October 26, 1999

by Peter J.M. Orvetti

Banking On It
Getting Pumped Up
Colombians Want War To End

Banking On It

Key Republican lawmakers and administration officials have reached agreement on provisions in the banking services bill, AP reports. The legislation would make it easier for banks, stock brokerages and insurance companies to combine and sell each other's products. The agreements has all but eliminated the chance of a presidential veto of the bill, which is designed to overhaul Depression-era financial services laws.

Lawrence J. White addressed the efforts at modernization in the article "Legislating 'Financial Modernization': Is the Game Worth the Candle?" which appears in the current issue of Regulation. "Congress has struggled for the past two decades to pass 'financial modernization' legislation that would undo the compartmentalization of commercial banks, securities firms, and insurance companies that it created in the 1930s and reinforced in the 1950s… The demise of compartmentalization would be worthwhile, although the benefits are likely to be modest. But it is likely that more restrictions will be imposed on commercial banks, as is often the case, while important banking issues are neglected entirely. The net benefits of any new banking legislation may be small indeed. Clearly, the U. S. polity takes a special interest in the financial sector, especially in commercial banks. Despite the general movement toward deregulation that began in the 1970s - which has encompassed banking as well as the airline, trucking, rail, and telecommunications industries - commercial banks remain among the most heavily regulated enterprises in the United States. There are good and bad reasons to regulate banks. A sorting of the reason s, based on an understanding of what banks do and how they do it, can point the way to helpful legislation and, perhaps, help avert legislation that is burdensome or even harmful…

"Although the basic features of banks are simple, there is rarely anything simple about bank regulation. Populism and fears of large financial institutions have led to a complex and multi-faceted regulatory system that imposes inefficiencies on banks when it ought to be focused on their safety and soundness. Congress's long and thus far unsuccessful struggle to enact 'financial modernization' legislation is a testament to the political milieu surrounding bank regulation. Even if Congress finally were to succeed in passing some form of legislation, it seems likely to fall short of what is needed to promote a modern, efficient, and stable financial system. A Congress that is truly interested in financial modernization would erase all compartmental boundaries within the financial sector and between the financial sector and the rest of the economy. Such a Congress would focus almost entirely on improving safety- and soundness regulation: mandating market-value accounting and the issuance of subordinated debt, and permitting any activities that are not examinable or supervisable to be located in the operating subsidiaries of banks. That game definitely would be worth the candle."

Getting Pumped Up

Gasoline prices have dropped nearly two cents nationwide over the past two weeks despite an increase in crude oil prices, AP reports. The weighted average nationwide of $1.3116 is down 1.72 cents per gallon from an October 8 survey. Crude oil, which was selling for less than $21 a barrel earlier this month, closed last Friday at $23.45 per barrel. Demand for gasoline is experiencing a decline because the summer vacation season is over and less commerce is transported over highways during the winter, AP writes.

Stephen Moore examined the lessons of low oil prices in a March commentary, "Low Oil Prices: A Fill Up of Good News": "[A]pocalyptic predictions from academics, government officials and the media should always be treated with a healthy dose of skepticism. Many of the doomsayers who predicted $100 a barrel oil in 2000 are the same people who falsely predicted nuclear winter, massive famine across the globe, cities so polluted that gas masks would be required and other crises of biblical proportions. And these are the same pessimists who somehow have concluded that low oil prices are the problem. Just remember these Chicken Littles have a perfect record: they have been wrong every time… [W]e no longer need a national energy policy or a federal Department of Energy. Actually, we never did. The energy crisis is over. Why do we still spend billions of tax dollars on energy conservation and alternative fuels programs? Why conserve a resource that is in great abundance? While we are at it, Congress should repeal another byproduct of the energy crisis: the Corporate Average Fuel Efficiency Standards for U.S. autos. With energy as affordable as ever, it makes sense that Americans want to trade in their 40 MPG Pintos for safer and heavier cars, even if they guzzle a little more gas.

"The United States has an energy policy. It's called the free market. And it has worked marvelously for consumers. True, producers are none too happy these days, whether they're in the Middle East or the Texas panhandle, but for the rest of us, more cheap oil means greater prosperity. In fact, low oil prices are equivalent to a large tax cut for American workers. Only those who fear progress and prefer to sit in darkness would bemoan our new era of cheap and abundant fuel. As for me, I say, fill 'er up."

Robert L. Bradley Jr. wrote in the Cato Policy Analysis "The Increasing Sustainability of Conventional Energy": "Environmentalists support a major phase-down of fossil fuels (with the near-term exception of natural gas) and substitution of favored 'nonpolluting' energies to conserve depletable resources and protect the environment. Yet energy megatrends contradict those concerns. Fossil-fuel resources are becoming more abundant, not scarcer, and promise to continue expanding as technology improves, world markets liberalize, and investment capital expands. The conversion of fossil fuels to energy is becoming increasingly efficient and environmentally sustainable in market settings around the world. Fossil fuels are poised to increase their market share if environmentalists succeed in politically constraining hydropower and nuclear power."

Colombians Want War To End

"Awakening from a 'nightmare of apathy and fear,' millions of Colombians marched Sunday in the largest anti-war protest in nearly four decades of civil strife as long-awaited peace negotiations began in a rebel-held town," AP reported. Marchers in 15 cities and dozens of towns turned out to demand a cease-fire, swift progress in peace talks and an end to violence against civilians. At least 30,000 Colombians have died in the war.

The United States, as a part of its continued 'war on drugs,' has slipped deeper and deeper into the Colombia conflict. In "Special Operations Military Training Abroad and Its Dangers", a Cato Foreign Policy Briefing released in June, John Rudy and Ivan Eland write that "the U.S. military has independently initiated and strengthened military-to-military relationships with a majority of the world's nations. A prime tool in the construction of this new network is the Joint Combined Exchange Training (JCET) program, which allows the Pentagon to deploy Special Operations Forces (SOF) anywhere without congressional oversight or public debate... In Colombia and a number of Caribbean and Central American nations, JCET missions provided the U.S. military an easy way to fund assistance for counternarcotics operations. Frequent JCET missions have also occurred in the politically fragile nations of Paraguay, Bolivia, and Ecuador in an attempt to maintain stability… The training of possible abusers of human rights-primarily in Colombia and Indonesia-has brought the most congressional scrutiny of the JCET program. Colombia's failure to cooperate with U.S. narcotics policy, as well as the country's poor human rights record, brought consistently stronger restrictions on U.S. military aid beginning in 1995. By 1997 a virtual freeze existed on all U.S. military aid programs to Colombia. Yet JCET missions continued. In fact, six more JCET missions were planned for [fiscal year] 1998."

In a 1993 Cato Foreign Policy Briefing, "Declaring an Armistice in the International Drug War", Ted Galen Carpenter wrote, "Washington's drug war in both its domestic and international incarnations has produced calamitous results. The modest declines in consumption among casual middle-class users registered in recent years do not even remotely offset the terrible societal costs inflicted on the American people and the populations of other countries. After waging a futile crusade for more than two decades, Washington should seek peace. It should begin by declaring an armistice in the supply-side campaign throughout the Western Hemisphere. Washington must no longer engage in the demeaning and destructive practice of alternately bribing and threatening its neighbors to get them to do the impossible."