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Friday, February 4, 2011

Coordinating Fiscal and Monetary Policy in the E.U.: Is Ever Closer Political and Economic Union Advisable?

Initiating a bold effort on February 4, 2011 at a summit of the European Council (composed of heads of the state governments) to strengthen the euro by coordinating fiscal policies among the 17 states that use the currency, the German Chancellor and French President laid down far-reaching plans to deepen economic and political integration for the group of states within the EU. From the standpoint of the US, a subset of states relatively integrated federally seems strange, though perhaps such flexibility will obviate a war between EU states in the future. In other words, Americans ought not dismiss the arrangement out of hat. This is not to say that bringing fiscal policy up to the EU level to join monetary policy will be easy, even for just seventeen states.  The particular interests of the latter must be balanced against the interest of the ECB (the EU's central bank) for some degree of fiscal coordination and accountability.

The complete essay is at Essays on Two Federal Empires.

Thursday, February 3, 2011

The U.S. Senate on Health Insurance Reform: On the Applicability of the Bundesrat and the E.U.'s Council of Ministers

A second federal judge ruled at the end of January, 2011 that it is unconstitutional for Congress under the interstate commerce clause of the U.S. Constitution to enact a health care law requiring Americans to purchase health insurance. Unlike the Federal judge in Virginia who had ruled against the law the month before, Judge Roger Vinson of Federal District Court in Pensacola, Fla., concluded that the insurance requirement was so “inextricably bound” to other provisions of the Affordable Care Act that its unconstitutionality required the invalidation of the entire law.  Such an invalidation would of course be in the interest of the health-insurance industry lobby; the managers of health insurance companies are opposed to providing expanded coverage to the uninsured without the mandated expanded pool that would spread out the risk. One might wonder whether the lobby has any muscle with the Federal courts.  Nonetheless, I want to raise another point that may have been missed from all the tussle over the jurisprudence. Specifically, 26 states were parties to the legal challenge in Pensacola. That is to say, more than half of the state governments were opposed to the Affordable Care Act.  It is notable, therefore, that the U.S. Senate, which represents the States and was intended to give them a direct agency in the general (or federal) government, passed the Act by 60 votes in favor.  

The full essay is at Essays on Two Federal Empires.

Wednesday, February 2, 2011

Wilders on Trial for Political Debate in Europe

Geert Wilders, head of the Party for Freedom (PVV) in the Netherlands, went on trial on October 4, 2010, in the Netherlands on charges of inciting hatred, less than a week after entering parliament as a linchpin in the coalition government. The far right political leader faced five charges of inciting hatred and discrimination against Muslims and people of non-Western immigrant origin, particularly Moroccans. “He divides, he creates hate, he creates conflicts between people,” said Mohammed Rabbae of the National Council for Moroccans. Wilders told the court he was being persecuted for “stating my opinion in the context of public debate,” adding: “I can assure you, I will continue proclaiming it.” In an opinion piece in a Dutch daily, he compared Islam to fascism and the Koran to Adolf Hitler’s book “Mein Kampf.” Wilders also made the film “Fitna” in 2008 which portrayed the Koran as inciting violence and mixed images of terrorist attacks with quotations from the Islamic holy book.

