were $5.4 billion). That cap rises to 11% next year and 12% in 2013, and the Fed Chairman has no authority to deny her request. The director can also request an additional $200 million more per year for the next five years from Congress.

This arrangement may be unconstitutional under the separation of powers, and we hope it is soon tested in court. It was a deliberate political gambit to make the bureau less accountable to either Congress or the rest of the executive branch. In July, when its powers fully vest, the bureau will have supervisory authority over banks with more than $10 billion of assets and independent rule-making authority.

Both are cause for worry, given that the bureau will not have to incorporate the views of other banking regulators into its rules when it comes, for instance, to issues of safety and soundness. While the IRS Commissioner and Comptroller of the Currency report to the Treasury Secretary, Ms. Warren and her successors can tell him to crush rocks.

The affront is compounded by President Obama's decision to evade the spirit of the law by letting Ms. Warren set up the bureau without Senate confirmation. Republicans objected to her potential appointment, and even Democrat Chris Dodd said she would be hard to confirm. So Mr. Obama created a special position for her at both the White House and Treasury, letting her essentially create the bureau and hire its staff without facing the Senate. She has proceeded to sign up a raft of liberal antibank populists, such as former Ohio Attorney General Richard Cordray, former AFL-CIO deputy counsel David Silbermann and University of Connecticut law professor Patricia McCoy

Imposing accountability on public officials is hard enough without laws being structured to purposely evade it.

This article by Mark Perry seems right to me -- the lightest touch (and probably the most effective) approach to bank regulation is to return to a regime that puts its major emphasis on capital requirements.

We can talk all day about causes of the recent financial crisis, but in my mind the root cause was taking real property with a volatile underlying value (e.g. homes) and leveraging the absolute crap out of it.   In the initial transaction, home buyers were allowed to come to the table with less and less equity, until deals were being cut with more than 100% debt.  This stupidity was a true public-private partnership, as the government kicked off the party and encouraged its growth via various community development policies as well as policies atFannie and Freddie, but private originators as well as home buyers eagerly jumped into the fray.

This debt backed by property that was already too highly leveraged was thrown into portfolios that were themselves highly leveraged, and then further leveraged again through CDS's and other derivatives.  And then the CDS's were put into leveraged portfolios.  I would love to figure out the effective leverage in the AIG portfolio.  For ever $1 million in real property that secured the mortgages they insured, how much equity did they have?  A thousand bucks?  Less?

These investors felt protected by diversification that didn't really exist.  The felt safe with AAA ratings from agencies who really didn't understand the risks any better than anyone else did.  They relaxed assuming everything was watched by government regulators who were in way over their heads.  But more than anything, they felt protected by history.  The system of putting mortgage risks into tranches, such that the top tranches could only be affected by default rates consider then to be wildly improbable, had never to that point failed to deliver its promise.   Default rates had always stayed withing expected norms.

And this is the most dangerous risk -- the risk that something will happen that has never happened before.  Default rates that seemed impossible suddenly became reality.  Tranches that were untouchable suddenly were losing large chunks of their value.  Sure, there were warning signs, but at the end of the day what happened was that events occurred that were worse than people had thought was the worst case scenario  (there is a whole body of interesting behavioral study on how humans tend to overestimate their understanding and underestimate the width of a probability distribution).

As new financial products are created and the economy evolves and the government pursues new forms of interventions in commerce, new failures can occur that have never happened before.  And never has there been invented a micro-regulatory approach that guards against new-type failures (they don't even do a very good job against old-style failures).  Capital requirements are the one approach that guard against catastrophic failures even for unanticipated risks.

It can be argued that this will raise the cost of capital, at it is true interest rates at any one point of time would have to go up.  But one can argue that the low interest rates of the 2000's greatly understated the true cost of capital, and that those additional costs were paid in a sort of balloon payment at the end of the decade.

I am still thinking this through -- I don't think any regular reader would be mistake me for someone who favors regulation in general, but I am coming around to some extent on the notion that banks are different.  I would ideally like to see a self-policing market where companies that choose to cut equity too fine just go bankrupt.  But the reality of the political-financial complex today is that this never happens -- costs of large failures are socialized, and executives who made bad choices get fat gold parachutes and Treasury jobs.

