Friday, May 28, 2010

Don’t Ask [the Right Questions], Don’t Tell [the Truth]: The Logic of Congress and Other Special People

Watching and listening to politicians wrangle over the “Don’t Ask; Don’t Tell” policy regarding gays in the Military is yet another instance of the peoples’ elected representatives failing to deal with the issue in a complete and informed manner. Given the historic homophobic and anti-homosexual biases that have run rampant through our society, it is not surprising that there has been an issue on whether gays in the military are a socially, politically and militarily practical or acceptable concept. But now is not then. Today, Americans are generally aware enough to recognize and accept that being gay is an accepted and protected status under our Constitutional framework and democratic principles. This does not mean that there are not plenty of persons who treat gays as social pariahs and occasions in which they are at risk of being maligned, maltreated, and murdered. So while Congress and the Military leadership determine if it is acceptable for some who is gay to be ‘openly’ gay while in military service, shouldn’t they have raised some pertinent questions on this issue as part of their responsibility to the public that they are expressly dedicated to serve? [I recognize that the following questions may have been asked by someone earlier, but I haven’t noticed that these issues have been given any noteworthy attention by Congress, the Military, or the Media and thus appear to me to be unasked.]

By disallowing gays to serve openly in the military; the Government, Congress, Military, and other like-policy supporting organization/groups are limiting the representation of gays in the armed forces which effectively increases the representation of heterosexual individuals in the Military. Thus the lives of heterosexual men and women are placed at greater risk simply on a statistical basis. And why would the country, Government, Military, and Congress place a lower value on a heterosexual life? There is no way around the fact that excluding one group from the risks that military personnel face places it’s contra-group directly in the position to absorb that risk. Thus injuries to and the deaths of heterosexual military personnel are proportionately increased. If you accept an scientific perspective on evolution, you might want to consider what unintended consequences follow from the current policy.

On another front, why are the Government, Congress and Military creating a security risk for themselves and America? It seems odd that the very people charged with securing the blessing of life, liberty and the pursuit of happiness are and have been instrumental in establishing a means to coerce military personnel to fear for their life and/or career? It doesn’t take much mental effort or insight to deduce the consequences of a “Don’t Ask; Don’t Tell” policy or harsher previous incarnations of the military’s policies toward gays with respect to the security vulnerability that they directly create. Further, even with their current policy, they haven’t recognized the inherent advantages that their own policy gives them if they established a process for protecting individuals exposed to such threats.

Lastly, what do our governmental and military leaders think the consequences are to expressly and aggressively treating one group of people as unequal and unacceptable in either our general society or even just within our military society. Do they think that such mental and behavioral distinctions will have no consequential implications for how the broader governmental and military policies will view other groups: be they racial, gender, ethnic, or religious in nature? When we accept that it individuals can be treated unequally for one dimension of their being; is it not easier to treat another group in some other rationalized unequal manner?

In our society and system of government, we should be striving to have everyone held to the same high standard of freedom, liberty and responsibility. While it is not simple or easy to live and exist in a pluralistic society, and I struggle to be open-minded about many groups myself; I don’t see why I can’t find a way to accept lifestyles that I don’t personally identify with. Perhaps it has helped to have lived through some of the turbulent social changes that America has struggled through over my life. Is extending the inclusive principle of our Democratic way of life any more unreasonable for gays than it has been for race, gender, nationality, religion, or even members of Congress?

Wednesday, May 26, 2010

Congress and Other Politicians: Illegal Immigrates in the Country of Intelligence?

What with immigration being one of the hot issues of the day, month, year, decade, … you would think that Congress and states’ legislatures would have found some viable and functional approaches to setting the legal and policy direction on it. But of course they have not. Is it because the two parties cannot find a way to work together? No, even when they have had the opportunity to pass whatever bill they have wanted the ‘best and brightest’ have flounder without a concept; or vacillated on some direction; or lurched toward some ‘tough on illegal aliens’ bill that was toothless, blind, and addle pated in its efficacy.

Is it because the solutions are beyond the ability of men and women of good will to conceive of or comprehend something of value? No, even politicians, including some members of Congress, have the wherewithal to understand a good idea when they hear one. Makes you wonder why they haven’t heard one doesn’t it?

Is it because the public would not accept a reasonable, prudent and principled approach to reforming immigration? Harder to answer, but in general at least 7 of 10 Americans would support both an informed and practical immigration policy and law. They would even vote for those politicians who sponsored and backed such legislation. Most Americans are not inflexibly bound to either major Party’s failed and outdated positions on immigration; as the public is fundamentally interested in the impacts that the past and present immigration laws have wrought upon the land. At this point, the public would welcome a political leader who stood up and presented an immigration strategy that addressed those facets of American society that are being dealt real and significant damage from the ineffective and unproductive process that exists today.

