Tuesday, April 13, 2010

It passed, but we still can't figure it out

I don't for a minute think that our fearless lawmakers are going to let themselves be even momentarily inconvenienced by the mere letter of the legislation they produced all by their little selves, but isn't this a chuckle?
In a new report, the Congressional Research Service says the law may have significant unintended consequences for the “personal health insurance coverage” of senators, representatives and their staff members.

For example, it says, the law may “remove members of Congress and Congressional staff” from their current coverage, in the Federal Employees Health Benefits Program, before any alternatives are available. 

The congresscritters do have a somewhat credible out, though. Congressional researchers suggest that the law was drafted so unclearly that it "raises questions regarding interpretation and implementation that cannot be definitively resolved by the Congressional Research Service."

Hmmm ... Wasn't passing the law supposed to be key to clarifying its contents? Or so said, David Axelrod, anyway.

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Thursday, October 1, 2009

So you can't spend your way back to prosperity?

"Stimulus Spending Doesn't Work," a simply titled piece in the Wall Street Journal by prominent economist Robert J. Barro and Charles J. Redlick, is rightly getting lots of play. If I'm reading the somewhat dense economic-speak correctly, the column says the evidence from past massive government spending -- primarily military expenditures during the world wars, the Korean War and the Vietnam War -- shows that ripping through the federal checkbook actually shrinks the GDP relative to expenditures. Taxpayers can hope for a dollar-for-dollar return on the expenditures only when unemployment rises to double digits.

For annual data that start in 1939 or earlier (and, thereby, include World War II), the defense-spending multiplier that applies at the average unemployment rate of 5.6% is in a range of 0.6-0.7. A multiplier less than one means that, overall, other components of GDP fell when defense spending rose. Empirically, our research shows that most of the fall was in private investment, with personal consumer expenditure changing little.

Our research also shows that greater weakness in the economy raises the estimated multiplier: It increases by around 0.1 for each two percentage points by which the unemployment rate exceeds its long-run median of 5.6%. Thus the estimated multiplier reaches 1.0 when the unemployment rate gets to about 12%.

Barro and Redlick's piece, and the research on which it's based, have powerful implications for the massive "stimulus" bill the federal government passed earlier this year, which was intended to spend our way back to prosperity. If the Journal OpEd is right, the stimulus bill is not just running up deficits and expanding the money supply to the point that it devalues money, it's making the long-term economic situation worse.

Barro doesn't stand alone on this point. The Congressional Budget Office quietly and drily raised similar concerns in March in A Preliminary Analysis of the President's Budget and an Update of CBO's Budget and Economic Outlook. In a section helpfully labeled, "Estimated Macroeconomic Impacts of the American Recovery and Reinvestment Act of 2009, Fourth Quarters of Calendar Years 2009 to 2019," the CBO predicted a bump for the economy through 2012, with the "stimulus" spending shrinking GDP starting in 2015 -- and that was using optimistic assumptions about the multiplier. The CBO explained its reasoning in a separate letter (PDF) to Rep. Charles Grassley, saying:

In contrast to its positive near-term macroeconomic effects, the legislation will reduce output slightly in the long run, CBO estimates. The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will “crowd out” private investment.

So even a Keynesian-style multiplier gets you a brief short-term gain with long-term suffering. If that multiplier is mythical (or negative), as Barro and Redlick suggest, you just get the suffering.

At this point, the last apparent unalloyed enthusiast for stimulus spending appears to be Paul Krugman, who has pretty much been reduced to ad hominem attacks on any economist who disagrees with him, and faith-based veneration for the moldering economic ideas of John Maynard Keynes.

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Wednesday, June 17, 2009

But who will pay the bills?

Uh oh ...
According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.

It was the first month since June 2008 that Beijing failed to purchase more US T-bills.

It's a good thing the government can just make more money out of thin air. What could be the harm in that?

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Monday, June 1, 2009

So this is the 'expert' in charge of the auto industry

Really, why didn't Obama just make his new dog the honcho. Instead, we get a guy who, as far as I can tell, has never had a real job, let alone experience in the industry he's supposed to transform.

It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism.

But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry.

Nor, for that matter, had he given much thought to what ailed an industry that had been in decline ever since he was born. A bit laconic and looking every bit the just-out-of-graduate-school student adjusting to life in the West Wing — “he’s got this beard that appears and disappears,” says Steven Rattner, one of the leaders of President Obama’s automotive task force — Mr. Deese was thrown into the auto industry’s maelstrom as soon the election-night parties ended.

“There was a time between Nov. 4 and mid-February when I was the only full-time member of the auto task force,” Mr. Deese, a special assistant to the president for economic policy, acknowledged recently as he hurried between his desk at the White House and the Treasury building next door. “It was a little scary.”

A little scary? Is this a joke?

Look, I know government-is-your-friend types think that there's no area of human life that a bureaucrat couldn't make better, but this guy almost seems like he was appointed on a dare. As if the White House staffers sat around trying to see just how much they can get away with, and were torn between this guy and the pizza deliveryman. The deliveryman refused to give up his honest employment for a government job, so we got Deese.


Wednesday, May 27, 2009

Where have all the millionaires gone?

Hmmm ... Last year, Maryland deliberately slapped an (even more) onerous tax on higher income state residents in order to try to soak up some of the red ink in which state books are awash. State politicians and newspaper editorialists basically gloated that the rick would suck it up.

How's that working out?
One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.
Some of the millionaires got chewed up by the recession, of course. Contrary to popular belief, the rich are not immune to bad times. But others ... Others headed for the hills -- or the sun, anyway.
The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."
Wow. If you paint a target on people, they tend to head for the exits rather than stay and take it. Who ever would have guessed?

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Tuesday, May 12, 2009

Thank God the new guys are in. Oh, wait ...

Last week, the Central Intelligence Agency upset a few political apple carts when it revealed what many people already suspected: that Speaker of the House Nancy Pelosi was briefed on the use of "enhanced interrogation tactics" -- torture -- against detainees suspected of terrorism as early as September of 2002. The revelation undercuts Pelosi's criticism of civil liberties violations committed by the Bush administration. It also helps to dispel the myth that either of the two major political parties in this country has much regard for individual liberty -- or basic decency.

According to CIA documents (PDF), Nancy Pelosi was one of the first two members of Congress clued in about the use of torture, the other being Porter Goss, the Republican then-Chairman of the House Intelligence Committee on which Pelosi sat as ranking Democrat.

Pelosi briefing

Other in-the-know members of Congress included Senators Bob Graham (D) and Richard Shelby (R), Senators Pat Roberts (R) and John Rockefeller (D), and Rep. Jane Harman (D) -- all briefed by early 2003. Others were informed of the use of enhanced interrogation techniques in the years that followed. The Washington Post has reported that none of the briefed lawmakers protested the use of the harsh practices.

All of the legislators informed of the use of torture were sworn to secrecy, though humanitarian concerns might be considered by some people to be of greater importance than any such vow.

None of this should be a surprise. As terrible as the Bush administration was when it came to respecting individual liberty and restraints on the power of the state, its excesses differed from those of previous administrations more in quantity than in quality.

In fact, after the terrorist attacks of September 11, the Bush administration crafted the enormous, government-empowering PATRIOT Act in what seemed like record time largely by recycling legislative proposals originally put forward by its predecessors. In 2003, former Rep. Bob Barr told Reason, "the first version of what later became the PATRIOT Act was very familiar to a number of us on the Hill. We had seen many of these provisions submitted previously by the Clinton administration."

Perhaps it was the Clintonian roots of the PATRIOT Act that made then-Senator Barack Obama comfortable enough with the law that he voted to reauthorize the measure. Obama also voted to expand the government's use of electronic surveillance and to immunize telecommunications companies against liability for helping the government with wiretapping.

And the Obama administration has one-upped the Bush administration in arguing that some government actions are so super-secret that, even when people's rights are violated, victims shouldn't be allowed to sue, since national security might be damaged by the court proceedings.

