Regulators, Our Saviors

The Securities and Exchange Commission (SEC) is responsible for regulating the securities industry, including monitoring and enforcing the laws and regulations on insider trading.

So it is disturbing to learn that the SEC does not practice what it preaches.

In response to a recent insider trading scandal by two of its employees, the SEC has initiated new procedures that investment banking firms had long ago implemented to reduce the risk of insider trading.

Specifically, in response to this scandal, the SEC will prohibit its employees from trading in the stocks of companies under its investigation and will require employees to have copies of their brokerage accounts sent to the SEC.

For those who put their faith in greater power for regulators, this is one of many cautionary and disturbing tales.

The Most Powerful Group in America You Have Never Heard Of

The Obama administration is threatening the State of California, which is facing a staggering $42 billion budget deficit due to excessive spending growth and reliance on a "progressive" income tax, with the loss of $7 billion in stimulus money - unless California ends a $74 million budget cut that reduces wages for unionized health care workers.

The Services Employees International Union (SEIU) spent $85 million of union dues to help elect Barack Obama as president, and wants a return on its investment.

This intervention by the Obama administration in a state budget matter shows you the extent to which Obama is beholden to the unions.

The SEIU has had many of its leaders appointed to roles in the Obama administration. Through those jobs, and efforts such as strong-arming California, it is getting a payback on its investment.

And in return, taxpayers suffer.

Disparate Impact

Recent news reports suggest that 80% of the layoffs in the current recession have been men.

From labor force participation rates, it seems men are about 55% of the employed, so this is an enormous "disparate impact".

For those who think simple statistical disparities are good indicators of discrimination, disparate impact has been one of the standards by which some claim discrimination has occurred.

But does anyone think men are being "targeted" with layoffs because they are men, across the entire economy? Of course not.

Instead, job losses have tended to occur in fields which have a high proportion of its jobs filled by men (such as construction or finance), while job losses have been low in fields where a high proportion of jobs are filled by women (such as nursing or education).

This is a good lesson of why using disparate impact as a standard of discrimination is often wrong.

The Three Most Important Letters in America

The Obama administration is bailing out GMAC, the auto finance arm of GM. Unlike the financial services bail out of large banks, a failure at GMAC (if it came to that) doesn't pose a systemic risk to the financial system.

So why is the Obama administration forking over up to $20 billion to save GMAC?

Could it have anything to do with what we have learned are the three most important letters in America: UAW?

Iran Fights, We Talk

Secretary of Defense Robert Gates is described in the Wall Street Journal as saying that Iran is harming America's interests in Afghanistan by sending weapons to the Taliban and other groups.

In a proper world, this would be a front page headline and lead to the U.S. taking decisive military action against Iran - since Iran is waging war against American troops in Afghanistan through these indirect means.

Instead, the news is buried toward the end of a story on page four - which not only reflects the desire of the media to down play acts of war by Iran against America, but also reflects the desire of the Obama administration, and Bush's before, to down play the war waged by Iran against America.

In case anyone thinks "war" is too strong a word, consider that Iran realizes in a conventional military fight with America, it will lose decisively. Deploying army, navy, or air force units against America's military would lead to certain defeat. So Iran instead fights us in ways that shield its actions and make it harder for us to respond.

It is a strategy that "works" only because we let them get away with it, literally getting away with murder: the deaths of American soldiers and civilians in Afghanistan and Iraq, where Iran has pursued the same strategy of arming and supporting the forces fighting us in Iraq too.

News reports indicate we respond with special forces units trying to disrupt Iran's efforts, which is certainly better than nothing. But given the preponderance of conventional military power we possess, we should play to our strengths, and coerce Iran to stop its war against us.

For many years, under many administrations, we have let our enemies fight us at low levels of intensity, letting them attack us as they best can through through terrorist attacks and indirect means - while we have not responded as best we can with our military superiority.

Our enemies need to pay a much higher price for such efforts against us. It is time to start now against Iran, given the importance of our efforts in Afghanistan, Pakistan, and Iraq.

Straw Men and a Weak President

In the debate this week on protecting our national security, Barack Obama said that "I categorically reject the assertion that these [enhanced interrogation techniques] are the most effective means of interrogation."

Sounds like the President is taking a strong stand? Think again.

The problem is that Obama is creating a "straw man" that is easy to knock down: the debate over enhanced interrogation like waterboarding is not that it is the "most effective means of interrogation". No one is arguing that. Instead, the issue is: are these techniques sometimes helpful in getting intelligence from the most hardened terrorists, after other techniques failed?

