Solomund

Last Resort Lending

2011-03-31T14:02:00.001-04:00

Lots of big bank whining today as the Fed turns over the names of the banks that borrowed from its discount window during our last financial crisis. The Fed fought tooth and nail to keep the names secret under the theory that disclosing them would somehow cause the markets to punish the banks because they'd basically be viewed as insolvent. Which, actually, a large number of them were during the crisis. Bloomberg has the story.

JPMorgan CEO Jamie Dimon vows that his firm won't ever borrow from the Discount Window again because of this disclosure stigmata, and generally bankers have been whining and gnashing their teeth over this ruffling of their secrecy. To which I say, talk to me when you're actually facing the choice of either having your company go under or borrowing from the Discount Window. I'll put money down that you'll be borrowing from that window. Talk is cheap when you're not facing any risk. And given the amount of money that the taxpayers had to funnel and/or guarantee to the big banks, they should just shut up on this point.

Fukushima, Market Failure, and Our Robot Overlords

2011-03-30T12:36:00.000-04:00

One question comes to mind when contemplating the Fukushima meltdowns: Where are the robots? And I'm not alone in asking this obvious question. It's a no-brainer to send in robots to a situation like this that fries humans. But apparently, the Japanese, masters of automated production, don't have any that can deal with this crisis. Nor has the vaunted free market produced any, probably because nuclear meltdowns only seem to happen once every couple of decades or so. This is a fairly clear example where the government should have stepped in where the market hasn't and built robots to handle a disaster like this, as apparently the French and the Germans have. Anyhow, for those of you concerned about being taken over by robot overlords anytime soon, the Fukushima disaster is clear evidence that robots are nowhere near being able to take over. The best that the robots can do for us right now is take pictures, which although helpful does not stop the bleeding.

QE2

2010-11-07T09:47:00.000-05:00

I don't see how Bernanke and Geithner can keep a straight face when they argue that the Fed's quantitative easing (QE2) isn't being intentionally done to devalue the dollar. That's a bit too cute for me. Intentional or not, that's the effect it's going to have, and it's not credible for either of them to say that they weren't aware that a devaluation would occur and that it's just being done to boost growth. Printing $600 billion dollars is going to devalue the U.S. dollar. As a fuck you to China for being so intransigent on its managed devaluation of its currency I do rather enjoy QE2. Now both the U.S. and China are effectively devaluing their currencies while at the same time pretending not to. And this is also a bit of a fuck you to Germany, whose austerity minded politicians and bankers are horrified by QE2.

An Abomination

2010-08-26T08:21:00.000-04:00

I'm pretty jaded at my age, but Glenn Beck stating he's going to reclaim the civil rights movement on the Lincoln Memorial on the anniversary of Martin Luther King's famous "I have a dream speech" blows my mind. Beck believes the civil rights movement has become "an abomination." I almost vomited in my morning coffee when I read that whopper. A delusional, divisive, white Mormon is going to redeem the civil rights movement? How, by claiming it for white people? The man's stupidity is only outdone by his audacity. How many black people do you think you'll see at his rally?

High on Hayek

2010-08-25T09:20:00.000-04:00

Too many conservatives confuse Hayek's insight that the government can never have enough information to properly fix prices with the proposition that the government can never successfully intervene in the economy. The latter proposition simply isn't true. There are many reasons to be wary of government intervention, but it is not a given that such intervention is bad.

Failure's Success

2010-08-25T09:12:00.001-04:00

The Economist grudgingly admits in its latest issue that Obama's government takeover of GM worked. The allegedly nonpartisan Congressional Budget Office reports that Obama's stimulus package saved jobs and prevented the economy from contracting. Yet ideologically straight jacketed conservatives, who offer no economic prescriptions except the exact same ones that got us into this mess, oppose any new form of stimulus or government intervention in the economy. The economic indicators of late, which reflect the fact that Obama's stimulus is wearing out, do not bode well for the U.S. economy. Yet any hope of a new stimulus bill, or any creative solution to this crisis, does not exist. All we get are the same tired mantras from the opposition about cutting taxes, deficits, and the role of government. The exact same rigid ideologies we were battered with as we careened into this current crash.

Hallowed Bullshit

2010-08-23T23:21:00.000-04:00

Just who consecrated Ground Zero? What do you really mean when you say it's hallowed, sacred ground? Aren't you just really saying it's an exclusive Christian cemetery and everyone else can go fuck themselves? How can a concept like hallowed sacred ground even be intelligible without the prism of religion? How can you argue with a straight face that this really isn't about religion but is about sensitivity to sacred ground? The hallowed and the sacred are meaningless outside the religious context.

Sensitivity and the Constitution

2010-08-23T19:53:00.000-04:00

Apparently sensitivity is the new arbiter of Constitutional rights. The opponents of the Burlington Coat Factory Mosque claim they aren't religious bigots who oppose religious freedom and private property rights. They're just sensitive to the feelings of an abstraction known as the 9/11 families, who allegedly are offended by the proposed building of a Muslim community center near Ground Zero. As a New York gubernatorial candidate put it, "it's not about religious freedom, it's about ideology." (I paraphrase). This was in the context of proposing to seize the land where the Cordoba Institute wants to build its community center using eminent domain. This is quite a contortion on how Constitutional rights are usually protected by our courts. Normally the courts enforce the free exercise of religion and private property rights against those who are offended by them.

Allowing for sensitivity to be the arbiter of constitutional rights means shredding the Constitution. If I'm offended by you carrying a gun in a bar in Arizona, can I now tell you to go elsewhere? If I don't like what you write, can I now tell you to print it elsewhere? Likewise with due process, equal protection, universal suffrage etc etc. If you don't understand the fundamental fact that the Bill of Rights protects the minority from what offends the majority then you don't understand our Constitution. You know nothing about the Know Nothings, as has been said. I don't buy for one minute that this is not about Constitutional freedoms and is really all about people's feelings. The fascist overtones to this whole debate are disturbing.

Blaming Each Other

2010-06-17T08:14:00.000-04:00

I learned to practice matrimonial law in the Bronx. So I don't really give a fuck if the New York State legislature has finally decided to join the rest of the country in instituting no-fault divorce. Go ahead and say you want a trial on divorce grounds anywhere in the greater NYC area. You'll be within your legal rights, but you've just pissed off the judge. Congratulations on upsetting the primary person who controls your client's fate.

Divorce grounds in New York rarely affect the distribution of marital property. When they do it's usually in some sort of extreme circumstance that there's little doubt about. Otherwise, grounds merely aggravate everything and waste time. The First and Second Departments, the New York State trial court jurisdictions that cover NYC and environs, effectively don't even allow you to present evidence on the issue of grounds. Good luck proving archaic legal concepts like adultery or constructive abandonment (refusal of one spouse to have sex with the other for a year) without being able to present evidence. The judiciary in NYC, by fiat, effectively abolished fault divorce years ago because it’s an impediment to efficient dispute resolution. Arguing divorce grounds in a New York State Court is at your client's peril.

Fault divorce is just not worth it. A fight over grounds is brutal because it's all about who is to blame. It focuses the parties on the past and impedes the speedy, equitable and efficient distribution of assets so important to our capitalist society. Every other section of NY divorce law is about moving forward. Alimony. Child Support. Equitable Distribution of Assets. What to do with the retirement funds. None of these issues comes near raising the animosity that a grounds fight can engender even though a grounds fight rarely affects the distribution of property.

Nonetheless, in New York you still have to statutorily plead grounds when initiating a divorce. Furthermore, NOW maintains that taking away grounds removes valuable negotiating leverage for the woman when it comes to alimony and property distribution because it allows the woman to keep the divorce from going forward without her consent as to grounds. But the reality is that if you want to get a divorce in NY you can. The number of times that a NYS court has refused to grant a divorce on the issue of grounds can be counted on one hand. And even if NOW is right, there are better ways to prevent the moneyed man from walking away with everything in a divorce than utilizing the sclerotic concept of fault. Making sure low income women have access to counsel is one way. Excellent organizations like inMotion help with this cause. The equitable powers of the judge is another way, as most judges I’ve appeared in front of won’t easily allow an unfair distribution of marital assets.

Moreover, NOW ignores the fact that abusive husbands readily use divorce grounds as another way of tormenting their spouses. These type of men enjoy assigning blame to their spouses one more time. It’s another form of control for them. Invariably when you explain to your client what the husband is alleging as grounds for the divorce your client becomes furious. “He’s saying what?! That liar!” Etc. etc. You then spend the rest of the meeting with your client explaining to your client the various grounds, their ability to counterclaim under any of them, and how it's going to piss off the judge and have no real affect on maintenance or equitable distribution. You waste valuable time dwelling on a shattered past. Contested divorces are by nature acrimonious, and one should do everything reasonable to calm the passions on both sides, especially actions that don't affect the distribution of marital assets. I fully support the New York State’s legislatures attempts to join the rest of the states and move our state’s divorce law into the 21st century.

Youngstown Steel Pensioners

2010-06-14T23:34:00.001-04:00

WSJ editorial board is jerking apoplectic about Obama having his hands in BP's pockets to take all that hard earned cash belonging to pensioners. Echos of Youngstown Steel. All of a sudden an editorial board that constantly argued for unbounded presidential powers in the face of national emergencies during the Bush years believes in limits to the President's emergency powers. An unfettered President is o.k. in a war against phantoms but not when the Gulf of Mexico is destroyed along with the livelihoods of all those dependent on it.

Actually, I agree with the WSJ editorial board that Obama doesn't have the legal right to make BP suspend its dividend payment. But he doesn't need it, he's got the practical power to force BP to pay into an escrow account. He can revoke all of BP's oil leases, ban it from doing business with any U.S. government entity, and make its life regulatory hell. Let's not give short shrift the Department of Justice and the Securities and Exchange Commission, institutions well practiced in shaking big corporations down. Obama has plenty of legal weapons in his arsenal, even if he doesn't have the technical right to prevent BP's dividend payments.

