5 September 2009

Today’s Tabbloid
PERSONAL NEWS FOR [email protected]

FISCALLY CONSERVATIVE BLOG FEEDS FISCALLY CONSERVATIVE BLOG FEEDS

Cato on C-SPAN [Cato at Weekend Links [Cato at

Liberty] Liberty]
SEP 04, 2009 11:46P.M. SEP 04, 2009 04:01P.M.

Watch for a couple of Cato presentations on C-SPAN this weekend. • If Eric Holder is going to investigate the CIA on torture, he should
go after policymakers, too.
Saturday morning at 10 a.m. (EDT), senior fellow Dan Mitchell will be
talking about tax policy on a panel from the recent Steamboat Institute • Five myths about terrorism, Afghanistan and why we’re still at war.
meeting in Colorado.
• Let’s look at the Constitution. There’s nothing in there that gives
Then, as soon as that panel is over, switch to Book TV on C-SPAN2 to see the government the power to control health care.
the Cato Book Forum on “The Age of Reagan,” featuring author Steven
Hayward and Cato’s William Niskanen, who served for four years on • Podcast: How the largest insurance companies are going to cash in
Reagan’s Council of Economic Advisers. If you miss the 11:15 showing, on Obamacare.
you’ll have another chance at 3 p.m. Sunday.

And if you missed my “Freedom in Crisis” speech on C-SPAN last

weekend, you can watch it at your leisure on C-SPAN.org or cato.org. FISCALLY CONSERVATIVE BLOG FEEDS

Coburn Schools a ‘Public

FISCALLY CONSERVATIVE BLOG FEEDS Option’ Supporter [The Club for
Viva La Capitalism! [The Club Growth]
SEP 04, 2009 02:43P.M.
for Growth]
SEP 04, 2009 04:41P.M.

Folks, I’m heading off to Europe for a much needed vacation so the blog
is going to suffer somewhat as a result. But don’t fret! While I roam
around the streets of Paris, Venice, Milan, and Lucerne, I plan on
highlighting anything that resembles the free market by posting pictures
and videos to my Twitter feed. This is a grand experiment using my new
camera phone so if things don’t work out, please forgive me. If you have
no desire in anything European, the Club’s David Keating will cover the
blogging duties here in the States until I return late on Sept. 15th. I’m
sure he’ll keep you posted on the Cubs as well (right, David?). (Contrary
to the vicious rumors, I didn’t win this vacation on the game show, Pig
in a Poke).

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Today’s Tabbloid PERSONAL NEWS FOR [email protected] 5 September 2009

FISCALLY CONSERVATIVE BLOG FEEDS compensation their contracting partners freely and honestly choose
to pay them.
A Free Economics Lesson for
2. Courts have no power to second-guess the reasonableness of any
Media Matters [Americans for salary or compensation agreement honestly and freely signed by
both contracting parties.
Tax Reform]
SEP 04, 2009 02:39P.M. 3. The ICA’s fiduciary duty requires only fair dealing, not any
particular outcome.
Every day after ATR posts new state figures on how cap and trade will
destroy jobs and increase energy costs, Media Matters Action’s blog Thanks to Cato adjunct scholar Tim Sandefur for spearheading this
responds, like clockwork, that ... effort, and to Cato intern Matthew Aichele for helping with much of the
attendant busywork.

FISCALLY CONSERVATIVE BLOG FEEDS

FISCALLY CONSERVATIVE BLOG FEEDS
What Is ‘Unreasonable’
Some Good Spending For a
Compensation? And Who Gets
Change [Cato at Liberty]
to Decide? [Cato at SEP 04, 2009 02:04P.M.

Liberty‘Unreasonable’ Cato analysts regularly identify areas where the government is either
wasting money or spending money on unconstitutional or inappropriate
Compensation? And Who Gets matters. There are a few areas, however, where the state does not spend
money where it ought to.
to Decide?]
SEP 04, 2009 02:19P.M. A case in point is where the state has mistakenly locked up an innocent
person. Believe it or not, in some jurisdictions no compensation is
As could be expected, the effects of the financial crisis — and people’s offered to the victims. Zero!
reaction thereto — are starting to make their way to the least political
branch of government, the judiciary. The Supreme Court this term will The Associated Press has a story today about a new Texas law that will
be hearing several cases that could have serious repercussions on our pay about $80,000 in compensation to victims for each year they were
economic recovery, one of which led us to file an amicus brief. Here’s the wrongly incarcerated. Other states should follow suit. Inaction is
situation: inexcusable.

