Fortified Properly For the State of the Union Speech

People ask about my soft spot for Justice Ruth Bader Ginsburg and from now on I’m just going to point them to this article.

Supreme Court Justice Ruth Bader Ginsburg admits to sharing some wine with her colleagues and not being “100 percent sober” for President Obama’s State of the Union address in January. …

“The audience for the most part is awake, because they’re bobbing up and down, and we sit there, stone-faced, sober judges. But we’re not, at least I wasn’t, 100 percent sober,” Ginsburg said during a talk at George Washington University on Thursday night, according to a report by The Blaze. 

“Because before we went to the State of the Union, Justice Kennedy brought in … it was an Opus something or other, very fine California wine […,” Ginsburg said.]

Ginsburg has also appeared to fall asleep during the president’s annual address to Congress in prior years.

As my Cato colleague Gene Healy has written, the annual speeches have long been “pompous, unedifying spectacles” in which Congressmembers clap robotically while ”the president stands at the front of the House chamber making exorbitant promises that would shame a carny barker” and a supposedly typical citizen or two are invited to showcase touching, politically well-vetted personal tales. Any legislative proposals of interest will require analysis over days or weeks, a process not well suited to in-person lecturing. “President Jefferson, who thought delivering the speech before Congress assembled smacked too much of a king’s ‘Speech from the Throne,’” converted the report to a written document, Gene writes, but Woodrow Wilson (it would be him) revived the regal practice.

For bringing to this hard-to-endure, self-important ritual the attitude it deserves, a thanks to Justice Ginsburg. 

Loan Loss Only Part of Financial Crisis Story

With the release of Peter Wallison’s new book, Hidden in Plain Sight, debates about the role of Fannie Mae and Freddie Mac in the financial crisis have heated up again. As I’ve written elsewhere, I believe there’s a lot more to the story than the GSEs’ housing goals. While there are a number of omissions in Peter’s otherwise fine book, I want to address a particular criticism of his work that strikes me as simply confused and mistaken.

I’ve often heard that Fannie and Freddie couldn’t have been a cause of the crisis because their loan loss rates (and totals) were far below those of banks. Robert VerBruggen recently repeats this in his review of Peter’s book. 

For this claim, Robert relies on loss estimates by David Min and Mark Zandi. The latter repeated this criticism at an AEI event for Peter’s book, and you can find Zandi’s estimates here (page 8, table 1). Zandi states that as a percent of debt, the GSEs witnessed a loss rate of 2.7 percent on their holdings of residential mortgages. Combined with the Federal Housing Administration’s losses, this comes to around $206 billion. In contrast, depositories (banks & thrifts) had a loss rate of 5.8 percent for a total of $217 billion—both the rate and total are obviously greater than that for the GSEs and FHA.  

So far, so good; I don’t disagree with any of the above. But Zandi’s estimates suffer from a massive omission: the other side of the balance sheet—equity. If you think losses are all that matter, consider that the dot.com bubble erased about $8 trillion in wealth, whereas losses on mortgages, according to Zandi, were just under $1 trillion. So if losses are the issue, why wasn’t the dot.com bubble so much worse than the subprime crisis? Because of leverage.

Yes, the GSEs’ losses on mortgages were less than that for depositories, but the differences in capital were far greater. The GSEs had far less shareholder money to fall back on if mortgages started to sour. Again bear in mind that total losses were similar between the GSEs and the depositories. In the 4th quarter of 2007, Fannie and Freddie held about $70 billion in shareholder equity, behind $1.7 trillion in assets and around $5 trillion in debt and guaranteed mortgage-backed securities. By contrast, depositories held $1.3 trillion in shareholder equity, or about 19 times the equity of the GSEs. Mortgage losses were not enough to sink the entire banking system, even if some banks did sink, whereas the GSEs were toast because of their low levels of capital. 

Why does that matter? Because it takes insolvencies to drive a financial crisis. The banking system, as a whole, was not driven to insolvency, but the GSEs where. Losses (and loss rates) only make sense relative to the capital ready to absorb those losses. And of course the failure of the GSEs was magnified through the system in a uniquely harmful manner. 

