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Friday, December 16, 2011

The SEC and the Courts on Wall Street Settlements: A Role for Presidential Executive Leadership?

The SEC enforcement staff, including its chief, Robert Khuzami, decided to kick a gift horse in the mouth rather than to “take a lesson” and perhaps come out stronger for it. At issue was the rejection by U.S. District Judge Jed Rakoff of the SEC’s proposed $285 million settlement with Citigroup. In his ruling, Rakoff denounced the penalty as “pocket change” to the bank, which would not even have to admit to any wrongdoing. Investors duped into buying into a $1 billion deal called Class V Funding III had lost $700 million. Betting at the time of issue against half of the assets in the deal, Citigroup did not share knowledge of its hedge with the investors.

The reaction of the SEC staff in Khuzami’s department was simply to “put down their pencils” and wonder how they should go about arranging settlements with financial firms accused of misconduct before and during the financial crisis of 2008. The SEC “doesn’t know what to ask for anymore in the settlements,” one of the people familiar with the Citigroup settlement said. Rather than take the judge’s judgment to heart, Khuzami urged the five-person commission running the SEC to vote to approve an appeal, and they did so. Rather than take the less convenient course of insisting that the banks too big to fail that manipulated their own clients at least admit wrong-doing and reimburse the losses, Khuzami viewed the judge’s ruling as if it were a political obstacle to be obviated by asking an appellate court to ignore it. Given the political muscle that must surely go with Citigroup’s wealth, Khuzami could have been assuming that the bankers would see to it that sufficient pressure would plied on enough appellate judges to make the obstacle easily avoidable. In other words, Khuzami was likely assuming that Rakoff was a fluke, given Citi’s influence—perhaps even in the SEC itself.

Considering the power of regulated banks such as Citigroup, it is not unreasonable to expect the chief executive of the U.S. Government, the President of the United States, to deviate from his avocation of influencing legislation far beyond his minority role as a veto. Rather than spending so much time hitting the stump to get voters to 1) influence their representatives in the legislature and 2) re-elect him, the president could get involved in the question of whether the verdict would be appealed. Lest it be said that that would introduce politics into the mix, I would counter that politics were already very much in the mix both in terms of the five-person SEC vote and in Khuzami’s response to the ruling (i.e., as an obstacle rather than as something to incorporate into future settlement offers). I would even say that politics was involved in Treasury Secretary Tim Geithner’s blessing of the decision to appeal, and therefore also likely a factor in the president’s decision not to intervene. Citi (and one of its major stockholders) had been Geithner’s sponsor when he was chosen to be president of the New York Federal Reserve.

Politics might also have been involved in the timing of the SEC’s announcement on the day following the appeal decision that the agency was suing the former chief executives of Fannie Mae and Freddie Mac for misleading investors and Congress on the volume of subprime mortgages on the books. Khuzami made the announcement himself, and it was well-covered in the media. Lest the decision to appeal in order to save a settlement deemed by a judge as too friendly to a major Wall Street bank be viewed with lackluster by the public, the timing of the Fannie and Freddie announcement could be anticipated to quickly impose a perception of going after the bad guys—even if the two conveniently-demonized organizations had been taken over by the very government that was suing them. The public would not be likely to suspect a double-standard for private-sector, well-connected banks, such as Citigroup.

Regardless of the political connections of Wall Street banks, for the U.S. president to tell the public that Wall Street should be held accountable only to look the other way on the SEC’s appeal decision—perhaps with the stated reason that politics should not be involved—seems duplicitous at best. As the chief executive, the president has a legitimate superordinate role to play in overseeing the decisions in the agencies within the executive branch. For a chief executive to claim that he or she should not impose on a subordinate department is a good indication that a subterranean agenda is in play. Furthermore, such an excuse evinces a refusal to assume responsibility (see #2 above). Too accustomed to seeing presidents obsess over pending legislation and propose still more (and act as commander in chief as well as figure head), the American citizenry has nearly lost any appetite for holding its presidents accountable as the chief executive of the executive branch—which extends beyond the West Wing. In the case of the SEC’s decision, the president was doubtless not willing to overrule his Treasury Secretary for political reasons.

Rather than deciding to appeal the ruling, the SEC should have accepted—with the president’s (or Treasury Secretary’s) intervention if necessary—the judge’s feedback as valid. Given the power and “too big to fail” risk of financial institutions like Citigroup, the government regulators act recklessly in accepting a “pocket change” no-guilt settlement. In announcing the decision to appeal, Khuzami said Rakoff’s position was “at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country.” Precedent for precedent’s sake could merely be a vote for the status quo that favors even the fraudulent on Wall Street. We cannot assume that the stream of past court decisions necessary warrant being kept.

