Tuesday, December 30, 2008

"Try a Little Tenderness"

I just put up what is most likely my final, and longest, post of my current stint at Upturned Earth here. The crux of my argument is that the great flaw in the conservatism of the last decade or so is that its public face has become dominated by a dogmatism that essentially dehumanizes anyone that would dare disagree with that dogma. Importantly, this dogmatism is not particular to any one sect of conservatism (or libertarianism for that matter), but instead infects the elements of each sect that proudly consider themselves part of the Republican "base."

The summary paragraph is below:

And that, to me, is the central problem with conservatism both today and in the recent past. By allowing so many of its spokespeople to consistently portray any number of groups as essentially traitors to their country, those spokespeople guaranteed that no one would be willing to listen when conservatives actually tried to reach out to those groups on other issues. Simply put, they did everything they could to ignore Madison’s plea for a society with ever-shifting factions, and instead helped create a culture with only two permanent factions: "us" and "them."


But, please, read the whole thing.

A Comedy and a Tragedy

First, the Comedy - the Blogosphere's best satirist and all-around best citizen of Blogtopia, Jon Swift, has his annual compilation of the year's best blog posts, as chosen by the bloggers themselves. The list is well worth checking out. My regular readers will be familiar with the post I chose for this site (hint: it's linked to on the left of this page).

Second, the Tragedy - my post this morning at Upturned Earth discusses President Bush as a sad and tragic figure, undone by his own personal weaknesses. I'll hopefully have a follow-up to that post later today before my stint at Upturned Earth comes to a close, but in the meantime, check this morning's post out.

Monday, December 29, 2008

The Downside of Freedom

My big post for the day at Upturned Earth discusses the great paradox that is human freedom - it can often have some pretty unpleasant results and can even provide a breeding ground for ideas that are antithetical to freedom to the point that under some circumstances freedom can bring about its own downfall. I discuss a couple of common solutions to this paradox, and argue that both the best and worst thing about human freedom is that it provides a mirror of ourselves.

I think it's a pretty good read, so please read it here.

Sunday, December 28, 2008

Media 'R' Us

I have a lengthy post up about media, torture, and triviality over at Upturned Earth. I think it's one of my better posts in awhile, although others may differ.

Money quote:

So, why is there so little demand for substance and so much demand for vapidity? The troubling answer, I suspect, is that we - as a society, culture, and even as a species - are terribly uncomfortable with accepting responsibility for our own collective and individual judgments. It is much easier to blame our problems and
social or cultural failures on individual "rogue" politicians, businessmen, athletes, or celebrities than it is to question our own role in creating the culture that allows those supposed "rogues" to thrive. Above all else, we cannot bring ourselves to question the fundamental health of the systems in which we most believe.


As they say, read the whole thing. Comments are open there.

Turning Up Earth

I'm honored to have been invited for a second stint guestblogging for John Schwenkler at Upturned Earth for the next couple of days. Look for lots of Enduring blogging there between now and Tuesday.

Monday, December 22, 2008

"Because We Said So"

At his new Culture11 digs, John points to a Washington Post article about the impending February 10 National Bankruptcy Day, about which I have written prolifically in recent days.

One of the few saving graces with respect to this legislation, which will devastate small, medium and domestic businesses in numerous industries, has been a recent opinion letter which held that the bill's ban on phthalates would apply only to products manufactured after February 10 and not to pre-existing inventory that was manufactured prior to the statute's effective date (products containing any amount of lead, no matter how unlikely to be "mouthed" by a child or to contain the legitimately dangerous lead paint, are not so fortunate). This exemption for some pre-existing inventory is important because without it, businesses would be forced to destroy products already on their shelves, even if those products were legal when manufactured. The exemption is particularly important to small and medium sized businesses because of how businesses of that size order and/or manufacture their products many months in advance in order to take advantage of bulk discounts; larger businesses can obviously turn over large quantities of inventory much quicker than small businesses and, moreover, were much more capable of being aware of this law's potential effects as early as October/November of 2007.

The Natural Resources Defense Council, having solved all "Natural Resources Defense" problems, is apparently not happy with the Consumer Products Safety Commission's issuance of the exemption for pre-existing phthalate inventory. As such, they have sued the CPSC to make sure the law, with its $100,000 minimum penalties, is enforced in as draconian a manner as possible.

In defense of this lawsuit, the NRDC's spokesperson expressed little sympathy for businesses that will have to close:


The problems of the retailers and the toymakers are beside the point, Colangelo said. "Congress decided these toys are unsafe," he said. "That’s critical here. […] We’re talking about something that Congress decided was unsafe and shouldn’t be on the shelves."


So why are these products so particularly unsafe that it justifies forcing hundreds of businesses to close in the midst of a severe recession? "Because Congress said so." And why did Congress say so? "Because they're so particularly unsafe that it justifies forcing hundreds of businesses to close in the midst of a severe recession."

Again, if ever there was a time for conservative blogospheric activism, this would be it. Unfortunately, the Malkinized portion of the Right (also the most activist portion) is much more concerned with talking about the NY Times' latest flub on the all-important issue of Caroline Kennedy's qualifications for Senator, not to mention Obama's amorphous ties to the equally important issue of who the 800th Most Corrupt Chicago Politician of All Time spoke with and when, to even be aware that this problem exists and can realistically be prevented.

(Cross-posted at Donklephant).

A Good Week

It would seem that the last few days have been a rather good time to appear on the Publius Endures blogroll or to otherwise be affiliated with this site.

For starters, there is of course my first foray into journalism at Culture11, combined with my new affiliation with Donklephant.

Next, Scott Payne of Politics of Scrabble has been doing a well-deserved guest-blogging stint at the well-regarded site The Moderate Voice.

Then SSFC of Social Services for Feral Children and also, apparently, Popehat has been invited to do a stint at the legendary blawg Overlawyered.

Finally, and most notably, John Schwenkler has officially moved into the domain of the A-list blogosphere, with his site moving over to Culture11, where he will now join the ranks of those who are actually paid to blog. To say John deserves this is blindingly obvious, and this most certainly represents a notable step in, as John calls it, "Culture11’s ongoing attempt at complete and utter dominance of the world of online media." Or, as I call it, Culture11's de-Malkinization of the political Right.

Congrats to all!

UPDATE- John's move is complete, or at least close to it. It looks like his new homepage will be here. I assume this means you can update your feeds and/or blogrolls accordingly.

