Non-Governmental Reform

 | 

While our attention can be temporarily redirected to more pleasant matters, it does not take long to remember that the banking and financial systems are in need of serious reform.

The most recent episode of irresponsible trading in the US was by Knight Capital Group. The Group instituted a new software system with a glitch that led to a loss of over $400 million in less than an hour of trading. The glitch was the result of the software being put into practice before it could be fully tested. The thought was, if this new software could be implemented ahead of the competition, Knight Capital would gain an edge on its competitors. The rush to beat the competition led to a premature, and thus irresponsible, implementation of its new software. There is no evidence of intentional deception or corruption as was the case with Barclay's, Enron, or MF Global; but it was irresponsible.

Nevertheless, reform does not mean government-led or government-mandated action. Government oversight and intervention are not the answer; a restructuring of how companies operate and reward their employees is. Government reform is always fighting the previous battle. Reforming the way companies operate is the only real response.

The recommendations I make are necessary but not sufficient. I make them not only in consideration of my work as a political theorist and ethicist but also as a result of my experiences as a small business owner who struggles with how to balance profit, ethics, and the law while keeping his employees focused on doing the right thing as they make money.

As long as monetary gain is the motive there will always be corruption and irresponsible behavior, simply because the acquisition of money is not the simple effect of responsible or ethical behavior. We cannot eliminate money or profit. It would be equally foolhardy to think government regulations will do the trick. Whatever restrictions are passed, someone will be waiting to figure out a way around them. But there are three organizational modifications that businesses can make that will help curb abuse and irresponsible behavior. Of course nothing will prevent this sort of behavior entirely, and modifications will always need to be made to keep up with changing times, but what I outline will avoid the false assumptions of government regulation.

First, those in charge of carrying out a company's day-to-day operations should be different from those in charge of managing profit margins. For instance, if a salesperson at a car dealership earns a commission on the cars she sells, she will have no immediate incentive to be honest or fair with the customer. Her goal will be to sell cars at the highest possible price. The same holds true for financial planners. If a planner has to choose between two investments for a client, one that will earn him a higher commission even though it's not the best option for the client, he will be inclined to do so. To say or expect otherwise is naive. Similarly, if those in charge of developing investment software for Knight Capital (not those whose salaries were tied to successful trades) were also in charge of deciding when it was fit to implement, the outcome could have been different. A software engineer making a fixed sum, whose future income will depend on the quality of the software, will have more of an incentive to get it right.

Second, there needs to be transparency. When a firm makes fundamental alterations to business practices or operating procedures, the changes must be submitted to the company's board for approval and made known to all customers and investors whom the changes may affect. Not only will this provide an opportunity for internal checks to keep bad business practices from being put into action but it will make poorly conceived or unethical plans less likely to be presented in the first place. If I know that the changes I make will be open to scrutiny I will be much less likely to act badly.

The third recommendation is delay. When delay procedures are institutionalized, time is available to evaluate any changes in policy or procedure. For instance, if Knight Capital had had a mandatory 90-day evaluation period for any software changes there is a good chance that the most recent fiasco could have been avoided, which would have saved the firm and its investors a lot of money. The SEC already recognizes the benefit of delay, which is why it stops trading whenever a stock drops too drastically in too short of a time. When people are given pause, cooler heads usually prevail.

The recommendations I outline are not a cure-all, but they tap into fundamental issues that must be addressed if any worthwhile reform is to be implemented. Current reform efforts require outside regulation that is generally too slow to adapt and is too easily circumvented. If, however, we change the way companies do business by taking into account how people make decisions, we will be off to a better start.




Share This


Enviromentalists vs. the Environment

 | 

A brilliant piece by Robert Bryce highlights one of the more incredible recent developments in the Green Gaia world — the rising opposition of the soi disant “environmentalists” to a proven weapon against the dreaded Anthropogenic Global Warming that threatens destruction to Mother Earth. That weapon is natural gas — which, to put the point in a scatological way, is an afflatus of said Mother Earth.