Did other banks hold Citibank equity?  Of course not, but they did hold GSE preferred shares. This all isn’t to say that the GSEs were the only cause of the crisis; they weren’t. It is to say that loss rates presented out of context are meaningless and could even be misleading.

You Asked Cato EVP David Boaz Anything. Here’s What Happened…

Over his 33 years at Cato and through his earlier activities in the libertarian policy sphere, Cato’s Executive Vice President David Boaz has played a key role in the development of both the Cato Institute and the libertarian movement at large; he even wrote the Encyclopedia Britannica entry on libertarianism!

On Tuesday, in conjunction with the release of his new book, The Libertarian Mind: A Manifesto for Freedom (which, incidentally, sold out on Amazon within hours), Boaz took to Reddit’s iAMA forum to discuss libertarianism, his book, and the burgoening “libertarian moment,” inviting Redditors of all ilks to ask him anything

During the hour long Q&A session, Boaz tackled a wide-array of questions, weighing in on everything from the drug war and abortion to effective strategies for social change and the efficacy of libertarian governance.  Each one of his responses ignited impassioned debates amongst the forum’s diverse audience as commenters from all sides of the political spectrum hashed out the ideas of liberty. 

The resulting discussion is a fascinating one, very much worth your attention. Check out the Reddit discussion and Boaz’s book, and then continue the conversation on Twitter using #LibertarianMind.

Obama’s Hypocrisy Regarding Forcible Border Changes

In a joint press conference with German Chancellor Angela Merkel, President Obama stated that he was considering sending weapons to the government of Ukraine.  Noting that Russia had already annexed Crimea and was now backing separatist rebels in eastern Ukraine, the president warned that “the West cannot stand and simply allow the borders of Europe to be redrawn at the barrel of a gun.”

Such sentiments might have more credibility if the Western powers, including the United States, had not engaged in similar conduct.  But Washington and its NATO allies have indeed redrawn borders, including borders in Europe, through military force.  Two incidents are especially relevant.  Turkey, a leading member of NATO, invaded Cyprus in 1974 and amputated some 37 percent of that country’s territory.  Turkish forces ethnically cleansed the area of its Greek Cypriot inhabitants and, in the years that followed, desecrated a large number of Greek historical and religious sites.

Ankara subsequently established a client state, the Turkish Republic of Northern Cyprus in the occupied territories.  Turkey has steadfastly refused to atone for its illegal invasion and occupation, much less disgorge the land that it conquered.  Yet except for some token economic sanctions imposed shortly after the invasion, which were soon lifted, Washington has never even condemned the aggression that its NATO ally committed. 

One might assume that it would be awkward for U.S. leaders to excoriate Vladimir Putin’s regime for annexing Crimea or setting up puppet states in the occupied Georgian provinces of Abkhazia and South Ossetia (which Moscow did after a short, nasty war in 2008) when a NATO member is guilty of similar behavior.  But such flagrant inconsistency has apparently caused American officials little difficulty.

New Minsk, Not Quite the Same as the Old Minsk

After a grueling seventeen hours of negotiation, German, French, Ukrainian, and Russian leaders emerged with a compromise agreement aimed at ending the conflict in Eastern Ukraine. Although similar to last September’s failed Minsk accords, the new deal provides more details on timing and implementation, which may help a ceasefire to hold. After so many prior failures, strong skepticism is understandable. But if U.S. and European leaders actually commit to the specifics of the deal, it can provide Ukraine with much-needed time to rebuild, reform and address its dire economic problems.

The all-night negotiations between leaders in Belarus showed how far apart the parties were on a number of key issues, including whether the deal should rely on the boundaries laid out in the Minsk I ceasefire, or on the current situation in Eastern Ukraine. Since rebel forces have made substantial territorial gains since September, neither side is keen to concede on the issue. Other issues, including which side will control border crossings into Russia, and the withdrawal of foreign fighters and equipment, proved equally thorny.