As for all the poor pensioners, this is just another object lesson on why diversifying your retirement portfolio is so important. Shut up before I go over there and start dumping oil in the English Channel.

Afghan Gold

2010-06-14T21:48:00.000-04:00

The new and improved graveyard of empires, now with untold hoards of commodities! Who will gain this treasure? Who can afford to? Afghanistan has no mining infrastructure or tradition so any victor faces a large capital and temporal investment before any profit. Years of blood before any gold. And now that commodities are involved resource hungry China is going to get further involved in one of its border states. We can also look forward to another gigantic plague of corruption upon the Afghani people as the extractive industries are riddled with a culture of bribery and kickbacks, to say nothing of the Afghani government.

Mass Primary Hysteria

2010-06-08T22:10:00.005-04:00

Our colleague Titivil makes a good point regarding all the media hyperventilating over how today's primaries will gauge the "mood" of the voters. How can a noun as amorphous and variegated as "Voters" be said to have a mood? How can a convenient abstraction like the word "Voters" have a subjective mental state usually only attributed to individuals? The answer is that they don't, but to speak as they do is a convenient reductionist metaphor that allows us to speculate as to a state of affairs that otherwise we'd have difficulty speaking about at all. But when speaking in metaphors, remember that while they are useful for getting at the truth they are at base lies. A metaphor is a qualitative attribution to something that doesn't actually have that quality. Which is why politicians of all idiocies love them.

Wall Street's Obligations to Main Street

2010-06-06T18:46:00.002-04:00

Looks like the banks are making it tough for Fannie & Freddie Mac to exercise their rights under their Master Loan Purchase Agreements ("MLPAs") requiring the big banks buy back any bad loans the big banks sold to Fannie & Freddie. And with good reason, as the big bank repurchase liabilities could be massive.

To understand what's going on here, and how the big banks' repurchase obligations potentially represent large off balance sheet liabilities for these banks, you need a little background on how loans are bundled into Mortgage Backed Securities, or "securitized." First, there's the originator of the actual mortgage loan. The originator is the entity that gives a mortgage to an individual or business. The originator decides if an applicant meets its loan criteria and handles the paperwork for the original loan. The originator then bundles any given number of mortgages together and then sells them, usually to a special purpose vehicle, known as the "sponsor/seller," of a mortgage backed securitization. The sponsor/seller then sells the loans to what is known as the "Depositor" who then sets up a common law trust that issue certificates sold by an underwriter to investors. The certificates generally entitle the holder to a share of the interest and principal payments in the loans underlying the trust. Sound complicated? It is. But you don't need to understand the intricacies of mortgage backed securitization to understand the massive liabilities involved, you just need to know a few simple things.

First, because the originators were selling the loans they originated they had little incentive to issue creditworthy loans because after the loan was sold the originator no longer carried the loan liability on its books. This allegedly resulted in fraudulent or negligent loan originations to mortgagors unable to actually meet their loan obligations unless property values continued to climb. And as we all know, property values fell off a cliff and people were stuck with homes they couldn't sell except for less than what they paid for them and a tsunami of defaults occurred.

Second, the sponsor/sellers often originated loans themselves, or repackaged loans purchased from originators, and sold them to other entities like Freddie and Fannie Mac.

Third, Fannie and Freddie Mac are government sponsored entities, guaranteed by U.S. taxpayers, that massively, some say foolishly, buy mortgages and MBS in order to provide liquidity to the mortgage market in a government directed effort to promote home ownership.

Fourth, every major investment bank set up entities along the whole mortgage securitization spectrum to capitalize on this market.

Fifth, when bundle of loans are sold between these entities, they are usually governed by MLPAs, which contain a repurchase obligation on the part of the seller to the buyer if there is a breach of the specified representations or warranties in the MLPA.

It's these repurchase obligations that give rise to the potentially massive liability. If banks were issuing as many bad loans as some people say and the data seems to indicate, then it stands to reason that Fannie and Freddie, and by extension the American taxpayer, bought a lot of bad loans from the big banks. And the big banks are likely required under the terms of their MLPAs to buy them back from Fannie or Freddie. But then the big banks would take a massive hit to their balance sheets. So they're lawyering up instead, because it's probably cheaper to spend a millions of dollars on lawyers then it is to buy back the loans. So once again America saves Wall Street, and Wall Street thumbs its nose at America.

What Happened to Alan Dershowitz?

2010-06-01T20:29:00.004-04:00

I've been annoyed by Alan Dershowitz's knee jerk defense of all things Israeli for the last few years, but I've generally chalked it up to the sclerotic effects of aging upon a once supple mind. But today's sophomoric Huffington Post piece on the IDF flotilla raid earns the booby prize for nationalistic preening. If I'd turned in such a conclusory piece of legal reasoning to a partner at my firm I'd get the ax. A summer associate is capable of better reasoning. Talk about black and white thinking. The Law of the Sea is nowhere near as simplistic as Dershowitz makes it out to be. No lawyer worthy of the name makes such bald conclusions regarding the legality of something as complicated as the IDF's seizure of the Gaza Flotilla on the High Seas. I don't purport to be any expert on the issue, but I certainly wouldn't write a hack piece like Dershowitz's without doing at least a bit of legal research. No one has ever cited Dershowitz as an expert in admiralty jurisdiction, but his pomposity blinds him to his ignorance of the subject matter. For a different take on the legality of the IDF's actions, and some interesting debate in the commentary, check out this link.

IDF Storms Ship, Kills Civilians While Shooting Self in Foot

2010-05-31T21:20:00.004-04:00

Been busy of late in corporate lawyer world defending weakling multinational investment banks against the depredations of pension funds, but the Israeli Defense Forces' ("IDF") ham handed raid on the Gaza Flotilla roused me from my dogmatic stupor by sheer force of its stupidity.

First, we all know that the phrase "military intelligence" is oxymoronic, but what idiot at the IDF or the Israeli government authorized this raid? Did it not occur to the geniuses behind this raid that a disproportionate show of military force in international waters against people armed with sticks and knives is exactly what the publicity hungry activists wanted? Most people weren't paying attention to the Gaza blockade but every sentient news reader is now. And how many people would have paid attention if you'd just let the ships dock but you prevented them from unloading, or some other less ostentatious approach? Instead we've been treated to a display of Israeli dick swinging followed by Israeli self defensive whining now that people justifiably want to cut that dick off. Which brings us to point two.

Second, the reason no one except the obtuse buys the IDF's self defense justification for their homicides is because it's ludicrous. This was a white flagged ship in international waters attacked by commandos from one of the fiercest and accomplished armies in the world. The flotilla didn't try to board any Israeli vessels on the high seas, it was the other way around. If anyone was acting in self defense, it was the flotilla, not the armed to the teeth IDF.

Finally, how long can the Israelis kid themselves that they're not treating the Palestinians in the same despicable ways that the Jews have been treated for centuries throughout the world. Talk about losing you moral compass.

Top Ten Reasons Goldman Sachs Would Be Dead Without Government Help

2009-12-06T11:58:00.014-05:00

10) TARP

9) TALF

8) Being allowed by the Government to become a Bank Holding Company (thus gaining an implicit government guarantee) overnight;

7) Being able to issue FDIC insured debt as a bank holding company;

6) Temporary SEC ban on shortselling when investors starting selling Goldman short during the height of the crisis and Goldman changed its position on short sales and asked the SEC for a ban;

5) Getting paid 100 cents on the dollar as a counterparty to AIG credit default swaps as a result of the government's AIG bailout that prevented AIG from going bankrupt;

4) The revolving door between the Fed, Treasury and Goldman that made Goldman privy to non-public information regarding the government's deliberations during the crisis;

3) Selective government intervention, or lack thereof, that allowed some of Goldman's competitors to fail, most notably Lehman Brothers, thereby bolstering Goldman's trading positions;

2) Being allowed to actively market and sell the toxic assets at the heart of the crisis while at the same time selling them short and eliminating them from their balance sheet;

1) If murder wasn't illegal mainstreet would have killed everyone at Goldman by now for being tone deaf while doing God's work.

Death of the Dollar

2009-10-12T23:31:00.004-04:00

Funny how the dollar is supposed to be so weak but everyone runs to it when global economic catastrophe looms. Why is that? A panicked sense of tradition? The size of our military? A capitalist legal system? Then when the storm clears everyone says it was a nice visit but now they have to go.

Bearing Scalia's Cross

2009-10-08T20:23:00.009-04:00

Ahh, Justice Scalia, just when I was going to lay off you for a while you paint a big bulls eye on your forehead with an intemperate outburst about how a war memorial cross on what was once public land is not an establishment clause violating religious symbol but a one size fits all commemorative symbol. Scalia's outburst was in reaction to an ACLU lawyer upstaging Scalia by pointing out, to laughter in the courtroom, that Scalia's argument that the cross was a generic commemorative symbol in the memorial context made no sense in light of the fact that there is a dearth of crosses in Jewish cemeteries. The ACLU lawyer's riposte was in reaction to Scalia's smug question as to whether it would be better if instead of a cross there was some sort of amalgamation of the cross, the star of David, and Islam's star and crescent. Because you know, all dead soldiers belong to one of the religions of Abraham and there are no atheists in foxholes. Scalia emphatically argued that crosses in this context aren't really Christian symbols because they're all over the place in cemeteries, everybody does it, so it's really not religious symbolism but popular symbolism that is not subject to establishment clause challenges. Scalia is all about majority rule on this point, the minority can and is going to hell as far as he's concerned. No doubt if the case was about a secular attack on Catholicism for its seemingly entrenched pederasty and ritual cannibalism he would rush to protect minority rights. Weak. What happened to you Scalia? I used to have a grudging respect for you. Were you just fronting in the Texas flag burning case?