Specifically, in the last year, the two major energy bureaucracies — oh, pardon me, “agencies” — have reported what one would naively suppose is very good news: America is dramatically cutting its CO2 emissions, thus sparing Earth further defilement! On May 24, the International Energy Agency (the IEA) in Paris and the US Energy Information Administration both reported that America’s CO2 emissions dropped by nearly 8% (430 million tons) since 2006, the greatest reduction recorded by any country in any region.

Yahoo! We’re number one! (Let’s all chant together: U-S-A, U-S-A!)

The reasons the IEA gives for that drop are that the US is using less oil, especially during this extended recession. But the biggest reason seems to be the flourishing of natural gas production brought by the use of fracking.

The drop in natural gas prices has led to a dramatic switch from coal to natural gas in generating electric power. Last year alone saw an increase in gas-powered electricity production by 34%, and a drop in coal-powered electricity by 21% — a decrease that lowered carbon emissions (not to mention air pollutants) dramatically.

Lawrence Cathles, professor of earth and atmospheric studies at Cornell, recently published a report arguing that moving our economy to natural gas would be a much quicker and cheaper way to replace coal than by moving to “renewables” (solar and wind energy) or even nuclear power — and it would lower carbon emissions by up to 40%.

But the major environmentalist groups, as well as the government regulatory agencies they control (such as the EPA), are still fighting fracking and pushing “green” energy.

What a joke.




Share This


Words, Mindless Words

 | 

An Allstate ad in a recent Wall Street Journal has set me to wondering whether vogue words in ordinary speech and political speech are examples of the same mindless imitation. “Allstate led the fight by advocating for national Graduated Driver Licensing (GDL) standards.” But why the “for”?

Because that extra word, like “advocate” itself, has become the latest vogue. “Prior to” and “incredible” have long become so deeply entrenched that they hardly seem like vogues any more. “Thrust,” as in the “thrust” of a speech or a proposal, enjoyed a vogue some years ago; but it seems to have gone out of fashion.

Nowadays terms like “crumbling infrastructure,” “climate change” (the currently more voguish term for “global warming”), “big corporations,” corporate and individual “greed,” the “1%” and “99%," “fair share,” “shipping jobs overseas,” “obesity epidemic,” and miscellaneous “crises” crop up everywhere. Often they carry policy implications. I wonder whether they betray the same mindlessness as “advocate for.”




Share This


Social Security Guns Up

 | 

A fascinating little article suggests that despite the rosy assurances of the Obama administration that Social Security is in fine shape, the Social Security Administration (SSA) is preparing for civil unrest.

The article reports that the SSA just purchased 174,000 rounds of ammo — and not just any ammo, but real ’boon-stopping hollow-point bullets (you know, the ones that expand when they hit you, tearing apart your internal organs). The ammo will be distributed to 41 SSA offices around the country. All this ammunition, by the bye, is for .357 semi-automatic handguns, quite formidable pieces for such an anti-gun administration.

Oh, wait — I forgot. Anti-gun progressive liberals only oppose citizens owning guns, not governments.

But the SSA's armaments are nothing compared to those of Homeland Security, which earlier this year bought 450 million rounds of .40 caliber hollow point ammo, on top of 750 million rounds of other calibers.

I have suggested often before in these pages that the Social Security system is unsustainable in its current form, and will be more or less insolvent in about a decade. It is already running a deficit, “covered” only by the fraudulent “trust fund,” which is just a pack of federal IOUs.

At that point, one of five “solutions” will be employed. Benefits could be dropped by about a fourth for all recipients. Or benefits could be “means-tested,” meaning that anybody who is well enough off not to “need” Social Security would just be denied it, despite having paid into the Ponzi scheme for decades. Or the government could print money and debase the currency, causing inflation (which is a kind of universal tax). Or 401k and other private retirement accounts could be “nationalized,” i.e., seized and used to shore up the Social Security system (as happened not long ago in Argentina). Or SSA taxes could be jacked up on all income levels.

Each of these outcomes would make some group, or the whole country, very angry.

Hence the hollow point ammo. Gut-shoot granny with hollow-point bullets when she storms the local SSA office, pissed off because her promised retirement support hasn’t materialized . . .