Clearly, Khuzami believed that requiring wrongdoers on Wall Street to admit to the wrongdoing would backfire on the government. Requiring an admission of guilt from defendants “could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors,” Khuzami said. Just because powerful banks have a lot of money and power to throw at a trial, however, does not mean that the U.S. Government should cower over in trepidation or try to out-maneuver an inconvenient ruling that can actually be useful. Had he kept to the judge’s ruling, Khuzami could have gone back to Citi to say that more would be needed to avert a trial. It would not be his own opinion, after all, and contrary to Khuzami’s view, a judge’s opinion is not just an opinion; it is a ruling.

As for the issue of money damages and the number of trials, Khuzami is missing the forest for a few trees. For the viability of the U.S. and global financial system (and economy), banks too big to fail should be held accountable. It is therefore worthwhile even going to trial and staying the course through any appeals fueled by the banks’ deep pockets. At the very least, establishing a few precedents in terms of seeing that justice is served might aid in the SEC’s credibility in negotiating settlements with teeth. Higher money damages would undoubtedly follow.

In short, it would appear that the staff at the SEC needs more of a public service mission in which they could feel that they are making a difference in standing up to real power. In other words, they are not sufficiently fighters for the public good—the viability of the financial system and the economy as a whole. Instead, they are too interested in taking the route that is most convenient in terms of fear and stasis. It is in this realm that the chief executive can and should lead, if indeed he has that fire in his belly.



Click to add a question or comment on the SEC’s settlements with financial institutions that are too big to fail and the related role of the U.S. President.



Sources:

Jean Eaglesham and Suzanne Kapner, “SEC Cops Want to Fight U.S. Judge,” The Wall Street Journal, December 15, 2011. http://online.wsj.com/article/SB10001424052970204844504577098833058976236.html

David Hilzenrath, “SEC to Appeal Federal Judge’s Rejection of Citigroup Deal,” The Washington Post, December 15, 2011. http://www.washingtonpost.com/business/economy/sec-to-appeal-federal-judges-rejection-of-citigroup-deal/2011/12/15/gIQAiGWcwO_story.html?tid=sm_btn_tw

Chad Bray and Nick Timiraos, “SEC Sues Former Fannie, Freddie Executives,” The Wall Street Journal, December 16, 2011. http://online.wsj.com/article/SB10001424052970203733304577102310955780788.html

Thursday, December 15, 2011

Leadership in Europe: A Recipe for Reducing Legal Uncertainty

Concerning the legal environment of business, the lawyers who teach as full-time instructors in American business schools affirm that managers would rather have a challenging environment that they know than one that is characterized by headlines such as, “Legal Uncertainty Imperils EU Agreement.” At the E.U.’s parliament, which represents the E.U.’s citizens, the president of the European Council, Herman Van Rompuy, said in the wake of the agreement, “An intergovernmental treaty was not my first preference, nor that of . . . most of the member states . . . It will not be easy, also legally speaking. I count on everybody to be constructive, bearing in mind what is at stake.” Meanwhile, the Wall Street Journal was also reporting that investors were “largely dismissive” of the Council meeting  at which the extra-E.U. agreement on strengthening the enforcement mechanism of state deficit and debt limits had been reached at the end of the previous week. Alan Brown, chief investment officer at Schroders Investment Management, which had at the time almost $300 billion under management, said of the results of the Council meeting, “Yes, it was what I expected, and yes, I was disappointed.” Schroders was backing up this view with a modest bet against the euro. Relatedly, Barclays was forecasting the currency to fall from $1.30 on December 13, 2011 to $1.25 by June 2012. Besides the pessimism on the “intergovernmental treaty” as well as a possible increase of funds from the $500 billion cap on the agenda at a Council meeting in March 2012, the sheer uncertainty described by Van Rompuy lowers the value of the announced agreement and the outlook concerning the viability of the euro as well as the E.U. itself.

Had the state leaders of “euro” states had gone further in the wake of the veto by the state of Britain, such as by going beyond an “intergovernmental treaty” to form the basis of—to use Sarkozy’s words—a second Europe in the sense of a new federal system with a new federal institution clearly able to implement the state deficit and debt limits, then investors surely would have respected the result more. In other words, Brown’s disappointment may not have been so much on Cameron’s veto as on the reaction of the other state leaders in going half-way, yet again. There is an American expression, “same old, same old,” which seems to apply here. If there are indeed “clearly two Europes” as Sarkozy was claiming after the meeting, then make it so, clearly.

