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Testifying before the US Senate Finance Committee on his re-appointment, Ben Bernanke volunteered that the Fed had been “slow” in protecting consumers from high-risk mortgages during the housing bubble and that it should have forced banks to hold more capital for all the risks they were taking on.  “In the area where we had responsibility, the bank holding companies, we should have done more.” he told lawmakers.  The hearing provided new evidence of doubt among lawmakers about the Federal Reserve’s  role as the nation’s guardian of the financial system. “In the face of rising home prices and risky mortgage underwriting, the Fed failed to act,” said Senator Richard Shelby of Alabama, the senior Republican on the banking committee. “Many of the Fed’s responses, in my view, greatly amplified the problem of moral hazard stemming from ‘too big to fail’ treatment of large financial institutions and activities.”  Accordingly, Senator Dodd proposed that the Fed’s powers as a bank regulator ought to be transferred to a new consolidated agency. Even though Bernanke admitted that the Fed made mistakes as a regulator of the bank holding companies, he and other top Fed officials adamantly opposed Dodd's proposal, arguing that the Fed has unique expertise nonetheless and that the Fed's ability to preserve financial stability depends on having the detailed information that only a regulator has about the inner workings of major institutions.

The Fed has “unique expertise," and yet, “In the area where we had responsibility, the bank holding companies, we should have done more.”   In other words, the Fed’s Chairman admitted that his agency had not done a satisfactory job of regulating banks during the housing bubble and yet his organization should be given even more power as a regulator anyway.  Were we to trust the Fed to regulate systemic risk, given the agency’s squalid record leading up to the financial crisis of 2008? Regardless of what qualms this question may have raised, the Dodd-Frank legislation charged the Fed with guarding the financial stability of the United States. It gave the central bank the power to oversee the largest financial institutions, even if they are not banks. Finally, it gave the Fed a prominent role on the Financial Stability Oversight Council, a body of regulators that will have the power to seize a systemically important company if it threatens the stability of the economy. Testifying before the Financial Crisis Inquiry Commission on September 2, 2010, Bernanke signaled that the central bank was eager to embrace its strengthened role provided for in the Dodd-Frank law. This role ought to give us pause, given his remarks in 2007 in which he thought the subprime problems were “manageable.” To the Commission in 2010, he said, “What I did not recognize was the extent to which the system had flaws and weaknesses in it that were going to amplify the initial shock from subprime and make it into a much bigger crisis.”

Sources: http://www.nytimes.com/2009/12/04/business/economy/04fed.html?ref=business ; http://www.nytimes.com/2010/09/03/business/03commission.html?_r=1&ref=business

Announced in Sudan’s capital, Khartoum, on February 7, 2011, voters in the oil-producing south overwhelming chose to secede from the Arab north. According to the New York Times, 98.83 percent of the more than 3.8 million registered voters in the south chose to separate from the north. The referendum had been agreed to as part of the peace agreement in 2005, after two long and brutal civil wars between the Arab Muslim north and the mostly animist and Christian south. “Today we received these results and we accept and welcome these results because they represent the will of the southern people,” President Bashir said in a statement on state television, according to Reuters. In Washington, the White House released a statement by President Obama congratulating the people of south Sudan and announcing “the intention of the United States to formally recognize southern Sudan as a sovereign, independent state in July 2011.” The New York Times reported that actual independence would be declared on July 9, when the peace agreement that set the stage for the vote expired. In the meantime, issues regarding citizenship, oil-revenue rights and the contested and volatile region of Abyei would be settled.

Analysis:

The referendum is in line with the political principle that popular sovereignty (i.e., of the people) transcends the authority of governments. That is to say, people have the right to establish government (rather than vice versa). In this case, the southern Sudanese decided to form a new and separate state. The result of the vote, being almost unanimous, proffers an excellent snapshot of a will of the people.  Typically, this term is abused, such as when a candidate wins reelection by a margin of fifteen or twenty percentage points.  Receiving 65% of the vote does not represent the will of the people; rather, it is the will of a majority of the people. There is a difference. In the case of south Sudan, we can say with confidence that it was the people's will to separate. That is to say, the people spoke with one voice. How rare it is for there to be a will of the people; hence we treat the view of a bare majority as such--essentially over-generalizing.  Politicians typically do the same with mandates.

What is unclear from the referendum is how the people feel about waiting until July for actual independence.  To be sure, there are outstanding issues that need to be worked out, but is it really necessary for independence to wait for everything to be worked out; President Bashir has already announced that his government would recognize the independence of the south. The acceptance of July by the Obama administration is similar to that administration's decision at the time not to push President Mubarak of Egypt to step down before September when elections would be held even had there not been mass protests.  In short, government officials seem to be oriented to time in slow motion.