Thursday, December 18, 2008

Our Flawed Debate Over Education

As usual, Freddie DeBoer has a worthwhile post up today. Discussing the now-dormant but neverending debate over education policy, he writes:

As someone who is an ardent supporter of public education, and a committed opponent of vouchers, one of the most frustrating aspects of the conversation is
the amount of work done by completely unfounded and unsupported notions about
widespread public school failure. Simply put, a huge difficulty in our discussion on education is really paralyzing lack of reliable data on which schools are succeeding and which are failing. We just don't know, really, how many school districts are reliably good, how many reliably bad, and we really don't know about individual school quality within those districts. But when I argue education policy, again and again I find foes of public education allowing the assumption that any given public school has to be shitty to carry their water for them. This is made especially frustrating by the fact that these are often people who are usually very circumspect in the way that they construct data, and would never countenance an opposing argument that relied on so much assuming and anecdotal evidence. But when it comes to public school, where it benefits them, they can just talk as if it's safe to assume that any given public school is probably no good, and certainly worse than a private alternative. It's a failure of elementary good faith argument and analysis.


I think this identifies a very real problem in the debate over vouchers, although I think he underestimates the extent to which it exists on both sides (like Freddie, I am a product of the public schools).

One of the biggest problems with the debate over vouchers/school choice is that it does tend to get bogged down in the question "public schools: good or bad?" This is a problem, for both sides, because it is inherently a normative question, but is couched as if it can be scientifically proven - of course, depending on your side of the debate, that science just happens to agree with you.

The real question, in my mind, is how much control individual parents should have over their child's education? This is still a normative question, but it at least does not hide its subjectivity, allowing us to debate on more or less common ground.

For many - maybe most - parents, the local public school does an adequate, even more than adequate, job meeting expectations in terms of quality, safety, and, yes, values. The trouble is, for some unknown but still significant number of parents, a local private school or homeschooling would be a much better fit. Maintaining a system that only incentivizes those parents keeping their children in the public schools is rife with problems.

For instance, if those parents become a powerful political force within their school system, you will wind up with huge battles over curricula (see Kansas, State of). Even if those battles are settled relatively peacefully, they often result in significantly watered-down curricula that wind up leaving out or whitewashing critical issues so as to avoid controversy. Worse, in some cases these local compromises can wind up having fallout on education throughout the country (take a look at how right wing political correctness in Texas and left wing political correctness in California affect textbook content nationwide).

There are a whole bunch of other issues that you can pretty easily think of that wind up undermining the ability of some individual parents to get their children anything resembling the type of education they would like, solely because of the district in which they live, and where preferences are particularly subjective. Some other examples: vending machines - ban or keep?; do metal detectors deter violence more than they make schools feel like prisons?; Does a teacher's advocacy of a political position indoctrinate students more than it encourages critical thinking? And so forth.

Importantly, changing the debate to focus on the question of "how much control do we give individual parents over their child's education" avoids the moral absolutism and elitism that comes with the existing debate, which makes it difficult to discuss on terms that all sides understand. Instead, changing the debate puts us all on something of a sliding scale in which individuals are forced to recognize the complexity of the issue. To be sure, there is a temptation to simply answer the question as if parents should have total control - but there are few who actually believe that, at least when push comes to shove. It is, after all, close to universally accepted that a parent has no right to prevent their child from receiving an education or has a right to abuse their child in the name of that child's "education." Similarly, I know of no one this side of Pol Pot who would argue that parents should be left out of the education process entirely. Simply put, thinking of the debate on these terms throws almost all of us into that "mushy middle" where we are forced to actually engage in a real discussion rather than simply throw ideological grenades.

"Can You Change My Grade?"

Thoreau complains about needing a personal secretary to handle all the complaints he gets from students about their grades.

But sometimes, students have legitimate gripes. For instance, this DC Councilmember was, long ago, my Constitutional Law professor. The exam, IIRC, included a multiple choice section (based, of course, on the professor's interpretation of ConLaw). Is it possible I can have that exam retroactively regraded?

Actually, if the proposal were a lot more narrowly tailored, I don't think it would be that problematic from a purely Constitutional standpoint. For instance, the Council could create a regime of probationary registration wherein training needed to be completed within a certain period of time. Under this proposal, training would only be required for the applicant's first registration, with exemptions for those who could present evidence of prior training. A basic gun safety course only takes an hour or two, and there is probably a "compelling" or at least "important" government interest in preventing accidental discharges, especially in an urban environment.

Wednesday, December 17, 2008

Getting a Seat at the Table

It's been an extremely busy day here at Publius Endures, to say the least. Anyways, I now have a follow-up to my Culture11 piece posted at Donklephant (and cross-posted in pertinent part below), where I will now be contributing from time-to-time.

My most recent piece at Publius Endures dealt with a piece of legislation that largely fell under the radar: the Consumer Product Safety Improvement Act of 2008, which I argued needs significant revisions regardless of your political viewpoint. I have a much better piece (read: actual journalism!) up as of this afternoon at the excellent conservative site Culture11. The act, passed with almost no opposition, appears to represent the confluence of good intentions gone wrong, poor legislative incentives, and bad economics, with the added bonus of being particularly devastating to small and medium-sized domestic businesses. In other words, as enacted, the legislation should offend the sensibilities of almost any ideology.

The basic facts of the legislation appear, at first glance, to be quite reasonable. In essence (and although it also addresses several other subjects), the legislation is a response to the imported toy scandals of 2007, in which several mass-produced toys had to be recalled for containing levels of lead far in excess of the legal limits. As a result, near-unanimous passage of the legislation was almost guaranteed from the start - after all, who wants to be FOR lead in childrens’ toys in an election year?

The problems arise in the actual details of the legislation, which are voluminous and, worse, vague. As I write in the Culture11 piece (please do go read the whole thing!):


The biggest problem, perhaps, is that the law implements a new third party testing requirement on every SKU number of every children’s product (including individual titles of children’s books), testing that can run anywhere from a few hundred dollars to tens of thousands of dollars, depending on the type of product. It is unclear how often this testing will be required; however, the wording of the legislation suggests that it could be as often as every outgoing shipment. What is clear, however, is that large imported shipments will only need to be tested upon their arrival in the U.S.

The new law also requires a new type of labeling on all children’s products, in which these products must be stamped with various information for tracking the product, including the date of production. While seemingly easy to comply with, this will actually require expensive retooling for manufacturing machines. The law further mandates that suppliers provide their distributors with certifications for each shipment of each product, a bureaucratic nightmare that many businesses will likely violate occasionally due to simple human error.

Yet punishments for violations of the law are draconian — $100,000 minimum fines
for each violation up to $15 million, plus possible criminal sanctions. In addition, it is still possible that the law will be implemented in such a way as to turn some pre-existing inventory into contraband when the law takes effect on February 10, 2009 (unless this changes, existing inventory would have to be discarded, immediately driving many businesses to close and/or default on loans).


