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"When a leader's only means of staying in power is to use mass violence against his own people, he has lost the legitimacy to rule and needs to do what is right for his country by leaving now." The White House issued this written statement five days after Qaddafi had turned in violence on his own people who were protesting unarmed in the street. Nearly three weeks after the first day that Qaddafi had lost legitimacy, President Obama tried to raise the pressure on the Libyan dictator further by talking about “a range of potential options, including potential military options."  Yet by then the politics of such intervention were getting more complicated by the day, according to The New York Times. The paper reported that critics were contending that the White House was too much concerned about perceptions, and that the administration was too squeamish on the military options on account of the preceding administration's invasion of Iraq based on a claim of danger to the United States from Saddam's access to WMD. Even the critics acknowledged that the best outcome militarily would be for the United States to join other nations or international organizations rather than go it alone. About a week after the president's hint of military options, the E.U. decided not to impose a No Fly Zone. A few days later, the Arab League, which, according to The Hoffington Post, had already barred Libya's government from taking part in League meetings, issued a statement that Qaddafi's government had "lost its sovereignty." The League decided to establish contacts with the rebels' interim government, the National Libyan Council, and to call on the Security Council of the U.N. to impose a No Fly Zone on Libya.  In a statement, the Arab League asked the "United Nations to shoulder its responsibility ... to impose a no-fly zone over the movement of Libyan military planes and to create safe zones in the places vulnerable to airstrikes." It would not be until March 18th, nearly a month after Qaddafi had first had weapons used against the protesters, that the Security Council would act. According to The New York Times, "After days of often acrimonious debate, played out against a desperate clock, as Colonel Qaddafi’s troops advanced to within 100 miles of the rebel capital of Benghazi, Libya, the Security Council authorized member nations to take “all necessary measures” to protect civilians, diplomatic code words calling for military action." Within days, according to The New York Times, "American and European forces began a broad campaign of strikes against the government of . . . Qaddafi, unleashing warplanes and missiles in the first round of the largest international military intervention in the Arab world since the invasion of Iraq."

Analysis:

It is tempting to focus on weighing the pros and cons of the military engagement, including how it came to be decided (It took too long), whether the genuine motive was oil or human rights (I suspect oil), and whether we were being consistent, given abuses against protesters going on in Bahrain and Yemen at the time (We were not, and this points back to the motive being to stop or reverse the gas price increase caused by speculators overstating the supply-impact of political instability--see my essay criticizing corporate political risk analysis and its self-fulfilling prophesy).  To be sure, I weave these matters in my analysis, even if merely implicitly in some of their aspects. However, I prefer to bring out dynamics that might otherwise be overlooked by tracking events on the ground. I approach the Libyan case as a learning opportunity that can be placed in a larger framework oriented to the long-term. Hoping for a progression in the way the human race organizes itself, I look at ways in which international organizations can be reformed and principled leadership involved to protect and defend citizens' human right to life against encroachments by their own governments. As a backdrop to my argument, I submit that the matter of whether or not to engage in a military intervention can be thought of in terms of a window of opportunity with respect to human rights. After discussing this matter, I turn to the matters of international organization reform and principled leadership geared to human rights. While this essay is long, I beg the reader's indulgence in my attempt to proffer a substantive treatment of the subject. My aim is not limited to agreement; I hope my thoughts and reasoning, and even the values I presume therein, stimulate (or provoke) the reader to greater thought and proposals than I can muster.

"This is a window of opportunity for the United States," Zahi Mogherbi, an adviser to the Libyan rebels' interim government, had said weeks before the Security Council's vote. The most basic shift that had occurred in the three weeks between Obama's two statements was from a government turning on its own people to a military divided between being loyal to Qaddafi and supporting of the rebels.  Even though the eventual international fire power is not without merit in protecting Libyan civilians, I contend that it is far easier to justify external military intervention against a government that has turned on its own unarmed people because such a basic betrayal involves a complete loss of legitimacy to rule, as the Obama administration noted in its statement five days after Qaddafi's decision to kill protesters.  By the time the conflict had become one between armed rebels and the military loyal to Qaddafi--that is, what the West was calling a civil war--the window to boldly declare with military force that the Libyan government would not be allowed to turn on its own (unarmed) people--had passed. The protesters had been replaced by rebels. Even if successful external military intervention was still possible, the human rights justification had weakened because a government is on firmer ground in fighting armed rebels. As the saying goes, it takes two to tango. To be sure, Qaddafi's forces were killing unarmed civilians "without mercy," according to the tyrant himself; the human rights element had not dissolved even if it was extant with contests taking place on the field of military battle.  Even so, just five days after the government of Qaddafi had turned on the people it was to protect, the claim that Qaddafi had lost the right to rule was being overlaid by the observation that Libya was entering a civil war with two armed camps. As the saying goes, it takes two to tango (though dancing alone or in a group seems to be the rule in techno music nightclubs). The transition from a human rights violation to the more ordinary civil war can occur in days in a fast-moving situation on the ground.  Referring to the window that was rapidly closing for military intervention, Zahi Mogherbi observed of the U.S. Government, "They are not taking it or they are taking their time."