The Investment Company Act of 1940 places on investment advisers a (H/T: Grits for Breakfast)
fiduciary duty with respect to the compensation they receive for the
services they provide their clients. In the case of Jones v. Harris
Associates, shareholders in various mutual funds contend that their
adviser fees were excessive and violated the ICA. The Seventh Circuit, the
federal appellate court based in Chicago, affirmed the judgment of the
district court that the fees were not excessive but also expressly
disapproved of the methodology for evaluating such claims used by the
Second Circuit (based in New York). Judge Frank Easterbrook’s opinion
explains that the ICA creates a fiduciary duty but does not act as a rate
regulator, and that judicial price-setting does not accompany fiduciary
duties. Judge Richard Posner, writing for five judges, dissented from the
denial of an en banc rehearing. The Supreme Court agreed to review the
case to settle the circuit split.

Our brief supports the investment adviser and makes three arguments:

1. All persons have a fundamental human right to whatever

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Today’s Tabbloid PERSONAL NEWS FOR [email protected] 5 September 2009

FISCALLY CONSERVATIVE BLOG FEEDS FISCALLY CONSERVATIVE BLOG FEEDS

Foreign Aid Spent Domestically Myth v. Fact: Afghanistan [Cato

to Promote Foreign Aid [Cato at at Liberty]
SEP 04, 2009 12:27P.M.
Liberty]
SEP 04, 2009 12:31P.M. While “Change” has been Barack Obama’s mantra, as of late he has been
channeling his predecessor.
A new study by the International Policy Network in London documents
how the United Kingdom’s foreign aid agency is spending money, much “Afghanistan,” according to Obama, “is a war of necessity… If left
of it domestically, on NGOs to fund pro-aid lobbying and the promotion unchecked, the Taliban insurgency will mean an even larger safe haven
of political ideology. from which al Qaeda would plot to kill more Americans.”

Millions of pounds have gone to UK trade unions to enable teachers to President George W. Bush was adept at keeping the American public in
“become global agents of change” and for other union members to an elevated state of panic. That tactic may be useful for advancing
celebrate “International Women’s Day,” for example. In one case, the controversial policies. But if policymakers continue to downplay the
UK’s Department for International Development created an NGO — drawbacks of our current course of action, America risks intensifying the
Connections for Development — to provide a forum for minorities to region’s powerful jihadist insurgency and entangling itself deeper into a
discuss international development. The aid agency is the only donor to tribal-based society it barely understands.
that “NGO” and has spent £600,000 on it.
Americans must be told the truth about the war in Afghanistan. To
Much of the funding goes on behind closed doors without the benefit of understand the disadvantages of pursuing present policies, we must
an open tendering system or the possibility of new applications, thus unpack the myths that war proponents use to justify staying the course.
creating a closed circle that includes an increasingly elite group of
supposedly independent NGOs. Myth #1: Both al Qaeda and the Taliban Are Our Mortal
Enemies
Whether or not you favor foreign aid, it is thoroughly undemocratic to
spend tax dollars lobbying for a particular government program, Given the magnitude of the atrocities unleashed on September 11th,
spending the money in non-transparent ways, and creating the removing both al Qaeda and the Taliban regime that sheltered the
impression of independent views that support such funding. Certainly, terrorist organization was appropriate. But eight years later, is waging a
such a practice is inimical to the principles of a free society. And it surely war against the Taliban a pressing national security interest? Not really.
reduces accountability. But that’s a problem that plagues all foreign aid
programs whether the money is spent domestically or internationally — The Taliban, the Haqqani network, and other guerrilla-jihadi movements
a problem that has not been solved and is widely recognized by aid critics indigenous to this region have no shadowy global mission. In fact, what
and supporters alike. All the more reason to doubt the wild claims of we are witnessing is a local and regional ethnic Pashtun population —
those who would massively increase foreign aid. divided arbitrarily by a porous 1,500-mile border — fighting against what
they perceive to be a hostile occupation of their region. Prolonging our
Aid is indeed encumbered, among other things, by the problem of no mission risks uniting these groups and making U.S. troops the primary
accountability for end results, so more aid is unlikely to work better. But target of their wrath.
rewarding an unaccountable system of aid delivery with dramatic
increases in funds will only make the problem of accountability worse. As I mentioned in an earlier post, even if the Taliban were to reassert
themselves amid a scaled-down U.S. presence, it is not clear that they
would again host al Qaeda. In The Looming Tower: Al Qaeda and the
Road to 9/11, Lawrence Wright, staff writer for New Yorker magazine,
found that before 9/11 the Taliban were divided over whether to shelter
Osama bin Laden. The terrorist financier wanted to attack Saudi Arabia’s
royal family, which, according to Wright, would have defied a pledge
Taliban leader Mullah Omar made to Prince Turki al-Faisal, chief of
Saudi intelligence (1977–2001), to keep bin Laden under control. The
Taliban’s reluctance to host al Qaeda’s leader means it is not a foregone
conclusion that the same group would provide shelter to the same
organization whose protection led to their overthrow.

