Once again, Krugman is proven correct

He was absolutely on the money when he warned in this January 2009 NYT commentary that Obama's initial fiscal stimulus package didn't go nearly far enough. One aspect of the damage of the Bush years can be measured in terms of its unpardonable fiscal profligacy, mostly thanks to stupid, misdirected tax cuts coinciding with stupid, expensive wars, which the White House tried to keep off the books at the time. From the Center on Budget and Priorities:

Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for almost $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs. (The prescription drug benefit enacted in 2003 accounts for further substantial increases in deficits and debt, which we are unable to quantify due to data limitations.) These impacts easily dwarf the stimulus and financial rescues. Furthermore, unlike those temporary costs, these inherited policies (especially the tax cuts and the drug benefit) do not fade away as the economy recovers.

The fiscal disaster that was Bush can also be assessed in terms of the budgetary things that went criminally unattended - and which were exacerbated by the tax cuts and wars. This was not nearly sufficiently appreciated by Team Obama. When the incoming Obama administration announced its budget plan at the beginning of 2009, Krugman warned:

Bear in mind just how big the U.S. economy is. Given sufficient demand for its output, America would produce more than $30 trillion worth of goods and services over the next two years. But with both consumer spending and business investment plunging, a huge gap is opening up between what the American economy can produce and what it’s able to sell.

And the Obama plan is nowhere near big enough to fill this “output gap.”

Earlier this week, the Congressional Budget Office came out with its latest analysis of the budget and economic outlook. The budget office says that in the absence of a stimulus plan, the unemployment rate would rise above 9 percent by early 2010, and stay high for years to come.

Grim as this projection is, by the way, it’s actually optimistic compared with some independent forecasts. Mr. Obama himself has been saying that without a stimulus plan, the unemployment rate could go into double digits.

Even the C.B.O. says, however, that “economic output over the next two years will average 6.8 percent below its potential.” This translates into $2.1 trillion of lost production. “Our economy could fall $1 trillion short of its full capacity,” declared Mr. Obama on Thursday. Well, he was actually understating things.

To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that’s not enough.

To repeat: this was written in January '09. Obama explicitly acknowledged Krugman's warnings, and greeted them with extraordinary condescension:

"If Paul Krugman has a good idea, in terms of how to spend money efficiently and effectively to jump-start the economy, then we’re going to do it. If somebody has an idea for a tax cut that is better than a tax cut we’ve proposed, we will embrace it . . . Just show me. If you can show me that something is going to work, I will welcome it."

In other words, no matter what you've shown me, you haven't shown me.

Two years on, with the benefit of hindsight, it appears Krugman was dead-on.

Naturally, the pundits completely misinterpreted the implications of the Dems' 2010 mid-term election rout. About the election, as Krugman has more recently pointed out:

The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.

And here we are - with the tax-cut deal, Obama is doing little more than throwing a hail-Mary pass. In the mean time, we have the execrable Caldwell once again revelling in unreality in the FT with a bizarre interpretation of the facts on the ground but somehow coming up with the correct political diagnosis: the era of collusion between the main political parties in the United States is indeed probably coming to an end.

It is, however, too late. America is destined to move quickly from the world's only superpower to a highly influential member of the G-20. The new paradigm is upon us.

I come across the French quite a lot

Officially, I usually take issue with their views. On a different level - the one that perhaps is more important - I concede that they are right on very much. How I admire this annoying country.

Twilight and the tyranny of numbers

Three books out writing the epitaph for America's leading role on the world stage. One of them - the last of the three reviewed, The Frugal Superpower, by Michael Mandelbaum - strikes me as getting it right:

The Frugal Superpower argues that the Afghan War is no aberration. It marks the beginning of a new era of constraint in US foreign policy. After the crash, it is increasingly apparent that “mounting domestic economic obligations will narrow the scope of American foreign policy”. In a brief but remorseless work, Mandelbaum first sets out “the tyranny of numbers” and the growing claims on America’s budget. In his view this will make America less able to play the central role in the international system that the US, and the rest of the world, has come to take for granted. America will “no longer provide as large a market for other countries’ exports”. And there will be no further Iraq or Afghan wars, since the US will lack the resources to embark on expensive exercises in state-building.

The Iraq and Afghan wars have hardly been advertisements for the beneficial use of American power. So many people, both in the US and around the world, might greet the prospect of a new era of American foreign policy restraint with applause and relief. Mandelbaum believes, however, that a diminished American global role will destabilise international relations and will open the way for Russia and China, in particular, to challenge the global order established by the US in the aftermath of the cold war.

