DISQUS

It's Hegel week here, Will! Sorry about that. But this brought to mind a passage from Philosophy of Right.

Hegel argues that the power of taxation derives from the consent of the people:

"The attitude of the government to the classes must not be in its essence hostile. The belief in the necessity of this hostile relation is a sad mistake. The government is not one party which stands over against another, in such a way that each is seeking to wrest something from the other. If the state should find itself in such a situation, it must be regarded as a misfortune and not as a sign of health. Further, the taxes, to which the classes give their consent, are not to be looked upon as a gift to the state, but are contributed for the interest of the contributors. The peculiar significance of the classes or estates is this, that through them the state enters into and begins to share in the subjective consciousness of the people." (section 301)

So that's pretty clear. No taxation without consent, and taxes are paid to support the interests of the people. The government has no inherent "right" to tax without consideration of the people. But Hegel argues we should in general support government and so consent to taxation.

Why does Hegel think we should be happy to support the government ("the universal")? Individuals achieve their true happiness in the context of civil society, with other people. But actualizing and securing that happiness requires the function of an external state. Forgive the long quote:

"Yet without coming into relation with others he cannot realize his ends. Hence to each particular person others are a means to the attainment of his end. But the particular purpose gives itself through reference to others the form of universality, and in satisfying itself accomplishes at the same time the well-being of others. Since particularity is bound up with the conditioning universal, the joint whole is the ground of adjustment or mediation, upon which all individualities, all talents, all accidents of birth or fortune disport themselves. Here the fountains of all the passions are let loose, being merely governed by the sun of reason. Particularity limited by universality is the only standard to which the particular person conforms in promoting his well-being.

The self-seeking end is conditioned in its realization by the universal. Hence is formed a system of mutual dependence, a system which interweaves the subsistence, happiness, and rights of the individual with the subsistence, happiness, and right of all. The general
right and well-being form the basis of the individual’s right and well-being, which only by this connection receives actuality and security. This system we may in the first instance call the external state, the state which satisfies one’s needs, and meets the requirements of the understanding." (sections 182, 183)

So from this we can conclude, I think, that when the state fails to "satisfy one's needs" or "meet the requirements of the understanding" or possibly fails to foster the "mutual dependence" we need to be able to reify our private "subsistence, happiness, and rights," only then would Hegel say we should withdraw or question our consent to taxation.

Finally I have to say that if your articulation of Dworkin above is accurate, I pity him. His style of argumentation seems more convoluted than even Hegel. And anyone whose prose is a worse spaghetti nest than Hegel's. . . well. . .well. . .!

How your sarcastic condescension just silences this girl. Not. I suppose by invoking Weimar I'm supposed to be ashamed of some kind of "decadence."

But seriously Harlan, real thought involves more than tying together some Large French Names with their respective dull jargon. That does not intellectual work make.

In France itself, people don't really talk about most of these folks anymore. Po-mo is in fact fading fast, faced with the onslaught of the actual contemporary world.

Ms. Klein et al would just like to live in France, that's all they mean when they say social democracy. But at the same time they do have not the ability to articulate the issues with France, such as the persistent high unemployment, the stifling technocracy and the lack of economic flexibility.

These are things with which the French struggle every year - read any French paper. I agree France is a lovely place to live, but it's a tad sclerotic. I would have more respect for Klein if she would address how to make a more diverse France work for a larger group of people in the 2st century.

O by my high-heeled shoes, Harlan, please spare us the French cant.

Really, back in the day I would have just eviscerated your use of Derrida and Delueze both here with a scathing feminist critique, but now we're all sooo over that.

A better use of time would be just watching Dita von Teese strip. Drop the dead po-mo and consider developing a healthier interest in burlesque.

Will, don't let Leiter get to you.

Because he knows you care about the philosophical community, he aims low and diagonally up to your heart with his crack. This is displays his canny instinct of how to really hurt you by getting you where your truth is.

Don't be manipulated by it. Stand your ground, man!

"We are still having the free market versus central planning debate"

Will, I thought what was most interesting about Fukuyama's Trust was that it groped toward a way out of this stale see-saw.

Not that it's a perfect book, sure, but in it Fukuyama does perhaps use his Hegel to good effect: once there are enough of us - societal relations already exist - so that work can create surplus, we have entered the stage of recognition, where property can come into being. With property comes the concepts of rights and rationality.

Once we have property and rights, we can begin to trade. To trade more efficiently, we invent money. But the downside of these inventions is theft and injustice. To counter theft and maintain recognition, we create virtue, honesty and trust. To counter injustice, we create honor.

At this point, we still don't have "government" with its formal legal system per se. In Fukuyama's Hegelian account, the market structures work in civil society based on trust. High-trust societies have different structures than low-trust ones, and generate more of stuff we nowadays tend to think is good, and do it faster.

As we see in the current crisis, government can do all it wants, but until trust is restored, it's pointless. Trust is again affirmed to come before government intervention.

Thus as an escape from the polarized debate, perhaps we might run with Fukuyama for a moment. Maybe we should consider what about civil society has been broken/is deranged - and look to that to restore the necessary trust, and thus restart the market?

Or maybe I just need a drink. . .

Jen, I wanna be sympathetic to your argument. But I can't. What exemptions from regulation for Frannie & Freddie - I mean, there were those pesky 200 peeps. Can we imprison them for nonfeasance? Why weren't they screaming about the unsustainable stuff going on, the monkeys swinging from the chandeliers? This would have been clue 1.

And of course the agencies. The SEC is supposed to look after Moody's et al, albeit through some distant process, right? (People have been screaming for more SEC oversight of rating agencies since like, 2004: http://www.afponline.org/pub/gr/i_ratingoversig...) How could every MBS basically get a platinum rating? Huh? Clue 2. Can we imprison the raters for fraud? Meanwhile, the SEC sat on its hands. Can we imprison them for nonfeasance?

