Thursday, August 8, 2013

Corporate Social Responsibility and Reputational Capital: JPMorgan Facing Criminal Investigation

After years of claiming that no criminality had been involved in the securitization and sales of subprime-mortgage-based bonds, the U.S. Department of Justice began to change its tune by mid-2013. The Justice Department was investigating the $2.6 trillion-in-assets JPMorgan Chase bank over its sale of mortgage securities from 2005 to 2007. The government was investigating other large financial institutions too, but the damage to JPMorgan’s reputation could easily dwarf such impacts on the other big banks. For this reason, JPMorgan’s executives, rather than having no comment as the bank released the news in quarterly filings, should have “taken the bull by the horns” by acting proactively in terms of corporate social responsibility.



"Ok, I lied to clients about the bonds, but we had a deal: No Jail Time!"  Image Source: serenity-international.com

The full essay is at "JPMorgan: An Unethical Monstrosity?"


Friday, August 2, 2013

Halliburton: Organizational Culture and Ethics

Human beings are moral agents. Generally speaking, we have consciences and a sense of ought, which according to David Hume is not derived from what is. In other words, ethical principles are not obtained from describing some object or situation. Organizations consisting of human beings do not have consciences; nor are companies able to have a sense of ought that is not reduced to monetary terms. Such terms being empirical, they cannot get to ought anyway. The illusion that corporations are themselves moral agents comes from the failure to distinguish an organization itself from not only its human members, but also its culture. While it may seem that an organizational culture is distant from the people who inhabit the organization, as if culture were somehow based at the organizational level, culture is simply a way of saying that most people in a group share certain basic beliefs, values and ways of behaving. Beliefs, values and conduct pertain to persons. Physiologically, the brain thinks, values, and conducts the rest of the body. There is no “organizational brain.” Rather, culture refers to a critical mass proportion of persons having something in common. This does not mean that the “something” exists apart from, or "above," the persons.



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





Wednesday, July 31, 2013

The Financial Crisis: A Systemic and Ethical Analysis

According to a study by the Dallas Federal Reserve, the financial crisis of 2007-2009 “was associated with a huge loss of economic output and financial wealth, psychological consequences and skill atrophy from extended unemployment, an increase in government intervention, and other significant costs.”[1] The study’s abstract goes on to “conservatively estimate that 40 to 90 percent of one year’s output ($6 trillion to $14 trillion, the equivalent of $50,000 to $120,000 for every U.S. household) was foregone due to the 2007-09 [sic] recession.”[2]
 
Interestingly, the Huffington Post “reports” the study’s finding in the following terms:  “a ‘conservative’ estimate of the damage is $14 trillion, or roughly one year’s U.S. gross domestic product. This is based on how much output was lost during the crisis and Great Recession, along with all the damage done to potential future economic growth.”[3] In fact, the article’s title claims that the crisis cost more than $14 trillion! Lest it be thought that the reporter and editor suffer from a learning or reading disability, the gilding here is notably in the direction of “selling more papers.”
 
Ironically, the Huffington Post also published an article pointing to the lack of accountability in that “the executives that [sic] were in charge of Bear’s headlong dive into the cesspool of subprime mortgage lending hold similar jobs at the most powerful banks on Wall Street: JPMorgan, Goldman Sachs, Bank of America and Deutsche Bank."[4]
 
The upshot is that those stakeholders who played a role in the crisis, most significantly the people running the government, the media, and the banks, have gone on, relatively unscathed, while the systemic risk remained or has actually become even greater.  As a first step toward recovery, a systemic map depicting the interrelated parts in the systemic failure and a related ethical analysis can provide a basis for reforms sufficient to thwart another major financial crisis.

 
 
                                                         


1. Tyler Atkinson, David Luttrell, and Harvey Rosenblum, “How Bad Was It? The Costs and Consequences of the 2007-09 Financial Crisis,” Staff Paper No. 20, Federal Reserve Bank of Dallas, July 2013.
2. Ibid.
3. Mark Gongloff, “The Financial Crisis Cost More Than $14 Trillion: Dallas Fed Study,” The Huffington Post, July 30, 2013.
4. Lauren Kyger and Alison Fitzgerald, “Former Bear Stearns Executives Seemingly Unscathed by Financial Crisis They Helped Trigger,” The Huffington Post, July 31, 2013. The article was originally published by the Center for Public Integrity.
 

Monday, July 29, 2013

Wall Street As More of the Economy: Unjust and Riskier?

