Monday, 14 January, 2013

stEPhEn L. CaRtER

The history of coinage is indeed,in many cases, a melancholyrecord of fraud, folly, and igno-rance.” So wrote Sir John Lub-bock in his classic 1902 book, “A

Short History of Coins and Currency.” And Iwill freely admit that my first reaction, onhearing about the platinum coin, was to nodsagely and tell myself that Lubbock was right.

But as an ever-longer list of peoplewhose views I respect lined up in favor ofminting the special trillion-dollar coin as atemporary measure to get around the debtceiling, I decided to have another look. Onsomber second look, I was right the firsttime: It’s a really bad idea.

In the first place, it would be illegal. Pro-ponents insist that the language of Title 31 ofthe United States Code, Section 5112(k), isbroad enough to allow the U.S. Treasury sec-retary to order the coin minted in whateverdenomination he chooses.

I’m old-fashioned enough that I stillteach my students that the plain languageof a statute must be construed in ac-cordance with its purpose.That’s why, when a criminalstatute punishes anyonewho uses a gun “or” an-other deadly weapon incommission of afelony, you can’t es-cape by pleading thatyou used both. Theliteral language ofthe statute mightpermit that construc-tion, but the legisla-tive purpose doesn’t.

As innumerable crit-ics have pointed out, thepurpose of section 5112(k) isto allow the creation of collec-tors items, not money -- a propo-sition affirmed by the former memberof the House who authored the law, MichaelCastle of Delaware. (Alas, there is no formallegislative history.)PErPlExing dEtErmination: Butsuppose I’m wrong, and the coin would belegal. Even so, I’m persuaded that politicalblogger Kevin Drum is asking the right ques-tions: “Is this really the road liberals want togo down? Do we really want to be on recordendorsing the idea that if a president doesn’tget his way, he should simply twist the lawlike a pretzel and essentially do what hewants by fiat?”

I am perplexed by the determination ofDemocrats to enhance presidential power.

All the authority they seem so excited toplace in President Barack Obama’s handswill one day be wielded by a Republican. Iwas raised to remember that goose and gan-der alike sup with the same spoon.

Literary critic Lionel Trilling, back in hisliberal days, had it right when he warnedagainst the liberal tendency to so fall in lovewith a “cherished goal” that it “forbids thatwe stop to consider how we reach it.” In aconstitutional system, process matters.

That’s why liberals shouldn’t be so quickto defend (for example) Obama’s use of recessappointments. True, Presidents Bill Clintonand George W. Bush used them a lot more,but for the same bad reason: to circumventthe confirmation process by thrusting into of-fice people they wouldn’t be able to getthrough the Senate. To do this now and thenis one thing; to make it systematic raises agenuine constitutional problem. Confirma-tion of executive branch appointees isn’t sup-posed to be easy. It’s there to restrain theexecutive. If the president feels tied down,that’s a sign that the process is working.

But Democrats have become impatientwith process. Not long before the tax deal,

some on the left floated the ideathat the administration

could unilaterally keeprates from rising by

adjusting the taxwithholding ta-

bles, which rest,s t a t u t o r i l y ,within the dis-cretion of theTreasury sec-retary. I won-der how they

might respondshould some fu-

ture supply-sideRepublican try to

use precisely thattactic to lower rates.

aPPalling dEtEr-mination: Then there’s the

suggestion endorsed by, among others, theDemocratic leader of the House, California’sNancy Pelosi, that the 14th Amendment al-lows the president to ignore Congress andraise the debt limit on his own. Well, mygoodness. Why didn’t Bush think of that,back when Democrats were railing againstthe rising deficits in his final years? Sure,constitutional traditionalists would havebeen appalled, but Pelosi, one presumes,would have leaped to his defense.