So where is the politician that will seriously think about immigration and develop that creative position to bring intelligence, insight and innovation to the fore? Who will recognize the factors that motivate and drive the illegal immigration and the counter-measures that are appropriate to deal with them?

It appears that they are not in the Democratic or Republican Parties. It appears that they are not in the State legislatures, nor are they members of the staffs of these politicians. It appears that the politics of the day have stagnated the imaginations, and solidified the mind-sets of the very people that are supposed to tackle these problems for the American people.

Maybe it would help if we gave them a hint. To solve this problem there is an essential principle that needs to be attended to: First, you have to understand the problem. And that is where the immigration reform effort needs to start, and the politicians need to exert their energies. Only when they see the real problem will they have any chance of finding an effective solution.

Thursday, May 20, 2010

Financial Derivatives: Coming from Foolishness, Fallacies, or Fraud?

Derivatives are a hot topic today. There are various groups assembling to defend the purpose and value of derivatives in the financial markets, others who decry their abusive and destructive nature, those who want to regulate them, some who want to constrain where and to what they can apply, and certainly other interests that have their own particular bent on derivatives. And of course there are the Congressional hearings on the Financial markets collapse and on the Financial Reform effort to address regulatory needs, if any, that the government should establish.

Derivatives are not a new financial concept they have existed in different forms for centuries if not millennia. The derivatives that were created in conjunction with the housing mortgage bubble and other financial bubbles that have contributed to the devastating financial markets’ near collapse were perhaps more ‘complex’ instruments but they were based on the same financial principles that derivatives have always been created upon. And if regardless of what Congress decides to do in terms of regulating, restricting, or intervening on with respect to derivatives; they will not change the need for nor the availability of some financial instrument that will function to the same purpose as derivatives. So the question is will Congress recognize what the real issue is that they need to address?

Where derivatives foolish investments? No, some derivatives did very well for those who invested in them. In fact, they made literal fortunes. Of course others got wiped out. So they were not foolish investments unless you had misjudged the situation that they related to, or you invested in them without any understanding of what the risk was versus the reward potential that they offered. There does appear to be a foolishness factor with some of the investors in the derivatives like the collateralized debt obligations. Even big, smart, sophisticated, and “best and brightest” financial institutions got sucked into buying derivatives that they did not understand or have any means of properly evaluating. And on the other side of the equation, there were those putting together derivative packages that they may have not understood.

But foolishness alone is not the story. Did anyone make plain and simple mistakes or base their actions on false assumptions? Yes. There were fallacies aplenty. People used information given to them about derivatives without any attempt to verify it, to assess it, or to apply the information that the derivative was formulated on to how it affected or influenced the value or risk of their other investments. The derivatives were being treated by many individuals/entities as if they were independent of other financial consequences in the market. So fallacy played its own contributory role in the melt-down.

Now for the last factor: Fraud. Was fraud involved in the derivatives? Yes it was, but don’t assume that it was strictly and exclusively only the banks and financial institutions. Fraud was probably present in every layer and part of the process that created not only the derivative instruments, but that was involved in the underlying investments that seeded the housing mortgage bubble. And fraud was an essential component in the marketing of the derivatives and in the underlying investments. Both instruments were not marketed in the same context, to the same customers and with the same disclosure information.

The issue that Congress, the financial industry, the investment community and the public need to focus on and demand be addressed by way of business, government and societal reform is the very principle that capitalism is based upon: an open market place where everyone has access to the same information and has the same opportunity to compete. This is where the derivatives market went woefully wrong. Deals were made behind closed doors, information was kept for some groups and provided to others, and false and misleading information was used to mislead some investors for the benefit of others.

If Congress is to succeed in protecting the country, the pubic and the free democratic system that they are sworn to serve then Congress is going to have to see beyond the special interests, beyond the public outrage, and beyond the political opportunity and perceive the valid principles of American capitalism.

Sunday, May 16, 2010

Vapid and Hollow: Candidate or Congress?

A gauntlet has been thrown down, a supreme challenge has been made, and a duel to the death has been called for. Is this a World Wrestling Championship steel cage challenge, a Food-Network throw-down with Bobby Flay, or an Olympic grudge match between two life-long competitors? No, it’s the most recent Supreme Court nomination of Elena Kagan.

