Bad Strategy
March 31, 2012, 5:37 pm
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When I want to know what my views are as a conservative, the first place I turn is to leftist internet commentators. If there’s one group of people with an expertise on conservative viewpoints it’s them. That’s how I discovered that conservatives all around the globe were completely in favor of the health-insurance mandate since the 1990s (until of course – since we’re all racists – President Obama, a black person, proposed it, which he did while President following a campaign in which he opposed it).

It was very intriguing and enlightening to learn of this previously-unsuspected favorable view of the insurance mandate that apparently I had had, as a conservative. I am in leftists’ debt for explaining to me what my opinions of a mandate were prior to this whole debate, because otherwise I never would have guessed in a million years.

Now, of course, we all realize that this “conservative idea” is also a very important and wonderful idea for the country. This is why ‘liberal’ [sic] leftists are so incensed by the thought that the Supreme Court might decide to claim, against all logic and common sense, that there might exist some things that the federal government cannot do, appropriate, or dictate.

The question I have though is why didn’t the leftists just propose this wonderful idea in the 1990s, during President Clinton’s Presidency, when all conservatives such as myself were uniformly so in favor of it? It seems like it would have been a slam-dunk back then due to the near-unanimity: clearly (as has been explained to us by Ezra Klein, et al) conservatives loved it, and surely leftists would also have loved it, seeing as how much they love it now. So what am I missing? Was this just bad strategy, the biggest missed opportunity in the history of the republic? Such a tragedy, and to think, as a result we now face a situation where (god forbid) the government might actually not be able to dictate something that Smart People want it to dictate. I shudder to think, as do all good ‘liberals’.

The Left’s Purported Mental Model Of The Founding Fathers’ Thought Processes
March 30, 2012, 8:55 pm
Filed under: Uncategorized

They agonized over and fought intensely over how much power to give to the federal government, checks and balances, which branch does what, whether the power was too much and would be abused, and on and on.

At the same time, they also wanted to make sure the federal government could do whatever the hell it wanted to, and issue whatever diktat it felt like, on any issue remotely tangentially related to ‘interstate commerce’ – a category of issue to which (it turns out) there are, in practice, essentially no exceptions whatsoever.

That’s what the Founding Fathers wanted, and that’s the document they cooked up and signed.

You know, the guys who revolted against a king over some piddly tax on tea.

I’ll say it again: nobody sincerely believes this crap. Because no one with a brain possibly could.

Fascism By Euphemism
March 30, 2012, 7:05 pm
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This is the SF Chronicle’s Obamacare Sunday editorial, not really worth devoting too many brain cells on but I wanted to draw out a couple of passages as I find them pretty representative of conventional-wisdom thinking:

Congress has the right and duty to regulate national commerce, and health care, which accounts for 17 percent of the economy, certainly qualifies.


This court and past ones have upheld Congress’ right to oversee commercial affairs, a significant and essential duty of government.

Notice what is happening here: in context, dictating to individuals what and when and how much to pay for things has been editorially phrased as ‘regulat[ing] national commerce’ and ‘oversee[ing] commercial affairs’.

Now, Regulating National Commerce sounds kind of innocuous and boring. Something like, having a weights & measures board, minimum safe-handling requirements, dispute-resolution civil courts, that sort of thing. Overseeing Commercial Affairs, even more so. But you drill down into what they mean by these things and it turns out to be fucking telling every single person what to fucking buy, when to fucking buy it, and how much to fucking spend on it!

Isn’t that remarkable?

It seems like the left has been able to smuggle their entire argument under the radar of everyone’s Fascist Detectors via euphemism. ‘Oh, this is just regulating commerce’.

It turns out that by ‘this’ they mean fascism.

From The Things I Refuse To Believe Exist Dept.
March 30, 2012, 5:45 pm
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Just saw my zillionth blog post / news article on “vocal fry”. Seriously? This is a thing?

Until I get more evidence that this “vocal fry” thing exists I’m tempted to put it in the same mental category as Grunge speak.

Even if it is a thing, is it a thing worth talking about? Unless I’m mistaken, Western society somehow managed to survive “Valley Girl speak”.

Does the subculture of teenage girls really need more attention and analysis?

Parsons on Volcker Critics
March 30, 2012, 4:42 pm
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John Parsons of MIT has some thoughts on Volcker Rule criticism. Let’s see what he has to say! As you may not be aware (I can’t remember whether I’ve mentioned this) I have been known to have some opinions on the Volcker Rule myself!

The Volcker Rule bans banks from proprietary trading. But the Volcker Rule does not ban anyone else from proprietary trading. The IHS report assumes that when banks stop proprietary trading, no one else will step in and do so.

That’s a ridiculous assumption. Let’s look at other industries where governments sometimes regulate which institutions may and may not operate …

Right off we have a disorienting category error. ‘Proprietary trading’, if it means anything at all (and I’m not sure I think it does), means trading by banks (‘for their own account’). Even the lowliest Reuters reporter knows how to wiki that. So when a non-bank buys things we don’t have to call it ‘proprietary trading’, we just call it trading. So what is he talking about? Does he know what ‘proprietary trading’ even is?

Parsons is certainly correct that other institutions besides banks can engage in trading. For example, hedge funds. Pensions. Insurance companies. Rich a-holes. The Fed. He’s also right that banks spin off prop desks. But that is the case today; they already do. The point is not that there’s some generic activity called ‘proprietary trading’ that could be done by anyone, and we’re just banning banks from doing it, meaning those other guys could ‘start proprietary trading’ (they already are!). The point is that we’d be banning (or at least trying to ban) banks – a large market actor that currently provides much of what little liquidity there is – from much of the trading they do. It’s fair to question how important ‘liquidity’ is, but the idea that this will have no effect on liquidity is ridiculous at best. When it stems from this disorienting notion of ‘proprietary trading’ as something that ‘others could step in and do’ I don’t even know what to call it, besides ‘unclear on the concept’. The issue is whether a specific large institution called a bank can trade (i.e. in a way that retains inventory/risk) or not and the Volcker Rule, interpreted literally, says ‘not’. Of course that will have an effect.

