Making Too Big To Fail Costlier: A Check on Empire-Building

Testifying before the Financial Crisis Inquiry Commission on September 2, 2010, Ben Bernanke, chairman of the Federal Reserve, observed, “As of 2003 and 2004, there really was quite a bit of disagreement among economists about whether there was a bubble, how big it was, whether it was a local or a national bubble. We certainly were aware it was a risk factor, but frankly by the time it was clear it was a bubble” it was too late to address it through monetary policy. The NYT also reported that he spoke favorably of forcing huge banks to hold much more capital, particularly if they were systemically important — so much capital, indeed, that being big would be costly. He advocated that the increased capital requirements should include capital that is more aligned with risk and able to absorb losses more effectively, and that works in a countercyclical manner, so that banks have more of it during times of stress. Does his position make sense? Does it go far enough? 

The answer is at "Making Too Big to Fail Costly."

Source: http://www.nytimes.com/2010/09/03/business/03commission.html?_r=1&ref=business

Autocratic Regimes: Subject to the Domino Effect?

"In Beirut, gunfire broke out and crowds of people waved Egyptian flags. In Yemen, they gathered in front of the Egyptian Embassy chanting, 'Wake up rulers, Mubarak fell today.' In Gaza, they fired shots in the air and set off fireworks. . . . [However,] in a telling sign of the divide between the rulers and the ruled, the region’s leaders, presidents and monarchs remained largely silent." This depiction by The New York Times of ripple effects across the Middle East in the wake of the resignation of Egypt's Mubarak in February, 2011 intimates the hoped-for and feared possibility that the popular unrest could spread.  Moreover, the entire world, which had been been glued to the events unfolding in Cairo, wondered if a domino effect might be in store in countries under autocratic rule. Indeed, The New York Times wrote of a possible domino effect quite explicitly: "The popular uprising that started . . . in Tunisa had claimed its second autocratic government, this time in the largest country in the Arab world. With more protests planned in coming days, some governments were clearly worried they could be next." But do autocratic governments fall like dominos?  That is, is revolution contagious? 

The full essay is at "Autocratic Regimes."

Catalania as a State in the E.U.

When Catalania held a referendum on whether to break off from the E.U. state of Spain, the E.U.’s basic law was silent on whether a state’s region would be a new state. The Prodi Doctrine, however, states that a region seceding from a state is automatically no longer part of the European Union. Such a region would have to apply for statehood as if it had been outside of the Union. I submit that such a stance is problematic.

The full essay is at "Catalania as a State in the E.U."

Amtrak: Avoiding the Obvious

According to The New York Times, Amtrak’s management “knew for years that they would have to replace large sections of deteriorating track in Pennsylvania Station in New York City.”[1] The management instead had engineering crews apply “short-term fixes to rows of rotted ties, crumbling concrete and eroded steel.”[2] Incredulously, the management was putting off replacing the tracks in part “to give work time to a nearby passenger hall renovation.”[3] Additionally, the management sought to minimize taking tracks out of service even on weekends so as not to disrupt service. In 2017, three accidents at the station finally got the management to commit to undertake an emergency repair program that “cut back service through the summer for thousands of passengers daily.”[4] Even by the objective of minimizing impaired service, prioritizing a hall renovation and putting off needed track repairs are problematic. The deeper problem is that of seriously misjudging utility.

The full essay is at "Amtrak."

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[1] Michael LaForgia, “Delaying Repairs on Decrepit Tracks,” The New York Times, October 9, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.

Spain’s Government: Measuring the Will of the People

“’No government in the world’ could tolerate the threatening of its unity,” said Mariano Rajoy, the prime minister of the E.U. state of Spain after a week of protests pro and con on whether the region of Catalonia should secede from the state.[1] On October 1, 2017, the region had held a referendum on the question in spite of the efforts of the state police to stop the vote. Ninety percent of the 40% of the region’s residents voted in favor of breaking off from Spain, but the active presence of the police means that the results could not be taken as an accurate reading of what the population of Catalan wanted.

The full essay is at "Spain Measuring the Will of the People."

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[1] Patrick Kingsley and Jason Horowitz, “Amid Catalan Crisis, Thousands Hold Rallies in Madrid and Barcelona,” The New York Times, October 7, 2017.

