Category Archives: Rescue Plans

Kafka and Imperial Presidencies

Obama seems to be happy to follow in the footsteps of almost every President since Johnson (and probably a few before) in strengthening the powers of the Presidency at the expense of the other two branches, especially the legislative. Under Bush II and Obama, that seems to have taken a very weird Kafkaesque turn with legal justification for presidential actions being classified. What strikes me as an apropos example is covered in the Atlantic’s The Secret Memo That Explains Why Obama Can Kill Americans. The core of the article reads:

“The Justice Department wrote a secret memorandum authorizing the lethal targeting of Anwar al-Aulaqi… The document was produced following a review of the legal issues raised by striking a U.S. citizen and involved senior lawyers from across the administration. There was no dissent about the legality of killing Aulaqi, the officials said.”

…the actual legal reasoning the Department of Justice used to authorize the strike? It’s secret. Classified. Information that the public isn’t permitted to read, mull over, or challenge.

What is truly puzzling is that the US legal basis for this seems fairly explicit in the fifth amendment to the U.S. Constitution:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

I suspect the legal arguments revolve around the Grand Jury clause (unless on a presentment or indictment of a Grand Jury) and the military clause (cases arising in the land or naval forces). It could be the ruling revolves around a secret Grand Jury and/or Anwar al-Aulaqi, by taking up arms against the United States. In essence, there may be a legal basis. And, there is a strong moral argument for the specific action.

The issue is not one of the basis or justification for the argument. The issue is not one of narrow arguments for a particular action. It is a broader one that is reminiscent of “abuses and usurpations” of King George cited in the Declaration of Independence. That document talks ofan Executive who “(refused) his Assent to Laws for establishing Judiciary Powers,” “(deprived them) of the benefit of Trial by Jury,” and “(abolished) the free System of English Laws” and “(altered) fundamentally the Forms of our Governments.” Today, we would say that our government is fundamentally based upon the rule of law (that we can see). We are not free unless we insist upon laws that we have to can access and use to petition for redress of our grievances.

One of Kafka’s novels involves a man who spends his entire life sitting outside a door waiting to petition the bureaucracy. And never even having the ability to do so. In this case, we don’t have access to the logic of the ruling. Without the legal arguments, it’s rather difficult to even get in line next to that door to petition.

To be clear, I am not arguing that our Presidents are close to becoming insane absolute despots like the English King George. What I am saying is that cases like the legal memo justifying the assassination of Anwar al-Aulaqi and the legal memos justifying torture of enemy combatants, penned under George W. Bush’s watch, are a particular new development in their inaccessibility. At first, they appear far removed from the lives of most Americans. If I’ve done nothing wrong, I have nothing to fear is the easy response.

But, this pattern of secretly created hidden law is a slippery slope indeed. Pastor Martin Niemöller famously said, “first they came for the communists, and I didn’t speak out because I wasn’t a communist…. Then they came for the Jews, and I didn’t speak out because I wasn’t a Jew. Then they came for me and there was no one left to speak out for me.”

When the next terrorist act is another Oklahoma City Bombing, how wide will the net be case then? What about the act after that? And will it even need to be a terrorist act? At what point will they come for “me?”

Oh… except, Mr. me, this approach to law isn’t been restricted to Terrorists. The ACTA copyright treaty was negotiated in secret with a list of other nations over multiple administrations. The current administration refused to release the text of treaty, calling it “properly classified in the interest of national security.”

A treaty covering copyrights (the thing authors have on their books and Disney has over Mickey Mouse) is a matter of national security? Because, treaties causes nasty paper cuts? You’d think they were pitching a Saturday Night Live skit.

Someone who read a draft of this piece put it this way: “The basic issue is not whether or not Al Alawki’s rights were violated but rather whether the president violated the Constitution by creating law, an enumerated power of Congress, and by adjudicating that law, an enumerated power of the Courts. This is exactly what King George did; he created, administered, and adjudicated law that violated the rights of citizens of the British Empire.”

Except, King George never legislated in private. He didn’t keep his edicts secret. Many subjects of the British Empire hated what he did but at least they knew what the laws were.

The Housing Crisis and the CDS problem

This American Life is an award-winning radio program. Each episode focuses on a theme and usually covers it with stories about ordinary people. But every once in a while the stories are about something else. In May, they covered the Housing Crisis and this weekend, Collateralized Debt Securities, the financial items which almost caused a meltdown in our credit markets. Most of the coverage of the crisis has amounted to either a repetition of some summary (since most journalism isn’t focused on understanding) or people twisting themselves into contortions to prove their political viewpoint.
As the second program points out, the CDS market has been completely unregulated. This state of affairs was fixed in 1998 by agreement of the Clinton Administration and a vast majority of the members of both parties in Congress. The belief was that those buying and selling CDS instruments were sophisticated investors (aka really smart big boys) who didn’t need oversight. Clearly, they were wrong.

I suspect that over the next few years we will see new regulations designed to address a series of problems, including bringing transparency and sanity to the CDS market.

The more interesting point in that program, for my purposes, was a comparison of the core solution in the plan Congress passed and the President signed with one that most Economists the program talked to favored.

In the official plan, money will be used to buy something that is very difficult to properly price: toxic assets. In a very real way, the Banks in question will not pay the price for their bad decisions. In economic terms, they escape the moral hazard of their choices.

The contrasting plan is termed stock injection. In essence, we would buy stakes in the Banks in what amounts (in many cases) to a Government takeover. Upper management would pay for bad decisions by loosing their jobs. The Stockholders, who are culpable because they typically approve the hiring of management and the broad direction that management takes a company, would pay by seeing most of the value of their stock disappear. Like anyone else coming to the rescue of a company, we would get to call the shots and we would expect to be rewarded for keeping the company alive.

This is actually the model that was applied to AIG. The value of the existing stockholder’s stock disappeared and upper management lost their jobs. But, the company was saved and the feared economic meltdown was avoided. At the same time, the return for the money we invested (at least according to what I’ve read) looks like it will actually be quite good.

Economic Conservatives often have a philisophical problem with government ownership of a company. And, to be honest, in general I do, too. But, the ownership is not intended to be long term. The company will leave government hands in a reasonable period of time. In essence, the government is acting as temporary caretaker until new, presumably more responsable, owners can take over the company (that the previous owners ran into the ground).

I would propose that, going forward, that this become the standard model that is followed for a government rescue of a company. A company’s stockholders and management will be very motivated to not put themselves in the position to be rescued. If they need to be rescued, they’ll be very motivated to find another solution to their problems. And, if government involvement becomes necessary, the people paying for it (us), have a good chance of getting a good return on the investment we make.