Even if military action being delayed a month so diplomatic channels could result in a U.N. resolution could ultimately facilitate or bring about Qaddafi's downfall (hence such action is worthy of support), President Obama missed the window of opportunity in which he could have claimed to be stopping Qaddafi from violently turning on his own people rather than from winning a civil war by going after civilians and rebels in rebel areas. Talking to reporters on March 19th, the first day of the U.S. involvement in the action, Obama said, "we can’t stand idly by when a tyrant tells his people that there will be no mercy.” But the president did stand idly by, for roughly a month since Qaddafi's violence on February 21st.

Both the idiosyncratic and bureaucratic features of the diplomatic route that the U.S. and E.U. choose to take point to the need for a new international mechanism if the world wants to protect and defend--in real rather than diplomatic time--the human right of civilians to life when their own respective governments are acting to sever that right. Absent such an expedited mechanism, principled leadership by individual rulers with significant military force are obligated by a universal duty of conscience to fill the gap rather than wait on diplomats to make deals. The basis of such leadership would not be a self-serving desire to be the world's police or to protect some vital resource such as oil; rather, the operative principle would be what David Hume calls the sentiment of moral disapprobation, which all non-sociopath human beings feel at the sight of unjust harm.  I begin with the institutional reform argument, after which I discuss the naturalistic basis of principled leadership.

Governments siding with rebels against a ruler the other rulers don't like is far more familiar in international diplomacy, and thus readily routinized, than is standing on principle with teeth. It is thus no wonder that the politics became more complicated by the day as Obama consulted with allies before the Security Council's vote.  In short, the American president had missed the window when a non-routine idiosycratic decision to stop Qaddafi's violence against the protesters could have been taken in the realm of human rights rather than stopping a civil war. Obama rather quickly faced institutional and diplomatic hurdles involving other countries and international organizations. It could have been predicted, for example, that Hilary Clinton's statement that the matter must be decided by the U.N. would meet with Russia's apparent refusal to go along with even a no fly zone--that is to say, with paralysis until a deal could be made. Such is the nature of routine international relations: both the U.S. and Russia evinced the rigidity and absolutism (my way or the highway) of international diplomacy that eventuates the need for one government to pay off another. In the case involving Libya, the rise in oil prices was undoubtly in the mix motivating a deal; such an inducement, and indeed economic incentives in general, cannot necessarily be relied on to close such deals. Therefore, even if it is successful in particular cases, international diplomacy leading to a Security Council affirmative (i.e., non-vetoed) vote cannot be relied upon even for eventual action. it is certainly not set up to act on the expedited basis that is required to arrest human rights violations in real time. In short, the world needs another mechanism.

 Lest it be thought that the Arab League could be consistently relied on to de-recognize a member government's right to sovereignty, the League's decision against Qaddafi in particular was informed by the particular circumstances at the time.  According to The Hoffington Post, "Amr el-Shobaki, an Egyptian political analyst, said the decision reflects the upheaval in the Arab world, which also includes serious unrest in Bahrain and Yemen as well as rumblings of anti-government dissent in Saudi Arabia, Jordan and Iraq. . . . El-Shobaki also said Gadhafi has few real friends among Arab leaders – he has publicly clashed with and insulted many of them, including at Arab League summits." Rather than showing itself as a check on governmental abuse in the Middle East that the world could rely on, the League evinced concern for its members' internal political stability and dislike for a particular ruler. To the extent that the Arab League's request was requisite for the Security Council's vote oking military intervention, not to mention it just being debated, the entire chain of international diplomacy in this case can be seen as highly particular to this case, and therefore not necessarily to be triggered the next time a dictator turns against his or her people.

Therefore, lest mankind be left to the trepidations of indecision at the expense of arresting human rights violations in real time and to the self-interests of rulers as governments around the world and their international organizations hinge on the contingencies particular to the cases, I contend that either a permanent mechanism that involves a transfer of some governmental sovereignty beyond the nation state be designed and instituted, and, in the meantime, that some courageous ruler establishes the precedent of principled leadership to stop an abusive ruler in the act (or at least to divert his attention). While principled leadership would be an advance, it would only be of temporary utility, as leadership is not as long-standing as are institutions. With an accompanying transfer of sufficient governmental sovereignty (while designing a check to prevent abuse), an international institution can act in a timely manner befitting the timeline of human rights violations.

Going through the U.N. as it was initially designed cannot be relied up to stop or mitigate the violation of human rights by rulers unless some governmental sovereignty is transferred to the Security Council (e.g., no vetos). As discussed above, the existence of vetos translates into the need for governments to be essentially paid off, and such deals and the economic constallations conducive to them cannot be relied upon on a consistent basis because they are idiosycratic to the parties of the deals and the particular geo-political and economic context (as well as the particular villain). The combination of the vetos in the Security Council and the sheer diversity of opinion that one can expect in body representing over two hundred countries around the world--specifically, the diverse views on the nature and extent of national sovereignty--make it virtually impossible for the U.N. to proffer effective responses with teeth in real time. In dealing with Qaddafi, it took the Security Council about a month, and who knows but the governments themselves what China and Russia got in exchange for their abstentions.