It's the same on economic matters, of course. The massive government intervention in the economy and binge-spending begun by then-President George W. Bush -- policies explicitly called "fascist" by Robert Scheer -- have been enthusiastically expanded and extended by President Barack Obama.

Republicans and Democrats alike love to use the the words "liberty" and "freedom," but, with rare exceptions, politicians operating under those affiliations are firm allies of the concepts behind those words only when they're out of power and a little rabble-rousing helps to favorably contrast them with the folks holding the reins. Once in control, or simply out of public view, they show themselves as the kind of people who can sit through briefings on the use of torture without batting an eyelash.

The eternal political warfare between Republicans and Democrats makes for great political theater. It's also an effective way to divide and conquer the people over whom they rule.

But if you're looking for principled advocates for your freedom, don't look to the creatures roaming the halls of power -- from either party.

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Friday, April 17, 2009

Most likely to secede

Texas Governor Rick Perry is getting a lot of flack for his off-hand, tax-day comment that Texans might one day want to leave the union, and that the state's original treaty with the United States allows it to secede if its people so choose. Critics have him dead-to-rights on one point: Perry got the treaty wrong; Texas negotiated the right to split into five states, but not to regain independence. But those critics engage in wishful thinking by saying this means that Texas "can't" secede. Honestly, anything is possible -- if you can make it stick.

Look, no country likes to lose territory, and politicians rarely make it easy. But borders aren't forever. Countries get bigger, they get smaller, they split and sometimes they disappear forever. These changes occur no matter what is written in law books or inscribed in constitutions. The border revisions, more often than not, take place while bodies are cooling on the battlefield.

The United States is no exception. So far, the U.S. has grown bigger through the use of force, and it squashed the one serious attempt by states to leave the union (we're looking at you, Texas and friends).

But someday, 50 or 100 or 200 years from now, the people of some part of the country will once again want to split away. It might be Texas, it might be Vermont, or it might be your mom's backyard -- it doesn't matter. This eventually happens in all countries. If that restive region chooses a moment when the federal government is a bit weak, because of national decline, or war, or depression, it will stand a better chance of success than we can imagine right now.

Still, the federal government and many average Americans will react with outrage. Troops will be mobilized.

Then, the dissident region will whip out a treaty with a foreign power the U.S. can't afford to fight, or it'll detonate an atomic bomb in orbit, or it'll otherwise show that it has the ultimate trump card to play against any legal argument.

And then the world will have its newest independent nation.

Rick Perry probaby won't be around to see it happen. But someday, somebody like him is going to demonstrate the old truth that legal "can't" becomes realpolitik "can" if you're tough enough to back up your talk.


Wednesday, April 1, 2009

You can rest easy with the feds standing behind your car warranty

The Obama administration has proudly announced that it's putting the full credibility and efficiency of the federal government behind warranties for new GM and Chrysler vehicles (PDF) as these two auto makers become ... err ... politicized wards of the state.

Hmmm ... I wonder what that will be like in practice.


Wednesday, March 11, 2009

Do you know what the penalty is for dealing ... err ... soap?

A while back, I wrote about a Minnesota man who spent two months in prison until laboratory tests revealed that the white powder in his deodorant container was actually deodorant -- not the cocaine indicated by an initial field test. As disturbing as that case was, it was far from the full story. In fact, a new report (PDF) funded by the Marijuana Policy Project reveals that commonly used field drug test kits are unreliable, often returning false positive results that put the freedom and reputations of innocent people in jeopardy.

This two-year scientific/legal investigation reveals a drug testing regime of fraudulent forensics used by police, prosecutors, and judges which abrogates every American’s Constitutional rights."

In False Positives Equal False Justice (PDF), forensic drug expert John Kelly, working with former FBI chief scientist and narcotics officer, Dr. Frederic Whitehurst, reports:

This two-year scientific/legal investigation reveals a drug testing regime of fraudulent forensics used by police, prosecutors, and judges which abrogates every American’s Constitutional rights. ...

Contained in this report are the results of experiments performed with field drug test kits that expose and document that they render false positives with legal substances. Based on the false positives, people continue to be wrongfully charged with, and prosecuted for, drug crimes.

Among other results, the report confirms earlier research by Dr. Bronner's Magic Soap which found that one commonly used test, NarcoPouch 928 field drug test, falsely tests positive for GHB in natural soap products and soy milk.

Kelly goes on to criticize the widely used Duquenois-Levine (D-L) for marijuana, pointing out that "As it enters its 70th year, the D-L test has yet to be validated despite being involved in the arrests, prosecutions, and convictions of millions of individuals."

Whitehurst points out further flaws with marijuana identification, "In some jurisdictions, identification is even carried out by law
enforcement officers with no more than visual, not microscopic, analysis and suspected marijuana is never even sent
to a crime lab."

Tests for cocaine are found to be equally flawed, both in their inherent accuracy and the testers' ability to distinguish results based on the color the test turns in reaction to the presence of various chemicals.

There are, of course, a number of problems with determining what blue means. First is whether the looker is color blind. Second is the inability of the human eye to resolve wavelengths of light. The blue reaction from the cobalt thiocyanate test with cocaine may give another color blue than that from another material, and yet the individual observing the blue may not be able to tell the difference in the colors."

In addition, additives used to cut cocaine's potency and increase its volume can further complicate test results.

The MPP report comes on the heels of a National Academies of Science paper that found large-scale problems with forensic "science," including such seemingly well-established fields as fingerprint evidence. To a large extent determinations of guilt and innocence, with people's liberty and even their lives in the balance, are being made based on the say-so of "experts" whose science has never actually been established according to accepted standards.

From drug field tests to fingerprints, much of what passes for scientific evidence these days is based as much on faith as Dark Age assumptions about whether or not witches float. And the stakes are just as high.

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Wednesday, February 25, 2009

Here's to you, Joe 'Reinvestment Guy' Biden

President Barack "Hopenchange" Obama tells us that he's "tasked Vice President Biden to oversee the American Recovery and Reinvestment Act." So let's look at that fine public official who will be administering the expenditure of a gazillion dollars in funds that the government doesn't actually have, but will have to borrow or print, with the rest of us on the hook for the bill.

God help us.

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Monday, February 9, 2009

The culprit is fingered

Stanford University economist John B. Taylor has done some investigating, and he thinks he'd fingered a culprit in the financial crisis. From the Wall Street Journal:
Many are calling for a 9/11-type commission to investigate the financial crisis. Any such investigation should not rule out government itself as a major culprit. My research shows that government actions and interventions -- not any inherent failure or instability of the private economy -- caused, prolonged and dramatically worsened the crisis. ...

Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.

The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking. There is also evidence the excessive risk taking was encouraged by the excessively low interest rates. Delinquency rates and foreclosure rates are inversely related to housing price inflation. These rates declined rapidly during the years housing prices rose rapidly, likely throwing mortgage underwriting programs off track and misleading many people.

Adjustable-rate, subprime and other mortgages were packed into mortgage-backed securities of great complexity. Rating agencies underestimated the risk of these securities, either because of a lack of competition, poor accountability, or most likely the inherent difficulty in assessing risk due to the complexity.

Other government actions were at play: The government-sponsored enterprises Fannie Mae and Freddie Mac were encouraged to expand and buy mortgage-backed securities, including those formed with the risky subprime mortgages.

Government action also helped prolong the crisis. Consider that the financial crisis became acute on Aug. 9 and 10, 2007, when money-market interest rates rose dramatically. Interest rate spreads, such as the difference between three-month and overnight interbank loans, jumped to unprecedented levels.
But, of course, the people who got us into this mess are well-equipped to get us out.

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Wednesday, February 4, 2009

How long before this is a big business in Tijuana?

In an astonishing display of the vulnerability of modern identification technology, Chris Paget, an "ethical hacker," assembled $250 worth of electronic equipment that allowed him to scan and copy the information stored on radio-frequency identification (RFID) chips embedded in new passport cards (but not the traditional passport books), as well as in some enhanced drivers' licenses, while he drove around San Francisco. According to Paget, whose 20-minute experiment was captured on video by The Register, it would be "trivial to program" blank tags with the skimmed identification numbers -- a key part of the process of creating counterfeit cards.

