The United States Court of Appeals-DC Circuit yesterday issued an order remanding to the Export-Import Bank of the United States (Exim) a decision by the bank to approve loans and loan guarantees for Air India. Delta Air Lines. Inc., sued the Export Import Bank claiming that the Bank did not consider the adverse impact loans and loan guarantees would have on the U.S. economy.
The appellate court held that the Bank, as a federal agency, was required to consider the impact loan guarantees to Air India would have on U.S. industries and U.S. jobs and that the Bank failed to reasonably explain its application of the Export-Import Bank Act to this case, pursuant to the Administrative Procedures Act.
Delta’s suit makes sense from a business standpoint. Air India poses a competitive threat and one of our U.S. agencies was about to be complicit in an economic crime. Delta got a two-fer. But we also need to consider why we need government action in the form of loan guarantees to foreign corporations. Air India allegedly was to use guaranteed loan funds to buy commercial jets from Boeing. One could argue that this is good for American commerce because Boeing would be able to sell some inventory.
But given the amount of cheap money floating around, does the U.S. government really need to be in the market of guaranteeing loans? Why not let Air India go into the money markets and borrow money? Shouldn’t we be concerned about artificially reducing the risk premium on loans via government intervention? On the flip side, why not let the private sector guarantee these loans? if the private sector doesn’t want to guarantee Air India’s loans, shouldn’t that be a signal to the U.S. government to let that sleeping dog lie?
I expect the rebuttal to be that the Export-Import Bank is stepping in to plug a hole created by market failure, but I think it’s time to lay that market failure concept to rest. If a market could not be made for financing Air India, then Air India should revise its business model and shop for aircraft somewhere else or Boeing should drop its prices or offer some type of financing assistance itself.
Posted in capital, commerce, credit, Economy, libertarian, Political Economy, self regulated markets
Tagged Air India, Delta Air Lines, Export-Import Bank, loan guarantees, loans, market failure
In a The New York Times’ op-ed, the NAACP Legal Defense Fund’s Sherrilyn Ifill argues that class should not replace race as the primary affirmative action criteria for college admissions. Like many in the progressive camp, Ms. Ifill ignores economics and capital as the basis for any public policy making. When it comes to colleges or the work place, the question should be how does a diversity policy impact the bottom line; the mission of a school or the work place.
A university’s bottom line, in my opinion, is to provide society with the brain power that can drive economic innovation and contribute ideas for a growing and stable social fabric. Sure it would be ideal for this brain power to come from people that represent all ethnic groups, but I don’t think that class or race should be factors that an admissions officer or panel should use for predicting whether a student they are considering can make this type of contribution or has the potential to be molded into one that can. The race or class criteria are really cop outs that make the admissions panel’s job a little easier because they wouldn’t have to get into any deeper thought.
Instead, admissions panels should be looking at a high school students application for indication that the student has been giving thought to social and public policy issues and has demonstrated their pursuit of alternatives for addressing these issues.
I’m not talking about seeking out students that participate in five different sports, play two instruments, and serve as altar boys. Again, that’s too easy and quite frankly simply tells me that they have physical stamina versus deep economic thought.
No, we need to pursue the creative types, no matter what color or wealth background. We need to nurture outside the box thinking from the time kids are in nursery school and identify and bring those kids into our primary think tanks: the universities.
Ms. Ifill is partially right. It shouldn’t be about a student’s class. It also shouldn’t be about a student’s race. Plenty of dumb asses can be found among wealthy kids, and skin color doesn’t make you Jesus or Satan. What we need are students that can take us to the brink of new technological and social frontiers. We need thinkers and doers.
I read two interesting articles found on Reason.org and Forbes.com regarding federal and state governments’ role as pump primers for local, state, and national economies.
The Reason.org article documents a report that concludes that government spending in the form of community grants and loans is inefficient since funds do not generate the much hyped community development, especially for lower income areas of municipalities. In addition most of the ten poorest counties in the United States have received no or very little funding when compared to the wealthiest top ten counties.