The piece goes on to discuss the way in which this legislation was passed, and how free market advocates can prevent legislation such as this in an era where “deregulation” is a four-letter word.

For those answers you’ll have to read the whole thing, but I did want to discuss something here that was not relevant to my point in that piece.

One of the most amazing things that came out during the course of my research was just how little this law is going to do to improve toy safety - indeed, it will most likely make children’s products more dangerous by causing the CPSC to focus on catching paperwork errors instead of finding dangerous products. This is true even though the bill significantly increases the agency’s budget.

Even more amazing was just how easily Congress could have passed legislation that actually would have improved safety. The people I interviewed for the article agreed that one of the best things that could have been done in the wake of the toy scandal was to force the CPSC to better prioritize its enforcement responsibilities. In essence, one of the reasons so many lead-laden toys got through last year was that the agency treats most enforcement issues as being created equal (unless, of course, there’s a death involved). This encourages a focus on finding problems that are easily found, but are usually relatively harmless - things like paperwork errors, for instance. It’s the same type of problem Megan McArdle says faced the SEC with respect to the Madoff case. Instead of fixing this problem, the legislation actively makes it worse by giving CPSC more technicalities to enforce.

Another possible solution that was mentioned to me was the idea of “component testing.” Under component testing (which the CPSC actually is, apparently, considering in some form), you require testing only of individual components instead of the final product. This is less costly on a per-test basis and allows manufacturers to make multiple products using the same components. So, for instance, a small children’s book publisher would only need to test its ink, paper, and coverboard rather than having to test every single title.

Yet neither of these easy solutions was even considered by Congress. Instead, one of my sources told me that Congress’ response to just about any proposed changes or objections was, effectively, “the National Association of Manufacturers is on board, as are Hasbro and Mattel, so we don’t really care what you think.”

This presents a major problem for small business (unless one of the major parties adopts something akin to the position I advocated in my Culture11 piece), to wit: How do small businesses defend themselves against onerous laws and regs when they can’t get a seat at the table?

One obvious answer is to organize into a more focused advocacy group, but even this doesn’t always get you a seat at the table. For instance, so far as I can tell (though I’m not 100% certain), the Apparel and Footwear Association (which, unlike other advocacy groups, is not dominated by its biggest members) did spend a substantial amount of effort pushing for changes to the legislation. Yet none of those changes made it through, suggesting they received essentially the same response.

And, finally, some breaking news. I just now found out that the National Association of Manufacturers (which supported the legislation) is petitioning the CPSC to implement regs that would eliminate a lot of the hardship to be caused by this law. I have to think about what this means…but I don’t think it’s inconsistent with the explanation I gave in my C11 piece.

More on "National Bankruptcy Day" OR "The Elmo Who Stole Christmas"

I am honored to announce that I was invited to do a bit of actual journalism at the fantastic conservative site Culture11 about the little bit of fallout from the Great Lou Dobbs Toy Scare of 2007 known as the "Consumer Products Safety Improvement Act of 2008," which I initially wrote about last week as a wonderful project for non-partisan blogger activism.

The first half of my C11 piece goes into much more detail about the effects that this legislation is going to have on small and medium size businesses. The second half takes an interesting turn:

Although this law presents a case study in self-defeating legislation, it also poses an important dilemma: how do you successfully fight bad legislation and regulation when doing so puts you on the side of something that virtually anyone would agree is an evil, like lead-laced toys? The background of this legislation may actually provide the answer.

For both the background and the answer, you'll have to read the whole thing. (Hint: certain friends of this site will probably be pleased with the answer).

Politicians as Moral Defectives - The Herr Blagojevich Third World Thugocracy Edition

A good friend and fellow libertarian blogger partially inspired the title. I lived in Chicago for several years so I am fully aware of the sorts of scumbags, lowlifes and other esteemed members of society that gravitate towards the Chicago political machine or Illinois politics in general. I vividly remember the car accident that claimed the lives of six children that ultimately uncovered a license-for-bribes scandal that, among other things, put former Governor George Ryan in jail for a 6 1/2-year term. Ryan's arrogance through the whole episode was sickening.

I never paid much attention to Blagojevich nor was I living in Illinois when he was elected governor. Nonetheless, even by politician standards, the man is a disgrace. His little payola scam for the Illinois Senate seat notwithstanding, a recent column by Joe Queenan in the Washington Post describes one of Blagojevich's finer moments (via Cato-at-Liberty):

What’s far more worrisome is Blagojevich’s bizarre confrontation with the Bank of America. The day before he was arrested on charges of massive corruption, Blagojevich visited a group of striking workers at a North Chicago firm called Republic Windows & Doors. After being laid off the week before, the employees had begun a sit-in, demanding benefits they were still owed by their employer, which said it could not meet their demands because the Bank of America had cut off its financing. At this point, Blagojevich informed bank officials that unless they restored the shuttered window-and-door company’s line of credit, the state of Illinois would suspend all further business with Bank of America. A few days later, the bank caved in and ponied up a $1.35 million loan.

The idea that the governor of a state as prosperous and important and sophisticated and upscale as Illinois would make this kind of threat is terrifying. Even more terrifying is that Bank of America saw no alternative but to give in. Yet even more terrifying is that nobody outside Chicago seems to have gotten terribly worked up about the situation, riveted as they are on the governor’s more theatrical transgressions. But peddling a Senate seat or using scare tactics to shake down a newspaper are nowhere near so serious a menace to society as letting the government arbitrarily intervene in financial transactions between banks and creditors. A crooked governor we can all handle. But a governor who capriciously decides which commercial enterprises a bank must finance and which it can ignore is a scary proposition indeed.


Rome wasn’t built in a day. But get the wrong politician in office, and you can burn it in a day. What the grandstanding Blagojevich reportedly attempted to do in the Republic Windows vs. Bank of America set-to is precisely the sort of thing that happens in China, where the government routinely orders up bank loans to politically connected firms. Whether a failing company actually deserves financing becomes irrelevant to the conversation; the government doesn’t want a company to fail, so it decides that it must not go under, even if it’s run by clowns, stooges, gangsters or in-laws. (emphasis added)

Not to give New York State politicians a pat on the back (unless it's hard enough to cause, ahem, discomfort), at least when they attempt to shake the citizenry down, they make a half-hearted (if not transparent) attempt under the guise of taxation, "user fees" or something that gives the aura of legitimacy like a state budget (i.e taxing digital downloads). Blagojevich's act is nothing more than a direct shakedown. This is the act of a low-level criminal thug. Politicians interfering with financial transactions is nothing new but to see the governor of a state behave in this manner in the brazen manner that he has sets a new low. I'm speechless.

