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Friday, September 30, 2011

U.S. Government: Education Over Immigration

On page A16 of the New York Times issue of September 29, 2011, two stories read side by side make an interesting point concerning the plight of American federalism. Campbell Robertson reports that Alabama won a ruling by a federal judge on the republic’s immigration law. Across the page, Mark Landler reports on Barak Obama’s visit to a local high school in Washington, D.C.

“Our country used to have the world’s largest proportion of young people with a college degree,” the president said. “We now rank 16th. I don’t like being 16th; I like being No. 1.” The last sentence in particular is revealing if one takes it in a broader sense. Barak Obama likes being No. 1. He likes being the center of it all—I suppose like New York City relishes being in the center of the universe. So it is of little consequence to the president that education is not among the federal government’s enumerated powers.  Even by going to a local school, Barak Obama instantiates the federal government’s encroaching nature, albeit for a good cause. He did not stop with education policy; he lapsed onto a parental role of sorts, saying, “I want all of you to set a goal to continue your education after you graduate.” Interlarding himself in the students’ families, he told the students how they should react to their parents. “Don’t give them a hard time when they ask you to turn off the video games, turn off the TV and do some homework,” he urged. Lest it be thought that this is simply some good-natured remarks by a father who undoubtedly cares about kids, it was the second day in a row that he had spoken at a school. In other words, the over-reach involves an opportunity cost.

It is not as though the president of the United States has a lack of things needing his attention within the enumerated powers of the U.S. Government. In fact, state officials have felt the need to step in to take up the slack concerning the U.S. Government’s failure to adequately enforce immigration law. But in what would be a twisted character flaw in a person, the federal government has fought such assistance while continuing to encroach in domains such as education. It is as if the person in charge of an association’s club house were resisting cleaning help by some of the members while going into their houses to take over their roles there. It is not as though the Obama administration were so consumed with visiting local schools that it would not have time or resources to resist state-level assistance on immigration. Moreover, it is not as though the administration were so focused to improve its own enforcement efforts that it didn’t have time or resources to involve itself in education and fight the states on immigration. The administration is making things far too difficult for itself as well as for others.

So while the president was acting as parent in chief at a local school, his administration lost a case in federal court against Alabama’s immigration law enforcing the federal law. Among other things, the Alabama law “nullifies any contracts entered into by an illegal immigrant.” Another section “forbids any transaction between an illegal immigrant and any division of the state,” and still another section “requires elementary and secondary schools to determine the immigration status of incoming students.” Nothing here violates or nullifies federal law; in fact, Alabama is helping said law. The motivation that resists help can and ought to be questioned. It is not as though states implementing federal law is unheard of. In the E.U., it is common for the states to be required to implement E.U. directives. If states cannot be trusted to implement federal law, why have a union at all? With respect to immigration, the orientation of every government in the American federal system ought to be to minimize illegal aliens within these United States. Fighting among ourselves, governmentally, only gives the law breakers more wiggle room to get through and live within the United States illegally—even enjoying benefits of citizenship without being citizens.

So rather than being educator in chief or parent in chief, the U.S. President ought to keep to his knitting—especially as there are some holes in it! Nor is he in a position to refuse help. Otherwise, the resultant encroaching nature of the general government will totally eviscerate American federalism with a one-size-fits-all imposition at the expense of the inherent diversity that exists in an empire-scale union.


Campbell Robertson, “Alabama Wins in Ruling On Its Immigration Law,” New York Times, September 29, 2011. http://www.nytimes.com/2011/09/29/us/alabama-immigration-law-upheld.html

Mark Landler, “Obama Urges Students to Set Their Sights on College,” New York Times, September 29, 2011. http://www.nytimes.com/2011/09/29/us/politics/president-obama-urges-nations-students-to-set-sights-on-college.html

When Police Are the Criminals

Might the personality type most excited by inflicting pain on others be drawn to “serve” on a police force?  Might force itself be an allurement to such a personality? Moreover, might organizations populated by the personality be inclined to set up defenses against being held accountable either internally or by other organizations? At the very least, deference ought to go to the victims rather than the “officers.”

