Monday, May 16, 2011

Debt by Fiat? Musings on the Constitutionality of the Debt Ceiling

Today, May 16, 2011, according to Treasury Secretary Geithner, the Federal government hit the debt ceiling of $14.294 trillion. (odd number to set the limit at, right?) That's $14,294,000,000,000.00. Anyways, the Treasury has begun taking extraordinary measures to prevent defaulting on its loans until August 2, after around which those normal extraordinary measures won't be enough. Right now that includes raiding the Federal employee pension fund. (The government is legally required to repay the fund with interest, although I believe that is along the lines of what they said about the social security trust fund.) What would defaulting on loans mean besides possibly a government shutdown like the one averted earlier this year? Many economists say a global financial catastrophe. US debt is looked up as being an investment safe as cash. That would no longer be the case. Congress isn't stupid enough to let that happen of course, right? But one has to wonder should Congress be stupid enough to fail to raise the debt ceiling by around August 2 could the extraordinary measures include an Executive Order either raising the debt ceiling or simply instructing the Treasury to ignore the debt ceiling entirely and continue issuing debt?

Should that discussion arise, which I imagine it will if come July the debt ceiling still hasn’t been raised, I think pivotal to that discussion will be the 14th Amendment, Section 4.

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The question is, would not raising the debt ceiling on its debt cause the validity of the public debt to be questioned? From a financial market perspective, most definitely. For that matter, the mere talk of the debt ceiling causes questioning of the validity of the public debt of the United States in financial markets. As long as there are accounting gimmicks to avoid default then probably the debt is not questioned. But you would be hard pressed to say the public debt is not questioned if the United States defaults on the public debt. Almost by definition it is being questioned.

There's another key point though in that section, the validity of the public debt, authorized by law. Who has the power to authorize by law? Well, Article I of the Constitution states:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

The President does not have legislative powers to make laws. Additionally, Section 5 of the Fourteenth Amendment states:

The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

It doesn't state the President has the power to avoid the questioning of the validity of the public debt. Would an executive order raising the debt ceiling or instructing the Treasury to ignore it be introducing public debt not authorized by law? My guess is probably technically. Strictly speaking, not only would that be public debt not authorized by law, but that would be additionally public debt in opposition to a law made by Congress. Now, should such an Executive Order be made and found unconstitutional by the Supreme Court I'm betting Congress would choose to honor those debts issued in the interim. Of course, would the market believe the debt still had the full faith and credit of the United States government? That's a whole different discussion I won't get into now.

But wait, if not raising the debt ceiling would cause the validity of the public debt of the United States to be questioned, and if only Congress has the power to authorize debt, which wins? Isn't there a dichotomy between the not questioning of the validity of the public debt and not exceeding the debt ceiling? This raises a bigger question than does the President have the power to raise or ignore the debt ceiling. Does Congress have the power to institute a debt ceiling? In other words, is a debt ceiling even constitutional in the first place?

Now wait, if a debt ceiling isn't constitutional, what's to stop Congress or the Executive Branch from borrowing without control. Well, first off, clearly a debt ceiling hasn't stopped us from borrowing without control. Need I remind you, $14,294,000,000,000.00. But we haven't always had a debt ceiling. The debt ceiling wasn't around until 1917. There is a constitutional means for controlling spending and borrowing, it's called a budget. If Congress doesn't want more borrowing than Congress shouldn't have passed a budget which requires more budgeting. The Executive Branch cannot legally spend money that Congress hasn't appropriated. And yet, Congress just last month appropriated a budget which we knew then would necessitate the debt ceiling being raised. There's a conflict right there. Is the Executive Branch supposed to follow the appropriations by Congress or follow the debt ceiling by Congress? Is one law passed by Congress trump the other? You don't knowingly put together a budget that relies on increasing debt while also knowing you aren't willing to rely on increasing debt. If you're going to do that, then you should cut spending enough so you won't increase debt, not play chicken with your debt limit. If you want to limit debt, limit your spending. (or increase revenue)

I don't have the answer to the question of whether the President can by Executive Order, by fiat, raise or ignore the debt ceiling. Nor do I have the answer to whether the debt ceiling is even constitutional to begin with. Only the Supreme Court can definitively answer those questions, and only if and when such an Executive Order is if ever issued, and of course only after relying on years of case law in addition to the Constitution.

(In full disclosure: Although I may be an employee of the government I am only writing as a private citizen exercising the freedom of speech and am not in any way, shape, or form speaking on behalf of the United States government.)