In the mean time, the hope that China is just another Japan-style bubble strikes me as ephemeral at best.

The right take . . .

. . . my bet is people will look back upon the American imperium as relatively benign, Bush/Cheney excepted (who not-so-coincidentally will have marked the turning point in Amreica's fortunes).

Ooo! Ooo! Ooo! . . . I can't believe I missed this!

Thank you, Salon:

We're listing the worst columnists and cable news commentators America has to offer. Think of this as our all-star team -- of the most predictable, dishonest and just plain stupid pundits in the media.

Late update: that Charles Krauthammer didn't even get a mention is criminal . . . he waz robbed!

Ya think?

Froomkin:

History is likely to judge Bush most harshly for two things in particular: Launching a war against a country that had not attacked us, and approving the use of cruel and inhumane interrogation techniques.

And that's why the two most essential lies -- among the many -- in his new memoir are that he had a legitimate reason to invade Iraq, and that he had a legitimate reason to torture detainees.

Neither is remotely true. But Bush must figure that if he keeps making the case for himself -- particularly if it goes largely unrebutted by the traditional media, as it has thus far -- then perhaps he can blunt history's verdict.

Read the rest - nothing new we didn't already know, but it's a bit jarring to be reminded how easy it is to forget just how bad that horrid little man really was.

Late update: Lionel Barber was one of four experts who briefed Dubbya before his first trip to Europe, when Boy Wonder announced his plan to "look into Putin's soul." His own review of Dubbya's ghost-written book is sober, measured, respectful - but he cannot help but conclude:

The more likely judgment is that Bush's two terms marked the moment when US power peaked and over-reached, with execrable consequences.

More Reasons Not to be Thankful

Yes, I'm glad just not to have Bush or McCaine or Palin in the White House. I guess that's what Obama is counting on, because on the things that matter, I remain pretty disappointed: Krugman again.

Another Epic Media Fail

. . . they are hopeless.

And Tony and Dubbya will still say it was all worth it

Yes, Saddam was very bad man . . . shall we ask the dead if they agree?

Late update: sorry - 79,000 dead is laughably low. Just hilarious.

Could not agree more . . .

I am so glad Karl Rove doesn't want the Iraq war to be left down deep in the memory hole: like Josh, I welcome Karl's urge for re-examination. I suspect my motivations are somewhat different from Karl's, however.

Once again, Paul nails it:

The truth, however, is that the only problem Republicans ever had with George W. Bush was his low approval rating. They always loved his policies and his governing style — and they want them back. In recent weeks, G.O.P. leaders have come out for a complete return to the Bush agenda . . .

This includes - obviously - rehabilitating Bush's legacy on the Iraq war:

Finally, on the war: For most Americans, the whole debate about the war is old if painful news — but not for those obsessed with refurbishing the Bush image. Karl Rove now claims that his biggest mistake was letting Democrats get away with the “shameful” claim that the Bush administration hyped the case for invading Iraq. Let the whitewashing begin!

Meanwhile, here in the UK, the subject just won't die the death Tony Blair and Alistair Campbell (and probably the co-conspiring Conservatives) wish it would. From today's Observer:

. . . Carne Ross, the UK's Iraq expert at the UN between 1997 and 2002, writes that the inquiry is being prevented by "deep state" forces from establishing the government's true motivation for invading Iraq.

Ross, who appeared before the inquiry this month, says he was not provided with key documents relevant to his testimony and was warned by officials not to refer to an internal Foreign Office memo that contradicted the government's public case for war.

Will the truth ever out? The drum beats on:

Despite the official's concern, the paper was used to brief the cabinet. Ross writes: "This paper was pure overstated propaganda, filled with almost ludicrous statements like 'one teaspoon of anthrax can kill a million people'."

He [Carne Ross] expressed incredulity that the Foreign Office wanted references to the briefing removed from his testimony, as it related to a public document. "It is very worrying that the government machine is still trying to withhold key documents, and silence those of us with detailed knowledge of the policy history. I have been told too... that members of the [inquiry] panel have been refused documents they have specifically requested."

Simon Hughes, the Liberal Democrat deputy leader, said: "The Chilcot inquiry will not be credible if relevant documents that do not now threaten national security are kept from the inquiry and the public."

