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Friday, June 14, 2013

Regulating Snus in the E.U.

Should the E.U. be able to regulate sales of a product that can legally be sold only in one state? Would such regulations encroach too much on the governmental sovereignty of the state? In the U.S., Congress has steadily extended its power to regulate interstate commerce to the point that commercial transactions taking place entirely within one state are routinely covered. Is the E.U. headed toward the same outcome?
The full essay is at "Essays on the E.U. Political Economy," available at Amazon. 

Wednesday, June 12, 2013

Reinsurance as a Shell Game: Another Bailout to Come?

In the stock market, investors can be quite fastidious in demanding a certain quarterly profit or internal rate of return. The increasing activism of institutional investors exacerbates this trend, as they have the wherewithal to investigate the companies in which they hold stock and the incentive given the number of shares they typically hold in a certain company. This pressure can tempt managements to “go outside the box” in developing novel ways to inflate revenue or hid expenses and risk. In theory at least, companies owned by their employees or customers do not have to contend with that sort of pressure, and thus can manage their books with more transparency and honesty. Has managerial capitalism become too reductionistic in relying so much on the corporate form of ownership? Have we as societies been opening ourselves up to too much financial risk as a result? Further, if shifting more regulatory authority from the state to the federal level in the US (and presumably in the EU as well), what would be the cost to the federal system? The answers for the U.S. and E.U. could differ, given where each union is in its development. The insurance industry in New York is a case in point.

The full essay is in Cases of Unethical Business, which is available at Amazon.

Sunday, June 9, 2013

Should the ECB Spend an Unlimited Amount on Bonds?

The European Central Bank did not place any limit on its program in which the bank purchases bonds of heavily indebted states so as to keep their borrowing costs (i.e., the bonds’ interest rates) from increasing. The program, called Outright Monetary Transactions, had already accomplished that even before spending a euro. Anticipation that the ECB would enter a state bond market if its interest rate rose high enough was enough to keep the rates from skyrocketing.  So, the announcement that the ECB would spend what “would be adequate to meet [the] objectives” is perhaps more important than how much the central bank actually spends.[1]  According to Joerg Asmussen, an executive board member of the ECB, the OMT was “economically necessary, legally permissible and effective.”[2]  He made the comment as a court in the state of Germany was preparing to consider whether the OMT “infringes on the constitution’s insistence on sovereign parliamentary control over budget matters.”[3]  Hence, a tension between “legally permissible” and “infringes on . . . sovereign parliamentary control” threatened to kill a program that had already succeeded before buying one bond. Fortunately, legal experts were saying that the German court might defer to the European Court of Justice, the E.U.’s supreme court.

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