Thursday, November 18, 2010

In an age when airlines nickel and dime you, how can you complain about free preventative health care?

Wednesday, November 17, 2010

Incentivizing Lousiville Cardinal Fans to Stay for the WHOLE Game

I think all of us Louisville Card fans are proud of our team's performance against the NCAA March Madness runner up Butler tonight. But if you were at the game, or my guess watching it on TV, you might not be able to tell in the last minutes. As I looked around the new Yum! Center, the arena appeared half empty. This wasn't some exhibition game, this was the first real game against a very real team. It was also, I call, a disgrace on a part of the fans who left early.

That's why I propose this or a similar system to incentivize ticket holders to be the loyal fans they are and pack the house at every game and support our team until the final buzzer ends, win or lose. Every ticket price should include a small deposit per game. For each game, when its scanned to enter the arena you would get a portion of the deposit credited back electronically to your account. But the real incentive would come at the end of the game. After the clock runs out, and only after the clock runs out, you could have your ticket scanned as you leave the arena and have a larger portion of the deposit returned to you electronically. This would reward people who stay and support the team rather than try and beat traffic. Although I have no statistics to back this up, I think having a packed house at the end each game would increase our winning record. It would keep the morale of the team up, thus making less likely them losing a lead if they have one and more likely of making a come back if they are behind.

I noticed another thing as I looked around, or rather up. The lower part of the arena was empty, but the top of the arena was still almost full. Now, unless I'm mistaken, that's because the fans in the upper deck for whatever reason can't afford what it takes to get good seats in the lower section (or simply haven't had season tickets long enough to get the points) but what they do pay is a greater percentage of their income than all the donations and ticket costs themselves are to fans in the lower deck and so are valued more. To help encourage our fellow fans in the lower arena and our loyal fans high up for each game when you scan your ticket after the game is over so many CAF (Cardinal Athletic Fund) points would be rewarded.

These proposals would both encourage fans to support the team to the end, like they should, and to reward loyal fans with better seats if those with good seats consistently leave early. If you couldn't make a game, you would have extra incentive to ensure you give or sell your tickets to someone you know will go. (In the case of giving them to someone you know, you could remind them to scan their ticket and login and view if they did. If they keep leaving early you would probably give them to another friend who would stay.) I don't know whether you would want to charge a small deposit for higher up seats and as the ticket price increases a larger deposit since a $1 fee for example wouldn't be enough to change behavior. There is precedence for revoking season tickets from people who don't use them. I know Churchill Downs at least used to do this with box seats, as my dad received boxed seats from my grandfather, sold them to his law office, and after a couple of years of them not being used enough lost them.

And remember, this isn't adding cost to the tickets. If you go to every game and stay until the end, or at least make sure your ticket is put to use when you can't, you would get back all your money. We could even keep in a savings account and you get the interest (doubt it would amount to much) it earned. If you really can't find anyone to take your tickets, you could turn them into the box office before hand and would automatically get your CAF points and your deposit back, and if the tickets are sold your money back. (Probably be best to use a site like FlashTickets to manage electronically and not worry about physical tickets.) I'm pretty sure there are 22000 Card fans that would gladly jump at a chance to go to a random game who can't afford season tickets and all the mandatory donations. But if for some not enough people can be found, by letting the box office your seats won't be used they could upgrade people from higher up to keep the lower section full.

Of course, there would be the question of what to do with the deposits that aren't claimed. Of course that could always be donated to a scholarship fund. Or perhaps to further incentivize every one who does stay would split the pot of deposits. (would work best if the deposit is the same for everyone, but could probably still be manged if otherwise.) If everyone stayed for the end of a nail-biting game, you'd just get your deposit back. But if people start leaving early, the amount you would get back if you stay would increase providing feedback to the crowd to keep the rest of the crowd there since they will earn more.

Finally, if just giving hard cash doesn't sound good, we could always link it to promotions and even make money off the sponsorship. Stay until the end of the game and when you leave you get 100 points on your Q-doba card for example. People are crazy about Q-doba. I however think just crediting cash back would be most effective since everyone likes money, not everyone will like any particular restaurant we let do a promotion.

