Guest Contributor

The latest efforts at reforming our financial system have been dismal at best. Going forward, in order to ensure safety in our financial markets, lawmakers must put their differences aside and address the problem of too big to fail banks. The inconsistency of these institutions in the wake of the Great Recession has its roots in excessive leverage, outrageous fees, and above all, a general neglect of risk management.

Now lawmakers want to hold big banks accountable – but they don’t know how. The banks have grown to become over-leveraged, highly inter-connected monsters enjoying the comfort of Uncle Sam’s implied guarantee. And why shouldn’t they? Their cost of capital has been significantly reduced, their overbearing advantage over small banks is more evident than ever, and above all their bonus structure remains intact. Recognizing that too big to fail is actually too big to exist will level the playing field and alleviate the pressure on the taxpayer for funding the next blunder on Wall Street.

As a former Georgia State Senator¹ and leader among community banks, I felt obligated to guide the organization, ‘Stop Too Big to Fail.’² I want to speak up in order to protect the interests of the retiree, the entrepreneur saving to start his own business, or the family looking for safety in their child’s college fund. Congress has entertained the idea of creating a slush fund for the next bailout, formed by taxing institutions whose assets surpass a $10 Billion threshold. A strategy of this nature encourages moral hazard at the expense of taxpayers, as banks will offset the tax by passing fees on to depositors and in turn taking greater risk because of their government sponsorship.

In the last few weeks, the media has given me the opportunity to explain why perpetuating a policy of too big to fail is likely to create another taxpayer-funded bailout. I encourage you to watch for new information that gets posted on our website daily in order to learn more about getting involved. Let’s evade the arduous policy being discussed on Capitol Hill and start by breaking up the banks.

For more information, please visit StopTooBigToFail² directly or follow their updates on Twitter and Facebook.

Source(s): ¹Web page of Georgia State Senator Sam Zamarripa • ²Stop Too Big To Fail Website

Sam Zamarripa, Founder and President – Zamarripa Capital Incorporated

Founder and President of Zamarripa Capital Incorporated a private equity corporation focused on lower middle market companies in the Southeastern United States. From 2002 – 2006, Sam was a Partner and Managing Director at Heritage Capital Advisors focusing on investments in media and financial services. In 2007, Mr. Zamarripa was appointed as a Senior Advisor to Darby Private Equity, the private equity arm of Franklin Templeton Investments. He began his career in financial services in 1990 with Diaz-Verson Capital Incorporated, a registered investment advisory firm with over $400 million in assets under management. Mr. Zamarripa was a co-founder of United Americas Bank, NA of Atlanta. He has served as Director of the Holding Company for United Americas Bank since 1998. He is a director of Assurance America Corporation (ASAM.OB) and Chairman of the Compensation Committee. In 2010 Mr. Zamarripa was elected to the Board of Managers for IP2Biz, LLC of Atlanta, Georgia. Mr. Zamarripa served two terms in the State Senate of Georgia representing the City of Atlanta where he served as the Secretary of the State Economic Development Committee and member of the committees on Insurance, Science & Technology and Transportation. He retired from the State Senate, undefeated in 2006. Mr. Zamarripa is a Trustee of Syracuse University, Syracuse, New York. He holds a BA from New College of Sarasota, Florida and a Masters of Public Administration from the Maxwell School of Citizenship at Syracuse University, Syracuse New York.

Wire Report

(WIRE/FFF) – On March 1, 2010, Sheldon Richman gave the following speech at The Future of Freedom Foundation’s “Economic Liberty Lecture Series” co-sponsored by George Mason University Economics Society, The speech runs one-hour 19 minutes, 12 seconds and can be viewed below in its entirety.

Sheldon Richman, Editor “The Freeman”

Sheldon Richman is editor of The Freeman, published by The Foundation for Economic Education in Irvington, New York, and serves as senior fellow at The Future of Freedom Foundation. He is the author of FFF’s award-winning book Separating School & State: How to Liberate America’s Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and FFF’s newest book Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: “I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank… . I also think that Mr. Richman is right to fear that state education undermines personal responsibility…” Mr. Richman’s articles on population, federal disaster assistance, international trade, education, the environment, American history, foreign policy, privacy, computers, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the Fortune Encyclopedia of Economics. A former newspaper reporter and former senior editor at the Cato Institute, Mr. Richman is a graduate of Temple University in Philadelphia.

© 2001-2010 The Future of Freedom Foundation. All rights reserved.

