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A blast from the past

Back in June of 1987 (!), the New York Times interviewed Edward W. Kelley Jr. just as he joined the Federal Reserve’s board of governors.  How’s this for a quote?:

Q. Mr. Volcker has been considered something of a foot-dragger on bank deregulation. Where do you stand?

A. I’m philosophically in favor. The deregulation we’ve had over the last few years has been highly beneficial and I would favor further deregulation of the financial services industry. But there’s an overriding public interest in making sure the integrity of those types of institutions is maintained. I really do not want to run any meaningful risks that we deregulate at a speed or in a way that would imperil that.

Brilliant!

[Hat tip to my new favourite blog (ok, so I’m two years behind the times), Economics of Contempt]

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Obama’s (i.e. The Volcker) bank plan

Those of us who aren’t American but still follow U.S. politics were quietly giggling (okay, openly guffawing) into our latte’s last week when Scott Brown won the special election to replace the late Ted Kennedy.  The Daily Show’s take on the whole affair (I think it was broadcast the night before the election day) was spot on and I urge anyone with the capability to hunt down that episode.  In short, the Democrat’s handling of the event is a classic example of why the word clusterfuck was invented. What in blazes they now intend to do in passing any reasonable kind of reform in health-care (and the ideas on the table weren’t really all that reasonable to start with) is beyond me.

Anyway.  I tip my hat to the newest federal Senator in the United States for an expertly handled campaign.

I was then surprised to (finally) see some equally smart politics from the White House in the form of Obama publically supporting the banking regulation ideas of former Fed chair and octogenarian, Paul Volcker.

The White House had already been making noises about imposing a fee on financial institutions to recoup any losses in TARP.  TARP, if you remember, is the US$700 billion officially set aside under president Bush Jr. to help the finance industry weather the storm.  Of course, a large fraction of TARP was diverted to help the car (that’s “auto” for any Americans in the audience) industry and not all assistance to the financial industry was included in TARP.  Still, it’s the closest thing to an easy target with a pronounceable name.  If you care, you can read my incredibly brief thoughts on the levy here and, more importantly, here.

But the Volcker plan is an entirely different kettle of fish and can be boiled down to a simple and beautiful phrase:  “Too big to fail is just too big.”

It calls for constraints on the scope and the size of US banks.  It seeks to ban proprietary trading at institutions that hold retail deposits.  It’s an armchair commentator’s wet dream come true!  It’s also, unfortunately, staggeringly unlikely to ever become reality.  There are two reasons for this.

First, as expertly described by the Economics of Contempt, the White House has no intention of pushing this through anyway.  Instead, it was …

… a fairly transparent political stunt — the White House needed to do something to take the media’s focus off of health care 24/7, so they flew in Volcker and announced some proposals that sound good to the media. The two Senate staffers I talk to regularly both said their offices were basically ignoring Obama’s proposals, because even if the White House fights for them (which they won’t), Chris Dodd has no intention of inserting them into his committee’s bill. I like how some people think Obama’s proposals represent a fundamental turning point on financial reform, because….well, clearly this is their first rodeo. (Hence the uber-quixotic language they use to describe financial reform.)

[Update: Just to clarify, when I said Obama’s announcement was a “fairly transparent political stunt,” I wasn’t criticizing the Obama administration. We live in a political world, and political stunts are often useful. If I were Rahm Emanuel, I’d be a dick have done the same thing. I think it was probably a savvy move, and if health care reform ends up passing, then it was worth it.]

Second, the U.S. Supreme Court, in the second move in the space of a week to leave the America-watchers of the world chuckling, decided to reverse decades of precedent and assert that when it came to political speech, corporations, unions and other groups of individuals have more power than individuals.  Not only can corporations, unions and the like directly fund political campaigns, but unlike individuals, they are subject to no limit on their donations.  It’s great.  You’re going to end up seeing major political events sponsored by Pepsi.  You’re going to have unlimited funding available to opponents of any politician that does anything that runs contrary to a company that employs people in his or her district or state.  In short, you will never, ever again see anything serious passed in an election year in the United States unless it has not just bipartisan, but unanimous support.

