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Thursday, October 6, 2011

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. 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 "Foreclosing on Freddie and Fannie."

Wednesday, October 5, 2011

The Tyranny of the Veto: Syria’s Friends at the U.N.

Russia and China vetoed a U.N. Security Council resolution on October 4, 2011, effectively tossing a life preserver, according to the New York Times, to Syria’s president. The toothless proposal would have condemned the Syrian government for its violent crackdown of popular protests in which more than 2,700 had been killed. The proposal’s language had been softened from targeted financial sanctions; the council would merely have been charged with considering unspecified measures after a 30-day period. Two reasons can be cited for the two vetoes: commercial ties and a vested interest in forestalling any more threats to the doctrine of national sovereignty.

The veto-provision itself of the Security Council can be questioned here, as it allows allies to protect even a government that has, in the words of Gérard Araund of the E.U., lost its legitimacy in the world. The New York Times reports that the arms contracts that Russia had with the Syrian government at the time of the vetoes were valued at $4 billion. “Beyond jet fighters and tanks, Russia has varied interests in Syria, like oil and gas and cement.” Russia is Syria’s fifth largest trading partner. Accordingly, Russia’s foreign minister issued a statement condemning extremists in Syria who were engaging in “open terror” through violence. Russia was betting on Assad. Aleksandr Shumilin, director of the Center for the Analysis of Middle East Conflicts, told the media that as “soon as it seems that the opposition has become comparable to [Assad] in strength and there appears a possibility they will win, Russia will change its behavior.” One could add that such a change would occur if and only if Russia’s commercial interests with Syria are threatened. This approach is known as realism in international relations. States pursue their own strategic interests internationally, taking for granted rather than challenging the system of sovereign nation-states that permits realism to be the driver even though it does not take into account the broader public good.

The continued hegemony of the nation-state system and the impact of realism are both evident from the fact that even such a weak proposal could successfully be blocked against a government that had killed over 2,700 unarmed protesters. The message being sent by the U.N. is that a government can use its claim to legitimate force pretty much any way it wants. Put another way, an implication from realism in a nation-state system is that the U.N. is merely a conference, or discussion, without much attention to the broader (i.e., international) system of governance, at least in so far as the Security Council is concerned. We are thus left in a Bodinian/Hobbesian world wherein every government is looking out for its own narrow interests, which allow for governments to turn against their people.

To be sure, opponents of the resolution did have a leg to stand on. They claimed that the no-fly-zone resolution on Libya had been abused by NATO bombing pro-Gadhafi positions even when no civilians were in danger. There was a sense in both Moscow and Beijing that the West had been using economic sanctions and military actions under U.N. auspices to further Western-friendly regime change. According to the New York Times, there “is a sense in both capitals that the West in general, and the United States in particular, is feeding the protest movements in the Arab world to further its own interests.” Both Russia and China are “determined to reassert their long opposition to anything that smacks of domestic meddling by outside powers.” Lest it be thought that this is for the protection of other governments or for national sovereignty as a virtue or ideal, Russia faced outside pressure concerning Chechnya and China has Tibet. In other words, the national sovereignty doctrine is a manifestation of realism, wherein international consensus is the result of narrow national interests rather than a view of the good of the whole.

In defending Assad with the doctrine that ultimately protects them, Russia and China must also deal with the inconsistency in letting Assad get away with his killing spree while Gadhafi had killed less yet been stopped. In other words, why does Gadhafi’s opposition deserve help while those against Assad are “extremists”? If abuse of the Libya resolution by NATO were really the problem, then Russia and China could have insisted that U.N. officials oversee any action to defend Syrian protesters and report regularly to the Council, wherein Russia and China could nullify the resolution by a veto if either government suspected any abuse taking place. In fact, the U.N. Secretary General could designate Russia and China as coordinating the operation. The U.N. should not have delegated the Libyan operation so much to NATO, but this does not mean that the same thing would have to be accepted in an operation against Assad.

Going beyond the strategic interests esteemed in realism, the question of international governance can be broached, particularly as there are several truly global issues (e.g., global warming). The development of communications technology means that wholesale human rights abuses occurring on the other side of the world can be instantly seen. Out of this greater awareness, a greater groundswell of opposition to unfettered national sovereignty can be expected, with implications for how international governance is structured.

Given the greater need for international governance, the U.N. should be reformed from a confederation to a modern federation such that a few friends do not have sufficient influence to block a resolution against an abusive government. The veto itself should be eliminated, though this might require that a new organization be formed in lieu of the U.N. Otherwise, we will be left with a world in which Hobbesian sovereigns are allowed to violate their citizens’ basic human right to life while friendly government officials attend to their countries’ respective financial and political interests at the expense of the system as a whole and the general good. I contend that enabling violent, abusive dictators is not in our good, so their friends ought not be allowed to prevent the international community from policing its basic standards. National sovereignty should be limited, just as international governance itself would be subject to constraints.