The financial sector, which includes banks like JPMorgan and insurance companies like AIG, had the fastest earnings growth in the Standard & Poor’s 500 in 2012.[1] As of mid-2013, the sector comprised 16.8% of the S&P 500, almost double the percentage back in 2009. With the technology sector weighing in at 17.6 percent in 2013, the financial sector was poised to become the largest sector in the S&P 500. The traditional critique of the financial sector having a larger share of the economy is that the sector doesn’t “make” anything. As this argument is well-known, I want to point to two others.




1. Alex Barinka and Whitney Kisling, “Banks Poised to Lead S&P 500 as JPMorgan Beats Microsoft,” Bloomberg, July 29, 2013.

Saturday, July 27, 2013

Obama: Egyptian Coup? What Coup?

In late July 2013, the Obama administration decided that it was not legally required to determine whether the Egyptian military had led a coup in ousting President Morsi. The decision permitted the administration to continue $1.5 billion annually in American aid to Egypt. One senior official said only, “The law does not require us to make a formal determination as to whether a coup took place, and it is not in our national interest to make such a determination. We will not say it was a coup, we will not say it was not a coup, we will just not say,” the official said.”[1] I’m reminded of one of Captain Renault’s famous lines in the film, Casablanca. “I’m shocked, shocked to find that gambling is going on in here!” Coup? What coup? To be sure, the administration had its reasons, strategic of course, yet a bigger picture perspective could be helpful here, considering that an effort to violate at least the spirit of a law is involved here.
 
 
Administration officials said the U.S. Government would continue to use financial aid as a lever to pressure Egypt’s new government to push through a transition to democracy. Yet what cost to the U.S. Government would this intent to manipulate the Egyptian military exact?
 
                                                                                            A Coup or a Book-Signing?
                                                                 Refusing even to decide if this is a coup reflects on the refuser.
 
On July 3, 2013, Egyptian generals deposed President Morsi, put him under arrest, and suspended the constitution. “Under the terms of the Foreign Assistance Act, no aid other than that for democracy promotion can be given to ‘any country whose duly elected head of government is deposed by military coup d’état.’ The law does not allow a presidential waiver, and stipulates that aid cannot be restored until ‘a democratically elected government has taken office.’”[2] Refusing to decide whether a coup took place is essentially refusing to enforce the law, given the events in Egypt on July 3, 2013.
 
 
Fittingly, one of Morsi’s senior advisors, Wael Haddara, accused the administration of “verbal acrobatics,” and asked, “With the entire world calling this a coup, why isn’t the American administration calling it so?”[3] The reference to “verbal acrobatics” is particularly important, for it hints on the discrediting long-term impact on the U.S. Government by its president’s decision to take an easy out. Generally speaking, political convenience can come back to bite even if the pain is not ever felt directly. In other words, the Obama administration sacrificed some of the U.S. Government’s credibility to be able to manipulate another government through money.
 
 
A similar trade-off existed at the time in Europe regarding the matter of Turkey’s possible accession an E.U. state. Turkey would be the largest state by population, and thus would have tremendous influence in the E.U. Government. The added cultural and political diversity to the E.U. could cause it added strain, if not compromise the very viability of the Union. So why would the E.U. admit Turkey when doing so could put the E.U. itself at risk internally? Similar to the Obama administration’s desire to have more influence in the Egyptian military, the European Commission would like to use Turkey as a “way in” to influence Middle East international relations.
 
 
Both cases evince putting one’s own federal government at risk in order to manipulate other governments. At the very least, the strategy of undercutting oneself to extend one’s influence seems counterproductive. That the influence comes well before “the bill comes due” creates the illusion of a costless choice. Looking out for the long-term governing of a union of diverse states, whether in Europe or North America, is easily shirked when the opportunity to pull more levers externally presents itself. A federal government willingly undercutting its own credibility or ability to govern for a short-term advantage is not only short-sighted; it is also indicative of a certain lack of character. The question is perhaps whether that lack of character is societal in nature or merely in ruling elites.
 
See the video made to accompany this essay: http://youtu.be/_1yuvnOq5YE
 

1. Mark Landler, “Aid to Egypt Can Keep Flowing, Despite Overthrow, White House Decides,” The New York Times, July 25, 2013.
2. Ibid.
3. Ibid.

Monday, July 22, 2013

Financial Reform: Did Congress Shoot a Blank?

On the third anniversary of the Dodd-Frank Act, former U.S. Senator Ted Kaufman (D-DE) penned an excellent yet concise critique of the law’s efficacy over three years. The news is not good. I submit that it is worse than Kaufman is willing to admit—worse in the sense that Congress had mishandled the writing of the bill before it became law. I will get to this matter after summarizing Kaufman’s points.