As the war in Afghanistan rages on, President Obama should be skeptical

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of suggestions that the defeat of al Qaeda depends upon a massive troop A recent poll conducted by Gallup Pakistan for Al-Jazeera found that a
presence. Globally, the United States has degraded al Qaeda’s ability to whopping 59 percent believed the United States is the greatest threat to
pull off another 9/11 by employing operations that look a lot like police Pakistan.
work. Most of the greatest successes scored against al Qaeda, such as the
snatch-and-grab operations that netted Khalid Sheik Mohammed and If America’s interests lie in ensuring the virus of anti-American
Ramzi bin al Shibh, have not relied on large numbers of U.S. troops. radicalism does not infect the rest of the region, discontinuing policies
Intelligence sharing and close cooperation with foreign law enforcement that add more fuel to violent religious radicalism should be the first
and intelligence agencies have done more to round up suspected order of business.
terrorists than blunt military force.
Myth #3: Terrorists Dwell in Ungoverned Parts of the World
Myth # 2: We Must Remain in the Region to Protect Pakistan
According to the president, our strategy is to disrupt, dismantle, and
The “Pakistan–is-imploding” meme that coursed through the Beltway defeat al Qaeda. Yet in order to accomplish that goal, the Obama
like wildfire last spring was excessively alarmist. administration believes we must create a functioning nation state there.
Why?
First, the danger of militants seizing Pakistan’s nuclear weapons remains
highly unlikely. Pakistan has an elaborate command and control system Beltway orthodoxy tells us that because extremists will emerge in
in place that complies with strict Western standards, and the country’s ungoverned parts of the world and attack the United States, America
warheads, detonators, and missiles are not stored fully-assembled, but must forcibly stabilize, liberalize, and democratize Afghanistan.
are scattered and physically separated throughout the country.
This thinking is flawed for several reasons.
Second, average militants have no viable means of taking over a country
of 172 million people. The dominant political force within Pakistan is not First, the argument that America’s security depends on rebuilding failed
radical fundamentalist Islam, but a desire for a sound economy and basic states ignores that terrorists can move to governed spaces. Rather than
security. In fact, if the country were to be taken over by al Qaeda setting up in weak, ungoverned states, enemies can flourish in strong
sympathizers, it would likely be because U.S. policies in both Pakistan states because these countries have formally recognized governments
and neighboring Afghanistan are being exploited by militants to with the sovereignty to reject foreign interference in their domestic
undermine public support for the government in Islamabad. affairs. This is one reason why terrorists find sanctuary across the border
in Pakistan. [Note: 9/11 was planned in many other countries, Germany
Third, policymakers have underestimated how greatly leaders in included.]
Islamabad fear the rise of pro-India government in Kabul. India inspires
a sense of profound insecurity in Pakistan. For all of Washington’s talk of Second, as my Cato colleagues Chris Preble and Justin Logan point out,
the “Af-Pak” border, 80 percent of Pakistan’s military still sits on the there’s reason to doubt whether state failure or poor governance in itself
border with India, not Afghanistan. Pakistan’s fear of India has existed poses a threat.
for decades, and Pakistani military leaders are committed to securing
“strategic depth” in Afghanistan, their regional backyard, and they do so Third, such an extraordinarily costly, open-ended military occupation
to prevent India from establishing influence there and encircling gives Osama bin Laden and his ilk exactly what they want: America’s all-
Pakistan. volunteer military force is pressed to cope with two protracted irregular
wars, we are inadvertently killing innocent civilians, and our policies are
Finally, and most importantly, while America has a vital interest in recruiting militants to their cause.
ensuring Pakistan does not become weakened, it’s America’s own
policies that are pushing the conflict over the border and destabilizing Myth # 4: We Can Have a Successful Nation-Building Mission
the nuclear-armed country. in Afghanistan

