The Debt Crisis: A Conflict of Interest Hampers the E.U.’s Response

“As the European Union enters a financial crisis in slow motion,” a Huffington Post reporter avers, “the fragile American economic recovery hangs in the balance. With Greece almost certain to default on its debt, European political leaders need to take decisive action to prevent a resultant string of bank runs and government defaults, which could precipitate double-dip recessions in Europe and the United States.”[1] If Greece suddenly defaults, Kavoussi reasons, other E.U. states “could leave the European Union to flee higher interest rates and to enable themselves to pay down their debt more easily by devaluing their currencies.”[2] Such an outcome, she claims, “would almost certainly plunge Europe into a recession.”[3] She observes, moreover, that “European politicians may lack the political will necessary to prevent the sovereign debt crisis from mushrooming into a global economic slowdown.”[4]

 

The complete essay is at Essays on Two Federal Empires.

1. Bonnie Kavoussi, “European Sovereign Debt CrisisThreatens American Economy,” The Huffington Post, September 27, 2011.

2. Ibid.

3. Ibid.

4. Ibid.

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.[1] 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 "Essays on the Financial Crisis."

1. Shaila Dewan, “Freddie and Fannie Reject Debt Relief,” The New York Times, October 6, 2011. 

Meg Whitman at HP: A Leader or Manager?

Referring to the appointment of Meg Whitman as CEO of HP, Ray Lane, chairman of the board, said, “We are at a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead.”[1] On both scores, Lane was actually referring to management rather than leadership. Even the setting of strategy is within the purview of management, as in strategic management; implementing a strategy is the epitome of management. Similarly, recognizing market opportunities is strategic in nature, and thus a function of managing a company as a whole.


Material from this essay has been incorporated into The Essence of Leadership: A Cross-Cultural Foundation, which is available in print and as an ebook at Amazon. 

1. “HP Names Meg Whitman as New CEO,” Reuters, September 22, 2011; “HP’s Whitman: I’ll Focus on Leadership,” The Bottom Line, msnbc.com., September 23, 2011.

Fiscal Training-Wheels for the E.U.

The government of the E.U. state of Greece announced on September 11, 2011 that its cabinet had decided to impose a new property tax to cover a 2 billion euro ($2.7 billion) projected revenue shortfall for the year. The government expected the state to meet its deficit goals of 17.1 billion euros (8.2% of GDP) in 2011 and 14.9 billion in 2012.[1] Earlier in September, talks between the state government and the E.U. Commission, the European Central Bank, and the International Monetary Fund had broken down in a dispute over whether Greece had done enough to meet its deficit targets. Pressure to assuage the “troika” amid popular protests in Greece apparently trumped questions on the legitimacy of a tax increase enacted by a cabinet without the approval of the state legislature.

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

1. Granitsas Alkman, “Greece Announces New Tax as Unrest Flares,” The Wall Street Journal, September 12, 2011; David Gauthier-Villars and Nathalie Boschat, “Woes at French Banks Signal a Broader Crisis,” The Wall Street Journal, September 12, 2011; Ainsley Thomson and Marcus Walker, “Support Grows for New EU Treaty to Boost Fiscal Ties in Euro Zone,” The Wall Street Journal, September 12, 2011.

On the Perils of E.U. States Being In Charge

Wolfgang Schäuble, the finance minister of the state of Germany, does not mince words when it comes to the state of Greece sticking to its promise to reduce its deficit in order to receive aid from the E.U. through its Financial Stability Facility. Aid will be paid, he said on September 8, 2011 in a radio interview, “if Greece actually does what it agreed to do.”[1] If monitors do not sign off on Greece having fulfilled its promises, then “Greece has to see how it gets access to financial markets without help from [the E.U. facility].”[2] Ouch! Meanwhile, the state government of Finland was still insisting on collateral from Greece as a condition for contributing to the aid. Adding still additional pressure on the Greek government, Mark Rutte, prime minister of the Netherlands, had said on the previous day that states receiving aid should either cede control over their budgets or drop the euro. According to the New York Times, many economists believe that the ripple effects from Greece’s departure from the euro “could be catastrophic for the world economy.”[3]

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

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 1.  Steven Erlanger, “Europe Steers Into a Zone ofUncertainty,” The New York Times, September 9, 2011; Jack Ewing, “In Europe, Greece Gets a Warning about Aid,” The New York Times, September 9, 2011.

