Monday, November 22, 2010

Fidelity to Law For Its Own Sake

The Financial Crisis Inquiry Commission, established by Congress, announced that it will delay, slightly, its report, due in December to January.  The reason is apparently completely innocuous - it simply wants to publish its report in book form, which will delay release by a few weeks.

There's only one problem.

The statute (aka law) that created the commission requires it to report by December 15th, 2010. 

Four members of the Commission dissented from this decision for this reason.  The dissenters point out that the work is complete and the report can still be delivered on time.

It raises the interesting question of fidelity to law simply for the sake of fidelity to law.

Wednesday, November 17, 2010

You would think...

You would think that the Washington Post would be a good source for an evenhanded treatment of the economic policies of the incoming House majority.

You'd be wrong.

Steve Pearlstein, who's been writing such gems as full throated defenses of Fannie Mae for as long as I can remember, sums up the incoming House majority's skepticism of current economic policy, to wit:

-quantitative easing
-retaining the Bush tax cuts for households making over $250,000
-unlimited unemployment benefits

as follows:

"GOP to jobless: Drop Dead"

To be fair to Pearlstein, this is from the headline, not the column, and headlines are generally written by editors - not the person who wrote the article or column, so I'll reserve the possibility he (a) didn't write it and (b) chewed out the person who did.

The fact is, there are serious policy arguments on these issues on both sides (see, for example, a critique of the fed's quantitative easing by some of the nation's leading economists).  Pearlstein himself claims to have concerns.  Why he can voice them but others can't isn't clear.  I think there's a distinctly unparliamentary name for criticizing others for something you do yourself, but let's not go there.  The name calling obscures these honest policy differences, and reduces our chances of finding the middle ground that Pearlstein and his ilk claim to seek.

Instead, Pearlstein goes on about William Jennings Bryant, and only cites economic authorities that fit the Post's preconceived preferences for big government.  If the big government policies are the right ones (and I have defended some, e.g. TARP) they certainly need better defenders.

Monday, November 15, 2010

McConnell and Earmarks

Senate Minority Leader Mitch McConnell (R-KY) announced that despite his longstanding support for earmarks as a member of the Senate appropriations committee, he was going to support a ban on earmarks.

I've written about my views on earmarks before.  In short, I view them as a bad practice in that their existence (a) politcizes spending and (b) incentivizes more of it than would otherwise occur.

Critics note that "earmarks account for just three-10ths of 1 percent of federal spending."  Yet, they're the tail that wags the dog.  If members aren't guaranteed their share of ribbon cuttings and publicity, the allure of running up big bills their constituents ultimate pay becomes much diminished.

Here are my questions for Senator McConnell:

(1) Why the late conversion given your past support?
(2) Given that Republicans are in the minority, the Senate's practice will likely still embrace earmarks regardless.  Are you pledging that Republicans (and yourself) will abstain from earmarks even as they see their Democratic colleagues engaging in it?
(3) House Democrats were down on "earmarks" before the 2006 election that brought them to power, yet once given the majority embraced "legislatively directed spending" (i.e. earmarks).  What pledge can you give that Republicans will retain their opposition to earmarks when it really counts (i.e., when they are in the majority)?

Wednesday, November 10, 2010

How to Restore the American Dream

How to Restore the American Dream is one of the better pieces I've read recently on how the world really works and what it will take to get back on our feet.

Monday, November 1, 2010

"No Final Victories"

E.J. Dionne is a columnist I do not, shall we say, consider essential reading.  Today's column on tomorrow's election offers an opportunity for explaining why (to be clear, I don't believe he or anyone else I'm referring to in this post is an "idiot" - I just thought the picture was funny).

Dionne mostly relates a dinner conversation he had with a Democratic Member of Congress, Patrick Murphy, who relates how Democrats had thought that after the election of 2006, where they took control of Congress and 2008, where they captured the White House and got 60 votes in the Senate needed to prevent a fililbuster, they were some sort of "permanent majority" and that the Republicans would be in the wilderness for an extended period if not forever.

Such an attitude was on display at such entities as The New Republic:
What conservatives have yet to do is confront the large but inescapable truth that movement conservatism is exhausted and quite possibly dead.
The New York Times, no longer the "gray lady" or even, in fact, a shadow of its former self rejoiced after the 2008 election that conservatism was not only defeated, but even discredited.

I haven't been in Washington as long as Dionne, Sam Tenenhaus or the New York Times, but one thing I've learned is that there is no such thing as permanent victory in a democracy.  Republicans who spent and waged war more like progressive Democrats learned that.  Now Democrats are learning this all over again, as if losing control of Congress in 1994 wasn't enough.  Is 14 years really long enough time to forget what you've learned?


Tuesday, October 19, 2010

What Do You Call This Again?

The latest idea from Congressional Democrats is to make a one time payment to Social Security recipients.

Politically, this makes a lot of sense.  Seniors vote, and who wouldn't want a "bonus" these days?  Put your Republican opponent in the position of having to oppose it.