Postscript:  I have arguments all the time about whether the financial melt down was mainly caused by government or private action.  Was it a public or private failure.?  My answer is yes.

One thing that those of us who promote private action over public can never repeat enough is this:  Our support for private action does not mean that private actors don't screw up, that there are not bad outcomes, that people don't make bad decisions, etc.  They do.  Lots of them.  When these constitute outright fraud, there should be prosecution.  For the rest of the cases, though, libertarians believe that in a free society there are automatic corrections and sources of accountability.

Make a bad product - people stop buying it.  Sign a union contract with wages that are too high - you go bankrupt.  Treat your workers shabbily - and the best of them go work for someone else.  Take on too much risk - you will fail and lose all your capital.

The problem with our financial sector is not that it is not regulated -- it is the most regulated sector of the economy.   The problem is that, as always happens, there has been substantial regulatory capture.  There has been an implicit deal cut by large financial institutions - regulate me, but in return protect me.  In a sense, as is typical in a corporate state, large corporations and government have become partners.

As a result, many of the typical checks and balances on private action in a free economy have been disrupted.  In effect, certain institutions became too big to fail, and costs of failure and risk taking were socialized.

That is why the answer is not one or the other.  Certainly the massive failures were driven by the actions of private actors.  But they were driven in part by incentives put in place by the government, and their stupid behavior was not checked because traditional private avenues of accountability had been neutered by the government.    This is why the recent financial crisis will always remain a sort of political Rorschach test, where folks of wildly different political philosophies can all find justification for their position.

Speaking of Wisconsin, I filled out my annual corporate report for the state of Wisconsin.   For most state filings, the annual report wants mainly to confirm some information about addresses and directors and officers, though the most important information they need is generally a credit card number to pay the annual fee.   Wisconsin asks all kinds of other questions about paid in capital and assets in the state.  It turns out that the annual fee a corporation has to pay in Wisconsin is based on one's capital investment in the state -- add more capital investment in their state, and the company has to pay a higher fee.  Nice incentive.

Here are apparently a couple of the new regs for-profit colleges are expecting:

One proposed rule, which is expected to be finalized this spring, will restrict students from using federal financial aid to pay for programs that rack up excessive loan debt but train students for occupations with relatively low entry-level salaries.

A second rule, which will go into effect this summer, will close loopholes that allowed admissions counselors to be compensated based on how many students they signed up

The first rule is particularly interesting to focus on, especially given that they do not apply to government-run schools.  This means that if you want to go to UCLA and run up loads of debt in economically dead-end majors like women's studies or art history, you are still free to do so.  But go forbid you want to study to be a nurse or a teacher at the University of Phoenix.  This from the CEO of Apollo, the parent company of University of Phoenix

some of the trade-school-type programs may be more vulnerable because of gainful employment (the anticipated federal rule about debt and entry-level salaries). . . . Gainful employment will cause programs, in areas such as nursing or teacher education or law enforcement, (for) for-profits not to be able to offer them . . . (because the federal formula) uses first-year salaries.

I can tell you my first-year salary for what I wanted to do wouldn't have qualified. It takes time.

Two things you can expect from any set of regulations.  1) Large companies will eventually benefit, because the compliance costs will weed out smaller companies and deter future startups.  2) Innovation will be reduced, as certain established business models and practices will become safe harbors under the rules, adding risk to anyone wishing to try an additional approach.

Apparently Google is under attack from many directions for anti-trust violations, the main complaint seeming to be that Google tilts its search results to favor its own divisions   (e.g. Google Places at the top of travel searches).    The Reason article as well as the Politico piece illustrate just how much competitors with political pull, rather than consumers, are the true beneficiaries of anti-trust policy.

I really have nothing but disdain for this use of government power, but I can't help but laugh at the plight of Google, whose CEO had a large role in suing Microsoft for browser anti-trust years ago for the horrible crime of giving away a free browser with their OS.  In fact, ironically, the core of this suit was about Microsoft going too far in integrating the OS with browser.  In many ways, Microsoft was probably prescient (for once, they tend to be a follower) in looking towards an OS built around browser.  In fact, by preventing Microsoft from such integration, the suit cleared the way for an integrated browser based OS to be introduced by.... Google with Chrome OS.  And there sure is a lot of browser / OS integration in my Google android-based phone.  I also don't remember my Android phone offering me a range of browser and search choices, requirements their CEO had the government impose on Microsoft.