The Smoking Argus

In his weekly Texas Straight Talk address, Representative Ron Paul discusses the bizarre spending habits of the United States government. Specifically via the State Department regarding the construction of yet another multimillion dollar embassy, this time in London as well as news the nation’s private Central Bank, the FEDERAL RESERVE may have been involved with both financing the likes of the Watergate burglars and Saddam Hussein. Dr. Paul points to these nefarious actions by the FEDERAL RESERVE during Watergate as published in the Senate Watergate Report from 1974¹ as well as its involvement in financing Saddam Hussein² as precisely why the FEDERAL RESERVE’s immunity from audit should be repealed in its entirety. [READ FULL TRANSCRIPT]

Related Material(s)
	Rep. Ron Paul -Texas Straight Talk – Bizarre Spending Habits TRANSCRIPT (PDF 00kb)

Source(s): The Senate Watergate Report published 1974,2005 • The New York Times “Follow the Money” by: Martin Mayer published January 14, 2004

The Smoking Argus

OFFICIAL STATEMENT – Hello, I’m Dr. Tom Coburn, a practicing physician from Oklahoma and a member of the United States Senate.

This week I had the opportunity to join President Obama and my Democrat and Republican colleagues for a summit on health care. We had a respectful and constructive discussion.

While we listened to one another, I’m concerned that the majority in Congress is still not listening to the American people on the subject of health care reform. By an overwhelming margin, the American people are telling us to scrap the current bills, which will lead to a government takeover of health care, and we should start over. FULL TRANSCRIPT

Related Material(s)
	G.O.P. Weekly Address, Senator Tom Coburn of Oklahoma Healthcare TRANSCRIPT (PDF 43KB)

Source(s): Republican National Committee • GOP Weekly Address YouTube Channel

The Smoking Argus

OFFICIAL STATEMENT/WASHINGTON D.C. – In his weekly address, President Barack Obama said that the nation cannot lose the current opportunity to finally enact meaningful health care reform. At Thursday’s meeting on reform, both sides were able to find several areas of agreement, but there were some differences. While the President is willing and eager to move forward with members of Congress from both parties, American families and businesses cannot afford to wait another generation for reform. READ FULL TRANSCRIPT

Related Material(s)
	President Obama Weekly Address: Washington Must Use This Opportunity to Enact Health Reform TRANSCRIPT (PDF 42.5KB)

Source(s): The White House • The White House YouTube Channel

Allison Bricker

WASHINGTON D.C. – Speaking to a standing room only crowd in the ballroom of the Marriott Wardman Park Hotel, Representative Ron Paul of Texas addressed attendees of CPAC 2010 with an energy and passion usually reserved for the stump. After being largely dismissed by the old-media and political status-quo during the 2008 Presidential campaign, the reception for Doctor “No” at this year’s annual conservative gathering mirrored the response he routinely received at campaign stops and still garners at his speeches before the energetic college crowd. Driving home his message of smaller Constitutional government his speech was interrupted several times by standing ovations and loud chants of “End the FED”, the latter a reference to his bill to finally allow for a full and complete audit of the FEDERAL RESERVE, H.R. 1207.

The cheers continued to echo throughout the ballroom as he spoke to the necessity of realigning American Foreign Policy to that of the Founding Generation and classical not neo conservative philosophy.

Source(s): CPAC • MinnesotaChris YouTube Channel • C-SPAN

Wire Report

Dominick T. Armentano -Research Fellow, The Independent Institute/Professor Emeritus of Economics, University of Hartford

Dominick T. Armentano is a Research Fellow at The Independent Institute and Professor Emeritus of Economics at the University of Hartford. He received his Ph.D. in economics from the University of Connecticut, and he is the author of the books, Antitrust and Monopoly: Anatomy of a Policy Failure, Antitrust: The Case for Repeal, Intervention in the Petroleum Industry, and The Political Economy of William Graham Sumner. His articles have appeared in such scholarly journals as the Antitrust Bulletin, Business and Society Review, Antitrust Law and Economic Review, and Business History Review, as well as in the Financial Times, New York Times, Wall Street Journal, Reason, National Review, and Hartford Times. Professor Armentano is frequently interviewed on numerous TV and radio programs including “Economically Speaking” (PBS).

(Wire/Ind.Inst.) The economic landscape still looks pretty gloomy despite (because of?) massive increases in federal government spending by Congress. Want something else to worry about? What if your government suddenly went “belly up” on some or all of its public debt IOU’s?

Impossible you say? Not really.

When individuals or businesses have long-run expenses that exceed anticipated income—and have neither capital nor savings to fill in the gap—they often declare bankruptcy. And though it is rare, even some city governments (i.e., Vallejo, Calif.) have been plunged recently into insolvency and bankruptcy, and some state governments (with heavy pension costs) might consider it. But could it happen to our own federal government?

