Category Archives: Politics – General

Our Congress at work

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capital_hill-758994 I swear, you can’t make this stuff up.

As regular readers of this blog know, I thought the federal bailout of AIG and various other Wall Street firms was a bad idea from the start because it prevented our bankruptcy system from allocating the risk of loss among the creditors of the financially-troubled firms.

Nevertheless, after various forces stoked a climate of fear, Congress approved broad bailout legislation even though it was clear at the time that few of the legislators understood what they were approving.

Not surprisingly, various large creditors of the financially-troubled firms did very well for themselves under the bailout legislation. Can’t blame them for protecting their shareholders’ interests, now can you?

So now, confronted with the fact that the bailout primarily benefited these large institutional creditors, various members of Congress and New York AG ("Attorney General" or "Aspiring Governor," take your pick) Andrew Cuomo are starting investigations into why AIG did precisely what it was supposed to do — i.e., pay its bills — with the bailout funds.

A little late, don’t you think?

Losing the grip on AIG

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resign The business blogosphere was abuzz yesterday over publication of AIG executive Jake DeSantis’ remarkable resignation letter to AIG CEO, Ed Liddy.

But what was even more remarkable was the reaction of some commentators that makes abundantly clear that common sense often evaporates in the face of big money.

DeSantis is a longtime AIG executive who worked for one of AIG’s profitable units. When AIG was going down the tubes last year because of losses incurred in the company’s untethered CDS trading unit, DeSantis agreed to stay on at a nominal salary and continue making profits in his unit in return for a substantial, but not over-market, bonus.

Such arrangements are not unusual for financially-troubled companies and might very well have been arranged even had AIG gone into a chapter 11 reorganization rather than become the subject of an ill-advised government bailout. In short, it’s a good thing for creditors of AIG — including now U.S. taxpayers — that the company retain people such as DeSantis who might make the company profitable and valuable again.

Or course, we all know what happened when AIG disclosed publicly that it had made the bonus payments to DeSantis and other AIG executives. They were demonized in a manner that has not been seen since Enron.

DeSantis’ resignation letter lays this all out and notes the indisputable hypocrisy of AIG executives and government officials who knew about these compensation arrangements, but who flamed the public uproar rather than provide the quite simple and reasonable explanation for the bonuses.

I mean really. Who could argue that DeSantis and the other similarly-situated AIG executives were treated in an abominable manner?

Well, up to the plate steps one Brian Montopoli, a CBSNews.com political reporter, who establishes beyond any doubt that he needs to remain a political, rather than business, reporter:

Mr. DeSantis is not a plumber. He is a Wall Street executive who has made millions of dollars. And it’s safe to assume that most plumbers don’t believe he has gotten a bad deal, AIG scandal notwithstanding.

In essence, Montopoli reasons that other people are working just as hard as DeSantis and they would gladly trade places with him if they could have made as much scratch as he has earned over the years. Given that DeSantis made a lot of money while he was at AIG, Montopoli thinks he is "tone deaf" for pointing out the injustice of being unfairly demonized and cheated out of the compensation that was promised to him in return for staying on at AIG under extremely difficult circumstances.

In short, those evil capitalist roaders deserve most of our scorn and they should just shut the hell up.

In the face of such addled reasoning, it’s hard to know where to begin. But let’s start by pointing out that Montopoli ignores the rather important fact that no one has stopped him or anyone else from attempting to compete with DeSantis in his area of business and make just as much money as he has over the years. The reality is that there are relatively few people who do what DeSantis does well. That’s why he commands a larger salary than most of us.

The fact that DeSantis makes more money than we do doesn’t mean that it’s OK to screw him out of his compensation or that he shouldn’t be heard to set the record straight when such an injustice takes place.

The WSJ’s Myopia Regarding Prosecutorial Misconduct

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Bully for the Wall Street Journal for running this editorial last week decrying the prosecutorial misconduct of the Justice Department in obtaining the conviction of former Alaska Senator Ted Stevens on ethics charges (Mike over at the Crime and Federalism blog has posted a copy of the defense motion describing the prosecutorial misconduct here).

However, where was the nation’s leading business newspaper when even more egregious prosecutorial misconduct was involved in criminal cases that the DOJ brought in regard to Enron, particularly the prosecution of Jeff Skilling?

Could it be that the Journal was invested in the DOJ’s myth regarding Enron?

How ironic that the WSJ condemns prosecutorial misconduct with regard to the case against a politician, but largely ignores it in cases against businesspeople.

Quotes of the Week

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quotesEmanuel Derman:

"The market wants Churchill and they keep tossing it Chamberlains."

John Nash (via David Henderson) on his progress out of mental illness in the late 1980’s:

"Then gradually I began to intellectually reject some of the delusionally influenced lines of thinking which had been characteristic of my orientation. This began, most recognizably, with the rejection of politically-oriented thinking as essentially a hopeless waste of intellectual effort."

Dick Armey:

"In reality, no one spends someone else’s money better than they spend their own. The charade of the current stimulus package, chockablock with earmarks to favored pet constituencies and virtually devoid of national policy considerations, is the logical consequence of Keynesianism in action. It is about politics and power, not sound economics, and I believe that the American people will reject it."