The International System: Undermining a Ban on Nuclear Weapons

The 2017 Nobel Peace Prize went to the International Campaign to Abolish Nuclear Weapons for the group’s work on behalf of a global ban on nuclear weapons. Just a few months earlier, two-thirds of the U.N.’s General Assembly approved the Treaty on the Prohibition of Nuclear Weapons. “The risk of nuclear war has grown exceptionally in the last few years, and that’s why it makes this treaty and us receiving this award so important,” Beatrice Fihn of the group said.[1] Unfortunately, the stance to ban rather than merely limit nuclear weapons was already being marginalized as utopian and even potentially counter-productive even though ongoing efforts to limit the proliferation were falling short. I submit that the international system itself had become problematic, given the relatively new global threat of nuclear war.  

1.  Michael Birnhaum of the Washington Post, October 6, 2017. 

The full essay is at "A Ban on Nuclear Weapons."

Knee-Jerk Reactions: On the U.S. Government Enabling Dictators

While in the U.S. Senate, Paul Kirk, the interim U.S. Senator who took Ted Kennedy’s seat, said, “Without a legitimate and credible Afghan partner, that counterinsurgency strategy is fundamentally flawed. The current Afghan government is neither legitimate nor credible. . . . We should not send a single additional dollar in aid or add a single American serviceman or woman to the 68,000 already courageously deployed in Afghanistan until we see a meaningful move by the Karzai regime to root out its corruption.” 

The full essay is at "Enabling Dictators."

Dubai Bankers and Responsibility: A Question of Presumed Complicity

Reacting to the debt troubles of Dubai World (which was carrying $59 billion in debt in 2009), the director general of the Dubai Department of Finance, Abdulrahman al-Saleh, said  “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.”  This sentence strikes me as odd.  Al-Saleh was suggesting that in deciding to make a loan to a company, a banker takes a risk, which entails the possibility of working with the company if it comes up short in cash.  Is such flexibility in the vocabulary of the typical loan officer, much less in the culture of major banks?  I doubt it.

The full essay is at "Dubai Bankers."

Earmarks and Congressional Campaign Fundraising: A Structural Conflict of Interest

In 2009, Congress appropriated $16 billion in earmarks. In March of the following year, the U.S. House of Representatives eliminated earmarks to for-profit companies. However, enterprising managers soon found a way to get around the new obstacle by creating related non-profits. As long as companies can make political contributions to Congressional campaigns, there will be a structural conflict of interest in the legislators legislating on earmarks.

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

Investment Bank Dinners with Corporate Executives and Hedge Fund Managers: The General Public Not Admitted

“One day in early March [2011], the phone lines of hedge-fund traders around London and New York suddenly lit up. A stock that many of them had placed hefty bets on—Pride International Inc., an energy company in the process of being sold to a rival—was falling. The traders had no idea why. They soon figured it out: J.P. Morgan Chase & Co. had hosted a meeting that day between a handful of hedge-fund traders and executives from a company that was considered a prime candidate to start a bidding war for Pride. One of those executives had indicated they weren't likely to make a bid.”

“The prospect of a bidding war had lifted Pride's shares above where they likely would have traded in the absence of a potential interloper. . . . At the March 8 lunch, though, as the traders munched on scallops and fish, Seadrill vice president and board member Tor Olav Trøim splashed cold water on the idea of a bid. He recalls telling traders that the company's Feb. 24 statement was ‘not normally what you would say if you were interested in bidding yourself. His intended message, according to one person familiar with the matter, is that Seadrill was "very unlikely’ to launch a competing offer for Pride. The information was market-moving, traders say. In the hours after the lunch, some traders wagered that the odds of a bidding war had declined. Seadrill's shares rose more than 1% as it was viewed as less likely to pursue a costly acquisition. Pride's shares fell by about 0.5% in the minutes before markets closed.”

“The moves may seem small, but they were significant for ‘merger arbitrage’ traders, who make short-term bets on deal stocks. In the case of the Ensco-Pride deal, the movements translated into a sudden 64% spike in the deal's ‘spread.’ That arcane measure reflects the difference between a target company's stock price and the per-share value of the acquirer's offer. The spread is closely watched by hedge funds that focus on merger arbitrage, which stand to gain or lose large sums based on the spread's movement. As the shares moved, anxious investors bombarded Seadrill's investor-relations office with phone calls, trying to figure out whether the company had issued new guidance about its appetite for bidding on Pride, according to a person familiar with the matter. Company officials responded that they hadn't released any new information. . . . Trøim says Seadrill executives regularly meet with large and small investors and that it is appropriate to help them understand the company's strategy. ‘We cannot see that we in any way have crossed any lines for giving privileged information,’ he says.”

