Category Archives: politics

Questionable CBO analysis really hurt TAG extension effort

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Community bankers who supported extension of the Transaction Account Guarantee for another two years have a right to be upset about the results of Thursday’s Senate vote on S.3637. The procedural 50-42 vote effectively killed the bill in the Senate.

The Congressional Budget Office’s analysis of the bill provided cover for most of the Republicans in the Senate to vote no. I have to say that the CBO analysis is highly questionable. Why, for example, is the CBO making a 10-year cost impact projection when the bill only seeks a two-year extension of TAG?

CBO says the FDIC would likely under-estimate the cost of future bank failures, and therefore charge a premium that is too low, presumably leaving taxpayers with the remainder of the cost. CBO puts that cost at $110 million in the next decade. It is amazing to me that CBO thinks it knows how to project the cost of future bank failures better than the FDIC.

Whenever a bank fails, the FDIC projects the cost to the Deposit Insurance Fund. The true cost often is not known for years, but history tells us the FDIC typically estimates conservatively, meaning they almost always project worst-case scenarios that result in estimated costs that exceed the actual costs. To the extent that bank failures are predictable, the FDIC does a pretty good job, so I don’t understand why the CBO builds its analysis on the idea that the FDIC will underestimate the cost.

I also wonder whether Sen. Reid was a true friend on this one. He was the author of S. 3637, which made him a hero in the eyes of TAG supporters, but by adopting procedure that prohibited amendments, there was no way to address the CBO analysis, accurate or not. If amendments had been allowed, certainly some amendment could have been offered to placate those really worried that the FDIC wouldn’t charge enough for the extra deposit insurance coverage.

The other disappointing character in this debate was the Wall Street Journal. The newspaper viciously editorialized against the extension of TAG. The newspaper always portrayed TAG as a taxpayer liability. It refused to acknowledge that the industry pays for the extra coverage. The WSJ, which I normally respect, got this one completely wrong.

There are still a couple of weeks to go before the end of the year. TAG advocates should continue to make their case until Dec. 31. Perhaps something will happen making it possible to insert a TAG extension into some other piece of must-pass legislation.

Iowa banker throws had in ring

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Nancy Dunkel, the first female chair of the Iowa Bankers Association, announced Jan. 6 she will run for the Iowa General Assembly. Dunkel is running for the open seat representing Iowa House District 57.

Dunkel has long been a star in Iowa banking circles. NorthWestern Financial Review recognized her as an Outstanding Woman in Banking in 1993 when she was executive vice president and cashier at the State Bank of Worthington, Iowa. She was named chairman of the IBA in 2005 when she was vice president of Fidelity Bank & Trust in Dubuque. She also served on the board of the Iowa Values Fund, and she served on the Iowa Department of Economic Development. Last year, she retired from Fidelity Bank.

Currently Dunkel is executive director of the Dyersville Area Community Foundation. She also serves on the board of The Principal Bank. She is also an inductee to the Iowa Women’s Hall of Fame.

The Iowa House District 57 seat is opening up as Steve Lukan, a Republican who has held the seat since 2002, announced he does not intend to seek re-election.

Rep. Frank following senators’ example

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U.S. Rep. Barney Frank is following the trend established by recent U.S. senators who sponsored major banking legislation. After Rep. Frank announced he would not seek re-election in 2012, it occurred to me that Sen. Don Riegle of Michigan, Sen. Phil Gramm of Texas and Sen. Christopher Dodd of Connecticut also declined to run for re-election after passing banking bills bearing their names.

After the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was passed, Sen. Riegle left the Senate in 1995. Sen. Gramm has his name on the Gramm-Leach-Bliley Act of 1999. He completed his service in the U.S. Senate in 2002 upon completion of his third term. And Sen. Christopher Dodd decided not to seek re-election after the Dodd-Frank Act passed in July 2010.

Ironically, after the next election, neither of the main sponsors of the biggest banking legislation ever will be in Congress as regulators continue to write the rules to implement the law and bankers struggle to comply with it.