Defending Polanski

2009-10-03T21:19:00.009-04:00

As a father of two children I have no sympathy for what Polanski did and believe he needs to face the music without any "but I'm a great artist" mea culpas. If he had any guts he'd waive extradition and confront the situation head on. But as a defense lawyer I can't help note that a lot of what has been written, pro and con, about Polanski misconstrues the procedural record and the weight one should give to grand jury testimony.

Some basic facts. He never had a trial and has never been sentenced. He pleaded guilty to statutory rape to avoid trial on more serious charges and then was put under psychiatric observation for 42 days for the purposes of preparing a sentencing report. When Polanski decided that the Judge was not going to honor the terms of Polanski's deal with the prosecution (a plea deal does not bind a court because the deal is only between the prosecution and the defense) and just give him probation he fled the country in the face of a maximum twenty year sentence.

Polanski's detractors (including me) repeatedly cite to the victim's grand jury testimony for the facts of Polanski's rape ("the so called crime") of a 13 year old carried out in part by plying her with champagne and quaaludes. But caution is in order when citing to grand jury testimony as proof of facts. When you read the grand jury testimony of the victim it's quite obvious that she was coached. This doesn't mean it's not true, but doubtless the DA sat the victim down for witness prep before her testimony. It is perfectly legitimate to prepare a witness, particularly a rape victim, for the experience of testifying as long as you don't tell them what to say. But it's not always so easy during a prep session to avoid shaping a witnesses testimony to conveniently fit your case. Particularly when you are dealing with a young and probably impressionable witness. The transcript reads as if the prosecutor had gone over his line of questioning with the victim before hand. Whether everything that she testified to was accurate is difficult to determine however because there was no cross-examination. Grand jury witnesses are not subject to cross-examination. Grand juries are convened to determine if there is sufficient evidence supporting a finding of probable cause for an indictment, not to make final findings of fact. The prosecutor runs the show exclusively. So when you're reading the grand jury testimony, you're reading the Prosecutor's unchallenged narrative exclusively, and the prosecutor is always striving for the most dramatically compelling narrative possible to justify the charges. Thus grand jury testimony should always be read with some skepticism.

Simplistic Scholasticism

2009-10-01T20:25:00.014-04:00

Justice Scalia is a fan of the old canard that because lawyers don't produce anything they lack value. Or to be fair to his position, he maintains that great minds are wasted on the legal profession because the minds would be put to greater use producing, say, a car that runs on solar energy or some other thing that under his feudal (Catholic) ideology adds value to society. Implicit in his view is the proposition that only those that produce useful commodities have value for society. This view has some bizarre implications. Under it, for example, doctors have no value. Same for anyone who has a "great mind" (whatever that is) who chooses to provide a service for society rather than a commodity.

Scalia's myopia has earned him many fans who cling to the simplicity of his absolutist statements because they are easily digestible and don't upset the orthodox stomach. But enough of this "kill all the lawyers" crap. Justice Scalia, if you have such a dim view of your profession and such a high view of your acuity, please resign your post as Supreme Court justice and go invent something of value. Go back to the impotent (non-producing) outposts of academia from which you came as you obviously have little experience in the real world of lawyering beyond the asphyxiating cloister you operate in. Litigators and transactional lawyers add value to our society every day.

Litigators facilitate the non-violent resolution of the innumerable conflicts that arise in our society every day. Don't take that for granted. One does not have to look too far in the world to find examples where violence is used to resolve a disagreement over a transaction, or where the government executes an innocent person as a convenient scapegoat. Adversarial proceedings in court are a form of ritualized fighting that resolves conflict without bloodshed. On more than one occasion I have put an end to an abusive husband's reign over his wife by using the tools that the law provides me. Don't tell me that has no value. By so doing perhaps I've even freed a "great mind" to go and invent something useful. And litigators have often served as a bulwark against the tyranny of a government run amok. As such litigators play a crucial role in our civilization.

As for transactional lawyers, how is the purported "great mind" going to actually produce their society changing commodity without the legal structures necessary to raise the capital necessary to produce the commodity on a scale large enough to impact society? Corporations, partnerships, limited liability partnerships, limited liability companies, subscription commitment facilities and other legal entities facilitate the raising and free flow of capital necessary to the production of any commodity on a large scale. And it is transactional lawyers who create these entities, as well as securing the rights of the "great mind" via the private law of contract that allows the commodity producer to profit from their invention. Without a contractual guarantee of remuneration for your invention there is little incentive to create one. Why waste your time on something that won't put food on your table?

I could go on and on by the point is made. Grade school Marxist economics that fetishizes commodities over service is misguided and unworthy of a "great mind." Another day in my love/hate relationship with Justice Scalia.

Enemy of the People

2009-09-28T22:50:00.005-04:00

"Capitalism is the enemy of democracy." - Michael Moore

This is where Mr. Moore and I part ways. No economic system is equitable but non-capitalist economic theories have wrought worldwide bloody havoc. Certainly unbridled Capitalism is rapacious. Imperialistic. Exploitative. Enslaving. Just like the rest. But that's just an argument for a bridle given Capitalism’s virtues versus the empirical disasters that non-capitalist systems have proven.

Capitalism is unique because it can order individual self-interest in a way that failed systems like communism can't. Capitalism admits the overwhelming influence of two fundamental principles of human psychology that the other theories ignore or misconstrue at their peril: self-interest and the desire for freedom. Admitting and accepting that all humans primarily act in their own self interest frees Capitalism from utopian social engineering that in seeking to mitigate self interest in the name of equity only exacerbates inequity by providing the powerful with the means for suppression. Capitalism instead allows self-interest free reign within the boundaries of the rule of law thereby maximizing freedom.

The desire for freedom from hunger, want, disease, the elements, and the freedom to chose the life one wants to live is something that all economic theories strive for but Capitalism has proven more successful at than any other. Capitalism, unlike most of its competitors, was not theorized and then implemented; it was implemented and then theorized. This explains its empirical success. It evolved in the real world, and not at the desk of an academic. It successfully feeds billions of people daily. More people were lifted out of poverty by China’s turn towards Capitalism than at any other time in the history of the world.

The butcher does not sell you his meat out of benevolence as Adam Smith memorably said. We work for money to survive and to be free. Money frees us from agrarian barter and allows us to pursue our life unshackled from having to produce our subsistence. And attempts to do away with sale transactions, money, and the like by eliminating private property miserably fail because they prevent the individual from controlling the objects in the material world necessary to her survival and satisfaction. If anyone can take without consequence the tools you work with or the food produced by your labor your freedom to control your world has been diminished and you are subject to the often-wicked caprice of others who invariably act in their own self-interest despite the utopian fantasies of wistful theorists.

Private property creates freedom precisely because it protects self-interest and the freedom of the individual to chose what to do with their property, including the freedom to exchange it for value in mutually beneficial exchanges between contracting private parties with a minimum of governmental interference. Like the butcher does when he sells you his meat. This benefits society as a whole, as any empirical comparison between the world’s capitalist and non-capitalist societies demonstrates.

Finally, it is simplistic to say Capitalism is brutal and amoral. Capitalism as an empirical phenomena is constantly evolving: slavery is now illegal; the labor movement tempered Capitalism’s exploitation, and a body of law emerged recognizing equality and freedom of choice in a world awash in castes and inequality. Of course there is much work to be done (and I suspect this is what Moore’s movie is really about), but I’d much rather stick with a system that actually feeds people than ones that have only produced despotism and scarcity.

Teabirther Constitutionalism

2009-09-17T22:30:00.019-04:00

Listening to the latest paranoid political fringe of Teabaggers and Birthers discuss the Constitution I find that I share some of their constitutional views. I support judicial review, that ultimate negation of the purported popular will by judicial fiat by unelected life time justices of the Supreme Court. It's not always perfect (see. e.g., Dred Scott), but it has proven effective in preserving individual liberties in the First, Fourth, Fifth, Sixth and Fourteenth Amendment contexts. The Teabirthers seek the judicial nullification on constitutional grounds (Article 2 sec. 1) of the democratic decision of the People as to their President. This is the ultimate act of judicial review. The Teabirthers want the Supreme Court to rule that the sitting President of the United States must step down. Radical. You don't get a more expansive view of judicial review than that. Too expansive for my tastes. Makes Roe v. Wade's judicial review look insignificant. Of course the Teabirthers ultimately fail because their view is unconstitutional under an unavoidable textualist reading of the Constitution. The Framers clearly intended the power to remove a President to reside with the People's representatives, not the judiciary. The power to remove a sitting President is solely vested in Congress through impeachment (Art I, secs. 2 & 3) and is not an Article III power delegated to the judiciary. This betrays the Teabirthers ignorance of the Constitution they so jealously guard. But I share their fervor for the Constitution.

I take solace that the Teabirther crowd is so angry that constitutional blasphemy is afoot. At least they are not citing biblical blasphemy (at least not all of them). I share their fervor for all things constitutional and their belief that the Constitution is what the living people say it is and not necessarily what the Framers allegedly said it was. After all, if they were textualists they'd have a hard time saying government health care or emergency (hopefully temporary) nationalizations of key industries and financial institutions are unconstitutional when the first sentence of the Constitution says one of its purposes is to promote the general welfare. And if keeping people from dying and preventing economic collapse isn't promoting the general welfare well let me know what is. But if you take a more plastic interpretation of the Constitution, one unmoored from its text, you could plausibly argue that some sort of liberty interest was being violated by government healthcare and industrial and financial nationalization. This view, however, is similar to the logic of Roe v. Wade and Miranda, decisions the teabirthers abhor. Thus goes the cognitive dissonance of their Constitutional theory.