Paget was able to scan passport cards from a moving car since the embedded RFID chips broadcast their information. This is a feature the State Department advertises as a convenience, saying, "With RFID technology, Customs and Border Protection inspectors will be able to access photographs and other biographical information stored in secure government databases before the traveler reaches the inspection station."

The State Department emphasizes that the passport card contains no sensitive data itself, only "a unique number linking the card to a secure database maintained by DHS and State." You need to have access to that database to pull up more information using the identifying number.

The State Department also issues sleeves with the passport cards that block their transmissions. That the sleeves are not universally used is evidenced by the two passport cards Paget scanned during his brief drive.

Paget also points out:

If you combine the reader that I've got, at a chokepoint like a doorway, with another kind of RFID reader, one that reads credit cards say, you can correlate the ID number that you get from the passport card with the identity that you can retrieve from the credit cards. So instead of just tracking a passport card around the city, you can then track an actual identity around the city."

Similar RFIDs are beginning to appear in enhanced drivers' licenses, such as those issued by Washington State. As they become pervasive, it's possible that such identification could make it possible for police to determine the identities of attendees at, for instance, demonstrations and rallies simply by scanning the crowd and cross-referencing the skimmed identifying numbers with relevant databases.

RFID-embedded ID could also exacerbate concerns about anonymous travel that have already been raised by electronic toll-paying systems like FasTrak and E-ZPass. Travel patterns recorded by the toll systems have become something of a hot commodity in divorce cases and criminal investigations. Putting a traceable RFID in every pocket has the potential to make everybody a blip on somebody's radar screen.

Of course, Paget's experiment raises the likelihood that some of those blips won't be who they claim to be.

Below is the video of Chris Paget's RFID-skimming experiment.

Last year, a joint research project by the University of Washington and RSA Labs uncovered exactly the sort of vulnerabilities in passport cards and enhanced drivers' licenses that were exploited in Paget's experiment. A FAQ for that effort states:

The major risk, in our view, is that of clandestine device cloning. An attacker can in principle harvest the data from a Passport Card or EDL and create an identity document that transmits identical information (even if it does not appear identical upon inspection). If border control agents do not exercise sufficient vigilance in the passenger screening process, e.g., physical inspection of all cards, the result could be a heightened risk of passenger impersonation.

That risk appears to remain in place.

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Monday, February 2, 2009

Sex offender registries aren't just destructive, they're unreliable crap

Much has been written -- for good reason -- about the tragic cases of people whose lives have been ruined by being classified and registered as "sex offenders" for consensual youthful liaisons with partners just a few months younger than the law allows. But is this the price we pay for immunizing ourselves against the real predators: rapists and adults who stalk actual children? A recent federal report suggests that the answer is "no." As efficient as the system is at registering youthful lovers, it's just that inefficient at tracking actual criminals.

Genarlow Wilson famously served over two years of a ten-year sentence for having consensual oral sex with a girl two years his junior when he was 17. His sentence was ultimately overturned as cruel and unusual, but many people across the country still face registration and harsh restrictions for similar "transgressions." As the Atlanta Journal-Constitution editorialized:

But Wilson is not the only young offender caught in a maze of draconian sex laws. Many young people are trapped on the state sex offender registry for nonviolent and consensual sex acts as teens.

The registry is a prison sentence in its own right, fencing even low-risk offenders off from most of society. Georgia law bars offenders from living or loitering within 1,000 feet of schools, day care centers, parks, rec centers or skating rinks. Last year, the General Assembly added churches, swimming pools and school bus stops to the list, and, for the first time, placed limits on where offenders could work. Now, sex offenders can't hold jobs near schools, child care centers or churches.

Some states have now moved to pass "Romeo and Juliet" laws to ease the consequences for young people who fall afoul of arbitrary age cut-offs, but people still remain on sex offender registries, with all that entails, for petty reasons. The harsh, often life-long restrictions of the sex-offender registries are supposed to buy us some security, even if a few innocent people get ground up in the machinery from time to time. So, how much security are we getting from those registries?

Not so much, say the feds. According to a report (PDF) from the Office of the Inspector General at the U.S. Department of Justice:

We found that the registries that make up the national sex offender registration system – the FBI’s National Sex Offender Registry (NSOR) and the state public sex offender registries accessed through OJP’s National Sex Offender Public Registry Website (NSOPR) – are inaccurate and incomplete. As a result, neither law enforcement officials nor the public can rely on the registries for identifying registered sex offenders, particularly those who are fugitives.

Specifically, the states have not entered records on approximately 22 percent of their registered sex offenders into NSOR and have not identified sex offenders who have failed to maintain a current registration. We also found that states do not consistently enter information into NSOR such as social security numbers, driver’s license numbers, and vehicle identification numbers.

The NSOR is a centralized federal database of sex offenders available for use by law-enforcement agencies, whilet he NSOPR is a publicly available portal that searches state databases. Separately maintained, they're equally unreliable.

The not-even-good-enough-for-government-work status of the sex offender registries as of the beginning of 2009 is especially relevant because the federal Sex Offender Registration and Notification Act requires all U.S. states, territories and tribes to have functioning, accurate and accessible registries by July 27, 2009 -- just a few months away. The registries are to be used to track offenders and to prosecute people convicted of sex crimes who fail to register or to keep their registration current if they move from one state to another or even from one address to another within a state. Inaccurate registries mean a hobbled ability to track offenders.

It could also, potentially, mean legal liability for those who do comply with the law but whose records spiraled into some black hole in the system. Bureaucratic incompetence could end up resulting in prison time for people who have made every attempt to keep their noses clean and their registrations current. Some of those people will be "criminals" whose crimes consisted of sleeping, as teenagers, with their boyfriends or girlfriends. Others will be people who committed real crimes but are trying to get their lives together.

Either way, public safety isn't being enhanced in any obvious way by the sex-offender registration system.

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Wednesday, January 28, 2009

So, high food prices are stimulating?

Ummm ... What the fuck? From the Wall Street Journal:
... dairy and beef cattle producers butted heads over talk that the government might buy up dairy cattle for slaughter to drive up depressed milk prices.
So the government plans to spend money to destroy animals in order to make food more expensive for the people who will have to pay back the money that's been spent. Do I have that right?

Yes, I know this has been done before. It was a stupid idea then, too.

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Monday, January 12, 2009

So, maybe Jack Bauer isn't a role model after all

Despite claims to the contrary by U.S. government officials, experience using coercive interrogation methods on detainees -- torture -- has proven ineffective and wasteful of time and resources. In particular, the case of Abu Zubaydah, who was the first person waterboarded in the surge of anti-terrorism efforts after 9/11, stands as a stark example of how to not gather information from prisoners. That's the conclusion of David Rose in a recent article in Vanity Fair. He writes:

In researching this article, I spoke to numerous counterterrorist officials from agencies on both sides of the Atlantic. Their conclusion is unanimous: not only have coercive methods failed to generate significant and actionable intelligence, they have also caused the squandering of resources on a massive scale through false leads, chimerical plots, and unnecessary safety alerts—with Abu Zubaydah’s case one of the most glaring examples.

Here, they say, far from exposing a deadly plot, all torture did was lead to more torture of his supposed accomplices while also providing some misleading “information” that boosted the administration’s argument for invading Iraq.

Rose isn't alone in his take on the effectiveness of the post-9/11 use of torture in interrogations. Retired FBI agent Daniel Coleman, who worked on the Zubaydah case, told the Washington Post:

"I don't have confidence in anything he says, because once you go down that road, everything you say is tainted," Coleman said, referring to the harsh measures. "He was talking before they did that to him, but they didn't believe him. The problem is they didn't realize he didn't know all that much."