I am staying out of the debate on Islam. Hence, I am not expressing an opinion on whether I agree or disagree with Wilders’ statements on Islam. I raise the matter of this case for its implications for free speech as it is practiced in political debate. The extreme-antisemitism of the Nazis resulted in some rather severe curbs on free speech in the state of Germany that would shock people in any of the American states.  While the EU is relatively restrictive on free speech, however, even in the US a person can not shout “fire!” in a crowded theater unless there really is a fire. The Wilders case is not being prosecuted as a “fire” case.  Rather, it is being portrayed as akin to hate crimes in the US, only in this case it involves speech in a political debate.  The Europeans may be conflating a hate crime with an opinion in political debate.  Had Wilders urged people to kiss Muslims, his case would be much closer to a hate crime.  If a position in a political debate is itself to be treated as a hate crime, then politics itself is being criminalized.  This would be like saying that republican leaders who are against gay marriage and say it is sinful and akin to having sex with animals are somehow guilty of a hate crime. To say that something is odious does not in itself cross the line into urging people to kill those who believe in it or practice it. Were “dividing people” in a political speech or an opinion piece a crime, the republican party would find itself continually before a judge as one interest group after another feels marginalized by republican positions on particular issues. Political positions may well offend; that is the nature of politics. It doesn’t make it a crime. A clearer line between politics and crime needs to be drawn in Europe. Otherwise, prosecution will be increasingly used to cut out positions in the political discourse that some do not like. Politics is about conflict—hopefully resolving it. Part of the process may be identifying the conflict, and this may be perceived as dividing people when in fact there is already such a division. Where one side of a division is criminalized, the division itself cannot be known by society, and thus any resolution would be partial.  Ideally, a division should be clearly and fully enunciated by each side, and then others not invested in either side will be sufficiently informed to be able to suggest viable and realistic solutions to the conflict. To ignore one of the positions would be to risk a solution that is merely partial and thus ultimately unsustainable.

Source:  http://www.dw-world.de/dw/article/0,,6072375,00.html%C2%A0

Corruption in the Party of the Right in the Yale Political Union

When I was a student at Yale, I was a member of the Party of the Right (POR) in the Yale Political Union (YPU). I was pretty much a libertarian back then, and the POR consisted of libertarians and Burkean traditionalists. John Kerry had been president of the YPU in 1968.  The Political Union consists of several “parties,” which are really little debating/drinking societies. The POR consisted of libertarians and Burkean traditionalists. I was a libertarian. I didn’t much like the guys in charge of the POR.  For one thing, the Burkeans dominated the positions, and they had their little club within the club though they were never man-enough to admit it. Also, the party owned a secret society, which is only open to men ostensibly because it had been a nineteenth-century men’s literary society before the POR took it over.  The trouble is that there are female members of the POR, and they are ineligible for membership in the party’s secret organization. I didn’t like that exclusion even though I am not a woman.  However, the unfairness wasn’t limited to women.  The only guys who were invited into the secret society were those who were in leadership positions of the POR. In the year that I joined the party, the chairman invited me to a Friday night party, which was being held in a room half way up Yale’s bell tower. He told me that the new members of the POR would be inducted into the secret society, so I should come.  So I canceled my other plans and attended. The truth was that he wanted all the party members to be at the party to serve as an audience for the two or three people in the party’s leadership who were actually being inducted. It is no fun being exclusivist if there are none of the excluded around to watch. In other words, the chairman lied to me.  I had changed my plans in order to go to the Friday night party, but it was the lying that really infuriated me when I discovered the actual purpose of the evening.  When I confronted the chairman, he (and his friends in the leadership) denied that he had told me that the new members would be inducted.  Most people who get pissed at the party leadership resign from the party in protest in order to make a point.  I think they overestimate the impact of their “act.”  I, on the other hand, did not resign; I simply ignored the party’s leaders on campus and did not attend any more POR functions.  I think that annoyed the “leaders” more than had I resigned. So even today, I’m a member of the POR, in spite of the fact that I am now very liberal on some issues. In hindsight, I wish I had joined the Progressive Party or the Independent Party while I was still a student, but I really was a libertarian then, and libertarians were in the POR.  The lesson I learned from the POR was how easily people in power can lie. That is a tradition that even the Burkeans can give up.

Midterm Elections, 2010: Lessons Unlearned

The Republican surge that gave that party control of the US House of Representatives reflects a shift of some moderate independents, even as Republican leaders have portrayed the election as “the American people” having repudiated the policies of the sitting U.S. President, Barak Obama. In other words, that 54% vote for a given Republican and 46% vote for the Democratic opponent does not mean that the 54% constitute “the American People.”

The other notable error associated with that election involves the media, which on multiple occasions ignored the margins of error in polls before the election. If one candidate is at 48% and the other is at 45% and the poll has a three point margin of error, it cannot be concluded that the first candidate is ahead of the second because the three point difference is within the margin of error.  As obvious as this point may seem, journalists of CNN, Fox, and MSNBC regularly ignored the margins of error in reporting polls even though the margins were shown on the poll being displayed. Yet like the Republican claims regarding “the American people,” the errors of the journalists went repeatedly uncorrected.  One is left wondering if there is any feedback loop in American politics or whether anyone is listening.

