LIBOR and Self-Regulation

While the head has been cut off of the snake at Barclays PLC, with the CEO, Bob Diamond, the COO and the Chairman of the Board all resigning, the proverbially shit still has a far way to go before it hits the fan. Although the collusion between banks to set the rates, the implicit wink and nod from the Bank of England to get Barclays to lower their rate and, especially, the callous collusion between traders in various banks to rig the market so they could make more money are all shocking, how LIBOR (the London inter-bank offered rate) was set in the first place provided the biggest offense. As described in last week's The Economist:

For LIBOR, a borrowing rate is set daily by a panel of banks for ten currencies and for 15 maturities. The most important of these, three-month dollar LIBOR, is supposed to indicate what a bank would pay to borrow dollars for three months from other banks at 11am on the day it is set. The dollar rate is fixed each day by taking estimates from a panel, currently comprising 18 banks, of what they think they would have to pay to borrow if they needed money. The top four and bottom four estimates are then discarded, and LIBOR is the average of those left. The submissions of all the participants are published, along with each day’s LIBOR fix.

Emphasis added. This is patently Linsane as is it that anyone is surprised by this. The banks involved are only required to give an estimate, based on nothing else than what they think/feel is right, and people are surprised that this system did not work like gangbusters? The article goes on to point out that banks/traders were actually incentivized to rig the numbers as millions of dollars stood to be made based on where the LIBOR was at. I mean, I know hindsight is 20/20, but how did no one think about this beforehand? We are supposed to ignore the obvious conflict of interest and hope that those good chaps in the white shoe financial firms will work in everyone's best interest? This scandal again illustrates the ridiculous amounts of problems with self-regulation in banking. As much as folks like Jamie Dimon state that regulation will handcuff, prevent growth and curb stomp the entrepreneurial spirit because firms will not invest, why would anyone believe that self-regulation is remotely possible in an industry where tinkering with a few numbers or changing a few assumptions in a few projections can mean the difference in hundreds of millions, if not billions, of dollars?

Self-regulation is clearly not the answer, but government regulation has to be, if not effective, then at least competent. The Wall Street Journal pointed out last week that Tim Geithner was at least somewhat aware of these problems in 2008 and wrote to Mervyn King, the Bank of England Governor, suggesting possible changes that could improve the LIBOR. The simplest change, however, seems obvious: to affix the LIBOR to what it actually costs banks to lend and borrow. In most cases this process would become straightforward and could easily be backed up by hard data. The Economist concurs and goes another step:

Two big changes are needed. The first is to base the rate on actual lending data where possible. Some markets are thinly traded, though, and so some hypothetical or expected rates may need to be used to create a complete set of benchmarks. So a second big change is needed. Because banks have an incentive to influence LIBOR, a new system needs to explicitly promote truth-telling and reduce the possibilities for co-ordination of quotes.

The Economists recommendation, as delivered by Rosa Abrantes-Metz of NYU Stern, is to increase the number of banks on the LIBOR panel drastically so that the average is harder to game. That's all find and dandy, but we are long passed the era of the gentleman banker. In the 1970s and, especially the 1980s, with the rise of more aggressive money making schemes through hostile takes overs, LBOs and the development of overly complicated derivative trading strategies, gentlemen banks were replaced with ravenous financial wolves on the hunt for pure profit. Promoting truth-telling seems foolishly naivete. Hopefully, after one of these scandals, people will start to see and accept that.

IMAGE: The Telegraph Online

Is It Linsane Not to Match?

UPDATE: The New York Times is now reporting that, as of 4 PM today, the NY Knicks have essentially decided to not match the Rockets' offer.


In one man's opinion, well not just one as there's Stephen A. Smith (wait am I about to agree with Stephen A. Smith. *Shudder* Momma. I feel so cold. What's happening? Were the Mayans riight??), it is not, in fact, linsane.


