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Friday, August 19, 2011

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.” 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.” 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.

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

Stephen Castle of the New York Times puts the main question regarding E.U. reforms oriented to preventing state governments from being overburdened with debt as follows: “Is the euro more in need of Germanic fiscal stability or the growth and stimulus policies that France traditionally champions?” I contend that there are bigger fish to fry that unfortunately go largely unnoticed in Castle’s article.

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

Thursday, 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,” according to The New York Times, “banks shopped around to make sure rating agencies would award favorable ratings before agreeing to work with [one of the agencies].”

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

Monday, August 15, 2011

A Conflict of Interest in Issa's Earmarks

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.” 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. According the Times, at least some of his actions in government have made him richer.

Most notably, he secured Congressional earmarks for road widening and other public works projects that benefit the many commercial properties 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.