So, no, as much as I like what Obama said, I don’t think it’ll ever become law.  It certainly won’t in 2010.

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Clues they missed

The NY Times has a nice piece summarising the clues that were not put together prior to the attempted Christmas Day attack on the Northwestern flight to Detroit.  All of those clues are presented in this graphic:

The article speaks of poorly designed computer systems, phrases mentioned in speeches (which, frankly, would be incredibly difficult to automatically include in your analysis) and general stories of the left hand not knowing what the right hand is doing within the US intelligence community.  To my mind, though, it really comes down to just a few simple points:

  • His own father had contacted the US to say that his son was missing and possibly being “radicalised,” leading to his being placed on a watch list.
  • He bought the ticket with cash.
  • He checked no luggage.

I firmly believe that most airport security is theatre, but the combination of just those three points should surely have warranted an individual pat-down.

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Well, that didn’t take long (Trafigura)

About an hour ago I wrote about an article in The Guardian about how they had been prevented from writing about parliamentary proceedings via a court injunction.  In particular, they weren’t allowed to write about this question put before parliament:

(292409)

Paul Farrelly (Newcastle-under-Lyme): To ask the Secretary of State for Justice, what assessment he has made of the effectiveness of legislation to protect (a) whistleblowers and (b) press freedom following the injunctions obtained in the High Court by (i) Barclays and Freshfields solicitors on 19 March 2009 on the publication of internal Barclays reports documenting alleged tax avoidance schemes and (ii) Trafigura and Carter Ruck solicitors on 11 September 2009 on the publication of the Minton report on the alleged dumping of toxic waste in the Ivory Coast, commissioned by Trafigura.

The story became a Twitter sensation.  Trafigura and Carter-Ruck have been the hottest trending topics on Twitter for the last few hours, the Liberal Democrats sought an urgent debate on press freedom and now, as their journalists write furiously in the background with their editors looking over their shoulders to save time, The Guardian is reporting on their front page:

Breaking news: * LATEST: Guardian can reveal that parliamentary question from Paul Farrelly MP subjected to reporting ban was related to Trafigura toxic waste scandal. More details soon ..

Which is to say that the gag has been lifted in under (?) 24 hours.

This has all been a tremendous example of the Streisand effect, named for Barbara Streisand’s catastrophically backfiring attempt to prevent a picture of her house being made available on the internet.  While attempting to surpress attention, Trafigura and Carter-Ruck have only managed attract a huge amount of attention to themselves.

It’s a PR nightmare for them and a happy day for The Guardian.

Update 1: Here is confirmation from the Guardian.

Update 2: Here is the BBC on the matter.  By way of explaining why they did not cover the story despite not being expressly mentioned in the injunction, they say:

No injunction was served on the BBC, but ever since the Spycatcher case in the 1980s news organisations which knowingly breach an injunction served on others are in contempt of court, so the corporation too felt bound by the Guardian injunction.

Which is the equivalent of “once bitten, (forever) twice shy.”  The Beeb finishes by quoting Steven Fry’s tweet from when he discovered the good news:

Can it be true? Carter-Ruck caves in! Hurrah! Trafigura will deny it had anything to do with Twitter, but we know don’t we? We know! Yay!!!

Update 3: BBC Newsnight will have a special on Trafigura and their chemical disposals tonight.

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The Guardian is excited to tell you that it can’t tell you what it wants to tell you

From yesterday’s (12 Oct 2009) Guardian:

Today’s published Commons order papers contain a question to be answered by a minister later this week. The Guardian is prevented from identifying the MP who has asked the question, what the question is, which minister might answer it, or where the question is to be found.

The Guardian is also forbidden from telling its readers why the paper is prevented – for the first time in memory – from reporting parliament. Legal obstacles, which cannot be identified, involve proceedings, which cannot be mentioned, on behalf of a client who must remain secret.

It sounds tremendously exciting, doesn’t it?

Anyway, the House of Commons Question Book is publically available.  There are thousands of them (questions, that is).  There were 2,344 outstanding questions as of Monday 12 October 2009 (see here).

