On the Gravitational Pull of Clearinghouses in Congress after the Financial Crisis

Lest it be assumed that the Dodd-Frank financial-reform Act, which became law in 2010, two years after the financial crisis, would render it less probable that taxpayers would again be faced with having to bail-out financial institutions even without strings attached in order to keep the financial system intact and the American economy from collapsing, Gretchen Morgenson of The New York Times wrote two years after the Act's passage that “failing to confront the too-big-to-fail question is a serious oversight.”[1] For one thing, disproportionately increasing the amount of money that the biggest banks must hold against a rainy day once again neglects the possibility that every bank is having such a day on the same day and so none of the banks will loan to other banks (i.e., the commercial paper market). When a financial system itself is sick to the extent that it cannot stand, all the heavy dominoes may topple, one after another, even though each has more support. Secondly, widening the too-big-to-fail category enables more financial institutions to engage in risky bets because the expanded net could limit any eventual downside. Sure enough, Morgenson points out that the legislation “actually widened the federal safety net for big institutions. Under the law, eight more giants were granted the right to tap the Federal Reserve for funding when the next crisis hits.”[2] Those institutions, including the Chicago Mercantile Exchange, the Intercontinental Exchange, and the Options Clearing Corporation were even able to avoid the penalties for failure specified in the Act. The clearinghouses had successfully argued that even though only banks had been allowed to borrow from the Fed’s discount window, the clearinghouses are not financial institutions; rather, they are financial utilities. So, should they fail, they should not have to be “wound down” by regulators. This is essentially having it both ways and getting away with it. To explain this comfortable arrangement, we would need to look under the hood, so to speak, where I suspect we would find an exclusive world wherein vast private wealth is itself political power even apart from any attendant lobbying activity.

 The full essay is at "Clearinghouses in Congress."

1. Gretchen Morgenson, “One Safety Net That Needs to Shrink,” The New York Times, November 3, 2012.

U.S. Attorney General Barr's Decision on the Mueller Investigation of President Trump: On the Invisible Personal and Institutional Conflicts of Interest

On March 24, 2019, U.S. Attorney General William Barr sent to Congress his summary of Robert Mueller's report on whether President Donald Trump's 2016 campaign had colluded with the Russian government and whether the president had obstructed justice. According to Barr, Mueller had found no evidence of collusion. As for obstruction, Barr wrote that Mueller "did not draw a conclusion one way or the other as to whether the examined conduct constituted obstruction."[1] On this point, Mueller himself had written that 'while this report does not conclude that the president committed a crime, [the report] also does not exonerate him."[2] Mueller had laid out evidence and arguments on both sides of the question of obstruction, and Barr determined that the "evidence fell short of proving [that the president] illegally obstructed the Russia inquiry."[3] The New York Times went on to call this "an extra-ordinary outcome."[4] Barr did not detail his reasoning in deciding the matter of obstruction. According to the New York Times, he "appeared to be focusing on the question of whether investigators could prove that [President Trump] had 'corrupt intent' in instances where the available evidence about his motivations was ambiguous."[5] But in focusing on a lack of evidence that the Trump campaign reached any agreement with the Russian government on sabotaging the election, legal experts said," Barr "left out other reasons the president may have had for wanting to stymie a wide ranging investigation: It could uncover other crimes and embarrassing facts."[6] In other words, Barr's parameters may have been too narrow. The way Barr framed the contours for his decision might not have been an accident, given his personal conflict of interest. More important than this, I submit, is the continuing institutional conflict of interest facing the Justice Department in investigating its boss, the chief executive.

The full essay is at "Investigating Personal and Institutional Conflicts of Interest."

1. Eli Watkins, "Barr Authored Memo Last Year Ruling Out Obstruction of Justice," CNN.com, March 24, 22019.

2.Mark Mazzetti and Carol Benner, "Mueller Finds No Trump-Russia Conspiracy but Stops Short of Exonerating President on Obstruction," The New York Times, March 24, 2019.

3. Charlie Savage, Mark Mazzetti, and Katie Benner, "Barr's Move Ignites a Debate: Is He Impartial?" The New York Times, March 26, 2019.

