Chairman Jeb Hensarling

George Will: Courts and Congress give Obama adult supervision

Rep. Jeb Hensarling (R-Tex.), chairman of the Financial Services Committee, has told Richard Cordray not to bother. This is part of the recent evidence that government is getting some adult supervision.

Barack Obama used a recess appointment to make Cordray director of the Consumer Financial Protection Bureau. But a federal circuit court has declared unconstitutional three other recess appointments made the same day because the Senate was not in recess. So Hensarling has told Cordray not to testify before his committee: “Absent contrary guidance from the United States Supreme Court, you do not meet the statutory requirements of a validly serving director of the CFPB, and cannot be recognized as such.”

Competitive Enterprise Institute: Did Hensarling Force Obama’s Hand on “Recess” Appointments?

Chairman Hensarling’s action to block Richard Cordray from testifying on the CFPB’s semi-annual report may have forced the Obama administration’s hand in submitting a brief later in the week urging the Supreme Court to resolve the issue.  What Chairman Hensarling was doing, in the words of columnist George Will, is give an out-of-control government some needed “adult supervision.”  Judging by the White House’s reaction, Hensarling is succeeding.

Heritage: Red Tape Rising: Regulation in Obama’s First Term

Financial regulation dominated rulemaking in 2012, a direct result of the Dodd–Frank Act.  Financial services regulators were responsible for 13 of the 25 new major rules issued.  Far too often, the quality of cost analyses by regulatory agencies is substandard—particularly with respect to Dodd–Frank rulemaking. For example, some regulations issued by the SEC under the Act have been invalidated by the courts because of faulty cost-benefit analyses. 

Reuters: Cheap money bankrolls Wall Street’s bet on housing

Las Vegas would seem a highly unlikely locale for a new housing bubble since the area’s jobless rate hovers near 10% and a healthy housing market depends on people having jobs.  But the area is one of many mini-bubbles spawned by the Federal Reserve’s campaign to buttress growth with "quantitative easing," a wave of asset purchases that's pumping cheap money into the still-weak US economy.

Daily Caller: Dodd-Frank a total failure, bipartisan panel agrees

A mix of conservative and liberal speakers at an American Enterprise Institute discussion all agreed the 2010 law has utterly failed in its purpose of reducing the systemic risk posed by “Too Big to Fail” financial institutions.

New York Post: Sink QE! (the money-printing plan, that is)

The Federal Reserve made it official yesterday, saying it’s full steam ahead for the money-printing operation that is creating all sorts of financial dislocations without helping the economy grow very much.

Wall Street Journal’s Mary Kissel: Disdain for the Courts

The House Financial Services Committee disinvited Consumer Financial Protection Bureau chief Richard Cordray from testifying Tuesday, noting President Obama's non-recess, recess appointment of Mr. Cordray and a January D.C. Circuit Court of Appeals decision, Noel Canning v. NLRB, that invalidated other appointments made under the same pretense. In a letter to Mr. Cordray, Texas Republican Jeb Hensarling said his committee stands "ready to accept the testimony of the Director of the CFPB" when "an individual validly holds this position."

National Review Online: Jeb Hensarling on Richard Cordray

President Obama’s attempt to circumvent the Senate by unilaterally appointing Ohio politician Richard Cordray to the Consumer Financial Protection Bureau may have been premised on his expectation that he would get away with it. If so, he seems to have miscalculated, because the other two branches of government are providing him with a Sesame Street demonstration of the concept of “checks and balances.”

Volokh.com: House Financial Services Committee Refuses to Invite Richard Cordray to Testify

Amazingly, CFPB spokesmen continue to insist that Noel Canning does not apply to Cordray’s improper recess appointment although they have provided no explanation as to why it does not.

New York Times: Possible Fed Successor Has Admirers and Foes

In July 1996, the Federal Reserve broke the metronomic routine of its closed-door policy-making meetings to hold an unusual debate. The Fed’s powerful chairman, Alan Greenspan, saw a chance for the first time in decades to drive annual inflation all the way down to zero, achieving the price stability he had long regarded as the central bank’s primary mission.

