Batting Better Than Goldman Sachs on Corporate Governance

Companies differ on how they handle personal and institutional conflicts of interest. This difference may reflect disagreement over whether a conflict of interest is inherently unethical, or whether one must be exploited for any conduct to be unethical. I take the former position: that to be in a conflict of interest is indeed inherently unethical. At the very least, being in a conflict of interest can trigger or spawn additional conflicts of interest. I point to Goldman Sachs’ response to an institutional stockholder’s corporate governance proposal as a case in point. That case can be contrasted with how the BATs board reacted in terms of corporate governance to bad public relations and a failed IPO.


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

The Federal Reserve’s Housing Bubble

During one of his lectures to a class at George Washington University in March of 2012, Ben Bernanke, the chairman of the Federal Reserve, claimed that the central bank’s lower interest rates did not trigger the housing bubble that began in the late 1990s and ended in 2006. For one thing, the Fed did not start cutting interest rates until a few years into the twenty-first century. Also, home prices rose after the Fed later began raising interest rates. Bernanke also cited Europe, where housing booms have not been associated with either tight or loose monetary policy.

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

Efficiency and Ethics: On the Fairness of High-Speed Trading

Two months into 2012, the SEC announced that it had been examining the trading activities of high-frequency trading firms.  According to the Wall Street Journal, the SEC was “examining, among other things, whether high-frequency firms benefit from delays in the dissemination of prices from various corners of the markets. . . . High-speed firms use direct feeds from exchanges that can give them a leg up on slower traders.” High-frequency traders “can access prices a split second faster through their access to direct feeds.” This is accomplished by placing the trading computers in the same data center that houses the exchange’s computer servers. Just over a year later, the Wall Street Journal reported that high-speed traders were using “a hidden facet” of the Chicago Mercantile Exchange’s computer system “to trade on the direction of the futures market before other investors get the same information.” Even getting the confirmation of a high-speed trade just one to ten milliseconds faster can enable a computer to know the direction a commodity is going and trade on it. According to the Wall Street Journal, the “ability to exploit such small time-gaps raises questions about transparency and fairness amid the computer-driven, rapid-fire trading that increasingly grips Wall Street and confounds regulators.” Both the increasing use of high-speed trading and the problem of accountability from a regulatory point of view raise the stakes in determining the ethics of the practice. 

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Cardiologists as Ethicists: On Cheney’s Heart Transplant

Former U.S. Vice President Dick Cheney had a heart transplant on March 24, 2012, "after five heart attacks over the past 25 years and countless medical procedures to keep him going. Cheney, 71, waited nearly two years for his new heart, the gift of an unknown donor.”[1] At the time, more than 3,100 Americans were on the states’ waiting list for a heart. Of the roughly 2,300 heart transplants performed in 2011, 332 were over sixty-five. On average, heart failure was killing 57,000 Americans a year at the time, so just a fraction of those who could use a heart get one. One might question, therefore, whether the 332 recipients who were over 65, and Cheney, who was 71, should have been allowed to avail themselves of the relatively short supply of available hearts.

The full essay is at "Cardiologists as Ethicists."

                                  

1. Kasie Hunt, “Dick Cheney Heart Transplant: Former VicePresident Recovering After Undergoing Surgery,” The Huffington Post, March 24, 2012.

Wickard vs. Filburn: Federalism vs. Congress

If you are wondering how the Congress got away with taking over so much from the state legislatures, you need look no further than Wickard v. Filburn, on which the U.S. Supreme Court unanimously decided that the interstate commerce clause can reach all the way to penalize a farmer for growing his own wheat.

The complete essay is at Essays on Two Federal Empires.

Fraudulent Foreclosures

Looking at foreclosures from 2008 to 2010 of federally-backed mortgages serviced by five major banks, federal investigators at the Department of Housing and Urban Development (HUD) found that bank managers “ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections.” Generally, the banks engaged “in a pattern of unfair and deceptive practices.”[1] This finding contradicts the self-serving statements by managers at the banks that blamed low-level employees. The investigation found that the managers had actually been the active agents. That is, the shortcuts were in many cases formulated and directed by managers. The inspector general at HUD pointed to “simple greed” to explain how so many people could have participated in the misconduct.[2] Considering that millions of Americans were tossed out of their homes as a result, I would sociopathic indifference or even callousness to the mix. Additionally, the rush to sign documents may have undercut the banks’ own positions with respect to both the foreclosure process and the homeowners—adding incompetence to the mix.


The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

1. Nelson Schwartz and J.B. Silver-Greenberg, “Bank Officials Cited in Churn of Foreclosures,” The New York Times, March 13, 2012.

2. Ibid.

Spain’s Deficit: Violating E.U. Law

In early March, 2012, Spanish Prime Minister Mariano Rajoy announced that Spain’s budget-deficit target would not be the 4.4% that had been promised by his predecessor to the E.U. Commission in 2011. Instead, the anticipated deficit in 2012 would be 5.8 percent.[1] That announcement put the state of Spain on a collision course with the enhanced enforcement of deficit limits by the Commission and the ECJ. Even though Rajoy had signed onto the added-enforcement “pact” a month before, he said of the 5.8 percent, “This is a sovereign decision made by Spain.”[2] A few days after his announcement E.U. finance officials met and accepted a 5.3% target.[3] Although it comes with a “tough deficit target” for 2013, one wonders whether the proposed strengthening of the “fiscal pact” will ever be enforced—and in a way that is fair to all of the states.

The complete essay is at Essays on Two Federal Empires.