They're promising to push this once Congress returns after the election in a "lame duck session" (i.e. one that takes place between the election and the seating of new members and removal of old ones not re-elected).

The rationale is that Social Security recipients have not received an increase in their payments for cost of living this year. 


Because, according to the government statistics, the cost of living didn't actually rise.

Supporters argue that this is "stimulus" and that seniors are struggling, and have to deal with depleted savings. No word on why taking money from a working family of four and handing it to someone to augment their depleted savings will have an economically "stimulative" affect.

To recap: Democrats are offering seniors an additional payment that was not earned, to which they are not entitled under current law, and which has no policy rationale.

What would you call this?

Friday, October 1, 2010

TARP May Actually Make Taxpayers Money

It's been a while since my last post.  I wasn't kidding when I said I wouldn't post anything unless there was something that compelled me to write.

What's gotten my off the couch was this from the New York Times:
Even as voters rage and candidates put up ads against government bailouts, the reviled mother of them all — the $700 billion lifeline to banks, insurance and auto companies — will expire after Sunday at a fraction of that cost, and could conceivably earn taxpayers a profit.
 the once-unthinkable possibility that the $700 billion Troubled Asset Relief Program could end up costing far less, or even nothing, became more likely on Thursday with the news that the government had negotiated a plan with the American International Group to begin repaying taxpayers.
For all the criticism that the TARP program received, I thought voting for it was the right thing to do.  I had always thought that the media coverage of it as costing $700 billion was overblown because it obviously wasn't the case as we knew SOME of the costs would be recovered.

That we could actually be "in the black" on this thing was, I thought, a disingenous selling point.  The payoff was really keeping the financial system from going under (which as we know it didn't although we may never understand exactly how much TARP contributed to this).

Thursday, July 22, 2010

Never Mind - Nothing to See Here

In an apparent end to the controversry surrounding the firing of several US attorneys toward the end to the Bush Administration, the special prosecutor has opined that:
The investigative team determined that, based on the evidence already developed by OIG/OPR and Congress, as well as the additional evidence developed through the criminal investigation, that evidence did not demonstrate that any prosecutable criminal offense was committed with regard to the removal of David Iglesias. The investigative team also determined that the evidence did not warrant expanding the scope of the investigation beyond the removal of Iglesias. Additionally, the investigative team determined that there was insufficent evidence to show that any witness made prosecutable false statements to either Congress or OIG/OPR, or corruptly endeavored to impede a congressional inquiry.
I'm no fan of the Bush Justice Department as it existed under Attorney Generals Ashcroft and Gonzalez.  In short, there is insufficient evidence that any of the activity related to this episode rose to the level of criminality.  We'll see if the press, which covered this story ad nasuem when it first broke, gives the story's end the same coverage it gave its beginning.

Monday, July 12, 2010

Getting the Economy Moving...

One of may favorite journalists, Fareed Zakaria, reports that the British are proposing to tackle the deficit as a means of convincing investors that England is a good place to do business:
the new chancellor, 39-year-old Tory George Osborne, [has] presented a budget that promised to get Britain’s fiscal house in order with sharp cuts in spending, coupled with tax increases. It landed in the midst of a heated debate across the industrialized world about how to best get the economy back on track. Osborne and his boss, Prime Minister David Cameron, have come down firmly on one side of this debate, hoping that a major effort to reduce the deficit will reassure bond markets and investors that Britain is a safe and compelling place to put their money.
Meanwhile, the Washington Post's policy blogger Ezra Klein, characterizes the debate within the Obama White House as between those who wish to spend their way to prosperity vs those who argue, ala Osborne, that restraint is a quicker way to prosperity:

we're starting to hear rumblings of a fight within the White House. The political side, we're told, wants to focus on the swelling deficit, which it believes is contributing mightily to the public's sense that the economy isn't being effectively managed. Karl Rove, who's been on the political side of a White House himself, agrees with them: "People's concern about the spending and the deficits and the debt and the out-of-control government have been growing and growing and growing," he said on Fox News. "And it's one of the key drivers in the 2010 election."
The economists disagree: They see a weak economy that still needs government support.
You got that?  Those who believe in restraining borrowing are Karl Rove type political hacks, while the economists all support increased government spending.  Economics is that black and white in Klein's world.  All we need to do is keep spending and things will get better.

In fact, of course, there are economists on both sides of this vital question (and probably those who take different viewpoints all together).  One thing IS for certain however: anyone who is telling you there's a painless way out, such as Klein, isn't being realistic.

Wednesday, June 30, 2010

Beating A Dead Horse

The notion that we ought to take our time to study and understand a problem before reacting to it, especially when it comes to something as complicated as legislating, is one I've discussed several times, most recently with regard to financial services reform.  Still, Congress is on the precipice of enacting a massive financial services reform law despite the fact that the Commission that Congress itself created to better understand the causes and nuances of the crisis has not yet completed its work.


