Saturday, September 27, 2008

Heartening, Part II:

In a brief post earlier today, I wrote that it was heartening that both McCain and, to a lesser extent, Obama, are talking about cutting federal spending. Various commenters suggested that I was being naive in thinking that either candidate will cut spending if elected.

The commenters miss my point, so let me clarify. I'm not heartened because I have any expectations of either McCain or Obama. Rather, I'm heartened because they are both opportunistic politicians, and they wouldn't be talking about cutting spending unless they thought that this is what the public wants.

At least since Bill Clinton rolled the Republicans in the great budget standoff of 1995, and especially since the Republicans almost lost Congress in 1998, both parties have tried to outbid each other for the public's votes, fiscal responsibility be damned. I'm hoping that the political winds are shifting.

And by the way, while I don't have much faith in McCain, he does get credit from me for being one of the few Senate Republicans to vote against the largest expansion of government in recent history, Bush's Medicare drug program.

Related Posts (on one page):

  1. Heartening, Part II:
  2. Heartening:

The Psychology of Grading: So here's a puzzle about the psychology of grading. Harvard and Stanford Law schools have recently announced moving from a letter grade system with pluses and minuses to a High/Pass/Low-Pass/Fail system. My sense is that most students like the change: Students perceive that it takes pressure off them.

  But imagine a slight change. Imagine that instead of adopting the High/Pass/Low-Pass/Fail system, the schools kept the letter system and simply dropped pluses and minuses and the "D" grade. In other words, the possible grades became just A, B, C, and F.

  My sense is that students would object strongly to such a system. They would object that it was too arbitrary and unfair, because a student who earned a very high B or a very high A would get no credit for it: They would just get the flat grade that didn't reflect their achievement. Indeed, I suspect some students would say that removing pluses and minuses would increase the pressure on students by giving students a single bar to hit rather than more of a sliding scale.

  Why is this a puzzle? Well, the two systems are the same in a functional sense. High is just a new name for an A, Pass is the new name for a B, and Low Pass is the new name for a C. But my sense is that students don't see it that way. My best sense of why is that the experience of having received letter grades for almost 20 years of schooling before law school gives those letters tremendous meaning that new words like "high" and "pass" don't have. A switch to a new grading system makes the new grades feel different, even if the switch is mostly just a label.


I was happy and surprised to hear, for the first time since Reagan, a major party presidential candidate actually talking about cutting federal spending. And his opponent didn't really disagree (and, indeed, Obama has recently talked about taking a hard look at all current federal programs). I'm not a fan of either candidate, but this is heartening.

Related Posts (on one page):

  1. Heartening, Part II:
  2. Heartening:

The Debate:

Joe Malchow sums it up early on in the evening:

I was just about to write that this is the single most depressing political event I have ever witnessed—that these two men are as fools, aping their caricatures with absurd tested phrases and crude, insulting psychological links (like Obama’s “tax cuts for oil companies”).

Joe's depression lifted a bit later in the evening. But this seemed just right to me. Football coach Bill Walsh was famous for scripting his first 20 plays of the game--that's what the first 20 minutes of the debate seemed like to me. Just reading off a script to throw out all the pre-programmed buzzwords--check, check, check.

And just one other observation as it relates to foreign policy (the subject of this debate). For those of you who think that Barack Obama is qualified to be President more than Sarah Palin is to be Vice-President because of foreign policy issues, I'm sorry, but watching tonight's debate that is simply an absurd position. Maybe they are both qualified (my view, although it is much easier to argue that Obama is qualified to be Vice-President as Obama's lack of executive experience in making decisions and general aridity do worry me in seeing him as President in a world of Putins), or maybe they are both unqualified (although both seem obviously qualfied to be Vice-President). But the idea that Obama is qualified to be President and Palin unqualified to be Vice-President has never struck me as a particularly plausible position--and after last night, even less so.


A Self-Fulfilling Prophecy:

Congressman John Shadegg on the Paulson bailout:

David Freddeso: Is a bailout necessary to save the economy at this point from complete collapse — from a major failure of multiple institutions at the same time?

Shadegg: I think that’s the most difficult question that could be posed under these circumstances, and it’s the question that I have struggled all week to find the answer to. I have talked to a lot of smart people who know Wall Street, know banking, know the economy quite well, and you hear different opinions. Some will tell you that it is absolutely essential. Quite frankly, I’m skeptical about that.

But I think that in some ways the question doesn’t matter any more. Because Secretary Paulson chose to raise the matter in the way he did — that is, to go public in a very high-profile way, not just with his concern, but with a kind of Chicken-Little, the-sky-is-falling kind of demand — it became a self-fulfilling prophecy.

That is to say, once the secretary of the Treasury announces to the world that there is a pending financial collapse, perhaps as great as the Great Depression, and Congress must act — he has sent a signal that essentially tells world markets that Congress must act. I will tell you that has been one of the most frustrating things about this since the very beginning...

I can’t tell you how many members of Congress were stunned at that news, and were stunned that none of their local bankers were calling them. And then they called their local bankers, as I called my local bankers, and my local bankers said, “I think things are just fine.” I talked to one banker who said, “Gosh, we’ve got money, and we’re liquid, and we’re making a profit. And we’re in the market selling loans, and we’ve got competitors trying to sell loans against us.”

So, at that point, there’s a disconnect. Secretary Paulson is claiming that this is a catastrophe of generational proportions that could go worldwide. And none of what we were hearing back home matches that. And I’m not speaking just for myself, but also for many of my colleagues who were making similar calls. They weren’t being called by their bankers, or by any of the businesses back home saying, “I can’t borrow any money”.... If, in fact, Paulson had struck a chord with the American banking community, wouldn’t you think that after he announced on Friday that there was a crisis of liquidity that threatens the entire nation’s financial solvency and Americans’ jobs from coast to coast, that my community bankers in Arizona wouldn’t have been picking up the phone by Monday morning, if not over the weekend, to say that “I share the Secretary’s concerns”?

Dick Morris had predicted that McCain would come out against the Paulson bailout last night at the debate and endorse the principles of the House Republican plan, which Morris had deemed a "brilliant move." Looks like McCain isn't quite a "brilliant" as Morris thought.


From Crony Capitalism to Crony Community Organizing: "Profit” Loophole in Bailout Bill Doesn’t Require Net Profits.

Much of the blogosphere is up in arms because of the provision in Senator Dodd’s financial bailout bill that might funnel profits from the bailout plan to ACORN Housing (related to the disreputable activist group ACORN), and other more reputable service organizations.

I have read Dodd’s proposed statute and in some respects, it is far worse than has been reported. Senator Dodd has placed a loophole in the bill that is explicitly designed to siphon off tens or hundreds of billions of dollars to the Housing Trust Fund and the Capital Magnet Fund even if there are no net profits in the $700 billion venture.

Here is the provision that has already been widely noted:


(1) DEPOSITS.-Not less than 20 percent of any profit realized on the sale of each troubled asset purchased under this Act shall be deposited as provided in paragraph (2).

(2) USE OF DEPOSITS.-Of the amount referred to in paragraph (1)-

(A) 65 percent shall be deposited into the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Regulatory Reform Act of 1992 (12 U.S.C. 4568); and

(B) 35 percent shall be deposited into the Capital Magnet Fund established under section 1339 of that Act (12 U.S.C. 4569).

(3) REMAINDER DEPOSITED IN THE TREASURY.-All amounts remaining after payments under paragraph (1) shall be paid into the General Fund of the Treasury for reduction of the public debt.

The biggest problem here is that the 20% is not taken from net profits, but rather from any profit in the sale of each and every individual troubled asset.

For example, assume that the new Agency buys three troubled assets for $1 million each. One is sold for $2 million, while the other two are sold for $300,000. Thus, $3 million in investments are sold for $2.6 million, representing a $400,000 loss.

But Senator Dodd’s bill does not provide for losses to offset gains: “Not less than 20 percent of any profit realized on the sale of each troubled asset” must be given to the two housing funds, so $200,000 of the $1 million profit on the one asset that made a profit must be siphoned off to the housing funds, despite the $400,000 net loss on the three deals taken together.

As an analogy, imagine a regular trader of stocks who takes lots of hedged positions and had net losses of 25% this year, but couldn’t offset his gains with his losses, instead having to pay 15% income taxes only on his gains.

How much might be siphoned off under the Dodd bill? It all depends on how long the new credit Agency is in force, how often it turns over its portfolio, and how variable its returns are.

If the agency is in force for 4 years and turns over its portfolio every two months, then it would generate about $15 trillion in sales overall (650 billion x 6 x 4 = 15.6 trillion).

Let’s assume that $7 trillion of sales generate a profit of $2 trillion and $8 trillion of sales generate a loss of $2.1 trillion, leaving a net loss of about $100 billion.

With a net loss, one might think that nothing would be funneled to the housing funds for service organizations, but that is not what the statute says or means. One looks only at the sales generating gains to determine the size of the payments to the housing funds. With $2 trillion in profits and $2.1 trillion in losses, the housing funds nonetheless get $400 billion dollars in “profits.” (This is over 40% of a typical year’s US total federal income tax receipts.) And that is the result if only 20% of "profits" are skimmed; the statute puts no upper limit on the skimming, so long as they come from profits (not net profits). Theoretically, the new Agency could potentially siphon off $2 trillion to the two housing funds, more than its $700 billion portfolio limit.

400 billion dollars may be a high estimate for the housing fund payments, but if they turn out to be only a tenth as large ($40 billion), they would still be huge. To reduce this massive skimming required by the Dodd statute, the new government Agency would have the incentive to engage in fewer transactions and do less to create a public market for troubled assets, thus significantly undercutting the chance that the bailout will work.

I was mildly in favor of the bailout until I read Dodd's proposed statute. The way that the statute is drafted is so tricky and its definition of profit is so unsophisticated and nonsensical that the statute smells more of graft than of an honest attempt to solve the financial crisis. We are moving from failed "crony capitalism" to failed "crony community organizing."

Other posts will deal with other provisions in the Dodd bill and whether ACORN Housing will actually apply for any funding.

Related Posts (on one page):

  1. From Crony Capitalism to Crony Community Organizing: "Profit” Loophole in Bailout Bill Doesn’t Require Net Profits.
  2. Incentive Problems in the Dodd Bailout Bill.

Incentive Problems in the Dodd Bailout Bill.

Senator Dodd's bailout plan has some serious drafting and incentive problems.

If the drafters of the Dodd scheme were to create a game based on the scheme (assuming a liquid market and rational behavior) and play a few dozen rounds one evening, they would know that the Dodd scheme won’t work unless people do things that are directly contrary to their interest in making a profit.

Section 2(c)(2)(A)(i) provides:

The Secretary may not purchase, or make any commitment to purchase, any troubled asset unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.”


If the contingent shares must be equal in value to the purchase price of the assets, then why would most companies sell troubled assets to the government at their current estimated value?

For example, if the government pays a million dollars for some troubled assets, then the company must give the government the troubled assets plus contingent shares worth a second million dollars. If the contingency had a 50% chance of occurring, then that would mean that the company would have to turn over a contingent right to $2 million in company stock ($2 million x 50% = contingent shares valued at $1 million).

But the most that would be payable if the government lost all $1 million on a $1 million purchase would be $1,250,000 in stock (1.25 x the loss). So a 50% chance of that would be worth $625,000, not the $1 million required by the literal language of the statute. In this view, the government could buy only troubled assets that where the chance of their becoming worthless was at least 80%. This makes no sense. And what company would want to receive just a million dollars in return for a million dollars in assets plus contingent shares worth a million dollars?


The literal reading of the statute I went through above is probably not what was intended by the drafters. What the drafters probably intended is that, in return for paying a million dollars, the government would receive the troubled assets plus a contingent right to shares of stock that would be worth a million dollars IF they were NOT subject to a contingency. Since the shares ARE subject to a contingency, these contingent shares are worth something, but not a million dollars.

Nonetheless, this approach still doesn’t make much sense for reasons that are best shown by imagining a game.

The government is paying a company million dollars for 2 things: (a) a troubled asset and (b) a contingent right to $1 million in stock.

Assume a heuristic game.

In the first round of the game, let’s arbitrarily assign a value to the contingent right of $300,000 (eg, a substantial chance of up to $1 million in stock). Accordingly, in return for a nominal purchase price of $1 million, the company would trade the government an asset worth $700,000 and a contingent right (to up to $1 million in stock) worth $300,000.

Assume that an hour later, the government sells the $700,000 troubled asset for the market price of $680,000. According to the way I read the statute, the government has just sustained a loss of $320,000 ($1 million - $680,000). This triggers a penalty clause that gives the government 125% of its loss in company stock, measured by the stock price in the 2 weeks before the original deal. Thus, the government now obtains $400,000 of the company’s stock.

From what we’ve learned in the first round of the game, a contingent share right (to up to $1 million in stock) should probably be valued at significantly more than $400,000 in the second round of the game; let’s say it’s worth $600,000. In the second round, the government agrees with another company to pay $1 million for a contingent right worth $600,000 and troubled assets worth $400,000.

Assume that an hour later, the government sells the $400,000 troubled asset for the market price of $380,000. According to the way I read the statute, the government has just sustained a loss of $620,000 ($1 million nominal price - $380,000). Again, the government is entitled to 125% of its loss in company stock, measured by the stock price in the 2 weeks before the original deal. Thus, after the second round the government now obtains $775,000 of the company’s stock.

So our valuation of $600,000 for the contingent right in the second round was too low. In the third round, let’s assign a value of $800,000 to the contingent right and $200,000 to the troubled assets. Again the government pays $1 million. An hour later, the government sells the $200,000 in troubled assets for $190,000. It now is allowed to take all $1 million of company stock to make up for 125% of its $810,000 in nominal losses.

Anyone who understands how such a game progresses would never play even one round.


The prior example assumed that the government was selling the troubled assets in its portfolio for as high a price as it could and that it flipped the assets quickly.

In a second example, assume that the government holds the property for a few months and tries to maximize its own profits, not to maximize the resale price. Assume that the government bought a million dollars in troubled assets from each of two companies, ACME and ZED. In the two months since the purchase, ACME’s stock had dropped in half; ZED’s stock had doubled in price. A rational government would sell the ZED asset for LESS than it was worth on the open market, because for every $1 the government lost on the sale of the asset it had originally received from ZED, it would gain $2.50 in ZED stock (125% of the loss measured by the original price of the stock, which has now doubled).

When stock prices have climbed since acquiring the troubled assets, the worse the government does in selling troubled assets – ie, the lower the prices it accepts from buyers — the more money it makes. This perverse incentive renders the scheme unworkable if you want actors in the Dodd scheme to maximize returns.


The bill also contains this bizarre definition:

As used in this subsection, the term "contingent share" means any equity security traded on a national securities exchange.

Again, this makes no sense. Contingent shares of bank stocks are not generally traded on exchanges such as the NYSE or AMEX and will not be traded on exchanges under the bill.


Harvard and Stanford's Adoption of the Yale Law School Grading System:

Orin Kerr and I have plenty of disagreements. But as a Yale Law School grad, I agree with his criticisms of the YLS grading system, and am somewhat disappointed that other schools are copying it. For those who may not know, the YLS grading system replaces traditional letter grades with a constricted three grade scale (Honors, Pass, and Low Pass). In practice, most Yale grades are either H's or P's; Low Passes are rare. Technically, students can also fail a class. But this penalty is only imposed on an extremely unlucky and inept few.

The Yale system is very popular with students, in part because it enables those at the bottom of the class to post respectable transcripts that make it difficult to tell exactly where they stand relative to their classmates. It also enables students at all levels to slack off in some classes without damaging their records much. As Orin notes, the system greatly reduces the informational value of grades by ensuring that the vast majority of students get mostly P's, with perhaps occasional H's. In practice, the YLS "P" seems to encompass all the grades ranging from a B+ or low A- to a C or C- on the traditional grading scale. Thus, "C" students' transcripts look very similar to those of B students. Employers allow YLS to get away with this because even low-ranking Yale grads are usually considered good candidates for jobs at major firms. Harvard and Stanford grads probably also have enough prestige to get away with it for the same reason.

Still, it's unfortunate that Harvard and Stanford transcripts will now provide less useful information than before, thereby reducing the efficiency of employer hiring. And though I may not be as much of an old-fashioned meritocrat as Orin, I too don't especially like a grading system that reduces the cost of slacking off.


Friday, September 26, 2008

What's With All the Repeated Commercials?

My wife and I tend to watch current TV shows on our computer, using the "full episodes" feature available on the networks' sites. No cable, no TiVo, all free, so long as we're watching the recent episodes (and older episodes are available cheaply for download, or via NetFlix if they're from a previous season). Some people don't like watching TV on their computers, but it works just fine for us.

Here's one puzzle, though: Though there aren't as many commercials as there are on live TV, the commercials tend to be all the same. We see a commercial at the start, then we see the same commercial ten minutes, then the same commercial ten minutes after that. It's not a huge annoyance, since they're just 15 to 30 seconds long. But I don't get it -- why would the advertisers want to bore us, even alienate us, by throwing the same commercial at us again and again? Even if we're paying attention the first time, we won't be the rest of the times. Why not give us a random mix of commercials, so that each one will be at least a little fresh?

I realize that people tend to ignore commercials, and that it may take several viewings for the viewer to absorb what's being said. But I'd think that it would be less annoying, and thus more effective, to have the several viewing be spread over several different episodes, rather than trying to get the viewer to like the product by giving him exactly the same pitch several times within an hour. I suppose I must be wrong, given that lots of smart people pay lots of money to play commercials this way. Still, if anyone has a more detailed explanation of the plan, I'd love to hear it.


Do economists know what they are talking about?

Sure, they all can tell us that companies should not be routinely bailed out but in situations of financial contagion bailouts may be sensible, but do they really know whether such a situation exists today or not? Or how to respond? I was skeptical about whether they knew or not, but didn’t want to be impolite, because so many of them are smart and helpful, but my suspicions were confirmed by one of them, anyway:

On the one hand, I share many of the concerns of the letter signers [a reference to a letter opposing the bailout signed by a number of economists] and other critics of the Treasury plan.

On the other hand, I know Ben Bernanke well. Ben is at least as smart as any of the economists who signed that letter or are complaining on blogs or editorial pages about the proposed policy. Moreover, Ben is far better informed than the critics [my emphasis]. The Fed staff includes some of the best policy economists around. In his capacity as Fed chair, Ben understands the situation, as well as the pros, cons, and feasibility of the alternative policy options, better than any professor sitting alone in his office possibly could.

If I were a member of Congress, I would sit down with Ben, privately, to get his candid view. If he thinks this is the right thing to do, I would put my qualms aside and follow his advice.

Thus blogged Greg Mankiw, not any old ordinary economist, but one who actually has experience in government. So much for checks and balances! So much for the majesty of democratic deliberation! Does it remind you of the Bush administration’s explanation for its war-on-terror activities? We have to eavesdrop on people but we can’t tell you why because if we did, we would reveal our methods and lose the ability to eavesdrop.

By the way, I’m not opposed to a bailout. Like Mankiw, I favor a bailout because Ben does. And I favor eavesdropping because Mike does. Anyone have a better suggestion for deciding what to do?

(I will add that Mankiw posted a letter from a colleague who says that even if Ben is better informed than any other economics professor, he lacks the collective wisdom of all economics professors, and that is why it was correct for the colleague to sign the letter from economists that opposed the bailout plan. The colleague goes on to say that there are better ways of solving the current financial crisis and cites a recent WSJ op-ed written by some other economics professors. The problem not mentioned by the colleague is that while the collective wisdom of economics professors opposes the Paulson plan, it has not converged on an alternative: the collective wisdom fragments into dozens of ideas proposed by little clumps of professors. So the letter itself is a useless document and Mankiw was correct to withhold his signature. Should a member of Congress listen to Ben or listen to a (randomly selected?) clump of economics professors who favor one or another alternative?)


Principled Activism: In an essay, In Defense of Judicial Activism, Damon Root argues that the Constitution should be interpreted as a libertarian document:
What we need is a principled form of judicial activism, one that consistently upholds individual liberty while strictly limiting state power. Too bad neither the right nor the left seem very interested in that.
  Isn't it sort of misleading to say that this form of judicial activism would be "principled"? I suppose you could say "principled" just means "following a recognizable rule or methodology, whatever it is." In that sense, such activism would be principled. But if we take that view, everything is principled. Always ruling for the white guy would be principled, for example: The principle would be that the white guy always wins. Similarly, it would be principled for the Court to rule for petitioners on cases argued on Mondays and for respondents for cases argued on Tuesdays. If it's principled to always interpret the Constitution in a libertarian way even if the particular text, history, and meaning doesn't warrant it, then I would think that fidelity to the Constitution requires more than just being principled.

  Anyway, Root's essay is largely a response to Judge Wilkinson's critique of Heller. If you haven't read Wilkinson's essay yet, it's worth a read. (Hat tip: Instapundit)

Phonetic Spelling in Quotes:

Arnold Zwicky (Language Log) has an excellent post:

Philip Gourevitch's "The State of Sarah Palin" (New Yorker, 22 September, p. 66-7) quotes from an interview with the vice-presidential candidate:

"We're not just gonna concede to three big oil companies of this monopoly –- Exxon, B.P., ConocoPhillips –- and beg them to do this [build a natural gas pipeline] for Alaska," Palin told me last month in Juneau. "We're gonna say, 'O.K., this is so economic that we don't have to incentivize you to build this. In fact, this has got to be a mutually beneficial partnership here as we build it. We're gonna lay out Alaska's must-haves. Parameters are gonna be set, rules are gonna be laid out, a law will encompass what it is that Alaska needs to protect our sovereignty, to insure it's jobs first for Alaskans, and in-state use of gas'" –- her list went on.

What stands out here — for a linguist, anyway — is the five occurrences of the spelling gonna for written standard going to. I'll take Gourevitch's word that this is the way Palin pronounced the expression, but why did he transcribe it that way? ....

First point: gonna is an entirely standard, though informal variant of going to, at least in American English.... Instances of gonna from standard-English American speakers in relaxed contexts are all over the place, and it's not hard to find the occasional instance from such speakers (even prestigious ones) in formal contexts. Normally we'd expect such occurrences of gonna to to be represented as going to in print.