First and foremost, for a Harvard guy of (apparently) good, moral, Christian upbringing, it is hard to believe that Lin was stupid enough to take Jim Dolan's assurances that the Knicks would match back to the Rockets in hopes of getting more money. I mean, don't get me wrong, in general this is a smart business move to leverage whatever information you have in order to further solidify your position and get more money. ShaoLin, however, was dealing with Jimmy Dolan. So go ahead and throw "general situations" out the window. OF COURSE, Dolan was going to take that personally as a breach of trust. He's a selfish, solipsistic man-child. Further, it backfired. Lin made no more money, I believe the offer actually went down from a balanced $28 million with $9 million a year, the Rockets just went the "poison pill" route and backloaded his contract in hopes that the Knicks would not match because of that monstrous $14.9 million (or whatever) third year. This would put the Knicks far over the cap in Lin's third year and cost them an additional, roughly, $35 million in luxury tax penalties under the new CBA.


Despite Bill Simmons' opinion, I don't think a ton of the actual Knicks fans care that much. Casual fans surely will be disappointed (only so many players have caused people's moms to comment on the Knicks; "How 'bout that Jeremy Lin, huh?"), but they'll also move on within a couple of days. Sure, Linsanity was an exciting run, but it was also a run primarily under Mike D'Antoni. There is no guarantee that Jeremy would be anywhere as good under Woodson's ingenius(ly repugnant) continuous Carmelo Iso, especially considering what a turnover machine Lin was. Unlike Jason Kidd, Lin doesn't have the cache to direct Melo; as any Knicks fan saw on more than one occasion last year. Simply put, the sample size was far to small to dedicate this type of money to the kid. As much as I despise everything about Dolan, and despite how much I distrust the front office to do anything that makes a semblance of sense, I cannot blame them from deciding against making what amounts to a $40 million gamble. And, yes, I hear y'all saying that worst case scenario is that Lin gets traded in the 3rd year as an expiring contract but who says that will work out. And who are the Knicks going to get in return so that the contracts work out? The league's love of expirings does little to take away from the gamble. 


If it's true that Lin is gone, I wish him all the luck in the world. He seems like a good dude and a hard worker, so I'd like him to succeed. But all the screeching from various sectors about how this is more Knicks front office ineptitude, or that Knicks fans should switch allegiance to Bk if Lin isn't resigned (ahem, pump thebreaksGrantland, ahem), needs to stop. If nothing else, you are not really a Knicks fans if you can't let front office ineptitude roll off your back like so many rain drops off a duck's and just hope for the better. And if Lin IS back. Eff it. Kidd's going to mentor him and we'll figure out year 3 later. Woot. Let's roll into '12/'13 'Bockers.


At worst, I can just continue to nourish myself on the Jimmy Dolan haterade. 

In recent days, two people briefed on the Knicks’ deliberations said it was unlikely the team would keep Lin. Yet both cautioned that the decision was not final and would ultimately be made by one person: James L. Dolan, the Madison Square Garden chairman.

Either way, win-win for me.


UPDATE: For a conflicting but still astute take on the now confirmed decision to not match the Rockets' offer to Lin, check out Jay Caspian Kang over at Grantland. We both agree though, wholeheartedly, that Jimmy Dolan, like many trust fund babies, sucks at life.


IMAGE: NBA.com

Time to be Sane Adults on Taxing and Spending

The Congressional Budget Office (CBO), a non-partisan organization that basically does audits and analyses for Congress, recently released a report that stated, in essence, that hard choices on taxing and spending need to be made sooner rather than later to prevent a contraction that could harm the very very very slowly rebounding economy. As reported by USA Today, at the end of this year the "Bush tax cuts" are set to expire after they were extended when the original sunset clause kicked in and $1.2 trillion in spending cuts, agreed to in last summer's debt ceiling negotiations, will be triggered. In our current economic climate, as seen in Europe, such austerity measures could have a significant impact on the country's precarious recovery. The CBO's prescription, which many economists (and this non-economist) agree with is:

Or, if policymakers wanted to minimize the short-run costs of narrowing the deficit very quickly while also minimizing the longer-run costs of allowing large deficits to persist, they could enact a combination of policies: changes in taxes and spending that would widen the deficit in 2013 relative to what would occur under current law but that would reduce deficits later in the decade relative to what would occur if current policies were extended for a prolonged period.