Airstrikes from unmanned drones are strengthening the very jihadist The U.S. Army and Marine Corps’ Counterinsurgency manual states,
forces America seeks to defeat by allowing militants to exploit the “Soldiers and Marines are expected to be nation builders as well as
popular resentment felt from the accidental killing of innocents. On warriors rebuilding infrastructure and basic services.” That sentiment is
August 12, the U.S. special envoy for the region, Richard Holbrooke, told shared by many of the people informing administration policy.
an audience at the Center for American Progress that the porous border
and its surrounding areas serve as a fertile recruiting ground for al Stephen Biddle, civilian adviser to Gen. Stanley McChrystal, America’s
Qaeda. One U.S. military official, speaking on the condition of top commander in Afghanistan, said a critical requirement for the
anonymity, called airstrikes from U.S. unmanned drones “a recruiting success in Afghanistan “is providing enough of an improvement in
windfall for the Pakistani Taliban.” Afghan governance to enable the country to function without us.”

Citizens living outside the ungoverned tribal areas also detest the drones. But like many within the Obama administration, Biddle’s advice is more

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Today’s Tabbloid PERSONAL NEWS FOR [email protected] 5 September 2009

goal than strategy. country that will probably remain poverty-stricken no matter how much
the U.S. and the international community accomplish in the coming
First, Afghanistan has yet to demonstrate the capability to function as a years.”
cohesive, modern, nation state, with or without us — and perhaps never
will. Many tribes living in rural, isolated, and sparsely populated Denying a sanctuary to terrorists who seek to attack the United States
provinces have little interest cooperating with “foreigners,” a relative does not require Washington to pacify the entire country or sustain a
term considering the limited contact many have with their country’s own long-term, large-scale military presence. Afghanistan does not have to be
central government. Obama’s Vietnam, but whether it will be or not is entirely his decision.

Second, arguments supporting a multi-decade commitment of “armed [The Cato Institute will be hosting a forum “Should the United States
nation building” — the words of another civilian adviser to the mission, Withdraw from Afghanistan?” on September 14th. If you would like to
Anthony Cordesman — overlook whether such an ambitious project can register or watch the forum live online, go to Cato’s events page at
be done within costs acceptable to the American public. www.cato.org/events]

Our attempt to transform what is a deeply divided, poverty stricken, [Originally appeared on The Huffington Post, September 4, 2009]
tribal-based society — while our own country faces economic peril — is
nothing short of ludicrous, especially since even the limited goal of
creating a self-sufficient, non-corrupt, stable electoral democracy would
require a multi-decade commitment — and even then there’d be no FISCALLY CONSERVATIVE BLOG FEEDS
assurance of success.
Another Day, Another
Myth #5: It’s Altruistic to Help Afghans
#Stimulusfail [Americans for
This video at “Rethink Afghanistan” upends this myth, particularly on
the issue of women’s rights. Tax Reform]
SEP 04, 2009 12:09P.M.
In addition, while it’s understandable for the president and other elected
leaders to empathize with the plight and suffering of others, why Remember the days when President Obama said his ‘stimulus’ would
Afghanistan? What about Haiti? Or Congo? Or the dozens of other “create or save” 2.5 million jobs? And then when he upped the ante and
poverty-stricken countries around the world, and at that point does promised he would create 4.1 billion jobs by...
America stop nation-building?

