Economics Financial Crisis The Opinionsphere

The Financial Crisis as a Bawling Baby

Adam Gopnik in The New Yorker:

Far from adjusting our expenditures to the needs of the moment, it seems, we tend to wildly overswing, according to our mood. The difference between the provident ant, who cautiously saves up for winter, and the carefree grasshopper, dancing and hopping, is a matter of what Keynes called “animal spirits.” It is better for the common lot if each of us is a hopper (and a shopper) rather than a hoarder. Being a nation of grasshoppers is allied to being a nation of hope.

That bit reminds me of one of the most insightful things written in the midst of the opening panic in September, this blog post by Megan McCardle about some cognitive errors that contributed to the crisis. But then Gopnik takes a very different route than McCardle, bringing the financial crisis to life by invoking a holiday classic:

In “It’s a Wonderful Life,” George Bailey’s Building & Loan is, let us recall, the reckless banker of Bedford Falls, giving what would now be called subprime mortgages to people like Mr. Martini, who would be better off renting. And it is mean, miserable old Mr. Potter who berates Bailey for the practice. “And what does that get us?” Potter asks. “A discontented, lazy rabble instead of a thrifty working class.”

Gopnik sees value in both George Bailey’s and Mr. Potter’s views – with George calling on people to sacrifice for the greater good and Potter acting in his own selfish interest and assuming others will as well. (Another recent column I read – somewhere – pointed out that the dystopia of Pottersville would have survived the industrial decline of upstate New York much better than the Bedford Falls George Bailey protected.)

But for Gopnik – as for Caldwell, and as for most observers – the crisis demonstrates the fickleness of the market itself, and the extent to which it is dominated by what an economist might have once called “animal spirits”:

An economy is not a rational model; it’s an emotional muddle. It depends on how you feel about your neighbors, about next year’s hopes, and about Mr. Martini. Which is why another new President once warned against fearing fear, and why the only thing that can cause us to panic now is panic. There is something faintly encouraging, just barely hopeful, in the human familiarity of the counsel being given by the Keynesian economists. For what they are telling us is just what the parent, in that long bad moment, wishes for the child: Take a deep breath. Look at the ornaments! Don’t cry.

Economics Financial Crisis

The Financial Crisis as a Mood

Christopher Caldwell in The Weekly Standard (via David Brooks):

Neither Barack Obama nor John McCain had much of value to say about the financial crisis as it raged through the headlines this fall. Rather than shred their campaign strategies, they played it safe, as most politicians would have. But in the name of justice we ought to recall that there was one candidate who did foresee our predicament with considerable accuracy when it still lay far in the future. Ron Paul, in almost every speech he made during the Republican primaries, spoke of bubbles, reckless credit growth, and the “unsustainability” of present policy. So why isn’t there more demand for the common-sense solutions he put forward? Because common sense is not much use in a financial panic.

This was the great discovery of Walter Bagehot, the prolific 19th-century essayist and journalist, who was editor of the Economist from 1860 to 1877. (His name rhymes with gadget.) Ninety-nine percent of the time, common sense is a synonym for practicality. But in a serious banking crisis, doing the commonsensical thing–hunkering down and counting your pennies–has proved to be not practical at all.


So the “cultural contradictions of capitalism” run deeper than we thought. The classic idea, as laid out in their different ways by the economist Joseph Schumpeter and the sociologist Daniel Bell, is that capitalism rewards diligence; diligence produces wealth; wealth begets idleness; and idleness undermines capitalism. But when, as now, push comes to shove, we can ask whether there is really anything particularly capitalist about the virtues of diligence and self-restraint. The real capitalist virtues appear to be optimism and luck. From a central-banking perspective, the cultural contradictions are not results of capitalism but elements of it.

The problem with central banking is that it reacts to a system that has been mismanaged by rewarding the managers.

