Posted by Staff on July 17, 2014
That’s exactly how taxpayers feel after losing money not just once but twice on the crony-connected and now-failed solar panel manufacturer Solyndra.
Interestingly, both projects for Solyndra were dealt with rather quickly by the Obama Administration. Ex-Im boasts in its press release that the Solyndra project benefited from “fast due-diligence” and the Washington Post reports “the White House pushed loan reviewers to make a quick financing decision” on Solyndra’s loan guarantee.
Here are the deal details:
Not only were taxpayers on the hook for the $535 million in failed “stimulus” money Solyndra received through a loan guarantee and then went bankrupt two years later, but taxpayers also financed a deal in 2011 when the Ex-Im Bank guaranteed a $10.3 million loan provided by KBC Bank NV – whose parent company is one of the top three financial institutions in Belgium. The loan guarantee went to finance the sale of politically-connected Solyndra’s products to provide energy for a distribution center of Delhaize, a Belgian supermarket chain that posted $28 billion in revenues last year.
“Bank of Washington,” indeed.
President Obama tours Solyndra in May, 2010.
Posted by Staff on July 17, 2014
House Financial Services Committee Chairman Jeb Hensarling appeared this morning on CNBC’s Squawk on the Street to discuss the Committee’s Federal Reserve Centennial Oversight Project and the fourth anniversary of the Dodd-Frank Act being signed into law.
Hensarling on yesterday’s committee hearing with Federal Reserve Chair Janet Yellen and the Federal Reserve Accountability Act:
“Earlier in her career as a central banker, in referring to one monetary policy rule in particular -- the Taylor rule -- she said ‘that's what sensible, central bankers do.’ So I suppose she has the right to reverse herself, but there's been ongoing studies for many years about where does the Fed do the best job of promoting long-term price stability and maximum employment. I think the overwhelming weight of the evidence is with a rules-based policy, and the Act that you talked about is very simple.”
“The Fed has absolute discretion, absolute discretion, on setting monetary policy. They can change it. They can deviate from it. They just need to explain to the rest of us what they're doing and holding it up to public scrutiny. So it's really about transparency and accountability.”
Hensarling on the fourth anniversary of the Dodd-Frank Act:
“…I think there's a growing consensus, including the consensus of the President of the United States of America, that Dodd-Frank did not end too big to fail and too small to matter. So before this Congress is over, our committee has done a lot of work on that, but at the end of the day Dodd-Frank has ensured that the big banks have gotten bigger, the small banks have gotten fewer, the taxpayers have gotten poorer, and our economy is less robust.”
Posted by Staff on July 16, 2014
ICYMI - How to Spark Another 'Great Moderation'
By John B. Taylor
Sound money and free markets go hand in hand. In 1776, Adam Smith wrote of the importance of rules for "a well-regulated paper-money" in "The Wealth of Nations." In 1962, Milton Friedman made the chapter "Control of Money," with its rationale for monetary rules, a centerpiece of "Capitalism and Freedom." In the 1980s, British Prime Minister Margaret Thatcher and President Ronald Reagan made sound money principles a key part of their market-based reform platforms.
The reason is clear: Economic crises and slow economic growth, as in the Great Depression of the 1930s and the Great Inflation of the 1970s, could be traced to deviations from sound rules-based monetary policy. That common- sense finding still holds.
When monetary policy became more rules-based during the 1980s, 1990s and until recently, the economy improved and we got what economists call the Great Moderation of strong economic growth with declining unemployment and inflation during those same years. When policy became more ad hoc, interventionist and discretionary during the past decade, the economy deteriorated and we got a financial crisis, a Great Recession, and a not-so-great recovery.
So as Americans begin to diagnose the poor economic performance of recent years and look for remedies that rely more on markets, they are again looking to monetary reform. A welcome example is the Federal Reserve Accountability and Transparency Act, just introduced in the House.
Its first main section "Requirements for Policy Rules for the Fed" would require that the Federal Reserve submit to Congress and the American people a rule or strategy for how the Fed's policy instrument, such as the federal-funds rate, would change in a systematic way in response to changes in inflation, real GDP or other inputs. The bill was the subject of a hearing on Capitol Hill last week, and Fed Chair Janet Yellen was asked about its requirements Tuesday during her testimony to the Senate Banking Committee. It ought to be the main subject when she testifies Wednesday before the House Financial Services Committee.