As Boston University professor Andrew Bacevich argues:

FISCALLY CONSERVATIVE BLOG FEEDS
For those who, despite all this, still hanker to have a go at
nation building, why start with Afghanistan? Why not first Friday’s Daily News [The Club
fix, say, Mexico? In terms of its importance to the United
States, our southern neighbor … outranks Afghanistan by for Growth]
several orders of magnitude… Yet any politician calling for SEP 04, 2009 11:50A.M.
the commitment of 60,000 U.S. troops to Mexico to secure
those interests or acquit those moral obligations would be THE DAILY NEWS Unemployment Jumps to 9.7 Percent - Victoria
laughed out of Washington — and rightly so. Any pundit McGrane, Politico Gang of Six on Verge of Collapse - Alexander Bolton,
proposing that the United States assume responsibility for The Hill A GOP Senator Looking to Meet Halfway - Shailagh Murray,
eliminating the corruption that is endemic in Mexican politics WaPo Forecasting the Cost of U.S. Healthcare - Robert Fogel,
while establishing in Mexico City effective mechanisms of American.com Death Panels By Another Name - IBD Editorial Why the
governance would have his license to pontificate revoked. Stimulus Failed - Brian Riedl, National Review Harry Jekyll and Harry
Hyde - Kimberley Strassel, Wall Street Journal Method to the
Over the past year, the mission in Afghanistan has shifted from the Meandering - Gene Healy, Cato Institute Reid’s Dangerously Low
limited goal of taking down al Qaeda to a much broader Approval Rating - Josh Kraushaar, Politico PODCAST: Big Insurers May
counterinsurgency approach. Americans are now being told their troops Gain from Obamacare - M. Tanner, Cato Cubs 0, White Sox 5 -
must protect the villages of Afghanistan. Planning will always falls short Associated Press
of our expectations because we can’t reliably predict the course of future
events. As the U.S. Senate Committee on Foreign Relations stated in an
August 2009 report, “Unlike Iraq, Afghanistan is not a reconstruction
project — it is a construction project, starting almost from scratch in a

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FISCALLY CONSERVATIVE BLOG FEEDS

One Regulator to Rule Them All FISCALLY CONSERVATIVE BLOG FEEDS

[Cato at Liberty] Hypocrisy Alert [The Club for

SEP 04, 2009 11:17A.M.
Growth]
Part of the dominant narrative in Washington on the causes of the SEP 04, 2009 10:49A.M.
financial crisis is that competition among financial regulators allowed
financial institutions to choose the weakest regulator, and also This is from the always clever Kimberley Strassel at the Wall Street
encouraged regulators to weaken their supervision and enforcement in Journal:
order to attract more entities toward their charter. Hence the response of
several prominent Democrat congressional leaders and the Obama In the Aug. 6 edition of the Las Vegas Sun, readers saw an op-
administration calling for an elimination of both the Office of Thrift ed by Harry Reid. “I have never taken up the Washington
Supervision (OTS) and the Office of the Comptroller of the Currency hobby of pointing fingers for political gain,” reassured
(OCC), and their merger into a single “super” bank regulator. Nevada’s eminently reasonable, bipartisan, four-term
senator.
But is this narrative based on fact or analysis, or simply mere assertion?
Let’s start with a few counter-factuals: Fannie and Freddie could not A few hours later, Mr. Reid appeared for the national press,
choose their regulator, nor could Bear or Lehman. The worst-performing armed with a piece of Astroturf, to berate town-hall
U.S. institutions at the very center of the crisis had no choice in their protestors as captive to “Internet rumor mongers and
regulator. insurance rackets.” The Republican Party “is run by a talk-
show host,” snapped Washington’s eminently angry and
And of course, this was not simply a U.S. crisis. Northern Rock had no partisan majority leader.
ability to choose its regulator. The UK, like much of the world, does not
have multiple bank supervisors, but only a single supervisor. In fact, only
three developed countries have multiple bank supervisors: the United
States, Germany and Liechtenstein. If this was a crisis driven by FISCALLY CONSERVATIVE BLOG FEEDS
competition among bank regulators, then most of the world would have
been spared. Housing Bailouts: Lessons Not
What is the factual basis for merging the OTS and the OCC? Apparently Learned [Cato at Liberty]
the proposal rests upon the observation that both AIG and SEP 04, 2009 10:23A.M.
Countrywide owned thrifts at the time of their failure. In addition, the
failure of thrift IndyMac was one of the largest bank failures to date. The housing boom and bust that occurred earlier in this decade resulted
Therefore, the OTS must have been the weak link. However, both AIG from efforts by Fannie Mae and Freddie Mac — the government
and Countrywide acquired federally chartered thrifts late in the game; sponsored enterprises with implicit backing from taxpayers — to extend
their failures were already “baked in the cake” long before they acquired mortgage credit to high-risk borrowers. This lending did not impose
thrifts. And in both cases: 1) the thrifts were very small parts of their appropriate conditions on borrower income and assets, and it included
balance sheets, and 2) the failure of AIG and Countrywide did not result loans with minimal down payments. We know how that turned out.
from their thrift subsidiary. In relation to IndyMac, most of the entities
regulated by the OTS specialize in mortgage finance, hence it should not Did U.S. policymakers learn their lessons from this debacle and stop
be surprising that in the aftermath of a housing bubble, those engaging subsidizing mortgage lending to risky borrowers? NO. Instead, the
in mortgage finance fail at a greater rate. Federal Housing Authority lept into the breach:

Also it is worth remembering that prior to the savings and loan crisis, The FHA insures private lenders against defaults on certain
when there really was a significant difference between bank and thrift home mortgages, an inducement to make such loans.
charters, thrifts could not choose to maintain their current business Insurance from the New Deal-era agency has enabled lending
model and also flip charters. to buyers who can’t make a big down payment or who want to
refinance but have little equity. Most private lenders have
Since the case for merging regulators seems pretty weak, here’s an easy sharply curtailed credit to those borrowers.
solution to address concerns regarding charter shopping: require the
FDIC to base deposit insurance premiums on the historical and expected In the past two years, the number of loans insured by the
losses by charter. FHA has soared and its market share reached 23% in the
second quarter, up from 2.7% in 2006, according to Inside

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Today’s Tabbloid PERSONAL NEWS FOR [email protected] 5 September 2009

Mortgage Finance. FHA-backed loans outstanding totaled deficits higher. They worried that government was taking on
$429 billion in fiscal 2008, a number projected to hit $627 far more than it could competently handle and far more than
billion this year. the country could afford. Against this backdrop, Obama’s
agenda fanned fears that government was expanding too far,
And what is the result of this surge in FHA insurance? too fast. Before long, his strategy of letting Congress take the
lead in formulating legislative proposals and thus prodding
The Federal Housing Administration, hit by increasing lawmakers to take ownership in their outcome caused his poll
mortgage-related losses, is in danger of seeing its reserves fall numbers on “strength” and “leadership” to plummet.
below the level demanded by Congress, according to
government officials, in a development that could raise The Democrats still have plenty of time to revive their fortunes … by
concerns about whether the agency needs a taxpayer bailout. dropping plans to make an already huge government ever bigger.

This is madness. Repeat after me: TANSTAAFL (There ain’t no such

thing as a free lunch).
FISCALLY CONSERVATIVE BLOG FEEDS
C/P Libertarianism, from A to Z
How Cap and Tax Will Hurt
Maine [Americans for Tax
FISCALLY CONSERVATIVE BLOG FEEDS
Reform]
Contra the President, SEP 04, 2009 10:08A.M.

Americans Don’t Want Big In our continuing, daily, state by state, look at the financial impact of the
Waxman-Markey Cap and Trade Tax Bill, we will show you the projected
Government [Cato at Liberty] losses in Gross State Product, Personal Income, and...
SEP 04, 2009 10:14A.M.

Although candidate Barack Obama presented a moderate face, as

president he has pushed a program for expanding government control at
most every turn. And that agenda appears to be causing the rush of
independents away from the Democrats.

According to political analyst Charlie Cook:

What’s going on? While political analysts were fixated on last

fall’s campaign and on Obama’s victory, inauguration, and
first 100 days in office, two other dynamics were developing.
First, the worst economic crisis since the Great Depression
scared many voters, making them worry about their future
and that of their children and grandchildren. And the federal
government’s failure to prevent that calamity fundamentally
undermined the public’s already low confidence in
government’s ability to solve problems. Washington’s
unprecedented levels of intervention — at the end of Bush’s
presidency and the start of Obama’s — into the private sector
further unnerved the skittish public. People didn’t mind that
the head of General Motors got fired. What frightened folks
was that it was the federal government doing the firing.

Many conservatives predictably fear — and some downright

oppose — any expansion of government. But late last year
many moderates and independents who were already
frightened about the economy began to fret that Washington
was taking irreversible actions that would drive mountainous