Kagan has written that the confirmation process has become a “vapid and hollow charade” without value or substance. A position that I have to agree has become the modus operandi of the Congressional confirmation process. An activity that is not only engaged in brazen political posturing for party-defined reasons but which is actively destructive to the interests of the American public.

The Republican Senator John Kyl of Arizona said that he was concerned about appointing someone to a life-time position on the court who had the absolute final word on issues brought before the court. I hope he understands that that is not true. He as a representative of the people is specifically authorized to put forth either appropriate law consistent with the Constitution to achieve the results that he believes are needed, or to even sponsor an Amendment to the Constitution. The Supreme Law of the Land is administered by the Supreme Court; but it is ultimately the Will of the People that determine what the Supreme Law of the Land is.

And was the challenge made by the Senate Judiciary Committee leadership? No, it was made, perhaps without expectation that it would become applicable to herself, by the nominee when she worked as a staff lawyer for the Judiciary Committee. So while not made by the people’s representative body that is charged with the responsibility for ‘advise and consent’ on the approval of Supreme Court justices, the challenge exists; but will it be accepted? Will Congress fulfill their responsibility? Will they do their duty to serve the interests of the people and our democratic and Constitutional principles in approving or rejecting the nominee? Or, will Congress put on another Party-centric, ideological, self-serving image-promoting farce where the measure of success will be the number of minutes of media coverage that individual Congressional members will receive? And will the media support this dismal display of vacuous content without attempting to exert itself enough to even comment on their own lack of insight into the lack of meaning or insight on the part of the politicians?

Perhaps we will be surprised this time. Perhaps, either the nominee, a member of Congress (or two), or both will step forward and do something meaningful; if for no other reason than to demonstrate to the American people (and even their colleagues) that they possess a sense of history, of responsibility, maybe even a degree of intellect or of understanding the essential role fulfilled by an independent judiciary.

For Congress’ players in this theater, they (or their staff) would have to craft questions that are central to gaining an appreciation of what perspective the nominee has on the role and obligations of Supreme Court justices, on how they view and comprehend the rational, justifications, and basis of current law and current precedents and ruling of prior Supreme Court cases. Congress might even ask the nominee whether any decision by the Supreme Court could be anything but ‘activist judicial’ action.

For the nominee, she could engage both the public and Congress in her responses the Committee questions. First, besides responding to her inquisitors, she could talk to the media and the public as she is answering the questions being asked. Second, she could analyze and critique the quality of the questions in the manner in which she responds. She would of course want to do so in a polite and respectfully manner, even in cases where the questioner is unaware of their own lack of propriety in acting on behalf of the American public.

What America needs and deserves is a procedure and process which shows that the participants properly recognize their responsibility to the American people, to our Democratic principles, and to the spirit of governmental institutions that serve the rights and liberties of a freedom loving citizenry.

Saturday, May 8, 2010

Crash?, Correction?, Congress?

Just what the tumultuous financial markets needed, a major record-level drop in the market on one afternoon from either a human or a computer error, or from both combined, allowing high-speed trading systems to drive the market irrationally and beyond human control and understanding. Congress has declared that they will investigate the causes and failures that allowed this to happen with the intention of making sure that the economy is not put in jeopardy from such events in the future. This demonstrates three aspects of Congress that should give us all pause.

First, Congress has demonstrated its keen understanding and insight into many areas in the past where they have successfully established programs and regulatory bodies that have achieved the successes that they envisioned. Recent examples include, but are not limited to, the Market melt-down of 2008 with its SEC oversight, the Gulf Oil spill in the last couple of weeks and the environmental safeguards required, the flu vaccine production availability last winter delivered by the CDC, the US-Mexico border fence wrought by the Homeland Security agency, the funding the Iran and Afghanistan war efforts as off-budget items to keep their unaffordability from impacting the domestic economy, and the raging forest fires from a couple summers back from our fire prevention initiatives. As these and other events like them show, Congress is certainly capable of crafting the right policies and regulatory focuses to protect the American people from unwise and reckless activities. Congress is prepared to guide the American public toward productive and prudent ventures that use their taxes without waste and corruption. This first attribute of Congress is one of the major reasons why the average American citizen holds our national legislators with such high regard and respect. These are people that we can depend upon to look out for our interests, without fear that Congress will act foolishly by adhering to some Party principle that has no basis in fact nor any connection to reality. These are men and women who are among the best and brightest that our society is able to produce. Any failures that have come about because of their legislative activities are beyond the ability of anyone to have perceived or comprehended in advance those failures.