According to the legislation, the Fed, not Congress, would choose the rule and how to describe it. But if the Fed deviated from its rule, then the chair of the Fed would have to "testify before the appropriate congressional committees as to why the [rule] is not in compliance." The rule would have to be consistent with the setting of the actual federal-funds rate at the time of the submission. The legislation also creates a transparent process for accountability: The U.S. comptroller general would be responsible for determining whether or not the "Directive Policy Rule" was in compliance with the law and report its finding to Congress.
The legislation provides flexibility. It does not require that the Fed hold any instrument of policy fixed, but rather that it make adjustments in a systematic and predictable way. It allows the Fed to serve as lender of last resort or take appropriate actions to provide liquidity in a crisis. Moreover, the legislation even allows for the Fed to change its rule or deviate from it if the Fed policy makers decide that is necessary. As stated in the act: "Nothing in this Act shall be construed to require that the plans with respect to the systematic quantitative adjustment of the Policy Instrument Target be implemented if the Federal Open Market Committee determines that such plans cannot or should not be achieved due to changing market conditions." But "Upon determining that plans . . . cannot or should not be achieved, the Federal Open Market Committee shall submit an explanation for that determination and an updated version of the Directive Policy Rule."
In the interests of clarity, the legislation also specifies a "Reference Policy Rule," to which the Fed must compare its policy rule. The reference policy rule, to quote from the legislation, "means a calculation of the nominal Federal funds rate as equal to the sum of the following: (A) The rate of inflation over the previous four quarters. (B) One-half of the percentage deviation of the real GDP from an estimate of potential GDP. (C) One-half of the difference between the rate of inflation over the previous four quarters and two [percent]. (D) Two [percent]."
In monetary and financial circles this rule is known as the Taylor Rule, due to a proposal I made in 1992, and researchers routinely compare any policy rule they are considering to this rule. It is thus a straightforward task for the Fed. Many at the Fed already make such comparisons, including Fed Chair Janet Yellen.
Some will object to the legislation, including some at the Fed. But there is nothing partisan about rules-based monetary policy, and there is a clear precedent for congressional oversight. The Federal Reserve Act previously required that the Fed report the ranges for the future growth of the money supply, but these requirements were removed from the law in 2000. The proposed legislation fills that void.
Some will say that the legislation would destroy central-bank independence. But since the Fed chooses its own rule, its independence is maintained. The purpose of the act is to prevent the damaging departures from rules-based policy, which central-bank independence obviously has not prevented.
Based on writings, speeches and publicly released transcripts of meetings, we know that many at the Fed favor a more rules-based policy. Constructive comments from the Fed would undoubtedly improve the legislation, but if it were passed into law as is, economic performance would improve greatly.
The Federal Reserve Accountability and Transparency Act limits discretion and excessive intervention by our independent central bank, as its name implies, in a transparent and accountable way. It thereby meets Milton Friedman's goal of "legislating rules for the conduct of monetary policy that will have the effect of enabling the public to exercise control over monetary policy through its political authorities, while at the same time . . . prevent[ing] monetary policy from being subject to the day-by-day whim of political authorities."
Mr. Taylor, a professor of economics at Stanford University and a senior fellow at the Hoover Institution, served as Treasury undersecretary for international affairs from 2001 to 2005.
Posted by Staff on July 16, 2014
Brazilians still embarrassed by their team’s stunning loss to Germany in the World Cup will soon be able to seek refuge in this “spectacular aquarium on the beach in Fortaleza,” in the words of Export-Import Bank Chairman Fred Hochberg. American taxpayers will be financing the project through a direct loan approved by the Export-Import Bank to the Brazilian state of Ceará.
Two questions come to mind:
1. Will the aquarium be the home for the next psychic octopus?
2. Why should American taxpayers be put on the hook for this?
Here are the deal details:
In October 2012, the Ex-Im Bank approved $105 million in financing to the Brazilian state of Ceará for an aquarium there. According to the Ex-Im Bank: “An anticipated tourist attraction, the aquarium will boast four floors housing 25 large tanks containing approximately 15 million liters of water and showcasing 500 marine species and 35,000 individual specimens. The aquarium will also feature interactive exhibits, two 4D cinemas, one 3D cinema, and an educational platform dedicated to the research and preservation of aquatic life along the Brazilian coastal regions. When completed, Acquario will rank as the largest aquarium in the Southern Hemisphere and the third largest in the world.” – Ex-Im Release
Posted by Staff on July 15, 2014
It pays to have cronies in high places, especially at the Export-Import Bank it seems.