Share This


Two Years

 | 

Today the three women belonging to the band Pussy Riot were convicted of “hooliganism motivated by religious hatred,” a charge that resulted from a brief protest they staged in a Moscow cathedral last winter. They were sentenced to two years in prison.

The women, who have been held by the authorities since their arrest last March, will now disappear into the bowels of the Russian prison system. A few hundred Russians held a protest outside the courtroom. The crowd, which included former World Chess Champion Garry Kasparov, was quickly broken up by police, and Kasparov was arrested. As this is written, there are unconfirmed reports of beatings.

According to a New York Times dispatch from Moscow, defendant Nadezhda Tolokonnikova said the following in her closing statement:

To my deepest regret, this mock trial is close to the standards of the Stalinist troikas. . . . Who is to blame for the performance at the Cathedral of Christ the Savior and for our being put on trial after the concert? The authoritarian political system is to blame. What Pussy Riot does is oppositionist art or politics. . . . In any event, it is a form of civil action in circumstances where basic human rights, civil and political freedoms are suppressed.

Two years. A severe blow to liberty was struck in Moscow today.




Share This


Free the Grrrls!

 | 

Liberalism, in its better sense, hardly exists in Russia. Male chauvinism, gay-bashing, and other aspects of cultural reaction are rampant throughout contemporary Russian culture. Tolerance for edgy and avant-garde cultural expression has improved only slightly since the days of Communist rule. A prime example is the response to the antics of the Russian grrrl band Pussy Riot. Last February 21, three members of the band — Maria Alyokhina, Yekaterina Samutsevich, and Nadezhda Tolokonnikova — entered the Christ the Savior Cathedral in Moscow and gyrated before the altar for about 40 seconds. The women were taken into custody and charged with “hooliganism motivated by religious hatred,” for which Russian law provides a penalty of up to seven years in prison. The verdict in the case will be announced tomorrow.

That Russia’s thug-president Vladimir Putin and the Russian patriarch Kirill I have led the way in condemning Pussy Riot should surprise no one. What is somewhat surprising is the lack of sympathy for the women in Russian society generally, including among so-called liberals. The three women maintained a stoic front during their trial, which has only exacerbated the hostility toward them expressed by many Russians. That women should act up and then refuse to show remorse or beg for mercy clearly touches a nerve in a society still dominated by hypermasculine posing. It has been left to the so-called international community to take up the cause of Pussy Riot. A broad mix of prominent organizations and people — including Amnesty International, German parliamentarians, and Madonna — has helped put Pussy Riot’s plight on the world’s front pages.

The international uproar has had some effect. President Putin stated recently that the women’s punishment should not be too harsh. Apparently a not guilty verdict was never a possibility. As for the punishment, we shall know tomorrow how severe (or not) it will be.

The women of Pussy Riot are not especially talented. Compared to PJ Harvey or even Bikini Kill, they are rank amateurs. And they probably exercised poor judgment by making a scene in the cathedral. But in a normal, civilized, liberal (in the best sense) society, they would face trespassing charges and a small fine. In Russia they face the prospect of several years’ imprisonment for what amounts to a harmless prank.

The Russians are a great people with a tragic history. And in general I believe that the internal affairs of other nations are none of my business. But the Pussy Riot show trial is a blatant affront to artistic expression and individual freedom. Libertarians should join the Pussy Riot Global Day protests that will be held tomorrow, August 17.




Share This


The Ryan Pick

 | 

With his selection of Representative Paul Ryan of Wisconsin as his running mate, Mitt Romney has decided the 2012 presidential election. Barack Obama will be reelected president of the United States.

Ryan, the chairman of the House Budget Committee, brings Romney needed credibility with conservatives. Indeed, over the past few days establishment conservatives have been waging a pick-Ryan campaign in the media, and probably behind the scenes with Romney’s people as well. Ryan is a serious figure intellectually, and commands respect within establishment political circles. But he has spent over a decade in Congress, and as a result is viewed with some skepticism by Tea Party types. He will not excite the yahoo wing of the party as Sarah Palin did in 2008.