Although the E.U. at the time was a “dual sovereignty” federal system (i.e., modern federalism rather than confederalism) wherein both the states and the E.U. held governmental sovereignty on particular competencies (often shared), I am reminded of the U.S. constitutional convention, which took place over the summer of 1787 in steamy, pre-air-conditioned Philadelphia. The convention’s mandate was to formulate amendments to the extant confederal (i.e., of sovereign states) Articles of Confederation, but the delegates realized that the confederal form itself was not up to the then-present challenge of fighting the British empire in military conflict. The Royal Navy itself was formidable and the French were . . . well. So the delegates decided on their own as a convention to propose a new union, in effect, that would go into effect as soon as the ninth republic ratified the constitutional treaty. Being that the republics were at the time completely sovereign, the agreement was legally a treaty. I suppose any of the sovereign states could have refused (a naval blockade was used to “persuade” Rhode Island, which had not sent delegates to the convention, to sign on to the new agreement) and continued the Articles among themselves. There could have been “clearly two Americas,” and I think that would have been better than the eventual consolidated union achieved in the second half of the twentieth century.

My point is that E.U. state officials such as Merkel and Sarkozy could have said that the old system (i.e., the extant federal system) was not sufficient to fight the debt crisis (and maintain the euro currency), so a new federal system would be begun. Rather than going the route of a convention to draw up the whole thing a priori—for one thing, the E.U. already evinced modern federalism—the new system could have begun with the one competency that was urgently needed, and then gradually subsume the existing competencies of the then-current E.U. A new institution could have been created up front to implement the new competency. The real difference between the emerging and pre-existing federal systems would have been the replacement of the state veto, which is inconsistent with modern federalism, with simple and qualified majority voting both concerning new federal laws and regulations pertaining to the given competencies and on the proposing and ratification of amendments to the basic law. Over time—and the European experience differs here too from that of the American—gradually the new union will have developed while the pre-existing E.U. devolves into a confederal common market and military alliance of sovereign states. In fact, some of the older union’s institutions, such as the E.U. Parliament, might move to the new union, as a confederation represents states rather than citizens. The ECJ could conceivably have covered both systems—the new E.U. being a more viable federal system than the old one and the old E.U. being essentially a combination of NATO and NAFTA on the European scale. Alas, the opportunity was lost as the state officials bargained with uncertain legalese rather than led with a “big picture” vision for the twenty-first century goddess Europa.

Simply coming up with an “intergovernmental agreement” of questionable legality is pallid next to a declaration that the current federal system was fundamentally flawed as a federal system so a new federal union would be created for the willing, bit by bit rather than by a convention drawing up a whole architectonic a priori as the Americans did in going from a confederation to a federal system. Since the Shuman Plan in 1951, European integration has proceeded with fits and starts, rather than in leaps and bounds. So the opportunity lost was in line with the European experience, rather than an imposition from the American experience. In the wake of Cameron’s admittedly unexpected veto, the officials of the “euro” states did not “step up to the plate” (an American baseball expression referring to stepping up to home plate, which must be done before one can hit the ball being pitched) to propose a new system initially of one competency handled by one new institution.

Clearly, some of the E.U.’s states in 2011 preferred a solid federal government to a flawed one, while other states would rather have been in a confederal “network.” The particularly sad thing is: both camps could have been accommodated. This is my main point; the Europeans were making things too hard on themselves by not going far enough in the wake of the veto. Amid the timidity, it is no wonder Italian bond yields were rising and investors were pessimistic on the euro in the wake of the “intergovernmental agreement.”

              Federalismus in Action: Jose Barosso of the E.U. Commission and Angela Merkel of Germany / NYT

Strangely, Angela Merkel of the state of Germany came away from the meeting pleased, according to the International Herald Tribune. She pointed to “a breakthrough to a union of stability and the fiscal union will be developed step by step. We will use the crisis as a chance for a new beginning.” Her understanding of the process of European integration as “step by step” is spot on, and it sounds like she was referring to “the fiscal union” as another union rather than to a union within the E.U. A “union” within a union operating at that union’s level is nonsensical, just as it is fallacious to say that one union is somehow equivalent to a state in another.  If she was referring to an inner core within the E.U. even in spite of Cameron’s veto of the proposed competency in the E.U., it could be argued that what was needed for “a union of stability” is not satisfied by a “fiscal union” somehow within the existing unstable union or hanging on to the edifice by legal uncertainty. Building stability from the ground up, “step by step,” would require that the new competency to buttress the euro is separate from the union existing at the time, but this is not sufficient. Addressing the federal instability, the states’ veto itself would have to be replaced with simple or qualified majority rule—both in terms of law and amendments—for the new federal system to be stable. Negotiating an appurtenance like “fiscal union”—perhaps like the “free border union” (every competency having opt-outs is apparently a union)— as a side-deal adjunct to the existing E.U. simply extends the existing federal instability while admittedly fortifying the euro somewhat. I suspect, however, that the federal inconsistency (i.e., the state veto and the related fiction of sovereign states) in the structure of the E.U. adds to, and indeed exacerbates the problem of the need for the new competency (i.e., a better enforcement mechanism on state deficit and debt limits). Merkel’s “breakthrough” does not reach this problem, and is thus not really a breakthrough. Moreover, it is not clear if she was even referring to the E.U. in pointing to “a union of stability” being begun by the “fiscal union.” It is no wonder that legal uncertainty ensued in bond and currency markets.