The Ex-Im Bank gave millions in taxpayer-backed loans for Spanish green energy company Abengoa International – while former Gov. Bill Richardson (D-NM) sat on the advisory boards for both.
Here are the deal details:
Richardson joined Ex-Im’s advisory board near the end of 2012, around the same time that two Ex-Im Bank loans benefitting Abengoa were issued. Those taxpayer-backed loans totaled around $150 million.
As one newspaper noted, “critics say Richardson’s holding a seat on both Abengoa and the Export-Import Bank’s advisory boards is just another example of cronyism at the bank.”
The Six Biggest Inaccuracies in the July 10 Bloomberg Businessweek Article Regarding the CFPB’s Building RenovationsPosted by Staff on July 15, 2014
Inaccuracy #1: “When the U.S. Consumer Financial Protection Bureau opened in 2011, the best available government office space large enough to accommodate its thousand-plus employees was a run-down concrete building on G Street near the White House that once housed the now-defunct Office of Thrift Supervision.”
It therefore appears that the CFPB conducted no due diligence before selecting 1700 G Street, so it could not possibly know whether the facility was the “best available.”
Additionally, in 2010, the Securities and Exchange Commission (SEC) had leased approximately 900,000 square feet of office space in Washington, DC at 400 Seventh Street, SW, known as Constitution Center, and, as was widely reported, soon found that it had overcommitted itself by roughly 600,000 square feet (See, e.g., https://www.sec.gov/foia/docs/oig-553.pdf). The SEC and the building owner then solicited other government agencies to sublease the newly-renovated, Class A space. Several agencies ultimately moved into the building, including the Office of the Comptroller of the Currency (OCC) and the Federal Housing Finance Agency (FHFA). Prior to February 18, 2011, the date when Elizabeth Warren announced the selection of 1700 G Street as the CFPB’s headquarters (see http://www.consumerfinance.gov/newsroom/treasury-department-announces-permanent-headquarters-of-consumer-financial-protection-bureau/), approximately 350,000 contiguous square feet was apparently still available for rent at the Constitution Center site. This amount exceeds the 312,000 rentable square feet the CFPB ultimately rented in 1700 G Street, and thus would appear to be “large enough” for the agency’s needs. Two CFPB employees toured the Constitution Center facility, but for reasons unknown, CFPB leadership agreed to rent the 1700 G Street location “as-is” (which Director Cordray has described as “a white elephant” and “a dump”) rather than pursue available space in Constitution Center. On March 21, 2014, the Committee sought documents from the OCC, SEC and CFPB that might shed light on this decision. The SEC and OCC have produced all requested records in full, whereas the CFPB has not replied or provided records at all.
So on what basis and with what support does Bloomberg Businessweek make the claim that the building on G Street was the “best available” real estate option for the CFPB?
Inaccuracy #2: “The U.S. General Services Administration is managing the project.”
“CFPB has overall responsibility and approval authority for all aspects of the renovation project, including determining requirements associated with the renovation needs, project scope, schedule and budget. Subject to the provisions of this MOU, all bridging design considerations decision-making authority (including aesthetic and artistic), shall be vested with the CFPB.”
Under normal circumstances, the GSA manages facility renovation and construction projects for federal real estate in its inventory, but in the case of the CFPB renovation, neither the CFPB nor the GSA own the building that the CFPB has decided to renovate. The 1700 G Street building is owned by the OCC. Additionally, the renovation is structured as a design-build bridging project, meaning that CFPB retains full control over the design, engineering, scope and the cost of the renovation. The CFPB hired Skidmore, Owings & Merrill as its architecture/engineering design firm, and it is this firm that has prepared the bridging design documents for the project. The CFPB controls the project, not the GSA. The GSA’s role is to procure and manage a contractor to perform the demolition and construction in accordance with the CFPB’s designs.
