Tuesday, September 30, 2008

Bailout: Do conservative commentators care about small businesses hurt by the credit freeze?


The Washington Times today has an editorial that sounds like an echo of the “rogue Republican” rejection of the deal yesterday, “The Bailout that Wasn’t” (there). Yes, the circus in Congress looked like a Coen Brothers film. The link is here.

The editorial makes good points, especially about the likelihood that $700 billion is not enough. It points out that many foreclosed homes are investor vacation properties in hurricane-damaged or prone (or similarly with brushfires) in Florida, the Gulf Coast, or California. The maintenance and mortgage could not be covered by income, so investors ran from them. They should be chased down and sued, as they were after the similar Savings and Loan mess at the end of the 1980s. The editorial also notes a link between illegal immigration and fraudulently written mortgages. These should lead to prosecutions.

Some of the points seem more ideological, including cutting corporate incomes taxes and capital gains taxes. That’s the trickle down theory that doesn’t always trickle. (Remember Ross Perot?)

What is odd to me is that the editorial, as massive as it is, doesn’t mention the credit freeze, a favorite subject of Suze Orman. That’s the main reason for the urgency of the bailout. Isn’t the Washington Times concerned about small business?

LIBOR issues:

ABC News is reporting on World News Tonight that the London Interbank Offered Rate (LIBOR) has recently increased from 2.5% to 6.9% for overnight interbusiness loans. This is a lot to do with the credit lockup that liberal media commentators (Suze Orman, Anderson Cooper, etc) are stressing. The Bloomberg story ("European Banks May Raise Loan Rates as Libor Surges to Record", by Caroline Hyde and Tim Culpan) is here.

Oct. 1, 2008

The Senate version of the Bailout being voted on tonight is available at Govtrack in PDF format here. It is being tacked on to the ERISA Act of 1974.

Monday, September 29, 2008

Is credit flow like a car radiator flush? Why (they say) we need The Bailout right now!


Okay, everybody has heard that the Bailout Vote failed (228-205), and there isn’t any clear direction yet. Even a Redskin victory in Dallas Sunday had no psychological effect.

Ali Velshi on CNN (and Oprah’s favorite, Suze Orman) came on to warn viewers what’s next. We know you’re mad, to see 6% of your portfolio evaporate in one hour. But don’t point fingers. Don’t try to fix blame when your house is on fire, they said. Hose out the fire first.

It is important to understand what they mean. The stock market indexes aren’t the real issue. It is the flow of credit. Velshi said it’s like soapy water in a pipe. The water is shut off. The soap is the mess of toxic mortgages. You need the water to flush them out. The water is the $700 billion “loan” (so to speak) from the taxpayer. It’s sort of like doing a radiator power flush for your car.

The practical problem is that so many companies, especially smaller ones, need credit to keep operating. If banks shut off their credit, they can miss payrolls. They can shut down. That may be more likely to happen with your local independent hardware or grocery store, perhaps.

Velshi, Orman (and probably most of Oprah's other friends -- but no Dr. Phil) and, for that matter, Paulson all say that most voters don't understand this, because they don't see how credit markers work. Maybe some of the bulldog congressmen don't get it. A couple years ago, I listened to some seminars (I didn't pay for them) on the "cash flow" business and, I can say, it's much more important than many think. (Otherwise "cash flow" companies wouldn't have $2995 seminars for agents.)

I’m told in my own private conversations today (mostly with business, mostly with some ties to the GOP) that credit has been severely pinched for at least two weeks. I haven’t personally noticed businesses closing yet, other than out of the normal turbulence of business. We all know that small retail businesses have been replaced or bought out by huge chains, as a result of demographic or other fundamental pressures related to economy of scale and short term profit pressures, but not because of credit problems per se. So, for example, ideological opposition (especially from conservative Republicans and some libertarians) to the bailout may stem from an observation that the stress on many business is already there because of market or societal fundamentals.

The idea that many more businesses will miss payroll or that credit cards or even bank debit cards will fail for people with good credit and not much debt is frightening. Think of the services I depend on even for this blog – electricity, cable, Internet, publishing services, ISP’s? Could they disappear if the credit crisis isn’t resolved. It sounds unthinkable. So far, outside of banking itself, size and economy of scale seems to be protective for most other businesses in a situation like this. Sure, many smaller ISP’s have failed, but because of business fundamentals; generally, they have been replaced by larger providers with scale.

There is something about this that sounds “mean”. It seems ideological republicans want to see a Darwinian battle, where the strong survive. In personal terms, they want to see the weak become more dependent on blood family and not government or even a technical infrastructure. They want to see certain kinds of people learn to interdepend on others personally to adapt and survive rather than live a false “personal sovereignty” of institutionalism.

Or perhaps not. The GOP “boll weevils” surely know about the credit lubrication argument. They just don’t buy it, because they haven’t seen many failures yet that wouldn’t happen anyway. They think that failures always result from fundamentals, but these might be moral or religious.

Then there is the silly way Congress behaved. Supposedly, Eric Cantor (R-VA) said that some of his GOP members were “offended” by Pelosi’s own partisanship. Maybe she’s right, but her remarks were unwelcome and at best pleonastic for the circumstances. She thought she was arguing for the bill! (That’s like a school administrator where I subbed being “offended” by what I wrote on my own website – yup, it really happened, in 2005. I was right, but someone in my position shouldn’t say it, perhaps. ) Barney Frank thinks he hit that one out of the park by saying “if my feelings are hurt, I’ll punish the country.” Of course, John McCain should be the one to say that. Where was he today? (Frank, you’re no Lloyd Bentsen.)

Everyone says that this is partisan bickering, letting ordinary Americans slide into barter and unwilling filial interdependence while Congress fiddles. Bush and McCain and Paulson can’t control their own troopers. But, then, why did Nancy Pelosi lose so many of the Democratic votes? If every Democrat had voted for the bill, it would have passed.

Can the Administration do anything more without Congress in the short term? How about suspending rules that force banks to devalue assets on their books immediately. Well, then, hello, isn't that how we got into Enron and Worldcomm? How about more FDIC guarantees? Well, doesn't that require Congress? Again, there is this ideological problem about how to avoid the Prisoner's Dilemma, by making everybody "play family".

Then, there is the issue of the banks. Why, we ask, did they engage in such reckless behavior, inventing almost illegal financial instruments to throw main street money into the toilet, without Main Street’s knowledge or consent? Well, go back to the 1970s, when laws were passed requiring banks to make mortgage money available to low income people. Banks that didn’t play along were to be punished. So, are we to be surprised that they came up with “creative” ways to put people who couldn’t pay into their “own” homes?

There's a really interesting interpretation of all of this at "Gay Patriot" here. Start with "Barney Frank's fire."

Small AIG London unit brought down entire house of cards: a warning about "asymmetry"?


The New York Times, on Sunday Sept. 28, featured a front page cover story that shows how a small group of people (in this case, a London unit of the American International Group [with fewer than 400 employees, all highly compensated] brought down the entire holding company.