Washington Post: As Wall Street relies more on technology, social media can tilt the markets

The evolution of market news — from messages on homing pigeons to newspaper articles to round-the-clock wire reports — has taken yet another disruptive step with the arrival of Twitter on trading desks throughout the world.

Bloomberg: Central Banks Load Up on Equities

Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

AEI: How Robin Kelly can ease Illinois' pain

The FHA exists to help first-time and low-income homebuyers achieve responsible homeownership. Sadly, the federal agency has strayed far from its historic mission and instead is setting families up to fail and saddling thousands of neighborhoods across America with high rates of home foreclosures.

A little over a year ago, Congress passed the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act was designed to make it easier for entrepreneurs to raise capital and turn their ideas into job-creating businesses that might one day go public. At a time of slow growth and high unemployment, the JOBS Act was a big win for the St. Louis region and the American economy.

Not only was the JOBS Act good policy — it also was an important bipartisan breakthrough at a time of heightened partisanship. During the Rose Garden signing ceremony, President Obama hailed the bill as a “potential game-changer” and noted that the JOBS Act “represents exactly the kind of bipartisan action we should be taking in Washington to help our economy.”

I couldn’t agree more with the president. But unfortunately, the gears of bureaucracy in Washington have kept the JOBS Act from being implemented. As entrepreneurs and investors in the St. Louis region sit and wait, the Securities and Exchange Commission (SEC) has failed to finalize key aspects of the JOBS Act.

Congress directed the SEC to write simple rules that would allow entrepreneurs to start raising capital, while also ensuring strong investor protections remain in place. But one year later, the SEC has missed important deadlines to finalize two of these rules, and there is little indication they are ready to implement other portions of the bill.

For example, one provision would make it easier for businesses to advertise investments in their company to potential investors. The SEC was required to issue a final rule for this provision by July 2012. However, nine months later the SEC has only gone so far as to issue a rule proposal, which is Washington’s way of saying “We’ll get back to you later.”

Another provision would create opportunities for startups to “crowdfund,” or pool small investments from a number of people who want to invest in companies they believe in. The SEC was required to finalize crowdfunding rules by December 2012, but again they have dragged their feet as startups and investors stand idle. It’s not as if these rulemakings are foreign to the SEC. In fact, writing rules that facilitate capital formation while maintaining investor protections is largely why the SEC exists. If the SEC is able to finalize rules dealing with “conflict minerals” in the Democratic Republic of the Congo (as they did in August 2012), there’s no reason why the JOBS Act should remain unfinished.

The St. Louis region stands to benefit from the JOBS Act in terms of jobs, growth and new innovations — but only if the Washington bureaucracy gets out of the way and lets American entrepreneurs do what they do best. The House Financial Services Committee, on which I serve, has made implementation of the JOBS Act a top priority for this Congress. The time for delays and excuses is over — the SEC must recognize that their inaction has real economic consequences.

WSJ-MarketWatch: How Thatcher would have fixed the financial crisis

She ignored conventional wisdom, acted on her beliefs

UK Telegraph: The IMF is flunking the financial crisis

By turning its fire on Britain, the IMF gives the impression it is out of ideas and solutions

Financial Times: Wake up to the #Twitter effect on markets

Investors need to spend more time thinking about the way social media can affect financial markets

Reuters: New regulations require cleaner data

Continuing efforts by financial regulators and by firms themselves to monitor and offset risk have affected almost all areas of firms’ operations, including the management and maintenance of data. The overhaul of global systems following the financial crisis has led to an audit of data, and specifically of the information which firms hold about themselves and their counterparties or clients, known as business entity reference data.

Heritage: Eight Steps to Eliminate Fannie Mae and Freddie Mac—Permanently

It is time to close both Fannie Mae and Freddie Mac—the government-sponsored mortgage giants. Both entities distort the country’s housing finance market by issuing mortgage-backed securities with subsidized government guarantees that the mortgages will be repaid. If guarantees are necessary, they should be priced and issued by the private sector, not by the state. Financial institutions expert David C. John details specific steps to achieve this shutdown carefully and methodically without further upsetting the delicate housing market—and without making the situation worse.