Most economists have always regarded this possibility as nearly unthinkable. After all, the U.S. government has never defaulted on a penny of its debt obligations in over 220 years. What this means is that when the Treasury sold government bonds, the bondholders have always received their interest payment and have always had their original principal returned at maturity. In that sense, U.S. government bonds have been 100 percent safe.

There are several ways that U.S. debt could become risky and unsafe and increase the likelihood of a general or partial default. The most obvious problem would be that Congress becomes unwilling or unable to raise taxes sufficient to pay, by law, the interest on the national debt.

So far this has not been an insurmountable problem despite the fact that in FY 2009, the interest cost to “carry” the U.S. public debt was $383 billion. (For a frame of reference, the budget for NASA last year was $19 billion.) The carrying costs by year 2019 are estimated to be more than $700 billion.

But these historical costs and projections are based on conservative guesses about deficits and interest rates. What if annual deficits now become trillion dollar holes (as they have) and rising interest rates (as are likely) force governments to pay far more to fund their increasing debt?

The analogy here would be to a credit card holder who already has debt, spends more this month than last, accumulating even more debt and, in addition, faces increasing payments every month because of higher interest rates. It becomes an impossible situation.

In the case of ever-increasing public debt, where does the new money come from to “carry” this increasing burden? Federal taxes would have to be increased to extraordinary levels; but this effort would prove self-defeating since it would likely destroy incentives and the economy to boot.

Another possible debt/default scenario, and just as depressing, is that the Federal Reserve continues to purchase more and more U.S. government debt. When the Fed purchases government securities in the “open market” it tends to push bond prices up and interest rates down, making it easier for the Treasury to market new debt and keep its funding costs low.

Unfortunately, the purchase of government securities (public debt) by the Fed leads to what economists call a “monetization” of that debt. Sellers of the securities get “new money” from the Fed and that new money normally works its way into the economy and raises prices for almost everything including interest rates.

The resulting inflation (or even the anticipation of it) also starts a vicious cycle of dollar depreciation that makes it even harder (at existing interest rates) to sell U.S. debt abroad. Again, as rates increase on more and more debt, the interest and refunding burden grows exponentially, and the once unthinkable becomes at least debatable.

Depressing as it is, however, the U.S. currency and debt/funding situation is actually in reasonable shape (as measured, say, by recent credit-default swap spreads) at least when compared to near basket-case countries such as Ireland, Spain, Portugal, and especially Greece.

A particularly dangerous example is Japan, where government debt is currently an astounding 200% of its GDP and is expected to rise to 230% by 2012. But none of this should make U.S. government bondholders at all smug since defaults on “sovereign debt” abroad could start a contagion that could swamp all boats. Stay tuned.

Copyright 2010 The Independent Institute

The Smoking Argus

Rep. Paul Texas Straight Talk TRANSCRIPT (PDF 212KB)

In this week’s “Texas Straight Talk”, Dr. Paul discusses the looming financial problems facing Greece and her people due to their overwhelming public debt and asks if due to current laws prohibiting access to such information whether the American taxpayer via the FEDERAL RESERVE could unknowingly be financing the bailout of Greece.

He uses this most recent example to call for a full and transparent audit of the FEDERAL RESERVE via passage of H.R. 1207 and S. 604. Both bills now pending will insure that the FEDERAL RESERVE’s dealings with foreign central banks and governments are available for scrutiny to both Congress and the American People. Further, Dr. Paul makes plain the absolute immoral nature and unConstitutionality of a private central bank issuing a wholly Fiat currency whereby the American taxpayer is put up as collateral. (FULL TRANSCRIPT)

Related Material(s):
	Rep Ron Paul, Texas Straight Talk – Is the FEDERAL RESERVE Financing the Bailout of Greece? TRANSCRIPT (PDF 212KB)

Source(s): Official Webpage of Representative Ron Paul • MinnesotaChris YouTube Channel

Allison Bricker

In his weekly update, Dr. Ron Paul of Texas illustrates the disastrous consequences of following the Keynesian economic model, which advocates in perpetuity. Just last week, the House voted to raise the debt ceiling by another $1.9 Trillion, a move undertaken to avoid defaulting on current obligations, but nonetheless just delaying the inevitable. In reality, no one can merely continue borrowing funds in order to service the interest on the existing debt and make payment on bill that are currently due. This simple idea universally understood by the People, seems to escape those in government, who care more about reelection than charting a fiscally responsible course for the nation.