                                                                                                     Former Sen. Ted Kaufman
  
Kaufman points out that the big banks can still take high-risk gambles with FDIC-insured deposits. Essentially, the U.S. taxpayer is underwriting the additional risk. The mammoth $6.2 billion “London Whale” loss at JP Morgan in 2012 suggests that the banks are indeed taking advantage of the loophole. Kaufman points to a second loophole. Although Dodd-Frank contains new regulations on the financial derivatives that had played such a dramatic role in the near-meltdown in September 2008, the big banks can simply move their financial derivatives to “off shore” offices. Citigroup alone has more than 2,000 foreign subsidiaries.[1]

As for the dysfunctional Fannie Mae and Freddy Mac, Kaufman points out that they are not even mentioned in Dodd-Frank! Nor can any solution to the structural conflict of interest facing the rating agencies, which are still “bought and paid for by the entities they rate.”[2] Nor, I might point out, does the law do anything to obviate the “client-pays” conflict of interest facing public accounting firms (e.g., Arthur Andersen as the “permissive” auditor of Enron). I would generalize to suggest that American lawmakers and the general public are woefully ignorant of the harm just in looking the other way rather than deconstructing an institutional conflict of interest. In fact, I submit that such a conflict is inherently unethical, rather than being so only if it is exploited.

As for the “ordered liquidation” feature of Dodd-Frank, Kaufman’s critique portrays the mechanism as if it were a sand castle sitting just above a rising tide. Although making actual sand castles on some beach might teach members of Congress how to get along, an orderly liquidation of one bank is not likely to be sufficient to stop the contagion of fear and short-selling from spreading to other banks, as they are so interconnected. Would an orderly liquidation procedure invoked for all of the large banks stave off the collapse of the financial system? 
Kaufman cites an analysis by Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., which finds that JPMorgan Chase, Citibank, and Bank of America had become the three largest banks globally during the three years of Dodd-Frank’s existence. Add in Wells Fargo and those four banks have combined assets of 97% of the U.S. GDP in 2012.[3] Given the continued high-risk trades and possibility of off-shore financial derivative “bundling” and selling, the “too big to fail” problem has grown more perilous, not less. Meanwhile, only 155 of the 389 rule makings required by Dodd-Frank were finalized during the law’s three years of existence.[4] Put another way, a law that is utterly insufficient to eliminate the “too big to fail” systemic risk was after three years still “half baked.” The obvious question is why, and in Washington that question is answered in terms of power.

Kaufman points to the legislators in Congress who “passed the buck” to the regulators, who would have to face the powerful Wall Street lobbyists. However, he doesn’t include the impact of those lobbyists on the members of Congress themselves. That is to say, the law may have been watered down as it was being written, or “marked up,” as lawmakers gave too much influence to the financial interests that would face stiffer regulation. It is not uncommon for legislative aides to use legislative clauses written by the regulated entities themselves. Here we have stumbled on yet another tolerated structural conflict of interest!

Therefore, we can generalize perhaps in concluding that the Dodd-Frank law is insufficient even in theory, let alone practice, to solve the problem of systemic risk because of the excessive influence of Wall Street over lawmakers. As Sen. Dick Durbin said in the wake of the banks' culpability in 2008, the banks still "own" Congress.[5] That is, the endurance of excessive systemic risk has in great part been due to Congress having become more of a plutocracy than a house of the people. Consider, for example, how much chance the proposal by Sens. Warren and McCain to break up the megabanks has in the U.S. Senate (not to mention the House!), and it will be clear just how much power Wall Street actually has in Washington. This is the real problem, any solution to which is sadly not even on the horizon, and this is, kein Zufall, no accident either.



1. In a “slip of the tongue,” Kaufman wrote “subsidies” instead of “subsidiaries.” Might he have been wanting, at least unconsciously, to tell us more?
2. Ted Kaufman, “Happy Birthday to Dodd-Frank, A Law that Isn’t Working,” Tedkaufman.com. Accessed July 22, 2013.
3. Ibid.
4. Ibid. Kaufman cites the Davis Polk law firm as coming up with the numbers.
5. U.S. Sen. Dick Durbin (D-IL) said “Congress is owned by the banks” after they stopped his amendment that would have allowed judges to modify contested mortgages in foreclosure.