Hopefully our elected officials can act like adults long enough to make something happen for the good of the country. And, not to get too melodramatic, the world considering how interconnected the global economy now is. Let's just say, with this being an election year and all, I'm not exactly holding my breath.


Image: By Carolyn Kaster, AP by way of USA Today.

Dimon's in the Rough

See what I did there in the title? With the mixed metaphors and play on words and such? SO clever. Anywwaaayyy, JP Morgan Chase, the formerly venerable white shoe investment banking institution, reported a $2 billion trading loss yesterday afternoon. Not so surprisingly, Jamie Dimon managed to continue to sound like a giant doucher while attempting to show some sort of facsimile of contrition. While admitting to immense risk management failures, he managed to contend that oversight of the banking industry was still a ridiculous idea. Here are two actual quotes (well a quote and a paraphrase) from the same call to analysts:

"There were many errors, sloppiness and bad judgment," Dimon said. "These were grievous mistakes, they were self-inflicted."

 followed by...

Dimon said yesterday that the timing of the trading blunders "plays right into the hands of a bunch of pundits out there" who want a strict proprietary trading ban, the Volker Rule, named for former Federal Reserve Chairman Paul Volcker.

I mean... wow. Only a wanna-be pugnacious solipsist like Jamie Dimon could somehow claim that his firm's catastrophic failure in self-oversight somehow indicates that the Volcker Rule is a bad idea. Listen, I'm no class warrior. While sympathetic to a couple of Occupy Wall Streets complaints (when they enumerated them), I'm not marching for the 99%. But people like Dimon and some of his cohorts need to get their shit together and realize that while such rules will definitely be bad for their bottom line, it'll probably be good for the health of the world economy as a whole. While this is really for another, longer, post I've been thinking about for awhile... many commentators seem reluctant to assert is that the Volcker Rule, formerly known as the Glass-Steagall Act of 1933, worked pretty well for 6 decades. Enacted in the turmoil of the Great Depression, Glass-Steagall, among other things, separate commercial banking from investment banking. Lo and behold, there were no serious shocks to the banking system anywhere approaching the same scale of the Great Depression. Our current Great Recession then occurs after it was essentially repealed in 1999 (Good call Billy) and the Volcker Rule hopes to re-institute a weaker version. Now, clearly one cannot directly correlate the repeal of Glass-Steagall and the Great Recession, but why not bring back a rule that worked so well for over half a century? I've not really heard any compelling reasons, that hold any water, from folks like JD... who's firm bears little resemblance to the old JP Morgan & Co. that once ruled Wall Street (read this fantastic book for more. Seriously, Ron Chernow is the MAN).

To make a long story not any longer than the above, I hope Jamie stops spewing BS until the time he can put forth a reasonable argument for why the provisions of the Dodd Frank Act, including the Volcker Rule, would be bad for anyone aside from him, his cohorts, and their respective bottom lines.

Are the GOP Primaries Acting as an Early Policy Referendum by Accident?

No, Santorum does not count. As the State of the Union Address is tonight, I could venture a guess at each candidates odds agains President Obama or just pull some Nate Silver ish about who I think might win; but, as it is really Obama v. the Economy for who'll win this fall, it doesn't really matter.

The interesting part of the GOP nomination contests, for me at least, is that they are bringing to the fore issues that you wouldn't expect until the general election; namely, super PACs in the post-Citizen United world and, in a roundabout way focusing on Mitt Romney's reluctance to release his tax returns, the appropriateness of the 15% capital gains tax rate (especially as it is applied private equity shops). These are focal points you would expect to see from President Obama's team but not from internecine fighting between republican candidates. Romney and Gingrich have been going back and forth biatching about each other's super PACs. Super PACs that have already spent $30 million so far amongst the Republicans. Just today, Dr. Miriam Adelson, wife of casino magnate and super Israel supporter Sheldon Adelson, donated $5 million to Gingrich's super PAC. Between the husband and wife, team Gingrich has pulled in $10 million for negative adds in the past month. Despite the claim in Citizens United that the money is just speech and would have a negligible influence on politicians, quite the opposite seems to be true as I could've told you the second that opinion came out. As Barrett seems to point out, Gingrich's 90 degree rightward shift on Israeli/Palestinian issue could be from any number of reasons, including the general rightward shift in the GOP recently due to the Tea Party and the partisan shift that comes during a nominating process. However, it is hard to deny that it stinks to high heaven. As the NY Times points out,

The Adelsons’ contributions on Mr. Gingrich’s behalf illustrate how rapidly a new era of unlimited political money is reshaping the rules of presidential politics and empowering individual donors to a degree unseen since before the Watergate scandals.