More recently, Google has led the charge in Washington to regulate broadband suppliers in the name of "net neutrality."  This classic bit of tilting the playing field in the name of creating a level playing field was theoretically aimed at stopping broadband companies from tilting their bandwidth for or against different web sites.  Thus critics of Google who are concerned with the tilting of their search results for or against companies are demanding "search neutrality."  This is a horrible bit of government interventionism, but the irony is delicious.

Google's efforts in net neutrality really are a head scratcher for me.  What did they really get from that, and was it really worth opening the Pandora's box of government Internet regulation?  And didn't anyone there not see the obvious application of the same logic to themselves?  If you establish the principle that Cox Cable has to be a common carrier, it seems like a small step to say that Google Search must be as well.  And maybe Amazon.com next must be a common carrier of retail goods.    This is bad, bad stuff and Google and its CEO has brought it all on themselves.

Glenn Reynolds mentions an article on racial tests in Hawaii.  I blogged about a similar Hawaiian program several years ago, where $1 a year land leases are granted by the state to native Hawaiians

Qualifying for the program requires that the recipient pass a strict racial test, which the HHL web site says is "50% or greater native Hawaiian blood".  Setting eligibility for a government program based on racial tests is pretty outlandish in and of itself, but it gets worse.  People taking advantage of the program need to think carefully about the race of their mate before they decide how much to invest in their home.  A 75% Hawaiian who marries a full-blooded Hawaiian will be able to pass the improvements on to their children (since the children will be more than 50% Hawaiian), and thus can justify a large home investment.  The same person who marries a full-blooded Japanese or African or Anglo-Saxon will not be able to pass their home on to their kids, since their kids will fail the race test.  So, not only is there a race-test for a government program, but the government is providing strong financial incentives not to "dilute" a certain race.  Hawaii uber alles.

Via the NY Times, no flaws found with Toyota accelerators

The Obama administration's investigation intoToyota safety problems found no electronic flaws to account for reports of sudden, unintentional acceleration and other safety problems. Government investigators said Tuesday the only known cause of the problems are mechanical defects that were fixed in previous recalls.

The Transportation Department, assisted by engineers withNASA, said its 10-month study of Toyota vehicles concluded there was no electronic cause of unintended high-speed acceleration in Toyotas. The study, which was launched at the request of Congress, responded to consumer complaints that flawed electronics could be the culprit behind Toyota's spate of recalls.

"We feel that Toyota vehicles are safe to drive," said Transportation Secretary Ray LaHood.

Officials with the National Highway Traffic Safety Administration said they reviewed consumer complaints and warranty data in detail and found that many of the complaints involved cases in which the vehicle accelerated after it was stationary or at very low speeds.

NHTSA Deputy Administrator Ron Medford said that in many cases when a driver complained that the brakes were ineffective, the most likely cause was "pedal misapplication," in which the driver stepped on the accelerator instead of the brakes.

As Walter Olson writes of the original overblown brouhaha

Did it make a difference that the federal government has taken a proprietor's interest in major Toyota competitors GM and Chrysler, or that a former trial lawyer lobbyist heads the National Highway Traffic Safety Administration?

I had more back in July (and here, where I observe that scientific data on breast implant safety did nothing to stop the torts, and is unlikely to do so in this case).  I questioned the US Government's conflict of interest in this matter way back in January of 2010.

By the way, anyone want to reopen the case on that guy in LA with the runaway Prius -- I thought it was concocted at the time (I called him balloon boy in a Prius) and am doubly sure now.  How is what he did, in retrospect, and different from leading the police on a high-speed chase?

The WSJ has yet more examples of crazy job licensing, example:  (ht Alex Tabarrok)

But economists—and workers shut out of fields by educational requirements or difficult exams—say licensing mostly serves as a form of protectionism, allowing veterans of the trade to box out competitors who might undercut them on price or offer new services.

"Occupations prefer to be licensed because they can restrict competition and obtain higher wages," said Morris Kleiner, a labor professor at the University of Minnesota. "If you go to any statehouse, you'll see a line of occupations out the door wanting to be licensed."...