Sunday, July 21, 2013

Syria: From Protests to War

In the midst of all of the excitement and exuberance of a political protest, the protesters themselves in Syria were probably not thinking of the future of bloodshed that would ensue as Syria slid into full-blown civil war in 2011. As with most civil wars, civilians, even children, have not been immune from paying the price. On July 20, 2013, for example, government forces besieged the town of Saraqeb, striking it with rockets and tank fire, according to the Syrian Observatory for Human Rights.[1] The following day, Assad’s forces fired mortar rounds into a main market in the town of Ariha, killing at least 20 civilians.[2] Without doubt, the protesters during the Arab Spring in Syria could hardly have foreseen all the bloodshed. Had they known, it is not a sure thing that they would have or even should have gone ahead with the protests.
 
The contrast from taking time off work to join a protest march on a sunny day to finding one’s home destroyed and relatives dead in the rubble cannot be overstated. An ocean of time separates mouthing abstract democratic platitudes with friends and finding oneself in a world of hunger, fear and death. It is also difficult to relate the primped world of seasoned politics to the stygian hell of war. Yet politics and war are both about power and civic conflict. It can take surprisingly little for the civilized conflict in legislative chambers over power to break down into force and violence. The question is perhaps whether moving to democracy in an authoritarian state can be accomplished without giving violence the upper hand.


                                                                        After the Protests
                                                       A Syrian boy is being pulled out of the rubble of his house in Saraqeb.  Source: Getty
 
Put another way, protesting authoritarian rule on behalf of democratic principles is not something that should be taken lightly. In considering the full weight that such protests can have, the adults are making a decisive judgment for not only themselves, but also the children who would not be immune from the horrors of war. This is not to say that being willing to stand up for freedom is not worth it. Rather, it is to say that the implications ought not to be downplayed or even ignored in assessing at the outset whether launching protests to directly confront a ruthless dictator is the best means of ushering in democracy. People having a lot of power do not tend to give it up willingly, and they have the means to protect it by harming those people who would take it away.

See the video that complements this essay: http://youtu.be/NJm3ZaamhgA

 

1.
Barbara Surk, “Syrian Army Bombs Northern Rebel Town of Saraqeb, Children Among the Dead,” The Huffington Post, July 20, 2013. 2. Jamal Halaby and Zeina Karam, “Syria Violence: Assad Forces Kill At Least 20 Civilians in Ariah, Dozens of Rebels Near Damascus,” The Huffington Post, July 21, 2013.


 
 
 
 
 

Saturday, July 20, 2013

Bulgarians Appealing To the E.U.

As a form of government that checks abuses in government, federalism can pit a state government against that of the union. In fact, several state governments should be able to hold back encroachments from the federal government, and that government in turn should have the wherewithal to stop abuses of power in a state government. The appeals of protesters in Bulgaria, the poorest E.U. state, to the E.U.  in July 2013 exemplify how not to invoke this function of a federal government. The question regards how the Bulgarians got it wrong.

Bulgarian protesters appeal to the E.U. to stop corruption in Bulgaria. Federalism itself can be seen visually in this picture by looking at the flags.  Image Source: Euronews.               

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

Monday, July 15, 2013

Teaching Ethical Leadership

Can ethical leadership be taught? In the typical business school, this question would be interpreted, or “refurbished.” Can students be trained to become ethical leaders? While often conflated contemporaneously, these two questions are indeed distinct. Instructors, professors and school administrators should first decide which question is more relevant to their purposes. The question chosen should fit with the education, pedagogical method, and philosophy of education of not only the instructor or professor, but also the school itself. In this essay, I distinguish the two questions in order to unpack them with their full significance.
The question, Can ethical leadership be taught, can be interpreted as being centered on knowledge of the concept and theories of ethical leadership. Can this particular knowledge be taught? That is to say, if a student were to ask, What is ethical leadership? could the instructor or professor answer with a definition? Have scholars even come up with an agreed-up definition? More broadly, how does ethical leadership as a concept differ from that of leadership more generally? Do theories of ethical leadership explain it rather than merely being oriented to how to? Furthermore, do any extant theories relate the concept to other, related concepts such as strategic leadership or even strategy? If so, can such theories be taught to the students at a particular level of education? Last but not least, would teaching the theories toward an understanding of what ethical leadership is be in line with the approach of the particular business school? Some schools are more commercially-oriented than others. I contend that two basic schools of thought can be identified and used as pedagogical approaches for teaching ethical leadership.

