Another Waxman Whitewash?

A story buried on page 16 of the Thursday, February 11, 2010 Financial Times once again confirms that our “regulatory” process simply doesn’t work. The article entitled US Safety Watchdog Under Attack reports that the United States car safety watchdog is under attack from Congress and from consumer advocates for not being aggressive enough in investigating cases of mysterious acceleration in Toyota vehicles. Ho Hum. So what else is new?

In this specific case, Henry Waxman (D-CA), Chairman of the House Energy Committee, has acknowledged that the largest US insurance company, State Farm, alerted federal safety regulators on “numerous occasions” beginning three (3) years ago that there were reports of unexpected acceleration problems in Toyotas. Now that the “horse has been stolen,’ Mr. Waxman is attempting to lock-the-barn by requesting that the five (5) largest US insurance companies submit any reports the various insurers sent to the safety regulators as well as any e-mails they received from those regulators.

And so now the backpedaling begins. Oh we “pushed Toyota from the beginning” to address US safety concerns said the National Highway Traffic Safety Administration (NHTSA) division of the US Department of Transportation. Why they even sent some top NHTSA officials to Japan to brief 100 Toyota engineers and executives – last December. Let’s see, State Farm notified the NHTSA in 2007 that there was a “problem” so the NHTSA acted “quickly” to send top officials in December, 2009. Wow. Can’t get much quicker response than that, can you? Really holding Toyota’s feet-to-the-fire! I feel safer already, and I don’t even own a Toyota. (Editor’s note: Tex restores classic cars, and it was touch-and-go whether I should leave his dead body and take a black ’57 Thunderbird that would have had the Fonz doing the Snoopy Dinner Dance when visiting his secluded lake house. Suffice it to say the beautiful beast has been on the cover of at least one international magazine.)

Of course this is just an isolated incident, right? Not exactly. Recall the Firestone tire problems of a few years ago? Even though the NHTSA was required by law to begin publishing information on serious vehicle accidents, the agency managed to delay the publication for five (5) years! Excuse? “The NHTSA had to withhold that critical information due to pressure from manufacturers.” So the inmates are still in charge of the asylum?

There are numerous other examples of the failures at the NHTSA but why pick-on just them? There are plenty of other examples. Bernie Madoff comes to mind. It only took our fearless protectors 20 years to “catch” Bernie. The “regulators” in this case had been notified at least 10 years earlier that something was fishy with the Madoff operation. But good ole Bernie was a big dog on Wall Street so he couldn’t be doing something wrong, could he? The same SEC that was responsible for catching Bernie was also responsible for supervising the various investment banks. Yet somehow Bear Stearns and Lehman Brothers must just have fallen through the cracks. We note with appreciation that the insurance regulators were right on top of AIG, keeping them honest and above-board. Our banking regulators certainly didn’t let Countrywide get out of hand. Merrill Lynch found “cover” at Bank of America but now BofA is back in the suspect limelight. Lest you think it’s all financial-related, note the Food “Safety” Act now protects us at the expense of small farmers but offers wondrous support for big Agribusiness. Wonder how that happened? Goldman Sachs pulled the best stunt of all by getting “their man” into top politics in Washington so as to blunt any questions, let alone losses, that might be attributable to them. Hey, if you don’t have friends in high places, you don’t have squat.

I don’t see any pattern here, do you? These are all just “isolated” cases, right? No need for alarm. Pay no attention to the man behind the curtain. Just keep moving along, folks. Nothing to see here.

As Lee Iaccoca would ask “Am I the only guy here that is angry?” Where is the outrage? Have we become so used to government corruption and incompetence that we no-longer even react to these atrocities? Why do we seem to demand perfection from our corporations and not from our government agencies? Why are government-types not held to at least an equal standard to that of business? Why is there no demand for responsible execution of government duties? Why don’t government-types get fired for not doing their jobs?”

We keep coming back to the same answers regardless of the questions or atrocities that occur in our government. Public “ownership” means virtually no ownership. No one is responsible. No one takes or accepts responsibility. Only in the private sector is there a sense of responsibility. Only in private industry does performance count.

We’ve all visited national parks as well as private parks. By that I mean such places as Grand Canyon and, say Disneyland. When I visit a national park, I’m appalled at the trash and filth. When I visit Disneyland, I’m impressed with the cleanliness. That’s a perfect example of public ownership, meaning no one takes responsibility versus private ownership where the very survival of the business depends upon pleasing the customer.

Isn’t hiring a private security guard very similar to hiring someone at the SEC or at the NHTSA or at the FDA or at any government watchdog agency? If the private security guard fails to perform, that person is fired. If someone at the SEC, NHTSA or FDA fails to perform, the Department budget is doubled and many more bureaucrats are hired to “fix” the problem. In government, the problem not only never gets “fixed,” the problem gets worse and the costs skyrocket. So if Mr. Waxman is really serious about getting to the bottom of the latest scandal at the NHTSA, he knows where to look – right behind him.

But of course Waxman really isn’t interested in solving the problem. He’ll go through the motions of making the electorate think he’s on top of things, but the end result will be to simply white-wash the underlying problems. Then it’s on with government business as usual. Toyota will, because in the long run their goal is to survive by making profits, actually fix their current problems. Please note Toyota will do this regardless of what the government “regulators” do or say.