The Obama administration's announcement that it would recognize south Sudan as a sovereign and independent state might not seem fitting, as the new state would presumably be a new state in the African Union (AU).  However, that union, unlike the EU and US, is a confederation akin to an alliance wherein the states continue to hold all of the governmental sovereignty. In contrast to confederations such as the AU, modern federations divide governmental sovereignty between two systems of government--that of the federation and that of the state governments.  That the AU had not intervened in the internal discord in the Ivory Coast, Egypt and Sudan suggests that that union is simply a league of friendship, merely able to mediate if invited, as in Zimbabwe during the crisis between the President and prime minister. The feckless condition of the AU can also be seen in the fact that it took so long for south Sudan to even vote on independence in spite of the fact that it was the will of the people in south Sudan. Was it really necessary, for example, to wait until 2011 when the peace treaty was signed in 2005? A union with teeth might have been able to expedite things. Unlike the states of the EU and US, the typical state in the AU is run by a dictator rather than being a republic in fact as well as name. The American Founding Fathers believed that a federal system could only have republics as members; dictators would guard their power too much and thus be too inclined to break off. Unlike a dictator, government officials in a republic are used to sharing power, so ceding some sovereignty to an empire-scale federation is not so hard. However, it can be in the political or economic interest of even a Leviathan dictator to transfer some governmental sovereignty to a federal union. Specifically, a dictator may be expected to benefit from the economic and political gains that come from a united political front and a common market. Twenty percent of 100 is more than 100% of 10. A federation of non-republic states is thus possible.

In terms of south Sudan, the cost of a weak AU was having to suffer a snail's pace on the road to independence. To be sure, such a pace was in the interest of Sudan's government. However, issues are only intractable if they are seen as such, and the people in the south could have voted on a date as well as on whether to secede. The dissolution of the Soviet Union attests to how quickly polities can change.Just as it was not clear in Febrauary, 2011 that President Mubarak had to stay in office in Egypt for seven months in order for there to be order, it should not have been presumed that south Sudan had to wait until July. Even if top government officials are typically old people, governments need not move in slow motion. The dragged-out pace evinced by south Sudan's independence even after the overwhelming 99% voting to secede suggests that governmental time is not our time and that we, the people, can move the old clocks an hour ahead in keeping with the increasing daylight. Whereas the progress of the twentieth century was largely technoligical, in the twenty-first century the human race may reach a threshold of perception wherein the dogmatic or arbitrary nature of governments is finally seen for what it is, and exercise greater popular sovereignty to make our governments more responsive. As of 2011, a critical mass of perception had not yet occurred; hence it could not yet be said that the human race itself had reached a new sense of its power over its governments.

Source:
http://www.nytimes.com/2011/02/08/world/africa/08sudan.html?_r=1&ref=todayspaper

A fraternity at Yale had its new members chat “no means yes”…meaning that if a woman says no, she means yes…in pledging during the Fall of 2010.  The dean of Yale College asked the college’s executive committee to look into the matter.  This seems to me to evince a penchant for bureaucracy for its own sake. In the old days, a dean would simply have called the guys into his or her office and given them a tongue lashing, followed by having them do something like pick up trash around campus.  Now it is like a government investigation being referred to an executive committee.  At the very least, any punishment would lag from the offense temporally and thus be less efficacious. I suspect that the dean thinks at some level that referring the matter to her executive committee makes her more important…as akin to being a government official. It could also be that the political correctness has vaunted the incident to such an extent that the students could be expelled even though no person was physically harmed (and the chants were not done in front of a sorority). The enforcers of political correctness are, after all, as though government officials.

To be sure, the guys acted reprehensibly, but it is also true that boys will be boys; to expect them to always be as though mature forty-year-olds is a foolhardy endeavor. The Yale College dean should realize she is more of a parent than a government official with respect to them.

Despite several days of overwhelming popular grass-roots protest in Egypt, on January 30, 2011, the U.S. Secretary of State, Hillary Clinton, stopped short of urging the Egyptian president, Hosni Mubarak, to resign.  According to The New York Times, she spoke of "a process that must include a government dialogue with the protesters and “free, fair, and credible” elections, scheduled for September." In the face of overwhelming protests going on in Egypt, the top U.S. diplomat was urging a dialogue through September. It is as though she viewed the current Egyptian president as legitimate in democratic terms, yet she also said: “We have been very clear that we want to see a transition to democracy. . . . And we want to see the kind of steps taken to bring that about. We want to see an orderly transition.”  If a transition to democracy means that the Egyption officials have not hitherto been legitimately elected democratically, then why was Clinton so timid? On February 1, 2011, The New York Times reported that President Obama had sent a message to President Mubarak through Frank Wisner that the Egyptian president not run for reelection in September. According to officials, it "was not a blunt demand for Mr. Mubarak to step aside now, but firm counsel that he should make way for a reform process that would culminate in free and fair elections in September to elect a new Egyptian leader." According to The New York Times, Obama was continuing his balancing act by "resisting calls for Mr. Mubarak to step down, even [while calling] "for an 'orderly transition' to a more politically open Egypt." As a result, it was still  not clear whether the Obama administration favored Mubarak turning over the reins to a transitional government. On February 5th, just days after suggesting that it wanted immediate change, the Obama administration said it would support an “orderly transition” managed by Egyptian Vice President Omar Suleiman. The New York Times reported that U.S. Secretary of State Hillary Clinton "said that Mr. Mubarak’s immediate resignation might complicate, rather than clear, Egypt’s path to democracy, given the requirements of Egypt’s Constitution." Not coincidentally, Israeli officials, who have long viewed Mr. Mubarak and Mr. Suleiman as stabilizing influences in a dangerous region, "have made clear to the administration that they support evolution rather than revolution in Egypt." Accordingly, U.S. Vice President Joseph Biden urged Vice President Suleiman on February 8th to take specific steps toward democracy. The technocratic turn presupposed the evolution rather than revolution approach, as per the interests of Israel and contrary to that of the Egyptian protesters.

