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.”[1] 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.”[2] 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.

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

1. 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. 

2. Matina Stevis, Frances Robinson, and Marcin Sobczyk, “Legal Uncertainty Imperils EU Agreement,” The Wall Street Journal, December 14, 2011; Tom Lauricella, “Euro at 11-Month Low,” The Wall Street Journal, December 14, 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.”[1] 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.”[2] 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.

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

1. Steven Erlanger and Liz Alderman, “Chronic Pain for the Euro,” The New York Times, December 12, 2011; Landon Thomas, “A Stark Step Away From Europe,” The New York Times, December 11, 2011. 

2. Ibid.

Unanimity as Outmoded in the E.U."

In the U.S., states can get waivers from having to comply with regulations, depending on the particular law; federal legislation is not passed as if only between some of the several states. It is pretty much a one-size-fits-all notion of federal law, with opt-outs possible typically only on particular regulatory requirements. One such publicized waiver enables states to be exempted from the health-insurance mandate if they can show they have achieved the aim (universal healthcare) by another means. Massachusetts, for example, had a pre-existing program of universal health-care.

The complete essay is at "Unanimity as Outmoded in the E.U."

The Democracy Deficit in Nominating Presidential Candidates

“Newt Gingrich is up, Herman Cain is out, and the attacks are getting sharper as the GOP primary campaign enters the final month.”[1] The final month, that is, before “Iowa launches the contests that will choose the challenger to President Obama.” This has the ring of before time began, or before the beginning. That anything is decided before the beginning may seem metaphysically impossible even if it applies politically. One might demur, claiming that anything without a foundation ought not to be able to exist, let alone to stand. Can Americans borrow anything from the E.U.'s presidents that might improve how the U.S. president is selected?

The full essay is at Essays on Two Federal Empires, which is available at Amazon. 

1. Susan Page, “Gingrich Rises in GOP Field; Cain Out,” USA Today, December 5, 2011.

A Dilemma for the E.U.: A Convention or an Amendment?

In November 2011, European leaders began to talk about amendments to the E.U. that would “change the fundamental structure of the union.”[1] Complicating the talks was ambiguity concerning the nature of the E.U. itself at the time. Foremost among the changes being discussed was the idea of a form of centralized oversight of the budgets of the state governments, with “sanctions for the profligate.”[2] The existing E.U., while more than the American Articles of Confederation, was at the time found to be insufficient in keeping the debt crisis from spreading from state to state and engulfing the union itself and its currency. “The survival of the euro zone is in play,” one senior European official said, “So far it’s been too little, too late.”[3] In this respect, the pressure for “ever closer union” was like that facing the Americans in the mid-1780s. Because the nature of the union was itself an issue, a convention composed of delegates—not state officials—directly elected by the people for the purpose might seem best suited. However, I contend that while rethinking the E.U. was not without merit at the time, the specificity of the planned amendment argues against the idea.

1. Steven Erlanger, "Leaders Struggle for a Deal to Keep Euro Intact," The New York Times, December 4, 2011.

2, Ibid.

3. Ibid.

A Dangerous Method

The method being referred to in A Dangerous Method (2011) is psychoanalysis, as pioneered by Sigmund Freud (1856-1939). The danger referred to is that of freeing people from their sexual repressions. The film revolves around the relationship between Freud and his younger colleague, Carl Jung (1875-1961), and the relationship between him and Sabina Spielrein, his former patient and eventual lover and colleague. She also had an affair with Freud, but it was not shown in the film. Keira Knightley plays the Russian woman a bit too strongly in the first few scenes. In terms of the acting, Knightley exaggerates facial contortions as if fishing for an Oscar out of sheer emotionality. In terms of the narrative, Spielrein’s “transformation,” or cure, is hard to take as credible because it is so drastic within a year or two. Before long, she is behaving completely normal and even attending medical school. The film’s merits lie not with the acting, but, rather, with the intellectual content, whose salience and integration into a good narrative is rare in Hollywood. It is due to this feature that the film is apt to stay with a viewer for some time.

The full essay is at "A Dangerous Method."

An American President Meets the E.U.: Corrective Exigencies of a Debt Crisis

Political protocol can take some time to catch up to changed political realities. For over two hundred years, it has been assumed that U.S. presidents have met with their counterparts in E.U. states such as Britain, France, and Germany. During the European debt crisis, “in numerous private conversations and increasingly forceful public statements, [American] policy makers are urging their European counterparts to take big steps and move fast to reassure markets.”[1] It was undoubtedly assumed that the counterparts were at the state level in the E.U., rather than in E.U. governmental institutions. So how are we to situate Barak Obama’s meeting on November 27, 2011 with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief? 