The New York City police department and the district attorney’s office set investigations in motion after video surfaced of Anthony Bologna of the police department using pepper spray against protesters of Wall Street greed and the lack of accountability there. Even as the department’s own investigation was yet to commence, the chief publically questioned whether the video offered enough context to evaluate the inspector’s actions. To the chief, merely protesting in a way that blocked traffic justifies the use of pepper spray without warning. The inspector’s union boss claimed the motive had been to restore order—though the video shows that the victims were not disorderly or resisting arrest. Indeed, the police did not attempt to arrest those sprayed. It is not difficult to see where the police investigation of its own will go.

Beyond the hypocrisy involved in those sworn to protect actually attacking and the anti-Americanism involved in trying to curtail a protest, it might reasonably be asked whether Bologna was acting on his own, or whether Wall Street money was ultimately behind the aggression. In the protest’s first four days, the mega media companies scarcely covered the protest; Bologna’s unprovoked aggression came after the news networks could no longer viably ignore the movement. So was the case simply that of American banks using the police state to keep a movement from spreading to their detriment? Were there actual accountability on Bologna, might the bird sing, affording us some transparency concerning any such hidden relationships?

Even if no such conspiracy existed, there is obviously a need for stronger instruments of accountability that could be imposed externally on police departments and their employees. In the wake of Bologna’s attacks, the media reported that such incidents are not uncommon. Indeed, I have witnessed them. While in Pittsburgh, for example, I witnessed how the police treated black teenagers who were simply walking along the sidewalks in the university area of town (Oakland). It was evident to me at the time (as a bystander leaving a restaurant) that the police employees believed they did not face any meaningful accountability. So I was not surprised to see video surface of Anthony Bologna’s sadism on full display in New York.

Thomas Hobbes writes that in the state of nature, and even in society, each person has the right to protect his or her person, as per the right of self-preservation. A sovereign cannot take this inalienable right away. When Bologna acted outside of the law, and thus outside of the social contract, his victims had the right to defend themselves, even in using pepper spray against the attacker. In other words, Bologna could and should have been treated as a criminal attacker by his victims and bystanders. Perhaps in the future protestors ought to carry pepper spray in case any criminals show up and attempt any aggressive attacks. It could be that the offending attackers are imprisoned while the self-preserving protestors are exonerated. Then maybe police departments will recognize that accountability applied to their own employees is in the departments’ interest. Legitimate force goes only so far before it lapses into criminality, and we all have an obligation as citizens to thwart crime as it is happening by whomever. If police employees do not want other citizens to be put in the position of making this judgment, then perhaps those employees might want to reassess their attitude and habits. In the meantime, citizens need to be on guard against criminals even and especially where they are least expected and perhaps most commonly found.


Al Baker and Joseph Goldstein, “Officer’s Pepper-Spraying of Protesters Is Under Investigation,” New York Times, September 29, 2011. 