This isn't exactly new information, but it seems to be a truth that has to be rediscovered from time to time by people looking for a quick and sure way to extract information from people who don't want to share what they know. A former military interrogator said during the 2006 announcement of the results of research conducted at Georgetown University into the effectiveness of torture, “With torture, we can not know if we are getting a truthful response or a response to end torture."

Or, as retired Air Force Col. John Rothrock, the former head of a combat interrogation team in Vietnam, told the Washington Post's Anne Applebaum, "if I take a Bunsen burner to the guy's genitals, he's going to tell you just about anything" whether or not it's true.

Not surprisingly, that Georgetown research effort, which included retired senior military interrogators and research psychologists, concluded, "Torture does not yield reliable information and is actually counterproductive in intelligence interrogations."

So, if torture is a dead-end that produces more garbage than useful information, leaving interrogators uncertain as to what to believe, who do so many people still turn to it as a Jack Bauer-esque cure-all in dire situations? Oddly enough, it may be because of our relative lack of experience in putting the screws to people. Unfamiliar with the limitations of pain and people's response to duress, we tend to assume torture has more power than it actually possesses. Jeannine Bell, a Professor of Law at the University of Indiana School of Law, made exactly this point in a 2005 paper about the ineffectiveness of torture:

Paradoxically, the moral and legal prohibition of physically coercive mechanisms may have had unintended consequences. Instead of steering interrogators to other mechanisms, it has increased inexperienced interrogators’ bloodlust. For poorly-trained investigators, physical coercion had become the longed-for instrument of last resort. They believe that torture will get the recalcitrant detainee to talk. Unfortunately, the infliction of pain becomes its own master. When interrogators resort to applying force, any knowledge they have about what other methods work might go out the window. From an intelligence perspective, this might be more acceptable if there were clear evidence of torture’s effectiveness.

But torture has proven, time and again, to be a waste of effort that produces information of, at best, dubious quality. That lesson has to be drummed into the heads of interrogators who are tempted to turn to harsh, forbidden techniques as some kind of magic key to the information that may (or may not) be locked in prisoners' minds.

Most of us know that deliberately inflicting pain and suffering as a questioning technique is just wrong. But for those who don't share our moral sentiments, it's helpful to know that it's also ineffective.

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Tuesday, December 9, 2008

Thanks, Blago, for being honest about government

When I say that Ilinois Governor Rod R. Blagojevich is honest, I don't mean that he's an upstanding individual. I just mean that, if early reports that he auctioned off Barack Obama's old seat in the U.S. Senate to the highest bidder are true, he dispensed with pretense and revealed the business of government to be a corrupt and seamy one, comparable to any other criminal enterprise. In selling that legislative position just before Barack Obama takes office as a president on a wave of proposals for active, intrusive government, Blagojevich has provided a valuable warning to the public as to the nature of the metastasizing government we're about to let ever-further into our lives.

According to the New York Times:

As Mr. Blagojevich mulled the Senate appointment, prosecutors say, he discussed gaining “a substantial salary” at a nonprofit foundation or organization connected to labor unions, placing his wife on corporate boards where she might earn as much as $150,000 a year and trying to gain promises of campaign money, or even a cabinet post or ambassadorship, for himself.

A 76-page affidavit from the United States Attorney’s office in Northern Illinois says Mr. Blagojevich was heard on wiretaps over the last month planning to “sell or trade Illinois’ United States Senate seat vacated by Pres-elect Barack Obama for financial and personal benefits for himself and his wife.”

Bravo, Mr. Blagojevich. Even the densest, most starry-eyed political groupie in the country will have a hard time disregarding a move so overtly corrupt and self-serving by a close political ally of the president-elect. The award of Obama's seat could only have been more arrogant (if less lucrative) had the governor emulated Caligula and appointed a horse to the position.

This is our insight into the government that promises to set things right during a time of financial crisis, supposedly through well-reasoned, carefully crafted policy proposals and vast, additional powers utilized only, we're assured, with our best interests in mind. And those policies and powers will be implemented through government agencies helmed by President Obama, a man whose former office was sold to the highest bidder.

But Blagojevich's service doesn't stop there. He also demonstrated the dangers of allowing government to intertwine itself in the private sector with bailouts and subsidies. As the Chicago Tribune reported:

Another charge alleges Blagojevich and Harris conspired to demand the firing of Chicago Tribune editorial board members responsible for editorials critical of him in exchange for state help with the sale of Wrigley Field, the Chicago Cubs baseball stadium owned by Tribune Co.

There you have it: an unmistakeable lesson that government officials will use financial leverage to extract concessions for themselves, and even to muzzle critics in the press.

What personal favors do you think are being purchased with the hundreds of billions of dollars the government has allocated for the financial industry and the billions more for the Big Three automakers? Is there still doubt in your mind that the money comes, quietly, with strings attached?

If Blagojevich were a live-action museum exhibit about the dangers and flaws of government, created by a libertarian foundation, he could not be more venal, or more effective at communicating what we can expect from government officials anytime there's money or political advantage to be had from the misuse of their power.

But he's a real politician, caught doing what an unknown number of his colleagues have always done behind the scenes. We should thank him for his honesty, and take the lesson he offers to heart.


Wednesday, November 19, 2008

Spidey senses -- out for repairs

Remember the Transportation Security Administration's highly touted effort to train its crack staff of hourly employees in "behavior detection," the better to protect us all from suspicious characters?

Ever get the feeling you’re being watched? Usually it’s just nerves or a good dose of electromagnetic energy, but if you’re traveling through a TSA checkpoint, chances are there are several sets of eyes on you. What are they looking at? Is your hair messed up? Looking flustered after problems at the ticket counter? Have toilet paper stuck to the bottom of your shoe? No. You’re being watched by Behavior Detection Officers, or BDOs in government acronym-speak.

The program was designed by Paul Ekman (PhD), a psychology professor at the University of California Medical School, San Francisco. He’s been studying behavioral analysis for the past 40 years and has taught the TSA, Customs and Border Protection, CIA, FBI and other federal agencies to watch for suspicious facial expressions of tension, fear or deception. He has even taught animators at Disney-Pixar to create convincing faces for film characters. After passing along his skills to US Customs, their “hit rate” for finding drugs during passenger searches rose to 22.5 percent from 4.2 percent in 1998.

Behavior analysis is based on the fear of being discovered. People who are trying to get away with something display signs of stress through involuntary physical and physiological behaviors. Whether someone’s trying to sneak through that excellent stone ground mustard they bought on vacation, a knife, or a bomb, behavior detection officers like me are trained to spot certain suspicious behaviors out of the crowd. Once we make our determination, we refer these passengers for additional screening or directly to law enforcement.
So, how's that working out?
Fewer than 1% of airline passengers singled out at airports for suspicious behavior are arrested, Transportation Security Administration figures show, raising complaints that too many innocent people are stopped. ...

"That's an awful lot of people being pulled aside and inconvenienced," said Carnegie Mellon scientist Stephen Fienberg, who studied the TSA program and other counterterrorism efforts. "I think it's a sham. We have no evidence it works."
Ooooh. Not so good. Maybe, a fancied-up version of "I don't like his looks" isn't really the way to go in improving the effectiveness of law enforcement.

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Would you believe government injects politics into science?

Government is an institution driven by pork-barrel politics and ideological battles, so it should come as no surprise that taxpayer-funded science can be every bit as much a political football as taxpayer-funded art, bridges to nowhere, or multi-billion-dollar payouts to well-connected banks. Indeed, The Chilling Effect: How Do Researchers React to Conflict, a recent paper by Joanna Kempner, a Rutgers University sociologist, finds that high-profile debates over the propriety of research topics, even when they don't ultimately affect funding, can cause researchers to self-censor the wording of grants and even to drop entire topics of inquiry.

Government funding of research is often touted as a means for keeping science free of profit-driven bias or favoritism toward a private funding body. All too often, though, the biases and debates that engulf institutions subject to regular elections and fueled by tax money go unconsidered.

