What the NFL referee lockout tells us about libertarian thought

On a couple of levels it's been fun watching the NFL replacement referee disaster unfold. The league is trying to stick it to the unionized professionals while sending in what appear as rank amateurs to officiate regular season games.

It also works as an illustration of why letting the market do its thing (a.k.a. laissez-faire) is a terrible way to run an economy. Business and commerce need compentent referees to achieve a fair, accountable outcome from trade. Letting the players go at it without oversight falls far short of assuring orderly transactions. Weak, ineffective regulation is an invitation to mishap or mayhem--preventing a just and fair resolution. Go ask the Greenbay Packers' fans.

James Madison said it far more eloquently in Federalist #51: "If men were angels, no government would be necessary." Let's fit that statement for a capitalist context: "If market players participated fairly, no regulation would be required." The 2008 financial crisis proved this wasn't the case. Why can't libertarians grasp this?

Too big to know what's best for the nation, economy

Former Wall Street Executive: Complexity Of Today’s Banks ‘Makes You Weep Blood Out Of Your Eyes’ via Think Progress

Another former Wall Street executive has emerged to advocate reform of banks in the "too big to fail" category.

Sallie Krawcheck, once the head of Bank of America's wealth management division, was a guest panelist at the Bloomberg Markets 50 Summit on Thurs., Sept. 13 when she made the stunning observation about the complexity of big bank operations.

She joins Sandford Weill, former Citigroup head, who advocated the break up of big banks back in July.

The chorus opposing such measures has been adamant. Two voices in particular merit consideration--Jamie Dimon, CEO of JP Morgan and his predecessor, William B. Harrison Jr.

Touting the benefits of the too-big-to-fail scale, Jamie Dimon actually used the "port in the storm" metaphor to bolster his argument--this from the head of a bank that lost $5.8 billion in credit derivatives trades.

Writing in the New York Times, William B. Harrison Jr. wields a straw man, the first of several, to launch his defense of big banks. Serously, who is arguing that breaking up big banks will eliminate the risk of future crises? He'd have no trouble naming the source of the phony argument if someone were actually making it.

Wouldn't he also name the source of the fallacy that the emergence of the big bank was an artificial, unnatural market development? Worse is the bale of grass he stuffs into the notion that anyone with a shred of credibility blames big banks for the 2008 financial meltdown.

There is a very compelling reason why the likes of Messrs. Harrison and Dimon would defend the size and scope of big banks--a reason they'd probably never admit in polite company. What is at stake for them is the generous compensations earned by CEOs at said financial behemoths.

How is this so?

Harvard-trained economist Xavier Gabaix and his research partner, Augustin Landier, have taken a look at CEO compensation and its link to a company's market capitalization (the value of its share price multiplied by number of shares issued by the company).

What they found happening between the years of 1980 and 2003 is that CEO compensation increased by a multiple of six--along with the market capitalization growth for large U.S. corporations. As The American put it more bluntly: "The trend lines of market capitalization and executive payouts rose and dipped in near-perfect tandem."

One might acknowledge the same motivating impulse with participants in a betting pool--the larger pool, the greater the payout.

So, what difference does this make for the economy and the nation as a whole?

The public should be asking, what's the worth of systemic risk that massive financial institutions pose? For an example, consider the scenario when certain big banks knowingly sold toxic assets to institutional investors who managed 401k's, pension- and mutual funds.

What resulted from buying the imploding mortgage-backed assets? Millions of mid-income, hard working citizens were hooked for the losses set in motion by defaulting borrowers.

So, is the American public ready to confront goliath financial institutions for what they are? That synaptic network of transactions--enabling those massive capitalizations that money-starved CEOs dream of--which have very little to offer for the greater good of a nation seeking stability and sustainable economic growth.

Cheating is profitable

"Mr. Barofsky joins the ranks of those who believe that another crisis is likely because of the failed response to this one. 'Incentives are baked into the system to take advantage of it for short-term profit,' he said. 'The incentives are to cheat, and cheating is profitable because there are no consequences.' "

http://mobile.nytimes.com/2012/07/22/business/neil-barofskys-journey-into-a-bailout-buzz-saw-fair-game.xml

Quiet riot brewing

A fascinating read in the Harper's Jan. 2012 issue features the story of foreclosed homeowners challenging lenders in courts across the country. Among organizations that have taken shape to push back against banks is the National Homeowners Cooperative.

As Harper's writer Christopher Ketcham reveals in his report, "Stop Payment", the NHC teaches homeowners how to counteract a bank's foreclosing efforts. Suing for "quiet title" compels a bank to produce evidence of an unbroken chain of title (documenting ownership going back to the time property was first parceled and recorded). If the foreclosing institution cannot prove it owns the loan, then the title in question is considered "clouded".

Enter the Mortgage Electronic Registry Systems, what Ketcham calls "the heart of the clouded title problem." The purpose of the MERS--going back to the mid 1990s when Fannie Mae, Freddie Mac and a handful of major banks launched it--has been to keep an electronic record of the sale of mortgages between lenders. In doing so it became the 'in-name-only' owner of the loan for the public record. This allowed mortgage companies an alternative to the time-consuming and costly recording process handled through the county clerk's office.

Ketcham's piece does not mention the specifics of the county clerk's office role after the advent of MERS, except to state that the electronic registry "had single handedly unraveled centuries of precedent in property titling and mortgage recordation...".

A very telling quote from University of Utah law professor Christopher Peterson captures the meaning of MERS's 'achievement' on a wider scope: "What's happened is that, almost overnight, we've switched from democracy in real-property recording to oligarchy real property recording.... There was no court case behind this, no statute from Congress or the state legislatures. It was accompished in a private corporate decision. The banks just did it."

Professor Peterson also considers it no coincidence that as more Americans face foreclosure than at any other time since the Great Depression, it happens as the records of home ownership and mortgages shift to a private database.

An estimate of the number of mortgages held by MERS stands at around 62 million.