The Yale College Dean Functioning as a Government Official of Sorts

A fraternity at Yale had its new members chat “no means yes”…meaning that if a woman says no, she means yes…in pledging during the Fall of 2010.  The dean of Yale College asked the college’s executive committee to look into the matter.  This seems to me to evince a penchant for bureaucracy for its own sake. In the old days, a dean would simply have called the guys into his or her office and given them a tongue lashing, followed by having them do something like pick up trash around campus.  Now it is like a government investigation being referred to an executive committee.  At the very least, any punishment would lag from the offense temporally and thus be less efficacious. I suspect that the dean thinks at some level that referring the matter to her executive committee makes her more important…as akin to being a government official. It could also be that the political correctness has vaunted the incident to such an extent that the students could be expelled even though no person was physically harmed (and the chants were not done in front of a sorority). The enforcers of political correctness are, after all, as though government officials.
To be sure, the guys acted reprehensibly, but it is also true that boys will be boys; to expect them to always be as though mature forty-year-olds is a foolhardy endeavor. The Yale College dean should realize she is more of a parent than a government official with respect to them.

The Republican Congress and Health Insurance Companies: The Real Agenda

According to Wendell Potter, a former health-insurance company lobbyist, “the new law props up the employer-based system that insurers and large corporations benefit from so greatly. It also guarantees that private insurers will get billions of dollars in new revenue.”  It is no accident that Obama’s health-insurance law works out this way. Potter points out that Republicans will back off from repealing the mandate, but will push for other changes. The reason is that the mandate is in the health-insurers’ interest whereas some other features of the law are not. Private insurance companies would like to keep the mandate that will guarantee them more customers.  At the same time, the insurers would like to go back to refusing to cover kids with preexisting conditions, canceling policyholders’ coverage when they get sick, and setting annual and lifetime limits on how much the insurers have to pay for medical care. Also, the insurance companies do not like having to spend eighty percent of their revenue from premiums on medical care, and the insurers would like to get more from the US government for private medicare plans.

Potter makes the point that it is not in the Republicans’ interest to take out the mandate; they will put on a show—acting against the mandate while being unsuccessful—while working behind the scenes to take out planks deemed unprofitable by the insurance companies. In fact, the Republicans could actually strengthen the mandate because the insurance companies want to increase the penalties for not becoming one of their customers. Interestingly, even if the courts throw out the mandate, the entire law must be deemed unconstitutional.  This caveat was undoubtedly drafted by industry lobbyists so they would not be constrained by the law without the benefit of the guaranteed expanded customer base.

Potter’s major point is that the Republicans will go with the interests of big business in a stealth manner (similar to the stealth lobbying done by the insurance lobbyists). The insurance lobbyists have already used surragates to fearmonger “death panels” to kill any reform that might hurt the bottom line. So we can now suspect that Sarah Palin’s Facebook post in August, 2009, accusing the Obama administration of creating “death panels” as part of health-care reform was not an accident even if it has been reported in Newsweek as an “offhand remark.” According to Newsweek, that remark was “as inaccurate as it was incendiary.” Furthermore, in what we can now surmise stemmed from the power of the industry with a vested interest, the remarked “helped incite weeks of embarrassing town-hall meetings for Democrats, which in turn nearly brought down” health-care reform (Newsweek, p. 58). The real power behind this roadblock was that of the health-insurance companys’ lobby. The combination of the industry with such a vested interest having the ability to sway the public and exact leverage over members of Congress and the President (witness Obama’s change on a mandate and the public option) ought to worry those people who believe in having a republic as the form of government and love liberty. Devious subterranean private corporate power is undoing our republic without us knowing it, but this is how the lobbyists such at Potter have designed their strategies. We are not supposed to see it.

