Category Archives: Politics – General

The Beneficial Nature of Derivatives

Posted on by
2

I don’t watch much television news. But when I catch a glimpse these days, it always seems as if some politician is loudly declaring the need for more governmental financial regulation.

Mostly, the politicos contend that financial derivatives are dangerous instruments that are contrary to sound public policy. We have to protect those poor souls who bet against John Paulson, don’t you see?

But the proponents of this view simply do not want to understand the nature of derivatives, just as most of the same ones didn’t want to understand the valuable nature of the risk management of natural gas prices that Ken Lay and Jeff Skilling contributed to markets 20 years ago.

Derivatives are simply a way for an investor to warn by trading – that is, by putting his money where his mouth is – that he has information about an upcoming shift in the markets. That facilitates a transparent and well-informed marketplace.

However, heavily regulating traders from taking advantage of that valuable source of information only makes it more difficult for valuable information about market shifts to reach the marketplace. How is that good for investors seeking as transparent and well-informed marketplace as possible?

An underappreciated cause of the Wall Street crisis was the underlying information failure. As opposed to restricting trading, we ought to be finding ways to bring more information to the market faster so that prices can be adjusted promptly.

Rather than demonizing folks who bet their money in bringing information to the marketplace, we ought to be encouraging them.

I won’t hold my breath waiting for that to happen.

The CIT lesson

Posted on by
1

CIT-Group Remember C.I.T. Group?

That was the company that Treasury Secretary Timothy Geithner orchestrated a $2.3 billion bailout for without requiring debtor-in-possession financing protection. Of course, after that federal bailout, CIT promptly filed for reorganization under chapter 11.

Well, as this WSJ editorial explains, there is a reasonably happy ending to the CIT saga — ìNot only did CIT’s filing not cause the end of the world for its counterparties or customers, but the company quickly emerged from bankruptcy and has embarked on an aggressive turnaround.î

Allocating risk of loss properly is really not rocket science.

Why Do We Impose the TSA on Ourselves?

Posted on by
4

Two items exhibiting the dubious judgment of government bureaucrats caught my attention today.

The first is that Securities and Exchange Commission going to try and make a fraud case against Goldman Sachs. Inasmuch as the SEC couldn’t uncover Bernie Madoff or Stanford Financial’s sketchy affairs despite being told about them, how on earth is the agency going to prove fraud in a transaction between sophisticated investors who knew what was going on? Expect a financial settlement any day now.

Meanwhile, let’s check out another government agency’s bumbling decision-making:

More than thirty organizations across the political spectrum have filed a formal petition with the Department of Homeland Security, urging the federal agency to suspend the airport body scanner program.Leading security expert Bruce Schneier stated, “Body scanners are one more example of security theater.

Last year, the organizations asked Secretary Janet Napolitano to give the public an opportunity to comment on the proposal to expand the body scanner program. Secretary Napolitano rejected the request.

Since that time, evidence has emerged that the privacy safeguards do not work and that the devices are not very effective. “At this point, there is no question that the body scanner program should be shut down. This is the worst type of government boondoggle — expensive, ineffective, and offensive to Constitutional rights and deeply held religious beliefs,” said Marc Rotenberg, President of EPIC.

And if Bruce Schneier‘s opinion isn’t good enough for you, take heed of what a leading security expert who is constantly on the front lines says about the scanners:

A leading Israeli airport security expert says the Canadian government has wasted millions of dollars to install “useless” imaging machines at airports across the country.

“I don’t know why everybody is running to buy these expensive and useless machines. I can overcome the body scanners with enough explosives to bring down a Boeing 747,” Rafi Sela told parliamentarians probing the state of aviation safety in Canada.”That’s why we haven’t put them in our airport,” Sela said, referring to Tel Aviv’s Ben Gurion International Airport, which has some of the toughest security in the world.

Sela, former chief security officer of the Israel Airport Authority and a 30-year veteran in airport security and defense technology, helped design the security at Ben Gurion.

Despite what the experts say, he wasteful airport security process that we have allowed the Transportation Security Administration to impose on us continues unabated at a substantial direct cost and an even greater indirect one.

It’s bad enough that the TSA’s procedures do virtually nothing to discourage serious terrorist threats. What’s worse is that the inspection process is really just “security theater” that makes only a few naive travelers feel safer about airline travel.

And if all that weren’t bad enough, the worst news is that once a governmental “safeguard” such as the TSA procedures are adopted, Congress has no interest in dismantling it even when it’s clear that process is ineffective, expensive and obtrusive to citizens. Stated simply, the TSA has become a jobs program for thousands of registered voters.

James Fallows sums up the absurdity of the situation well:

TSA + defense contractor + security theater vs Israeli expert + Schneier + common sense.

Hmmm, I don’t know what to believe.

A real bad mix

Posted on by
Reply

witch-hunt11 Regular readers of this blog know about the human carnage that results from abuse of the governmentís prosecutorial power.

Also, the immense damage that overly-broad application of child predator laws is inflicting on many citizens has been a frequent topic on this blog.

But, as Bill Anderson has been chronicling over the past month in regard to the Tonya Craft case, when both of these dynamics are involved in a particular case, the results are so troubling that they seem surreal.

We like to think that we have evolved to a point at which witch hunts are no longer possible. But the truth is that we are still quite capable of mounting them.

As Ayn Rand observed about those who abuse state power to further their supposedly altruistic goals:

"[T]he truth about their souls is worse than the obscene excuse you have allowed them, the excuse that the end justifies the means and that the horrors they practice are means to nobler ends."

"The truth is that those horrors are their ends."

Representing society’s new lepers

Posted on by
1

Leper colony_3 The increasingly draconian application of child predator and pornography laws has been a frequent topic on this blog.