1. Anne Lowrey, "Obama Meets Leaders of the European Union," The New York Times, November 28, 2011. 

Monti and Papadernos in the E.U.: Leadership in Technical Expertise or Democratic Deficit?

“The moment of truth has come.”[1] This was said by the head of state of the E.U.’s third largest state, Italy, in a televised address just after Berlusconi had resigned as the prime minister. Although the statement could be interpreted as referring to the need to reign in the Italian profligate system of public-sector patronage (which includes private contractors), Giorgio Napolitano could also have been referring to the credibility of his state at the E.U. level. “We need to restore confidence with investors and European institutions,” he continued before turning to the more tangible point that the state would need to refinance nearly 200 billion euros in government bonds before May, 2012.[2]

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

1. Alessandra Galloni and Christopher Emsden, “Italy’s Monti to Form New Government,” The Wall Street Journal, November 14, 2011.
2. Stephen Castle and Liz Alderman, “Under a New Prime Minister, Italy’s Star May Rise at the European Union,” The New York Times, November 23, 2011.

The Descendants

In the 2011 film, The Descendants, George Clooney plays a character who must wrestle with several trade-offs bearing on character itself. Both the acting and the screenwriting handle the task very well. It is a pity that the actor gets a near monopoly of the credit/attention, for the way the trade-offs are navigated by the screenwriter is vitally important—perhaps even more so than the acting.

The full essay is at "The Descendants."

Carnage

I was drawn to the film Carnage by the actors—specifically, Christoph Waltz and Kate Winslet, though Jody Foster and John Riley can certainly hold their own as established actors, and in fact have been in Hollywood far longer than Waltz and Winslet. The primary message of the film seems to be that making up may be more natural than the adults think. This is perhaps why the conflict between the adults doesn’t really get resolved—there being no sense of resolution. This is particularly noticeable because of how dramatically the emotions escalated—particularly in Foster’s character but with Winslet’s coming in a close second. In other words, the acting firepower was perhaps too much, given the actual matter of conflict—the boys’ fight in a city park.

The full essay is at "Carnage."

The African Customs Unions and the E.U.: On Currencies

The East African Community (EAC) is Africa’s “most advanced regional trade bloc,” according to the Wall Street Journal in 2011.[1] The EAC was already a customs union that guaranteed the movement of goods and the right to work across Kenya, Uganda, Rwanda, Burundi and Tanzania. The parliaments were working at the time on synchronizing immigration and tariff laws. “We want to develop this corridor vigorously and collectively,” Mugo Kibati, director of a Kenyan government program, said.[2] But the EAC and other trading blocs in Africa, such as the Southern African Development Community, were “backing away from one prominent aspect of Europe’s economic union: a common currency.”[3] Aside from any vague similarities that the fiscal differences between Greece and Germany may have to those between Zimbabwe and South Africa, the currency question itself is out of place for a NAFTA-like trade agreement.

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

1. Patrick McGroarty, “Africa’s Goal: EuropeWithout the Currency,” The Wall Street Journal, November 21, 2011.
2. Ibid.

3. Ibid.

On the Role of the European Central Bank in Ending the Debt Contagion

“That the [ECB was being] forced [in 2011] to step into the power vacuum left by a fractious political class underscores the increasing centrifugal forces unleashed by the debt crisis.”[1] Yet that pressure was being applied to the central bank to issue Eurobonds and buy more state government bonds in spite of the objections of German officials suggests that there were also centripetal forces acting on the center at the expense of the state capitals, even Berlin. It is important to view the E.U.’s “management” of its debt crisis through the prism of the history of European integration since the Shuman Plan in 1951, which called for ever closer union so as to obviate war and give Europe a stronger economic and diplomatic power in the world. The history of the European project can be characterized as a series of fits and starts, punctuated by momentary crises—each proffering potential ruin to the union itself. For example, France’s veto of Britain’s accession as a state must surely have struck some people as portending the end of the EC—the forerunner to the E.U. Yet from the vantage point of 2011, the conduct of the accession seems a mere hiccup on a much longer road of hills and valleys. Regarding the extent of integration by 2011 (e.g., monetary union), the question is whether European efforts to come to grips with the contagion of over-burdened state debt signify merely another valley, or an inherent contradiction or fault-line in the E.U. itself. Whatever the answer, the outcome will no doubt come about incrementally, as one might expect from E.U. history.

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

1, Brian Blackstone and Matthew Karnitschnig, “Crisis Ensnares Central Bank in Desperate Bid to Save Euro,” The Wall Street Journal, November 18, 2011.

On the E.U. Debt Crisis: Lessons from the Early U.S.