Khalid Sheikh Muhammed, who organized 9/11 and boasted that he beheaded Daniel Pearl, and two other terrorists were waterboarded after other methods repeatedly failed. Out of the thousands captured, three terrorists were subject to enhanced interrogation.

And was it effective?

Reports indicate that as of 2006, half of the actionable intelligence on terrorism came from these techniques.

George Tenet, the CIA director for Bill Clinton and George Bush, said that: "I know that this program has saved lives. I know we've disrupted plots. I know this program alone is worth more than the FBI, the Central Intelligence Agency, and the National Security Agency put together have been able to tell us." That's a stunning level of effectiveness, when you realize that the National Security Agency spends over $30 billion a year monitoring communications around the world, and the FBI and CIA have thousands of personnel seeking such information.

Admiral Blair, Obama's Director of National Intelligence, said that: "High value information came from interrogations in which those methods [enhanced interrogation] were used and provided a deeper understanding of the al-Quaeda organization that was attacking this country." Blair wrote this - but disturbingly it was deleted from the version publicly released by the Obama administration.

Here is a hint to being able to detect a weak argument: when you resort to personal denunciations, or the creation of false "straw men", to make your case - the case you are making is a bad one.

Facts and logic ought to win an argument, not lies, evasions, and distortions. Obama is not only wrong on the policy, but he can't even the discuss the issue in an honest manner.

Now He Tells Us

Treasury Secretary recently acknowledged that the Federal Reserve's low interest rate policy contributed to the financial crisis.

Although that has been the view of this column since the crisis began (see here), policy makers have been loathe to admit they, or their colleagues, bear a responsibility for the crisis. They have preferred to let Wall Street take the blame for a government-created problem.

And if the Obama or Bush administrations admitted this earlier, it might have reduced some of the impetus for further government intervention in the economy, such as the stimulus bill.

Auto Czar, Truly

In the early part of this year, there had been much talk of Barack Obama appointing an "auto czar" to lead the restructuring of the auto industry given its financial plight.

The administration didn't appoint one person for that role, instead having a team of people lead the administration's restructuring efforts.

Now we know why: Barack Obama reserved that title for himself.

His decision to impose his will on American consumers and the auto makers, with his recently announced fuel efficiency standards, is worthy of a czar. Dictating to people that they buy cars they don't want to own, and forcing financially devastated auto companies to make unprofitable cars, can only happen in the hands of a government drunk on its desire to use its power to reorder how people live.

If consumers want to drive cars that get 39 mpg, which is the new standard for the average car by 2016, they would choose to buy them. More fuel efficient cars than that have existed in the past - they are small and underpowered, so don't appeal to most Americans, but it isn't a technological challenge to make them.

And since people don't want to buy such cars, they become unprofitable for the auto makers to produce. In case anyone hasn't noticed, the Big Three are desperate to make money, not lose more of it on money losing dreams of the social engineers.

The only way to prevent such loses is to impose dramatic taxes on gasoline, or provide enormous tax subsidies, so consumers are induced to buy highly fuel efficient cars. $6.00 per gallon gas, here we come.

Since Americans "vote" every day with their pocketbook, in terms of the purchases they make, and clearly prefer less fuel efficient cars, it will be interesting to see if they realize that Obama's actions are a direct affront to their own choices and preferences. My guess is many will think they can continue to buy the car they want, while it is "the other guy" who gets stuck with a car he doesn't want.

They will be in for a rude awakening.

Promises Made, Promises Broken

Barack Obama has decided to continue to use the Bush administration's military commission system to try terrorist detainees, with some minor modifications. For something Obama called "an enormous failure" in the presidential campaign, this is another staggering flip flop.

It is further evidence of the poisonous political culture the Democrats created during the Bush administration, to create false or exaggerated differences with George Bush over national security to create a political advantage.

The doubts sown about our anti-terrorism efforts, and the resulting electoral success of the Democrats, demonstrates the perverse "effectiveness" of such a strategy.

The "price" for this success: undermining our success against terrorists and their state supporters, and weakening our political system where electoral games take priority over real leadership.

Speaker Pelosi

Following Bill Clinton's playbook for dealing with a political scandal, Nancy Pelosi has decided to lash out and attack the CIA over the evidence that she knew in 2002 the Bush administration was waterboarding certain terrorists and didn't oppose it.

