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Friday, July 6, 2012

Hillary Clinton Bested by a Syrian General


“I don’t think Russia and China believe they are paying any price at all — nothing at all — for standing up on behalf of the Assad regime,” U.S. Secretary of State Hillary Clinton said at the so-called “Friends of Syria” meeting, which took place at Paris in the E.U. on July 6, 2012. According to the New York Times, the alliance was being “shunned by Russia and China.” Holding Moscow and Beijing to account would be no easy feat, given the power of the two empires. Clinton said that every participant at the meeting would have “directly and urgently” make it clear to Russian and Chinese officials that their respective governments (and presumably economies) would pay a price forthwith should the support for Assad continue. Yet even as she made these remarks, Clinton must have known that the chances of that happening were practically nil, given the problems entailed in getting various governments to act in concert, not to mention be on the same page, even when there is general agreement.

The impotence of the diplomatic effort was made palpable by what was happening on the ground in Syria. As the meeting was in progress, General Tlass, a commander of the Syrian Republican Guard and a close friend of Assad, was on his way to Paris after having defected. “If people like him, and like the generals and colonels and others who have recently defected to Turkey are any indication, regime insiders and the military establishment are starting to vote with their feet,” Clinton told reporters. “We know that the Assad regime will fall. The question is how many more people have to die before that happens.” It is a sad commentary on the “national sovereignty” basis of international relations so favored by the Russian and Chinese governments that the question would have to be answered by events on the ground rather than by the governments then meeting in Paris.  It was as though two governments out of hundreds were being allowed to hold the world hostage, thereby enabling Assad. Unlike the world, which seemed mired in strategies out of a playbook of political realism, Gen. Tlass voted with his feet. In effect, Russia and China had won, having been given the presumed or artificial advantage wherein their respective vetoes were considered legitimate in forestalling even the "Friends" from voting with their collective feet on the ground.

Source:

Dan Bilefsky, Alan Cowell, and Neil Mac Farquhar, “General’s Defection Confirmed as Syria Opposition Meets,” The New York Times, July 6, 2012. http://www.nytimes.com/2012/07/07/world/middleeast/opponents-of-syrias-president-gather-in-paris.html?ref=world

Wednesday, July 4, 2012

SCOTUS: Congress Coercing States to Expand Medicaid


The aspect of the court’s decision on “Obamacare” that forbids Congress (and the President) from threatening states by withholding funds already promised is significant in terms of American federalism. In his dissent, Scalia notes the Court had never before “found a law enacted under the spending power to be coercive.” In the case then before the Court, all but two justices found “the conditional of a State’s continued receipt of all funds under a massive state-administered federal welfare program upon its acceptance of an expansion of that program” to be just that, and thus unconstitutional. The majority was doubtlessly acting to protect federalism from even more encroachment by the U.S. Government at the expense of the sovereignty retained at least de jure by the state governments.

According to the precedent, while Congress can specify the purpose to which funds can be used by states, other funds already being received by the states cannot be held ransom. As a result, we can expect greater differences between the states in terms of government programs, including entitlement programs like Medicaid. Given the empire-scale of the American Union of fifty republics, such diversity is both natural and healthy. 

It is significant that in the case before the Court, twenty-six states were objecting to the Affordable Care Act. That the anticipated forced-expansion of Medicaid could have been onerous to the states may thus have weighed more heavily on the justices than did the burden of the mandate on individuals. By its decision, the Court gave those states some relief in being able to “just say no” to the expansion without having to lose existing Medicaid funds. In recognizing the states’ authority in this respect vis a vis that of the federal government, the justices evaded further political consolidation at the expense of federalism (and the sovereignty retained at least formally by the states). 

Sources:
 
National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., 567 U.S. Supreme Court (2012).

Amanda Terkel, “GOP Governors Resist Implementing Obama’s Health Care Law Despite Supreme Court Ruling,” The Huffington Post, June 29, 2012. http://www.huffingtonpost.com/2012/06/29/gop-governors-obama-health-care_n_1637456.html

Tuesday, July 3, 2012

JP Morgan: Conflict of Interest in Mutual Funds


As JPMorgan Chase was increasingly getting into the managing function of mutual funds, the bank also created and sold its own funds. I submit that these two tasks being done by the same firm constitutes a structural conflict of interest, regardless of any purported “Chinese wall.” In other words, a certain tension exists when the two functions are performed by the same business entity because the incentives in one of the two tasks (i.e., selling one’s own funds) inherently shirk the viability of the other task (i.e., being a financial advisor). In particular, the objectivity implied and even advertised in the latter is apt to be relegated as the sales function kicks in. The “answer” to this ethical problem is that a given bank should do one or the other, but not both tasks. Put another way, only a fool tries to do everything—only a greedy fool.



