They’ve Got to Fix Their Priorities
The banks may have weathered the financial crisis, but the rest of the country hasn’t. Taxpayers are still on the hook for federally guaranteed bank debt. Homeowners’ equity continues to erode. Small businesses still have trouble getting loans, and savers are still getting hammered by near zero interest rates. Joblessness remains high. State budgets are ravaged.
So whom have Washington policy makers singled out for help? Bank shareholders, including bank executives who are invariably big holders of stock in their banks.
The Federal Reserve recently gave the all-clear for several banks to increase dividends and expand share buybacks, among them JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs. That’s good news, at least in the short run for bank investors, but it is a dubious development for everyone else.
The dividend-boosting banks that were too big to fail before the crisis are even bigger now, while reforms to rein them in are under political attack even before they have been implemented. Sheer size and inadequate regulation — the combination that led to the crisis — argue for banks to use their earnings to build bigger capital cushions, not to pay dividends and repurchase shares.
Yet Fed officials have concluded that many banks are safe and sound enough to pay out cash and still withstand a severe shock should one occur again. It’s hard to share their confidence. Before it approved new dividends, the Fed required banks to test their crisis-readiness against several criteria, like elevated unemployment, but it did not release detailed results of the tests. Public data do not inspire confidence either. There is much debate over whether banks are valuing their mortgage assets correctly, and, by extension, whether they are adequately capitalized.
What is known is that recent bank profits have been boosted not by increasing revenues, but by downward revisions to expected future losses. With house prices falling anew, further reducing the value of mortgage assets, how reasonable is that?
Even if banks were ready for anything, more dividends and buybacks still would be premature. Big banks that plan to increase payouts still hold nearly $120 billion in government-backed debt under a crisis-era program from the Federal Deposit Insurance Corporation. The subsidized bonds come due between now and the end of 2012. Paying shareholders before the bonds are retired puts bank investors before taxpayers — talk about skewed priorities. Banks also face potentially huge fines in court cases and in settlement talks with government officials over mortgage and foreclosure practices that have harmed both homeowners and mortgage investors. It is irresponsible for the Fed to allow bolstered dividends before the penalties are known and paid. It is also a disturbing omen. Regulators are part of the settlement talks over the banks’ wrongful practices. Are they assuming that banks can afford both stiff penalties and bolstered dividends? Or are they assuming that the penalties will be weak?
When it comes to redress and reward, bank shareholders should be at the back of the line, behind taxpayers who stand behind too-big-to-fail banks and behind homeowners who are bearing the brunt of a housing debacle for which banks bear considerable responsibility. For the Fed to allow new dividends and bigger buybacks before these issues are settled is a display of the same type of “banks first” favoritism that got us into this mess to start.
Google’s Book Deal
Google’s ambitious proposal to scan, index and make available every book ever written promised a cultural revolution. Yet for all its promise, Judge Denny Chin of the United States District Court in Manhattan was right to strike down the plan last week, ruling that a settlement with the Authors Guild and publishers that would allow Google to put millions of books online without the explicit consent of their authors “would simply go too far.”
Google, like anybody else, is entitled to scan and post books that are in the public domain. As for new books, most publishers cut deals for Google to provide access to portions of their new titles and give readers an option to buy a digital copy. The settlement, signed in 2005 and revised in 2008, covered books in the middle, those out of print but still protected by copyright.
The agreement would have given new life to millions of half-forgotten titles collecting dust in out-of-the-way libraries. Readers could browse through portions and buy digital copies. And authors could opt out of the deal.
But Judge Chin rightly pointed out that the Authors Guild — which has 8,000 members — hardly represents the entire class of authors. It had no right to enter into an agreement that automatically put their works in Google’s system unless they opted out. This was particularly problematic for so-called orphan books — those for which the owner of the copyright is not known or can’t be found. Only Google would be allowed to digitize these books.