The wealth of a single couple has now leveled the playing field in two critical primary states for Mr. Gingrich, a candidate who ended September more than $1 million in debt, finished out of the running in Iowa and New Hampshire and, unlike Mr. Romney, has yet to attract the broad network of hard-money donors and bundlers that traditionally propel presidential campaigns.

It boggles the mind.

Meanwhile, the very attacks on Romney that Gingrich's super PAC has financed have recently (in South Carolina at least) concentrated on his time at Bain Capital and how it affected the working man. The long and short of it being how the cold-hearted, Gordon Gekko-like, Romney acquired a vast fortune off the plight of the workers laid off by companies that had to fold after Bain Capital saddled them with too much debt in leveraged buyouts (LBOs). The companies suffered, but Bain prospered after using some of the debt to pay off their investment and management fees. This led to a further attack on how Romney refused to release his tax returns, an attack which he failed to respond to effectively, forcing him to release his returns for the past two years today. They show that he pays a rate of 13.9% as most of his income is seen as capital gains. Though most of the Republicans on the stage want either that rate or even lower, this talk is undoubtedly going to illuminate this country's income inequity and call into question whether a lower capital gains rate is good policy (especially for those in private equity). At the very least, this is certainly going to come up in tonight's State of the Union Address. Hopefully, as Andrew Sullivan has called for, it comes in a larger talk about the need to reform our tax code in general. Debt has been incentivized for too long in this country and it has caused a myriad problems. Talking about it tonight would be a good first step.

Though the GOP candidates, and their talking head puppetmasters on Fox News, will undoubtedly end up labeling him a socialist tomorrow, it is important to remember the words of the proto-capitalist Adam Smith. And I quote:

The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

BONUS POINTS- State of the Union Prediction Edition: Obama uses today to launch some sort of tax reform initiative. In the midst of this, especially with the presence of Obama's secretary and with the release of Romney's tax returns, he takes the opportunity to throw out some derivation of the following line: "It is not right that people of means like Warren Buffett, with billions of dollars, are paying the same rate as his secretary, who is here today. I know that it is called the Buffett rule because of this but perhaps it would be more appropriate to call it the Romney rule, as he pays even less." Obama is probably too classy to go explicitly at Romney like that, but BELEE dat the above sentiment will be implied.

Time To Take Your Licks, POTUS

A lot of time is spent on this blog snarkily sniping at the GOP; rightfully in MHO, as they continue to come across as an entirely unserious political party ("It is from the Bible that man has learned cruelty, rapine, and murder; for the belief of a cruel God makes a cruel man," says my progenitor). One should not take the disdain for one party as unabashed celebration of the other, however. President Obama, no matter where exactly you ascribe the blame, has failed to live up to the immense promise exhibited during his 2008 triumph. Perhaps part of that blame falls upon his supporters, myself included, who expected far too much of the man and thought far too little of the institutions in place. There is, however, one specific failure that is definitively attributable to the man and his administration and that is the failure to move ahead with pushing the proposals from the Simpson-Bowles Commission. This failure presaged numerous future problems that came up and, I believe, continues to hurt America today.

Although hardly news as it has been harped on brought up repeatedly by Andrew Sullivan and recently by the Republican National Committee in a helpful research briefing, it has yet to gain traction with the larger public. I know we are unofficially in election mode now, but it would be nice, as others have advocated, if the POTUS showed leadership by jumping back into the business of governing by reviving Simpson-Bowles. How effective would the picture he is painting of a do-nothing GOP Congress be if, a month and change after the RNC advocated the move, Simpson-Bowles proposals were shut down or hijacked with unnecessary additions. Or, even better, how excellent would it be if the proposals went through and Obama's spinmeisters got to work highlighting his leadership on the matter?