But this closing is what really gets me:

To be blunt, credit is successfully reestablished when financial elites say, “When.” Credit is close to a synonym for the mood of the ruling class. To say an economy is based on credit is to say it is based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure .  .  . that is what the economy is made of. It is a rather terrifying thought.

Credit as a synonym for the mood of the ruling class – how frightening yet illuminating. But read the rest of the piece too. Caldwell – whose work I haven’t usually enjoyed – gives conservatism a good name with this piece. It also slipped by me though that Caldwell, while giving a generally conservative justification for the extreme government intervention of a central bank and government during a crisis, subtly invokes John Maynard Keynes. Keynes wrote in The General Theory of Employment, Interest and Money that:

Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. [my emphasis]

As Hans O. Melberg summarizes the passage: ” It is clear that Keynes believes economic fluctuations can be partly explained by spontanous (or exogenous) shifts in moods (optimism or pessimism).”

If Caldwell is any indication, it seems that liberals and conservatives can now largely agree about the instability of markets.

Humor Life

I Secretly Want to Punch Slow Walking People in the Back of the Head

Matthew Deacon in the Telegraph:

A long queue at the cash machine, being kept on hold when telephoning the bank, waiting more than 10 seconds to cross a busy road – it’s almost a reflex, these days, to take such trifles personally. A phenomenon of the Nineties was road rage. Today, I’m sure that more and more of us feel pavement rage. There are too many people and they’re in our way.

More than a million members of Facebook have joined a group on the website, called “I Secretly Want to Punch Slow Walking People in the Back of the Head”.

Although I have not joined that group on Facebook, I am already a member in spirit. I was so excited over finding out that others shared my “pavement rage” that it entirely undermined the point of Deacon’s piece. Giving voice to a thought like “I Secretly Want to Punch Slow Walking People in the Back of the Head” while imploring people to take a different message seems akin to describing in pornographic detail what a sex addict should not do.

Criticism Law Politics The Opinionsphere

Yes, the Senate Can Refuse to Seat Roland Burris

[digg-reddit-me]Ever since Governor Blagojevich announced his appointment of Roland Burris to take Obama’s Senate seat, the Conventional Wisdom has been that while Blagojevich’s actions are unseemly they are within the law – and more importantly, that Harry Reid and the rest of the Senate can’t do anything to stop Burris from being seated. The LA Times opined:

Exasperated as they are at being outfoxed by Blagojevich, his colleagues and critics must face the fact that he is still the governor of Illinois and empowered to appoint an interim U.S. senator. It’s not a pretty situation, but it’s the law.

The Wall Street Journal suddenly discovered the Constitution and the Rule of Law after eight years of amnesia ((That’s unfair. The Journal always remembers to invoke the Constitution when slamming Democrats. It only ignores it when Republicans are acting unconstitutionally.)) and declared that this was a matter of “Harry Reid v. the Constitution,” claiming without equivocation that Blagojevich had “every legal right” to appoint Burris, that the “Beltway Democrats can’t inject themselves into what is clearly a matter of Illinois law,” and finally that:

Nowhere in the Constitution is there a “qualification” saying that a Senator must not have been appointed by an embarrassing Illinois Governor…now that Mr. Burris has been appointed, Mr. Reid can’t legally deny him his seat. If this is the way Democrats are going to use their new monopoly on Beltway power even against a member of their own party, we’re in for an ugly couple of years.

David Gregory, temporarily sans smirk, parroted the same Conventional Wisdom on this morning’s Meet the Press.

This Conventional Wisdom holds that the 1969 Supreme Court case of Powell v. McCormack limits the Senate’s power to take action pursuant to Article I, Section 5 of the Constitition. The Article states:

Each House shall be the judge of the elections, returns and qualifications of its own members…

Powell limited this power by holding that:

In judging the qualifications of its members under Art. I, § 5, Congress is limited to the standing qualifications expressly prescribed by the Constitution.