Texas, for instance, requires hair-salon "shampoo specialists" to take 150 hours of classes, 100 of them on the "theory and practice" of shampooing, before they can sit for a licensing exam. That consists of a written test and a 45-minute demonstration of skills such as draping the client with a clean cape and evenly distributing conditioner. Glass installers, or glaziers, in Connecticut—the only state that requires such workers to be licensed—take two exams, at $52 apiece, pay $300 in initial fees and $150 annually thereafter.

California requires barbers to study full-time for nearly a year, a curriculum that costs $12,000 at Arthur Borner's Barber College in Los Angeles. Mr. Borner says his graduates earn more than enough to recoup their tuition, though he questions the need for such a lengthy program. "Barbering is not rocket science," he said. "I don't think it takes 1,500 hours to learn. But that's what the state says."

Many, many other examples -- it takes 750 hours of training to be a manicurist in Alabama.  Somehow my daughter learned to paint her own nails during the course of a single sleepover.

My Forbes column is up on the minimum wage.  It covers some of the ground I could not get to on TV the other night.

Apparently, the Dire Straits song "Money for Nothing" has been banned from the Canadian airwaves:

The Dire Straits song "Money for Nothing" was ruled by the Canadian Broadcast Standards Council to be "extremely offensive" and thus inappropriate for airing on radio or television because it uses an anti-gay slur.

The decision against St. John's radio station CHOZ-FM in Newfoundland was released Wednesday. In it, the panel ruled that the word "faggot" "contravened the Human Rights Clauses" and its ethics code and is "no longer" permitted "even if entirely or marginally acceptable in earlier days."

This is stupid on its face, and even stupider if the song in question is understood.  If you have never heard the song before, it may seem an odd juxtaposition at first -- why does it alternate between jabs at rock stars on MTV and talk about moving appliances?  Because the song is exactly what it sounds like -- Mark Knopfler overheard some workers in an appliance store watching MTV and heckling the performers they saw for being rich and spoiled and overpaid and not working very hard.

The song is interesting not just because it has a great opening that is fun to play at maximum volume, but because Knopfler is one of those guys on MTV the workers are heckling.  Does he secretly agree with them, is he hurt by them, does he find them funny?   Anyway, the word "faggot" in the piece is essentially aimed at the performers themselves -- they are describing a critique they have received, repeated in all its salty blue-collar flavor.  As such the words feel utterly authentic, perhaps because they are -- Knopfler reportedly grabbed a piece of scratch paper right at the store and started jotting down notes.

I cannot imagine a less offensive use of the word.  There is absolutely no way to read the lyrics of the song and come to the conclusion the word was aimed at gays, or really at anyone else but the author and performer.   I presume by this standard  that Canada expects to ban the entire body of hip hop music?

I could have easily titled this post "the Left and Right converge," because in it I see the Left acting exactly like the religious Right I grew up around in the South that would try to ban any number of books and songs, often out of an incredibly poor understanding of what the story or song was really about.

By the way, the statists among you will be happy to know that this ban only applies to private companies -- the state is still allowed to play the song because, you know, government motives are pure and thereby sanitize any harm that might come from playing this song

Ron Cohen, the CBSC's national chairman, told The Washington Times on Thursday that the decision effectively sets a "nationwide" precedent binding on all private license holders for TV, cable-TV and radio broadcasting. It does not cover the state-run Canadian Broadcasting Corp. or "community and university" stations.

I have seen Knopfler live many times live.  To be fair, Knopfler himself seems to have some sympathy for this position, as I have seen him change the offending word to others in more recent live performances.  I don't know if this is an achnowlegement the word should be changed or he is knuckling under to pressure.    Here is the original video on YouTube.  Here is a live version where faggot is replaced.  Extra bonus cameo - Clapton in a pink suit.
Postscript: It is a fairly commonly-known bit of trivia that the first song played on MTV was "Video Killed the Radio Star."  But this was new to me:

When MTV Europe began airing in 1987, "Money for Nothing," which begins with Sting's opening falsetto whisper "I want my MTV," was the first video played.

I just got a note from Bank of America telling me that some of my accounts now have unlimited deposit insurance from the FDIC through 2012, above and beyond traditional limits.   We are worried about reckless banks so we are ...  further reducing and socializing the costs of risk-taking?  Notice I received below, I cannot yet find any info on FDIC site.  As usual click to enlarge.

