Patrick McHenryChairman

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.

The Cost of Regulation

Nearly three years after the enactment of the Dodd-Frank Act, community banks struggle with navigating the confusing, complex, voluminous, and harmful rules and regulations of this law,  according to a recent report from the Federal Deposit Insurance Corporation (FDIC) reviewed at Wednesday’s Financial Institutions Subcommittee hearing.

National Review: Representative Hensarling on the CFPB

The logical import of Noel Canning v. NRLB, the D.C. Circuit’s decision striking down President Obama’s unilateral, non-recess NRLB appointments, is that the president’s similar CFPB director appointment is also unconstitutional. House Financial Services Committee chairman Jeb Hensarling agrees (h/t Todd Zywicki). 

Barron: The Ruling Class

The Dodd-Frank law misses the primary causes of the financial crisis.

RCP: Dodd-Frank: 'Financial Stability' On the Backs of Taxpayers

March 11 marked the start of mandatory central clearing for certain kinds of over-the-counter derivatives called swaps. The central clearing requirement, a major component of Dodd-Frank, is purportedly one of the pillars upon which the future stability of our financial system rests. That pillar, however, is not as sturdy as it looks, particularly because regulators-blinded by central-clearing-love-are leaning on it. This pillar could come crashing down with destructive force. Thanks to Dodd-Frank, taxpayers will be there to pick up the pieces.

Time: If There’s No Inflation, Why Are Prices Up So Much?

Last week, I ran out of ink for my printer and ordered some more online. My computer automatically pulled up the previous order, and I was shocked to see that the price of the ink cartridges I was buying had gone up 25%. To my mind, ink always seems overpriced. Manufacturers sell printers cheaply because they know that they can make lots of money on the ink. For the same reason, John D. Rockefeller’s Standard Oil is said to have sold millions of cheap kerosene lamps in order to make big profits selling kerosene. But since ink cartridges were already priced way above cost and official statistics show little general inflation, why had ink gone up 25% in less than a year?

Forbes: Sorry Paul Krugman, But We Still Need Say's Law

“Supply creates its own demand.” Say what? No, “Say’s Law”. 

AEI: The 'Two Drunks' Model of Financial Crises

It’s unlikely that banks and government can be disentangled, but a healthier relationship could begin with a new approach to credit guarantees.