With Obama, It's Another Day, Another Dolor
PJM readers will be fully aware by now that I harbor deep suspicions about Barack Obama. I began following his career when he was still the junior senator from Illinois, regarding him not as an interesting human being but as a fascinating political specimen, a phenomenon of sorts. I didn’t trust him from the start. His dubious voting record in the Senate only exacerbated my suspicions, as did the thickening dossier of files and reports I compiled on his speeches, declarations, political antecedents, friends, and mentors, past activities as a “community organizer,” business deals, conjoint nepotism, and, most crucially, his deliberate suppression of much of his curriculum vitae. Despite the magic spell that he cast on a majority of the electorate, I considered him as a man who was all wrong for America and whose ideas were simply not a fit. He was, it seemed evident to me, out of step with the tenor of American history and the general orientation of the American heartland.
By the time he entered the Democratic nomination race I knew three things for a certainty: that he would trounce Hillary, that he would win the presidency, and that he would be an unmitigated disaster for the nation he purports to govern. It didn’t take extraordinary prescience to arrive at these conclusions, merely an immunity to populist hype, a degree of paying attention, and a bit of common sense. And had I any lingering doubts, they would have been quickly put to rest by Michelle Malkin’s meticulous exposé, Culture of Corruption.
Almost every decision, both foreign and domestic, Obama has made since assuming the presidency has been, to put it mildly, a mistake, leading to the reduction of American stature and power projection in the international arena, mounting social tension, and a looming economic implosion on the home front. The president’s most significant talent, so far as I can see, is a penchant for soaring rhetoric delivered in metrical cadences, an emphatic stress falling regularly at the end of his sentences like a kind of iambic clincher. This gift should have qualified him not for the presidency but for the post of White House press secretary. Properly speaking, he should be where the flippant and unctuous Robert Gibbs is now.
The president’s most recent faux pas is very much in keeping with his repertoire of false steps and fiscal blunders, namely the intention to impose a tax on the financial industry to recoup his own misapplied bailout money. In his usual manner, Obama has gussied over this piratical sortie with impressive terminology, calling it a Financial Crisis Responsibility Fee. But there is, first of all, no indication whatsoever of how these recuperated funds will find their way back into the pockets of American taxpayers -- it’s a safe bet they will never see their money again -- and secondly, the predictable effect of the proposal once implemented will be to hamper the restoration of American banks to financial health.
For this “recovery strategy” furnishes a perfect disincentive to continue investing in bank stocks, which are now beginning to look distinctly menopausal, breaking out in hot flushes and feeling jittery. Financial Post editor Terence Corcoran has no doubt that Obama persists in bungling his mandate: “The tax looks like a good clean populist swing at bankers. What it really is is a strike against U.S. economic recovery prospects.” Moreover, as Peter Sorrentino of Huntington Asset Advisors points out, “The reality is that most or all of this tax will be borne by customers. … This is fundamentally a punitive endeavor.”
Foreign banks would be hit as well, including the leading Canadian banking institution, Toronto Dominion, where I have snuggled away my own small investment portfolio. It is estimated that this tax will cost TD $1 billion over the next decade. “Small change in bank circles,” Corcoran observes, “but punitive and discriminatory nonetheless -- especially since TD had nothing to do with the U.S. financial meltdown.” The result of this latest levy should be obvious. Foreign banks will become increasingly wary as players in the American banking sector, reassessing the viability of their bank acquisitions and further diminishing the prospect of economic recovery in the U.S., at least for the foreseeable future.
Writing in a National Post op-ed, Conrad Black lays it down that “economics is half psychology and half grade three arithmetic.” I am neither a psychologist nor an economist, but I’m quite competent in grade three arithmetic and have taken a sufficient number of psychology and economics classes in university on which to ground a commonsense judgment. And it is simply this: the new bank tax would be nothing more than a form of legal extortion, masquerading as a feel-good economic policy designed to enhance the president’s standing as someone who has the people’s best interests at heart.