In the March 2, 2010 issue of The New York Times, Roger Cohen illustrates how useful EU-US comparisons can be.[1] He is careful to compare the E.U. of his time not to the contemporaneous U.S., but, rather, to it a few decades into its founding. In other words, he corrects for the impact of time on political development. This is not to say that the E.U. in 2010 was akin to the U.S. under its Articles of Confederation. The Articles treaty evinced far less integration politically and economically. For example, whereas the Articles sported only a common council of delegates from the states, the E.U. in 2010 had a presidency (the European Council, whose president was Van Rompuy), an executive branch (the E.U. Commission, whose chief executive was Barroso), a bicameral legislature (the E.U. Council (of Ministers) and the E.U. Parliament), and a supreme court (the European Court of Justice, or ECJ). In fact, whereas under the Articles the American republics held governmental sovereignty, the ECJ held in 1963 and again in 1964 that E.U. law is supreme over state law and state constitutions. In short, whereas the Articles did not split the atom of governmental sovereignty, the E.U. in 2010 was a federal system of dual sovereignty. Like that of the U.S., the E.U.'s federal system is itself on the empire level; its republics being commensurate with the early modern kingdoms.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

1. Roger Cohen, “Greece, Europe and Alexander Hamilton,” The New York Times, March 1, 2010. 

Europe's Political Elite Takes on Popular Sovereignty in Greece

As October 2011 was coming to an end, George Papandreou, prime minister of Greece, “stunned Europe by announcing a referendum” on the latest bailout from the E.U. and set the vote for January 2012. Shocked E.U. leaders were doubtless shaking their heads with a mix of incredulity and frustration, as they had not even been consulted on the prime minister’s proposal. Meanwhile, the yields on Italy’s bonds continued to increase, as did the spread between German and Greek 10-year bonds. The world was left to whether the Greek voters would reject their government’s austerity plans and, relatedly, whether the E.U. would augment its bailout of the state as per the agreement reached only days before the prime minister’s announcement.

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

Greece & Italy: Undercutting Market Confidence in the E.U.

As a federal system, the E.U. can be expected to contain a certain amount of economic disparity. The state bond yields in October 2011, for example, were—one could say—“diversified.” Investors relishing high risk-return could partake in Greek bonds while retired investors could safely stick to the German variety. A healthy federal system proffers something for nearly every taste, while constraining the outliers for the sake of unity. It does not require uniformity. However, too much diversity can cause a federal system to come apart due to divergent pressures seeking more expression. Also, if the high-risk “end” is sufficiently risky, the ensuing atmosphere of uncertainty can undo the federation’s financial system. Uncertainty, like anxiety, can subtly eat away at a system to the point that it cannot pull itself out of its funk.

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

Greco-Roman Achilles’ Heel: Democracy or Leadership?

In assessing the abilities of the E.U. states of Greece and Italy to manage their respective debt-loads as expected by E.U. leaders, the impacts from the governance systems can be distinguished from the impact from compromised or failed leadership. In general terms, a forceful, visionary leader can leverage an existing governance system to “produce.” However, it is also true that a faulty system can make transformational leadership difficult if not nearly impossible.


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

GlaxoSmithKline: Born Again Ethically?

GlaxoSmithKline, a drug company based in the E.U., agreed in 2011 to pay $3 billion to settle the U.S. Government’s civil and criminal investigations into the company’s Medicaid pricing practices and sales practices, including illegal marketing of Avandia, the diabetes drug linked to coronary problems. The settlement amount surpassed the previous record of $2.3 billion paid by Pfizer in 2009. Even so, it is doubtful that $3 billion proffered enough of a punch to motivate either Glaxo’s board or CEO to do what would be necessary to extirpate a corporate culture perhaps too comfortable with cutting corners.

The full essay is in the Introduction of Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

A Fifty-Percent Write-Down: Discounting Debt Insurance?

In “Europe’s Rescue Plan,” The Economist (October 29, 2011) opines on the “fixes” that had been announced just days before by E.U. leaders on the public debt crisis. I find three points of note that are particularly worth elaboration. 

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

Britain at a Crossroads?

The prime minister of the state of Britain faced a “rebellion” in his own party on October 24, 2011 as eighty conservatives backed a nonbinding referendum on whether the state should secede from the union. “I don’t vote against the government lightly, but I think when there is a matter of principle then that must come first,” Nick de Bois said. “We have a considerably changing dynamic [in the E.U.] and given that . . . and the fact that anybody under 54 has not had a chance to vote on [whether Britain should secede from the E.U.], it is appropriate to set in motion that opportunity,” he said.[1] De Bois’ sentiment mirrors that of Thomas Jefferson, who argued that each generation should have the opportunity to affirm or cancel the social contract of the generation before.