Apparently Google is getting accused of skewing its search results to favor its own products.   To which I say, so freaking what?   When did Google suddenly become a common carrier?  The implication is that by their very success (evidenced by a high market share) they have imposed on themselves more onerous rules than others operate under.  When I stay in the Marriott, and I ask the concierge about local dining options, don't I expect him or her to list the hotel's restaurant options first?

I suppose consumers might have a mild beef if Google is misrepresenting its service, but for gods sakes its free -- if you are suspicious of the results, there are like a zillion competitors.

This complaint is basically coming from businesses.  I know from past experience that seeing one's page rank drop with one of the regular Google algorithm tweaks is frustrating, but companies that through good SEO have climbed to the top of the search rankings are not owed anything, and in particular they are not owed that search ranking that they got for free.  In fact, these are businesses that are basically free riders on Google whining about Google's actions.  If they want to complain Google is not abiding by its terms of service on its paid listings, fine.  That is potentially a legitimate complaint.  But can't we agree that, as a foundation principle, government consumer protection action is never required for a free service somehow falling short of expectations?

For years I have warned that government-funded health care will be used as a Trojan horse for a nearly infinite body of legislation under the pretext that X [where X = nearly every activity or individual choice] has implications for health care costs.  Here is the latest chapter of this ongoing saga:

New stand-alone fast food restaurants have been banned from setting up shop in South Los Angeles, due to rising health concerns by the city council.

This story also mixes in a good portion of corporate statism as well, as it represents pretty transparent protectionism of current competitors against new entrants:

Perry's new plan bans new so-called "stand alone" fast food restaurants opening within half a mile of existing restaurants.

So McDonald's, who is likely firmly entrenched in the area, is unaffected, but potential new entrants challenging McDonald's are out.

For even further points, one can see another powerful constituency at work.  I suppose commercial real estate developers complained about potential loss of tenants, so this was added:

Such stand-alone establishments are on their own property, but those same restaurants are OK if they're a part of a strip mall, according to the new rules.

Obviously the same food is much more nutritious if served in a leased building rather than on a piece of land the restaurant owns itself.

Read the whole thing, its a great example with a lot of fact-free pronouncements by politicians about market failures.  via Matt Welch

This should be inscribed over the entrance to the Capitol building:

Salutatory goals and creative drafting have never been sufficient to offset an absence of enumerated powers

Unfortunately, they often have.  From the Virginia ruling on the health care bill.

This is pretty incredible.  It's like the last two years didn't even happen.

A national consumer coalition plans to file a series of landmark federal fair housing complaints beginning Dec. 6, challenging a widespread practice by banks and mortgage lenders: requiring borrowers who apply for FHA loans to have FICO credit scores well above the 580 minimum set by the FHA for qualified applicants with 3.5 percent down payments....

Because FHA insures lenders against losses from serious delinquency or foreclosure, there is "no legitimate business justification" for rejecting applicants solely on the basis of FICO scores that are acceptable to FHA, the complaints contend.

Subprime mortgage customers are generally defined as those under a credit score of 620.  I am surprised that anyone in this environment is offering 3.5% down to any buyer  (though here is the government actually advertising the fact).  But giving 3.5% down to subprime borrowers?

Even with the FHA guarantee, banks have learned that the cost of default for them is not zero.  Only someone who has been in a cave for two years could somehow ascribe this action to discrimination rather than an obvious reaction to the ongoing mortgage crisis.  The government is still out acting irresponsibly, and when private institutions (who actually have to live with the cost of their decisions) try to behave like adults, they get hauled into court.

By the way, this sure does seem to bolster the argument that community banking standards and the pressure from the government and community groups to drop lending standards played a large role in the housing crisis.  If we are seeing this kind of pressure even after the housing disaster, what kind of pressure was at work, say, in 2005?

Via Mark Calabria, who has more

Update: Flashback

"In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."

The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.

"The financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred."