Ross said he had wanted to use his appearance to highlight how ministers failed to consider alternatives to military action. "I had asked for specific records relating to the UK's failure to deal with the so-called Syrian pipeline, through which Iraq illegally exported oil, sustaining the Saddam [Hussein] regime. I was told that specific documents, such as the records of prime minister [Tony] Blair's visit to Syria, could not be found. This is simply not plausible." He also asked for joint intelligence committee assessments on Iraq, some of which he helped prepare and all of which he had seen. "Only three were provided – 40 minutes before I was due before the Chilcot panel."

The claims come at the end of a week in which the former head of MI5, Dame Eliza Manningham-Buller, cast grave doubts on the case for invading Iraq and the deputy prime minister, Nick Clegg, described the invasion as "illegal".

The government may have withheld key documents whose release would pose no national security risk? Quel surprise!

The more I read . . .

. . . the more I like. Even as a Supreme Court newbie, Kagan showed remarkable sophistication and prescience . . .

Drill, baby, drill!

It's all about progress . . .

Fair-reading

Souter speaks . . . finally.

"Time to exchange the winter dirt for some fresh summer dirt in that sandbag she calls a mind"

- taken from a comment on another blog. Pretty infantile, I know, but not as infantile as when the rock star of the Right blames the "greenies" for the BP disaster.

I'm afraid Frank has missed the point

I like Frank Rich - the way he steps back to afford a view of the bigger picture - but this article, as good as it is, fails to call the Obama administration on its more fundamental failure: it's manifest betrayal of the principles it was put in power to advance. For moderates and progressives, Obama's policy initiatives (or lack thereof) have been extremely disappointing - far more a continuation of the previous administration's ruinous course. Instead of throwing down a clear marker signalling a break with the egregious past, Obama only nibbled at the edges of such things as civil rights and torture, especially in his wilful failure to hold perpetrators accountable, and outright embraced certain other Bush-era policies, like offshore drilling - despite the manifest corruption of the Minerals Dept.

In introductory courses on administrative law, budding young lawyer-wannabes learn all about "capture theory", which posits that for a variety of obvious reasons regulatory agencies quickly become "captured" by the industries they regulate. Lack of effective oversight of such agencies becomes, axiomatically, fatal. Obama went to a pretty good law school, and yet we seem to need to experience - catastrophically - this axiom put into practice.

This - thus far - is the signal failure of the Obama presidency and, unlike Bush, he knew better.

Ted Hearts Bison

On balance I think people should lighten up and let Ted continue with this - I think it's pretty cool and should be encouraged. The idea that bison should be confined to the Park and kept entirely off limits as if they are museum relics once they cross the park boundary is ridiculous. Ted is paving the way to acceptance by a paranoid ranching community that just needs to get over the fact that their industry is contracting.

Me like what me see . . .

While some aspects of her oeuvre are not great (e.g., I worry that her rejection of judicial activism won't extend to the masturbatory rantings by nutcases like Scalia since it's become conventional wisdom that conservatives by definition can't be judicial activists, which is completely ridiculous), this is pretty good stuff:

During Ms. Kagan’s confirmation for solicitor general, she was asked whether the president has the authority to order wiretaps without a warrant from a court.

She cited a three-part analysis established by the Supreme Court in a 1952 case, Youngstown Sheet and Tube Company v. Sawyer, which struck down president Harry S. Truman’s authority to seize the nation’s steel mills in the name of national security. (The Justice Department cited the same analysis in 2006 in justifying President George W. Bush’s power to order the National Security Agency surveillance program, as did Judge Samuel A. Alito Jr. during his Supreme Court confirmation hearings.) The analysis notes that “when the President takes measures incompatible with the expressed or implied will of Congress,” presidential “power is at its lowest ebb” and these circumstances should be rare.

Obama picks a uniter, not a divider

Interesting track record at Harvard - Obama's tacking to the middle. Not sure she'll be able to do much to forge a consensus among the Supremes when one is a raving lunatic and another may as well be in a coma.

What in the world is the Guardian smoking?

It's so over for Gordon, I don't care what drugs are making the Guardian suggest it isn't.

I, too, recently believed that the Lib-Dems HAD to find a way to make a coalition work with Labour if they wanted any prayer of electoral reform that approximates proportional representation (and basic notions of fairness), but the gap is too wide, and they are going to be screwed by the Tories, plain and simple. The Lib-Dems just don't have the numbers to make it work the way they want. It's going to be a mess here in the UK for the foreseeable future.