Coupled with a second proposal to restrict the trading activities and proprietary profit of the banks, it should come as no surprise, to cite the Reuters report, that “stocks suffered their worst one-day percentage drop since October,” with the Dow Jones falling over 200 points. The bank tax is unconscionable; the directive against proprietary trading, a practice referred to by economists as a “moral hazard” -- since the banks are presumably gambling with their clients’ savings while themselves being largely insulated from loss -- would make some sense if it were the case. It is not. Obama does not seem to have understood that there is a distinction between a bank, whose activities are controlled by law, and a bank holding company, which uses its own funds in securities dealing. As Peter J. Wallison, co-director of the American Enterprise Institute for Public Policy Research (AEI) explains, there are “strong firewalls” between the two which “prevent the activities of the holding companies from affecting their bank subsidiaries.”
Of course, the president’s stated intention to crack down on “obscene bonuses” handed out by financial firms to their own employees is a sound populist gesture -- except that firms such as Goldman Sachs have already decided to cut down on such excess by awarding compensation packages to their top executives in stock with a five-year selling moratorium, rather than in cash. But the important fact is that the timing of this flurry of new banking regulations coming out of Washington is suspect. The administration’s focus on the banks now, in the context of the current PR scramble, raises serious questions about the president’s political calendar as it does about the future of American banking. Given what Victor Davis Hanson calls Obama’s “serial demonization of finance and business,” the long-term outlook is no less discouraging than the fiscal palpitations of the day.
No matter. In the president’s attempt to buff his tarnished image, which took another hit after the Democratic loss in the Massachusetts Senate election, he has chosen to impose a fiscal operating tariff on the very institutions whose effective functioning and increased liquidity are essential to their rejuvenation. To quote from Tim Harford’s analysis of political tampering with the economy in The Undercover Economist, this is a species of “government banditry,” combined with “widespread waste and oppressive regulations.” Cynical as it may sound, Harford allows there may well be dark motivations at work behind such manipulative practices, as politicians “often trade off the public interest against their chances of reelection” -- a truism worth remembering. In so doing, to adapt one of Harford’s agricultural metaphors, politicians have a way of turning meadowland into scrub. Inefficiency and self-interest reign, but the twist is that it is passed off as a public boon.
One does not need a course in freakonomics to discern the veiled determinants behind such uber-political behavior. One merely needs to keep one’s eyes open. It should be admitted, however, irrespective of the damage that must inevitably ensue, that the current melodrama has been most cleverly scripted. The defender of the people will smite those nasty bankers and greedy Wall Street speculators with yet another series of decisive blows, thus refurbishing his credentials even as the real money supply continues to dwindle and much-needed supplementary investment grows ever scarcer. The fallout from these latest interventions, as with the majority of its similitudes -- e.g., the proposed cap and trade or the imminent “new” Medicare payroll tax -- would be adversely felt throughout the banking quarter, the economy as a whole, and the public domain that Obama is ostensibly sheltering.
Indeed, the situation is even grimmer than might at first appear. Confiscating capital from American businesses and banks while simultaneously cranking out vast quantities of unbacked fiat money is a sure path to financial collapse. As Milton Friedman warned in Money Mischief, “The fate of a country is inseparable from the fate of its currency.” And it is inseparable, too, from the fate of its financial institutions.
Still, many people will be fooled by the president’s ostensible bona fides and his leftist base will be reassured. But the bottom line is that there is less juice in the system, less flexibility in its armature, and less willingness on the part of the nation’s wealth producers to adventure forth. So much for fabled Yankee dynamism and geoeconomic impetus. So much for the inner cowboy, for risk, energy, and initiative, that for long defined the American way, as Obama -- apart from printing money like crazy -- acts to restrain the potential vigor of the economy by placing it under swelling burdens of tribute and tying it up in knots of regulation.
Clearly, the purpose of so desperate yet wily a set of proposals, involving ever more taxes and restrictions, is not to augment a depleted treasury or retrieve the nation’s former solvency but to inflate the president’s sinking poll numbers. In pursuit of his goal of eventual re-electability and his palpable desire to introduce a deeply troubling socialist program into national life, the president will try to appeal to voters as a compassionate egalitarian. And he may well succeed in his objective. But its effect will be to add another nail to the coffin that the undertaker-in-chief is preparing for his country.