I relate the story because it is a glaring example of the perils of “asymmetry” – in business, at least, but the concept could apply to other areas (like Internet publishing).

The story is by Gretchen Morgenson and is titled “Behind Insurer’s Crisis: A Blind Eye to a Web of Risk: How a small, freewheeling unit brought A.I.G. to its knees”, link here.

The article indicates that executives barely understood how the product that they offered – credit derivatives – would play out in a real world. They thought they were spreading and “insuring” prosperity. But what they did was amplify the effect of bad mortgages on the financial system with what behaved like a runaway virus transmitted within a circumscribed community, that in turn could “amplify” it to affect others.

And this happened overseas, somewhat beyond US securities law, but in a stable, democratic ally, the United Kingdom, which should presumably have similar concepts of regulating securities.

Now, the press is reporting that Europe is in a similar turmoil. As Congress prepares to vote on the The Bailout, markets are down not only because of uncertainty over the vote, but because regulators overseas are beginning to see that nobody understood this, that no end is in sight, and that the bailout might not work after all.

The Wall Street Journal Monday morning has a somewhat related story (with a different interpretation) focusing on Lehman Brothers, “Lehman’s Demise Triggered Cash Crunch Around Globe: Decision to let firm fail marked a turning point in crisis,” by Carrick Mollenkamp, Mark Whitehouse, John Hilsenrath and Ianthe Jeanne Dugan, link here. It’s interesting. Apparently AIG was in bed with Goldman but not so much with Lehman, so the Fed played God and let Lehman be euthanized rather than be assumed by an “angelic” identity (to paraphrase some science fiction – companies become like “souls”). ING, a company that I still have a relationship with as a retiree, has some stake in Lehman. (ING has been tanking early Monday and it’s not clear how this is related to Fortis, which is also having to be rescued, apparently because of bad mortgages overseas as well as in the US.)

I’ve compiled and provided all the relevant links to the House of Representatives site on the new legislation (“The Emergency Economic Stabilization Act of 2008” along with its “Troubled Assets Relief Program” [TARP]) here.

Sunday, September 28, 2008

If Roe v. Wade falls (in a McCain administration), states could crack down on "illegal" interstate travel, too


Linda Hirshman, author of “Get to Work: A Manifesto for Women of the World” (2006, Viking Adult) (website) argues today in the Outlook Section of the Washington Post (Sunday September 28) that a future overturn of Roe v. Wade could have dire consequences indeed. The article is called “A Right and the Right: If Roe Goes, Our State Will Be Worse than You Think,” link here.

The political scenario, of course, assumes that John McCain wins the election in November and subsequently appoints a pro-life judge to replace a liberal judge who retires or dies, and then Roe v. Wade is overturned.

Curiously, the Supreme Court has reversed itself before. Lawrence v. Texas was, in a sense, a reversal of Bowers v. Hardwick.

Specifically, states which had abortion laws before 1973 would not only re-implement them; some states would be likely to pass laws prohibiting women from leave the state and procuring abortion in states where it is legal. I suppose one could imagine some future right-wing Congress making it a federal crime to do so (to travel across state lines for a state in which this event is illegal).

She says that West Germany, in the 1980s (before unification) used to check women re-entering the country for this. Then she mentions state laws prohibiting minors crossing state lines for this purpose without parental consent. She analyzes Bigelow v. Virginia (1975), which defended the right to publish ads interstate on First Amendment grounds (and obviously very important now in the context of the Internet, just like COPA), reiterated law before and was what is called a “dictum”, not setting a precedent regarding the actual acts.

She also warns that, even if Roe stands, in a right-wing environment states may pass increasingly restrictive laws regarding clinic licensure.

I’ve always felt that the “right to life” issue is about a lot more than terminating pregnancy. It can involve end-of-life issues, and the duty of others to provide care, too.

I have a review of the 2007 film "Unborn in the USA" on the movies blog here (Sept 17, 2008) here.

Note: Breaking News!

The link for the "Bailout Bill" was posted on this blog for the entry of Friday Sept. 26. Please look below on this blog.

Saturday, September 27, 2008

DC teacher shortage presents a contradiction with use of subs


It seems that there is areal fiasco in the Washington DC school system now with the homemade teacher shortage.

Chancellor Michelle Rhee had dismissed a lot of teachers (270 or more) for not making certification norms. Now, at McKinley Tech High School, as of Thursday Sept. 25, there were 91 classrooms without permanent teachers, with positions filled by substitutes.

The WJLA (ABC Channel 7) story in Washington DC, dated Sept 26, title “D.C. Parents Concerned About Alleged Teacher Shortage,” link here.

I had blogged about substitutes on Dec 13, 2006 and given a reference to substitute requirements in various states. I checked, and in the DC it appears one can teach with 60 college credit hours as a sub. I don’t know whether McKinley is using short term subs, or only subs that had been licensed, but it sounds as if the latter is not likely if Rhee has fired so many teachers for being short of certification. The whole situation sounds self-contradictory.

I’ve written about my own adventures as a sub in the northern Virginia systems. There is a tendency for subs to “expire” if they don’t have good experience with kids. If the teacher shortage is real, then school systems need to be serious about providing a lot more help with certification. People who might switch to teaching from other areas may be reluctant to make the financial investment into the licensure (usually 15-24 credit hours at a local university) if budget shortfalls in local governments threaten teaching positions, despite the shortage. Yup, the budget problems prevent the school systems from offering more aid for certification.

School systems and universities need to get their act together on this one. Do they really need more teachers or not?

Friday, September 26, 2008

The GOP is imploding; get the "concepts" right before doing the bailout


Stocks opened moderately down Friday morning (Sept 26 2008) upon extensive media reports that the bailout talks had broken down. It could be much worse, and it sounds as though Wall Street believes that Congress will come up with something at least over the weekend before going home to campaign for re-election.

There are reports that the House Republicans broke off in order to disrupt the process, possibly over ideology, or perhaps to give John McCain a chance to look like a white knight.

President Bush reassured the public this morning “there will be a plan.”

Media reporters are particularly concerned about the global appearance of both executive and Congressional leadership. This sign of weakness can invite retaliation by investors overseas or even create security issues. The normally objective and sedate Anderson Cooper said, on his 360 Program last night on CNN, that “President Bush just wasn’t there” where giving his address Wednesday night, “It was like his post Katrina speech at Jackson Square in New Orleans.” I thought, could Bush be the subject of a Coen Brothers movie, another “Man Who Wasn’t There”, another part for Billy Bob Thornton? And media reporters were characterizing John McCain’s behavior as disruptive. The GOP seems hardly to be putting “country first.” Where is McCain’s “serving a cause greater than self”?