Both problems—that of insufficient competencies and the structurally inordinate dominance of the state governments at the E.U. level—could have been addressed at the Council meeting, given the opportunity provided by market pressure due to the worsening debt crisis facing several states in the E.U. Rather than engage in word games such as “fiscal union,” the state leaders at the European Council meeting could have proposed the germination of a new, more structurally balanced and thus viable Union for any of the existing E.U. states willing to join. The “stable union” could have existed alone side the pre-existing E.U., which could have been allowed to gradually morph from being an unstable federal system into a loose confederation or “network” (Cameron’s “label” for the E.U.) housing a common market and an alliance—perhaps merging with the EEA as the member states would again be sovereign. Such a “network” would be perfectly consistent with the state veto mechanism. Being able to grasp both trajectories makes possible the sort of breakthrough that is the stuff of leadership vision. In contrast, working out the legalese of a “fiscal union” treaty (i.e., between governments) that might somehow require a referendum in Ireland nonetheless and that might bear some possible relation to existing E.U. institutions as enforcement mechanisms even as it floats with uncertainty somewhere outside the E.U. architectonic is tantamount to bureaucratic gamesmanship—politics by the same folks who claim, oddly enough, that the E.U. is somehow not a political union (the European Parliament apparently not being a legislative body) but is on the way to becoming one, less one veto.

Click to add a question or comment on the legal uncertainty of the “intergovernmental agreement” on state deficit and debt limit enforcement.

Sources:
Matina Stevis, Frances Robinson, and Marcin Sobczyk, “Legal Uncertainty Imperils EU Agreement,” The Wall Street Journal, December 14, 2011. http://online.wsj.com/article/SB10001424052970203430404577095811494434538.html

Tom Lauricella, “Euro at 11-Month Low,” The Wall Street Journal, December 14, 2011. http://online.wsj.com/article/SB10001424052970204336104577096870356726742.html?mod=googlenews_wsj

Steven Erlanger and Stephen Castle, “Europe United, Minus One: A Firm German Imprint on an E.U. Transformed,” International Herald Tribune, December 10-11, 2011. http://www.pressdisplay.com/pressdisplay/viewer.aspx


Federalizing the Criminal Code: Racial Opportunity Costs

On December 13, 2011, a bipartisan group of legal experts told a panel of lawmakers in the U.S. House of Representatives that the federal criminal code had grown so large that U.S. citizens could not possibly keep up with it. “We ought to get rid of the old myth that you’re presumed to know the law,” Rep. John Conyers (D-Mich.) said. About 4,500 criminal statutes exist, according to Ed Meese, a former U.S. Attorney General under President Reagan. “This is in addition to over 300,000 other regulations that don’t appear in the federal code but nevertheless carry essentially criminal penalties including prison,” he said. “So the vast array of traps for the unwary that lurks out there in federal criminal law is more extensive than most people realize.” The Administrative Office of the U.S. Courts figures some 80,000 defendants are sentenced in federal court each year.

Back in the 1990s, Sandra Day O’Connor, then a justice of the U.S. Supreme Court, said at a small gathering, “Congress is acting like a state legislature.” She went on to point to all the crimes being federalized. I asked her why the Rehnquist Court had not applied the brakes to this breach of federalism. “Because it takes five,” she replied. In other words, not even the Rehnquist conservative majority, which had been responsible for the Morrison and Lopez rulings, was sufficient to arrest the ongoing political consolidation via the federalizing of criminal law.

In late 2011, Rep. F. James Sensenbrenner, chairman of the U.S. House Judiciary Committee’s panel on crime, introduced a bill that would reduce the federal criminal code by a third and define the level of criminal intent that is necessary to break the law. Laying aside the matter of Congress over-criminalizing society at the expense of liberty, and the related matter of the “micro-managing” mentality that is implied in a ceaseless desire to “mold” or control others by threatening penalties, federalism itself ought to be brought to bear on Sensenbrenner’s proposal.

Specifically, in addition to reducing the quantity of federal criminal statutes and regulations to that which the citizenry can reasonably be expected to digest, each statute and regulation should be either retained or thrown out on the basis of whether it falls within one of the enumerated powers of Congress. By “falls within,” I do not mean indirectly or by extension, as in the specious argument that an Iowa farmer’s home-grown wheat used solely by the farmer (and his family) is subject to the reach of the interstate commerce clause because if enough farmers grew wheat for their own consumption, the price of wheat transported between states would be impacted. The term expressly need not be used in the U.S. Constitution for it to be understood that the enumerated powers do not distend through sheer reasoning to preempt those powers reserved to the American republics or their residual powers. Wheat that never leaves Iowa cannot, by definition, be considered to be part of interstate commerce. I suspect that the same logic is being broken in Congressional efforts to federalize criminal law.

