Category: Law

India black markets in everything

A dirty little secret that most Indian politicians don't discuss is the thriving cow smuggling trade from their Hindu-majority nation, home of the sacred cow, to Muslim-majority Bangladesh, where many people enjoy a good steak. The trade is particularly robust around the Muslim festival of Eid.

India has outlawed cattle exports, but that hasn't prevented well-organized traffickers from herding millions of the unlucky beasts each year onto trains and trucks, injecting them with drugs on arrival so they walk faster, then forcing them to ford rivers and lumber into slaughterhouses immediately across the border.

The story is here.  Here is information on the price differential:

A $100 medium-size cow in Jharkhand is worth nearly double that in West Bengal and about $350 in Bangladesh. Indian residents along the border complain that the markup also attracts illegal migrants from Bangladesh, who steal cows at night and dart back home.

In a bid to stem the rustling, the Murshidabad local government announced a cow-licensing system in 2007. Cows were issued photo IDs.

In theory the "border is sealed" but in reality the guards are often corrupt and accept bribes to allow the illegal migration.

The legal system in Zimbabwe

Victims of crime in Zimbabwe's capital city Harare are now allowed to ferry the alleged perpetrators of those crimes from prisons to court after the state prisons service ran out of fuel, according to local reports Thursday.

Conditions have improved significantly in Zimbabwe's 42 jails since last year when an estimated 1,000 inmates had died in the first six months of the year of disease and neglect. But the Department of Prison Services still cannot provide transport to take prisoners awaiting trial to court.

The story is here (or try this link) and I thank Craig Richardson for the pointer.  Here is Craig on the collapse of Zimbabwe.

What should be the penalties for oil spills?

The US Supreme Court has struck down a $2.5 billion punitive damages award against oil giant Exxon for its role in the 1989 Exxon Valdez oil spill in Alaska.

The high court said the award should be reduced to the amount of compensatory damages in the case – $507.5 million.

That was from June 2008.  Here is a more general history.  Googling "exxon valdez punishment managers" does not yield obvious answers (what other problem does that remind you of?).  The CEO, Lawrence Rawl, stayed with the company four more years until the mandatory retirement age of 65.  Do you know more?

Here is one report on the BP CEO.

The new Arizona immigration law

Here is a perspective from Megan McArdle:

I'd be a lot more sympathetic to this law, in fact, if it required the police to check the immigration status of every single person they pulled over, without any gauzy "reason to believe" fig leaf to cover up what's really going on.

Raise your hand if you think that law could have passed in Arizona.

Now, anyone whose hand is raised, contact your psychiatrist immediately.  You need to check the dosage on those meds.

If you think that immigration is a pressing problem, then the place to enforce it is in areas of life that are already regulated pretty intrusively:  border crossings, employment, landlord/tenant relations.  These are places where enforcement can be stepped up quite dramatically without massive intrusion into the ordinary lives of law-abiding citizens.  But quasi-criminalizing looking different . . . well, it's not just wrong. It's un-American.

When is a new financial product “too risky”?

Can this be true?  Paul Atkins writes:

For example, before 1996, certain initial public offerings of stocks were subject to merit review in certain states, where the state decided if a security is a "bad" investment and thus not appropriate to be offered to its citizens. In fact, this is exactly what happened to Apple Computer when it first went public in 1980. Massachusetts prohibited the offering of Apple shares because they were "too risky," and Apple did not even bother to offer its shares in Illinois due to strict state laws on new issues. What if federal bureaucrats had had the power to impose their judgment on a "risky" financial product (such as an IPO) on a nationwide scale, or every state followed Massachusetts' lead?

Good luck

It states that all illegal immigrants living in the United States would be required to "come forward to register, be screened, and, if eligible, complete other requirements to earn legal status, including paying taxes."

That's part of the new Democratic immigration plan.  What do they do with the immigrants who aren't liquid enough or solvent enough to pay ten years' back taxes, not to mention those who have no idea what they owe?

Just asking.  Does this plan contain a workable amnesty component at all, or is it just a border and employment clampdown?

There's more detail here, although no answer to my questions.

Chickens coming home to roost

In 2000 Dudley Hiibel was arrested and convicted of a crime solely because he refused to identify himself to a police officer.  Hiibel argued that in a free country people don't have to produce their papers just because the police demand them and he argued that his arrest was unconstitutional.  The case, Hiibel v. Sixth Judicial District Court of Nevada, went to the Supreme Court and Dahlia Lithwick, Slate's legal correspondent, made fun of libertarians who supported the plaintiff calling them hysterical and loopy.  She wrote:

It would be easier to credit the Cato and ACLU arguments if we didn't already have to hand over our ID to borrow a library book, obtain a credit card, drive a car, rent videos, obtain medical treatment, or get onto a plane. So the stark question then becomes this: Why are you willing to tell everyone but the state who you are? It's a curious sort of privacy that must be protected from nobody except the government… [Yeah, it's curious that people want to protect themselves from the one organization in society that can legally deprive them of life and liberty. AT]

The slippery-slope arguments–that this leads to a police state in which people are harassed for doing nothing–won't really fly.