This is terrible for me. I thought of myself as a Republican, or the Log Cabin type, for years, and moved into libertarianism in the 90s. I’ve never seen such recklessness in government as in the past few years. Yes, I enjoyed listening to Ron Paul, and of all the candidates entering either party’s primary I felt Rudy Giuliani was the best qualified to be hired to do the job as president. I hoped to see a subway election. And I thought that Giuliani would be OK with eventually lifting “don’t ask don’t tell.”

It seems as thought the Republican Party is imploding. It's falling for every mechanism that Princeton University professor David Callahan described in his 2004 book "The Cheating Culture" shortly after this subprime Ponzi scheme had started.

Nevertheless, the public seems opposed to the bailout, and the libertarian community is particularly vocal, as expected. Don’t reward bad behavior. Let people reap the consequences of their own foolish decisions and investments. The trouble is, their behavior really does effect others. Are we all to run back into the arms of Jennifer Roback Morse (who now claims to be a libertarian) and “marriage culture” or “family first” where individual self-definition is derailed by the hidden activities of others?

Steven Pearlstein, has a perspective on p D1 of the Business Section of the Sept. 26 Washington Post, “Gut Check” that is well worth reading. The most important sentence (from a “My Weekly Reader” perspective, perhaps) in the op-ed is his “Fourth, this isn't primarily a bailout for Wall Street -- it's an attempt to jump-start certain credit markets that have broken to the point that nobody is buying, driving down prices to the point where they are well below any reasonable estimate of their long-term economic value.” Yes – go back to Jennifer Roback Morse – this is about the Prisoner’s Dilemma. You can’t simply expect people to sort this out on their own when they don’t trust other’s motives. The link is here. Pearlstein hosts an online discussion at the Post today at 11 AM EDT and has other perspectives, such as “The Words Left Unspoken in the Bailout Debate” – “we’re sorry”. (Search for “Pearlstein” at the Post home page to find all the individual links).

It is true that the House Republicans have a point. There should be private insurance set up. And smaller banks are not necessarily drying up the credit markets, as feared. See Binyamin Appelbaum, “Smaller Banks Thrive Out of the Fray of the Crisis: People Shift Money from Wall St. to Main St”, link here.

There are other pieces in major newspapers (including WSJ) today that articulate a lot of different points of view. Most of the best pieces deal with properly characterizing what needs to be done and how to make sure that the taxpayer and small investors recover as much value as possible. One problem that still worries me is that it does mean more regulation, like it or not. Markets can only work when there are some rules of the road, particularly to guarantee permanence and sustainability – which the subprime loan device grossly violates. Regulations need to place some importance on people – big and small – taking account for their own mistakes, and force people to deal with the practical reality that they have to take responsibility for others, or else they will expose others to unarticulated risks without even realizing it. That’s scary, because it can move into other areas.

"Mad Money's" Jim Cramer, on The Street, is saying that the ideologues just don't get what is happening, that investors are making an "invisible run on the banks" (the money market funds) already, and that the FDIC limit needs to be increased from $100000 to $2.5 million. Link is here.

Update: Sunday Sept. 28, 2008


CNN has released a copy of the proposed bailout bill in Discussion Draft PDF format, 106 pages, from the House of Representatives, link here. It is to be called the Emergency Economic Stabilization Act of 2008.

Thursday, September 25, 2008

Families continue to experience increasing health care cost strain: two major reports


A Tracking Report (No. 21, September 2008) from the Center for Health System Change shows that 57 million Americans had problems paying their medical bills in 2007, up 14 million from 2003. Of these 57 million, 42.5 million had some insurance coverage.

The report press release is here.

An employee benefits survey from the Kaiser Family Foundation (Health Research & Educational Trust) found that employees are paying $3354 in premiums for family coverage, with a total cost shared with employers of $12680. The full report (“Employer Health Benefits: 2008 Annual Survey”) is here. The report offers detailed analysis of cost sharing between employers and employees.

Studies report that many patients delay medical tests and do not purchase expensive medication that they need because of cost, resulting in eventual emergency room visits.

My own experience in my own career was that family coverage tended to cost three to four times what individual coverage cost, out of pocket. One of my employers, Sperry Univac, actually adjusted the premiums to salary, charging lower paid people less, back in 1973-1974.

The findings and sources were discussed in an article on p C4 of The New York Times today by Reed Abelson, “Health Care Costs Create Rising Strain, Studies Find”.

Collection agencies sometimes have separate departments for medical collections, which require extra employee training because of HIPAA. A large percentage of personal bankruptcies result from medical bills, and unpaid bills do affect credit scores. And bills are often unpaid for a while because of inaccurate billing or disputes over coverage and referrals under managed care programs. I had a major dispute myself in 1998 which was finally resolved in my favor after surgery for a hip fracture from a convenience store accident.

Wednesday, September 24, 2008

Bailout: We DO need a deal: Let Donald Trump run the negotiations as an episode of "The Apprentice"


I recall an early episode of “The Apprentice” where Donald Trump started his talk with the word “NEGOTIATION”. The particular episode turned out to have some silly gimmicks and head trips (especially for Troy McClain), but the one business N-word stuck with me. (There’s more to life than selling lemonade.)

That’s what we need today on Capitol Hill, and very quickly.

I write this post having, late last night, watched a Netflix copy of the crisp 1948 film noir from (Lions Gate, Artisan, Republic, and MGM)"Force of Evil" (based on Ira Wolfert's "Tucker's People"), which makes a clever analogy between "numbers banks" and today's "investment banks" and bookies or "collection agents" and today's brokers; money goes in, but cannot be drawn back out (hence, the "credit crisis).

Congress is angry at the proposal from Treasury Secretary Paulson, probably partly because Paulson himself is “one of them” and made $160 million when he left Goldman Sachs.

Yes, we have to “get it right” and yes, we have to “get it done” pretty quickly. And, yes, it’s reasonable to want to help Main Street, particularly give the taxpayer ownership rights in some form over the securities that the government would purchase or guarantee somehow. It’s reasonable to want to cap CEO compensation.

There is a good summary of the “alternatives” by Anthony Faiola and David Cho, “Alternative Solutions Diverge From Administration’s Approach,” link here. There are concepts like “government as lender” and “government as hedge fund”.

All of these in someway present a potential slippery slope. If the government owns parts of these companies in proportion to the $700 billion (that’s almost $3000 per taxpayer), that hints at European-style public ownership of many businesses, although, when it comes to the trains and the utilities, that isn’t all bad. In this country, most transit systems are publicly owned. And we’re having a national debate on whether the health insurance industry should somehow be publicly owned (single payer); Medicare already is. Here, we’re talking about financial institutions becoming partly publicly owned. But in the housing area, that’s already true (as of a week before), and government (through FHA, VA, etc) has had its fingers in the mortgage business for decades.

Furthermore, chopping at CEO pay, as I suggested yesterday, sounds frankly “Red”. It conveys the idea that government should reign in on individuals in other ways later (especially in Internet business, a possibility that gravely concerns me).

