Massive Government Intrusion and Regulation

New federal agency OFR stirs 'Orwellian' fears

By James Rosen

Published April 19, 2012

It is the most powerful federal agency you’ve never heard of -- and lawmakers from both parties on Thursday vowed to keep abreast of its astonishing growth and rein it in, if necessary.

The Office of Financial Research, or OFR, was created by the Dodd-Frank financial services overhaul that President Obama signed into law in July 2010. Technically housed under the Treasury Department, the agency has until now received its funding not from the Congress, but directly from the Federal Reserve. 

Starting in July, the OFR Fiscal Year 2013 budget, estimated at $158 million, will be funded entirely through assessments -- also known as taxes -- on bank-holding firms with consolidated assets worth at least $50 billion.

But as became clear at Thursday’s hearing by the House Financial Services Subcommittee on Oversight and Investigations, a close reading of the law the president signed provides no limit on the growth of OFR’s budget, nor on the taxes the agency can impose on big banks to fund it.

“We’ll call you on it,” said Rep. Michael Capuano, D-Mass., warning what would happen if he and his colleagues see the agency growing too large. 

Yet the Congress’ prospects for doing that are at present limited, as it holds no power of the purse over OFR. Detractors call it "the CIA of financial regulators,” and conjure "Orwellian" visions of "an omniscient Soviet-style central risk manager."

The agency’s official mission is to collect financial data and funnel it to another Dodd-Frank creation: the Financial Stability Oversight Council. These agencies were designed with the idea of preventing another systemic shock of Lehman Brothers magnitude. 

Toward that end, OFR was invested with virtually unlimited subpoena power. It can compel just about any company in America to turn over to the federal government sensitive internal data, even proprietary information.

“We're only going to be collecting the data that we absolutely need, to fulfill our mission,” testified Michele Shannon, the new agency’s chief operating officer. “We're trying to fill data gaps. We're not going to be collecting for collection's sake. We're going to be making sure that only those people who absolutely need to have access to sensitive data have that access.”

But Republicans on the panel remained skeptical about the potential for abuses of power.

“You're able to tax corporations without any oversight by the U.S. Congress,” said Rep. Steve Pearce, R-New Mex. “Our Constitution is pretty clear, and so if we're a little scratchy on our side, just understand it's because you're conducting things that we feel like are completely unconstitutional.”

Rep. Bill Posey, R-Fla., questioned both the need for OFR to exist and its ability to protect adequately the sensitive data it will collect through its subpoena power.

“Your agency…seems to think it can outsmart Wall Street, if they have enough extra people and enough software, that they can see where the next problem is going to be,” Posey said at Thursday’s hearing. “But everyone with half a brain in this country saw the last problem way before it burst. We knew there was a subprime crisis; it was just a matter of how long it would be before it burst.”

Posey also noted that the computer systems of some national defense agencies have been hacked. “I wonder whether or not you'll be able to have a safer process than some of them did,” he said.

One of the panel’s most liberal members, Rep. Maxine Waters, D-Calif., normally alarmed by unbridled expansions of subpoena power, defended OFR, citing the experience of the Great Recession. “I hope that all my colleagues agree that having, consolidating, and understanding this complex financial data would be key to preventing another systemic risk,” she said.

ObamaCare Is Outrageously Expensive - And BAD For You!

BLAHOUS: Health care law cripples U.S. finances

Most affordable outcome would be total repeal

By Chuck Blahous

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7:23 p.m., Tuesday, April 10, 2012

Illustration Broken Leg by Alexander Hunter for The Washington Times

One of the motivating principles underlying the passage of comprehensive health care reform was that it would substantially improve the federal fiscal outlook. But many are skeptical of claims that the law, known as the Affordable Care Act, or ACA, will simultaneously extend the solvency of Medicare, provide subsidized health coverage to more than 30 million new people and yet somehow reduce federal deficits. They are right to be skeptical.