Regardless, promises were made about how this man was a post-partisan who was about what was good for the country rather than what was good for the campaign for re-election. Though there is no one on the other side who I would consider voting for (outside of Capt. Haughty-pants Huntsmann, who has no shot at being the nominee), it would be nice if President Obama was, well, presidential and completely solidified my faith in my vote. I don't want to be threatened into it again...

*** UPDATE ***
A persuasive, and conservative, argument of why it is imperative to trim our military spending. I could not agree more and can only hope that the cuts are very significant. Much like the belief that taxes should rise to around Clinton era levels, I think our military spending should fall, at the least, to pre-9/11 levels. In the balanced checkbook view of our economy, decreased spending AND increased revenue is the only way to bring down the US deficit.

From the Annals of Common Sense- Legalize It

 

 Looking at the facts objectively, the illegality of marijuana is a failed policy. The U.S. spends roughly $8 billion dollars (BILLION) on enforcing the prohibition of marijuana with 88% of arrests coming from simple possession (See this article for more information/statistics). Despite this, the regulations are having a negligible effect on the number of people who consume marijuana. Further, since there is a federal law outlawing marijuana that supersedes any state law allowing medical marijuana, and since the DEA continues to enforce it despite the White House's proclamation they would not interfere with state medical marijuana laws, many people with serious medical issues are not able to get the significant relief that marijuana provides them with. This includes increasing comfort and hunger of those receiving radiation treatment for cancer and military veterans who suffer from post-traumatic stress disorder (PTSD). 

Not to mention the fact that prohibition of marijuana seems to come from, originally, somewhat racist motives. For example:

 Around 1915, right at the height of its popularity, cannabis was in over 100 pharmaceutical preparations and seen as a medicine extraordinaire especially for difficult to treat neuralgia. It was in the early 20th century that America discovered jazz, and jazz seems to have been born with an affinity to the good herb. Louis Armstrong, besides being one of the best Jazz musicians of all time, was a cannabis ambassador and really was the very first cannabis activist. At that time cannabis was still legal. It was available in pharmacies, of course, but also could be ordered from catalogs as Hashish Candy and was commonly passed around amongst jazz musicians as cigarettes (“muggles“).[...]

According to Dale Gieringer [2] the very first anti marijuana law was passed in California in 1913. Dr. Gieringer reports that testimony that led up to the ban included this statement from a California pharmacy official: “Within the last year we in California have been getting a large influx of Hindoos and they have in turn started quite a demand for cannabis indica; they are a very undesirable lot and the habit is growing in California very fast…”
Anti-immigrant sentiment may have started the ball rolling, but it wasn’t long until marijuana was seen as a useful weapon to put the genie of African American civil rights back into its bottle.

The policy is even more nonsensical (see what I did there?) considering the United State's current economic dire straits, since the legalization of marijuana, even if only for medical purposes at a federal level, would allow for the more careful regulation and, more importantly, taxation of marijuana. According to the Cato Institute (re-link):

The potential of the industry as a whole is frequently overlooked. Marijuana is by most estimates a more valuable commodity than corn and wheat combined, with experts estimating its annual value to be between $10 and $120 billion. The employment potential of such a market is enormous. [...] If economic stagnation continues, however, employment and tax waste will become more and more relevant in driving public support for ending Prohibition. Unfortunately, that support may have to increase dramatically before any real ground is gained.

That is a rather large spectrum that the Cato Institute is offering but, going conservative with their estimate, even if the value was only $40 billion, you would probably be looking at, roughly, a $15 billion swing to the government. This accounts for the taxes that could be established on the newly found industry as well as a little under $8 billion that would no longer have to be spent on the prohibition of marijuana (if simple possession was also decriminalized). If the government goes for full legalization (since many feel that marijuana is safer than either alcohol or cigarettes), even more could be raised with excise taxes being added on the purchase of marijuana.

