Federal Prez: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed."

The New Master of Wall Street. WSJ Editorial
Obama surveys the financial kingdom that may soon be his.WSJ, Apr 23, 2010

President Obama is a gifted man, but until yesterday we hadn't known that his achievements include having predicted the financial panic of 2008. It was a "failure of responsibility that I spoke about when I came to New York more than two years ago—before the worst of the crisis had unfolded," Mr. Obama said yesterday in a speech on financial reform at Cooper Union in New York City. "I take no satisfaction in noting that my comments have largely been borne out by the events that followed."

We wish for the sake of our 401(k) we had noticed this Delphic call, not least when Senator Obama was opposing the reform of Fannie Mae and Freddie Mac. But let's not fight over history. The current reality is that the President had better be very, very smart because the reform bill he is stumping for would give him and his regulators vast new sway over financial markets and risk-taking.

This is the most important fact to understand about the current financial reform debate. While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government. The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.

The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts. A new super council of regulators will be created with vast new powers to determine which firms pose a "systemic" financial risk, to set high capital and margin levels, to veto certain kinds of business for certain firms, and even to set guidelines for banker compensation—or maybe not. The point is that these crucial questions will be settled not by statute, but by regulatory discretion after the law passes.

If you think Wall Street beats a path to the Beltway now, wait until the banks seek to influence how regulators will define, say, "proprietary trading." Whatever its flaws, the Glass-Steagall Act of 1932 clearly defined the difference between a commercial and investment bank. This time, the rules will be written by regulators at Treasury, the Federal Reserve, the CFTC, SEC and FDIC, among others. As he so often does, Mr. Obama yesterday denounced "the furious efforts of industry lobbyists to shape" the bill "to their special interests." But if his reform passes, this lobbying is certain to continue, more furiously.

Consider the esoteric matter of derivatives, most of which seem headed for daily settlement on exchanges and a clearinghouse if the bill passes. But not all derivatives. The new master of this universe would be Gary Gensler, a Goldman Sachs alumnus who now chairs the Commodity Futures Trading Commission. Under the bill moving through the Senate, he would decide which derivative transactions must be "cleared" and traded via electronic exchanges, and which can continue to be traded over-the-counter.

Perhaps Mr. Gensler is as wise as King Solomon, or at least John Paulson. Perhaps, like Mr. Obama in 2008, he—and his successors—will be able to foresee the next crisis and determine the derivatives contracts that pose the most future risk. He will need to be, because under such a reform some of the risk of a transaction moves from the two financial parties (say, J.P. Morgan and Goldman) to the clearinghouse—which will almost certainly be "too big to fail" if enough trades go awry in the next crisis.

Or consider the Senate provision, too little discussed, to let the SEC give shareholders more clout over corporate board elections. This would federalize what has long been state predominance in corporate law, while giving the largest and most activist investors far more leverage to impose their agendas on business.

In practice, this means giving more influence over corporate decisions to labor unions and their political surrogates who run the large public pension funds. Their goals are as likely as not to include political causes such as easier unionization, cap-and-trade regulation, or disinvestment in this or that unpopular business or country. This, too, comes down to giving more power to the political class to run business—in this case, even nonfinancial businesses.

The people who oppose these and other provisions do so for a variety of reasons, some principled, some self-interested. But they have every right to fight them. Yet Mr. Obama once again yesterday cast such opposition as dishonest: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate," he said. "A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth."

Perhaps Mr. Obama should consult Democrat Ted Kaufman of Delaware, who said recently on the Senate floor that "by expanding the [federal] safety net—as we did in response to the last crisis—to cover ever larger and more complex institutions heavily engaged in speculative activities, I fear that we may be sowing the seeds for an even bigger crisis in only a few years or a decade." Mr. Kaufman wants to break up the biggest banks, which may well be preferable to making them wards of the Treasury. Is he lying too?

As in health care, Democrats are intent on ramming this reform through Congress, and Republicans ought to summon the will to resist. Absent that, the only certain result is that Washington will be the new master of the financial universe.

Cash for Tanners - A new subsidy for hitting the beach

Cash for Tanners. WSJ Editorial
A new subsidy for hitting the beach.WSJ, Apr 23, 2010

Liberté, égalité, St. Tropez. That could be the motto of the European Union's "social tourism" project, which advocates subsidized holidays for the underprivileged. According to European Commissioner Antonio Tajani, visiting foreign countries is a "right," and one that could soon be financed by EU taxpayers. This gives a whole new meaning to the concept of "paid vacation."

