Financial Alphabet Soup

On Monday, the Treasury Department released the first of four planned reports on the U.S. financial system. While the 150-page report, focusing on banks and credit unions, includes a number of observations and recommendations worth discussing, there is one page I’d like to highlight here. It’s a single chart. And yet it speaks volumes about the current state of regulation in the financial sector. Here’s the chart:

Those in Washington often talk about the “alphabet soup” of federal agencies. We do love our acronyms here. But this chart shows that the financial sector has a complete soup all of its own. There are nine federal regulators who oversee the financial sector. Additionally, each state has its own regulators, typically one each for securities, insurance, and banking. Plus, there are the self-regulatory organizations—quasi-private bodies whose decisions can have the effect of law on the companies and individuals they oversee. A single organization can be subject to as many as six regulators. An organization that does business in multiple states can potentially be subject to regulation in each of them, in addition to regulation at the federal level.

No NYT, the Public Doesn’t Need to ‘Pay and Pay’ for Private Infrastructure

The Trump administration’s proposal to repair and expand America’s roads, bridges, ports and airports includes the expanded use of public-private partnerships (P3s). Under P3s, state and local governments award franchises to private companies that agree to pay for and manage the infrastructure in exchange for the companies receiving toll payments from future users. A number of P3 projects currently operate in the United States, and they are common in other developed nations.

Despite the growing embrace of these projects by policymakers around the world, the Trump proposal is being met with skepticism. For example, the New York Times dropped this article last week ahead of Trump administration efforts to promote the proposal. According to the article, “experts agree” that “there is little hard evidence” that such projects produce long-term benefits to the public as compared to traditional government-provided infrastructure. (That “agreement” came as news to many transportation experts.)

At heart, the article charges that P3 programs are “win/no lose” proposals for the private firms: if the projects prove popular, the firms profit—sometimes handsomely, to the detriment of consumers. But if the new infrastructure doesn’t get many toll-paying users, the financial losses from the projects fall on taxpayers.

To illustrate this, the NYT cites California State Route 91, one of the first P3s in the United States. Initially intended to reduce congestion, the project awarded a private company the right to build and operate a special four-lane toll road in the middle of the highway. The road was “congestion priced,” meaning the tolls fluctuated in order to limit use just enough to guarantee the free flow of traffic.

The original lease on the road included a noncompete clause that limited the state’s ability to add additional lanes to the non-P3 part of SR-91 or to build parallel infrastructure. This resulted in heavy congestion on the old lanes, pushing motorists onto the toll lanes and producing a financial windfall for the toll company. That ultimately prompted Orange County to buy out the toll company for $207 million in 2003.

However, the SR-91 problem is not inherent to P3s. It arose as a result of the conditions under which the franchise was arranged. Traditionally, P3s have been awarded through negotiations between private companies and transportation authorities, leading to high initial private investments and uncertainty about demand for the road. That risk, in turn, encourages toll road companies to want protections like the noncompete clause.

Emoluments Lawsuits Are a Monumental Distraction

Multiple organizations, businesses, taxpayers, and now the District of Columbia and state of Maryland have sued Donald Trump for violating the Emoluments Clause by not sufficiently separating himself from business holdings that benefit financially from foreign patronage. These lawsuits are a waste of time and resources, having been orchestrated by certain elites who can’t reconcile themselves to the election results and are doing their best to #resist Donald Trump to the point of denying the legitimacy of his presidency. To put a finer legal point on it, the charge that President Trump’s hotels, because they benefit from foreign business, constitute a kind of corruption that the Framers explicitly sought to prevent is, to be blunt, frivolous.

Article I, Section 9, of the Constitution provides that “no Person holding any Office of Profit or Trust under [the United States] shall, without the Consent of Congress, accept any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.” This Emoluments Clause was passed unanimously by the Constitutional Convention, based on the young nation’s own recent diplomatic history – namely, gifts given by foreign kings to Ambassador Benjamin Franklin and other diplomats, which they promptly reported to Congress. Under President Bill Clinton, the Justice Department’s Office of Legal Counsel explained that “those who hold offices under the United States must give the government their unclouded judgment and their uncompromised loyalty… . That judgment might be biased, and that loyalty divided, if they received financial benefits from a foreign government.”

In other words, the Emoluments Clause is a stopgap against the risk that foreign powers will try to curry favor by bribing U.S. officials with gifts and other baubles. (Maybe even titles of nobility, which are prohibited for all Americans by another constitutional provision.) To be sure, a politically motivated decision by a foreign government to give preferential permitting or land acquisition terms to a Trump construction project could be a favor worth millions of dollars. 

But is booking suites at a Trump hotel or holding a conference at another Trump facility really a bribe? So long as payments are made at market rates – not “here’s 100 million dollars for a room with a view” – I don’t see how they could. Whatever the Emoluments Clause protects against, arms-length business transactions ain’t it.

