13 October 2014

A Quick Post From Kauai

Columbus Day hiking the Waimea Canyon? Sounds good to me.

But on a more serious note, you might want to read Jeffrey Shulman's Sacred Trust or Sacred Right? (download here). Cribbing from his abstract:
It is commonly assumed that parents have long enjoyed a fundamental legal right to control the upbringing of their children, but this reading of the law is sorely incomplete. What is deeply rooted in our legal traditions is the idea that the state entrusts parents with custody of the child, and the concomitant rule that the state does so only as long as parents meet their legal duty to take proper care of the child.
One might wonder who entrusted parents with authority before the rise of the modern state but Shulman would probably believe the answer of antiquarian interest only. Now it is the modern Enlightenment state in whose view "the law of parent-child relations has long embodied a belief that education (a 'leading away from') is the path away from childhood and toward intellectual and moral enfranchisement."

Shulman's view is consistent with the father of the English Enlightenment, John Locke, so it's no surprise it has come to dominate the current legal understanding of the parent-child relationship. 

08 October 2014

Not Just Iowa Anymore

A few years ago I posted here, here, and here about the extraordinary prices Iowa farmland was fetching. I also observed that part of the run-up was due to the incentives created by the U.S. federal government's subsidy of ethanol production. For some strange reason I thought that turning food into fuel was not a good idea.

But looking across the pond, at England in particular, we read in The Economist (here) that English farmland is also experiencing a dramatic rise in value. The English situation differs from that Stateside for several reasons. First, there's simply much less arable land in England than the United States. In addition, "farmers are growing richer. They have benefited from a global surge in commodity prices: wheat, for example, is 80% more expensive than it was five years ago. As commodity prices rise, banks have been more willing to lend."

The Economist does not opine on the reasons for the world-wide increase in commodity prices but I suspect it has to do with the increasing demand for meat and processed food in the developing world. As millions of Chinese and Indians move from poverty to something like a middle class lifestyle, their taste for what Westerners have enjoyed for generations increases as well.

And, for what it's worth, prices for all commodities have not increased. The driver of of the astronomical prices for Iowa farmland was high prices for corn (maize) and soybeans and both have fallen dramatically since 2012. It remains to be seen if highly-leveraged Midwestern farmers (and their banks) will be able to hang on to what they bought.

07 October 2014

Stockton's Feasibility Still An Issue

Go here to read an excellent news account about what's still at stake in the Stockton, California municipal bankruptcy. As I noted last week, Judge Klein concluded that Stockton had the power under the Bankruptcy Code to cut pensions notwithstanding state law to the contrary. The city, however, doesn't want to cut pensions and the news report adds that its lone holdout creditor doesn't care.

The report goes on to note--quite correctly--that the court has an independent obligation to find a city's plan is "feasible" before confirming it. And feasibility remains the nub of Stockton's confirmation battle. For more about feasibility read my article Municipal Bankruptcy: When Doing Less Is Doing Best (download here).

For what it's worth, I believe Judge Klein will ultimately find that Stockton's plan is feasible. Without a stakeholder leading the feasibility charge, I don't see a judge taking up that cudgel and administering a beatdown on his own. Yet even if Stockton's plan is confirmed, stay tuned to see if the city runs back to bankruptcy court within a decade.

06 October 2014

Avoiding A Maelstrom In Detroit? Or Sucking Up To the Rich and Powerful?

Why not try to sell Detroit's art collection to raise money to pay the city's debts? According to Emergency Manager Kevyn Orr, " it would greatly harm a city museum and cause turmoil in the community, especially among powerful, wealthy patrons." (Read account here.)

Upsetting wealthy patron?! Of course not, What could creditors left with billions unpaid have been thinking?

More seriously, there are other, more appropriate reasons why Detroit can choose not to "monetize" its art collection, although none ultimately persuade me. But even to suggest that fear of "powerful patrons" suggests that Detroit's mindset remains more like a banana republic than a model of financial probity.

05 October 2014

Some Conservative Communitarian Thoughts

Not by me--although I fully endorse them--but by Jamie Smith, which you can read by going here. Titled "Social Reform As If History Matters," Smith succinctly and clearly spells out the implication of subsidiarity and sphere sovereignty as means by which a society moves toward the common good.