Civil War

2009-09-14T21:22:00.009-04:00

Civility was stillborn at the dawn of politics. So the frothing ad hominem nature of the recent debate on health care and the economy is not surprising. Nor is this country's trenchant racism coupling with rabid anti-communism anything new. The KKK has always hated niggers and communists equally. The spectrum has only shifted slightly in that black is the new red. It was naive to think that racism would dissolve in the glow of Obama's election.

Politicians have been calling each other liars since the birth of the Republic, but never has a Southern, confederate sympathizing representative called a black President a liar on the floor of the House. And precisely the fact that we've never had a black President until now amplifies Joe (not his real name) Wilson's tantrum. What's the answer to the question as to why we haven't had a black President until now? Racism, duh. Ignoring the historical context of a white southerner denouncing a black President in a House divided is not rational given the overwhelming history of slavery and apartheid in this country. Well over half a million Americans died in the civil war, to say nothing of the horrors of the Atlantic passage and the "peculiar institution." This is just not the same thing as booing a white President.

On the Use and Abuse of the Constitution for Life

2009-08-16T08:50:00.008-04:00

Annoying but popular Wall Street Journal op-ed piece on how our next census will be unconstitutional because it's going to count illegal aliens. http://online.wsj.com/article/SB20001424052970204908604574332950796281832.html

My letter to the Wall Street Journal that's never going to be printed regarding an obvious problem with the viewpoint:

Mr. Baker's and Mr. Stonecipher's conclusory statement that Congressional representation based on a census of non-citizens is unconstitutional runs afoul the of the Constitution as originally written. The original Constitution explicitly provided for proportional congressional representation based, in part, on a census of non-citizens. That is precisely what the infamous "three fifths clause" provided for by allowing the southern slave states to count three fifths of their slave populations towards their representation in the House of Representatives. And as Chief Justice Roger Taney made clear in his decision in Dred Scott, slaves were not entitled to the rights of citizenship and were considered mere chattel. While I agree in principle that only citizens should be counted when it comes to congressional representation, it is far from clear to me that counting non-citizens towards representation is unconstitutional when the original constitution allowed for representation based on a tally of what was then considered property.

Religion is the Ultimate Materialism

2009-08-09T10:03:00.006-04:00

When was the last time you saw a priest going hungry? Or lacking a roof over his/not her head? Just what exactly is the net worth of the Catholic Church? Or the net income produced by the Haj and the revenue stream generated by the merchants of Mecca since before Islam even existed (back when Mecca was a pagan pilgrimage site)? When was the last time you saw a destitute religious leader?

Yet a major critique by theists of atheism is that it leads to materialism. Ignoring for a moment that this doesn't logically follow because I can easily think of a couple of non-materialist philosophies that are consistent with atheism such as solipsism or Cartesian dualism, my response is essentially that the pot is calling the kettle black here. Religion is the ultimate form of materialism. That's why its so obsessed with controlling matters on earth. Why, if we are alive but a fleeting moment in relation to the eternity of heavenly reward promised true believers, are so many true believers fanatical about controlling those who do not share their beliefs? After all, according to the dominate religion in my part of the world, I'm going to burn in agony forever once I die because I'm an unbeliever.

I think the answer is a simple one: what the true believer is really trying to advance is their own material interest under the guise of some ethereal moral order that conveniently meets their earthly interests. This is why religion is also a form of hypocrisy. It cloaks its real concerns under an unverifiable, unquestionable, amorphous absolute that advances its material goals. It says it hates materialism when really that's the name of its game.

Finally, just what exactly is wrong with materialism? It feeds my family and adds value to my community as I pay my taxes, contribute to charity, improve my property and the like. Spiritualism feeds no one and is open to attack as a form of self indulgent hedonistic solipsism. And don't even get me started on the intellectual vacuity of the view that without God there is no morality, spirituality or "meaning." But that's another discussion.

Tortured Logic

2009-05-05T22:35:00.003-04:00

What exactly could the Torture Memo authors be criminally charged with? The New York Times makes it seems like criminally charging them is an option, but nowhere mentions a possible basis for a criminal indictment. Criminal charges based on speech are extremely circumscribed in our society, as well they should be given our emphasis on freedom of expression. Outside certain speech acts such as conspiracy, or fraud laws (which usually require more than just speech by requiring reliance by a listener on the fraudulent speech) there really isn't much of a hook to prosecute anyone for expressing their opinions. I thought the Torture Memos were legal phlogiston when I first read them, but are they criminal? No, just reprehensible and poorly reasoned and researched. Failing to cite cases where the action you are analyzing was prosecuted by our government is sloppy and would get me fired in my job. But let's take a deep breath before we criminally condemn people for expressing their opinion lest we start sliding down the slippery slope.

Toast

2009-03-30T23:17:00.005-04:00

The reason Obama is smacking the auto industry (bye bye Wagoner) and not the financial industry is plain. Dismantling the bomb derivatives created is not easy and re-engineering the auto industry is by comparison. So off with their heads in Detroit, because at least we understand cars.

But They Said it Couldn't Be Done!

2009-03-29T23:05:00.004-04:00

"So, before going any further let me emphasize that no serious danger of a derivatives-induced

financial collapse really exists." Economics Nobel Laureate Merton H. Miller (University of Chicago) October 17, 1994.

Good Toxic Assets Primer

2009-03-28T23:12:00.001-04:00

Good collection of stories and graphics on Bloomberg giving background on the current financial mess.

What a Difference a Day Makes!

2009-03-23T21:01:00.019-04:00

Boy did the markets save Geithner's ass today. How long they will kiss it remains an open question.

There are two poles to this "toxic trash" debate: those who believe the trash is worthless (Krugman) and those who think it undervalued (Geithner). I side with Geithner and hope his plan works. The worthless camp ignores the fact that the "subprime" CDOs et al. are securitized by real property. Surely this real property hasn't lost all it's value? Granted, the underlying assets (homes) have dramatically dropped in value. But they haven't dropped 100%. And even in the case of CDOs with foreclosured mortgages the CDO owners generally are in the front of the line when it comes to disbursement of foreclosure proceeds. Furthermore, the default rate in the bundles of mortgages (hundreds even thousands) that make up CDO's is nowhere near 100%. That means that CDOs still have some sort of revenue stream; it's just the uncertainty surrounding the future default rate that makes the CDO's untradeable. The level of uncertainty surrounding the return on any given CDO prevents investment. Thus you are left with a CDO that has physical and monetary value but no price. This is largely a problem of faith, and is not one necesarily rooted in the lack of any value in the securitized assets comprising the CDO.

What Geithner has that Krugman lacks is faith in the ability of the market to work out the value of the underlying securitized assets. Krugman thinks that the market cannot work out the value of CDOs even though they are securitized by physical property and revenue streams from current mortgages. It is impossible for Krugman for there to be a market solution to the market's crash. For Krugman derivative trading is discredited. I disagree. Properly regulated derivatives like CDO's are useful because they ameliorate risk and free up capital. This crash is like most others, a product of excess and not the result of some innate flaw in derivatives. No one blames the 1929 crash on innate flaws in the concept of stock shares. While I don't know if Geithner's plan will pan out, I do think Geithner's right to have faith in capitalism's ability to scavenge itself. Capitalism is first a predator but second a scavenger.

Well Said

2009-03-21T09:43:00.001-04:00

http://moetkacik.tumblr.com/post/88269730/ugh

Tone Deaf

2009-03-20T00:37:00.004-04:00

I work on Wall Street and have gotten pretty jaded at the level of stupidity, arrogance and greed that occurs. Of course its not unique to Wall Street, Wall Street just has more money than most stupid, greedy, and arrogant communities and individuals. But the fact that AIG has the balls to sue the U.S. government, its biggest stakeholder, over tax refunds, blows my mind. How tone deaf can you get? Wow.

Where are all the AIG Contracts Buried?

2009-03-18T21:11:00.003-04:00

When do we get to see the AIG contracts? As a lawyer I'm really curious as to their terms, who negotiated them, and what the parties knew when they were negotiated. If they were negotiated when times were flush I'm inclined to be more forgiving, if negotiated when things were going down the crapper then Cuomo's fraudulent conveyance argument might have some bite. Show me the contracts, I've already seen the money.

Breach

2009-03-15T21:12:00.004-04:00

AIG finally broke down and released the names of its counterparties. Nothing too shocking. The usual suspects domestic and international. Still wondering why we're even bothering to keep the middleman alive.

On another note, every employment contract I've ever seen, and I've seen a few at this point, make bonuses discretionary. What gives with these AIG contracts? I'm a big believer in the sanctity of contract, and I think one of the reasons that the dollar has managed to stay relatively strong in this mess is the fact that our Federal Court system is a relatively unbiased forum for settling contract disputes. Investors know they can enforce their rights in the U.S., which is more than you can say for China or Russia. But the fact that AIG was allegedly writing contracts for such a large amount of non-discretionary bonuses is suspicious. When were these contracts written and what did signatories know about the state of AIG's balance sheet when they signed them? There may be legitimate ways to void these contracts, at least as to the bonuses, that don't tread on the sanctity of contract. Fraud and public policy comes to mind. After all, AIG would have gone under and wouldn't have been able to pay these bonuses without taxpayer money.

China to U.S.: Drop Dead

2009-03-13T07:44:00.005-04:00

The Chinese Premier is concerned about the safety of U.S. Treasuries? I don't have time to blog on this right now but want to say one thing. The last time I checked the U.S. had never in its history defaulted on its bond issues. As a matter of fact, one of the reasons Hamilton lobbied so hard for the Constitution was in order to establish strong credit for the U.S. During the period from the ratification of the Constitution and now, China has seen multiple governments that have defaulted on their debt multiple times. So while I'm happy that China is finally at the capitalist party, and gee they have a nice outfit, I think they've had a little too much to drink and are starting to talk smack that sounds somewhat silly given their track record.