Which begs the question: Why do we need government regulations? If the regulators don’t do their jobs; if they are either unresponsive or slow-to-respond, who needs them? Then who would protect us, you ask? Who is protecting us now?, I ask. Haven’t we just observed that the very folks we rely upon to protect us – don’t?

The government has become the master Pied Piper. While we slept so peacefully, forces at work behind the curtain bamboozled us into believing that they had our backs; that we were being protected even as we slept. Yet once again, we’ve been awakened to facts that they aren’t doing their job. Have they ever really done their jobs? Isn’t what passes for regulation by governments just a myth?

I’ll go a step further. Not only is it a myth, it’s a con-game of the highest order. What do regulators do on a regular basis that is observable? Give up? They formulate rules and regulations, don’t they? And then they impose those rules and regs on the voters under the guise that these requirements will protect the public. But let’s once again look behind the curtain.

In a former life, I had almost every securities and insurance license known to man; at least a man living and working in the United States. Would you suppose I studied for and passed all those exams because I had nothing better to do? Or would you correctly surmise that I submitted to that indignity because that was what was required for me to be able to work in the securities and insurance industries? Who came up with these tests as being a requirement for employment in these industries? Government? You’re temped to respond “How else would your customers know that you were competent to do your job if government didn’t supervise you?” But haven’t we just been discussing that the government regulators really haven’t been doing their jobs? So once again, why did I have to take and pass all those exams?

Ah, now we’re starting to “follow-the-money!” Name a profession: Doctors, Lawyers, Engineers, Stock Brokers, Insurance Agents, Investment Advisors, hair dressers, butchers, the list is almost endless. Question: What do all these assorted professions have in common? Answer: required licenses to practice those professions. You couldn’t let just anybody practice medicine, could you? Doesn’t that person have to have a medical degree from an accredited school, not just any old school but an accredited school, before being allowed to practice medicine? Well, yes, but not for the reason you’d think. The ONLY reason the doctor is required to obtain a degree is because the medical profession (read medical CARTEL) has convinced the government that no one other than a degreed-person is competent to practice medicine. Why?

You’d be tempted to respond that attending an accredited medical school and graduating with an accredited degree is the only way to assure competence, correct? But if that is a true statement, why are there so many successful malpractice law suits against doctors? (Editor’s note: we must always remember that half of all doctors were graduated in the bottom halves of their classes, as well.) If the only qualified doctors are those that completed an approved medical school, how can the lawyers be successful in wining so many malpractice lawsuits? Gee, maybe just having the right degree and license to practice medicine isn’t the solution after all. But remember, we’re trying to follow the money here. So why would the doctors create such a barrier to entry into the medical profession?

Lesson from Economics 101: Law of supply and demand. If there is a large supply of a product or service, the price of that product or service is rather low. The fewer the available products or service providers, the higher the price of each. If you’re a doctor; or lawyer, engineer, stock broker, etc.; you really don’t want any more competition than absolutely necessary in order to maximize your income. You join with others to form a cartel to keep out the riff-raff. You make it difficult to join your fraternity of professionals. You create a high entry cost into your field of endeavor. You limit your competition.

You can safely apply this concept across the board. Think labor unions. You’re a carpenter. You want to earn as high a wage as possible. You join other similarly-minded carpenters and establish rules for membership. Any new kid that wants to join must jump through some rather tough hoops. You are able to effectively keep your membership low. You then petition government to require that all government projects be built only with union carpenters. Government grants your request because you represent a desirable voting bloc for them at the next election. Now equipped with your union and exclusive contract, you can dictate the labor cost for that project. No matter that non-union but highly skilled carpenters are willing to do the job for less. You’ve got a lock on the deal; no outsiders allowed. Now extrapolate this concept to all the other professions. Not so difficult now to follow the money, is it?

There is at least one more step in this progression. We started by questioning the need for government regulation considering the fact that the regulators never seem to act in a pro-active roll and are, at best, re-active. But they do make the “rules.” Enter our unions, whether they be doctors, lawyers or Indian chiefs. Someone has to formulate the rules promulgated by the regulators. Where do those rules come from? What is the source? Let’s continue to follow the money, shall we?

You’ve just formed your professional union to limit entry into your field of endeavor. Now you need to establish a coercive power to enforce your desires. What do you do? You lobby government to establish operating rules and regulations governing your business. But the government doesn’t have the foggiest clue as what you do, let alone what rules are appropriate. So in your most benevolent gesture of good will, you offer to write the rules and regs for the regulators. “How wonderful!” exclaim the regulators, since they haven’t got the slightest idea where to start. This way, they can continue to drink coffee, tell jokes and chase the secretaries around their offices while you prepare the rules and regulations that will give your group a monopoly in your specific industry. Then you continue by contributing heavily to the political party that permitted your establishment of this farce thereby assuring its permanence in our society.

See how the money flows? See why the regulators won’t do their jobs? See why this situation gets repeated a thousand times-over? See why this situation will never change until and unless we, the people, say “enough!”?

Tex Norton

February 16, 2010

The Daily Reckoning