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

1. Alistair MacDonald, “Tories Split on Role in Europe,” The Wall Street Journal, October 25, 2011.

Hedge Fund Lobby: Breaching Ethics

In a rule adopted by the SEC on October 26, 2011, hedge funds over a certain size must report information—the amounts required depending on the fund’s size. The devil, as it were, is in the details. In this case, they reflect the intense lobbying of hedge funds and their advocates. As a result of the lobbying, according to The New York Times, the “changes call for only the largest funds to report the most detailed information, eliminate any penalty of perjury for misleading reports and delay for six months the initial reports for all but the largest funds.”[1] Whereas the matter of the amount (and type) of information required involves or potentially puts at risk the funds’ secret strategic competitive advantages and the matter of a start date involves technical points such as how much effort is needed to cull the required information, the elimination of any penalty for perjury does not correspond to any legitimate business concern. Indeed, it makes on sense to require information if it can be misleading with impunity. It is as if the SEC regulators had told the hedge funds, You will have to submit information to us but it can be misleading. The fund managers would be apt to reply, Oh, ok.


The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

1. Edward Wyatt, “Rule Allows Regulators a Look at Hedge Funds,” The New York Times, October 27, 2011.

Deloitte: A Culture of Least Resistance

On October 17, 2011, the Public Company Accounting Oversight Board issued a statement saying audits should protect investors. “The board therefore takes very seriously the importance of firms making sufficient progress on quality control issues identified in an inspection report in the 12 months following the report,” the statement said. Not having seen such progress at Deloitte, the board made its 2008 report on the firm public. The report “cited problems in 27 of the 61 Deloitte audits it reviewed, including three where the issuing company was forced to restate its financial statements.” This was “an unprecedented rebuke to a major accounting firm. In too many instances,” the report stated, inspectors from the board “observed that the engagements team’s support for significant areas of the audit consisted of management’s views or the results of inquiries of management.” In some cases, “Deloitte auditors did not bother to even consider whether accounting decisions made by companies were consistent with accounting rules. Instead, auditors accepted management assertions that the accounting was proper, the board’s report said.”[1] As a very young auditor at that firm, I was told to do just that.  

The full essay is at "Deloitte: A Culture of Least Resistance" in Institutional Conflicts of Interest, which is available at Amazon.

1. I took the quotes for this paragraph from: Floyd Norris, “Accounting Board Criticizes Deloitte’s AuditingSystem,” The New York Times, October 17, 2011;  and Floyd Norris, “Audit Flaws Revealed, AtLong Last,” The New York Times, October 21, 2011

Conflicts of Interest at the Federal Reserve

In 2011, “(m)ore than a dozen members of the regional Federal Reserve boards have had ties to banks or companies that received emergency funds during the [2008 financial] crisis, according to [a GAO report]. The report highlights a close relationship between the Fed's regional banks and many of the institutions they were lending to, adding credence to concerns that the financial sector enjoyed a largely consequence-free rescue in the wake of the crisis, thanks to its connections with the federal government.”[1] Meanwhile, mortgage borrowers with houses “under water” got hammered. From the crisis to the release of the GAO report in October 2011, there were millions foreclosures in the United States, with very little in the way of mortgage modifications or refinancing for those homeowners who needed relief. In other words, the bankers had connections in the banking regulatory agency while Congress left the troubled homeowners—constituents—at the mercy of the bankers. Their agency having their backs, the bankers could afford to take a hard line on the mortgages. The playing field, in other words, is not at all level. 


Material from this essay has been incorporated into "The Federal Reserve" in  Institutional Conflicts of Interest, which is available in print and as an ebook at Amazon.  

1. Alexander Eichler, “Conflicts of Interest Abound at the Federal Reserve, Report Finds,” The Huffington Post, October 19, 2011.

Limited Tenure For CPA Firms?

Arthur Levitt, who headed the Securities and Exchange Commission from 1993 to 2001, “sought to root out conflicts of interest at audit firms in 2000, and urged Congress to adopt auditor term limits in 2002 after the Enron and WorldCom scandals.”[1]  Levitt did not buy the argument made by companies that it would cost them a lot of money to change audit firms. To be sure, he acknowledged that some added cost would be entailed in a system of mandatory auditor “term limits,” but a long auditor relationship “raises the perception,” he maintained, “that the auditor is very much beholden to the company and not totally independent. An environment of skepticism should trump the fraternal environment that tends to occur after a relationship has developed over a period of years.”[2] Indeed, Arthur Andersen’s people were well ensconced at Enron by the time the energy giant went bust. In fact, the auditors even approved the questionable “partnership” accounting (used to hide debt).  Nor did the auditors communicate any misgivings to the audit committee of the company’s board of directors. The auditors were “in” with a rancid management. 


The full essay has been incorporated into "A Proposal: Limited Tenures for CPA Firms"  at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.  

