E.U. Budget Cuts: David Cameron’s Strategy

The budget deal reached by the state governments represented in the European Council in Feburary 2013 would mark the first decrease in the E.U.’s seven-year budget , pending approval by the European Parliament. According to The Telegraph, “the deal sets members’ total payments to the EU for 2014-20 at €908.4 billion (£770 billion). Payments were £800 billion for the previous seven-year round.” This was precisely what the conservative British prime minister at the time, David Cameron, wanted.  “I think the British people can be proud,” he said after the deal had been reached. “Every previous year these deals have been agreed, spending has gone up,” he added. “Not this time.”  Beyond the relevance of the prime minister’s rather obvious small-government fiscal-conservative ideology, his “victory” in the European Council is in line with his strategy to keep his state in the Union.

Britain's David Cameron finally at home in the E.U.? Negotiating with other state officials at the European Council. Source: thepressnews.com

 

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

ECB’s Draghi Resists Pressure to Devalue Euro and Stimulate Growth

Despite pressures from the appreciation of the euro, which had hit a 15-month peak of $1.3711 on February 1, 2013, Mario Draghi of the European Central Bank announced four days later that the benchmark financing rate would be on hold at the record-low 0.75 percent. In making the announcement, he stressed that the worst was over for the Eurozone and that the uncertainties would be gone by midyear. “The economic weakness in the euro area is expected to prevail in the early part of this year. But later in 2013, economic activity should gradually recover, supported by our accommodative monetary policy stance and the improvement in financial market confidence.” Draghi was tacitly undercutting Francois Hollande’s earlier statement that the euro should depreciate so as not to hurt economic competitiveness. A higher euro means more expensive euro-based exports abroad. The relationships between monetary policy, a currency, and economic growth are complex. It would thus be worthwhile to unpack the scenario facing Draghi and Hollande in early 2013.

                         Mario Draghi addressing the World Economic Forum. In resisting pressure to lower the benchmark rate, he increased his financial stature abroad. 

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

S. & P. Sued for $5 Billion: Breaking a Conflict of Interest?

In sending a message to S & P as well as Wall Street more generally regarding the excesses in the securitization of subprime mortgages that contributed materially to the financial crisis of 2008, the U.S. Government and several state governments announced in early 2013 that they would sue S & P for $5 billion as a penalty and to cover damages to state pension funds and federally-insured banks and credit unions.  The operative assumption was that such a monetary figure would have considerable force as a disincentive to profit by means of fraud.  Would $5 billion be sufficient for the message to be delivered not only S. & P. but also to Wall Street? 

The full essay is at Essays on the Financial Crisis, and
 Institutional Conflicts of Interest, both available at Amazon.

Is a Stronger Euro in Europe’s Interest? In America’s?

Speaking at the European Parliament in early February 2013, Francois Hollande of France castigated the floating exchange rate of the euro. “The euro should not fluctuate according to the mood of the markets. A monetary zone must have an exchange rate policy. If not it will be subjected to an exchange rate that does not reflect the real state of the economy.”  The week before, the euro was at $1.37, a 15-month high. The euro was at its strongest rate against the Japanese yen since April 2010. Behind the rise in the currency’s value was a surge in investor interest in the euro from assessments that the worst of the debt crisis had passed. Hollande’s statement can be critiqued on a number of points.

Was the upswing in the value of the euro just the beginning of the currency's rise as a reserve currency around the world?

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

Is the E.U. More Than the Sum of Its Parts?

In the wake of David Cameron’s announcement that he would try to renegotiate Britain’s obligations in the E.U. then have an “in or out” referendum in his state on whether it should secede from the Union, Francois Hollande of France warned that state interests were in the process of usurping “the European interest.” According to the French president, Cameron was heading the E.U. down the path in which each state “looks for what is good for itself and only itself.” As such, the Union would simply be an aggregation of state interests. The question is perhaps the old one of whether the whole is more than the sum of the parts. In proffering different answers, the European federalists and anti-federalists (or Euro-skeptics) have fundamentally different conceptions of what the E.U. is.

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

Is the E.U. no more than an aggregation of its states, or does a distinct whole exist such that the E.U. is itself distinct from its states? 

Fixing the Foreclosing Banks: A Hidden Conflict of Interest in Regulatory Compliance

After the financial crisis of 2008, regulators in the U.S. ordered banks to hire consultants to implement more than 130 “enforcement actions,” which represent 15% of the cases. In 2011 alone, regulators mandated that eleven banks hire consultants to determine whether mortgage borrowers had been wrongfully evicted. The consultants collected about $2 billion in fees, which amount to more than half of what homeowners were to receive under the $8.5 billion settlement that ended the consultants’ work. According to regulators, the consultants’ work was plagued with inefficiencies. This is probably the least of it, for virtually any expectations for “an industry that is paid billions of dollars by the same banks it is expected to police” are bound to be chimerical in nature.

The full essay is at Institutional Conflicts of Interest, available at Amazon.