Joe Lauria, “Russia, China Veto U.N.’s Syria Move,” Wall Street Journal, October 5, 2011. http://online.wsj.com/article/SB10001424052970204524604576611443084688006.html

Neil MacFarquhar, “With Rare Double U.N. Veto on Syria, Russia and China Try to Shield Friend,” New York Times, October 6, 2011. http://www.nytimes.com/2011/10/06/world/middleeast/with-united-nations-veto-russia-and-china-help-syria.html

Tuesday, October 4, 2011

Deficit Reduction and Tax Breaks: Rhetoric and Priorities

Actions speak louder than words. A tree is known by its fruit. Where your treasure is, therein lies your heart. These three sayings each have at their root a value on integrity or authenticity that cuts through purported assertions designed to manipulate or otherwise mislead. Integrity here is consistency between word and deed.

When members of Congress cry that the sky is falling under the weight of the deficits and accumulated debt of the U.S. Government, one might ask whether the representatives and delegates really view the fiscal imbalances as so dire. If someone calls a friend to say that his house is about to explode but does not act accordingly, such as in running out of the house rather than finishing dinner, it is reasonable to doubt that the homeowner really believes that a blast is imminent. In protecting tax breaks even amid a deficit of over $1 trillion, members of Congress belie their own warnings concerning the American public debt crisis. For a crisis does not admit the luxury of granting the status quo a continuance. In other words, if the elected officials really did view the trajectory of deficits as unsustainable, continuing the tax breaks would be off the table. In protecting constituent interests by them, a member of Congress is saying that the deficit/debt problem is not really a crisis. Similarly, by the way, in insisting that spending but not revenues should be the only avenue, a legislator is saying that the deficit is not so much of a threat that all means should be engaged to reduce it.

So when the U.S. Senate Republican leader, Mitch McConnell said he is open to ending tax breaks for special interests, he undermined his own statement as well as any claim that the deficit must be significantly reduced when he argued that the tax break that he secured in 2008 for the owners of thoroughbred racehorses is essential for the protection of jobs in Kentucky. Of course, the financial interests of racehorse owners are not necessarily in line with—or reduce to—the protection of jobs. So even here, subterfuge may be the name of the game. The same can be said of Senator John Kerry, Democrat of Massachusetts, who claimed to want to eliminate tax breaks except for a proposal for a tax cut for small breweries, such as Samuel Adams in Boston. The deficits must not be such a big problem if we can afford additional tax cuts. The New York Times points out that mega-wealthy “operations like oil refineries, Hollywood productions and hedge funds have all profited.” The tax breaks for industries in general add up to an estimated $123 billion a year—hardly chicken feed.

The New York Times claims that the “disconnect between the lawmakers’ words and deeds reflects the hurdles that Congress and the White House face as they look to cut at least $1.2 trillion from the nation’s debt. Talk of cutting tax breaks to raise money and reduce the debt has become a mantra in Washington, but it threatens sacred ground: such breaks are a favorite tool among both Republicans and Democrats to reward supporters and economic interests in their home states.” Given Fed chief Ben Bernanke's remarks on October 4, 2011 before the Joint Economic Committee of Congress that even reducing the debt by $1.2 trillion would not be enough, talk of protecting favorite tax breaks undercuts any claim that the public debt is a dire problem. To be sure, obviating another recession was also on Congressional minds. However, even as he was urging Congress to act in order to avoid a double-dip recession, Bernanke said of deficit-reduction efforts, "More will be needed to achieve fiscal sustainability." That is to say, the U.S. Government could lose even its AA rating. Risking this by protecting local interests is short-sighted; it is like a biker accelerating down a hill while looking only a few feet ahead. We might save a few deck chairs for weary passengers, but what about that iceberg ahead? Is anybody even looking?

I contend that we, the electorate, ought to accord claims of crisis as valid if sacred ground is given up. “Whether any of [the tax breaks] are scrubbed from the books may ultimately prove how serious Congress is about reducing the debt.” It is the price of admission, as it were, to having a legislator’s claim of a serious problem being recognized as authentic rather than as possibly just hyperbolic, attention-getting rhetoric.

Without a verifiable indication of some actual give on a sacred cow, a legislator should be told, “prove it!” regarding his claim on the “need” to reduce the deficit in order to avert a crisis. If no such sacrifice is proffered and made, then the politician ought to be ignored as if he or she were crying wolf. Otherwise, we enable two-faced Janus behavior that undermines public confidence in the government and misleads us into being too confident that the serious problems are being solved. The American electorates as well as the media companies are perhaps too accustomed to letting our elected legislators off the hook by taking their words at face value as if they were self-validating. In the case of the U.S. Government’s continuing deficits and accumulated debt, the United States can ill-afford other priorities (even in terms of presumed GNP and job increases) coexisting antithetically with the baleful platitudes of crisis if the imbalances truly are unsustainable and a danger to the American union and its republics. That is to say, given the magnitude of the problem, the members of Congress should be held closer to account in terms of deeds matching words. Priorities, the making of which is part of the job of a legislator, should match the rhetoric in front of the cameras.


Ron Nixon and Eric Lichtblau, “In Debt Talks, All Tax Breaks Are Not Alike,” New York Times, October 3, 2011. http://www.nytimes.com/2011/10/03/us/lawmakers-want-to-end-tax-breaks-if-they-can-agree-what-they-are.html

Jon Hilsenrath and Luca Di Leo, "Bernanke Issues Warning, Urges Action on Economy, Wall Street Journal, October 5, 2011. http://online.wsj.com/article/SB10001424052970204524604576610712269716064.html