One proponent of reform, federal judge and author of A Failure of Capitalism on the financial crisis, Richard Posner, explains this phenomenon:
But just as politics requires that President Obama be seen to be doing something about the oil leak in the Gulf of Mexico, though there is nothing he can do, so politics requires that Congress be seen to be doing something to prevent another economic disaster, though there is nothing it needs to do.
Posner doesn't say that the government doesn't need to change its policies, but that the changes necessary aren't changes in the law.  In short, they can be made largely without Congressional action.  Now, that's a problem, because if Congress doesn't solve the problem by passing a bill (the only thing Congress does is change the law by enacting bills) then Members won't be able to claim credit by the November election.

And THAT's why its rushing to pass legislation despite the ongoing work of the Financial Crisis Inquiry Commission - a government body created BY CONGRESS to report on the crisis's cause.  The Commission's work is ongoing (today, in fact, it is holding a hearing on the part played by derivatives, the regulation of which was one of the most contentious issues that delayed the financial services bill) yet their work will not be factored into the legal reform.

Monday, June 28, 2010

The Tea Party Explained

This analysis is one of the best explanations I've read about the Tea Party, which is a loose collection of people who share one thing in common: frustration with the status quo.  It comes in the wake of the South Carolina primaries that saw two Tea Party favored candidates prevail.  In both cases, they were minorities beating middle aged white guys.

A pattern seems to be emerging that runs through the views of those who identify with Tea Party, and it doesn't appear to be a strictly "throw the bums out" mentality.  It doesn't make sense to punish people for nothing other than incumbency, and many incumbents are surviving.

The question is why some incumbents survive if the Tea Party nothing more than a "throw the bums out" style movement:
This question that can be easily answered by those who have argued all along that the Tea Partiers are just a collection of crackpots and dodos, incapable of seeing where their true self-interest lies. What else would you expect from such idiots? But there is another way of interpreting the South Carolina primaries. The real target of Tea Party wrath is not the establishment or incumbency, but cronyism.
Such cronyism exists in many aspects of life, not the least of which is Wall Street and its relationship with Washington, DC.  There is, perhaps, nothing more American than the notion people should advance on their own merits rather than their status or birth.

It will be interesting to see how this theme continues to play out through the rest of the year.

Wednesday, June 2, 2010

Campaign Finance I

I'm not sold on the concept of publicly financing campaigns.  It should not be easy for any crackpot to get hold off taxpayers' money to launch a loony, joy ride of a political campaign.

Still, articles like this from the excellent Ruth Marcus make me willing to re-consider:

Washington operates on the tacit understanding that campaign contributions grease the way for access and influence. Both sides in this transaction, lawmaker and donor, perceive, or at least present, themselves as the victim: elected officials as captives of a system that demands incessant fundraising; donors as the target of a none-too-subtle shakedown scheme.
As the legislative director for Teledyne Controls, a California defense contractor, told OCE investigators, "It does go through your mind whether you are buying influence." Yah think? 

Having spent 10 years on the Hill, I wouldn't say money buys results (except in a few highly publicized cases where people went to jail), but it can get you a hearing, without which you have little or no chance of getting what you're looking for.  Even the late Paul Simon (D-IL) acknowledged that his time was limited, and when handed his list of phone calls gave preference to big donors.

Most so-called campaign finance reforms have, in my view, made the system even worse.  Limit how much individuals can give?  OK - you simply empower "bundlers" who can bring many individuals together.  Even worse, because only small amounts can come from any one source, it takes MUCH more time for Members to fund raise.  Every lunch hour and free evening becomes a fund raising session whereby a Members Chief of Staff will her take over to the Republican or Democratic Committee to start placing phone calls to lobbyists and constituents.

This is time not working on the nation's problems or even time socializing and getting to know one another personally.  Don't underestimate the importance of this latter activity - its one of the reasons Washington has become so nasty.

Tuesday, June 1, 2010

Some proposals from Brookings

This came across my desk this morning.

Titled "Econonic Growth and Institutional Innvotation: Outlines of a Reform Agenda," the policy monograph by William Galston discusses how our institutional design can affect our economy.

Galston starts from the premise that our economy is hampered by three deficits: fiscal (also known as the US budget deficit), savings (the lack thereof by US citizens) and investments.  He proposes that these be attacked by such things as Commissions that are insulated from the political process, yet still answerable to Congress.  Mandatory individual accounts added to Social Security.  And the creation of a "National Infrastructure Bank" funded with US tax dollars.  Such reforms would be impossible in our current climate, so institutional reforms that will empower centrists must be enacted.

To me, these are the more interesting suggestions: (1) replace the current system of having state legislatures draw political districts for themselves and the US House and (2) mandate voting.  I'll take a closer look at these ideas in some of my next posts.

Tuesday, May 25, 2010

Even more insane than I imagined...

As you'll recall, the agency that overseas safety at offshore drilling facilities, the Minerals Management Service (MMS) (an agency within the US Department of Interior) was structured in such a way as to create a conflict of interests.  In short, its funding came from the operations of the entities it was supposed to oversee from a safety perspective.  If your budget comes from an entity's operations, what are the odds you'll shut it down, even if you're concerned about safety?