As an alternative or co-reform, NATO could be reformed in its governance such that an expedited procedure could be devised to assess and possibly respond to a human rights violation by a ruler inside or out of NATO. While weighing the options on Libya, President Obama indicated that bureaucrats at NATO headquarters were weighing the options of the alliance attempting a joint military involvement, but NATO decisions take place in the allies' respective capitols rather than by bureaucrats at NATO.  This arrangement of power in the alliance inexorably makes for slow decision-making, even when a window of opportunity is brief. Because the diversity of opinion is likely to be less among NATO members than at the UN Security Council because NATO is on a smaller scale, that alliance is the more suitable agent to gear any military response to a government "gone rogue."  For this to be possible, some governmental sovereignty must shift to the alliance so a council or office holder standing for the entire alliance can make a timely decision. Just as an external military intervention itself implies that national sovereignty (e.g., of Libya) is not absolute, the same qualification must needs be applied to NATO for it to serve as a viable stand-in for the world in "just saying no" to continued governmental betrayal.

Given the staying power of the absolutist interpretation of national sovereignty, principled leadership might be the best the world could hope in the meantime. For example, the U.S. President or E.U. leaders could boldly make a stand against a government turning against its own people and intervene unilaterally or in a joint U.S./E.U. mission. Each of these unions is empire-scale, and thus would carry a lot of weight in standing on principle not just by saying that a ruler is no long legitimate, but also actively stopping him or her in real time. To be sure, to the rest of the world there would be more credibility involved when such an intervention is not limited to one region or two unions. In the Libyan case, the U.S. was indecisive from the outset and the E.U. was too divided and state rights' oriented.

 Governors of countries can discern the need to act quickly to respond in real time before a window closes from when an issue should be turned over to diplomatic channels. I suspect that the people of the world have come to the conclusion that the doctrine of the absolute right of national sovereignty is antiquated because it is incompatible not only with there being boundaries to legitimate rule, but also with the defense of human rights from across a political border. That is to say, the absolutism is incompatible with the interconnected world's growing demand that human rights be respected even by those in power.  Hence it should be no surprise that the world was dismayed by the shuffling by the Obama administration and the leaders of the E.U. while a dictator was on his own people.  Had the E.U. (or some of its state governments) and/or the U.S. exercised force based on principled leadership before the window of opportunity had closed, the world would have crossed a threshold through the establishment of a new precedent. Governments abusing their own citizens will have been put on notice rather than enabled like alcoholics by ineptitude and indecision until a possible Security Council resolution could be passed. A coalition of the willing is likely to naturally form in little time after a principled leader has taken a stand in action and not just word. Such a leader would not be delayed from endless debate on his or her country's best strategic interest; rather, he or she would act on principle. 

Although nearly a month after Qaddafi first turned on his compatriot protesters, Sarkozy expressed a principled basis for the external military intervention that had begun that day (albeit having waited for the Security Council's action a few days before). Referring to the "murderous madness" of a regime that has "forfeited all its legitimacy," Sarkozy justified the involvement of his airforce fighters as he spoke "in the name of the universal conscience that will not endorse such crimes." A universal conscience is rooted in human nature; such a basis is not conditional on a U.N. resolution. From his state capitol in the fractured E.U., Sarkozy made a principled declaration that resounded like a shot heard round the world--carried almost instantaneously as though by reflex by a mass of humanity "tweeting" through the ether. He asserted that it is our duty to respond to the anguished appeal of civilians.

                                          From NYT, March 20, 2011
What Sarkozy neglected to say, however, was that the appeals had begun roughly a month earlier when Qaddafi's henchmen began shooting down funeral mouners in the streets of Tripoli. To be sure, Libyan protesters-turned-rebels who would have been subject to Qaddafi's "no mercy" were surely saying, "better late than never," as they stood on the dictator's ruined tanks after the first bombing campaign of the international coalition. Even so, a bystander could certainly be pardoned for surmising that the duty to respond without standing idly by had been triggered in America and Europe by a desire to lower gas prices or even to keep them from going still higher than they had in the previous two or three weeks--a consumer-driven political response, in other words. A fundamental moral duty, meaning an obligation to act, that comes from "the universal conscience" of human beings, does not 'click in" as soon as political self-interest chimes in. The window for such a duty as the primary and genuine motive closes as time and selfish considerations are allowed to intercede and the immediacy of the felt-conscience fades. To grasp this point, it is necessary to discuss the nature of the duty's basis in human nature.

 The duty, being as universal as is conscience (i.e., excluding socio-paths and Yankee fans), is sourced in a naturally-felt psychological sentiment of misapprobation, which David Hume argued constitutes moral judgement itself. This sentiment is naturally felt in watching or learning of unjust harm, such as from a governor of a country turning against his own unarmed people by wantonly having them killed simply for protesting. Of course, while still active in the case of civilians, this feeling/principle is mitigated when it is armed rebels who are being killed--hence the window of opportunity for a human rights-based principled leadership. It is natural for any human being to be filled with utter disgust at the squalid sight of innocent civilians being shot by government troops. So it is also natural for a person to want to step in and stop the atrocious harm at once. The natural propensity of compassion manifesting in instantaneous word and deed is also evinced in a person who pulls a rapist off a young woman on a city street while people passing watch while quietly conferring with each other on what, if anything, they can or should do before they continue on with their plans. Such bystanders, unfortunately all too common in the world, are mere epigones in the human race; they are hardly natural leaders even if they have gained the power of political office by having woven words of saccarine silk. The person taking it upon himself to pull the rapist off the defenseless victim, on the other hand, is a natural leader in touch with his own humanity; he is thus able to act with humanity. He is not presuming to be his own police force for the city; rather, such a person is instantiating the highest that humanity has to offer: caritas naturalis, seu benevolentia universalis (natural higher human love raised high rather than remaining low in lust for power, money, or sex; that is, love as universal benevolence).