What the LA Times and Wall Street Journal and David Gregory fail to take into account – whether deliberately or not is unclear – is that the Powell case revolved around the question of whether the Congress could judge the qualifications of a member and exclude him or her for bad conduct while Reid is making his case under the Senate’s power to judge the process by which it’s members are selected or elected. On Meet the Press, Reid said that he didn’t know of anything Burris had done wrong or any qualification he lacked. Rather Reid pointed to the tainted process which lead to Burris’s appointment as the problem. This is an entirely separate issue from the one decided in Powell – in which a duly elected Congressman was denied his seat for misconduct during the previous session of Congress:

Our examination of the relevant historical materials leads us to the conclusion that …the Constitution leaves the House without authority to exclude any person, duly elected by his constituents, who meets all the requirements for membership expressly prescribed in the Constitution.

The key phrase being “duly elected.” The Senate still has the power to judge the returns and the elections – and this power was not limited by Powell. The corruption of the process leading to Burris’s appointment is also what Reid & co. keep harping on – rather than Burris’s qualifications. An election of a Senator marred by corruption, like a corrupt appointment, is to be judged by the Senate. Akhil Reed Amar and Josh Chafetz explain the history of this power and it’s previous invocations.

If Reid chooses to push this claim of Constitutional authority and refuses to seat Burris, he may well prevail, proving once again John Kenneth Galbraith’s prescience:

The enemy of the conventional wisdom is not ideas but the march of events.


Matt Harding Confesses “Elaborate Hoax”



Talking In Empty Rooms

The wonder of hypotheticals and an overactive imagination.

Criticism Election 2008 Law McCain Politics The Opinionsphere

Looking Through Iseman’s Complaint Against The New York Times

[digg-reddit-me]Yesterday, Vicki Iseman – the lobbyist whose attentions may have had an undue influence on Senator McCain – filed a complaint in the United States District Court for the Eastern District of Virginia, Richmond Division against The New York Times Company, Bill Keller (editor of the Times), Dean Baqet (the Times‘s Washington editor), and the reporters over the allegedly defamatory story published in the Times on February 21, 2008. I’ve posted her complaint (PDF)  for your full perusal.

There are a few assertions in the piece which are questionable. One is that lobbyists have no personal relationships with the people they are lobbying:

The defamatory statements, express and implied, that Ms. Iseman exploited an alleged personal or social relationship with Senator McCain to seek favorable outcomes or improper influence on behalf of clients, are entirely false…Ms. Iseman’s relationship with Senator McCain was not different in kind from the cordial yet professional relationship that hundreds of lobbyists have with hundreds of members of Congress. [¶ 24]

Yet the job of a lobbyist does consist of using personal and social relationships with people of influence to push an agenda. The ISEA for one believes so – as it describes several tips on how to lobby successfully:

The most effective member-lobbyists are those who have developed a personal relationship with their legislators.

Jeff Kros, a legislative director in Arizona, describes why lobbying works in another how-to guide for lobbying:

Personal relationships take the anonymity out of the process.

Kurt Wise writing a scholarly piece analyzing the effect of interpersonal relationships on lobbying efforts suggests that many lobbyists consider these relationships to be “essential” to their success. It is precisely this fact – that to lobby means to use personal relationships and social skills to push an agenda – that has led an informal synonym of lobbyist to be “corporate whore.”

Iseman’s attorneys would be making a more truthful argument if they explained that if Iseman used her personal relationship to push her clients’ agenda, then that isn’t news – as such whoring is the essence of lobbying. The Complaint virtually acknowledges this in ¶27 as it almost concedes that most of the facts cited in the news article are actually true:

Setting aside the heavy emphasis on the allegedly inappropriate romantic relationship between Ms. Iseman and Senator McCain, the article contained no reporting that was new or newly newsworthy.

As the Complaint lists no complaints of the previous coverage – and in fact cites approvingly some of the coverage – it would seem that Iseman isn’t disputing these accounts of how she wooed McCain on behalf of her clients. The legal argument here is that – no one wants to see how politics is played, how influence is wielded, how sausages are made – but that doesn’t make any of the three newsworthy. It may be unsavory to describe all the perks McCain and other influentials are given by lobbyists – but it’s unfair to portray that as a news story, because it’s so common. I think this is one of the stronger points Iseman can make – but as it is demeaning to her profession, she wisely refrains from doing so.