The Forbes.com article documents arguments by economics professor Mariana Mazzucato who argues that government spending on innovative projects and guarantees issued to encourage such spending has always led the decision of venture capitalists and other investors to follow suit. Government, according to Professor Mazzucato, is the real engine of an economy’s growth.
I believe both positions can be reconciled if government acted like an investor versus an economic stimulant. Instead of directing funds toward most favored industries or companies, as the Reason.org piece points out, maybe government should take an equity position in companies simply for the potential of the greatest financial returns. I’m sure tax payers would like to see their government investing tax receipts so that the returns are reinvested in funding the government’s needs.
I know. It sounds a bit polyannish, but common sense approaches to government spending is what we need to see more of. If the Obama Administration is going to throw around the phrase “investing in our future”, then maybe he should lead a government that actually thinks like an investor versus a community coordinating organization.
President Obama shared earlier this week an attempt at empathizing with those concerned about the sharing by Internet and telecommunications companies of private communications data with the United States government. Mr. Obama tried to convey that we should expect to give up a little liberty in order to ensure national security. While I can appreciate his position as commander-in-chief and his duty to protect Americans from attack, I don’t think he or the national security community fully grasp the push back some Americans are maintaining against a policy calling for the collection of metadata. All Mr. Obama has to do is look at the market in order to determine how serious the issue of privacy is.
Today’s e-commerce market is driven in part by the demand for data that legal hacker companies such as Facebook and Google crave. Why do I call them legal hackers? they are legal because information provided to them is volunteered by consumers of their services. They don’t have to break into your computer or server files to get the info. They just ask for it.
These companies make their money via advertisements an in order to look good to advertisers they have to be able to extract as much information from consumers as possible. Consumers are increasingly becoming aware of the business model and are pushing back against the idea of so much of their information being handed over to social networks and other websites. Some of this push is being led by federal agencies such as the Federal Trade Commission and the Federal Communications Commission.
There should be no surprise on the part of the Obama Administration about how consumers react, but there should also be greater consideration for how consumers and advocacy groups are reacting. It is more than a mere inconvenience. It amounts, in market terms, to intellectual property being encroached upon by a government that fails to recognize the value of the information to consumers; a government that does not seek permission to take it nor compensate its citizens when it takes it.
I would have preferred to see the federal government invest in the human intelligence necessary for gathering intelligence against our enemies rather than using technology in a demonstrably invasive way.
Yesterday while driving home with my son, we were listening to Market Place, a radio program on public radio. There was an article about what a Charles County, Maryland family is doing to prep their kids for college. The children in the family are involved in numerous extra curricular activities, including athletics and music. Having been a member of my high school band for four years; serving in student government; playing on two championship flag football teams; graduating in the top ten percent of my class; being a National Merit Scholarship semi-finalist; and leading my Junior ROTC battalion, I could appreciate the pursuit of being well-rounded.
But I also worked in the second half of my high school senior year. Dad moved stateside to establish a better home for us which meant that I was the man of the house until we all moved stateside after I graduated. It was tough, but the extracurricular activities and working thought me about being balanced. Using the experiences as part of a college admissions application was furthest from my mind.
Listening to these parents talk about getting their kids an edge by investing all this time and money into their extracurricular activities reminded me of how screwed up our priorities are, especially given the shifting nature of our economy. Now more than ever, young people will be required to show how creative they are in order to land work, whether it takes the form of a job (whatever that is) a freelance contract; or starting their own going concern. Instead, what I heard from these parents was their willingness to show the plantation owner their physical stamina to do things versus their intellectual energy to create and yes, sell things.
Creativity is what drives any economy yet we have parents still buying into that “busy is best” mentality and poisoning their kids’ mindsets with it. Damn. No wonder we are still behind the curve.
I wouldn’t admit any of these kids into a school much less hire them. Not only have they not shown that they even know how to work, but more importantly, they haven’t shown they know how to create.
I just finished reading a post by the Cato Institute’s Steve H. Hanke where Mr. Hanke argues that the Federal Reserve’s target of zero to one quarter of a percent federal funds rate is actually exacerbating the credit crunch still faced today by small and medium sized businesses. The federal funds rate is the rate banks charge each other for overnight loans. A bank may have some excess funds in their reserve accounts and lending out money to another bank helps bring in additional interest revenue.
