by Dick Morris
Anxious to appear to address the shortfall in lending to small businesses, President Obama is responding not by alleviating its cause and reining in the regulators, but by throwing money at the problem. He induced his Democratic rubber-stamp Congress to pass a $30 billion program to infuse small banks with capital.
But capital is not the problem. As Reuters reports, “community banks don’t need the money…the industry is relatively flush. In the third quarter [of 2010], banks with assets of less than $5 billion on average had tangible common equity equal to 9.62% of tangible assets. That’s a stronger capital position than big banks, whose equivalent ratio stood at just 7.97% on average, according to SNL Financial.”108
With small banks in such relatively solid financial condition, the question looms: is the FDIC right to be so aggressive in taking over these institutions? Or has it gotten a bit high from its new sweeping regulatory powers?
One thing is clear: until someone reins in the FDIC and ends its reign of terror over small banks, small business lending will not resume anytime soon.
Patriots must demand that Congress recognize that it was big banks and Wall Street whose irresponsible behavior caused the financial melt-down, not small banks and their lending practices. The crisis of 2008–09 was not akin to the savings and loan debacle of the 1980s. Then, small banks and their clubby ties to small-town cronies fueled the collapse.
The modern problems were caused by federal policies that induced mortgage lenders to take big risks and got quasigovernment entities Fannie Mae and Freddie Mac to guarantee their loans. Then, big bankers sliced and diced the resulting mortgages and spread the risk onto the balance sheets of banks around the world. When the underlying mortgages collapsed, so did the global banking system.
The small, community banks now in the FDIC’s regulatory sights played little role in the process. Most of the subprime mortgages that underlay the crisis were issued in the first place by either larger banks or by nonbank financial companies like Countrywide Financial, New Century, Ameriquest Mortgage Company, HSBC, and Fremont.109
It was not the small, community bank that let us down, so why should these banks be under the gun?
Washington Monthly, commenting on the relatively good fiscal condition of smaller banks, noted that “one reason community banks are doing so well right now is simply that they never became too clever for their own good. When other lenders, including under-regulated giants like Ameriquest and Countrywide, started peddling ugly subprime mortgages, community banks stayed away. Banking regulations prevented them from taking on the kind of debt ratios assumed by their competitors, and ties to their customers and community ensured that predatory loans were out of the question.”110
So what is the justification for the FDIC coming down so hard on them?
Patriots may suspect that President Obama’s expansion of federal regulatory power and the increasingly broad swath of takeovers of small, community banks is not a response to the crisis, but part of his overall goal of taking over the American economy. Socialism is about ownership—and what better way to take over the economy than to take over its banks? Large Wall Street banks are usually willing to act as directed by Washington. Look at how they cooperated in the auto industry takeovers, much to the pain of their own depositors whose assets were obliterated. But small banks are subject to less discipline and tend to march to the beat of their local communities. Obama is determined to change all that and to increase federal control.
We must stop him. The Dodd-Frank bill does not do enough to regulate large banks and does too much to put small banks under the Fed’s regulatory thumb. The Republican House must act decisively to free local banks from undue federal regulation and, through legislation and Congressional hearings, rein in the FDIC, restraining its takeover rampage. When the chill of terror is lifted, local banks will once again start lending to small businesses now that each loan no longer has the chance to lead to the loss of their bank.
STOPPING THE EPA FROM KILLING U.S. MANUFACTURING
Election? What election? The massive repudiation of the Obama administration’s environmental policies and its proposal for cap and trade to cut carbon emissions appears not to have registered with the Oval Office or the federal Environmental Protection Agency (EPA).
While all concede that it is now politically impossible to persuade the people’s elected representatives in Congress to pass this legislation, the EPA announced on Christmas Eve of 2010 that it is planning an end run around Congress and will impose the very same regulations on greenhouse gases by bureaucratic rule that the democratically elected Congress rejected.111
Obama’s proposed cap and trade legislation passed the House in June 2009. The Waxman-Markey bill squeaked through by 219–212, but never made it through the Senate. Even when Obama had a 60-vote majority, the opposition of Democratic senators from coal states such as West Virginia (Jay Rockefeller and Robert Byrd) blocked its passage.
But the very threat of its enactment did its damage nonetheless. Manufacturing businesses from coast to coast—and especially in America’s heartland—were paralyzed by fear of its passage. They didn’t expand. They didn’t launch new product lines. They didn’t create jobs, because they worried that the energy tax that was the centerpiece of the legislation would lead to their ruin. Faced with the likelihood that cap and trade would make them move offshore—perhaps to China or India, which had no such tax—they dared not put more money into the facilities in the U.S.
Once again, the Obama reign of terror stopped business growth in its tracks.
But, apparently, losing the election of 2010 has not dulled the ardor of the EPA bureaucrats. Now that it is clear that Obama can’t get cap and trade through Congress, the federal EPA is planning to declare carbon dioxide a toxin and enact administrative regulations that will have the same effect as cap and trade.
