Digest: 17 December 2013




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In Judge Questions Legality of N.S.A. Phone Records, Charlie Savage (for The New York Times) discusses Judge Leon’s decision in a case brought by plaintiffs seeking an injunction against the NSA’s collection and storing of Verizon phone records. This is the first case to successfully  challenge the constitutionality of the NSA’s broad collection of phone records. The court found that the NSA’s collection is almost certainly unconstitutional and granted the injunction subject to a stay allowing an appeal to be heard. While the government argued for the need to maintain its ability to collect such data on a large scale, it did not convince the court that its collection did not violate the plaintiffs’ Constitutional right to protection against unreasonable searches and seizures. Indeed, Judge Leon commented that James Madison, the author of the Constitution, would be aghast by the NSA’s practices.  In addition, he implicitly questioned the honesty of the government’s overall position with his footnote comment regarding the government’s general lack of candor that was notably broken in one instance where the FBI Assistant Director acknowledged that the widespread collection only sometimes provides useful information before other less invasive collection methods.  But even that seemed to be an overstatement – as Judge Leon noted, the Government failed “to cite a single instance in which analysis of the NSA’s bulk metadata collection actually stopped an imminent attack, or otherwise aided the Government in achieving any objective that was time-sensitive in nature.”


Editor’s consideration: Judge Leon’s position casts quite a light on the NSA’s activities. What is perhaps most worrying is the Obama Administration’s apparent lack of concern for privacy issues.  As a scholar of constitutional law it might be expected that President Obama would be more sensitive to the issues that government surveillance gives rise to, but his defense of the NSA’s practices and his continuing pursuit of Edward Snowden suggests a remarkable disregard.  If someone had emerged from Russia or China having exposed such practices by one of those governments, he/she would be publicly treated and supported by the US as a “defender of freedom”.  By treating Snowden instead as an enemy of the state President Obama sets a dangerous precedent – this has been an opportunity for the Administration to distinguish itself from more repressive governmental regimes, instead it has proved to be little different.

No one can seriously argue that there is no threat from terrorism, and it is not difficult to see how such a surveillance system could potentially prevent a terrorist attack; but it is just as easy to see that its potential for misuse is enormous, far too great to be an attractive mechanism to counter the threat it proposes to address.  As terrible as the threat of terrorism is, it pales in comparison to the dystopic nightmare that these incremental threats to privacy must all but inevitably bring about.  Judge Leon was quite right to quote James Madison in cautioning us to beware “the abridgment of freedom of the people by gradual and silent encroachments by those in power”.

The Obama government’s apparent inability to appreciate the difference in scale between the threat of terrorism and the threat of continued unhindered growth of government surveillance practices is remarkable; the only explanation is that it stems from the same obsession with stoking fear that George W. Bush’s government employed in the aftermath of 9/11.  In that case the stoking of fear led us to unnecessary war on false pretenses, bringing about the deaths of more than a hundred thousand people who simply could not reasonably be considered a direct threat to the United States.  In the current case the stoking of fear has been leading us in an arguably even more disturbing direction – the bringing about of a deep systemic shift in the way we live with implications that reach into everything we do.

Bush’s War on Terror has been in many important respects embraced and even expanded by the Obama Administration – the costs of it have reached into the trillions of dollars precisely when funds are much needed elsewhere, in domestic infrastructure investment, in small business investment, in climate change mitigation initiatives, and in countless other programs designed to protect and build rather than recklessly undermine the well-being of the US people and economy as a whole. Investing billions into NSA processes that are little different from (just much more effective than) those employed by the East German Secret Police during the Cold War is even more misguided than the War on Drugs has long proved to be.

The US would do well to stop declaring reactionary war left and right and get on with actually being what it makes every effort to pretend to be – but that is what was expected when President Obama took office, it was the basis of expectation that won him both the Presidency and the Nobel Prize.