Indeed, to hold to the contrary would be to disqualify businessmen with a diversified portfolio from the White House. That can’t be the case; George Washington himself was a wealthy landholder who engaged in business with foreign nationals. There’s even an academic debate about whether the clause applies to the president in the first place, as distinct from those ambassadors and other officials.

In short, while scholars can disagree on legal and policy grounds about many of the Trump administration’s doings – from the travel ban, to renegotiating trade treaties, to various deregulatory initiatives – no serious person should spend time on this emoluments nonsense. They’re a distraction from the important issues our divided nation faces and the debates over how to solve them.

For an elaboration of my thinking on this matter, see Kyle Sammin’s excellent analysis, which I’ll “incorporate here by reference,” as the lawyers say.

Update: This post has been revised slightly for clarity.

 

Who Is Trump Trying to Help on Cuba?

According to media reports, President Trump is expected to announce on Friday that his administration will revert some of President Obama’s policies toward Cuba. In particular, it looks like Trump will impose new restrictions on travel, as well as limits on U.S. companies doing business in the island.

The alleged justification for the new policy is that it will pressure the Cuban dictatorship to give concessions on human rights and political liberalization. That seems odd given that the Trump administration is not particularly fond of pursuing that agenda in its foreign policy: there was no mention of human rights and political freedom during his visit to Saudi Arabia, for example.

Is there a clamor for a tougher approach on Cuba? According to surveys by Pew Research Center—the most recent one from December 2016—an increasing majority of Americans (73%) favors ending the trade embargo against Cuba. Trump’s new policy would not reflect the views of nearly three-quarters of U.S. citizens.

What about Cuban-Americans? A 2016 poll by Florida International University among Cuban-Americans in Miami-Dade County found that 63% opposed the continuation of the embargo and 57% supported expanding economic relations between U.S. companies and the island. Imposing new restrictions on trade and travel to Cuba is something that a majority of Cuban-Americans would frown upon.

That still leaves Cubans in Cuba, who are supposedly the ultimate beneficiaries of the changes Washington wants to bring about in the island. According to an April 2015 Washington Post poll, 96% of Cubans support lifting the trade embargo. The same number said that more tourism from the United States would benefit the local economy.

Survey after survey shows that a majority of Americans, Cuban-Americans, and Cubans in the island favor greater economic ties between the United States and Cuba. If Cubans and Americans don’t want new barriers erected between their countries, who is President Trump trying to help?  

Does President Trump Support “Unrestrained Freedom”?

The Republican National Committee, in the person of Chairwoman Ronna Romney McDaniel, informs me that I “have been selected to represent the Commonwealth of Virginia as a member of The President’s Club.” I know that this is an important responsibility because it comes with a Priority Mail BRE and a request for $750. There’s a lot of boilerplate in the letter about “fake news” and the Democrats and their “radical left-leaning allies.” (Really, if they’re radical, surely they’re more than “left-leaning.” Why not just come out and say it – they’re left-wingers!)

But I’m particularly struck by this line:

I believe you share President Trump’s objectives of smaller government, fiscal discipline, lower taxes, secure borders, conservative judges, a stronger military and unrestrained freedom.

Seriously – President Trump’s objective is “unrestrained freedom”?

Some of those objectives I can see. Fiscal discipline is a presumptuous claim when you’ve promised not to touch the biggest spending programs. Some of the administration’s programs might make government smaller, but others clearly would not. But seriously, “unrestrained freedom”?

For nearly two years now Donald Trump’s main policy themes have been to close our borders, to deport millions of our neighbors and co-workers, and to stop Americans from buying products made overseas. He has bullied, subsidized, and threatened businesses into making uneconomic decisions. He has also talked at length about his desire to limit freedom of speech, frustrated as he is that “our press is allowed to say whatever they want.” While Republicans and Democrats in Congress and the states work on criminal justice reform Attorney General Jeff Sessions steps up the drug war. Trump’s acceptance speech at the Republican National Convention was described in Reason as “easily the most overt display of authoritarian fear-mongering I can remember seeing in American politics.”

The idea that President Trump’s objectives include “unrestrained freedom” is ludicrous even in the context of political fundraising letters.

Feds: Your Magnet Sets Are Lawful, Melt Them Down Anyway

In 2012 the U.S. Consumer Product Safety Commission (CPSC) launched a barrage of legal and enforcement actions seeking to ban sales of tiny rare-earth magnet sets, popular under various names as a desk amusement with artistic and scientific applications. While the sets do not cause injury when used as intended by adults, they can cause serious harm to children when swallowed, so a key question was whether they may be sold for adult use with appropriate warnings against letting them into kids’ hands.  As we noted at the time, the leading maker of the sets, which sold them under the name Buckyballs, launched an unusual public campaign criticizing the logic of the ban being sought, even though “it’s rare for a regulated company to mount open and disrespectful resistance to a federal regulatory agency,” let alone in sarcastic Internet memes. The CPSC responded directly and some would say vindictively with an unprecedented recall action naming Buckyballs co-founder personally as well as his company. After expensive ventures in legal defense, Zucker agreed to exit the business, leaving only one leading maker to bid defiance to the commission, Zen Magnets. 

