Category Archives: ethics

Chinese Danegeld

Posted on by
Reply

Once you pay the Danegeld, you never get rid of the Dane, goes the saying.  It’s appropriate that this European saying, originating in an ancient attempt to buy off (Danish) Vikings—which, of course, kept the Vikings coming—is being demonstrated today in Europe.

In the aftermath of the European Union’s massive bailout of the Greeks on the backs of European taxpayers and banks, EU leadership is going hat in hand to China asking for funding for the European Financial Stability Fund (EFSF).  China is insisting, though, on far more than just the usual concrete guarantees of a decent return that any investor will demand of a potential business partner who is unreliable.  China is demanding a muzzle on European speech.  If China agrees to participate, apparently, the EU must, in return, abjectly surrender its right to criticize Chinese manipulative monetary policy.

It remains to be seen whether the EU will knuckle under on this.  However, their respect for free speech never has been strong.  Just ask Geert Wilders, the Dutch Parliamentarian who was hailed into court over a four-year period for the heinous crime of criticizing Muslims, and in the height of irony, banned for several months from entry into Great Britain, his presence representing a “threat to one of the fundamental interests of [British] society.”

The Chinese are demonstrating yet another price, an unintended price, of bail outs.  And what price will they demand next?

Nigerian Scam Moved North?

Posted on by
1

Has our Nigerian friend moved north?  You recall the gentleman: he’s the one who obtained millions of dollars from the Nigerian government, dollars of questionable source, and now he’s willing to share his windfall with you—if only you’ll pass to him your bank account access information, so he can deposit the funds.

Now The Daily Caller reports that one of their staff members has received an email from none other than the late Muammar Gaddafi’s widow.  It seems the poor woman is in fear for her own life and desperately needs TheDC staffer’s help, and of course she has access to ” billions of pounds and dollars” with which to reward him for his kind assistance.

From: Mariam Gaddafi ‪<mariam_gaddafi@yahoo.com>

Date: Thu, Oct 27, 2011 at 2:33 AM

Subject: Hassana

To:

Greetings in the name of Allah, am the  wife of the late Libyan president Gadafi who was killed by rebels on Thursday 20th  oct 2011, please my life is in big danger and I would like to use you as my contact to move a huge some of money and start living a free life in your country for I have been covering my self as a Muslim since he married me, which is our religious rights nobody has seen my face or known me except my children and himself and I thank Allah for this.

I cannot be identified by anybody in the world now that things has gone bad.

Please let me know your mind for I will reward you greatly cos we are talking of billions of pounds and dollars.

Waiting to hear from you.

Hassana

Heads up….

Socially Redeeming Value

Posted on by
3

Nicholas Brady writes in today’s The Washington Post about “Wall Street’s wealth.”  Among other things, he wondered about “…Wall Street…activities that had no redeeming social value, and…disoriented executive pay scales.”

I have to ask: whose socially redeeming value definition?  Whose standard of “disoriented” pay scales?  Based on what primacy of social standing do those who disparage stand in judgment of their peers?  What arrogance.

One man offered to sell something, and another agreed to buy it.  One man wanted something, and another man offered to supply it.  All four men became better off than they were before; each man gained something of value to him that he hadn’t had before.  The things gained had value to these men, specifically, not to some self-appointed arbiter of propriety.  How much more socially valuable can such activities get?

Are there activities that have no socially redeeming value?  Probably.  But is being valueless, whether socially or economically, necessarily harmful?  Of course not.  They simply are irrelevant, and those who wish to transact with these are fully within their rights as free Americans to do so; such transactions have no impact on their neighbors.  Let’s look at some other transactions that have caught some fame in recent years, things like transactions in mortgage-backed securities and their derivatives.  These and similar instruments like credit default swaps, and the institutions who traded in them, are blamed for starting the current economic malaise.  However, mortgage-backed securities are instruments of Fannie Mae and Freddy Mac.  Indeed, these two institutions were created explicitly to buy up lending institutions’ mortgages, package and securitize them, and then resell these new instruments on the open market.  The purpose of these and of the two FMs was to make it easier for lending institutions to lend mortgages, to make mortgages more readily available, to ease Americans’ purchase of their homes.  Government said transactions with these instruments was socially redeeming.  Hmm….

Along the way, derivatives of these securities were developed, credit default swaps were developed as “insurance” policies on these derivatives, and so on.  Were transactions in these derivatives and new securities and their derivatives at fault for the current economic straits?  Or was it regulations that hid the nature of these instruments and their derivatives so that buyers and sellers of them didn’t fully understand what they were transacting?  Or was it financial institutions that concentrated too much of their asset base in these instruments?  Or was it those buyers and sellers entering in that market that they didn’t understand?  Clearly, transacting in willful ignorance, and over concentrating assets were economically unsound, and in their impact, they were, in the context of social redemption, also unsound, not merely valueless.  I’ll come back to this in a bit.