An unintended consequence of drug prohibition

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Cocaine While this post from earlier in the week highlighted the historical backdrop to the United States’ failed drug prohibition policy, this Telegraph.co.uk article passes along an unintended consequence of that policy that should put to rest any concerns about reconsidering it:

The Home Office has admitted that the street price of both cocaine and heroin has fallen by nearly half in the last ten years, making the most dangerous illegal drugs cheaper than they have ever been.

That means a line of cocaine can cost as little as £1, with an average price per line of between £2 and £4.

The average price of a pint of lager is around £2.75, although some pub chains have reacted to the credit crunch by cutting the price of a pint as low as 99p. A glass of wine typically costs £3.50.  .  .  .

Interesting historical perspectives

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history mattersCato Unbound points us to a couple of articles that provide insightful observations on two of the crises that are swirling around us these days.

First, William Niskanen cautions us regarding the fear-mongering that supporters of the Obama Administration’s fiscal stimulus plan are using to justify emergency passage of the plan:

This is the fifth time in my adult life that the president has asked for or asserted unprecedented authority on an expedited basis with little or no congressional review. Each of the prior occasions turned out to be a disaster. [.  .  .]

The only coherence in this plan is political, not whether it is an effective or efficient method to stimulate the economy.   .   .  .  Again, as in the four prior episodes, there is every reason not to rush to approve a program of such magnitude.

The primary reason for the current financial crisis is that many banks cannot evaluate their own solvency or that of their current or potential counter-parties, primarily because of the difficulty of valuing mortgage-backed securities and other complex derivatives, and neither TARP nor the fiscal stimulus plan addresses this problem.

Our political system, unfortunately, is strongly biased to try to protect people against the effects of a crisis without addressing the causes of the crisis. To Congress: Slow down. Make sure you understand the causes of the financial crisis and the potential solutions before you burden your children and your grandchildren with another trillion dollars of federal debt.

Your present course is best described as fiscal child abuse.

Meanwhile, as Texans continue to watch nervously to the south as the Mexican government teeters on the brink of losing control of large sectors of the country to drug kingpins, Dale Gieringer reminds us that the main cause of this crisis — U.S. drug prohibition — is the result of dubious public policy:

This week marks the centennial of a fateful landmark in U.S. history, the nation’s first drug prohibition law.  On February 9, 1909, Congress passed the Opium Exclusion Act, barring the importation of opium for smoking as of April 1.  Thus began a hundred-year crusade that has unleashed unprecedented crime, violence and corruption around the world —a war with no victory in sight.

Long accustomed to federal drug control, most Americans are unaware that there was once a time when people were free to buy any drug, including opium, cocaine, and cannabis, at the pharmacy.  In that bygone era, drug-related crime and violence were largely unknown, and drug use was not a major public concern. [.  .  .]

Early 20th-century Americans would be astounded to see what a problem drugs have become since the establishment of drug prohibition. Every year, two million Americans are arrested and 400,000 imprisoned for drug offenses that did not exist in their time.  Drug laws are now the number-one source of crime in the U.S., with one-half of the entire adult population having violated them.

Long gone are the days when Americans were free to keep opium in their closet; today, even gravely suffering patients are denied pain-killing narcotics by their doctors out of fear of federal prosecution. While smoking opium has faded from the scene, the country is now rife with more potent and lethal narcotics, which are widely sold on the illegal market. 

Seen in retrospect, drug prohibition ranks as one of the great man-made disasters of the 20th century. .  .  .

Thinking about Cheney’s remarks

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dick-cheney Many Americans were repulsed by the methods former Vice-President Dick Cheney used to consolidate and exercise war powers in the Executive Branch during the administration of George W. Bush.

Unfortunately, that controversy clouds many people’s judgment on Cheney’s many noteworthy accomplishments during his 30-year career in public service. He has been an extraordinary public servant.

My sense is that Cheney based his aggressive exercise of war powers during the Bush Administration in large part on classified information regarding the risk of more attacks on U.S. citizens after the attacks of September 11, 2001, a point that Barton Gellman notes in his seminal but generally critical book on the Cheney vice-presidency, Angler: The Cheney Vice-Presidency (Penguin 2008).

Cheney’s public comments from earlier this week appear to be consistent with my impression regarding his assessment of the risk of further attacks.

Given that, when you have 25 minutes or so, take the time to watch the video below of Irwin Redlener’s recent TED lecture on how the nature of a nuclear attack threat on the United States has changed, but our generally deficient approach to preparing for one has not.

As Dick Cheney says, fighting those who would levy such an attack on the U.S. is “a tough, mean, dirty, nasty business.”

Here’s hoping that the Obama Administration is up to the task.

Can Mayor White pull off another "win-win" deal?

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Bill White Although the developers of the proposed Ashby high-rise condominium project didn’t know it at the time, Houston Mayor Bill White did the developers a huge favor by putting up roadblocks to that project.

Can you imagine trying to peddle those condos in the current real estate market? Mayor White’s blocking of the condos ended being a classic "win-win" deal.