In a pre-proposal conference for potential construction contractors held by the GSA on March 21, 2014, Tyrone Anderson, the GSA’s project executive, said that the CFPB renovation project is “unique for us” because “we don’t own the building, and we don’t control design.” Additionally, several construction tasks fall outside the scope of the GSA’s contract with the CPFB, and thus will not be undertaken by the contractor procured by the GSA. For instance, the CFPB plans to replace the building’s data and telecommunications system and furniture, fixtures & equipment (FF&E), but these projects will be handled by the CFPB through separate procurements, not the GSA.
Inaccuracy #3: “The GOP members say their calculations show the renovation will cost $215.8 million.”
“Based on the CFPB’s assessed requirements as of June 5, 2014, we currently estimate all-in costs to total approximately $215.8 million.”
Inaccuracy #4: “The [Inspector General’s] report said the renovation covers 512,000 sq.ft.”
Her statement is supported by the bridging design documents created by Skidmore, Owings & Merrill, which show proposed floor plans for every level in the building except the two garage levels, and by the presentation slides the GSA provided to potential contractors, which also show renovation plans for every floor of the building except the two underground parking garage levels.
Additionally, the OCC has confirmed in letters sent to its ground-level retail tenants that the building’s retail space will not be renovated by the CFPB. Using square foot figures appearing in documents provided by the CFPB pursuant to Committee document requests, the actual total square footage being renovated by the CFPB appears to be 365,199 square feet, which is significantly less than the GSA’s gross figure, but tracks closely with the initial estimate of 350,000 square feet from the CFPB’s CFO.
Inaccuracy #5: “The Republican figures inflate the total price by tacking on $70.7 million for costs such as hiring movers and renting temporary offices to use during the construction.”
The Committee calculated the renovation cost per square foot by dividing the total renovation costs estimated by the Inspector General – $215.8 million – by the estimated square footage actually being renovated – 365,199 square feet. This figure amounts to approximately $590/square foot.
Inaccuracy #6: “Republicans have cast the project as a misuse of public dollars in a time of tight budgets…But the Federal Reserve is self-financed, largely with income on securities such as government bonds, so the amount Congress needs to set aside for the office redo is precisely zero.”
Bottom Line From the Inspector General’s Report: “A Sound Business Case Is Not Available to Support” the CFPB’s Renovation
The Financial Services Committee will continue to investigate why CFPB leadership decided to commit the Bureau to a quarter billion dollars in long-term lease payments without performing any due diligence, and why it has decided to spend an additional $215.8 million to renovate a building it doesn’t own, an amount that is more than $70 million higher than the building’s appraised value.
The Inspector General points out all this money is being spent by the CFPB even though it “was unable to locate any documentation of the decision to fully renovate the building” and even though it failed to comply with its procedures for obtaining internal approval for the renovation. Therefore, “a sound business case is not available to support the funding of the renovation,” the Inspector General reports.
The CFPB’s building renovation is not a wise use of public funds, and this lavish spending does nothing to support the CFPB’s core mission of protecting consumers.
Posted by Staff on July 14, 2014
Americans are increasingly alarmed about Russia’s nationalism and military aggression (just look at this week’s Pew Research poll), but the Export-Import Bank doesn’t seem to care.
Hardworking Americans taxpayers should be asking why they’re on the hook for Russian oil projects funneled to Vladimir Putin’s cronies while they’re struggling to pay for higher gas prices here at home and NATO issues warnings of further Russian aggression.
Here are the deal details:
Making it official: Ex-Im Chairman Fred Hochberg signs Ex-Im’s $1 billion deal with Herman Gref, CEO of Russia’s state-owned Sberbank
Close ties to the Kremlin: Russian President Vladimir Putin meets with
Posted by Staff on July 14, 2014
July 13, 2014
Posted by Staff on July 11, 2014
Hardworking American taxpayers, who are paying more for gas (“Gasoline prices at six-year high – AAA”) and “more for almost everything this year” (CNBC), might be wondering why President Obama refuses to approve the Keystone Pipeline but is using their tax dollars to finance foreign corporate welfare -- like the nearly $5 billion in direct loans to help build a venture developed by Saudi Aramco, Saudi Arabia’s state-owned oil company.