Fourth point: ... using non-standard spellings like gonna for standard (but informal) phonological variants paints the speaker as folksy, rustic, etc.... The writer thus covertly injects a social judgment about the speaker into what is framed as a report of an interview about experiences and opinions. In the pages of the New Yorker, N variants convey a negative judgment (because the magazine's readers are likely to hold to the belief that the N variants are, if not simply non-standard, that is, "incorrect", then at least rough, "hick", variants). In other publications, N variants might be understood differently....

The rest of the post is much worth reading as well (as is characteristic of Language Log, which does a great job of applying its authors' scholarly and professional knowledge to lay topics).

My quick thought on the situation: People have both personal and regional variants in their pronunciations, such as the Southern "Ah" for "I," some people's preference for "cyoopon," particular people's lingering foreign accents (like, er, maybe mine), and the like. The speakers are still using the same words as everyone else — they're just pronouncing them slightly differently.

It seems to me that written quotes ought to capture the words used, and not the pronunciation. We wouldn't normally quote a lisper as saying, "We're going to thay, 'OK, thith ..." (at least unless the lisp is the focus of the story). We wouldn't quote a Southerner as saying "Ah buhlieve ...." We shouldn't quote someone as saying "Febyooary" when he means February.

Likewise, it seems to me that "going to" should be quoted as "going to" even when it acoustically resembles "gonna," at least setting aside unusual circumstances (for instance, if the argument is generally about the speaker's deliberately folksy pronunciations, something Zwicky reports this article is not). Such phonetic spelling strikes me as sometimes distracting to readers. And it strikes me as generally unfair to the speaker, whose regional background, speech impediment, or foreignness the phonetic spelling unduly emphasizes.

UPDATE: Here's the entire New Yorker piece.


The Jewish Vote:

The latest poll shows Jews supporting Obama over McCain by 57% to 30%, with 13% undecided. Back in February, I suggested that McCain started with a base of the 25% that Bush received in 2004, would almost certainly do better because he is a more attractive candidate to Jews, and Obama less so, than were Bush and Kerry, and could go as high as 40%. I think the Palin choice has dampened his chances of doing quite that well (Jews overwhelmingly approve of Biden, but a majority disapprove of Palin), but he's still on track to have the best Republican perfomance among Jewish voters since at least Ronald Reagan in 1980.

UPDATE: As far as methodology goes, the survey relied on self-identified Jews from "the Synovate consumer mail panel." This suggests to me that the poll would underrepresent Russian and especially ultra-Orthodox Jews.


Kids These Days:

I often suggest that people not assume that "erroneous" usages are some sort of innovation. Here's one example that came up in an exchange with an academic friend of mine: the singular "they." Feel free to dislike it, and to urge people not to use it. But suggesting that it's some sort of innovation runs up against, among other people, Shakespeare:

There's not a man I meet but doth salute me
As if I were their well-acquiainted friend.
Or how about Thackeray, in Vanity Fair, "A person can't help their birth"? The Merriam-Webster Webster's Dictionary of English Usage has many more examples.

I'd go further and suggest that if a certain usage was good enough for some of the leading writers in the English language, it's hard to see just what can be so wrong with it (unless it's archaic, which this usage is not). But at the very least we should acknowledge the historical fact that the usage is not new; and even if it is somewhat more common now, a matter on which I'll remain skeptical until I see hard data, it was common enough back then.

Special bonus to our very few Russophone readers: Note how the Shakespeare quote above is channeled by Cheburashka:

Теперь я - Чебурашка, и каждая дворняжка
При встрече сразу лапу подает.


Thoughts on the New Grading and Honors Policies at Harvard and Stanford: As Eugene notes, the Harvard Law faculty voted to abolish its traditional grading system and move to a High/Pass/LowPass system. On a similar note, Stanford Law School, which recently enacted the same reform, decided to abolish Order of the Coif and "with distinction" diplomas and replace them with many course book awards, some retroactive.

  I assume the purpose of Harvard and Stanford making these decisions is to try to get some of the Yale halo effect. Yale is the #1 school among top law school applicants, top judges, and law school hiring committees. Yale's lack of traditional grading information works to its advantage. Applicants like it, of course: No gunner law student wants to be told he is pretty much average, which is what grades tend to tell people in most cases. And the lack of information about where Yale students fit in the class often works to their advantage in the job market, as it's harder to compare Yalies to students at other schools. Employers figure, "Well, I have no idea how smart this guy is, but then, he is at Yale...." Perhaps adopting Yale's unusual grading system will attract more top students to Harvard and Stanford, and it may have a psychological impact on judges hiring clerks and committees hiring assistant professors. Or maybe it will backfire. Time will tell.

  I can certainly see an advantage for the faculties at Harvard and Stanford. Fewer grading distinctions means much less time grading. Ranking a set of 100 exams into 7 or 8 different categories takes an incredible amount of time, as you need to make sure that every exam in each category isn't better than an exam in a higher category or worse than one below. But ranking is very easy if there are only three categories: Unless an exam jumps out as outstanding or terrible, it's a "pass" and you don't need to spend time on it.

  As a Harvard Law alumnus, on the other hand, I admit I'm a bit saddened by the switch. One of the things I respected most about Harvard Law as a student is that it was unapologetic about its reliance on grades. When you got your grades back, you knew pretty much exactly where you stood in a very competitive class. I suppose I think something is lost in giving students and their future employers less feedback. But then I'm pretty much a traditionalist about such things: I confess to believing in the mostly unfashionable notion of meritocracy, so I tend to think the more grades, the better.

  Finally, I can't help but think that Felix Frankfurter must be turning over in his grave. His beloved Harvard Law School abolishing letter grades? FF would have lost it over that one; I think he would have decided to only hire clerks from the University of Chicago.

Who Will the Next Bailout Czar Be?

Yesterday's Detroit Free Press and today's Raleigh News & Observer ran an op-ed by Mitu Gulati and me on the desirability of Obama and McCain telling us who they would choose to be their Secretary of the Treasury. This is closely related to our article on presidential candidates naming their key people in advance of the election, which Eugene and I blogged about in July. Anyway, here is the op-ed:

In TV’s “The West Wing,” President Jed Bartlet was a Nobel Prize-winning economist.

In real life, our presidential candidates are not experts in economic principles. So when they keep getting asked what exactly they would do to manage the biggest financial meltdown since the Great Depression, their responses are fairly vague.

The result is that voters cannot determine how well each candidate would chart a desirable course through this crisis. (Different groups will define “desirable” differently, putting all the more emphasis on knowing exactly how each new administration will make regulatory policy.)

The identity of key appointees — in particular, the Secretary of the Treasury — is enormously important. Congress appears to be on the verge of granting stunningly broad powers to the Treasury Secretary, authority that his predecessors never dreamed of. News outlets are already speculating about who the next Treasury secretary will be, but why should we have to rely on speculation?

The candidates should tell us now whom they plan to pick. And while they’re at it, identifying their prospective chairman of the Council of Economic Advisers would also help.

If we had those names, then we might be able to obtain some valuable information. Maybe Barack Obama would announce, for example, that he would choose to bring Robert Rubin and Larry Summers (President Clinton’s team) back to Washington. If he told us that, we could look to see how Rubin-Summers dealt with the Asian crisis of the late 1990s, which involved decisions about bailouts and systemic risk too.

In John McCain’s case, what if he told us that he planned to tap John Taylor, the former undersecretary of Treasury who dealt with the effects of the Argentine crisis some eight years ago? Again, bailouts were contemplated then and so were policies to deal with the risk of financial contagion. Or maybe McCain would pick Carly Fiorina, who dealt with difficulties of a different sort at Hewlett-Packard?

The point is if we have concrete names, we can make informed decisions about which of these candidates would do a better job with the economy.

None of this is going to be as much fun as talking about Bristol Palin’s pregnancy or her high school boyfriend’s Facebook page. But while gossip is fun, many of us are concerned about what is happening in the economy. And at least some of us would give our vote to the candidate who picked the best secretary of Treasury.

We realize that the candidates themselves might not want to tip their hands. Candidates may prefer to be vague in their pronouncements. And being able to promise the prospect of a high-level cabinet position to a variety of people is a good way to keep them all working hard during the pre-election process. So what can we do to induce such revelation?

We should simply ask, and when given vague answers, we should push. In the current era where candidates engage in online discussions with voters and answer questions sent via YouTube videos, maybe we can ask them this question enough times so that failing to answer becomes a problem. Plus, if one answers, that might give him an advantage — the first mover will be perceived as more innovative.


Philadelphia Gun Ordinances Held Preempted by State Law:

Clarke v. House of Representatives, decided today by the Pennsylvania Commonwealth Court, so holds, reaffirming similar decisions in the past. The Pennsylvania Constitution grants cities home rule powers in matters of local, as opposed to statewide, concern. Darrell Clarke and Donna Miller, members of the Philadelphia City Council, argued that gun laws were such local matters, and the state law preempting local gun laws was thus unconstitutional. But the court reaffirmed the contrary view, citing the Pennsylvania Supreme Court's earlier conclusion that

Because the ownership of firearms is constitutionally protected, its regulation is a matter of statewide concern. The constitution does not provide that the right to bear arms shall not be questioned in any part of the commonwealth except Philadelphia and Pittsburgh, where it may be abridged at will, but that it shall not be questioned in any part of the commonwealth. Thus, regulation of firearms is a matter of concern in all of Pennsylvania, not merely in Philadelphia and Pittsburgh, and the General Assembly, not city councils, is the proper forum for the imposition of such regulation.

An interesting example of how constitutional provisions do more than just directly override contrary legislation: I expect that Pennsylvania courts would interpret the constitutional provision as not itself trumping certain state regulations of guns -- but the constitutional status of the right is seen as supporting the state's decision to trump similar local regulations of guns.


Harvard Law Moving to Yale-Like Honors / Pass Grading System:

According to the e-mail that I had forwarded to me (and whose authenticity I have no reason to question), Harvard would technically have four grades -- Honors, Pass, Low Pass, and Fail. My guess, though, is that Low Pass and Fail would be extremely rare, and 98%+ of all grades would be Honors or Pass, as they are at Yale. The shift then is basically from at least five commonly used grades (A, A-, B+, B, and B-, unless I'm mistaken) to two.

Stanford apparently adopted a similar proposal a few months ago.


Cautionary Lessons from the Great Depression;

Joe Biden may have gotten a few factual details wrong when he urged President Bush to act like Franklin D. Roosevelt did when he sought to counter the Great Depression. But the basic sentiment that we should now follow FDR's example and take swift, decisive action in the current crisis is one that is widely shared.

In considering this view, it's worth recognizing that many of the massive, decisive government interventions that FDR and the New Deal Congress enacted actually made the situation worse. As I discuss in in this article, the administration and various interest groups used the crisis of the Great Depression to enact sweeping legislation that benefited themselves at the expense of the general public, sometimes in ways that made the crisis worse than before. In these efforts, they were abetted by voters' sense of desperation and widespread ignorance of economics and public policy. This made it easy to portray measures that benefited narrow interest groups at the expense of the general public as "emergency measures" needed to address the crisis.

Perhaps the most egregious example was the National Industrial Recovery Act, the centerpiece of FDR's 1933 "First New Deal" (discussed at pp. 649-55 of my article). The NRA (not to be confused with the National Rifle Association) established a system of cartels to raise prices and wages throughout nearly the entire nonagricultural economy. This benefited certain big business interests and unions, which were able to suppress their competitors. But it also had the predictable result of greatly reducing economic output and increasing unemployment, especially among the poor and unskilled who were already suffering greatly. Economists estimate that it reduced GDP by as much as 6 to 1l percent (pg. 650). Co-blogger David Bernstein points out in his book Only One Place of Redress that the NRA particularly harmed low-wage black workers and that it was supported by some white labor unions in part because they hoped it would stifle black competition. The NRA - the biggest and most ballyhooed of FDR's early New Deal policies - made the Depression significantly worse than it would have been otherwise.

The NRA was the biggest and most damaging of the New Deal's harmful interest group power grabs. But it was far from the only one. For example, all law students study the Supreme Court's decision in Wickard v. Filburn, which upheld the Agricultural Adjustment Act requirement that farmers limit their production in order to raise prices. Like the NRA, the AAA was a cartel scheme intended to raise prices in order to benefit big producers (AAA production quotas and subsidies were based on the amount of farmland each farmer owned, thus benefiting bigger producers who owned more land) at the expense of consumers and smaller competitors. The predictable and intended effect of the AAA was to raise food prices - this in the midst of a Depression when many people were already suffering from malnutrition and could not easily tighten their belts further.

The NRA, AAA and other similar measures were made possible by the crisis atmosphere of the time, combined with widespread political ignorance (discussed in my article) which made it difficult for voters to tell the difference between genuinely needed emergency measures and interest group rent-seeking masquerading as such. As a result, many policies were enacted that made the Depression longer,deeper, and more painful than it would have been otherwise. Today, even many historians sympathetic to FDR and his policies concede that they failed to end the Depression (unemployment remained in double digits until World War II) and that some of them worsened the lot of the poor and unemployed more than they helped. Econometric studies show that much of the increased government spending generated by the New Deal was transferred to politically powerful interest groups who could help FDR and his allies win reelection rather than to the poor and needy.

I don't claim that every aspect of the New Deal was harmful. Some parts of it were either beneficial or at least defensible given the information available at the time. Still, a great deal of extremely damaging legislation was enacted because powerful interest groups were able to exploit the combination of a crisis atmosphere and public ignorance.

Today's situation isn't exactly equivalent to that of the 1930s. The bank crisis is much less severe than that of the Depression and the bailout proposed by the Bush Administration is probably not as damaging as the NRA was. But we still could end up repeating some of the policy fiascoes of the Depression era, even if on a lesser scale. The history of the 1930s suggests that we should be skeptical when political leaders claim that we must act immediately to address an economic emergency - especially if they want to do so in ways that transfer enormous amounts of wealth from the general public to influential interest groups. Widespread political ignorance is still with us; indeed Americans' average level of political knowledge has risen very little, if at all, over the last fifty years. And political pressure to "do something" to alleviate the perceived emergency can easily be exploited by interest groups at the expense of the rest of us. Already, a variety of interest groups are trying to take advantage of the crisis atmosphere by obtaining bailouts of their own - just as happened during the Depression. We should do all we can to avoid going down that road again.

UPDATE: I have corrected a couple of typos, including one where I accidentally typed "NRA" when I meant "AAA."

UPDATE #2: I suppose it's only fair to point out that Joe Biden's remarks, linked in the first sentence of the post, only urged Bush to go on TV and explain the crisis (as Biden said FDR had done in 1929). However, this remark has to be considered in the broader context in which Biden and many others have been calling for swift government intervention similar to what was done in the 1930s. Biden has even expressed anger at John McCain for supposedly preventing the administration's massive bailout from going through fast enough. This last comment should not be read as an endorsement of McCain's own conduct, since he also strikes me as overly eager for a massive bailout.


The Obama Supreme Court and the Second Amendment:

In a new article for America's 1st Freedom (a NRA member magazine), I examine some of President Obama's potential Supreme Court picks. (Based on a list of potential nominees in an article by Stuart Taylor in the National Journal.) Justices Cass Sunstein, Merrick Garland, Sonia Sotomayor, and Eric Holder would be terrible for Second Amendment rights, I suggest. Attorney General Deval Patrick and Secretary of the Interior Tom Daschle would be pretty bad in that regard, too, I argue. The article also summarizes Obama's record on Second Amendment issues.


BarackRolled: David Bernstein does his patriotic service below by linking to an anti-Obama advertisement. If we're posting political videos out of service to country, I think someone has to link to the following work of genius (even if the guy who made it is Australian):
The side-by-side version is here.

Hank Paulson's Wall Street Days:

Looks like the boom/bubble years on Wall Street served Hank Paulson pretty nicely:

Executive compensation: As Goldman's chief, Paulson received an $18.7 million cash bonus for the first half of 2006, and in 2005 he was the highest paid chief executive officer on Wall Street, reaping $38.3 million in salary, stock and options. He also accumulated 3.23 million shares of Goldman's common stock worth $492 million, plus restricted shares worth $75.2 million and options to purchase 680,474 shares, according to a Goldman regulatory filing on July 2, 2006.

He sold the shares in 2006 when he took the Treasury job:

Paulson sold his 3.23 million shares in Goldman, worth about $500 million at the time, when he took the Treasury job, according to regulatory filings. He was exempted from paying capital gains tax on the sale of those stakes under a rule meant to avoid penalizing wealthy people who take government jobs and are forced to sell assets.

Paulson also sold about $25 million of holdings in a Goldman fund whose sole asset was a stake in Industrial & Commercial Bank of China, the world's largest publicly traded financial institution. The bank raised $22 billion in its initial public offering in October 2006, the world's biggest IPO.

No wonder he initially opposed pay caps on the executives of firms that participate in the bailout.


Perhaps more relevantly to Paulson specifically, some of the legislative proposals contain "claw-back" or "reachback" periods that would permit recovery of excessive executive compensation (analogous to the fraudulent conveyance power in bankruptcy). If Goldman were to participate in any such plan, would this make Paulson vulnerable to having to disgorge some of his compensation during this period?


More Skepticism about the Bailout:

A quick roundup of commentary on the bailout:

A front-page story in the Washington Post discusses the opposition by many economists to the bailout, including their doubts that it will actually even work: "Away from Wall Street, Economists Question Basis of Paulson's Plan."

Allan Meltzer, who I heard invoked about half-a-dozen times last night on tv, expresses his view here:

ALLAN MELTZER, Carnegie Mellon University: It's a terrible idea. It's undemocratic. It's bad economic policy, and it's bad social policy. And it has a very little chance of solving the problem in a meaningful way.

JEFFREY BROWN: Well, flesh that out a bit. Is it that we are not in a crisis? Or is it that government intervention of this kind is not the right answer?

ALLAN MELTZER: Well, I've listened to governments tell me for 40 years that there was a crisis and the world was going to fall apart if we didn't do this or that. But there have been a few cases where they weren't able to do that.

One was the commercial paper crisis in 1970. There have been several others. The world did not fall apart. Last week, we had Lehman Brothers went into bankruptcy. Within three days, most of the assets were sold.

We had AIG turn down three offers to buy the company because they thought they would get a better deal from the government. It turned out they didn't get the better deal from the government. Now the stockholders suddenly woke up and said — the major stockholders said, "We'd like to buy the company."

Well, that's what I think we need to do. We need to get the government's hand out of this, and let's see whether we can't get a market solution.

The market people caused this problem. They ought to be the ones that pay the cost of having it cleaned up.

One major justification/rationalization for the bailout is that Wall Street's crisis will trickle down to "Main Street" and lead to bank and business failures on the local level. Maybe this eventually will turn out to be the case. Yet today's Washington Post reports that community banks that were responsible lenders over the past decade are now thriving. They are flush with liquidity as depositors pour money into them and borrowers turn to them for credit. Community banks obviously cannot pick up the slack for financing for massive business transactions, so there may still be a problem there. But at this point it is not obvious that the rumbles on Wall Street will have the dire trickle-down consequences that President Bush warned of the other night when he told us that student loans, small-business loans, and car loans were in peril. In fact, it looks like there is at least some offset here:

At the same time, many smaller banks said they were actually benefiting from the problems on Wall Street. Deposits are flowing in as customers flee riskier investments, and well-qualified borrowers are lining up for loans.

"We collect money from local savers, and we lend it in the local community," said William Dunkelberg, chairman of Liberty Bell Bank in Cherry Hill, N.J. "We're doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine."

Dunkelberg, a professor of economics at Temple University and chief economist for the National Federation of Independent Business, added that a recent survey of that group's members found that only 2 percent said getting a bank loan was the great challenge facing their businesses.

"If you can't get a loan, my advice is to go see your local community bank," Dunkelberg said.


We're drowning in liquidity because people are pulling money out from other places and depositing it with us," said Peter Fitzgerald, chairman of Chain Bridge Bancorp in McLean. "Our bank has benefited tremendously."

Fitzgerald, a former senator from Illinois whose family has been in the banking business for generations, said the current situation struck him as similar to past downturns.

"The banking system did need to slow down," Fitzgerald said. As it does, riskier customers are being turned away. At the same time, banks that overextended are now forced to turn away even good customers. The challenge for Chain Bridge, he said, is identifying the worthwhile customers. The bank has plenty of money to make good loans, he said.

Nor are small bankers the only ones who object to the bailout. John A. Allison, CEO of BB&T Bank, also objects to bailing out irresponsible bankers (HT: Division of Labor):

There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.

While all financial intemediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well run companies.

Corrections are not all bad. The market correction process elminates irrational competitiors. There were a nubmer of pooerly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post "rescue" punish the poorly run institutions and not punish the well run companies."

Finally, he adds an observation that expresses a conern that I have shared from the beginning, which has led them into missteps and unintended consequences already:

The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The deicison to protect the money funds is a clear example of amaterial lack of insight into the risk to the total financial system.

In fact, the community bankers mentioned above tend to vacation at the Jersey Shore rather than the Hamptons, and fly commercial rather than charter, so Mr. Paulson may not actually have had the opportunity to speak with them about the bailout. (Sorry, I couldn't resist at least one dig.)

Finally, the Austrian economics community is having a field day with the bailout. Steve Horwitz observes "Competition sucks if you're one of the competitors" and that what is good for Wall Street is not necessarily good for the economy as a whole. Crony capitalists, Horwitz argues, crave stability (especially when that allows them to keep gains and socialize losses) rather than dyanamism.

Peter Klein comments on the underlying monetary causes and the inevitability of market correction in "What would Hayek say?"

And Larry White adds : "Capitalism in which AIG never closes down is like American Idol in which Sanjaya never goes home."

Finally, the best line of the night last night (that I saw) went to Congressman Ron Kind who said that phone calls to his office were "running 50-50--50% 'No' and 50% 'Hell No.'"

Let's see what fun today brings.


Justice Alito Gets Out of the Pool:

Today's New York Times reports that Justice Alito has withdrawn from the cert pool. This means that there are seven justices left in the pool -- all but Justices Alito and Stevens.

Students of the court say there are costs and benefits to relying on pool memos, which are prepared by smart but relatively inexperienced law clerks.

“The benefit is efficiency,” said David R. Stras, a law professor at the University of Minnesota who has studied the subject and reviewed many of the pool memorandums released with Justice Harry A. Blackmun’s papers. The pool, he said, avoids the time-consuming duplication of efforts that would result from having a clerk in each justice’s chambers consider every petition.

