Keepin' it real at the Fed

As a follow up to my article about HR 1207, I offer a brief reference to a related bill, HR 3232, the PROFIT Act of 2009. A little background, perhaps, is in order.

The Great Big Bank Bailout Bill of 2008 (HR 1424 of the 110th Congress), passed with votes from Barack Obama and John McCain, was sold to the public as a necessary evil (to "stabilize the economy", right before the election) with a potential upside. Publicly, the Treasury would provide funding to banks in return for stock (in the case of at least AIG, a controlling interest), a requirement to pay what was effectively interest, and warrants, options to buy bank stock at a later time at the current (lower) price. This last provision was sold as an "upside" - the Government would enter the global casino with the hope that when the economy recovered, there would be additional money to be made to the profit of taxpayers, and we could hold our breath, cross our fingers, and hope to maybe even make a profit from all this investment. Never mind the fact that by tying the program's success to the requirement that these institutions have a future as independent entities made it much more difficult to consolidate or close them down as part of the solution.

Of course, the TARP has operated much differently from how it was sold. Because the Federal Reserve is now providing financing to banks and "banking institutions" (outside Congressional oversight; see HR 1207), funding recipients are now repaying the money they received under the public TARP. And, shockingly, the Treasury are redeeming the warrants at a fraction of their value, according to a report by the Congressional Oversight Panel. In other words, effectively providing the banks another subsidy. And this is public funding to institutions like these (from the Bloomberg article above):

[TARP special inspector general Neil] Barofsky said the TARP inspector general’s office has 35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs.

We need to collectively admit the obvious: the people in charge of "fixing" or "managing" this financial crisis were either responsible for it in the first place, or were negligent in their oversight of those responsible. Starting with Reserve Chairman Bernanke and Treasury Secretary Geithner (and his predecessor Paulson) on down, these public servants need public supervision and guidance, without which they seem to pretty much be doing whatever they please with our money as long as it keeps some favored institutions in business (and profitable), and perhaps even forces competitors to fail.

Please contact your Congressional Representative and ask them to support HR 1207, HR 3232 (which requires the above-mentioned warrants to be sold in public at market prices, so we can realize those promised "profits"!), and related bills. This is the sort of oversight which should have been in the bailout to begin with; we should have kept up the pressure on our Representatives to block the bill until these safeguards were in place. Hopefully we'll do that next time.

Deeper in

I'm reading Karl Llewellyn's lectures collected in The Bramble Bush, the 2008 Oxford University Press edition, and thought I'd share another quote: this one is about assuming institutions are just so because that's the only way they could be arranged. This quote is preceded by a description of what courts and judges do, which I omit.

... I take time to say this because I deem it important that early, very early in this game you meet some counterweight against what I may call the unconscious snobbery of social institutions: against the touching faith that the current rationalizations of an institution, first, fit the facts, second, exhaust the subject, third, negate other, negate better possibilities. Nowhere more than in law do you need armor against that type of ethnocentric and chronocentric snobbery -- the smugness of your won tribe and your own time: We are the Greeks; all others are barbarians. ...

I offer the above quote to those who argue that a market based or private insurance solution to our health care crisis is important because the United States has a "tradition" of such things (a very recent one, to be sure). If that were not enough, Paul Krugman shares this report by Kenneth J. Arrow, excerpts of which are available from the World Health Organization web site; it's an economist's analysis of the factors which contribute to the observation that a market based approach does not provide optimal solutions to the pricing and provision of health care.

Question everything!

Entering the Bramble Bush

I've started reading Karl Llewellyn's lectures collected in The Bramble Bush, the 2008 Oxford University Press edition, and found these passages from Chapter 1. I may be republishing other interesting excerpts as I find them. Emphases are are in the original.

... We have discovered in our teaching of the law that general propositions are empty. We have discovered that students who come eager to learn the rules and who do lean them, and who learn nothing more, will take away the shell and not the substance. We have discovered that rules alone, mere forms of words, are worthless. We have learned that the concrete instance, the heaping up of concrete instances, the present vital memory of a multitude of concrete instances, is necessary in order to make any general proposition, be it rule of law or any other, mean anything at all. Without the concrete instance the general proposition is baggage, impedimenta, stuff about the feet. It not only does not help. It hinders. ...

... You may have missed in this discussion the common idea that the law is right, that rules of law are to be obeyed because they are right, that men have duties to uphold the law. Such ideas are not missing because they have been overlooked. They are left out because you may fairly be expected to be well aware of them already. They are left out, too, because they contain truth so partial, so faulty, as to cry out for revision in the light of some such analysis as I have been presenting. They are left out because at this stage of your approach to law your common sense is rather in the way than otherwise. Let me here say only this about rightness of the law. That if most people did not stand behind the officials, however passively, there would be little law to talk about. That if most people did not most of the time when they looked at a rule look to its purpose as well as to its exact and narrow form, and fit their conduct roughly to that purpose, then the officials would have been a burden on their hands they could not bear. And, finally, that if most people shaped their conduct really with reference to the law and to their legal rights, for any serious fraction of their time, rather than with reference to the patterns of action, the patterns of thought, the standards of judgment which they inhale as the social atmosphere they breathe, then life in our society would become unlivable. ...