Change is gonna come and the  U.S. government (C'MON Obama, we know you inhaled...) should embrace it sooner rather than later. The vast majority of Americans support medical marijuana and roughly 50% support full legalization. Why not give the people what they want and help refill the coffers/decrease unemployment? Tis a no-brainer, no? Getting ahead of public opinion policy wise (barely at that) seems much better, albeit somewhat less safe, than obstinately staying the course and allowing federalism to take its course as public opinion continues to change. Plus, everyone knows the founding fathers were all about the herb... that's just science.

How to Fail At Legislating by Really, Really Trying

This post may very well get pretty long and quite possibly convoluted, so I request your patience/forgiveness in advance. A probably (definitely) better written piece that takes on similar themes can be found here (it's Rolling Stone, but not Matt Taibbi. So back off). Feel free to jump to the last paragraph of this post for the punch line.

In a surprise to no one, the (Not so) Super Committee on Debt Reduction failed miserably at their mandate and did not even get a proposal together that they could vote on. There are a variety of reasons for this failure but (as some may have guessed) I place the blame squarely at the feet of GOP orthodoxy (religious term usage intended) on taxes. Simply put, Republicans on the Debt Reduction Committee refused to budge on additional revenue to work in tandem with the spending cuts the Dems were offering. Specifically, the GOP was requesting that the Bush tax cuts lasted beyond 2012. Obama has pushed for the continuance of the Bush tax cuts for the middle class before, but the Republicans required that ALL of the tax cuts, including for the wealthiest in this county, are extended as well. Despite the fact that the country can no longer afford them. And despite repeatedly and vociferously preaching debt reduction. The basic argument, as far as there is one, is that taxes upon the wealthy impede growth and the economic growth is really the only way we can pay down our national debt. Classic Trickle-down economics (aka Reaganomics).

There are NUMEROUS problems with this theory, but I'll try to contain myself as much as possible. First and foremost, if this is the case then WHERE THE EFF IS THE MOTHER EFF'N GROWTH YOU GODDAMN MORONS? (Looks like my Caps Lock got stuck. Whoops.). This is not some hot new theory that Paul Ryan, Mitch Daniels and Chris Christie hatched at a slumber party being all GOP young guns and such. As the name suggests, the Bush tax cuts have been around since the presidency of, wait for it... you ready?... I don't know if you are, but here it is... George Walker Bush. Yet the growth hasn't come.  Now, I guess, the plan is to maintain the status quo and hope beyond hope that the spirit of the Gipper makes it all better? These tax cuts have taken billions from our revenue stream and, along with two unfunded wars, helped mightily in bringing the US into the situation we are now in. Despite GOP mythologizing, even President Reagan raised taxes when it was necessary to keep the US economy on an even keel. You do not stand on orthodoxy when the country is reeling; you find solutions that work (such as spending cuts + increased revenues = balance; yes, that would be Personal Finance 101- Your Checkbook).

Additionally, and lastly (thankfully for you), the current talk of tax cuts to the wealthiest and corporations spurring hiring and ACTUAL growth through capital investment, R&D, new products, et al., is just a steamy load of horse manure. As today's NY Times points out, many companies, currently sitting on enormous amounts of cash, are not reinvesting that money in ways that would ACTUALLY help the economy grow. Rather, these companies are artificially approximating growth by instituting share buy backs,which push up the earnings per share. This is accounting legerdemain being used to simulate growth. The truly sad part is that investment in research and development would, eventually, help a company ACTUALLY grow. It just requires taking the long view. And in lies the rub. The short term artificial growth helps executives hit required earnings per share/growth numbers and, thus, get performance based performances attached to those numbers. Likewise, usually top executives making these decisions hold a large amount of stock in the company and can directly benefit from these buy backs. This is, clearly, a potential conflict of interest but courts give a wide amount of latitude in business judgment. Unless there is a clear breach of fiduciary duties, the games continue. All tax cuts would do is grow the pile of money that corporations are sitting on and help those running those companies get richer while paying lower tax rates. Sounds totes fair, right?

So, in other words, shit is eff'n crazy pants to the max. I can only hope that the POTUS sticks by his promises to veto any attempt to roll back the automatic spending cut trigger and a full extension of the Bush tax cuts. It may take some brass ones but, considering our current political environment (those federalists/anti-federalists were lil schoolboys comparatively), this may be the best outcome we could have hoped for.

