Friday, October 29, 2010

Bet the Farm Or Nurture It?

Bottom line: stability of our financial and commercial markets has costs, "free enterprise" promotes avoiding such costs and thus inherently does not provide stability.

We all know that the return on an investment will reflect the degree of risk: high risk, higher potential returns.

We often forget that (i) reducing risk costs money (which reduces the return on investment), and (ii) our system needs oases of low risk.

Today's financial institutions ("aka "banks" aka "Wall Street") can chose whether to make relatively low risk and low return corporate loans or to make high risk high return speculative investments (such as in the secondary mortgage markets and derivatives markets.)

When bonuses are based on high returns, and stock prices reflecting "return on assets," is it any wonder that bankers now prefer to bet the farm rather then nurture the farm?

Especially when the government will pick up the tab? 

The current financial system in the US is designed to have repeated failures and either (i) government bailouts or (ii) economic depressions.

Something has to change.

After the Great Depression's banking crisis, we divided banking into two basic categories: commercial banks - which take deposits make loans to people and corporations; and investment banks - which accept investment money and re-invest it in various vehicles.

Commercial banks were required to be low risk because the government guaranteed their deposits; investment banks were allowed to take whatever risks they wanted because there were no guarantees to those who used them to channel their investment funds.

(Commercial banks also have had the "unspoken" guarantee" of likely support in cases of financial crisis from the Fed as "lender of last resort."  Bankers and economists have long known that failure of any bank of significant size carries systemic risk, and one of the roles of central banks is provide stability to the banking system by reducing the chances of bank failures thus reducing risk in the system.)

To ensure the low risk nature of commercial banks, the regulatory system imposed certain compliance and economic costs on commercial banks: reserve requirements and, starting in the late 80s capital adequacy requirements (which assess the riskiness in a banks portfolio and set minimum capital requirements based on the overall risk profile of a bank's portfolio.)  These are known as "safety and soundness" requirements
In the 80s and 90s, commercial banks were losing loan market share to non-regulated entities to the extent that commercial banks were becoming non-viable as economic entities.

Stability of the banking system is not a free lunch - of course there are costs of regulations, but those costs provide benefits.

Given the anti-government anti-regulatory political environment of the times when commercial bank profits were slumping (because of "financial disintermediation"), there was simply no way that "safety and soundness" requirements could be placed on the non-bank lending competitors.

Thus, to restore commercial viability for commercial banks, in the 90s the separation between commercial banks and investment banks, the Glass-Stegall Act was essentially gutted, but without imposing "safety and soundness" requirements needed (i) as the quid pro quo for federal guarantees and (ii) to promote systemic stability.

It as the evisceration of the regulatory structure which allowed banks to make high risk decisions and loss big time.

We need to find a way to restore profitability to commercial lending, and not simply make it easier and more lucrative to swing a bank's portfolio to high risk ventures.

Bottom line: stability of our financial and commercial markets has costs, "free enterprise" promotes avoiding such costs and thus inherently does not provide stability.

Friday, October 22, 2010

Where Are The Jobs?

Gosh darn it! Where are the Jobs, Mr President?

Heck, President Reagan took office during a recession, and after a year and a half....

Ah, er, the unemployment rate was still rising.

Sorry Mr President, I guess I've been a tad too impatient....

Tuesday, October 19, 2010

Does The First Amendment Mean Separation of Church and State

I had a discussion the other day with a conservative who insisted that the Constitution does not provide for the “separation of church and state” because those exact words are not in the Constitution.

I asked him what the First Amendment’s religion clause actually says.

He didn't know the exact language, (see below) but asserted variously that it means (i) the government can’t make you follow a particular religion and (ii) the government can’t tax churches and (iii) the government can’t create a church.

I pointed out that none of those words appear in the Constitution either, so, by his logic (that the First Amendment doesn’t call for a separation of church and state because it doesn’t use those words) then it wouldn’t call for his propositions either because it doesn't use the words he used.

My logic fell on deaf ears, even when I pointed out the description of the First Amendment as providing for a “separation of church and state” came from Thomas Jefferson, one the most influential of the “Founding Fathers.” (See also, this Wikipedia article.)

Ah well.

When you stop to consider it, the idea that the explanation that (aka explication, or, in legal terminology, 'construction of') the First Amendment can’t mean it calls for a “separation of church and state” because it doesn’t use those exact words displays, to me, a fundamental misunderstanding of what an explanation can and can’t possibly be. (Or perhaps just a failure to think through what the argument actually is.)

By definition, an explanation has to use words other than the exact words used.

If you insist that an explanation has to be identical with the clause itself, you are left with:

The phrase in the First Amendment “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof” means that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”

Which is, of course, no explanation at all, our knowledge and understand remains unexpanded.

Thursday, October 7, 2010

Mr. President You Represent We the People

Dear Mr. President:

I urge, indeed beseech you, the President of 'we the people' to veto the "Interstate Recognition of Notarizations Act."

I know you aren't a liberal, but if you want to advance the interests of the Democratic Party and enhance our chances in this upcoming election, you will use this opportunity to publicly denounce this effort to make it easier for the banks to harm people.