This parliament will not "hang" well (cue the porn jokes), anyway you look at it.

True to my investment prowess, the prospect of continued aimless dithering in the UK while Greece burns compelled me to cash out of my money market fund in the U.S. and invest in the markets. Timing is everything! Oh well: Warren Buffet I ain't.

These are starting to resurface

It was the taxi-driver's story that made me sick . . . let's see if Obama's Justice Department continues its campaign to keep justice out of the play-book.

Late update:

Here's a film worth seeing about what happened to that poor taxi-driver, and the inevitable cover-up which followed.

Murdoch unleashes the hounds . . .

The Tory press is going after Clegg, big time.

Why might this be so? From a reliable source:

. . . the Murdoch press to seek favour from a new government policy in reward for electioneering support that will result in a government that is willing to implement policies to diminish the competition poised by both the BBC and the internet. At the beginning of October the Murdoch press accelerated its objective of winning favour amongst the tory party leadership by the Sun publically declaring its backing for the Conservative party some 6 months ahead of the next General Election.

This has been subsequently been followed by favourable policy proposals out of the Conservative party in the commercial interests of News International such as reported in the Independent in response to Peter Mandelson's allegations of the Tory leaders being suspected of having done a deal with Murdoch.

"Examples of the apparent tie-in between what News International's boss, James Murdoch, wants, and what David Cameron is ready to promise include the recent decision by the Conservatives to abandon the idea of "top slicing" the BBC licence fee. It had been proposed that part of the money paid to the BBC would be siphoned off to help regional television companies meet the threat from the internet. But this would also have helped them compete more effectively against Sky News, which is part of the Murdoch media empire.

When the policy was abandoned in September, Jeremy Hunt, the shadow Culture Secretary, said that it was because enacting it might make the commercial television companies "focus not on attracting viewers but on attracting subsidies". There was no gain for the BBC in the climb down, because David Cameron had already said that the Tories will freeze the licence fee. What it will mean is that the BBC's income will be capped, without the regional television companies seeing any government help, which will strengthen the market position of Britain's only satellite television company, Sky. "This was done for News International," a Tory insider said yesterday. "Murdoch wants Sky to go head to head with the BBC. He doesn't want the independent companies strengthened.”

In April 2008, James Murdoch complained bitterly about the media regulator Ofcom in his first major speech after taking over as chief executive of News Corporation in Europe and Asia. The following year, David Cameron announced that a Conservative government would cut Ofcom down to size."

Why is it important that we prevent Jimmy-boy from turning his beautiful dream into reality? This is why.

The right war for the right reasons . . .

. . . all done according the manual. Riiiight. On a related note, I'm enjoying Tom Bingham's book, The Rule of Law. As many commentators have noted, the most compelling part of Bingham's book is his chapter on the Iraq war:

"It is not at all clear to me what, if any, legal justification of its action the US government relied on . . . If I am right and the invasion of Iraq . . . was unauthorised by the security council, there was a serious violation of international law and the rule of law . . . It is, as has been said, 'the difference between the role of world policeman and world vigilante.' "

Some interesting statements here from Tom about the Chilcot inquiry.

She clerked for Thomas . . .

. . . and a member of the Federalist society to boot! Quel surprise.

Two years out of law school and writing memos about the president's limitless power, unconstrained by quaint relics like the constitution.

Outstanding!

I've just decided I won't be retaining Kirkland any time soon.

"Sure"

Why not?

The problems with Yoo's patently ridiculous comparison to Hiroshima and Nagasaki:

1) Previous to the 1949 Fourth Geneva Convention in 1949, there was no treaty against targeting civilians. So, at the time, it would not have been unlawful for the president to order the "massacre of a civilian village". It would have been wrong, but not unlawful.

2) The means of production of weapons is - sadly - a legitimate target in time of war. Hiroshima and Nagasaki were military staging areas and major industrial centers producing munitions. The only reason targeting them is questioned is because people are squeamish about the use of nuclear weapons. If they had been fire-bombed it would have been just another epic tragedy, no more or less noteworthy than any other firebombing perpetrated by McNamara or Churchill.

The real issue is this: Yoo and his boss told the president he is not bound by U.S. law.

A little more color on the torture memo . . .

Margolis overruled OPR, the bastard.