Dope v. Hope

First off, apologies to my six or so faithful readers for my absence. Last week was a busy one and the blogging dropped off. I was appropriately shamed, however, so I hope to make up for it in the coming week(s).

60 Minutes ran two segments highlighting two individuals, Grover Norquist and Christine Lagarde, that could not be more different in my mind. They both are clearly very intelligent people but people who utilize their intelligence in very different manners. Grover Norquist, of Harvard and HBS, has formed a a libertarian advocacy group, Americans for Tax Reform, whose "Taxpayer Protection Pledge" has held Republican congressman hostage for decades. Even in his short 60 Minutes segment, Norquist comes across as the dorky kid in high school that got a taste of a bit of power and now clearly revels in the fact that he has the rich, popular kids come to kiss his ring. He wisely deflects questions about being a tool for corporate interests and not divulging his supporters by stating that he is looking out for the American voter, despite the majority of Americans supporting tax increases. Long story short, I think he's a scourge on the American electorate and he gives me the willies. Christine Lagarde, on the complete opposite hand, is my homegirl. She was the first female chairman of Baker & McKenzie, a massive international law firm, then became the first female minister in charge of economic affairs in France, and just recently became the managing director of the IMF. Clearly she's one bad ass mofo (fafo?). Unlike Norquist, she comes across as a humble, hard working pragmatists that was too proud to join an elite French law firm because they stated she would never make partner as a woman (she just walked out of the interview... bad. ass.). She called out the French worker for being too lazy, Wall Street for ignoring the coming financial crisis in 2008 and now calling out the entire global financial industry for not accepting regulations quickly enough.

I'd recommend watching both segments and making your own decisions but I think many of the problems in the US exist because people like Norquist have too much power and  not enough people like Lagarde do.

A Beautiful Legal Mind... Getting Clowned

Recently (somewhat), Jack Balkin, an esteemed Constitutional Law Professor at Yale, Dean Don Durkett look alike, and blogger at the eponymous Balkinization, wrote a post that suggested that the Occupy Wall Street movement co-opt the strategy of the Tea Partiers and make their point in light of the Constitution. Specifically, he feels that their struggle should couched in terms that reflect Article IV's "Guarantee Clause," which, essentially, guarantees a republican form of government. In his estimation, the OWS movement is arguing that our system of government is broken and no longer truly republican as corporate interests and the "1%" have taken over (i.e., we have an oligarchy, I guess).

Anywhooo, this brought a response from Tim Zick, a former professor of mine (not at William and Mary and who I did not particularly like) in the Concurring Opinions blog (I SWEAR this is the last dorky legal theory plug I'm plugging today). Prof. Zick argues that if OWS really wants to become a Constitutional movement, it has to look no farther than the Preamble. In his own words,

“We the People“ . . . in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution of the United States of America.” 

These fundamental principles seem to reflect what the protesters are most concerned about.  This is a nascent populist movement.  I’m sure if they were polled, the ”99 percent” would embrace the notion of a ”Republican form of government.”  But they would embrace that principle because it is supposed to produce ”a more perfect” union, justice, tranquility, general welfare, and the “blessings of liberty” across generations.

As much as it pains me to say this, Professor Zick seems to nail it dead to rights and totally clowns JB. What the hell is happening? My world is getting turned upside down. (Pardon the coming legal theory nerd out) Professor Balkin is getting clowned by Professor Zick? This follows his former co-blogger Marty Lederman leaving for the Office of Legal Counsel, after years of beating the Bush administration up for expansion of executive powers, and promptly okays the targeted assassination of a US citizen in a secret memo. The same OLC that is basically continuing the expansion of executive power started by Bush is now headed by former Yale Law Dean Harold "Hanju" Koh. Harold, bro, what happened to my dude who practically got into a physical altercation in regards to the expansion of executive power at a national security and the law forum? I seens it with my own eyes. We miss you...

Listen, I shed no tears over Anwar Al-Awlaki but I also cannot stand blatant hypocrisy. Jumping from criticizing, vituperatively, the Bush administration for writing secret memo for actions possibly outside the Constitution, and then turning around to do the exact same for the Obama administration? Duuudddeeessss...