Sunday, July 14, 2013

Democracy or Force: The Case of Turkey

The Turkish army removed four governments of Turkey in the period between 1960 and 1997. In the midst of political protests in June 2013, the government sought to insulate democracy from the force of a coup by amending army regulation #35 to restrict the army to “defending the Turkish nation against external threats and dangers.”[1] At least on paper, no longer would safeguarding the republic be the legal basis for enacting a coup. Prime Minister Recep Erdogan had already inserted civilian authority in the National Council, which had been dominated by the army. Actively marginalizing the military top officials, rather than relying on mere parchment may be necessary to stave off another coup in the future, given how easy it was for the Egyptian military to toppled an elected president in a few days in July 2013.


Democracy, it may be said, is feckless if it is to rely on parchment as a barrier to military force. Civilian control should go so far as to enter the military at the top. In Turkey, hundreds of high-ranking military officers had been put on trial for plotting a coup. For democracy to be protected, the civilian political officials should have the power to fire even the top generals; troops must see that the orders they are given ultimately come from civilians heading the military who have a political interest in the government in power.


In the case of Turkey, an additional safeguard for the democracy would be to become a state in the E.U. The Union would not permit the military in one of the states to take over that state government. More abstractly, the checks and balances in federalism itself could act as a deterrent to any army at the state level desiring to take over the state. Of course, that Turkey’s government feels the need to protect itself against a coup may be an indication that Turkey’s democracy is not yet sufficiently rooted for Turkey to meet the E.U.’s accession criteria.


In short, military coups rely on force, as in “might makes right.” To protect itself, democracy needs not only parchment power, but also the force of civilian officials even at the top of the military. To be sure, those officials do not themselves have the guns, so democracy is still tenuous without a solid rooting in the people. Even so, a coup need not be a case of force over parchment, since democracy can avail itself of force as well—what we may call legitimate force with democratic accountability.

See the video made to accompany this essay: http://youtu.be/_1yuvnOq5YE

See a related video on Syria: From Protest to War  http://youtu.be/NJm3ZaamhgA 


1.Sernem Arsu, “Turkish Lawmakers Move to Curb Army’s Political Power,” The New York Times, July 13, 2013.

Monday, July 8, 2013

Democracy or Force: The Case of Egypt

In early July 2013, the world was treated to a glimpse of the stark dichotomy punctuated by democracy and civic violence.  Middle-ground is slight to nil between the two, as reflected in the swift taking of sides in the immediate aftermath of the coup by the Egyptian army. Just days after the coup, 51 pro-Morsi protesters and three soldiers were killed, provoking fears of outright civil war.[1] In spite of a top Egyptian cleric going into seclusion to pressure both sides to reconcile, the dramatic snap from democracy to force could not easily be undone. With leaders of Morsi’s party calling for outright rebellion, the military-installed “technocrat” inter-regnum government was on tenuous ground. For when the order that democracy can provide by interiorizing civic discord within the contours of a political process and institutions is tossed away like a dirty rag, a society is left with the instability of force.

Democracy is admittedly far from perfect as a form of governance. Bringing in diverging political interests to legislate together civilizes but does not expunge ideological, financial and personal conflicts. It is difficult to determine the limits of a majority party’s authority and the extent of a minority’s rights. Whereas the filibuster in the U.S. Senate may give the minority party so much authority that the legislative chamber can be vexed into stultifying stagnation, Morsi’s party was deficient in allowing for sufficient  minority participation not only in legislating, but also in drafting the constitution. No wonder the military had scant respect for the document in summarily suspending it during the coup.

The Egyptian experiment with democracy was admittedly quite flawed. Just before the coup, Morsi admitted that he had made mistakes in this regard. Making basic law to serve the interests of a political party is not democratic, and yet democratic elections legitimated Morsi as Egypt’s president. In contrast, the coup was not at all democratic, and thus the military was left to count on the power rather than legitimacy of force. A threshold had been crossed, a net breached.

Yet the picture is not as black and white as I am suggesting. In requiring that all significant political forces participate in writing a new constitution, the military may have laid the groundwork for a sustainable rather than compromised democracy. Rising above his grievances on behalf of Egypt’s future, Morsi would have been wise in announcing that he would participate but not dominate in a constitutional convention. Aware of his mistakes while in office, he could proffer advice to the convention on avoiding certain pitfalls, among which is that of a minority party effectively ruling thanks to the splintering of parties in a parliamentary system. To be legitimate democratically, a majority coalition of parties must be broad enough to represent more than a minority sectional group in society. 