The U.S. Constitution clearly states that the police power resides with the states. Considering the abuses associated by state officials in implementing (or abusing) that power (e.g., California police pepper-spraying students to manipulate them off the sidewalk on a public university campus), the U.S. Government could shift from undercutting federalism by “federalizing” criminal law outside the enumerated powers to strengthening federalism by acting on a check against abusive state officials. In other words, federal criminal law could be primarily directed to the states (i.e., their officers), and to citizens secondarily and only within the powers enumerated for Congress. This approach is consistent with the confederal element that is retained in the broader notion of modern federalism (e.g., as applied in the U.S. and E.U.), while acknowledging that the general government also reaches to the citizenry directly (“direct effect”).

One example of the federal government attempting to check a systematic abuse of power by police in a state’s county is the three-year investigation by the civil rights division of the U.S. Department of Justice of the Maricopa County sheriff’s office in Arizona. The ensuing report found “a pervasive culture of discriminatory bias against Latinos” reaching Sheriff Joe Arpaio himself. Deputies are said to “target Latino drivers on the roadways and detain innocent Latinos in the community in their searches for illegal immigrants,” according to the New York Times. Such practices, according to the report, are in violation of the Fourth Amendment’s prohibition on unreasonable seizures. The report adds that Latinos have been systematically mistreated in the county jail. Besides the report, a separate federal grand jury investigation was underway as well, focusing on accusations of abuse of power by the sheriff department’s public corruption squad.

For its part, the Justice Department was urging the sheriff to cooperate with the federal government in turning his department around, or risk a lawsuit and the loss of millions of dollars in federal money. Even so, Arpaio “brushed off the criticism in a news conference as politically motivated,” according to the New York Times. He was particularly upset that the homeland security secretary, Janet Napolitano, a former Arizona governor, had announced that the federal government would no longer allow the sheriff’s deputies to check the immigration status of inmates in their custody. In reaction, the sheriff remarked, “This is a sad day for America as a whole.”

Besides the inherent impoussance of the Justice Department’s plan “to do cultural change” in a sheriff department that is headed by intransigence, the sheer time during which the alleged abuses had been allowed to continue (e.g., the report taking three years) bespeaks a woefully inadequate priority in the federal government to act as a real check on the states. To be sure, Arizona is a sovereign state with regard to its police power, and the federal government is obliged to respect that sovereignty. However, neither a government of a state nor of the union is free to violate the U.S. Constitution, which is the source of all of the governmental sovereignty that is in the federal system (characterized by dual sovereignty—split between two systems of government, that of the states and that of the union). So Arisona is not free to violate the Fourth Amendment, and the general government can legitimately provide a check, as judged by the judiciary. Therefore, rather than usurping state criminal law by federalizing criminal statues, Congress should go to work to give the federal government better tools with which to act as a check on sheriffs such as Arpaio. Generally speaking, there is more than enough for the Congress to do within its federal role without encroaching on federalism itself paradoxically by “federalizing” powers assigned to the several states. The latter activity involves an opportunity cost that I dare say the Latinos in Maricopa County doubtless do not appreciate.


Sources:

Gary Fields and John Emshwiller, “Criminal Code Is Overgrown, Legal Experts Tell Panel, Wall Street Journal, December 14, 2011. http://online.wsj.com/article/SB10001424052970204336104577096852004601924.html

Marc Lacey, “U.S. Says Arizona Sheriff Shows Pervasive Bias Against Latinos,” The New York Times, December 16, 2011. http://www.nytimes.com/2011/12/16/us/arizona-sheriffs-office-unfairly-targeted-latinos-justice-department-says.html?pagewanted=all


Monday, December 12, 2011

The Visible Hand: Markets Forging a Stronger E.U.

Joschka Fischer, a former foreign minister of the state of Germany, said the agreement under which 17 state governments accept more oversight and control of their budgets by the European Union “was a big step, which was pushed on the Europeans by the markets.” Such pressure was necessary, given the conflict of interest bearing on state officials working at the federal level on a deal that would add a new competency to the E.U. “(I)n the end,” Fischer added, “the markets have limited the options of the political leaders, especially of Merkel, and pushed her into giving more support for the euro.” Giving more support for the euro meant giving more power to the E.U. at the expense of the state-level where Merkel has most of her power. From this vantage point (i.e., the power that state officials have at the E.U. level), it is amazing that the E.U. has been able to acquire any additional competencies.

