Topic: Government and Politics

When to Worry about Moral Hazard?

In three different, recent op-eds, I’ve read that only during boom times should we worry about moral hazard — the idea that some actor will engage in overly risky behavior because he believes that he’ll be bailed out if the risk goes bad. The most recent op-ed to say this is Charles Goodhart’s, in today’s FT

OK, I did worry about moral hazard in 1998 when stock prices peaked. And again in 2006 during the housing price boom. 

Question: Instead of worrying, when is it time to “do” something about moral hazard? 

It seems the answer is never. During boom times, no one asks for government to play Good Samaritan. And during a bust — like now — when there’s opportunity to tell negligent investors to “go swim in the lake,” we’re told, well, the time to worry about moral hazard is during boom times! 

That’s another reason to call moral hazard the ”Samaritan’s Dilemma.”

HRW’s Deafening Denunciation of Hugo Chávez

Human Rights Watch cannot be accused of being a right-wing organization fostering Washington’s imperialist agenda. Thus, its recent report bluntly condemning Hugo Chávez for the erosion of democracy and the gross violation of civil liberties in Venezuela is creating shockwaves. The first reaction from the government in Caracas has been to expel HRW director José Miguel Vivanco.

In 236 pages, the report, titled “A Decade Under Chávez: Political Intolerance and Lost Opportunities for Advancing Human Rights in Venezuela,” details Chávez’s abuses against opposition groups, the media, organized labor, civil society, and his assault on the Courts. It’s a worthwhile read.

The United States of Permanent Receivership

Next year marks the 30th anniversary of the appearance of the second edition of Theodore J. Lowi’s The End of Liberalism, subtitled The Second Republic of the United States. The preface to the second edition ends, “I want to express a very belated thanks to Friedrich A. Hayek. His work had much more of an influence on me than I realized during the writing of the First Edition. I neither began nor ended as a Hayekist but instead found myself confirming, by process of elimination and discovery, many of his fears about the modern liberal state.”

Lowi argues that the Second Republic is marked by “the state of permanent receivership,” which is defined as “a state whose government maintains a steadfast position that any institution large enough to be a significant factor in the community may have its stability underwritten. It is a system of policies that sets a general floor under risk, either by attempting to eliminate risk or to reduce or share the costs of failure.” This state includes anticipatory receivership, which includes “businesses that are not actually on the brink of bankruptcy but are in a sector of the economy where bankruptcies or reorganizations are likely unless there is some kind of a preventive measure.”

Thirty years out, Ted Lowi looks pretty good this morning. Not much else looks good, but the second edition of The End of Liberalism shows that this dour morning has been coming for some time.

Read the book.

Oprah and the Tomnibus

For those not keeping close tabs on Congress, throughout this session Senator Tom Coburn (R-OK) has used procedural tactics to stop dozens of spending bills that would normally breeze through the Senate. Frustrated to no end, Senate Majority Leader Harry Reid (D-NV) bundled many of these bills together in an omnibus package, sometimes referred to as the “Tomnibus”.

Despite his attempt at political logrolling, Reid’s omnibus failed in July when senators voted to reject a motion to proceed to consideration of his legislation.

But now it’s back, thanks to Oprah Winfrey. On her television program, Oprah made an emotional lobbying pitch for the package. Her interest stems from the inclusion of one program that would spend a billion dollars to combat child exploitation.

With Oprah’s weight behind him, Reid will soon make another attempt to pass the Tomnibus, which would cost taxpayers roughly $10 billion and create at least 35 new programs.

Can Oprah have the same effect on legislation that she’s had on so many books?

Stay tuned.

Abuse of Power, Big Time

This week, the Washington Post ran two excerpts from Barton Gellman’s new book Angler: The Cheney Vice Presidency, which describes the fight over warrantless wiretapping in greater detail than we’ve had before. We still don’t know the precise reach of the original (pre-2004) program, nor do we have the classified legal analysis prepared by John Yoo. But Gellman’s account makes you wonder just how far the program and the legal theory went, given that it horrified men like Attorney General John Ashcroft, Deputy A.G. James Comey, and Office of Legal Counsel head Jack Goldsmith–all staunch conservatives who were perfectly comfortable with ambitious theories of executive power, all of whom (along with FBI Director Robert Mueller and sundry other top Justice officials) were ready to resign over the original warrantless wiretapping program. (Marty Lederman made a similar point last year, when Comey testified before the Senate Judiciary Committee).