Geoffrey Tomes admits to having favored the bank's own funds in "advising" clients

The full essay is at "JPMorgan: An Unethical Monstrosity?"

Monday, July 2, 2012

Juggling the Court and the Constitution: Chief Justice Roberts

Charles Krauthammer proffers a pithy summation of the U.S. Supreme Court Chief Justice’s majority opinion on Obama’s health-insurance law of 2010: “Law upheld, Supreme Court’s reputation for neutrality maintained. Commerce Clause contained, constitutional principle of enumerated powers reaffirmed.” Translation: the Court is not judicially activist, the 5-4 majority is not down party-lines, and federalism is protected. Essentially, John Roberts was able to dodge some bullets while doing what he needed to get done, philosophically. Turns out the guy is pretty smart after all. More than met the eye may have been behind President Bush’s decision to nominate him to be the Chief Justice.

Beyond judicial skill, the Chief Justice presides at the U.S. Supreme Court. He is thus oriented institutionally (i.e., as per his unique position there) to act in the Court’s institutional interest. In Krauthammer’s words, “Institutionally, he is chief justice and sees himself as uniquely entrusted with the custodianship of the Court’s legitimacy, reputation, and stature.” That is to say, John Roberts as Chief Justice is more than a justice. To put it crassly, he was interested in what the popular press was saying about the Court while it was deliberating, whereas at least one of the other justices (Thomas) made an effort specifically to avoid looking at the press. Roberts was right to have one eye on how the reputation of the Court might be affected, and Thomas was right to have both of his eyes diverted so as not to be improperly swayed by public opinion. This is not to say that Roberts laid himself open to such influence; there is a difference between popular opinion on the law that is “under the knife” and how the Court could suffer in the public square as a result of a ruling. It is perfectly legitimate for the Chief Justice to have one eye on the latter.

The distinction between being the president of the Court—essentially presiding over it as the steward of its long-term viability—and being a “mere” justice on the Court means that the Chief Justice can be expected to be a “different kind of animal” from that of a justice. From the vantage point of the latter, the Chief Justice may look like a politician, and in fact there may be some political considerations involved in safeguarding even a long-term reputation. The mix of politician and judge seems a bit like that of oil and water—only the latter being reckoned by the jurisprud as pure. Hence John Roberts’ behavior probably struck the other justices as odd at best. However, I suspect that the people “in the know” involved in the selection of the Chief Justice had been well-aware that John Roberts was distinct in ways that would differentiate him from the other justices.

 U.S. Chief Justice John Roberts

Roberts had to be both politician and justice in crafting a majority opinion that would both protect the Court and safeguard federalism (or what is left of it, anyway). I suspect that in this dual-role, Roberts had the rare view that perhaps only leaders in Congress and the President get from time to time—namely, that of the big picture, wherein the trees of one’s days give way to the contours of the forest, both constitutionally and historically. From this summit, the United States is seen as if from a distance measured in terms of oceans of time, and “doing the right thing” can take on added importance because the precariousness of the thing awash in a sea of history yet to be made. 

 Crucially, with the perspective comes a recognition that is apart from any pressing ideological, philosophical, political or even judicial interests. The United States is perceived as an entity that is itself in need of protection apart from whatever way the currents of the day happen to be going. This recognition is what really distinguishes presiding from partisanship. The latter is relativized in importance. With the height of the position comes power such as can shift the contours of a nation’s trajectory for decades, yet also at this height is a humbling sense of responsibility. Ironically, those of less power act with much less responsibility and thus are more dangerous. The distinction here can be thought of as that which exists between transformational and transactional leadership, though the typically organizational application of transformational leadership mislabels or belies its true home, which is societal and historic. 

I suspect that in deliberating on the case, John Roberts perceived that he had not only signficant power in terms of a major piece of legislation in deciding which "side" would be the majority, but also the overriding responsibility to protect the Court itself, and indeed the viability of the U.S. system of governance (including the federal institutions and federalism itself). He was in a position institutionally that called him to rise to the occasion in terms of safeguarding the system itself. 