To be sure, the attempts to hold the E.U. back have been busy with plenty of spin. For example, Landon Thomas of the New York Times characterizes the proposed new competency as “a historic accord aimed at moving Europe closer to political as well as monetary union,” as if the very existence at the time of the E.U.’s parliament and commission (the executive branch—which in turn is spinned by some as an “arm” rather than a branch because governments do not have arms) were not political institutions. Other reporters were characterizing the involvement of the E.U.’s Commission in enforcing state deficit and debt limits as “fiscal union,” implying that all public fiscal decisions would be consolidated in Brussels. From the vantage-point of David Cameron’s vision of the E.U. as “one of the networks that Britain is in,” such hyperbole must have been quite frightening. Indeed, I suspect that the excesses in the spin produced the excess of Cameron’s veto of the proposed competency under the subterfuge that the City needed safeguards on financial regulation from the E.U. at the expense of state regulation.

According to the New York Times, “Britain would much prefer to have the Bank of England governor, Mervyn A. King — whose highly skeptical view toward British banks is well known — as its main regulator than a bureaucrat based in Brussels. Britain, for example, has already proposed that its large banks should have higher capital requirements and split off their trading operations into separate businesses. Brussels opposes such measures, preferring a set of European Union rules.” In other words, the operative question is that of federalism: which “level” of government should have the authority—the federal or that of the states. Related to this question is that of Britain’s influence at the E.U. level—and, moreover, of that of the state executives as a whole at that level.

Fearing “fiscal union” from the “voting bloc” of the 17 E.U. states using the euro currency, Cameron foresaw a decline in his state’s influence in the union. The link to the proposed competency was at best indirect; the actual change that would soon impact Britain’s power in the union had already been agreed to and would go into effect in 2014. Under the voting rules in the European Union’s council of ministers, a nearly three-quarters majority of votes was required at the time to pass new measures, with the votes allocated among the states on the basis of population. Under this calculus, the 17 states using the euro could not by itself muster a sufficient majority, so Britain, along with other states, has been able to help block measures it has not liked. “But come 2014,” according to the New York Times, “simple majority votes will suffice in the council of ministers.” This change, by the way, will be extremely important to the viability of the E.U. Were it accompanied by qualified majority voting on amendments to the E.U.’s basic law, or “constitutional treaties,” the E.U. would be structurally sound as a federal system. Sadly, American officials pushing the Europeans to loan more to E.U. states facing default missed the opportunity to pressure the E.U.’s state officials to abandon the residual “veto” that has nearly paralyzed the E.U. from being able to address problems from even its actual responsibilities.

By itself, the block of the euro state votes wield a simple majority, which will become sufficient in 2014. It is unlikely that the proposed competency would solidify that vote block, though this seems to have been Cameron’s assumption in using his veto in Brussels in December 2011. Yet even with his veto on the proposed amendment, Britain could face additional federal financial regulation as early as 2014. Because this additional transfer of sovereignty was the real thorn under the veto, it was misdirected at the proposed competency. Indeed the veto was actually not much of a veto because the 17 states planned to go ahead with the transfer of budget supervision anyway, propelled by the markets to do so in order to save the euro.

I don’t view it as important whether states such as the Czech Republic that do not use the euro approve the new budget supervision role for the Commission; the important point is that the 17 states using the euro agree to be so bound. Yet in still undoubtedly chasing ghosts, Cameron is likely to attempt to interfere—which would do nothing, by the way, to forestall the shift in 2014 to simple majority in the Council of Ministers.

According to the New York Times, “Cameron has threatened to block Brussels institutions like the European Commission and the European Court of Justice from being used to oversee the treaty, since it does not include all 27 members, but French officials said that sounded like another bluff. ‘The British don’t want us creating our own euro-zone commission and court,’ one senior official said.” It is not even clear that all 27 states must be included in an activity of the Commission, as, for example, Britain has opted out of the social policy and open-borders domains of the E.U. To be sure, social policy is part of the E.U. whereas the proposed “agreement” would not be, at least as long as the conservatives control the state government of Britain.

On the other hand, legalese tends to be slighted over in the E.U. under the demands by market players for more integration. For example, the E.U.’s “dominant coalition” was willing to bypass a veto of Slovakia’s parliament in expanding the E.U.’s loan facility to stave off a Greek default. In other words, the formally-extrinsic “intergovernmental agreement” might be a de facto part of the E.U. anyway. Ironically, the more Cameron tries to thwart the “extracurricular agreement,” the more the vast majority of the E.U. states might use the “intergovernmental agreement” as a basis for a new, more integrated, union, giving up the ghost on Cameron’s fiction of a network of sovereign states. In other words, a new, more solid federal system could sprout, ironically on the basis of an intergovernmental agreement. As an E.U. official said after Slovakia’s veto of the expanded EFSF, “where there is a will, there is a way.” In using his veto as he did, Cameron appears to have missed this point. Sadly for the British prime minister, sour grapes on the relative impotence of his misdirected (or misfiring) veto as against the markets’ pressure on the “euro zone” state leaders may not stop the E.U. from being able to support the euro by achieving a better balance of power between the states and the union in spite of the disproportionate role of state officials at the E.U. level.