Not the media's fault on this one...

My friend Henry posted a link to a press release that suggests that 77% of people surveyed believed:

the US media is making the economic situation worse by projecting fear into people's minds. The majority of those surveyed feel that the financial press, by focusing on and embellishing negative news, is damaging consumer confidence and damping investment, making a difficult situation much worse.

Before I comment further, I urge readers to consider the following passage from a contribution from a Cato Unbound reader to this month's discussion about the financial crisis (footnotes excluded):

As the subprime crisis developed and appeared to recede — after the implosion of Countrywide, which had spun off IndyMac, which was seized by the Feds last summer — and after Bear fell into the trap — pundits began to argue what market would go next.

In this context, it seems important to note that IndyMac is said to have gone down in a classic bank run, albeit they held plenty of Alt-A mortgages, and that SEC chief Christopher Cox claimed a run on the hedge funds was what ultimately brought Bear down.

Many market watchers have claimed or have been given credit for “calling” the present crisis sometime this summer, but a creeping trust problem seems to have been corroding the undersides of market structures since Autumn 2007, permabears aside.

In retrospect this seems about the time loss of confidence began to spread from one market to another. For example, popular pundit Jim Jubak of MSN Money argued on January 18th that subprime would be dwarfed by issues with CDS. The recent Nobel Prize winner Paul Krugman likewise predicted that credit crunch difficulties in “obscure” markets would spill over to normal people in the regular economy in a comment about student loans on February 13th.

The specific implications of this for Wall Street investment banks’ MBS issues seemed to emerge last Spring. One example is an April 10th Financial Times blog posting in which commenters roast Goldman, predicting not just more write-downs, but suggesting insolvency — and wider troubles that would “eradicate book value across the financial system.” The Wall Street Journal also ran an article at the time.

The late, widely admired banking expert Tanta blogged a May 22nd Reuters report on CalculatedRisk, noting that defaults on certain vintages of subprime reached 37 percent, or “4 percentage points higher than previous estimates, S&P said.” She noted other figures showing prime defaults were also rising above expectations.

Recall that S&P had been rating these kinds of deals. It seems safe to assume that the extra 4 percent S&P hadn’t expected certainly wasn’t accounted for in the models made years ago, when its employees were already squirming as they force-rated deals.

In short, everyone called this crisis. It loomed openly over the public’s head like Hiroshige’s wave all summer as the MSM studied its navel to find yet more things to say about the psychological aspects of the Clinton-Obama relationship.

Business reporters and bloggers were sounding the alarm, but the election horse race appeared to keep MSM editors from promoting this story out of the back sections. If the press is a watchdog, does it have an obligation to our democracy beyond partisan election fever?


I am not going to claim any credit for calling this crisis because I had no idea it would be as significant as it has become. Based on my prior and current experience trying to work within these capital markets, problems were painfully evident going back to the summer of 2007. Even after Treasury Secretary Paulson said that the crisis was under control, conditions in the real estate markets were still deteriorating, both in terms of property values and financing availability. To this day, the public debt market (a $240 billion per quarter credit machine at its peak) is virtually shut down. The more I read on this situation and understand the drivers involved, the less and less this all becomes a mystery.

As such, I find it absurd that the same financial press who attempted to sound off the warning bells to the general public consumed by election year politics is somehow "projecting fear". I can understand if people are fearful about what is going but that has less to do with the media and more do to with the fact that the news is just plain awful. Blame for that should and does lie elsewhere.

As a minor matter, the same article has this rather odd tidbit:


Richard L. Scheff, a national expert on corporate liability and white collar crime issues, warns media that they could potentially be exposed to liability despite apparent constitutional protections:

"Although statements by the media are protected by the First Amendment, the survey results demonstrate that the public believes that the press bears some responsibility for the lack of confidence in the economy. One would hope that these media would act less out of self-interest in these times of national crisis. I could see creative lawyers attempting to pierce constitutional protections by constructing theories of liability for losses they may allege were driven by irresponsible news releases," said Mr. Scheff, vice chairman and partner with Philadelphia-based law firm Montgomery McCracken Walker & Rhoads.


I suppose what strikes me about the quote is that I have never seen or heard about anything of its kind where there has been a conflict between the First Amendment and corporate liability. Perhaps trained-legal minds know something I don't. As frivolous as it appears, I would think that such a legal challenge would fail miserably.

Tuesday, December 16, 2008

Substituting One Problem for the Same Problem...

Eric Martin's recent post The Open Road to Serfdom suggests that regulations that would reduce the conflict between issuers and the ratings agencies is "a good to place to start". A post by Matt Yglesias suggests that it makes a lot of sense to consider a public agency that rates fixed income instruments. Matt's justification for a public ratings agency is as follows:

All of which is a long-winded way of saying that it would make a lot of sense to try to develop a public agency that rates credit instruments. Wouldn’t stop anyone from relying on private sector ratings if they wanted to. Nor would it guarantee that the public agency would always get things right. But it would provide a check on some of the distortions that the current system produces.


I don't necessarily agree. Yes, the agency-issuer conflict was, I believe, a factor that led to some of the more serious problems in the capital markets, but this was not the only contribution to the problem given to us by the ratings agencies. There were two others:

1) To paraphrase Roger Lowenstein, the ratings agencies were using 100 years of historical weather data in Antarctica to forecast the weather in Hawaii as far as rating mortgage backed securities. Nothing in the historical data could have addressed the then-current lending environment. Furthermore, nothing in the historical data could have given any warning signs to the trouble that was to come. Am I to believe that a public ratings agency, given the same data and, most likely, an underwriting methodology not dissimilar to what a Moody's would probably do would have been able to accurately rate these securities?

2) The increased complexity of exotic structured finance products like mortgage-related collateralized debt obligations presents a signficant knowledge problem for any ratings agency that is tasked with having to rate them. In these situations, the people that would be the best help to those analysts responsible for understanding them would be the underwriters themselves. In a real-time, fast-paced capital markets environment where everything has to be done yesterday, who else are the analysts going to reach out to? Assuming a public ratings agency was to rate mortgage CDO's, how would the process been any different?

I think difficulties in dealing with an ahistorical situation in the market, rating complicated structured finance products that, in hindsight, clearly did not understand combined with the relationship between the issuers and the ratings agencies all played roles in this situation. With respect to (1) and (2), while I am not suggesting that the ratings agencies were afflicted only by bad circumstances (there are steps they could have taken especially with due diligence and document verification), it is not clear to me how these "current distortions" could have been mitigated by a public ratings agency.