4. Ibid.

5. Ibid.

6. Ibid.

McDonald’s Over-Reach: Blending a Restaurant and a Coffee Shop

In spite of essentially flat sales in the U.S. in February 2013 from the same month in 2012, McDonald’s CEO, Don Thompson, said he was confident that the people at the company had sufficient experience to “grow the business for the long term.” Even assuming that a business can be grown as if it were a geranium plant, the claim can be critiqued both in regard to the underlying assumption regarding “growth” and that of long-term viability. Fusing a restaurant with a coffee shop can be said to be an over-reach that had blended the company too much, at least at the store level.

The full essay is at "McDonald's in a Changing Environment."

Monetary and Fiscal Policy and Structural Reform: Each Had a Role to Play after the Financial Crisis

With fiscal policy hamstrung by public debt in both the E.U. and U.S., monetary policy was a major beneficiary of the financial crisis of 2008 and the ensuing state-debt crisis that stammered on at least until 2013 in Europe. Lest it be concluded that central bank policy had reached an unassailable peak of salvation, the expanded role actually made its limitations transparent, at least in financial circles.

The full essay is at "Post Financial Crisis Coordinated Action."

Weak Corporate Governance at UBS Amid a $2.3 Billion Trading Loss in 2011

UBS chief executive Oswald Gruebel resigned on September 24, 2011 over the $2.3 billion trading loss by one of the Swiss bank’s traders, Kweku Adoboli. Kaspar Villiger, UBS's president, said the board regretted Gruebel's decision but had decided to accept it. "Oswald Gruebel feels that it is his duty to assume responsibility for the recent unauthorized trading incident," Villiger was quoted as saying in the statement. "It is testimony to his uncompromising principles and integrity."[1] In presumably not pushing for the CEO’s resignation because of the magnitude in the lapse of risk management in the system, the bank’s board of directors did not take the initiative in holding the management accountable. Accordingly, shareholders have reason to be concerned about the protection of their owner’s equity, at least in terms of corporate governance providing accountability on the management. The culprit may be corporate governance itself, which as structured may proffer too much power to the CEO.

The full essay is at "Weak Governance at UBS."

1. “UBS CEO Oswald Gruebel Resigns Over Rogue Trading Loss,” The Huffington Post, September 24, 2011. 

Structural Reform and Economic Sustenance in European Austerity

Speaking at the World Economic Forum in Davos, Switzerland on January 25, 2013, Mario Draghi, president of the European Central Bank(ECB), said the bank’s program to buy the bonds of heavily indebted E.U. states had been “very helpful” in reducing the perception that the euro was on the verge of collapse. He also pointed to the structural reforms that heavily indebted states had enacted as “now bearing fruit.”[1] He urged those governments to continue to implement structural reforms so those states could take advantage of the ECB’s low interest rates and easy credit to banks. In short, the strategy of the ECB was to use monetary policy as leverage for long-term-oriented structural reforms at the state level. Political risk analysts listening to the central bank official likely came away with a more optimistic stance on the long term prospects for the E.U. economy.

The full essay is at "Structural Reform and Economic Sustenance."

 1. “Davos: ECB’s Draghi Says ‘Real’ Economy Still Stagnant,” Deutsche Welle, January 25, 2013.

                                                                                                       

Pruning Back an Ideological "Re-Definition" of Socialism

Should language lose its integrity for ideological purposes? On Fox News in the wake of the passage of Obamacare, Brit Hume and Newt Gingrich, a former Speaker of the U.S. House of Representatives, both (re)defined socialism as “government control of private property.” Their rendering falls short, however. According to the Random House Dictionary (via Dictionary.com), socialism is “a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole” (italics added). Whereas government regulation of privately-owned means of production and distribution involves some of the control being in the hands of the community as a whole through its government, socialism includes the vesting of both ownership and control with the government. 

The complete essay is at "Socialism Redefined."

Including Voter Judgments on Broad Policies in Elections: An Expansion of Active Popular Sovereignty

Days after the 2018 Congressional elections in the U.S., the Minority Leader and soon-to-be Speaker of the House of Representatives, Rep. Nancy Pelosi, declared, “Healthcare was on the ballot and healthcare won.”[1] As the new Democratic-controlled House worked on a budget the next Spring, Pelosi was still insisting that healthcare was what that election was about. Perhaps she based her statement on exit polls in which most voters claimed that they had voted chiefly the basis of candidate positions on healthcare. This does mean, however, that the voters voted on healthcare, for as only a choice of candidates could be made, the voters were left with inferring or even hoping that the favored candidate would act on, or at least stay with, his or her position on the issue. I contend that the next leap in the theory and practice of representative democracy could be to no longer keep an electorate, the popular sovereign, limited to selecting among candidates.

