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25 March 2009

The Bottom Billion and Democracy

When I read the review of "Wars, Guns, and Votes" by Human Rights Watch's Kenneth Roth in the March 22, 2009 New York Times, I wondered whether it was only he or the author, Professor Paul Collier, as well, who believe that "Western democracies . . . might be expected to demand the real thing" from authoritarian regimes that adopt the charade of democratic elections to legitimize their governments. Is it really the duty of Western democracies to oblige leaders in the "bottom billion" countries to institute genuinely participatory forms of government? It may be morally imperative to stop genocide and harboring outlaws or terrorists by those autocracies. A similar interest in self-respect and, ultimately, self-defense does not justify proselytizing a form of government that only suits a well-educated and generally prosperous society to a nation most of whose citizens barely survive day to day.

Democratic government comes after improvement in living standards, not before. Rather than threats of military intervention to impose "true" democracy, resources should be devoted innovatively to instilling in the populations of the "bottom billion" the education and advancement in material well-being that will lead them to assume control over their own political futures.

23 March 2009

Micromanagement by the Pundits

The Founding Fathers had it right. Our democracy elects a President to a four year term in the faith that the people should select its leaders and then give those leaders enough time to use their judgment and to pursue their policies. The people have the wisdom to select the leaders who will make good judgments and effectively pursue those policies. The people, with passions flamed by demogogues (such as, on occasion, Ariana Huffington, Frank Rich, even David Axelrod) are not qualified to resolve a serious problem like the current financial crisis.

President Obama has made the judgment that Tim Geithner et al. are able and committed to seeing the crisis through to resolution. If they do, Obama will reap the benefit with reelection in four years. He surely knows the risk he has taken; but that's what he was elected to do. The people should be counselled by commentators and news analysts to resist the temptation to micromanage the government and the national economy. We will have the opportunity in four years to vote Obama's team out of office. Until then, it's more important for the people to act with confidence in the future if we are to bring our living standards back up to where they should be.

20 March 2009

Prohibition of Bonuses Jeopardizes Financial System Reform


New York Congresswoman Nita Lowey's support of the bill prohibiting the payment of bonuses to "executives" of financial firms receiving over $5 billion in government aid in the U.S. recovery program panders to the nedia and to certain vocal constituents who do not really understand how Wall Street works. Most of these "executives" are traders and middle management experts who are responsible for fulfilling objectives set by their top management. In fact, without their skills, these financial institutions would have collapsed much earlier, before the current world financial crisis.

Yes, the current crisis was caused by mistakes in the judgment of the top management of many U.S. financial firms, including AIG. Similar mistakes, unfortunately, were made by the agencies that were responsible for regulating these financial firms, and ultimately by the Congress itself, which did not anticipate the problem.

Congresswoman Lowey and her colleagues in Congress may wish to go after the top managers of the financial firms the Federal Government has decided to rescue. However, it will not help to penalize the very people whose skills and contacts are needed to restructure the world's financial system in a way that will not jeopardize our economy's health in the future.

12 March 2009

Insurgency vs. Resistance

The opposition to the governing authority, rather than the opposition within a government, is an insurgency. Of course, the governing authority was probably at one time an insurrection against the government that it replaced. “Take your place on The Great Mandella.”

There is nothing wrong with an insurgency unless you’re on the other side. But isn’t that other side morally indefensible when it exists as the result of conquest by an invading power? “Insurgency” is a loaded word that implies the legitimacy of the governing authority. Using the word “resistance” changes the balance.

Money and Banking 101

Borrowing short and lending long has always been the basic strategy of finance, not the “classic mistake” that William D. Cohan calls it in his OpEd article in the March 12, 2009 New York Times. FDIC insurance makes the short-term money available from small depositors less volatile than it used to be when runs on the bank were common, like in It’s a Wonderful Life.

One thing was “classic” about the collapse of large short-term creditors’ confidence in financial intermediaries like Bear Stearns, Lehman Brothers, Merrill Lynch, et al. That was how the irresistible lure of outsized gain masked the danger of ignoring business risk.

