Creeping Nationalization

Obama's has shown that his approach to implementing unpopular policies is to avoid putting the measure up for public debate and congressional approval, de-legitimize his opponents and incrementally impose the policy.

In the case of immigration, Obama de-legitimized his opponents through the Homeland Security report that warned about "dangerous radicals who oppose undocumented immigration" and is implementing a de-facto amnesty though systematic non-enforcement.

In the case of banks, Obama started by demonizing"greedy executives," while avoiding a discussion on the largest culprits of our current economic crisis: the Federal Reserve, Fannie Mae and Freddie Mac. For the time being he cannot pursue an outright nationalization, so he instead is pursuing creeping, de-facto nationalizing of the financial sector by mandating their business practices. This explains why the Obama Administration has resisted having banks return TARP funds.

Even those who see the value in lowering executive compensation or having banks increase their investment in low income communities should be troubled that the federal government is mandating these goals. This is clearly part of the Obama Administration's raison d'être - to expand the state's role in every segment of economic and social life.

Banks Getting TARP Funds Pay The Price

By John Tamny,

Shares are down, and they're taking orders from government.

In the past week alone, readers of the business press have been treated to a variety of disturbing headlines concerning the federal government's role in the banking system. Subscribers to the Financial Times were greeted with "Treasury pushes Citi to cancel jet order."

From the Wall Street Journal readers found out that "On Street, New Reality on Pay Sets In." With regard to pay, Sen. Claire McCaskill is introducing legislation "that would limit the salary, bonuses and stock options of executives at financial companies getting federal bailout aid to no more than what the president earns." President Obama has since lent his voice to McCaskill's echo chamber with a plan to impose a $500,000 salary cap on executives with firms that accepted bailout money.

Notably, Bank of America (nyse: BAC - news - people ), a two-time recipient of Troubled Asset Relief Program funds, announced "a 10-year, $1.5 trillion community development lending and investing goal focused on delivering capital to low- to-moderate income and minority communities across the United States."

With the acceptance of TARP funds, apparently banks can no longer exclusively seek profits. They must use the money of depositors to forward the desires of a new and very intrusive shareholder: the federal government. The story about BofA follows news from a few weeks back that banks had dropped their opposition to a bill in the Senate that would give "strapped homeowners more leverage in renegotiating their mortgages."

While banks including Citigroup (nyse: C - news - people ) had once opposed the aforementioned measure, since the imposition of TARP, the "government is now keeping the company on a tight leash."

And what do some of the banks allegedly saved by TARP have to show for the government's investment? Citigroup is down 71% since it was introduced in October, while Bank of America is down 78%. J.P. Morgan, supposedly one of the healthy banks, is down a more pedestrian 33%.

Should any of this surprise us? Not really. As this column has noted before, government investment is never passive. With banks now serving their Washington masters, they can no longer think solely with profit in mind, nor can they invest in people or transportation without the federal government weighing in with its opinion.

So while the government will continue to expand its reach into the banking sector, this will surely come at the cost of the sector's true health. Capitalism will be the unfortunate loser owing to the certainty that bank operations will have less and less to do with returns on loans, and more and more to do with advancing all manner of social goals.

Very interestingly, the shares of San Antonio-based Frost Bank are down a mere 14.5% since TARP's introduction. Frost wisely chose to refuse TARP funds and, as a result, has been more able to narrowly pursue profits.

Indeed, contrary to the media-driven notion of a banking system in crisis, Frost recently reported near-record earnings for 2008. Having not fallen for the always-false God that is government aid, Frost is not hamstrung by the various encumbrances (see above) that go hand-in-hand with governmental largess.

Sadly, the story doesn't end there. Despite its excellent earnings, Frost (along with all other banks that refused funds) is still being weakened by TARP as though it had accepted money. With TARP's recipients more flush with cash than they might otherwise have been, Frost must compete in a lending environment distorted by the free money taken from the hapless taxpayer.
What will never be known is what Frost and other well-managed banks might have achieved absent TARP altogether. Also unknown is how much better off the banking system would be if healthy banks had simply been allowed to acquire poorly managed ones free of government oversight.

All of which brings us to the policy proposal du jour involving the creation of a "bad bank." Apparently unmoved by the disastrous imposition of TARP, banking "experts" in Washington now say the only way to generate more lending is for the federal government to borrow even more money in order to use it to buy the supposedly "toxic" assets on bank balance sheets.
Of course, if the government were to buy these assets at market prices, the banks selling them would effectively be made insolvent. This means the government will pay above the market rate in order to absolve flagging banks of poor lending decisions.

Worse, with the weak banks made somewhat whole thanks to government money, the healthy financial institutions will experience another body blow as they're forced to compete with "zombie" financial firms empowered by government aid.

