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Friday, May 25, 2012

Eurobonds for Stimulus Spending

Meeting on May 23, 2012, the E.U.’s European Council failed to come up with a plan to offset the recessionary aspect of Greece’s budget cuts. The pressure was on; the OECD had just warned that the E.U. go back into recession. Interest rates on state debt-namely that of Spain—had reached an unsustainable level the week before due to concern regarding banks based in the state. Besides the debt and banking vulnerabilities at the state level, the E.U. itself was struggling with its political weakness, which can be attributed to the states’ rights (or euro-skeptic) ideology that was not exactly going away in the context of the debt-contagion that had prompted the establishment of a permanent E.U. bailout fund for states in over their heads on debt. In this context, the European Council was at the intersection of debt, banking and political problems.

The full essay is at Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Tuesday, May 22, 2012

Facebook’s IPO: Morgan Stanley’s Conflict of Interest

Morgan Stanley’s underwriting of Facebook’s IPO has been thought by some of the bank’s rivals to be incompetently managed.  According to the New York Times, “(r)ival bankers and big investors have complained that Morgan Stanley botched the I.P.O., setting the price too high and selling too many shares to the public.” Interestingly, the incompetence is positively correlated with unethical policy decisions at the bank. Even as the bankers as underwriters were eager to sell lots of shares, they may have given some of their institutional customers—albeit only the most preferred, as per the bank’s other services—some privileged information. If this charge is true, the conflict of interest at the bank should be closely examined by Congress and any relevant regulators.

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

Wealth and Happiness American-Style

The Organization for Economic Co-operation and Development released an up-dated version of its Better Life Index in May 2012. The U.S. ranked first in income, with average household wealth at $102,000, as well as in housing (Americans spending about 20% of their disposable income on it—the OECD average being 22%). These figures for the U.S. could have been pushed upward by the fact that at the time, the very rich were richer than their counterparts in other countries, for the gap between rich and poor was relatively high in the U.S. For example, 30 million Americans were without health insurance and a record number of Americans were receiving a governmental subsidy for food. Rather than assume that the middle and lower economic segments in the U.S. were better off than their counterparts in other regions of the world, I suspect that the statistics reflect the higher relative pay of American executives and professionals (lawyers, physicians and CPAs). The typical CEO in the E.U., for example, made less than his or her counterpart in the U.S.  This caused trouble in the Chrysler-Daimler merger because the Chrysler executives enjoyed higher compensation even though Daimler was in charge.

Interestingly, the rank of the U.S. in life satisfaction was above average, with 76 percent of people reporting having more positive than negative experiences in an average day (the average in the OECD index being 72%). In other words, the gap between the rich and poor does not appear to have gotten in the way of life-satisfaction. Although economic reductionism is particularly salient in the U.S., such satisfaction does not reduce to dollars and cents. Even in economic terms, the large gap between the rich and poor includes geographic distance. For example, court-orders have had to be used to force some cities and towns to allow subsidized (low-income) housing. Meanwhile, it is not uncommon, particularly in Florida, for people with money to live in gated communities. With the rich out of sight, the poor are less likely to be aware of the economic inequality, which could otherwise put a damper on their life-satisfaction.

As a final observation, my reference to Florida suggests that the OECD should not generalize all of the American states into one figure. For example, life-satisfaction is likely to be higher in Hawaii than in Alabama or Michigan for climatic or economic reasons (or in North Dakota during the winter even considering the economic boom). Housing in New Hampshire is, in general, better than in Mississippi. Income in Connecticut is higher on average than in Arkansas. For states, whether in the U.S. or E.U., to be in a union is not to say that they are identical and thus readily grouped together. In other words, a general statistic in housing or income has less real meaning when applied over such a large area. It is like saying that the average temperature in the U.S. in 2011 was 56 degrees (I don’t know the real figure). It is unlikely that figure applies in any state—certainly not in Florida, Hawaii, Alaska, or Maine. The figure has no real meaning, other than relative to other such figures over time (e.g., to assess global warming). For the OECD to compare the U.S. as a whole to E.U. states such as Denmark, Belgium and Spain suggests that the organization is content to engage in category mistakes. If the figures are relevant on the state level, the OECD should be consistent rather than selectively over-generalize.


Monday, May 21, 2012

Facebook’s IPO: A Plummet?

On the day of its IPO, Facebook issued at $38 and went to a high of $45 before returning to near its issue price (closing at $38.23). On the next trading day, the price fell to about $34 in the early afternoon. This represents about 10% off the issue price. The Huffington Post headlined “Stock Plummets,” which must have been irresistible to anyone who had bought the stock. The Post was using the $45 high as its benchmark, from which the $34 price represents a 25% drop. As if that were a plummeting, using the 10% off figure would have made the self-aggrandizing headline too obvious. At the very least, the headline detracts from the credibility of the Huffington Post.

The full essay is at "Taking the Face Off Facebook."

Inside the Gates: Lobbyists in the White House

The Washington Post reports that visitor logs for January 17, 2012 show that the lobbying industry that Obama had vowed to constrain was nonetheless a regular presence at 1600 Pennsylvania Ave. Even though the president barred recent lobbyists from joining his administration or even serving on its advisory boards and forbid federal employees from accepting free admission to receptions and conferences sponsored by lobbying groups, records suggest that lobbyists with personal connections to the White House enjoyed the easiest access. The principle of fairness (not to mention consistency) seems to have been sacrificed for political (and campaign finance) expediency.

Lobbyist Marshal Matz, for example, who served as an unpaid adviser to Obama’s 2008 campaign, gained access to the White House roughly two dozen times through May 2012. He brought along the general council for the Biotechnology Industry Organization, the chief executive of cereal maker General Mills and pro bono clients, including advocates for farmers in Africa. It seems that the “Wall Street needs reform” president was rather pro-business behind the gates.