Ashcroft’s record on civil liberties and executive power is fairly well known. And keep in mind who Goldsmith and Comey are. Goldsmith says plainly that he’s “not a civil libertarian,” and he got the OLC job on John Yoo’s recommendation. And as a US Attorney in New York, James Comey was quite comfortable with pushing the law to its limits and beyond. He prosecuted Martha Stewart for misleading federal investigators about behavior that wasn’t a crime, and he even seriously considered pursuing mail and wire fraud charges against disgraced reporter Jayson Blair for the hitherto unknown crime of making stuff up in the New York Times (Bill Kristol, beware). But the original program was a bridge too far even for them.

Gellman describes a “come to Jesus” meeting orchestrated by David Addington, Alberto Gonzales and Dick Cheney, to get the Justice Department to reauthorize the surveillance program:

Comey, Goldsmith and Philbin found the titans of the intelligence establishment lined up, a bunch of grave-faced analysts behind them for added mass. The spy chiefs brought no lawyers. The law was not the point. This meeting, described by officials with access to two sets of contemporaneous notes, was about telling Justice to set its qualms aside.

The staging had been arranged for maximum impact. Cheney sat at the head of Card’s rectangular table, pivoting left to face the acting attorney general. The two men were close enough to touch. Card sat grimly at Cheney’s right, directly across from Comey. There was plenty of eye contact all around.

This program, Cheney said, was vital. Turning it off would leave us blind. Hayden, the NSA chief, pitched in: Even if the program had yet to produce blockbuster results, it was the only real hope of discovering sleeper agents before they could act.

“How can you possibly be reversing course on something of this importance after all this time?” Cheney asked.

“I will accept for purposes of discussion that it is as valuable as you say it is,” Comey said. “That only makes this more painful. It doesn’t change the analysis. If I can’t find a lawful basis for something, your telling me you really, really need to do it doesn’t help me.”

“Others see it differently,” Cheney said.

There was only one of those, really. John Yoo had been out of the picture for nearly a year. It was all Addington.

“The analysis is flawed, in fact facially flawed,” Comey said. “No lawyer reading that could reasonably rely on it.”

Gonzales said nothing. Addington stood by the window, over Cheney’s shoulder. He had heard a bellyful.

“Well, I’m a lawyer and I did,” Addington said, glaring at Comey.

“No good lawyer,” Comey said.

Bonus Angler revelation: Former House Majority Leader Dick Armey suggests that Cheney lied to him to keep Armey from going all wobbly on the Iraq War vote:

The threat Cheney described went far beyond public statements that have been criticized for relying on “cherry-picked” intelligence of unknown reliability. There was no intelligence to support the vice president’s private assertions, Gellman reports.

Armey had spoken out against the coming war, and his opposition gave cover to Democrats who feared the political costs of appearing weak. Armey reversed his position after Cheney told him, he said, that the threat from Iraq was “more imminent than we want to portray to the public at large.”

Cheney said, according to Armey, that Iraq’s “ability to miniaturize weapons of mass destruction, particularly nuclear,” had been “substantially refined since the first Gulf War.”

Cheney linked that threat to Hussein’s alleged ties to Al Qaeda, Armey said, explaining “we now know they have the ability to develop these weapons in a very portable fashion, and they have a delivery system in their relationship with organizations such as Al Qaeda.”

“Did Dick Cheney … purposely tell me things he knew to be untrue?” Armey said. “I seriously feel that may be the case… . Had I known or believed then what I believe now, I would have publicly opposed [the war] resolution right to the bitter end.”

Senate Showdown on Earmarks

Senate leaders invoked cloture on the defense authorization bill Tuesday afternoon, setting up a showdown Wednesday on whether earmarks in the bill should be in the legislative text or in a committee report attached to the bill.

This battle is an arcane fight over legislative procedure, but it has consequences for how the Senate handles earmarks in the future. This is the first major challenge to an executive order issued by President Bush in January, which allows executive agencies to ignore earmarks in report language. Earmarks included in report language cannot be amended or challenged on the Senate floor and are not included in the bill when presented to the president for his signature.

