The European Council: Head of State of the E.U.

Concerning the European Council and the Council of the E.U., it can reasonably be asked whether such similar nomenclature is really necessary. It can be quite confusing. For example, I didn't realize that the European Council does not legislate; I had assumed that the Council of Ministers (a.k.a. the Council of the E.U.) handled the technical aspects of E.U. legislation while the European Council votes on broad and highly significant legislation.  Instead, the European Council "sets the EU's goals and the course for achieving them. It provides the impetus for the EU's main policy initiatives and resolves issues that cannot be settled at the ministerial level. It does not legislate."[1] In contrast, the Council of the EU (aka the Council of Ministers) "adopts EU laws, a responsibility it shares with the European Parliament in most policy areas."[2]  The Council of the E.U. also "concludes international agreements between the EU and other countries . . . ; plays a key role in the development of the EU's Common Foreign and Security Policy (CFSP), based on guidelines set by the European Council."[3] It is the Council of the E.U., rather than the European Council, that corresponds to the U.S. Senate. Beyond both bodies representing state governments, the unique foreign policy role is shared by both “upper chambers.” An implication is that cabinet secretaries in the American state governments could replace U.S. Senators (and, conversely, the people of the European states could elect delegates or senators to represent their states in the Council of the E.U.).  In my view, the use of state cabinet secretaries (and having the governor’s association set the U.S. agenda) would be an improvement on senators (and the U.S. President in setting the Union’s agenda).  Such a change would reinvigorate American federalism against continued consolidation.

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

1. “How the EU Works,” Foreign Policy, May/June 2011.

2. Ibid.

3. Ibid.

On the Belgium Stalemate: The E.U. to the Rescue?

On June 22, 2011, Philip Claeys, a representative in the E.U. Parliament, once again repeated his demand for Flemish independence, calling for the "orderly break-up" of Belgium. His call came as Belgium was entering its second year without a viable state government. It is no wonder, therefore, that a E.U. legislator would get involved. Repeated attempts had been made in Belgium during the previous year to resolve the political disagreements between Flanders and Wallonia—getting nowhere.

                              TheParliament.com

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

Banks on Reserve Requirements: An Institutional Conflict of Interest

As regulators were getting close to an international agreement on how much additional capital large banks that are deemed too big to fail should hold. In 2010, international policy makers met in Basil and agreed to 7 percent. The Dodd-Frank law passed in that same year in the U.S. meant that the Federal Reserve Bank would have to “impose tougher capital standards on ‘systemically important financial institutions’.”[1]  Hence, American officials wanted “to coordinate with global regulators so that U.S. firms aren’t put at a disadvantage.”[2] Not wanting to divert more capital to protect themselves from losses, banks were busy lobbying the regulators to reject the proposed 2.0 to 2.5 percentage points above the 7 percent set at Basil.

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

1. Deborah Solomon and Victoria McGrane, “Lenders Dig in on Rules,” The Wall Street Journal, June 16, 2011.

2. Ibid.

British Banking Regulation in the E.U.

Before the financial crisis of 2008, the British government was light on banking regulation compared to other E.U. state governments. Oddly, some Europeans imagined an “Anglo-American” connection or likeness, as the American states had been on a deregulation kick since Carter’s airline and thrift deregulatory laws in the late 1970s. Reagan and the second Bush in particular extenuated the movement, which applied to the entire U.S. common market. After the crisis, however, even as Republicans in the U.S. House of Representatives, which is commensurate to the E.U. Parliament, were still voicing support for still more deregulation as though 2008 had not happened, the regulatory tussle in the E.U. reflected the greater involvement of the state governments (i.e., the stronger federalism than the lop-sided variety in the U.S.), with the British government in particular pushing for stronger banking regulation—if not at the E.U. level, then in the state of Britain. “British officials are waging an increasingly aggressive fight to impose banking regulations as they see fit, even if they go further than rules elsewhere in the European Union,” according to The Wall Street Journal. From this quote, we can unpack two distinct though interrelating strains: a desire for tougher banking regulation and an anti-federalism wherein the state governments of the E.U. can go beyond the federal government in terms of the regulation. Both of these points are significant.

The complete essay is at Essays on Two Federal Empires.