Via Overlawyered:

As part of the Consumer Product Safety Improvement Act of 2008 (CPSIA), Congress mandated that the CPSC create a "publicly available consumer product safety information database" compiling consumer complaints about the safety of products. Last week, by a 3-2 majority, the commission voted to adopt regulations that have dismayed many in the business community by ensuring that the database will needlessly include a wide range of secondhand, false, unfounded or tactical reports. The Washington Times editorializes:

"¦[Under the regulations as adopted last week] anybody who wants to trash a product, for whatever reason, can do so. The commission can leave a complaint on the database indefinitely without investigating its merits "even if a manufacturer has already provided evidence the claim is inaccurate," as noted by Carter Wood of the National Association of Manufacturers' "Shopfloor" blog"¦.

Trial lawyers pushing class-action suits could gin up hundreds of anonymous complaints, then point the jurors to those complaints at the "official" CPSC website as [support for] their theories that a product in question caused vast harm. "The agency does not appear to be concerned about fairness and does not care that unfounded complaints could damage the reputation of a company," said [Commissioner Nancy] Nord.

Commissioners Nord and Anne Northup introduced an alternative proposal (PDF) aimed at making the contents of the database more reliable and accurate but were outvoted by the Democratic commission majority led by Chairman Inez Tenenbaum. Nord: "under the majority's approach, the database will not differentiate between complaints entered by lawyers, competitors, labor unions and advocacy groups who may have their own reasons to "˜salt' the database, from those of actual consumers with firsthand experience with a product."

Any number of private actors have already tackled this problem. Amazon.com has probably the most comprehensive set of product reviews, and has taken a number of steps (e.g. real name reviews) to increase trust in their system.  Reviewers who are shills (either for or against a product) are quickly outed by other reviewers.   Another site whose reviews I rely on a lot is TripAdvisor, which has hotel and other travel reviews.   TripAdvisor allows the reviewed hotels to respond to individual reviews in a way that the consumer can see to get both sides of the story.

Apparently, none of this back and forth will be allowed in the CPSC data base.  The Democrats who wrote the process only want bad stuff in the data base, so it will not allow manufacturer responses or even positive reviews to appear.  The only possible justification for the government to run this database would be for the government to take a role in investigating and confirming or overturning claims and complaints, but it is clear it won't be doing this either.   This will just be a location for disgruntled people to drop turds on various manufacturers, all with the imprimatur of the government.  I can't see consumers finding much value here compared to the alternatives, but I can see the value in a courtroom to be able to stuff a government site with unsubstantiated claims and then use that site to say that the "official" government site is full of criticisms of the product.

The new food-safety bill, soon to be law, features all the usual suspects of the regulatory state

• Strong support from large corporations, who know the regulations will kill off their smaller rivals and make it harder for new entrants to compete with them
• Regulations nominally aimed at fixing a recent "crisis" (e.g. last year's salmonella outbreak) with no actual logic of how the new regulations would have prevented the past crisis.  In fact, they very likely would not have  (just as TSA new x-ray machines sold as a way to stop future underwear bombers likely would not have detected the original underwear bomber)
• Numerous special exemptions, subsidies, etc. for narrow, favored constituencies
• Pious statements from the priests of statism, who define small government per se as a problem.  Example from Tom Harkin, "It's shocking to think that the last comprehensive overhaul of the food-safety system was in 1938."  Why is the lack of new legislation a better indicator of a problem than, say, incidence or death rates which have fallen consistently for years.

For an extra bonus, those who most vocally support the law are also politically among those who most support the local food movement, which one can pretty much write off unless they get exemptions from this law.  And if they do, what's the point?  Do I really fear the operating safety of Nestle more than Joe who has a farm 30 miles away?  Remember the toy safety law -- it was spurred by a series of recall of mostly Matel toys, but in the actual law Matel became exempt from Federal inspection while the regulations have become a crushing burden for small toy makers.

More here.

After several posts yesterday, I rewrote my thoughts on EV's and the new EPA mileage numbers.  I am more convinced than ever that this standard borders on outright fraud, particularly when the DOE published what should be the correct methodology way back in the Clinton Administration and the EPA has ignored this advice and gone with a methodology that inflates the MPG (equivilant) of EV's by a factor of nearly 3.  For example, the list the Nissan Leaf with an MPGe of 99, but by the DOE methodology the number should be 36.