1. Emily Chasan, “Keeping Auditors on Their Toes,” The Wall Street Journal, October 19, 2011.

2. Ibid.

The E.U. Agenda: Taming Bloated Greek Patronage

As E.U. leaders wrestled in the fall of 2011 with how to bail out those state governments that had been amassing relatively large semi-sovereign debt loads, residents in relatively solvent states such as Germany were frustrated with what they perceived as profligate over-spending in Greece. It is possible that even the Germans did not realize how engrained the excessive politically-based Greek bureaucracy had become. I suspect that for many Greeks, news of their living beyond their means was met more with denial and utter disbelief than an attitude-adjustment. In other words, a vast disparity in perspective exists on the ground as the E.U. struggled to come to grips with the debt crisis. The “ever closer union” necessary for the E.U. to rise to the occasion has as its foremost obstacle the disparate perceptions existing within the union (and enforceable by state governments).

The full essay is at Essays on the E.U. Political Economy: Federalism and the Debt Crisis, available at Amazon.

Slovakia Stands Up, Caves to the E.U.

On October 11, 2011, Slovakia’s Parliament failed to approve the expansion of the euro rescue fund, a development, The New York Times reports, that “brought down the government.”[1] Although the vote makes good copy, it was not at all as dire as the headline suggests. The state’s “leading opposition party said after the government fell that it would be willing to discuss support for the fund, pointing to the eventual approval of the deal. European officials in Brussels were counting on a political solution, but also weighing the possibility of some kind of messy workaround if Slovakia failed to pass the measure.”[2] In other words, the vote had to do with state politics as well as resistance to bailing out a richer state. Once the state government fell, pressure from the E.U. and the new politics in the state government quickly coalesced by the next day to produce a deal in support of expanding the bailout fund. According to The Washington Post, "opposition leader Robert Fico, head of the Smer-Social Democracy party, announced he had struck a deal with the remnants of Radicova’s coalition, promising to back the fund in exchange for early elections that analysts say Fico’s party is well positioned to win."[3] Doubtless that pressure from the E.U. was also in the mix, as E.U. officials were already hinting that the bailout fund could be expanded over the tiny state's objection. “We call upon all parties in the Slovak parliament to rise above the positioning of short-term politics and seize the next occasion to ensure a swift adoption of the new agreement,” European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso said in a joint statement.[4] In other words, hey guys, get your act together over there in Slovakia or else.

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

1. Nicholas Kulish and Stephen Castle, “Slovakia Rejects Euro Bailout,” The New York Times, October 11, 2011.

2. Ibid.

3. Anthony Fiana, "Slovakia Reaches Agreementon European Bailout Fund," The Washington Post, October 12, 2011.

4. Ibid.

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.”[1] 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.”[2] Such an outcome, she claims, “would almost certainly plunge Europe into a recession.”[3] 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.”[4]

 

The complete essay is at Essays on Two Federal Empires.

1. Bonnie Kavoussi, “European Sovereign Debt CrisisThreatens American Economy,” The Huffington Post, September 27, 2011.

2. Ibid.

3. Ibid.

4. Ibid.

Foreclosing on Freddie and Fannie

Three years after the financial crisis of 2008, nearly half of the people in Arizona with mortgages owed more than their homes were worth; those people were “underwater.” Only three homeowners had been approved for debt reduction since the debt-reduction program in Arizona began in September 2010. “It is extremely difficult for the principal reduction program to be successful” when Fannie and Freddie opt out, according to Shaun Rieve of the Arizona Department of Housing.[1] Even though Arizona would pay up to half of the principal reduction, up to $50,000 of a $100,000 principal reduction, the two housing entities that were taken over by the U.S. Government have been obstructing taxpayers from re-emerging from “underwater.”

The full essay is at "Essays on the Financial Crisis."

1. Shaila Dewan, “Freddie and Fannie Reject Debt Relief,” The New York Times, October 6, 2011. 

Meg Whitman at HP: A Leader or Manager?

Referring to the appointment of Meg Whitman as CEO of HP, Ray Lane, chairman of the board, said, “We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead.”[1] On both scores, Lane was actually referring to management rather than leadership. Even the setting of strategy is within the purview of management, as in strategic management; implementing a strategy is the epitome of management. Similarly, recognizing market opportunities is strategic in nature, and thus a function of managing a company as a whole.


Material from this essay has been incorporated into The Essence of Leadership: A Cross-Cultural Foundation, which is available in print and as an ebook at Amazon. 

1. “HP Names Meg Whitman as New CEO,” Reuters, September 22, 2011; “HP’s Whitman: I’ll Focus on Leadership,” The Bottom Line, msnbc.com., September 23, 2011.

Fiscal Training-Wheels for the E.U.