Sources: Wendell Potter, “Repeal and Replace?” Newsweek, November 15, 2010, pp. 42-43; Jay Newton-Small, “What Does She Want?” Newsweek, December 20, 2010, pp. 38-47

Tuesday, February 1, 2011

Military Sacred Cows: A Matter of Contrived Camulflage

"The most significant threat to our national security is our debt."
Micheal Mullen, Jount Chiefs of Staff Chairman, August, 2010.

The defense budget in 2010--$664 billion (not counting the Iraq and Afghanistan wars)--equalled that of the rest of the world combined.  One dollar of every five spent by the U.S. Government was for defense. The amount spent represents 80% growth since 2000. Why?  One reason: the big weapon systems oriented to fighting other empires (e.g., Russia and China). For example, $600 million for the littoral combat ship and $13 billion for amphibious landing vehicles (whose purpose has even been questioned by Sec. of Defense William Gates).  It would seem that the military contractors--the military industrial complex, moreover--are firmly entrenched and in control. That is to say, the defense spending is indicative of the influence of big business over government in the United States.  That this influence goes unhampered may tell us something about the leanings of our societal norms.

The House Republicans' "Pledge to America" formulated in 2010 promises to exempt the military from any cost-cutting that might be entailed in reducing deficit spending. Even so, Sen. Tom Coburn wrote, "Taking defense spending off the table is indefensible. We need to protect our nation, not the Pentagon's sacred cows."  This statement is significant because it gets at the problem of the debt and the influence of big business in government.  That is to say, it kills two birds with one stone.  Indeed, these two birds may well be the achilles heel of the United States as a viable entity or going concern.  The fatal flaw may well be within, rather than from an external threat.  This is the meaning of Micheal Mullen's statement above. To be sure, Republicans believe that defense is government's core function. Along with regulating interstate commerce, this is particularly true of the federal government.  It is less true, I would argue, of the state governments.  So the plank can be viewed as primarily federalist rather than in terms of limited government itself.  The probably-unfixable $14 tillion US Government debt and the consolidation of public governance in the U.S. into the federal government at the expense of federalism (and the checks therein) are related; both are indications of a basic inbalance that is unsustainable. In the face of this state of affairs, it is telling that the question in late 2010 was who should continue to get a tax.

Source: Michael Crowley, "The Sacred Cows," Time, December 13, 2010, pp. 55-58.

Obama Caving to the Selfishness of the Propertied

I've been following politics less now that Obama has caved on his campaign pledge (or promise) not to extend the bush tax cuts for the rich.  The added growth expected in 2011 from ALL of the cuts is just a half of a percent of GNP growth.  I have read that the rich save their tax cuts rather than use them in ways that stimuate the economy.  As for savings, banks have enough capital to lend (this isn't why they are still skittish in 2010).  That the vacuous argument that tax cuts for the rich will somehow create lots of jobs and save the economy from another recession has had <em>any</em> weight or credance really discourages me about American political discourse.  That Obama didn't "just say no" is also discouraging. On December 14, 2010, Pat O'Reilly said on his Foxs News show that the "far left" is in retreat because Ameriicans have rejected it.  He said even Obama has rejected the left. I think the left has vanquished itself.  Perhaps it could be said that the left is willingly impotent. Where is Al Gore?  Ralph Nadar?  Micheal Moore?  silence.  Only the sound of Obama caving. He should have refused to sign a tax cut continuation for the rich and said the Repubs could refuse to extend the cut for lower and middle income people--it would be the Repubs provoking the resumption of higher taxes for everyone rather than just on those who can afford them.  We need a Teddy Roosevelt or an Andrew Jackson. Teddy stood up to Standard Oil, and Jackson stood up to the Second Bank of the United States. By contrast, Obama has operated largely in line with Wall Street (e.g., the bailout for the banks rather than foreclosed homeowners) and the health insurance industry (e.g. not even a public option, which was odious to the industry).  Barak Obama does not want to displease the powers that be; I suspect reelection has a lot to do with this state of affairs.  This raises the question: is there a counter in American politics to the selfishness of property?