Paulson’s claim is that, with these strings attached (it’s not clear that Obama would attach that many more seaman’s knots than McCain now), bankers and businesspersons simply won’t take the deal or give credit. Lending will stop, huge job losses will occur, and maybe even my Bank of America ATM won’t always work. It could become viral.

Personally, I find it incredible that a whole economy – it’s existence as we know it – could evaporate because of one kind of instrument – credit default swaps. Maybe that’s what happens when we allow investors to violate the “insurable interest” rule. The money went somewhere and has to live under someone’s mattress. It sounds like it went to builders who got $500000 a piece for homes in Florida, Las Vegas or Colorado, or central California when they should have gotten only $300000. Note that condominiums in Trump Country still command millions per unit. Maybe the builders should help bail this thing out. They took the bad money. This seems to have happened all over the world, not just in the United States. Spain (particularly), Britain, Russia and Germany all apparently share our mortgage crisis now. That’s one reason why the dollar (and therefore oil prices) may not be hit as hard by a bailout as Congress fears.

And it’s crazy, isn’t it. Three or four years ago, around major cities, tenants were being forced out of high rises to be converted to condos for people with more money. Then, well, it wasn’t more money, it was subprime loans. To have a place to live, you were urged to sign up for a bad mortgage, practically blackmailed into it. This sounds like soap opera, and kind of throws ideas about “personal responsibility” back into the world of patriarchal competition.

I often write about mathematics education on this blog, and for anyone with a formal math background, it's amazing that people don't see that Ponzi schemes reach tipping points, as a matter of logic. Maybe it's more than math: you can't continue to obligate consumers to hold more debt to live reasonably without allowing their wages to rise comparably. That's economics, and politics.

Thomas Friedman (“Hot, Flat and Crowded”) explained the problem this morning as the inability of creditors now to make actuarial computations. No one knows what anything is worth. You can’t calculate the present value of anything without a reliable base number. But I’ve seen this problem in other areas. Insurance companies don’t want to offer media perils to amateur bloggers because they can’t estimate the risk. That’s a hint to why I fear the urge to regulate could spread quickly.

And then, ABC News keeps saying that Senate support depends on what John McCain does. That’s obviously political. McCain and Obama need to meet (they’re both active United States Senators), set aside politics, and agree to something publicly. People’s lives are at stake, and they have no business playing with them just to win an election.

One must add, The Wall Street Journal this morning, in a lead editorial, makes an additional constructive suggestion, that the administration invoke an "FDICIA Waiver" (refers to the Federal Deposit Insurance Corporation Improvement Act) to allow the Treasury to inject capital into banks, without Congress, in a piece called "The Paulson Sale", link here. The WSJ makes it sounds like such a measure could buy some time for Congress to consider a better thought-out plan.

All this said, we need a deal, and we need it quickly, or at least to establish some kind of investor confidence quickly, preferably before Congress goes home for a rest. (I thought they were all in Martha’s Vineyard in August with Bill Clinton.)

So, what’s the good word, drill sergeant? NEGOTIATE. I don’t think Congress can do this on its own. So here’s the deal. Invite a few business leaders to meet with Congress and get a feel for what terms businessmen will accept and start giving credit. I don’t know. I rather think that the Obama-like plan is more reasonable to them than Paulson thinks. Let Trump run the negotiating session (he doesn’t get to use his trademarked “you’re fired”) but, from all public figures in business, he seems to make a case for his ability to get two sides together. (And he can fly to Washington in his own jet.) You need to invite people from other industries that really make things. Include the media executives. Yup, hedge funds finance a lot of movie making, and I want to get my own movie made, and I’m concerned. Invite Dr. Phil, Oprah and even Nate and Suze if you like. But Congress needs some outside feedback, in a negotiating session. And it needs to get started on this TODAY.

What we need, then, is one more episode of “The Apprentice.” For real.

Update: Sept 25.

Right now it's still in tatters. Dr. Phil panned the bailout on TV, here is AOL's link, "I just think it's bizarre". He says it will cost every taxpayer up to $400 a month. How about garnishing wages to pay for it?

Tuesday, September 23, 2008

Does the Wall Street bailout need a second opinion?


Democratic Senators including Christopher Dodd (CT) and Jon Tester (MT) quizzed Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson, on the question, “why now?” Why can’t we take some time, get some second opinions? Why didn’t anybody see this coming?

The answers seemed to be, the $700 billion bailout is needed to keep ordinary credit markets flowing for non-financial businesses, to keep people at work. Maybe even to keep ATM’s working. Another part of the answer is that the taxpayers will own liens on the debt. When the assets are sold, eventually the taxpayers are paid back. This has happened before.

The “second opinion” comes up in helping all the other main street interests: first of all, homeowners hit by escalating contracts and facing foreclosure, and students with loans. The theory is that if they can be helped, then other financial assets themselves don’t have to keep crumbling into fairy dust.

But the main problem is obvious a loss of trust and confidence.

The administration seems to be against this; it seems to be arguing for an “operational” solution to keep the economy running. It’s understandable not to want to get into the game of playing Robin Hood. That leads to deciding who “deserves” what. That gets back to “cultural war” questions, ultimately. What happened on Wall Street seems to be a simpler question of knowing “right from wrong”. It’s wrong to make money off of something one takes no responsibility for, and may have a “conflict of interest” problem with, and incentive to destroy. Ponzi schemes (“get something for nothing”) are simply wrong for everyone, regardless of social circumstances. And its wrong to throw OPM (“other people’s money”) into a toilet without their knowledge.

The safest course may indeed be for Congress to do what the Bush administration and Fed ask, and pass a relatively “simple” bill. I know I sound like a Republicrat (not quite a Log Cabin Republican here). The problem is the big, bad “R” word – regulation. The temptation to regulate can spread to other, non-financial areas (like the Internet) that also prosper with asymmetry and face unpredictable risks (like litigation or downstream liability) all too quickly.

A good story on this mornings hearings in the Senate appears on CNN, written by Chris Isidore, CNN Money Senior Editor, “Urgent call for bailout: Paulson, Bernanke: Immediate action needed on $700B plan to prevent meltdown, link here.

Bob Herbert has an op-ed "A Second Opinion" in The New York Times, today, link here.

Henry Paulson's Testimony is available at the United States Department of the Treasury website, as press release 1153, link here. The Fact Sheet, "Proposed Treasury Authority to Purchase Troubled Assets." is release 1150, Sept. 19, link here.

Sunday, September 21, 2008

Self-employed might lose health insurance if they work for someone else


An hour of “What They’re Not Saying – About Your Money” with Roland Martin on CNN, turned up a disturbing observation about our health insurance that neither candidate has apparently addressed directly.

A self-employed man was interviewed. He was covered by a BCBS policy and had to undergo an aorta repair. He said that in his state, he would no longer be able to purchase individual health insurance. State law somehow protects him as long as he remains self-employed.

McCain would need, besides offering the ability of individuals to buy health insurance with pre-tax dollars, to do something about pre-existing conditions that private health companies view as anti-selection. I don’t know that Obama has done too much about this yet. Hillary Clinton had talked a lot about it.