If this piece seems a bit snarkier than usual, then it may be that I’m bitter at the numerous barbs directed against bloggers in the Complaint. For one, the Complaint calls Matt Drudge, the tabloid purveyor of right-wing trash and master of the political universe, a “blogger” and his website The Drudge Report, an “on-line blog” – despite the fact that neither meets any of the basic definitions of either word. Then in ¶42, the Complaint turns poetic – and implicitly defames all bloggers – with this passage:

As days and weeks went by, and the cruel gossip, whispers, blogs, rumors, confrontations, and innuendo about her continued, her despondency over the publication of the article and its impact on her life grew.

There are two issues of law at stake here aside from the basic facts which don’t seem as if they will be substantially disputed:

  • whether or not Vicki Iseman will be considered a private or public individual for the purposes of imposing a standard for defamation;
    (A public individual has a much higher standard to meet when alleging defamation; the public individual must prove “actual malice” on the part of the publisher of the controversial statement.)
  • whether a defense of the truth of every individual statement can hold up against what Iseman considers “defamation by insinuation” and “defamation by lack of complete context.”

Public versus Private

Iseman maintains that she must be considered a private rather than a public person as she “never sought to enter the arena of general public debate” (¶48). Of course, Iseman was attempting to influence the general public debate using her private relationships with public officials, making her actions of considerable interest to the public at large. But even further, it is my opinion that all people who are paid to consort with public officials – prostitutes, hookers, whores, lobbyists, and escorts –  should be considered public figures to the extent of their relationship with the public figure.This applies doubly to those who with “private” debate and use of their personal relationships attempt to affect the public debate rather than just serve as a “companion.” In other words, if Ashley Dupree‘s and Monica Lewinsky’s “companionship” with public figures can be mentioned in a news story, so can Vicki Iseman’s undisputed companionship. We can even call them “voluntary, limited-purpose public figures.”

Defamation by Insinuation

Iseman attempts to charge the Times with defamation based on “what was intentionally suggested and implied “between the lines” (¶16) of the news story. The Complaint later explains that the Times should be held responsible for “how the article was in fact received and understood by readers” (¶18). It strikes me that this is an incredibly slippery slope. The facts cited in the Times article aren’t substantially disputed in the Complaint – only the impression the article left on readers. As the Complaint tries to nail down a defamatory comment from the Times, you can see Iseman stretching, as in this example from ¶20:

The article then engaged in the classic phrasing of gossip and innuendo that two people are having an inappropriate romantic relationship, with the passage: “But in 1999 she began showing up so frequently in his offices and at campaign events that staff members took notice. One recalled asking,  “Why is she always around?” [my emphasis]

Notice that in explaining this specific, the Complaint tries to sidestep the issue it supposedly is trying to prove. While I’ll grant Iseman that the facts cited by the Times piece do suggest she was in an inappropriate romantic relationship with Senator McCain, that’s not the point she’s trying to make with this. Instead, she suggests that the Times is using “classic phrasing of gossip and innuendo” suggesting that they are using some form of commonly understood coded language to convey a clear meaning.  This neatly sidesteps the issue of whether or not the facts reported by the Times are true and tries to assert they are instead a form of code. The problem is that this isn’t a “classic phrasing” of any sort – and seems determined by the facts as understood by the Times reporters. The reporters may have been wrong in what they were implying, but I would think the truth of their statements should be a defense. If the Times reported there was smoke, and strongly insinuated there was a fire, but never stated so – and there was smoke – I don’t think they can be fairly faulted.