The government of the E.U. state of Greece announced on September 11, 2011 that its cabinet had decided to impose a new property tax to cover a 2 billion euro ($2.7 billion) projected revenue shortfall for the year. The government expected the state to meet its deficit goals of 17.1 billion euros (8.2% of GDP) in 2011 and 14.9 billion in 2012.[1] Earlier in September, talks between the state government and the E.U. Commission, the European Central Bank, and the International Monetary Fund had broken down in a dispute over whether Greece had done enough to meet its deficit targets. Pressure to assuage the “troika” amid popular protests in Greece apparently trumped questions on the legitimacy of a tax increase enacted by a cabinet without the approval of the state legislature.

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

1. Granitsas Alkman, “Greece Announces New Tax as Unrest Flares,” The Wall Street Journal, September 12, 2011; David Gauthier-Villars and Nathalie Boschat, “Woes at French Banks Signal a Broader Crisis,” The Wall Street Journal, September 12, 2011; Ainsley Thomson and Marcus Walker, “Support Grows for New EU Treaty to Boost Fiscal Ties in Euro Zone,” The Wall Street Journal, September 12, 2011.

On the Perils of E.U. States Being In Charge

Wolfgang Schäuble, the finance minister of the state of Germany, does not mince words when it comes to the state of Greece sticking to its promise to reduce its deficit in order to receive aid from the E.U. through its Financial Stability Facility. Aid will be paid, he said on September 8, 2011 in a radio interview, “if Greece actually does what it agreed to do.”[1] If monitors do not sign off on Greece having fulfilled its promises, then “Greece has to see how it gets access to financial markets without help from [the E.U. facility].”[2] Ouch! Meanwhile, the state government of Finland was still insisting on collateral from Greece as a condition for contributing to the aid. Adding still additional pressure on the Greek government, Mark Rutte, prime minister of the Netherlands, had said on the previous day that states receiving aid should either cede control over their budgets or drop the euro. According to the New York Times, many economists believe that the ripple effects from Greece’s departure from the euro “could be catastrophic for the world economy.”[3]

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

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 1.  Steven Erlanger, “Europe Steers Into a Zone ofUncertainty,” The New York Times, September 9, 2011; Jack Ewing, “In Europe, Greece Gets a Warning about Aid,” The New York Times, September 9, 2011.

2. Ibid.

3. Ibid.

E.U.: Ever Closer Energy

Günther Oettinger, the energy commissioner at the E.U. Commission (the E.U.’s executive branch), said at a news conference on September 7, 2011 that the E.U. needs to look “beyond its borders to ensure the security of energy supplies.”[1] Having the states “act together and speak with one voice” through their federal government is the rationale for ever closer union.[2] To be sure, ever closer union has its limits; the hominization of Europe via political consolidation would ignore the innate diversity that exists within any empire-level union of states, whether the E.U., A.U. or U.S. Even so, fear of consolidation need not hamper Europe from being able to benefit from united action.

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

1. James Kanter, “Brussels Seeks More Control Over Energy Deals,” The New York Times, September 8, 2011.

2. Ibid.

                                                                             

The German Court in the E.U.: Exasperating or Mitigating Germany's Veto in the E.U.?

Did Angela Merkel violate the property rights of residents in the state of Germany by agreeing to the initial bank bailout in the E.U.? Should she have gotten the approval of the Bundestag first? According to a German state court on September 7, 2011, “no and a qualified yes.” The court ruled that the approval of the Bundestag’s budget committee is necessary for significant increases in the European Financial Stability Facility. The question as put by The Wall Street Journal the day before the ruling can be viewed as whether parliamentary politics on the state level should be allowed to potentially slow or obstruct the E.U.’s crisis-response ability. That is, should the prerogatives of state officials be strengthened just when the E.U.’s monetary affairs require more rather than less fiscal coordination?  By requiring the approval of the budget committee in the lower house of the state legislature, the German state court ruling avoids the potentially aggravating effects of a wider circle of state legislators. Even so, other states could follow suit with respect to their committees, making it more difficult for state officials to function at the E.U. level.

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

Federalizing Fiscally: E.U. looks to Early U.S.

I suspect many Europeans would bristle at the suggestion that Europe could learn a thing or two from American history. If the E.U. corresponds to the U.S. and has a federal balance-of-power roughly the same as that which existed in the U.S. at, say, 1820, then the Europeans could do worse than look at American history for lessons both in what to emulate and what not to do.

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

AOL Ignores TechCrunch’s Conflict of Interest

According to The New York Times, “When Michael Arrington, the editor of the popular Web site TechCrunch, told his bosses at AOL that he was forming a venture capital company to finance some of the technology start-ups that his site wrote about, they did not fire him or ask for his resignation. Instead, . . .  they invested about $10 million in his fund.”[1] Tim Armstrong, AOL’s chief executive, issued the following statement when CrunchFund was announced: “TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”[2] As for Michael Arrington, Arianna Huffington claimed that he would have no influence on coverage—that there would be, in effect, a Chinese wall between TechCrunch’s news site and venture-capital firm. However earlier on the same day, Arrington stated, “I am TechCrunch and TechCrunch is me.”[3] 

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1. David Carr, “Tech Blogger Who Leaps Over the Line,” The New York Times, September 5, 2011, p. B1.