In conclusion, were the world not so focused on Qaddafi during his escapades, we might have used the ferociousness of his violence against civilians to evaluate not only the way other rulers reacted (or failed to react), but also what institutional reforms could have expedited the process befitting the nature of human rights violations and how principled leadership could override political expediency and bureaucratic meandering, even if only in theory yet. To be sure, principled leadership is contingent and short-lived, given the nature of leadership itself. For this reason, even in the event of such leadership manifesting and establishing a precedent, the world would be well advised to continue to work toward an international institutional mechanism that has some real teeth in protecting unarmed citizens from their own rulers. Even in the excitment over the Security Council's sanctioning of "all necessary means" to protect Libyan civilians, the world would be wise to ask: how could the process have been better from the standpoint of defending human rights? The key to the institutional reform, the world would realize, is the same as the rationale for removing a sitting governor: the qualification of national sovereignty from the absolutism advocated by Jean Bodin and Thomas Hobbes in the sixteenth and seventeenth century, respectively. For these two thinkers, only God's law can restrain the power of a human sovereign, and then most probably in the ruler's afterlife. According to Hobbes, for example, the human sovereign--the Leviathan, or king of the proud--has the exclusive right within his kingdom to interpret divine law (even such authority was thought by Hobbes necessary to avert civil war in the contentious seventeenth century in Britain). In any case, political theory in the twenty-first century need not be held hostage by an antiquated theory devised in and for a very different context and distant time. Technology alone has made the world much more interdependent, and thus in need of stronger international agency, albeit with adequate checks and balances to prevent abuse of the added authority.

Add a Comment or Question: http://t.co/CDaD44C

Sources:

http://www.nytimes.com/2011/03/08/world/middleeast/08policy.html?pagewanted=1&_r=1&ref=todayspaper
Jim Michaels, "Is Libyan 'Window of Opportunity' Closing?," USA Today, March 10, 2011, p. 6A.
http://www.huffingtonpost.com/2011/03/12/arab-league-asks-un-for-libya-no-fly-zone_n_834975.html
http://www.nytimes.com/2011/03/18/world/africa/18nations.html?hp
http://edition.cnn.com/2011/WORLD/europe/03/19/france.libya.meeting/index.html
http://www.nytimes.com/2011/03/20/world/africa/20libya.html?hp

Barak Obama has a tendency to modify his manner of speaking, and even his dialect, to fit with his audience. Listening to his speech to the National Urban League, I was stunned; early on, he pivoted off from his ordinary manner of speaking to speak in what was surely a more familiar way to much of his audience. The crowd loved it. The audience must have been looking at him as the first black US President. It occurred to me while listening to him and observing his strategy to connect to his audience that although there would be less political advantage in it, he could have run for president by presenting himself as multi-racial (technically, mulatto). To be sure, there are less multi-racial Americans who would identify with him, but is that even the point? The multi-racial segment of the US population is small, but growing.  It points to what most states will look like in fifty or a hundred years from 2010, when I heard the multi-racial US President speak. Were Barak Obama to make explicit his multi-racial identity (his mother was caucasion and his dad was black), he could personify the leading edge of what America will become, and thus serve innately as a leader.  That is to say, he will have led through his person—as a symbol personified—as the a sign of things to come.  The USA  is finally becoming a real melting pot, transcending “black vs. white.”  Nature’s integration will solve the artificial problem of racism far more than any government program or even a US President who identifies himself with one “side.”

Perhaps it is the tacit duplicity in a multiracial man permitting himself to be labeled as black, presumably for political expediency, that lies at the core of why some people do not trust him (e.g., the “birthers”).  Such duplicity is like a subterranean fault-line undergirding the tension between campaigning for real change and then stocking people of the old guard, such as Larry Summers, in his administration.  The duplicity of promising systemic change then dropping his insistence on a public option and no mandate for health coverage—essentially guaranteeing a new mass market to the same health insurance companies that actively purged people with pre-existing conditions—finds a resonance in the multi-racial man using the term “black.”  Were it to be said that the “one drop” criterion still applies so he really is black, we would need to start calling a whole lot of caucasions black as well. Moreover, to use an antiquated and faulty criterion as though it justified Barak’s practice is itself a mark of duplicity.  Barak Obama is as much white as he is black.  Were he to “run with this,” he would instantiate a leader on the forefront even though there is little political capital to be made on it.  However, the US Presidency is an office that is geared to representing the people of the US—the office does this most tangably when functioning abroad. As an explicit multi-racial symbol, President Obama would show to the world where America is headed, and that we are facing that future with our heads held high and with  pride. While perhaps not helpful in elections here at home, such a function, which can only be done by the US President, is sorely needed, given America’s image abroad. We are finally becoming the melting pot that has been proclaimed for so long—finally getting past the need for duplicity.  President Obama can symbolize this in his person, and thus do America a service far more valuable than any legislation.