While the Resolution Trust Corp. (RTC) of the early '90s doesn't strictly resemble the nascent "bad bank," it's easy to argue that memories of the RTC made this latest proposal inevitable. So long as the federal government continues to cushion banking crises, irresponsible lending will continue to birth new government entities meant to clean up messes made by unwise lenders.
If all of this weren't problematic enough, the fact remains that TARP recipients are already under the government's proverbial thumb thanks to TARP itself. The creation of a "bad bank" will put the banking system even more in hoc to Washington, and the long-term results promise to be ugly.

Conservatives made a lot of noise about the 1978 Community Reinvestment Act, and while surely an unfortunate bill, it will seem positively tame relative to what our federal minders dream up once their quasi-nationalization of the banking system is complete.

Going back to the early fall when TARP was still merely a concept, a lot of ink was spilled about how the economy would collapse absent the use of government money to fix the banks. Hysteria got the best of many then, and the result is a banking sector made weaker by the day.

With hindsight being 20/20, let's hope the saner among us realize that the only solution to the banking crisis is no solution. Only then will the profligate lose out to the prudent such that the prudent can start buying collapsed firms on the cheap, in order to rebuild the system altogether.
John Tamny is editor of RealClearMarkets, a senior economist with H.C. Wainwright Economics and a senior economic adviser to Toreador Research and Trading. He writes a weekly column for Forbes.

The End of American Exceptionalism

In other words, "no, Obama does not believe in American Exceptionalism."

http://www.youtube.com/watch?v=DDuBpEYKCSA

The Apology Tour

I am not a big fan of Karl Rove, but a good point is a good point. The intentions of Obama's apology tour may have been positive, but like most "progressive" policies the unintended consequences will be negative. Pandering may inspire popularity, but it will never inspire respect or reciprocity, especially in non-western culture. Bush may have been internationally reviled, but under Bush, the reason rise in North Korean and Chinese aggression would most likely not have occurred.

The President's Apology Tour

Great leaders aren't defined by consensus.

By KARL ROVE

President Barack Obama has finished the second leg of his international confession tour. In less than 100 days, he has apologized on three continents for what he views as the sins of America and his predecessors.

Mr. Obama told the French (the French!) that America "has shown arrogance and been dismissive, even derisive" toward Europe. In Prague, he said America has "a moral responsibility to act" on arms control because only the U.S. had "used a nuclear weapon." In London, he said that decisions about the world financial system were no longer made by "just Roosevelt and Churchill sitting in a room with a brandy" -- as if that were a bad thing. And in Latin America, he said the U.S. had not "pursued and sustained engagement with our neighbors" because we "failed to see that our own progress is tied directly to progress throughout the Americas."

By confessing our nation's sins, White House Press Secretary Robert Gibbs said that Mr. Obama has "changed the image of America around the world" and made the U.S. "safer and stronger." As evidence, Mr. Gibbs pointed to the absence of protesters during the Summit of the Americas this past weekend.

That's now the test of success? Anti-American protesters are a remarkably unreliable indicator of a president's wisdom. Ronald Reagan drew hundreds of thousands of protesters by deploying Pershing and cruise missiles in Europe. Those missiles helped win the Cold War.

There is something ungracious in Mr. Obama criticizing his predecessors, including most recently John F. Kennedy. ("I'm grateful that President [Daniel] Ortega did not blame me for things that happened when I was three months old," Mr. Obama said after the Nicaraguan delivered a 52-minute anti-American tirade that touched on the Bay of Pigs.) Mr. Obama acts as if no past president -- except maybe Abraham Lincoln -- possesses his wisdom.

Mr. Obama was asked in Europe if he believes in American exceptionalism. He said he did -- in the same way that "the Brits believe in British exceptionalism and the Greeks in Greek exceptionalism." That's another way of saying, "No."

Mr. Obama makes it seem as though there is moral equivalence between America and its adversaries and assumes that if he confesses America's sins, other nations will confess theirs and change. But he won no confessions (let alone change) from the leaders of Venezuela, Nicaragua or Russia. He apologized for America and our adversaries rejoiced. Fidel Castro isn't easing up on Cuban repression, but he is preparing to take advantage of Mr. Obama's policy shifts.

When a president desires personal popularity, he can lose focus on vital American interests. It's early, but with little to show for the confessions, David Axelrod of Team Obama was compelled to say this week that the president planted, cultivated and will harvest "very, very valuable" returns later. Like what?

Meanwhile, the desire for popularity has led Mr. Obama to embrace bad policies. Blaming America for the world financial crisis led him to give into European demands for crackdowns on tax havens and hedge funds. Neither had much to do with the credit crisis. Saying that America's relationship with Russia "has been allowed to drift" led the president to push for arms negotiations. But that draws attention away from America's real problems with Russia: its invasion of Georgia last summer, its bullying of Ukraine, its refusal to join in pressuring Iran to give up its nuclear ambitions, and its threats of retaliation against the Poles, Balts and Czechs for standing with the U.S. on missile defense.