Wisconsin Republican Rep. Jim Sensenbrenner warns that EPA is planning “to regulate greenhouse gas emissions by fiat.”112 It is using the old Clean Air Act, passed in 1970, to justify the new regulations. When this legislation was passed, of course, nobody considered the issue of global climate change. It was aimed at curbing pollution that caused disease. One of the most successful laws in recent history, it is now being used for an entirely different and alien purpose.
FoxNews.com reports that “the tactic of shoehorning global warming regulations into the 1970s Clean Air Act seemed far-fetched until the Supreme Court opened the door for it with their decision in Massachusetts v. EPA in 2007. That 5–4 decision instructed the EPA to decide whether or not to pursue global warming regulation based on the language of the statute.
“A reasonable EPA would have reacted to the Court by citing the enormous administrative burden and absurd results of trying to stop global warming using a 40 year-old law designed for very different problems and deferred to Congress on the issue.”113 But not the Obama EPA, led by Lisa Jackson, which is charging straight ahead to do by administrative rule what the Congress refused to pass.
The new EPA regulations would fine businesses for their emissions and deny permits to any that want to locate in already “polluted” areas.
After Congress rejected cap and trade, it seemed to be dead. But Myron Ebell, director of the Center for Energy and the Environment with the Competitive Energy Institute, says, “I would like to have a party and say we won, but the truth is we are still in the middle of it. The problem is now that the administration changed strategy and is using existing laws and regulations, like the Clean Air Act, the Endangered Species Act and EPA regulations to implement its agenda. And unlike the cap and trade effort, it is much harder to get the public excited about rule changes.”114
Nick Loris of the Heritage Foundation echoes Ebell’s concern: “Obama will try a piecemeal approach. And they have a much better chance of becoming law than cap and trade ever did.”115
The EPA has set a goal of reducing permissible greenhouse gases from 75 million parts per billion to 60 million.
It has asked each state to evaluate its power plants, industries, and other pollution emitters to determine what is the “best available technology” to reach this goal.116 States will have no voice in determining the standard, but will have to pick the means of achieving it. It’s like being asked if you prefer lethal injection or the electric chair.
But here’s the thing: instead of using a national standard of 60 million parts per billion, the EPA will apply this standard to every community in the country. It will ask any community seeking to attract business: can you meet the greenhouse gas standard? If an area can’t—if the industries in that community already emit too much in greenhouse gases—no business will go there, since it would not be able to get a pollution permit from EPA if it did.
The Washington Examiner reports that “University of Mississippi professor William Shughart II…notes that many jurisdictions across the country can’t meet the present greenhouse gas standard, much less reach the lower threshold anytime soon. ‘If a county or city is not in compliance, its economy won’t be able to grow, so the EPA’s proposal would spell economic stagnation for many communities,’ Shughart contends.” The Examiner warns that “without the proper pollution permits, existing facilities and new construction projects across the country either will grind to a halt or never get started.”117
If the EPA bases its regulation of carbon dioxide emissions on community-wide or statewide data, it dooms certain communities or even entire states to economic stagnation.
What is the rationale for approaching these standards geographically?
Why do we punish oil-producing states like Texas and Louisiana because, in supplying America’s energy needs, they emit a lot of greenhouse gas already? Why should they be unable to attract new industry because their existing plants emit a lot of CO2?
Were these regulations really about pollution, this geographic approach would be understandable. If the lungs of those Texans who live near their energy plants were already filled with pollutants, the EPA would be justified in limiting their further exposure.
But we are not talking about pollution here! We are talking about greenhouse gases—carbon dioxide—the same stuff we breathe in and out every moment of every day! Carbon dioxide doesn’t make you sick. The reason for regulation is not the health of those who are exposed, but the supposed need of the planet Earth to limit its emission of such gases to retard global climate change. Whether this goal is worthy or not, what difference does it make that the carbon dioxide comes from Texas, whose industrial mix includes a lot of CO2 emissions already, or New York, which may not?
The only rationale for geographic quotas on emissions is political. The energy-producing states are in the South and prone to vote Republican. Could this be the motivation?
The EPA regulation will hurt the entire nation, reducing the GDP by $1.7 trillion and costing us 7.3 million jobs by 2020, the Manufacturers Alliance estimates. But it will hit certain states the hardest. Texas will lose 2.7 million jobs, Louisiana 938,000, California 846,000, Illinois 396,000, and Pennsylvania 351,000.118
The EPA regulations really are a declaration of war against coal. But most American electricity comes from coal—the deadliest of sins in the environmentalist world—and it’s the industry that would bear the brunt of cap and trade taxes.
The United States is making enormous strides in getting away from carbon-based electric power generation without punitive taxes or crushing regulation. The proportion of power that comes from coal has dropped from 52% in 1996 to 49% in 2007 to 45% in 2009. Meanwhile, natural gas sourced power and renewable sources have doubled in the proportion of our electricity they generate since 1996.