Boy am I Glad That's Over

2009-03-12T22:36:00.006-04:00

And lo, the banks were profitable again and money was lent as manna from heaven and the markets sighed deeply and began their weary climb back up. Would you like to buy a bridge? I don't believe anything those banks say about their balance sheets right now, they have powerful incentives to lie about it. I sincerely hope I'm wrong and that we've turned a corner with the economy in terms of the credit crisis but I find much of the optimism surrounding the Dow's recent uptick ill founded. History is littered with defunct financial institutions that gave rosy projections until their last breath. As a matter of fact, isn't that what we saw with Lehman and Bear? Don't believe the hype.

On Edge

2009-03-11T22:17:00.014-04:00

For the moment the market has stabilized teetering on the edge.

I am worried that Obama's economic action team is not up to the task. Their dithering on toxic assets, the banks and AIG merely puts the solution off to another day. This has the unpleasant effect of increasing the cost of any future solution. Treasury is way too tentative, vague, oracular and shockingly understaffed. Economists are losing faith. You know, the ones that told us the free market would set us free.

And what's this crap about Citigroup making a profit? Aren't they on taxpayer life support? What kind of accounting are they doing that they're showing a profit? Isn't that the kind of accounting that got us into this mess in the first place?

The market surge after the news that Citigroup was projected to be "profitable" in the first quarter displays the desperate psychology of a wounded beast. Charging wildly in any direction at the slightest provocation. This beast is far from done.

Reason for Concern at Treasury

2009-03-09T07:27:00.002-04:00

We're going to need a bigger boat. The fact that our mission critical teams are understaffed right now is scary. Compare what's going on in terms of staffing at Treasury with what's going on with staffing at State. Maybe Hillary should have been Treasury Secretary instead. If this continues like this for much longer we're doomed.

Econapocalypse

2009-03-08T15:06:00.005-04:00

The current econapocalypse has at its root two intertwined parts, one a first cause and the other its unintended amplifier. The government must attack both if it wishes to have any hope of halting this catastrophe. Unfortunately, it currently is doing a dismal job by failing to either breathe life into the securitization markets or expeditiously wiping out the toxic derivatives paralyzing these markets. And it is simultaneously failing to expeditiously contain the bonfire of credit default swaps copiously sold as insurance on these toxic derivatives of questionable value and the debt predicated on them.

The first cause is the meltdown in the subprime market and what it did to the value of securitized derivatives consisting of bundles of mortgages and other hyper inflated assets. There has been a near total collapse of these securitization markets since subprime mortgage defaults began to surge. Unfortunately these securitization markets are what most major financial institutions had and have large positions in. Some of these positions were on-balance sheet but also quite often not. Thus you are seeing large on-balance sheet losses and the market panic caused by the spectre of even more massive off-balance sheet liabilities at many, if not all, major financial institutions.

No one really knows what these toxic derivatives are worth. Thus this first cause turns on finding a way to value (price) these derivatives that a gun shy market can trust. No faith in value equals no sale, no matter how many Nobel Prize winning equations you have on your side. In the meantime in the face of these paralyzed markets the government simply needs to seize the institutions that are illiquid due to their huge unrealized losses on their derivative holdings.

The second amplifying part of the econapocalypse is the inability of the sellers of insurance (read AIG) upon debt and derivatives to meet what are essentially margin calls on their positions. As the value of the debt and/or derivatives AIG was and is insuring plunges, AIG is contractually obligated to post cash collateral to its counterparties based on factors such as the risk of default and loss in value.

Worse, AIG CDS contracts are the parchment barrier between liquidity and illiquidity for many financial institutions. If AIG cannot make its contractual payments on these policies many of these institutions will no longer be able to keep their derivative losses off there books, leading to illiquidity and defaults (that AIG insured) and margin calls because of the change in credit risk. The formerly lucrative CDS echo chamber thus grows into a roar that no one has been able to quell. The administration's action on this front has been weak and is cause for concern.

Someone Please Kill AIG

2009-03-06T21:00:00.014-05:00

Good scoop by the WSJ publishing a partial list of AIG CDS counterparties. They also give a succint and clear description of the magnitude of the CDS problem. Naturally, the counterparties on the AIG CDS contracts received funneled payments of roughly $50 billion from the federal AIG bailout funds. It's the usual suspects, including Goldman, B of A, Deustche Bank, Merrill, Barclays etc. European financial institutions had large exposures. The fear of course is that not bailing out AIG on its insurance contract obligations will force all their counterparties to book the losses on their toxic transactions that AIG sold them insurance on. As long as the counterparties had a good faith belief that AIG would make an insurance payout on their financial transaction they didn't need to book it as a loss. But those days are over and the government(s) need to force everyone to book their losses, letting the weak die and saving the strongest by whatever means necessary. Not bailing AIG out when it was about to collapse last fall would probably have been a bad idea, but the time has come to stop propping up this stinking international heap of greed and shortsightedness.

How much taxpayer money are we going to shovel into this piece of shit insurance company before we take it out back and shoot it? Really. The federal government is posting cash collateral to AIG's counterparties? Why bother with the middleman AIG? We already pissed away $173 billion dollars into AIG's bottomless pit. And Citigroup? A penny stock. I voted for Obama and all but Krugman is right: the administration's economic dithering and weak kneed fantasies of private/public cooperation lifting us out of this apocalypse instead of the bullet to the head of nationalization and good old fashioned bankruptcy (and why are they so averse to bankruptcy? all their "too big to fail" policies do is delay it at a higher cost) are fatally naive. May I eat my words.

Institutional Idiocy

2009-01-27T23:00:00.006-05:00

David Brooks has a wistful paean in today's New York Times extolling traditional institutions' affect upon our lives. He ends by praising traditional institutions for often saving us from our weaknesses and giving meaning to our lives. Putting aside for a moment the question of whether I want to be saved from my weaknesses or if I give a rat's ass about vacuous concepts like life's meaning, I can go both ways on his nostalgia for traditional institutions.

As a member of the bar, I find much that is useful in the traditions of my profession that I embrace. For instance, I'm a big believer in our adversarial system of justice, where opposing parties duke it out in front of allegedly neutral fact finders. I like the skeptical bent of our common law evidentiary system with its distrust of all things outside the scope of a witness's personal knowledge. These traditions take a lifetime to master and profoundly change you as you learn them. But one also has to remember that all traditions were new at one point, which means at some time they were an innovation supplanting another preexisting tradition. And there are plenty of idiotic institutional traditions that should be obliterated but survive because they have powerful lobbies of persons who have mastered their arcane byways and profit from knowing something that most find impenetrable.

Much of Anglo-American property law is a good example of this. Why the basis of our modern property laws should consist of French & Nordic feudal law imported into England during the Norman conquest is beyond me. Really, where else in modern life do you still refer to another person as your Lord, as you do whenever you refer to your landlord? To a large degree our property law in this country is based on an agrarian world view that viewed land, as opposed to the buildings on it, as what was important. Without boring you with the details, the clash between the feudal agrarian world view and the modern world view causes the courts to make so many ridiculous contortions trying to reconcile the two world views that we'd all be better off if most of traditional property law was abolished and replaced by much more straightforward and modern contract law. (I am not the first person to suggest this.) But this won't happen anytime soon because that would put all those who've made their living learning the arcane byways of feudal property law out of a job.

Which leads me to what I think is the problem with embracing tradition too tightly. As often as tradition is rewarding and enriching, it also rewards and enriches entrenched interests who smother innovation with the outworn utilities of a bygone era. Thus I would argue that it is better to engage and innovate within your tradition, sometimes even casting aside your tradition and starting anew, than to reanimate what is dead and of little use to anyone but the few who wring their profits from selling old wares.

Wicked Economic News

2009-01-26T22:19:00.004-05:00

I was a bit disturbed by an opportunity that came my way the other day but quickly got over it to take advantage of what is another informal sign of just how bad this financial crisis is. I was offered free tickets, through a stage manager friend on the show, to the hit Broadway show Wicked. Now, being a downtown Beckett man, Wicked is not the type of show I'd normally see but I'm not above enjoying a well reviewed Broadway musical, particularly when the tickets are free. But what occurred to me after I accepted the offer is that it's a show that has always been impossible to get comps to. I have a lot of connections in the theater business and can usually get "house seats" (full price tickets held back for cast and crew) to any number of hard to get into shows, but getting comps to a show sold out months in advance like Wicked is not a normal state of affairs. If there was going to be any recession proof show on Broadway, Wicked, and maybe Jersey Boys, was it. And the fact that I'm getting unsolicited comps of previously hard to come by tickets makes me worry about the fate of my beloved New York City even more.

The Architect's Turd

2009-01-22T23:00:00.008-05:00

Karl Rove's defense of Bush's Presidential record in today's Wall Street Journal is a prime example of Rove's spinning technique: righteous moral indignation woven together with simple truisms presented as a tapestry of indisputable truth. If the piece wasn't the most read and emailed piece in today's journal, it wouldn't be worth reviewing, but it is, so it's worth tugging at the loose threads of this frayed fabric.
First off, I don't really care that Rove thinks that Bush is a decent man. This is an eminently debatable point that turns on one's subjective moral views as to what makes someone decent. Since 2001 I have thought that Bush was puerile,fatuous, vindictive, and petty, but that is neither here nor there anymore than what Rove considers decent. Let's review some of Rove's more objective claims of Bush presidential success.