Nietzsche on Bank of America

The positive correlation between incompetence and unethical conduct at companies is striking, for, theoretically at least, a person can be talented or smart and of questionable character. Of course, it could be that cutting corners is a survival strategy of people who are not competent. However, shirking seems to reflect a sordid character, which, like personality, is relatively constant throughout one’s life—though character flaws could manifest more when times are tough (as in when incompetence has eventuated in a dire balance sheet). One might investigate, moreover, whether a firm’s culture can become more tolerant of unethical conduct when the finances are going south—or do unethical cultures tend to be like fixtures in organizations irrespective of financial condition?

The full essay has been incorporated into On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management, available at Amazon.

Angela Merkel: Leading Germany in the E.U.

In the E.U. state of Germany, Angela Merkel had her work cut out for her in getting her coalition to carry the German House, or Bundestag. In vesting the debt bailout fund with powers had been at the state level. Conservatives feared the deal would “open to the door to relinquishing more sovereignty to the European Union.”[1] Also, the legislators in her Free/Christian Democrat coalition were having trouble justifying the increased cost to their constituents of the expanded fund even though it is geared to keeping the E.U. debt-loads at the state level from spinning out of control—meaning at the expense of the German economy. Economically, it can be argued that expanding the E.U.’s bailout fun is in the economic interest of the state of Germany and its residents.

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

1. Vanessa Fuhrmans, “Merkel Faces Test OverBailout Fund,” The Wall Street Journal, August 30, 2011.

In the Eye of the 24/7 News-Cycle: Profits & Attention-Seeking

For about a week toward the end of August 2011, the news networks in the U.S. seemed utterly captivated, or obsessed, with Hurricane “Irene,” which was running up the east coast from North Carolina to New England. The prognosis had been given as a fait accompli when the storm was just pulling out of the Bahamas. A rough convergence of the models was taken for certainty. If this obsessiveness sounds familiar, it may be because on virtually any major story, the 24-hour news networks have tended to crowd out other stories even when the marginal utility of the added coverage on the major story is very low. Editors go with filler on the major story rather than risk losing viewers by breaking away to cover the other news to a meaningful extent. Viewers who are not obsessed with the main story may view the networks as obsessed while the networks may view themselves as merely satisfying a growing obsession by viewers. In any case, the narrowness of coverage, as if a major story should crowd out other news, is problematic, for it ultimately leaves the American people less well informed than they would otherwise be of what is happening around them.

 

The full essay is at "The 24/7 News-Cycle."

The Payroll Tax Cut: A Luxury?

As U.S. deficits and thus the federal government's debt had been increasing since the Clinton Administration in the late 1990s, proposals for a payroll tax-cut entailed risking the financial condition of the U.S. Government. To be sure, increasing government spending above inflation was risky too. Here, though, tax policy as it relates to deficits, and thus debt, is analyzed. 

The full essay is at "The Payroll Tax Cut."

Social Media in the UK: Protests and Criminal Activity

Officials from the E.U. state of Britain met with representatives of Twitter, Facebook and Blackberry on August 26, 2011 “to discuss voluntary ways to limit or restrict the use of social media to combat crime and periods of civil unrest.”[1] Theresa May, the state’s Home Minister, said the aim of the meeting was to “crack down on the networks being used for criminal behavior.”[2] However, reducing the protests, rioting, and looting to such behavior ignores the point that civil unrest can include political protest. So it may be disturbing to some that the discussion, according to some who were present, “was still aimed at reeling in social media and strengthening the hand of law enforcement in gathering information.”[3] What would stop the police from gathering information on people taking part in a political protest against police brutality, for example? It would be convenient for a police department to classify a march as “criminial behavior” in breaching the peace, or simply collect information without any subterfuge.

The full essay is at "Social Media in the UK." 

1. Ravi Somaiya, “In Britain, A Meeting on Limiting Social Media,” The New York Times, August 26, 2011. 

2. Ibid.

3. Ibid.

Refinancing Mortgages: Only for the Rich?