This flaw was addressed rapidly as Secretary of the Interior Ken Salazar announced that MMS's collection and safety functions would be separated.

Today's Post contains the strongest evidence to date that the agency's conflict of interests created a situation where this situation was possible.  Amazingly, MMS officials' bonuses were tied to how meeting federal deadlines for leasing offshore oil and gas exploration, according to the Washington Post  Reports of environmental risks triggered reviews that delayed leases according to the story.

In short, the incentives for the individuals with oversight of the safety of offshore drilling facilities were paid based on how fast they could get drilling approvals done.

If this story is ever told in a productive manner it will be one of failed government design as much as anything else.

Wednesday, May 19, 2010

Yesterday's Elections

I'm not a political analyst, so I'll leave the analysis to others.  I'd just warn you that 90% of those who claim to be political analysts aren't very good at it, or have agendas other than providing the unvarnished truth.

Here are a few links for your consideration:

Monday, May 17, 2010

The Financial Crisis Explained - Gambling With Other People's Money

Russ Roberts has made a career out of explaining difficult economic topics by relating them to ordinary life in a readable manner.  He explained why we should support free trade in The Choice and other economic concepts in several other novels that involve economic themes.

He's just issued a paper that explains the recent financial crisis very well.  You can download it here.

His critique is well balanced and very nuanced.  It covers all the bases to some degree, although it focuses most heavily on the problem he sees at the heart of the matter: government actions created a bailout expectation that led creditors to not act with their usual caution when it came to the housing market.  He partitions blame between the government and private actors who advocated the government's actions for personal gain.  I like that he takes a degree of personal responsibility, acknowledging that he had downplayed concerns about high leverage (ratio of debt to capital).  Most important, he rejects any easy, simplistic answers from the left (Wall Street Greed) or right (all due to Freddie and Fannie).

Here's just a very short "summary of the summary" to give you a taste:
In the United States we like to believe we are a capitalist society based on individual responsibility. But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money—particularly borrowed money—by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.
I don't agree with everything he says, this is probably one of the best pieces I've seen for those who aren't financial policy buffs but want to understand the connection between government activity and the economy a little bit better.

Thursday, May 13, 2010

The Inmates are Running the Asylum

The Washington Post's editorial page sounds a worried note after a conservative Republican lost his primary bid for not being quite conservative enough (i.e. he had voted for TARP and had co-sponsored a relatively moderate health care reform proposal with a Democrat) and a Democrat from West Virginia who had shown a willingness to compromise on greenhouse gas regulation lost as well.  In short, two fairly well respected Members who were willing to work with others on compromises lost to candidates who made it clear that compromise was not in their vocabulary:
For many party cleansers, working across party lines constitutes treason. We agree that elected officials ought to be guided by principles that they are willing to fight for. But we also see a difference between fidelity to principle and dogmatism. If Republicans cannot accept that Democrats may make some reasonable arguments, and vice versa, then nothing will get done
I normally don't blog on electoral politics, but this trend has obvious implications for governance if Members of Congress believe that the only way to keep their seats is to scream across the aisle rather than actually governing.  In future posts, I hope to look at what institutional reforms can be made to keep parties from becoming hostages to their most extreme elements.

Because, right now, the inmates are running the asylum in both parties.

Wednesday, May 12, 2010

The New Prime Minister

It hasn't taken as long as some feared for Britain to get a new government.  Conservative leader David Cameron and Liberal Democrat leader Nick Clegg have formed a coalition government (the first since the end of World War II apparently) between the two parties, with the Conservatives getting most of the leading offices given that they won the largest number of votes.  But Clegg will serve as the Deputy Prime Minister and several other top government posts will go to Liberal Democrat MPs.

Interestingly, one of their first moves will be to enact legislation fixing the term of Parliament at 5 years.  Under current law, a Parliament may last up to 5 years, but a Prime Minister may dissolve Parliament, thereby causing an election, earlier if he or she chooses.  The move may help to solidify the coalition (allaying Liberal Democrat fears that the Conservatives would call new elections once their polling looked better, gain a majority, and kick them out) but it also seems like good government (prohibiting a politically motivated call for a new election by the party in power for the purposes of political advantage.

Still, this could have profound effects on the entire British political system, and render it looking much more like that of the U.S. in several ways.

For example, suppose the Prime Minister loses the majority.  Would Britain be stuck with a prime minister who lacks majority support in the Parliament?  If so, it could come to resemble the US system, where the President and Congress frequently do not come from the same party, a little bit more.

More importantly, it would also likely end the tradition of short, inexpensive campaigns because candidates will know exactly when the elections will be and can start campaigning earlier than the usual 30 day window from when the PM announces an election and when it takes place.  Such a change may wind up with very profound effects.  As a result of longer, more expensive campaigns, voters may wind up paying less attention and fewer going to the polls.

Tuesday, May 11, 2010

Learning the Right Lessons Part II

Learning the right lessons from a failure is the first step towards improving future performance, in life, in business and especially in government.  As we discussed earlier, the most important aspect of the government's oversight of the safety of offshore drilling rigs may have been the merger of two conflicting tasks, safety and revenue collection, in the same agency.