The full article is in Forbes.com and is here.  An excerpt:

The end result is startling.  Using the DOE's apples to apples methodology, the MPGe of the Nissan Leaf is not 99 but 36! Now, 36 is a good mileage number, but it is pretty pedestrian compared to the overblown expectations for electric vehicles, and is actually lower than the EPA calculated mileage of a number of hybrids and even a few traditional gasoline-powered vehicles like the Honda CR-Z.

Supporters of the inflated EPA standards have argued that they are appropriate because they measure cars on their efficiency of using energy in whatever form is put in their tank (or batteries).  But this is disingenuous.  The whole point of US fuel economy standards is not power train efficiency per se, but to support an energy policy aimed at reducing fossil fuel use.  To this end, the more sophisticated DOE standard is a much better reflection of how well the Nissan Leaf affects US fossil fuel use.  The only reason not to use this standard is because the EPA, and the Administration in general, has too many chips on the table behind electric vehicles, and simply can't afford an honest accounting.

From the WSJ:

The wide-ranging pay-to-play probe concerns whether investment firms like Mr. Rattner's former firm, Quadrangle Group LLC, were held up for fees and favors to secure access to lucrative business from New York's $125 billion public-pension fund.

So government officials, who have all the power, demand bribes from businesses in order for those businesses to participate in a certain market, and when discovered it is the private businesses that are being investigated?

This is just so typical of government, where pay-to-play rules are in fact legislated for businesses from bars to taxicabs.  I can't do anything new in Ventura County without bringing a whole series of checks to the County planning offices -- nearly every single department must be paid off before I can do something as simple as remodel a bathroom or revamp a store.  None of this is under the table, mind you, it is entirely up front and nominally legal.

Why Can't Chuck Get His Business Off the Ground?  Go watch, from the IJ  (the IJ is what the ACLU should have been if they were not founded by Stalinists).

Via the Washington Post and Hit and Run

The National Park Service says it has no permit filed for zombie activity at the Lincoln Memorial Tuesday morning by AMC, a posse of zombies, or anyone else.

Wow, that was easy to stop.  And here I thought government permitting and licensing requirements were counter-productive.  Chalk one up for the statists.

A century of Progressive attacks on the Constitution have come to this.  I am just going to quote Radley Balko in full:

"¦.a federal judge has just ruled that the federal government can force me to purchase a product from a private company, under the argument that my not purchasing that product affects interstate commerce.

For those of you who support this ruling: Under an interpretation of the Commerce Clause that says the federal government can regulate inactivity, can you name anything at all that the feds wouldn't have the power to regulate?

And if you can't (and let's face it, you can't), why was the Constitution written in the first place? As I understand it, the whole point was to lay out a defined set of federal powers, divided among the three branches, with the understanding that the powers not specifically enumerated in the document are retained by the states and the people.

But if that set of powers includes everything you do (see Wickard and Raich), and everything you don't do (what Obamacare proponents are advocating here), what's the point in having a Constitution at all?

Raich was bad enough.  In that case the high court said the Feds could regulate home-grown marijuana that was grown and consumed entirely in California because that activity might still affect prices in other states (presumably because Californians could have smoked imported weed if they had not grown their own).  (I can't understand how anyone can call this a "conservative" court when it handed down Raich.  Clarence Thomas wrote in Raich:

Respondents Diane Monson and Angel Raich use marijuana that has never been bought or sold, that has never crossed state lines, and that has had no demonstrable effect on the national market for marijuana. If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything and the Federal Government is no longer one of limited and enumerated powers.

Ex Post Facto law, meaning law retroactively criminalizing past practices, is explicitly banned in the Constitution.  But big government folks have found a way around this prohibition through the massive government regulatory bureaucracies that have been created over the last half-century.

Here is a great example.  In short, an online site accepted advertising from a company that the FTC later went after for deceptive advertising.  Note, the online site was not involved, they just ran the add, just as your web site may be running ads or Google adwords right now.  The FTC actually settled the case with the company accused of wrongdoing for $0.  So obviously, they were not that worked up about the ad.  But in order to establish a new legal principal that sites that run advertising can be liable for the entire liability for a deceptive ad, they went after the web site for $6 million!