The only way to salvage his point is to interpret Parsons to be saying that he thinks that once the Volcker Rule is in place, someone such as (say) regional broker-dealers will ‘step in’ and suddenly decide to use balance sheet/hold significant inventory in a way that makes up for banks not doing so. In other words, become combo hedge funds/market-makers. I find this highly doubtful and he gives no reason to believe it will happen, but if that’s what he means I’d be curious to hear why.

IHS['s evaluation of the Volcker Rule] ignores taxpayer subsidies to banks.

Here’s one example. Unmargined OTC derivatives sold by banks entail credit risk. But, pre-Dodd-Frank, banks did not properly account for that credit risk. They could ignore or minimize that credit risk in their reports to their regulators, and, as a result, they didn’t have to hold capital against it. The capital backstopping the risk was taxpayer capital, and banks didn’t pay for it. They only profited at taxpayer expense.

Counterparty risk is a major component of Basel III capital rules now, Volcker Rule or no Volcker Rule. So if this is an argument for something, which it may be, it’s not the Volcker Rule.

Protecting hidden subsidies to banks is not a sensible economic policy. The U.S. economy is still paying mightily for that mistake.

I think I agree with this part! The problem is, and always has been, that the reason we’re paying for it has nothing to do with those banks having done ‘proprietary trading’. Again, just because something bad happened, and you think ‘proprietary trading’ is bad, doesn’t mean bad #2 caused bad #1. That’s Platonist thinking rearing its ugly head again.

The Volcker Rule is about ending hidden taxpayer subsidies to risky transactions by banks.

It is? So (1) the Volcker Rule bans making loans? Or (2) loans aren’t risky? (Anyone agreeing with the above statement has to pick one.)

That was always what it was about. From the very beginning.

I don’t know whether that’s what it ‘was about. From the very beginning’. I do know that that’s not what it actually does. What it actually does is define, and then ban, an arbitrary subset of activity it calls ‘proprietary trading’ – not ‘risky transactions’.

Banking is a risky transaction. Does Dodd-Frank ban banking, Prof. Parsons?

Can The Government Tell Each Person Where To Live?
March 30, 2012, 12:37 pm
Filed under: Uncategorized


  • The housing market is certainly ‘interstate’
  • Hence the government can ‘regulate’ it
  • Every person obviously ‘participates in’ this market

So assume:

  • Congress passes a ‘housing reform’ law with the ‘social goal’ of, oh I don’t know, creating such-and-such demographic distribution of citizens.
  • Part of this law says that current titleholders of properties can’t deny residence to someone who lawfully asks for it. This is just ‘regulation’ of an ‘interstate market’, so (presumably?) is perfectly fine.
  • But Congress realizes this would be problematic, because everyone would just ask for the same small % of fanciest houses
  • So Congress also includes a provision allocating who can lawfully request residence in which house. The result of which is that each person is sent one (1) legitimate address to live in.
  • This provision is ‘necessary and proper’ in order to make the reform work, and doesn’t violate freedom of religion or speech so it’s fine.

The net result of such a law, of course, is: Every person is instructed where to live by Congress; housing is fully centrally allocated.

Since question for ‘liberals': Would this law be Constitutional? I have listened to you all very carefully, and I think it would. Because of the commerce clause. If you don’t think it would, why wouldn’t it?

The Comm(unist) Clause
March 30, 2012, 11:58 am
Filed under: Uncategorized

Assume for the sake of argument that Obamacare apologists are framing it correctly: we all ‘participate in’ the health care market, and Obamacare ‘merely’ redirects/governs how we finance that participation.


Why does the government have the right to dictate how, when, and how much we pay for something?

Is that mere ‘regulation of interstate commerce’ or something over and above that?

Let’s go with the left’s answer, which is that ‘regulation of interstate commerce’ includes telling everyone when-and-how-and-how-much to pay for things.

The interesting thing about that is that dictating how-and-when-and-how-much people pay for things is, if taken to its logical conclusion, full-on communism. There is no socialist/communist initiative that could not be cast as dictating how-and-how-much people pay for things. ‘You will pay $X and accept this basket of goods we have chosen for you. You over there: you pay $Y for the same thing.’ Perhaps some flavor of communism would instead bypass the middleman (e.g. maybe you don’t see your paycheck in the first place, you just get the basket), but economically, communism is precisely equivalent to being told when-and-how-and-how-much to pay, for everything you (are told to, or not to) consume.

Stalin’s Five Year Plan was (in a sense) ‘merely’ dictating how and when and how much people paid for things. I guess that too was simply ‘regulation of commerce’, and therefore, would pass commerce-clause muster, according to self-anointed Constitutional experts like internet economist James Kwak. (Of course, to some extent he does have Supreme Court precedent on his side…)

If ‘liberals’ genuinely believed what they are saying about the commerce clause, they’d have to believe that the Founders included it because they wanted to empower the nascent Federal Government to implement fully-centralized command communist-economics that could, on a whim, nullify any and all voluntary decisions about disposal of property and contracts. (‘Regulating the financing of markets you already participate in…’)

Of course, I still say they believe no such thing. No one with a brain possibly could. They just don’t care what the Constitution actually says or means in the first place. They are feeding us disingenuous, unscrupulous sophistry, and are shocked when we do not break out in applause.