In particular, controversies can ensue when people object to their taxes going to fund ideas and projects they find offensive or immoral. We've seen this happen in the past with provocative art and hotly debated areas of medicine, such as abortion; it stands to reason that similar battles would erupt over scientific research.

Kempner emphasizes that most attempts to study the impact of politics on science have examined outright suppression of research by government agencies. In this case, she was interested in finding out what would cause scientists themselves to retreat from areas of inquiry. She points out:

[M]any scientists self-censor rather than publish findings contrary to disciplinary or ideological boundaries. They may avoid controversial areas of research altogether, rather than face burdensome regulatory requirements. Some advocacy groups may also intimidate scientists. Animal rights activists, for example, have successfully dissuaded some scientists from using certain kinds of animal models in research.

For this study, she examined whether political controversy could have the same muzzling effect as regulatory hurdles and intimidation. She started with a proposed 2004 amendment to a funding bill for the National Institutes of Health that would rescind the funding for grants primarily concerned with sexual behavior. The NIH successfully defended the grants against the congressional challenge, and funding remained unchanged.

But there was fallout from the controversy. Responses among scientists to the attempted cut-off of federal funding for provocative research topics have implications for whether research continues in some areas and how that research is done.

About half of the scientists interviewed and/or surveyed reported that they now remove “red flag” words (for example, “AIDS” and “homosexual”) from the titles and abstracts of their grant applications. About one-fourth of the respondents no longer included controversial topics (for example, “abortion” and “emergency contraception”) in their research agendas, and four researchers had made major career changes as a result of the controversy. Finally, about 10% of respondents said that their experience had strengthened their commitment to see their research completed and its results published although even many of these scientists also engaged in some self-censorship.

The most common response is to game the system by simply rewording proposals in less-provocative ways. Clearly, though, some research isn't being pursued at all for fear of political battles. The report found, "[r]esearch topics avoided as a result of the controversy included: the sexual health and/or orientation of adolescents; abortion; emergency contraception; condom use; anal sex; childhood sexual abuse; homosexuality; and the use of various harm reduction strategies."

In an amazing example of institutional inertia, the most logical response seems to have been automatically ruled out by many scientists who "explained that, in general, they preferred to submit an NIH grant that they believed was politically viable (an act that might require self-censoring) rather than to seek alternative funding from a nongovernmental source."

That stubborn unwillingness to try something new is, perhaps, hardest to understand. The best way to escape political battles, it would seem, is to escape political institutions by looking for funding from sources friendly to a preferred line of inquiry.

Indeed, while the British Medical Journal found, just a few years ago, that "government or public funding" was behind 60% of highly ranked clinical medicine articles published between 1994 and 2003, that ratio has been moving in the direction of private funding. Importantly, "65 of the 77 most-cited randomized, controlled trials (considered the gold standard of research) received funding from industry with the proportion increasing over time. Eighteen of the 32 most-cited trials published after 1999 were funded by industry, with no other sources of funding listed."

Admittedly, the research in the BMJ study isn't entirely comparable to the NIH research grants, but it's clear that nongovernmental funding is not only available for research, it's growing in importance and seems to have the greatest impact.

Oh, and the quality of industry-supported research is often better than other research, according to a report in the International Journal of Obesity. Perhaps, we can speculate, because less energy is wasted in battles and gaming the system.

So it should be a simple step for researchers who want to do science rather than play politics to look for willing sources of support rather than try to sneak grant proposals through under the radar or drop whole areas of research. Why the resistance?

Governments will always be politically charged institutions, forever debating every dollar spent and each project subsidized. Researchers will have to either learn to seek support elsewhere, or else grow accustomed to in-fighting and self-censorship.

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Monday, November 10, 2008

Good money after bad

Well, it's a good thing the seat-of-the-pants economic policy being worked out in D.C. through bipartisan cooperation is having such excellent results. After all, if you're going to throw around hundreds of billions of dollars of other people--

What's that? You say the money is doing no good and the feds are ordering up more?
Troubled insurer American International Group got a reworked $152.5 billion deal from the federal government Monday, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout.

The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points and extend the borrowing period to five years from two years.

In addition, the Treasury will use its special authority under last month's $700 billion bailout law - the so-called Troubled Asset Relief Program - to purchase $40 billion in preferred stock.
It seems that even after an infusion of taxpayer cash, AIG is still tottering or, as the news report put it, "having difficulty paying back its original bridge loan."

So, what's the prognosis for the new patch-work fix to a company that seems to have outlived its allotted free-market lifespan? Mmmm ... Not so good.

Andrew Barile, an insurance consultant at Andrew Barile Consulting Corp., said the bailout will help ease AIG's need to continue to post more collateral. But he said the company will continue to have trouble selling off its subsidiaries. In the current environment, other smaller companies may rather pluck talent away from AIG than assume its unwanted companies.

"People also underestimate the time it takes to sell off assets of an insurance company, which takes months and months," said Barile.

It's nice to know that there's continuity in Washington, D.C., even after a hard-fought election campaign. Continuity of massively expensive and apparently ineffective policy, that is.

Meanwhile, the auto industry is next in line for its turn at the trough. I'm sure that will work out much better.

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Wednesday, October 29, 2008

Wormtown on the cutting edge with proposed knife ban

Politicians in the city of Worcester, Massachusetts -- Wormtown, to those of us who attended college there and ruined our hearing listening to punk bands at Ralph's -- propose to ban the possession in public of knives with blades longer than 1.5 inches. The ban follows a rise in after-hours stabbings among the city's bar- and club-goers from 85 in 2006 to a projected 148 this year. (Strange but true: a popular New England regional band of the 1980s was called Rash of Stabbings.) The idea seems to be that if you forbid the carrying of sharp pieces of metal, the people committing the mayhem will slap themselves on the forehead and say, "Oh hell, I guess I can't commit attempted murder tonight cuz I might get fined for carrying a pocket knife."

If that doesn't strike you as a convincing line of reasoning, that's probably because you're working your brain a bit harder than the members of the Worcester city council. And if you saw that 1.5-inch limit, went to measure your own knives and discovered that the shortest knife in your collection doesn't make the ... err ... cut, you realize that the law isn't just doomed to fail, it's also so overreaching as to cover just about anything useful with an edge.

But the fact that the law is unlikely to deter actual criminals and goes too far is overshadowed by the rationale for posing such a strict ban that's likely to scoop up people going about perfectly innocent business. According to District 3 Councilor Paul P. Clancy Jr:

“We have a zero tolerance for these weapons in our schools and now we need to extend it out into the community,” Mr. Clancy said. “This is an ordinance the council needs to pass. It will make it a safer community for all.”

That's right, the knife ban is based on the same mindless zero-tolerance policies that have sent middle-school kids to jail for writing scary stories and gotten them strip-searched for possessing ibuprofen. Schools have had such excellent results with draconian restrictions on everything from behavior to expression to drugs to weapons that a city is now going to emulate policies that have become standard radio and blog fodder for condemnation and ridicule. Knives are bad, mmmkay?

But some people -- actually, a lot of people -- need knives to go about their jobs, pursue hobbies, or for recreational activities like fishing, camping and hunting. Are they supposed to chew through twine and rope?

Well, I guess that depends on whether the police officer who stops you with an illicit blade feels his spidey senses tingling, or whether his hemorrhoids are acting up, or whether he likes your kind of people.

While some councilors were concerned about the impact of the ordinance might have on those who carry such knives for personal use or recreation, District Attorney Joseph D. Early Jr. assured the councilors it would be targeted primarily at the after-hours bar and nightclub crowds where there has been an outbreak of knife-related violence.

He emphasized that the police would have a lot of discretion in enforcing the law to assure that people aren’t wrongly caught up in its net.

Translation: To find out if it's OK to carry a knife to your job, give it a try. If you end up on the wrong end of an arrest, you guessed wrong!

You know, I have the feeling that DA Early and his buddies are probably pretty safe carrying their cigar cutters to the office, but that the law might be enforced just a bit more stringently against regular folks on the street.