Committee reports currently do not have the force of law, but legislators use implicit and explicit threats to executive agencies that ensure most, if not all, projects are funded according to their guidelines. Earmark defenders note that this allows agencies to reprogram funds for projects of greater urgency or to divert money from failed projects (although that rarely happens).

Sen. Carl Levin (D-Mich.) circumvented the executive order by inserting a provision in the bill (Section 1002) that incorporates the report language into the bill by reference — essentially giving the earmarks the force of law even though they’re absent from the statutory language.

Majority Leader Harry Reid (D-Nev.) used a parliamentary procedure called “filling the tree” to limit the amendments offered in order to thwart an amendment by Sen. Jim DeMint (R-S.C.) to strike the section of the bill that incorporates the earmarks. DeMint’s staff is hopeful he can offer the amendment Wednesday on the Senate floor.

Earmark critics like DeMint, Sen. Tom Coburn (R-Okla.) and Russ Feingold (D-Wis.) charge that this end run foils earmark transparency because earmarks included in the report language rather than the bill text are not subject to debate, amendment or other Senate points of order.

Advocacy group Citizens Against Government Waste blasted Levin in a release today:

This provision continues a practice of using committee reports to hide earmarks and make them difficult to eliminate by offering amendments to authorization and appropriations bills.  It certainly does not qualify as “reform” of the earmarking process.  It would prevent open debate and votes on earmarks and reduce transparency and accountability.  The “incorporation” language sets a precedent for other fiscal year 2009 legislation.  If it is not removed from the bill, it would demonstrate that the Democratic leadership of Congress has no intent of ever getting earmarks under control.

Sen. John Warner (R-Va.) also tried to offer an amendment that would shift the earmark language to the bill’s text, rather than the committee report. In a stunning display of hubris, Levin has told staffers that the Government Printing Office does not have the software to incorporate the earmark tables into the bill, according to Senate Republican staffers. Levin also told CongressDailyPM today ($) that adding the earmarks to the bill would take too long and would prevent the bill from sailing through Congress:

Levin said today that the process of adding the tables to the printed bill would take four days and could ultimately jeopardize efforts to quickly reach a conference agreement with the House and pass a final bill by the end of the month.

Cutting and pasting takes four days?

Last week, the White House issued a veto threat to the bill if the provision remains intact. The White House also expressed concerns about several other sections in the bill.

The legislation is S. 3001, the National Defense Authorization Act for Fiscal Year 2009. The earmarks in the bill total $5.9 billion. If Levin gets his way, it will set a terrible precedent for future authorization and appropriations bills. If that happens, defense funding will likely continue to be doled out based on seniority, geography of important members and lobbying clout instead of a merit-based test of what’s best for national priorities.

Bow Down Before the One You Serve

Last week, I wrote about the presidential candidates’ September 11 confab on state-subsidized “service.” Today, in the Wall Street Journal, Shika Dahlmia makes the case that even though both candidates hector us ceaselessly about national service, Obama has more detailed, and more troubling, plans:

Mr. Obama would create several new corps of his own: a Classroom Corps to help teachers and students in underperforming schools; a Health Corps for underserved areas; a Clean Energy Corps to weatherize homes and promote energy independence. The last is separate from his Global Energy Corps, to promote low-carbon energy solutions in developing countries.

Mr. Obama calls all this his “Plan for Universal and Voluntary Citizen Service.” It might live up to its “universal” billing, given that it would prod Americans of all age groups – from preteens to retirees – to sign up. But as to its voluntariness, the plan will make generous use of Uncle Sam’s money – and muscle.

By Mr. Obama’s account, he will make federal education aid conditional on schools requiring that high-school and even middle-school students perform 50 hours of service each year. He will also offer college students $4,000 every year for doing 100 hours of public service. That works out to $40 an hour – a deal that only the very wealthy could refuse. (The Obama campaign puts the price tag for this alone at $10 billion.) He promises to provide older Americans who perform civic service with “additional income security, including assistance with retirement and family-related costs, and continuation of health-care coverage.” But a government that links benefits to service can take away benefits for nonservice.

Neither candidate explicitly endorses mandatory national service. But of course, if you can’t graduate high school without a stint in Obama’s Power Rangers, that’s hardly voluntary.