Late update:

If I have lost my job, and am short on funds, context dictates that I am justified in knocking off the liquor store down the street. I'm sure the authorities will understand. You see, this would be an unprecedented situation never experienced by me before - one which threatens my very survival.

Anything is justified, by Mr. Margolis' reckoning.

National Monuments?

Not sure this is a good idea. Not sure I want to see bus tours to Cedar Mesa . . .

Not sure I want wheel-chair ramps here . . .

So much for Justice . . .

These boys got off light, given the extent to which they betrayed their fundamental obligations as lawyers:

The report said “situations of great stress, danger and fear do not relieve department attorneys of their duty to provide thorough, objective, and candid legal advice, even if that advice is not what the clients want to hear.”

Sadly, the Obama White House's timidity in the face of so enormous a betrayal of our most basic concepts of justice does not come as a surprise.

And of course, this was the tip of the iceberg - the three detainees involved happened to be bona fide al qaeda. There were also innocents who were caught up in this travesty, who were subsequently released.

Another sad day for lawyers who give a shit about the constitution.

Next up . . .

. . . more good times ahead.

Gotta love our sophisticated risk management models.

Cry me a freakin' river

I'm not ordinarily given to emotional excess but, oh, how this guy gets me going . . . every time I see him now on the tee-vee I feel like Mr. Furious transforming into a "ticking timebomb of fury":

"rage . . . taking over . . ."

Yes, Alastair, the poor dear, has been through a lot - it's a real tragedy how this sensitive soul has been "vilified" those who are only out to "settle scores".

I wonder if Alastair includes the 300,000-600,000 Iraqi dead in that particular calculation. Well, at least he can take comfort that someone will offer a shoulder to cry on - after Dubbya, Dick, Wolfie and Rummy, no one provided a better recruiting tool for al qaeda than Alastair and Tony. It's the least they can do.

Late Update:

This article puts a little more precision around the number of Iraqi dead, which may be of interest to some, though I continue to struggle with who in the west those people who care might actually be. Not very popular dinner party conversation, I guess.

From TPM . . .

The red bars are the accelerating rate of job loss during President Bush's last year in office; the blue bars are the decelerating rate of job loss during President Obama's first year of office.

The chart was put together by the House Democratic leadership. Click the graph to see the full image.

Same old story . . .

If the left-wing media lost the Viet Nam war, and etc., how does Pajamas Media explain this?

Guess I'm not the only one

It seems others are also underwhelmed by the Chilcot Posse. I like the Guardian's lead editorial today, except, I'm sorry, this isn't just about Tony's poor judgment. Wrong. If a leader sells a war on a false prospectus to the people, especially with such dire consequences, it's more than about judgement: it's about abuse of process, mendacity and "crimes and misdemeanors". Andrew Rawnsley get much closer to the nub of the problem, and he puts his finger on what may prove to be the most tragic consequence of all:

I am instinctively a liberal interventionist who thought that Tony Blair played a creditable role when British forces saved Sierra Leone from sadistic thugs and did so again when Slobodan Milosevic was stopped from ethnic cleansing in Kosovo.

One of the many tragedies of the Iraq war is that it will be hugely more difficult for any future British leader to persuade his country that there are times when it is not just right but an obligation to intervene when tyrannical states threaten their neighbours or their own people.

The same might be said of the U.S., only moreso.

David Davis does a good job calling the lie on the core premise of Tony's defense.

The old Rope-a-Dope

Tony, unrepentant. It would be nice if the media actually focused on the real issues instead of allowing unaccountable politicians to dissemble and prevaricate at will.

Mr. Blair's testimony yesterday serves as a reminder that without proper inquiry, complete with penetrating questions and thorough follow-up (i.e., a proper cross-examination), he and others who were responsible for the Iraq travesty will never be held to account for their manifest abuse of the people's trust.

The sad truth is the media has not raised its game, at least not nearly enough. Even today, after all this time, the media continue to dutifully toe the line by framing this as about whether Mr. Blair and Mr. Bush really, truly, crossed-their-hearts-and-hoped-to-die, saw Saddam as an honest-to-goodness threat. Herein lies the central conceit which continues to serve as the foundation of the Big Lie.

As has been repeatedly said by many, including me, no one is seriously questioning Bush/Blair's earnest belief that Saddam was a really bad guy, most likely with really bad intentions (like many other bad guys in the world). Yet the media continue to enthusiastically allow politicians to frame the debate in this way. Witness Peter Hain angrily demanding (at 2:20) whether Chris Huhne is "questioning [his] honesty" on the BBC's Question Time. Have a look.