At least that is how it was before the Federal Reserve embarked on its in-the-cellar federal funds rate policy. At rates scraping the bottom of the pond, banks find themselves in the federal funds rate trap where they have no incentive to lend their reserves overnight (There is no altruism in lending). If banks aren’t lending each other money, this means there are fewer funds available for a bank in need to lend to its customers, specifically small and medium sized business customers.
This is where the impact on minority and woman owned businesses come in. Almost no minority-owned businesses are publicly traded on Wall Street so access to equity financing does not exist. These firms have to go to the banks, but with the Federal Reserve refusing to start the ripple effect of lending by increasing its federal funds rate, minority-owned firms are foreclosed from an opportunity to access credit.
You may ask why would minority-owned firms want to borrow at an increased rate and my answer is they may not want to unless they are confident they will experience the returns to be profitable while paying back the loan. The market, specifically investors, want to see a money pricing system that reflects the risk involved in lending to smaller businesses that may also be low on collateral or other assets. A zero rate simply does not do that.
Posted in credit, Economy, Federal Communications Commission, Federal Reserve
Tagged credit, diversity, FCC, Federal Reserve, loan, market, media, risk
A column by The New York Times’ Eduardo Porter argues that the market for spectrum would be more competitive if the Federal Communications Commission would restrict AT&T and Verizon’s access to the upcoming incentive auction where the FCC hopes to reallocate television broadcast station spectrum for wireless carrier use. Mr. Porter’s column also cites an argument by Consumer Federation of America’s Mark Cooper asserting that keeping AT&T and Verizon out of the auction may even lead to higher revenues for the auction because smaller carriers would be encouraged to enter the auction and submit bids and the accompanying cash.
Sorry, but I just don’t buy that argument. The market for spectrum will always be a monopoly market. Why? Because there is only one supplier of access to spectrum and that supplier is the FCC. The FCC is a monopolist and as a monopolist it can set the price for spectrum way above the marginal cost for providing a license to those invisible waves rolling around the planet Earth. To raise more revenues from fewer participants, the bidders would have to increase the premiums on their offers or fewer bands of spectrum would have to be made available given the demand.
This is supposed to be an incentive auction for broadcasters, not a disincentive auction. If you want more broadcast stations to give up more of that beachfront property on that 300 Mhz to 3 Ghz coastline, broadcasters will want to know that you are serious about getting them the biggest bang for the buck and that’s only going to happen if they know that the big boys are playing, too.
Today the United States Court of Appeals- D.C. Circuit served an ace down the alley, holding that the Federal Communications Commission failed to show that Comcast’s decision not to put the Tennis channel on a more broadly available tier resulted in favoritism for a couple of the cable company’s sports programming affiliates.
The FCC failed to identify adequate evidence that there was unlawful discrimination resulting from Comcast’s decision not to grant Tennis’ request to be moved to another tier. Neither the FCC nor tennis made a quantitative showing as to whether any benefit flowed to Comcast. The court also held that discrimination against a programmer should be set on a reasonable business purpose, and Comcast’s straight up financial cost/benefit analysis fit the bill.
The irony here is that while the courts accepted Comcast’s business judgment for moving channels around on cable tiers, the jury is still out (I would say excuse the pun but appellate courts don’t have juries) on the net neutrality issue being addressed in the same court. The court could readily reach a holding for Verizon without even addressing the First Amendment issue by declaring that the FCC has again failed to show the probability of competitive or economic harm it has been ranting about since approving these rules in December 2010.
While the FCC gets some deference as the expert agency on telecommunications matters, that shouldn’t mean that it gets a free pass to draw any conclusions it wants without going through a rigorous quantitative analysis itself.
Comcast v. FCC served up the importance of rigorous analysis and the FCC’s net neutrality position should be subjected to the same treatment, unless the FCC wants the market to look at these rules and utter the infamous John McEnroe line, “You cannot be serious.”