But the pool system “does put enormous influence and power in a single clerk,” Professor Stras said, adding, “I’m quite sure there are cases that fall through the cracks.”

Some argue that having several sets of eyes review each petition — the pool clerk, along with clerks from the chambers of Justice Stevens and now Justice Alito — may serve as a valuable check. The pool system, though, has the virtue of ensuring that at least one clerk will give each petition a careful look, which might not be possible were each justice’s clerks to review every petition. (Justices typically have four clerks each.)

Critics of the cert. pool say it has led to homogenization and a lack of candor, a consequence of writing for an audience broader than only the clerk’s own justice. But the pool memorandums are often only a starting point, with each justice’s own clerks sometimes reviewing, highlighting and annotating the more important ones.

It seems to me that one way to get the efficiency benefits of the cert pool without some of the drawbacks would be to have two separate cert pools that review every petition. This would have the benefit of ensuring that every petition is reviewed by more than one person, but not impose the burden of reviewing every petition in a single justice's chambers.


Doing My Patriotic Duty:

As co-blogger Jonathan reports below, the Obama campaign has sicced its lawyers on t.v. stations that might air a well-sourced NRA advertisement that correctly points out Obama's longstanding anti-gun record. The proper response to such attempts to infringe on the First Amendment is to make sure that the video in question receives the widest circulation possible, to deter the Obama campaign, and other campaigns for that matter, from engaging in such tactics in the future. So here it is. Share it with a friend, with a note that Obama is threatening legal action against stations that run it, in violation of the First Amendment.

Man Charged With Battery For Farting in Police Officer's General Direction: The news story is here:
During fingerprinting [after being arrested for drunk driving], [the defendant] then allegedly moved closer to one of the officers and passed gas, the station reported. In the complaint, the investigating officer wrote that police noticed a "very strong" odor. The alleged stunt led [the defendant] to be charged with another offense — battery on an officer . . . .
If you think this story reeks of police overreaching, I agree. The West Virginia battery-on-an-officer statute is § 61-2-10b(c), and it states:
Any person who unlawfully, knowingly and intentionally makes physical contact of an insulting or provoking nature with a police officer . . . acting in his or her official capacity, or unlawfully and intentionally causes physical harm to that person acting in such capacity, is guilty of a misdemeanor and, upon conviction thereof, shall be confined in jail for not less than one month nor more than twelve months, fined the sum of five hundred dollars, or both.
So this raises a critical question of statutory interpretation that I'm sure many of you wonder about from time to time: does farting "make physical contact" or "cause physical harm"?

  There are no West Virginia cases that I could find that are really relevant to the question. More broadly, I couldn't find a single case in which passing gas led to battery charges. However, if we assume that West Virginia's statutory terms of "physical contact" and "physical harm" are meant to incorporate the usual elements of criminal battery, then farting in a police officer's general direction shouldn't constitute battery. According to 6 C.J.S. Assault and Battery s 70, relied on in a number of cases:
It is essential to the offense of battery or assault and battery that there be a touching of the person of the prosecutor, or of something so intimately associated with, or attached to, his person as to be regarded as a part thereof.

This touching, however, need not be in the form of a blow but may consist of any sort of contact; it may include every touching or laying hold, however slight, of another or his clothes in an angry, revengeful, rude, insolent, or hostile manner; or the direct or indirect application of force either by the aggressor himself, or by some substance or agency placed in motion by him. Hence it may consist in the beating, striking, or whipping of a person, striking him with a thrown missile, or pouring or throwing vitriol or other corrosive chemical upon him. It may also take the form of merely pushing or shoving him, or detaining him, or snatching or wrestling something from his possession.
On the other hand, if there is no actual physical touching, then no battery occurs. See Reese v. State, 457 S.W.2d 877 (Tenn. Cr. App. 1970) (firing a bullet into officer's car but missing is not a battery because no physical touching occurs). It seems pretty tough to argue that adding a smelly gas into the area near an officer constitutes actual physical touching. As a result, it shouldn't be criminal battery.

  UDPATE: The rule of law has prevailed! The government has dropped the charge. The freedom to pass gas lives on.

Thursday, September 25, 2008

Gore Turns Up the Heat:

Speaking in New York City, former Vice President Al Gore called for civil disobedience and state attorneys general investigations against coal companies.

"If you're a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration," Gore told the Clinton Global Initiative gathering to loud applause.

"I believe for a carbon company to spend money convincing the stock-buying public that the risk from the global climate crisis is not that great represents a form of stock fraud because they are misrepresenting a material fact," he said. "I hope these state attorney generals around the country will take some action on that."


Obama Campaign Challenges NRA Ad:

The Obama campaign has sent letters to radio stations in Ohio and Pennsylvania discouraging them from running ads by the National Rifle Association critical of Barack Obama. Ben Smith reports:

"This advertisement knowingly misleads your viewing audience about Senator Obama's position on the Second Amendment," says the letter from Obama general counsel Bob Bauer. "For the sake of both FCC licensing requirements and the public interest, your station should refuse to continue to air this advertisement."

Smith's Politico story also includes the NRA's response to critiques of its ads which, it claims, are only running in Pennsylvania at the moment.

UPDATE: Here is a PDF of the Obama campaign's letter.

This roundup at Instapundit suggests this letter could be part of a broader effort to squelch critical voices.

Related Posts (on one page):

  1. Doing My Patriotic Duty:
  2. Obama Campaign Challenges NRA Ad:
  3. FactCheck flubs Obama gun fact check:

Law Review Lara on Editing by Student-Run Law Reviews:

A law review editor writes:

I am curious to know your thoughts on the amount of editing you think a law review should do because my primary concern when editing is infringing on the author's style (as noted in the comments to your post). My general approach is to always strive for clarity then brevity when editing, but in cutting needless words, I always worry that I am somehow infringing on style. I could say a lot about this topic, but I'm sure you are familiar with these general concerns.

This is a topic near and dear to Law Review Lara's heart, because many of Lara's closest friends write law review articles. Those friends love to hear valuable editing suggestions — even when the suggestions are in the form of implemented edits that the author can undo or mark "stet" — especially because they recognize that an author may have a hard time seeing flaws in his work.

But the friends don't at all love to hear editors insisting on changes unless the change is genuinely necessary. Those friends think their writing is theirs, and is tied to their identities and reputations much more than to the journal's identity and reputation. Moreover, many of the friends have been professional writers for many years, and fancy themselves to be better than law students as final arbiters, though they are happy to hear the law students' advice.

Of course, the friends would also prefer that even the nonobligatory suggestions be mostly good ones, so they won't have to spend too much time going through and rejecting the unhelpful ones. Still, they recognize that editors and authors often have different approaches and that authors will inevitably have to spend some time rejecting suggestions they dislike in order to get the benefit of the suggestions they like.

So what should law review editors do, both to maximize the quality of the journal and to make both the authors and the editors as satisfied as possible? There's of course no precise answer, but here are a few guidelines:

1. Stress to the authors that all the edits are only suggestions, except for the very few that are required for the sake of accuracy or to comport with universally accepted rules of writing or formatting.

2. If an author rejects a proposed change, and your only reason for insisting on the change is "law review policy" or "law review style" or "consistency among articles" stop insisting. Almost no-one reads law reviews cover to cover (except for symposium issues, and rarely even then). No-one will notice, much less remark on, the fact that some articles in an issue use contractions and others don't, or that some authors split infinitives and others don't. If you're applying a universally accepted rule, then you can indeed politely say to the author that his usage appears wrong according to the proper authorities; but then you're relying on the authorities, not "law review policy."

3. Make as many suggestions as you can that are aimed at making the prose clearer, more precise, shorter, or otherwise more readable. Most authors will appreciate your effort, and will agree to most of your suggestions --- especially if they're good — since they too want their prose to be clearer, more precise, shorter, or otherwise more readable (even if it didn't seem so from reading their article).

4. Try to make your suggestions as good as possible. That's a hard one, I know, but it's of course the most important one — both for the sake of the authors, and for the sake of editors' education. (Law review editing, after all, is supposed to be an educational experience.)

Try to train your staffers and editors in good editing. Give them editing exercises to show them how to edit well. Stress to them the importance of editing for clarity, precision, and conciseness, rather than just for consistency with the technical rules of grammar and spelling. Select people who are good at editing to supervise the process, and tell them to give editors feedback about their editing (especially when the editors who get the feedback are in their 1L/2L year rather than their 2L/3L year).

5. Figure out which of the author's usages are deliberate reflections of the author's style. If the author uses contractions throughout the article, don't just change each one to the spelled-out version, even just as a suggestion. The author obviously likes contractions, and will find all your work in spelling them out to be useless.

Rather, if you genuinely think contractions don't work well for your journal, discuss this up front with the author, before wasting your time and his. If the author insists that he likes contractions, then go through and mark those particular contractions that you think are especially inapt. The author will probably accept most of those suggestions, because they reflect individualized judgment about what works best in each particular context. But if you tried to "correct" all the contractions, the author would probably have rejected all these suggestions, because he'd see that they simply reflected disagreement with his style.

6. Finally, never make unmarked changes, not even a comma or a font change. Many authors rightly demand that every letter and symbol in their article be something they personally wrote or personally approved, having been told that someone else inserted it. You can mark these edits on paper, or using a word processor Track Changes feature, or even by using a word processor Compare Documents feature, if the document comparison tool does a good enough job of noting precisely where the changes are. But mark them, or you could have one angry author on your hands.

Lara is sure there's more that can be said, and perhaps she will say more in future posts. But for now, she hopes that this offers a helpful guideline.


U.S. Casualties in Iraq: Most people realize that U.S. casualties in Iraq have dropped in the past year. This chart shows how far, showing a drop from about 70 or 80 deaths a month to about 20 deaths a month. If you take out non-hostile/non-combat deaths, current casualties are in the range of 10-15 deaths per month.

  Obviously, attitudes will vary about the significance of these figures. But I think the numbers were worth flagging either way.

Sliding Down the Slippery Slope Towards More Bailouts:

Recently, I warned that if Congress passes the Bush Administration's massive bailout plan for investment banks, we are likely to get more bailouts for other industries. It turns out that at least one industry - the Big Three Detroit auto manufacturers - have already gotten a bigger bailout than they would have otherwise. And that's just a result of the mere consideration of the administration plan (combined with the earlier Fannie Mae/Freddie Mac bailout); things will be far worse if the plan passes:

With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend—separate from the controversial Wall Street bailout plan—includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers. "It seemed like a lot when we first started pushing this," says Democratic Sen. Debbie Stabenow of Michigan, one of the bill's sponsors. "Suddenly, it seems so small...."

It might seem like a stealth rescue, but the plan has been in the works for at least 18 months. Approval for the loans was first included in last year's Energy Independence Act. Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.

Notice that the auto makers decided to up the ante from $6 billion to $25 billion in part because the Fannie/Freddie bailout made the former amount seem "unduly modest" by comparison. Similarly, Michigan's Senator Stabenow notes that the auto bailout "suddenly . . . seems so small" next to the Bush Administration's gargantuan bank bailout proposal. This illustrates two facets of the slippery slope problem I mentioned in my earlier post: First, the enactment (or even possible enactment) of one big bailout would lead other industries to step up their efforts to lobby for their own handouts. Second, the Bush proposal creates an "attitude-altering" slippery slope under which bailouts (especially those that are smaller in magnitude than the administration plan) come to seem "normal" to public opinion and are therefore less likely to encounter strong resistance.

Finally, it's worth emphasizing that, as the above-linked article points out, the current auto industry bailout is much larger and has fewer strings attached than the federal government's notorious 1980 bailout of Chrysler. At the time, the Chrysler bailout was highly controversial and took months of debate in Congress before passing. Today's much bigger auto industry bailout has drawn far less opposition - in part because we have slid so far down the slippery slope since them. Even worse, the current bailout is just the beginning for the Big Three. Next year, the article says, "[t]he automakers plan to ask the government for another $25 billion in loans . . . It's just spare change, after all." Compared to the proposed bank bailout, of course, it really is "just spare change." That's precisely the problem.

If we want to get out of this hole, a good first step is to stop digging. Sadly, the Bush administration and many in Congress want to do the exact opposite.


Constitutional Questions about the Bailout:

Todd Gaziano and Andrew Grossman of the Heritage Foundation have a short discussion of some of the constitutional issues here.


Bailout Gallows Humor:

I don't usually read the letters in the Washington Post, but this one today cracked me up:

While witnessing, but not participating in, the home real estate frenzy in 2005 and 2006, I kept asking: Who is the idiot buying up all these mortgages issued on inflated home prices to all these people who have neither the capacity nor the intention to repay the loans?

Now I learn it was me.

TED THACKER Ann Arbor, Mich.


Reader Poll on McCain Campaign's Decision to Suspend Operation Until Congress Deals with Financial Crisis:

What do you think of John McCain's decision to suspend his campaign in light of the financial crisis? Pick the correct box based on your likely voting in the election and whether you think McCain acted correctly (that is, appropriately and properly in light of the financial crisis) or you think McCain acted incorrectly (that is, inappropriately and improperly in light of the financial crisis).
I am a likely Obama voter, and I think McCain acted correctly.
I am a likely Obama voter, and I think McCain acted incorrectly.
I am a likely McCain voter, and I think McCain acted correctly.
I am a likely McCain voter, and I think McCain acted incorrectly.
I am a likely but undecided voter, and I think McCain acted correctly.
I am a likely but undecided voter, and I think McCain acted incorrectly.
I am not likely to vote, plan to vote for a third party, or cannot vote, and I think McCain acted correctly.
I am not likely to vote, plan to vote for a third party, or cannot vote, and I think McCain acted incorrectly.
I don't know what to think of it.
Free polls from

  UPDATE: I have corrected the options to explicitly make way for third party voters.

Rabbi Praying for McCain--Oy!:

Rabbi Joshua Maroof of Magen David Sephardic Congregation in Rockville at a kosher fundraising dinner for McCain: "Our Rock and Our Redeemer, we ask you to help the American people make the right choice for their future and to elect John McCain and Sarah Palin as the next president and vice president of the United States." Invoking the Almighty for partisan purposes is, to say the least, unbecoming.

UPDATE: One clarification: I don't think it's problematic for a rabbi, or anyone else, to privately pray that a particular candidate gets elected, or even that their football team wins Sunday's game. I do think it's problematic to do the former publicly, though you can read contrary opinions in the comments below.

Meanwhile, Rabbi Maroof sends a link to the full text of his prayer, which you can find in the comments, but that I can't seem to link to. I think the invocation would have been fine, if Rabbi Maroof had simply closed with asking God to give wisdom to the American people to vote for the right candidate, and then give wisdom to that candidate to lead wisely and justly.


Paulson v. Dodd: distributional considerations.

What is the difference between the two bills? Broadly, we can identify two dimensions: technocratic and distributional. On the technocratic side, Dodd supporters argue that the financial crisis will be resolved more cheaply if (for example) the government demands equity warrants or must submit to judicial review. Maybe, maybe not. The main difference, it seems to me, is distributional.

This difference is reflected both in political rhetoric (with the Democrats arguing that their bill favors the taxpayer) and the substance of the bills. If you think that the average over-indebted homeowner and the average taxpayer are less wealthy than those who operate and hold shares in big financial institutions, then the Dodd bill favors lower-income people relative to the Paulson bill, at least if its provisions work as intended. The homeowner relief provisions will transfer wealth from holders of bonds to homeowners who are likely to default (though not necessarily future buyers or sellers of homes). The constraints on executive compensation should transfer (a tiny amount of) wealth from rich people to taxpayers. The equity warrants are said to benefit taxpayers by giving them a share of the upside if there is one (I’m skeptical: remember that taxpayers will also have to pay more for the warrants). We can depict these distributional differences on the standard political scientist’s diagram of one-dimensional policy space, as follows:


Where L is left, R is right, D is the Dodd plan, and P is the Paulson plan. However, as I have noted before, there is a twist, namely, the amount of discretion that each plan grants to the executive branch in the person of the Treasury Secretary. We can use brackets to show how discretion works, with “[ ]” for the Paulson plan, and “{ }” for the Dodd plan. One possibility is this:


The way I have written it, each plan gives the Treasury Secretary a great deal of discretion over distributional outcomes. Both plans give Treasury enormous discretion to set the price; and the pricing decision will determine whether wealthier people do better or poorer. But the Dodd plan, by offering protection for homeowners and taxpayers, shifts the range of outcomes to the left.

But there is another possibility:


The Dodd plan’s leftward bias is almost entirely discretionary (or will be, apparently). Treasury has the option to limit executive compensation, demand equity warrants, and protect homeowners, but it is not really constrained to do so. So the Dodd plan extends the range of discretion, making more leftward outcomes possible but not necessary, in which case everything depends on who runs Treasury and hence, after Paulson, who wins the election.

It may be that the oversight mechanisms in the Dodd bill would confine Treasury’s discretion more than I have suggested. Bankruptcy judges are given a lot of discretion, and if they, by inclination or office, tend to help poorer people, then the rightward squiggly bracket should be moved to the left. The same point can be made about judicial review. Perhaps judicial involvement moves outcomes toward the center, given the ideological diversity of judges.

P.S.: people on the left and right might oppose any kind of bailout because they believe that no crisis exists or that the government can only make it worse. I put this view to the side in this post.


Schoolhouse Rock Videos: I guess I should have realized that all of the classic "Schoolhouse Rock" videos were posted on YouTube, but for some reason it never occurred to me. Anyway, you can see them all here. It's probably been 20 years since I've last seen Conjunction Junction and How A Bill Becomes A Law, but I remember pretty much every second of them.

  UPDATE: On rewatching "How a Bill Becomes a Law," it occurs to me that this bill probably shouldn't have passed. At the 0:57 mark, we see that the bill requires school buses to stop at railroad crossings. But shouldn't this be a question for the states? Why is Congress enacting a comprehensive national solution to regulating school buses? Whatever happened to federalism? Oh well, I guess that's the 1970s for you.

  ANOTHER UPDATE: Commenter DR engages in the politics of personal destruction with this comment:
Orin Kerr says he cares about our children — he says he'll protect them from danger. So what did he do when Congress tried to pass a law that would have made it illegal for school buses to park on railroad tracks? He opposed it. Said it was "not Congress's problem." Kids in jeopardy? Not Congress's problem? This November, let's make sure Orin Kerr doesn't become America's problem.

Orin Kerr. Wrong on buses. Wrong for America.
Kerr Campaign Headquarters is readying the following response ad:
DR is distorting Orin Kerr's record on children. What does DR know about children? While DR read about childhood in a book, only Orin Kerr has been a child. He spent 18 years as an American child. He rode the bus, and he saw the trains. He didn't just read about it, he lived it.

Commmenter DR. Inexperienced. Totally unqualified.

Robert H. Jackson, The Federal Prosecutor: In 1940, Attorney General Robert H. Jackson gave a speech about federal criminal law that remains a classic of criminal law, and, I would argue, about the legal system generally. It's just a wonderful speech, and I've been a fan of it for years. (Indeed, when I was at DOJ, I used most of the last paragraph of text as my screensaver for a while.)

  Anyway, I didn't realize that a copy of the address was available online, so I'm happy to say that Jackson scholar John Q. Barrett has posted a copy with a brief introduction: Robert H. Jackson, The Federal Prosecutor, 31 Am. Inst. Crim. L. & Criminology 3 (1940-1941). Worth a read and a re-read.

  Incidentally, very long-time readers of this blog may remember that I posted excerpts of the speech here before, back in February 2003. (Wow, have I really been blogging for more than 5 years?)

How Political Fans are Like Sports Fans - Why Voters are Highly Biased in their Evaluation of Political Information:

Both Slate and the Washington Post have interesting new article summarizing recent social science research showing that voters tend to be highly biased in their evaluation of political information. Voters tend to overvalue the importance of new information that supports their preexisting views or makes their preferred party look good; and they tend to discount any information that cuts the other way. As the Slate article puts it:

This has nothing to do with ideology. Politics isn't about ideology. It's about joining a team, and we judge fairness as partisans. In 1951, Princeton and Dartmouth students watched a film of a football game and were asked to take note of foul play. Princeton stalwarts saw all the penalties that should have been called on the Dartmouth players. Dartmouth students were convinced the refs missed clips and offsides committed by the Princeton players.

We judge politics the same way—as team members, not truth-seekers. Last week the Washington Post reported on a slew of experiments showing that political misinformation feeds people's pre-existing beliefs.

These findings - and the sports analogy that goes with them - are not new. I summarized earlier findings of this type in a 2006 article in which I similarly compared political partisans to sports fans.

The interesting question is why voters behave like biased sports fans instead of trying to evaluate new political information in an unbiased way. After all, isn't politics far more important than sports, deserving of a more serious effort to get at the truth?

The answer I gave in the article is that political fans are similar to sports fans in so far as both have little or no incentive to be truth-seekers. Because there is little or no chance that your vote will be decisive in an election, voters whose only reason to acquire political information is to do a better job of choosing the "right" candidate tend to be "rationally ignorant." Those who do acquire political information are likely to do so for other reasons - reasons that have little to do with truth-seeking. Here's a brief relevant excerpt from the article (pp. 260-61):

[T]he theory of rational ignorance does not predict that voters will choose not to acquire any information at all. Rather it predicts that they will acquire very little or no information for purposes of voting However, some voters will acquire information for other reasons....

A useful analogy is to sports fans. Fans who acquire extensive knowledge of their favorite teams and players do not do so because they can thereby influence the outcome of games. They do it because it increases the enjoyment they get from rooting for their favorite teams. But if many of the citizens who acquire significant amounts of political knowledge do so primarily for reasons other than becoming a better voter, it is possible that they will acquire the knowledge that is of little use for voting, or will fail to use the knowledge they do have in the right way.

Here again, a sports analogy may be helpful. Committed Red Sox fans who passionately root against the Yankees are unlikely to evaluate the evidence about these teams objectively. The authors of one recent history of the Red Sox and Yankees note that they chose not to write “a fair and balanced look at the Red Sox-Yankees ‘rivalry,’” because “neither author of this book wanted to represent the Yankees [sic] point of view. . . . Neither of us could bring ourselves to say enough complimentary things about [the Yankees] to fill the back of a matchbox, let alone half a book” (Nowlin and Prime 2004, 4). . . Similarly, Democratic partisans who hate George W. Bush, and Republicans who reflexively support him against all criticism, might well want to acquire information in order to augment the experience of cheering on their preferred political “team.” If this is indeed their goal, neither group is likely to evaluate Bush’s performance in office objectively or accurately.