The ambiguity in the Obama administration's "policy" on Egypt bespeaks an underlying lack of clarity in regarding principle as distinct from diplomatic expediency. At the time, the protestors in Egypt saw through the American strategic moves as such and continued to demand Mubarak's immediate resignation; the half-way, or "balanced," measures of convenience were regarded as wan from the standpoint of the protestors' acting on principle. I contend that both Hillary Clinton and Barak Obama put short-term tactical advantage above leadership. It should have been obvious that the breakdown of Egptian law and order and the accompanied strikes went beyond a need for "dialogue" and an evolution toward democracy. It was as though a soldier hemorrhaging on the battlefield were being told to relax and be orderly rather than that a tourniquet would be immediately applied.  It is sad, indeed, how bad things would need to get on the ground before the Obama administration would admit that a new government from the top was urgently necessary. In my view, the loss of law and order itself meant that the government had lost its right to govern. The U.S. administration lost this window by letting things "evolve."

If "real change" means anything, it surely involves departing from business as usual in order to lead by principle. Principled leadership entails taking risks. Indeed, tacticians are so cautious in part in order to obviate such risk. That is to say, principled leadership involves the risk that being guided by one's principles can involve short-run costs. As regards Egypt, standing up for the Egyptian protesters by saying that President Mubarak should step down immediately (and that no further U.S. aid would go to Egypt otherwise) would risk that president's displeasure should he retain power. Also, representative democracy unguided by Mubarak and his supporting offiicals could have brought to power parties such as the Muslim Brothershood that were not in the U.S. interest.  However, such is democracy; the victors of another country's elections are not necessarily going to favor U.S. interests. A principled leader would not be so selfish and manipulatory as to hold back from exercising principled leadership simply because he or she might suffer drawbacks. Ironically, the drawbacks might be less than expected, for a principled leader has such credibility from being authentic and principled that any resulting resentment is apt to be tempored by respect.



In general terms, the American problem lies in prioritizing self-interested calculation over principled leadership.  The American society has embraced the bureaucratic age such that leadership is exterpated and replaced with incremental strategic management--even in the Oval Office. Sadly,  being "professional" had replaced being "principled," such that the highest officials in the U.S. Government privileged the expertise of immediate tactical advantage over the principles that were innately felt by the Egyptian protesters (and presumably by ordinary Americans as well).  The American "leaders" had forgotten that in trying to have it both ways, they would be apt to end up stagnate, confused, and not well respected.  Were the officials bold in putting principle above immediate tactical advantage, I submit that the tenor of the U.S. government would better reflect the values of the American people. In the context of the Egyptian protests, as in that of the preceding Iranian protests, People the world over were crying out--yearning--for principled leadership rather than professional bureaucrats in the U.S. Government. It is in human nature to value and respect leaders who have the courage of conviction to say, "This might piss off some powerful people whom I could otherwise use, but this is what we as Americans believe in." Simply stated, the belief is that a government is no longer legitmate if it loses the consent of a significant number of citizen, especially if they are willing to put everything on the line to "just say no."  Incrementalist bureaurats look quite wan and feckless in comparison. Such officials have forgotten that management is not leadership; tactic is not principle. I suspect that the attempt by business schools to "managize" leadership into managerial strategy lies behind the "tactic as leadership" error. In other words, too many managers want to be known as leaders without actually leading. They treat leadership itself as a commodity that they can appropriate without actually being leaders. There is indeed an expertise in principled leadership, and I suspect an instinct for it, which the typical manager (and government official) does not have. I contend that principled leadership is more valuable than technical expertise in the upper echelons of organizations. 

The irony of the Egyptian protests and the muted or ambiguous incrementalist reactions of Barak Obama and Hillary Clinton, the American "dream team" of 2008, was that there was a disjucture between the U.S. Government and the American people. In other words, I suspect that the typical American preferred the stance of the protesters to that of our own "leaders." Perhaps one day an incrementalist and short-term oriented U.S. administration might find itself surrounded by protesting Americans. Will the government's answer be "evolution"? Citing the "need for dialogue" amid the country at a standstill would be laughable even if bureaucratic technocrats would still take their response to be "prudent" and thus appropriate. "Prudent" and "incremental" were not the words that came to my mind in watching the popular protests in Egypt in 2011. It was far easier to agree with the foreign protesters than with my own government.

Sources:

http://www.nytimes.com/2011/01/31/world/middleeast/31diplo.html?_r=1&hp

http://www.nytimes.com/2011/02/02/world/middleeast/02transition.html?_r=1&smid=tw-nytimes

http://www.nytimes.com/2011/02/09/world/middleeast/09diplomacy.html?_r=1&ref=todayspaper