It's an old politician's trick - a form of misdirection. Simply put, it's all about going on the offensive on an imaginary issue - a slightly more sophisticated version of "when did you stop beating your wife". It forces one's antagonist to fight a battle other than the one you know you're going to lose. The media falls for it every time.

Tony, of course, is a consummate master, and his skills were on full display yesterday. Once again it makes me weep for what might have been had his power to control messaging and dictate the terms of the debate been used for good and not evil.

In any case, by allowing those who would avoid accountability to control the discussion, we allow them to create an impression that any revelation is "old news" and just more fodder for those whose minds are already made up. It's a careful, cynical calculation, calibrated with a precision that befits Alistair Campbell.

It would be nice if we, the People - or our representatives, were permitted to ask some reasonable questions - not about what Tony and Dubbya "believed" - but rather about the process by which they took us to war. After all, the bottom line is this: the process is supposed to serve in the interest of our democracies, not in the interest of what Tony and Dubbya "believe" to be "right" and "true".

To repeat: the problem here was the process: the people - not Mr. Blair (contrary to his assertions yesterday) - were asked to make a judgment based on evidence that proved to be cherry-picked or of highly dubious provenance. There is ample evidence of this. It is difficult to forget about the existence of Dick and Rummey's Office of Special Plans, the "stove-piping" of favourable intelligence to support pre-ordained conclusions, including from a source whose credibility could be guessed at by its codename: "Curveball".

This is the issue. It goes to the core of our democratic principles - a fact that so many in the media fail to recognise.

Chris Matthews is white

What a great post . . . I knew Chris Matthews was a tool, but couldn't quite put my finger on why (probably because I'm white, too). But now I understand.

Two in a row

I hate to admit Calwell may well be right - especially when it's twice in a row. But it's hard not to agree that the Dems have made a catastrophic miscalculation on perceived priorities.

Newsflash

Iraq war illegal!

No shit.

Don't say I didn't warn 'ya

Ruth's earnest concern about Citizens United leaves me shaking my head.

For some time now I've been the guy standing on the street-corner yelling at cars - you know, the one you cross the street to avoid - about the danger to democracy that is Justice Scalia. Here's another example. And another. There are others - I confess I do obsess.

Thanks to Dubbya, in addition to the incredibly useless Clarence Thomas, Scalia now has more like-minded brethren on the Court, and only now other people are finally staring to throw hissy-fits.

Well, it's a little late, damn it, but as I seem to have been ahead of the curve on this all along, I guess I'll be the first to start shouting "impeach the bastards" at the cars.

More seriously, it is an option - which looks to be increasingly likely I think.

I can't believe we have to have this discussion all over again

On the one hand, Obama's decision to reinstate some vague notion of the old Glass-Steagall barriers separating commercial banking from investment banking is a disaster that misapprehends the causes of the financial crisis and will lead to higher, not less, systemic risk. On the other hand, while Obama is entirely correct that prop-trading indeed was a cause of the financial crisis, he isn't going nearly far enough and should require banks to spin off their asset management businesses, too.

The truth is somewhere in the middle.

The fine line between commercial banking and the securities business has always been ever-shifting - but the debate was far more sophisticated thirty years ago. None of this is new.

Okay, joke's over

The Republic surely wouldn't let people like these have lifetime tenure on the highest court in the land, would they? Here's a pretty balanced review of the Citizens' United decision. Here's one that's probably more accurate.

The latest candidate for a special place in hell

. . . step right up, Jack Straw. You lied quite convincingly over the last seven years . . .

It's possible I may hate him more than Dubbya or Tony, since he clearly knew better - sorta like Collin Powell.

God help me . . .

. . . lo, for I have linked approvingly to an article by Christopher Caldwell.

There must be something in the water: it cannot be denied he gets it right by linking to Haldane's paper, citing as follows:

A considerably more disturbing thought, though, was provoked by the Bank of England economists Andrew Haldane and Piergiorgio Alessandri. They noted in an influential paper delivered in Chicago in September that, in the UK at least, higher leverage fully – fully! – accounted for UK banks’ rise in returns on equity until 2007. This will plant a disturbing syllogism in the mind of the average voter: If (a) payment to bankers is based on returns, and if (b) returns in the past decade were due to increased leverage, then (c) bankers, when all is said and done, were being paid to increase risk – not to assess it expertly, just to increase it. In retrospect, the world might have been better off, and richer, if this work hadn’t been undertaken at all. The public may well assess the real value of the work done by investment bankers at zero.