This intuition is confirmed by studies showing that people tend to use new information to reinforce their preexisting views on political issues, while discounting evidence that runs counter to them . . . Although some scholars view such bias as potentially irrational behavior . . . , it is perfectly rational if the goal is not to get at the “truth” of a given issue in order to be a better voter, but to enjoy the psychic benefits of being a political “fan.”

Candidates and the media understand the biases of "political fans" and often exploit them for their own benefit.

How do we get out of the dangerous box in which public policy is determined in elections where most voters are either rationally ignorant about even basic political information or highly biased in their evaluation of what they do know? There is no easy answer to that question. In the article linked above and in some of my other scholarship (e.g. - here), I suggest that we consider making fewer decisions through the political system and more through free markets and civil society - where people have much stronger incentives to both seek out information and evaluate it at least somewhat rationally.


Wednesday, September 24, 2008

If Someone Has Sex with a Sheep, Must He Register as a Sex Offender?

You might think it's a crazy law professor hypothetical, but it's a real case. Michigan Compiled Laws § 750.158 provides,

Any person who shall commit the abominable and detestable crime against nature either with mankind or with any animal shall be guilty of a felony ....
Under Michigan law, the "abominable and detestable crime against nature" meant anal sex when committed with humans (which can now no longer be made criminal, with the usual provisos related to consent, age, lack of relationship, noncommerciality, and privacy), and any sort of sex when committed with other animals. Michigan law also provided that people register as sex offenders when they have been found guilty of "[a] violation of ... MCL 750.158, if a victim is an individual less than 18 years of age." Hence the question for the reader:

Under Michigan law, someone who has sex with a sheep must register as a sex offender:

  1. Always.
  2. Never (unless he's guilty of some other crime for which he must register).
  3. Only if the sex is anal sex.
  4. Only if the sheep is under eighteen.
  5. Only in a rural county.

For the answer, read today's People v. Haynes. Thanks to How Appealing for the pointer.


The Bailout and Oversight.

Commentators have criticized the Paulson bill for claiming too much discretionary authority for the Bush administration, echoing a well-known complaint about Congress’s authorization of the use of force against al Qaida. That authorization was a blank check, and this mistake will not be repeated, or so it is claimed, with the usual bromides about checks and balances.

It appears, though, that there are two criticisms rolled into one. One argument is that after 9/11 Congress did not deliberate enough before handing over power to the executive. The other argument is that Congress did not properly restrict the power of the executive in the course of issuing an authorization—by giving it limited powers or subjecting it to judicial or other types of review. Having learned from our mistakes after 9/11, we should insist both on democratic deliberation and enactment of meaningful oversight mechanisms.

These arguments are not so much wrong as question-begging. Congress has every incentive to deliberate; it will defend its institutional prerogatives and seek to ensure that the enacted law reflects its policy preferences. The problem is that, in the midst of a financial crisis, Congress does not have as much time as it ordinarily does. Most laws take months or years to pass. A complex optimal stopping problem arises: the longer Congress deliberates, the more that it will acquire information for making a good decision, but the greater the risk that the crisis will spin out of control. The stop-and-deliberate crowd (especially the economists among them!) need to acknowledge this problem. One suspects that their attitude merely reflects skepticism about the magnitude of the crisis or the ability of the government to solve it, not any real confidence that new information will emerge so that Congress can make better decisions. (That, or devotion to empty political forms.) How long should Congress take? A week? A month? A year? I can’t see any reason to think that Congress will take any less time than it is reasonable for it to take given the urgency of action.

Meanwhile, the Dodd bill implements several oversight mechanisms – or, more precisely, mechanisms that constrain the executive in some ways even as the bill hands over power to it in other ways. These mechanisms might be wise, but it must be acknowledged that they come at a price – and their defenders have not shown that the price is worth paying.

1. Bankruptcy judges are given power to adjust mortgages. Democrats want to help homeowners. They give Treasury some discretionary authority to minimize foreclosures, but the sharing of power with bankruptcy judges is a crucial mechanism for limiting the power of the executive branch. Whether mortgage adjustment is good policy or not, the price of such a division of power is clear. The value of the mortgage-related securities you hold is in part a function of your prediction of how bankruptcy judges will trim the interest and principal in bankruptcy. The judicial system is highly decentralized and it will take years for common principles to develop. So it will be hard to predict how judges will act, and accordingly it will be hard to adjust the value of your assets. By contrast, if Treasury were given this power, it could issue some regulations and settle the issue. Remember that it is the valuation problem that is said to be the source of our current crisis in the first place.

2. Judicial review of “any determination of the Secretary with regard to any particular troubled asset.” Determinations will be set aside if “arbitrary and capricious, an abuse of discretion,” etc. The risk here is that prospective sellers of bonds will fear that a court will subsequently set aside the sale because the price or other terms seem unfair. Maybe no court would do that, but maybe some would. Are they likely to do a good job? To decide cases consistently? The result is more uncertainty with respect to the value of assets that are not selling because their value is already uncertain.

3. Reporting to Congress and an oversight committee that includes two congressional appointees, one from the majority party and one from the minority party, plus the heads of the Fed (Bernanke!), the SEC (Cox!), and the FDIC. I like the bipartisan representation of the committee, but the committee has no power. But suppose that it does. Now we must worry that Treasury will make purchasing decisions to please particular members of Congress who care about particular businesses in particular districts – creating more uncertainty in the market, unless market participants can guess who those people are.

The benefit that is purchased is that it will be harder for Treasury to use its powers to aid political friends, and perhaps some good-faith pricing errors will be caught or avoided. But if this benefit is really substantial, why stop here? Why not make judicial review more searching or set up an independent agency to purchase assets? Why not have a bipartisan committee to make purchasing decisions? No one has a theory about how power should be divided. Dividing power makes sense in the abstract, but in the concrete it just raises, in procedural form, all the questions of policy that have not yet been answered. It reduces the ability of government officials to abuse their power but also to resolve the crisis.

As I have noted before, the oversight mechanisms that have received serious attention are pretty trivial, which suggests that Congress and probably most experts, believe, rightly or wrongly, that the executive needs a free hand.


The President's Speech:

1. If it is so obvious that the mortgage-backed securities are undervalued because of the market stability that the taxpayers are going to make money in the end, why aren't private investors steppeing forward to take advantage of the situation? This is what Warren Buffett is doing with Goldman, with reports being that Buffett is getting a great deal because he is remaining calm.

And again, this just raises the vexing problem of valuation mechanisms--which to the best of my knowledge still remains unsolved.

Nor does it seem obvious to me that it is necessary to buy up all of the sour loans, but just enough to get the markets going again, which surely must be less than all.

2. President Bush implied that the real problem for the larger economy is in the short-term commercial paper market--or at least that's what I understood to be the thesis. But that the commercial paper market was sagging because of overhang from the sour mortgage market. But if that is the case, how much would it cost for the government to insure commercial paper transactions. Wouldn't this be less expensive and disruptive than taking over the mortgage market? Was he implying that there was some other way in which the mortgage market is bleeding over into the larger economy? I'm not being tendentious here--I'm genuinely asking why isn't this a viable option?

3. Why isn't something like chapter 11 bankruptcy not a viable solution to this problem? The whole purpose of bankruptcy is to clean up debt on the balance sheet and get a fresh start for the corporation. As the quick infusion of capital into Morgan Stanley and Goldman Sachs shows, there are investors out there ready to snatch up bargains or to lend money. True, it would probably hurt the management, creditors, and shareholders more than this scheme, but I don't see why it makes more sense to hurt taxpayers instead. This presumably would also open up the opportunity for fraudulent conveyance actions to recover some of the big bonuses paid out to executives of these firms in recent years.


Why Can’t McCain Enable Cheaper Legislation?

I’m pretty sure I understand why McCain made the political stunt public suggestion of postponing the first debate so that he could focus on the pending legislation involving the financial crisis. In an election season favoring Democrats, McCain needs a game-changer. Palin seemed to serve that purpose before her favorability/unfavorability rating worsened and the voters started to focus on Wall Street (not her strong suit, needless to say). So now he tries to gain political advantage by saying that he needs to focus on the planned legislation. (For those of you who doubt this is politically motivated, in their 2:30pm conversation today why didn't he propose that he and Obama release a joint statement about postponing the debate – a la the joint statement that Obama in fact proposed this morning on the substance of bailout legislation?)

McCain’s intervention makes passage of the bill more likely. He did not say that he is going to DC to vote against a bailout (which wouldn’t justify delaying the debate, since Reid and McConnell could just agree that there would be no vote on Friday night). He made it clear that he is suspending his campaign because he wants to help pass bailout legislation. (“I do not believe that the plan on the table will pass as it currently stands, and we are running out of time.… It is time for both parties to come together to solve this problem.”) And the gambit, by focusing on the financial crisis and the proposed legislation, makes passage more likely: anyone who opposes it is in danger of being branded as irresponsible, or failing to put “country first.”

Which leads to my complaint: why couldn’t the crisis that McCain exploits for political advantage be one that is not so costly to taxpayers? I recognize that “crises” will often involve measures that flunk a cost/benefit analysis. It’s hard to imagine that, even if the Doha round had collapsed in September and legislation was in the offing, any presidential candidate would see political advantage in suspending his campaign for the purpose of pushing the Doha round back on track. Instead, the “crisis” will be over the need to give money to domestic automakers or steel manufacturers (remember the “Stand up for Steel” campaign in fall 1998?). Legislation alleviating those “crises” costs real money (up to $50 billion in the case of money for domestic automakers), but that’s chump change in comparison to the $700 billion or more for this bailout legislation. And if we were really lucky, we might have a “crisis” that cost us nothing at all, beyond our attention spans. (Where are Quemoy and Matsu when you need them?) Instead, we’re stuck with this rushed, expensive bailout bill that seems to be unwise, which McCain’s political maneuvering has now made more viable.

Here’s a suggestion: if enough public-spirited people would promise to give McCain (well, I guess the RNC – campaign finance rules, you know) a ton of money on the condition that he would agree to stay on the sidelines for this legislation, then McCain could be in the same position (some amount of money will equal the political advantage he seeks to gain, as that money can translate into advertising and ultimately votes), and we, the people, would be more likely to avoid rushed legislation that seems to have costs greatly exceeding its benefits. At a cost of mere millions, we could avoid a tab of hundreds of billions.


Gotham City:

I was curious why New York City is sometimes nicknamed Gotham, and learned that the source is apparently (to quote the OED):

The name of a village, proverbial for the folly of its inhabitants (‘wise men of Gotham’). (There is a village so named in Notts., but it is not certain that this was the place alluded to.) transf. Applied to (a) Newcastle, (b) New York.

Washington Irving apparently either pioneered or popularized the label in the early 1800s.


Waiting for Jewish Organizations to Condemn the Anti-Palin Campaign:

On January 16th, the New York Times reported that "the leaders of nine Jewish groups released an open letter on Tuesday condemning what they called 'hateful e-mails' that they said spread lies about Senator Barack Obama's religious beliefs and his intentions." As I've pointed out before, despite allegations that there was an anti-Obama email campaign targeting the Jewish community, the emails in question seemed to be written for a Christian audience, though they were also forwarded to Jews.

Flash-forward to this Fall. "Lies about [Sarah Palin's] religious beliefs and [her] intentions" are spreading like wildfire through the Jewish community. And this time, it's not a shadowy email campaign, but prominent bloggers and sometimes Obama spokesmen who are doing the spreading. And this time, Jews are the direct targets.

I've noted before false claims, at times emanating directly from the Obama camp, that Palin was a Pat Buchanan supporter in 2000 (she supported Steve Forbes), and that this in turn indicated that she is anti-Israel or even anti-Semitic.

Now Rep. Alcee Hastings tells a group of Jewish Democrats that Sarah Palin "don't care too much about what they do with Jews." His "evidence" is that she "tote[s] guns and hunt[s] moose.">

And people actually believe such nonsense. Here are two comments taken from a CNN comment board on an article describing the Hastings speech. These comments, which are riffs on the fact that a Jews for Jesus minister gave one lecture in her church (and which she has publicly said she disagrees with) are either written by actual Jewish readers, or by Obama sock puppets, and I'm not sure which is worse!

Anyone who believes, as Sarah Palin does, that the violence in the middle east is G-d's punishment to the Jews for not accepting Jesus as the Messiah, is no friend of the Jews, no matter how the GOP tries to cover that up. My grandparents, they should rest in peace, came here from Poland to get away from that kind of persecution. They would never vote for such a woman and neither will I.

Let's be honest, she is for "Jews for Jesus" Remember she was picked by McCain, showing his total lack of judgement [sic] and the fact he puts being elected first instead of "America First" Place the blame of her even being on the ticket where it belongs….John McCain!!!! Any Jew that votes for McCain insted of Obama should be ashamed of themselves. 66 year old Jew born and raised in San Francisco

So, if a coalition of Jewish organizations thought it necessary to condemn a false anti-Obama email campaign in January, when the campaign does not seem to have targeted Jews, isn't it about time they condemn the much more open and blatant campaign of lies directed at Sarah Palin and targeting Jewish voters?


"Sleep With Me Or I'll Leave You" = "Forced Sexual Intercourse"?

Forced Sexual Intercourse Among Young Adult Women, Child Trends Fact Sheet #2008=30 reports that "Approximately 18% of women aged 18-24 report having experienced forced sexual intercourse at least once in their lives."

Forced sex was defined as either responding “not voluntary” to the following question about first sexual intercourse: “Would you say then that this first vaginal intercourse was voluntary or not voluntary, that is, did you choose to have sex of your own free will or not?” or responding “yes” to the following question: “Have you ever been forced by a male to have vaginal intercourse against your will?” ...
But it turns out that "Young Adult Women Report Experiencing Different Types of Force During Forced Sexual Intercourse." For 12%, the "type[] of force" was "Told Relationship Would End." For 61% (the largest number), they were "Pressured by Words/Actions Without Threats."

This is just ridiculous. It's true that the word "force" has many possible meanings: Some people, for instance, feel they're "forced" "against [their] will" to work in certain jobs — or are doing those jobs not "of their own free will" — because that's the only way they can enjoy the standard of living they want. But these are radically different kinds of force from being forced to do something by physical force, or threat of physical injury. And mixing the two yields results that are useless at best and misleading and dangerous at worst.

I should note that some of the types of force reported in the study would indeed be indicative of very serious crimes (chiefly rape), for instance being forced by being "physically held down" (I assume this would likely have been interpreted to mean held down against one's will) or by being "physically hurt or injured" or "threatened with physical hurt." But the heinousness of those actions just illustrates the error of mixing these with being told that if one doesn't have sex, the relationship would end.

Note, incidentally, that the questionnaire seems to prompt respondents into reading "forced" broadly. The questionnaire begins by asking:

Think back to the very first time you had vaginal intercourse with a male. Which would you say comes closest to describing how much you wanted that first vaginal intercourse to happen?
I really didn’t want it to happen at the time ..........1
I had mixed feelings — part of me wanted it to happen at the time and part of me didn’t .........2
I really wanted it to happen at the time ...............3
It then asks "Would you say then that this first vaginal intercourse was voluntary or not voluntary, that is, did you choose to have sex of your own free will or not?" Later, it asks (if respondent "reported her 1st vaginal sex as 'not voluntary' or didn't want it to happen or had mixed feelings"), "Were any of these kinds of force used?," and lists as "kinds of force"
Were you given alcohol or drugs?
Did you do what he said because he was bigger than you or a grownup, and you were young?
Were you told that the relationship would end if you didn’t have sex?
Were you pressured into it by his words or actions, but without threats of harm?
Were you threatened with physical hurt or injury?
Were you physically hurt or injured?
Were you physically held down?
The "have you ever been forced by a male to have vaginal intercourse against your will?" question is asked shortly after these questions (though note also that the "Were any of these kinds of forced used?" question is only asked of people who gave certain answers to the preceding questions). From all this, it seems to me that the survey would naturally lead respondents to read the word "forced" broadly, and to indeed label sex as "forced" even when they were "forced" by threat of cutting off the relationship, or by unthreatening but "pressur[ing]" words. (For a breakdown of the answers to these questions for women age 18-44 rather women age 18-24, see table 38 of this report.)


Your Urgent Help Needed:

Apropos my post last week about second-generation Nigerian spam, I quote the opening lines of another interesting item:

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you....

For more, click here.

UPDATE: D'oh! Randy beat me to it.


Alternatives to Bailout:

Today's Washington Post had an informative story discussing some of the alternatives that have been suggested to the giant bailout. Some interesting proposals and many of them seem like they could be as effective as the big one with less risk, expense, and inequity. Good food for thought.


Hugo Chavez Endorses the Bailout:

Hugo Chavez sends President Bush congratulations on the bailout plan:

The U.S.'s chief antagonist in the region, self-declared revolutionary socialist President Hugo Chavez of Venezuela, said his oil-based economy is insulated from the U.S. crisis by its growing detachment from ``this perverse financial system.''

He mocked Bush for using government funds to bail out private companies. The Bush administration is seeking congressional authority to buy as much as $700 billion in bad investments from financial firms to unfreeze the U.S. financial system.

``I nationalize strategic companies and get criticized, but when Bush does it, it's OK,'' Chavez said on weekly television program Sept. 21. ``Bush is turning socialist. How are you, comrade Bush?''


"Correcting Students' Usage Errors Without Making Errors of Our Own":

I have a 5-page article on this coming out next year in the Journal of Legal Education, and I'd love to get people's feedback on it. Unfortunately, while the Journal is great about leaving authors with unlimited rights to redistribute the article after it's published, it's behind the law reviews in letting authors post prepublication drafts on blogs and on SSRN. But if you're interested in looking over this, just e-mail me at volokh at, and I'll gladly send you a draft. Here are some excerpts:

We often mark up student papers, and note errors in grammar, spelling, and word choice. But, unfortunately, much of what we know about such supposed “errors” is itself erroneous. [Examples omitted.] ...

Why is all this important? For four reasons:
1. Accuracy....
2. Protecting ourselves from embarrassment....
3. Protecting our students from embarrassment....
4. Helping students understand the nature of rules....

Here then are a few thoughts about how we can avoid such errors: ...
6. Focus on function and not on abstract correctness. Finally, as I suggested above, tell your students what’s effective writing, rather than limiting yourself to what’s correct and incorrect. By teaching them that even usages that are approved by the dictionary can still be distracting, alienating, clumsy, or otherwise ineffective, you can help your students think more broadly about how they can improve their work. And that, after all, should be both their goal and yours.


The Dodd Plan: A Contract Clause Problem?

Section 11 of the Dodd bill seeks to minimize foreclosures by allowing bankruptcy judges to approve Chapter 13 bankruptcy plans that adjust the terms of residential mortgages in the debtor’s favor. Any Contract Clause experts willing to weigh in on this provision? There is no doubt that the section is lawful if applied prospectively, that is, to mortgages issued after the law goes into effect. But if it applies retroactively, as surely it is intended to, then creditors can assert a Contract Clause violation. The Supreme Court replaced the flat ban on this type of law with a balancing test during the Great Depression, under similar circumstances. Section 11 would pass the balancing test if interference with creditors’ contractual rights is sufficiently limited and/or the government interest is sufficiently great. But, however bad things might be now, we are not in a Great Depression or even (yet) a Mild Recession, and we have very different personnel on the Supreme Court.


American Constitution Society Supreme Court Preview: The ACS is hosting a Supreme Court Term preview at the National Press Club from 12-2pm on Wednesday. I'll be on the panel, together with a really outstanding group of lawyers and academics: Walter Dellinger, Beth Brinkmann, and David Vladeck, with Preeta Bansal moderating. I don't know if it will be on C-Span or webcast, but if so I'll post a link when I have one.

Economists Protest the Bailout Plan:

Numerous prominent economists on both the right and the left have signed this petition against the bailout plan proposed by the Administration (list of signatories available at the link above):

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, Americas dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

UPDATE: I have fixed the broken link to the petition.


Bailout Quote of the Day;

Congressional Republicans have posted a far from impressive record in upholding free market principles in recent years. One of the few exceptions is Indiana Representative Mike Pence, who has the best short comment on the bailout I have seen all day:

"I must tell you, there are those in the public debate who have said that we must act now. The last time I heard that, I was on a used-car lot," said Rep. Mike Pence, R-Indiana. "The truth is, every time somebody tells you that you've got to do the deal right now, it usually means they're going to get the better part of the deal."

And, yes, I realize that the day is only 35 minutes old, so I'm incorporating all of yesterday by reference.


Circulating on Wall Street:








(Hat tip: Manny Klausner)

Chicago-Style Elections on Lake Erie:

The Cincinnati Enquirer's Peter Bronson thinks Ohio Secretary of State Jennifer Brunner -- "the most partisan state official in Ohio" -- "is doing her best to bring Chicago elections to Ohio."


John McCain as the Queen of Hearts:

One might expect conservative columnist George Will to be supportive of the Republican presidential nominee, but he's none too pleased with McCain's latest pronouncements, and raises concerns about the Arizona Senator's temperament.

Channeling his inner Queen of Hearts, John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked the Wall Street Journal to editorialize that "McCain untethered" — disconnected from knowledge and principle — had made a "false and deeply unfair" attack on Cox that was "unpresidential" and demonstrated that McCain "doesn't understand what's happening on Wall Street any better than Barack Obama does." . . .

In any case, McCain's smear — that Cox "betrayed the public's trust" — is a harbinger of a McCain presidency. For McCain, politics is always operatic, pitting people who agree with him against those who are "corrupt" or "betray the public's trust," two categories that seem to be exhaustive — there are no other people. McCain's Manichaean worldview drove him to his signature legislative achievement, the McCain-Feingold law's restrictions on campaigning. Today, his campaign is creatively finding interstices in laws intended to restrict campaign giving and spending. . . .

Conservatives who insist that electing McCain is crucial usually start, and increasingly end, by saying he would make excellent judicial selections. But the more one sees of his impulsive, intensely personal reactions to people and events, the less confidence one has that he would select judges by calm reflection and clear principles, having neither patience nor aptitude for either.

It is arguable that, because of his inexperience, Obama is not ready for the presidency. It is arguable that McCain, because of his boiling moralism and bottomless reservoir of certitudes, is not suited to the presidency. Unreadiness can be corrected, although perhaps at great cost, by experience. Can a dismaying temperament be fixed?