Another such lobbyist with close ties to the White House was former New York congressman Tom Downey, who at the time was married to Carol Browner. Until 2010, she was Obama’s energy czar. Downey was the head of Downey McGrath Group, a lobbying firm whose clients include Time Warner Cable and Herbalife, which sells nutrition and dieting products. As of January 2012, he had been to the White House complex for meetings and events 31 times. On Dec. 10, 2010, Downey held a meeting with economic adviser Lawrence H. Summers and just happened to bring along Bill Cheney, the head of the Credit Union National Association and one of Downey McGrath’s clients. John Magill, the top lobbyist for the association, said that the group was pushing to lift the cap on the percentage of assets its members can lend out.

“A lot of folks,” Obama said in April 2012, “see the amounts of money that are being spent and the special interests that dominate and the lobbyists that always have access, and they say to themselves, maybe I don’t count.” That is also the inevitable reaction from reading the Post’s analysis of the White House visitor log. Even members of Congress may conclude that they don't count.

According to U.S. Sen. Ron Wyden (D-Oregon), for example, the U.S. Trade Representative was sharing draft negotiation documents on the Trans-Pacific trade deal with the governments of other countries and American corporate executives who serve on advisory boards, no such access was being provided to the majority of Congress or most nonprofit groups. "The majority of Congress is being kept in the dark as to the substance of the TPP negotiations, while representatives of U.S. corporations--like Halliburton, Chevron, PhRMA, Comcast and the Motion Picture Association of America--are being consulted and made privy to details of the agreement," Wyden. A subsidiarity of Halliburton had been accused by the U.S. military of charging it $1.6 billion for fake services. The Motion Picture Association had former U.S. Senator Chris Dodd (D-Conn.) as its head. 

Furthermore, ABC News reported in 2011 that employees of Comcast had "contributed more money to President Obama's reelection bid than employees from any other organization, according to [an] analysis of the Federal Election Commission data by the Center for Responsive Politics."  It appears that the Obama administration was being quite responsive to Comcast in enabling the company to "buy" the access to the trade negotiations. In fact, Obama attended "an intimate fundraiser at the home of Comcast executive vice president David Cohen in Philadelphia in June [2011] and a private 'social reception' at the Martha's Vineyard estate of Comcast CEO Brian Roberts [in August 2011]. Cohen put together more than $500,000 in contributions to the Obama campaign and the DNC for the 2012 election. Nonetheless, the president’s press secretary—speaking as if tone-deaf—said, “Our goal has been to reduce the influence of special interests in Washington — which we’ve done more than any Administration in history.” 

It seems to me that the Obama administration's mutual back-scratching with big business can explain why Obama caved on the "public option" in his health-insurance reform law--essentially handing the existing private insurance companies tens of millions of new customers financed by the U.S. Government without any competition from a public insurer. The close ties can also explain why Obama backed off from his statements that Wall Street banks too big to fail should be broken up preemptively (rather than merely having the government get involved to help out on the liquidation after a bank has gone bankrupt as is the case in the resulting law). Even though the positive correlation of campaign contributions and favorable access and legislation (and trade negotiations) does not in itself prove the existence of a quid pro quo, the fingerprints are all over the darkened windows of Obama's White House. Rather than attacking capitalism, Obama was wallowing in it even as he occasionally threw red meat to his anti-corporate base to get it out to the polls. 

Moreover, both the matter of White House access and access to trade deal negotiation point to the partisan nature of the office of the U.S. Presidency. With regard to the White House access, the Post reports that “Republican lobbyists coming to visit are rare, while Democratic lobbyists are common, whether they are representing corporate clients or liberal causes.” This suggests that the presidency itself may be more partisan than is consistent with representing the United States itself (i.e., the figure-head role of the office).

In general terms, it would be naïve to suppose that powerful figures in Washington, D.C. could somehow be immune from lobbyists when the clients have so much money (i.e., economic power). In other words, concentrated wealth must needs eventuate in pressure on public policy. To restrict lobbyist access at the White House would thus only plug a hole that is a symptom. While doing so might assuage our frustration at such blatant favoritism bought with campaign (or SuperPac) donations, it is that money and the related mammoth size and power of modern corporations that must ultimately be challenged for there to be any change in substance. However, we should not be so naïve as to expect that barring lobbyists from the People’s House or even outlawing corporate political campaign contributions would reduce the influence. Where there are deep pockets of concentrated private wealth, the public weale must needs be so oriented. 

Sunday, May 20, 2012

Unions and States at the G-8

At the G-8 summit at Camp David in May 2012, E.U. and U.S. leaders met with the leaders of four E.U. states (Italy, Germany, France and Britain). As this picture illustrates, the qualitative differences between looking after a union of states and a state can show up unintentionally in informal seating arrangements. In the context of the European debt crisis—in particular, whether to give one state (i.e., Greece) stimulus cash or just insist on the austerity programs already agreed to—the governors of the E.U. states have particular agendas (given the financial interests of the respective states) whereas the federal officials are oriented to the good of the whole (i.e., the E.U.). President Obama of the U.S. was by the time of the summit used to taking such a perspective over and above the interests of particular U.S. states. Such a commonality of federal, empire-level interests as distinct from the relatively particularized interests of E.U. (and U.S.) states could be reflected in the seating arrangement in the picture taken by the White House, wherein Obama, Barroso (sitting next to Obama), and Van Rompuy (in the sweater) seem to be facing the four governors. The seating arrangement could just as easily have been a circle. It probably was, originally, and I suspect that the federal v. states distinction operated unconsciously on the participants such that the three federal officials came to be as though a line facing the four governors of E.U. states.

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