There is so much one can say about this matter, but here a few key points:

First, although the evidence was already overwhelming, this incident further demonstrates that the Democrats pursued a political strategy against the Bush administration and the Republicans in contradiction to their own beliefs or actions on national security. From believing Iraq possessed weapons of mass destruction to later asserting Bush lied about the existence of them; to supporting the Iraq war to later claiming it was wrong; to opposing indefinite detention of terrorists to now being the policy of the Obama administration; to welcoming the photos from Abu Ghraib to Obama now opposing release of further photos of terrorists in custody - we can add that the criticism of enhanced interrogation techniques was a tactic to undermine Republicans while believing it was the right thing to do.

Second, since this political gamesmanship involved matters as fundamental as our national security, it demonstrates Democrats are willing to risk American lives and America's interests to further their political ambitions.

Third, it demonstrates the character, or the lack thereof, of the most powerful Democrat in Washington during the Bush administration. Nancy Pelosi, rather than being a great statesman, is a political opportunist who will say and do what she thinks is necessary to win. And if America's safety is put at risk, so be it.

The Tax Man Cometh

Senate Democrats are considering implementing a new excise tax on soda and sugary drinks to help pay for Obama's plans for socialized medicine.

The left has demonized soda and sugar-laden drinks, and while drinking too many of them can be a health issue, singling out specific products for taxation is consistent with the new economic policies of the Obama era: the government picking winners and losers, favoring certain industries, companies, and products over others.

Suffice to say, the government has no role in any of this.

But the tax on soda, if enacted, would violate Obama's tax pledge to not raise taxes on people making below $250,000 per year. Almost all of the soda in the country is consumed by those earning below that threshold.

But this isn't surprising, because the enormous spending plans and budget deficits Obama is unleashing on America is leading to higher taxes, and most of the income in the country is earned by people making below $250,000 per year.

Obama and the Democrats are introducing stealth taxes on lower income groups so it isn't as visible to them. They have already raised excise taxes on cigarettes (see here), and their plans for carbon taxes means products and services will rise in price to reflect this higher cost of doing business (see here).

Excise taxes on soda are more of the same.

The New Gitmo

Barack Obama's Justice Department is appealing a federal court decision that says the same rights that Guantanamo Bay detainees have apply to detainees held by the U.S. at Bagram Air Base in Afghanistan.

The Obama administration is fighting this ruling, saying that it could harm America's security and disclose intelligence secrets.

In other words, Obama doesn't believe Guantanamo, in reality, is bad. He just worries about bad PR from the left.

Another act of inspiring presidential leadership by Barack Obama.

We Don't Need No Stinkin' Rights

Chrysler's secured creditors who are banks, such as Citigroup and JP Morgan, have agreed to accept the government's proposed settlement of their debt - no doubt in whole or in part due to their status as a "tarped" firm. Since they are under the thumb of the Obama administration, they need to do its bidding.

But not all of Chrysler's secured creditors are TARP firms, and they don't like the deal the government has offerred them.

The deal upends the traditional payouts in bankruptcy, because the unsecured creditors (the UAW retirees) are getting a higher recovery rate on their liabilities than the secured creditor (the banks) under Obama's plan.

In a normal bankruptcy, the opposite occurs. This is pure wealth confiscation by the Obama administration, in support of its political ally the UAW.

The bankruptcy judge has to decide if the identities of these lenders need to be revealed, which is a problem, since some have received death threats.

This is just another obscenity that the economic downturn has led to: creditors who have the right to decide for themselves whether to accept a deal being threatened with death for not doing so. Obama's attack on these creditors as "speculators" further inflames passion on the issue, when all they are doing is representing their investors interests - as their fiduciary duty requires.

Along with the death threats made against AIG employees who received contractually agreed bonuses, this shows the naked hatred that exists in the hearts and minds of some.

If you won't speak out in their defense, don't expect anyone to speak out in your defense.

Catch-22

The recent disclosure that Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernake pressured Bank of America to complete the purchase of Merrill Lynch in December, after learning of $15 billion in additional lossess at Merrill, illustrates the monstrous impact government intervention in the economy has produced.

BoA was excoriated by its shareholders for completing the Merrill deal in the face of such staggering lossess, but we now learn it felt it had to do so in order to satisfy the government.

BoA should have been free to pull out of the deal, or renegotiate its terms to make it more attractive in light of the new losses. Instead, its shareholders have subsidized the losses at Merrill that the government would have borne absent a BoA deal.

