Saving London’s financial center

From The Economist:

But the City can compete successfully with other financial centres only if Britain has the right policies on regulation, tax and immigration. On regulation, there is an understandable fear that an outsized financial-services industry means an outsized risk for taxpayers. The proposals from Britain’s Vickers Commission go a long way to deal with this, dividing a tightly regulated domestic banking system (the bit that puts taxpayers at risk) from a more freewheeling international market for global capital. By contrast, the thrust of many of the proposals coming out of Brussels looks harmful. Some, such as the financial-transactions tax, can be blocked by a British veto. The rest are subject to majority vote, and Mr Cameron’s stand-off with his European partners last month—supposedly to protect the City, but really to avoid having to sell a more integrated Europe to Tory Eurosceptics—has now given London’s rivals the excuse to hamstring the City.

The British government’s own policies on tax and immigration are also doing a lot of damage. The 50% tax rate, introduced by the previous Labour government in 2010, brings in little money and has made London the most taxed out of ten financial centres for high net-worth individuals. The present generation of financial bosses, who live in and like London, may tolerate it for a while, but younger ones are feeling the pull of Switzerland, Hong Kong or Dubai. As for immigration policy, the best way to win Asian business is to lure the young Asian financiers to London. Tight limits on talented immigrants damage the City’s prospects—and indeed the prospects of every bit of British business.

Why did Daley have to go?

From Politico’s MM report:

POLITICO’s Glenn Thrush and Carrie Budoff Brown: “Daley … was never a great fit inside the West Wing – and Obama and his closest aides realized that mere months into his tumultuous tenure. People close to the situation tell POLITICO that Daley decided to bolt nearly a year earlier than expected in part because he felt marginalized. He was still involved in most key meetings, but he had waning influence … Daley, a charming if blunt former Commerce secretary, had an even rockier relationship with key Hill Democrats, especially Sen. Harry Reid (D-Nev.). So the selection of low-key budget expert Jack Lew as his replacement was greeted with relief among Democratic lawmakers. Daley … also so had a habit of freelancing, including his decision to sit down for a frank, expletive-laced interview with POLITICO’s Roger Simon – without informing Obama’s communications staff.”

I don’t know how this is playing out on TV – I don’t own one – but I remember 2004 when much of the Bush cabinet left. It was reported as proof of its disfunction. (It wasn’t true – there is usually great turnover in administrations, especially after an election, and always has been since Jefferson, Hamilton and Knox left the Washington Administration.) I don’t think it is a sign of disfunction – some people don’t fit in certain positions, and some personalities simply clash – but we will have to see how well Jack Lew is able to perform the duties. Will he empower or weaken the administration in its dealings with Congress?

The incentives of a third-party payer system.

Ezekiel J. Emanuel, an oncologist and former White House advisor, writes this morning of “what is wrong with American health care today.” He cites the construction of two new proton beam treatment facilities at the Mayo Clinic, one of our greatest hospitals. These facilities are part of a “medical arms race for proton beam machines, which could cost taxpayers billions of dollars for a treatment that, in many cases, appears to be no better than cheaper alternatives.”

The therapy, which Emanuel describes, is roughly twice the price of other forms of radiation.

The higher price would be worth it if proton beam therapy cured more people or significantly reduced side effects. But there is no evidence showing that this is true, except for a handful of rare pediatric cancers, like brain and spinal cord cancer.

To justify the expenses, the facilities need more patients, thus doctors over promote the treatment for those with other forms of cancer, for which there “is no convincing evidence that proton beam therapy is as good as — much less better than — cheaper types of radiation for any one of these cancers.”

So why would the Mayo Clinic spend this money? Because several other hospitals have them. But is the competition really necessary? “With Medicare reimbursement so generous, and patients and doctors eager for the latest technology, building new machines is sane, profitable business for hospitals like Mayo.

But it is crazy medicine and unsustainable public policy.”

On that point, Dr. Emanuel and I agree: it is crazy and unsustainable. As usual, the disagreement is not over the cause but the solution.

The most promising option is a new approach called dynamic pricing. Medicare would pay more for proton beam therapy, but only for diseases that are proven to be treated more effectively by the therapy than by other forms of radiation. For cancers like prostate, it would pay only what it pays for the cheaper alternatives. But if studies were done showing that proton beam therapy was better than other treatments, the payment would go up. If no studies were done, or the new evidence demonstrated no advantages, then coverage would continue, but at the lower reimbursement.