But just how much Ryan solidifies Romney’s support from the base is beside the point. Indeed, the Ryan pick shows just how out of touch Romney is with political realities. Conservatives were going to hold their noses and vote for Romney anyway, because they hate Obama. What Romney needed was a VP pick who would help him win over independents, particularly women. Ryan doesn’t do that. But the damage the Ryan pick does to Romney goes beyond this.

The problem is Ryan’s plan for Medicare. I’m not going to discuss the merits of the Ryan plan here; this is a piece about electoral politics. The Ryan plan will be pounded day in and day out by Democrats. By November Ryan and Romney will literally look like losers, irritable and worn from weeks and weeks of defending a plan that most people (and all oldsters) will perceive as the evisceration of a sacrosanct entitlement. Even people over 60 who belong to the Tea Party believe that their Medicare benefits must be preserved, no matter the cost.

Romney’s people may believe that Ryan will bring them Wisconsin, and winning that state becomes a bit more likely with Ryan on the ticket. But it’s still very much a reach for the Republicans. Scott Walker’s success in surviving the recall election earlier this year is not likely a harbinger of Republican prospects in November. Many Walker voters who were standing up against Wisconsin’s public employee unions (i.e., voting their pocketbooks), will not support cuts in Medicare and Social Security.

Had Romney been looking to pick off a battleground state, he should’ve picked Rob Portman of Ohio. Ohio is bigger than Wisconsin, and Republicans had a decent chance of carrying the state. Portman might have put them over the top there. The Ryan pick places Ohio more firmly in the Democratic column.

I originally thought that Romney would pick a woman or a Hispanic (Marco Rubio), because he lags badly with both groups. I did an analysis in June that gave President Obama 22 states and the District of Columbia with a total of 270 electoral votes, the minimum needed to win. With five months to go the election was clearly very much up for grabs. I thought then that Romney would pick Portman, as Ohio is a state Romney needs to win if he is to prevail. With the selection of Ryan, Romney has probably lost Ohio and Florida, which in June I had going to the Republicans. If Romney loses both Ohio and Florida, there is no way he gets to 270 electoral votes.

The idea that major structural reform of Medicare and Social Security will play politically, in a time of economic uncertainty and widespread voter despair, is utter nonsense. Yet that is what Romney apparently believes, based on his selection of Ryan. Romney truly is out of touch with reality. His dippiness was already apparent in his views on foreign policy. His economic policies — on tax reform, job creation, and yes, entitlement reform — were in fact far more sensible than anything put forward by the Democrats, and this constituted his main advantage over Obama. But by placing radical reform of Medicare and Social Security in the forefront of the political debate — that is, by picking Paul Ryan — Romney has cost himself the election. The only question now is how big Obama’s margin will be.




Share This


Pulling Into Santa Cruz

 | 

I’m down in California for a few days while my middle daughter attends a basketball camp at UC Santa Cruz. It’s been a pleasant trip, so far. And a window into the Golden State’s economic devolution.

If you’re not familiar with it, Santa Cruz is located on California’s central coast, south of San Jose and north of Santa Barbara. It’s a short drive from Carmel, where Clint Eastwood once served as mayor, and the famous Pebble Beach golf course. Some people consider this area the most scenic in the world.

Santa Cruz is the University of California’s “hippie” campus. A late addition to the UC system, Santa Cruz allows students great leeway in the courses they take; at one point, it offered a variation of the Great Books program that emphasized reading primary documents from various points in history, but that program has either vanished entirely or atrophied so severely that it’s unrecognizable.

The school’s sports teams are called, with knowing irony, the Banana Slugs. While most UC campuses compete athletically at the NCAA Division I level, the Slugs compete at the more laid-back Division II level.

When I checked my daughter in to the camp, I recognized parents of the aspiring college athletes — not the individuals, specifically, but their type. Driven, detail-oriented and deeply involved in their daughters’ prospects. They knew all about the head coach’s background and repeated his camp’s promise of an intimate setting and individualized attention to each young player. True to this promise, the coach was there when we all arrived and took a few moments to chat with each player and her family.