March 29, 2012, 5:07 pm
Filed under: Uncategorized

Quick note on the administration’s current-favored Obamacare defense, that they’re just regulating how we pay for a market we’re all in – because even if we choose not to buy insurance, we are still ‘participating in’ the health care market. If they mean that seriously and sincerely (which I doubt), once again we have a limiting-principle problem. Why?

Because (in that sense) everyone ‘participates in’ all markets.

For example, somewhere right now there is a Madonna-pap-smear-in-a-jar market. You might think you’re not involved in that market. Oh but you are wrong! You are ‘participating in’ that market just as much as everyone else is: as a Madonna-pap-smear consumer whose bid is $0. Clearly that bid affects the market (I mean, if your bid were higher, prices and supply would rise, at least a little). Clearly, that market could be ‘interstate’ or ‘substantially affect’ interstate commerce (if you had a higher bid, someone in Alaska might be more willing to ship to you).

Hence, that’s a market that (unbeknownst to you) you’re ‘participating in’. And since Congress can ‘regulate’ it, in the process they can force you to buy Madonna pap smears (if that serves the purpose of their ‘regulation’).

Not buying something, anything, could always be rephrased as ‘participating in the market with a bid of $0′. Bids of $0 automatically ‘affect’ that market. So, we’re all ‘participating in’ all markets, all the time. Hence Congress can do whatever the hell it wants to us, all the time.

That seems to be what ‘liberals’ think.

UPDATE: Slight correction; my bid for the pap smear is not $0, it’s less. Like maybe I’d take it off your hands if you paid me $40. See? Everyone. Is. A. Participant. In. All. Markets. On at least some level.

UPDATE 2: Backing off my -$40 bid for the moment. It occurred to me I’d better review the regs for/costs of disposing of biohazards first….

The You-Must-Distort-First Limiting Principle
March 29, 2012, 2:22 pm
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Mark Tushnet tries to salvage the ‘limiting principle’ this way:

Not all markets — even markets with price controls — are subject to moral hazard/adverse selection. …. Then either (a) there’s no independent “proper” constraint on congressional power, or (b) as long as not all markets with price controls are subject to moral hazard/adverse selection problems, there’s an obvious “limiting principle” at hand.

I guess he wants us to go with (b). So the limiting principle is that Congress can only do whatever-the-hell-it-wants if the ‘market’ they have distorted via price controls, is a market that is ‘subject to’ moral hazard/adverse selection.

He seems to think that is a well-defined, circumscribed subset of markets one can look up in (say) some textbook. I, on the other hand, think that it’s all markets – or could be. Imagine this price control: ‘You must charge $0.01 (or suitable tiny number) to anyone who asks for your product/service and then recites the Gettysburg Address.’

Individual purchasers, or purchasers for organizations, know better than sellers/suppliers/providers whether they can recite the Gettysburg Address. Some already can, and would claim the $0.01 price. Others would probably study it, and wait to buy, until they knew they could recite the Gettysburg Address. Or use/hire a middleman who could. Ultimately producers would suffer/drop out of the market, and/or try to crank up the price on the dwindling number of non-Gettysburg Address knowers. Or if Congress capped their ability to do the latter via its unlimited price-control power, producers just drop out of the market (thus ‘requiring a mandate’).

The above is nothing other than moral hazard and adverse selection. But as a price control, it could feasibly be applied to any market whatsoever; there’s no conceivable market that’s somehow magically ‘not subject to’ it. That is, Congress could choose to do it as ‘a clearly constitutional exercise of the power to regulate interstate commerce’, and there’s no conceivable market at all that they couldn’t do this to.

Tushnet might fire back that my hypothetical wouldn’t satisfy the ‘necessary’ part of ‘necessary and proper’, but says who? Just as Obamacare supporters say their reg is ‘necessary’ to their (not my) social goal of universal insurance, I say my price control is ‘necessary’ to my (not their) social goal of getting everyone participating in a market to internalize the Gettysburg Address. And in this hypothetical, my preference rather than theirs is what won the Congressional vote, so I win, so there. Gettysburg Address-knowing is necessary.

So, while some markets may require more distortion than others to create adverse selection, etc., all markets could potentially be so distorted. Which means that Mark Tushnet’s ‘limiting principle’ example, ironically, reveals that there really isn’t one.

As I’ve said before, the only real limiting principle apparent in lefty thinking to what Congress can do – to anyone, about anything – is that they have to sufficiently distort some ‘market’ first. Which supposedly they can, like, totally do whenever and however the hell they want. That’s what the commerce clause said. If that’s truly what the left thinks the commerce clause is about, then they logically think it is a recipe for totalitarianism. I actually still just think they’re being disingenuous though (because they care about Good, not the constitution), and don’t really believe this stuff. Nobody with a brain possibly could.

P.S. I have problems with the notion that Congress can constitutionally impose price controls too. Logically, I can’t see why that oughtn’t be considered a violation of property rights under the 5th Amendment. But, I suppose that’s an argument for another time.


If anything, it’s an expansionary principle, since a regulatory scheme becomes more constitutional as it becomes more intrusive.


No Limits
March 29, 2012, 12:52 pm
Filed under: Uncategorized

Matthew Yglesias (and “Akhil Amar who is a lawyer”) can’t imagine any limiting principle on taxation power, other than the ballot box. To them this means (by some sort of hand waving) that the commerce-regulating power also has, nor needs, no limiting principle either – just the ballot box.

If you don’t like a law, vote out Congress. That’s what the Constitution says and that’s all the Constitution says, according to these two Constitutional experts (one being a Lawyer, and the other being Matthew Yglesias) who totally care about the Constitution.