Heritage: Promoting Economic Freedom Key to Realizing World Bank’s Mission 
As the largest shareholder at the World Bank, the United States should play a proactive role in helping improve the effectiveness of its development practices. Although the executive branch has the key role in representing U.S. interests in the bank, Congress can exercise influence through oversight and control over the bank’s funding process to encourage changes in policies or procedures.

Forbes: Margaret Thatcher Exposed The Infantile Illusions Of Socialism             

Margaret Thatcher’s economic policies, we are often told, were cruel, harsh, immoral. In fact she was a deeply moral thinker, and the moral superiority of the free market was central to her thinking. She made the case for it like no other major political leader.

Washington Post: Is easy money creating a new wave of bubbles?

Trillions of new dollars, euros, yen and pounds are sloshing around the global financial system, a result of extraordinary efforts by the leading central banks over the last several years to try to yank their economies out of their long slump. And it has to go somewhere. Will that somewhere wind up being a new set of financial bubbles that pop and send us back where we started?

RealClearMarkets: President Obama Trumpets 'Financial Capability' While Undermining It

The President proclaimed April to be National Financial Capability Month, a new twist on what used to be called financial literacy month. Who can argue with wanting to make sure that people have "access to the information and tools that empower them to operate safely and smartly in the marketplace"? The strategy being employed to achieve this objective is the problem.

WSJ-MarketWatch: Getting used to a slow-growth future

Irrational exuberance is back.  I know, I know. The Dow Jones Industrial Average just rose to yet another record close. Call it irrational, but exuberance is being handsomely rewarded in this market.

Bloomberg: Bitcoin Really Is an Existential Threat to the Modern Liberal State

So far, Bitcoin is not a big deal. Its total value in circulation was $1.4 billion as of this week. That's equivalent to the currency stock of a small nation -- somewhere between Iceland and Uruguay -- and just one-thousandth of the total value of U.S. dollars in circulation.

Heritage: Breaking Up Big Banks: Right Question, Wrong Answer

Should the federal government break up America’s big banks? Once confined to the populist fringes of policy debate, the idea has developed surprising momentum in recent months, with a number of conservative voices jumping on the bank breakup bandwagon

Huffington Post: ‘Break Up the Banks’ Bill Gains Steam in Senate as Wall Street Lobbyists Cry Foul

Momentum to break up the nation’s largest banks is building quickly on Capitol Hill, just weeks after a unanimous, symbolic vote in the Senate to end taxpayer subsidies to Wall Street.

AEI: Unfounded Optimism: The Danger of FHA’s Mispriced Unemployment Risk

News from the housing market is finally positive: house prices are rising and the share of seriously delinquent loans is down.  One major exception? FHA-guaranteed mortgages.

By Patrick O'Conner

WASHINGTON—During Jeb Hensarling's first congressional bid, a man at a campaign stop in Athens, Texas, asked the Republican if he was "pro-business."

"No," the candidate replied, drawing curious stares from local business leaders who had gathered to hear him speak, a former Hensarling aide recalled. "I'm not pro-business. I'm pro-free enterprise."

Now, more than a decade later, that distinction has Wall Street on edge. The new chairman of the House financial services committee wants to limit taxpayers' exposure to banking, insurance and mortgage lending by unwinding government control of institutions and programs the private sector depends on, from mortgage giants Fannie Mae and Freddie Mac to flood insurance.

Banks and other large financial institutions are particularly concerned because Mr. Hensarling plans to push legislation that could require them to hold significantly more capital and establish new barriers between their federally insured deposits and other activities, including trading and investment banking.

"A great case can be made that we need greater capital and liquidity standards," the conservative 55-year-old Texan said in a recent interview. "Certainly, we have to do a better job ring-fencing, fire-walling—whatever metaphor you want to use—between an insured depository institution and a noninsured investment bank."

In interviews, a half-dozen industry representatives expressed some level of anxiety about Mr. Hensarling's legislative agenda. However, because the chairman hasn't offered details yet, they were reluctant to speak publicly about his plans."Republicans are becoming much more populist; they're going after every big institution—big business, big government, big labor," said John Feehery, a former GOP leadership aide who now advises large financial firms. "It sounds good in principle, but there could be some major economic ramifications."