Food for thought.


Tuesday, September 23, 2008

Grand Jury Hears Witnesses in the Palin Hacking Case: According to the Chattanooga Times Free Press, the grand jury considering the Sarah Palin e-mail hacking incident heard testimony today from the roommates of the suspect, David Kernell. Glenn Reynolds comments, "I don't know why they would take a case to the grand jury this fast."

  That's what I would expect, actually. The prosecutors are taking the case to the grand jury now because they need to nail down the testimony of Kernell's roommates. The FBI executed the warrant at Kernell's apartment on Saturday night, and it's likely that they retrieved a whole bunch of different computers. To tag Kernell with the crime, they need to show that Kernell was the one at the computer that gained access to Palin's account at the time access was gained.

  There are some forensic ways of showing that, giving the timing of the attack and records kept on the laptop, if Kernell hasn't zeroed out his hard drive or otherwise tried to delete records on it. But the testimony of Kernell's roommates is likely to be very valuable for investigators, assuming that Kernell was in fact the wrongdoer here. The roommates can testify about where Kernell was when the attack occurred, what computer he was using, what computer he normally used, whether anyone else had access to the computer with the evidence found inside, etc. In addition, the roommates can testify about what Kernell may have told them at the time or how he was acting afterwards.

  Why get this evidence now and not later? One important reason is that the grand jury power lets the government get the roommates under oath: They will be sworn in to testify, and they can face perjury charges if they do not tell the truth. The government would want to get this now while memories are fresh and before the case is ready to be indicted. Once the indictment comes, the grand jury's work is done and the roommates can't be sworn in to testify until a trial (if the case goes to trial).

A Homebuilder Bailout?:

Not surprisingly, other industries are flocking to the federal government for bailouts, including the homebuilding industry. So it's worth reminding ourselves what the homebuilders did with their profits during the boom times; instead of saving money for the inevitable rainy day, they not only overinvesting in overpriced land options, but provided obscene compensation to their CEOs and other officers, who did nothing more skillful than riding a bubble.

Here are some homebuilder CEO compensation figures from 2005: Ara Hovanian, Hovnanian Enterprises--$47.83 million

Bruce Karatz, KB Homes--$135.53 million

Robert Toll, Toll Brothers--$41.31 million Stuart Miller, Lennar--$22.53 million


Does Congress think that Paulson asked for not enough power?

You might think so from reading the Dodd bill and the news accounts (including this very helpful discussion by Steven Davidoff):

1. Under the Paulson bill, Treasury will have the power to purchase mortgage-related assets. Under the Dodd bill, Treasury will have the power to purchase these assets and “any other financial instrument, as the secretary determines necessary to promote financial market stability.” In Davidoff's words, the Dodd bill “could allow this program to expand to credit card debt, student loan debt, market purchases of equity and even the debt of the big automakers. Basically, the entire financial system.”

2. Under the Paulson bill, Treasury would buy assets with cash. Under the Dodd bill, Treasury would be required to obtain equity warrants as well; Sorkin says that this provision will probably end up being discretionary. So Treasury will be able to obtain equity stakes whenever it believes that doing so makes sense (presumably, so as to obtain a portion of the upside if Treasury overpays for the securities), and will have to exercise whatever control its equity interest gives it, including possibly a say in the management of the firm (think of AIG).

3. Under the Paulson bill, Treasury has no power to determine executive compensation. Under the Dodd bill, the executive compensation provision, in Davidoff's words, “basically puts the Treasury Department in the business of setting compensation and disclosure policies for much of financial America.”

4. Under the Paulson bill, Treasury has no power to adjust mortgages that go into foreclosure. Under the Dodd bill, Treasury is supposed to figure out some way to help homeowners whose property is subject to the securities it obtains, including reducing interest rates and principal.

5. Finally, with respect to the most important discretionary item of them all – negotiating a price of the mortgage-related assets and most of the other terms of the deal – the Paulson bill and the Dodd bill identically leave it up to Paulson and his successors.

The Dodd bill does do three things to confine the discretion of the Treasury Secretary. It provides for (1) limited judicial review (however, it is hard to imagine judges second-guessing pricing decisions); (b) more reporting to Congress; and (c) an oversight committee consisting of various notables that, however, has little power.

In sum, compared to the Paulson bill, the Dodd bill vastly extends the Treasury Secretary’s powers, while putting in place very modest oversight mechanisms. Dodd, and apparently many of his colleagues, want Treasury to do more, not less.


Fifth-Grader Suspended for Wearing "Obama: A Terrorist's Best Friend" T-Shirt:

A Colorado TV station is reporting that

An 11-year-old in Aurora says his first amendment rights are being trampled after he was suspended for wearing a homemade shirt that reads "Obama is a terrorist's best friend."

The fifth grader at Aurora Frontier K-8 School wore it on a day when students were asked to wear red, white and blue to show their patriotism....

According the the boy's father, the school district told the student, Daxx Dalton, that he had the choice of changing his shirt, turning his shirt inside out or being suspended....

Aurora Public Schools would not talk about the case but said the district "Respects a student's right to free speech, such as the right to wear specific clothing," but administrators say they review any situation that interrupts the learning environment.

Paperwork submitted by the school district says Daxx Dalton was not suspended for wearing the shirt, but for willful disobedience and defiance....

To repeat my response to a "[Bush:] International Terrorist" school T-shirt case from four years ago, student speech like this can generally be restricted only if (1) there's serious reason to think that it's likely to cause material disruption, or (2) it's vulgar or profane, and offensive because of that and not because of its political message. (It could also be restricted if it's otherwise unprotected, for instance because it's a knowing lie, a death threat, or the like, but that surely doesn't apply here; though lots of people think the viewpoint the shirt expresses is wrong, it's clearly a statement of opinion, not of fact.) The T-shirt here might be seen by some as rude, but the rudeness flows precisely from its political content, so item 2 doesn't apply, either.

The question is whether the school really has some good reason to think that this would cause material disruption. I'm pretty hesitant, absent more evidence, to think that it would (though I realize that there might be more evidence that isn't quoted in this news story). If the school can show that similar T-shirts had started fights, there or in neighboring schools, or that there were incidents that seemed about to blossom into fights, it might have a good case. But I don't see how this is inherently likely to be any more disruptive than the anti-Vietnam-War black armbands that the Court held to be protected in Tinker v. Des Moines Independent School District (1969), the leading case in this field.

And of course if the disobedience consisted solely of the refusal to go along with the order to cover up the T-shirt, punishing the student for the disobedience is constitutionally tantamount to punishing him for the speech (since this is precisely what happened in Tinker itself).

Thanks to Derek Muller for the pointer.


Ron Paul Endorses Far-Right Conspiracy Theorist:

Yesterday, former Republican Party presidential candidate Ron Paul endorsed the Constitution Party candidate Chuck Baldwin. This endorsement confirms the fears I expressed in this series of posts about Paul's association with extreme social conservatism and embrace of ridiculous conspiracy-mongering.

Who is Chuck Baldwin? Among other things, he's an enthusiastic purveyor of all manner of far-right conspiracy theories. Paul himself believes the ridiculous claim that the Bush Administration is trying to establish a "North American Union" uniting Mexico, the US, and Canada under a single government. Baldwin goes Paul one better. He not only endorses the NAU myth but also claims that "By 2015, I’m told, the powers that be want to merge Europe and America." He thinks that the Council on Foreign Relations is at the heart of a conspiracy to create a "global government" - a longstanding trope for conspiracy theorists. He rails against "moneychangers" who are supposedly destroying us by promoting free trade and international investment for the ultimate purpose of establishing a world government. Baldwin even wrote a 2007 column entitled "There is a Conspiracy" documenting the supposed plan to create world government. To prevent this, he is opposed to the "global economy," free trade, and international economic integration, a position radically at odds with that of most libertarians (see the last three links).

Baldwin is also an extreme social conservative on domestic issues. Like Jerry Falwell and Pat Robertson, Baldwin wrote soon after 9/11 that the terrorist attack was a punishment inflicted by God because of the nation's departures from traditional sexual morality:

For nearly a half-century, we have forsaken the moral principles of Heaven. We have legally murdered too many unborn babies. We have too readily accepted aberrant, sexual behavior. We kicked Heaven out of our schools, out of our homes, and out of our hearts. As a result, God is giving us a little taste of Hell. [Emphasis added]

He also thinks that multiculturalism is part of a plot by evil "secularists" to "de- Christianize our country" and that we must restore Christianity to its supposedly rightful role as "the founding principles of our beloved republic."

By endorsing Baldwin, Paul doesn't necessarily embrace all of Baldwin's views. Nonetheless, it's hard to see how anyone genuinely committed to libertarianism could possibly support such a candidate. Perhaps Paul believes that Baldwin is highly objectionable, but is still the lesser of the available evils from a libertarian point of view. That's a very hard argument to defend; I certainly don't buy it myself. But if Paul were to make it, he could at least distance himself from Baldwin's more objectionable views. In fact, however, Paul hasn't made any such claim. To my knowledge, he has never publicly said anything negative about Baldwin's views at all.

Moreover, it's important to remember that Baldwin (like Paul before him), has no chance of even coming close to winning. From a libertarian point of view, the key question in deciding to endorse him is not whether his policies as president might be less bad than those of some other candidate, but whether association with a far right conspiracy nut helps the libertarian cause more than it harms it in the long run. In my view, the answer to that question is a pretty obvious "No." That, of course, is how I felt about the misplaced enthusiasm among some libertarians for Ron Paul's own candidacy. In retrospect, it's even more clear than before that the tens of millions spent on Ron Paul's failed presidential campaign could have done a lot more good for libertarian causes if spent elsewhere.


FactCheck flubs Obama gun fact check: is an excellent project of the Annenberg Public Policy Center of the University of Pennsylvania. It a non-partisan organization which provides factual evaluations of the claims of and about political figures. I have cited it in my own writing, and will continue to do so. However, that FactCheck has a well-deserved reputation for accuracy and good judgment does not mean that its work is infallible, as the VC has pointed out previously. The Encyclopedia Britannica also has a well-deserved reputation for accuracy and impartiality, but the Britannica sometimes contains errors or overstatements.

FactCheck’s September 22, 2008, report on the National Rifle Association’s advertising critical claims that the NRA “distorts Obama's position on gun control beyond recognition.” FactCheck itself, though, has overstated its claims, and made several errors.

Related Posts (on one page):

  1. Doing My Patriotic Duty:
  2. Obama Campaign Challenges NRA Ad:
  3. FactCheck flubs Obama gun fact check:

Judge Orders Woman on Probation Not To Have More Children:

The Austin American-Statesman reports:

A judge in Travis County has ordered a woman to stop having children as a condition of her probation in her case of injury to a child by omission, an extraordinary measure that legal experts say could be unconstitutional.

The order was for Felicia Salazar, 20, who admitted to failing to provide protection and medical care to her then-19-month-old daughter last year. The girl suffered broken bones and other injuries when she was beaten by her father, Roberto Alvarado, 25, who was sentenced to 15 years in prison. Alvarado and Salazar relinquished their parental rights, and the child, who has recovered, was placed in foster care.

On Sept. 5, state District Judge Charlie Baird sentenced Salazar, who had no criminal history, to 10 years of probation after she reached a plea bargain with prosecutors.... In addition to requiring Salazar to perform 100 hours of community service and to undergo a mental health assessment and setting other typical conditions, Baird told Salazar not to have any more children.

In an interview Wednesday, Baird said Texas law gives judges the discretion to set any conditions of probation deemed reasonable. He also said that neither Salazar nor her lawyer, Kent Anschutz, objected....

Conditions of probation are enforced by putting a defendant in jail or prison when they are violated.

I can't speak to Texas law, but generally probation conditions are constitutional -- even when they restrict constitutional rights such as the freedom of speech or the freedom of association -- whenever they are "reasonably related to legitimate penological interests," a test that is easy to meet. The theory is that if the defendant is imprisoned, she would lose a great many of her constitutional rights, under the same standard, and the rule should be the same if the judge gives her probation instead of a prison sentence. And this theory would seem to apply to the right to have children as well: If you're imprisoned, you have no constitutional right to have children or even to have sex, so a court should likewise be able to impose a similar restriction if you're put on probation. Such "the greater power [here, imprisonment, which would generally prevent having children] includes the lesser [here, a probation condition that imposes a similar prohibition]" arguments don't always work -- but they do work in many situations.

To quote an earlier Wisconsin Supreme Court case that's alluded to in the article, State v. Oakley (2001):

[A]s a condition of probation, a father of nine children, who has intentionally refused to pay child support, can be required to avoid having another child, unless he shows that he can support that child and his current children.... [I]n light of Oakley's ongoing victimization of his nine children and extraordinarily troubling record manifesting his disregard for the law, this anomalous condition -- imposed on a convicted felon facing the far more restrictive and punitive sanction of prison -- is not overly broad and is reasonably related to Oakley's rehabilitation. Simply put, because Oakley was convicted of intentionally refusing to pay child support -- a felony in Wisconsin -- and could have been imprisoned for six years, which would have eliminated his right to procreate altogether during those six years, this probation condition, which infringes on his right to procreate during his term of probation, is not invalid under these facts.

Some might ask whether a judge could likewise restrict probationers from having sex. The answer, I think, is that the same general rule would apply, but it would usually yield a different result as to probationers' sexual relations than as to prisoners' sexual relations, since there's not much of a legitimate penological interest served by a "no sex even when you're outside prison" rule.

On the other hand, judges do often impose rules limiting a probationer's association with particular people who are seen as bad for the probationer's rehabilitation, such as fellow gang members; such a rule would indeed end up limiting sexual contact between the probationer and those people, as well as other kinds of contact. And at least one case I saw, State v. Henriksen, 690 N.W.2d 885 (Wisc. App. 2004) (unpublished), upheld an order -- aimed chiefly at preventing the probationer, who was also convicted for failing to pay child support, from having more children -- prohibiting a probationer "from having any sexual relations unless he has the explicit permission of his probation agent": "[Henriksen] may not have sexual intercourse with a woman until ... the probation agent is convinced that Mr. Henriksen is ready to either accept responsibility for any offspring, [or] is ready to prevent conception, and, secondly, that the probation officer is satisfied that any potential partner of Mr. Henriksen knows of his failure to support in the past and knows of the need to protect herself."

So I'm not sure that this sort of restriction is particularly likely to be wise or effective; but my tentative sense is that under current law it is indeed constitutional. On the other hand, Doug Laycock, a very knowledgeable constitutional law scholar whose work I much respect, takes a different view (quoted in the article).


A Bailout in Every Pot:

One predictable consequence of a massive bailout for investment banks is strong political pressure to provide similar handouts for others. The New York Times reports that big financial firms are starting to lobby for an even wider bailout than the already hefty $700 billion plan proposed by the Bush Administration:

Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages. At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees. Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.

“The definition of Financial Institution should be as broad as possible,” the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday. The group said a wide variety of institutions as varied as mortgage lenders and insurance companies should be able to take advantage of the bailout, and that these companies should be able to sell off any investments linked to mortgages.

Congressional Democrats are arguing that the feds should bail out homeowners with mortgages they can't pay. Meanwhile, as George Will reports, the troubled auto industry also wants to get in on the act. No doubt, other industries will also try to get in line for their own handouts.

I realize, of course, that there are various arguments distinguishing the bank bailout from these other proposed bailouts. But as a matter of practical politics, it may be difficult or impossible for the federal government to resist the pressure. The general public is "rationally ignorant" about politics and economics and doesn't understand the subtle economic arguments that supposedly prove that the bank bailout is a good idea while other bailouts aren't. Many voters will think that if we are going to bail out a bunch of greedy Wall Street bankers, the "little guys" should get some goodies as well. The combination of ignorant public opinion and interest group lobbying will almost certainly ensure that this bailout goes far beyond its initially envisioned scope.

Senior Conspirator Eugene Volokh's classic article on "The Mechanisms of the Slippery Slope" is relevant here. We have a combination of what Eugene calls an "attitude-altering slippery slope" (a bailout for one industry makes public opinion more receptive to others as bailouts come to seem "normal"), an "equality slippery slope" (if banks get a bailout, many voters will think that "it's only fair" if industry X gets one too), and a "political power slippery slope" (as more interest groups become dependent on government largesse, the relative power of the pro-bailout groups will increase and that of their opponents will be reduced, thereby paving the way for further handouts).

These slippery slope dangers should be kept in mind as we weigh the potential risks of the bailout. They aren't the only relevant factor, but they do deserve greater consideration than they seem to have received so far.

UPDATE: As co-blogger David Bernstein points out, the homebuilding industry is now among those clamoring for a bailout of their own.


A Bit of Perspective:

From Senator and Vice-Presidential candidate Joe Biden on CBS News (video, starting at about 1:45):

Part of what a leader does is to instill confidence, is demonstrate that he or she knows what they're talking about, and communicates to people, if you listen to me, and follow what I'm suggesting, we can fix this. When the stock market crashed, Franklin Roosevelt got on television, and didn't just talk about the, you know, the princes of greed, he said, look, here's what happened.

As I've long said, these sorts of errors (here about what medium presidents were using to speak to the public in 1929, and even about exactly who was president in 1929) are inevitable when people speak extemporaneously, especially when they're in the middle of a hectic campaign and probably not getting much sleep. All this shows about Senator Biden is that he makes errors just like all the rest of us. But it's worth remembering incidents such as this one when people start mocking other candidates for similar slip-ups.

Thanks to Ben Smith (Politico) and Jesse Walker (Reason's Hit & Run) for pointing this out, and to InstaPundit for the pointer to that post.


More Bailout News:

Today's news brings further cause for concern on almost every question about the bailout that has bothered me. A brief review.

More on unintended consequences--the ban on short-selling threatens to bankrupt hedge funds. While it might be fun for us taxpayers to own a hedge fund or two in addition to everything else we are buying up, it is not obvious that our new planning Commissar Paulson has thought about all the unintended consequences:

Of all of the tumultuous events of the past week on Wall Street — which included the bailout of the nation's largest insurer, conversion of investment giants Morgan Stanley and Goldman Sachs into bank holding companies, and the promise of a $700 billion rescue package from the government — the biggest source of problems for hedge funds was the temporary SEC ban on shorting financial stocks.

Industry groups say the ban, if made permanent, could make it difficult for some funds to survive because their entire trading strategy was based on the practice. Hedge-fund managers said shorting plays an important role in the markets because it helps them properly price securities.

Another unintended consequence is that by exploding the national debt the bailout plan has ignited inflation fears and threatens to ruin the dollar while gold and oil prices skyrocket.

We also have more on Paulson giving away the store in his negotiations with Wall Street by basically telling them that the government was desperate to buy up their garbage paper. Did he really think that the Wall Street creeps who caused all these problems and then asked the taxpayers to bail them out were really going to show self-restraint and put their selfishness aside as a show of gratitude for all of us saving their hides? Instead, it appears that the Wall Street billionaires will deign to participate in the bailout only if it doesn't threaten their house in the Hamptons or private jets:

Another point of dispute is Democrats' insistence that the government be given authority to cut the salaries of executives and restrict their severance packages if they take taxpayer money. Paulson has said such a move would be "punitive" and deter companies from participating in the bailout.

Heaven forfend, we wouldn't want to be "punitive" toward these guys by taking away their golden parachutes, would we?

Also more on the mark-to-market accounting issue.

Finally, we have more on the question of how the government will value these assets and the lemons problem they raise:

As the government weighs how to bail out the financial sector, the plan's engineers face a dilemma.

The higher the prices the government pays for troubled mortgage securities held by banks, the more the rescue will bolster those banks and sustain the lending that is vital to the broader economy. But higher prices would also mean a worse deal for taxpayers.

In other words, the more effective the plan, the more expensive it will ultimately be.

The Treasury Department has provided only broad outlines of how it intends to set prices, saying in a fact sheet that it will use "market mechanisms where possible, such as reverse auctions." In a reverse auction, the government could agree to purchase a specific amount of assets and buy those that are offered at the lowest price.

But that may be harder than it sounds, economists said.

The problem is that there are thousands of kinds of mortgage-related securities. If the Treasury just opens the door for banks to sell those securities to the government, firms will offer up the very worst ones, possibly leading to huge losses for taxpayers. But if the government specifies exactly which securities it will accept, the Treasury secretary will have unusually broad authority to decide which banks get bailed out and which don't.

Imagine that the market for used cars had fallen apart and the government decided to restore order by buying up thousands of vehicles. If the winning price in a reverse auction was $3,000, owners of lower-priced Ford Pintos would trade their cars in to the government, while owners of higher-priced BMWs would hold on to theirs. When the government went to sell the Pintos, it could not recoup its investment and would lose money.

In an alternate scenario, the government could have separate auctions for Pintos and BMWs. But in choosing how many of each to buy, the government would be deciding which kinds of car owners to bail out and which to let suffer.

Note a few closing points about the need or wisdom of the bailout.

First, we now live in a global capital market--perhaps Wall Street is down, but Japan is flush with cash and is ready to invest. I'm sure they aren't the only ones.

Second, Paulson and Bernanke admit that the bailout is not doing anything to actually stem the crisis. In this vein, it is worth reminding ourselves that much of the frantic activity of the New Deal to "do something" about the Great Depression probably did nothing to end the Great Depression and may have even delayed and worsened the eventual correction. There were, of course, many causes of the Great Depression and many counterproductive policies that worsened and lengthened it including Smoot-Hawley, deflationary monetary policy, and liquidity problems caused by bank failures. And there were some interventions, like deposit insurance, that may have helped at least in the short run (although perhaps not in the long run). But much of the frantic and ad hoc interventions of the Great Depression like the NRA and others simply spawned uncertainty and unintended consequences and in so doing worsened the problem. See here and here for some sense of the question. "Do something" is plainly not a sensible policy if doing something is something stupid and counterproductive. The ad hoc and chaotic interventions by the government in the current crisis, plus the whole stream of unintended consequences that have already arisen and inevitably will arise, has simply increased market uncertainty and unpredictability. Now proposals to allow consumers to modify mortgages are back on the table after being pushed back a few weeks ago.

Yet Paulson and Bernanke is convinced that despite the fact that what they've done so far hasn't made a difference the solution is to double-down with more of the same:

The nation's top economic policymakers acknowledged this morning that an already extraordinary series of government actions has failed to stabilize global financial markets and said that Congress must act quickly on a proposed bailout plan to avoid dire consequences for the U.S. economy.