Tuesday, September 27, 2011

Bank of America: Downsizing From Smallness

Three years after the near-meltdown of Wall Street in September 2008, Bank of America announced that 30,000 jobs would be eliminated. That amounts to nearly 10% of the bank’s total work force. Over all, BOA was planning to cut $5 billion in annual expenses. The reason is transparent: continued losses stemming from the bank’s acquisition of Countrywide in January 2008 in spite of the fall of the U.S. real estate market and the related losses on sub-prime mortgage-backed CDOs. What could Ken Lewis have been thinking? At least in the case of his acquisition of Merrill Lynch, which was agreed to in principle in September 2008, the investment bank had already sold its $30 billion of toxic assets for over $7 billion in July 2008.
While the $29 per share price for Merrill seems excessive given that the investment bank was trading at only $17 at the time of the agreement, Fleming’s negotiating strategy (stressing the long run value over the short term market volitility) on Merrill’s side, Thain’s preference for a 10% stake/$30 billion line of credit from Goldman, and the sheer strategic fit between BOA and Merrill can explain Lewis’s offer-price being at a premium over the market price. Even so, with Lehman poised to file, the Goldman option would have been insufficient (or would likely have dissolved on the Monday of Lehman’s filing as the market tanked) and Thain would have taken $17 (or even down to $10) in the wake of Lehman’s filing.
According to reporter Greg Farrell (p. 183), Bank of America tended to deal with problems “by finding the quickest, near-term solution and lunging in that direction.” BOA “was not an organization that had the patience for deep, strategic thinking. It was an opportunistic company that preferred action of any kind to inaction.” Although much of the bank’s empire-building had taken place under McColl, the preceding “legendary” CEO, Ken Lewis’s acquisitions of LaSalle, Countrywide and perhaps even Merrill Lynch (to some extent) evince the sort of short-sighted and opportunistic lunging-without-thinking that can go with empire-building. Cutting 10% of the work force may be interpreted as a response to the market’s implicit verdict on Lewis’s shopping spree following Fleet. The losses stemming from Countrywide are evident enough; the case of Merrill Lynch is a bit harder to weigh.

Although Merrill proffered great synergy with BOA and could be picked up on the cheap, Lewis’s rushing to a deal over a weekend (with only about 12 hours for due diligence!) can also be considered as excessively risky, especially considering the history of hidden CDOs at Merrill (Semerci hid $30 billion then unfairly blamed them on his predecessor at Fixed Income). Had Merrill unloaded all of its toxic assets back in July? If so, what caused the $15.31 billion loss of Merrill Lynch announced only after the BOA shareholder vote on the acquisition in December 2008? Furthermore, did Lewis knowingly keep the mounting losses at Merrill from his shareholders as they were preparing to vote? At the very least, failing to disclose the mounting losses in real time was risky, even reckless, given what could be expected—namely,  the $50 billion potential liability that would face the bank from a stockholder suit. Even if Lewis decided not to disclose “non-material” losses because they were in line with Merrill’s results in 2007, was the CEO manipulating his stockholders while puffed up in the vainglory of empire-building? Furthermore, the condition of the market in September 2008 was not exactly ripe for making a deal to acquire a major financial institution. Lewis and Thain knew Lehman would go belly up when signed their agreement at 1am on Monday, September 16, 2008. 
As risky and perhaps even foolhardy as the Merrill acquisition may have been for Lewis, his acquisition of Countrywide defies any good sense. That he was being paid millions of dollars at the time suggests that the dysfunction at Bank of America may include corporate governance. Specifically, deferring too much to the CEO at the expense of the shareholder interest evinces a lack of accountability. Although BOA had a history of duality—splitting the chairman and CEO positions between two people—still the CEO may have too much influence.
Finally, a vital matter of public policy should not be ignored. Although it could be argued that Bank of America is being forced by its own history and the market to downsize, the question can legitimately be raised whether the market can or should be relied on to take faulty banks too big to fail down a notch. The very existence of Bank of America may involve more systemic risk than we should be prepared to accept. Relying exclusively on the market for the correction is, I contend, insufficient. The market can be insufficient in downsizing to a suitable size, or irrational exuberance can take hold such that a 10% reduction becomes a free-fall. That a bank such as Bank of America of over $1 trillion in assets is allowed to exist as a concentration of capital is itself a systemic risk. In other words, something is seriously wrong with the market mechanism for a bank such as BOA to have been able to become so big in spite of its modus operendi or corporate culture.


Greg Farrell, Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America (New York: Crown Business, 2010).

Steven M. Davidoff, “For Bank of America, a Looming $50 Billion Claim of Havoc,” New York Times, September 28, 2011. 

