Conservatives Behind the 8-Ball

Ever since last week I have been contemplating writing a post about the Supremes and judicial philosophy, but have not had the time to really put my thoughts in order, so I have put it off. Today, however, William McGurn, writing in the WSJ, noted in passing precisely the topic I wanted to write about, so I figured I would just highlight what he said. His article is primarily about Chief Justice Roberts’ decision to switch votes on the ACA case for what are seemingly political rather than constitutional reasons. But what caught my attention, and what I have been thinking about for a few days now, was the following aside:

Justice Scalia’s dissent in Casey illuminates a political handicap imposed on conservatives by their own principles. Whereas the liberal belief in a living Constitution allows them to stretch its limits to justify almost any desired outcome, conservatives believe the Constitution imposes real limits.

This strikes me as a real handicap. This is not to say that conservatives on the Court everywhere and always apply that belief and those limits consistently. We need look no further than Roberts and the recent decision itself to know that. But it seems to me that conservatives are uniquely open to the charge of failing to uphold their self-proclaimed principles because they actually profess to have some.

Putting aside whether or not the charge of hypocrisy actually had merit, at the very least it is fair to question whether or not the conservative bloc ruling in Bush v Gore set aside ostensible principles (eg states rights) in order to reach a politically desireable result. But imagine a mirror situation in which the reverse had happened. Imagine that a liberal majority on the court had made precisely the same ruling resulting in a Gore victory. The liberals might be accused, as they often are, of simply ignoring the constitution out of convenience. But who could ever seriously charge them with judicial hypocrisy? If liberal constitutional philosophy is correct and it is true that the constitution is “living” and therefore its meaning perpetually in flux depending social norms, circumstances, or who knows what else, then at any given time their interpretation of it may well be the “correct” one, even if it stands in contrast with the plain words of the constitution itself.

Basically, it seems to me that conservatives advance a theory of constitutional interpretation that makes conservative opinions objectively critique-able on their own terms, while liberals do not. That is why hand-wringing over the legitimacy and politicization of the Court inevitably centers around conservative Court opinions, and never, ever around liberal Court opinions. Again, the recent ACA case is instructive. Conservatives are now attacking Roberts, not the liberal bloc that voted with him and made up 80% of the majority, for what seems to be a politically inspired opinion, not because they think liberals aren’t being political, but because Roberts seems to have gone against his principles, while the liberals were just doing what liberals do.

The Political Supremes

The WSJ today notes something odd that I noticed and thought was peculiar yesterday in reading through the dissent:

One telling note is that the dissent refers repeatedly to “Justice Ginsburg’s dissent” and “the dissent” on the mandate, but of course they should be referring to Ruth Bader Ginsburg’s concurrence. This wording and other sources suggest that there was originally a 5-4 majority striking down at least part of ObamaCare, but then the Chief Justice changed his mind.
The Justices may never confirm this informed speculation. But if it is true, this is far more damaging to the Court’s institutional integrity that the Chief Justice is known to revere than any ruling against ObamaCare. The political class and legal left conducted an extraordinary campaign to define such a decision as partisan and illegitimate. If the Chief Justice capitulated to this pressure, it shows the Court can be intimidated and swayed from its constitutional duties. If this was a play to compete with John Marshall’s legacy, the result is closer to William Brennan’s.

Charles Krauthammer proposes a similarly political explanation for Roberts’ decision.

Why did he do it? Because he carries two identities. Jurisprudentially, he is a constitutional conservative. Institutionally, he is chief justice and sees himself as uniquely entrusted with the custodianship of the Court’s legitimacy, reputation, and stature…
How to reconcile the two imperatives — one philosophical and the other institutional? Assign yourself the task of writing the majority opinion. Find the ultimate finesse that manages to uphold the law, but only on the most narrow of grounds — interpreting the individual mandate as merely a tax, something generally within the power of Congress.

Whether or not this is true, Roberts’ decision will not, and should not, restore any lost legitimacy of the court. The legitimacy of the court (to the extent that it even matters) had not been brought into question because one or two contentious decisions have been perceived as politically motivated. The legitimacy of the court is in question because the court has become a political institution. In our post-Roosevelt and, in particular, post-Roe world, justices are appointed and confirmed to the court by politicians in a blatantly transparent effort to effect political ends via the judiciary. And once on the court, those justices do what they were nominated to do. From a layman’s perspective, it has become obvious that, on many politically contentious issues that make it to the court, justices have a preferred result in mind and use whatever lawyerly semantics, sophistry and tortured reasoning they can to justify reaching that preferred outcome.

Far from dispelling this impression of the court, Roberts’ opinion merely strengthens it. The fact that he is a conservative joining a bloc of liberals does nothing to blunt the undeniable conclusion that this decision was politically motivated. It doesn’t matter much whether it is because he likes the direction in which Obamacare is taking the nation, or because he is trying to – ironically – alter perceptions of the court. It is clear that he has engaged in the same semantics, sophistry and disingenuous parsing that has made so many of us non-lawyers so cynical about the court’s proceedings.