If the banks had hitherto evidenced good faith and fair dealing, it would be one thing.

They haven't, and the burden of proof should be on them before throwing families out on the street.


Government and Corporations and Choices

Corporations are now beginning to use their accumulated excess cash (yes, they've been getting richer these days while huge numbers of people are suffering) to buy back shares.

That's a good thing for a company - boosts its earnings per share ratio which Wall Street likes, which boosts its stock price (which typically also boosts the bonuses of the corporate executives.)

I don't have a problem, per se, when a corporation pursues it's goals - corporations have done a lot of good things over the decades.

But this use of accumulated corporate funds doesn't do much for we the people of the United States; we need a strong government to represent our goals and address our needs, not those of the corporate world.

It is claimed that the current “uncertainty" is why corporations aren’t using the money they have accumulated while the economy has struggled investing in hiring or infra-structure.

Governance of our country can’t be timid, though, especially in times of trials and in the face of “uncertainty” and and during a period of a drastic reduction of “the public welfare.” (Promotion of the general welfare was one of the six essential purposes the founding fathers declared when creating our government.)

The central goal and focus of a corporation, however, is to maximize shareholder profits. That’s all well and good

That central focus should not be prevail (openly or by stealth) in setting effective public policies or for running our government.

The Founding Fathers wrote the Constitution on behalf of “we the people.” Lincoln taught us that the United States is “of the people, by the people and for the people.”

Excessive corporate political power simply does not promote such a vision of what the United
States is or is supposed to be.

Tuesday, October 5, 2010

Best Run States v Worst Run States

Last month, we saw that the 'Blue States' tend to have higher median incomes than the 'Red States.' Which doesn't prove they have better governance, but which is, I believe, suggestive.

The Wall Street Journal just published a list of "The Best and Worst Run States In America: A Survey of All Fifty"

I figured it would be interesting to see how that list breaks down by Red State v Blue State v "Purple State" (Wikipedia: "A purple state refers to a swing state where both Democratic and Republican candidates receive strong support without an overwhelming majority of support for either party.")

Here it is:

Monday, October 4, 2010

A Disheartnening View of the Electorate

My Field Trip: Repub v. Dems - And Some MoveOn-ers

Tonight I stopped by a Toledo High School where senate candidates Rob Portman(Rep) and Lee Fisher (Dem) were holding a debate.

I visited with the demonstrators/sign holders out front.

Wearing a blue blazer, wrinkled light cargo pants, and a casual stripped shirt, I first approached the Portman supporters - a group of perhaps 30.

I loudly announced that I was ready to stand with anyone who could recite the preamble to the Constitution, or tell me the six broad goals for government contained in it.

After several minutes, in which a few people asked why anyone should know what was in it, and a self-proclaimed law student announced that there was no need to know the Constitution, one fellow finally came up and quickly recited it. He didn’t seem to be able to actually discuss the significance of those six points.

One fellow suggested that only Tea Party people are interested in the Constitution!

All in all, the Republicans were somewhat befuddled and mildly suspicious, but overall a pleasent enough group.

I then crossed the road to the Fisher supporters, asking the same question.

They were definitely belligerent, and maintained their hostile attitude even after I affirmed I’m a democrat and will be voting for their guy.

All in all, the dems were jerks (or at least the outspoken few.)

I then went to the MoveOn folks. They had mounted a conceptual “protest,” pretending to be corporate high rollers buying the Republican candidate. Cute concept, perhaps, but they were clueless as to why the press folks didn’t approach them.

Altogether, none of the people I spoke with elevated my opinion of the electorate.

If I had to choose a group to hang out with, the MoveOn-ers were kind of like puppy dogs, or maybe deer caught in the headlights- pretty nice, but.... The Republicans were the most engaged on various issues (although they seemed to believe that issues they raised with me could bee answered with a simple, black/white analysis- and they really didn’t like my answer, such as on the union card check question they posed, that I could see good arguments for both sides of the issue. And I really hope the one guy’s idea that the details of Constitution are unimportant isn’t widely held, although that seemed to be the consensus view over on that side.

I simply can’t see myself bending a friendly elbow with the democrats who were there; they apparently jumped to the conclusion that because I was wearing a blazer I am a Republican, even after I explicitly stated my affiliation they maintained their hostile stance.

Bottom line, God bless America - please. As a democracy, we need all of the help we can get....

Art 10 Congressional Powers And Tenthers

Re the “Tenthers”

So called “tenthers” are arguing these days that a range of laws and programs passed by Congress over the centuries are unconstitutional violations ofthe Tenth Amendment (technically known as "Article X" of the Constitution.

The 10th Amendment provides:

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

A typical argument is that there is “no specific power in the constitution for Congress to adopt a ‘this’ program [such as Social Security]” and they point to the enumerated powers in Article II.

They gloss over three things:

First, Article X does not say “not specifically delegated to the United States....”

Second; Article II, as drafted and adopted by the “founding fathers [and mothers .... I’ll betcha there was lots of espousal ‘discussion’ around the kitchen table and some nights on the couch , about the draft Constitution] has a “here you guy, boys, go on out and play” clause in Section 8,

"The Congress shall have Power.... 18: To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States....”