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CHANGE IN AMERICAN ENERGY SOURCES
Source: Coal
1996: 52%
2009: 45%
Source: Natural Gas
1996: 13%
2009: 23%
Source: Nuclear
1996: 20%
2009: 20%
Source: Renewable
1996: 2%
2009: 4%
Source: U.S. Energy Information Administration119
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While the socialists would like to use America’s dependence on coal-fired power to overhaul our free enterprise system and impose government controls, auctions for permits, and energy taxes, our capitalist system is doing quite nicely on its own! Natural gas production and renewable source based power is soaring and coal use is dropping. And, as environmental information spreads, the drop in coal dependency has accelerated. EPA regulation is just not needed to cut coal emissions. They are coming down on their own!
It looks increasingly like we can keep our manufacturing base, retain our energy independence in electric power generation, and still satisfy the demands of those who are focused on the human contribution to climate change. But Obama’s socialists don’t care. They want the regulatory power anyway.
EPA also wants to tax emissions from oil refineries, raising the cost per barrel by 20 to 50% by 2015 and doubling or tripling the cost by 2030,120 a cost increase that will soon make its way to the gas pump.
The Heritage Foundation details the horrific impact of such regulation, whether by Congressionally enacted cap and trade legislation or an EPA-imposed regulatory alternative.121
Cumulative GDP losses of between $1.7 trillion and $4.8 trillion by 2030 (in inflation-adjusted 2006 dollars). Each year, at least $155 billion in national production of goods and services would be destroyed.
Half a million to one million jobs would be lost each year until 2030.
The annual cost of emission permits to energy users would be at least $100 billion by 2020 and could exceed $300 billion by 2030.
The average household will pay $467 more each year for its natural gas and electricity (again in 2006 dollars).
Gasoline prices will rise by 64 cents per gallon.122
American manufacturing has faced and largely met the challenge of low-wage competition throughout the world. As more and more products are made in Asia, the United States has preserved its share of the global manufacturing market at 25%. Despite the competition, the U.S. still leads the world in manufacturing as it has done every year since World War II. Why? Because we automated. But taxing energy taxes the machines that replace workers and makes manufacturing industries uncompetitive.
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WHO MAKES IT? MANUFACTURING BY COUNTRY
Country: United States
$ Total Manufacturing Output, 2007: $1,831 billion
Country: China
$ Total Manufacturing Output, 2007: $1,106
Country: Japan
$ Total Manufacturing Output, 2007: $ 926
Country: Germany
$ Total Manufacturing Output, 2007: $ 670
Country: Russia
$ Total Manufacturing Output, 2007: $ 362
Country: Italy
$ Total Manufacturing Output, 2007: $ 345
Country: United Kingdom
$ Total Manufacturing Output, 2007: $ 342
Country: France
$ Total Manufacturing Output, 2007: $ 296
Country: South Korea
$ Total Manufacturing Output, 2007: $ 241
Country: Canada
$ Total Manufacturing Output, 2007: $ 218
Source: http://www.wisegeek.com/what-are-the-top-manufacturing-countries.htm.123
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How have U.S. manufacturers been able to keep their market lead, with foreign workers earning only about a tenth of what our people do? Essentially, we have replaced people with power. The U.S. has lost 5 million manufacturing jobs over the past three decades, but production has continued to expand to keep pace with global demand,124 with machines doing the work men and women once did.
Chicago Fed economist William Strauss points out that the increasing productivity of the U.S. manufacturing sector is extraordinary. He explains that “inflation averaged 3.7% between 1980 and 2009, while at the same time the rise in prices for
new vehicles averaged 1.7%. U.S. manufacturers are making stuff better and cheaper and faster than ever before. Those who imagine ‘we don’t make anything anymore,’ as Donald Trump claims, don’t grasp the magnitude of America’s industrial productivity gains.”125
But machines need energy, and lots of it. By taxing energy, as the EPA proposes to do, we tax the key equalizer that has let the United States keep its manufacturing sector vibrant and productive. We eliminate the edge we have over low-wage countries. (This policy from a president who campaigned on opposing outsourcing of U.S. production!)
Dr. Tim Nerenz, executive vice president of the Oldenberg Group, a large manufacturing firm based in Wisconsin, prophesizes that he will have to move his businesses offshore if a carbon tax is imposed. He explains that “automation in my factories is not a lights out process. We still need people, but fewer of them. Machines make it possible for one person to do the work several once had to do. But the machines consume large amounts of energy. Cap and trade would force me to close factories and move.”126
Dr. Nerenz points out that the proposal would also force him to operate his trucks only four days each week, cutting his ability to service his customers. “It would be a disaster,” he says.127
The threat of cap and trade legislation or EPA regulation is already costing us jobs. Brent Vassey, writing for townhall.com, points out that “manufacturers are making decisions about their future capital investments today. Whether or not [cap and trade]…is embraced by the U.S…. is a critical decision, because America will lose opportunities to compete and create jobs in the future as long as the threat of an economy-crushing tax scheme like ‘cap & trade’ exists in the public debate.”128
Meanwhile, American coal companies, increasingly barred from burning their product here, are busily exporting it to China, which has no compunctions about carbon emissions. Coal exports to China have been soaring!