Money is flowing out of the market to investments in commodities like gold and oil, and I suspect will continue to do so. So long as the government is making this stuff up as it goes along, bailing out some industries and firms but not others, why would anyone put money back into the banking sector? I mean seriously--how idiotic is it that in trying to save money market funds they threatened to destroy deposit accounts? Or that in trying to save investment banks they end up destroying hedge funds? What industry will they destroy next? And when they are blundering around like this why do they think this will lead to investor confidence?

Perhaps in the end the situation is so dire that a blunderbuss bailout is appropriate notwithstanding all of the unintended consequences, problems in the details of the plan as implemented, and uncertainty about whether it will work. But the more I learn about it and the less impact it seems to have (or even potentially counterproductive impact) the more skeptical I'm becoming.


Why Speculate, When You Can Look It Up?

Commenter bdog, commenting on one of the posts on the badly done study of the Louisiana Supreme Court, writes:

Why is is it that no one has bothered to remark on the policitcal affiliations of the Judges? Without reading either the article or the rebuttal, I would bet that the accused judges are probably considered 'conservative', if not actual members of the republican party.

My reasoning? Simple logic and statistics: Professors are democrat 10-1. Law students, especially those on the Law Review are probably democrat by 30-1.(And personally, I would also bet money that on most Law Reviews, republicans/conservatives aren't represented at all.) And of course, the lack of attention to detail, like fact checking, faulty statistical analysis (can anyone say global warming), are just part and parcel of what is accepted as scholarship and scientific concensus, as long as it advances the 'correct' agenda.

The editors reviewed the article and it was just too good to check. If I ever need a lawyer, and I have in the past, I'll just make sure that it isn't one from Tulane.

And of course, law professors wouldn't write an article like this about democrat judges. It. Just. Does. Not. Happen.

Of course, I could be wrong.

Well, one can certainly speculate based on generalized assumptions about students' political orientations. Or one can look things up, for instance in Judgepedia (you'd find it quickly just by searching search for, for instance, Pascal Calogero Democrat Republican).

Looking up will reveal that the three justices as to whom the study purported to show influence from contributions -- Pascal Calogero, Catherine Kimball, and John Weimer -- are Democrats. (I've also confirmed this through non-open-source sources. Please note the "purported to show"; my point in these posts is that the study is badly flawed, and does not adequately demonstrate its claims of causation.) Of the remaining four justices, for whom the study didn't purport to show such influence, two were Republicans (Chet Traylor and Jeffrey Victory) and two were Democrats, Bernette Johnson and Jeannette Theriot Knoll.

So a law professor did cowrite an article like this about Democratic judges. It. Just. Did. Happen.

A broader point: It may well be true that as a general matter, more law review editors in the country are Democrats or lean Democratic than are Republicans or lean Republican, and that may in particular be true as to Tulane -- or it might not be; that's all sheer speculation. And it surely is the case that even fair-minded Democrats are more likely to assume the worst about Republicans and cut slack to Democrats, just as even fair-minded Republicans are more likely to assume the worst about Democrats and cut slack to Republicans. That's human nature.

But it's dangerous to speculate from such general tendencies to the facts in any particular case. And it's pretty pointless to do so, when the actual facts are pretty easily available.


Could the Financial Mess Have Been Averted?

Charles Calomiris of the Columbia Busisness School and Peter Wallison of AEI have an op-ed in the Wall Street Journal today arguing that the subprime mess is largely due to the actions of Fannie and Freddie (and their Congressional backers), and not due to financial industry deregulation or broader institutional problems. They also suggest the whole mess could have been averted.

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, . . . The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

Now the Democrats are blaming the financial crisis on "deregulation." . . . But the primary "deregulation" in the financial world in the last 30 years permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm.

As a result, U.S. commercial banks have been able to attract more than $100 billion of new capital in the past year to replace most of their subprime-related write-downs. Deregulation of branching restrictions and limitations on bank product offerings also made possible bank acquisition of Bear Stearns and Merrill Lynch, saving billions in likely resolution costs for taxpayers.

If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.

Note: Although it is not noted in the article byline, Peter Wallison is often identified as a McCain campaign economic advisor.


Do Low-Probability Catastrophic Risks Justify the Bailout?

Co-blogger Eric Posner writes:

Ilya, citing a column by Steven Landsburg, asks why a bailout is necessary. In Landsburg’s words, “Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other.” That’s the question and the problem with answering the question is that no one knows the answer. History suggests, however, that the probability they won’t “find each other” is not zero; let’s call it one percent. If there is a one percent chance that the current financial meltdown causes a catastrophic outcome—not just people out of work and the reduction in the standard of living, but predictable bursts of xenophobia, beggar-thy-neighbor policies, global political instability, and all the rest—how much should the government do to prevent that from happening and at what cost?

Let's assume there is a small chance that, absent a bailout, there will be a "catastrophic outcome" of the sort Eric describes. That possibility is not by itself sufficient to justify the bailout. One also has to consider the risks of the bailout itself. Some of these are highly likely to happen, such as hundreds of billions of dollars of expenses borne by taxpayers, the creation of moral hazard for industries who will expect to be bailed out in the future, and the economic inefficiency caused by government control of a large part of the economy. In addition, there is a small but probably nonzero risk that the bailout itself might lead to a "catastrophic outcome" thatt goes beyond the onerous costs described above.

For example, despite the two year sunset provision in the draft legislation, that legislation might end up getting extended, leading to permanent government control of the finance industry, and an eventual monopolization of finance by government; a future administration could claim that the government cannot manage its massive portfolio of finance firms efficiently unless it has a monopoly of lending, and future, economically illiterate public opinion, might buy the claim. That in turn might lead to a severe permanent decline in our standard of living, as we spiral into quasi-socialism. By transferring enormous resources from successful businesses to failing ones, the bailout could also damage the economy enough to cause a deep recession, which in turn could lead to "predictable bursts of xenophobia, beggar-thy-neighbor policies, global political instability, and all the rest."

I don't consider these scenarios to be likely. But if we are going to justify the bailout by weighing low-probability catastrophic risks, we have to consider both sides of the equation. We can't defend the bailout by claiming that it might stop a low-probability catastrophic event without considering the possibility that it might itself become the cause of such a catastrophe.

There are low-probability catastrophic risks on both sides. When you consider the fact that the bailout also has severe non-catastrophic costs that have a very high probability of occurring, the case for it still hasn't been made.


The Ron Paul Endorsement:

The libertarian-leaning Republican has endorsed Constitutional Party candidate Chuck Baldwin for President, snubbing Libertarian Party candidate Bob Barr. David Weigel has the details on Hit & Run.

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The One Percent Doctrine and the Financial Meltdown.

Ilya, citing a column by Steven Landsburg, asks why a bailout is necessary. In Landsburg’s words, “Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other.” That’s the question and the problem with answering the question is that no one knows the answer. History suggests, however, that the probability they won’t “find each other” is not zero; let’s call it one percent. If there is a one percent chance that the current financial meltdown causes a catastrophic outcome—not just people out of work and the reduction in the standard of living, but predictable bursts of xenophobia, beggar-thy-neighbor policies, global political instability, and all the rest—how much should the government do to prevent that from happening and at what cost? Does this question sound familiar? What about the government’s answer?


A Simple Argument Against the Bailout:

Economist Steven Landsburg, writing for the Atlantic, presents what seems to me a simple, but powerful argument against the bailout. I don't know enough about finance economics to be sure whether it's right. But I thought that it's at least worth passing along to our readers. Even if it doesn't succeed in proving that no bailout at all was necessary, it at least casts doubt on the need for a plan as massive as the $700 billion monstrosity that the administration is trying to ram through Congress:

What's clear is that a bunch of financial institutions have made mistakes and lost money. What's unclear is why anyone (other than the owners and managers) should care. People make mistakes and lose money all the time. Restaurants fail, grocery stores fail, gas stations fail. People pick the wrong stocks, they buy the wrong cars, and they marry the wrong spouses without turning to the Treasury for bailouts.

So what's special about banks? According to what I keep reading, it's that without banks, nobody can borrow, and the economy grinds to a halt.

Well, let's think about that. Banks don't lend their own money; they lend other people's (their depositors' and their stockholders'). Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other.

That's one reason I feel squeamish about the official pronouncements we've been getting. They tell us bank failures will make it hard to borrow but never that bank failures will make it hard to lend. But every borrower is paired with a lender, so it's odd to state the problem so asymmetrically. This makes me suspect that the official pronouncers have not entirely thought this thing through.

In the 1930s, a wave of bank failures did make it hard for borrowers and lenders to find each other, and the consequences were drastic. But times have changed in at least two relevant ways. First, the disaster of the 1930s was caused not just by bank failures, but by a 30% contraction of the money supply, which is something today's Fed can easily prevent. Second, as any user of can tell you, the technology for finding partners has improved since then. When a firm wants to raise capital, why can't it just sell bonds over the web? Or issue new stock? Or approach one of the hedge funds that seem to be swimming in cash? Or borrow abroad?

Ultimately the key question is this: why shouldn't these banks be treated like any other business whose management has displayed bad judgment and lost a great deal of money as a result? Capitalism works because we insist that businesses bear the cost of their own losses, a process that gives them strong incentives to make good decisions and transfers their wealth to others with better judgment if they persist in screwing up anyway (as the big banks have done in this case). Perhaps really big banks are somehow special and deserve bailouts that we would deny to other businesses. But there is a heavy burden of proof on those who claim that this alleged specialness really exists and that it justifies hundreds of billions of dollars in public expenditures, unchecked executive power, and unprecedented control of the economy by the federal government. Like Landsburg, I am skeptical that the burden has been met.


Law Review Editors, Take Note:

I just wanted to stress that the Tulane Law Review article incident isn't just an interesting story of academic error -- it's also a story of law review embarrassment. I'm pretty sure that no law review likes to have to post on its front page,


The Louisiana Supreme Court in Question: An Empirical Statistical Study of the Effects of Campaign Money on the Judicial Function published in Volume 82 of the Tulane Law Review at 1291 (2008), was based on empirical data coded by the authors, but the data contained numerous coding errors. Tulane Law Review learned of the coding errors after the publication. Necessarily, these errors call into question some or all of the conclusions in the study as published. The Law Review deeply regrets the errors.

I assume the law review will also have to publish a print correction. The incident also led the law school dean to have to feel obligated to publicly apologize for the errors in the article, and though the apology said the law review members did nothing wrong, the matter can't have been great for relations between the dean and the journal. And I suspect the incident in some measure tarnished the law review's brand with local employers, especially those who are friendly with the judges whom the article criticized based on inaccurate information (and an unsound confusion of causation and correlation).

Of course, law reviews must accept the risk of public hostility when they publish articles that criticize much-liked people and institutions. That's part of law review editors' responsibilities as participants in the scholarly publishing process. But the hostility is likely to be considerably higher when the criticisms prove to be based on error. And it's one thing to incur unjustified hostility in the service of truth, and quite another to incur justified condemnation because one's institution has been mistaken.

So it seems to me that there are three important lessons here:

1. When the author's article rests on data that you can check, check it. Here, the data was information about who voted which way in certain cases, and who got what contributions from whom -- something cite-checkers are amply competent to check; and checking the data for fewer than 200 cases is not a crushing burden.

If the data had been in footnotes or in an appendix, as it is in many articles, the law review would have checked it. That the data never made its way into a print article is no reason to skip checking it (as this incident illustrates). The printed article, after all, relied on the data, and errors in the data infected the information reported by the article. Had the law review done the cite-checking, they might have avoided the embarrassment to themselves, their dean, and (incidentally) the authors.

2. Look closely through the article's description of what it's saying, and watch out for self-contradiction (especially when the article is controversial enough that authors might be tempted into some self-contradictory self-protection). So when a footnote says,

It is worth observing that this Article does not claim that there is a cause and effect relationship between prior donations and judicial votes in favor of donors’ positions. It asserts instead that there is evidence of a statistically significant correlation between the two,

but the rest of the article repeatedly suggests causation -- for instance, saying that "This empirical and statistical study of the Louisiana Supreme Court ... demonstrates that some of the justices have been significantly influenced -- wittingly or unwittingly -- by the campaign contributions" (emphasis added) -- you should note the contradiction, and insist that the authors revise their claims to be internally consistent.

3. Finally, remember that correlation is not causation. If authors give evidence of correlation and from there makes claims of causation, make sure that the evidence adequately supports the claims, for instance by controlling for possible confounding factors. If the claim is that X (here, contributions) causes Y (voting patterns), consider what things may cause both X and Y (for instance, even though ice cream sales and the rate of forcible rape are closely correlated, might something else cause both, rather than ice cream sales causing rape?). Look also whether the causation leads the other way, which is to say that Y or predictions of Y can cause X: For instance, might a contributor's prediction of a judge's voting patterns lead him to contribute to the judge's election campaign, even if the contribution in no way influences the judge's vote? And if there are possible other explanations, does the author deal adequately with them.

Coming up with these alternative explanations doesn't require an understanding of statistics; even law review editors with little mathematical skill can do this. And law review editors should ask such skeptical questions just as they should look for counterarguments to authors' key doctrinal or normative assertions, and make sure that the authors deal with at least the main such counterarguments. If the authors do a poor enough job of dealing with these counterarguments, you should reject the article; or if you think the article is basically sound but needs to respond to those counterarguments, you should insist that the authors deal with them.

Authors should rightly have a great deal of discretion in how they craft their arguments. But when they don't adequately respond to the obvious counterarguments to their main assertion -- for instance, when they claim causation based on correlation, but don't control for obvious confounding factors -- part of your job is to call them on this.

And if you don't, when others call the authors on the errors, the result can be embarrassment for you as well as for the authors.


Monday, September 22, 2008

The D.C. Circuit on the President's Authority Over the SEC Chair:

Given the little dust-up over the Senator McCain's comment that he would remove Christopher Cox as Chair of the Securities and Exchange Commission, and questions as to whether the President has such authority, I thought it would be interesting to quote portions of the D.C. Circuit's majority opinion in Free Enterprise Fund v. PCAOB on the subject:

Members of the Commission, in turn, are appointed by the President with the advice and consent of the Senate and subject to removal by the President for cause; its chairman is selected by and serves at the pleasure of the President. (p. 3)

independent agencies such as the Commission by definition enjoy a degree of autonomy in conducting their affairs, including staffing and operations. Yet this independence is not without limits. In addition to the ability to appoint Commissioners, 15 U.S.C. § 78d(a), and remove them for cause, . . . which removal power the Supreme Court has interpreted broadly,[FN8] the President possesses significant additional levers of influence. Most obviously, by appointment of the Commission chairman, who serves at the pleasure of the President and often “dominate[s] commission policymaking,” the President can influence Commission policy and control who directs “the administrative side of commission business, select[s] most staff, set[s] budgetary policy, and as a consequence command[s] staff loyalties.” (pp.23-24)

FN8 The Supreme Court has held that the restrictions on the President’s removal of Commissioners for “inefficiency, neglect of duty, or malfeasance in office” are “very broad and . . . could sustain removal . . . for any number of actual or perceived transgressions.” (p. 24)

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Feds Execute Warrant in Palin E-mail Hack Case: has the story here. It sounds like the search was executed at a college student's apartment during a Saturday night party, which is certainly unusual. More from Ars Technica here.

Rehearing Sought in PCAOB Case:

The Free Enterprise Fund has filed a petition for rehearing en banc in Free Enterprise Fund v. Public Company Accounting Oversight Board, in which a divided panel of the U.S. Court of Appeals for the D.C. Circuit rejected the Fund's Appointments Clause challenge to the PCAOB's composition. In my view, this case is an excellent candidate for en banc rehearing. Judge Kavanaugh wrote a powerful (and, in my view, persuasive) dissent, and the case raises an issue of exceptional importance.


Roger Simon's "Open Letter to My Fellow Jews": Pajama's Media Roger Simon posts this Open Letter to My Fellow Jews: The Democratic Party is not your religion (or anybody’s) (hat tip: Glenn) provoked by the recent events surrounding the anti-Ahmadinejad demonstration by Jewish organizations at the UN:
From the days of FDR, the vast majority of American Jews have identified with the Democratic Party almost if it were their religion. This included most especially secular Jews like me whose blasé attitude toward their faith and toward religious observance in general made such a replacement all the more important emotionally. This same Jewish majority also identified with the cause of social justice and, as Barack Obama among many others has noted, were some of the most active participants in the civil rights movement of the Fifties and Sixties. That was all how it should have been and was a perfectly logical and praiseworthy epoch in the development of our country.

Hello – those days are over! The events leading up to Monday’s anti-Ahmadinejad demonstration by Jewish organizations at the UN put the final nail in an already long-moldering coffin. Jews should no longer align themselves with the Democratic Party any more than they should align with the Republicans. They should act and think for themselves, devoid of ideological or partisan bias. They should first be Americans, not Democratic Party Americans.

The reasons for this are many, but paramount among them is that being hostage to one political party is tantamount to giving up your freedom and relinquishing your ability to confront reality and act in your own interest, not to mention the interest of others. Many Jewish Americans still do this for reasons that are at best sentimental and nostalgic, and at worst self-destructive. But a tipping point may be approaching. The virtual night of the long knives played out between the Democratic Party and various Jewish organizations surrounding the Iran demonstration, including allegations that party operatives were threatening the loss of tax exempt status over Sarah Palin’s appearance, with more unpleasant revelations undoubtedly to come, is obviously causing people to reconsider this allegiance to the Democratic Party that approaches fealty.

I urge my fellow Jews to keep thinking about this and not to retreat into the cocoon-like safety of an outmoded tradition. Change is difficult. But remember that Hillary Clinton – that paragon of the Democratic Party, a woman who calls herself a “progressive” (oh, desecration of the English language!) – was willing to forego the protest of the man who is arguably the most significant enemy of the Jews since Hitler for partisan and (most likely) personal pique reasons. How morally repellent is that!

And then Joseph Biden told us he was busy–too busy to protest a nuclear-armed madman who fervently believes that his mysterious Twelfth Imam (Mahdi) is destined to unite a chaotic globe under Allah. (And don’t tell me that evangelicals believe similar things. If you think there is an equation between evangelicals and Khomeinist Islamists, you need a cold bath.)

No, those Democrats thought of themselves and their party first, the citizens of this country and the world later. When Republicans behave in a similar reprehensible manner, we should condemn them with all ferocity. But fellow Jews, stop being slaves to the Democratic Party. End this illicit love affair – not just for your own good, but for the good of humanity.


Speech at University of Alberta: I will be speaking on Scrutiny Land at the University of Alberta law law school tomorrow (Tuesday) at noon. Details here. If you are in the Edmonton area stop by and say you read the Volokh Conspiracy! The University of Alberta is an impressive campus.

Sunstein on the Posner/Sunstein Publications Arms Race: The Harvard Law Record has an interview with Cass Sunstein that includes this pretty amusing question: "Are you and Richard Posner locked in a publications arms race?" Cass meets the amusing question with this very funny answer:
Judge Posner and I are good friends. A few years back, Ronald Dworkin wrote an essay attacking the two of us simultaneously and we decide at lunch on Friday that we would co-author a response. I wanted to get the jump on the response, so I worked very hard over the weekend and produced a seventeen-page, single-spaced paper with no footnotes, which I faxed to Judge Posner on Monday morning. That was fast. I got back to my office and on my chair was a fax from Judge Posner which was thirty pages, single-spaced, with complete footnotes. So, publication races he wins.

J Street Squanders its Credibility:

Has any political organization squandered its credibility as quickly as J Street, a new organization that promotes itself as a peacenik alternative to AIPAC? Supposedly, the machers at J Street thought that AIPAC was not properly representing the Jewish community's views on Israel because AIAPC too "right-wing." It's become obvious, however, that the J Street founders' problem with AIPAC is not that it's too right-wing (in fact, despite claims emanating from left-wingers about AIPAC's "right-wingedness", AIPAC rarely deviates from supporting current Israeli government policy, and its leadership has been largely Democratic for decades--the architect of AIPAC's prominence beginning in the 1980s was former Ted Kennedy staffer Tom Dine), but that it is too nonpartisan; AIPAC, as a nonpartisan pro-Israel lobby, cooperates with both Republicans and Democrats, exactly as a non-partisan lobby should. J Street, it turns out, wants to be an adjunct of the Democratic Party, and apparently wants to discredit pro-Israel Jews who cooperate with the Republicans.

Consider the current front page of J Street's website:

We Won! Palin Not Speaking at Iran Rally

We collected over 20,000 signatures in 24 hours asking Iran Unity rally organizer Malcolm Hoenlein to take Sarah Palin off the schedule for Monday's rally, and he caved to our pressure on Thursday afternoon citing the fact that the rally had become too partisan.

This is the right decision. A unity rally to express communal solidarity is no place for partisan politics [recall that Hillary Clinton backed out after accepting an invitation o the rally, and other prominent Democrats were welcome as well]. And to give such prominence to Sarah Palin alone would have spoken neither to, nor for, the American Jewish community.

How exactly does this "victory" have anything to do with J Street's purported mission:

J Street is the political arm of the pro-Israel, pro-peace movement.

J Street was founded to promote meaningful American leadership to end the Arab-Israeli and Palestinian-Israel conflicts peacefully and diplomatically. We support a new direction for American policy in the Middle East and a broad public and policy debate about the U.S. role in the region.

J Street represents Americans, primarily but not exclusively Jewish, who support Israel and its desire for security as the Jewish homeland, as well as the right of the Palestinians to a sovereign state of their own - two states living side-by-side in peace and security. We believe ending the Israeli-Palestinian conflict is in the best interests of Israel, the United States, the Palestinians, and the region as a whole.

J Street supports diplomatic solutions over military ones, including in Iran; multilateral over unilateral approaches to conflict resolution; and dialogue over confrontation with a wide range of countries and actors when conflicts do arise.

Did J Street somehow know that Palin "supports military solutions over diplomatic ones, including in Iran?" I doubt it, and even if she did, the obvious response would be to try to engage her to try to support J Street's perspective, not to try to prevent her from speaking--especially since neither J Street (nor anyone else) really knows whether Palin's overall views on the Middle East might be to its liking. Unless, of course, J Street, whose leadership is composed of leading Jewish liberal Democrats, was serving the interests of Barack Obama and the Democratic Party, and not its purported, "pro-peace, pro-Israel" mission.