The Affordable Care Act Running Up Against Federalism

According to Newsweek, "Conservatives have been quick to declare that "ObamaCare is on life support" in the wake of federal district court Judge Henry E. Hudson's ruling in Virginia that the Affordable Care Act’s (ACA) requirement to buy health insurance is unconstitutional. But in truth Virginia’s attorney general, Ken Cuccinelli, won only a partial victory. He sought to have the entire law overturned, but instead only the section creating an individual mandate was." This is perplexing to me, as the law contains a clause indicating that if any part is deemed to be unconstitutional, the entire act would fall. (the health insurance industry didn't want to be forced to pay out without being guaranteed the expanded customer base by the U.S. Government).  According to Newsweek, "Judge Hudson was very explicit in his ruling that only the mandate that individuals have coverage and 'directly-dependent provisions which make specific reference' to it will be affected. Technically, this means virtually nothing but the mandate is eliminated. But as a practical matter, the requirements placed on insurance companies to make coverage more generous and available to everyone are economically dependent on the mandate. To keep the rest of the bill in place without the mandate would provoke the wrath of the insurance companies’ powerful lobby and set premiums on an upward-spiraling trajectory. On the upside, Medicaid would still be expanded so the millions of poor who are without health insurance will be insured."  In my comparably small and insignificant view, this is the major significance in the entire law. That is to say, health-care as a right even for the poor is a matter of human rights. Lest the rich poo poo this right because theirs is secure, I can only shake my head in utter disgust; in a civilized society, even a person incapable of working has the right to survive. Not wanting to pay for this right when one enjoys other advantages of living in a society (e.g., police protecting one's property) is sheer selfishness.  I take the right to survival to be the kernel worth saving in Obamacare even if scrooges poo poo's the plight of their less fortunate fellow citizens while ignoring their own self-centeredness. Hudson also declined to prevent the law’s implementation while the courts sort out the constitutional question. The ACA has been upheld as constitutional by two district courts. According to Newsweek, "Hudson’s decision actually guarantees only one thing: that the constitutionality of the individual mandate will ultimately be decided by the Supreme Court. Legal experts are unclear which way the high court will go

The question of whether the mandate is constitutional hinges on whether it falls within the federal government's enumerated power to regulate commerce. In particular, the question is whether inactivity can be regulated. Failure to buy insurance is inactivity.  Is a decision to buy or not to buy to be counted as an activity?  Or is requiring Americans to carry health insurance a way of regulating how they pay for something that every American will use (i.e., health-care)?  It seems to me that this question has been overly simplied, whereas the past "logic" used by the U.S. Supreme Court to ok expansions in the commerce clause is notoriously invalid even as it has been generally accepted in American society.

Historically, the U.S. Supreme Court has not resisted ever deepening and broadening encroachments by the national legislature and executive on the States by means of the enumerated power of regulating interstate commerce.  In 1942, for example, the court held in Wickard v. Filburn—the most relevant precedent for this case—that a farmer growing wheat for his own chickens, above a maximum of growth allowed per acre at the time, was subject to federal regulation under the commerce clause because the resulting extent to which a farmer does not buy wheat to feed his chickens on the market affects the national market price of wheat. "This goes a step further than Wickard because it’s the omission of action that’s being defined as the interstate act," says Jonathan Turley, a constitutional law instructor at George Washington University. Critics of the mandate say that if you start defining choices not to buy things as actions that affect interstate commerce then there is no limit on what Congress can make you buy. In my view, the action/inaction distinction is not vital to whether the power of the U.S. Government is potentially unlimited under the commerce clause; <em>Wickard </em>itself evinces the potential unlimitedness in the power; even growing wheat for one's own use can be deemed as interstate commerce even though the wheat never even crosses the road.  It is the tenuous multiple links of inference that dwarfs even the action/inaction distinction. The legalese in the inferences has already supported Congress in using the interstate commerce clause to reach a variety of objects (Morrison and Lopez being the two exceptions, but even they allow for indirect effects to the commerce). As another example involving what one grows and consumes on one's property, in 2005 in Gonzales, the court held that the commerce clause entitles the federal government to outlaw California residents from growing marijuana for personal medicinal use. Of course, the government's purpose here was not to regulate commerce; the policy was against illegal drugs being used. This is precisely how the commerce clause can be stretched to cover virtually anything.