Even if a public ratings agency would, in effect, directly eliminate any conflict between issuer and ratings agency, it would be incredulous to believe that a public ratings agency would not be subject to the same sort of pressure from politicians, lobbyists and interest groups, all of whom are looking out for the interests of their own respective factions. Like any regulatory body, this agency would not turn out to be some neutral, virtuous gatekeeper who will only keep market participants in check but rather another regulatory body that will ultimately be influenced by those it is supposed to keep in check. Eric may want to believe that such a thing is the modus operandi of the modern GOP. I respectfully disagree. This is the modus operandi of government. Whether it is the Securities and Exchange Commission today or the Interstate Commerce Commission of 100 years ago (as documented by Milton Friedman in Free to Choose and Capitalism and Freedom), the story is the same.

Personally, I think the ratings agencies may have made the mother-of-all-screw-ups or something close to it. That said, I am not convinced that had a public ratings agency been in place, the crisis would be any less than it is. I am also not convinced that the appropriate response is a public ratings agency for the reasons I mentioned above.

As a final note, all of what I wrote above ignores two other considerations which I don't spend a lot of time addressing and will only mention here: 1) the fact that the ratings agencies cover a lot more than mortgages and nothing of this magnitude has reared its ugly head elsewhere, which may suggest that the agency-issuer conflict with respect to, say, municipal bonds, isn't as much of an issue; and, 2) indirectly addressing a question posed to me in a previous post, the public debt markets that were dependent on being able to successfully sell mortgage backed securities have shut down. Investor demand is nonexistent and origination volume is next to nothing for the year. Furthermore, for a lot of reasons, some having to do with basic market principles and others a revamped regulatory environment, it is very, very unlikely that this anomoly in the capital markets will rear its head again for a long time, if ever.

Thursday, December 11, 2008

Bloggers of the World, Unite!

John draws attention to an issue that has escaped the notice of virtually the entire public and ought to be a nightmare issue for not only free-market libertarians and conservatives, but - perhaps more importantly - also for ascendant liberals and progressives. It is an issue that bespeaks the results of regulatory capture by powerful and/or well-organized interests. As Scott Payne of the excellent site Politics of Scrabble writes in the comments to John's post, it is thus an issue that is "ripe for a little grassroots blogospheric activism."

It seems that earlier this year our Congress passed - and President Bush signed - its official response to the Lou Dobbs Toy Scare of 2007. In the rush to pass this legislation (which sought to solve a problem that was linked to shockingly few actual injuries and/or deaths), Congress imposed with little debate a set of requirements that will be extremely costly for small manufacturers and importers of childrens' products to comply with. Specifically, these requirements include mandatory testing by government certified "third parties" of just about every conceivable product that is designed "primarily for children under the age of 12." They also impose new labeling requirements that will mandate each unit be labeled with a date and batch number. This is, by the way, without regard to where the product was manufactured - domestic products, products made in China, products made in Hong Kong, and product made in Europe must all comply. While one must always be careful in trusting the data provided by interest groups, one group of affected small businesses says that the testing alone will likely run in the neighborhood of $4000 per product. Importantly, as far as I can tell, this testing needs to be conducted on each separate shipment of a product, meaning the business needs to pay the testing fee every time they bring in (or, if they are a manufacturer, send out) a new shipment.*

The marginal costs of these requirements are considerably smaller for larger - and more politically organized and powerful - companies, who can bring in larger shipments, and thus distribute the testing fees amongst a far larger quantity of products.

If my reading of the per-shipment testing requirements is correct, the currently proposed rules would also encourage even more importation of mass-produced childrens' products overseas: imported mass-produced products can come in larger shipments and only need to be tested upon importation. Meanwhile, domestically manufactured products must have every shipment to a distributor tested, which is likely to be a relatively small quantity for a variety of reasons. Obviously, small-run imported products will also be disproportionately affect (again, assuming my reading of the testing requirements is accurate, which it might not be).

But even if there is no per-shipment testing requirement, the proposed rules would require virtually any version of a product to be separately tested. If, for instance, a business makes three products that are identical in every respect except their color, then each of those products will need to be tested.

It's probably safe to assume relatively few legislators actually read the contents of this legislation. It's also entirely possible that these effects were mere oversights, or at least simply the result of a lack of organization by the groups most affected. Then again, it's also possible that this legislation (and more likely the resulting regulations) was more or less drafted by the very groups it was meant to restrict. Whatever the cause, the fact is that this is a law and set of regulations that only serves to hurt small businesses while granting big business an even stronger control over the relevant market.

Fortunately, there is time to at the very least pass some form of remedial legislation or seek the scaling back of the proposed regulations. For that reason, and because this issue unites the common interests of principled liberals, conservatives, and libertarians, I can't think of many issues better suited for an non-partisan, non-ideological activist campaign. I'm not looking for terribly much here - I'm no Kos or Michelle Malkin. But a few phone calls and letters to Congress couldn't hurt.

For the record, an outstanding summary of the problems with the new law and rules is located here.

*I may be wrong about this assertion, though, as there is an awful lot of ambiguity in the legislation and in the rules that have been put forth so far.

Wednesday, December 10, 2008

Blagojevich Complaint Reveals Much

There's been a lot of speculation of who informed on Rod Blagojevich, with the most popular contender seeming to be Rahm Emanuel. Clive Crook has suggested that whoever in the Obama campaign received the solicitation had an obligation to come forward with what happened.

I initially was going to agree that Emanuel was the most likely informant. I was also going to argue that the Obama campaign stood to lose a lot if it was not the informant. But then I actually read the Complaint and affidavit. It's pretty clear from the complaint that: 1. If the allegations are true, Blagojevich is startlingly corrupt - more so than has been reported; and 2. there is nothing to suggest that Obama or anyone closely affiliated with him was aware of what was going on. It's also pretty clear that the allegations regarding the Senate appointment are the least of the charges against Blagojevich since there's no evidence that the crime was ever completed, which can't be said about the other allegations.

It looks like a lot of this arose as an offshoot to the Rezko trial. The wiretapping and bugging began in October - before the election and before Emanuel was rumored as a Chief of Staff candidate, and it looks like Blagojevich has been under investigation for much longer than that - at least since April. According to the complaint, the wiretap and bug were placed after the prosecution was informed about some illegal (quid pro quo-type) fundraising activities that Blagojevich was conducting in an attempt to maximize his cash on hand before a change in campaign laws at the end of the year. The informant was someone who was "associated with" Blagojevich, "assisted in campaign fundraising for" Blagojevich, and is somehow connected with an investigation of the Illinois Health Facilities Planning Board.