The Debt Crisis: A Conflict of Interest Hampers the E.U.’s Response

“As the European Union enters a financial crisis in slow motion,” a Huffington Post reporter avers, “the fragile American economic recovery hangs in the balance. With Greece almost certain to default on its debt, European political leaders need to take decisive action to prevent a resultant string of bank runs and government defaults, which could precipitate double-dip recessions in Europe and the United States.” If Greece suddenly defaults, Kavoussi reasons, other E.U. states “could leave the European Union to flee higher interest rates and to enable themselves to pay down their debt more easily by devaluing their currencies.” Such an outcome, she claims, “would almost certainly plunge Europe into a recession.” She observes, moreover, that “European politicians may lack the political will necessary to prevent the sovereign debt crisis from mushrooming into a global economic slowdown.”

The complete essay is at Essays on Two Federal Empires.

Monday, September 26, 2011

A Trader Dreams of Economic Collapse

Call it over-confident bravado or perhaps a lapse into utter transparency; trader Alessio Rastani’s comments on BBC give the rest of us a glimpse of the power behind the world’s thrones and how prone “the system” is to collapsing without a sufficient force geared to the viability of the system itself. In other words, it is amazing that the financial/governmental systems go on without more attention to them as systems rather than to micro self-interests. One might ask whether powerful self-interests are sufficient to keep the system from hitting the rocks. Apparently the answer is yes, though this is astonishing nonetheless. It is like a car somehow making its way down the street with one person in the car looking at pedal, another at the steering wheel, and still another at the speedometer. It is amazing if the car does not crash, yet somehow it managing to stay on the road.

As for a dash of reality, Rastani said on September 26, 2011 on BBC TV that Goldman Sachs rules the world and the Euro zone is poised to crash. "This is not a time right now for wishful thinking that governments are going to sort things out," Rastani said. "The governments don't rule the world, Goldman Sachs rules the world." Beyond the disciplining of egos within the bank, Goldman’s reach is multiplied by forays made by its alumni into governments and other banks. For example, when Merrill Lynch executives were finally facing the prospect of needing to sell to Bank of America in September 2008, John Thain relied on his fellow Goldman alums who he had lured to Merrill—sidelining Merrill’s own. In the U.S. Government, both Henry Paulson and his assistant at Treasury who ran TARP were Golden. It can therefore be surmised that the Eurozone was poised to crash because Goldman’s execs had determined that they could profit from it. The state-heavy E.U.’s government only appeared to be capable of protecting the viability of the euro financial system.

I suspect that Rastani was overplaying his hand. The financial interest of the rich states of the E.U. (and their respective banks) cannot not be written off in favor of a Golden hegemony unless Goldman Sachs controls the European banks. To be sure, at the time of Rastani's interview, there were players poised to benefit financially from the collapse of the Eurozone. Even so, powerful vested financial interests not limited to Europe surely had a financial interest in the continued viability of the Eurozone. Of more value to us than Rastani's crystal ball is his mentality and values, which were on full display during his interview. We have a rare snapshot of what sort of people rule the world in terms of real power. 

The crash will be good news for traders, Rastani told stunned BBC anchors. "For most traders we don't really care about having a fixed economy, having a fixed situation, our job is to make money from it," he said. "Personally, I've been dreaming of this moment for three years. I go to bed every night and I dream of another recession." Rastani said traders aren't the only ones who can benefit from the crisis. "When the market crashes . . . if you know what to do, if you have the right plan set up, you can make a lot of money from this." Whether or not such opportunities rule the day, Rastani’s mentality itself is startling (or should be). In other words, we should also be stunned.

 Rastani's dreaming of a recession (like Bing dreamt of a white Christmas?) even as he was predicting that the “savings of millions of people are going to vanish” in less than a year might strike us as insensitive, even sadistic—and at the very least, rather selfish. Would he cheer the death of an uninsured man who could not afford medical treatment if money could be saved by a hospital in Rastani’s portfolio?  If so, could we give any credence to his “deathbed conversion” should he fall on bad times? Beyond the obvious moral questions, does the child deserve his amassed power, wealth and position? Moreover, can we continue in good conscience to respect him now? The respect that we give to offices or positions may be exaggerated, and thus due an "adjustment." Just because a Wall street player has power on account of his or her position (and wealth) does not mean that he or she is due respect accordingly.