Accordingly, I wonder if Mayor White might be inclined to do the same thing in regard to Houston’s proposed soccer stadium?

Things aren’t looking too rosy for MLS soccer these days:

Major League Soccer is not quite ready to carry its own night on TV.

After two years of anemic ratings that started low and finished lower, ESPN executives decided to cancel the league’s regular Thursday night telecast on ESPN2 this season.  .  .  .

“We didn’t see the kind of ratings climb we’d like to, so we’re trying something different,” said Scott Guglielmino, ESPN vice president of programming.

The decision to cancel the regular Thursday night game marks a stunning turnaround for a league that two years ago believed it was creating destination programming that would increase interest in MLS. But even the 2007 arrival of David Beckham couldn’t boost MLS ratings.

MLS games averaged a 0.2 rating and 289,000 viewers on ESPN2 in 2007. Those numbers dropped to 0.2/253,000 viewers the following year. Its highest rating during that period was Beckham’s second regular-season game in August 2007 that earned a 0.6/658,000 households.

Canceling “MLS Primetime Thursday” is a tacit admission that MLS is not strong enough to anchor a regular prime-time slot on its own. ESPN is entering the third year of an eight-year rights deal that pays MLS $8 million annually.

So, MLS franchises are being downgraded by the most important sports programming network in the nation, which can’t be good for the value of those teams. The attendance at MLS games is poor, at least outside Houston and a couple of other cities. And the perception in sophisticated soccer circles is that the MLS is decidedly minor-league.

Meanwhile, Mayor White has already had Houstonians invest $20 million or so in buying downtown property at a premium price for the proposed soccer stadium, despite the fact that the city already owned nearby property that would have been perfectly fine for such a stadium. Moreover, the city will be on the hook for tens of millions of dollars more in infrastructure improvements if the Dynamo owners somehow cobble together their private financing for the stadium.

Now, it’s looking as if the Dynamo may not even have a viable league to play in by the time the proposed soccer stadium is completed in a couple of years.

Pull the plug on the soccer stadium, Mayor. It will be another "win-win" deal.

Oral history of the Bush White House

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Bush white house When you have a spare hour or so, check out this "Oral History of the Bush White House" by Cullen Murphy, Todd Purdum and Philippe Sands in the current issue of Vanity Fair.

The format of the article is a timeline recreating of the last eight years with participants’ observations on many of the major moments and a number of minor ones, which often end up being as instructive as the reactions to the major ones.

The entire article is a must-read, but the following observations of Kenneth Adelman, a member of former Defense Secretary Donald Rumsfeld’s advisory Defense Policy Board, will give you a flavor.

The context of Adelman’s comments are a confrontation that he had with the Defense Secretary several days after Rumsfeld had dismissed the significance of the breakdown of civil order in Iraq by publicly observing that "stuff happens":

So he says, It might be best if you got off the Defense Policy Board. You’re very negative. I said, I am negative, Don. You’re absolutely right. I’m not negative about our friendship. But I think your decisions have been abysmal when it really counted.

Start out with, you know, when you stood up there and said things—“Stuff happens.” I said, That’s your entry in Bartlett’s. The only thing people will remember about you is “Stuff happens.” I mean, how could you say that? “This is what free people do.” This is not what free people do. This is what barbarians do. And I said, Do you realize what the looting did to us? It legitimized the idea that liberation comes with chaos rather than with freedom and a better life. And it demystified the potency of American forces. Plus, destroying, what, 30 percent of the infrastructure.

I said, You have 140,000 troops there, and they didn’t do jack shit. I said, There was no order to stop the looting. And he says, There was an order. I said, Well, did you give the order? He says, I didn’t give the order, but someone around here gave the order. I said, Who gave the order?

So he takes out his yellow pad of paper and he writes down—he says, I’m going to tell you. I’ll get back to you and tell you. And I said, I’d like to know who gave the order, and write down the second question on your yellow pad there. Tell me why 140,000 U.S. troops in Iraq disobeyed the order. Write that down, too.

And so that was not a successful conversation.

Playing fair

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Ted Stevens So, now Alaska Senator Ted Stevens is finding out that some federal prosecutors do not play fair (H/T Doug Berman). Of course, we’ve known that for quite some time down here in Houston.

Oh well, at least the mainstream media has strong incentives to expose such abuses in the case of a major political figure.

But do the same media incentives exist in the prosecution of a wealthy and unpopular businessperson?

What if the reporter most responsible for such a prosecution is, might we say, not particularly motivated to expose prosecutorial abuses? Or what if the reporter for the nation’s most prominent business newspaper is so conflicted that he ignores the abuses even when they are playing out in front of him?

And the foregoing doesn’t even consider what we should think when one of those reporters in another case actively attempts to help investors score on their positions at the expense of a company and its chief executives.

It’s hard enough to maintain innocence against the overwhelming resources of the federal government when the prosecution plays fair. It’s next to impossible to do so when it doesn’t. What chance is there if the people responsible for exposing prosecutorial abuse have incentives that override that responsibility?

Ask Jeff Skilling.