(Don't get me started on UK fans in the student section during the UK game. I find that disgraceful. I think that as a condition for receiving student tickets so cheaply, part of the contract should be for that game you agree to wear red (or at least U of L gear, although for the UofL-UK game it really should be red.) You would agree that upon arriving at the section during the game, the school could challenge your wear, (aka UK or blue clothing) and give you a CardShirt to put on. If you really insist on cheering for UK (vomiting in my mouth as I type) you could take a seat in the upper deck and some lucky fan would get upgraded to the lower arena.) Something like that would be too late to put in a contract to receive tickets this year, but could be in place in two years. If its in a contract you sign when purchasing tickets I think it should be legal. It would be akin to the student section being extras in a movie and obviously being able to dictate what you wear or fire you. But that's another issue.)

Tuesday, November 09, 2010

New Congressional Draft Leads to Draft Dodging

You know what they say, those who deserve power don't want it and those that want it don't deserve it. This has never been truer than in politics. In 2014 we saw Congress swing back in control of the Republicans, after having swung in 2012 back to the Democrats, before that in 2010 the House going to the Republicans, and in 2008 and 2006 moving Democratic. This back and forth, back in forth has become the only change America could expect from Congress.

That's why after the 2014 Midterm Elections, (one might call No Real Decision 2014), many Americans had had enough. The grassroots movement to amend the Constitution, to select Congress members by a draft, similar to that used back in Vietnam, or jury duty, caught traction. As co-founder of the Congressional Duty movement Gerald put it, "Well, when I look around at the people I know, the only ones I would truly like to see in office don't want to touch it. So I thought, what if serving in Congress were like jury duty? A random selection of representatives is the only way to ensure we get qualified individuals into office these days." When asked if he wanted to serve, "Hell no! But that's the point. If my name comes up, I'll go though, of course."

Article 5 of the Constitution provides two paths for an amendment. One is for two-thirds of both houses of Congress to vote to propose an amendment. The other is for two-thirds of state legislatures to ask Congress to call a national convention to propose an amendment, never before used until now. Of course, the latter approach was necessary as Congress would never be willing to relinquish power. As Democratic minority leader Nancy Pelosi said, "We're doing great work. Why would we support some damn %$@ amendment from the same people who are in the Tea Party movement to stop us?" For the record, neither founder of the Congressional Duty movement are in the Tea Party. One was in fact a registered Democrat before becoming an Independent.

Co-founder Gerald may say "of course" he'll go, but that hasn't been the case with many who have received Congressional Duty notices. We talked to Vietnam historian Mark Porter. "What we're seeing is not un-akin to draft dodgers during the Vietnam War, although what is surprising is the rate of dodging going on. It's actually worse than that among those called to Vietnam, despite the ostensible lack of threat of death in the case today, and of course the Congressional pay and health benefits. (You can thank the 2008 Congress for ensuring that Congressmen enjoy their great benefits despite the changes forced onto the rest of Americans.) We've even seen the unemployed with homes about to foreclose dodge service, saying they'd rather live in a homeless shelter than move to DC."

Yes, across America, Americans are waking up to the fact that they may have to serve in Congress. One Congressional Duty supporter anonymously said "I was working hard to get the amendment path. I have more faith in the average Joe than the career politician. But then I realized I could receive that dreaded notice."

There are of course various requirements to be eligible to the Congressional Draft. The original age limits set by Constitution remain in effect. This means that at age 25, you must sign up with the Selective Service, whether male or female. What used to be a somewhat significant birthday only because of the promise of lower car insurance and the ability to rent a car has become absolutely dreaded. There are however exemptions for those pursuing higher education. I talked to head of admissions at Harvard University. "We've seen the number of applicants for our masters, doctorate, post-doctorate, and post-post doctorate programs skyrocket." The same holds true at universities across the country. Doctorate student Jessica Smith said "I was going to pursue a promising career in private industry. I had several job offers coming out of college, which is saying something considering the sluggish economy. But I realized if I left academia I would face the possibility of serving in Congress. I know the chance is slim, but I can't take that risk. I'll take the loads of debt for grad school any day." Asked about her plans after her doctorate, "Oh, I'm already looking at grad schools for my post-doctorate, and post-post doctorate after that."