If Krauthammer is correct and Roberts’ decision was driven by a desire to burnish the courts flagging reputation as an impartial, non-political interpreter of the law, he could not possibly have taken a more counter intuitive approach, nor have failed more abysmally.

Obamacare down to the wire

As the Supreme Court’s ruling on the constitutionality of Obamacare approaches, the NYT today has an article about how many supporters of ACA were slow to realize the dangers of a constitutional challenge.

It was to be expected that Obama would express public confidence in the constitutionality of the law, and of course we all remember Nancy Pelosi’s now potentially embarrassing dismissal – “Are you serious?” – of a reporter who dared to question her on the constitutional legitimacy of the law she had just passed. At the time I simply assumed that this was natural political bluster. But it seems that a great many Dems did indeed view the idea that forcing people to purchase a private, commercial product simply because they happen to exist might be beyond the legitimate power of the government to be beyond the pale.

“It led to some people taking it too lightly,” said a Congressional lawyer who like others involved in drafting the law declined to be identified before the ruling. “It shouldn’t strike anybody as a close call,” the lawyer added, but “given where we are now, do I wish we had focused even more on this? I guess I would say yes.”

How could they have been so wrong about this? It is one thing to be able to craft, out of Supreme Court precedent and a manipulation of language, a legitimate-sounding argument supporting the constitutionality of a power that had never been exercised before in the history of the US. But it is quite another to imagine that no reasonable counter argument could possibly exist or be forwarded. I don’t know which way the Supremes will ultimately vote on this, but it is clear now that it has been a reasonably close call, whichever way it goes.

How could experienced lawyers and constitutional scholars have thought – actually still think – that the constitutionality of a heretofore unexercised power which relies on the counterintuitive (some might even say perverse) definition of the absence of activity as the presence of activity, was an obvious and certain constitutional lock? Is it an example of widespread wishful thinking? The results of an academic liberal echo chamber? A mass delusion? I really don’t get it.

Long Lost Bits ‘n Pieces

I’m bored, so figured I would resurrect an old ATiM standby.

Viral video, dueling covers of Call Me Maybe by the Harvard baseball team and the SMU women’s swimming team. I vote for the women, although Harvard was the original.

Apparel at the Obama store gives us a good idea of how Obama views America…a collection of special interest groups: African Americans for Obama; Latino’s for Obama; Asian Americans and Pacific Islanders (seriously) for Obama; LGBT for Obama; Jewish Americans for Obama. Ah, Obama, a true uniter.

Molecules with unusual and silly names.

The science behind X-rays, microwave ovens, lasers, and other cool stuff explained.

One of my favorite shows from the UK. A sort of candid camera type show called Trigger Happy TV.

Kicking the can down the road

It looks like the pro-bailout party is going to win in Greece, which means Greece will continue with mandated austerity and Europe will continue to bail out Greece. At least for a time.

Markets in Japan haven’t opened yet, but stocks should rally and bonds will sell off, at least temporarily.

D-Day, 68 years ago today

A few photos from my trip last year:


Overlooking Omaha Beach

Another view, from a machine gunner’s nest

From the beach, looking inland

A sense of how much beach had to be crossed at low tide

View from a German bunker, looking out at the beach

The cliffs of Pointe du Hoc

A small patch of American land in France.

The Wrong Focus?

According to US Postal Service financials, in 2007 the USPS posted a net loss of $5.1 billion. In 2008 it posted a loss of $2.8 billion. In 2009 the loss was $3.8 billion. In 2010 it posted a loss of $8.5 billion. In 2011 it posted a loss of $5 billion. In the most recent quarter this year, it reported a loss of $3.2 billion, bringing this year’s total loss to $6.2 billion.

So let’s add that all up. Since 2007 the USPS has lost a total of $31.4 billion.

Now, a question for the folks of ATiM: Who should the US taxpayer be more concerned about having to support with a taxpayer funded bailout, the US Postal Service or JPM Chase?

Next up…how much have taxpayers piled into Amtrak over the last 5 years?

Bank bailouts and “risky bets”

The conventional story line behind the passage of the new Dodd-Frank regulations, and in particular the Volcker rule, is that prior to 2008 banks were using federally guaranteed deposits to engage in highly risky “bets” using complex and esoteric derivative products which eventually blew up, necessitating a government bailout of the banks. In order to prevent taxpayers from yet again having to bear the cost of these risky bets going bad in the future banking activity needs to be much more heavily regulated and indeed much activity, such as these “bets” using derivatives, needs to be prevented entirely.