While in the U.S. Senate, Paul Kirk, the interim U.S. Senator who took Ted Kennedy’s seat, said, “Without a legitimate and credible Afghan partner, that counterinsurgency strategy is fundamentally flawed. The current Afghan government is neither legitimate nor credible. . . . We should not send a single additional dollar in aid or add a single American serviceman or woman to the 68,000 already courageously deployed in Afghanistan until we see a meaningful move by the Karzai regime to root out its corruption.” 

Kirk was essentially arguing that the U.S. was enabling (i.e., in the sense that one enables an alcoholic) President Karzai, who had been reelected by widespread fraud. Whether the U.S. Government was trying to have it both ways, or was utterly unwilling to put its money where American principles are, the perception around the world was probably that the United States had sold itself out for short-term strategic/military advantage. 

How resilient are principles that are upheld only when they don't cost anything?  Could it be that standing more on principle--insisting on fair and free elections as a precondition for any American aid and military involvement--would mitigate the need for a surge? Such thinking runs against the grain in the modern world, which is actually rather primitive in its insistance on knee-jerk force.  An eye for an eye and the world will be blind (Gandhi).  September 11, 2001: we must hit back.  There is no other option. They must pay. Ironically, practicing Christians were not only cheering, but also leading the charge.  An eye for an eye.

“Be realistic!” you might say.  "It's a real world out there!" Ok, how about this: the U.S. Government could have concentrated its military force in Afghanistan on the actual culprits, rather than on rebuilding the country or taking on the Taliban.  Is it really so idealistic to cut off U.S. aid to autocratic governments? I suspect that we are limited by the status quo as a normative and descriptive limitation that is actually quite dogmatic in the sense of being arbitrary.  In other words, we believe our self-constructed walls are real; we don't see how rigid we have become.

Given the emphasis on force, does it make all that much difference who is occupying the U.S. Presidency? President Bush invaded Iraq. President Obama criticized this policy then led a surge of his own in Afghanistan.  Eisenhower warned of the military-industrial complex, and both Bush II and Obama played ball with these pay-masters.  Meanwhile, we were mollified with the government's “scoldings” of Wall Street banks (the strongest of which went back to their old ways anyway).  Can we blame the bankers for ignoring government officials whose principled leadership is so contingent? People, especially powerful people--like Wall Street bankers and Karzai--can sniff hypocrisy and automatically reduce the respect given.

The United States is like a giant machine, or a very fat person, who can only move slowly…turning woefully slow with a rudder that is too small.    Meanwhile, we vaunt our ship as the biggest ever made: A city on the hill, from Puritan lore. We can’t sink, we assure each other.  But our ship of state is made of iron. I assure you, it can sink, and all the more because we have drifted out into deep water without realizing how far we have gone…how far off course.  Our rudder is too small for our mechanized monstrosity--our Titanic laden with $14 tillion in federal debt alone (not counting those of the states). Our primative knee-jerk reactiong after 911 suggests that everything we know is wrong, even as we presume we can’t be wrong.   So as we rearrange the deck-chairs at our mascurade dance, we order more champaigne and congraduate each other on having the biggest ship.  Meanwhile, is anyone looking ahead for icebergs?  We are so sure of our ship, and thus so vulnerable.

Source: http://www.cnn.com/2009/POLITICS/12/01/afghanistan.liberals/index.html

Barak Obama was in December of 2009 the first sitting U.S. president in 90 years and the third ever to win the Nobel Peace Prize. Yet he did so under the long shadow of the war in Afghanistan, where he was ordering 30,000 more troops into battle.  Could Truman’s decision to drop the A-bomb on Japan be along the same logic because it was meant to preempt the loss of life that would have come had the US invaded Japan?  President Reagan’s peace through strength logic was that a military build-up would forestall or prevent war from breaking out (hence no loss of life would be involved even in the forestalling).   The logic of awarding a surge President with a peace prize seems more dubious.  However, few today would compliment Chamberlain for having appeased Hitler (even though the prime minister was secretly stalling for time to build up the British forces). Perhaps with the dangerous plans presumably being hatched in Afganistan in 2009 against American cities, it could be argued that a surge is preventative of future conflict.  However, such a logic introduces a slippery slope.   In other words, if the ends justify the means, then virtually anything can be justified as means as long as it is tied to the end.  Human beings have a rather creative ability to rationalize their expedient and self-serving actions.  It would be far simpler were the peace prize awarded to someone who clearly opposed war and did something about it without engaging in it himself; even so, there are few like Gandhi in any given generation, and far more leaders wage war in the supposed (or real) interests of peace.  I contend that there are in any year enough people who stand up for peace without engaging in war that the peace prize could be awarded to them. Such a policy would clearly distinguish such role models from the ends justify the means rationalizers rather than enable the latter under a subterfuge of peace.. 