If the court throws out the health mandate, it might be just as well as the State governments really should be the ones to address health-care for the uninsured, given our system of federalism. If the mandate is declared to be unconstitutional, I would advise the justices to do it in a way that also exterpates the inferences of legalese that have for more than one hundred years enabled the federal government to encroach on the States--effectively ending the check on government that is afforded by federalism. In other words, the court could use the case as a means of setting definitive limits on the enumerated powers.  Otherwise, Congress will return to the clause for yet another encroachment using linkages--simply sidestepping regulating inaction. The case can occasion a wake-up call concerning the consolidation of governmental power at the center at the expense of the innate diversity that exists in an empire-scale polity. I doubt very much that the court will sound the alarm--seeing the forest through the trees--even if the mandate is declared to be unconstitutional. We simply are not good at looking at things in terms of the big picture; it is no accident that most members of Congress are lawyers.

Source: http://www.newsweek.com/2010/12/15/will-the-supreme-court-overturn-health-care-reform.html%22%3Ehttp://www.newsweek.com/2010/12/15/will-the-supreme-court-overturn-health-care-reform.html

The E.U.'s Dire Political Problem Obscured by the Banking Crisis

In December, 2010, E.U. leaders agreed to propose an amendment wherein the financial emergency rescue fund would be replaced with a permanent crisis-finance program. The amendment would permit the States having the euro as currency to establish a "mechanism" if it is "indispensible" for the health of the euro.  Interestingly, all of the 27 State legislatures would have to ratify the amendment, though no referenda would be required on account of the amendment being of insufficient scope to trigger them.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Relegating a State as Bankrupt in U.S. Court: The Problem of Federalism

David Skeel suggests that a new chapter should be created in U.S. bankruptcy law to cover state governments. This is not without problems, however.  Skeel states that the "main objection to bankruptcy for states is that it would interfere with state sovereignty—the Constitution’s protections against federal meddling in state affairs.”  He does not see this as a major hurdle, whereas I do. Whereas he, as a lawyer, is looking narrowly at bankruptcy and constitutional law, I am looking more long term at the trajectory of federalism succumbing to consolidation.

The full essay is at Essays on Two Federal Empires."

Federal Reserve to Buy More U.S. T-Bills but No State Debt

The New York Times reports, “At their first meeting of the year, Federal Reserve policy makers voted unanimously … to continue the central bank’s controversial $600 billion plan to spur the recovery by buying government bonds.” In other words, the central bank would continue to “print money” to buy up U.S. Government debt, allowing that government to go into more debt without putting pressure on the interest rate to go up (which would cost the government more in interest payments to bondholders). Theoretically, the Federal Reserve can buy an unlimited amount of bonds because the central bank can create money. Of course, creating money relative to GNP growth can spark inflation, but the central bankers are not worries. “The Fed did note that commodity prices had risen, but cautioned that long-term inflation expectations had been stable and that measures of underlying inflation had continued to trend downward.” Even so, “skeptics fear that the bond-buying — which has the effect of further expanding the Fed’s already large balance sheet — could lead to destabilizing asset bubbles or touch off inflation.” I contend that this is a rather narrow (though certainly valid) concern; equally or more troubling for the long term is the asymetry in the Fed’s treatment of debt issued by the U.S. Government and that of the state governments. For instance, in 2010 Illinois issued $16 billion in additional debt. Whereas the U.S.Government could fall back on the Federal Reserve, the latter has refused to purchase debt from states like Illinois. Aside from the unfairness inherent in the Federal Reserve’s proclivity, the asymetry subtly undercuts federalism. In other words, the U.S. Government having an unlimited ability to have its central bank purchase its debt gives that government still another edge over the state governments, which one can expect will be even more compromised in being able to check encroachments by the U.S. Government. The resulting enervation of federalism means that consolidation may reach us sooner rather than later, at the expense of our governments being able to act as mutual checks on eachother. Another way of making this point is to charge that the Federal Reserve’s refusal to do for the state governments what the central bank is doing for the U.S. Government evinces a structural bias in our system of federalism. The lack of balance (and the underlying unfairness) ought to be of concern to the citizenry. The result may well be that the U.S. Government will be enabled to get into unsustainable debt such that the empire itself may one day collapse under its own weight at the center.