1. "Mr. Bush was right about Iraq." Really? He was wrong that Iraq harbored weapons of mass destruction, he was wrong that Iraq had anything to do with 9/11, he was wrong about how much the war would cost in blood and treasure, and he was wrong about how long the war would take. Furthermore he failed to comprehend the geostrategic consequences of bogging us down in a discretionary war that has empowered the Iranians by liberating Iraq's Shia majority, vitiated our troop strength in our necessary war in Afghanistan, and distracted us from the real threat of the weapons of mass destruction developed by North Korea during our bungling in Iraq. If Rove thinks that Bush was right about Iraq because the surge worked then this just begs the question why Bush didn't deploy large numbers of troops in the first place when many, most notably General Shinseki, advised him to do so. It was only after years of bungling that Bush found the right strategy- the one he had ridiculed in the first place.

2. "Mr. Bush was right to establish a doctrine that holds those who harbor, train and support terrorists as responsible as the terrorists themselves." Is that why we supported dictator Musharraf for so long? Is that why we invaded Pakistan? Is that why we invaded Saudi Arabia, ground zero for terrorist financing? Oh wait, we didn't any of those things. N'uff said.

3. "At home, Mr. Bush cut income taxes for every American who pays taxes. He also cut taxes on capital, investment and savings. The result was 52 months of growth and the strongest economy of any developed country." This claim is my jaw dropping favorite. All I can say is, have you checked your 401(k) lately?

Rove is right that Bush deserves some credit for combating AIDS in Africa, let's give some credit where credit is due. The rest of the conservative fluff in the piece isn't really worth addressing, although I still doubt to this day that Bush ever has read the Constitution, so I don't know how you can credit him with picking judges that strictly interpret something he has never read or understood. Furthermore, the phrase "strict construction" is only salient for those with a weak grasp of the Constitution. Please explain to me how you "strictly construct" the 9th Amendment, or the Privileges and Immunities" clauses. Get real. But that's a rant for another day.

Margin Calling

2008-11-21T21:52:00.009-05:00

A common feature of both the 1929 Crash and the unnameable financial crisis of 2008 is a high volume of margin calls on highly leveraged securities portfolios. This time it's hedge funds that have done the excessively leveraged buying. As the prices of the securities the hedge funds bought at a high margin plummet, the hedge funds need put up more cash collateral to their lenders to replace the lost collateral represented by the plunge in value of the security bought on margin. This forces the excessively leveraged hedge fund to sell shares, driving prices down. Forced sales to meet ever increasing margin calls creates a vicious cycle that leads to a market plunge. This is what has been repeatedly happening in the markets lately and was a key factor in the 1929 collapse. An important provision of the Securities and Exchange Act of 1934 allows the Federal Reserve to set margin limits on the amount of leverage used to purchase securities. The Federal Reserve does this through Regulation T. But Hedge Funds exploit an exception in the Investor's Company Act of 1940 that allow investment entities comprised of sophisticated investors (investors holding more assets than most people have, no Mom & Pop investors need apply) to avoid margin regulations. The exception was not meant to apply on the scale it is being exploited by Hedge Funds today. No one foresaw the hedge fund explosion and how it would introduce the same systematic risk caused by over leveraged equity purchasing that proved so fatal in the fall of 1929. Yet here we are again. Despite the earnest arguments that hedge funds should be unfettered in order to take risks that are net beneficial for the economy, it makes no sense to allow them to engage in the same unregulated margin purchasing that destabilized the financial system in 1929 and now again in 2008. The systematic risk from over leveraged security purchasing has nothing to do with the sophistication of the investor, rather it arises from the aggregate actions of a number of risk taking investors. It is naive a la Greenspan to think that because someone is a sophisticated investor they won't take on risk that when aggregated with that taken on by other sophisticated investors proves disastrous. This notion has been proven false now twice. The loophole that hedge funds exploit to escape margin requirements needs to be closed. This would be one small step to restoring sanity to our markets.

I'm Shocked, Shocked, To Find That Gambling Is Going On In Here

2008-10-29T12:17:00.001-04:00

Like Claude Rains' Captain Renault in Casablanca, Alan Greenspan is all of a sudden shocked to find out gambling has been going on. Like Captain Renault, Greenspan knew it was going on all around him but thought nothing of it. And also like the Captain, Greenspan had an interest in ignoring the gambling because it rewarded him well. Greenspan was worshipped as a policy genius while the economy seemingly prospered from ever riskier behavior predicated on the belief that derivatives had ameliorated systemic market risk. Greenspan encouraged this risk by opposing regulation. The free market, he maintained, could regulate itself.

Greenspan believed a lending institution's self interest in protecting shareholder equity would prevent the institution from taking on risk that would damage that equity. But he implicitly made two theoretical assumptions that the markets have now proven wrong.

The first was assuming that the self interested behaviour of agents in the marketplace could never lead to a systemic financial collapse. Underlying this assumption was the belief that the agent's self interest in protecting shareholder equity would prevent bet the farm behavior that could lead to financial collapse. But the present crisis presents a prime example of marketplace agents self interested behavior leading to a financial collapse. And while the actions of individual marketplace agents in this case did not necessarily endanger business entities on their micro economic level, the sum of the self interested behavior has led us to our present financial collapse on the macroeconomic level. The sum is greater than the whole in this instance.

Most of the agents in the marketplace, acting out of self interest, bought insurance in the credit default swap market (CDS) on their risky bets and then went on to engage in even riskier behaviour because they thought their previous risky behavior was hedged. But because so many agents thought they were hedged against losses and then went on to engage in riskier behavior that didn't pan out, the trouble started. The failure of the agents' riskiest bets led to the collapse of the agents' previous hedging strategies, which resulted in a lot of market players going into a financial tailspin. What Greenspan didn't count on was self interested agents thinking they had hedged their bets when in reality they were engaging in willful blindness as to the risks they had incurred. Very few CDS market players inquired into the liabilities their insurers were carrying and what would happen if there were large scale defaults that required the insurers to pay out more than they had bargained for. And the insurers did not count on large scale defaults occurring. See AIG. Something similar happened in the securitized mortgage market. Thus the failure of marketplace agents riskiest bets led to a failure, or at least the perception of a possible failure (after all a lot of this crisis is a crisis of faith), and behavior that was previously believed to be hedged became suspect.

Greenspan's second and worse theoretical mistake was anthropomorphizing business entities through inapplicable metaphors. Inanimate objects do not have self interests, no matter how useful it may be to sometimes speak as if they do. And it is quite often convenient and harmless to talk as if inanimate objects like banks intentionally do things such as entering into contracts. But this is just a convenient short hand for discussing the behavior of the human agents who actually control the business entity in question, and it is a mistake to think that somehow the business entity has intentional psychological states that only belong to conscious animals. To say a bank's self interest will mitigate its risk taking is to attribute an intentional psychology to an inanimate object.

In terms of analyzing the self interest of agents in a marketplace a better place to start is with the agents who have the real psychological intentional states, the humans that run the entity. Once you start to look at the self interests of the intentional agents you can see how those self interests may cause them to make the entity take actions not in the entity's best interest. Stock options provide incentives to pump up stock prices and executive pay packages often include perverse incentives for the executive to act against the company's best interest. This is nothing new, but there seems to be a naive belief with many free marketers that business entities have intentional states such as self interest that exist independently of the human agents that run the entities, and this leads the free marketers to be shocked at behavior that is obvious to anyone who just takes a look around them.

God is Dead!

2008-10-23T14:05:00.006-04:00

Isn't Alan Greenspan admitting that free markets need regulation to avoid collapse a little like the Pope admitting God is dead? I believe in free markets, but as I've said before equating freedom with anarchy is a mistake. And this is precisely the mistake that Milton Friedman and Alan Greenspan made. No rational person wants to live in a lawless society precisely because their freedoms become subject to the whims of the more powerful. It is the rule of law that is the basis of our freedom, not the lack of law. Some laws may be misguided, vindictive, or even irrational, but that is an argument for changing those laws and not for throwing out the entire legal system. Likewise, what has just happened in the markets is an argument for reforming the regulation of capitalism, not for abandoning capitalism for its empirically proven worse alternatives.

Milton Friedman We Hardly Knew You

2008-10-23T12:38:00.004-04:00

Alan Greenspan just admitted that his central assumption regarding financial institutions, that they could take care of themselves without government regulation, was wrong. Pretty big mistake Alan. More on this later, I'm at work, but reading this admission from such a devout Friedman disciple made my jaw drop. Most economists strike me as naive in the sense that they generally don't have much real world experience that can temper their abstractions, and in this case we're paying a monumental price for the free market naivete of the Ayn Rand school.

Cry Havoc, and Release Henry Waxman!

2008-10-22T22:03:00.010-04:00

Like a shark in the water I smell blood looking at the latest presidential polls. The deal ain't sealed until the electorate speaks, but things look good for Obama right now. I trust him to be restrained to our adversaries if he wins the election, but emotionally I need some payback after all the smack the other side has talked the last eight years. I need some smackdown to demonstrate to the arrogant why arrogance is such a bad move in the first place: You are either with us or against us. Mission Accomplished. John Ashcroft. John Roberts. Samuel Alito. Guantanamo Bay. Iraq. Torture. Faith Based Initiatives. Valerie Palme. Karl Rove. Dick Cheney. Donald Rumsfeld. John Bolton. Tom Delay. Half a trillion dollar budget deficit. Deregulation of Derivatives Leading to the Financial Crisis. Decline in real wages. Negotiating is for pussies war is for real. The list goes on. How are you sleeping Karl Rove? Probably in a fat bed paid for by your spoils. Don't get too comfortable.