In fact, if traders such as Rastani have a financial interest in the collapse of an economic system, it could be asked whether they have enough power to make that catastrophe happen. If Wall Street bankers—the real power-brokers—are focused on such financial payoffs, is anyone of sufficient power looking out for the system itself? Again, Rastani may have been overplaying his hand.

In 2008, the U.S. Government enacted TARP to stave off financial collapse. Of course, even Goldman was vulnerable, so it was in its own financial interest that Treasury contain the contagion. The experience demonstrated that the American federal government is capable of safeguarding the financial system, but what if Goldman were to face no downside from a collapse and would in fact benefit from it? Could Goldman alums in strategically-placed government offices sabotage the government’s own efforts to protect the system? As Sen. Dick Durbin said in 2010, the banking lobby owns Congress. The U.S. Government acting against the interests of Wall Street might be akin to that government putting some air between itself and Israel. Elected representatives and their appointees know enough not to screw the sacred cows.

So the trader has a point, though beyond the content of his predictions, the transparency of his mentality and the mentality itself warrant reflection by the rest of us. I suspect that we have a naïve view of the type of people pulling the strings. Were we to get to know those people (even the CEOs), an obvious question might be whether they deserve the power, position and wealth that they have gained. In a plutocracy, there is unfortunately little that we can do about it, as they hold the strings. In a republic, on the other hand, the financial and business sectors are subordinate to the public good, and the representatives of that good can reform the selection and promotion rules in those sectors. In saying that the rest of us will have no other choice but suffer because it is in his financial interest, Rastani was essentially informing us that our so-called democratic republics are actually plutocracies. Our systems depend, in other words, on the particular financial incentives of the Golden traders. This is even worse than the prospect of a recession.

It means nothing that you or I might conclude that the system itself is broken, as we do not pull the strings; we merely pull the levers on election-day, lulled by the illusion that popular sovereignty lies with us. Even if Rastani’s interview wakes some of us up, little difference can be expected short of a major shift in power—but how can the less powerful overcome the kings of the hill to gain the hill itself? That would be like water flowing upstream as if gravity no longer held. Yet somehow, for people such as Rastani to be so respected and powerful in spite of the kind of persons they are seems to go against gravity itself. Like ignorance that is arrogant, one must wonder how the thing manages to stand at all. Perhaps all that is necessary is a gust of realization by us that the emperors are indeed trading in the nude, and are thus unworthy as de facto rulers. But can we act on the basis of a new awareness?


Is Obama the Antichrist?

In the twentieth century, Christian apocalypticism thought it saw the end of days in the midst of baleful signs, including historical biblical criticism, the return of the Jews to the Holy Land, evolutionary science, and the United Nations. In the United States, the consolidation of power in the federal government at the expense of federalism (and, theoretically, liberty as well) was apocalyptically taken as a precursor to the end. According to Matt Sutton, “As the government grew in response to industrialization, fundamentalists concluded that the rapture was approaching.” The trajectory, in other words, was viewed as headed toward a global super-state under the thumb of a seemingly benevolent ruler. Franklin D. Roosevelt’s “consolidation of power across more than three terms in the White House, his efforts to undermine the autonomy of the Supreme Court, his dream of a global United Nations and especially his rapid expansion of the government confirmed what many fundamentalists had feared: the United States was lining up with Europe in preparation for a new world dictator. This “leader would ultimately prove to be the Antichrist, who, after the so-called rapture of true saints to heaven, would lead humanity through a great tribulation culminating in the second coming and Armageddon.”