Then we have to ask about the risk managers at institutions. So these guys are incented to take on risk: Hey that nasty bottom tranche gives me 10% or whatever! Yummy! And Moodys tells me it's airtight! Yeah my boring quants say the model shows some ugly possibilities waaay out there in the tail, but hey, that's only a tiny risk for year 2 or 3. By the time the thing would explode, I'll have pocketed my FU bonus money! Screw my Famous Name White Shoe Institution, I wanna retire ASAP. But it won't happen anyway, the economy's still OK now, everybody says so. Stupid nerds.

But then the manager should have seen that NY Times piece or others like it. Clue 3.

And he should have said, By my ostentatious watch! I have 20 days to save my fricking hide! So why didn't they? Why didn't they save themselves? Was it already too late? "No way out, no way out, no way out?"

Did the manager instead say, Thank God I have a CDS on this Lehman stuff with AIG! I'm sooo golden! Really, you'd think the managers would have immediately raised the alarm for their own self-preservation.

Finally we come to AIG. Certainly they should have seen same NYTimes-type story and also acted to maintain their own lives. Did they also do nothing? (I guess we've also learned that Citadel and Pacific held this stuff too.)

So at what point exactly did all these failures collect? It seems to me that while we could bicker for a looong time about why the regulators snoozed, we should still ask ourselves why the rating agencies appeared to lie, and why neither the managers nor the swap guys acted. I mean, I guess I understand why the managers did nothing - they already had their bonuses. But AIG, why didn't AIG stop the madness?

We can regulate til the cows give homogenized milk, but if the other incentives are outta whack, what good will it do? I am haunted as to why the managers and swappers waltzed on the deck of their own personal Titanic.

That's pretty hilarious, Will.

The elder male silverbacks decide to throw a dust party to assert their continuing dominance. What a frightening display of their advanced degrees. Ooh how we shiver and shrink back into the trees.

As a denizen of Wall St. myself, I don't recall ever seeing these two fine gentleman eating at any of the usual steakhouses. My vote for the most prominent cause of the collapse?

The yearly bonus system. Any fool can put structure a puppy that doesn't explode for a short-term. Once these guys have theirs at year-end, they're done, they squirrel away their FU nut and damn what happens later.

But if the bonuses were paid partially up-front and partially over time - say maybe 3 years - the boiz would have an incentive to make sure the whole thing doesn't blow up as soon as they've cashed their bonus checks. Several of my quant friends agree with this, with a fair amount of passion.

In August the NY Times reported that 12% of subprime mortgages were in arrears, while just 2.7% of prime were so. It contrasts this with rates from previous years:

"Data on securities backed by subprime mortgages show that 8.41 percent of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35 percent in May, according to CreditSights, a research firm with offices in New York and London. By contrast, 16.6 percent of 2007 loans were troubled in June, up from 15.8 percent."

These are stunning rates obviously. How could this disaster not have been seen from the day this story was published in the first week of August? (Actually the danger was fully exposed in the Financial Times in April, see: http://ftalphaville.ft.com/blog/2008/04/10/1222...) But certainly it should have been clear that when the September payment came due, it was all going to be over.

As this amazing foreclosure rate starved the mortgage-backed CDOs of their monthly income stream and the banks exhausted themselves, soon becoming unable to make good on the payment, the various bank holders should have been protected by the CDSs.

These CDSs exist basically as insurance policies on the income stream. From these facts now come the questions we should ask before we get into the regulation discussion:

What seems interesting to me is that the CDSs themselves didn't seemed to be adequately "re-insured" with outside parties, parties who weren't already avenues of the trade.

Really only a few institutions seemed to do the most business in these, repackaging them on to sell to other banks across the globe. The question here is why did these few institutions, with so much capital sloshing around from the mid-aughts and apparently no place to put it, shove it all here?

Fannie & Freddie had a special group of regulators, a little bureau of about 200 people. Why didn't they have a clue?

Also, why did so much of the CDS appear to end up at AIG? Why did so much lodge in 1 place? Why didn't AIG in effect successfully "re-insure?" Insurance and re-insurance after all is something AIG certainly knew how to do.

Was this a case of a banking culture in which you have your set of close-knit partners, and you primarily do business only among yourselves? Or - considering AIG history, which caused Eliot Spitzer to go after it - was something else going on?

After Spitzer, AIG apparently had its own group of regulators, who actually sat in its Connecticut offices to watch what was going down. Why didn't they see this either?

Part of the problem here is that the business practices seem poorly understood. Journalists don't explain it well, even in financial papers.

But what I have read in some places makes it seem as if investment bank X issued mortgage-backed CDOs, sold those to normal banks - who apparently weren't making any money in their traditional business as that fell to a commodity, with everyone giving away free checking, free this, free that and so they needed the CDO income stream - and then those banks bought CDSs on investment bank X with AIG - who then may have done sold those back to X, in essence, self-insuring X with X?

Is this right? Is this a fair description of the circle? If not, could I please get a better explanation? Only when we have a clearer idea of how the circular trade developed could we hope to discover where any new regulation should be.

I'm still seeing downtown girls ironically wearing Sarah Palin's hairstyle.

"This election’s over unless he murders and eats the flesh of a child on live television"

And not a moment too soon, since I really need to go wash my hair.

But what if Hanson is right? What if voting and politics have absolutely nothing to do with policy? Why then does it matter who votes? Are there still "bad" voters?

Ooh ooh ooh. Let's have a little amusement where we all make a banner head for Will and then he can rotate them once every few days. Like the Google logo.

Love the new look. Much improved. Actually readable type now. A little NY Times-y tho'.