Master of the Senate

2008-10-21T21:56:00.012-04:00

Is it too much to ask that our candidates have read the Constitution? You can't really display a greater ignorance of the Constitution than to state like Sarah Palin did that the Vice President is master of the Senate. Clueless. The Vice President is ceremonial president of the Senate and can only vote as a tiebreaker. The Senate is not merely an appendage of the executive branch. There is something disturbing about this basic failure to understand the separation of powers at the foundation of our republic. Does she think Senator McCain answers to Dick Cheney? Has no one yet explained to her the functions of the Vice President since July when she stated she didn't know what the Vice President did? I thought she was a quick study? Then why does she still not know the job description she's running for? I think the Constitution should be amended to require all candidates for federal office to have read the Constitution in order to run.

Joe's Pipe Dreams

2008-10-16T22:16:00.007-04:00

Joe the plumber is worried that Obama is going to tax his dreams. Joe doesn't make the $250,000 plus a year where Obama's tax increase would kick in, and he doesn't own the plumbing business he's trying to buy that allegedly has a taxable net of $250k plus a year. He doesn't even have a plumbers license nor is the plumbing business he aspires to buy licensed. Yet he's worrying about a 3% tax increase on money he isn't making from a business he doesn't own. If he's smart, he'll save the extra money he gets from Obama's tax break on his actual income now and use it towards a down payment on his dream business.

Bring Me the Head of the Architect!

2008-10-16T21:28:00.009-04:00

Karl Rove thinks Obama hasn't closed the deal yet. Duh. No politician closes the deal with the American electorate until election night. Obama knows this, and that's why he's on the offensive in traditionally Republican states. Turd blossom needs to remind himself that there is a chance the Democrats won't control both the Executive and Congress after the election to allay his fears of what non-Republican obstructed investigations of his activities during the Bush years will reveal. Mr. Rove needs to provide some answers about his role in the apparent political firing and hiring of United States District Attorneys in violation of federal law. Ditto for the Plame affair. Indeed, the architect of the Bush years has much to answer for, and the thought of a Democratic landslide no doubt troubles his sleep. Hence Wall Street Journal opinion page columns hoping for the best.

Or Maybe Not

2008-10-13T15:20:00.007-04:00

Hard to tell what is going on in the credit default market. Some argue that there is no significant risk of things spinning out of control because the parties that insured Lehman's bonds were forced to pony up collateral as Lehman's bonds precipitously fell in price (CDS contracts have margin call clauses activated by price drops) and that this payment of collateral has already been written down on the parties balance sheets. Sounds plausible. Others are not so sure. But what scares me about those who say this is no big deal is that they are prefacing their statements with words like "probably" or phrases like "no one really knows." Which brings us back to the central fact that no ones knows WTF is going on in the markets right now. I doubt our wild ride is over.

The Next Wave

2008-10-11T22:21:00.012-04:00

We are truly experiencing a post modern financial crisis. Uncertainty abounds. No one knows when the next wave is going to hit, or how big it's going to be. A front runner for churning out the next financial tsunami is the turbulence in the credit default swap market caused by the Lehman Brothers bankruptcy. Credit default swaps are a form of insurance sold to protect the buyer of a fixed income product from a default. In Lehman's case a buyer of Lehman's bonds could, as many apparently did, buy credit default swaps to insure against a Lehman default. By declaring bankruptcy Lehman has essentially defaulted on its bonds and the parties that insured those bonds now have to pay up. But no one knows how big a payment those parties have to make or whether they have the money.

This unknown liability on the part of the insuring parties could in turn set off a chain reaction of defaults by the parties if the combination of their credit default swap liabilities and their other liabilities exceed their assets and they are unable to get credit to meet their obligations because the credit markets are frozen. And if those defaulting counter parties' liabilities are in turn insured by credit default swaps, the next wave is going to get bigger. Lehman's default could lead to the default of parties that insured the Lehman debt, and the default of those parties could lead to the default of additional parties who insured the debts of the Lehman parties. This is one of the reasons the government is bailing out AIG: the concern that the failure of one party in the credit default swap market would lead to a wave of defaults .

It doesn't help that you don't have to own the underlying bond to buy a credit default swap for it. This fact results in the possibility that the liabilities of the Lehman credit default swap counter parties could be greater than the actual debt that Lehman issued if more than one party bought a credit default swap on the same bond.

What makes this whole thing post modern is that no one knows the extent of the Lehman credit default swap party liability because there is no central clearinghouse for credit default swaps that can provide this information. Essentially the credit default market as a whole behaved irrationally in that it acted as if the possibility of a large scale default was non-existent, and thus the necessary market mechanisms to cope with a large scale default never emerged. This was a direct result of a lack of regulation of the derivative markets.

McCain Über Alles!

2008-10-10T20:51:00.006-04:00

Palin's historical ignorance leads her to rabble rouse. This type of rabble rousing with calls for killing your political opponent have a long history of turning into violent bloodshed. This is true in America as it is in the world. But American political discourse should be above this. I disagree with John McCain, but that doesn't make me want to kill him. He's still my fellow citizen exercising his rights to democratic political action. I'm just not going to vote for him. Calling for the death of your political opponent is as uncivilized as it is dangerous. Educated people know better. Palin's advisors would do well to give her some history lessons.

As I was Saying: Hamilton v. Jefferson Redux Part II

2008-10-10T12:28:00.001-04:00

Good op ed piece in today's Wall Street Journal regarding the Hamiltonian and Jeffersonian divide.

Risk Management Failure

2008-10-09T22:25:00.015-04:00

The New York Times has a good article outlining the opposition to derivative regulation during the last couple of decades. It's particularly damning to Alan Greenspan, and Robert Rubin, two avid proponents of not regulating derivatives. For them and other free marketeers derivatives had dispersed risk among investors to a level that made the risk negligible. Greenspan believed that derivatives were the ultimate hedge and used his stature to prevent derivative regulation on the grounds that doing so would damage the markets. On the Oracle Greenspan's bidding, the Republican Congress legislatively blocked derivative regulation, and a lame duck President Clinton signed derivative deregulation into law. High finance had solved the vexing problem of capitalism's cyclical credit crises.

Events have revealed the extent of this hubris. Irony has turned into tragedy. The ultimate hedge spawned into viral risk spreading swiftly as the plague through the entwined parties and counterparties. Now the best we can do is try to stanch the mortality rate while madly searching for a cure. Take up the bodies.

Hamilton v. Jefferson Redux

2008-10-08T19:41:00.001-04:00

Pardon my disappearance, work has been hectic, to say nothing of the financial markets. My 401(k) is down 30%. Viva la bourgeoisie! We will survive like cockroaches.

I digress. My only comment for the moment is that the factions in this financial crisis have split along the historical divide of the high finance Hamiltonians versus the Central Bank Hating Jeffersonians. The Jeffersonians are rightfully angry at the Hamiltonians for delivering a gargantuan credit crisis. Hamiltonian play in the field of derivatives exacerbated the inevitable cyclical credit bust that is a given with capitalism. The fact of this cyclical credit collapse is what justifies regulation with the aim of transparency and mitigation of leverage. The margin requirements for the purchase of equities imposed by the securities laws of the 30's have done us well. The current crisis is not an equity market crisis. The traditional equity markets are certainly feeling the effects, but these effects are the result of collapses in the derivative markets, particularly securitized mortgages and mortgage backed collateral debt obligations (CDOs). As Obama aptly said in the debate last night, we have 20th century securities laws for a 21st century market. But I digress.

A Con Law Geek Moment

2008-10-01T01:54:00.000-04:00

A quick note that the Senate is constitutionally stuck with the House's bailout bill and can only propose amendments to it. Article I, section 7 of the Constitution requires that all revenue bills originate in the House and that the Senate can only propose or concur with amendments. That's why the bailout bill in the Senate right now is an amendment to the House bail out bill, and also why the Senate could not have acted on this matter before the House.

Why Originalists are Annoying

2008-10-01T01:15:00.000-04:00

The problem with asserting that originalism is the proper way to interpret the U.S. Constitution is that there is no evidence for this proposition in the Constitution. There is no "original interpretation" clause in the U.S. Constitution. Textualism does not support originalism, and a priori pronouncements as to correct interpretative methodologies are arbitrary. Beyond the document itself, what originalist evidence is there for the originalist position? Nothing jumps to mind. Any dogmatic pronouncements about how the document should be interpreted are nothing more than speculation. I can just as easily argue that "We the People" means "We the Living People" just as easily as someone can argue it means "We the Dead People" (which is essentially the originalist position). There is no definitive method with which to interpret the Constitution, despite the cravings of those on both sides of the political spectrum for an absolute fixed point from which to anchor their ideological interpretations. Originalism is one useful tool with which to interpret the Constitution, but to maintain that it is the only dispositive one is dangerously simplistic given how much more complex our society and its institutions have grown since the framing of that venerable document.

Crisis of Faith

2008-09-30T23:11:00.002-04:00

It all comes down to what you believe. If you believe something has value you might decide to exchange something for it. If you're unsure if something has value, or worse, suspect that something may be garbage, you're not going to be inclined to trade for it. Often nothing physical has changed in the object of your valuation when you or the market decides to change your valuation. Only your mental belief as to that objects valuation-utilitarian, fiscal or otherwise- has changed. Your belief that your bank will be able to pay you your money that you gave it. The belief that you are sufficiently capitalized because of new and exotic asset backed securities whose value has never been tested before. The belief that securitization has ameliorated market risk to a negligible level. (Despite the fact that every previous iteration of the idea that some financial innovation has effectively extinguished risk has gone down in flames.) The belief that credit ratings are accurate.

It was defaults on securitized mortgages that heralded the ascent of our current crisis of fiscal faith. When this happened, no one believed the valuations of the underlying assets anymore. Arguably this is irrational as a certain amount of default in a mortgage backed security shouldn't impair the value of the security because it is still backed by real estate that can be sold to compensate the security holder. But when it dawned on the market that securitization provided an incentive to lenders to lend recklessly because they could bundle and sell their risk to third parties, the market realized that securization also provided an incentive for false valuations. That is because securitization removes risk from the original risk taker thereby encouraging them to play longer odds. And when faith was lost in the original valuation, the market in securitized mortgages went belly up. The disbelief then spread to the other derivatives markets.