Admittedly, the deal still leaves many issues unsettled. It calls for an immediate ceasefire, the withdrawal of heavy weapons and a demilitarized buffer zone in Eastern Ukraine.  It also mandates constitutional reform to allow the eastern regions increased autonomy, as well as amnesty for those involved in the fighting. But the issue of boundary lines is left effectively unsolved, requiring Kiev to adhere to the current front lines when withdrawing weaponry, and the rebels to adhere instead to the boundaries agreed upon in September. There is also no real mechanism to ensure compliance, although the situation will be monitored  by the OSCE.

Still, Minsk II provides more concrete details on each issue, which may help this deal to succeed. Timing is more clearly defined for the start of the ceasefire, the removal of troops and heavy weapons, the creation of the buffer zone, while all constitutional reforms and elections are scheduled to be completed by the end of 2015. The sequencing of events is also more clearly defined: the agreement calls for control of the border to be returned to Ukraine only after new elections in the region, which themselves must follow constitutional reform in Kiev. Since Minsk I’s failure can be attributed in part to disagreement between both sides over who would implement such steps first, this is a welcome change. The restoration of social transfers from Kiev to residents in rebel-controlled areas is also welcome, and may serve to reduce some of the misery in the region.

Police Body Cameras Raise Privacy Issues for Cops and the Public

Advocates of increased transparency in law enforcement are understandably keen to see more police officers wearing body cameras. Not only is there some evidence that police officers wearing body cameras contributes to a decline in police “use-of-force” incidents, footage from police cameras has provided useful evidence to those investigating allegations of police misconduct. Yet despite the benefits of police body cameras there are serious privacy concerns that must be considered and addressed as they become more common.

Perhaps the most obvious privacy concerns are those of the civilians filmed by police officers. If footage from police body cameras is considered public record then hours of footage of innocent people’s interactions with police officers is potentially available. It is not hard to imagine a situation in which police officers wearing body cameras enter someone’s home and leave without making an arrest. Footage of that encounter could reveal embarrassing or private information about the homeowner.

In November of last year it was reported that Washington police departments were reviewing their policies related to dash cameras and body cameras in the wake of an increase in requests for footage from the public via public record requests. As the ACLU has pointed out, Washington is one of the states where body camera footage is considered “susceptible to public release upon request.”

At the end of last month, members of the North Dakota House overwhelmingly passed a bill that would exempt police body camera footage of the inside of a private place from a public record request. North Dakota House member Kim Koppelman, who introduced the bill, said that the legislation would protect civilians in situations similar to the one I outlined above. Koppelman reportedly introduced the bill “at the request of West Fargo Police Chief Michael Reitan.” Koppelman and Reitan may be primarily concerned with the privacy of civilians, but a civilian could have a genuine interest in seeing the footage gathered by police officers in her home, especially if she believes that officers damaged property or behaved poorly.

The Real Climate Terror

The Obama Administration is sticking to its talking points claiming climate change affects us more than terrorism. It might be valuable to compare and contrast the real life affects Americans endure from both of these threats.

First, let’s take a look at climate change’s effects in the United States: Hurricane power, when measured by satellites, is near its lowest ever ebb. There’s no change in the frequency of severe tornados. The relationship between heavy snow and temperature is negative along the East Coast. Carbon dioxide and longer growing seasons are significantly increasing the world’s food supply, and there’s no relationship between global temperature and U.S. drought.

Compare this with the effects of terrorism: On September 11, 2011, terrorists took down the World Trade Center and nearly an entire side of the Pentagon, extinguishing 2,996 lives. As a result, every American’s privacy is assaulted by the government on a daily basis—and let’s not talk about what they’ve done to air travel, or worse, Iraq. We’ve managed to remain in a perpetual state of war, unleashing a wave of federal spending our great grandchildren will be repaying.

Perhaps next time President Obama skips the TSA lines to fly around the world on Air Force One (on the taxpayer dime, emitting the carbon of which he’s so scared) he should look down at Arlington National Cemetery at the tombstones left from the reaction to terrorism–it’s an excellent reminder of the real cost of government action.

(Read more about actual threat of terrorism in “Terrorizing Ourselves,” by Benjamin Friedman, Jim Harper and Christopher Prebel, and “Responsible Counterterrorism Policy,” by John Mueller and Mark Stewart.)