Source: http://www.msnbc.msn.com/id/34358659/ns/politics-white_house/

The financial reform bill approved in December, 2009 by the US House of Representatives proposed to regulate the financial industry and keep firms from growing “too big to fail.” The bill can be likened to a ship made of Swiss cheeze, yet seemingly seaworthy. A key intention of the bill was to gain control over the vast market in “over the counter” derivatives by forcing trading onto open exchanges, where regulators can monitor it. Unregulated derivatives were behind much of the havoc that nearly brought down the financial system in 2008, including the subprime-mortgage-backed securities that put many firms underwater and the credit default swaps sold by AIG, the giant insurance company that sucked up about $180 billion in bailout money. The $592 trillion global market in these mostly unmonitored derivatives remained in 2009 among the most profitable businesses for the biggest banks—Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, and Morgan Stanley—and Wall Street doesn’t want Washington tampering with it. Early versions of Frank’s bill allowed many derivatives to continue trading off exchanges. The bill, Frank wrote, “could be subject to manipulation” by “clever financial firms” seeking to evade a requirement that they trade derivatives on open exchanges.

The story of how those loopholes got into the derivatives bill, even with Frank at the helm and the wind of public outrage at his back, shows just how powerful the Wall Street banking lobby remained nonetheless—and just how complex Wall Street’s financial instruments had become. Many of the key lobbyists were in 2009 in the same gang that helped get us into this mess before, and they were spending huge sums a year after the near meltdown. In the first three quarters of 2009, financial-industry interests  spent $344 million on lobbying efforts, putting them on pace to break all records. This did not include political donations and issue ads. Even more impressive was the lobbying strategy that money was buying. The banks sought to stay in the background and put their corporate customers—a who’s who of American business, including Apple, Whirlpool, and John Deere—out in front of the campaign. “This is an orchestrated, well-funded effort by the banks to manipulate our legislation and leave no fingerprints,” says a congressional staffer involved in drafting the legislation. The financial industry argued that curbs on derivatives do hurt just Wall Street, but also the corporations in Main Street America—the “end users” —that need them to hedge risks.  However, the more custom-made and out of public sight a derivative is, the harder it is for investors—and regulators—to assess its fair value and real risk. This makes it easier for the banks to charge a large “spread” and earn big profits. Frank heatedly denied that he'd been fooled, though he conceded he was catching up on some of the details of the bills he was pushing through. “I’ve become responsible for dealing with a lot of things that are new to me. I didn’t have a great deal of knowledge. I’ve been relying on a whole lot of people,” Frank said. In allowing some exemptions from exchange trading, Frank said he was merely accommodating the corporate end users—not Wall Street—who want to continue doing these private trades in derivatives.  The Wall Street lobby didn’t give up. After Frank had toughened up his stance on derivatives, the lobby tried to redefine what certain kinds of exchanges do.

The money that the industry can use to mollify congressional critics and bolster allies was not the only problem. The problem was even more intractable. Both Frank and his staff (and the corresponding committee in the US Senate) relied on the expertise of the banking industry in the fashioning of regulation for the industry.  Frank admitted that he didn’t know enough to keep on top of the drafts submitted by the industry (and end-users).  Additionally, it was difficult for him and his staff to assess where the industry’s “recommendations” were more “convenient” (meaning self-serving for the banks) than informational.   The financial instruments (e.g., derivatives based on mortgages) were at the time so complicated that congressional staffers who wrote the legislation depended on drafts submitted by the industry itself without being able to adequately screen them for bias.  There is an inherent conflict of interest in an industry even providing information. Therefore, I wonder whether the practice was worth its benefits to congressional staffers. 

The case seems to me like that of having a wolf provide the sketches for the design of the chicken koop, as if the design were an objective plan without any holes.   Even so, without the information from the industry with the vested interest, legislative staffs often do not feel competent to legislate on the complex markets of modern finance.  Indeed, they may not be, given the complexity out there.  But that is not a given.  We miss this point. To reduce the informational asymetry, Congress could direct that the markets be simplified to what they and the regulatory agencies could understand and thus regulate effectively. Opponents of the House bill claimed that the changes ensuing from the bill would limit consumer choice and stunt financial market innovation. Shortly after the House bill passed, President Obama suggested these risks are worth taking.

While applauding House passage of overhaul legislation, the President expressed frustration with banks that were helped by a taxpayer bailout and even as they were “fighting tooth and nail with their lobbyists” against new government controls.  The bank lobbyists spent more than $300 million in 2009 trying to scuttle the bill.  This alone should be enough to shut every congressional office to the lobbyists.  How widespread is the fecklessness!  As the wake of the bill’s passage, Obama said the economy was only then beginning to recover from the “irresponsibility” of Wall Street institutions that “gambled on risky loans and complex financial products” in pursuit of short-term profits and big bonuses with little regard for long-term consequences. “Americans don’t choose to be victimized by mysterious fees, changing terms and pages and pages of fine print. And while innovation should be encouraged, risky schemes that threaten our entire economy should not,” he said. “We can’t afford to let the same phony arguments and bad habits of Washington kill financial reform and leave American consumers and our economy vulnerable to another meltdown.”