Paradoxically, a more federally balanced federal system for Europe could spring up from the “pact,” with the skeptics being tacitly handed their hats. One can find oneself outside a new wall as if overnight. Even in late 2011, the “vetoed” new competency may have evinced such a wall, as of yet invisible to most. The dogmatic spin that Britain is somehow distinct from Europe (and perhaps illogically a third party between the U.S. and E.U. as if somewhere in the middle of the Atlantic) was alive and well in that state, cheering on Cameron’s veto. Derek Scott, for example, a former adviser to Tony Blair, opined: “So the idea of Britain being isolated is not quite right — this is going to be a prolonged slog between Britain and Europe.” No, but it could be a “slog” in the European Union, wherein Britain resides and is but a state. Perhaps the real question in late 2011 was whether the appearance of the “slog” was actually already a ghost, the parting of the ways based on divergent views of the ontology of the E.U. itself having already occurred amid the exigencies of the debt-crisis over the preceding summer months.

Even if a new E.U. were to develop around the “pact” in exclusion of Britain and a few other “euroskeptic” states, Britain would be an independent state rather than an empire-level union of states such as the E.U. and U.S. Were Cameron to declare that the U.K. is somehow a partner of the E.U. (and U.S.) even as Britain is a semi-sovereign state in the E.U., a hidden agenda worse than the fallacy involved would not be far away. Perhaps the underlying culprit is petulant cocktail of denial and simply wanting to have it both ways. Meanwhile, propelled by the markets, leaders of other states looking beyond their own state interests will push onward, undeterred in defense of the euro and the European Union itself. If those state officials are successful, they will have invigorated a distinct system of government whose operation does not depend on them. It is such market-facilitated courage, rather than merely looking out exclusively for one’s own state’s interest, that the E.U. desperately needs in order to survive its liminal “betwixt and between” stage as a teenager of sorts.

Click to add a question or comment on the E.U. Commission enforcing extant state deficit and debt limits and the ramifications for the E.U. and its states.

Sources:

Steven Erlanger and Liz Alderman, “Chronic Pain for the Euro,” December 12, 2011. http://www.nytimes.com/2011/12/12/world/europe/euro-deal-is-a-pill-but-experts-doubt-it-is-a-cure.html
Landon Thomas, “A Stark Step Away From Europe,” The New York Times, December 11, 2011. http://www.nytimes.com/2011/12/12/business/global/for-britain-another-step-away-from-europe.html?pagewanted=1

Sunday, December 11, 2011

Carbon-Dioxide Emissions amid Global Warming: A Species’ Death-Wish

Global emissions of carbon dioxide from fossil-fuel burning rose 5.9 percent in 2010, the largest amount on record, according to an analysis released in early December, 2011 by the Global Carbon Project. According to the analysis as reported by the New York Times, “the increase, a half-billion extra tons of carbon pumped into the air, was almost certainly the largest absolute jump in any year since the Industrial Revolution, and the largest percentage increase since 2003.” The researchers “do not expect the extraordinary growth to persist, but do expect emissions to return to something closer to the 3 percent yearly growth of the [2000-2009] decade, still a worrisome figure that signifies little progress in limiting greenhouse gases. The growth rate in the 1990s was closer to 1 percent yearly.” In other words, the trend has been the opposite of that which one might have expected years after Al Gore’s documentary on global warmth. Increasing knowledge of global warming did not result in a reduction in contributing to global warming; rather, more carbon dioxide has ensued. To be sure, the negative correlation is not causal in nature; knowing more about global warming has not caused people to decide to pollute more. That would really be bizarre. Even so, it does appear that mankind is not sufficiently interested in protecting the specie’s own long-term viability at the expense of more immediate interests. Put another way, governments have enabled their respective businesses to produce more (or cheaper) even while knowing that the earth is warming.
According to the New York Times, “Scientists say the rapid growth of emissions is warming the Earth, threatening the ecology and putting human welfare at long-term risk. But their increasingly urgent pleas that society find a way to limit emissions have met sharp political resistance in many countries, including the United States, because doing so would entail higher energy costs.” Short-term costs are more important than long-term survival. This, in short, is why our species does not deserve to survive. We have produced this sad verdict ourselves.