Second, there is the implication that Congress thinks of itself as a body that can dictate the results that will occur simply because Congress has decreed that this is and will be the intended result; something akin to the Pharaoh’s “So it is written, so it shall be”. This can range from the efforts that have insisted that ‘tax breaks’ will restore the financial foundation of the nation without any recognition of or regard for the fiscally unsustainable Social Security system and its ilk that will not only not be restored by tax-breaks but which are more likely to terminate sooner. There are the contra-groups in Congress who will not raise taxes but who create fees, fines, assessments, licenses, sales of public resources, and other funds collection mechanisms so that they can create the particular legislative program they seek without having to man/woman-up to the fact that they just raised your taxes. Or worse, there are the Congressional leaders who will create legislative imperatives (“unfunded mandates) that must be undertaken, but will not account for nor provide the funding resources essential to their execution. It is from this hubris in their infallibility that Congress concocts their schemes to make the ‘perfect world’ that their vision foretells.

Third, Congress is perfectly suited to undertake the task of correcting the defects in many of our social, economic, business, environmental, and public areas. As a group they can be counted upon to weigh the facts carefully, to never follow the Party line above their own best judgment or the interests of their constituency, to be honest with the public purse, to be role-model and law-abiding citizens, and to be true state-men/women who can find common cause with their peers in Congress of any Party able to form coalitions that can deliver to the needs of the country. We would never see our Congressional representatives engaged in constant and unabated partisan bickering and snipping. Seeking with a one-minded purpose any tactic or strategy whose sole purpose is to thwart the possibility of accomplishing anything. Such illustrious members of Congress would not spend their days in destructive partisan posturing, nor would they allow serious and vital issues to become political footballs. We would never see efforts on: Health Care Reform, Financial Reform, Judicial appointments, immigration reform, economic stimulus packages, or other national issues dealt with as nothing more important than a campaign funding raising event for special interest lobbying groups.

And it is with these characteristics and more that Congress is preparing to go into battle to insure that the public will be protected from whatever caused the ‘thing’ that happened this week with the stock markets. Congress will see to it that sanity, reason and wisdom are brought to bear upon Wall Street and their methods. Who better to lead the charge than the clueless!

Friday, May 7, 2010

If You Spill It, Is It Yours?

Another opportunity has presented itself as a timely American Intelligence Test case. After viewing the more than two week long marathon on the Gulf Oil Spill and the pending ecological disaster that it portends, the Administration and Congress are working to raise the $75M liability limit established in the Oil Pollution Act of 1990. There will be plenty of legal wranglings over this effort, but this intelligence test is not about the legality of this effort nor regarding the context of the “ex post facto” restriction in the Constitution. The questions in this test are focused on more fundamental aspects of the oil spill and the laws Congress has created to address such calamities.

I present a handful of questions and in some instances commentary to place a particular context on the questions. At the end, I provide my answers to these questions. As before, your score is your responsibility to assess. A willingness to deceive yourself, as to the correctness of your answers or beliefs, is just another measure of the actual intelligence level that is being measured. To paraphrase Lincoln:

Some of us can fool ourselves all of the time, and all of us can fool ourselves some of the time, but all of us can not fool ourselves all of the time.

Prime yourself, the opportunity to fail is here.

Background: Congress passed an environmental protection-focused Oil Pollution Act in 1990 that limited the liability on oil companies against damages caused by spills to $75M. While oil companies are totally responsible for containing the spill and cleaning up the spill, other impacts from the spill are limited by the $75M amount.

Question 1: Did Congress chose the $75M limit because 20 years ago that would be more than enough to cover any possible economic damage that an oil spill could produce, or were they were afraid that a higher limit (or no limit) would cause oil companies to spend to much on safety and preventative equipment?

A. 20 years ago and oil spill could not have caused damages beyond $75M.

B. Congress did not want too much money spent on equipment for preventing/containing spills.

C. The Oil industry’s lobbying group offered to determine a viable sum, and promised some good campaign contributions.

Question 2: Congress did not provide any method in the Act to adjust the liability limit with time. This is because Congress:

A. thought the potential economic value of damages and loses from a spill were not likely to increase over time

B. possessed no knowledge about nor had experts that understood the ‘time-value of money’

C. prefer to have the opportunity to change legislation thus opening the door for injecting other special interest needs into the bill

D. All of the above

Question 3: If Congress had not imposed a limit on liability then oil companies would have been at too great a risk of being bankrupt by a calamitous spill event, and this would have far greater negative impacts on the public.