Hey Hey Hayek

2008-09-28T21:27:00.000-04:00

You have to admit it's funny that only the government can save the free market from itself now. A state in command of the economy--anathema to red blooded free marketers. Yet I don't hear any of them arguing against state intervention. They just want to do it the free market way, as if that's a tenable position after this mess. Let's solve the problem by doing what caused the problem? No thanks.

The only efficient markets are disciplined markets. A market that collapses because of its activity cannot be said to be efficient. The derivative markets lacked discipline in the form of proper regulation of valuation and leverage and collapsed as a result. The collapse resulted in part because of inflated valuations of assets underlying mortgage backed securities used as cash and collateral for lines of credit. The ready supply of these mortgage based derivatives and the seemingly liquid market for them led to the type of overleveraging that is the hallmark of all credit bubbles. The investment banks and AIG treated their overinflated mortgage based securities as cash, using it for collateral to justify risky behaviour. The higher the risk, the greater the return. And when everyone had faith in the value of the assets underlying the securities underlying the leveraging, all was good.

Then, lo, one day everyone discovered that they couldn't sell their mortgage based securities that they'd treated as cash because no one trusted the valuations of the mortgages underlying securities. The underlying mortgages had begun to default, and no one knew how many would default. And one of those entities that had treated its mortgage based securities as cash was AIG, which just so happened to be one of the biggest players in the credit default swap market (a market that sells default insurance). So when everyone began to default because they were overleveraged, they turned to their default insurer only to find that the insurer was overleveraged too.

Just as the securities laws of the 30's and 40's and the SEC was borne of the carnage of the Depression, a new derivative regulatory framework should rise from these ashes. To not do so would be to act foolishly in the face of clear empirical evidence that an unregulated derivative market will eventually seize up.

Johnny Come Lately

2008-09-25T23:30:00.000-04:00

John McCain adds nothing to the bailout negotiations. The Keating Five affair is reflective of his judgment in financial affairs and crises. And his alleged campaign pause to return to Washington to save the day is a cynical move that has disrupted the deal at hand. If the Republicans cut a deal before he shows up, he will look irrelevant. Thus they're stalling the deal until McCain can play his role.

Show Me the Money

2008-09-21T12:32:00.001-04:00

A $700 billion dollar bailout request from the executive branch sketched out on a couple of pieces of paper? Carte Blanche to spend as they see fit, with no oversight or judicial review? Ain't gonna happen, not with their fiscal record. And if we're talking about putting out my tax dollars to pay for some one else's fuck up, then I want an equity stake in whatever toxic sludge laden financial institution my tax money is bailing out. That way if any of these firms recover from this deregulated disaster we get our money back, maybe even with a return. It's the capitalist way. Let's not abandon it now that our system has failed us. And as for the panic ridden who want to rush a bailout bill through with little consideration, they're just going to have to wait a moment for cooler heads to prevail. Lack of foresight got us into this mess, and it certainly won't get us out of it.

The Dukes of Moral Hazard

2008-09-17T22:44:00.000-04:00

So the Federal Reserve, whose powers have been traditionally limited to the banking system, has now decided essentially to buy AIG and become the insurer of last resort for the credit default swap market. This means that you and I, fellow taxpayer, are now on the hook for the irresponsible, irrational, and down right greedy behaviour of huge swaths of the market that wanted nothing to do with government regulation when the getting was good but who now are lined up at the governments door with cup in hand now that the risks have come home to roost.

This is a bad move, and one that it's not clear the Fed can even afford to do, given the fact that the Treasury is now, wait for it, issuing more debt to insure that the Fed has sufficient liquidity in the days to come. After re-establishing the moral hazard involved with trading exotic and convoluted credit derivatives by hanging Lehman Brothers out to dry, Paulson and company decide that it shouldn't apply to anyone who bought insurance for their derivative sludge. But these weren't mom and pop investors who were buying this insurance in the form of credit default swaps, these were sophisticated investors who, if they'd paused for a moment and done their due diligence, should have realized that they were buying insurance from a speculator in the credit default swap market. And that speculation was centered on the belief that there wouldn't be a systemic collapse in the credit markets. Well, surprise surprise, yet another credit bubble has burst. And the taxpayer is now footing the bill again.

The sophisticated investors should be forced to take their losses. The only people who should be bailed out are the mom and pop investors who stand to lose their retirement savings because of events they can't understand. It'd be cheaper that way, and much more morally satisfying.

Dominoes

2008-09-16T01:28:00.000-04:00

I wonder if AIG is going to make it. The house is burning down and now it looks like there ain't gonna be any insurance payment. What are the virtues of an unregulated credit default swap market again? Systemic dispersion of the risk? Looks like that's working great right now. I wonder what kind of financial legislation is going to emerge from this muck.

Whistling Past the Graveyard

2008-09-14T23:35:00.001-04:00

Is this the final financial derivative wave crashing down on Wall Street? Will all now be washed clean again? Or are we on the verge of financial catastrophe? Maybe I'm just scared because I know more about Wall Street now than when I was younger, but banks are going under right and left and major companies are struggling to shore up their capital. It's going to be an interesting week. Adios Lehman Brothers, Merrill, we hardly knew ye. AIG, you're not looking too good there, fella. You look like you need some more capital. Best of luck at the Fed money spigot. There's no consequences to the Fed extending all this credit, right?

A Melancholy Day

2008-09-11T23:04:00.000-04:00

September 11th will always be a melancholy day for New Yorkers at least until the last living memory of the day passes. A crystalline fall day savaged by history. Even those in the heartland who condemn New York for its delightful and diverse iniquity were with us on that day. Now, however, the boys and girls from the heartland have taken the day from us and used it to spin their incessant fear mongering that cloaks their will to power.

Any chance that someone could convince me that President Bush deserved his title collapsed like the twin towers that day. His feeble uncomprehending expression in the school classroom when he was told of the attacks is etched into my mind as indelibly as any horror from that day. When I wanted John Wayne from Stage Coach I got Elmer Fudd from Bugs Bunny instead. When thousands of innocent people are slaughtered and the heart of American capitalism is attacked, he decides to keep reading a children's book. Then he got on a plane to run away and hide like a fucking pussy. Instead of standing up and taking control of the situation he let the situation control him.

Let his apologists coo and spew what a virile leader he is, and how he has saved the Republic from the ravages of our enemies. All I know is that seven years later Osama Bin Laden is still being hosted by the Taliban in Pakistan, whose tribal autonomous zone is the first place this New Yorker would have invaded after locking down Afghanistan. Iraq has been a waste of time and money. Explain to me the logic of going after religious extremists by attacking a secular state. A New Yorker wouldn't have wasted time with Iraq and would have pursued the Taliban and Osama Bin Laden into Pakistan as relentlessly as Patton did the Germans. But, alas, we were fated to have a half witted faux Texan as our leader, and our enemy is still with us.

Everything You Know is Wrong! The Vice President is Not Part of the Executive!

2008-09-09T21:10:00.000-04:00

Vice President Richard ("Dick") Cheney maintains that the Vice President is not part of the executive branch. This is a bizarre claim never before made in the almost 220 years of our Republic's existence, and one has to wonder how an alleged originalist such as Dick can make it with a straight face. It certainly doesn't pass the laugh test, but one's laughter fades into melancholy as you realize that this is just another manifestation of the rampant constitutional revisionism that has served this administration's need to coat their often questionable actions in a veneer of legalist rhetoric.

The purpose of the argument is clear. Dick doesn't want anyone to know dick. The bad faith argument's purpose is to shield his papers from public scrutiny via the Presidential Records Act, which provides for public access to executive branch records with certain reasonable restrictions for national security and the like. The basis for his argument, however, is only clear in its asininity.

Dick maintains that because of his constitutional role as President of the Senate, he is actually an appendage of the legislative branch. Granted, he is President of the Senate (a largely ceremonial position) and the Senate does pay his salary and that of most of his staff. And he does get to vote in the Senate when there's a tie. See U.S. Const. Art. 1, cl. 4 & 5. But why, if as a matter of originalism the framers thought of the Vice President as a creature of the legislature and not the executive, did they provide for his election alongside the President and not the Senate? Why, originally, did the winner of the most electoral votes become President and the runner up become Vice President? See U.S. Const. Art. II. Is Dick maintaining that originally Presidential candidates were running for an executive branch position with a legislative branch position as a consolation prize? Does Dick seriously think the framers and ratifiers thought of the Vice President as a special legislative officer who just happened to be elected in the same way as the President and serve the same term as the President? No, he doesn't, he's just doing anything he can to avoid public scrutiny of his public office. Being President of the Senate no more removes the Vice President from the executive branch than the power of the President to veto legislation makes the President a legislator.

The Surge

2008-09-07T20:51:00.000-04:00

Isn't saying that the "Surge" is a success a bit like saying you got an A on a test that you were allowed to take over and over again? Isn't the "Surge" what General Shinseki suggested we do in the first place, a.k.a. send in a large number of troops to pacify a fractious nation whose fissures were going to be ripped asunder by our invasion? Thousands of U.S. soldiers lives lost, tens of thousands of Iraqi civilians killed, billions of dollars spent, all because of the arrogance of a few with little or no military training who thought they knew better than our military professionals. The surge isn't a success because it's what should have been done in the first place. It's nothing more than a do over writ in blood. I'm glad it's working, but it is fatuous and deceptive to claim success after a carnage that could have been avoided by using the strategy that is the basis of the "success" in the first place.

What are they afraid of?

2008-09-07T18:05:00.000-04:00

If Sarah Palin is a pitbull with lipstick, why is she such a pussy-cat when it comes to the press?