(RANT OVER). On a happier note, hey there Jack Goldsmith. 'Sup buddy? How's Harvard treating you? That's coooolll. So, wanna be best friends now? Excellent! Say hello to ya motha for me.

From the Annals of Common Sense- The Sense Strikes Back...

An article in the New York Times detailed how, despite raucous clamoring from various corners for reduced corporate taxes, 280 of the biggest publicly traded firms paid about half of the official corporate tax rate. In full disclosure, the study is based on a report from the liberal leaning Citizens for Tax Justice but it is still clear that many corporations use any loophole they can find to limit their tax exposure. A money quote from the article:

American corporations are paying a smaller share of taxes than in previous decades. They paid a total of $191 billion in federal income taxes in 2010, the Internal Revenue Service said, representing about 1.3 percent of the nation’s gross domestic product. That is down from about 6 percent during the 1950s (although some of the decline is because a smaller percentage of businesses now file as corporations).

It seems, considering the facts from this article and the GOP reluctance to raise taxes, the easy solution would be to lower the corporate tax rate, say by 10% to a total of 25%, and close the loopholes. Thus, you would not have some corporations paying 10% (or 0%) and some corporations paying 35% (the actual rate) for an average 18.5% corporate tax rate. Instead, everyone pays a lower rate of 25%, which actually brings up revenue by 6.5%. And, as an added bonus, all corporations are treated fairly with none getting screwed for creative accounting. Seems fair, no? And would satisfy both political parties, no? Getting to the meat and potatoes of the matter...

But the Citizens for Tax Justice study found that two-thirds of  the American companies with significant profits overseas actually paid more in taxes to foreign governments than they did in the United States. Rather than lowering the corporate rate more, the study said, the federal government should end the subsidies and shelters that favor companies that game the system. 

“Closing the loopholes will have real benefits, including a fairer tax system, reduced federal budget deficits and more resources to improve our roads, bridges and school — things that are really important for economic development here in the United States," the report said.

Worrrdddd. Again, I do not understand why this is even an argument. You cut taxes (and give Grover Norquist a boner) while raising revenues. What's not to love? Yo, POTUS... I'm ready to head the Council of Economic Advisers. Or you can slap me into that supposed Super Committee. Whenever you're ready. Just for the record, I play ball (in terrible shape, but decent court vision... classic PG) and recently gave up cigarettes (and we can cheat together. I'll never tell. I'm like a lock box). We can do this sir. YES WE CAN!

(Image from rally requesting NoMas Paine for C.E.A. Or a random Google Images pic. None of us have any way of knowing...)

From the Annals of Common Sense...

Bi-partisan fiscal policy experts (two Democrats and two Republicans) testified in Congress in from of the so-called Super Committee on Tuesday and dropped the common sense hammer.

Bi-partisan agreement on a plan that raises $1 in additional revenue for every $3 in spending it cuts (for a total deficit reduction of 4 trillion dollars)... kinda just makes sense, no?

Hopefully the panel itself will come to its senses. This country was built on compromise and this is as good a  time as any to revisit that tradition.

David Frum Flips the Script on the Euro Crisis

As noted first by Sully, David Frum has an interesting take on the benefits Germany derived from the Euro and how it had a deleterious effect on the rest of the Euro-zone. Essentially, the currency manipulation inherent in the Euro made it so that Germany became the Euro-zone's lender and many countries (Ireland, Greece, Portugal, Spain... sound familiar?) racked up an enormous amount of debt because interest rates were so low. On the other hand, because Germany had changed to the Euro and no longer had the Deutsche Mark, there was no currency appreciation in Germany that would have negatively affected their trade surplus, retention of corporations and unemployment. Basically. Germany was able to continue to grow on fundamentals while the rest of Europe built castles in the air supported by massive amounts of loans from Germany.

Not to take away from the foolish behavior of the other countries (the Irish built like a they were dru... nevermind, Greece's public sector and taxation was/is a bloody mess, etc.), but I think it's an interesting take on how Germany should cop to their complicity and stop playing the victim.

(Image from the Economist)