True: Bankrupting a company would cost jobs and tax revenues thereby harming the economy far more than an oil spill could.

False: Establishing the limit only transfers these risks and the costs of an oil spill to the public; and reduces the incentives for companies to be conscientious about prevention and mitigation methods.



Question 4: Creating the Oil Pollution Act basically empowered the government to add a tax to the oil companies to establish a fund to help deal with the consequences of oil spills. In this way, the Government puts the cost burden on the oil companies rather than the public. This is one of the best ways to hold the oil companies responsible.

True or False

Question 5: After the Congressional hearings on the causes of the disaster and on the effectiveness and responsiveness of Governmental groups to the oil spill, Congress will:

A. Find that everyone involved did not act responsibly, Congress excepted of course

B. Promise to present new legislation that will prevent a disaster of this kind from happening again

C. Split along some undecipherable grouping like it being the fault of the current Administration who is in office (Democrats) versus the Administration that was in office when the Act was passed (Republicans)

D. Establish a Congressional oversight committee on off-shore oil drilling operations

E. All but D

Answers: Q1:=C Q2:=D Q3:=F Q4:=F Q5:=E

At the end of the day, Congress will do nothing that alters the basic facts associated with off-shore drilling and the oil industry. They will try to provide a legislative solution and regulatory agency that is charged to enforce the rules, but there will be neither any real teeth given to nor any backing for the agency. The system will be basically reactive rather than proactive, and it will become paper-work and reports oriented rather than analytic and forward looking. The media and public will soon find another crisis to focus their attention on, and will quickly relegate this event into annual year-in-review topics. It is hard for the public to remember that there is only one purse and it is their purse.

Saturday, May 1, 2010

Goldman Sachs the Public

The Gulf Oil rig accident is not only an ecological disaster but it catastrophic proportions will regrettably pollute the public attention paid to the Goldman Sachs investigation just as the oil slicks will contaminate the environment. Conspiracy theorists might even be expected to infer some connection between the accident and Goldman Sachs. The supposition of course being that Goldman Sachs arranged for the oil platform disaster explicitly to draw media and public attention away from headlines and stories about their culpability in the financial crisis.

But let’s get back to a more grounded reality. Goldman Sachs claims that they did nothing wrong, at least nothing more wrong than what was being done by their peers and their lesser comrades in the financial community. They may admittedly have been foolish to engage in trading in complex synthetic collateralized debt obligations (CDO) without truly understanding the real risks involved for their clients and themselves; but hey, everyone was doing it.

Now there may be some truth in this assertion, but is Goldman Sachs actually willing to also public admit that they are no more and actually less knowledgeable, informed and capable than other leaders in the financial market place? Is their stellar reputation really just smoke and mirrors? Perhaps their ability to make money is due to the cultivated and privileged influences that they have established with Governmental policy makers, elected officials and our illustrious and copious bureaucratic agencies. The familiar ‘revolving door’ between industry and Government seems well oiled and in robust motion.

So some questions for Goldman Sachs:

• How is it possible that Goldman Sachs was able to hedge your positions on CDOs without understanding both the nature of the risk, and more importantly the associated relative values of the CDOs to the leveraged default obligations based upon their failure?

• Did Goldman Sachs merely set up a hedge fund instrument that they knew would pay off handsomely because they knew that the mortgage-based instruments were unsound or valueless?

• Didn’t Goldman Sachs lose some money on the CDO because they had no choice except to hold some CDOs in their own positions; otherwise it would be patently obvious that they had determined that these instruments had become or always were worthless?

• What amount of capital was at risk with the hedged default obligations relative to the CDOs; and how was the return value on that determined? And, if that potential rate of return was as attractive as it appears it was, shouldn’t Goldman Sachs have been aggressively marketing those instruments to the same clients to whom they were marketing the mortgage-backed CDO?

• How much money did Goldman Sachs’ executives lose on personally owned CDO investments, versus how much did executives make on their hedged counterparts?

These are the kinds of questions that Congress, the media and the public should be insisting get answered? Before we worry about whether they are guilty of some planned malfeasance, the American people and their representatives should be demanding that a comprehensive explanation of what was involved in creating these investments and permitting them to become so ‘toxic’ without any apparent alerts being attended to by the industry (particularly Goldman Sachs itself), the Government and its oversight agencies, and the media experts who provide the public with their in-depths analysis and understanding of the marketplace.

I am sure we can all sit back and await the Congressional and the SEC’s efforts to get to the bottom of this cesspool; but I fear that what will float to the top are results that we get from the same politicians and special interests that we always get.