I think they have a point. I can see it now. Congress could pass a 100% income-tax, but with a (full) rebate for anyone who

  1. owns slaves
  2. pledges lifelong allegiance to, and never to criticize, the Republican Party
  3. is white
  4. accepts Jesus Christ as his/her personal savior

Such a ‘tax’ would be perfectly Constitutional due to the 16th Amendment. Neither Yglesias nor Amar would challenge it on Constitutional grounds or find any reason in the Constitution to oppose it on Constitutional grounds. The government can pass ‘taxes’! So what’s the problem!


I guess Amar might say ‘bad examples, because such taxes would not be ‘proper”. But why wouldn’t they be ‘proper’? How could he tell? I guess by looking at the Constitution and seeing if those ‘taxes’, in substance, add up to a violation of some part of it, and/or represent an overstepping of Congress’s power in some way. I’m pretty sure he would quickly identify the 1st, 14th, 13th Amendment violations and on that basis say that such a ‘tax’ therefore doesn’t pass Constitutional muster.

But what that means is that the 16th Amendment is not, contra Yglesias, some sort of unlimited power to do anything whatsoever (mandate broccoli) under the rubric of a ‘tax’. The act and effect of any ‘tax’ still has to fall under things that the Congress actually otherwise has the power and authority to do. Congress lacks the authority to make any law respecting the establishment of a religion, for example, yet item #4 above clearly would do just that. Hence, they wouldn’t (I hope!) be allowed to pass that particular sort of ‘tax’.

Well, some of us are wondering if the same can be said about the commerce clause: is there any limit to what Congress is allowed to do under the guise of ‘regulating interstate commerce’? If so, how/where does one draw that line? But what Congress is ‘doing’, via the mandate, is to compel all individuals to purchase a particular product. But does Congress have the power to do that? If it does, which sorts of products? Is there a limit to the product-purchase-mandate power that Lawyer Amar sees right there, plain as day, in the United States Constitution?

I mean, besides the ballot box. I’m sure that ballot-box-is-the-only-limit would not satisfy these guys in my taxation/rebate examples above. So why should it satisfy us here?

Political Platonism
March 29, 2012, 9:51 am
Filed under: Uncategorized

Several of my recent posts have touched upon a similar theme, culminating in disputes I have with folks who seem to reason thusly:

What I want is good, and (by assumption) the constitution/the law is good, therefore what I want must be legal/constitutional. (Or if it’s not, then the law/constitution is bad on that issue, and should be ignored.)


Goal A would be good, and Law B (in the same area) is good, therefore Law B must help achieve Goal A.

Or vice versa:

Law A is good, and Law A is designed to achieve Goal B, therefore Goal B must be good.

I think what I’m noticing here is a kind of inherent Platonism. To a Platonist, Good things all partake of the Form Of The Good. Therefore, even in their imperfect representation of that Form, they must still all have a fundamental, intrinsic affinity with each other. In particular, for one Good thing to be inconsistent with another (for example, for Obamacare to be unconstitutional) is inconceivable. How could two things conflict if they are both Good? It could only happen if one of them were, in fact, Bad.

Everyone probably thinks this way to at least some extent, but it is the left that has primarily tasked themselves with the project of building the Perfect Society (itself, another instantiation of the Form Of The Good), so it’s no surprise that I notice and complain about this attitude in them disproportionately. But I’ve also noticed it in my anti-Volcker Rule rants, which doesn’t (exactly) fall neatly onto any left-right axis.

In any event, just for the record, there is no such thing as the Platonic Form Of The Good.


How can this law not be constitutional? The other alternatives are forcing taxpayers to cover the cost of the care in emergency rooms for people who don’t want to pay for their insurance, even if they can, or letting human beings just die on the side of the road. I can’t believe fiscal conservatives think either of those options is a good idea.

‘Constitutional’, ‘good idea’ – same thing!

How Many Religious Nuts Does It Take To Care About The Constitution?
March 28, 2012, 4:04 pm
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In Aretae’s response to my observation that leftists don’t (and I mean this in the best possible way) care about the Constitution, he insisted and commenters there agreed that (almost) nobody does. The resulting discussion seems to have ended up concluding that the only people worth mentioning who do care about it, are folks who have a quasi ‘religious’ feeling toward it.

That doesn’t describe me at all. I have a (admittedly, perhaps overly) contractual/legalistic feeling towards it. Why does the government exist at all? Why are they allowed to do the things they do to me and others? Because I have (implicitly) agreed to a ‘contract’ with them, which is called the Constitution. When they violate this ‘contract’, cheered on by demagogy and special pleading and patently insincere clever rhetoric, and there are no repercussions whatsoever for it or recourse on my part, it’s not like it offends my sense of the holy and numinous. It just pisses me off. It offends my sense of justice, and right and wrong. It violates (what I think is) the Rule of Law. As a result, I feel gypped. Cheated. I feel like there is no foundation to anything. And it bothers me on that level, if nothing else (I’ll be the first to admit that many ‘violations of the Constitution’ don’t really affect my life in any tangibly negative way; they just offend my sense of principle).

Now up till now I’ve generally assumed many people (at the very least, those considered ‘libertarian’) feel the same way toward the Constitution – or at least understand that there are people who feel that way – but now I wonder if maybe that’s wrong. Does my ‘legalistic’, contractual interpretation of/attitude toward the Constitution strike others as foreign and strange? Pathological? I genuinely don’t know, but maybe it does. I could easily imagine some ‘realist’ saying it does.

For example, a very common rejoinder, were I ever to express the above views fully in mixed company, would just be to point out that ‘the Constitution’ has been repeatedly violated and stretched and raped beyond recognition already, since almost the very beginning of its ratification. So why should I care so much about one more rape? To which, I can only say, touche.

