Saturday, October 31, 2009
The New FED
The long arm of the federal government just seems to keep growing. At least it will if our current President and Congress have their way. New proposals for increased financial regulation and expanded powers for the FED were recently unveiled. The proposed changes would give the FED unprecedented power to dictate and control firms and the financial markets. Among the powers would be the ability to order firms to sell or spin off assets if the FED deemed them to be too large. The FED would also be able to force financial firms to assist in the bailout of failing competitors or order them to stop doing certain activities. All of these powers could be exercised by the FED if they deemed any financial firm's size or actions to represent a threat to the stability of the markets.
Not exactly a black and white sort of thing. The FED would also have great discretion in applying the rules to individual firms. It seems to me that giving an arm of the government the ability to order firms to bail out competitors, sell assets, stop conducting certain activities, or even split up is something much closer to communism than capitalism. Why would any firm want to innovate or take risks in the financial sector if they could be forced to stop and sell assets or to pay to unwind failed competitors? The result will be decreased financial innovation, decreased market efficiency, and generally less access to capital. This is another step in a long line of unprecedented intrusions into the free market by our government and a stark deviation from what America has stood for the past 200 years or so.
Not exactly a black and white sort of thing. The FED would also have great discretion in applying the rules to individual firms. It seems to me that giving an arm of the government the ability to order firms to bail out competitors, sell assets, stop conducting certain activities, or even split up is something much closer to communism than capitalism. Why would any firm want to innovate or take risks in the financial sector if they could be forced to stop and sell assets or to pay to unwind failed competitors? The result will be decreased financial innovation, decreased market efficiency, and generally less access to capital. This is another step in a long line of unprecedented intrusions into the free market by our government and a stark deviation from what America has stood for the past 200 years or so.
Medicare Rip Off
Medicare fraud is quickly becoming one of the largest crimes in America. Totaling nearly $60 billion a year in fraud. This is an excellent video segment that shows just how big the problem is. We should think about this long and hard before we hand over another trillion dollars in health care spending to these folks!
Watch CBS News Videos Online
Watch CBS News Videos Online
Monday, October 26, 2009
More Obama Care Maddness
More news on the health care front! How can we possibly pay for all this health care "improvement?" One idea is just to force everyone to buy insurance and to make it all fair the old and young should pay the same price, which of course means young adults will pay much more for one-size-fits-all policies with coverage they don't need. Read all about it....
US Government Approved Paychecks
President Obama's so called "Pay Czar" unveiled new compensation rules for firms that received large sums of government bailout money. The rules reduce total compensation by 50% on average and in some cases salaries have been cut by up to 90%! The current administration seems intent on invading every aspect of private and corporate life. The goal they cite is to ensure that companies align pay with proper incentives and enable firms to repay the money faster.
A close look reveals several flaws with this plan. First, aligning compensation with proper incentives is a very difficult task and it is not likely to work with cookie cutter policies such as those proposed by the "Pay Czar." Second, one of the changes made by these compensation rules was to make stock awards very long-term. The issue with long-term stock options is that over a long period of time many factors can affect a stock's price that are not in the control of the executives of the company. This means that long-term awards are likely to have little to no incentive effect as there value is likely to be viewed by the employee as beyond his/her control. Third, by limiting the compensation allowed to be paid in some of the most competitive jobs in America the government has put firms that borrowed money at a significant disadvantage when it comes to retaining and finding talent. This is likely to make it more difficult instead of easier for these firms to repay the government.
This is just another example of poor policy making and short-sightedness by our current administration.
A close look reveals several flaws with this plan. First, aligning compensation with proper incentives is a very difficult task and it is not likely to work with cookie cutter policies such as those proposed by the "Pay Czar." Second, one of the changes made by these compensation rules was to make stock awards very long-term. The issue with long-term stock options is that over a long period of time many factors can affect a stock's price that are not in the control of the executives of the company. This means that long-term awards are likely to have little to no incentive effect as there value is likely to be viewed by the employee as beyond his/her control. Third, by limiting the compensation allowed to be paid in some of the most competitive jobs in America the government has put firms that borrowed money at a significant disadvantage when it comes to retaining and finding talent. This is likely to make it more difficult instead of easier for these firms to repay the government.
This is just another example of poor policy making and short-sightedness by our current administration.
Thursday, October 15, 2009
Tuesday, October 6, 2009
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