I offer this in part as a response to those who look at the actions of those responsible for the current crisis in mortgage backed securities and who say "nevertheless, what they did was legal". This would also be applicable to those who excuse the actions of our government's agents toward those in its detention centers because of some technical justification by the Bush Administration's Office of Legal Counsel. Just because someone can twist the words of the law to justify reprehensible actions doesn't make those actions any less wrong.

Kudos to the Lanier Middle School Debate team

The Houston Chronicle has an article about the success of the debate team from Houston's Lanier Middle School, a public school in the Houston Independent School District. Because one of my children is on the team, I traveled with them to the 2009 National Junior Forensics League competition and was a volunteer judge for a number of events.

The experience was really enjoyable for a number of reasons. The competitors in all the different events were accomplished speakers; a number of schools stood out with impressive performances from their various team members, and it was a treat to observe them as a judge or in the audience. The Lanier group was of course one of the impressive groups, strong in both the speech/interp and debate tracks; this breadth of expertise served them well and ensured their 7th straight first-place national ranking, for although other schools were also very good in one or the other area, none were as good in both.

The other compelling reason to go again next year was the behavior of the team itself. They exhibited a welcome camaraderie with each other; for example, members would attend performances of their teammates when they were not competing themselves. As far as I saw, they were always respectful of the judges and other competitors and schools, thanking the judges after every round and congratulating the other competitors in the round when appropriate. When together, they played games or shared impressions and notes, and recognized the strengths of the other competitors. I think it was a good experience for my child to be part of such a large and supportive team.

As the team's coach Mr. Hill pointed out in the press conference, their success was due to their own hard work, but also in large part to the contributions of the alumni who returned to mentor and challenge the team, the parents who support the students, the school who value the team and treat them as champions (not just geeks!), and of course the coach, without whose guidance the students would not improve as much as they do over the years they're on the team.

Auditing the Federal Reserve

Representative Ron Paul of TX has introduced the Federal Reserve Transparency Act of 2009, a bill which essentially opens the workings of the Federal Reserve to Congressional audit but not control. It's a hugely popular bill on OpenCongress.

Proponents of shielding the Federal Reserve from meaningful disclosure and oversight justify their position by arguing that "the Fed" should be able to complete its work without political pressure, especially pressure to take short-term actions counter to particular long-term policies. There's some value to that, in the sense that in many cases the actions necessary to preserve economic stability and/or growth in the long term may be unpopular in the short term.

However, it's ultimately in the democratically-elected Congress where the nation can debate its long term goals, and when necessary, the tactics required to achieve them. As it stands, we can only trust the Reserve to take its actions without fear of audit; this is disturbing because we the people end up paying for loose or tight monetary policy and its "lending as a last resort". Because their actions spend or encumber our tax dollars (now or future), we taxpayers should have the power to determine (at least post facto) if the short-term tactical decisions make sense.

As Justice Brandeis once said, "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants ...". The Federal Reserve is not a sausage factory; it in part implements policy by regulating its member banks. It's responsible to the Federal Government, and as such, should expect to be audited by elected officials.

Sarah Palin has a new job

When Sarah Palin recently announced her pending resignation as governor of Alaska part way through her first term, we wondered where we'd see her next. A clue came from an op-ed piece she recently wrote for the Washington Post (no link, look it up), where she argued vigorously against the current Waxman-Markley cap-and-trade proposal wending its way through Congress. Perhaps she's lining up a career as a pundit or lobbyist?

Painful as it is to say it, although I disagree with almost everything in her piece, I do concur with her overall conclusion the bill is a bad idea. Here are some of my observations about her writing:

1. Her first purpose seems to be to conflate energy with oil. It appears she'd even prefer to make that Alaskan crude but is forced to concede later down that coal and nuclear power are acceptable alternatives. She omits any mention of renewable sources of energy; apparently we can't power our economy with those.
2. She uses a provision of the bill, which offers funding to retrain displaced workers, to argue that the bill will have an overall negative effect on employment. However, retraining workers to land new jobs is a responsible response to a shift in energy production from fossil fuels to renewable energy sources. Is the better alternative to leave the displaced employees out in the cold? I guess she's not one of those compassionate conservatives.
3. If electricity prices do go up as a result of this bill, that implies the current bill is the wrong approach, not that cap-and-trade in general is a bad idea. As far as I can tell, one fatal flaw in the current bill is the giveaway of a huge amount of emissions credits to polluters - a provision offered to them precisely to avoid price hikes in the consumer sector. If producers are going to spike prices even with free emissions credits, then Congress should consider going back to candidate Obama's original proposal, which was to strictly auction off all the credits and use the auction proceeds as a per-capita refund. That's not a perfect solution either but at least it mitigates the claim that "with cap-and-trade your bills will go up".

