Friday, November 6, 2009

Wage, Price and Industrial Controls are here.

The Obama Compensation Czar sets wages for corporations in which the U. S. Government has stakes.  The Federal Deposit Insurance Corporation is attempting to do the same for all banks.  Other arms of the Obama administration are contemplating expanding these wage controls to other corporations.  WAGE CONTROLS ARE HERE.  Although still in its infancy, Obama cannot rein in his idealogy nor that of his handlers, wage controls will expand.

Banks have their prices controlled.  Credit card issuers will have new regulations and restrictions on what they can charge and offer to their customers.  These price controls come from new laws from the Democratic Congress that will go into effect February 2010.  But since banks are re-pricing their offerings to their credit card customers ahead of February, Congress is attempting to immediately and absolutely control banks from putting their new pricing into effect.  PRICE CONTROLS ARE HERE.

Private-sector companies used to offer student loans until the Democratic Congress felt their prices (interest rates) were too high.  The 2008 "College Cost Reduction and Access Act" lowered interest rates on federally insured student loans of the "Federal Family Education Loan Program" accounting for 70% of such loans.  Then they cut private lenders' yields.  Private lenders suspended making these money-losing loans creating a Congressionally-invented "crisis" in student loans.  Its solution?  Enter the student loan business completely and completely undercutting the private sector.  This will expose the U. S. taxpayer to billions and billions of bad student loans.  We can thank, yes, George Miller, California, Daniel Akaka, Robert Casey, Tom Carper, Chris Dodd, Tim Johnson, Robert Menendez, Jon Tester, Democrats all.  Who really needs the private sector anyway?

The U. S. Government has taken over General Motors, whose Obama-installed management is using taxpayer money both to purchase parts of bankrupt supplier, Delphi, but also, after turning down an offer to sell European subsidiaries Opel and Vauxhall, will use taxpayer money to "turn around" these historically-money-losing automobile companies.  What makes Obama think his government-controlled management can do better than private-sector management under which GM achieved bankruptcy?  Especially since the CEO of GM was the architect of the failed policies that sunk Opel.

Congress and Obama thought that private-market institutions, such as banks, were to blame for taking advantage of ignorant citizens who borrowed to buy houses they couldn't afford.  (God knows it wasn't the government.)  Eschewing the thought that the billions spent on education should have given "their" citizens some basic education in economics, borrowing, capitalism, they decided to solve the "problem" of sinking house prices.  Solution?  Jack up prices by giving Americans some money to buy houses.  $8,000.  Wow, very popular.  And houses sold.  But the unintended consequences based on ignorant Congressmen and president?  Cheaters.  Upwards of 100,000 supposed homebuyers didn't buy homes but filed for the money.  Cost?  Perhaps upwards of $639,000,000 from 93,000 cheaters, as of mid-October 2009.  The program is set to expire November 30.  Bets are it'll be expanded and extended.  Hey, follow Obama's mantra.  Extend failure and don't learn from the success of others.


Wage and price controls never work.  But an inexperienced far-left president with no understanding of business wouldn't know that. 

The current financial crisis/recession began not with the strengthening of the Community Reinvestment Act in 1992, nor the easy money of the Federal Reserve System.  It really began with the absurd notion that a few politicians could democratize everything in America to buy their reelections.  Regulators were on the job, only they couldn't regulate Congress.  Only Congress can regulate Congress.  And therein lies the conceit that Congress can manage this country's economy and society.

From the Econ Review []:

President Nixon Imposes Wage and Price Controls

August 15, 1971. In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls. The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. Inflation had been raging, exceeding 6% briefly in 1970 and persisting above 4% in 1971. By the prevailing historical standards, such inflation rates were thought to be completely intolerable. The 90 day freeze turned into nearly 1,000 days of measures known as Phases One, Two, Three, and Four. The initial attempt to dampen inflation by calming inflationary expectations was a monumental failure. The wage and price controls were mostly dismantled by April, 1974. By that time, the U.S. inflation rate had reached double digits.

And from Business Week Magazine November 27, 2006:

“How Bill Clinton Helped Boost CEO Pay
A law he championed to curb compensation has backfired -- and pay packages have exploded

Bill Clinton had what he thought was a great idea to curb the soaring paychecks of the nation's executives. It was 1991, shortly after the launch of his Presidential campaign, and he had just read a best seller on corporate greed by compensation guru Graef Crystal. Clinton's brainstorm: Use the tax code to curb excessive pay. Companies at the time were allowed to deduct all compensation to top executives. Clinton wanted to permit companies to write off amounts over $1 million only if executives hit specified performance goals. He called Crystal for his thoughts. "Utterly stupid," the consultant says he told the future President.
Now, 13 years after Clinton's plan became law, the results are clear: It didn't work. Over the law's first decade, average compensation for chief executives at companies in Standard & Poor's 500-stock index soared from $3.7 million to $9.1 million, according to a 2005 Harvard Law School study.  From the Internal Revenue Service to corporate boardrooms, Clinton's remedy has become the biggest inside joke in the long history of efforts to rein in executive pay.”

Clinton’s ill-fated “great idea” led directly to the use of stock options – unexpected consequences – bringing tens and hundreds of millions of dollars to corporate executives.

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