The SEC and the Courts on Wall Street Settlements in 2011

The SEC enforcement staff, including its chief, Robert Khuzami, decided to kick a gift horse in the mouth rather than to “take a lesson” and perhaps come out stronger for it. At issue was the rejection by U.S. District Judge Jed Rakoff of the SEC’s proposed $285 million settlement with Citigroup. In his ruling, Rakoff denounced the penalty as “pocket change” to the bank, which would not even have to admit to any wrongdoing. Investors duped into buying into a $1 billion deal called Class V Funding III had lost $700 million. Betting at the time of issue against half of the assets in the deal, Citigroup did not share knowledge of its hedge with the investors.

The reaction of the SEC staff in Khuzami’s department was simply to “put down their pencils” and wonder how they should go about arranging settlements with financial firms accused of misconduct before and during the financial crisis of 2008. The SEC “doesn’t know what to ask for anymore in the settlements,” one of the people familiar with the Citigroup settlement said. Rather than take the judge’s judgment to heart, Khuzami urged the five-person commission running the SEC to vote to approve an appeal, and they did so. Rather than take the less convenient course of insisting that the banks too big to fail that manipulated their own clients at least admit wrong-doing and reimburse the losses, Khuzami viewed the judge’s ruling as if it were a political obstacle to be obviated by asking an appellate court to ignore it. Given the political muscle that must surely go with Citigroup’s wealth, Khuzami could have been assuming that the bankers would see to it that sufficient pressure would plied on enough appellate judges to make the obstacle easily avoidable. In other words, Khuzami was likely assuming that Rakoff was a fluke, given Citi’s influence—perhaps even in the SEC itself.

The full essay is at "The SEC and the Courts."

A U.S. Visa Fast-Track For Rich Investors

The New York Times reported in December 2011 that affluent foreigners had been rushing to take advantage of a U.S. immigration program. The foreign applicants must invest at least $500,000 in construction projects within the United States. The number of applicants had nearly doubled since the end of 2008 to more than 3,800 in the 2011 fiscal year. The intent of the program is to spur economic development at a time of high unemployment. Yet the program has also been characterized as a cash-for-visas scheme. Besides the question of whether the program’s rules have been stretched in New York City to qualify projects in prosperous areas for special concessions, an ethical question can be raised concerning who should get a visa.

The full essay is at "Visa Fast-Track for the Rich."

The Kurds Betrayed: Iraq Retakes Kirkuk with U.S. Backing

For some reason, people tend to assume that the status quo has been around for a very, very long time—that it enjoys the perk of longevity. To mess with it even in part is typically assumed to “upset the apple cart.” The fear is excessive. A century after World War I, the fact that many of the extant countries in the Middle East had been artificially crafted by Britain and France paled under the presumption that those countries had been around for much, much longer. Accordingly, the fact that the Kurds voted overwhelmingly in 2017 to secede from Iraq was ignored or dismissed not only by Iraq, but also by other countries in the region and the United States. “Baghdad and most countries in the region had condemned the vote, fearing it would fuel ethnic divisions, lead to the breakup of Iraq and hobble the fight against the Islamic State.”[1] I submit that the fear was overblown and mistaken.

The full essay is at "Kurds Betrayed."

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[1] David Zucchino, “Iraqis Capture Key Kurdish City with Little Fight,” The New York Times, October 17, 2017.

Climatic Presumption: What is the Forecast?

Al Gore stated that we face a choice regarding whether the earth’s ecological system will remain viable for our species.  He cites the carbon that is frozen in the permafrost in the north.  As the permafrost melts, carbon is added to the atmosphere, making it “difficult” for the human species to live.   I am not a scientist so I have no means of knowing what the state of the research is on these matters.  Nor am I particularly interested in debating it.   In my view, if there is a chance that we could be effectively ending our our species, we ought not to be held back from acting in a prudent fashion even if it is “just in case.”   I understand the economic costs, and that some are particularly attached to short-run costs (and less enamoured with long-term benefits).  Still, that the debate itself would be allowed to stall even a “just in case” response reflects badly on our species.   At a worse case, it could be something like two parents debating which of them will get their baby out of their burning house.  Meanwhile, the baby burns.   We would call that a dysfunctional family, would we not?  Still, no such appellation goes to those involved in the continuing debate on climate change.

The full essay is at "Climatic Presumption."

Paul Samuelson: The Model 20th Century Economist

Paul A. Samuelson, the first American Nobel laureate in economics and the foremost academic economist of the 20th century, died at the end of 2009 at 94.  Samuelson was credited with changing the academic discipline of economics, according to The New York Times,  ”from one that ruminates about economic issues to one that solves problems, answering questions about cause and effect with mathematical rigor and clarity.”  Essentially, he redefined twentieth century economics. Mathematics had already been employed by social scientists, but Dr. Samuelson brought the discipline into the mainstream of economic thinking. His early work, for example, presented a unified mathematical structure for predicting how businesses and households alike would respond to changes in economic forces, how changes in wage rates would affect employment, and how tax rate changes would affect tax collections.  He developed the rudimentary mathematics of business cycles with a model, called the multiplier-accelerator, that captured the inherent tendency of market economies to fluctuate.  Mathematical formuli that Wall Street analysts use to trade options and other complicated securities (derivatives) have come from his work (FYI: derivatives too complicated for outsiders such as the government to understand/regulate were at the center of the financial crisis in 2008).

The full essay is at "20th Century Economist."

An Ethical Dilemma for Cell-Phone Companies? Drivers Who Text & Talk

Long before cellphones became ubiquitous, industry pioneers were aware of the risks of multitasking behind the wheel. Their hunches have been validated by many scientific studies showing the dangers of talking while driving and, in 2009, of texting. Despite the mounting evidence, the industry built itself into a $150 billion business in the United States largely by winning over a crucial customer: the driver. For years, it marketed the virtues of cellphones to drivers. Indeed, the industry originally called them car phones and extolled them as useful status symbols in ads, like one from 1984 showing an executive behind the wheel that asked: Can your secretary take dictation at 55 MPH? 

The full essay is at "Drivers who Text & Talk."

Flavor of the Month: Achilles' Heel of American Democracy?

The New York Times Sunday Magazine ran a feature toward the end of 2009 on Joe Biden, who was then Vice President of the United States.  Besides his experience and knowledge from having been a seasoned U.S. senator, Joe Biden is a man genuinely content in his own skin, and, it might be said, genuinely happy.  This, perhaps more than anything else, is vital to high level public official because sound judgment is important in those jobs. Ruling is not simply about how much one knows, or even how much experience one has; it is fundamentally about feeling at ease in who one is.  Ultimately, a positive vision springs from one’s state of mind and innate values.  One need only contrast Joe Biden with Richard Nixon, for example. Foreign policy comes up for both, but their mentalities could not be different. My question is this: to what extent is our “Electoral College as popular election” geared to selecting the best candidate for president? 

The full essay is at "Flavor of the Month."