But this is the first time I’ve encountered the concept that one shouldn’t care about these things because the only people who do are basically religious idolators who worship the Constitution as a sort of religious artifact. So, I have to admit that I am stumped. Because I genuinely thought that the fact that there are still (some) people who care about the principle of the thing, qua principle, was at least well-understood….if not exactly applauded or encouraged.

Am I wrong?

The Limits Of The Commerce Clause, And Why We Are Not A Dictatorship Under It
March 28, 2012, 9:48 am
Filed under: Uncategorized

If I understand what Matthew Yglesias is saying here,

Scalia seems to me to have stumbled right in to the limiting principle he’s asking for, namely that the minium coverage rule is a way of reducing average prices in the special circumstances of an insurance market in which Congress is seeking to ban health status discrimination.

the limit to the government’s power under the commerce clause – the ‘limiting principle’ – is that the government can ONLY do whatever-the-hell-they-want to citizens if they do so while nodding at a market that they have previously/simultaneously chosen to sufficiently distort.

In the case of of health insurance, their preferred method of distortion is that they force insurance companies to ‘cover’ people without regard to the expected-cost of that coverage, i.e. they are forcing sellers of a service not to charge market prices, i.e. they have banned market forces, i.e. repealed anything recognizable as a ‘market’ as such. In any event, since the government has decided to distort the insurance ‘market’ in such a heavy-handed way (which they are perfectly within their rights to do under the commerce clause), it follows that they need to dictate anything they want to citizens.

But not to worry, all you who were wondering whether there was any limit to the government’s power over citizens under the commerce clause. No, they can’t just do whatever the hell they want to citizens in any situation. They have to interfere a lot in some ‘market’ first (which they have unrestrained power to do under the commerce clause), in a way that creates a plausible argument for doing-whatever-the-hell-they-want-to-citizens. Only THEN, in that limited circumstance, can they do whatever the hell they want to citizens.

In other words, limited constitutional government.

That’s straight from Matthew Yglesias’s Constitutional interpretation, which he totally cares about.

So, you know, that makes me feel a whole lot better.


So what Feldman is actually saying is that Congress can force you to purchase insurance even if Congress itself caused the adverse selection.

Again: the ‘limiting principle’ here is clear. The government can only do X in cases where it (a) has chosen to hugely distort some ‘market’ (which it can do to its heart’s content), and then (b) can cobble together a plausible argument that X is ‘necessary’ to remedy that distortion. I’m sure there are some X’s for which it would take so long for the Matthew Yglesiases and Ezra Kleins of the world to think of a valid (a)-and-(b) that would create a decent figleaf-excuse to do X, that the government would be, like, stalled in doing X. And that’s limited government in a nutshell.

Daily Volck
March 27, 2012, 11:52 am
Filed under: Uncategorized

What would modern life be without our daily dose of Volcker volcking up a storm? I shudder to think. That’s why every day now I check for whether there are any new volcks from the Volcker, and amazingly for a guy who ‘rarely does interviews’ and ‘doesn’t relish the spotlight’, etc., somehow every day there are some!

Volcker: Wall St. changing, but not very rapidly

Here we find Volcker saying that Wall St. needs to ‘change’. As usual, the reason we’re supposed to care about what this 84-year-old civilian thinks Wall Street needs to do is _____. Volcker also informs us that he was surprised and not all that thrilled about having his name attached to the ‘Volcker Rule’, which makes sense and is totally believable because it’s not like he is constantly talking about the Rule in interviews and articles and getting quoted about how he thinks it should be implemented or what he thinks Wall Street needs to do or anything like that.

The article’s author takes an unfortunate stab at defining what the Volcker rule prevents:

The “Volcker Rule,” which goes into effect in July, will prevent banks from making speculative bets that could put both themselves and taxpayers at risk.

Now, it will do no such thing. ‘Making speculative bets that could put both themselves and [as long as there is FDIC] taxpayers at risk’ is called banking. (For the Nth time: News flash: Loans are risky.)

However, the above description sounds like a Good Goal, and the Volcker Rule is axiomatically Good, and that may even be what Volcker says his intent was sometimes, so let’s just pretend that’s what it will actually do. Reporting!

Meanwhile, this Bloomberg article laments that banks may have succeeded in some Volcker pushback. That’s not good, because obviously, whatever Volcker wants to happen should happen. This article does a little better in defining what the Volcker Rule does, and also helpfully sources me some Volcker Rule proponents to argue with:

Proponents of the rule say tough restrictions are the best way to ensure that the banks don’t use privileges like federal deposit insurance to subsidize their own profit-making and make risky trades of the kind that contributed to the 2008 credit crisis.

I have no doubt that proponents of the rule say that. However, the problem is there is zero reason to believe, and no argument ever given, that ‘prop trading’ ‘contributed to the 2008 credit crisis’. The reasoning seems to be that since ‘prop trading’ is (axiomatically) bad, and the credit crisis was a bad thing, the former must have ‘contributed to’ the latter. Bad things must have been the cause of other bad things.

This is especially evident in the reasoning of one Bartlett Naylor:

Bartlett Naylor, who works on financial policy at the Washington-based advocacy group Public Citizen, said his small band of Volcker supporters is highlighting the recent New York Times op-ed article by ex-Goldman Sachs derivatives salesman Greg Smith to show the need for a strong rule. The article, which Goldman Sachs said it disagrees with, accuses the firm of making trades against its clients’ interests to boost profits.