I haven't kicked Scalia around in a while - I wonder if he's said anything stupid lately?

Ah - he always obliges in times of need.

Scalia also said (not noted in the link):

"It's erected as a war memorial. I assume it is erected in honor of all of the war dead . . . What would you have them erect?...Some conglomerate of a cross, a Star of David, and you know, a Muslim half moon and star?"

I have an answer to this that is so crazy, it just might work: how 'bout an American flag?

Why it matters

Neglected to add that the reason why the silliness that Europe is inflicting on itself really matters is because it will accelerate the move to the east: HSBC and certain investment banks have already begun the evacuation to Hong Kong - I can see the CEOs on the roofs of their buildings in Canary Wharf, scrambling for the choppers before the NVA - er, I mean, FSA - overrun the place.

Bad Coffee, Bad Law

For anyone paying attention to the way in which governments and regulators are coming to grips with the financial crisis and its causes, these times continue to be ever so interesting. For those of us who have been in this business for a long time, particularly we who fancy ourselves familiar with prudential and public policy foundations underlying the financial system since the early 1930s, these times are “interesting” in the sense of the old Chinese curse: there is every reason to be frightened by much of what is in the legislative pipeline – especially in the EU.

Let there be no doubt: the assaults unleashed over the past year on the perceived failings of “Anglo-Saxon capitalism” by certain (code for French) continental European governments represent a potential prudential paradigm shift in such elemental questions as who should be incentivised to do what – and bear the associated risk - not just in terms of his or her own private interest, but in terms of the interest of the public and the public purse. Some of this intentional: contrary to subsequent damage control – mainly by Michel Barnier – President Sarkozy meant exactly what he said when he referred to “the triumph of French ideals” which is under way in Brussels, particularly with the new proposed "Alternative Investments Fund Managers Directive" (AIFMD). People – especially Brits – should not delude themselves into thinking the French will be reasonable. They will not: they are bent on nothing less than imposing a French civil law regime affecting property rights across Europe.

If this were just about a French plot, things might be manageable. Unfortunately, the legislative sausage-making process in Brussels is even more chaotic and farcical than it is in Washington – especially when the stakes are high and the facts are as technical and/or highly legalistic as they are here.

The reality is this: beginning with AIFMD, member state civil liability regimes around the nature of your right to the return of your property (i.e., your cash or investments) are going to be irrevocably replaced by how the French feel about this (goodbye, English common law) – albeit at first only in piecemeal fashion affecting investments in funds. The good news is the French think you should never be at risk of losing your investments and a bank responsible for them will be forced to return them immediately. The bad news is – considering the trillions of euros banks will then need to reflect as guarantor risk on their balance sheets – the banks will be forced to either raise fees massively (while massively increasing risk-based capital required to support the risk) or get out of the business altogether. This will massively increase concentration in the financial sector – probably not a great idea in the wake of the crisis – which in turn will ultimately expose taxpayers to new kinds of massive bailouts - possibly more frequently.

Oh, and as a side-note, the legislation as drafted literally prohibits any investment outside of Europe: think of the impact of this on potential return on investment. The European Parliament’s own commissioned report, such as it is, makes for interesting reading: it predicts disaster but, in my view, doesn’t go nearly far enough and misses some crucial elements.

The impact will be on all – ALL – funds other than retail UCITS: e.g., private equity funds, hedge funds, real estate funds, funds-of-funds, you name it. Despite the supposedly limited scope of the directive, UCITS funds will not, of course, escape: it was announced early on that UCITS will be “revised” in some way along the same lines.

So, put that pension fund liability hole and smoke it.

But don’t worry, if you have concerns, you have until 21^st January to get your amendments in.

I would like to believe that even the French don’t intend to completely destroy Europe’s financial and investment sectors, so I have got to assume that much of what will happen as a result of this crazy legislation is also unintentional. Sadly, unless the possible consequences of these proposed public policy changes are fully addressed in an inclusive and rational debate, the EU and its citizens are likely to rue having allowed their leaders to succumb to political pressures and philosophical inclinations without these being tested under the disinfecting glare of a truly public, inclusive consultation.