4. Palin throws in a reference to outsourcing our energy decisions to China and Russia without apparently developing the idea further in that piece. I wonder if that meme has propagated enough yet for her to just mention it to make sense.

   What she's referring to is the very real effect the current bill may have on the domestic/import mix of oil. Basically, if energy refining is more expensive here (because of emissions controls and costs) then refiners will shut down plants and import more finished goods; according to Bloomberg, they're already making this threat. It seems from the Congressional testimony of Joost Pauwelyn (a good read, and thanks to Paul Krugman for the reference) that the WTO would be fine with Congress responding by imposing an equalizing tariff at the border on imports from countries which don't impose the same taxes we do on carbon processing; however, the Obama administration has ruled that out for some reason, leading to this perverse potential effect and leaving the bill's authors open to the assertion that we'd be end up more dependent on foreign oil (in the short term, we hope) not less.

Airport Searches and the TSA

An interesting case from UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION, USA v. FODE AMADOU FOFANA, decided 2 Jun 2009, which held that the defendant could suppress the presentation of the forged passports he was carrying through security because the search was only reasonable to find "weapons, explosives, or prohibited items". Contraband or other generally illegal items are not reasonable targets for a TSA search.

Fofana does not challenge his selection for secondary screening, but rather argues that the hand search of his luggage went beyond the permissible scope of an airport screening search because Agent Stroud had already determined that he was not carrying weapons or explosives when she decided to open the envelopes containing the passports. He further argues that his search exceeded the TSA's statutory mandate under 49 U.S.C. § 44902(a) and 49 C.F.R. 1540.111. He reasons that under 49 U.S.C. § 44902(a) and 49 C.F.R. 1540.111, [*13] the TSA is only permitted to search passengers and their belongings to detect dangerous weapons, explosives, or other destructive substances. He contends, therefore, that the TSA exceeded its statutory authority by opening the envelopes after his bags had been cleared of any suspicion that they contained weapons, explosives, or prohibited items.

For the reasons explained above, the Court GRANTS Defendant's Motion to Suppress. Any evidence that was seized or subsequently obtained as a result of Fofana's unlawful search, including the three passports, will be suppressed.

The key part of the reasoning seems to be that the forged passports were found in a search which commenced after Fofana had been cleared (by X-ray, wand, and explosives swabbing) of having any "weapons, explosives, or prohibited items". A subsequent search for further items is, according to Judge Marbley, an unlawful search on the part of the TSA.

Costs: Medicare vs. private insurers

I don't like to simply copy and paste from other peoples' articles, but I thought this meme was important enough to echo. From Paul Krugman's blog, a discussion of the assertion by the Heritage Foundation that the lower administrative costs of Medicare (less than 2% of expenditures) are actually higher than the administrative costs in private plans if measured on a per-capita basis. According to Heritage, the key is realizing that the expenditures in Medicare are higher per capita (they're a population which requires more care), so the percentage ends up being lower.

The key to rebutting this assertion comes from their own framing of the issue. If the two populations are not comparable (necessary to their argument) then it helps to find two populations which are. Luckily, we have the Medicare Advantage program, which serves a population comparable to Medicare, and which is run by private insurers. From Jacob Hacker:

These administrative spending numbers have been challenged on the grounds that they exclude some aspects of Medicare’s administrative costs, such as the expenses of collecting Medicare premiums and payroll taxes, and because Medicare’s larger average claims because of its older enrollees make its administrative costs look smaller relative to private plan costs than they really are. However, the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage. This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population. (And even these numbers may unduly favor private plans: A recent General Accounting Office report found that in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and 6.6 percent to profits—a 16.7 percent administrative share.)

The CBO study suggests that even in the context of basic insurance reforms, such as guaranteed issue and renewability, private plans’ administrative costs are higher than the administrative costs of public insurance. The experience of private plans within FEHBP carries the same conclusion. Under FEHBP, the administrative costs of Preferred Provider Organizations (PPOs) average 7 percent, not counting the costs of federal agencies to administer enrollment of employees. Health Maintenance Organizations (HMOs) participating in FEHBP have administrative costs of 10 to 12 percent.

In international perspective, the United States spends nearly six times as much per capita on health care administration as the average for Organization for Economic Cooperation and Development (OECD) nations. Nearly all of this discrepancy is due to the sales, marketing, and underwriting activities of our highly fragmented framework of private insurance, with its diverse billing and review practices.

As I've said before on health care, if you want your premiums to be applied to improving your health and not to inefficiencies then you should support H.R. 676. Even a fully functional, national public insurance option may be acceptable as a compromise, as long as its ultimate goal or effect is to gracefully, gradually, but inexorably drive the inefficient health insurance companies out of the market. This is especially important if a large public investment will be made in the plan; I want my tax dollars going toward improving public health, not padding the profits of private corporations. In the end, given the facts, it's really that simple.