Well in Arizona, it's flying now.

Why carbon tax proponents should talk more about deregulation

After nine years of regulatory review, the federal government gave the green light Wednesday to the nation’s first offshore wind farm, a highly contested project off the coast of Cape Cod.

The full article is here.  But wait, whoops!, I left out one part:

Several regulatory hurdles remain, and opponents of the wind farm have vowed to go to court, potentially stalling Cape Wind for several more years.

Sentences to ponder

About a quarter of Indonesian boys aged 13 to 15 are already hooked on cigarettes that sell for about $1 a pack or as little as a few cents apiece, according to WHO. A video on YouTube last month prompted outrage when a 4-year-old Indonesian boy was shown blowing smoke rings and flicking a cigarette. His parents say he's been smoking up to a pack a day since he was 2.

And this:

According to a 2008 study on tobacco revenue in Indonesia, smokers spend more than 10 percent of their household income on cigarettes; that's three times more than they spend on education-related expenses such as school fees and books.

Indonesia remains one of the last places in the world where cigarette TV commercials still run, featuring rugged men and beautiful women smoking. Billboards plastered above four-lane highways encourage motorists stuck in Jakarta's notorious traffic jams to "Go Ahead" or "Become a Man" or let Marlboro Lights "Style Your Party."

Leggy women in short skirts and strappy heels promote cigarettes at events, sometimes even giving out discounted or free samples to "taste."

The full story is here and I thank Daniel Lippman for the pointer.  How many of you will bite this bullet?

On Tolerance

“Tolerance” is a feel-good buzzword in our society, but I fear people have forgotten what it means. Many folks are proud of their “tolerance” for gays, working women, Tibetan monks in cute orange outfits, or blacks sitting at the front of the bus. But what they really mean is that they consider such things to be completely appropriate parts of their society, and are not bothered by them in the slightest. That, however, isn’t “tolerance.”

“Tolerance” is where you tolerate things that actually bother you.

Robin Hanson is correct that few people are truly tolerant but peculiarly for Robin he calls for more true-tolerance anyway.  I'm all for more tolerance but Robin's own examples suggests that social change is not much driven by changes in tolerance. 

As I suspect Robin would acknowledge, gay rights have not advanced because of more tolerance per se, i.e. they have not advanced because more people are willing to accept behavior that bothers them.  Advance has occurred because fewer people are bothered by the behavior.  Note, for example, that if the former were the case we would not see more gays and lesbians on television, as we do today.

When we are required to confront things that bother us we sometimes (often?) reduce
cognitive dissonance by changing our preferences so that we are no longer
bothered.  Thus libertarians and other true-tolerants may play a role in encouraging the intolerable to come forward, thereby forcing the intolerant to reduce cognitive dissonance by accepting what was formerly intolerable.  In this sense, a few more true-tolerants might help to tip society towards acceptance of some variant practices.

But since few people are or ever-will-be truly-tolerant, tolerance by itself probably can't get us very far towards a society of peaceful variation.  Instead, we will have to argue that variant practices are normal, not bothersome or a subject of indifference.  The route to drug legalization, for example, is to encourage more normal people who "smoke pot and like it" to come out of the closet.  Kudos to you, Will Wilkinson!  In the case of marijuana, I think this is possible but for many of the present and future variant practices mentioned by Robin, the limitations of tolerance put a big constraint on those that will ever be "tolerated." 

Should the SEC self-finance?

I haven't seen this issue receive much attention on the usual blogs (Yves Smith is one exception).  Here is one argument for self-finance:

The Obama administration has requested long overdue increases in both budget and staff for the S.E.C., and has plans to add as many as 374 employees. Those increases are vital, but because they’re dependent on Congress, there is no guarantee that they will be sustained.

Instead, the commission should finance itself – much as the Federal Reserve and the Federal Deposit Insurance Corporation do today through fees on banks. These two pivotal financial regulatory agencies thus have the flexibility to adjust their own staff.

And it appears easy:

Such a self-financing system would not mean higher fees; the commission collects far more in fees from corporate filings and stock market trading than it gets from Congress. But those fees go back into the federal coffers. In 2007, the S.E.C. brought in $1.5 billion, almost twice its 2007 budget.

This seems like a short-run improvement, but the idea nonetheless makes me a bit nervous.  What will it look like in practice, ten or fifteen years from now?  Was reliance on fees in every way beneficial for the FDA?  Admittedly, self-finance is one pathway to higher levels of finance, but the two issues are conceptually distinct and we might prefer to implement the appropriate level of finance directly through Congress.  I fear that in the longer run self-finance means that the SEC never wishes to see the financial sector shrink.  (Of course maybe it's not going to shrink anyway.)  A related question is what kind of internal controls the SEC would need to maintain its own fiscal discipline and prevent overspending, backed by an excess raising of funds and fees.  So whether self-finance is a good idea probably depends on what you are comparing it to.  A final question, and not a small one, is whether you think the SEC should be more independent from Congress.