Facebook's Fatal Flaw: Mobile Ad Revenue?

As the largest of the social-media companies, Facebook has gone into uncharted waters. Adding to Wall Street’s analytical headache, the company’s strategy at least since its IPO has been to be oriented more to the long term than is customary on Wall Street. Put another way, estimating Facebook’s long-term viability has been notoriously difficult, particularly for Wall Streeters who apply their traditional criteria nonetheless. Looking beyond Wall Street’s lenses, there is indeed reason to regard investments in the company as very risky.

The full essay is at Taking the Face Off Facebook, available at Amazon.

Excessive Standardization Pushed by the European Commission?

The E.U.’s internal market is not typically construed in terms of federalism. Whereas the market connotes homogeneity or at least easy transfers across state lines, a union of states wherein both are semi-sovereign implies diversity within certain commonalities. The economic and political systems are not mutually exclusive, or inert, however. Put another way, too much economic standardization begins to run up against the heterogeneity that is inherent in an empire-level union of republics.

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

Carbon Allowances: Merkel's E.U.?

Fundamentally, a union of states is in trouble when any federal action is predicated on consent from the governor of the largest state. The U.S. Senate was proposed precisely to give the smaller states a means to thwart the domination of a few large ones in legislating at the federal level. The European Council’s qualified majority vote mechanism and the unanimity requirement on “big ticket items” such as taxation permit a supermajority of states to reject the proposal of a few large ones. The U.S. House of Representatives and the European Parliament offer no such avenue for small states because those chambers are based solely on population. California and New York, and France and Germany, can through their peoples’ representatives have great clout in those bodies. Therefore, bicameral (i.e., two chambers) legislatures are distinctly advantageous at the federal level of a union of states.

                            Jose Barosso, President of the European Commission, conferring with Angela Merkel, chancellor of the state of Germany. Was she giving Barosso his marching orders? Vielleicht, ich glaube.  

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

The 11-Inch Footlong at Subway

It is perhaps all too common for companies that franchise out stores to insist to complaining customers that the franchisee bears full responsibility for any dissatisfaction. That franchisees are bound to certain standards in a legal agreement with the company is apparently of no consequence. The refusal to take responsibility is perhaps all too common in the retail sector. It is more convenient to point to the other guy’s responsibility than to one’s own. In fact, this mentality may be said to characterize business culture today. The sordid condition can be seen in the knee-jerk avoidance company statements made on the heels of a customer-led controversy.

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available at Amazon.com.

Leadership at Goldman Sachs: Mice or Men?

Inevitably, with any focus comes the opportunity cost of the benefits that could have come from alternative agendas. Put another way, a sustained focus on particular trees means losing the benefits that go with looking at the forest as a whole. One might ask whether Wall Street bankers, even those in lofty positions, are too focused on marginal differences even as the bankers stay away from operational oversight. Goldman Sachs, being led by a former trader, may have been a case in point as 2012 succumbed to 2013.

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

Should Iceland Be a State in the E.U.?

Is a state’s strategic interest simply the sum total of political and economic expediency? In the case of Iceland becoming a state in the E.U., the suspension by the Icelandic government of talks that began after Iceland’s banking sector took a major hit in 2008 may have been a political means of countering the “tough competition” from parties that have been skeptical about the sovereign state joining the Union. With parliamentary elections coming up, the parties in the government did not want to be found wanting on the unpopular side of a major question.

The complete essay is at Essays on Two Federal Empires.

Bank of America: Taxpayers Subsidize a Wrong

According to the New York Times, money paid to “settle a company’s actual or potential liability for a civil or criminal penalty is not deductible.” However, if the payments are meant to be remedial rather than a penalty, they are deductible. In effect, such payments are subsidized by the American taxpayer. The question of whether this arrangement should be changed can be approached as an ethical problem.

The full essay is at "Essays on the Financial Crisis."

Banking Lobby Extracts Benefits from Consumer Protector

Turning lemons into lemonade: that could aptly characterize the strategy of the banking lobby as the Consumer Financial Protection Bureau (CFPB) was promulgating a broad set of mortgage rules that were announced in January 2013. Rather than merely seeking to minimize more onerous standards, the industry sought to insulate itself as much as possible from getting sued by borrowers. Ignoring the rather obvious self-interest of the banks, the new regulators accepted the bankers’ claim that the legal protection was necessary for the banks to be willing to produce mortgages.

The full essay is at "Banking Lobby."

Mistrust in Business: A Nietzschean Critique

In his commentary on the loss of trust in business, government and society, Michael Wolff laments to decline of trust through what he calls “consumer history.” As trust can be maintained with little or no further cost once established, Wolff is perplexed as to why more business practitioners, politicians and even religious functionaries do not rush to fill the gap.

The full essay has been incorporated into (or swallowed up by) On the Arrogance of False Entitlement: A Nietzschean Critique of Business Ethics and Management, available in print and as an ebook at Amazon.