The EU last year launched a €1 million project to promote social tourism throughout the Continent. The program, which goes by the slight misnomer Calypso—the lonely nymph from Greek mythology was famously confined to an island—seeks, among other things, to identify and promote measures governments have already taken to help the needy to go on holiday. Calypso specifically targets the disabled, poor families, senior citizens and "youth," a group that in geriatric Europe includes people up to 30 years of age.

Cash for tanners is also being touted as good economic policy. At a "Calypso Awareness Building Meeting" in October, the main theme was "Social Tourism: An Opportunity to Overcome the Crisis?" The conference highlighted the example of the Spanish government, which already helps more than one million senior citizens go on organized trips at a cost of €75 million. Thanks to the VAT and other taxes, Madrid claims it's getting back €1.70 for every euro spent.

It probably didn't occur to the sages in Spain that without the subsidies, the seniors would have either still gone on vacation, spent the money on other goods or services or saved it, which would have made it available for other investors. The subsidies merely directed spending to a politically favored purpose without creating additional wealth.

At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." With 19% unemployment and rising, Madrid will no doubt have ample demand for its new growth industry. And given the European policy arc in Congress, look for vacation subsidies here too.

Environmentalism as Religion - While people have worshipped many things, we may be the first to build shrines to garbage

Environmentalism as Religion. By PAUL H. RUBIN
While people have worshipped many things, we may be the first to build shrines to garbage.
WSJ, Apr 22, 2010

Many observers have made the point that environmentalism is eerily close to a religious belief system, since it includes creation stories and ideas of original sin. But there is another sense in which environmentalism is becoming more and more like a religion: It provides its adherents with an identity.

Scientists are understandably uninterested in religious stories because they do not meet the basic criterion for science: They cannot be tested. God may or may not have created the world—there is no way of knowing, although we do know that the biblical creation story is scientifically incorrect. Since we cannot prove or disprove the existence of God, science can't help us answer questions about the truth of religion as a method of understanding the world.

But scientists, particularly evolutionary psychologists, have identified another function of religion in addition to its function of explaining the world. Religion often supplements or replaces the tribalism that is an innate part of our evolved nature.

Original religions were tribal rather than universal. Each tribe had its own god or gods, and the success of the tribe was evidence that their god was stronger than others.

But modern religions have largely replaced tribal gods with universal gods and allowed unrelated individuals from outside the tribe to join. Identification with a religion has replaced identification with a tribe. While many decry religious wars, modern religion has probably net reduced human conflict because there are fewer tribal wars. (Anthropologists have shown that tribal wars are even more lethal per capita than modern wars.)

It is this identity-creating function that environmentalism provides. As the world becomes less religious, people can define themselves as being Green rather than being Christian or Jewish.

Consider some of the ways in which environmental behaviors echo religious behaviors and thus provide meaningful rituals for Greens:

• There is a holy day—Earth Day.

• There are food taboos. Instead of eating fish on Friday, or avoiding pork, Greens now eat organic foods and many are moving towards eating only locally grown foods.

• There is no prayer, but there are self-sacrificing rituals that are not particularly useful, such as recycling. Recycling paper to save trees, for example, makes no sense since the effect will be to reduce the number of trees planted in the long run.

• Belief systems are embraced with no logical basis. For example, environmentalists almost universally believe in the dangers of global warming but also reject the best solution to the problem, which is nuclear power. These two beliefs co-exist based on faith, not reason.

• There are no temples, but there are sacred structures. As I walk around the Emory campus, I am continually confronted with recycling bins, and instead of one trash can I am faced with several for different sorts of trash. Universities are centers of the environmental religion, and such structures are increasingly common. While people have worshipped many things, we may be the first to build shrines to garbage.

• Environmentalism is a proselytizing religion. Skeptics are not merely people unconvinced by the evidence: They are treated as evil sinners. I probably would not write this article if I did not have tenure.

Some conservatives spend their time criticizing the way Darwin is taught in schools. This is pointless and probably counterproductive. These same efforts should be spent on making sure that the schools only teach those aspects of environmentalism that pass rigorous scientific testing. By making the point that Greenism is a religion, perhaps we environmental skeptics can enlist the First Amendment on our side.