Fed independence essential

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Over the years, there have been a number of people who have urged the politicization of the Federal Reserve. The Fed, of course, is independent and there are some people who have a big problem with that. There are those who would like to see the Fed subject to the President, or to Congress. But, wisely, Congress set up the Fed in 1913 as an independent agency; ever since then, however, there has been a tension between the Fed and those who would like more control of it.

The campaign season for the Republican nomination for president official launched with the Iowa Straw Poll on Saturday, and the guy who came in a close second, Ron Paul, has a long history of criticizing the Fed. He would certainly like elected officials to have more control of the Federal Reserve. Now, Texas Governor Rick Perry, who just announced his candidacy for the Republican nomination, is in the news for attacking the Fed. Here is how the Wall Street Journal covers it:

Mr. Perry brought the Fed directly into the campaign debate Monday night by saying it would be “almost … treasonous” for the central bank to play politics by expanding the money supply.

No one wants to see inflation; monetary policy is tricky business and getting the balance of rate setting and money supply is complicated. But I like the idea of that task being in the hands of an agency that is at least supposed to be independent. It would be highly imprudent to put such a task in the hands of politicians.

U.S. Rep. Cravaack explains vote to ICBM bankers

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U.S. Rep. Chip Cravaack, elected in 2010 to the U.S. House of Representatives to represent Minnesota’s eighth district, explained to bankers attending the ICBM convention in Duluth last Friday, why he voted against the House-Senate deal to raise the debt ceiling.

The numbers the country has compiled are not adding up. To be honest, they are down right frightening. [Editor's note: Thursday, August 4, the day before Rep. Cravaack spoke, the Dow dropped 518 points; yesterday, it dropped more than 600 points.] 

After all the debate in Congress, the only thing that has been settled is that the country will continue to grow. All the arguments you heard in the last few weeks was about the rate of government growth. When you heard about “cuts,” it pertained to the rate of government growth. The word “cut” means something quite different in Washington than it does to you and me.

In 2006, our current president, then a U.S. Senator, said in a floor speech in the Senate: The fact that we are hear today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay it’s own bills. It is now a sign that we depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies. The president has come out and said he regrets those remarks. I wish he hadn’t regretted those comments because, quite frankly, he is 100 percent correct.

We will have a national debt approaching $22 trillion in ten years; the federal budget deficit will still exceed a trillion dollars for the next year and for years to come.

Our country’s financial condition has not improved and the numbers are going to get worse.  

As bankers, imagine a customer coming in seeking a $220,000 loan and he places in front of you his financial statements. It shows you are making $24,000 per year. Your expenses are $36,000 per year. You are spending 50 percent more than you are taking in. It shows you already owe other lenders $1.5 million. And you have promised to pay others $10 million in the coming decades in addition to what you already owe. 

If you multiply each of the figures used in this example by 10 million, that is the current financial situation of our country — $2.4 trillion in revenue, $3.6 trillion in expenditures, $15 trillion in debt and $100 trillion in unfunded liabilities, Social Security and Medicare.

This is why I voted “no” on the deal that was worked out between the Senate and the Congress. The bill simply did not address the problems. And it will be much more difficult to face these problems in the future. Washington has passed the buck to future generations.

Tester vote still stings

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I am still adjusting to the news that the Tester bill to delay implementation of the Durbin amendment failed last Wednesday, even though 54 senators voted for it. Particularly curious are the 12 Republicans who voted against the Tester bill. How can there be a dozen Republican senators who support price controls — in a business to business situation?! It defies all reason.

I previously wrote about the 17 Republicans who voted for the Durbin amendment last summer. Three of the Republicans on that list — Mike Crapo and James Risch of Idaho and Roger Wicker of Mississippi — voted for the Tester bill this time around. But the following remained unmoved:

John Barasso – Wyo.

Scott Brown – Mass.

Richard Burr – N.C.