The AP is now reporting that the administration is looking into splitting the Minerals Management Services into two different agencies centered around these very different tasks.  As we learned last week, the British took a similar step years ago, and improved their safety record as well.  Even if the Wall Street Journal didn't seem to get it quite right when it wrote its headline, Department of Interior Ken Salazar seems to understand.

The Federal Workforce - Faster Hiring

Federal employment rules are an embarrassing anachronism.  They were created for a time when the government was smaller, its duties much more limited, and the typical functions were routinized ones, such as typing and filing.  One aspect of this is the incredibly long time it takes to hire anyone.  A short summary of the issue can be found here.

At least one aspect of this operation appears headed for improvement.  Today's Washington Post reports that President Obama is ordering the feds to step up hiring.

This is welcome news.  The federal government needs to replace a lot of workers who are scheduled to retire soon.  In 2008 the Partnership for Public Service projects over one-third of the Senior Executive Service (SES), which constitutes the core leadership of the civil service will retire.  We need to keep a steady flow of quality candidates coming through the pipeline merely to maintain the government's capacity.  Whether you're a fan of "big government" or not, a government with big responsibilities but without the resources to carry them out is a failed government, and something that would benefit no one.  A long, complicated hiring process deters people from entering the pool, reducing the overall quality of the federal workforce.

Some of the changes include ditching government - only forms and requirements (a problem not only in hiring but many other aspects of government such as contracting) in lieu of more traditional applications and resumes and allowing agencies to hire someone who had applied for a position at another one in the same department (but not across departments, which would require an Act of Congress).

Now, let's talk about (a) making promotions and salary increases based more on merit and less on seniority and (b) getting rid of poor performers.

Friday, May 7, 2010

Regulatory Incentives: A Case Study

A Wall Street Journal (subscription) story caught my eye, "Oil Regulator Ceded Oversight to Drillers":

The small U.S. agency that oversees offshore drilling doesn't write or implement most safety regulations, having gradually shifted such responsibilities to the oil industry itself for more than a decade.
Instead, the Minerals Management Service—now caught up in the crisis of the Deepwater Horizon rig that for weeks has sent crude oil gushing into the Gulf of Mexico—sets broad performance goals for the industry. Oil producers and drilling companies are then free to decide for themselves how to meet those goals, industry executives and former regulators say.
 Let's break this down.  What does it mean, exactly, to say that the agency has ceded its regulatory authority?

In short, it's something called "performance based" regulation.  The agency, in this case something called the Mineral Management Service (MMS), sets performance expectations, but doesn't tell the agency HOW it must reach the performance expectations.  In theory, this should allow for less expensive regulations than the traditional "prescriptive" model (where I tell you HOW you must do something, but generally absolve you from the results if you comply).

MMS has now made clear it will be shifting away from a performance based system to a more prescriptive based one soon after last week's disaster in the Gulf.

I'm not so sure it was the model of regulation, or the fact that industry practices were adopted as the standards rather than rules written by federal regulators, that caused the problems MMS faces.  In fact, the Journal appears to have "buried the lede" (i.e. put the most important part of the story in the middle rather than up front).

Some interesting facts emerge about MMS (which is an agency within the US Department of the Interior): Enforcement of safety rules isn't MMS's "primary responsibility" although it does inspect rigs.  Instead, its to "verify how much oil is being pumped, which is key to another MMS duty, maximizing payments the government receives for oil and gas rights from energy producers."  As a result, the agency, which is funded by fees and rental receipts, faces a "conflict of interest" according to former MMS employees.

Does this make a difference in safety?  Very possibly.

Consider this: fatalities on oil rigs is four times higher in the US than in Europe.  The UK had a similar model, but recently separated its safety function from its revenue collection function.  The result has been an improved safety record.

The story goes on to detail how the MMS failed to follow-up on instances where the industry had failed to meet safety standards, etc.  In short, poor enforcement rather than poor regulations may have been at fault here.

Note: this is not the first time in recent years MMS has come under fire.  In 2008 it was cited for "a lack of ethical culture" after fairly shocking evidence of misbehavior occurred.

A minority government for Her Majesty...

The British people have the politicians will decide what they said.  No party received a majority in the House of Commons, so now a coalition will need to be formed - something that country hasn't dealt with since the 1970s.  In the US, of course, we've had divided government with one party controlling Congress and another the White House.

Will be interesting to see how this all plays out...

Wednesday, May 5, 2010

Better Bills

Yesterday, we asked why might Congressional bills be so long?

Despite the massive size of the financial reform bill, it may be the content, not the length, that is problematic.  From Monday's New York Times:

As Democrats close in on their goal of overhauling the nation’s financial regulations, several prominent experts say that the legislation does not even address the right problems, leaving the financial system vulnerable to another major crisis.
Some point to specific issues left largely untouched, like the instability of capital markets that provide money for lenders, or the government’s role in the housing market, including the future of the housing finance companies Fannie Mae and Freddie Mac.
Others simply argue that it is premature to pass sweeping legislation while so much about the crisis remains unclear and so many inquiries are in progress.
 Specifically, there IS a federal Financial Crisis Inquiry Commission that is supposed to be reporting on the causes of the crisis.  Congress created it and asked it to report in December of 2010.  Without a sound understanding of such causes, it would seem that a solution would be premature, no?  So why the rush to legislate before the report you asked for is due?