UPDATE: Here's the speech the McCain campaign says that Palin was planning to deliver. It makes a nonpartisan (or bipartisan) pitch, and calls for sanctions and other diplomatic actions, with only the vaguest implication of a potential military response.


No Bias Here, Fortunately: Agency France-Presse has an article about the McCain campaign's attacks against the New York Times for what it claims is pro-Obama bias. I found the last two sentences kind of amusing:
  The New York Times is regarded by some observers in America as a paragon of journalistic standards which keeps its news reporting and opinion comment strictly separate.
  But it is reviled by conservatives who rail against the perceived liberal bias of the mainstream media.
  UPDATE: Based on the comment thread, this post is a bit too subtle for some of our readers. Just to take readers through it, the post pokes fun at the AFP, not the New York Times. Whether the NYT is biased or not is irrelevant . That's right, this is actually not a post about the New York Times! The joke here is that AFP's coverage is itself biased, quite apart from whether the Times is biased.


In an earlier post I noted in passing the role of changes in accounting rules and the role that played in bringing the financial crisis to a head at this time. John Berlau has helpful deeper discussion in a WSJ column here and blog post here. It is plausible that mark-to-market contributed to bring this to a head. Nonetheless, I'm not sure that I agree with Berlau's conclusion of relax mark-to-market (of course, I'm not sure that we shouldn't relax mark-to-market either)--it really depends on whether mark-to-market is creating liquidity problems or preventing deeper fraud. Berlau seems to believe the former and Paulson the latter.


Hans Bader has more.


Making Data Available:

The Tulane Law Review controversy brings up an important point, which commenter Frog Leg noted: Shouldn't law reviews make a practice of including the raw data supporting an article's assertions in an Appendix, at least so long as the data wouldn't take more than several pages?

That way, law reviews would be reminded of their responsibility to check the data, and readers will find it more consistently accessible. Putting on the Web is nice, but it involves various risks, including a risk that the law review editors won't feel it to be their responsibility to check it -- and the risk that it will get taken down. As it happens, though the law reviewarticle states that "The table will be available without charge on the Tulane Law Review’s Web site ... for one year from publication," the law review has taken down the original table in the wake of the errors that have been discovered. This makes it harder for future researchers to closely follow the course of the controversy; even if the revised table is eventually posted, it will be hard for people to see what errors had originally been made.

Had all the cases been included in a short appendix, the data would have been permanently available the same way the text is permanently available. Of course, if there were a practice of putting the data online while still having it be cite-checked, and still having a firm promise on the law review's part that the data will be permanently retained -- perhaps in some centralized repository from which the data couldn't vanish as a result of law review decisions, or for that matter law review technical errors -- that might be as good or better. But for now, putting the material in the article's text remains the most traditional and most reliable way of preserving the data, and seems quite sensible for datasets that don't take more than several pages.


Prosecutors Decline To Press Charges Against Flagburner:

The Winona Daily News reports that "The Winona County Attorney's Office has declined to press charges against a Winona teen accused of desecrating an American flag by burning holes in it and tearing it to pieces, Police Chief Frank Pomeroy said."

I had noted the arrest last week, and I'm glad the charges have been dropped, but I also continue to fault the police department for arresting the flagburner in the first place. Thanks to Joe Veenstra for the pointer.

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Law Review Article Accuses Louisana Supreme Court Justices, Is Itself Found To Have Serious Errors:

Dan Slater (Wall Street Journal's Law Blog) reports on an interesting story about errors in the academy. The Tulane Law Review recently published an article that purported to compare Louisiana Supreme Court Justices' voting records with the campaign contributions to them from litigants and lawyers; the article asserted that

some of the justices have been significantly influenced — wittingly or unwittingly — by the campaign contributions they have received from litigants and lawyers appearing before these justices.

The New York Times reported on the story before the article was published, as did WSJ Law Blog.

1. Now it turns out that there many of the cases were miscoded — a rebuttal asserts that "in thirty-seven of the 186 opinions included in the study, the information about the case on which Palmer and Levendis based their conclusions is just plain wrong, such as how a Justice voted or even if the Justice was on the panel that decided the case." [UPDATE: After I posted this post, the rebuttal I linked to was replaced with a corrected version, and I adjusted the quote. The original version said 40 of the 186 opinions were miscategorized; the revised version says 37.]

The authors acknowledge that there were errors; one of the authors asserted that "with all the mistakes now corrected, ... the study's conclusions, broadly speaking, are the same," but the revised study and the revised dataset has not yet been publicly distributed. (I e-mailed that author mentioning I was going to blog about the controversy, and asking whether he could provide a response that I could link to; but though he originally offered to pass along the revised dataset, he later said that because of a newly arising lawsuit threat, he was told not to distribute the data until it could be independently reviewed. This may well be sensible, but at this point all that can be said with confidence is that the original data is wrong, and that this has been admitted by the researchers.)

Incidentally, while it's not clear from the article exactly how the data was gathered, it looks like part of the problem might be lack of checking by the authors or by the law review: The article asserts (p. 1298) that "Each case was thoroughly read and analyzed by a researcher. Once the cases and contribution information were gathered, we entered our observations into a standard data table." If the article "a" in "a researcher" is precise, and if the researchers were research assistants and not the authors (seemingly likely, given the thanks in footnote * and the use of the term "a researcher" rather than "one of the coauthors"), this suggests that each case was read only by one research assistant, with no further verification.

I also asked the current Tulane Law Review editor-in-chief, and he reported that to his knowledge the law review cite-checking process did not check the underlying database. This is probably consistent with standard law review practice; law reviews generally check all the citations that appear in the text of the article, but I'm unaware of any practice of checking the case data that appears in databases that aren't published within the body, footnotes, or appendix of the article. Nonetheless, it's unfortunate that this happened, since cite-checking often (though not always) does uncover factual errors such as the ones that appear to have been present here.

2. But there's more than this to the situation, I think. Even if the data were correct, the article would still be drawing what strikes me as an unsupported inference from correlation to causation. The article asserts in footnote 14 that

It is worth observing that this Article does not claim that there is a cause and effect relationship between prior donations and judicial votes in favor of donors’ positions. It asserts instead that there is evidence of a statistically significant correlation between the two.

But many other passages in the article seem to argue that there was indeed causation. The opening paragraph says (as I quoted above) that "This empirical and statistical study of the Louisiana Supreme Court over a fourteen-year period demonstrates that some of the justices have been significantly influenced — wittingly or unwittingly — by the campaign contributions they have received from litigants and lawyers appearing before these justices." (Emphasis added, in this quote and the later ones.) "Some justices may sincerely believe that they have not been influenced by the money they take, but sincerity makes no difference if the reality is otherwise." "Some studies have tracked the rise in contributions made to judicial candidates, but few have attempted to determine whether these increasing contributions actually influence subsequent adjudications involving contributors. This Article demonstrates that the debate is not evenly balanced." (This quote is just a sentence before footnote 14.) There are many more examples.

The trouble, as this other critique of the article points out, is that there's a perfectly plausible alternate explanation for correlation between contributions and voting patterns — that contributors contribute money to the election of those candidates whose ideologies they agree with, rather than that the elected candidates then decide based on the identities of their contributors.

Say, for instance, that we discover that a liberal state supreme court justice often votes in favor of plaintiffs in individual tort cases, employment cases, or environmental cases; and say that we find that those plaintiffs are often represented by law firms that have contributed money to the justice. It's of course possible that the justice is influenced by the identities of his contributors. But it's also possible that the justice is voting solely based on his view of the law — and the contributors contributed to him because they share his view of the law (or in any event find his view of the law to be good for them and their clients). Simple evidence of a correlation, even a very strong correlation, cannot distinguish between these two explanations, and thus can't show that contributions "influence" the justices' votes.

The authors' attempts to control in a way that eliminates the alternative explanation strikes me as quite weak. The authors look separately at voting patterns in favor of plaintiffs and in favor of defendants, and they conclude that

In cases where the defendant was the net contributor, Justice [A] ruled for the defendant’s position 66% of the time, and Justice [B] 86% of the time. On the other hand, in cases where the plaintiff was the net contributor, Justice [A]’s vote was for the plaintiff’s position 66% of the time, and Justice [B]’s vote was for the plaintiff’s position 63% of the time. This is a swing of 32% for Justice [B] and 49% for Justice [A] when the net donor changes from being a defendant to a plaintiff. The marked shift favoring the net contributor, irrespective of being plaintiff or defendant, strongly indicates that it is the donation, not the underlying philosophical orientation, that accounts for the voting outcome.

But no judge has any inherent philosophical orientation for plaintiffs or defendants as a broad category. For instance, some judges may support cities as defendants (for instance, voting in favor of broad municipal immunity against various claims) and cities as plaintiffs (for instance, voting in favor of broad municipal power to get injunctions against nuisances) — not because the law firms that represent small cities have donated money to the judge, but because the judge generally supports municipal government authority.

Likewise, say a law firm tends to represent employers as defendants in many employment cases, but also represents employers as plaintiffs in other employment cases, such as cases enforcing nondisclosure or anticompetition agreements. In this situation, a judge with a generally pro-employer perspective will vote in ways this law firm likes — which may mean the law firm will try to help elect the judge even if the judge never pays attention to who contributed to him. (Recall that the study considered donations from lawyers as well as donations from litigants.)

3. Of course, it's certainly possible that judges' decisions may be influenced by whether the litigants or the lawyers have contributed money — or time or an endorsement or other things — to the judges' election. I don't want to suggest that anything I say above proves this effect is absent, either on the Louisiana Supreme Court or elsewhere. But the study's claim that it has "demonstrate[d]" such a "significant[] influence[]" is not adequately supported. And before one claims that identified judges have indeed been so influenced (not just that judges generally might be influenced, a proposition that our knowledge of human nature tells us must be true at least in some instances), it seems to me that one should have significantly more evidence than the article adduces. And this would be true even if the article's underlying database were accurate, or even if the authors can replicate their correlations after the database has been corrected.

4. Finally, note that the law school's dean has written a letter of apology to the Louisiana Supreme Court Justices, and the law review has noted the error on its site. (I don't know what further attempts at correction the law review might be taking.)

Thanks to How Appealing for the pointer.

Related Posts (on one page):

  1. Why Speculate, When You Can Look It Up?
  2. Law Review Editors, Take Note:
  3. Making Data Available:
  4. Law Review Article Accuses Louisana Supreme Court Justices, Is Itself Found To Have Serious Errors:

Dueling Analogies:

One of the interesting things that is going on with the financial crisis is the issue of "dueling analogies." In fact, I think that may be the key to understanding the wisdom of the policy interventions here--and the dueling analogies. If this is primarily a liquidity problem, then the the Federal Reserve is doing the one thing it is set up to do--be the "lender of last resort" to keep the system from collapsing due to insufficient liquidity. Thus, the intervention would be justified to prevent a long-term destruction of value. The analogy here is the liquidity collapse of the Great Depression. The ban on short-selling might arguably be justified under this theory as well.

On the other hand, the real problem here may be an underlying economic problem of misvalued assets, not a liquidity problem. In which case, economic logic tells us that the interventions are simply slowing a much-needed swift and ruthless correction. Arnold Kling suggests that the correct analogy is misguided imposition of wage and price controls during the Nixon administration, which simply slowed a necessary market correction thereby trying to avoid short-term pain but making the long-term adjustment much deeper and more painful.

Gentlemen choose your corners.


Intercepts Suggest that Al Qaeda is gearing up for another attack or set of attacks, probably overseas.

Getting Top Authors for Law Review Symposia: If you're a symposium editor for a law review, you probably find that it's hard to pick a topic for a symposium that will persuade well-known authors to write for your journal. After all, if invitees have good enough reputations that you want them to participate in your issue without knowing what they'll submit, chances are that they could write on a topic of their choice and get published in a top journal. So what to do?

  One great idea is to pick a symposium topic on the work of a particular famous scholar (or even a particularly famous article). Pick a scholar who has had a lot of influence in his or her field, and who is still around and would really appreciate the recognition.

  Why is this a good strategy? Well, first of all, your list of symposium contributors will start with the author himself. If you honor someone with a symposium, you can be pretty sure they'll want to participate. And then the author who is being honored will help you pick other people who might contribute to the symposium. The BigWig author will probably help you get other BigWig authors to contribute, and the other BigWigs will be more likely to contribute because it's their friend the main BigWig author who is asking. On the whole, this is much more likely to lead to a well-attended symposium with top authors and fresh articles than the usual process of picking a generic "hot" topic.

Would Obama Nominate A Breyer or a Brennan?: Yesterday's New York Times editorial page made the following prediction about a future Supreme Court pick from Barack Obama:
As president, Mr. Obama would probably be more inclined to appoint centrist liberals, like Justice Stephen Breyer, than all-out liberals, like William Brennan or Thurgood Marshall.
  That seems very unlikely to me for several reasons. The first reason is that when Emily Bazelon asked Obama's advisors this precise question a few months ago, they apparently rejected that strategy:
I wondered if Obama might favor moderate judges over strongly liberal ones—a translation to the bench of his calls for unity and bipartisanship, in other words. But [Obama advisors] Minow and Tribe rejected that. And Sunstein himself has written that given the roaring conservative voices currently on the court and its shift to the right, minimalism isn't necessarily the best posture for the next justice. "I clerked for Justice Marshall, and while I don't agree with him on everything by any means, there is an argument that the court would benefit from someone with a vision of equality and liberty," Sunstein said. "That is clearly absent." On Obama's staff, that absence is also keenly felt.
  This attitude shouldn't surprise anyone: My sense is that the Obama supporters who follow the courts see center-liberals such as Breyer as far from ideal. In the academy, for example, the model Supreme Court Justice remains William Brennan. Brennan is widely considered a real judicial hero, treasured for his willingness to swing for the fences and his ability to squeeze out five votes when needed. Brennan was a true role model; in contrast, Breyer is seen as more of a technocrat. Why pick someone like the latter over someone like the former?

  Further, today's liberal Justices were either Republican nominees who ended up more liberal than was expected or Democratic nominees who were compromise nominees picked by a weak President who needed to ensure Senate confirmation. If Obama is elected, he will not be a Republican, and he seems unlikely to need to nominate a compromise nominee. If he is elected, Obama will likely have a strongly Democratic senate, and he probably won't need to worry about Senate confirmation in the same way that Bill Clinton did by the time he picked Ginsburg and Breyer.

  Finally, it's important to note that the two Justices most likely to retire in an Obama Administration are the two Justices who are arguably the two most liberal Justices, Ginsburg and Stevens. Because the center of the Court defines its tone, a Ginsburg or Stevens retirement will set up a short-term impact for retirement that would pressure Obama to nominate an "all out" liberal. The dynamic is this: Replacing a Ginsburg or a Stevens with a moderate would risk moving the Court to the right in some cases, while replacing either of them with an "all out" liberal wouldn't move the center of the Court at all (at least in the short term). Would Obama supporters be satisfied with an Obama Supreme Court pick that moved the Supreme Court to the right? Would the New York Times editorial page? In both cases, I tend to think the answer is "no."

In Which Prominent Western Democracy

do 42% of respondents to a recent survey disagree with the proposition that "People should be allowed to say things in public that might be offensive to religious groups," and 54% disagree with the proposition that "People should be allowed to say things in public that might be offensive to racial groups"?

In 1997, by the way, the numbers who likewise concluded that people shouldn't be allowed to say things that might be offensive to religious or racial groups were 53% and 75%, respectively. Note that the question wasn't phrased to cover only speech that is aimed at producing violence, discrimination, hatred, or even hostility, but rather to generally cover public speech "that might be offensive" to certain groups.

But wait, there's more: In that country, 38% of respondents agreed with the statement that "The government should be allowed to require broadcasters to report a specified amount of 'positive' news ...," and 62% stated agreed that "The government should be allowed to require newspapers to offer an equal allotment of time to ... commentators" of opposite ideology. I'm glad that here in the U.S., we have the First Amendment, and the Supreme Court has generally read it in a way that means such restrictions can't be imposed here.

The answer is here, though if you want to guess it, please avoid putting your cursor on the link, because the URL may suggest the answer to you.


State v. Stonecalf Warriorwoman,

Idaho District Court (Aug. 26, 2008):

According to the stipulated facts, on February 10, 2007, North Idaho College (NIC), learned that defendant Stonecalf Warriorwoman (Warriorwoman) was planning on attending a concert at NIC, on February 27, 2007, for the purpose of making a political statement. NIC learned of this through a posting placed on the internet by Warriorwoman. NIC also received a telephone call from Warriorwoman saying she was going to be at the Raining Jane concert that night, and she was going to bring a “Tomahawk with a 30-million-year-old part to it, that she planned to dance and would be wearing too tight of clothing, and she wanted a black student and a yellow student to dance with her.” The stated reason was “She was holding the four corners of the earth to save the evil American.” Warriorwoman did show up at NIC on the evening of February 27, 2007, with a backpack and was told by a security officer for NIC that she was “being trespassed” and needed to leave. Idaho Code § 18-7008(8) lists the following as one of several ways one can commit the crime of trespass:

Every person, except under landlord-tenant relationship, who, being first notified in writing, or verbally by the owner or authorized agent of the owner of real property, to immediately depart from the same and who refuses to so depart, or who, without permission or invitation, returns and enters said property within a year, after being so notified;

On March 20, 2007, Warriorwoman returned to the NIC campus and attended the Popcorn Forum. NIC security called Coeur d’Alene Police, and Warriorwoman was arrested and incarcerated on the trespassing charge.

Held: Applying the trespass statute here didn't violate Warriorwoman's First Amendment rights. "For obvious reasons, Warriorwoman’s February 27, 2007, phone call to NIC, that she was going to attend the concert that night, that she was going to bring a tomahawk with a 30-million-year-old part to it, that she planned to dance, and she would be wearing too tight of clothing and wanted a black student and a yellow student to dance with her, and then her showing up that night, raised obvious safety concerns. You simply do not threaten to bring a tomahawk to a concert, then show up at the concert, and later claim your free speech rights were violated."

The court then errs, I think, in concluding that "It is conduct, not speech that is involved"; Warriorwoman was barred from the college because of her speech -- but I do think that the speech was such as to lead the college to have good reason to fear her future conduct.

I should note that Warriorwoman has also "warned citizens of Vice President Chaney’s attempts at mind control and announced that she would be willing to be Barack Obama’s Vice-Presidential candidate."


The Old Banking Adage:

Eric's excellent post illustrates a key point--it looks like Paulson has already given away the store before he even sits down to negotiate. He has already implied that the public interest requires buying up these mortgages for the good of the country, so (oversimplified) the sellers already know that Paulson is more desperate to buy the mortgages than they are to sell. So, ironically, it is now the sellers who have the upper-hand in fighting over the valuation of the paper they hold.

Not to mention the apparent "lemons" problem--presumably there is an information asymmetry here such that current holders have more information about the value of these securities than the Treasury. Which means that with respect to paper that is overvalued, the banks will sell. With respect to paper that is undervalued, the banks can keep it and resell it to someone else.

This all reminds me of the old banking adage: "When you owe $100,000 the bank owns you. When you owe $100 million, you own the bank."

But what if you owe the bank $100 billion? And the bank is the Federal Reserve?


Unintended Consequences:

Why do I have a hunch that we'll be seeing a lot stories like this in the coming weeks:

Also yesterday, the Treasury Department issued a major caveat to its Friday announcement that it would guarantee investments in money-market mutual funds, emulating the long-standing federal guarantee of deposits in bank accounts. The Treasury said yesterday that it would only guarantee existing investments in money-market funds.

The caveat came after loud pressure from the banking industry, which worried that a guarantee on new investments would encourage customers to pull money from bank accounts because money-market funds, which pay higher interest rates, would now be seen as equally safe. Both banks and banking regulators were concerned about how an exodus of deposits could impact already-struggling banks.

Couldn't have seen that one coming, eh?


The Bailout Bill: What Should Congress Do?

There are two reasons to hate the Bailout bill. One is that it does the wrong thing; the other is that it gives the Treasury Department too much discretion. One internally consistent view is that nothing should be done. Another view, internally inconsistent but much more popular, is that the Treasury should be given even more power but that it should have less discretion. Not only should Paulson have the power to buy up mortgage-related assets; he should also have the power to make equity investments in distressed firms. Yet at the same time these critics—Paul Krugman is just one of many—say that the Bush administration is a bunch of clowns who can’t be trusted. Paulson seems like a smart person but so did Rumsfeld and Cheney. How will he resist the temptation to pay too much for mortgage-related assets, so as to give a big windfall to millionaires? A good point. So then why give the Bush administration even more power than it is asking for?

Well, there is a way to square this circle. We give Treasury unlimited power but then we insist that it be subject to checks and balances. At this point, critics become vague. What are these checks and balances to be? We could imagine that whenever Paulson buys an asset or an equity interest, affected parties could challenge the purchase in court. Litigation would ensue, with the judge trying to determine whether Paulson paid too much. For equity investments, the inquiry would be even more complicated, with judges needing to determine whether an entire firm is a good investment rather than a more-or-less fungible asset. Judges are hopeless when it comes to making pricing decisions like these. Other types of review mechanisms could be imagined; perhaps they will be staffed with independent experts. But as oversight mechanisms are piled on, the flexibility needed to restore confidence will be lost. Perhaps there is an optimal tradeoff between flexibility and review but I have seen no serious discussion of this issue by proponents of alternative plans.

Meanwhile, the Democrats have good reason to worry. Under the current plan, if Paulson pays too little for an asset, he won’t stop the business from going under. If he pays too much, he enriches its shareholders. He has every incentive to pay too much and generate a class of grateful investment bankers when taxpayers won’t be able to tell in any event, in the process avoiding a financial crisis but generating large costs way down the line and considerable distributive unfairness in the short term. Democrats in Congress are responding not by making it impossible for Paulson to pay too little or too much -– as I have said, it simply has no way of doing that by statute because the pricing decision is a seat-of-the-pants judgment that can’t be dictated in advance and can't be reviewed by courts after the fact. Instead, Democrats are preemptively playing the distributive game that they fear that Paulson will be tempted to play, and ensuring that their constituents will get a piece of the pie —- so far the idea of restrictions on foreclosure has been advanced, as has a “stimulus plan” which will presumably pay out cash to moderate- and low-income people whose votes Democrats want to lock up. In effect, the Democrats are willing to swallow the agency costs of the plan but ensuring that transfers to Republican constituents will be balanced by transfers to Democratic constituents.