In short, designing a democratic system is far from easy. Allowing one or two parties to dominate the writing and ratification of a constitution risks a less than fully legitimate product.  Egypt’s military was left with the compromised dichotomy between a deeply-flawed “democracy” and force.  Had the democratic system been solid, the hit to democracy itself would have been much worse simply in the ease with which the coup could take place. It is not as though a coup against a viable democracy has never occurred in world history. Even though Egypt’s case is more nuanced, the military crossed a dire threshold in removing a democratically-elected president. From a democratic standpoint, that act is hard to swallow. If the biased constitution will have been fixed following an electoral change in a future election, the military’s decision to oust Morsi was particularly hasty and short-sighted from the standpoint of not only democracy, but civic order itself.

After all, most of the delegates in the American constitutional convention in 1787 were well-off, and thus creditors. In the aftermath of Shays’ Rebellion in Massachusetts the year before by soldier debtors who had not been paid by the continental army and yet faced unyielding creditors, the bias in the convention was significant at the time. Also, federalists so dominated anti-federalists that the states were not even permitted to return suggested improvements to another session of the convention. The outcome has been as one might have been able to predict even then: the “General Government,” now known as the federal government, has encroaches so on the authority of the state governments that the checks and balances in federalism itself can barely hold back the Congress.

As flawed as the drafting and ratification of the U.S. Constitution was, the amendment process has offered significant relief to minority interests and thus can be judged to be much better than a coup. Not the least in importance, going with a flawed design enabled democratic norms and values to take root in the United States. With the Egyptian military hastily pulling up democracy as if it were a young, loosely-rooted plant, Egyptians not only had to start from scratch; they also had to contend with the fact that a democratic system had been so easily replaced by force.  

See the video made to accompany this essay: http://youtu.be/_1yuvnOq5YE
See a related video on Syria: From Protest to War  http://youtu.be/NJm3ZaamhgA

[1] Sarah El Deeb and Maggie Michael, “Egypt’s Muslim Brotherhood Urges Followers to Rise Up after Deadly Clashes,” The Huffington Post, July 8, 2013.

Comparing the E.U. and U.S. in a Different Way



 The complete essay is at Essays on Two Federal Empires.


My related very brief talk: http://www.blogtalkradio.com/thewordenreport/2013/07/08/the-eu-and-us



Thursday, July 4, 2013

The Checks and Balances of Federalism: Hungary vs. the European Parliament

One of the benefits of federalism is the checks and balances between the two systems of government existing in a federal system—that of the states and that of the federal government. That is to say, federalism can be thought of as a governmental system that contains two systems of government—that of the states and that of the federation. Either of these systems can go too far, and the other system should have the wherewithal to pull the other back without compromising its viability. This is why the consolidation of power in one system (e.g., the U.S. Federal Government) compromises the viability of a federal system at least with respect to its checks and balances. One other point: the two systems in a federal system are on the same level; that is, one is not “above” the other. Hence, the supremacy clauses in the E.U. and U.S. refer only to competencies or domains assigned to the federal government.

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

Thursday, June 27, 2013

Banks in Trouble: European Populism?

In reaching agreement on a proposal to deal with state banks in trouble, the E.U. finance ministers sent two messages: taxpayers would be protected from any open-ended obligation to bail out failed banks and those banks would not be allowed to capitalize on being bailed out. Given the furor that had been unleashed when the E.U. went after depositors in the two largest Cypriot banks, the E.U. ministers were careful to point out “that depositors with less than €100,000 ($130,820) in their accounts would always be safe, while small and midsize companies and bigger savers would only be hit during the most severe bank failures.” Systemically important banks whose failure could be expected to cause the E.U. financial system to collapse would be handled on a case by case basis.
Will the euro be fortified by a federal bank-bailout program?   Source: Estonia Free Press.

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

Federalism and Solving the Democratic Deficit: Causing Bad E.U. Legislation?

One major criticism of the E.U. has concerned its “democratic deficit.” The European Commission, the E.U.’s executive branch, has taken most of the criticism because the bureaucrats are not elected. Even though the European Council consists of elected state executives, the state legislatures are viewed as “closer to the people” and therefore more democratic. At the E.U. level, the European Parliament is the most directly democratic, as the EP’s representatives are directly elected by E.U. citizens. Therefore, one means of reducing the “democratic deficit” has been to increase the Parliament’s authority relative to those of the Commission and the Council. Lest it be thought that this solution has no drawbacks, the case of whether E.U. ships should be permitted to be beached for recycling in South Asia illustrates a problem.

From: "Federalism and the Democratic Deficit: The E.U. as Suboptimal?"