Obama has suggested that McCain would cause employers to drop health coverage. But it is not clear that employees wouldn’t be better off if they could use pre-tax dollars (or purchase grants for the poor) and form groups on their own, as long as pre-existing conditions were handled. Employers that no longer offer health coverage could compete better with companies in other countries with single payer insurance.

Remember that employer-based health care developed during World War II in an environment of wage and price controls. Health insurance then was a way to increase compensation and attract workers.

Saturday, September 20, 2008

New superbug ("CDIF") is spreading among hospital patients


NBC Nightly news on Friday Sept. 19 reported on increasing public health concern about nosocomial infection in hospitals with Clostridium difficile (CDIF) (Wikipedia article) which seems to be mutating and behaving sometimes like a “superbug”. It can lead to severe diarrhea. The bacterium sheds spores which are resistant to some hand cleansers but responds to older and harsher common soaps in handwashing. Innocuous versions of the bacterium live in the intestinal tract normally, but use of antibiotics can kill off less hardly bacteria that would compete with it.

The Centers for Disease Control link is here.

In practice, bedridden patients are much more susceptible to all infections. When I had my acetabular fracture in 1998, I had minor bladder infection, controlled by Bactrim and Cipro, but occasional mild pneumonia and fever, which cleared immediately once I was able to get around a bit on crutches.

The report mentioned that surgical and hospital staffs were having to tighten hand washing and scrub procedures to control this infection, an issue well known from MRSA.

From personal observation, I’ve notice that a few male Caucasian surgeons actually shave their wrists as part of an infection control mechanism, I presume. That seems to be carrying things a bit far, and it might actually bring more bacteria to the skin.

Friday, September 19, 2008

Massive federal bailout of bad loans proposed: what woud be the downstream consequences for individuals?


The media has multiple reports this morning of a massive bailout by Congress, involving the government’s somehow taking over “toxic loans”. It was unclear if this involved setting up something like a Resolution Trust Corporation of the 1990s, and the government’s buying bad loans. This sounds like Jim Cramer’s (“Mad Money”) proposal that the government pick up failed loans at 30 cents on the dollar.

The latest fear, as noted yesterday, was a “run” on uninsured money market funds, and the unwillingness of financial institutions to lend to one another and to consumers.

It sounds as though government worldwide may do the same.

Short selling is likely to be reformed and much of it slowed or curtailed considerably. (One would wonder about the tricky technique of “shorting against the box,” which is short selling stocks that one already owns).

Some stories suggested that the government would need to act quickly, within a week.

This sounds like “getting something for nothing” and it probably will not turn out that way. Individual borrowers may have to meet higher credit score minimums and down payment requirements could increase. On NBC, one financial advisor said that one needs a credit score of 740 today to have the equivalent of 700 last week. There could be a other changes in what is expected of individuals in a lot of circumstances.

Thursday, September 18, 2008

The Run from Wall Street


Boy, the scare talk is cascading. They’re saying that Congress might have to feed more money to the FDIC for bank failures. And some money market funds, supposedly thought of as “safe” and practically like savings accounts with larger returns, may have their principal at risk. The fear (at least according to CNBC) is that we could be at the “cusp” of a run on these funds, which are technically uninsured.

Most fund companies are playing “online reputation management” and saying they will make up losses. Wachovia recently covered losses in its Evergreen fund, and Fidelity issued a statement reassuring the safety of principal for investors. The fund that got into trouble is apparently Reserve Primary Fund, which may have been risky even among funds of this type because of unusually high yield.

The government considers the positions of money market funds in deciding what companies to prop up. Apparently, funds had a lot more money in AIG, since it is an “insurance company” than in an investment bank like Lehman Brothers. Nevertheless, both companies had thrown money after unsound mortgages, in what has turned out to become another Ponzi scheme.

The major story in the Business Section, p D1, of The Washington Post is “Beyond Wall St., Losses Spill Over; Long regarded as safe, money market funds are pulled into peril,” by Binyamin Appelbaum, link here.

Steven Levingston has a related gray column on p D4 “How Safe Is Your Money Fund?” He says Vanguard, BlackRock (popular at Merrill Lynch with smaller investors and retirees), Oppenheimer Funds, T. Rowe Price, Franklin Templeton, J.P. Morgan Chase, Legg Mason, and Schwab as having issued public statements about the safety of their funds. I could not fund BlackRock’s statement, at least on their website.

I also quip at statements I read a couple months ago about personal online reputation defense and working in the securities industry. That makes sense, but it seems that a good part of Wall Street has not behaved as if it really cared about reputation recently. You don’t set up Ponzi schemes in real estate set up as “five year plans” and then spread the idea to other businesses.

There are widespread reports this morning that the Federal Reserve has thrown a lot more "Weimar" printed money and liquidity into the system.

Later today:


I just wanted to pass along a reference to an article on Yahoo! by Laura Reilly, “Money & Happiness: The Financial Crisis: Getting to the Roots”, here. She talks about the danger that herself and people with little debt are put in by the recklessness of others. She also talks about how Thomas Jefferson was almost ruined by debt and almost lost Monticello in Charlottesville VA.

Also, Jim Cramer writes on "TheStreet" "What this Government Must Do". To wit, he wants a Resolution Trust, and a $300 billion treasury fund to redeem bad mortgages 30 cents on the dollar, because we have no idea what they are worth. Link.

Wednesday, September 17, 2008

How about a "too big to fail" tax? How about bringing back the RTC?


Boy, isn’t it hard to believe that a major insurance holding company and a major investment bank both threw most of their assets into the toilet by “insuring” uncreditworthy home purchasers?

Remedies about. In an op-ed on p A17 of the Sept. 17 New York Times, Johnathan G. S. Koppell proposes a “failure tax” as an antidote for the topheavy corporate dominoes that are “too big to fail,” until they do. He says that the Fed and Treasury department are starting to act like claims adjusters themselves, after a financial Katrina. So why not charge a coastal risk premium? The link is here.

CNBC suggests bringing back a Resolution Trust Corporation (which was merged into the FDIC in 1995).

Some lessons should be learned from the past. After the savings and loan scandals of the late 1980s, the RTC and various entities used arcane rules to go after defaulting borrowers for default judgments after foreclosures. James A. Wiedemer documented all of these horrific events in his largely forgotten 1992 paperback. A Homeowner's Guide to Foreclosure: How to Protect your Home and your Rights.

Returing to the uptick rule for short sellers is another suggestion that sounds like common sense.

Tuesday, September 16, 2008

Short selling, credit default contracts, and illiquid assets: a deadly combination for AIG; who's next? The financial Domino Theory


Larry Cramer has a valuable post on TheStreet today that explains how short sellers helped bring about the crisis at AIG. He says that the SEC had placed a “bottom” on short selling on July 15, and then removed it. He claims that their removing it precipitated the attack on AIG and perhaps the demise of Lehman and forced sale.