The trillion-dollar coin falls into thesame category. Rather than asking whetherit’s legal, or how the markets would respond,we should be asking whether today’s enthu-

siastic supporters would be on board were itproposed by supporters of president-electMitt Romney. And, yes, I know, these timesare different. We face an emergency caused,according to New York Times columnist PaulKrugman, by “the mixture of ruthlessnessand craziness that now characterizes HouseRepublicans.” Is this an unusually crazytime? I wouldn’t know: Partisan politics isn’tmy thing, so I’ll leave that judgment to oth-ers. But we’ve faced lots of crazy moments inhistory and managed to get through themwithout chasing every little gimmick.

Besides, there are only so many timesone can go to the same well. The constantcomplaint offered in justification of each ofthese efforts is that the Republicans arebeing intransigent. But intransigence isbuilt into the constitutional process. Dis-senters can block action. They can forcecompromise. Those aspects of the systemcan be terribly frustrating when you hap-pen to be in the majority, a perspectivefrom which disagreement always looks likepigheadedness.

From the point of view of the minority,however, these are valuable checks and bal-ances. Take the Senate filibuster, currentlytargeted by many on the left for extinction.There is a long tradition in deliberative bodiesof requiring a supermajority vote to limit de-bate. Why not just a majority? Because, asU.S. Army General Henry M. Robert wrote inthe first edition of his eponymous “Rules ofOrder,” putting an end to the debate suspends“the fundamental right of every member of adeliberative assembly to have every questionfully discussed before it is finally disposed of.”Indeed, were a simple majority able to end de-bate, there would never be any need to discussanything: Just show up and vote.horrific dEtErmination: Histori-cally, the filibuster has been used for horrificends, including as a last-ditch effort bySouthern Democrats to prevent the passageof major civil rights legislation. But that fili-buster was broken once and for all in 1964,and without changing the rules. What wasrequired was a majority willing to roll logsand twist arms -- that is, to do the hard workof actual governance.

Let’s assume, for the sake of argument,that today’s majority is, most of the time, thegood guys. That doesn’t mean they don’thave to give in now and then to a passionateminority. Compromise, to be sure, was easierin an era when we didn’t tweet every privatemeeting between senators, and cable newshosts didn’t spend prime time throwing redmeat to the angry herds on the right and left.

But we can have constitutional govern-ment or we can have “the good guys” win-ning every fight. We can’t have both.

The PlaTinum coin

It’s a really bad idea

nEWs DEsK

Swiss banks UBS AG (UBSN) and Credit Suisse Group AG (CSGN)are among the safest in Europe, according to the measuresregulators watch most closely. Therein lies a lesson in how easily wecan be deluded into believing banks are secure. Switzerland hasmade laudable efforts to reduce the systemic threat that comes fromhaving a tiny economy and being home to two of the world’s 30largest banks, as Bloomberg Markets reports in its latest issue. Thecountry has instituted limits on leverage, and pushed UBS andCredit Suisse to boost their Tier 1 capital -- regulators’ preferredmeasure of financial soundness -- to 20.2 percent and 18.5 percentof risk- weighted assets, respectively. That’s much higher than any oftheir European peers.A Tier 1 capital ratio, however, doesn’t providea complete picture. Consider, for example, simple equity. Like thedown payment a mortgage borrower makes on a house, it representsthe money a bank’s shareholders put into the enterprise. The ratio oftangible equity to tangible assets at UBS stood at 3.4 percent as ofSept. 30, according to data compiled by Bloomberg. That’s up from1.3 percent on Sept. 30, 2007, but still means that a 3.4 percentdecline in the value of UBS’s tangible assets -- similar to whatoccurred in the last crisis -- could be enough to render the bankinsolvent. The ratio at Credit Suisse (under U.S. accountingstandards, not directly comparable to UBS) was 2.6 percent, up onlyslightly from 2.3 percent on Sept. 30, 2007.risk WEights: Why the difference? The Tier 1 measure allowsbanks to boost their capital ratios in two ways: by placing lowerweights on assets they consider less risky and by counting as capitalthings other than shareholders’ equity. Credit Suisse has increased itsTier 1 capital by issuing so-called CoCo bonds, which can convert intoequity in an emergency, a feature that some economists think mightactually make the financial system more vulnerable to panic. UBSfocused more on retaining earnings and cut deeper into risk-weightedassets. The banks’ moves demonstrate how regulations can create badincentives. To the extent that the rules encourage banks to employunnecessarily complicated capital instruments, or to avoid reasonablerisks, they do a disservice to the economy. We want banks to take onrisk, and we want their shareholders -- rather than taxpayers -- to beresponsible for the outcome. The equity shareholders provide is not arainy-day fund. It is the bedrock capital that gives banks the power tolend and the strength to survive their managers’ mistakes. Asregulators struggle to put into place the latest iteration of global bankrules -- known as Basel III -- they should consider setting muchhigher requirements for equity. The banking system and the broadereconomy would be better off if they did.