‘Making trades against its clients’ interests to boost profits’ may be bad – but has nothing per se to do with ‘prop trading’ or anything the Volcker Rule prohibits. In fact, the Volcker Rule forces banks to make most of their money from client trading. How are they supposed to do that? Here’s one way: higher fees/worse prices. Here’s another way: try to get them to buy more stuff, stuff they wouldn’t necessarily have otherwise bought. Aren’t those things against client interests? (The article does list several examples of clients – Vanguard, in particular – complaining about the rule. Why would they do that?)

But once again, ‘bad is like bad, good is like good’ type of reasoning seems to apply: (1) The Volcker Rule is good and prevents bad! (2) Doing things in the client interest sounds good not bad! ERGO, (1) must help bring about (2). QED.

The article gives away the game here:

They grew more alarmed when regulators published the 298-page draft Oct. 11 because it seemed to ban much of what is called market-making: buying and holding securities to facilitate client trades when there’s no ready counterparty.

Bingo. It bans much of ‘what is called’ market-making. That’s because it tried to define ‘prop trading’ and there’s no such sharp definition (that wouldn’t apply to a lot of market-making). Sharp-eyed RWCG readers will note that this is what I have been saying approximately 1.9 zillion times for the past year or more. They will also note that no person in the world has made a convincing argument to the contrary. Instead we get fluffy smokescreens like endless paraphrases of (and analogies meant to illustrate) the law’s ‘intent’, as if ‘intent’ is all that matters in regulation:

The senators filed a 54-page comment letter saying that the Volcker rule “is intended to provide a 21st century version of the Glass-Steagall Act” that separated investment and commercial banking in the 1930s and “served our economy — and financial system — so well.”

and of course the inevitable appeal to dark motives,

“It can be the source of enormous bonuses for bankers and therein is the argument for the fierceness of their fight,” Naylor said.

These are nice, make great copy, and probably feel good to say. But they are not real arguments. If anyone spots a real argument in favor of the Volcker Rule and that rebuts anything I have been saying, anywhere on the internet, please do let me know. It’s getting lonely being the only one making real arguments.

HTs: Ritholtz, Khimm

Quick (Actually Not So Quick) Takes
March 26, 2012, 6:33 pm
Filed under: Uncategorized

Global Warming Close to Becoming Irreversible

Once it becomes ‘irreversible’, does that mean we can stop hearing about it? Irreversible things, I hasten to add, cannot be reversed even if we push through the Right Policies. So the great thing about claims like these is that they put a hard clock on the relevance of the chicken littlers. For example, here’s a quote:

“This is the critical decade. If we don’t get the curves turned around this decade we will cross those lines,” said Will Steffen, executive director of the Australian National University’s climate change institute

What this means is that no matter what happens, starting on, I guess, (at least) Jan. 1, 2021, you no longer have to listen to anything Will Steffen, executive director of the Australian National University’s climate change institute says about climate change ever again. Either a global system of political-economic greenhouse controls will have been put in place to his satisfaction (and you don’t have to listen to him), or they will not have (and it will be too late to do anything, by his own reckoning, so you don’t have to listen to him). In this way the number of people we Have To Listen To should shrink monotonically with time according to the dates the various chicken-littles have asserted to be the ‘tipping point’. If we had the means/manpower, we could keep track of a Chicken-Little Decay Factor (=the % of scientists whose chicken-little claims of a ‘tipping point’ haven’t yet come and gone) and happily watch it shrink with each passing year. By the time the CLDF shrinks to below 10% I think we’ll have a good case for completely ignoring all of this stuff. That’s my solution to the global warming issue in fact and it’s probably the most practical one anyone has ever suggested.

Did Affordable Housing Legislation Contribute to the Subprime Securities Boom?

This working paper says No. (First sentence of highly-scholarly abstract: “No.”) It looks like their methodology is to check for whether they see statistical effects (on loans made, interest rates, etc.) just above and below various ‘affordability’ thresholds, assuming such effects must be linear and completely independent of all other factors.

I don’t have much to say about that statistical number-crunching exercise, except that I wonder why the authors would think there would need to be a discontinuity for there to have been any effect. Essentially they are saying ‘if we don’t see a much bigger change in lending to people with (say) FICO=X and income of Y-$1 than to people with FICO=X and income of Y+$1, then affordability goals had no effect’. But assuming the market would have fine-tuned their lending to such a degree seems to credit them with a to-the-dollar carefulness not really in evidence, and to underestimate the coarseness of their behavior in general. Maybe the market, being lazy, just lowered their standards across the board, knowing (or at least thinking) this would disproportionately satisfy the ‘affordability’ criteria as a byproduct? (After all, if the affordability criteria had been being met under actual market standards, there would have been no need for them; in any event it’s not as if there’s no correlation between income and FICO…) So you would see no discontinuity (i.e. loose mortgage money would have been flung at $X+1 people at pretty much the same rate as at $X-1 people) but it would be incorrect to conclude that the CRA etc. had no effect.

But indeed was there not a broad loosening of lending standards across the board? So do the authors consider this alternative explanation (that would invalidate their paper)? Someone let me know, b/c I really don’t want to read the whole thing, but I didn’t see it. In any event it’s clear there’s a perpetual bid in the economic field for papers that essentially Prove That Socialist Policies Do Not Have Any Of The Bad Economic Effects That Common Sense And Basic Economics Says They Should so feel free to whip up some of these ‘studies’ yourself (do some logistic regressions, etc. until you find a way to get to the “No” conclusion) if you want a few easy published papers for your CV.

Ezra Klein thinks We can’t afford another 18 years of health-care drift, and by implication, he thinks this is an argument against overturning the Obamacare law on constitutional grounds. Conspicuously absent from Klein’s pleading editorial is any argument or even assertion that Obamacare is constitutional. This is illustrative of a general property of Obamacare supporters, which is: they don’t actually care whether it is constitutional.