The full essay is at "Expanding What Voters Can Vote On."

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[1] Kimberly Leonard, “Nancy Pelosi: ‘Healthcare was on the ballot and healthcare won,” The Washington Examiner, November 7, 2018.

Saudi Arabia Going After Dissenters Abroad: On the Egregiousness of Concentrated Power

After having been selected by his father as the crown prince, Mohammed bin Salman of Saudi Arabia “authorized a secret campaign to silence dissenters—which included the surveillance, kidnapping, detention and torture  of Saudi citizen—over a year before the killing of Jamal Khashoggi, according to American officials” with access to the classified reports.[1] The killers of Khashoggi had been involved in at least 12 other such operations starting in 2017. The sheer egregiousness of the operation under the crown prince says something about not only dictatorship, but also the nature of power itself.

The full essay is at "The Warping Effects of Concentrated Power on a Saudi Crown Prince."

Dictatorship or Democracy: Is Either Hospitable to the Kingdom of God?

Religion and political power can be dangerous if combined and aimed at people deemed to be apostate or heretical. In calling for the Crusades, our Roman Catholic popes put their political power behind the theocratic and political goal of taking back Jerusalem and Constantinople/Istanbul “for Christ.” Those popes and the kings and soldiers who went to war with the Muslims there wittingly or unwittingly violated Jesus’s preachment to love rather than fight enemies. Christianity and political power have not mixed well, historically. The U.S. Constitution forbids the federal government and, presumably, the states, to establish or sponsor a religion or even favor one. Theocracies, such as those in the Calvinist colonies in New England (except for Rhode Island, which allowed freedom of religion), would be excluded as a political form for the Union as well as its member-states. Rather than meaning “sub-unit” or “province” as in Normandy in the E.U. state of France, the American Continental Congress has applied “state” in the generic sense of a polity with a yet-to-be-determined political system. Hence while the Articles of Confederation were in force, before the U.S. Constitution, the states could legally form theocracies. The film, The President (2014), is fictional, but this doesn’t stop its portrayal of a toppled president in hiding from looking realistic, given the cases of Muammar Gaddafi in Libya and Saddam Hussein in Iraq. The character arc of the president while he is in hiding, or “on the run,” captures a generally unknown way in which Jesus’ preaching on how to enter the unknown Kingdom of God can apply to political power in a good way. This is not to advocate theocracy, however. Rather, individuals who wield power, whether in government or business, can come to see the very nature of power differently and gain new insight into the Kingdom of God preached by Jesus.

The full essay is at "The President."

It’s Only Fair

Astonishingly, organizations can violate their own mission statement without any manager or non-supervisory employee being aware of the violation. This can happen even when the people in an organization really do take their mission seriously. At Goodwill, the mission is to end poverty, a laudable goal. It follows explicitly (i.e., according to a sign in the stores) that “every customer has an equal opportunity to purchase any item for sale.” Although the sign bases this point on the fact that the goods “come from public donation,” I submit that ending poverty by giving the poor access to relatively low-priced merchandise is hampered if some customers are permitted to fill their carts with on-sale (i.e., color of week) items when the doors open. Certainly allowing those resale-minded customers to deprive other customers of a selection of items on sale (especially clothing, which even homeless people need) is not fair.

The full essay is at "Unfairness at Goodwill."

Holding the U.S. Debt-Ceiling Hostage: A Case of Political Expediency over Statesmanship

In April of 2011, S & P lowered expectations on U.S. Government debt from “stable” to “negative.”  Astonishing, the $14.2 trillion U.S. debt was still rated as AAA. The shift in expectations did not trigger higher borrowing costs because the market presumed that a political deal lowering the deficit would be facilitated by the warning-call. At the same time, Congress and the U.S. president were grappling with the need to extend the federal debt ceiling. The federal government was projected at the time to reach its borrowing limit by May 16, 2011, though the Treasury secretary, Tim Geithner, said he could use accounting options to push the date back to July 8. He assured the public that Republicans in Congress had told President Obama that they would go along with a higher limit. “I want to make it perfectly clear that Congress will raise the debt ceiling,” the Geithner said.  He also said the Republican leaders had assured the president that they “couldn’t play around with the government’s credit rating. They recognize it, and they told the president that.”[1] Such a recognition and statement by the Republican leadership, if true, would evince statesmanship over political expediency, for Republican lawmakers could have leveraged their votes on raising the ceiling to get more in negotiations on the budget. This would be particularly notable considering that appropriations to keep the U.S. Government's non-essential operations going were pawns in a Congressional-presidential power-struggle during the Trump administration. 