Swiss Banks show

what’s wrong with

global capital rules

Washington

AGENCIES

Senate Democratic leaders urged Presi-dent Barack Obama to take any steps hecan to pay U.S. financial obligations ifcongressional Republicans don’t supporta debt-limit increase that Democratsdeem acceptable.

In a letter to Obama yesterday, Sen-ate Majority Leader Harry Reid and threeother top Democrats said Obama “mustbe willing to take any lawful steps to en-sure that America does not break itspromises and trigger a global economiccrisis -- without congressional approval,if necessary.”EnlargE imagE: Senate MajorityLeader Harry Reid and three other Dem-ocratic leaders in a letter urged PresidentObama to "take any lawful steps" to sup-port a debt-limit increase. Photographer:Andrew Harrer/Bloomberg

The Democrats’ letter sharpens thedispute with Republicans over the bor-rowing limit, which the U.S. hit at year’s

end. Amid Republican opposition to rais-ing the debt ceiling without spendingcuts, some Democrats have proposed in-voking the Constitution’s 14th amend-ment and minting a platinum coin with aface value of $1 trillion to pay govern-ment bills.

House Speaker John Boehner of Ohioand Senate Minority Leader Mitch Mc-Connell of Kentucky, both Republicans,have said they will seek substantialspending cuts in exchange for any debt-ceiling increase. Boehner has said cutsmust match or exceed the amount theceiling is raised. McConnell said yester-day that Democrats “are falling all overthemselves in an effort to do anythingthey can to get around the law -- and toavoid taking any responsibility for Wash-ington’s out-of-control spending.”

In a statement, McConnell added that“avoiding this problem will only make itworse, which is why many of us view theupcoming debt-limit debate as a perfectopportunity to face up to Washington’sspending.”

‘Extraordinary’ mEasurEs:The U.S. reached the statutory borrowinglimit on Dec. 31, and the Treasury De-partment is using what it terms “extraor-dinary” measures to finance thegovernment. The Congressional BudgetOffice estimates those steps will be ex-hausted by mid-February.

Obama must act on his own to pre-vent default “in the event that Republi-cans make good on their threat by failingto act, or by moving unilaterally to pass adebt-limit extension only as part of un-balanced or unreasonable legislation,”wrote Reid of Nevada and SenatorsRichard Durbin of Illinois, CharlesSchumer of New York and Patty Murrayof Washington. White House spokesmanJay Carney told reporters on Jan. 9 thatthe administration was “not going to ne-gotiate” on the debt limit. He said Obamawon’t send aides or Vice President JoeBiden to Capitol Hill to negotiate withRepublicans over their demand for atleast a dollar in spending cuts for everydollar that the debt ceiling is raised.

14th amEndmEnt: Obama alsowon’t summon congressional leadersto the White House to discuss adebt-ceiling deal, Carney said.

Carney repeated that the ad-ministration doesn’t think thepresident has the power to unilat-erally raise the limit under the Con-stitution’s 14th Amendment, anargument advanced by some congres-sional Democrats, including HouseDemocratic leader Nancy Pelosi.

“You must make clear that you willnever allow our nation’s economy andreputation to be held hostage,”Reid and his colleaguessaid in their letter.“We support yourview that an ex-tension of thedebt limit is notsomething forwhich Democ-rats shouldhave to ne-gotiate.”

Senate Democrats urge Obama to act on debt if needed

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