On what basis are the pay scales deemed disoriented?  Are all skills of equal value?  One measure of the value of skills is easily assessed by anyone who cares to look.  One man offers to sell something, and another agrees to buy it.  Here that thing is the one man’s skill.  Does the employer get what it pays for?  Does the employer get sufficient value in labor output from the man possessing the skill to produce that output?  Does an athlete with a multi-million dollar contract, based on his skill at (throwing|hitting|catching a moving|stationary ball (of some shape)), bring in multi-millions of dollars in ticket sales and/or related marketing revenue?  Does the business executive with a multi-million dollar contract bring in multi-millions of dollars in revenue for the company that employs him?

In a free market, i.e., one that is not regulated into politically correctness or centrally directed because Progressives in government Know Better, the answers to those questions provide their own definition of “disorientation.”  If the employed are not bringing in multi-millions of dollars in revenue, they are not earning their multi-millions of dollars of pay, and they are terminated.  The same is true for the $10 dollar an hour laborer.  If his work isn’t worth those $10 dollars, he too, is terminated.  If the value received for the work is worth the cost of the work, neither the wage nor the salary is “disoriented.”  What is disoriented, to take this to its logical extreme, is to claim that washing dishes in the corner diner has the same value as the ability to put together deals that lead to the financing of an entrepreneur’s diner, or a chain of them.

Of course there are those who abuse the system, there are those who outright steal, there are those who hide behind the rules and/or obfuscation to obtain compensation out of proportion to the revenue their work produces.  However, these are corner cases or completely out of the envelope cases; they are not justification to claim that all high cost activities are socially valueless or that salaries are too high and unearned—or to claim that low wages are in some way too low.  They are justification only to let a free market correct the corner cases—the free market is a quite effective self-correcting system; they are justification only to let the legal system handle the out of the envelope cases—American jurisprudence, for all its presently Byzantine nature, remains both the best in the world, and on an absolute scale a quite effective system.

Bank Bailouts

Posted on by
2

There are weighty discussions going in in Europe over the need to prop up/bail out the Greek economy by guaranteeing Greek sovereign debt.  The argument goes this way: Greek banks, which have a vast portion of their assets in the form of Greek sovereign debt instruments, need that debt made good, or the banks will fail.  If the banks fail, the Greek economy fails.  Further, major banks central to the economies of other nations of Europe, both private financial institutions and national central banks, are major holders of Greek sovereign debt; if that debt is defaulted, those banks will fail.  Other economies of the EU—Portugal, Italy, and Spain (the remaining PIGS)—will fail if their banks, holding all that Greek debt, fail.  The financial institutions of sounder economies are also major holders of those remaining PIGS’ debt; if those economies fail, so do these additional banks, and the cascade continues.  So it’s necessary to prop up the Greeks, to prevent bankruptcy and default there, in order to prevent the cascade from getting started.

The argument in Europe currently is from the perspective that since this cascade must be so widespread in its final outcome, it is legitimate for taxpayers to be forced to bail out the failing banks (the current mechanism for this is for the taxpayers’ money to be used to increase the capitalization—the cash on hand—of the exposed banks, so they’re better able to handle the losses in the even of a Greek default; however, the specific pathway of committing taxpayer funds is irrelevant to this discussion), even of other countries: the taxpayers are only protecting themselves by doing this.

Let’s look at this from another perspective, though.  Is a mandated bailout truly necessary, or appropriate?

To answer this, we must first understand whose money will be used to recapitalize (let us say) those banks.  If governments, individually or behind the veneer of an EU demand, mandate the recapitalization, it will be the taxpayers of the constituent nations whose money will be used, including taxpayers of nations different from the nationality of the banks being recapitalized.

If, on the other hand, the market is left to recapitalize the banks, it will be the market participants, the citizens* of the constituent nations whose money will be used, including the participants/citizens of nations different from the nationality of the banks being recapitalized.

We see, though, that these are the same people in both cases; it is the same money being used in both cases.  We also readily see that a critical difference between the government and the market solutions is that with the market solution, the decisions will be made by the people whose money is being committed—or withheld—but with the government solution, those decisions to commit (and not withhold) are made by government, committing other people’s money by diktat.  We also see the nature of that diktat in this paraphrase by Spiegel International Online of Luxembourg Prime Minister Jean-Claude Juncker’s remarks, revealing EU leadership disparaging attitude toward democracy and the crass citizenry having any input:

The German parliament’s right to co-decision on important matters pertaining to the euro bailout is one of the reasons that the summit has been stretched out over a period of several days.  And while some have demonstrated sympathy for Merkel’s problems, others have been irritated by the extra burden the co-decision has created.  Berlin isn’t the only place with a parliament….

In the nature of free markets, though, the decisions will be made far more quickly and far more transparently if they’re made by those citizens themselves.  Any damage done by a Greek default (for instance) will be far more limited in its cascade effects and far more quickly repaired.

On the other hand, government cannot keep up with the changing market conditions or with the rapidity of failure when failure is in the offing.  We’ve seen how the governments of the EU have been unable to understand the European economic problem, for instance.  The European nations have vastly and repeatedly underestimated of the amount of money needed to bail out Greece: an original estimate of some €120 billion was discovered to be insufficient last summer, and it ballooned to an additional €110, or so, billion; now those governments are finding that to be insufficient, and estimating another—in addition to that summer estimate—€252 billion.