Source: http://www.nytimes.com/2011/01/27/business/economy/27fed.html?ref=business

Financial Crisis Commission Points to Various Causes: But Have We Learned Anything?

In January, 2011, the Financial Crisis Commission announced its findings. The usual suspects are not much of a surprise; what is particularly notable is how little had changed on Wall Street since the crisis in September of 2008. According to the New York Times, "The report examined the risky mortgage loans that helped build the housing bubble; the packaging of those loans into exotic securities that were sold to investors; and the heedless placement of giant bets on those investments." In spite of the Financial Reform Act of 2010 and the panel's report, the New York Times reports that "little on Wall Street has changed." One commissioner, Byron S. Georgiou, a Nevada lawyer, said the financial system was “not really very different” today from before the crisis. “In fact, the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions,” he said. Richard Baker, the president of the Managed Funds Association, told the Financial Times, "The most recent financial crisis was caused by institutions that didn't know how to adequately manage risk and were over-leveraged. And I worry that if there is another crisis, it will be because the same institutions have failed to learn from the mistakes of the past." From the testimonies of managers of some of those institutions, one might surmise that the lack of learning has been due to a refusal to admit to even a partial role in the 2008 crisis.  In other words, there appears to be a crisis of mentality, which is not easily fixed.

To comprehend the danger in the continuance of the status quo, it is helpful to digest the panel's findings. The crisis commission found "a bias toward deregulation by government officials, and mismanagement by financiers who failed to perceive the risks." This ought to raise a red flag when we hear politicians urge more deregulation.  "Don't they get it?" one might reasonably conclude. Lest it be thought that the panel proffered a pro-government verdict, however, the commission also concluded that "Fannie and Freddie had loosened underwriting standards, bought and guaranteed riskier loans and increased their purchases of mortgage-backed securities because they were fearful of losing more market share to Wall Street competitors." These two organizations were not really market participants, however, as they were guaranteed by the U.S. Government. That government-backed corporations would act so much like private competitive firms undercuts the assumed civic mission that premises government-underwriting. In other words, the government-backed entities were neither civic as from government nor effective as private companies. In other words, government-established "firms" can behave like the private companies they were intended to check, yet this does not mean that more de-regulation is the solution.
Lehman was a particularly inept player leading up to the crisis.     Zambio

In terms of the private sector, The New York Times reports that the panel "offered new evidence that officials at Citigroup and Merrill Lynch had portrayed mortgage-related investments to investors as being safer than they really were. It noted — Goldman’s denials to the contrary — that 'Goldman has been criticized — and sued — for selling its subprime mortgage securities to clients while simultaneously betting against those securities.'”  The bank's proprietary net short position can not be justified by simply market-making as a counter-party to its clients, Blankfein's congressional testimony notwithstanding. Relatedly, the panel also pointed to problems in executive compensation at the banks. For example, Stanley O’Neal, chief executive of Merrill Lynch, a bank which failed in the crisis, told the commission about a “dawning awareness” through September 2007 that mortgage securities had been causing disastrous losses at the firm; in spite of his incompetence, he walked away weeks later with a severance package worth $161.5 million. The panel might have gone on to point to the historically relatively huge difference between CEO and lower-level manager compensation and questioned the relative merit, but such a conclusion would go beyond the commission's mission to explain the financial crisis.

In terms of the government, The New York Times reports that the panel "showed that the Fed and the Treasury Department had been plunged into uncertainty and hesitation after Bear Stearns was sold to JPMorgan Chase in March 2008, which contributed to a series of “inconsistent” bailout-related decisions later that year." The Federal Reserve was clearly the steward of lending standards in this country,” said one commissioner, John W. Thompson, a technology executive. “They chose not to act.” Furthermore, Sabeth Siddique, a top Fed regulator, described how his 2005 warnings about the surge in “irresponsible loans” had prompted an “ideological turf war” within the Fed — and resistance from bankers who had accused him of “denying the American dream” to potential home borrowers. That is to say, the Federal Reserve, a corporation wholly owned by the U.S. Government, is too beholden to bankers instead of the common good. So we are back to the issue of a government-guaranteed corporation acting like or on behalf of private companies (and badly at that).