One reason, unfortunately, might be found in Congressional Quarterly's (subscription required) current cover story about how Democrats are looking to re-brand their populist image and tap into the public's general anger in time to avoid major losses in the up-coming November elections:
The debate over financial services regulation, which was engaged on the Senate floor last week and is expected to dominate Congress this month, is a template for the Democrats’ new game plan for rebranding and promoting some of their longstanding initiatives.
Whether bills have been considered thoroughly, and through the regular order, is a better yardstick by which to measure than length.

Tuesday, May 4, 2010

The British Elections

Jacob Weisberg of Slate has a piece on tomorrow British elections.  He asks a good question: why should we care (other than just the sporting aspect of electoral politics)?  Here's his take:
Our American campaigns have become decadent spectacles of horrifying length and expense characterized by 30-second attack ads, a class of parasitic professionals, and a running media freak show.
By contrast, Britain's feel pure. They are swift (four weeks!), substantive, and not entirely driven by fundraising. Spouses are treated as human beings and allowed their own lives. The electorate is informed and engaged. The candidates are more spontaneous and accessible.
Weisberg goes on to describe his experience covering the race, which has some interesting comparisons with our own long, expensive and seemingly vacuous elections featuring a bored, inattentive and too often uninformed electorate.

Why Congressional Bills Are So Long

Historian John Steele Gordon thinks he knows:

One reason, I cynically suspect, is precisely to make them unreadable...The political elite would rather work in the dark and is confident that the Washington press corps won’t go to the trouble of actually reading a bill that’s longer than War and Peace (and a lot less entertaining). As a political public-relations man once told me, “Nobody ever went broke underestimating the work ethic of the average reporter.”
But there are two other reasons. One is that a vast bill makes it easier to sneak in clauses that go unnoticed until they are law...The second reason is Washington’s increasing fascination with global reform rather than piecemeal reform. Only touchdowns, it seems, are now allowed in the game of political football; moving the ball down the field just won’t do.  The health-care debate would have been a lot shorter and a lot less politically divisive had both sides simply agreed to enact those reforms that a substantial majority of each house agreed with — such as of insurance abuses — and then saw what else was needed. Regulating derivatives would be a piece of cake if it were not tied to “financial reform” in general.
From my own experience in writing legislation (10 years in Congress), I'd say that Gordon, who is an excellent financial historian, has it mostly wrong.  

No one ever told us to write bills longer on purpose.  I'd say of the causes he identifies, the last (a preference for global over piecemeal reform) is the soundest.  The reason have more to do with the increasing size of the congressional agenda and the diminishing floor time, meaning that you can't do several bills on one topic any longer.  Once a financial reg bill is done, Congress won't want to take it up again, so everything needs to be loaded into one package.

Monday, May 3, 2010

British Elections - Brits prepare for minority government rule

I've always been fascinated by the British political system, which is generally referred to as a parliamentary democracy.  It's highly useful to study because it represents a different style of government that works well for a nation very much like our own, which uses a presidential system, and there's lots of useful lessons in comparing the way the British approach things to our own.

One aspect of the parliamentary system is that the ruling party is determined by parliamentary elections.  The leader of the party that wins the most seats becomes Prime Minister and forms a government.  The Prime Minister does not personally stand for election nationwide, although I suspect a lot of votes for local Members of Parliament ("MPs") are cast based on who the party's leader is rather than the local MP.  In short, there's no "ticket splitting" (voting for a congressional candidate from one party and a President from the other) the way we understand it in the US.

Still, the English will go to the polls on Wednesday, and for the first time since the 1970s are likely to split votes among three parties - the Conservatives (aka the "Tories"), Labour, and the Liberals.  Labour is the incumbent party, but the least likely of the three to win the most seats.  Accordingly, we'll likely see a minority government, where the party that wins the most seats will need to work with other parties to form a working majority.

We'll be watching and trying to learn from this...should be very interesting!'

For more, British historian Simon Schama breaks it down for the readers of the New Yorker.

Note: the picture above is the Prime Minister's official residence at number 10, Downing Street, in London.

Saturday, May 1, 2010

Learning the Right Lessons

As I mentioned on Monday, I'm looking for some good stories related to derivatives that will help people understand the hubbub over them a little better.

Fareed Zakaria's column on Goldman Sachs is a good place to start.  As you've no doubt heard by now, Goldman has been sued civilly by the SEC and its executive were grilled by the Senate Permanent Subcommittee on Investigations in the past couple of weeks.