He is quite critical of the Bush administration and the SEC’s behavior, which he seems to think was negligent. It’s also obvious, however, that the reckless exposure in credit default insurance contracts by AIG and many other companies is what attracted the short sellers.

The problem is that the “disease” is contagious and could quickly spread to other companies that are viewed as sound now, but who may have hidden “liquidity problems”. This is the financial version of the Johnson era "Domino Theory" regarding national security. The end result could be other bankruptcies, or at least a line of people coming to the Fed for loans. Pensions could be lost and some retirees could be thrown into poverty by the “greed” of others, perhaps (remember Michael Douglas – “Greed is good” from the movie “Wall Street’) but really because of inconsistent oversight and carelessness by regulators.

Neither John McCain nor Barack Obama have discussed this problem properly (neither have the vice presidential candidates) or displayed much of an intellectual understanding of the problems. This is really not a partisan issue, unless the idea is to encourage the recklessness that encourages some people to get rich by impoverishing others.

Of course, short selling can be “fun”!

Larry Cramer’article today is titled “SEC Played a Big Role” link here.

The latest late Tuesday is that the Fed may make a bridge loan to AIG. Still unclear. Whatever it does, it sets an example. I would say, what happened to "moral hazard", except that the real problem seems to be a sleepy SEC.

Update: Yup, the Fed is bailing out the world's largest insurance company (AIG) and taking 80% control, after massive "private mismanagement" and targeting by short sellers -- but, after all, the government was partly to blame. Here's the CNBC story.

The Federal Reserve Bank has issued a formal press release regarding this action, here.

Update: Sept. 17

The SEC has tightened the rules on short sellers again, with respect to delivery. The SEC says it is prohibiting "abusive short selling" with zero-tolerance. Conservatives are calling for reinstating the "uptick rule" and changing some accounting rules. Bloomberg's report, by Jesse Westbrook and Edgar Ortega, is here.

Sept. 18

Various sources report that the Securities and Exchange Commission plans a temporary ban on short selling against around 800 financial institutions. CNBC link is here.

Monday, September 15, 2008

ING (insurance giant) awards grants for innovative teachers


On a day that financial services companies are taking a hammering because of the blood bath on Wall Street Sunday night (previous post), I note that ING, the company from which I retired, has an awards program for teachers called “Unsung Heroes.”

Yahoo’s listings for the company provide a link “ING Awards Over $240000 to Innovative Educators Across the United States: Los Alamitos Educator Receives $27,000 as the ING Unsung Heroes(R) Awards Program Grand Prize Winner”, link here on Yahoo! Curiously, I did not find this press release on the ing-usa website. However I did find the “Unsung heroes” link here.

One of the awards went to a California high school for its “LifeWorks Studio.” This program included at least two major components. One was a business that makes and distributes professional DVD’s of school plays and concerts or other events. Another related project concerned a relationship between the school and a nearby hospice to produce a film about people near the ends of their lives.

I wrote a story about ING and diversity on my GLBT blog on Dec. 21, 2007, here.

Also, a grim warning from NYU about the "solvency" of the FDIC itself today:

Also, today NYU (Stern School and RGE Monitor) Economist Nicholas Roubini warned that Congress needs to act to recapitalize the FDIC. There is a slow run on retail banks, and even conventional insurance of up to $100000 per account may be insufficient if $1 trillion is at risk and only $50 billion are in the fund. The story is on Yahoo!’s tech ticker with this link Sept 15.

Sunday, September 14, 2008

Weekend Wall Street turmoil: Merrill Lynch may be acquired; Lehman may be liquidated; AIG may be restructured


The Wall Street Journal print weekend paper yesterday was moderately alarming in its discussions of several major investment banks and insurance holding companies. The details of the printed stories were less disturbing than the headlines.

But Sunday afternoon, even as the Washington Redskins pulled out a win to redeem themselves at home and keep us distracted, the gremlins at WSJ were playing. Now the headline is “Will Street Firms Scramble to Avert Crisis.”

First, Bank of America may buy Merrill Lynch. (Is Bank of American buying everything? Remember when it was taken over and renamed by Nations Bank in Charlotte, NC, now apparently the banking center for the nation.) The WSJ article is subscription only, but CNN Money has a story here (as linked today from Yahoo!) There is some talk that a deal could be struck over the weekend. Lehman Brothers may be liquidated, as Barclays backed out of the supposed “private rescue” that the Treasury wanted to broker. The WSJ story (by Carrick Mollenkamp, Matthew Karnitschnig and Serena Ng) is available to the public on this item. Another WSJ preview (subscription) says that American International Group will announce a major restructuring Monday morning.

I am a retiree of ING, a competitor of AIG, and ING appears to be doing well. I’m watching their news closely, to see whether AIG’s problems and probable credit downgrade are specific to this one company. Right now, it seems so.

I also have a CMA and IRA portfolio with Merrill Lynch. The company’s website for account holders did not contain any new stories today yet. But previously the company has discussed the issue of the safety of consumer accounts. I wrote about that on this blog on July 17, 2008 (see Archives).

Lehman’s crisis may have been exacerbated by the way short selling has been practiced recently, another detailed WSJ story has reported.

CNN Money also offers a Fortune report by Allan Sloan and Roddy Boyd, "The Lehman Lesson: What went wrong with the storied investment-banking firm is a warning for all of Wall Street". That is, taking too many risks with its own money in an area that has much less regulation from the Fed than most people realize. The link is here.

CNBC reports that, without being purchased immediately, Merrill Lynch would be "attacked" by short sellers on Monday because it is next on the list. The short selling system, as it is designed, would appear to encourage instability, although that itself would make a good debate on policy.

Stay tuned to media reports, as more may be revealed this evening.

9 PM EDT

Home runs are flying out of the park. There is too much breaking news to go over here in detail. Merrill Lynch-BA is a done deal, forced by the Fed. AIG went to the Fed and demanded a bridge loan, an unprecedented move for a large insurance company. It's disturbing that an insurance company would do this (just to protect its credit rating). I don't know if this sets a precedent that could destabilize other companies in the industry, including one upon which I somewhat depend. Watch CNBC!

Friday, September 12, 2008

Both candidates back bi-partisan "voluntary" national service programs


National Service, of the voluntary kind, is back in the news. This morning, former President Bill Clinton appeared on Martha Stewart (ABC channels) to discuss his “My Commitment” (“A Project of the Clinton Global Initiative”) here. The visitor can start by looking at “My Commitment 101”. Yes, the name of the initiative sounds a bit coercive. But he says, “we start one person at a time.” Clinton also says that every high school should have its own NGO for charitable work.

There is a story by Michael D. Shear and Jonathan Weisman, “Candidates Promote National-Service Initiatives,” here. John McCain has said that he does not support mandatory national service or resuming the draft, and the Republican Party platform emphatically ratifies that position (despite the fact that Selective Service continues). McCain believes that the weight of initiatives for volunteering should come in the private (including faith-based) sphere. Barack Obama has proposed a $3.5 billion service program but says it should be a private-public partnership. Obama wants to provide tuition reimbursement as a major carrot for service for older teens and young adults.