Some of the parents did recognize each other, literally. They compared notes about camps as far away as Texas and the East Coast. And these plugged-in parents were impressed that, even though the UC Santa Cruz camp is relatively small, it has attracted a corporate affiliation with the athletic gear giant Nike.

“We went to the Stanford camp and it’s just a factory,” one carefully-appointed mother said. “I mean, you can tell right away which girls they’re interested in. The rest are treated like cattle.”

There are two strategies among parents of young basketball players for drawing the attention and scholarship money of college teams. The first strategy is to put the player on a private club team that plays in tournaments and exhibitions to which college coaches and recruiters are invited. The second strategy is to attend summer camps hosted by target colleges and hope that the player makes a good impression.

At least twice, I saw trim middle-aged men wearing tie-dyed t-shirts climbing out of German cars that cost more than most people’s houses.

The two strategies tend to be mutually exclusive: the first is, in my opinion, somewhat passive; the second, a little more proactive. And the parents pursuing each tend to reflect the corresponding attitude.

After I checked my daughter in, I kissed her goodbye for a few days and headed out. There’s an important line between being involved and being a pushy “helicopter” parent. Even though my daughter’s just 16, I want her to stand on her own.

The city of Santa Cruz is pretty, perched on hills immediately above the Pacific Ocean. It has a mix of classic California bungalows and larger, vaguely Victorian houses. The commercial blocks demonstrate the carefully composed shabby chic common to high-end college towns. No Starbucks . . . but lots of locally-owned, even more precious coffee shops, with chalkboards announcing specials and damning — suicidally — the 1%.

The people are carefully composed, too. At least twice, I saw trim middle-aged men wearing tie-dyed UC Santa Cruz t-shirts climbing out of German cars that cost more than most people’s houses.

I was staying a few miles south in Watsonville, where I was able to Priceline a decent hotel here for less than half of what I would have paid for a worse place in Santa Cruz.

Watsonville is a working-class place aspiring to the middle class, full of big-box stores and chain restaurants. And, while Santa Cruz is predominately white, Watsonville is overwhelmingly brown.

There are long lines for just about everything in Watsonville — at the grocery store checkout, at Starbucks, at the bank. Getting dinner at a Panda Express, I instinctively asked the woman across the counter for dos entrees because that’s how everyone in front of me had done it.

Watsonville’s houses are smaller and more cheaply built than those up the road in Santa Cruz. The cars are older and more likely to be dented or discolored. In general, Watsonville has more in common with inland agricultural towns like Gilroy or Fresno. Most of the residents seem to be simple people, content with basic material comfort.

Watsonville has a number of big, ugly modernist government buildings. Its library, especially, looks terrible. The outside walls are adorned with giant faces, meant to represent the local “community.” The city is heavily Hispanic, so it’s no surprise that most of the giant faces look that way; but there are almost as many black faces pasted on the library. And I’ve seen few black people in the city or its stores and restaurants.

Most of all, the giant faces are ironic — and not in a knowing way, like the UC Santa Cruz Banana Slugs.

In my business, I’ve watched libraries shrivel up as a market segment, rendered less relevant by the Internet and cheap ebooks. In their fear of irrelevance, they’ve resorted to all sorts of odd outreach efforts. The giant faces on the Watsonville library are a fundamentally illiterate way to try to draw people into a place that’s about reading. And, in this inappropriate illiterate appeal, the faces are profoundly condescending.

The Porsche-driving leftists in Santa Cruz may be interested in reading hand-lettered coffee shop menus laced with wordy political screeds, but Watsonville is more interested in shopping at Target. When the economy in California eventually recovers, I suspect that recovery will have more to do with Watsonville than Santa Cruz.




Share This


Government Motors Goes Subprime

 | 

President Obama continues pointing to his crony bankruptcy bailout of GM as a success. Never mind that it stiffed the secured creditors to favor the UAW, a huge backer of Obama and the major cause of the domestic auto crisis to begin with. Never mind that that GM was allowed to carry forward losses from the bankrupt entity to offset future earnings, stiffing the taxpayer and giving it an unfair advantage over Ford and the foreign auto makers, none of whom got the bailout. Never mind that when GM went public again, the UAW was able to sell its shares first, which enabled it to be made whole while the taxpayers saw their shares diminish in value.

