As early as today, the House is set to approve Rep. Barney Frank’s (D-MA) financial regulation bill intended to prevent future Wall Street bailouts by granting regulators sweeping new powers to control firms deemed “too big to fail.” But as Heritage Senior Research Fellow David John explains below, the Frank bill actually encourages future bailouts by signaling to markets that the targeted firms guaranteed against failure, thus enabling risky business decisions. Worse, by empowering the FDIC to seize and close failing financial institutions, while also establishing a fund enabling the …
For months now, the Treasury Department has been grappling with the consequences of “Too Big to Fail” — the idea that some enterprises are too large to allow to fail. Now here’s comes the Justice Department with “Too Big To Succeed,” the idea that some firms are too large to allow to suceed. That at least is the implication of a policy change announced this week by new DOJ Antitrust Division chief Christine Varney. Specifically, in two speeches, she renounced a report developed by the Bush DOJ last year on …
Policies premised more on class-warfare than sound economics, are not going to get us out of this recession. They may actually delay recovery. In my last post, I discussed the example of a ban on “golden parachutes” for top executives. Now, another item from the Treasury’s pay rules for companies receiving “extraordinary assistance” that may soon be foisted on the broader market: executive pay caps. The rule is short and sour: Senior executives can receive no more than $500,000 in total annual compensation. They can also receive restricted stock that …
Policies premised more on class-warfare than sound economics, are not going to get us out of this recession. They may actually delay recovery. A case in point: the executive pay guidelines released by Treasury today. Though the new rules seem to apply, at this point, to only the few corporations that have received “exceptional assistance,” such as AIG and Fannie Mae, they are clearly a template for more broadly applicable rules. It is worthwhile, then, to consider how they undermine incentives for performance and economic growth. One particularly populist and …
Leaders of the liberal majorities in the House and Senate yesterday tried to claim they had completed a deal with the White House to address the Wall Street crisis. From the beginning, leaders on the left have both demanded the White House deliver conservative votes for any deal and then refused to include any conservatives in the negotiations. After yesterday, the leadership on the left now knows it will have to work with conservatives to get a compromise done. If the left is serious about preventing a credit lockdown that threatens …
There is no doubt that past government intervention in the market, particularly by Fannie Mae and Freddie Mac, is largely to blame for the current financial turmoil. And while past government intervention cannot be used to justify further government interference, we also have to ask how much unnecessary pain the economy must bear. Absent action along the lines proposed by Treasury Secretary Hank Paulson, capital markets at home and worldwide would eventually normalize. But how many large and small companies are going to have to fail to make payroll because …
To hear leftist politicians and their media allies tell it, the current financial turmoil was directly caused by deregulations carried out in just the past eight years under President Bush. Barack Obama aide Austan Goolsbee told Politico: “The core issue is pretty easy to understand. We’ve just spent the last eight years operating on the premise that the government shouldn’t be in the business of setting the rules of the road.” Problem is Goolsbee just has his facts wrong. George Mason University economist Tyler Cowen explains: There is a misconception …