This is the same Saudi Aramco, by the way, that one report this week said is “pulling the rug out from under the U.S. gas industry” and has announced plans to spend its money to build 11 45,000-seat capacity stadiums by order of King Abdullah.
Here are the deal details:In 2012, the Ex-Im Bank provided a record-breaking $4.975 billion in direct loans to help build Sadara Chemical Company, developed by the Saudi Arabian Oil Company (Saudi Aramco). Saudi Aramco, the state-owned oil company of Saudi Arabia, is the world’s biggest oil company, with total assets reportedly in the trillions. – (Sources: Export-Import Bank press release, 4/4/13: “Sadara Chemical Company Transaction is Awarded Ex-Im Bank Deal of the Year”; Saudi Aramco; Forbes; University of Texas)
Posted by Staff on July 11, 2014
Committee Seeks Accountability and Transparency at the Federal Reserve
On Thursday, the Financial Services Committee held a hearing to examine H.R. 5018, the Federal Reserve Accountability and Transparency Act. The proposal is the first piece of legislation to arise from the Committee’s Federal Reserve Centennial Oversight Project.
"We do not suggest for a moment that Congress, much less the White House or Treasury, should conduct monetary policy operations. We continue to respect the Federal Reserve’s independence in monetary policy. But that independence and discretion must be paired with appropriate transparency and accountability. What we require today in this legislation is that the Fed use a clear map of its own choosing to set the course for monetary policy and share that map with the rest of us," Chairman Hensarling (R-TX) said.
Other members of the committee also stressed that the Fed’s independence needs to be paired with transparency and accountability, for "an independent Fed shouldn't equal an opaque Fed," said Rep. Randy Hultgren (R-IL).
Rep. Bill Huizenga (R-MI), the sponsor of H.R. 5018, said the bill “lifts this veil of secrecy by increasing accountability and transparency by limiting Fed officials ‘blackout periods’ to discuss policy with Congress, opening the rulemaking process, and requiring the Fed to provide a cost-benefit analysis for every regulation it issues. Additionally, this legislation urges the Fed to adopt a ‘rules-based’ approach to monetary policy instead of the continued improvisation strategy currently being employed. Should the Fed fail to adopt a ‘rules-based’ approach, it would trigger an audit of the Fed’s books.”
Rep. Scott Garrett (R-NJ) said, “Despite setting regulatory policies that impact millions of Americans, the Federal Reserve – by and large – operates in secret. Congress is all that stands between the central bank’s exercise of power over the financial system and the American people. So it is vital to ensure that the Fed is accountable to the people’s representatives.”
Rep. Sean Duffy | FDIC boss visits Wausau to discuss banking regulations
"We may have competing interests," said Duffy, a member of the House Financial Services Committee. "We want to make sure we have sound, stable lending. The chairman comes from a little different perspective after going through the crisis and all the stress that has been put on him and the FDIC team. Maybe they're a little more cautious than we'd like them to be right now."
Weekend Must Reads
Daily Signal | Ending Ex-Im Bank is All About Governing
Ex-Im is rife with corruption, doesn’t promote competition, costs taxpayers billions of dollars and threatens American jobs. It’s all about politically connected big businesses getting bigger with help from Uncle Sam. It’s not fair, not necessary, and shouldn’t be a hard decision for Congress.
The Wall Street Journal | Free People, Free Markets
The answer to our current slow growth and self-doubt isn't a set of magical "new ideas" or some unknown orator from the provinces. The answer is to rediscover the eternal truths that have helped America escape malaise and turmoil in the past.
Economics One | New Legislation Requires Fed to Adopt Policy Rule
A lot of research and experience shows that more predictable rules-based monetary policy leads to better economic performance. So the Federal Reserve Accountability and Transparency Act is good news.
On the Horizon
July 15, 2014 10:00 a.m.
July 16, 2014 10:00 a.m.
Monetary Policy and Trade Subcommittee Hearing
"A Legislative Proposal Entitled the ‘Bank Account Seizure of Terrorist Assets (BASTA) Act"
In the News
Wall Street Journal | House Republicans Want Fed to Adopt Policy-Making Rules
Financial Times | Lew challenged over Volcker rule impact
Holland Sentinel | Reps. Huizenga, Garrett release major fed reform legislation
New York Times: | House Republicans Resume Efforts to Reduce Fed’s Power