And that's a big problem.

Look, aside from the wisdom of any given rule, to be able to stay on the right side of the law you have to know where that right side begins and ends. A draconian law that is tempered only by the whims of its enforcers means that everybody is subject to arrest if they displease the authorities. That's not the way free societies work.

Ultimately, as we've discovered in our schools, zero-tolerance regimes end up as a free hand given to officials. Laws that insanely restrictive are no laws at all -- they're just absolute grants of power to the people with badges and government paychecks. Stay on their good side, and they'll exercise discretion in your favor; cross them and you're done. Ultimately, under the sort of law contemplated in Worcester, there is no way to stay legal; staying out of trouble requires currying favor -- or entirely avoiding that jurisdiction.

I guess I won't be visiting Ralph's anytime soon.

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Monday, October 20, 2008

Bare it all for the fine folks at the TSA

I've written before about the whole-body imaging scanners finding their way into the nation's airports. A relatively new innovation, they're theoretically being implemented in a way that give airline passengers a choice between ... well ... Honestly, a choice between offering TSA agents a peep show or a grope session at airport security checkpoints.

Hey, everybody wins -- as long as you're in uniform.

But even that unpleasant dilemma may be overstating the options available to travelers. Robyn Blumner, a columnist for the St. Petersburg Times, describes her experience returning to the U.S. from Europe through the Dallas-Fort Worth Airport:

The TSA agent hadn't bothered to explain that I had the right to decline and submit to a pat-down by a female agent instead — a choice I would have taken.

Yet [Sari Koshetz, a spokeswoman for the TSA] insists that being given that choice verbally is protocol.

When I objected to having had a photo taken under my clothes, the agent snapped "it's not a nude picture" but then couldn't explain what it is.

Koshetz claims that all security officers "understand" the technology and are "able to explain it."

Either I got the most incompetent TSA agent of the bunch, or there's a gaping chasm between official claims and reality.

The image taken by the millimeter wave scanners and revealed to TSA agents (you can see an example above) isn't exactly the stuff that porn is made of. Well, it's actually not all that different from 19th-century naughty photographs, but it's not the stuff that modern porn is made of. But the images leave nothing to the imagination. If you cling to any vestigial thoughts of privacy and dignity as you enter a U.S. airport these days, whole-body scanners are certain to strip them from you -- along with your clothes.

Concerns about being bared to the skin are only exacerbated, Blumner points out, by revelations that NSA technicians -- a more elite group than the TSA personnel drowsing their way through each workday at the airport -- entertained themselves by listening in on phone sex and romantic calls between overseas military personnel, journalists and aid workers and their loved ones at home. As one NSA whistleblower told ABC News:

"Hey, check this out," Faulk says he would be told, "there's good phone sex or there's some pillow talk, pull up this call, it's really funny, go check it out. It would be some colonel making pillow talk and we would say, 'Wow, this was crazy'," Faulk told ABC News.

And in Britain, that much-surveilled country, government workers and police have repeatedly been caught using that nation's extensive network of security cameras for entertainment purposes. In one incident in Merseyside, technicians directed a camera intended to monitor streets to peer through the windows of a woman's apartment. Camera personnel in Tyneside were caught trading nude images they'd captured in local pubs.

If NSA techs can get off on pillow talk, and British cops on candid shower shots, the idea that TSA agents aren't going to have a little fun with the naked images of passengers streaming before them is preposterous.

Look, all powers are abused. All of them. The only way to approach any expansion of state authority and additions to its armory of tools and toys is to assume that they'll all be misused in the most foolish, most egregious way conceivable.

And even then, some enterprising flunkies will develop even more damaging applications than you could ever imagine.

"You can trust us, we're professionals," should be greeted with a restrained giggle and an expectation of trouble to come.

Along those lines, expect Robyn Blumner's ordeal to be a glimpse of the future.

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Wednesday, September 24, 2008

Yes, politicians really did create the mortgage meltdown

Courtesy of Coyote Blog and Carpe Diem, this blast from the New York Times's past offers just a bit of insight into the roots of the mortgage meltdown. From September 30, 1999:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Hmmm ... What an interesting experiment in public policy exercised via political pressure on two government-sponsored enterprises, Fannie Mae and Freddie Mac. Gee, I wonder how that turned out ...

Mr. Wallison gets to play at a bit of I-told-you-so in the pages of the Wall Street Journal, along with his co-author, Charles Calomiros, a professor of finance and economics at Columbia Business School.

It is important to understand that, as GSEs, Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities. Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges.
Ouch! So this really is a mess that can be laid at the door of the politicians and their insistence at meddling in the market.

Wallison and Calomiros add:

Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and this has produced much innovation and lower consumer prices. But the primary "deregulation" in the financial world in the last 30 years permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm.

As a result, U.S. commercial banks have been able to attract more than $100 billion of new capital in the past year to replace most of their subprime-related write-downs. Deregulation of branching restrictions and limitations on bank product offerings also made possible bank acquisition of Bear Stearns and Merrill Lynch, saving billions in likely resolution costs for taxpayers.

Of course, the politicians now promise to save us all from those nasty capitalists with their greedy ways. I'm sure that our disinterested public servants will do an excellent job of salvaging something from the mess that they ... cough cough ... created.

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Tuesday, September 9, 2008

Fannie Mae takeover is unconstitutional -- as is Fannie Mae itself

In my post yesterday on the Fannie Mae/Freddie Mac takeover, in which I concluded that it might be nice that the feds are trying to clean up their mess, but that they're the worst people to do anything of the sort, I overlooked one really important point: Does the federal government have the authority to seize private corporations -- even don't-look-too-closely "private" corporations that it creates?

Andrew Napolitano -- a former judge and constitutional law professor, and current judicial analyst for Fox News -- points out that not only is the bailout bill passed in July (which authorized the takeover) unconstitutional, but the government never had the authority to create Fannie Mae and Freddie Mac to begin with. You can see his full take in the video below.

Writing in the New York Times, Martin Mayer of the Brookings Institution passes over the creation of the two mortgage giants, but agrees about the unconstitutionality of the bailout bill.

First, the Treasury will be allowed to advance money to Fannie and Freddie (and even to buy their stocks) in unlimited quantities to keep them afloat — in any fashion Mr. Paulson sees fit. Yet the Constitution requires that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.” Even in wartime, budgets for the military specify how much is to be spent for what purposes.

Second, as an alternative to increasing the national debt, Mr. Paulson wants to let the two mortgage lenders become preferred customers of the Fed’s discount window, with the authority to pawn their own securities for cash. But only Congress has the constitutional power to borrow on the credit of the United States.
Is any of this important now that the horse is out of the barn?

Sure it is. After all, taxpayers are on the hook for -- potentially -- hundreds of billions of dollars. If the federal government had stayed within its boundaries to begin with, none of this would be a problem.

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Monday, September 8, 2008

Can the feds clean up the mortgage mess they created?

I'm normally pretty much the last person to even grudgingly give a nod to anything that stinks of the outright theft that is nationalization, but when the U.S. Treasury Department grabbed Fannie Mae and Freddie Mac, I think it was doing little more than cleaning up a mess of the government's own making -- if it actually cleans anything up, that is.

Fannie Mae and Freddie Mac were always tools of public policy -- they were created to encourage mortgage lending to an extent that was otherwise beyond the comfort zone of banks that were too hobbled by red tape to be creative about funding home purchases. As Thomas Firey writes at Cato-at-Liberty:

Before Fannie Mae — the first of the twins — was created amidst the “Recession within the Depression” in 1938, home mortgage lending was highly risky for banks. State regulation kept banks small and geographically limited in order to make them better targets for taxation and political manipulation. As a result, banks could not geographically diversify their loan risk, leaving them highly vulnerable to localized economic downturns. Because they lent money (as mortgages and business loans to farms and other firms) to local borrowers for long periods of time but they had to honor local depositors’ withdrawal requests, banks were often one bad harvest and one bank run away from insolvency. For that reason, they shied away from financing long-term home loans.
The 1968 privatization of Fannie Mae -- and the later creation of Freddie Mac -- was a dodge to improve the federal government's balance sheet. The "private" entities had tax-free status, could draw on the U.S. Treasury to the tune of billions of dollars and clearly had a cozy relationship with the government. Creatures of public policy with access to taxpayer money, they enjoyed a minimum of oversight.