The legislation greatly exacerbates projected federal deficits and increases an already unsustainable federal commitment to health care spending. Many do not understand these harsh realities because traditional government accounting methods - while useful in many respects - often obscure significant costs. Comparing the health care law to prior law, rather than the “alternate baseline” used by government scorekeepers, gives a complete estimate of the legislation’s fiscal effects.

Based on analyses published by the Congressional Budget Office (CBO) and the Medicare actuary, I project that relative to prior law, the legislation will add at least $1.15 trillion to net federal spending and more than $340 billion to federal deficits over the next 10 years, and far more thereafter. This sobering outcome arises even if all goes relatively well - that is, if the law’s cost-saving provisions are all successfully implemented. If, instead, future Congresses act roughly consistent with historical precedent, the law will add more than $500 billion to federal deficits in the next 10 years - growing to $600 billion by 2021.

One of the key issues in understanding the law’s fiscal effects pertains to its use of Medicare savings. The law contains several provisions to slow the growth of Medicare costs, and under law, Medicare can spend the full proceeds of these savings. Government scorekeeping conventions, however, ignore this effect. Meanwhile, the law also establishes an expensive new health care benefits program to be financed with these same savings. Together, these provisions spend far more than the law saves and will substantially increase federal debt.

There also is significant risk that the law’s new programs will cost more than originally estimated. Take, for example, its new subsidized health exchanges. As currently designed, the subsidy levels would require low-income people to shoulder a rising share of their health care costs over time. The exchanges also are designed so that one low-income person will get a substantial direct federal subsidy when he buys insurance through the exchanges, but his equally low-income neighbor with employer-sponsored insurance will not. This could create substantial pressure on Congress to expand the subsidies later to address perceived inequities.

Similarly, many of the law’s cost-saving provisions may not produce all of the savings now projected. Already highly controversial is the law’s establishment of a new Independent Payment Advisory Board (IPAB) to produce Medicare savings. These might be legislatively overridden, or IPAB itself eliminated. Furthermore, many of the law’s tax provisions are designed, like the current alternative minimum tax (AMT), to capture rising numbers of taxpayers over time. If Congress acts to forestall these tax increases, as it has with the AMT, revenues from these provisions will be far less than currently assumed.

None of this is to assert that these cost-saving provisions are necessarily the wrong policy choices, only that their proceeds cannot safely be spent until we are certain these savings have accrued.

Many have wondered how possible Supreme Court rulings on the law’s constitutionality might affect its finances. As the above analysis shows, the worst-case fiscal scenario would be to uphold the law in its entirety. Similarly, the best-case realistic scenario would be to strike down the law in its entirety. An even better hypothetical outcome from a financial perspective would be to uphold the law’s cost-saving provisions while striking down its coverage expansion, but no one expects this.

A more complicated situation would arise if the court strikes down the law’s insurance-purchase mandate but leaves its other provisions intact. CBO has estimated this would improve the federal fiscal impact by $282 billion over 10 years. This would ameliorate its fiscal damage but not by enough to turn the law into a net improvement. Such an outcome also would have severe adverse effects for consumers and insurers, increasing insurance premiums by 15 percent to 20 percent (according to CBO) if the law is not otherwise modified.

That comprehensive health care reform has made our untenable fiscal situation still worse represents a substantial failure of governance. To fulfill its original promise of bending down the federal health care cost curve, the vast majority of its subsidized coverage expansions would need to be repealed. Alternatively, aiming for a weaker standard in which the law is allowed to add to federal costs but not to deficits, roughly two-thirds of the law’s health exchange subsidies would need to be scaled back or other budgetary offsets found.

Whichever fiscal goal is pursued, it is imperative that corrections be enacted before the law is fully effective in 2014. History shows clearly that it is very difficult to contain the rising cost of a federal entitlement once individuals have grown dependent on it. Only by scaling back the new spending commitments made under the law will health care reform make the positive contribution to the federal fiscal outlook that experts across the ideological spectrum agree is required.

Chuck Blahous is a senior research fellow at the Mercatus Center at George Mason University and public trustee for Medicare and Social Security. He is author of the center’s new study, “The Fiscal Consequences of the Affordable Care Act.”