All this being said, Courts have recognized defamation by insinuation as a cause of action – although the focus in the jurisprudence has been what a passage was intended to convey rather than how it was “in fact received and understood by readers” as this Complaint discusses. As discussed in White v. Fraternal Order of Police:

[I]f a communication, viewed in its entire context, merely conveys materially true facts from which a defamatory inference can reasonably be drawn, the libel is not established. But if the communication, by the particular manner or language in which the true facts are conveyed, supplies additional, affirmative evidence suggesting that the defendant intends or endorses the defamatory inference, the communication will be deemed capable of bearing that meaning.

Iseman’s Complaint fails to make this argument, focusing instead on how it was received.

Defamation by Lack of Complete Context

The Complaint also argues that even if Iseman is considered a public figure, the Times was “deliberately and recklessly misleading” indicating “actual malice,” thus meeting the much higher standard of defamation required for a public figure, or a voluntary, limited-purpose public figure. Iseman alleges here that the Times demonstrates actual malice because it failed to place “the statements of the principal source for the article” “in truthful context” (¶44.) This seems to be a higher bar than defamation by insinuation – which considered unstated implications to be actual defamation. In ¶44, the Complaint alleges that a failure to provide an appropriate context for factual statements also consists of defamation. Under this standard, the McCain ad which deceptively uses video of Obama mocking the idea that he is “The One” without contextualizing it to demonstrate Obama’s intent could be considered defamation as well.

Using this extraordinarily high bar, Iseman states that even printing her denial of the unstated allegations didn’t negate entirely the impression readers might have based on the facts reported:

The article did print the fact that Ms. Iseman and Senator McCain had denied any romantic relationship or other inappropriate conduct. These denials, which most readers would understand as “obligatory,” and therefore precisely what Ms. Iseman and Senator McCain would be expected to say, did not negate the defamatory meanings that otherwise pervaded the article…(¶26)

Which again leads this Complaint to be blaming the Times for actions entirely out of it’s control.


Altogether, the Complaint is troubling in how it attempts to hold the Times to an unreasonable standard. If the Complaint’s legal arguments were accepted by a Court, it would have a substantially chilling effect on freedom of the press and free speech. If some magazine or newspaper reported that the President had signed off on a memorandum changing the definition of torture, and American military and paramilitary personnel subsequently tortured prisoners – this could be understood to imply that the President had responsibility for the torture, opening up the reporters and media sources to a possible defamation lawsuit.  But the Courts have enough established precedents in this area that I’m not worried yet. Clay Calvert, interviewed by The Wall Street Journal Law Blog, suggests that the case is unlikely to get to a jury and will probably be settled.

NB – I should give a shout-out to Matt Yglesias for what I think is his first time being cited in a Complaint in Federal Court (¶32) for this blog entry. Congrats Matt!

Also, I’m not trying to defend the Times story here. I tend to agree with Yglesias’s follow-ups to his original post cited in the Complaint. But I think the theme of the Times piece – the insight into McCain’s character that it revealed – stands up:

Even as he has vowed to hold himself to the highest ethical standards, his confidence in his own integrity has sometimes seemed to blind him to potentially embarrassing conflicts of interest.

History Humor

The Best Minds of a Generation, Naked, and Destroyed by Madness

[digg-reddit-me]Scott Shane in The New York Times describes this little known story now available as part of the freshly indexed archive of Kissinger telephone calls:

In April 1971, Mr. Kissinger accepted a call from the beat poet Allen Ginsberg, who hoped to arrange a meeting between top Nixon administration officials and antiwar activists.

“Perhaps you don’t know how to get out of the war,” Ginsberg ventured.

Mr. Kissinger said he was open to a meeting. “I like to do this,” he said, “not just for the enlightenment of the people I talk to, but to at least give me a feel of what concerned people think.”

Then Ginsberg upped the ante. “It would be even more useful if we could do it naked on television,” he said.

Mr. Kissinger’s reply is transcribed simply as “Laughter.”

[Picture courtesy of Linda Bisset licensed under Creative Commons.]


Happy 2009!

[Picture courtesy of  _annie_ licsensed under Creative Commons.]