Comrade Chavez

The tyrant of Caracas, Hugo Chavez, has been pursuing a socialist dictatorship in Venezuela for years. His method is to slowly take on more power, each step deeply offensive but not so catastrophic that it offends his leftist defenders around the world.

The Wall Street Journal reports that Comrade Chavez's offenses include a campaign against Venezuela Jews, who in response to this persecution, are fleeing the country: since 1998, the number of Jews has dropped from 22,000 to an estimated 10,000 to 15,000.

Chavez's anti-semitism is driven by two forces. The first is the long-standing effort by leaders who produce misery with their failed policies to blame the Jews in their midst for their own failings. And the second is Chavez's anti-American policies, which has led to a cooperative relationship with Iran. And what better way to cement such a relationship than with anti-semitism?

Just one more reason to despise Chavez. And one more reason to be dismayed by Obama's recent handshake with the tyrant.

Business Matters

The first quarter report on economic activity shows that GDP dropped at an annualized rate of 6.1%.

The composition of that change is critical. Consumer spending increased 2.2% while business investment plunged 38%.

It is one of the Big Lies in the popular understanding of economics that consumer spending is the key driver of the economy. Instead, business spending is, exhibiting much greater volatility.

The key driver of business spending is corporations' and small business owners' assessment of whether they can earn an attractive return in the future, after-tax and after-inflation.

The government's recent assault on business through higher taxes, modifying contracts, the prospect of national health care, and applying political pressure has led businesses to fear they can't make long-term plans and expect to make a profit without the risk of government intervention and confiscation.

In effect, earning an attractive return, after-tax and after-inflation, is much harder for businesses to envision in light of these policies.

The implication: economic recovery will take longer, and growth will be slower, than if the government had enacted different policies that were consistent with the free market.

Real Mortgage Relief

Barack Obama's proposal to allow bankruptcy courts to reduce mortgage balances was fortunately defeated in the Senate due primarily to Republican opposition, although the Democrats are seeking to change the bill to attract additional votes.

Passage of Obama's plan would mean higher mortgage rates and less credit availability, as lenders would need to factor in the greater risk of losing money if a homeowner filed for bankruptcy.

That is why a Democrat-controlled Congress in the 1970's had the good sense to exempt mortgage debt from the type of debts that a bankruptcy court could modify.

It is a sad commentary when a law from Jimmy Carter's era makes more sense than what the Democrats are offering up today.

The UAW Cashes In

The extraordinary lengths to which Barack Obama has gone to preserve Chrysler's corporate existence shows the degree to which he is willing to help a key political ally, the UAW, with a massive bailout.

The auto industry was losing money during the economic boom, a sure sign of profound problems. The fundamental problem with the industry has been the restrictions the government has imposed on it, including forcing it to build unprofitable cars that Americans don't want to buy: smaller, more fuel efficient cars made in UAW-manned factories.

The fuel efficiency standards were bad enough, since it meant consumers had to be induced with low prices to buy cars they didn't prefer. But the government also mandated that such cars had to be made in domestic factories, since cars made overseas and imported into the U.S. didn't count to meeting the fuel efficiency standards - a clear payoff to the UAW.

Other damaging government restrictions include labor relations law, which gives the UAW disproportionate leverage vs the auto makers, and the new quest to force the Big Three to make unprofitable, environmentally "friendly" cars.

So now the industry has massive excess capacity: too many factories, dealers, brands, and employees. Normally, excess capacity leads to aggressive plant closures, moving production overseas, M&A deals, and if those aren't sufficient, bankruptcy.

But the UAW preferential negotiating position has prevented the Big Three from taking normal business steps to eliminate this excess capacity.

So now we are left with Chrysler being forced into bankruptcy.

In a bankruptcy untainted by government pressure or money, Fiat would be allowed to bid for those assets that it wants, which would allow many of Chrysler's plants and brands to survive. So many of Chrysler's assets would survive and some jobs - but the above-market UAW retiree health benefits and above-market UAW wage levels would suffer.

Instead, Obama is throwing another $8 billion down the sinkhole of Chrysler to preserve UAW benefits and jobs. The UAW is a reliable Democratic ally, providing money and manpower to help elect Democrats.

So your money is being spent by a Democratic president to help his allies elect Democrats. This is the result of government intervention in the market.

None of this would have happened if the government had allowed the free market to operate in the auto industry.