Unions typically outspend their political rivals by astonishing amounts – as much as 20 to 1 in certain citizen initiative campaigns. It turns out that one reform the unions really do not like are initiatives to allow union members withhold dues that are being used to sponsor political campaigns. But even if unions are not able to tap funds from current members, they have been aided by Wall Street in the securitization markets as well. They are now able to borrow millions of dollars in the market by securitizing future union dues streams. Given that much of union spending on politics in my view increases state and local spending, and does little to actually help the consumers and students that they supposedly serve, I view this as undesirable. And who the heck would buy securities backed by future union dues, especially if those dues were coming from private sector unions?

What criteria might that be? It was thought that debt to GDP levels lower than 60% were safe enough for countries to join the EU. What is the U.S. level of debt to GDP right now? It is 67% if you only count the debt the U.S. federal government owes to people other than itself. In Obama’s responsible 2010 budget, the total debt to GDP ratio is over 94%. And this is not exactly expected to shrink any time soon. See tomorrow’s post for an insight into why.

But we are the U.S. – we could never face a sovereign debt crisis? We would never default on our debt, right? By the way, there are two ways to default. One is an outright repudiation of our liabilities – this seems unlikely. The other way is even more sinister, because it is less transparent. We can simply “print” the money to pay off the debts. In a world of competing private currency issuers, this latter option would not really be available to the central bank.

My point? If you read the book, a lesson that jumps out from studying hundreds of years of economic crises is that there are far more similarities between rich and poor countries than differences when it comes to major economic crises. Just because the defaults I discuss above happened in poor countries does not mean that they could not happen in rich ones. I don’t have a probability on this – but if I were a betting man, I would certainly wager that there is a 5% chance of a serious U.S. default. Compare that to how corporate and municipal bonds are rated and you would find that my estimate might very well be on the low side.

Besides the economy, startup investors say the high costs and regulatory requirements associated with going public have also stymied many smaller, younger companies. According to the National Venture Capital Association, the median span from a company’s founding to its IPO was 9.6 years in 2008. In 1998 it was 4.5 years.

One factor is compliance with the Sarbanes-Oxley anti-fraud law, which was enacted in 2002 after accounting scandals at companies like Enron Corp. and WorldCom Inc. A key part of this law requires public companies to file reports on the strength of internal financial controls and fix any problems – steps that can be costly for a startup.

Issues like this have “just made it more and more difficult for companies to make it to that next step,” said Thomas Foley, chief executive of XChange, which he developed with venture capitalist Tim Draper.

He believed at the same time that banks really wanted these funds (to sit on and admire of course), and therefore would engage in “destructive” competition by offering higher and higher interest rates to attract depositors. He needed to put a stop to this dastardly practice! If he made it illegal to offer interest on deposits, than corporate treasurers would look elsewhere to park their cash – hopefully in more “productive” investments than just leaving them in bank accounts.

I am not interested in analyzing whether it was a good idea (a simple examination of what happened to financial intermediation in the 1970s should answer that for you), nor am I interested in the ignorance of what banks do with their short-term liabilities. Rather, I want to focus simply on the nature of the complaint. Statists adore the idea that competition is destructive. But one of their major points of contention is that factor markets are not competitive, and therefore you should not expect to see evil corporations paying higher rents and wages. But that is exactly what FDR and his gang of corporatists were arguing – that there was too much rewarding of rents to the holders of financial capital. How funny then that these very same people believe that competition among firms in the labor market, and among countries via trade, would lead to a reduction in the wages that workers receive. If they readily admit that big bad greedy banks have an incentive to pay people for their services (i.e. to attract their deposits), then why would they behave any differently when they are hoping to attract workers?