2. Ibid.

3. Ibid.

E.U.: Ever Closer Energy

Günther Oettinger, the energy commissioner at the E.U. Commission (the E.U.’s executive branch), said at a news conference on September 7, 2011 that the E.U. needs to look “beyond its borders to ensure the security of energy supplies.”[1] Having the states “act together and speak with one voice” through their federal government is the rationale for ever closer union.[2] To be sure, ever closer union has its limits; the hominization of Europe via political consolidation would ignore the innate diversity that exists within any empire-level union of states, whether the E.U., A.U. or U.S. Even so, fear of consolidation need not hamper Europe from being able to benefit from united action.

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

1. James Kanter, “Brussels Seeks More Control Over Energy Deals,” The New York Times, September 8, 2011.

2. Ibid.

                                                                             

The German Court in the E.U.: Exasperating or Mitigating Germany's Veto in the E.U.?

Did Angela Merkel violate the property rights of residents in the state of Germany by agreeing to the initial bank bailout in the E.U.? Should she have gotten the approval of the Bundestag first? According to a German state court on September 7, 2011, “no and a qualified yes.” The court ruled that the approval of the Bundestag’s budget committee is necessary for significant increases in the European Financial Stability Facility. The question as put by The Wall Street Journal the day before the ruling can be viewed as whether parliamentary politics on the state level should be allowed to potentially slow or obstruct the E.U.’s crisis-response ability. That is, should the prerogatives of state officials be strengthened just when the E.U.’s monetary affairs require more rather than less fiscal coordination?  By requiring the approval of the budget committee in the lower house of the state legislature, the German state court ruling avoids the potentially aggravating effects of a wider circle of state legislators. Even so, other states could follow suit with respect to their committees, making it more difficult for state officials to function at the E.U. level.

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

Federalizing Fiscally: E.U. looks to Early U.S.

I suspect many Europeans would bristle at the suggestion that Europe could learn a thing or two from American history. If the E.U. corresponds to the U.S. and has a federal balance-of-power roughly the same as that which existed in the U.S. at, say, 1820, then the Europeans could do worse than look at American history for lessons both in what to emulate and what not to do.

The complete essay is at "Essays on Two Federal Empires."

AOL Ignores TechCrunch’s Conflict of Interest

According to The New York Times, “When Michael Arrington, the editor of the popular Web site TechCrunch, told his bosses at AOL that he was forming a venture capital company to finance some of the technology start-ups that his site wrote about, they did not fire him or ask for his resignation. Instead, . . .  they invested about $10 million in his fund.”[1] Tim Armstrong, AOL’s chief executive, issued the following statement when CrunchFund was announced: “TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”[2] As for Michael Arrington, Arianna Huffington claimed that he would have no influence on coverage—that there would be, in effect, a Chinese wall between TechCrunch’s news site and venture-capital firm. However earlier on the same day, Arrington stated, “I am TechCrunch and TechCrunch is me.”[3] 

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

1. David Carr, “Tech Blogger Who Leaps Over the Line,” The New York Times, September 5, 2011, p. B1.

Nietzsche on Bank of America

The positive correlation between incompetence and unethical conduct at companies is striking, for, theoretically at least, a person can be talented or smart and of questionable character. Of course, it could be that cutting corners is a survival strategy of people who are not competent. However, shirking seems to reflect a sordid character, which, like personality, is relatively constant throughout one’s life—though character flaws could manifest more when times are tough (as in when incompetence has eventuated in a dire balance sheet). One might investigate, moreover, whether a firm’s culture can become more tolerant of unethical conduct when the finances are going south—or do unethical cultures tend to be like fixtures in organizations irrespective of financial condition?

The full essay has been incorporated into On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management, available at Amazon.

Angela Merkel: Leading Germany in the E.U.