Saxby Chambliss – Ga.

Susan Collins – Maine

Mike Enzi – Wyo.

Lindsay Graham – S.C.

Charles Grassley – Iowa

Johnny Isakson – Ga.

Richard Luger – Ind.

Olympia Snow – Maine

David Vitter – La.

What are these people thinking? Do they really believe consumers will see some sort of price reduction? That won’t happen. 

I have written before about the Food Marketing Institute’s support for price controls on debit card transactions. After Wednesday’s vote, here is what they had to say:

“FMI applauds the 45 Senators who voted to support their neighborhood grocery stores and their customers today.  There is no doubt in my mind that customers will see savings returned to their pockets once this rule is finalized,” says Leslie G. Sarasin, president and chief executive officer of FMI.

Sarasin continues, “This is a critical issue to the survival of small businesses.  Since 2008, more than 1,000,000 businesses have failed costing 3.6 million jobs and many report the growth of swipe fees as a strong contributor to their demise.”

Do people really believe a million businesses and 3.6 million jobs have been lost because of debit interchange fees? Of course not. This argument is nonsense. But, apparently it was persuasive enough for these 12 senators.

Budget realities in Minnesota

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The Minnesota legislature is scheduled to adjourn a week from today, but with no budget deal in sight, many people are betting a special session will be necessary.

Steve Sviggum, former Speaker of the House in the Minnesota legislature, spoke to bankers at the Bank Holding Company Association Spring Seminar on May 3. Balance, which Sviggum called essential in all aspects of life, is important too when it comes to government, Sviggum said. Yet politics has increasingly become polarized. Sviggum pointed to Wisconsin’s fight to strip collective bargaining rights from state employees and the protests that followed. Sviggum used the term “wackos” to describe both fringes of the electorate – people on the left who are out of touch with reality and people on the right who’ve “forgotten the words cooperation and compromise.”  No one gets everything they want at home or at work, Sviggum said. “Certainly, we won’t get everything we want from government.”

Sviggum said the two radical fringes of each political party are so far gone that they are immaterial to the governing process. Most people want decent schools, good nursing homes, safe streets, good roads, but also know we can’t tax people out of the freedoms and have to stay competitive. “We can’t overburden businesses and stay competitive in the global market,” he said. In Minnesota, where officially the deficit is $5 billion, or about 14 percent of the budget, Sviggum said the difference is closer to $10 billion. The House, Senate and Governor have all gone in different directions with their proposals, so the bridge to gap has expanded. “They’re not even working with the same numbers,” Sviggum said. “How are they going to reconcile?”

Raising fees, gaming, and an internet sales tax can help Minnesota bridge the gap, in lieu of tax increases, but it won’t cover it all, so compromise will be required, Sviggum said. “They all need to look for the best alternatives, which in this case likely will be a special session in May. By June, the best alternative might be to shut down government on July 1.”

Transparency and independence

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Things have really changed over the years at the Fed, where secrecy used to be a way of life. Yesterday, Fed Chairman Bernanke gave a press conference after the close of a two-day FOMC meeting. You can watch the nearly one-hour press conference here.

Bernanke apparently pleased the markets yesterday, which closed higher. But you can argue that he really didn’t say very much during the give and take with reporters. Bernanke is much more transparent than Alan Greenspan ever was, but I am not sure we know any more about this Fed than we did about the one Greenspan headed.

We live in a culture where transparency is lauded, as it should be. Bernanke has opened up this Federal Reserve considerably, granting interviews on 60 Minutes and other news outlets. Even at the industry conventions where he has appeared, he usually takes a question (albeit staged) from the audience. But I wonder to what extent a movement toward more transparency makes the Fed more political. More information gives advocates more to talk about, creating pressure which could influence the Fed’s monetary policy decisions. In other countries, the central bank is entirely politicized. The United State’s has prided itself on the independence of its central bank.

I am a fan of both independence and transparency. This is the first instance I have come across where those ideals may be at cross purposes.