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The PlaTinum coin It’s a really bad idea stEPhEn L. CaRtER The history of coinage is indeed, in many cases, a melancholy record of fraud, folly, and ignorance.” So wrote Sir John Lubbock in his classic 1902 book, “A Short History of Coins and Currency.” And I will freely admit that my first reaction, on hearing about the platinum coin, was to nod sagely and tell myself that Lubbock was right. But as an ever-longer list of people whose views I respect lined up in favor of minting the special trillion-dollar coin as a temporary measure to get around the debt ceiling, I decided to have another look. On somber second look, I was right the first time: It’s a really bad idea. In the first place, it would be illegal. Proponents insist that the language of Title 31 of the United States Code, Section 5112(k), is broad enough to allow the U.S. Treasury secretary to order the coin minted in whatever denomination he chooses. I’m old-fashioned enough that I still teach my students that the plain language of a statute must be construed in accordance with its purpose. That’s why, when a criminal statute punishes anyone who uses a gun “or” another deadly weapon in commission of a felony, you can’t escape by pleading that you used both. The literal language of the statute might permit that construction, but the legislative purpose doesn’t. As innumerable critics have pointed out, the purpose of section 5112(k) is to allow the creation of collectors items, not money -- a proposition affirmed by the former member of the House who authored the law, Michael Castle of Delaware. (Alas, there is no formal legislative history.) PErPlExing dEtErmination: But suppose I’m wrong, and the coin would be legal. Even so, I’m persuaded that political blogger Kevin Drum is asking the right questions: “Is this really the road liberals want to go down? Do we really want to be on record endorsing the idea that if a president doesn’t get his way, he should simply twist the law like a pretzel and essentially do what he wants by fiat?” I am perplexed by the determination of Democrats to enhance presidential power.
All the authority they seem so excited to place in President Barack Obama’s hands will one day be wielded by a Republican. I was raised to remember that goose and gander alike sup with the same spoon. Literary critic Lionel Trilling, back in his liberal days, had it right when he warned against the liberal tendency to so fall in love with a “cherished goal” that it “forbids that we stop to consider how we reach it.” In a constitutional system, process matters. That’s why liberals shouldn’t be so quick to defend (for example) Obama’s use of recess appointments. True, Presidents Bill Clinton and George W. Bush used them a lot more, but for the same bad reason: to circumvent the confirmation process by thrusting into office people they wouldn’t be able to get through the Senate. To do this now and then is one thing; to make it systematic raises a genuine constitutional problem. Confirmation of executive branch appointees isn’t supposed to be easy. It’s there to restrain the executive. If the president feels tied down, that’s a sign that the process is working. But Democrats have become impatient with process. Not long before the tax deal, some on the left floated the idea that the administration could unilaterally keep rates from rising by adjusting the tax withholding tables, which rest, statutorily, within the discretion of the Treasury secretary. I wonder how they might respond should some future supply-side Republican try to use precisely that tactic to lower rates. aPPalling dEtErmination: Then there’s the suggestion endorsed by, among others, the Democratic leader of the House, California’s Nancy Pelosi, that the 14th Amendment allows the president to ignore Congress and raise the debt limit on his own. Well, my goodness. Why didn’t Bush think of that, back when Democrats were railing against the rising deficits in his final years? Sure, constitutional traditionalists would have been appalled, but Pelosi, one presumes, would have leaped to his defense. The trillion-dollar coin falls into the same category. Rather than asking whether it’s legal, or how the markets would respond, we should be asking whether today’s enthu-
siastic supporters would be on board were it proposed by supporters of president-elect Mitt Romney. And, yes, I know, these times are different. We face an emergency caused, according to New York Times columnist Paul Krugman, by “the mixture of ruthlessness and craziness that now characterizes House Republicans.” Is this an unusually crazy time? I wouldn’t know: Partisan politics isn’t my thing, so I’ll leave that judgment to others. But we’ve faced lots of crazy moments in history and managed to get through them without chasing every little gimmick. Besides, there are only so many times one can go to the same well. The constant complaint offered in justification of each of these efforts is that the Republicans are being intransigent. But intransigence is built into the constitutional process. Dissenters can block action. They can force compromise. Those aspects of the system can be terribly frustrating when you happen to be in the majority, a perspective from which disagreement always looks like pigheadedness. From the point of view of the minority, however, these are valuable checks and balances. Take the Senate filibuster, currently targeted by many on the left for extinction. There is a long tradition in deliberative bodies of requiring a supermajority vote to limit debate. Why not just a majority? Because, as U.S. Army General Henry M. Robert wrote in the first edition of his eponymous “Rules of Order,” putting an end to the debate suspends “the fundamental right of every member of a deliberative assembly to have every question fully discussed before it is finally disposed of.” Indeed, were a simple majority able to end debate, there would never be any need to discuss anything: Just show up and vote. horrific dEtErmination: Historically, the filibuster has been used for horrific ends, including as a last-ditch effort by Southern Democrats to prevent the passage of major civil rights legislation. But that filibuster was broken once and for all in 1964, and without changing the rules. What was required was a majority willing to roll logs and twist arms -- that is, to do the hard work of actual governance. Let’s assume, for the sake of argument, that today’s majority is, most of the time, the good guys. That doesn’t mean they don’t have to give in now and then to a passionate minority. Compromise, to be sure, was easier in an era when we didn’t tweet every private meeting between senators, and cable news hosts didn’t spend prime time throwing red meat to the angry herds on the right and left. But we can have constitutional government or we can have “the good guys” winning every fight. We can’t have both.