The full essay is at "Political Expediency  vs. Statesmanship."

1, “Geithner Confident Congress Will Raise Borrowing Limit,” USA Today, April 18, 2011, p. 6A.

A Lack of Good Will at Goodwill

Redefining words to suit a business’s financial interest is misleading, even if the herd animals who serve as customers look the other way, or, even worse, do not notice the fact that the words have been redefined! At a Goodwill store in Phoenix, Arizona,  I bought a black suit for singing in a choir. Before I paid, I asked a manager whether I could return the suit as long as I do so within a week. “Yes, you can get a refund,” he replied. Three days later, I returned to the store to return the suit. I approached an available cashier, but she told me that I had to go to the other cashier if I had a return. That cashier was not even at his register, and even when he returned I had to wait at least five minutes for one customer. Only the head cashier can process refunds, whereas any cashier can accept money—an interesting, meaning convenient, asymmetry. Money comes in easier than it goes out.

The full essay is at "False Pretenses as Good Will."

On the Economic Justification of American Society and Federalism: The Oxymoron of Congress Mapping the Human Brain

In his 2013 State of the Union Address, President Obama cited brain research as an example of how the government could and in fact should literally “invest in the best ideas.”[1] He cited the $140 return to the economy from every dollar that had been invested to map the human genome, and added that funding the Brain Activity Map would be a job-creating investment in science and innovation. In terms of comparative economic advantage, he said, enlarging the “knowledge economy” would be a good strategy for maintaining a formidable standard of living. As laudatory as more knowledge of the human brain is, Obama's perspective suffers from economic reductionism and a lack of political basis.

A Congressional rendering of how the human brain might be mapped.  Source; nytimes.

The full essay is at "Economic Reductionism of Society and Federal Government."

1. John Markoff, “Obama Seeking to Boost Study of Human Brain,” The New York Times, February 17, 2013.

Beyond Collectivism and Individualism: Freedom from Fear

In his speech on April 13, 2011 on reducing the U.S. Government deficits, President Obama identified two strains that had run through the country’s political history and thus informed the American political culture. “More than citizens of any other country” he said, “we are rugged individualists, a self-reliant people with a healthy skepticism of too much government. But there has always been another thread running throughout our history – a belief that we are all connected; and that there are some things we can only do together, as a nation.  We believe, in the words of our first Republican president, Abraham Lincoln, that through government, we should do together what we cannot do as well for ourselves.”[1]  These two strains can be identified as individualism and collectivism, respectively. I contend that collectivism enables both individual and collective security. Individual security is oriented to a person’s survival and collective security is exemplified by national defense. In his speech, the president explicitly placed individual security within the collectivist strain. “Part of this American belief that we are all connected also expresses itself in a conviction that each one of us deserves some basic measure of security.  We recognize that no matter how responsibly we live our lives, hard times or bad luck, a crippling illness or a layoff, may strike any one of us.  ‘There but for the grace of God go I,’ we say to ourselves, and so we contribute to programs like Medicare and Social Security, which guarantee us health care and a measure of basic income after a lifetime of hard work; unemployment insurance, which protects us against unexpected job loss; and Medicaid, which provides care for millions of seniors in nursing homes, poor children, and those with disabilities.”  That is, limits to rugged individualism exist, whether in the state of nature or in an interdependent economy, and collectivized programs can bridge the gap on an individualized basis such that individuals can continue to enjoy liberty. The individualist/collectivist dichotomy is thus not so clearly dichotomist.

The full essay is at "Beyond Collectivism and Individualism."

1. Barak Obama, “Text of Obama Speech on Deficit,” The Wall Street Journal, April 13, 2011.