While the CPSC pursued recalls and jawboned retailers to drop the product, the centerpiece of its campaign was to enact a ban on the product itself. Last year, however, the Tenth Circuit struck down the ban, ruling that the commission had improperly stacked its cost-benefit analysis. (Then-Tenth Circuit Judge Neil Gorsuch concurred in throwing out the ban.) The commission has gone back to the drawing board, and perhaps at some future date it will justify a ban to courts’ satisfaction, but for now the products are lawful to sell, and in fact are being sold

None of which, however, has undone the effects of the various allied enforcement actions the CPSC took in its campaign. In one of those actions, a federal judge agreed with the commission that Zen Magnets had improperly ignored a CPSC recall order and ordered it to destroy the remainder of its relevant stock – even though that stock was indistinguishable from other magnets that are sold lawfully. 

The company recently held a “funeral” for the sets it was forced to destroy, $40,000 worth, with a slightly pointed “eulogy” read aloud by company operations director Eric Sigurdson. You can watch it here: 

More at the Denver Post and, on newer developments on the magnet issue at the CPSC, from former commissioner Nancy Nord.   

Do You Have a Constitutional Right to Follow the President on Twitter?

Several Twitter users blocked by President Trump have threatened to file suit, alleging that his Twitter account constitutes a public forum, rendering their exclusion an unconstitutional content-based restriction of speech. They are represented by Jameel Jaffer, director of the Knight First Amendment Institute at Columbia University, who, in a letter to the White House Counsel, contends that Trump’s decision to block critics “suppresses speech in a number of ways.” Blocked users cannot search for or easily view the president’s tweets without logging out, and are “limited in their ability to participate in comment threads associated with [Trump’s] tweets.”

The question turns upon our understanding of the purpose and character of Trump’s twitter presence. Is @realDonaldTrump simply the private Twitter account of a man who happens to be president, or does it constitute a designated public forum, as asserted by Jaffer? A designated public forum is a government-controlled space set aside for expressive activities. While the government may establish time, place, and manner constraints on speech within a designated public forum, it may not impose content-based restrictions on expression therein.

Public forums are usually imagined as physical spaces in which citizens may express themselves, but this need not be the case. In Rosenberger v. University of Virginia, the Supreme Court determined that, by establishing a policy of funding student newspapers, the University of Virginia had created a public forum from which it could not exclude qualifying publications simply because they expressed religious, rather than secular, opinions.

However, the fact that designated public forums may be non-physical, coupled with Trump’s status as President of the United States, is probably not a sufficient basis to deem his Twitter account a designated public forum. The courts have generally determined that designated public forums must be owned by the government in an official capacity, or used for official government communication.

It is unlikely that Trump’s Twitter account represents a government-controlled property. Twitter is a private company; while Southeastern Promotions, Ltd. v. Conrad established that a privately owned theater leased by the government may be considered a public forum, even as President, Trump is simply a Twitter user, bound by the same terms of service as everyone else. Twitter allows its users to block accounts they’d like to avoid, and one block-happy user happens to be president. In effect, Trump’s becoming president does not nationalize the private Twitter account that he used before ascending to the nation’s highest office, and will likely continue to use when his tenure in the White House ends. A determination that Trump’s account represents a designated public forum would greatly undermine Twitter’s ability to establish rules for the digital pseudo-commons it maintains.

Finally, it is difficult to understand Trump’s tweets as official government communications of the sort that might push his account into designated public forum territory. While Trump often announces decisions via Twitter, these releases are accompanied or followed by official statements from the White House. Furthermore, Trump does not restrict his twitter presence to the conveyance of official policy, often using it to fire back at detractors or criticize members of his own administration. Can we really regard “Who can figure out the true meaning of ‘covfefe’ ??? Enjoy!” as an official government communication?

In any case, do not expect debate regarding extension of the public forum doctrine to Internet properties to subside any time soon. As human communication increasingly moves online, and voters continue to demand authenticity from their representatives in government, the line between official and private digital communications will remain somewhat blurry. Nevertheless, for libertarians, the current legal paradigm suggests a satisfactory balance between the property rights of social media firms and users, and the First Amendment rights of both government officials and their critics. Ultimately, social media users benefit when firms are allowed to manage their digital commons as they see fit, freely experimenting with new features and means of interaction. The nationalization of politicians’ personal social media accounts would stymie this process, needlessly dividing platforms into venues governed by an evolving understanding of what makes for an enjoyable user experience, and state fora held back by crudely applied terrestrial standards.