And they put a lot of effort into keeping things that way. The Wall Street Journal has an excellent timeline on the whole fiasco, and editorialized in July about the agencies' overt favor-buying:
Congress sets the rules in favor of Fan and Fred, which then repay the Members with cash from their rigged profit stream. This is the government lobbying itself for more government.

And, oh, what a stream of political cash it is. First, there are Fannie and Freddie's political action committees, which have already distributed roughly $800,000 to U.S. House and Senate Members this election cycle. Nearly half of the Senators have received funds and almost all of the money is directed to incumbents. Fannie gave $10,000 to Speaker Nancy Pelosi, $10,000 to third-ranking House Democrat Rahm Emanuel, $5,000 to Barney Frank, $10,000 to Republican House whip Roy Blunt, $8,500 to Majority Leader Steny Hoyer and $7,500 to Minority Leader John Boehner and . . . you get the picture.

That Federal Housing Finance Agency Director James B. Lockhart's official statement (PDF) explicitly says, "all political activities -- including all lobbying -- will be halted immediately," is a belated acknowledgment of how effective Fannie Mae and Freddie Mac have been at gaming the system.

But remember. The government created this situation to begin with. Can it be trusted to clean up the mess?

Matt Kibbe of FreedomWorks points out:
"In the Administration, Director James Lockhart repeatedly claimed that Fannie and Freddie were 'adequately capitalized' and even reduced their capital requirements earlier this year. It's a strange world indeed when the regulator who failed in his mission is now given expanded duties."

"With this plan, the U.S. government is borrowing more money from foreign creditors, in order to buy equity and mortgage-backed securities in a convoluted way in an attempt to guarantee Fannie and Freddie bonds. This is not a sustainable or rational economic policy."
What is sustainable?

How about dumping the whole rotten system and leaving banks free to make loans or not make loans based on their economic viability -- not the willingness of a quasi-public entity to shoulder the risk?

At the Cato Institute, Alan Reynolds suggests:

Potentially massive loans from the Treasury and Fed are no solution to their already excessive debt—the last thing they need is more. These two politically privileged companies pose a "systemic risk" to the economy precisely because they became much too big in the past two decades. Any serious solution must begin by requiring Fannie and Freddie to do what other troubled firms are routinely required to do—sell assets, raise capital, and reduce debt.

Fannie Mae and Freddie Mac need to be downsized and de-leveraged, relieved of special privileges and loan guarantees, and broken into small pieces agile enough to sink or swim on their own, without taxpayer support.

Breaking up Fannie Mae and Freddie Mac is probably a better bet than counting on the folks who created this situation to begin with to clean up after themselves.

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Friday, August 29, 2008

There's a hurricane coming and you're waiting for what?

Do people learn from experience? Somehow, I doubt it. Says the New Orleans Times Picayune:
Aiming to show tangible improvements in reacting to disasters since Hurricane Katrina hit three years ago today, the Bush administration's top two disaster response officials were in Louisiana on Thursday to help prepare for Gustav.

Homeland Security Secretary Michael Chertoff and FEMA Administrator R. David Paulison met with Gov. Bobby Jindal in Baton Rouge, then hashed out plans with Mayor Ray Nagin and his preparedness team in New Orleans.

As Gustav churned Thursday over Jamaica, officials at all levels of government in south Louisiana drafted contingency plans to anticipate, head off and, if necessary, repair any damage Gustav might cause.
Excuse me? At this late date, who in their right mind is waiting for government officials to take care of them when potential disaster looms?

Governments excel at perhaps two things: Spending vast amounts of money and killing people. Spending vast amounts of money to kill people is, of course, something of a politicians' dream job.

But saving your sorry butt from floods, tornadoes, high winds, collapsing infrastructure ...

No, that's really not a government specialty.

The Red Cross is better at this sort of thing. So are any number of private charity organizations.

If you really want to wait, helplessly, for somebody to do for you, that is.

Ultimately, though, when a hurricane is bearing down on you, it's a good idea to do something on your own initiative.

You could pack up and leave. If that's difficult or impossible, you could get to higher ground in a secure setting. At least, you could stockpile enough water, food, medicine, fuel and other supplies to get you through a tough period.

Fundamentally, though, it's your responsibility, not that of some bureaucrat who's just not up to the job no matter what he or she says.

Read me in the Las Vegas Review-Journal on the government's performance after Hurricane Katrina.


Wednesday, August 6, 2008

Government may be the worst threat to privacy

In a recent post on airport security over at the Civil Liberties Examiner site, I mentioned that the Transportation Security Administration recently announced the loss of an unencrypted laptop computer containing pre-enrollment records for approximately 33,000 people, intended for use in the Clear registered traveler program.

I wish I could say that was an isolated incident, or the sort of bumbling confined to a single government program, but it's not. In fact, a report in the latest issue of Consumer Reports finds that "government is among the biggest sources of ID leaks and that penalties are rarely imposed on those who are negligent."

The magazine reports that, just from 2005 to mid-June of this year, 44 million consumer records containing sensitive personal information were lost or exposed by government missteps.

The worst offender appears to be the Department of Veteran Affairs, which leaked 28 million records. The state of Ohio exposed 1.3 million records. Other guilty agencies include the IRS -- and the TSA, which, prior to the recent privacy fiasco, had already lost 100,000 records including sensitive information.

Government missteps include posting information, like Social Security numbers, in public records that are easily available to identity thieves. In fact, a November 2004 GAO report said (PDF):

[A]gencies in 41 states and the District of Columbia reported that SSNs are accessible in at least some of the public records they hold and a few reported this to be the case for as many as 10 or more different records. Additionally, we estimate that more than three-quarters of U.S. counties hold at least one type of record that displays SSNs, which has implications for the 94 percent of the U.S. population that we estimate live in those counties.

Those Social Security numbers may be just a mouse click away, since the GAO reported that "records with SSNs are accessible on the Internet in 15 to 28 percent of U.S. counties. We estimate that 34 to 48 percent of the population lives in these counties."

Often, government agencies seem adept at storing extraordinarily sensitive information on unsecured computers and backup devices, which are then misplaced or stolen. Consumer Reports notes that the 1.3 million records lost by Ohio were stored on a backup device which was taken from the home of a college intern.

A simple Web search found the following news stories, in no particular order, about the loss of government laptop computers containing personal data:

That's only a sample, of course, and doesn't begin to address other forms of data loss.

Government ineptitude with data security may become an increasing problem, now that Homeland Security, with the courts' blessing, has ruled that border agents may seize and search electronic devices without cause. Jeff Vining, writing for Gartner Group, warns that a seized storage device may pass through the hands of any number of agents, working for a variety of agencies. "The only legal limitations to this scenario are to avoid causing exceptional damage to the laptop's hard drive and to conduct the search and investigation in an inoffensive manner. This means that digital information can be downloaded by government agents, never returned or destroyed."

We already know what the government does with its own data; anybody care to bet that it will take better care of information stored on privately owned laptops and flash drives?

And then there's E-Verify, the great hope of border-defenders across the United States. Intended to confirm job-seekers' eligibility to be emplyed in this country, the system necessarily holds an enormous amount of data on Americans -- with more planned. The GAO reports (PDF) that "USCIS and the Department of State have begun exploring ways to include visa and U.S. passport documents in the tool, but these agencies have not yet reached agreement regarding the use of these documents. ...USCIS is negotiating with state motor vehicle associations to incorporate driver’s license photographs into E-Verify, and is seeking state motor vehicle agencies that are willing to participate in an image-sharing pilot program."