Zakaria demonstrates that one doesn't have to opposed derivatives regulation to understand the dangers, however, inherent when one firm is made a scapegoat for an industry:
the rage surrounding the Goldman case can cloud our perspective and distort public policy. We're going through a familiar part of America's boom-and-bust cycle. Having been mesmerized during the go-go years, having unduly lionized and feted industries, firms, and people as they rode the wave, we now want to throw these people to the wolves. We need to step back for a moment and try to understand what happened and learn the right lessons.
Whether new regulations are warranted is best left to a blog dedicated to studying financial issues, but making sure our processes and methods of oversight are calibrated to learning the right lessons is of vital importance to all fans of good government.

Thursday, April 29, 2010

Senate Committee Hearing - The History of the Filibuster

On April 22nd, the Senate Rules Committee held its first of a projected series of hearings on the filibuster.  The hearing focused on the filibuster's history and evolution as a rule and practice.  Witnesses included Professor Professor Sarah Binder (George Washington University), Robert Dove (former Senate Parliamentarian), Stanley Bach (former Library of Congress specialist on Senate procedures) and professor Greg Wawro (Columbia).

Chairman Charles Schumer (D-New York) opened by calling the current practice a "strait jacket" that is increasingly making the Senate a body where 60 votes is needed to accomplish more and more rather than the traditional majority of members present and voting.  He made clear that this had occurred under both parties and that the purpose was to determine whether changes were necessary rather than assigning blame (noting that he had likely made many anti-reform statements when Democrats were in the minority).

His Republican counterpart, Senator Robert Bennett (R-Utah), however, committed himself to defending the filibuster, noting that it gave the minority a "voice" and served as a check against one party rule even when that party held the presidency and majorities in both houses of Congress.  He was joined in this sentiment by Senators Robert Byrd (D-West Virginia), Republican Leader Mitch McConnell (R-Kentucky) and Pat Roberts (R-Kansas).

Only Senator Tom Udall (D-New Mexico), a leading advocate of reforming the rules, called for reforming not only the filibuster, but other related rules as well.

The statement of members and witnesses can be viewed here as well as some video of the hearing.

Just a  few highlights:
Dove: the filibuster is very characteristic of the Senate's role in our government, which is to slow consideration of measures and ensure thorough deliberation before enacting laws.
Bach: until 1917 the Senate never provided means to limit debate.  The trend towards increased filibusters is part of a larger trend of other devices employed by members to wring concessions such as the "hold" (blocking nominations from being voted on), more contested "motions to procced," etc.  In the past, a filibuster required members to stay on or near the floor and precluded anything else from being done.  Today, a Senator just files a notice with the appropriate leadership offices and the Senate agrees not to move forward.
Wawro: today's filibuster is a different animal than the one historically employed by the Senate.  In the past a determined majority could wear down a filibustering minority.  Modern practice does not allow for this, making the filibuster less a tool of delay as in years past rather than the 60 vote super-majority requirement it is today.

 A few things we might conclude then:

* The filibuster is neither a constitutional mandate nor a deliberately designed provision to protect the minority as some would have us believe.  Rather, it seems to have developed organically under the Senate's rules, which provided no means to terminate debate.  Further, today's filibuster is different not only in quantity, but quality as well, and something past generations of Senators wouldn't have recognized.  Because its operations imposes less of an imposition on the Senate and its members, which means it may be used less sparingly.

* Even so, the 60 vote super-majority requirement of today's Senate may simply be the contemporary manifestation of the founder's intent and design that the Senate would ensure full consideration of measures and guard against hastily conceived laws.

* Given the other procedural trends, perhaps the filibuster problem is actually a symptom rather than a cause of the Senate's ills - one implication is that these hearings should be expanded to look at a broader range of Senate procedural issues.

Wednesday, April 28, 2010

The Citizens United Case

Perhaps no Supreme Court case since Bush v. Gore has engendered such dyspeptic rage at Citizen United v. FEC, a 5-4 ruling that held laws prohibiting independent expenditures by corporations advocating on behalf of a candidate's election to be unconstitutional.

It may seem unusual that corporations have "free speech" rights that extend to elections.  It seems that it is this proposition is behind much of the outrage.  If you have a problem with that, however, you should have gotten angry a long time ago when the court first stated that proposition.  That such a right extends to corporate spending on behalf of a ballot proposal was announced many years ago in the First National Bank of Boston v. Bellotti case.  Extending the reasoning of Bellotti to advocacy for a candidate doesn't seem like such a leap if you accept the court's reasoning in these prior cases.  This did mean reversing its decision in Michigan Chamber v. Austin, a case that, itself, was not terribly consistent with the Court's previous rulings in this area.

For our purposes, the question however is what has been the affect on our government?  So far, we've seen no evidence that corporations have any interest in availing themselves of this newly declared liberty.  Right now the big winners appear to be the portion of the Washington bar specializing in campaign finance laws.

Congress is getting ready to take up legislation that will provide transparency to efforts by corporations to finance independent campaigns for or against one candidate (Note: corporations and labors may still not actually donate $ to the campaign itself - the activity must be truly independent).  Interestingly, it's liberal groups, however, that are voicing concerns about having to disclose their donors.