There is a website “Voices for National Service”, link here. The group has a statement from May 2008 expressing disappointment that HR 5563, the GIVE Act (“H.R. 5563, the Generations Invigorating Volunteerism and Education Act” (Govtrack reference here)), did not get the 2/3 vote necessary for passage. The Congressional Quarterly story on the Act is here.

There is also an active bill HR 393 “The Universal National Service Act of 2007” in the 110th Congress, introduced by Charles Rangel (D-NY) here on govtrack. The bill was introduced explicitly “To require all persons in the United States between the ages of 18 and 42 to perform national service, either as a member of the uniformed services or in civilian service in furtherance of the national defense and homeland security.” Obviously, John McCain opposes this and hopefully Obama would.

The Post story also said today that a new voluntary national service bill is supposed to be introduced today (Sept 12) but gave no details. Supposedly, both candidates will support it. Presumably it emphasizes “carrots” rather than “sticks.” More details will appear here when available.

Wednesday, September 10, 2008

Should driving age be raised to 17 or 18?


The Insurance Institute for Highway Safety has been floating the idea of postponing the minimum driving age from 16 (common now) to at least 17 or 18, to save lives. The position paper (“put off driver licensure to save lives”) is available at this link, dated Sept. 9.

I can recall proposals like this as far back as the 1960s. In the spring of 1966, I remember taking organ lessons from a Peabody student, who was 18 at the time, who commuted from Baltimore repeatedly. I recall seeing the proposal then, when some people wanted to put off the licensure until 21. When I went to graduate school at the University of Kansas then, some people talked about learning to drive on farms or ranches at around age 12.

This report also reminds me of a parallel problem: learning to use the Internet responsibly. We are learning quickly the dangers of turning teenagers loose on blogs and social networking sites when they have no grasp of libel, copyright, or “reputation” issues.

I still recall that TheWB Smallville show depicts the young Clark Kent at the official age of 14 already driving trucks. But, after all, he is a farm boy.

Tuesday, September 09, 2008

Merrill Lynch offers major information resources on Freddie and Fannie conservatorship


Merrill Lynch this morning offered account holders a page “Research Insights: From Merrill Lynch Chief Investment Strategist Richard Bernstein: Behind the Fannie Mae and Freddie Mac Bailout”. There is a four-minute video and a PDF transcript of the video, along with various other materials such as discussions of the implications of “conservatorship”. The link is here. It does not appear that you have to be an account holder to view this.

The video is critical of the government’s “preferential” treatment of bondholders over stockholders. It says that many regional banks can be exposed to serious problems because of the loss of value of preferred stock. It talks about the 50-45-5 mix of stocks to bonds to cash. Other reports suggest that there are some risky bond funds that have lost most of their value over time. Furthermore, some mutual stock funds may have had a high exposure to GSE’s.

I found that the bond funds of my own went up considerably yesterday, included PIMCO, which has a lot of FMNA bonds, and apparently benefits from the government’s guarantee.

Update: Sept. 10, 2008

The Washington Post Business Section, p B01 has a story "Homeownership Mission Vulnerable After Rescue," by Binyamin Appelbaum and Renae Merle, link here. The reporters note that the suspension of the two big mortgage GSE's as "private enterprise" means that the federal government can no longer compel them to spend "shareholders' money" on low-income housing programs. Instead, affordable housing (already a big local issue in an area like Arlington, with the Board's walking tours) is now a "real" political issue for the feds, regardless of who wins the next election.

Sunday, September 07, 2008

Education of underprivileged children requires a lot more than academics


Paul Tough has an interesting education article in “The Way We Live Now” series in The New York Times Magazine today, Sept. 7, on p 17. It is called “24/7 School Reform: What kids really need can’t be taught in the classroom,” link here.

The underlying idea is that younger underprivileged children need continuous mentoring outside the home in all life skills, not just academic. Poor children grow into poor adults, he says, because they don’t develop the cognitive skills (reading and math) and self-control skills (delayed gratification and planning) necessary to “compete” in the kind of world we have today. They may have done better in earlier generations. The change in the world (personal competition at a global world) around them explains the rise in increasingly brazen crime among some youth in this population.

Tough mentions at least three specific authorites. First, he discusses James J. Heckman, a sometimes Obama adviser from the University of Chicago, and Heckman is particularly a proponent of the theory about skills and individual competition. Susan Neuman, who has served in the Bush administration (with "No Child Left Behind"), has published a book “Changing the Odds for Children at Risk”. Amazon shows a related book “Educating the Other America: Top Experts Tackle Poverty, Literacy and Achievement in our Schools,” and Amazon shows some earlier related listings. She considers programs like Nurse-Family partnerships and Early Head Start, and focus on the families that need support. Geoffrey Canada (in the spirit of Obama’s “community organizing” perhaps) has created the Harlem Children’s Zone, integrating all these services.

The overall impression of this focus is that in the future jobs in education may place much more emphasis on skills that themselves require familial socialization as well as academics. Some people may want to teach math (at least at more advanced grades) but not deal with the marriages of parents of students who are performing poorly.

It would be interesting to compare all of this to the operations of Kipp Schools. Or perhaps this reminds us of Hillary Clinton's "It Takes a Village."

Update: Sept 8

Bill Turque has a story on p B1, Metro, of The Washington Post, "Rhee's 'Plan B' Targets Teacher Quality: Strategy Might Include New Evaluation Process, Linking Licenses to Classroom Performance," in which the licensure of certain teachers could be tied to student performance, link here. Michelle A/ Rhee is the "controversial" chancellor of the Washington DC school system.

Rob Stein has a "Science" (a Monday morning Washington Post feature on p A6) piece "Science: Innate Sense of Numbers" about a visual test about the child's ability guess the "numerosity" of objects on a computer screen. The Q&A link is here.

Friday, September 05, 2008

Government set to seize Fannie and Freddie, wiping out shareholders; taxpayers will bail them out


The Bush administration and Federal Reserve reportedly have told Fannie Mae and Freddie Mac that the government has plans to remove the current boards of directors and eliminate most shareholder value. The two pseudo-companies would be placed into federal conservatorship.

The breaking story is in The New York Times, by Stephen Labaton and Andrew Ross Sorkin, and is titled “U.S. Rescue Seen at Hand for 2 Mortgage Giants”, link here. The story should appear on the front page of the Times and other major papers Saturday Sept. 6.

Under this plan, taxpayers would make up the losses on mortgages underwritten by the two companies.

There is talk that these moves were politically motivated, because the administration did not want to see a spectacular weekend bailout closer to the general election in November.

The Associated Press has a similar story late this evening by Alan Zibel, link here. It also appears on Yahoo! finance. After hours trading on these two stocks this evening had melted down already.