So where were our legislators on this point?  Missing in action, most of them.  However much Obama's remarks can serve as a palliative, it must be admitted that the President could have gotten on the banks and refuse to sign a final bill containing deflating loopholes gained by the efforts of the lobby with a vested interest in the legislation.   I don’t believe the President would have risked his re-election contributions from Wall Street by telling Congress to be firmer in resisting the banker taskmasters.  Hence, the U.S. Government is unlikely to take on the very existence of the banks too big to fail even as the most profitable of them quickly returned to risky trading on their own accounts.

Too often, congressional legislators (and the President) wince when it counts, ignoring the inherent conflict of interest in the industry’s warning of Armegeddon.  We need to accept the fact that ery reform has a cost, and that “reform” does not mean “catastrophe.”  If we capitulate to the wolves because there might be a cost otherwise, we miss the greater cost in capitulating.  That cost is not only economic, for it includes the selling of ourselves and our government to the highest bidder and the loudest bully.  When I look around the world, I see fecklessness at home.

By comparison, the British and French states of the E.U. set a 50% windfall tax on ALL banker bonuses within their respective states.   Throughout the U.S., it has been difficult simply dealing with the bonuses of the bankers at the banks that were bailed out; we were so afraid that the credit markets would collapse from a tax or that we shouldn’t touch the other bonuses.  Treasury limited the cash compensation for executives at companies that received the largest taxpayer bailouts to $500,000 and delayed some other payouts. The 25th through the 100th top earners at Citigroup, GMAC, American International Group and General Motors had to take more than half their compensation in stock, and at least half had to be delayed for three or more years. About 12 executives were granted exemptions to the $500,000 cash cap because they were necessary for the companies to “thrive, be able to compete, and not lose key people.”  The European industry-wide approach was stronger, and less apt to result in “talent poaching” that was likely to occur where only TARP reciprients are targeted.

Why is that we were convinced that we couldn't or shouldn’t go beyond the TARP reciprients in limiting exorbitant executive compensation?  Is imposing compensation (in all its forms) limits to protect the market from firms too big to fail really beyond the pale?  Is it really so much a threat to economic freedom? Certainly, it is a legitimate role of a government to protect the viability of the market.  The lack of any enacted windfall tax on bank bonuses (or compensation) in the Congress in 2009 or 2010 intimates the subterranean power of Wall Street in Washington.  Indeed, according to The New York Times, “heeding complaints from banks, the House rejected an effort to allow bankruptcy judges to restructure mortgage payments, a plan that has passed the House before but not the Senate.”  When the same thing happened in the U.S. Senate, Sen. Dick Durbin said publically that the banking lobby owns Congress.  House members also agreed to relax some of the proposed new controls on trading in derivatives. Rather than subject all over-the-counter derivatives to open trading, the bill would have subjected such derivatives only if they were traded between Wall Street firms, or with a major player like AIG. But the transactions between dealers and customers will remain largely hidden, so customers will not be able to compare the prices they are being charged with the prices charged to other customers.  That’s nice for the banks.  We miss this point, paying attention instead to speeches.  Words.

We are not keeping our eyes on the ball, folks; rather, we all too easily allow ourselves to get distracted.  In watering down financial reform, we agree to construct fake walls  on what reform is viable and constructive.  We convince ourselves that we must play inside the pen because insiders have told us that we should. We take harsh words against the pen on our behalf as tantamount to tearing it down.   In actuality, the words are a subterfuge meant to assuage us so we don’t vote differently in the future.  The wolves know that mere words can’t tear down the walls they have directed our representatives to observe.  We have become like herd animals, and our leaders like subterfuges.  It is no wonder that “real change” contrary to the vested interests has been restrained at best.  If a new consumer protection agency is the high-water mark of reform (i.e., banks too big to fail being allowed to go on…even as they have returned to risky trades for much of their 2009 income), we really do deserve the next financial crisis.  …or can a speech going after the financial industry obviate such a thing from happening again?

Sources: http://www.newsweek.com/id/225781 ; http://www.nytimes.com/2009/12/11/business/global/11bonus.html?_r=1&ref=world ; http://www.msnbc.msn.com/id/34380551/ns/business-us_business/ ; http://www.nytimes.com/2009/12/12/business/12regulate.html?_r=1&ref=business ; http://www.msnbc.msn.com/id/34393630/ns/politics-white_house/

When he was running for US President, Barak Obama said that the financial crisis provided an opportunity for financial system reform beyond that which is in the interest of the big banks because the power of the latter is temporarily eclipsed and the US Government can take advantage of that.  His assumption is that during normal times, the banking industry essentially owns the Congress (Sen Dick Durbin’s statement just after the banking lobby defeated a foreclosure bill in the US Senate in 2009).  Sadly, the government did not use the eclipse; rather, it has been using the appearance of power and direction in the relumed post-crisis period to engage in window-dressing to assuage populist anger at the banks.