Sam Jones, "Hedge Funds Rebuke Goldman," Financial Times, January 28, 2011, p. 18.

Godliness & Greed: Shifting Christian Thought on Profit and Wealth

In the wake of the financial crisis that came to a head in September of 2008, people might have been wondering if sufficient moral constraints on the greed on Wall Street are available, even possible. The ability of traders to create complex derivative securities that are difficult for regulators to regulate, much less understand, may have people looking for ethical or even religious constraints. It would be only natural to ask if such “soft” restraint mechanisms really do have the puissance to do the trick.

Here’s the rub: the tricksters are typically the last to avail themselves of ethical or religious systems, and they the wrongdoers are the ones in need of the restraint. Blankfein said of his bank, Goldman Sachs, that it had been doing God’s work. About a week after saying that, he had to walk his statement back and admit that the bankers had does some things that were morally wrong. Although divine omnipotence is by definition not limited by human ethical systems, it is hard to imagine a divine decree telling bankers to tell their clients one thing (buy subprime mortgage derivatives) while taking the opposite position on the bank’s proprietary position (shorting the derivatives, beyond being a counterparty to clients). Divine duplicity seems to represent an oxymoron on a megascale rather than a justification for greed.

As the crisis erupted and was subsequently managed by public officials in government and new managers brought in to salvage AIG, I was researching the history of Christian thought on profit-seeking and wealth. I have since published an academic text on the topic. As the book is too recondite for sane people (i.e., outside of academia), I am writing a non-fiction book on the topic for a broader readership.

To whet the appetites of those of you who are waiting for the easier readable book, I present a brief account of my original research on the topic. Most significantly, I found evidence of a gradual shift in the thought between Aquinas and the fifteenth-century Christian Humanists (mainly in what is now Italy). Whereas early Christian thought had tended to stress the negative attitude toward riches—the camel being in extreme pain in getting through the eye of the needle—in the Renaissance Christian theologians tended to argue that being wealth is necessary for a Christian to exercise the godly practical virtues of liberality and magnificence (particularly the latter, which alone permits gifts reflective of God’s majesty).

Something had happened in the dominant Christian attitude on wealth that made the religion less of a buttress against greed because it had become possible for a Christian to be both rich and to go to heaven. Cosimo de Medici is a perfect example of a banker who was assured by the pope that a career based on usury would not necessarily bar a banker from entering heaven (assuming he gave financially to the Church).

The various Reformers can be read as efforts to pull Christianity back from being so close to incorporating love of gain, or greed. I looked at the (Standard Oil) monopolist and devout Baptist, John D. Rockefeller, to get a sense of how efficacious the Reformation was in attempting to arrest and reverse the momentum of the pro-wealth Christian paradigm.

Having sketched the shift and subsequent reactions of the Reformers, I turned my attention to trying to explain both the shift itself and the efficacy of the Reformation. I believe the increasingly commercialized environment since the Commercial Revolution does not provide enough of an explanation; I contend that one must look at the religion itself to find the roots of the shift and the results of the Reformation as concerns the religion's theological attitudes toward wealth. In other words, Christianity itself must be examined. As you read through the book, you could do worse than ask yourself: is there something deeper in Christianity at work in the historical shift in thought on wealth and profit-seeking?  You will find my theory in the conclusion. Undoubtedly, you will develop your own as you reflect as you read.

The main question I pose through the treatise is whether religion itself, as a phenomenon touching the human domain of existence, can hold us back from ourselves even when we least want it to do so. If so, then a religion operating in the human domain can operate as a wholly-other mechanism by which sins such as greed can be reduced in force or perhaps even finally extirpated. To expunge the sordid stuff from our banks and corporations, human nature itself would have to be radically changed. Perhaps the question is whether it is possible even if not probable for religion operating through human beings to accomplish this task, given that religion cannot but interact with the world.


See related essay: "Religious Sources of Business Ethics"

The academic treatise: Godliness and Greed: Shifting Christian Thought on Profit and Wealth 

The non-fiction book: God's Gold.