But the question in question, as it were, is apparantly this one, which as I type has been shifted forward to Wednesday 14 October 2009 (I have no idea, but suspect that unanswered questions get shuffled forward as necessary, so it’s best to start at the root Question Book if you’re searching for something):

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Paul Farrelly (Newcastle-under-Lyme): To ask the Secretary of State for Justice, what assessment he has made of the effectiveness of legislation to protect (a) whistleblowers and (b) press freedom following the injunctions obtained in the High Court by (i) Barclays and Freshfields solicitors on 19 March 2009 on the publication of internal Barclays reports documenting alleged tax avoidance schemes and (ii) Trafigura and Carter Ruck solicitors on 11 September 2009 on the publication of the Minton report on the alleged dumping of toxic waste in the Ivory Coast, commissioned by Trafigura.

I didn’t figure the question out myself.  I got it from Alex Massie at The Spectator.  Alex also helpfully points us to the Guardian’s reports from Wed 16 September 2009 on Trafigura and their exploits in the Ivory Coast [Main article, supporting article, 8MB pdf of the emails] and highlights the fact that Trafigura is now a trending topic on Twitter.

While I join the general expressions of anger at the gagging of the press over parliamentary proceedings, I also note that this will ultimately serve to help The Guardian’s reputation enormously.

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Characterising the conservative/progressive divide

I’ve been thinking a little about the underlying differences between progressives/liberals and conservatives in the American (US) setting.  I’m not really thinking of opinions on economics or the ideal size of government, but views on economics and government would clearly be affected by what I describe.  Instead, I’m trying to imagine underlying bases for the competing social and political ideologies.

I’m not claiming any great insight, but it’s helped me clarify my thinking to imagine three overlapping areas of contention.  Each area helps inform the topic that follows in a manner that ought to be fairly clear:

  1. On epistemology and metaphysics.  Conservatives contend that there exist absolute truths which we can sometimes know, or even – at least in principle – always know.  In contrast, progressives embrace the postmodern view that there may not be any absolute truths and that, even if absolute truths do exist, our understanding of them is always relative and fallible.
  2. On the comparison of cultures[by “cultures”, I here include all traditions, ways of life, interactional mannerisms and social institutions in the broadest possible sense].  Conservatives contend that it is both possible and reasonable to compare and judge the relative worthiness of two cultures.  At an extreme, they suggest that this is plausible in an objective, universal sense.  A little more towards the centre, they alternately suggest that individuals may legitimately perform such a comparison to form private opinions.  Centrist progressives instead argue that while it might be possible to declare one culture superior to another, it is not reasonable to do so (e.g. because of the relative nature of truth).  At their own extreme, progressives argue that it is not possible to make a coherent comparison between two cultures.
  3. On changing one’s culture.  Conservatives suggest that change, in and of itself, is a (slightly) bad thing that must be justified with materially better conditions as a result of the change.  Progressives argue that change itself is neutral (or even a slightly good thing).  This leads to conflict when the material results of the change are in doubt and the agents are risk averse.  To the conservative mind, certain loss (from the act of changing) is being weighed against uncertain gain.  To the progressive mind, the act of change is a positive act of exploration which partially offsets the risks of an uncertain outcome.
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Understanding John Yoo and the Bush presidency

Brad DeLong is continuing to maintain his stand against John Yoo.  To my mind, there is one clear way that John Yoo’s torture memos can be reconciled with his earlier writing on Clinton: He believes in the absolute primacy of the United States above all other nations.

Taking that as a postulate, placing US troops under foreign command becomes axiomatically unacceptable and was hence labelled unconstitutional [1], but allowing US agents to torture foreigners is acceptable, albeit unpleasant, because the victims are not American.

In practice, this becomes the application to the international stage of Richard Nixon’s famous 1977 quote, “when the President does it that means that it is not illegal.” Indeed, Condolezza Rice argued this exact point earlier this year (2009):

by definition, if it was authorized by the president, it did not violate our obligations under the Convention Against Torture.

This is simply the logical application (to the arena of military torture) of the belief that America should ignore all international agreements that constrain it in any way because to do otherwise would impugn the sovereignty of the greatest and purest nation in the history of mankind. You really have to admire their mental fortitude in failing to acknowledge the reductio ad absurdum that the Bush torture doctrine represented for that belief.