The Dirty Dozen:

Over the summer I read Bob Levy and Chip Mellor's book The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom. Levy is a Fellow at the Cato Institute (and a lawyer in Heller, of course) and Mellor is president and general counsel of the Institute for Justice.

The twelve cases are (each also has a runner-up) (I've hidden the list for those who want to skip over this detail for now):


The book is great fun. First, it is marvelously written. I read it in a weekend. Each chapter starts with the relevant constitutional text and the question "What is the constitutional issue?" which describes some of the history around the constitutional clause and question. Then they move onto the facts of the key case in each chapter. Finally, they ask "Where did the court go wrong?" and "What are the implications?" It is a very user-friendly format. Moreover, they do a great job of providing the legal and historical context for each of the cases in question before finally moving on to why the holding of the case in question has proven important.

It is clear that Levy and Mellor aimed this book at a broader popular audience and not just lawyers and it seems to me that they succeeded. I think the book would be especially useful and interesting to libertarian-leaning laymen and especially to undergraduate students who are interested in the basic countours of constitutional history but who have not been exposed to constitutional law in depth.

But the book is also useful for law professors and law students. For one thing they highlight some cases that get minimal play in law school but which are important in constitutional history, such as Blaisdell and the Gold Clause cases. On several case they also provide factual information that I wasn't previously aware of, especially in cases like Kelo in which IJ was involved. It might also made a nice complement for students currently taking Constitutional Law to get an interesting perspective on some of the cases they are reading.

Second, I'll confess that I'm a sucker for lists. The beauty of lists is that they give you something concrete to think about and argue over. So, for instance, they have special chapters at the end on Roe v. Wade and Bush v. Gore explaining why those cases did not make the dirty dozen. Roe because they say that state legislatures would've probably enacted laws similar to Roe so the implications were modest and Bush v. Gore because it was correctly decided so they can't say that the Court went wrong. I think it is reasonable to challenge the exclusion of Roe with the objection that the implications of Roe were not just limited to the particularities of abortion law but rather in poisoning the whole process of judicial selection, but that is a judgment call about how broadly and speculatively to define the implications of particular decisions. Richard Epstein's Preface picks up on this and gives his personal thumbs-up or thumbs-down to various cases on the list, which makes it more fun to think about this. Richard thinks that Grutter should not be on the list (although I personally find his argument unconvincing), that Miller should not be on the list because it wrong in degree not kind (reasonable firearms regulation is ok, so Miller just went too far but wasn't fatally wrong), and Chevron should be on the list instead of American Trucking (because Chevron is the really problematic decision in this area). I would side with Levy and Miller on the first two of these and I think that reasonable minds could disagree on Chevron vs. American Trucking although I'd probably lean toward Levy and Mellor on that one too.

Third, Levy and Mellor make the case for a new terminology--"judicial engagement." Their rationale here is the principled libertarian rationale that has been around for awhile--when it comes to the constitution, judges can make errors of omission or comission. Because of the excesses of the Warren Court, judicial conservatives (such as Bork and Scalia) have focused their ire and philosophy on errors of comission and have advocated a theory of judicial restraint (often in practice even when not in theory), meaning that they tend to underenforce constitutional rights. Thus, they tend to make erros of omission. By contrast, liberal judges have tended toward errors of commission, essentially inventing novel rights with little constitutional grounding.

Levy and Mellor argue for "judicial engagement," which I take to be a principled, original-meaning inspired method of judicial interpretation. Their central argument is the key libertarian challenge for both conservatives and liberals--there are a lot of individual rights and limitations on government power in the constitution. These include things that aren't trendy, includinging the right to make a living and limitations on the ability of the government to interfere with private contracts. There is no persuasive theory why judges should enforce only some rights in the Constitution rather than all the rights in the Constitution. This, I think, is a powerful argument and one to which I have yet to see a persuasive response.

This also highlights a longstanding concern I've had with judicial conservatives. They are right to observe that in many situations the democratic branches are better interpreters and articulators of majoritarian preferences. But this does not mean that the democratic branches are always better at it. Once you add in the most modest dose of public choice theory it becomes evident that democratic processes are subject to political market failure. And these failures may occur predictably in those cases where today judges are least engaged, such as property rights and economic liberties. I think that conservative distrust of judicial overreaching on social issues (where it appears that democratic processes generally do reflect majoritarian preferences pretty well) has led to undue deference in areas where this is necessarily the case (this is were Ilya would insert a discussion of political ignorance).

Also ironic, of course, is that United States v. Miller is on the Dirty Dozen list, so I guess Bob and Chip will have a built in market for the paperback post-Heller. Or will it now have to be the "Dirty 11"?

Anyway, this is a highly entertaining and readable book. If you are looking for an in-depth treatise on constitutional law, this isn't it. But if you are looking for a nice overview and introduction to the constitutional history of past century, this is a good place to start.

Disclosure: I'm friends with both these guys, Bob has made generous donations to George Mason Law School, and I lecture at IJ programs


Sunday, September 21, 2008

Balkin On the Bailout Plan and Executive Power: Over at Balkinization, Jack Balkin has a very interesting post on the bailout plan. While I disagree strongly with parts of the post, I tend to agree with this part of it:
[T]he Administration now asks for enormous new powers to run the economy in a form of state planning that would make Friedrich Hayek turn over in this grave . . . In the latest version of its plan, the Secretary of the Treasury is given authority to take 700 billion dollars (that's 700,000,000,000) from the federal budget and spend it pretty much however he likes, free from any oversight requirements or restrictions that apply to public contracts and especially free from any form of judicial review. . . .

Put differently, the Administration wants the Secretary to take over a sizable chunk of the nation's capital and insurance markets, and run them as a firm. It is a merger of public power and private capital that would have made a 1930s advocate of state corporatism proud. And because the Secretary's power is effectively unreviewable, he can make sweetheart deals with any or all of the firms and financiers that got us into this mess, providing handsome compensation packages to outgoing executives or, in the alternative, bring these failures into the government to run the new grand public/private business . . .

But there is more. The current secretary of the Treasury will soon be gone, replaced by the appointee of a new Administration, run either by McCain or by Obama. The next President-- and the next Secretary of the Treasury-- will face the very same temptations. If you think that the current Administration will behave itself appropriately-- a dubious proposition given its history-- do you have any guarantee that the next Administration will be equally well behaved?
It's worth pointing out that the bailout plan does have one important check: The power sunsets after 2 years. But 2 years is a lot of time.

When Candidates Script TV Shows:

Politico reports that comedian-turned-Democratic Senate candidate Al Franken "phoned in" Saturday Night Live's opening sketch lampooning Senator John McCain's campaign ads criticizing Senator Barack Obama.

n SNL insider said that, as of the Wednesday script read-through, Franken was the “credited writer with Meyers” on the opening sketch. . . .

A Franken campaign aide said the candidate had been taping an ad earlier in the week and had wondered out loud how McCain could include the disclaimer candidates are required to include in their commercials — “I’m John McCain, and I approved this message” — when his spots were so “over the top.”

Later that day, Franken talked to Michaels about topics unrelated to the show and mentioned his thought but did not suggest a sketch.

However, Michaels talked to Meyers about Franken’s idea and the current writer, believing there was a funny sketch there, called his predecessor and they discussed it further.

The sketch was certainly amusing, but it also reinforced the Obama campaign's meme that the McCain campaign is running egregiously misleading campaign ads. SNL is certainly free to run whatever sorts of skits it likes, from whatever perspective, but I wonder whether there are any legal implications to this particular skit given that it was suggested, if not actually scripted, by a political candidate running for office. While Senator McCain is not Franken's opponent, one could argue that Franken would benefit from attacks on McCain insofar as they result in more votes for Democratic candidates. Programming written or outlined by Franken could be viewed as tantamount to free advertising on his, or the Democratic Party's, behalf. On the other hand, had the exact same spoof been written without Franken's participation, there would clearly be no legal issue at all.

To flip the scenario around, imagine if a Republican Senate candidate scripted a sketch attacking a Senator Barack Obama for a conservative talk radio host. The content might not be much different than what one usually finds on Rush Limbaugh, Glenn Beck, or some other program, but the direct involvement of a candidate might raise legal questions. Would this be tantamount to offering free advertising under existing campaign finance laws? Or would it simply be treated as the usual conservative talk-radio fare? Without the Fairness Doctrine, radio programs are free to interview some candidates more than others. Should other content be treated differently? I'd be curious to hear what VC readers think about this.


The Bailout Plan and the Sunset Provision: In his post below, David B. wonders whether the Supreme Court might strike down the bailout plan under the nondelegation doctrine. I think that's quite possible, for the reasons David gives. I would just add one more point: The powers granted by the bailout plan (at least it its proposed form) would mostly sunset in 2 years. See Section 9 of the proposed legislation. As a result, the Supreme Court would almost certainly not reach the question until the powers had already expired. That is, the Supreme Court could review the grant of power after the power had been revoked, and therefore a decision striking down the plan wouldn't actually have the effect of taking away a then-existing authority.

Gary Becker's Doubts About the Wisdom of the Bailout:

I have resisted commenting in detail about the wisdom of the federal government's massive bailout of various financial institutions because most of the issues involved are far outside my area of expertise. For this reason, I have resisted using my perch at the VC to criticize what I consider to be a horrendous error by the administration that we will all pay for dearly over the coming years; in my view, the federal government should have allowed AIG, Bear Stearns, and other firms to fail, without any bailout whatsoever. I suspect (though of course I cannot prove) that any short-term damage from their failure would be more than outweighed by the longterm benefits of signalling that firms cannot rely on government handouts to compensate them for their mistakes. They will then have strong incentives to avoid overly risky investments and speculative bubbles in the future. Like co-blogger David Bernstein, I also fear the public choice effects of giving the executive a blank check to spend billions of dollars bailing out whatever firms they consider to be deserving of such largesse. There is an obvious risk of favoritism here, along with an even more severe risk that major firms will become dependent on government handouts over time.

Be that as it may, it turns out that Nobel Prize-winning economist Gary Becker has some of the same concerns as I do; and he surely has relevant expertise that I just as obviously lack. Although Becker has "reluctantly concluded that substantial [government] intervention was justified to avoid a major short-term collapse of the financial system," he criticizes the federal government bailout effort as follows:

Still, we have to consider potential risks of these governmental actions. Taxpayers may be stuck with hundreds of billions, and perhaps more than a trillion, dollars of losses from the various insurance and other government commitments....

Future moral hazards created by these actions are certainly worrisome. On the one hand, the equity of stockholders and of management in Fannie and Freddie, Bears Stern, AIG, and Lehman Brothers have been almost completely wiped out, so they were not spared major losses. On the other hand, that makes it difficult to raise additional equity for companies in trouble because suppliers of equity would expect their capital to be wiped out in any future forced governmental assistance program. Furthermore, that bondholders in Bears Stern and these other companies were almost completely protected implies that future financing will be biased toward bonds and away from equities since bondholders will expect protections against governmental responses to future adversities that are not available to equity participants. Although the government was apparently concerned that foreign central banks were major holders of the bonds of the Freddies, I believe it was unwise to give them and other bondholders such full protection.

The full insurance of money market funds at investment banks also raises serious moral hazard risks. Since such insurance is unlikely to be just temporary, these banks will have an incentive to take greater risks in their investments because their short-term liabilities in money market funds of depositors would have complete governmental protection. This type of protection was a major factor in the savings and loan crisis, and it could be of even greater significance in the much larger investment banking sector.

Various other mistakes were made in government actions in financial markets during the past several weeks...

As they say, read the whole thing.


Crony Capitalism:

One of the many outrageous elements of the bailout is that as far as I can tell, all those Wall Street guys who paid themselves millions of dollars in bonuses for pushing this garbage paper back and forth are going to be able to keep all that money and their houses in the Hamptons. I have no problem with people making money, but only if they are going to have to eat the downside risk too. And I'm including the 30 year old millionaires in this too, not just the kingpins (many who sucked their money out before the bubble burst). Its been remarked by many others, but what is going on looks like the kind of thing you'd see in Russia or some other crony capitalist country.

I understand that this is about preventing a liquidity crisis like that one that helped to cause and deepend the Great Depression, when bank failures resulted in drying up the very investment capital needed to reverse the economic slide. If there is a logic to this, I assume it is something like that. But it'd be nice if they'd find some way to make the bankers eat some of this loss.

One question I've been trying to figure out is what exactly the government is going to do with this paper. As I understand it, this has all come to a head because of the changes in accounting rules over the past few years which forces a more frequent updating of the valuation of assets. So in the past, the investment banks would have just held this paper on their balance sheets for an extended period of time until some of it got back into the money or was offset by other assets. Now, however, as I understand it, the day of reckoning occurs with greater immediacy, creating the crisis.

Functionally then, as I understand it, the government is going to essentially perform this function of holding the paper until some of it gets back into the money or rotates off the balance sheet.

Here's what I'm wondering though that I haven't been able to figure out (pointers appreciated for cogent discussions of this). Is there anything in the bailout proposal to prevent the following scenario. Investment bank sells its mortgages to the government. Government holds the mortgages until the emergency abates. Original sellers form a syndicate to buy back the paper that has value at a cheap price and then turns a profit off that. In other words, is there anything in the bailout that stops the bankers from making money both coming and going here--by getting the government to buy all the garbage now and then buying-back anything with upside value later? Who other than these same guys are going to be in a position to buy this stuff later?

I'm genuinely asking here--I haven't seen any discussion about this. It would be pretty gross if there is some way that they can make more money off this on the back end, but now that we know the way these guys operate my guess is that they are already figuring out how to turn this to their eventual advantage. If not this loophole, are there other obvious loopholes?

There is an old saying about the need to "save capitalism from the capitalists" and the close relationships between these big money operations like Wall Street and Fannie Mae on one hand, and the government on the other, is really quite revolting. It is infuriating that the when things are going good they jet around in their private planes but when things turn south they can get the government to bail them out on our nickle. Seriously, how about trying to find some way of making them throw a few million or billion into the pot for saving their hides?


Delegation Run Amok:

From all indications, the proposed "bailout" bill will result in delegation run amok--Congress will be ceding virtually unreviewable dictatorial power to the executive branch to spend $700 billion however it pleases. It would be amazing if, given the pile at money at stake, improper favoritism of one sort or another won't dictate to some extent how the money is spent; if I were running a bank carrying bad debt, I'd certainly be investing my "public policy" resources in ensuring that my back is at the front of the line.

Perhaps this presents an opportunity for the Supreme Court to reassert some limits on delegation. In fact, even under current doctrine, one can argue that the bill contains no "intelligible principle" as required, unless "do something about this crisis, here's a boatload of money" is an intelligible principle.

Co-blogger Eric need not fear, this need not interfere with responding to the emergency. The Court can take its sweet time to hear a case on this--the Court didn't declare the National Industrial Recovery Act unconstitutional until two years after its passage, and it would take time for appeals to percolate in any event. But an eventual decision invalidating the bailout law will make sure it's a one-time thing.

This seems like a good time to recommend David Schoenbrod's excellent book on the nondelegation doctrine, Power Without Responsibility.


The Bailout:

Co-conspirator Eric Posner writes:

Meanwhile, right now niceties of statutory construction must be ignored because the people who drafted the statutes did not anticipate the nature of this emergency though of course they knew that emergencies could happen. Back in 1932 (the most recent amendment was in 1991), Congress apparently believed that the Fed could respond to a financial crises solely by making loans so there was no need to give it the power to purchase businesses, a power that could be abused. Turns out this belief might have been wrong. Some loans may not be wise unless the lender can more or less control the borrower and can earn a portion of the upside, which just means that the Fed should have the power to purchase equity as well as debt. Going forward, all that Congress can do is provide even greater statutory discretion by expanding old authorities, so that next time round there will be no doubts about legality, and hope that the Fed does not abuse this discretion. There is, and can be, no serious debate about the best way to respond to the emergency in advance of it, and no time to have a debate during it. So Congress proves itself again an utterly helpless institution. It can whine ( today, hold oversight hearings tomorrow, and dutifully hand over more authority to the Fed on the next day. In the meantime, bad decisions by our government during this financial crisis, and future ones as well, will harm Americans and people around the world just as much as bad war-on-terror decisions do. Sorry, my libertarian friends; this is the world we live in. And there is no conceivable alternative

He's probably right, sad to say -- Congress can no more give direction in crises like this one than it can direct troop movements during wartime. But one (small) point should be stressed here: the current bailout is being crafted not just by the Fed, but by the Treasury Department in conjunction with the Fed. It's not an insignificant point -- the Fed, after all, is almost completely shielded from political pressure, which is (usually) a good thing. But I, for one, would be a lot more nervous about the current bailout (and future bailouts) if I thought that the Fed was acting on its own; at least the occupants of the Treasury Dep't have some claim to having been chosen by the electorate, and are not entirely independent of voters' claims.

And I don't know about you all, but really, I sure wish that we had someone like Sarah Palin calling the shots here -- nothing like someone who knows absolutely nothing about the issues to steer us through a potentially planet-wide financial meltdown, eh?


Yankee Stadium, R.I.P.

Today is, of course, the final game for “the Yankee Stadium,” as it used to be called, and the Sunday NY Times has a terrific 2-page spread with reminiscences of their “Stadium moments” by Paul Simon, Jill Abramson, Robert Creamer, Keith Olbermann, Michiko Kakutani, and several others. They’re quite moving. I’m a Brooklyn boy, and I was six years old when our Dodgers left town, never to return, and to say I never got over it is an understatement. I couldn’t root for them anymore, needless to say – damn you, Walter O’Malley, damn you to hell! – but at least we still had the Yankees . . . to continue to loathe and despise. It was a hard time to be a Yankee-loather – from 1957 to 1964, the Yankees of Mantle, Berra, Ford, et al. won 7 American League pennants in 8 years (though, blessedly, they only won the Series three times in that span). But in my candid moments, I have to concede: at least they were the kind of team worth hating. That was always the thing (and still is) about the Yankees; I guess there are people who “hate” the Atlanta Braves, or the Colorado Rockies, or the Houston Astros – but you can’t hate one of them like you can hate the Yankees, which is a purifying, soul-affirming, life-enhancing kind of hate.

I went to the Stadium a whole bunch of times when I was a kid, and I’ll miss it when it’s gone. My greatest Stadium moment: Oct. 12, 1964, Game 5 of the ‘64 series, Yanks versus Cardinals. My pals Eric Nadel (now the lead broadcaster for the Texas Rangers), Marty Gross, and I got up at the crack o’ dawn to get on line for tickets (and yes, in New York City, you most definitely get “on line” for tickets); my dad, heroically, agreed to drive us there, sparing us the hour-and-a-half-if-you’re-lucky subway ride from deep in Brooklyn up to the Bronx. We end up deep in the left field bleachers, and what a game it was! The magnificent Bob Gibson holds the Yankees scoreless on 4 hits until the bottom of the ninth, when, with the Cards up 2-0, an error by Cards SS Dick Groat puts Mantle on first, and Tom Tresh crashes a homer to right-center to tie it up! The place goes wild (except for me), but is silenced again in the tenth when Tim McCarver cracks a 3-run homer to deep right to give the Cards a 5-2 lead – and Gibson comes back out for the bottom of the tenth (unimaginable, today) to set the Yankees down and give the Cardinals a 3-2 series lead. Alright!! It didn’t seem like a 1 ½ hour subway ride home . . .


A Bad Bailout?

Sebastian Mallaby makes a strong case against the Bush Administration's proposed Wall Street bailout bill.

With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.
His bottom line: "The Treasury plan outlined on Friday involves vast risks to taxpayers, huge complexity and no guarantee of success. There are better ways forward."

Meanwhile, NPR's Adam Davidson is shocked at the extent to which the bill would delegate extensive (and unreviewable) authority to the Executive Branch to address the financial crisis.

UPDATE: David Zaring has more thoughts about the potential delegation issues here.


Putting Palin Under Wraps:

The Anchorage Daily News criticizes the McCain campaign for virtually taking over the Alaska governor's office, particularly its response to the so-called "Troopergate" investigation. While I've seen little to suggest this is a serious scandal, the McCain campaign's action hardly inspire confidence, and I think the ADN is correct that "Official state business . . . should be handled by the governor of the state, not by McCain presidential campaign operatives."


Throwing Stones:

Speaking of glass houses, it's somewhat ironic that a week after the Obama campaign complained of the McCain campaign's dishonest advertisements (see, e.g., here), it ran multiple ads with false claims (here and here) of its own.


Sunday Song Lyric: Billy Joel's Glass Houses was one of my first LPs. I kept it in constant rotation during sixth grade. I always knew that this was one of several albums that sought to defend rock and roll from punk, disco and the like. The lyrics to "It's Still Rock and Roll to Me" makes that clear. The song begins:
What's the matter with the clothes I'm wearing
Can't you tell that your tie's too wide
Maybe I should buy some old tab collars
Welcome back to the age of jive
Where have you been hidin' out lately, honey
You can't dress trashy
'Til you spend a lot of money
Everybody's talkin' 'bout the new sound
Funny, but it's still rock and roll to me
What I didn't know, until checking out the Wikipedia page this morning, is considered by some to be a direct response to The Jam's This Is the Modern World.

Rabbis for Obama:

The New Jersey News reports on this group. I think this is perfectly fine -- religious figures are just as entitled to participate in political life as are secular figures, and religious groups should be just as entitled as secular groups. But I likewise disagree with the common condemnation of some religious leaders' "mixing religion and politics" that I often hear when the leaders back conservative candidates and causes.

I should add that some religious people and movements may, for their own theological reasons, conclude that their own religious teaching counsels against involvement in politics. Likewise, some religious leaders might think that their involvement in political life will be counterproductive towards their own personal or ideological goals. But if religious leaders or groups think some behavior is right or wrong towards one's fellow man -- something that many religious belief systems teach -- it strikes me as quite proper for them to convey their views, much like it's quite proper for secular ideological leaders or groups (e.g., libertarians, environmentalists, etc.) to convey their views.

Note that both secular and religious nonprofits to which tax-deductible donations are given are limited by tax law when they endorse or oppose candidates, or, to a smaller extent, when they endorse or oppose legislation: Such speech has to be carried on through affiliates which get nondeductible donations. But that's a matter of tax exemption policy applicable without regard to the group's religiosity, not of some supposed "separation of church and state."

Thanks to Prof. Howard Friedman (Religion Clause) for the pointer.