The full essay is at "Investment Bank Dinners."

Source:

David Enrich and Dana Cimilluca, “Banks Woo Funds with Private Peeks,” The Wall Street Journal, May 16, 2011.

Leadership by Elected Representatives: Transcending the Politics of Slashing Vulnerable Federal Programs and Avoiding Tax Increases

On January 20, 2011, months before the Republicans would use leverage of a baleful debt-ceiling-default to extract additional cuts, the Republican Study Committee (RSC)—a group of fiscally conservative members of the U.S. House of Representatives—announced a plan by which $2.5 trillion could be cut from the U.S. Government's spending over ten years. According to The New York Times, the proposed cuts “would exclude the military, and would not touch the big entitlement programs, Medicare and Social Security. As a result, [their] effect on the entire array of government programs, among them education, domestic security, transportation, law enforcement and medical research, would be nothing short of drastic." The leaders of the RSC claimed that the cuts were “appropriate and necessary, given the government’s $14 trillion debt and annual deficits at their highest levels since the years just after World War II." The RSC "proposed generally reducing agency budgets to their levels in 2006 — the last time Congressional Republicans controlled the budget process — and then freezing them, with no annual inflation adjustments.” The RSC also recommended “slashing the federal workforce by 15 percent and canceling pay raises for five years, for a total of $2.29 trillion in savings.” Finally, the proposal included “an additional $330 billion in cuts to specific programs, including Amtrak, foreign aid and even the Washington subway system" (Source #1).

Analysis is at "Leadership as Slashing Programs."

On the Obama Administration's Inconsistency on Syria and Libya

In his foreign policy speech on May 19, 2011, U.S. President Barak Obama attempted to justify his administration’s policy of selective military action against violent rulers. “(W)e cannot prevent every injustice perpetrated by a regime against its people, and we have learned from our experience in Iraq just how costly and difficult it is to impose regime change by change by force – no matter how well-intended it may be.” The Obama administration was assuming that facilitating the removal of a ruler who is violently betraying his people must involve a multi-year American occupation, as in Iraq. However, the case of the U.N.-sanctioned international coalition enforcing a no-fly-zon and protecting civilians in Libya proffers a counter-example.

The full essay is at "U.S. Policy on Syria and Libya."

E Pluribus Unum (One out of Many): Unity without Uniformity

On January 12, 2011, President Obama spoke at the memorial service for the fallen victims of the assassination attempt on Rep. Giffords. “What we can’t do is use this tragedy as one more occasion to turn on each other,” the President said. “That we cannot do. As we discuss these issues, let each of us do so with a good dose of humility.” Had we really been turning on each other? It is as though a bystander had pointed out to two people arguing that they were indeed shouting.  "Were we really shouting?" one might ask the observer in astonishment--to which the observer would nod and add, "You guys might try a bit of humility," rather than, as the President observed, "pointing fingers or assigning blame.” 

The full essay is at "Unity without Uniformity."

Nature’s Caste System: Character-Based Clusters

Pushing good characters down for no good reason in a sort of “collective judgment” that applies to an entire group of people—as in the case of the untouchables in the caste system in India—and accepting the false entitlement of “professionals” to membership in the highest caste simply because they tend to be wealthy—as in the case of lawyers and physicians in America—violates the clusters that naturally cohere—like gases that form distinct planets having their own separated orbits—on the basis of character. Being “on one planet,” it is immediately obvious that someone else is on another. In this essay, I attempt to sketch some of the basic mechanisms by which nature’s caste system is sustained and articulate the nature of the differences that occasion there being appreciable distance between the clusters.

The full essay is at "Nature's Caste System."

Capitalism & Caste: Melting Untouchability in India

In what has become known as India, the caste system of Hinduism has for millennia served as the template for the socio-economic ordering of people into family-based groups. By the end of the first decade of the twenty-first century, the economic liberalization policy put in place in 1991 to replace the stagnant “import-substitution” domestic-favoring model of economic development had enabled some people in the lower castes to vault into social acceptability by virtue of what The New York Times calls “the newest god in the Indian pantheon: money.” Given the advent of the prosperity gospel in Christianity and the associated eclipse of the “camel getting through the eye of a needle” much-earlier-hegemonic association of wealth with greed, a similar statement could be made with regard to the Trinity (see “Godliness and Greed” and "God's Gold," both available at Amazon).

The full essay is at "Capitalism and Caste." .