[1] To almost all Americans (including lawyers), the word “unconstitutional,” especially when applied in a political setting (and when is it not?), essentially means “against my ideology.”

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Regulation should set information free

Imagine that you’re a manager for a large investment fund and you’ve recently been contemplating your position on Citigroup.  How would this press release from Citi affect your opinion of their prospects?:

New York – Citi today announced the sale of its entire ownership interest of three North American partner credit card portfolios representing approximately $1.3 billion in managed assets. The cards portfolios were part of Citi Holdings. Terms of the deals were not disclosed. Citi will continue to service the portfolios through the first half of 2010 at which time the acquirer will assume all customer servicing aspects of the portfolios.

The sale of these card portfolios is consistent with Citi’s strategy to optimize the assets and businesses within Citi Holdings while working to generate long-term profitability and growth from Citicorp, which comprises its core franchise. Citi continues to make progress on its strategy and will continue to pursue opportunities within Citi Holdings that create the most value for stakeholders.

The answer should be “not much, or perhaps a little negatively” because the press release contains close to no information at all.  Here is Floyd Norris:

A few unanswered questions:

1. Who is the buyer?
2. Which card portfolios are being sold?
3. What is the price?
4. Is there a profit or loss?

A check of Citi’s last set of disclosures shows that Citi Holdings had $67.6 billion in such credit card portfolios in the second quarter, so this is a small part of that. Still, I can’t remember a deal announcement when a company said it had sold undisclosed assets to an undisclosed buyer for an undisclosed price, resulting in an undisclosed profit or loss.

Chris Kaufman at Reuters noted the same.

Now, to be fair, there is some information in the release if you have some context.  In January 2009 Citigroup separated “into Citicorp, housing its key banking business, and Citi Holdings, which included its brokerage, consumer finance, and troubled assets.”  In other words, Citi Holdings is the bucket holding “assets that Citigroup is trying to sell or wind down.”  The press release is a signal to the market that Citi has been able to offload some of those assets – it’s an attempt to speak of improved market conditions.  But the refusal to release any details suggests that they sold the portfolios at a deep discount to face value, which implies either that Citi was desperate for the cash (a negative signal) or that they think the portfolios were worth even less than they got for them, which doesn’t bode well for the rest of their credit card holdings (also a negative signal).  It’s unsurprising, then, that Citi were down 4.1% in afternoon trading after the release.

Some more information did emerge later on.  American Banker, citing “industry members with knowledge of the transaction,” reported:

The buyer was U.S. Bancorp, according to industry members with knowledge of the transaction, who identified the assets as the card portfolios for KeyCorp and Associated Banc-Corp, which Citi issues as an agent bank, and the affinity card for the American Dental Association.

But a spokeswoman for Citi, which only identified the portfolios as “North American partner credit card portfolios” in a press release, would not comment, identify the buyer, or elaborate on the release. U.S. Bancorp, Associated Bank and the American Dental Association did not return calls by press time; a spokesman for KeyCorp would not discuss the matter.

It’s tremendously frustrating that even this titbit of information needed to be extracted via a leak.  Did Maria Aspan — the author of the piece at American Banker — take somebody out for a beer?  Did the information come from somebody at Citigroup, Bancorp or one of the law firms that represent them?

In what seems perfectly designed to turn that furstration into anger, we then have other media outlets reporting this extra information unattributed.  Here‘s the Wall Street Journal:

Citigroup Inc. sold its interest in three North American credit-card portfolios to U.S. Bancorp of Minneapolis, continuing the New York bank’s effort to unload assets that aren’t considered to be a core part of its business, according to people familiar with the situation.

[…]

Citigroup announced the sale, but it didn’t identify the buyer or type of portfolio that was being sold. Representatives of U.S. Bancorp couldn’t be reached for comment.

That’s it.  There’s no mention of where they got Bancorp from at all.

It’s all whispers and rumours, friendships and acquaintences.  It’s no way for the market to get their information.

Here’s my it’ll-never-happen suggestion for improving banking regulation:

Any purchase or sale of assets representing more than 1% of a bank’s previous holdings in that asset class [in this case the sale represented 1.9% of Citi’s credit card holdings] must be accompanied by the immediate public release of information uniquely identifing the assets bought or sold and the agreed terms of the deal, including the price.  Identities of all parties involved must be publicly disclosed within 6 months of the transaction.