1. Stephen Fidler, “Spain’s Move Tests Europe’s Mettle on Deficits,” The Wall Street Journal, March 10-11, 2012.

2. Ibid.

3. Matthew Dalton, “Euro-Zone Ministers Press Spain for a Deal on Deficits,” The Wall Street Journal, March 13, 2012.

On Television’s Sunset: Thinking outside the Box

Sometimes I think the human mind is like a train in being limited to the tracks that have already been laid. We are habituated to think it sufficient that we can turn off the main line on to another at the next signal. We think this is change because it involves turning onto a different track, but is it really change if the train is still on track?

The full essay is at "On Television's Sunset."

Justice as Fairness: Writing Down Greek Debt

In 2012, 80% of Greece’s private creditors agreed to “voluntarily” convert their Greek debt into debt of a bit less than half the face-value (plus a lower interest rate). With such a proportion having agreed to the swap without triggering credit default swap insurance payouts, Greece could get the E.U. to agree to force the remaining 20% to involuntary write-downs. That would trigger the credit default swaps, at least in theory.

The full essay is at "Justice as Fairness: Greek Debt."

A Democratic Spring in Russian Cities

The “Arab Spring” of 2011 might have given the world an over-optimistic notion of what political protest can engender in terms of “regime change.” A year later, the Egyptian military was still in control, which suggests that removing one particular dictator had constituted real change. In Myanmar, soldiers still dominated the parliament even after the opposition party won a landslide victory in by-elections in March 2012. Meanwhile, Assad in Syria was getting away with teaching the protesters in his country a bloody lesson while both the Arab League and the UN looked on. Meanwhile, Putin viewed his fraudulent presidential election victory as a mandate to deal more severely with the Russian protesters. The notion that a brave new world of democracy had somehow sprung to life in the Arab Spring suffered an cold snap of sorts from the cold winds of real politik. I suspect that real change happens more incrementally, and from the bottom up. This was evident in Russia in March, 2012.

The full essay is at "A Democratic Spring."

Pardons in Mississippi: On the Role of the Supreme Court

In a 6-to-3 decision, the Mississippi Supreme Court ruled in 2012 that pardon procedures lay outside of its constitutional authority—that to interfere even in cases where those procedures were flouted would violate the separation of powers. Section 124 of Mississippi’s Constitution “gives pardon power exclusively to the governor, but also requires applicants to have their petitions for pardon ‘published for 30 days, in some newspaper in the county where the crime was committed.’”[1] This is constitutional language, and yet the Supreme Court refused to determine whether Haley Barbour had acted unconstitutionally in all but 22 of the 200 pardons he had granted in his last days in office. In other words, the Court’s function in interpreting the constitution is at odds with the principle wherein the three branches of the Mississippi government are separate—none being directed by any of the other two.

The full essay is at "Pardons in Mississippi."

1. Campbell Robertson, “Highest Court in Mississippi Upholds 9 Pardons,” The New York Times, March 9, 2012. 

The SPD in Germany: Holding the Euro Hostage

Because the so-called “fiscal pact” amendment that would strength the E.U.’s enforcement of state government deficits and debts involves a shift of more state sovereignty to the E.U. for the states that ratify the informal amendment, the ratification in Germany requires a two-thirds majority in both the Bundestag and the Bundesrat. The latter body represents the German regions, or Länder, which in Texas or California would be counties. Generally speaking, the process of European integration has involved a succession of shifts of governmental sovereignty both from county and state governments to the E.U. itself as a federal government that includes an executive branch, a parliament, a council or upper chamber, and a supreme court that has a supremacy clause.

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

Scott Walker’s Recall in Wisconsin: Mob Rule?

In early March, 2012, unions and conservative groups had already “turned Wisconsin’s battle over labor rights into a national, multimillion-dollar war.”[1] In 2011, the two sides had spent $44 million in it. The unions began an effort in that year to recall Scott Walker, the government’s figurehead and chief executive, and several senators in Wisconsin’s Senate “after they pushed through legislation restricting the collective-bargaining and organizing powers of workers belonging to government-employee unions.”[2] While this depiction is cogent—a battle over labor rights involving legislation restricting collective-bargaining rights for government employees—I contend that the assumed linkage between the battle and the recall is deeply flawed.

The full essay is at "Scott Walker's Recall in Wisconsin."

1. Alicia Mundy, “Wisconsin Recall Realigns Campaign Spending,” The Wall Street Journal, March 6, 2012.

2. Ibid.

Corporate Social Responsibility Countering Rush Limbaugh

On February 29, 2012—Leap Day—Radio political-commentator and entertainer Rush Limbaugh called a female law student at Georgetown a “slut” and “prostitute” simply because she had said that Georgetown’s student health insurance should cover birth-control—a staple for even 98% of sexually-active married and single Catholic women as of 2012. On the following day, Limbaugh went on to offer to pay for aspirin that the women at Georgetown could “put between their knees” in lieu of birth-control. If you are wondering how that even makes sense, I am with you on that one. What strikes me in particular is the extreme to which Limbaugh went in his rhetoric or appeal for a larger audience for his radio show (and attention on himself). That corporate social responsibility would function as the corrective also surprised me, for CSR is typically merely marketing, window-dressing, or for better public relations.

The full essay is at "Corporate Social Responsibility Countering Rush Limbaugh."

E.U. Staving Off War: Statehood for Serbia

On March 1, 2012 when Serbia formally became a candidate for statehood in the European Union, it had been over 50 years since a state was added to the U.S. So from an American standpoint, watching the E.U. expand “in real time” from “across the pond” might be like a person in our solar system watching the unfolding of a new solar system light-years away and thinking, “So that is how it must have looked when it happened here.” Of course, the accession of additional states in the E.U. reflects the distinct time and culture of twentieth and twenty-first century Europe rather than of the world in the late eighteenth century. Even so, certain commonalities can be discerned.

The complete essay is at Essays on Two Federal Empires.