Rescuing big banks from failure is not really different from guaranteeing the stability of banks’ small depositor base. Insurance premiums should be charged for the former service just as they are by the FDIC. But even in the latter case, the FDIC’s backing by the full faith and credit of the federal government means that in extremis smaller banks would be bailed out with taxpayer funds, too.

11 March 2009

MoveOn.org's Responsibility to Remind Leaders of History

History has made it clear that military conquest never works in Afghanistan. John Nichols (The Nation, Maarch 3, 2009) is right to point out to MoveOn.org that it should realize that its role as a liberal consciense includes reminding progressives like the Obama Administration that forceful intervention in foreign societies is only justified when our security is immediately at stake.

It is sad that one of the few prominent figures in U.S. government, who appears to understand that achieving long-term order in Afghanistan may involve our supporting moderate religious fundamentalists in their struggle to control the Taliban, is General Petraeus. Unfortunately, because he is in the military he defines solutions to problems like Afghanistan in terms of troop levels. Let's hope that the leadership role of Richard Holbrooke in regional policy will result in the use of diplomatic, economic and inculcative tactics to prevent the creation of sanctuaries for threats to international order like Al Qaeda in the future.

09 March 2009

U.S. Push for Global Stimulus

That Europe and the U.S. take contrasting approaches to resolving the current global financial crisis isn’t surprising. One seeks to correct the irresponsible behavior of private-sector players and governments that is blamed for having caused international economic disorder, while the other seeks to begin by ameliorating its effects. The former are dirigistes for whom the most important objective is to maintain order (How long the memory of financial chaos following WWI lingers on!). The latter, whose camp of free-marketers apparently includes the IMF, believes that it is crucial to prevent the misery of a worldwide depression before searching for reforms that will insulate us from a recurrence of the credit and securities collapse.

The G-20 will do well to adopt a compromise common policy at its summit next month. Such an outcome could result if President Obama uses the opportunity to display the leadership and commitment to change that he promised in his election campaign last year.

07 March 2009

Who Should Pay for TV Conversion?

Do advertisers want digital television? We’ll see how indifferent they are when five million households lose their TV signal in June. That doesn’t even count the antennaed 2nd and 3rd TVs in the homes of cable and satellite subscribers. Two possible answers to this question:

1) Advertisers pay broadcasters to maintain a parallel analog signal; but this would require postponing the expansion of radio signal use to serve other public interests.
2) Advertisers pay the cost of converting all homes to digital. This strategy would also create new jobs and help relieve the unemployment pressures of the current recession.

Who, after all, gains the benefit from digital TV conversion that is most readily quantifiable in this time of financial stress? The commercial model of public communications in the U.S. mandates that an innovation that makes them more efficient and entertaining be paid for by those who thereby reach and profit from a wider and more committed viewing audience.

02 March 2009

Reciprocity in Globalization

A major reason for the banking crisis is that the U.S. financial system has become utterly dependent on foreign sources of capital as the source of funds to relend to its customers. Globalization has made American banks and their credit professionals hostage to sovereign wealth funds that are less comfortable than domestic depositors and money managers with suspending disbelief in the continuing prosperity of the American consumer.

It was foolish for the U.S. banking system to depend on derivative credit instruments for what amounted to a dangerously predominant portion of its source of funds. Doubts began to grow among the foreign investors in those mortgage-backed securities and other collateralized debt obligations in 2007, raising the cost of funds, and reached a critical point in September 2008, forcing the collapse of Lehman Brothers, AIG, et al.

Reform of the country's financial system must include a better understaning of the psychology of global investors who will look to U.S. bankers fpr convincing returns on the use of their surplus funds. Those bankers have the best skills to produce those investment vehicles but must reduce their expectations of fast-paced returns. Maybe just as important will be reform of the attitudes of overseas investors. Globalization must be made to be more reciprocal, balancing our commitment to reliable foreign sources of labor with foreign investor commitment to keep providing the capital needed to fund economic growth.

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