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In The Role of Finance in the Economy: Implications for Structural Reform of the Financial Sector, Martin Neil Bailey and Douglas J. Elliott (for The Brookings Institution) report on their research into financial reform in the US. While Bailey and Elliott recognize the need for certain changes in the financial system and its regulation, they find that some widely suggested changes would not be sensible. Proposals for change often incorporate certain measures such as breaking up the largest banks, but this approach will not necessarily lead to a safer marketplace.  Such institutions should be held to higher safety margins, but there is something to be said for the efficiencies that can be produced by global institutions in a global marketplace. Further, the authors note, there is no guarantee that the recent crisis would not have occurred if the largest banks had been broken up into smaller banks – they still would very likely have collectively made the same mistakes that led to the crisis.  In addition, cleaning up the mess afterwards might in fact have been more difficult because of the need to marshal a greater number of actors towards a solution. One way or another, reversion to models that might have preferably been employed at an earlier time is insufficient, we need to look to the current reality and to future potentialities in crafting our reforms.

In Feeding the Bubble: Is the Next Crash Brewing?, Martin Hesse and Anne Seith (for Der Spiegel) discuss the role of central bank lending in creating a present bubble in real estate and equities investments, and the crash that can be expected to occur when that bubble bursts. Hesse and Seith consider in particular the position of hedge fund manager Mark Spitznagel, who manages a fund specifically designed to act as an insurance policy against the next financial meltdown. Spitznagel is convinced that it is not a question of whether but rather of when the next meltdown will occur. He sees the flood of money from central banks as almost guaranteeing a dire result.  Not all feel the same way, many see the current growth as a genuine rise in value on the back of a major downturn, but Spitznagel questions the solidity of the connection between prices and values – he believes much of the current price growth simply does not reflect the true fundamental value of the underlying assets – caution is warranted, but not enough is being employed.

In BlackRock: The Monolith and the Markets, The Economist discusses the asset manager BlackRock, its risk management platform Aladdin, and their combined potential as a source of systemic risk in world financial markets. BlackRock itself manages $4.1 trillion in assets – it is the largest single investor in the world handling almost as much as all the world’s private equity and hedge funds.  Its risk management platform, however, is not only used by internally but is made available to managers outside of BlackRock who themselves handle an additional $11 trillion.  Despite BlackRock’s success, and its reputed obsession with the careful management of risk, concerns may be raised about its inevitable fallibility – aside from the sheer size of the firm’s assets under management, and from the fact that it is the largest shareholder in many of the worlds largest companies, if competitors use the same risk management model they will not only benefit from its qualities but will also be exposed to the same risks. As careful as BlackRock might be, the scale of the interconnectedness it creates should be handled with great care, to say the least.



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In Does Rising Inequality Make Us Hardhearted?, Thomas B. Edsall (for The New York Times) discusses growing liberalism on social issues and growing conservatism on economic issues in the US.  While it might be thought likely that rising inequality would cause a growth of sentiment towards the need for redistributive policies, in the US the growth of inequality has actually caused a hardening of economic views towards the conservative. Edsall argues that President Obama, rightly positioning himself to address increasing inequality and diminishing social mobility, will find strong resistance and not only from Congress. Views are split almost evenly on whether poverty is the result of a lack of effort or the result of tough circumstances.  Republicans favor the former, Democrats the latter. Whites are split dead evenly, and Blacks and Hispanics heavily favor the latter.  Policy in the US tends to strongly follow wealth, and while it seems that among the wealthy social views are becoming more liberal, it would be a mistake to assume that economic views are following along – they aren’t, they are going in the opposite direction.

In The History of Cyclical Macroprudential Policy in the United States, Douglas J. Elliott, Greg Feldberg and Andreas Lehnert (for The Brookings Institution) provide a comprehensive discussion of how various macroprudential policy tools have been employed. The consideration of the history of these approaches provides perspective on the usefulness of the various tools in various circumstances.  Only with such a background of understanding can these tools be effectively employed in the present and future.