Altogether, Judge Chin argued that the agreement would grant Google a virtual legal monopoly over the online book search. That is too high a price to pay. Google’s loss means that, for now, its search results will show only snippets of text from books that are under copyright but out of print. But Judge Chin suggested Google’s deal still might work if authors had to opt in rather than opt out. Google’s lawyers have rejected this option, arguing that it is too slow and that many books would probably be left out. But Google and its partners should give it a try.
Congress, meanwhile, can resolve the problem of orphan books. In 2008, it almost passed a bill that would allow anybody to digitize orphan works without fear of being sued for copyright infringement as long as they proved that they had tried to find the rights’ holder. This would give all comers similar legal protection to that which Google got in its agreement.
Congress should approve this legislation. While it’s at it, it should consider promoting a nonprofit digital library, perhaps seeded with public dollars. The idea of a universal library available to all is too good to let go.
An Extraordinary Intrusion on Women’s Rights
Far too many states are putting new obstacles in the way of women seeking legal abortions. But South Dakota’s new law stands out for its intrusiveness and its abuse of women’s rights.
About half the states, including South Dakota, require women to wait 24 hours after an initial doctor’s visit before terminating a pregnancy. The South Dakota law, which takes effect on July 1, now extends that waiting period to three days, making it the nation’s longest.
As a practical matter, the 72-hour wait is likely to stretch to a week or more. With no local doctors willing to perform abortions, the sole provider of nonemergency abortions in the state, a Planned Parenthood clinic in Sioux Falls, flies in doctors from Minnesota once a week. The new law will further compound the hardship for low-income women who must travel long distances to reach the clinic and who will be forced to make several trips or arrange to stay away from home between appointments.
The new law’s intrusions don’t stop there. All women seeking abortions, including victims of rape and incest, will be forced first to attend a counseling session at one of the state’s crisis pregnancy centers. These are unregulated facilities run by private groups with the aim of discouraging abortions, typically by displaying graphic photos or with ideological or religious messages or medical misinformation about psychological or physical risks.
We trust the courts hearing the inevitable legal challenge will agree that this is Big Brother gone wild. Women considering an abortion need facts and medical expertise, not a mandatory visit with anti-abortion activists, the compromising of their privacy or a prolonged waiting period that pushes the procedure later into pregnancy.
Without the Campaign Donors, This Wouldn’t Be Possible
Even by Washington’s low standards, the House’s Republican freshmen are turning pandering into a high art. At a recent transportation hearing in his home district, Representative James Lankford of Oklahoma heaped praise on a panel of private sector witnesses. Three of the four executives so publicly favored were later discovered to be donors to Mr. Lankford’s campaign.
Nothing illegal in that, nor in the enthusiasms of another freshman, Mike Pompeo of Kansas, dubbed the Congressman from Koch for championing the conservative agenda of the billionaire Koch brothers, Charles and David. They contributed handsomely — $80,000 worth — to Mr. Pompeo’s campaign kitty. Once elected, Mr. Pompeo hired a former Koch Industries lawyer as his chief of staff.
Mr. Pompeo said he ran for Congress because as a businessman (whose business included some Koch investment money) he saw “how government can crush entrepreneurism.” His contributions to the House Republicans’ budget-slashing legislation included two top priorities of Koch Industries: killing off funds for the Obama administration’s new database for consumer complaints about unsafe products and for a registry of greenhouse gas polluters at the Environmental Protection Agency.
The congressman said he was concerned that the database would encourage false accusations about good products and that the registry would increase the E.P.A.’s power and cost jobs. Those arguments are nonsense, but Mr. Pompeo represents an early warning of the shape of things to come when the Supreme Court’s misguided decision to legalize unfettered corporate campaign donations fully kicks in next year.
The Koch brothers are planning to spend tens of millions in the 2012 campaign, as are Democratic power brokers and unions. Ordinary voters may be making a show of demanding real political change, but they are being increasingly outbid at the big money table where American politics happens.