Mr. Obama is downplaying the threats we face. He takes comfort in thinking that Venezuela has a defense budget that "is probably 1/600th" of America's -- it's actually 1/215th -- but that hasn't kept Mr. Chávez from supporting narcoterrorists waging war on Colombia (a key U.S. ally) or giving petrodollars to anti-American regimes. Venezuela isn't likely to attack the U.S., but it is capable of harming American interests.

Henry Kissinger wrote in his memoir "Years of Renewal": "The great statesmen of the past saw themselves as heroes who took on the burden of their societies' painful journey from the familiar to the as yet unknown. The modern politician is less interested in being a hero than a superstar. Heroes walk alone; stars derive their status from approbation. Heroes are defined by inner values; stars by consensus. When a candidate's views are forged in focus groups and ratified by television anchorpersons, insecurity and superficiality become congenital."

A superstar, not a statesman, today leads our country. That may win short-term applause from foreign audiences, but do little for what should be the chief foreign policy preoccupation of any U.S. president: advancing America's long-term interests.

Ben Bernanke Refuses Transparency

http://www.youtube.com/watch?v=kUJIG3JNPk0

Celebrating Diversity!

Friends of mine have asked me "How can someone who loves Latin-American literature, Turkish and Persian Music, Korean food and Balkan history have such a negative view of diversity? And how can someone who has friends and family from every imaginable cultural background look down upon diversity?"

My answer is "I love the phenomena of diversity, but as an ideology and mantra , I find it particularly vacuous. Free and spontaneous exchanges between individuals of diverse cultural backgrounds have greatly enriched the visual, musical, literary and culinary arts. But, when governments, universities and corporations plan and mandate diversity as a form of social engineering, it becomes mindless and undemocratic, because:

1. The claims that an individual automatically adds value to an organization because they "increases diversity" through their racial identity is presumptuous and negates their individuality.

2. Paradoxically it negates the wonderful individual and intellectual diversity found within groups by implying that (for example) Jews and African-Americans as groups have specific traits that will enrich an environment. This of course implies a belief that intellectual and cultural homogeneity predominate within groups. A more reasonable position would be that the unique talents and insights of individuals, regardless of their ethnic identity, enrich a learning environment.

3. By "celebrating" a culture we avoid a complete, honest assessment of its strengths and weaknesses.

4. History shows that diverse nations can socially and economically thrive only when they have a dominant, unifying culture.

And in most cases their ideology is filled with contradictions. For example, schools like the University of Berkeley at California offers student housing that fundamentally encourage segregation, such as separate dorm halls for African-Americans, Asians, Latinos and Native-Americans. This shows that they value reinforced ethnic identities over true integration. Or perhaps they encourage this form of segregation because they believe that the benefits of diversity flow in one direction: European-Americans benefit from exposure to other cultures, but other cultures do not benefit from exposure to European-American culture.

So, next time someone asks me to "celebrate diversity" I will tell them that I am too busy cooking Israeli food, while listening to Greek music, while speaking Spanish with my beautiful, brilliant Mexican wife, to listen to their boring marxist propaganda.

Mahmoud Ahmadinejad: Recipient of the Jimmy Carter Lifetime Achievement Award (For the Advancement of Douchebaggery)

The Chicago Freedom Forum is presenting the Jimmy Carter Lifetime Achievement Award for his unparalleled contributions in the advancement of douchebagery. Mr. Ahmadinejad achieved news heights of douchebagery at the recent UN Conference on Racism where he mindlessly rambled on about international Zionist conspiracies and negating Israel's very right to exist. What is most vomitous about this is that demented holocaust denier Mr. Ahmadinejad launched his diatribes on the Holocaust Memorial Day. And what is mind blowing is how the representative of one of the most brutal and backwards regime on the face of the earth could lecture anyone on human rights. To view the full text from his rant click on the following link:

http://www.foreignpolicyjournal.com/2009/04/21/full-text-of-president-ahmadinejads-remarks-at-un-conference-on-racism/

http://news.yahoo.com/s/nm/20090420/ts_nm/us_racism_un

Three Answers to Pathology

There are three distinct manners in which an individual can interpret social pathology within the African-American community. For our example we will focus on the epidemic of single-motherhood that is plaguing the said community:

1. The racist makes the incorrect claim that African-Americans do X, Y & Z because of innate, inescapable bad qualities.

2. The progressive refuses to accept the behavior as being socially and economically destructive or even denies the prevalence of the pathology. With their general refusal to recognize reality, the chances of addressing a problem are particularly low.

3. The Enlightened Conservative recognizes that pathology, but does not view it as innate. Rather, they look for the historical factors and / or government policies that provided incentives for the growth of the phenomena. Accordingly their solutions usually focus on reducing subsidies of negative behavior and increasing incentives for positive behavior.