Forget for a moment what bad policy this is -- can you imagine being fully liable for any fraud involved with any company that runs an add on your site?   But beyond that, the basic approach -- of legislating from the administrative branch, abuse of power to cow small companies and individuals through threat of bankrupting legal costs, and ex post facto rule-making -- is just staggeringly scary.

This is why I cringe every single day whenever the phone rings in my small business.

My suspicions were confirmed when I looked up the law the FTC said I had violated, a law that was vague and didn't seem to have much to do with what the FTC was accusing me of. And it certainly did not say that the FTC was entitled to the amount of money it wanted. My lawyers explained that the amount the FTC was suing for was based not on laws that Congress had passed but seemed to be based on what judges had awarded in previous cases over the years.

Moreover, in our case, the FTC was now trying to go beyond what previous judges had awarded. What lay behind their actions seemed to be this: they were trying out a new legal theory. They wanted to establish a new principle "“ that a person who was in any way connected to the advertising at issue, no matter how trivial their involvement, was liable for the entire amount of all purchases of the product by consumers. I felt as if I had been struck by lightning. I was the sacrificial lamb. I had the rotten luck to be chosen, of all people, to be the test of their novel legal theory. [...]

I'm all for getting tough on deceptive advertising, including Internet fraudsters. But what seems terribly wrong is the FTC playing Goliath where they just outspend everyone they go after, regardless of whether there was any wrongdoing. Unfortunately, that appears to be the direction in which they're going. David Vladeck, the new head of the Bureau of Consumer Protection (the person I met with), advocates pursuing test cases "even if the legal theory has not been accepted by the court prior to that time." (see http://www.abanet.org/antitrust/at-source/10/04/Apr10-VladeckIntrvw4-14f.pdf) In other words, you may be violating a law that doesn't exist yet. That is downright scary. The only thing the FTC is going to "prove" by "winning" these cases is that they can establish their new principles by bankrupting anybody but the very wealthiest Americans "“ the only people who could afford to take them on.

Apparently, Ray LaHood's personal preference is that no one talk in the car, even with a hands-free device (it is uncertain whether he is OK with us talking to fellow passengers.)

"I don't want people talking on phones, having them up to their ear or texting while they're driving," LaHood said this week calling for research on hands-free systems. Hands-free phone conversations are a "cognitive distraction,"

And because Ray LaHood is US Transportation Secretary, we may soon all be forced to abide by Mr. LaHood's personal preference.

I hate blog posts that begin this way, but I will do it anyway:  Imagine that Wal-mart, Target and a hundred other major retailers all got together and agreed to an industry plan to hold down workers's wages.  Anyone involved with even rudimentary economics training would know that there would be enormous incentives for individual retailers to "cheat", ie offer wages above the agreed to levels to try to get a particular advantage hiring the best employees.  So imagine that the cartel actually forms an enforcement body, that goes around the country levying fines and punishments against any individual participant who breaks ranks and tries to share some of the largess with their workers.

Now imagine the NY Times rooting the enforcement body on, cheering it when it adopts a new get-tough stance on organizations that pay its workers too much.  Hard to imagine, but that is exactly the case in this article, where the Times writes about the NCAA's new efforts to get tough on what it calls "recruiting violations" but in any other industry would be called "trying to pay the workers more than the cartel allows."

NCAA division I sports are made up of a 100+ mostly public institutions that make a fortune off of their athletic programs, particularly men's football and basketball.  Large institutions like the University of Texas or Ohio State reap tens of millions each year in ticket sales, TV deals, merchandising sales, and Bowl/tournament winnings.  One of the reasons this is so profitable is that they basically pay the key workers who generate this income close to zero.  Sure, they give them a scholarship, but what is the marginal cost to, say, the University of Texas for providing a few hundred free educations on top of their 40,000 paid customers?  This is roughly equivalent to McDonald's paying its employees nothing more than a couple of happy meals each day.

While many of these university's athletes will make nothing after college playing sports, the ones involved in these "violations" are typically athletes who are offered millions, even tens of millions of dollars the moment they leave college.  In effect, these colleges are getting tens of millions of dollars of labor virtually for free, and so the incentives to cheat on their cartel deal are huge, which is why the cartel enforcers have to be so aggressive in stopping under-the-table payments to the grossly underpaid workers.

It is an ugly process, and one wonders why so many folks support it when they would be appalled at such practices in any other industry.