Here is the SEC's own case for self-finance.  Here is a 2002 GAO study of the idea, very useful and it also discusses other cases of self-finance among regulatory authorities.

I don't have any strong conclusion here other than "maybe."  

How to insult Russia

The boy, who was adopted in September from the town of Partizansk in eastern Russia, arrived in Moscow on a United Airlines flight on Thursday from Washington, with a written note from Hansen.

The note said: "This child is mentally unstable. He is violent and has severe psychopathic issues. I was lied to and misled by the Russian orphanage workers and director regarding his mental stability and other issues … After giving my best to this child, I am sorry to say that for the safety of my family, friends, and myself, I no longer wish to parent this child."

The story is here.  Russia has announced a desire to freeze adoptions to the United States.  About 1600 Russian babies are adopted to the United States each year, most of them with success; if there is one area where countries do not maximize expected value, it is adoption policy.

Correlation-Seeking

Richard Squire has an important new paper in the Harvard Law Review:

…This Article identifies a pervasive opportunism hazard created by
contingent debt that lawmakers and scholars have overlooked. If liability on a firm’s
contingent debt is especially likely to be triggered when the firm is insolvent, the
contract that creates the debt transfers wealth from the firm’s creditors to its
shareholders. A firm therefore has incentive to engage in correlation-seeking – that is,
to incur contingent debts that correlate, or that through asset purchases can be made to
correlate, with the firm’s insolvency risk. The consequence is an overuse of contingent
debt that destroys social wealth through overinvestment, higher borrowing costs,
financial distress, and potential systemic risk. Correlation-seeking is especially
pernicious because, unlike other forms of shareholder opportunism such as asset
substitution, it can reduce risk to shareholders even as it increases shareholder returns.

It's long been known that a firm close to bankruptcy has an
incentive to gamble because if the gamble pays off the
shareholders prosper and if the gamble fails then the shareholders are no worse off (since the firm was already close to bankruptcy). 
But gambles like this
add to shareholder value primarily by transferring wealth from
the creditors who bear the downside risk without any hope of upside gain.

Squire shows how this idea is magnified when we add
contingent debt and correlated asset returns.  A contingent debt is one that must
be paid only in certain states.  If the shareholders take on
contingent debt and at the same time buy assets with low or negative
payoffs in the same set of states then the shareholders can focus the downside risk into the states in which they are bankrupt anyway – thus focusing the downside risk onto unsecured creditors. 

Correlation seeking of this kind becomes easier with contingent
securities and more difficult to monitor.  As Squire points out even as AIG was writing credit default
swaps (a type of contingent debt) on MBS it was buying MBS for its own portfolio and of course the ultimate unsecured creditors, the taxpayers, paid the price. 

Financial reform and why it is hard to blog

Paul Krugman writes an Op-Ed on where the political debate is at and I agree with most of his points.  Of particular importance is this one:

So what the legislation needs are explicit rules, rules that would force action even by regulators who don’t especially want to do their jobs. There should, for example, be a preset maximum level of allowable leverage – the financial reform that has already passed the House sets this at 15 to 1, and the Senate should follow suit.

I favor this but I nonetheless think it remains problematic.  The more binding the leverage restrictions, the more banks and other intermediaries may try to recreate implicit leverage off the balance sheet.  (This is one reason to push for decentralized market monitoring, though I am not suggesting exclusive reliance on that.)  It's fine to call for maximum transparency, but mostly that's just wishing for a different world.  Activities off the balance sheet are off the balance sheet for a reason and it is hard to squeeze many of them into traditional accounting conventions.  Nor should we try to ban off-balance sheet banking, as it would happen somewhere — both geographically and in some corner of the financial sector – and indeed many of these transactions limit rather than raise risk.

The upshot is that managing off-balance sheet risk requires an ongoing, hammer and tongs approach.  There isn't any "once and for all" solution to banking regulation and the harder we try to find one probably the more we will end up relying on regulator discretion and judgment.

Bank regulation is a tough slog, it depends on the quality of the bureaucracy and the periodic attention of a somewhat responsible legislature, "toughness" can be counterproductive, the historic periodic of regulatory "easiness" relied on cartelization and near-automatic profits, and it is like a chess game whereby the private sector eventually finds a way around most of the binding regulations.

And now we can return to why financial reform is hard to blog.  There's always a new proposal and a big tizzy over the particular contents of that reform.  Whatever one thinks of the specific suggestions, I keep returning to the notion that the quality of the regulators — most of all Congress — truly matters.

How many times can one say that?  How many times can one think that and run away in fear?

Arnold Kling has good remarks on transparency.