We'll keep watching corporate activity here to see what the impact of the ruling is.  As an in-house corporate lawyer, my own guess is not a whole lot as companies are (a) loath to spend money on politics unless it directly affects its short term bottom line, and (b) very risk adverse when it comes to the resultant publicity.

Tuesday, April 27, 2010

Former "Law and Order AG": Too Many Crimes

When Ed Meese was Attorney General, he was caricatured by the press and the Reagan administration's political opponents as being insensitive to the rights of the accused.

Of course, Meese didn't help matters any when he famously stated that "if a person is innocent of a crime, then he is not a suspect."

Still, Meese was actually a highly capable public servant, and I recall the amazement of my fellow law students, who had been prepared to protest him, when Meese spoke to a packed auditorium and convinced the vast bulk of them of the need to be more sensitive to the constitutional protection of property rights in the early 1990s.

So, it may surprise many to learn that Meese's current concern with the criminal justice system today is that the criminal law it too hard on people:

America is in the throes of "overcriminalization."
We are making and enforcing far too many criminal laws that create traps for the innocent but unwary — and threaten to turn otherwise respectable, law-abiding citizens into criminals.

Meese cites as examples a 12 year old girl being prosecuted for eating a french fry in the DC public transit system, an elderly cancer patient being arrested for failure to trim her hedges, and a high school science student being taken into custody by the FBI for failure to affix a required sticker to a package containing his science project.

The problem illustrated by these cases is that we're criminalizing non-traditional activities.  The criminal law was once used to deter people from doing things we all knew were subject to the criminal law - such inherently bad things as murder, robbery and rape.  We could reasonably say that every citizen should know this, and had no excuse if they committed such an act because "ignorance of the law was no defense."

The same cannot be said today.  According to the American Bar Association we have criminalized over 3,000 offenses (just under federal law) and there's "no conveniently accessible, complete list" of them.

A website dedicated to these issues can be found here:

If I find some cogent criticisms of this proposition and movement, I'll be sure to note them.

Monday, April 26, 2010

The Congressional Debate Over Derivatives

I recall Congress debating derivatives several years ago.  Listening to members talk about them was painful.  One member even discussed them as if Congress was discussing mathematical derivatives (such as that above) and asked why Congress thought it could regulate mathematics.  Needless to say, nothing was done at the time.

With the financial crisis and the role that derivatives well publicized (if not totally agreed upon), it appears Congress is now ready to tackle them.

Derivatives (as in the financial type - no the mathematical) are simply agreements for party A to pay party B some money if something else happens (interest rates go up, the price of wheat falls, the dollar rises against the ruble).  For many parties, such as farmers and manufactures, its a useful tool to "hedge" against a risk that party doesn't want to bear.  In current parlance, hedgers are known as "end users" and are generally thought to be ok sorts of folks.  The other guys are the "speculators" or those who create them to speculate rather than hedge any risk that derives from their business operations.  These are mainly Wall Street types.

The main questions being debated: to what extent must derivatives be standardized and traded through exchanges (with the exchange serving as a middleman) rather than customized and traded "over the counter" directly between two parties?  Next, to what extend should financial institutions need to segregate their derivatives trading from other financial activities?

These topics are way to complex to do justice to them in a blog, but I'll try to post some links to useful sources for those who want to learn more soon.

Friday, April 23, 2010

The Senate Takes an Inward Look

Members of the US Senate are not, by nature, terribly self analytical.

It's not their fault.  Really.  They're awesome.  Just ask their staff and the lobbyists who make up, between them, 75 percent of Senators' human contact.

So it's noteworthy that the U.S. Senate Committee on Rules and Administration ("Senate Rules") is holding a series of hearings designed to assess the current state of the U.S. Senate's filibuster rule, which allows for unlimited debate until "cloture" is invoked.  Because a cloture vote requires 60 votes, the minority can, in affect, require that virtually any measure taken up by the Senate require a 60 vote (out of 100 Senators) super majority.

This isn't terribly surprising.  At present, Senate Democrats are frustrated with the increased use by the minority Republicans of the filibuster.  When the Republicans had control of the Senate, they too were frustrated by the filibuster, and held hearings of their own in 2003.

To the great credit of Chairman Charles Schumer (D-New York), he recognizes that the increased use of the filibuster is something that has occurred "over the last decade" (implicitly acknowledging that it's a bi-partisan problem) and that the best place to begin with is the history of the filibuster.  When you really want to understand something, beginning with history is usually the best place to begin.  You not only know the "what," but equally importantly, the "why."

I'll be following these hearings, which began yesterday - summarizing and commenting where appropriate.

Coming Out of Retirement

Too much is going on for me to keep indefinitely silent.  There are simply too many things that are interesting and important.  Rather than not blog at all, I've decide to "re-open" shop with some modifications.

(a) It's ok if I don't post every day.

(b) It's ok if no one reads it.

My inability to make a daily, high quality post, and the fairly low "hits" number were discouraging to me.  But I've decided it's quality rather than quantity in both numbers of posts of readers that really counts.