I am not so convinced. First of all, there will be studies that prove the efficacy of all forms of treatment. The government would be left as an adjudicator, and will almost certainly cave in to pressure to approve more expensive treatments, if only in the name of equality.

Second, people are good shoppers; the government is not. There are innumerable health problems and treatments, not a few high-profile ones. How many bureaucrats will it take to monitor and adjudicate these therapies? Moreover, health care services would be slowed by the glacially slow speed of the federal government. Why put this additional burden on Washington?

People, contrary to the tenets of Western liberalism, are not stupid. They can shop and judge and discriminate between competing alternatives. My solution? Write them a check.

I do not know how much others value certain things; the government certainly does not either. If people had money that was theirs to spend as they chose in the form of a health savings account – partially funded by the government in accordance with a progressive formula – they would be able to choose what is and is not worth their money.

Under the current system, we the people are clients of the government and demand more and more but are willing to pay for less and less. Give us ownership of our health – it is ours, after all – and money to support ourselves, and then let us shop. We do it for care insurance and life insurance and home-owners insurance… and can do it for health insurance. We can shop for cars and schooling and housing… and health care. People will have the incentives to shop around for alternatives that provide a better value, based on innumerable relevant factors, instead of always demanding the latest and (unproven) greatest from the “generous” (and broke) Medicare program. This both controls costs and imparts responsibility to free citizens. Can bureaucrats in Washington do the same? Knowledge is decentralized; decision-making should be as well.

 

Romney acts like an adult

Thomas Edsall, a professor of journalism at Columbia, in a critique of Romney’s campaign strategy, quotes the candidate:

Once we thought ‘entitlement’ meant that Americans were entitled to the privilege of trying to succeed in the greatest country in the world. Americans fought and died to earn and protect that entitlement. But today the new entitlement battle is over the size of the check you get from Washington.

But after reading Edsall’s summary, “The Anti-Entitlement Strategy,” I look upon Romney’s position more favorably. Why? First, I disagree with the very definition of the world entitlement. Second, ponder this little nugget of data from the recent Government Accountability Office’s fiscal 2011 financial statements, as noted by Bryan R. Lawrence, founder of Oakcliff Capital, writing in today’s WaPo:

In fiscal 2011, the cost of the promises grew from $30.9 trillion to $33.8 trillion. To put that in context, consider that the total value of companies traded on U.S. stock markets is $13.1 trillion, based on the Wilshire 5000 index, and the value of the equity in U.S. taxpayers’ homes, according to Freddie Mac, is $6.2 trillion. Said another way, there is not enough wealth in America to meet those promises.

Two points. First, I doubt that Romney would, if able, gut all of the entitlement programs. (He will not be able.) When asked during a debate which federal departments he would abolish, he gave a serious answer – that each department did some things worthwhile, and that we must not throw the baby out with the bath water. Thus, the valuable programs currently performed by a department must first be identified and then assumed by another department, agency or office, before the department could responsibly be abolished. I assume the same sobriety would apply to Romney’s position on entitlement spending.

Second, not all entitlement programs are transfers to “parasitic” “sloths.” He may have to trim down the rhetoric. Even so, he will be the adult in the room when debating Obama, who has responded to both the current depression and the forthcoming entitlement-fueled default by giving speeches and proposing to tax private jets.

Edsall again:

Romney’s adoption of an anti-entitlement strategy comes at a time when he appears to be looking up from the primaries toward Election Day, which suggests that his hard-line stance will be central to his campaign against Obama and not just a temporary maneuver.

Let’s hope that this is not only an election strategy, but a blueprint for governance.

Only a democrat can cut entitlements.

This is indeed groundbreaking.

Retired police and firefighters from Central Falls, R.I., have agreed to sharp pension cuts, a step thought to be unprecedented in municipal bankruptcy and one that could prompt similar attempts by other distressed governments.

If approved by the bankruptcy court, the agreement could be groundbreaking, said Matthew J. McGowan, the lawyer representing the retirees.

“This is the first time there’s been an agreement of the police and firefighters of any city or town to take the cut,” he said, referring to those already retired, who are typically spared when union contracts change. “I’ve told these guys they’re like the canary in the coal mine. I know that there are other places watching this.”