Finally, for all those efforts these last 2 years, a Greek default now is being arranged anyway: the latest attempt is for a write-down of Greek debt of 60%.  In addition to this is the conversion of the European Financial Stability Facility (EFSF), the original pool of funds for the bailout, into an insurance scheme wherein the existing €440 billion of the EFSF will be leveraged, via insurance bets, into a €1 trillion backstop.  Both by government mandate.

But these decisions are properly those of the investors whose money it is in a free society, not a decision handed down from on high by government(s).  Let the taxpayers, in their free markets, make these decisions.  Greek default may well have the cascade of failing banks described above, especially if taxpayers decline to keep feeding the bad decision-makers, decline to continue funding bad debt issuers, against the wishes of their governments (though I doubt it’ll be so bad as the doomsayers wail).  However, without government’s involvement, the decisions and the outcomes, via the pricing mechanisms of a free market, or even a centrally-guided (if not so much, anymore, centrally managed in the EU) market, will move much faster.  Results will be known much more quickly without governments in the way as middlemen.

Thus, those taxpayers—citizens—will, as is entirely appropriate, decide for themselves, via their Invisible Hand, who the winners and losers will be; who will, or will not, receive bailouts; they need no assistance from governments.  The pace of the free market may deepen the downturn from a Greek default and any potential cascade, but with taxpayers in a free market making the decisions, the recovery will be much faster, too, and it will rise far beyond the condition preceding the onset of the Greek problem.  Indeed, had Greece been allowed to default two years ago when the problem became apparent, both the Greeks and the EU would be on the path to recovery, growth, and prosperity today.

Out of the creative destruction of a bankruptcy in a free market grows a refreshed, stronger, more vibrant economic entity than before the bankruptcy—even at the national economy level.  And the lessons learned from the bankruptcy and recovery are enormously valuable.  Out of the destruction of a propped up entity that is not allowed to go through bankruptcy grows more widespread bankruptcy and destruction and a far broader, longer lasting economic dislocation—especially at the national, and continental, levels.  And the lessons missed by that intervention and impeded recovery would have been enormously valuable.

 

*For exposition purposes, I hold that private enterprise, including private/commercial financial institutions, are agents of their individual, citizen, owners, and so in the context of this discussion, I make no distinction between citizens and the businesses they operate.

Update: Clarified Juncker’s paraphrase by indenting it.

Holidays and Insensitivity, Follow-up

Posted on by
Reply

A bit ago, I wrote about the apparent holiday insensitivity of a politically correct treatment of the fall holidays in a Massachusetts school.  In that post, I posed some questions to Dr Foley and Dr Pierantozzi concerning certain remarks they were quoted as having been made, in particular concerning Christopher Columbus, Thanksgiving, and Hallowe’en.  Dr Foley’s remarks were contained in an internal email to her school staff which had been obtained by Boston Herald columnist Jessica Heslam; Dr Pierantozzi’s remarks were made publicly in support of Dr Foley.   Separately, I emailed Ms Heslam, requesting access to that internal email from which she quotes.

Dr Foley’s original email is available here, courtesy of the SomervillePatch, and I’m providing it below.

From: Foley, Anne
Sent: Wednesday, October 05, 2011 7:44 AM
To: Kennedy School
Subject: our next holiday

When we were young we might have been able to claim ignorance of the atrocities that Christopher Columbus committed against the indigenous peoples of the “new” world.  We can no longer do so.  For many of us and our students celebrating this particular person is an insult and a slight to the people he annihilated.

On the same lines – we need to be careful around the Thanksgiving Day time as well.  For many people this was just one big happy meal.  We can talk about this more during grade level meetings today if you choose.

Anne

From this email, it’s plain that there was no ban on holidays at the school; there was only an intent to “spark discussion.”

Since then (the following Monday, in fact) Dr Foley has delivered an explanation via email and autocalling an explanation of her remarks in that internal email.  That message is provided below, also courtesy of the SomervillePatch.

This message is to address the Herald article and its aftermath that occurred this past Friday. As we all know anything posted on the internet has the potential to become public. The email I sent was addressed to Kennedy School staff with the intent of sparking an educational discussion on how we can address the multi-cultural perspectives on our upcoming holidays. If this message had been intended for a broader audience, I would have chosen less inflammatory words and provided more of a context for the message. I apologize if my words offended anyone – that was not my intent.

Please know that nothing has changed regarding the instruction and events planned at the Kennedy School this year. As always, teachers and classrooms address holidays as part of their curriculum. I support the outstanding staff at the Kennedy School who will continue to provide the best education for our students. I want to thank all of those who have offered me kind words.

Thank you.

It’s plain that errors occurred in this affair.  Dr Foley has already addressed hers.  Ms Heslam, however, seems to have taken remarks out of context and created a story where none, in fact, existed.  The rest of us, yours truly included, were too quick to jump on the anti-PC bandwagon and start screaming bloody murder.