 Asserting that it “is among the strongest banks in the industry,” Citigroup announced in December, 2009 that it would soon repay $20 billion of federal bailout money. This from a bank that was in the red for most of the preceding two years, that was expected to limp through 2010 amid a torrent of loan losses, that saw its stock price close after the announcement at a measly $3.70 a share — and that, like other big banks, was still reluctant to lend. Citigroup’s planned exit from the bailout — like Bank of America’s earlier this month — would be welcome if the banks were the picture of health. But their main motive was to get out from under the bailout’s pay caps and other restraints. Perhaps the bankers were motivated to attract talent;  perhaps they were acting in their personal financial interests.  The Treasury Department’s approval was a grim reminder of the political power of the banks, even as the economy they did so much to damage continued at the time to struggle and the banks have benefited from taxpayer money.

Big bank profits, for instance, still came mostly courtesy of taxpayers. Their trading earnings were financed by more than a trillion dollars’ worth of cheap loans from the Federal Reserve, for which some of their most noxious assets were collateral. They benefitted from immense federal loan guarantees, but they were not lending much. Lending to business, notably, was very tight.  Barak Obama’s “urging” the banks to lend more to small business was not apt to be taken seriously by the big banks, given their financial power.   To exort banks to be good “corporate citizens” is only to twist “citzen” beyond its pale.

Let’s be clear. Organizations are not citizens.  For one thing, they can’t vote.  Exxon can’t mail in its ballot for president.  Nor can it be drafted to fight (rather, it can receive military contracts; its lobby knows how to procure those).  Moreover, they are designed (real citizens are not “designed”) to retain income without limit.  Extrinsic normative claims on the organizational machines do not register in the corporate calculus unless there is a financial cost.

Being called to the “woodshed” at a White House meeting is mere political theatre—something the bankers who bothered to attend in person must have known was something merely to sit through.  Some of the biggest recipients of taxpayers’ money, including Citigroup and Goldman Sachs, didn’t even bother making the extra effort to get there ahead of time to avoid the predictable winter weather that grounded their flights.  The acela train from NYC was running on time, yet the CEOs cited flight delays as making it impossible for them to attend in person.  Perhaps the CEOs correctly determined that Barak Obama’s meeting was mere political theatre.  The banking lobby was surely not being distracted from the financial reform legislation making its way through Congress.  That lobby has gained significant loopholes in the House’s passed bill (see my post on the House bill).  Aside from the loopholes (such as derivatives still not subject to regulation!), the apparently “strong” provisions of that bill are vulnerable to being gamed. The Senate, which is unlikely to pass its version of the deal until next year, should explore more direct measures, like banning banks beyond a certain size, measured by their liabilities. If we have learned anything over the last couple of years, it is that banks that are too big to fail pose too much of a risk to the economy. Any serious effort to reform the financial system must ensure that no such banks exist.  But can you imagine our elected officials having the guts to split up Goldman Sachs?  Can you imagine what that bank would do to avoid such a fate?  … and yet such private power is not a threat to a republic?   As voters, we are asleep at the wheel, too easily taken in by the theatrics of impotent politicians.

In general terms, it is ironic that the banks too big to fail may be even more of a risk after the financial crisis.  What profits the banks have been making have come mostly from trading. Many big banks were happy to depend on the lifeline from the Fed and hang onto their toxic assets hoping for a rebound in prices.  Crucially in terms of the systemic risk in “too big to fail,” the whole system has grown more concentrated since the crisis. Bank of America was considered too big to fail before the meltdown. Since then, it has acquired Merrill Lynch. Wells Fargo took over Wachovia. And JPMorgan Chase gobbled up Bear Stearns.  If the goal is to reduce the number of huge banks that taxpayers must rescue at any cost, the US Goverment has been moving in the wrong direction. The growth of the biggest banks ensures that the next bailout will have to be even bigger. These banks will be more likely to take on excessive risk because they have the implicit assurance of rescue.  In short, there is even more systemic risk after the financial crisis of 2008.  Creating a new consumer protection agency is a feckless attempt by the US Government to show some muscle to face entrenched (and even more powerful) financial interests on Wall St.  Even giving the government the power to deal with banks deemed too risky to the financial market itself does not guarantee that the power will be used.  Consider, for example, the lack of enforcement of anti-trust law.  For a comparison, look at the EU—not only in terms of going after big companies like Microsoft, but big banker bonuses.   In the US, we much face the fact that the big banks are on top.  If what is good for Goldman Sachs or Citigroup is not necessarily good for us, the American people, then there is a tremendous systemic risk for us in being appeased by Barak Obama’s public “scolding” of Wall Street and by the Swiss-cheeze financial reform bill making its way through Congress.  Neither branch is taking seriously the question of the existence itself of the banks too big to fail.  Moreover, the question of whether large concentrations of private power have become a threat to our republic—on account not only of the ability of a big bank to shaft its customers, but also of the relative power of the banks and their lobby over our government—has effectively been sidelined.   It as as though popular sovereignty here means charting a ship’s course without looking beyond the bow.   Some of the wealthy passenagers have told us: don’t look out there!  Don’t ask the real questions!  And we, being reduced to unconscious herd animals, happily comply and stiffle our anguish because we feel the big banks have already won.

Adapted from: http://www.nytimes.com/2009/12/15/opinion/15tue1.html