In the E.U. state of Germany, Angela Merkel had her work cut out for her in getting her coalition to carry the German House, or Bundestag. In vesting the debt bailout fund with powers had been at the state level. Conservatives feared the deal would “open to the door to relinquishing more sovereignty to the European Union.”[1] Also, the legislators in her Free/Christian Democrat coalition were having trouble justifying the increased cost to their constituents of the expanded fund even though it is geared to keeping the E.U. debt-loads at the state level from spinning out of control—meaning at the expense of the German economy. Economically, it can be argued that expanding the E.U.’s bailout fun is in the economic interest of the state of Germany and its residents.

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

1. Vanessa Fuhrmans, “Merkel Faces Test OverBailout Fund,” The Wall Street Journal, August 30, 2011.

In the Eye of the 24/7 News-Cycle: Profits & Attention-Seeking

For about a week toward the end of August 2011, the news networks in the U.S. seemed utterly captivated, or obsessed, with Hurricane “Irene,” which was running up the east coast from North Carolina to New England. The prognosis had been given as a fait accompli when the storm was just pulling out of the Bahamas. A rough convergence of the models was taken for certainty. If this obsessiveness sounds familiar, it may be because on virtually any major story, the 24-hour news networks have tended to crowd out other stories even when the marginal utility of the added coverage on the major story is very low. Editors go with filler on the major story rather than risk losing viewers by breaking away to cover the other news to a meaningful extent. Viewers who are not obsessed with the main story may view the networks as obsessed while the networks may view themselves as merely satisfying a growing obsession by viewers. In any case, the narrowness of coverage, as if a major story should crowd out other news, is problematic, for it ultimately leaves the American people less well informed than they would otherwise be of what is happening around them.

 

The full essay is at "The 24/7 News-Cycle."

The Payroll Tax Cut: A Luxury?

As U.S. deficits and thus the federal government's debt had been increasing since the Clinton Administration in the late 1990s, proposals for a payroll tax-cut entailed risking the financial condition of the U.S. Government. To be sure, increasing government spending above inflation was risky too. Here, though, tax policy as it relates to deficits, and thus debt, is analyzed. 

The full essay is at "The Payroll Tax Cut."

Social Media in the UK: Protests and Criminal Activity

Officials from the E.U. state of Britain met with representatives of Twitter, Facebook and Blackberry on August 26, 2011 “to discuss voluntary ways to limit or restrict the use of social media to combat crime and periods of civil unrest.”[1] Theresa May, the state’s Home Minister, said the aim of the meeting was to “crack down on the networks being used for criminal behavior.”[2] However, reducing the protests, rioting, and looting to such behavior ignores the point that civil unrest can include political protest. So it may be disturbing to some that the discussion, according to some who were present, “was still aimed at reeling in social media and strengthening the hand of law enforcement in gathering information.”[3] What would stop the police from gathering information on people taking part in a political protest against police brutality, for example? It would be convenient for a police department to classify a march as “criminial behavior” in breaching the peace, or simply collect information without any subterfuge.

The full essay is at "Social Media in the UK." 

1. Ravi Somaiya, “In Britain, A Meeting on Limiting Social Media,” The New York Times, August 26, 2011. 

2. Ibid.

3. Ibid.

Refinancing Mortgages: Only for the Rich?

According to the U.S. Government, prices of homes with government-backed mortgages fell 5.9% in the second quarter of 2011 from a year earlier. This was the biggest decline since 2009, which was on the heels of the credit crisis of late 2008. In 2011, more than one in five homeowners with mortgages owed more than their homes are worth. That translates to at least 10.9 million families, almost none of whom could refinance. While the Treasury Department and Federal Reserve were able to pump hundreds of billions of dollars into American banks, federal programs to assist homeowners had been regarded as ineffective.. [1] Out of the $45.6 billion in TARP funds (the total being $800 billion) set aside to help struggling homeowners, only $22.9 billion had been spent by August 2011. Fewer than 1.7 million loans had been modified under federal programs as of 2011. Just over 760,000 permanent mortgage modifications had been initiated under the government programs while at least 5.5 million mortgages were in delinquency or foreclosure. Andrea Risotto, a spokesperson at Treasury, said that the unused portion of the TARP funds for homeowners would be used to reduce the deficit.[2]

The full essay is at "Refinancing Mortgages."

1. Shaila Dewan and Louise Story, “U.S. May Back Refinance Plan for Mortgages,” the New York Times, August 25, 2011. 

2. Ibid.