Mr. Hensarling inherits the chairman's gavel as many Republicans appear to be growing cooler to big business. Prominent conservatives have called on the GOP to loosen its ties to Wall Street. Other leading Republicans, including Senate Minority Leader Mitch McConnell (R., Ky.), have vowed to root out "crony capitalism," the practice of rewarding specific industries or companies with taxpayer-funded subsidies or safety nets.

Earlier this month, all 45 Senate Republicans voted for a symbolic measure aimed at banks with more than $500 billion in assets. The amendment, offered by Sens. David Vitter (R., La.) and Sherrod Brown (D., Ohio), sought to eliminate any subsidies or other advantages enjoyed by the biggest financial institutions because investors expect the government to prevent them from collapsing.

This wave of conservative populism was inspired, in part, by Republican eagerness to shed their image as the party of high finance and big business after the results of the last election.

Mr. Vitter said the renewed scrutiny "repositions Republicans away from being for mega-business and, quite frankly, the Mitt Romney caricature," referring to the 2012 GOP presidential candidate whose private-equity career fueled attacks that Republicans cared more about the rich and well-connected than middle-class Americans.

Most congressional Republicans believe the changes enacted in the wake of the 2008 financial crisis—principally in the Dodd-Frank financial reform bill—enshrined the notion that the biggest institutions are "too big to fail" because they guaranteed the government would step in to prevent the most sprawling firms from going under. "We have gone from an implicit guarantee to an explicit guarantee," Mr. Hensarling said.

In contrast, most regulators and advocates for Dodd-Frank argue that the new law provides taxpayers with another layer of protection by outlining the process for orderly liquidation of failed institutions.

Mr. Hensarling is leading the charge against the new law, but his attempts to replace it with other restrictions could face stiff resistance in the full House, as well as the Senate controlled by Democrats.

He doesn't yet have a specific plan, but his oft-stated goal is to repeal the orderly liquidation authority contained in Dodd-Frank, which he says perpetuates taxpayer-funded bailouts of big banks. At the same time, he has shied away from more aggressive measures, such as limiting the size of banks or reinstating the Glass-Steagall Act, which walled off commercial and investment banking activity.

Mr. Hensarling has expressed interest in reworking the way regulators judge the riskiness of certain debt—which affects how much capital banks must hold—so banks don't have incentives to hold, say, Greek debt instead of small-business loans.

Bank lobbyists and other industry advocates worry that any bill passed by his committee could serve as a template for further reform if another financial scandal spurs Congress to act. For now, the financial sector is reserving judgment.

"The financial services industry shares Chairman Hensarling's goal of making sure that no institution is too big to fail and that taxpayer dollars are never again on the hook," said Rob Nichols, president of the Financial Services Forum, a Washington-based advocacy group for the banks and insurers.

Hensarling deputies warned lobbyists for the biggest firms that Republicans would relish a public feud with Wall Street if the financial sector aggressively opposes their efforts, according to lobbyists and lawmakers familiar with those conversations.

The tough talk from Republicans like Mr. Hensarling has left some Democratic critics of the banks slightly surprised—and skeptical that the GOP is sincere in its effort to target a frequent ally. "In my 10 years on the committee, I cannot recall when Republicans supported a position that was contrary to the biggest banks," said former Rep. Brad Miller (D., N.C.), a member of the Financial Services panel until his retirement earlier this year who advocated tighter restrictions on the biggest banks.

Certainly the financial industry has lent Republicans plenty of financial support. In the 2012 election cycle, Republicans received 68% of the nearly $650 million that banks, insurers and other financial sector companies contributed to federal candidates, according to the Center for Responsive Politics. Commercial banks, insurers and other financial-sector firms contributed more than $1.3 million to Mr. Hensarling and his political action committee in the cycle.