Most of the complaint is concerned with allegations of bribe soliciting and illegal fundraising activities dating back for years. There's also a lengthy allegation that Blagojevich, for the last month, has been threatening the Chicago Tribune with political retribution for their recent criticism of him. The allegations about the Senate seat take up the last twenty or so pages of the affidavit/complaint. It's extremely clear from the complaint that the feds were already listening when Blagojevich started soliciting bribes for the Senate seat.

The complaint itself provides some startling insights into the inner workings of machine and interest group politics, to say the least. It also provides a pretty strong argument for raising salaries for politicians in order to make them more independent.

With respect to the President-elect, however, the Complaint makes pretty clear that there was no active wrong-doing on Obama's part or on the part of his campaign. As importantly, it is also very unlikely that the Obama campaign was actually aware of what Blagojevich was trying to do. To the extent the complaint discusses the allegations about the Senate seat, it's pretty clear that most of Blagojevich's efforts on the Senate seat were confined to internal strategy discussions about how best to use the Senate seat as leverage to improve Blagojevich's financial situation. Despite speculation to the contrary - and with the exception of the now-infamous "Candidate 5" (and, arguably, the Service Employees International Union) - it looks like Blagojevich did not follow through with his attempts at leverage.

Although the Complaint contains a statement from Blagojevich that the Obama campaign was "not willing to give me anything but appreciation," in the context of the complaint, this does not imply that the Obama campaign was ever explicitly approached with a quid pro quo. Indeed, not one documented conversation involves a person that can conceivably be construed as being affiliated with Obama, although I have little doubt that there was at least one conversation in which Obama's preferred candidate was made explicit. Below is a summary of the Complaint's allegations with respect to Obama as I interpret them:


  • It looks like Blagojevich was approached sometime in October by a fundraiser for "Candidate Five" (believed to be Jesse Jackson, Jr.) in which Blagojevich says that the fundraiser promised Blagojevich an immediate $500,000 in campaign donations, plus another $1,000,000 if Blagojevich would appoint "Candidate Five." I'm guessing here, but this is probably when Blagojevich started to understand the potential for a quid pro quo in connection with the Senate appointment.
  • Beginning the day before the election, Blagojevich started to plot, with his advisors and close political allies, ways to extort a quid pro quo from the Obama campaign for the Senate seat. He considered four primary possibilities that he would accept: an ambassadorship, an appointment to head an organization, "Change to Win," affiliated with SEIU and a few other unions, a Cabinet appointment, and donations to a planned 501(c)(4) organization that Blagojevich would control once he left the governor's office.
  • Almost immediately, Blagojevich saw the difficulty of seeking an explicit quid pro quo from the Obama camp, saying the “'trick . . . is how do you conduct indirectly . . . a negotiation' for the Senate seat." This suggests that he understood, without asking, the difficulty of obtaining a true quid pro quo from the Obama camp.
  • In trying to figure out which private sector organization he should seek to head, Blagojevich tried to figure out which organizations would be most heavily dependent on the support of the President and thus most subject to the President's influence.
  • On November 5, Blagojevich met with an SEIU official, who sought to lobby Blagojevich on behalf of "Candidate 1," believed to also be the Obama camp's preferred candidate.
  • On several occasions, Blagojevich leaked information to the Chicago media regarding potential Senate candidates in the hopes of getting the Obama camp to approach him about the possibility of a quid pro quo. There is no suggestion that the Obama camp ever contacted Blagojevich in this manner; Blagojevich also was insistent that the Obama camp not know that the leaks came from him (implying, again, that he did not think he could exert direct pressure on the Obama camp)
  • The day after the first leak, Blagojevich spoke with two of his associates, one of whom is a DC-based political consultant ("Advisor B") of some form (presumably not directly affiliated with Obama, though almost certainly still having personal connections to elements of the Obama camp), the other of whom was co-Defendant John Harris . During this call, the three discussed possible ways of turning the Senate appointment into money for Blagojevich. Harris told the consultant that "we wanted our ask to be reasonable and[sic] rather than. . .make it look like some sort of selfish grab for a quid pro quo." Again, this suggests that Blagojevich understood he needed to hide his intentions if he was going to get what he wanted from Obama. During this call, the three discussed the possibility of a three-way deal in which they would get Obama to use his influence over the SEIU to get Blagojevich appointed the head of Change to Win. This was believed worth considering because it would prevent the appearance of a quid pro quo such that the Obama camp might be more willing to consider it. It eventually became clear that Blagojevich would need to wait two years to take advantage of this, although he did consider the possibility of seeking an appointment for his wife during the interim.
  • Shortly thereafter, on Nov. 10, Blagojevich indicated in a lengthy phone call with Advisor B's firm that he did not think it was worth pursuing an ambassadorship or Cabinet position with Obama because of the taint around his name; he also considered naming himself to the Senate as a way of avoiding impeachment. Advisor B's firm made clear that Blagojevich was going to have to wait two years before getting any kind of a private-sector position. It is implied that they advised him it was not worth trying to explicitly extort financial help from Obama, particularly because Harris restated Blagojevich's "thoughts that they should ask the President-elect for something for [Blagojevich's] financial security as well as maintain his political viability."
  • At some point, probably on November 9 or 10, it seems likely that someone in the Obama camp (though not necessarily Obama himself) contacted Blagojevich to apply some level of pressure to appoint "Candidate 1." This is largely conjecture on my part, but it seems possible, even likley, that the Obama camp indicated it would be willing to provide a level of political support for Blagojevich if he appointed their preferred candidate (i.e., help "maintain his political viability"), or at least withdraw their political support if he did not*; there is no reason to think, however, that Blagojevich made any formal or direct "ask" in these conversations beyond perhaps suggesting an interest in a Cabinet position or ambassadorship, which was presumably rejected.
  • After this conversation, Blagojevich again tried to engineer a leak, this time suggesting that he was strongly considering "Candidate Five," but my research of the Chicago Sun-Times' archives suggests this leak never made the paper.
  • Around November 11, Blagojevich started considering the possibility of creating a 501(c)(4) non-profit that he would be guaranteed to control once he was no longer governor. At this point, he began considering the possibility of getting the Obama camp to persuade certain, uhh, wealthy friends of Obama to contribute to the 501(c)(4) as a reward for nominating Obama's preferred candidate.
  • Blagojevich apparently did not think he was likely to get Obama's assistance in raising money for the potential 501(c)(4), as he immediately began to consider the possibility of nominating "Candidate 6," under the belief that "Candidate 6" could relatively easily raise money for Blagojevich. Blagojevich apparently did not know "Candidate 6" and did not trust "Candidate 6" enough to make the "ask" himself. It doesn't appear that Blagojevich was ever able to find someone to make the "ask" of Candidate 6 or Candidate 6's associates. However, Blagojevich still thought the 501(c)(4) route was worth considering as a way of getting something from the Obama camp, the apparent belief being that all he would be asking for would be fundraising assistance. Blagojevich's Washington advisor thought the Obama camp would be more open to the "Change to Win" appointment than the 501(c)(4) fundraising., but Blagojevich still preferred the 501(c)(4) route.
  • On November 12, Blagojevich proposed his 501(c)(4) idea to the SEIU official, who was still lobbying on behalf of Candidate 1, suggesting that the 501(c)(4) could be used to finance Candidate 1's special election campaign - and also indicating that he had heard Obama was not insistent upon Candidate 1. The official agreed to "put that flag up and see where it goes." Given the context (ie, the hint that Obama was no longer supporting Candidate 1), it seems likely that the implication was that Candidate 1 and/or the SEIU would do fundraising for the new 501(c)(4) if he nominated Candidate 1.
  • The next day, Blagojevich came up with a strategy for his "ask" of the Obama Administration. Specifically his strategy was to call an Obama advisor (the Complaint strongly suggests this meant Rahm Emanuel) and begin by saying "'this has nothing to do with anything else we’re working on but the Governor wants to put together a 501(c)(4)' and 'can you guys help him. . . raise 10, 15 million.'" Blagojevich indicated that he wanted this "ask" to be in Emanuel's head when he then brought up the issue of who he would appoint to fill Emanuel's Congressional seat and/or Obama's Senate seat. However, Blagojevich made very clear that he did not want Emanuel to think that the 501(c)(4) request was intentionally connected to the Senate and Congressional seat issues. Again, the implication is that Blagojevich understood without asking that no one in the Obama camp would even consider a clear quid pro quo.
  • Between November 13 and December 4, the Complaint does not document any additional conversations. However, it does not appear that during this period Blagojevich is alleged to have followed through with any of his extortion strategies, although the Complaint says hecontinued to weigh potential personal benefits of appointing various candidates, including the possibility of appointing himself (which was viewed as the only solution to his looming legal problems). This says to me that he may have temporarily given up on the idea of an outright quid pro quo under the belief that it would be extraordinarily difficult and risky. Also, and this is pure speculation on my part, but I find it likely that he recognized that a 501(c)(4) issue advocacy group probably did not require a pre-appointment quid pro quo; instead, he may have realized that whoever he appointed was going to have a lot of motivation to fund-raise for his 501(c)(4) whenever he so requested.
  • On December 4 and 5, Blagojevich indicated that he was moving "Candidate 5" (again, apparently Jesse Jackson, Jr.) up the list because of that Candidate's fundraising ability. There was apparently an understanding that "Candidate 5" would fundraise heavily for Blagojevich if appointed, although there is no allegation that "Candidate 5" was directly involved with this understanding, only that some of his fundraisers were; Blagojevich believed that he could extort some of this money from "Candidate 5" up front under the pretense of "insuring" that "Candidate 5" would raise the money. Although Blagojevich intended to ask for the upfront money, the Complaint makes pretty clear that he never had the opportunity to do so. He did, however, tell one of his contributors to approach one of Candidate 5's contributors with an implicit "ask" for upfront money. On December 5, when he started getting wind of the investigation, Blagojevich had his fundraiser rescind the "ask," presumably before it reached Jackson's ears.