Central Falls is taking the necessary steps to remain solvent under the weight of a far-too-generous pension system. The question is not whether or not Rhode Island values their police and firefighters; they certainly do. It doesn’t address the appropriate size of their forces which is determined by demographics, population density, crime rates, and other factors. What it does address, however, is the question, at what cost? This is the relevant question.

All towns need police and firefighters, but few towns, judging by the number facing severe long-term budget shortfalls, have found the resources necessary to fund their respective pension plans which for years far outpaced inflation as unions demanded, and politicians supplied, free lunch after free lunch. I’ll scratch your back and you scratch mine. (The plans could be described as Greek.)

Time magazine reported earlier this month about Rhode Island pensions in general:

Perhaps they and thousands of other Rhode Island public employees should never have believed in their pensions to begin with. Then it wouldn’t hurt so much when the fantasy finally came to an end–the fantasy of ever more retirees’ living ever longer lives, receiving ever growing checks from a half-empty fund. But it’s hard to fault the workers; denial has been a state-sponsored pastime on the Narragansett for decades.

“This is about math, not politics,” says Gina Raimondo, Rhode Island Treasurer. More specifically, this is about local math, not local politics. The solution for Rhode Island’s woes – theTime article is entitled “The Little State that Could.” – will be found in Rhode Island. The solution for Albany’s woes will be found in Albany. And so it goes. The solution will not be found in Washington, whose focus should and must be on the long-term national debt problem. (More on that in a second.)

So the solution will be local, and may also have to come from the Left. Gina Raimondo is a democrat, and one who volunteered to take the inglorious position of the adult in the room. She did so because the weight of the pension funds was not just unsustainable, it was also punishing. As the pensions grew to assume more and more of the state budget, funding for things such as libraries – which Raimondo, a Rhodes Scholar and Yale Law graduate, credits with her success – were being crowded out.

“I was reading a story about budget cuts in the Providence Journal,” Raimondo recounts. “The story talked about libraries closing and bus service being cut” because of budget gaps widened by pension expenses. “I had an image of a kid like me trying to get into the library and it’s closed. The public bus is how I got to school every day. The public library is where I studied. It’s where my grandfather taught himself English.” You didn’t have to have an Oxford degree to see the connection: unless the pension hole was filled, those services and others would face even deeper cuts. That’s when Raimondo made up her mind to run for state treasurer in 2010.

Could a republican survive making such cuts? Not likely, unless s/he had a clear mandate to do so. Otherwise, a back-scratching democratic politician would promptly arrive to challenge such an injustice. But it is unlikely a republican would be able or willing to challenge a democrat making such cuts. Only Nixon could go to China. Only a democrat can cut entitlements.

An exception to this was democrat Adrian Fenty losing his DC mayoral election to fellow democrat Vincent Gray because Fenty dared to challenge teachers unions and taxi drivers. But DC is often an exception, isn’t it?

“One thing I think we’ve demonstrated in Rhode Island is, we really have a functional state government,” Mr. Orson said. “We are pulling together and making what we believe to be difficult decisions that you don’t see Congress making right now.”

A lot of gems here.

George Will explains “some reasons for feeling at least a bit grateful for 2011:”

In 2011, someone actually asked how an Amtrak employee with a $21,000 salary earned $149,000 in overtime.

***

In Texas, Georgia, Wisconsin, Iowa, Pennsylvania and Maryland, lemonade stands run by scofflaw children were put out of business in a government crackdown against wee people who commit capitalism without getting the requisite bureaucratic permissions.

Manning the ramparts on the wall of separation between church and state, a Seattle teacher required Easter Eggs to be called “spring spheres.”

***

In the year when Americans became aware that there is more student debt than credit card debt, Yale offered a course on how people with disabilities are portrayed in fiction: “We will examine how characters serve as figures of otherness, transcendence, physicality or abjection. Later may come examination questions on regulative discourse, performativity and frameworks of intelligibility.”

***

When the Wisconsin Education Association Council, having spent liberally defending public-sector union privileges, announced it was laying off 40 percent of its staff, it was denounced by the National Staff Organization, a union for employees of education unions.

End it, don’t mend it.