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A pragmatic libertarian defense of the bank bailouts

Tyler Cowen is defending the bank bailouts in America: 25 Aug, 27 Aug, 28 Aug.  I generally like what he says.  I want to highlight the third post in particular:

General pro-market or anti-government arguments don’t rule out the recent bailouts.  Let’s take the hardest, least Friedman-friendly case, the insolvent banks.  For insolvent banks (and for some of the illiquid banks, which might have failed without bailouts), the alternative to those bailouts is calling in deposit insurance and the bankruptcy courts, both of which are, for better or worse, forms of government intervention.  In particular today’s bankruptcy procedures are ill-suited for disposing of a large financial institution in a timely manner and this can be considered a form of gross government failure.

Note that even when the Fed “bails out” a large investment bank, or insurance company, they are checking a chain reaction which would likely spread to some commercial banks, thus bringing in deposit insurance as well, not to mention further bankruptcies.  And that’s not even considering that Congress probably would have stepped in, I’m just looking at laws already on the books.

So if you’re “opposed to financial bailouts,” as a libertarian, you’re not for the market.  You’re saying that one scheme for governmental disposition is better than another.  Of course you are entitled to that opinion but the sheer force of libertarian doctrine is not necessarily on your side.  The general pro-market and anti-government arguments are not necessarily on your side.  I think it is quite plausible for a libertarian to believe that the Fed is “less bad” than the bankruptcy courts and the FDIC.

Now, all things considered, I don’t see why this “libertarian two-step” move should be needed.  I think it’s enough to simply ask whether the bailouts were a good idea and proceed accordingly.  But if you’re concerned about compatibility with libertarian principle, this is one simple way of seeing why my view fits right in.  In fact I think it is the more libertarian of the views under consideration, as it keeps the very worst of the government interventions on the table at bay.

No doubt some libertarians will counter that the FDIC and bankruptcy courts ought not to exist either (I disagree with that – while neither is perfect, they’re both needed.  But then, I’m hardly a libertarian), but that misses the point of Tyler’s title for the post:  “A second-best theory of libertarian bailouts”.  The world of second-best is the real world.  It accepts that things are currently as they are and asks what is best given the current state of the world, not in all possible worlds.

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Westminster democracy and illiberalism

Cam Riley doesn’t like the new “Bikie Laws” in South Australia.  He quotes Gary Sauer-Thompson, who says:

My understanding is that under the legislation … the Attorney-General has right to call an organisation, which could be anything from an informal group of people who meet at the local pub for a weekly drink through to a football club or a business, a Declared Organisation. The Attorney-General can use secret and untested evidence in making that declaration, and his decision can’t be challenged in the courts.

… Severe penalties are then visited upon controlled members who continue some form of contact, even remote contact by post, fax, phone or e-mail – two years imprisonment for a first offence, five years for a second or subsequent offence.

I agree with Cam and Gary.  This is illiberal and unnecessary.  The law is ostensibly to combat criminality in gangs of bikies, but every element of that criminality is already illegal.  It’s already illegal to conspire to commit violence, or to trade drugs.  So the net effect of this legislation is simply to grant the Attorney-General the power to disallow any organisation that (s)he doesn’t like.  Cam points out that the “emergency” laws enacted in NSW following the Cronulla riots are still on the books.

My question is this:

Why do these laws get passed now when they (probably) wouldn’t have been passed following equivalent crises 100 years ago?

It seems obvious that the legislature has a political incentive to be seen doing something, as time in the media’s spotlight is currency to a politician.  It’s common to suggest, although not universally accepted, that the sharp end of the executive (i.e. those charged with enforcing the law) generally wish for more options in carrying out that enforcement.  In a Westminster system of the executive having a controlling influence in the legislature, that would imply inexorable movement towards illiberalism over time as exogenously-sourced crises occur.

So how has liberalism survived for so long in the Westminster tradition?  What, if you’ll excuse the pun, arrests the movement to a sort of democratic dictatorship?