Still, since coming to Congress in 2003, Mr. Hensarling has been a vocal critic of taxpayer backstops for the private sector. He voted against the Wall Street rescue package in the fall of 2008 and supported measures to ease the importation of prescription drugs. He even picked a fight with one of the largest employers in his backyard—American Airlines—by supporting initiatives to allow more long-distance flights out of Dallas's Love Field, the home base for rival Southwest Airlines.

Now, his other potential targets include: the Export-Import Bank of the U.S., which makes loans to American companies that do business overseas, and the Terrorism Risk Insurance Act, a temporary backstop created in the aftermath of 9/11 to insure construction projects. The latter measure expires at the end of 2014, unless Mr. Hensarling's committee acts to extend it.

"In every jurisdictional area that I can get my fingers on, I want to move us away from the Washington insider economy," he said.

Mr. Hensarling sharpened his free-market views when he studied economics under former Sen. Phil Gramm at Texas A&M University. He later asked Mr. Gramm for a job, giving him his start in politics. Mr. Gramm is well known as a free-market advocate and for his efforts to balance the budget. But he also co-wrote a law in the late-1990s that allowed large financial-service companies to consolidate. Critics of deregulation blame that law for allowing Wall Street firms to become "too big to fail."

Mr. Gramm said his protégé has held firm in his belief that government should stay as far away from the private sector as possible, even if the business community welcomes the help. "He's not the flavor of the month; he is what he believes," Mr. Gramm said. "It's a very admirable quality."

Mr. Hensarling has a similar message for the army of lobbyists who petition his committee: "If they thought I was a chairman to promote business interests as opposed to free enterprise, then they have not watched my career closely."

A version of this article appeared March 29, 2013, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Texan's Plans Put Wall Street on Edge.

American Banker: Fannie and Freddie Must Go

One of the priorities of Rep. Jeb Hensarling, Chairman of the House Financial Services Committee, is to end the conservatorship of Fannie Mae and Freddie Mac and let the private sector take the primary role in operating the residential mortgage industry.  No other country in the world has the equivalent of the hybrid government/private-sector model of Fannie and Freddie, which has already cost taxpayers more than $150 billion.

Real Clear Markets: The Real Story Behind 'Rising' Retail Sales

On March 13th, the Commerce Department announced a 1.1 percent increase in food and services retail sales, doubling a prior Dow Jones survey of economists that forecast an increase of just 0.6 percent. This new data has led to a fresh wave of enthusiastic commentaries that the U.S. economy is set for a strong recovery. Less examined were the underlying factors that supported the increase.

Washington Times: RAHN: Where will the next financial crisis begin?

Which country will serve as the trigger for the next financial crisis? Given the continuing rise in debt-to-gross domestic product (GDP) ratios in many countries, it is apparent that a new financial crisis will occur. Most of the speculation has been about when, rather than where. The most likely candidates are heavily indebted countries with a large growth deficit. The growth deficit is the difference between expected GDP growth and the expected government spending deficit as a percentage of GDP.

Wall Street Journal: Jenkins: Yes, Let's 'Bail In' Depositors

Politicians today face many challenges that are unrewarding to tackle, so no wonder many prefer to fulminate about too big to fail. Too big to fail, or TBTF, is a problem about which it is safe to fulminate, since neither politicians nor the public understand anything about it, and even less what to do about it.

Bloomberg Businessweek: Europe's Cyprus Crisis Has a Familiar Look

To most of the world, the banking crisis that broke out in Cyprus in mid-March was as abrupt and unexpected as an outbreak of Ebola. For Cypriots, it wasn’t sudden at all. Many opportunities to steer the country in a better direction came along over the years but were missed or never tried. Now the misbegotten decision by European finance ministers to tax the accounts of ordinary depositors to help pay for a bailout of the country’s biggest banks has become a source of continentwide embarrassment.

Heritage: Remittance Rules: A Case Study of Regulatory Pitfalls

The Dodd–Frank financial regulation statute requires nearly 400 rulemakings. As of January 2, some 60 percent of the rulemaking deadlines were missed, and a full third of the required regulations have not been proposed. The delays may defer some compliance expenses. However, regulatory uncertainty also imposes costs on businesses as well as consumers, as the saga of the “remittance” rules illustrates.