Long Term Capital Management

By 1997, “after three years of strong profits for LTCM, the opportunities were drying up. There was too much money chasing the same investments. . . . In early 1998, LTMC decided to give a large portion of its capital back to its original investors because profitable opportunities were so hard to find. At the end of 1997, LTCM had nearly $7.5 billion under management, compared to $1 billion when it started, and it now returned $2.7 billion of that to investors. The partners also figured that they could, if necessary, simply leverage their portfolio further to compensate for the loss of capital, which would compound their personal gains. Greed was at the heart of what turned out to be a disastrous decision. . . . Unable to reproduce the returns of the first three years, LTCM took increasingly more risk, abandoning its purer arbitrage for the kinds of ‘directional’ investments Soros made and LTCM had so long disdained—such as trying to forecast interest rate and currency movements. More and more of these trades were unhedged.”[1] Furthermore, “LTCM’s risk models—VAR and related statistical tools . . . –were misleading.”[2] For example, diversification was little protection if there was a run on the banks. When Russia defaulted on August 17, 1997, LTCM’s hedges against its Russian investments were worthless. Furthermore, because all fixed income assets fell sharply in value, “diversification, it turned out, did not matter. The finely calculated relationships on which LTCM was built and which the firm always believed would hold started to come apart. VAR could  not account for such an unlikely but sweeping event—an event in which everyone wanted out at the same time and almost all investments fell significantly in price. The use of VAR itself precipitated much of the selling. Commercial banks under the jurisdiction of the Basel Agreements, which . . . set capital requirements based on the level of VAR (the lower the VAR, the lower the capital required), were forced to sell assets to raise capital.”[3] LTCM lost $1.9 billion that August. Eventually, fourteen banks, organized by the Fed, put together loans of more than $3.5 billion to purchase 90 percent of the firm.” LTCM “did manage to sell down assets in an orderly fashion and by early 2000 it was essentially out of business”[4] 


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

1. Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011), 277-81.

2. Ibid.

3. Ibid.

4. Ibid.

Amtrak’s Conflict of Interest

On June 15, 2011, U.S. House Republicans called for the breakup of Amtrak’s de facto monopoly of intercity and interstate passenger-rail transport in the United States. Specifically, Republican lawmakers proposed that the lucrative northeast routes be opened to private providers. For example, Richard Branson’s Virgin Trains had been seeking to provide service between Boston and Washington. Of course, letting one of the providers build and own the tracks even as other providers use the tracks would put that owner-provider in a conflict of interest in charging the other providers for their use of the track, so it would be preferable to have the U.S. Government supply the tracks and charge all of the private providers of train service.


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

Word-Games Obfuscating Britain Losing a Region: Too Many Bagpipes

Following the Scottish National Party’s victory in the Scottish region's elections in the United Kingdom) the question of whether the E.U. state of Britain would or should be partitioned received a lot of press. Plenty of word-games were in the mix. “Scottish National Party” alone is problematic, as Scotland has not been recognized as a country, nation or a nation-state since the beginning of the eighteenth century because Scotland is in the UK and is thus not an independent political unit. If a specific cultural identity alone were sufficient to connote national, then the word would be applicable at virtually any scale of territory from a town on up. Even Britain, being a semi-sovereign state in the E.U., is only a country (and nation) if Virginia and California are so as well, as they are also semi-sovereign states in a union and thus not independent political units. 

The full essay is at "Word Games."

A Health-Insurance Mandate Consistent with Federalism

On June 7, 2011, according to the Huffington Post, “three judges on the 11th Circuit Court of Appeals panel questioned whether upholding the landmark law could open the door to Congress adopting other sweeping economic mandates.” Chief Judge Joel Dubina, who had been appointed by President George H.W. Bush, "struck early by asking the government's attorney 'if we uphold the individual mandate in this case, are there any limits on Congressional power?' Circuit Judges Frank Hull and Stanley Marcus, who were both appointed by President Bill Clinton, echoed his concerns later in the hearing.”

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

Weakened U.S. Federalism as a Cause of the Financial Crisis

Weakening federalism in the name of preemptive deregulation played a major role in enabling the financial crisis of 2008. Specifically, Carter’s Depository Institutions Deregulation and Monetary Control Act of 1980 abolished Regulation Q (over time), which had limited thrifts’ deposit interest rates, and preempted “the many state usury laws that placed a ceiling on mortgage and credit card rates.”[1] Consolidation at the expense of federalism thus contributed as a risk factor.

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

1. Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred Knopf, 2011), p. 360.

Scotland: From a Region to a New E.U. State?

In early May 2011, “the Scottish National Party (SNP) won 69 out of 129 seats in the Scottish Parliament, with about 45 percent of the vote, up by more than 12 percentage points. Their three main rival parties — Labour, the Conservatives and Liberal Democrats  — all lost ground."[1] Whether to shift was so the region might break off from the United Kingdom, an E.U. state, is doubtful. 

 David Cheskin (AP)

  

The complete essay is at Essays on Two Federal Empires.

1. Ian MacKenzie, “Scottish Pro-Independence Party Wins Majority,” MSNBC.com, May 6, 2011.

On the Arrogance of Power: Greenspan, Rubin, and Summers in the Clinton Administration

Over two years after the financial crisis of 2008, a commentator on Fox News said that the banks should not stop the foreclosure process because that would not be good for the free market. He said that people who cannot afford their houses should lose them. Another commentator remarked that there was still too much government in the financial sector. This, according to the commentator, is “the problem.” It is particularly striking that Alan Greenspan’s stark admission to a U.S. House committee in 2008 that the deregulated laissez faire market paradigm contains a fundamental flaw was lost on the two commentators. In May 2011, House Speaker Boehner charged that business is over-regulated. This comment too is remarkable given Greenspan’s realization. If a people disowns its own lessons, history is destined to repeat itself.