Theoretically speaking, being systemic in its orientation, the presiding function is consistent with  systemic leadership. The broad vision of such leadership transcends the issues and pressures of the day. To be sure, the more immediate strategic factors cannot be totally ignored. In fact, juggling the enlightened leadership vision that is oriented to the presiding function with the more short-term or issue-oriented strategic or political elements is of value in high positions. This composite in turn can be referred to as strategic leadership. Rather than being a fault or evidence of personal frailty, managing this task is quite proper to the office of Chief Justice.

Source:

Charles Krauthammer, “Why Roberts Did it,” National Review Online, June 28, 2012. http://www.nationalreview.com/articles/304332/why-roberts-did-it-charles-krauthammer



Barclays: Riddled with Conflicts of Interest


Lest it be presumed that no harm to society can come from having Wall Street bank CEOs such as Jamie Dimon (of JP Morgan) on the New York Fed’s board of directors, Marcus Agius, the former chair of Barclays who resigned after his bank agreed to pay $450 million to settle accusations of rate-setting, was also the honorary chairman of the Bankers’ Association of the state of Britain in the E.U. That association oversees one of the key rates in question, the London interbank offered rate, or Libor.

As if the conflict of interest in having a bank chair or CEO on the board of a banking regulatory body were not sufficiently toxic, the rate-manipulation by Barclays involves a conflict of interest within the bank. According to the New York Times, “Authorities found that employees in the bank’s treasury department, which helped set Libor, submitted artificially low figures at the request of the firm’s traders, who profited from buying and selling financial products. The two sides are supposed to be divided by so-called Chinese walls to ensure that confidential information is not improperly shared to make profits. But e-mails showed that the two divisions regularly collaborated in an effort to bolster their profits and avoid scrutiny about the bank’s health at the height of the financial crisis. In part, Barclays wanted to keep its rates in line with those of rivals to keep its ‘‘head below the parapet,’ so that it did not get ‘shot off,’’ according to regulators.” By now, the public and its representatives in government should have no faith in intra-firm “Chinese walls” as bulwarks against conflicts of interest. Self-aggrandizing claims to the contrary by managers of the firms themselves should be summarily dismissed as if mere froth.

The case of Barclays proffers a good example of what I would call “macro” and “micro” conflicts of interest, by which I mean an inter-firm conflict (i.e., business and government) and an intra-firm conflict. Together, they can be viewed as stacked bricks, the "macro" conflicts being on top of the "micro." The expression of “turtles all the way down” from philosophy seems apt, especially if the controversial multi-million dollar executive pay packages at Barclays came from a management-controlled board of directors.

Generally speaking, institutional conflicts of interest may be ubiquitous in corporate governance as well as in the relationship between business and government. I suspect that many of such conflicts are invisible to the public because the root lies in institutional design. Furthermore, I would not be surprised were a poll to show that most people would not be too bothered by the problematic structures even were they made transparent (i.e., exposed to the light of day). That is to say, outrage over particular aggrandizing lapses may typically be disassociated from the underlying design-problems that are themselves unethical. 

This is precisely my point: it seems to be difficult for the human mind to understand why a design can be unethical in itself, even if no visible human culprit has taken advantage of the opportunity. I submit that the latent opportunity in the design itself is inherently unethical. Put another way, while we tend to view human beings as moral agents (thus holding psychopaths as blameworthy), we seem less inclined or able to view relations between organizational positions and/or institutions themselves as morally culpable. As a result, particular instances of sordid lapses by specific individuals can be expected to continue. It is as if we as a species were purblind, able to see only a little further ahead even as we pat ourselves on the back for being so enlightened.

In the end, we ourselves are blameworthy, even if it is easier or more convenient for us to point the finger at people like Marcus Agius. To be sure, he presided over a corporate culture that valued taking advantage of conflicts of interest. Even so, we cannot escape the fact that we (referring to those of us in the E.U. and U.S. in particular) enable such people by our morality-ignorance.

Source:

Mark Scott and Michael De La Merced, “Chairman of Barclays Resigns,” The New York Times, July 1, 2012. http://dealbook.nytimes.com/2012/07/01/chairman-of-barclays-is-expected-to-resign/?hp