Who has access to that treasure trove of data in E-Verify? The GAO reveals that a 2007 review conducted by Westat found "anyone wanting access to the system could pose as an employer and obtain access by signing a MOU with the E-Verify program. USCIS officials told us that taking actions to ensure that employers are legitimate when they register for E-Verify is a long term goal for the program. However, according to USCIS officials, implementing such controls to verify employer authenticity may require access to information from other agencies, such as Internal Revenue Service-issued employer identification numbers..."

It's common to point to malicious actions on the part of government officials when warning of the dangers of state power. Equally dangerous, though, may be the banal incompetence and lack of concern government officials often display in handling the affairs of the people for whom they supposedly work.

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Thursday, July 24, 2008

Mortgage bailout sends good money after bad

So Congress creates a couple of quasi-independent corporations, backed by taxpayers' money, to encourage mortgage lenders to make loans they wouldn't normally make on their own. Largely as a result of these questionable loans, the mortgage market goes tits-up, and those quasi-independent entities, Fannie Mae and Freddie Mac, find themselves on the financial ropes.

Oh, and Fannie Mae and Freddie Mac have a history of financial shenanigans, often covered up by carefully courted political protectors.

So, what should Congress do with the aftermath of this failed and very expensive gambling in creative finance?

Double down, of course! Having leveraged their connections to the public purse to create the current mess, Fannie Mae and Freddie Mac have now been thrown a multi-billion-dollar lifeline of taxpayer funds to "fix" the problem.

To accommodate the staggering cost, Congress plans to raise the national debt limit by $800 billion to $10.6 trillion.

You can probably disregard the "official" $25 billion price tag attached to the bailout. As the Wall Street Journal editorialized, "The CBO says this could cost $100 billion, or it could cost 'nothing.' So it threw a dart at the wall and assigned a $25 billion price tag to the Fan and Fred bailout." That's in addition to the $300 billion slated to buck-up distressed loans through the Federal Housing Administration.

What wise guardians of the public trust are our lawmakers, and the president poised to sign off on this fiasco.


Wednesday, July 16, 2008

Our right to travel to Cuba

I'm a strong believer that traveling is a basic human right -- that is, that people have the right to go wherever they want, for whatever reason they please, subject only to the equal rights of others, such as respect for private property. In practical terms, that means I oppose the U.S. government's oppressive restrictions on travel to (and trade with) such places as Cuba. Whatever political points government officials want to make, they should frame up in a press release and leave private citizens alone to see the world for themselves.

So I applaud the civil disobedience of the Venceremos Brigade, a group of unrepentant commies who make their own political points by risking fines and prosecution through unlicensed travel to that forbidden destination just 93 miles off the coast of Florida -- in fact, the group just returned from its latest trip.

Of course, it should be noted that Cuba imposes a few travel restrictions of its own. According to Human Rights Watch:

The Cuban government forbids the country’s citizens from leaving or returning to Cuba without first obtaining official permission, which is often denied. Unauthorized travel can result in criminal prosecution. ...

The government also frequently bars citizens engaged in authorized travel from taking their children with them overseas, essentially holding the children hostage to guarantee the parents’ return. Given the widespread fear of forced family separation, these travel restrictions provide the Cuban government with a powerful tool for punishing defectors and silencing critics.

As much as I believe that travel is a right that doesn't need to be justified on a costs/benefits basis, this raises a very pragmatic reason for opposing U.S. travel restrictions. The Venceremos Brigade is able to make political hay of its trips to Cuba only because American officials make such travel a courageous act in the face of government repression. As Human Rights Watch put it in the organization's latest assessment:

For more than four decades, the US government has used Cuba’s dismal rights record to justify a sweeping economic embargo aimed at toppling the Castro regime. Yet the policy did nothing to bring change to Cuba. On the contrary, it helped consolidate Castro’s hold on power by providing his government with an excuse for its problems and a justification for its abuses. Moreover, because the policy was imposed in such a heavy-handed fashion, it enabled Castro to garner sympathy abroad, neutralizing international pressure rather than increasing it.

Leave it to the U.S. government to take such a ham-handed stance against a regime that restricts private enterprise, imprisons dissenters, forbids emigration, bans opposition and holds no elections that it comes out looking like the bad guy.

So kudos to the Venceremos Brigade for traveling where its members please, even if those travelers would probably impose tighter strictures on the rest of us if they ever gained political power.

And isn't it time for the U.S. government to recognize our right to travel -- and to take an issue away from the starry-eyed would-be-commissars by doing so?

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Tuesday, July 15, 2008

Fannie Mae -- a legacy of ignored warnings

In a piece titled "Fannie Mayhem: A History," the Wall Street Journal lays out a six-year timeline of warning signs about Fannie Mae an Freddie Mac, complete with linked editorials raising alarms about the increasingly dire condition of the federal government's tools for pusing the mortgage industry to make loans it would normally consider to be bad bets. Take this piece, for example, from February 20, 2002:

It seems that Fan and Fred, two "government-sponsored enterprises" that hold the majority of all home mortgages in the U.S., have been growing their debt at an annual rate of 25%. They now have about $2.6 trillion in debt outstanding, a big number in any case, but really big considering that taxpayers are on the hook for it. The budgeteers also expressed some anxiety about Fan and Fred's increasing dependence on derivatives.

Hmmm. Where have we heard this before? The more we've since looked at Fan and Fred the more they look like poorly run hedge funds: lots of leverage and snarkily hedged risk. The word Enron ring any bells?

Last year, Fan's debt/equity ratio was about 60 to 1, more than five times the average for commercial banks. Moreover, as mortgage lenders, Fannie's equity can hardly be said to be well-diversified. Risk thus becomes a critical question.

This from March 19, 2002:

The point all of this makes, and the point we've been trying to make all along, is that Fan and Fred don't function like other companies. The two biggest mortgage holders in the country are allowed to pile up debt, implicitly guaranteed by taxpayers, without being held to even the minimum of corporate governance standards that every other publicly traded company has to observe. Sooner or later this is asking for trouble.

From October 4, 2004:

For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility. Now, thanks to Fannie's regulator, we know the answer. The company was cooking the books. Big time.

But if Fannie Mae and Freddie Mac have been so poorly run -- even corrupt -- how did they get away with it when private-sector executives get slapped for much less? The Journal has an answer to that question, from April 27, 2006:

It's well-known that Fannie Mae and Freddie Mac have good friends on Capitol Hill. But last week the Federal Election Commission shed some light on how Freddie Mac rewarded its friends. In a settlement with the FEC, Freddie admitted to illegally raising $1.7 million for candidates from both parties between 2000 and 2003. In 2001 alone, Freddie Mac's Senior Vice President for Government Affairs boasted of holding 40 fund-raisers for House Financial Services Committee Chairman Michael Oxley.

That's the same Oxley who torpedoed a reform effort intended at reining in Fannie Mae's and Freddie Mac's investments in risky mortgage-backed securities.

It's not just Republicans, though. Rep. Barney Frank and Sen. Charles Schumer actually tried to raise the ceiling on the two institutions' risky investments.

NPR notes a long history of ignored warnings about Fannie Mae and Freddie Mac here.

The crisis faced by Freddie Mac and Fannie Mae — and the government that chartered them — is not a surprise. For decades, critics have warned about the potential for an event like this. But their warnings failed to gain traction on Capitol Hill, where Freddie and Fannie wielded enormous clout.

And, writing for the Ludwig von Mises Institute, Karen De Coster and Eric Englund reveal the inherent flaws in setting a taxpayer-backed political instrument loose in the mortgage business.

Fannie Mae is not a free-market entity, nor is it a private body that must compete on the same playing field as its competitors. Fannie Mae is representative of all that's wrong with central planning institutions: it is a government-created conduit for carefully crafted financial and market socialism that the bureaucrats uphold for the purpose of propping up their fantasies for pandemic social engineering.

Of course, for whatever satisfaction there is in saying "I told you so," it's better to avoid the mess to begin with.