That is a specific delegation of a general, non-enumerated power to Congress.

Anyone who has actually worked on drafting a law has struggled with the issue of how “general” or how “specific” any particular provision should be.

Too general and you fail to provide necessary guidance to people (the “void for vagueness” doctrine) or not only open the barn doors, but tear the whole thing down as an enclosure; too specific and the law may not achieve the full desired effect, especially as conditions in a society change.

The FF/Ms knew of this balancing act: they avoided “too general” by tying the ‘necessary and proper’ clause to the powers granted by the Constitution, they avoided the too narrow a Constitution by including this general clause.

Third point: The “tenthers ignore the final provision in Article X:

“The powers not delegated to the United States ... are reserved to the States respectively, or to the people.

How do “the people” exercise the powers “reserved? to them?”

The people can only exercise their power through their vote: by electing officials based on the vision of government and the programs they propose.

So, even Article I doesn't directly reach some program, the "reserved to the people" clause in Article 10 confers that power by the people exercising the vote.

There is, of course, a legitimate question as to how broad the powers of Congress (and the Executive) should be.

But Article X is not a sound basis on which to reach the conclusion that the powers are narrowly limited to only the powers specifically mention in Article I [Congress] (and Article II [the Executive])

[On Edit] See, also my more recent blog discussion of where the Federalist Papers explicitly reject this restrictive "tenther" reading)

Bonus point: If you are a “tenther,” you have to be opposed to immigration quotas - the Constitution does not confer any power to regulate immigration.

Section 8.4, does confer on congress the power to “establish an uniform Rule of Naturalization” but naturalization is not immigration - immigrants might seek to become citizens, which is what naturalization is, but “moving here” is not the same thing as “becoming a citizen here.

Is the US a Democracy or a Republic?

Is the US a democracy or a republic?


Some people think a ‘democracy’ and a ‘republic’ are somehow different, and that calling the US a democracy is wrong.

One person I know who makes that claim cites:

"The American Ideal of 1776: The Twelve Basic American Principles" by Hamilton Abert Long

This claimed position (based on a political argument, not on a lexicographic analysis) seems to be making the right wing rounds in justifying the obstructionism by Republicans in the US Senate of the will of the majority as expressed in the 2006 and 2008 elections.

"We aren’t a democracy and it is wrong to say 'majority rules'” is the argument justifying the current anti-government, anti-democracy right wing politics.

Are the two terms necessarily identical? Not necessarily.

Is the US both a democracy and a republic?

Yes it is. At least if you use dictionaries and the work of lexicographers,

For example:
“A political system in which the supreme power lies in a body of citizens who can elect people to represent them
“A form of government whose head of state is not a monarch; ‘the head of state in a republic is usually a president’"

“A republic is a form of government in which the citizens choose their leaders and the people (or at least a part of its people) have an impact on its government. The word "republic" is derived from the Latin phrase res publica, which can be translated as ‘a public affair’".

“ /r??p?bl?k/ Show Spelled[ri-puhb-lik]
“1. a state in which the supreme power rests in the body of citizens entitled to vote and is exercised by representatives chosen directly or indirectly by them.
“2. any body of persons viewed as a commonwealth.
“3. a state in which the head of government is not a monarch or other hereditary head of state.”

“Main Entry: re·pub·lic
“Pronunciation: \ri-?p?-blik\
“Function: noun
“Etymology: French république, from Middle French republique, from Latin respublica, from res thing, wealth + publica, feminine of publicus public — more at real, public
“Date: 1604
“1 a (1) : a government having a chief of state who is not a monarch and who in modern times is usually a president (2) : a political unit (as a nation) having such a form of government
“b (1) : a government in which supreme power resides in a body of citizens entitled to vote and is exercised by elected officers and representatives responsible to them and governing according to law (2) : a political unit (as a nation) having such a form of government”

= = = = = = = = =
Definitions of democracy:

“The political orientation of those who favor government by the people or by their elected representatives
“* a political system in which the supreme power lies in a body of citizens who can elect people to represent them
“* majority rule: the doctrine that the numerical majority of an organized group can make decisions binding on the whole group”

“–noun, plural -cies.
“1. government by the people; a form of government in which the supreme power is vested in the people and exercised directly by them or by their elected agents under a free electoral system.

“Definition of DEMOCRACY
“1 a : government by the people; especially : rule of the majority b : a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections”

= = = = =
“Synonyms: democratic system, democratic state, democratic organization, representative form of government, republic, parliamentary government”

“Main Entry: democracy
“... republic....” [from a very long, very widely spread list],

= = = =

“republic (n)
“Synonyms: state, nation, democracy”

“Synonyms, Thesaurus & Antonyms of 'republic'
“1. (noun) democracy, republic, commonwealth
“a political system in which the supreme power lies in a body of citizens who can elect people to represent them
“Synonyms: nation, republic, majority rule, country, state, body politic, res publica, commonwealth, land, democracy
“2. (noun) republic
“a form of government whose head of state is not a monarch
“Synonyms: democracy, commonwealth”