One final thing - in terms of the source who led to the wiretap, I think this Sun-Times article provides some pretty strong clues.

Anyways, the bottom line of all this is pretty simple - Blagojevich apparently believed Obama and Emanuel to be extremely "by the book" when it comes to this sort of thing, to the point that he does not seem to have ever actually made a explicitly quid pro quo offer. Instead, Blagojevich was insistent that the Obama camp not be aware - or even suspect - that he was seeking a quid pro quo. He did, however, try repeatedly to get them to offer him a quid pro quo - but they never took the bait. There was apparently some kind of quid pro quo offer with respect to one of Jackson's associates (there is little suggestion that Jackson was himself involved), but even that does not appear to be your traditional bribe, but instead a promise to engage in fund-raising activities on Blagojevich's behalf.

* Although I may have a problem with tactics like this, there is to my knowledge nothing illegal about them; instead, they seem to be pretty much standard "logrolling."

UPDATE: Much, much more at memeorandum.

Friday, December 5, 2008

In addressing the financial crisis, we need to focus on, well, the markets...

I am very pleased to see that Cato Unbound will have essays and a follow-up discussion regarding the financial crisis (h/t - Cato-at-Liberty). I've actually wanted to blog about this for quite some time (given that I'm in the thick of it), but I've been very busy with other personal matters and haven't had the time or the energy to see this through.

With this forthcoming discussion, I will probably use this as an opportunity not only to resume some sort of semi-regular blogging but also address an issue that I have followed since rising default rates in subprime mortgages started doing damage to the fixed-income markets. Professionally, I work in the commercial real estate business in an investment sales/capital markets capacity. Prior to my current gig, I spent three years on Wall Street. While I didn't have direct exposure to what was going on in the residential markets, some of the root causes contributing the massive increases in securitization activity over a 4-5 year period ending in 2007 parallel, albeit inperfectly, similar activity in the residential sector.

The opening essay was written by Lawrence H. White's. To summarize:

The housing boom and the aftermath of its bust arose from market distortions created by the Federal Reserve, the government backing of Fannie Mae and Freddie Mac, the Department of Housing and Urban Development, and other federal interventions. We are experiencing the unfortunate results of perverse government policies, compounded in some degree by private mistakes.

Setting aside the fact that the Community Reinvestment Act as as cause to the subprime crisis (which White's essay covers) is a virtual nonstarter (see Aaron Pressman's article which demonstrates that most subprime lending occurred outside of financial institutions subject to the CRA) and the fact that I believe that most of the blame here should lie with the Federal Reserve, if we are going to mention a crisis "compounded in some degree by private mistakes", let us not write off what "in some degree" really is because in my opinion, it's a pretty damn big degree. If we are going to talk about what went on the markets, then it is imperative to at the very least pay attention to what was actually going on in the markets and make a brutally honest assessment about what happened, no matter where those conclusions take us.

I want to focus on the actions of private actors. For this, I'll post two quotes. The first is from Arnold Kling's systemic risk primer:

There is systemic financial risk when contingency plans that are developed individually are collectively incompatible.