Jean-Paul Gauzes, the European Parliament’s Rapporteur who is shepherding through the new legislation, is fond of noting publicly the unprecedented lobbying efforts in Brussels by industry groups and other stakeholders who object to some aspect or other of the directive. This seems to be stated with a relish which only seems to confirm in legislators’ minds that they must be getting something right if so many in the detested financial services industry doth protest so much. At the same time, officials in Brussels bristle at the notion that public consultation on the directive was lacking, citing prior consultations on such topics as short-selling, private placement passports for non-UCITS funds and regulation of hedge fund managers. Selective memory may serve as a political expedient, but in this case it will prove a dangerous misdirection as it is irrefutably true there has never been any public consultation on the most crucial aspects of the legislation.

This state of affairs brings to mind the infamous case in the United States of the woman who sued McDonalds restaurants for serving coffee in a drive-thru that was hot enough to severely burn her lap[1]. The end result has been that it is now impossible to get a decent cup of coffee anywhere in the United States and, to add insult to injury, consumers are subjected to infantile warnings printed on the outside of take-away cups that the contents therein may be hot (when, in fact, they are not).

There is an old lawyers’ saying that bad facts make bad law, and the facts, according to Andrew G Haldane, Executive Director, Financial Stability, Bank of England[2], are that

. . . the scale of intervention to support the banks in the UK, US and the euro-area during the current crisis . . . totals over $14 trillion or almost a quarter of global GDP . . . [i]t dwarfs any previous state support of the banking system.

Alors: we have very bad facts indeed, and they are well on their way to making very bad laws. For this, instead of a lady with the burned lap, we can thank Bernie Madoff and perhaps some risk managers who evidently were unable to assess the meaning of ever-widening spreads in credit default swaps among the major banks throughout 2008.

The governments and regulatory agencies now sifting through the ensuing wreckage can hardly be blamed for reacting politically: indeed, it is the obligation of those of us in the affected industries that ran the ship aground to redouble our efforts to offer sensible prescriptions for patching the hull and getting under way again – and we need to do this thoughtfully and humbly, for we must realise we lack credibility and so will be looked on (not unreasonably) with scepticism if not suspicion.

All investment funds in Europe, UCITS and non-UCITS alike, are facing a fundamental shift in allocation of responsibilities and risks. The possible consequences and risks which may flow from this reallocation cannot be overstated. What regulators and governments urgently need to understand is this is not an issue for the financial services industry alone: it is an issue for the future of Europe as a financial centre and for ordinary citizens as well as pension fund trustees who are struggling to determine how they will plug the holes in their pensions.

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[1] The jury awarded the 81-year old plaintiff $2.7 million, largely because of McDonald’s allegedly callous behaviour. The award was reduced on appeal to $480,000.

[2] *Andrew Haldane, ‘Banking on the State’, BIS Review 139/2009

"The Buck Stops Here"

Kinda refreshing to have a president who is not afraid to say it . . .

It seemed odd to me that after proclaiming "the grown-ups are in charge" the previous administration never took responsibility for anything: not 9/11, not the Katrina response, not the Iraq intelligence "failures". Nada. I always considered that kind of behavior to be . . . uh . . . childish.

I used to be proud of our legal system . . .

. . . back when I believed our leading jurists took the constitution seriously. They just don't any more.

Bush versus Gore woke me up to the sad, inevitable truth that sooner or later justice is reserved for those with the juice, traction, pull . . . whatever you call this game in which the rules apply differently depending on who you happen to be and who you happen to know. This realization - along with morbid fear of confrontation - is now all that keeps me from knocking off the local liquour store. But if you happen to be in Gitmo, you are about as far from that City on a Hill as it gets. Justice is just not a term that applies any longer.

We used to say in America we are a nation of laws and not men, but since 2000 that idea has become just a joke - and our current President, who went to a pretty good law school if I recall correctly (and who has employed Cass Sunstein of all people!), has perpetuated this farce. A lot of progressive types talk about how disappointed in Obama they are. Here is where I am seriously disappointed.

Either I'm turning into my grandfather or things truly are getting worse. Probably a combination of the two.

Ben comes clean . . .

. . . and admits the obvious - kudos to him, for this admission means the Fed, too, needs to take a long look in the mirror. But, those who want to drown government in the bathtub won't like this kind of talk one bit: like all self-improvement plans, the first step - recognition - leads inexorably to other steps. This is because recognition, while important, does not solve the problem. In order to solve the problem, you gotta actually do something. If regulation is poor, better regulation is the only cure - and this costs money.