Now it turns out that much of the recent sales growth GM has bragged about is due to GM jacking up its sales with subprime loans.

In the auto industry (like other industries that sell products and offer financing to the customers), the credit worthiness of customers is judged by their FICO scores, which range on a scale from 300 to 850. Subprime customers are those with a score below 660. In the fourth quarter of 2010, subprime loans accounted for 4.8% of GM’s sales. In the first quarter of this year, they hit 8.32%, which is over one-third higher than the industry average (6%).

Why is GM taking on more risky debt in a chancy economy? Edward Niedermeyer (editor of The Truth About Cars) puts his finger on it: “[GM] may be trying to goose short-term sales with subprime lending to boost its stock price, which is tied to the government getting out of its GM investment.”

Indeed. The federal government still owns nearly 30% of the stock (500 million shares). The stock price is only about $20 per share, close to the post-IPO low. For us to get our $26 billion in direct support back, the price would have to hit $53 per share.

So GM — controlled by the Obama administration — is pushing junk loans. This is rich, coming from the same guy who sold the Dodd-Frank financial regulation bill by claiming that greedy capitalists had duped innocent buyers into risky subprime loans.

What’s greedy for capitalists must be ethical for neosocialists.




Share This


You Didn't Build That Bridge, Mr. President

 | 

I was so distracted by the president's demeanor as he was reproaching the business community that his words didn't quite register. I had to go back to read what he actually said, and it was worse than I thought:

“If You’ve Got a Business – You Didn’t Build That! Somebody Else Made That Happen.”

Well, apparently it bears repeating: When I, an entrepreneur or businessman, start a business, it usually takes years of persistent work before there is any return on investment: contrary to what you may have heard from modern-liberal bureaucrats, you cannot succeed in business without really trying. I suppose it's true that such an endeavor wouldn't have succeeded had I not been standing on centuries of mercantile tradition and experience, or for that matter had I not had electricity and running water. But that is only to state the obvious.

What, then, was the president getting at? Besides belittling the aspirations of the business class, what was the subtext of his remarks? That government provides the conditions for a civil society that make entrepreneurship possible? I think we already knew that. Newsflash, Mr. President: to the extent that I contribute to the commonweal, pay taxes, keep abreast of the issues, and vote, I am a member of that government. In other words, the agent or silent partner of my labors, the "somebody else [who] made that happen," was me.

Pericles is always relevant in this regard. In his funeral oration, as presented by Thucydides, he said,

Here each individual in interested not only in his own affairs but in the affairs of the state as well: even those who are mostly occupied with their own business are extremely well-informed on general politics — this is a peculiarity of ours: we do not say that a man who takes no interest in politics is a man who minds his own business; we say that he has no business here at all.

Perhaps this is what Lincoln was also getting at in the final flourish of the Gettysburg Address: "that government of the people, by the people, for the people, shall not perish from the earth."

There has always been some mystery surrounding his use of the words, "of the people." It is obvious that a government by the people is one run by commoners (as opposed to the landed aristocracy), and that a government for the people is one devised for the benefit of everyman (not just a hereditary class of kings or oligarchs), but what exactly did Lincoln mean by a government of the people?

I believe he recognized that insofar as we work, pay taxes, stay informed, and vote, we are not simply passive participants in the democratic process, but constitutive of democratic government itself.

So why do politicians insist on the obsolete dichotomy of government and governed? Is it because the citizenry need leaders to translate their will into effective policies? Or is this an elitist plot to exclude everyman from the esoteric operation of government? If the latter, I have a few words for you prodigies of incumbency occupying the plush seats of government: you didn't build that bridge or that superhighway. Somebody else made that happen.




Share This
Syndicate content

© Copyright 2013 Liberty Foundation. All rights reserved.



Opinions expressed in Liberty are those of the authors and not necessarily those of the Liberty Foundation.

All letters to the editor are assumed to be for publication unless otherwise indicated.