Wire Report

William F. Shughart II – Senior Fellow, The Independent Institute

William F. Shughart II is a Senior Fellow at The Independent Institute and the Frederick A. P. Barnard Distinguished Professor of Economics at the University of Mississippi. A former economist at the Federal Trade Commission, Professor Shughart received his Ph.D. in economics from Texas A & M University, and he has taught at George Mason University, Clemson University, and the University of Arizona. Professor Shughart is Editor in Chief of Public Choice, past President of the Public Choice Society, President-elect of the Southern Economic Association, Associate Editor of the Southern Economic Journal, and Book Review Editor for Managerial and Decision Economics. His books include Taxing Choice: The Predatory Politics of Fiscal Discrimination; The Elgar Companion to Public Choice: The Organization of Industry; Antitrust Policy and Interest-Group Politics, Modern Managerial Economics (with W. Chappell and R. Cottle); Policy Challenges and Political Responses: Public Choice Perspectives on the Post-9/11 World (with R. Tollison); The Political Economy of the New Deal (with J. Couch); The Causes and Consequences of Antitrust (ed. with F. McChesney); and The Economics of Budget Deficits (with C. Rowley and R. Tollison). A contributor to numerous other books, Professor Shughart is the author of more than 100 articles for scholarly journals and his popular articles have also appeared in the Wall Street Journal, Los Angeles Times, Oklahoman, San Francisco Chronicle, Investor’s Business Daily, San Jose Mercury News, Philadelphia Inquirer, San Francisco Examiner, Kansas City Star, Pittsburgh Post-Gazette, Washington Times, Detroit Free Press, Clarion-Ledger, Vision Hispana, National Post, Providence Journal, and many other publications.

Put a New Tax in Your Pipe and Smoke It.

(Wire/Ind.Inst.) – I am a college professor. My job description therefore requires that, among other things, I wear a tweed sport coat with leather elbow patches, grow a beard, spend two days a week in the classroom, and smoke a pipe.

H.R. 4439 Tobacco Tax Parity Act of 2010 (PDF 156KB)

That last essential trait is now under attack. A bill before Congress proposes to increase the federal excise tax on pipe tobacco, making it equal to the recently enacted tax on loose cigarette tobacco purchased by smokers who “roll their own.” If passed, the bill would tax pipe tobacco at nearly $25 per pound, an increase of 775 percent over the current level.

Tobacco smoking is bad for one’s health. To my knowledge, however, no scientific studies have been conducted showing that pipe smokers (or cigar smokers, for that matter) have shorter lives than nonsmokers. There certainly is no evidence that nonsmokers who are exposed to environmental pipe or cigar smoke are harmed by it. Indeed, every person who smells the ambient odor of my pipe says that they are reminded of their fathers or grandfathers.

So, why are pipe smokers selectively being targeted by Washington? The answer is political opportunism. The federal government has been on a spending binge since George W. Bush occupied the White House. Over the past nine years, America’s taxpayers have been burdened with unprecedented expansions in the federal budget to finance new educational mandates (“No Child Left Behind”), new healthcare initiatives (Medicare Part D, to pay for granny’s meds), two wars on terrorism (Iraq and Afghanistan), failed economic “stimulus” plans and the bailouts of irresponsible financial institutions.

With annual budget deficits now running at $1.4 trillion, Washington is desperate for revenue enhancements (i.e., new sources of tax revenue). Rather than increasing taxes on a broad basis, which predictably would elicit broad-based opposition from already overburdened taxpayers, it is politically expedient to single out minorities who cannot bring effective power to bear in the legislative marketplace. And so we have seen proposals to tax those who have sacrificed wages in return for generous, “Cadillac” health-insurance plans, to tax the consumers of junk food and carbonated soft drinks, and to tax transactions in common stocks.

It is naïve to think that our elected representatives are attentive to the public’s interests. What presidents and the members of Congress do in practice is to transfer wealth to the special interests that are critical to their re-election prospects. It is therefore not surprising that they finance those wealth transfers by taxing groups that are not important to them electorally.

And so the tax burden falls most heavily on anyone, anywhere who is politically impotent, especially if they can be portrayed as the consumers of products that, on the flimsiest of scientific evidence, harm themselves or impose costs on others.

That mindset unleashes the nanny state to run amok. Pipe and cigar smokers are no threat to the public’s health. Even if smoking a pipe or a cigar harms the consumers of those products, that harm is borne privately and thus is not an issue of public policy concern.

But it unfortunately is if tax policy is predatory, with the aim at raising revenue from any group that cannot marshal effective political opposition to it. Perhaps it is time to add pipe tobacco, junk food and soft drinks to the agendas of the tea parties now being organized to oppose a government that is everywhere more intrusive.

Copyright 2010 The Independent Institute