Thanks to Obamacare and the Dodd-Frank financial regulation law of 2010, some of the anti-state apocalyptic voters viewed Barak Obama during his first few years as president as possibly being the antichrist. Questions about Obama’s birth only fueled the speculation. According to Sutton, the “specious theories about his place of birth, his internationalist tendencies, his measured support for Israel and his Nobel Peace Prize fit their long-held expectations about the Antichrist. So does his commitment to expanding the reach of government in areas like health care. In 2008, the campaign of Senator John McCain, the Republican nominee, presciently tapped into evangelicals’ apocalyptic fears by producing an ad, ‘The One,’ that sarcastically heralded Mr. Obama as a messiah.” On the Fox News network, one host regularly referred to Obama as “the anointed one.” This reference was not lost on evangelical apocalyptic voters.  


The sheer paradigmatic distance between twenty-first century secularists and evangelical apocalyptics may go a long way in explaining the blockages between the U.S. House Republicans and the U.S. Senate Democrats (and the president). In other words, the voters represented by the two parties are not only on different pages—the two groups are reading different books. Indeed, beyond having radically different theological assumptions and beliefs, the two groups may differ even on whether religion is legitimate. For example, a modernist secular voter might characterize the apocalyptics as superstitious. The voter could point to the failure of the world to end in the twentieth century in spite of all the signs of the impending rapture and period of tribulation. Indeed, “the sky is falling” Christian reading goes back to the pre-Constantine persecutions. The Gospels have Jesus himself saying that the generation then alive would still be living (i.e., in the world) when the Son of Man comes on clouds (i.e., the second coming).

In spite of the problems with the apocalyptic interpretation (which seems to have been applied in any decadent or disruptive period in the history of Christianity), definite trends can be identified, such as the U.S. Government’s increase of power at the expense of the several states. Furthermore, increasing global interdependence—such as in regard to health, nuclear weapons, and climate—has indeed increased pressure on politicians to increase the power of the U.N. The proliferation of empire-scale federal unions beyond that of the U.S.—as evinced by the E.U. and even the A.U.—can also be viewed as a trend toward globalized governance (i.e., a federation of regional federations, which themselves are made up of kingdom-level states).

How such trends are interpreted is what triggers the gulf between the apocalyptics and the secularists (and even the mainline churches). My main point is that political intransience can be expected with such divergent views of social reality and its basis. For instance, does society (and government) result from a social contract (e.g. Hobbes, Locke, Kant) or a divine decree (e.g., Augustine and Aquinas)? Is increasing statism a sign of the Antichrist or simply a response to problems of industrialization? The interpretations go beyond whether the trends are good or bad. Accordingly, discourse itself can be expected to be extremely difficult. It is not, however, impossible, and solutions are possible.

For example, federalism can accommodate such divergent views as long as the federal units have enough autonomy from the general government. The E.U. is in a better condition in this respect than is the U.S., though the European Union risks dissolution (e.g., the state debt crisis) because the E.U. Government does not have enough competencies to effectively manage the integration already accomplished.  However, federalism should not be viewed as a panacea. It is possible that the fundamentally disparate differences between the apocalyptics and the secularists regarding the role of government are such that political separation is the only suitable solution. This may be why Texas under Rick Perry flirted with succession in Obama’s early years. In any case, as difficult as discourse between the representatives of the two groups may be, being in political union demands tolerance and discussion, which in turn require humility (including a recognition that one can be wrong). Yet even here, Biblical inerrancy throws in a wrench, making discourse tortuous for both sides.

The distance between the parties is indeed formidable and perhaps even intractable. Even deciding whether to separate would be daunting. A union containing a very deep cleft is thus what we Americans suffer to manage amid political paralysis, finger-pointing, and shouting. God must surely be diverting his eyes in utter disgust and ultimately sadness—not about the signs or trends necessarily, but, rather, concerning the sheer anger being evinced in such tight quarters. Were there any adults willing to come to the fore, a secular voter might lightheartedly proffer in generosity, God shines His light on this city on a hill. Otherwise, we are together in quite another place.

See related essay: Can Satanism Do Without God?


Matthew A. Sutton, “Why the Antichrist Matters in Politics,” The New York Times, September 25, 2011. http://www.nytimes.com/2011/09/26/opinion/why-the-antichrist-matters-in-politics.html?_r=1&ref=opinion