Norm Pattis does a good job of summarizing the ominous information that defense counsel should provide to defendants and their families face when ensnared in such a prosecution. The bottom line is that the prosecution itself and the usual resulting prison sentence is only the beginning of the defendantís troubles. The aftermath is often even worse.

No one objects to putting away true child predators. But when the tough criminal laws that are used to imprison the child predators are turned against young people who made a mistake in an underage relationship or in viewing pornography, the stark penalties cause needless damage to lives, careers and families.

Organizations such as Texas Voices are informing the public of this tragic waste and the need for reform. It is a worthy cause for a constituency that has no political leverage. Consider lending them your support. 

Our troubling tax system

Posted on by
Reply

Another first rate Cato Institute video on the horrific cost of our overly complicated taxation system.

The Death of American Virtue

Posted on by
Reply

Death of American Virtue I just finished Ken Gormleyís The Death of American Virtue: Clinton v. Starr (Crown 2010) and recommend it highly to anyone who is interested in a thorough examination of the dynamics and circumstances that lead to the abuse of the governmentís enormous prosecutorial power.

What started out as an investigation into Bill and Hillary Clintonís small investment in a failed real estate deal (Whitewater) turned into a tsunami of litigation that practically paralyzed the executive and legislative branches of the federal government for months. Essentially, when the attorneys involved in the investigation couldnít pin anything of substance on the Clintons in regard to Whitewater, they jumped at the opportunity to set President Clinton up to lie in a civil deposition and before a grand jury in regard to his relationship with former White House intern, Monica Lewinsky.

Although few of the attorneys involved in either side of this battle come out looking good, this scrupulously even-handed book places most of the blame at the hands of Ken Starr and his Office of Independent Council prosecutorial team. The fact that Starr and his team thought they could get away with intimidating Lewinsky in a hotel room for over 12 hours without allowing her to contact her counsel speaks volumes of how out of touch they were with the pursuit of justice, not to mention legal ethics. That type of reasoning is why, on balance, Starr and his prosecutorial team come out looking worse than President Clinton and his defenders despite the fact that Clinton lied about his relationship with Lewinsky under oath on two occasions.

One of the most interesting of the dozens of fascinating anecdotes in the book involves Starrís dubious decision to de-emphasize the Whitewater investigation in favor of the Clinton-Lewinsky investigation. Hickman Ewing, who was Starrís deputy running the Whitewater investigation in Little Rock at the time the Lewinsky investigation exploded in Washington, had concluded that Hillary Clinton had committed crimes in regard to her involvement in Whitewater. Iím not as sure as Ewing that she did commit any crime ñ most of what Hillary did appeared to me to be the actions of a lawyer who was simply over her head in dealing with a faltering real estate development and a failing S&L.

At any rate, "[i]n Ewing’s eyes, Mrs. Clinton had lied to the [Office of Independent Council], had lied to the grand jury, and would keep lying until the cows came home if she was not brought to justice," writes Gormley. Ewing went so far as to draft an indictment of Hillary for conspiracy to conceal her true relationship with the Madison Guaranty S&L in order to ìavoid and evade political, criminal and civil liability, fraudulently secure additional income for the Rose Law Firm and safeguard the political campaigns of William Jefferson Clinton.î But because the focus of the investigation had turned toward President Clintonís relationship with Lewinsky, Starr and the other prosecutors outvoted Ewing and elected not to dilute their investigation with a prosecution of Hillary.

Thus, with more than a touch of irony, Ewing observed, "Monica saved Hillary."

The Pope and the NY Times

Posted on by
5

vatican It all seems so clear, doesnít it?

As this Laurie Goodstein/Michael Luo/NY Times article presents, Pope Benedict XVI and a chronically corrupt Roman Catholic Church have been complicit in the protection of child-abusing priests.

But as this William McGurn/WSJ op-ed notes, the Timesí reporters undisclosed feeding of information from plaintiffís lawyers who have made a cottage industry out of suing the Catholic Church raises as many questions as the ones the Times raises about the churchís handling of the sex-abuse cases. As McGurn notes:

The man who is now pope reopened cases that had been closed; did more than anyone to process cases and hold abusers accountable; and became the first pope to meet with victims. Isn’t the more reasonable interpretation of all these events that Cardinal Ratzinger’s experience with cases like Murphy’s helped lead him to promote reforms that gave the church more effective tools for handling priestly abuse?

Yeah, but reporting that would not sell as many newspapers. And also not comply with the objectives of undisclosed agendas.

Morality plays are comforting because they make it easy to identify and demonize the villains. The truth is usually more nuanced and complicated, but ultimately more fulfilling to understand and less likely to generate witch hunts.

Update: Father Raymond J. De Souza provides more insight into the Kiesle case.

Another absurd cost of security theater

Posted on by
2

Fed Marshals Service How much wasteful spending on security theater is enough?

Bruce Schneier links to U.S. Representative John Duncanís Congressional observation about the Federal Air Marshals Service:

Actually, there have been many more arrests of Federal air marshals than that story reported, quite a few for felony offenses. In fact, more air marshals have been arrested than the number of people arrested by air marshals.

We now have approximately 4,000 in the Federal Air Marshals Service, yet they have made an average of just 4.2 arrests a year since 2001. This comes out to an average of about one arrest a year per 1,000 employees.

Now, let me make that clear. Their thousands of employees are not making one arrest per year each. They are averaging slightly over four arrests each year by the entire agency.

In other words, we are spending approximately $200 million per arrest.

Let me repeat that: we are spending approximately $200 million per arrest.

One could quibble that spending per arrest is not an entirely fair measure of effectiveness. A good deterrent effect means fewer arrests, right?

Nevertheless, itís a pretty good indication of misdirected resources if a law enforcement agencyís officers are more likely to be arrested than to make arrests.