Mr. Rubin is a professor of economics at Emory University. He is the author of "Darwinian Politics: The Evolutionary Origin of Freedom" (Rutgers University Press, 2002).

On Presidential Rhetoric

On Presidential Rhetoric. WSJ Editorial
Obama's ad hominem method and the politics of polarization.WSJ, Apr 22, 2010

President Obama came to office promising an era of political comity, but even he has had to concede that his first 15 months in office haven't lived up to his campaign hope of transcending partisan divisions. While it takes two to tangle, we think the hyper-polarization owes more than a little to Mr. Obama's own rhetorical habits. More than any President in memory, Mr. Obama has a tendency to vilify his opponents in personal terms and assail their arguments as dishonest, illegitimate or motived by bad faith.

A notable instance is Mr. Obama's ad hominem attack on Mitch McConnell at a California fundraiser for Barbara Boxer on Monday. The Senate Minority Leader "paid a visit to Wall Street a week or two ago," Mr. Obama said, and "met with some of the movers and shakers up there. I don't know exactly what was discussed. All I can tell you is when he came back, he promptly announced he would oppose the financial regulatory reform."

In other words, the Kentucky Republican is merely a mouthpiece for the bankers. Mr. Obama added that Mr. McConnell's objections to the bill were not merely "just plain false" but also "cynical"—and then he repeated the attack on motives at another event the following evening.

We can't recall anything close to this kind of language from, say, Ronald Reagan toward House Speaker Tip O'Neill, or even George W. Bush after Harry Reid called him a "liar." But it is an Obama staple.

A few hours after the Supreme Court's vindication of political speech last year in Citizens United, Mr. Obama called the decision "a major victory for Big Oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans."

He later personalized his criticism by rebuking the Justices as they sat in front of him during the January State of the Union, accusing them of reversing "a century of law to open the floodgates for special interests—including foreign corporations—to spend without limit in our elections." So the Justices, too, are mere tools of corporate interests. Don't expect many of them at next year's SOTU.

The President is especially fond of employing this blunt rhetorical force against business. In a December interview, Mr. Obama said he "did not run for office to be helping out a bunch of fat cat bankers on Wall Street. . . . They're still puzzled why it is that people are mad at banks. Well, let's see," he continued. "You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in—in decades, and you guys caused the problem."

Amid the Beltway panic during the AIG bonus bonfire in March 2009, Mr. Obama played directly to the public anger. "This is a corporation that finds itself in financial distress due to recklessness and greed," said the President, and asked, "How do they justify this outrage to the taxpayers who are keeping this company afloat?"

He did the same with the Chrysler bondholders who had initially resisted the White House's bankruptcy terms that squeezed them in favor of the United Auto Workers. Mr. Obama characterized these investors in April 2009 as "a small group of speculators" who "were hoping that everybody else would make sacrifices, and they would have to make none." They quickly caved.

Likewise, in his September address to Congress on health care, Mr. Obama did not merely disagree with opponents but accused them of being "cynical and irresponsible," spreading "misinformation," and making "bogus," "wild" or "false" claims through "demagoguery and distortion."

He added that "If you misrepresent what's in this plan, we will call you out." He later singled out Anthem Blue Cross by name, describing the California insurer's behavior "jaw-dropping" in February after it attempted to raise consumer premiums.

Politics ain't beanbag, but most Presidents leave this kind of political attack to surrogates or Vice Presidents. Mr. Obama seems to enjoy being his own Spiro Agnew. A President may reap a short-term legislative gain from this kind of rhetoric, but he also pays a longer-term price in ill-will and needless polarization.

Presidents speak to all of America and they best build consensus through argument and persuasion—not by singling out political targets, cultivating resentment, questioning motives and mocking differences of principle or political philosophy. Mr. Obama's bellicosity is no more attractive than Sarah Palin's attempts to pit "the real America" against the big-city slickers. And his rhetorical method seems especially discordant coming from a President who still insists, in between these assaults, that he is striving mightily to change the negative tone of American politics.

If the President and his advisers are wondering why his approval ratings are falling even as the economy is recovering, they might look to his own divisive conduct and the contempt he too often shows for anyone who disagrees with him.