When it is pointed out, as I did yesterday, that in fact the “bailout” of the banks didn’t cost the taxpayers anything, and that the taxpayer has actually netted a profit on the assistance provided to banks during the 2008/09 crisis, the usual retort (although admittedly not in evidence yesterday) is that the bailout of AIG, while not officially a bank bailout, was in reality a backdoor bailout of the banks, and that particular bailout has not only not netted any profit for taxpayers, it is almost certainly going to result in a loss. While this is certainly a reasonable point to make, it also demonstrates the folly behind the conventional belief that it was “risky bets” on derivatives that resulted in bank losses.

The reason that the AIG bailout can be seen as an implicit bank bailout is that AIG owed the banks (or it owed some banks/institutions which in turn owed others) a lot of money on its derivative trades, and if AIG defaulted on its obligations, the banks would be out a lot of money. But if these were simple, outright bets of the sort routinely condemned by those in favor of Volcker or Glass-Steagall on the part of the banks, the bailout would have been totally unnecessary because the bank “losses” would have simply been paper losses of profit, not an actual drain on bank capital. The reason that AIG’s failure to pay would have been so devastating to the banks is because the gains from the “bets” with AIG were needed to offset losses that were being incurred elsewhere on other positions, for example corporate and real estate lending activities. In other words, the “risky bets” with AIG must in fact have been hedges, not outright bets. To draw an analogy, if you make a $1 million dollar bet with your neighbor on the outcome of the Super Bowl, but he fails to pay you when you win, you have, strictly speaking, “lost” $1 million dollars, but you aren’t going to have to sell your house and bankrupt yourself because of it. You haven’t actually “lost” any of your previously held capital at all.

The real problem, of course, was not that the banks lost on their “bets”, but that without the payouts from these “bets” that they had actually “won”, the banks stood to lose actual capital on the positions that the AIG “bets” were meant to hedge. Looked at another way, the losses the banks faced due to an AIG collapse were not due to “risky bets” on derivatives, but were instead due to a bad credit decision, ie the judgement that AIG would make good on its covering obligations. And as far as I know, no one is proposing that banks be disallowed from making credit decisions in order to protect taxpayers from such risk.

Now, the AIG situation does point to an area of the various derivatives markets that does deserve some attention. Would the banks’ judgement of AIG as a worthy credit have been the same had they known the extent of the risks that AIG was insuring against? Or, would AIG themselves have insured so much risk if they were required to post hard capital as margin/collateral against potential losses (over and above simple mark-to-market collateral) on the risks they were insuring? These are worthy questions, and areas where sensible regulation might prove beneficial. But the conventional portrayal of “risky bets” on derivatives as the cause of bank losses necessitating a bank bailout is both wrong and is spawning monstrous regulations that will do little more than make banks less profitable than they otherwise would be, and hence more likely to fail.

Problem

There seems to be a problem with the site. All posts are showing up in italics. I am investigating, but if anyone has any ideas, let me know.

Update 9:52 est: Still no solution. I’ve looked through and tried to adjust the CSS, but nothing works. Seems like a higher level problem. I’ve contacted WordPress and await their answer.

Update 12:10 est: All fixed. My error. When I updated the quotation of the day, I had a bad html tag, which (surprisingly, to me) fed through to the entire site. All better. Back to your regularly scheduled program.

Early Evening Morning Post (with a few bits and pieces)

Vital Statistics:

Close Change Percent
S&P Futures 1405.82 7.91 .57%
Eurostoxx Index 2306.69 .26 .01%
Oil (WTI) 106.29 1.29 1.23%
LIBOR 0.466 0.000 0.00%
US Dollar Index (DXY) 78.83 .01 0.02%
10 Year Govt Bond Yield 1.9435% .0298%
RPX Composite Real Estate Index ? ?

Sorry for the delay in getting this posted in Brent’s absence. Busy day for me today, although the markets themselves weren’t that busy, what with most of Europe out today on holiday for May Day. Strong ISM and Construction data did move rates a bit higher today and equities rallied, but the afternoon was pretty slow.

Davis Polk’s latest monthly analysis of the progress that the regulatory agencies are making on Dodd-Frank. One notable statistic: regulators have missed two-thirds of the 221 already passed deadlines for rule making. And we still have 158 to go. It’s tempting to say that D/F is the worst legislation passed in the last 100 years, but unfortunately its not even the worst legislation passed during the last 4.

In non-financial news, Jonah Goldberg’s new book, Tyranny of Cliches: How Liberals Cheat in the War of Ideas came out today. I’ve read the intro and am reminded of some of the discussions we’ve had here.

We’ve debated here whether or not Elizabeth Warren is a hypocrite, but apparently there’s a new debate brewing over whether or not she’s a Native American. (This, BTW, is a bit of a bugaboo for me. Isn’t everyone who was born in the US a native American?)

Top ten revelations about bin Laden garnered from the raid on his compound. Most interesting: he was a porn addict. Least surprising: he thought Biden was unprepared to be president. (Who doesn’t?)

Never, ever date your own dentist.