I am trying to be as neutral as possible in saying that: constitutionality is just not something they care about. What they care about are (what they think or at least pretend to think will be) cost savings, getting a ‘comprehensive system’ in place, and that sort of thing. They DO NOT CARE whether what they seek and hope for and argue for is constitutional.

Along the way, of course, at times they do claim that Obamacare is constitutional. But this is not a verdict they have reached by carefully reading and considering the constitution and then comparing it to what their favored law does. It is a verdict they have reached by reasoning that, since it is good and must be done, it must be constitutional somehow. The ones with a facility for language and essay writing are able to cobble together a ‘how’ (inevitably, something involving the commerce clause).

But this doesn’t mean they actually care about the constitutionality. They may or may not even believe it is constitutional, if they even seriously consider the question. Whether it is constitutional is not something this portion of the electorate cares about. Or – as with the Klein editorial above – even mentions. To a large extent this is just a conversation between two sides with different and non-intersecting concerns.

It sure would be nice if the pro-Obamacare side would admit it, at least once.

UPDATE: Aretae says no one cares about constitutionality of anything. I beg to differ with ‘no one’, because I do (or at least I think I do, unless I merely delude myself). Maybe I’m weird or strange in that regard as I sense I have a highly developed (or pathological) ‘legalistic’ moral sense (or I buy into the ‘legalist’ myth, if you will) which takes it as an affront when I see something like a ‘contract’ that is being violated. But whatever the case, I genuinely do.

I guess he does not believe me and I do not know how I can help. I guess I could name a situation where I believe the Constitution goes against my views, yet I still support the Constitution, and see if that helps?

Well how about the federal income tax. I hate the income tax! But I acknowledge that the 16th Amendment exists. Another example is that I believe individual states could establish state religions, even though I’d be opposed to that, since the 1st Amendment just says ‘Congress shall make no law…’. I’m not a big fan of the census but the Constitution requires it. Etc.

It’s the nature of things though that most of the Constitution takes the form of ‘list of things the government is empowered to do’ (and some things, it has to do). Someone who by disposition wants the government to do a minimal amount of things will naturally see the constitution as on ‘their side’ most of the time. That is, there aren’t a lot of examples of Things I Want The Government To Do, But The Constitution Disallows because there aren’t a lot of things I want the government to do full stop. So that’s the way it is.

Proposed Obama Ad Campaign
March 25, 2012, 10:28 am
Filed under: Uncategorized

Pursuant to President Obama’s recent stealth drive to remind everyone that he actually procreated, and which kids his hypothetical alternate-universe kids ‘would look like’, etc., there’s a brilliant companion-piece ad campaign to be made, if only TEAM OBAMA 2012 is astute enough to seize upon it.

Idea is free to TEAM OBAMA 2012, but they must credit Sonic Charmer!


Wide shot. Playground is empty aside from a 13-year-old black child sitting on MONKEY BARS with downcast eyes. Leaves blow across the asphalt (despite lack of trees).

Audio soundtrack features snippets of MARTIN LUTHER KING’s “I Have A Dream” speech, MAYA ANGELOU reciting some poem, intermixed with gunshots and sirens, clips of President Bush’s speeches, Rush Limbaugh saying ‘slut’.

Camera beings to slowly pan in for close-up. Visuals flash faces of TRAYVON MARTIN (and similar cases, i.e. the Texas truck-dragging victim, Matthew Shepard, etc.) around the corner of the screen, faster and faster. Audio ratchets up a crescendo of noise. At the last moment, all other noises and faces disappear, the original child is lone and center-framed, and he looks into the camera wistfully:

“If I had a father, he’d look like President Obama.”

Game, set, match.

UPDATE: This would of course launch a whole series of commercials, all part of the “If I Had A Father” line. The first few clips would all be clips of various kids, black and white, reciting proudly “If I had a father, he’d look like President Obama”. These would be interspersed with clips of Hollywood celebrities and rappers saying it. Maya Angelou would say it. SWPL soccer moms would say it. Oprah would say it. Kanye West (or whoever) would do a Youtube-megahit rap called “If I Had A Father”.

I genuinely think this campaign would be a monster. “Daisy” was nothin’.

President Obama’s Real And Imagined Fatherhoods
March 25, 2012, 10:05 am
Filed under: Uncategorized

Given that (as he has now informed us) if President Obama had a son, that son would look like Trayvon Martin, are we meant to understand that he had an affair with Mr. Martin’s mother, Sybrina Fulton? (I mean, as everyone knows, if Bill Clinton had a son, he’d look like Danny Williams.) So how is Mr. Martin’s father supposed to react: thank you, strange man who doesn’t know us, for mysteriously saying that if you had a son he’d look like my son? Wink-wink, I take it?

Well, how else are we supposed to interpret it? What’s it even supposed to mean? My PC-pabulum-to-English instant translator digital-earbud must have fallen out of my ear because to me this comment just sounded tacky and tasteless. But, I suppose in times of trauma and distress people let these things slide, so if Mr. Martin’s parents can – and I’m sure they did – I should too.

President Obama is big on reminding people that he is a father lately. Apparently all issues are now going to be recontextualized into the frame of reference of President Obama’s fatherhood, and fatherhood in general. He supported Sandra Fluke against being called a slut, and called her up, because of such-and-such thoughts about his daughters. He also told Sandra Fluke’s parents how they should feel about her – in particular that they should be proud. (I’m sure they appreciated learning the answer to whether-they-should-be-proud-of-their-daughter from this faraway strange man; how else would they have known?) Here, he projects himself into the Martin family, uninvitedly assuming the role of spiritual father. I can only assume that his, say, Iran policy will be informed by ‘when I look at my daughters I want to be able to tell them ____’ etc. as well. I do believe this is all reasonable electoral strategy although I wonder if diminishing-returns kick in; at some point, one has to assume that the Obama campaign will reach (or has reached already) saturation-point with the single-woman / single-mother community that psychologically sees the government, and him in particular, as their provider baby-daddy. They don’t really need all that many more reminders, and in the meantime, people who don’t understand what he’s doing might just start to get a little creeped out.