For example, imagine that we have banks without deposit insurance. My contingency plan, in case I suspect that my bank is in trouble, is to run down to the bank and withdraw my money before they run out. My bank's contingency plan, in case it experiences an unusual rush of withdrawals, is to go to other banks that have plenty of cash on hand and borrow from them on a short-term basis.

My individual plan looks fine. My bank's plan looks fine. But if every depositor and every bank has the same plan, you can see how it could fall apart. A rumor starts at a couple of banks that they are in trouble, everybody tries to pull funds out at once, rumors spread to other banks, and pretty soon the whole system collapses. Note, for future reference, that the risks of this are reduced to the extent that banks have capital and reserves to protect against short-term losses.


My second one is from a Paul Krugman column:

As the economist Irving Fisher observed way back in 1933, when highly indebted individuals and businesses get into financial trouble, they usually sell assets and use the proceeds to pay down their debt. What Fisher pointed out, however, was that such selloffs are self-defeating when everyone does it: if everyone tries to sell assets at the same time, the resulting plunge in market prices undermines debtors’ financial positions faster than debt can be paid off. So deflation in asset prices can turn into a vicious circle. And one consequence of what he called a “stampede to liquidate” is a severe economic slump.

Both quotes are on the money, and in a bad market, there is a herd mentality amongst investors. No one wants to be the first one in and, more importantly, no one wants to be the last one out. In a very short period of time, we went from a market where there was unprecedented demand for fixed income paper backed by mortgages of all shapes, types and sizes to a market where just about everyone (from investors to the banks trying to unload inventory) was trying to sell securities to raise cash to cover losses, margin calls. This death spiral has been occuring for the last year or so (until recently, its impact was seen mostly in the bond markets).

The direct cause of the financial crisis is, in my view, unprecedented (and undetected) increases in systemic risk caused primarily by market participants acting in a collective manner. Public policy may have created an incentive system which set the wheels in motion but to leave the argument at that would be an analytical travesty. I'll mention what I two primary "private actor" causes.:

1. Origination by All Means Necessary. Personally, I found William Black's lead essay interesting with respect to the discussion on mortgage fraud. Fraud, no matter who caused it, did play a role in origination volume but it is important not to exclude the erosion of underwriting standards. In commercial real estate, borrowers were able to secure higher loan-to-value proceeds. The majority of loans were becoming interest-only. Also, lenders were becoming more aggressive in funding interest reserves and underwriting to future cash flow levels with respect to current cash flow levels on the basis that property values would keep rising. The stories about residential lending, especially with respect to subprime lending are so well known that it is probably not worth documenting everything but the fact that people were able to secure so-called NINJA loans speaks volumes.

Given unprecedented investor demand for higher yielding fixed income products, the proliferation of collateralized debt obligations (the really, really, really toxic stuff), the willingness of ratings agencies to put investment grade ratings on securities that had no business being rated as such and, broadly speaking, the whole originate-to-securitize business model, gasoline was being thrown on a fire.

All this being said, despite the damage and the "woulda coulda shoulda" arguments about regulating the industry, I think the market itself has wiped out many of the problems that may require remedy. This is not to say that I wouldn't consider looking at, for example, more oversight in the mortgage brokerage business or consider regulations that would require conduit lenders to keep a piece of deals they originate. The market for so-called "toxic mortgages" is dead, and when it comes back, private investors will buy this paper at prices that reflect the appropriate level of risk (a price that will be too costly for new loan origination). .

2. High Levels of Leverage. In a strong market, people tend to forget about the downside risk of leverage, and if given the ability to leverage themselves to the hilt in order to maximize returns, it will be done. As much as I would like to leave capital structure decisions in the hands of individuals or companies, the herd mentality amongst investors in the market is such that when the market goes bad, investors will rush to the exits. The problem isn't individuals taking on high levels of leverage. The problem occurs, as Krugman and Kling mention, when individuals act in the same way at the same time. This is exactly what has happened in our current situation and the impact on the financial markets has been devastating. Unlike 1998 with Long Term Capital Management, this fire spread to the whole economy.

This is not meant to be all inclusive. Reasonable minds can disagree about the causes of this crisis.

While I do not doubt that public policy decisions to some degree put us on this path (especially the Fed's interest rate policy circa 2003-2004), when the rules governing the financial markets are rewritten, I have a hard time envisioning public policy makers focusing as much energy on previous public policy decisions as they will on the mortgage brokerage business, credit derivatives, the securitization business, leverage levels, rules governing residential mortgages and increasing transparency in the markets so participants can accurately price risk.

We will have nothing to add to this debate if we continue to treat the actions of private individuals within the financial markets (behaving collectively or otherwise) as some sort of secondary concern or an unintended consequence of public policy. Part of this process, as painful as it could be for some, will be to acknowledge that in some areas (leverage and the mortgage industry in general), a lack of regulation made things worse (far worse, in my opinion, than the Community Reinvestment Act).

I may be an advocate of free markets and would certainly prefer less regulation to more regulation, I also believe systemic risk to be the sort of negative externality that needs to be contained. With the damage already done, it is imperative that we look forward and determine the proper balance between fostering innovation, growth and wealth creation and keeping the sort of excesses that can threaten the stability of the markets in check. Any other strategy is pointless.

Wednesday, December 3, 2008

Talkers vs. Thinkers: The Real Battle for Conservatism

I have one final post up at Upturned Earth before John returns to his throne, in which I take a somewhat different take on the battle royale set to rock the Republican Party. In my story, the battle is not an issue of purging any particular strand of philosophical conservatism or libertarianism, but is instead an issue of overcoming so-called "movement," or talkshow, conservatism (which I have separately referenced as "pu-pu platter" conservatism).

Key section:

What I mean is that the problem is not one of which version of conservative philosophy is to blame - the varying strains of conservatism have managed to coexist, successfully, in the same coalition for decades. Instead, the problem is the way in which specific policy prescriptions have come to be synonymous with all groups fitting within the broad umbrella of “conservatism” thanks to their association with the GOP. These policy prescriptions are not dictated by any one form of conservatism; indeed, I’m not certain that any given form of conservatism is inherently irreconcilable with most policy prescriptions since political philosophy is inherently a mode of looking at the world.

The problem, as I see it, is that these policy prescriptions - which have no coherent philosophical underpinning when viewed as a whole - have in many ways actually become the philosophy of the GOP and, as importantly, of “movement” conservatism (most represented by the likes of Rush Limbaugh, Sean Hannity, etc.). When policy prescriptions become the actual philosophy of a group, failure to adhere to those prescriptions becomes apostasy; moreover, the policy prescriptions do not change over time because those prescriptions have become the group’s very raison d’etre. And so dogma winds up dictating viewpoints that are trapped in one moment of
histroy.

Read the whole thing here.