Law school must receive special treatment. In order to reduce the likelihood of a would-be career politician ending up in Congress, the amount of persons in Congress with a Juris Doctorate have been capped at 5%. Law school advisor Karen McCormick said, "At first I had hope that this would mean we would start seeing only applicants to law school who were, you know, actually interested in practicing law and not doing it just to get into politics. I underestimated how much people loath Congress though when the number of applicants actually jumped. We're seeing people who just want a permanent way practically out of the draft. They're willing to take on huge debt with no promise of paying it off just to avoid the possibility." The sense amongst the newest class at Yale was hopeful. But amongst those third year, L3, students about to graduate, positively abysmal. Natalie Carneige said, "What am I supposed to do now? I did my undergrad in political science and got a law degree with no intent on practicing law so I could get into politics. The job that is being forced onto other people is out of my grasp. I got into politics because I saw there are two things that more money will be spent on, health care and political campaigns, and I don't like blood. But without elections all the political advisor jobs are drying up." This attitude seen here and especially at lesser law schools has led to an increase in suicides amongst law students. (If your son or daughter are in law and had political aspirations, we strongly advise you get them into therapy immediately.)

One of the other controversial requirements of eligibility is that potential draftees must be current on their taxes. As one anonymous farmer put it, "I don't see why we have to go punishing honest, tax paying individuals with the threat of serving in DC." Will he stop paying his taxes? "No, but that's because I hire illegal immigrants to work my farm, so I'm counting on that being good enough to get me out if my number comes up." The requirement was of put in to rid the potential pool of Congressmen from unqualified candidates, like the former Secretary of the Treasury Timothy Geithner who somehow passed Congressional approval in 2009 despite having not payed self-employment taxes. I talked to tax attorney Richard Green. Would he say the amount of tax evasions have gone up. "Oh, most certainly. Business is booming, never better. I'm working 100 hours a week as tax day approaches. Our clientele used to be the rich who had money they wanted to hide. Now though, we're seeing Americans from every walk of life come in to evade taxes so to be ineligible from the draft. Of course, almost half of America doesn't end up owing the government money. The interesting thing is we even see those people come in. At first we turned them away but eventually caved in to pleas for help. I may be a lawyer, but I'm not so cold-hearted as to sentence them to serving in Congress."

Armed forces recruiters have started pushing to make military service an exemption to Congressional duty but so far no luck. They're banking on the horrors of possibly serving in Congress being perceived worse than going to fight in Iraq, Afghanistan or Iran. Our soldiers are brave, but no one can blame them for not being brave enough to serve in DC.

Friday, July 24, 2009

Government Health Care Flow Chart (from Congress)

This chart is from Congress and illustrates how simple our new government health care will be. I'm not making this up, this is not a joke, although I can see where you would get that.

Thursday, July 23, 2009

I beg to differ Mr. President

President Obama,

You were asked last night about a black Harvard Professor who was arrested for disorderly conduct after breaking into his own home. The police responded to a call of two men breaking in to the home, asked to see his ID, and he defiantly refused and accused the officers of racism. Eventually he shows proof of ownership, but continues to be agitated. You said that "I think it's fair to say, No. 1, any of us would be pretty angry,"

Apparently you and I are different. I would not be upset to see the police showing to prevent what looked like a burglary of my property. I would be grateful and happily show them my ID. I would be left thinking I live in a safe neighborhood with a good neighborhood watch. Hopefully I would know my neighbors so they would have recognized me in the first place, but that's beside the point.

And then you had the boldness to say "No. 2, that the Cambridge police acted stupidly in arresting somebody when there was already proof that they were in their own home." I still can't believe called the police officers stupid for doing their job and responding to a robbery. Sure, now you are claiming that you were calling the incident stupid. But clearly you said the police acted stupidly, which implies you called the police officers stupid. The professor was not arrested at that point for breaking into his home, he was arrested for disorderly conduct.

You then said "And No. 3 — what I think we know separate and apart from this incident — is that there is a long history in this country of African-Americans and Latinos being stopped by law enforcement disproportionally and that’s just a fact." Whether or not you not you said it was apart from this incident, your words in fact imply you are calling the officers racists. I think its obvious this wasn't a case of racism. Perhaps the man shouldn't have been arrested, but if you're being yelled at and called a racist for doing your job you aren't going to be sympathetic. There was a black officer present. Additionally, the arresting officer has taught a diversity class to other officers for the past five years. I don't think a racist would do that. The police officer shouldn't be apologizing, you and the professor you should be apologizing for calling him racist.

It wouldn't surprise me if your friend Professor Gates wanted to be arrested. I'm not saying he came thinking he would get arrested. But now that he was arrested he is on cable news. Next thing you know he will be announcing his book deal.