The House Republicans will vote on a bill this week to abolish the Presidential Election Campaign Fund and the Presidential Primary Matching Payment Account, well before President Obama and the yet-to-be-determined Republican candidate have declared whether they plan to take those funds. Although this bill will mostly likely be DOA in the Senate, this is a worthwhile move. This has been a Republican goal for years but has continued with Democratic support. When Obama began his candidacy for the 2008 election he declared that he would accept the federal funding, and encouraged the other candidates to as well. Later, when he realized that his personal fundraising would break all records, opted out, saying it was “not an easy decision, and especially because I support a robust system of public financing of elections. But the public financing of presidential elections as it exists today is broken, and we face opponents who’ve become masters at gaming this broken system.”

If it was broken then, it’s broken now. Nothing has been done to fix it, and I’ll bet my $3 – the current voluntary donation on income tax forms – that Obama and the Republican nominee decline the funds. Obama is looking to raise upwards of $5 billion while the Republicans will leverage the fever of the Tea Party and surely break the measly $100 million offered by the program. Who supports this program in anything except words?

Created in 1976, the public funding system— which offers money to qualified primary- and general-election candidates, raised via a voluntary checkoff on individuals’ tax returns — has been on the ropes for at least a dozen years. George W. Bush started a trend by declining to take money during his 2000 and 2004 presidential primaries, and Obama became the first candidate not to accept funding for his general-election campaign in 2008.

At the same time, the proportion of taxpayers choosing to contribute to the presidential fund has been inching steadily downward. According to the IRS, the number has dropped from nearly 20 percent in 1990, to 12 percent in 2000, to less than 7 percent in 2010. So why continue a program that so few Americans are willing to subsidize?

President Obama says the system is broken, but that it needs to be repaired not scraped. No details were offered.

Goldwater’s aim

“My aim is not to pass laws, but to repeal them. It is not to inaugurate new programs, but to repeal old ones that do violence to the Constitution, or that have failed their purpose, or that impose on the people an unwarranted financial burden… And if I should later be attacked for neglecting my constituent’s ‘interests,’ I shall reply… that their main interest is liberty, and that in that cause I am doing the best I can.” -Barry Goldwater

PJ O’Rourke on the politician’s paycheck

“Power is the politician’s paycheck. Power gets politicians all the good things money can buy and plenty of other things as well. Businessmen work for money because money gives them mastery over their own lives. Politicians work for power because power gives them mastery over the lives of others.” -PJ O’Rourke

No one was fired. Not one person.

The Washington Post reports:

The Securities and Exchange Commission, which failed to stop Bernard Madoff’s long-running investment fraud despite repeated warnings, has disciplined eight agency employees over their handling of the matter but did not fire anyone.

The SEC’s head of human resources and a law firm hired to advise the agency had recommended that SEC Chairman Mary L. Schapiro fire one person, whom the SEC described as a manager in the office that inspects investment firms.

But the chairman decided not to fire the employee, because doing so “would harm the agency’s work,” SEC spokesman John Nester said.

The disclosure that no one was terminated comes at a time when street protesters and other critics who blame Wall Street for the country’s economic plight are questioning whether the government is serious about holding powerful wrongdoers accountable. This week, a federal judge excoriated the SEC for letting firms such as Citigroup settle fraud charges without admitting or denying wrongdoing.

In summary, Bernie Madoff operated, under the watchful gaze of the SEC, a Ponzi scheme that led to the largest financial fraud in U.S. history. To make amends for their failure to recognize and prevent such fraud, the SEC has disciplined seven people and fired none.

The punishments given the SEC employees varied and included suspensions, pay cuts and demotions.

The employee recommended for termination received one of the more severe penalties, a 30-day suspension along with a reduction in pay and grade. Another was given a pay cut of 5.7 percent. At the low end, one employee was suspended for seven days, another for three days and two others were issued counseling memos, a step below a reprimand.

Whether or not the SEC had to tools to prevent the reckless financial activities that led to the collapse of Lehman, or of Madoff’s Ponzi scheme, is a fair question. Whether or not they used the tools they did have available is also fair game, and here the SEC usually fails. Too often they have proven themselves either unwilling or unable to carry out their duties.

The SEC’s inspector general issued a 477-page report in 2009 concluding that the agency “received numerous substantive complaints since 1992 that raised significant red flags concerning Madoff’s hedge fund operations.”

Herein lies one problem with government failure. When the markets fail, the call is for more government. When the government fails, the call is for more government. The result is a slow but consistent march of government into our lives. The secondary and tertiary results are both great and unforeseen. The incompetence at the SEC will certainly continue, and if OWS looks for accountability in DC in addition to Wall Street, they won’t find it.