“Each year that emissions go up, there’s another year of negotiations, another year of indecision,” said Glen P. Peters, a researcher at the Center for International Climate and Environmental Research in Oslo and a leader of the group that produced the new analysis. “There’s no evidence that this trajectory we’ve been following the last 10 years is going to change.” This was borne out in the “deal” reached for a “New Emissions Treaty” at the U.N. climate talks ending in December 2011.

According to the New York Times, “The European Union had pushed hard for what it called a ‘road map’ to a new, legally binding treaty against fierce resistance from China and India, whose delegates argued passionately against it.” Developing countries, including China and India, had surpassed the developed countries in their overall greenhouse emissions. In 2010, for example, the combustion of fossil fuels and the production of cement sent more than nine billion tons of carbon into the atmosphere, the new analysis found, with 57 percent of that coming from developing countries. Even so, emissions per person were still sharply higher in the wealthy countries, which had been emitting greenhouse gases far longer and thus they account for the bulk of the excess gases in the atmosphere. The level of carbon dioxide, the main such gas, had increased 40 percent since the Industrial Revolution. A long-term cost was being incurred simply in debating year after year without actionable results in lower emissions. For developing countries, it would seem that having an equal opportunity to pollute was worth risking the planet, at least as far as human habitation is concerned. “Am I to write a blank check and sign away the livelihoods and sustainability of 1.2 billion Indians, without even knowing what the E.U. ‘road map’ contains?” asked India’s environment minister, Jayanthi Natarajan. “Please do not hold us hostage.” This way of thinking—or decision to use hyperbole—also qualifies mankind as not deserving to survive.

Even as carbon-dioxide emissions were “alive and well,” the “deal” reached in December 2011 would continue the Kyoto agreement, to which neither the United States nor developing countries such as China and India are parties, until  2017 or 2020. The terms of any agreement that replaces it would be negotiated at future sessions of the governing body, the United Nations Framework Convention on Climate Change. The basic mentality behind such a wan or pallid “deal” amid knowledge that global warming is indeed proceeding is transparent in this passage from the New York Times: “Scientists say the rapid growth of emissions is warming the Earth, threatening the ecology and putting human welfare at long-term risk. But their increasingly urgent pleas that society find a way to limit emissions have met sharp political resistance in many countries, including the United States, because doing so would entail higher energy costs.” That “increasingly urgent pleas” are being essentially ignored may itself point to a “hard-wired” weakness in the species that can be characterized as “self-defeating.”

Behind the increased emissions alone, moreover, is the failure of the species to self-regulate its own size. On October 31, 2011, the global population (of human beings) was estimated to have hit 7 billion. It had passed the 6 billion mark in 1999. The 10 billion mark is expected by the end of the twenty-first century. At a basic, biological level, organisms must consume resources and expel waste products: the more people, the more consumed and expelled. It is ironic that humanity places so much reliance on its technological abilities to mitigate this basic fact even as the species seems incapable of simply acting on the basis of the extant knowledge on climate change to make emissions reduction “actionable.”

In An Essay on the Principle of Population, Malthus pointed to disease, famine and conflict (war) as nature’s trove of solutions to arrest a maximizing species from piercing a broader ecosystem, which is inherently at an equilibrium (i.e., homeostatic). Perhaps we could add a fourth solution—namely, a shift to a climatic equilibrium inconsistent with human habitation. Perhaps this is nature’s way of handling the arrogance of man, or perhaps it is our way of judging ourselves as a species. Perhaps unconsciously, the sordid species, which presumes itself to be “made in God’s image,” has a death wish—a humble sensibility underneath “just saying no” to the overweening superciliousness of the arrogance that seems almost hard-wired in the species. That is to say, the “result” of the global climate talks “attained” in December 2011 can perhaps be read as the expression of an unconscious collective will—a tacit verdict of a species on itself by procrastinating in the context of “urgent pleas.” In the context of a maximizing trajectory in terms of population, which seems to suggest dominance or victory on this planet, the species’ own verdict is certainty ironic.

From the 2010 figures alone, my initial gut reaction was that the species had failed the “test” in a way that shows human nature to us as it is. Accordingly, I have no doubt that the verdict will be fully implemented in a few generations—our days being limited as a species. Lest it be presumed that my intuition might give rise to any consternation or sadness in anyone reading this essay, I am reminded of something my dad’s second wife said to him and me concerning global warming a few years ago. “I don’t care what happens to the earth after my children and their children.”  


Sources:
John M. Broder, “U.N. Climate Talks End With Deal for New Emissions Treaty,” The New York Times, December 11, 2011. http://www.nytimes.com/2011/12/12/science/earth/countries-at-un-conference-agree-to-draft-new-emissions-treaty.html

Justin Gillis, “Carbon Emissions Show Biggest Jump Ever Recorded,” The New York Times, December 4, 2011. http://www.nytimes.com/2011/12/05/science/earth/record-jump-in-emissions-in-2010-study-finds.html