Health Care - Worth Taking the Time to Fix

Yesterday, thankfully, it was announced that the health care bill will not be voted on before the August recess despite President Obama's time table to do so. (You can't blame the Republicans anymore, the Democrats have a filibuster-proof majority in the Senate so all the delays are from their disagreements) This is only a good thing, in my opinion, no matter what side you stand on.

If health care is as important an issue as it is claimed, then we the American people deserve for any bill promising reform to have had the time devoted to it to try and ensure it is well thought out. There are many issues yet to have been addressed, including how much exactly this will cost, how we will pay for it, who and how covered procedures and medicines will be determined, what sacrifices we will have to make, (and there will be, despite vague answers) and more. This are not easy and light issues. As of yet, I have not heard satisfactory answers to these questions. His news conference Wednesday certainly failed to offer them. To try and push such a bill through without these questions having been addressed and explained to the American people, who should have a chance to respond, was ludicrous on the part of the President.

The problems of our nations health care have been around and developing for years. How then can you argue that a bill must be passed so quickly, that a couple more months cannot be given to try and ensure the bill is good? Many point to President Bush as having used the politics of fear to push through legislation in the wake of 9/11. I point to President Obama as using the politics of fear to push through health care and other legislation that dramatically changes the nature and role of our government. Obama is afraid if he doesn't get his bill passed soon, Americans will begin to realize that it isn't the silver bullet he promised. The economic crisis that burst forth open last October was not related to health care. (it was caused by over-borrowing, and is being fixed by over-borrowing) And yet, the President seems to connect the two and use the financial crisis as a pretext for rushing through health care reform. If President Bush used fear tactics, President Obama has used them from the beginning of his presidency.

Tuesday, March 03, 2009

So When Did AIG Become FDIC Insured Anyways?

Our government sank another $30 billion into AIG this week, for a grand total of some $170 billion since the beginning of this crisis. We've been told AIG is "too big to fail." It's becoming we've lost too much money for it to fail. Any hope that we would make money off this "investment" (remember the good ole days of October 2008) has in my opinion has died.

Let's recall what AIG did to get in such trouble. It wasn't health insurance or providing your grandmother with an annuity, nor their aircraft leasing business. It was their Credit Default Swaps (CDS), basically insurance on an investment, such as a corporate bond or mortgage-backed security. Say you bought some debt of GM (because you wouldn't want to buy one of their cars), thus lendig them money to use (they really need it), but you were afraid they would default. You could get a Credit Default Swap, a contract where you the buyer would pay a small fee to cover that bond to the seller (like AIG), and if the company defaulted paying back the bond you receive a payment. Basically insurance on the bond, but the key being its not regulated. There were no rules over how much money a seller of CDS had to have on hand to cover losses, as there are in regulated insurance. Indeed, there were no rules that you even had to actually own a bond of the company you were buying, if you thought a company would fail you could bet against it. So, there were more CDS than the underlying assets they were insuring.

As I mentioned, CDS's were not regulated. Your normal commercial bank where you have a checking and savings account, is regulated (I would say well-regulated but if you've watched the news...) and FDIC-insured. (Federal Deposit Insurance Company) So, should the bank fail, your money in your accounts would be safe, up to $100,000 at a bank before the crisis, now $200,000 or so. But these credit default swaps that AIG and other banks were making were not regulated like insurance companies, or banks, and not FDIC insured. Like buying stock, there's a risk the CDS will fail. But somehow, we (or at least the government) has got this mentality that we can't let AIG fail because all these credit default swaps would fail. So what? That would be horrible if people lost money on their bad investments. Investors should have been aware they were buying unregulated insurance and could lose. The problem in my opinion is not that AIG is too big too fail but that their product (CDS) has now become too important to fail and is being treated like an FDIC insured bank account where the government will back it, despite AIG and the investors never having paid anything to cover them when they were profiting. If only they had bought credit default swaps on their credit default swaps. Will we the taxpayers keep sinking money into AIG to cover ever investor's loss covered by a credit default swap? Probably.

This raises another question, which could be a post in itself. These large banks (I won't name them) that keep getting bailout money, why doesn't the normal FDIC process apply here? The accounts are FDIC-insured, so although they can fail the account holders would be protected. If a bank is good it shouldn't need money, and if its bad it would reach a point where its about to not be able to cover its accounts, in which case the Feds would step in, wipe out the shareholders, prop the bank up, and reorganize it and eventually re-privatize it. Fair and simple. The way the media portrays it if the banks failed the account holders would lose, which is not true. And yet, there has not been much talk about the FDIC since October.