In Treasury’s Federal Insurance Office Releases Modernization Report, the Federal Insurance Office presents its long-awaited report on insurance regulation in the US. The Dodd-Frank Wall Street Reform and Consumer Protection Act created the FIO and gave it the task of considering insurance regulation in the US and specifically how it can be improved.  Central to this question is the issue of whether or not the federal government should play a larger role in what is traditionally a state-based regulatory model.  The state/federal question is hugely contentious in the US – those who support continued state regulation point to the high level of expertise among state regulators and the effective job they have done in protecting policyholders from, for example, insurance insolvencies even through the worst of the financial crisis in which the most part of the failures were in federally regulated banks. Those who favor a federal-based system point to the global scale of large insurers and question whether state regulators are capable of effectively supervising them.  In addition, as a matter of efficiency, for many large insurers having to interact with dozens of regulatory bodies in the US is a hardship that gets in the way of the effective spreading of risk.  Finally, as a matter of international cooperation, it would be far more efficient to have a single body at the table with the EU-wide insurance regulator EIOPA.  The FIO ultimately suggests a hybrid course, suggesting that state and federal regulators could play complementary roles.



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In The Selling of Attention Deficit Disorder, Alan Schwartz (for The New York Times) discusses the role the pharmaceutical industry has played in increasing diagnoses of ADHD in the US.  ADHD is a genuine and debilitating concern for many people, but for the pharmaceutical companies that make the medicine to treat it, it has been a cash cow relentlessly pursued.  In 1990 600,000 children had been prescribed medication following diagnosis of ADHD; now there are 3.5 million children being medicated for it. Doctors, schools, children and parents have all been approached with promotional materials pointing out that if kids display traits like poor grades, forgetfulness, careless mistakes, or impatience, they could be made “normal” simply by taking ADHD drugs.  The publicity materials distributed by  every one of the companies that make the drugs have at one time or another been cited for false and misleading advertising by the FDA.  A general complaint is that the publicity materials downplay or fail to mention serious side-effects, presenting them as safe and benign when in fact they are regulated in the same class of substances as morphine.  The reason for this classification is the drugs’ very serious potential for abuse and addiction, as well as for side-effects such as hallucinations, insomnia, heart problems, and psychotic behavior. The drugs are considered by the companies to be lifetime drugs – once a child is taking it the idea is that they will continue to take it for the rest of their lives. But now the companies are looking to broaden their customer base from the children to their parents and other adults – various approaches to support this move have been made, including online quizzes.  One of these quizzes was given by the NYT in a nationwide telephone poll – half of the adults that responded were found to be at least possibly suffering from ADHD (on the basis, for example, that they might have trouble remembering appointments…).

In America Is the Most Inhumane Developed Country on the Planet – Are We Going to Let It Stay That Way?, Kevin Zeese and Margaret Flowers (for AlterNet) discuss how certain basic human rights are not afforded to US citizens.  Despite the fact that the Universal Declaration of Human Rights was drafted by a UN commission chaired by Eleanor Roosevelt, it took 37 years for it to be ratified by the US government. The first President Bush signed into law, and yet some of its provisions do not seem to apply to everyone in practice. Zeese and Flowers consider whether US citizens are aware that they are owed more from their government. One way or another, the reality is that a recent annual report by Credit Suisse ranked the US as the most unequal of all advanced countries. Wealth inequality has gotten worse during the Obama Presidency – policies continue to funnel wealth upwards while money continues to be taken away from public services. Trade agreements such as the Trans-Pacific Partnership and the Trans-Atlantic Free Trade Agreement “create a legal system that overrules the ability to pass laws that protect the public and environment if that protection interferes with corporate profits.” The authors argue that human rights are being violated on a diverse range of issues such as health care, the minimum wage, the right to education, and housing, and that these rights must be demanded if they are to be respected and upheld.