CNN says that Freddie and Fannie back up 50% of the nation's mortgages. They don't originate loans; they buy mortgages and package them for investors, while "backing them up". A Wall Street pro said late Friday afternoon "something wicked this way comes." It seems as thought they are much more important than FHA and VA in insuring loans in practice. The government believes that this action is necessary to get credit markets working again.

I have a friend who worked in information technology for Fannie Mae in the early 1990s, and found it to be a sweatshop.

Also, in Nevada, state regulators have today taken over "Silver State Bank" which will become "Nevada State Bank" (CNN).



Update: Sunday Sept. 7, 2008

David Ellis, CNN finance writer, reports "U.S. seizes Fannie and Freddie
Treasury chief Paulson unveils historic government takeover of twin mortgage buyers. Top executives are out," link here.

This is a potential $200 billion liability. This is much larger than Bear Stearns. Fannie and Freddie are "GSE's" or "Government Sponsored Enterprises." The companies package mortgages and issue bonds. But China and Russia have been dumping the bonds.

Common stock shareholders are not wiped out, but they're last in line to collect. Mutual funds may be exposed, and 401K holders could be affected indirectly. However, in many cases, individuals will know if their funds had major exposures to Fannie and Freddie because their values have already dropped drastically during the past year. Major investment banks and some regional banks can be affected, and it is possible for more regional banks to fail.

Political activities for Fannie and Freddie will stop immediately to avoid conflict of interest, and charitable activities (like Freddie and last year's adoption expo) will be reviewed.

CNN Money also has a detailed analysis by Colin Barr: "Fannie, Freddie: The biggest losers: Investors in Fannie Mae and Freddie Mac face massive losses when trading opens Monday", link here. The article gives details on major shareholders, especially of the particularly vulnerable preferred stocks. I notice that my IRA has PIMCO which has lots of FNMA bonds, according to what I can find on Yahoo! for free on a weekend. The bonds (not the stocks) would seem to be OK according to the way I understand this Treasury action.

I do welcome comments from those who understand what is happening.

Who's next? General Motors? Who is too big to fail?

Wednesday, September 03, 2008

Should the Fed really "rule the world"?


Perhaps the Fed comprises the “masters of the Universe.” That is the view of Roger C. Altman, deputy Secretary of the Treasury during the first Clinton Administration. Today (Sept. 3), in the New York Times op-ed pages, he provides a perspective “How the Fed Can Fix the World,” link here. His take is rather straightforward. The Federal Reserve, he notes, bailed out Bear Stearns in March of this year, even though the Fed doesn’t directly regulate “investment banks”, mortgage companies (read: subprime) and hedge funds. But it had to step in and take over anyway, and kind of “adopt” at least one investment bank. He also notes that regulation of other entities is done by too many agencies, including the Comptroller of the Currency, the FDIC, the PBGC, the SEC, the CFTC, the Office of Thrift Supervision, and the Office of Federal Housing Enterprise oversight. He maintains that the entire paradigm for financial regulation needs to be restructured, maybe under the Fed (even more power?), and that Wall Street might not like it and traders might see their profits and incomes take a hit, but we would wind up with a system that is much more stable.

Monday, September 01, 2008

"Libel Tourism": Vigorous bipartisan support needed in Congress to counter this practice


An op-ed by Clifford May in The Washington Times, on Sunday Aug. 31, on p B3, discusses the progress of the Free Speech Protection Act of 2008, introduced into both houses in the 110th Congress with bipartisan support. This bill specifically addresses the problem of “libel tourism.”

What happens is that a book or article is published in the United States and is vetted (by author and publisher due diligence) to fall well within the parameter of American tort law with regard to libel, where truth is an absolute defense. Then, a party named in the book, often associated with radical Islam, purchases a few copies in Britain by mail, and then files a libel lawsuit under British law. Libel suits are much harder to defend in the United Kingdom. If the author and publisher do not appear (at their own expense) a default judgment is ordered. If the parties do not pay, they cannot enter Britain and some other Commonwealth countries that honor British judgments. I’m not sure about Canada, but both Canada and Britain are important in making films about terrorism.

The bill would allow the American defendant to counter-sue in an American court if the suit would be frivolous or unfounded in the US and is advanced to suppress American First Amendment rights.

Britain is notorious in attracting “libel tourism” cases. Kitty Kelly noted that ten years ago in reference to Princess Diana. Furthermore, British law tends to encourage some cases domestically that would be silly in the United States. This may extend to other areas, like copyright, where author Dan Brown won a case defending “The Da Vinci Code” and may be helping changing the practice of intellectual property law in Britain to be closer to American ideas.

The bills are HR 5814 (introduced by Peter King (R-NY) and Anthony Weiner (D-NY). The link is here. The same bill was introduced in the Senate by Arlen Specter (R-PA) as S 2977. Thought supposedly bipartisan, the support is much stronger on the Republican side. If properly argued, this could be helpful to McCain and Palin this fall, but the issues may not be clear to many American voters outside the writing and “creative” community (who have often tended to be Democratic or liberal). Potentially, they are important to national security. Clifford May points out that Saudi oil interests might try to lobby against it. Another somewhat, if distantly, related issue is the practice of data brokers with releasing and selling ordinarily private or unlisted (and legally irrelevant) information about ordinary Americans. I have discussed this with my own representative (a Democrat) and may say more later about it.

The Washington Times "Voices" op-ed by Clifford May is called “Free Speech under Fire” and the link is here. The op-ed notes the reluctance of publishers to deal with Roger Kimball's "Andy McCarthy's Willful Blindness: A Memoir of the Jihad" and the publishers' fears of "offending" and "Saudis living in England".

The visitor can check the profile for my international issues blog and see pieces on this problem Oct. 11, 2007 and Aug. 27, 2008, with a more distant related “free speech” article Aug. 6, 2008. I also discuss the book "Funding Evil" by Dr. Rachel Ehrenfeld on the books blog (Oct. 14, 2007) and the concerns expressed by the publishing industry about this problem, documented, for example, in an article "Libel Tourism: Where Terrorism and Censorship Meet [on Khalid bin Mahfouz, Robert O. Collins, "Alms for Jihad," Cambridge University Press]", for the original article by Cinnamon Stillwell in the San Francisco Chronicle, Aug. 29, 2007, link here (also stored at Campus Watch Research here).

It's curious that the Washington Times and Washington Post had articles about tourism yesterday (see entry Aug 31 here), but the Post's were about the more mundane "vacationing" or "running around" kind.

Update: Sept 30, 2008

The New York Times today has an important editorial, "Bringing an End to ‘Libel Tourism’", link here. The Times urges the Senate to pass a companion bill to what the House passed this week. The editorial points out that major publishers are afraid of books and articles on the financing of terrorism, for fear of being dragged into British courts for frivolous litigation, even when the facts published are true. Truth is a less absolute defense to libel in Britain (as Kitty Kelly has noted). It also notes that New York State has a law, but that writers in other states need protection by federal law.