Or maybe that’s just me.

UPDATE: I wonder how many of the victims of these shootings look like the hypothetical sons/daughters President Obama would have if he had any other hypothetical sons (besides the one who looks like Mr. Martin) or other daughters (besides the two real ones). Does it depend on the race of the person shooting them, and if so what is the calculus exactly? HT Sailer

Trial By Social Media
March 24, 2012, 6:17 pm
Filed under: Uncategorized

My position on the shooting of Trayvon Martin was going to be that since I wasn’t there and have no idea what transpired, I should just remain silent.

But then I saw some Facebook ‘wall’ postings (with graphics) and they convinced me: whatshisname is GUILTY.

This raises the question, juries are so antiquated; should we not harness the power of social media here, and work out guilt or innocence through Facebook/Twitter?

A Volcker-Approved $7.1 Million Loss
March 23, 2012, 7:37 pm
Filed under: Uncategorized

Bats IPO Reversal May Cost Morgan Stanley, Banks $7.1 Million

Earlier, I had asked why banks giving Facebook billions in credit lines as part of their IPO wasn’t a ‘bet’ with ‘depositor money’ that, according to the Volcker philosophy, banks should be banned from undertaking. The above is a semi-illustration of why this was not as dumb a question as it may have seemed at the time.

Please think about the above situation. Some banks have now lost $7.1mm on the fact that an IPO went sour. How can that happen? It can only be because they signed a contract which, among other things, said ‘if [things go sour in such-and-such way] we’ll cover the cost of [some stuff that ended up adding up to $7.1mm]‘.

Why on earth was it okay for banks to sign such a contract? I’m asking Volcker Rule supporters.

Note that money is fungible and so it is meaningless to ask whether these 7.1 bucks they have lost consisted of ‘depositor money’ or some other kind of money. The fact is, evidently the IPO agreements with BATS that they entered into was, in fact, risky. In particular, we now know it could lose them $7.1mm. Why? Because it did!

On the other hand, had it gone well, the banks would have made money (“Morgan Stanley, Citigroup Inc. (C), Credit Suisse Group AG (CSGN) and other banks would have divided up $1.12 a share for the IPO”). So here we have a situation where banks did a thing that could gain them money if [good stuff] but lose them money if [bad stuff]. The bad stuff happened and the money was lost.

Someone, anyone, please explain to me why this wasn’t a ‘bet with depositor money’, and by extension (since banks are FDIC-insured) a ‘bet with taxpayer money’?

Because I myself have no idea. It sure seems like it was to me. But what I do know is that the above transaction, and loss, is totally fine with Paul Volcker, because it wasn’t a “prop trade”, so that makes it okay.

Now, granted, $7.1mm spread across multiple banks isn’t, by itself, all that big in the grand scheme of things. On the other hand, these things can add up. But, as long as the things adding up to these kinds of losses aren’t “prop trades”, everyone thinks that’s just fine and dandy.

Am I getting through here? To anyone?

Rooting For Hunger Games
March 23, 2012, 12:34 pm
Filed under: Uncategorized

With the backdrop of that ‘Girl With the Dragon whatever’ movie being considered a financial loss, we now turn to this ‘Hunger Games’ thing coming out. Here’s Matthew Yglesias, Slate’s business and economics correspondent, talking about the ‘economics of the Hunger Games’ or some such crap (I didn’t read it; someone tell me if he said anything interesting). Here’s a later Yglesias post whose first sentence is

The bottom line of my joint review of The Hunger Games and Why Nations Fail is that political change is hard.

which I found more useful, because (1) now I never have to read his earlier ‘joint review of The Hunger Games and Why Nations Fail’ and (2) I have gained the important and fascinating insight that ‘political change is hard’ from Slate’s business and economics correspondent’. Good post! (No, I didn’t read beyond the first sentence).

Anyway, now let me discuss this Hunger Games thing. Disclaimer: I haven’t read a single word of these ‘Hunger Games’ books, as I just became aware of them like 2 weeks ago, but apparently they are all the rage on peoples’ Kindles, and as a result they seem to have put a whole, like, movie into production in the last 4 days. It stars, like, Lindsay Lohan and the Olsen twins as far as I can tell (or may as well). Anyway, whatever the case, it’s coming out now, and oddly enough commentators in all the blog posts I’ve skimmed about it seem to be treating it as a forgone conclusion that it will be the hit of the decade.

This is a relief, because I think I caught part of a preview of it, and there’s this dude with comic-book blue hair. Blue. hair. And the thing is, futuristic dystopian chase stories where guys have cartoonish effeminate blue hair do not scream mega-hit to me. They scream flop, in fact. They scream Freejack starring Emilio Estevez and Mick Jagger, or The Lawnmower Man, or at their best, The Fifth Element.

But I’m rooting for The Hunger Games and here’s why: squeezing out a young-adult futuristic sci-fi Kindle story into my iPod touch, a story which features a spunky-teen-girl main character and bad men who want to do bad things to her, having tons of teen girls and Oprah-watching grownup ladies download it for $2.99 or whatever, and on the back of that having it rushed into production as a Hollywood film featuring the big teen actresses of the moment, was my secret plan for easy mega-enrichment. And if this ‘Hunger Games’ thing doesn’t work and the movie flops, I might have to rethink that whole strategy. That would suck.


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