The full essay is at Essays on the Financial Crisis.

Ignoring Institutional Conflicts of Interest

I submit for your consideration the thesis that people, particularly in American society at least, tend to have keen radar for conflicts of interest specific to individuals while institutional conflicts of interest tend to go undetected. The reason may be that a conflict of interest in which a specific person benefits is more tangible (e.g., receiving a bribe of $50,000) than is the on-going pressure on a department or organization to pursue an unethical policy or decision from an institutional conflict of interest. It may also be that we, as human beings, are more envious when another human being enriches oneself unethically than when an institution profits at the public’s expense—even if the ethical and financial damage of the latter is greater.

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

Wall Street Banks: Price-Making and Law-Breaking?

The U.S. Senate Permanent Subcommittee on Investigations found in 2011 that “two Goldman employees, Deeb Salem and David Swenson, tried to manipulate prices of securities used to bet against mortgages. Both tried to help Goldman pile on larger bets against the mortgage market, and they wanted to be able to buy such negative bets more cheaply, the report said. Goldman, as a broker, was able to affect prices in the market through the bids and offers it gave out. Mr. Swenson wrote in May 2007 that the bank should try to ‘start killing’ prices on certain positions so that Goldman would be able to ‘pick some high quality stuff,’ according to the Senate report. The strategy, Mr. Swenson wrote, would ‘have people totally demoralized.’ The pair were unsuccessful in their attempt, and both denied making it to the Senate committee. Mr. van Praag said last week that the report had no evidence of manipulation. Still, the Senate report said that ‘trading with the intent to manipulate market prices, even if unsuccessful, is a violation of the federal securities laws.’”[1] I submit that it was also unethical. 


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

1. Louise Story and Gretchen Morgenson, “S.E.C. Case Stands Out Because It Stands Alone,” The New York Times, May 31, 2011.

FIFA: Weaving an Unethical Web in a Sport

Soccer is the world’s most popular sport. Unfortunately, the Federation Internationale de Football Association (FIFA), the international association of soccer, has “repeatedly faced charges of corruption while operating with a lack of transparency and little oversight.”[1] Even though corruption comes naturally to individuals, institutional processes and structure too can be unethical in themselves. In such cases, it is not sufficient to isolate and remove the sordid persons; structural reform is needed too.

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

1. Jeré Longman, “Accusations Are Replaced by Anger at FIFA,” The New York Times, May 30, 2011.

Partisan Journalism at Fox News: Stockholders and Democracy

Roger Ailes “is the most successful executive in television by a wide margin, and he has been so for more than a decade. He is also, in a sense, the head of the Republican Party, having employed five prospective presidential candidates and done perhaps more than anyone to alter the balance of power in the national media in favor of the Republicans. ‘Because of his political work’—Ailes was a media strategist for Nixon, Reagan, and George H. W. Bush—‘he understood there was an audience,’ Ed Rollins, the veteran GOP consultant, [said in 2011]. [Ailes] knew there were a couple million conservatives who were a potential audience, and he built Fox to reach them.’ For most of his tenure, the roles of network chief and GOP kingmaker have been in perfect synergy. Ailes’s network has dominated the cable news race for most of the past decade, and for much of that time, Fox News attracted more viewers than CNN and MSNBC combined. Throughout the George W. Bush years, the network’s patriotic cheerleading helped to marginalize the Democrats. . . . The problem wasn’t that ratings had been slipping that much— [Glenn] Beck’s show declined by 30 percent from record highs, but the ratings were still nearly double those from before he joined the network. It was that, with an actual presidential election on the horizon, the Fox candidates’ poll numbers remain dismally low (Sarah Palin is polling 12 percent; Newt Gingrich and Rick Santorum, 10 percent and 2 percent, respectively). Ailes’s ­candidates-in-­waiting were coming up small. And, for all his programming genius, he was more interested in a real narrative than a television narrative—he wanted to elect a president.”[1] The last sentence of the quoted passage is particularly revealing: “(H)e wanted to elect a president.”  With Beck’s 30% drop in ratings still leaving him with a profitable rating, Ailes’ motive was not commercial, neither was it to improve the network’s journalism. Typically, news networks are criticized for sacrificing good journalism for commercial interests. Here, journalistic integrity and profit played second fiddle to partisan objectives. 

The full essay is at "Partisan Journalism."

1, Gabriel Sherman, “The Elephant in the Green Room,” New York Magazine, May 22, 2011.