Swiss Banks show what’s wrong with global capital rules
nEWs DEsK Swiss banks UBS AG (UBSN) and Credit Suisse Group AG (CSGN) are among the safest in Europe, according to the measures regulators watch most closely. Therein lies a lesson in how easily we can be deluded into believing banks are secure. Switzerland has made laudable efforts to reduce the systemic threat that comes from having a tiny economy and being home to two of the world’s 30 largest banks, as Bloomberg Markets reports in its latest issue. The country has instituted limits on leverage, and pushed UBS and Credit Suisse to boost their Tier 1 capital -- regulators’ preferred measure of financial soundness -- to 20.2 percent and 18.5 percent of risk- weighted assets, respectively. That’s much higher than any of their European peers.A Tier 1 capital ratio, however, doesn’t provide a complete picture. Consider, for example, simple equity. Like the down payment a mortgage borrower makes on a house, it represents the money a bank’s shareholders put into the enterprise. The ratio of tangible equity to tangible assets at UBS stood at 3.4 percent as of Sept. 30, according to data compiled by Bloomberg. That’s up from 1.3 percent on Sept. 30, 2007, but still means that a 3.4 percent decline in the value of UBS’s tangible assets -- similar to what occurred in the last crisis -- could be enough to render the bank insolvent. The ratio at Credit Suisse (under U.S. accounting standards, not directly comparable to UBS) was 2.6 percent, up only slightly from 2.3 percent on Sept. 30, 2007. risk WEights: Why the difference? The Tier 1 measure allows banks to boost their capital ratios in two ways: by placing lower weights on assets they consider less risky and by counting as capital things other than shareholders’ equity. Credit Suisse has increased its Tier 1 capital by issuing so-called CoCo bonds, which can convert into equity in an emergency, a feature that some economists think might actually make the financial system more vulnerable to panic. UBS focused more on retaining earnings and cut deeper into risk-weighted assets. The banks’ moves demonstrate how regulations can create bad incentives. To the extent that the rules encourage banks to employ unnecessarily complicated capital instruments, or to avoid reasonable risks, they do a disservice to the economy. We want banks to take on risk, and we want their shareholders -- rather than taxpayers -- to be responsible for the outcome. The equity shareholders provide is not a rainy-day fund. It is the bedrock capital that gives banks the power to lend and the strength to survive their managers’ mistakes. As regulators struggle to put into place the latest iteration of global bank rules -- known as Basel III -- they should consider setting much higher requirements for equity. The banking system and the broader economy would be better off if they did.
Senate Democrats urge Obama to act on debt if needed Washington AGENCIES
Senate Democratic leaders urged President Barack Obama to take any steps he can to pay U.S. financial obligations if congressional Republicans don’t support a debt-limit increase that Democrats deem acceptable. In a letter to Obama yesterday, Senate Majority Leader Harry Reid and three other top Democrats said Obama “must be willing to take any lawful steps to ensure that America does not break its promises and trigger a global economic crisis -- without congressional approval, if necessary.” EnlargE imagE: Senate Majority Leader Harry Reid and three other Democratic leaders in a letter urged President Obama to "take any lawful steps" to support a debt-limit increase. Photographer: Andrew Harrer/Bloomberg The Democrats’ letter sharpens the dispute with Republicans over the borrowing limit, which the U.S. hit at year’s
Monday, 14 January, 2013
end. Amid Republican opposition to raising the debt ceiling without spending cuts, some Democrats have proposed invoking the Constitution’s 14th amendment and minting a platinum coin with a face value of $1 trillion to pay government bills. House Speaker John Boehner of Ohio and Senate Minority Leader Mitch McConnell of Kentucky, both Republicans, have said they will seek substantial spending cuts in exchange for any debtceiling increase. Boehner has said cuts must match or exceed the amount the ceiling is raised. McConnell said yesterday that Democrats “are falling all over themselves in an effort to do anything they can to get around the law -- and to avoid taking any responsibility for Washington’s out-of-control spending.” In a statement, McConnell added that “avoiding this problem will only make it worse, which is why many of us view the upcoming debt-limit debate as a perfect opportunity to face up to Washington’s spending.”
‘Extraordinary’ mEasurEs: The U.S. reached the statutory borrowing limit on Dec. 31, and the Treasury Department is using what it terms “extraordinary” measures to finance the government. The Congressional Budget Office estimates those steps will be exhausted by mid-February. Obama must act on his own to prevent default “in the event that Republicans make good on their threat by failing to act, or by moving unilaterally to pass a debt-limit extension only as part of unbalanced or unreasonable legislation,” wrote Reid of Nevada and Senators Richard Durbin of Illinois, Charles Schumer of New York and Patty Murray of Washington. White House spokesman Jay Carney told reporters on Jan. 9 that the administration was “not going to negotiate” on the debt limit. He said Obama won’t send aides or Vice President Joe Biden to Capitol Hill to negotiate with Republicans over their demand for at least a dollar in spending cuts for every dollar that the debt ceiling is raised.
14th amEndmEnt: Obama also won’t summon congressional leaders to the White House to discuss a debt-ceiling deal, Carney said. Carney repeated that the administration doesn’t think the president has the power to unilaterally raise the limit under the Constitution’s 14th Amendment, an argument advanced by some congressional Democrats, including House Democratic leader Nancy Pelosi. “You must make clear that you will never allow our nation’s economy and reputation to be held hostage,” Reid and his colleagues said in their letter. “We support your view that an extension of the debt limit is not something for which Democrats should have to negotiate.”