According to the U.S. Government, prices of homes with government-backed mortgages fell 5.9% in the second quarter of 2011 from a year earlier. This was the biggest decline since 2009, which was on the heels of the credit crisis of late 2008. In 2011, more than one in five homeowners with mortgages owed more than their homes are worth. That translates to at least 10.9 million families, almost none of whom could refinance. While the Treasury Department and Federal Reserve were able to pump hundreds of billions of dollars into American banks, federal programs to assist homeowners had been regarded as ineffective.. [1] Out of the $45.6 billion in TARP funds (the total being $800 billion) set aside to help struggling homeowners, only $22.9 billion had been spent by August 2011. Fewer than 1.7 million loans had been modified under federal programs as of 2011. Just over 760,000 permanent mortgage modifications had been initiated under the government programs while at least 5.5 million mortgages were in delinquency or foreclosure. Andrea Risotto, a spokesperson at Treasury, said that the unused portion of the TARP funds for homeowners would be used to reduce the deficit.[2]

The full essay is at "Refinancing Mortgages."

1. Shaila Dewan and Louise Story, “U.S. May Back Refinance Plan for Mortgages,” the New York Times, August 25, 2011. 

2. Ibid.

States Bypassing the E.U.: A Problem for Federalism?

In August 2011, opposition was mounting among state governments to the Finnish-Greek bilateral deal wherein Greece would pay Finland 500 million euros in cash (in an escrow account) as collateral against Finnish loans. Angela Merkel of the state of Germany objected to one state getting extra collateral. Indeed, other state governments are seeking similar deals as Finland, which could undermine Greece’s ability to repay (and the “preferred creditor” status of the IMF). Furthermore, much of what the state of Greece owned at the time had already been earmarked to be sold for privatization proceeds.

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

Eurobonds: The Solution to the E.U.’s Debt Crisis?

One possible solution to the E.U.’s debt crisis may be debt issued by an E.U. government agency and vouched for by all 17 state governments that use the euro currency. According to the Wall Street Journal, “Such euro bonds would dispel concerns Italy or Spain might not be able to get the financing they need, as it would be provided centrally.”[1] Of course there is the downside of moral hazard: states facing crushing debt-loads could rely on the wealthier states to guarantee additional debt. Because the “fiscally imprudent” state governments “could borrow freely at low cost, there would be little incentive to stop.”[2] The wealthier states in turn would be in the position of guaranteeing debt that they do not control.

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

1. Charles Forelle, “A Shaken Europe Looks for Bolder Fixes,” The Wall Street Journal, August 19, 2011. 

2. Ibid.

Two Tiers Fiscally in the E.U.: Too Simplistic

The main question regarding E.U. reforms oriented to preventing state governments from being overburdened with debt has been stated by Stephen Castle of The New York Times as follows: “Is the euro more in need of Germanic fiscal stability or the growth and stimulus policies that France traditionally champions?”[1] I contend that there are bigger fish to fry that unfortunately have gone largely unnoticed.

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

1.  Stephen Castle, “In Debt Crisis,Reminders of Disputes in Euro’s Founding,” New York Times, August 18, 2011. See also Nathalie Boschat and Gabriele Parussini, “France, Germany Push for Sanctions,” Wall Street Journal, August 18, 2011.

Fraud at S&P: A Conflict of Interest

By the summer of 2011, the U.S. Government had brought relatively few cases against large financial institutions for their roles in the financial crisis of 2008. For instance, the government investigated Washington Mutual and Countrywide without taking any further action in spite of reports of “liars’ loans.” In the case of the three major ratings agencies, the business model “is riddled with conflicts of interest, since rating agencies might make their grades more positive to please their customers. Before the financial crisis,“banks shopped around to make sure rating agencies would award favorable ratings before agreeing to work with [one of the agencies].”[1] In spite of accounts of the agencies’ mixing of business and ratings, the Dodd-Frank law of 2010 retained the issuer-pays business model while putting the agencies on the same legal liability level as accounting firms. 


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1.  Louise Story, “Justice Inquiry Is Said to Focus on S&P Ratings,” The New York Times, August 18, 2011. 

Congressional Earmarks: A Personal Conflict of Interest

Congressman Darrell Issa (R-Calif.) runs his local district office down the hall from where he runs his businesses worth hundreds of millions of dollars. According to the New York Times, his “dual careers” evince a “meshing of public and private interests rarely seen in government.”[1] While advocating for business in Congress, he split his holding company into separate multibillion-dollar businesses, started an insurance company, and retained a financial interest in his automobile-alarm business. At least some of his actions in government have made him richer.[2] Most notably, he secured Congressional earmarks for road widening and other public works projects that runs his local district office down the hall from where he runs  that he owns in his district. For example, earmarks that he arranged made possible the widening of a busy road in front of a medical plaza that he bought for $10.3 million. To be sure, his constituents applaud the easing of traffic, but what if the money would otherwise have been spent to relieve more severe congestion elsewhere? Even if no worse instances existed, that the congressman’s constituents benefitted from the street-widening does not mean that his action was ethical.

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1. Eric Lichtblau, “Helping His District, andHimself,” New York Times, August 15, 2011.

2. Ibid.