The common good is distinguished, on the one hand, from progressivism, which identifies "common" with "public" and "public" with the state. In the contemporary progressive view of life, the state is the principle means by which the good of all advances. Thus, any non-governmental entities such as family, church, school, etc. exist only at the state's sufferance and only to the extent the state determines they add value to the vision of the good determined by the elites who pull the levers of state action.

As Smith describes the progressive point of view,
Imagine how all of this sounds if you believe that "government" is synonymous with "public" and the "common" good is synonymous with the "public" good: to challenge the state's monopoly and to encourage non-state communities will sound like a strategy for excusing ourselves from loving our neighbor and seeking permission to set up enclaves that benefit "me and mine." Indeed, if you treat "public," "government," and "the common good" as basically synonymous, then anything "private"—anything outside of the state—is going to be seen as selfish and unjust. 
On the other hand, a popular version the libertarian vision of the common good is merely the aggregation of individual goods, hardly the stuff of a vibrant civil society.

Countering the suspicion from the Left with the individualizing atrophy of the Right entails that conservatives must provide a vision that addresses the mess of the current society as it is actually is. Appeals to subsidiarity and sphere sovereignty alone will not persuade the many in the middle who hunger for freedom and order. Eviscerating Leviathan state will not immediately generate the "little platoons" that constitute a well-functioning social order. Smith's prescription is a dose of real history:
We need to beware of policy proposals that are "principled" but fail to attend to history. Society is never a blank slate. We always already find ourselves in some historically determined moment. Our "here and now" is always the product of a "there and then." While good policy should be informed by enduring, even timeless wisdom, it is always policy for a particular people at a particular moment with a particular history.
In other words, Smith is something of a Red Tory. I'm not sure if there's much to distinguish Smith's take from my common-law conservatism so I'll county myself one of his fellow travelers. 

But to Smith's application; consider: "Now, when we call for limiting the state's monopolies in order to make room for other spheres of social flourishing, we have to recognize that, for many, the state is all they've got." In other words, the thick middle between state and individual has been so evacuated of substance that for vast swathes of modern Western populations there is nothing other than the state to hold matters together. Given that state of affairs,
Those who rightly seek to foster civil society outside government, and who do so for the sake of justice and common good, need to concurrently address how to care for all those who, severed from any meaningful little platoons, are effectively wards of the state.
As Smith later puts it, "[conservative] reform can only be enacted in the messiness of history, so challenging the monopoly of the state should not be confused with burning it to the ground." Reality, not ideology, is called for as we confront our fraying ends of our society.

02 October 2014

Theology of A State?

Some time ago I posted here a piece about the implications of a "California state of mind" on theology. I compared la nouvelle théologie of the Reformed two-kingdoms sort (R2K) with the broader insights of Monica Ganas, author of the book, "Under the Influence: California's Intoxicating Spiritual and Cultural Impact on America" in which she argues that the "idea" of  "California-ism," the ability to recreate oneself free from past entanglements, whether familial, cultural, or religious, drives culture wherever one lives in America. I concluded that the former may represent a particular reaction to the extraordinary idolatry of California-ism.

Whether I overstated my case as one comment suggested, I want to direct my readers to yet another book that focuses more specifically on the effects of California on the theological endeavor (or is it the other way around?). In any event, go here to read a post by one of the editors of "Theology and California: Theological Refractions on California's Culture."

Until reading this review/advertisement, I had not known that there was such a thing as "California Studies." Silly me. Seriously, the summaries of the book chapters, written by serious folks, suggests that "Theology and California" isn't beach reading but may provide valuable insights on what undoubtedly remains America's most culturally significant state.

(For some more academic observations on R2K in historical context, read my review of David VanDrunen's book, "Natural Law and the Two Kingdoms: A Study in the Development of Reformed Social Thought" that you can download by going here.)

BIG News from Stockton. Maybe.

Followers of my blog will know that I've regularly inveighed against the heavy-handed tactics of the California Public Employees Retirement System or CalPERS. Go here, here, and here for a sampling. Under California law, CalPERS has the unilateral power to set the rates cities must contribute to the pensions they maintain for employees AND the unilateral power to charge what amounts to a penalty to cities that have the temerity to withdraw from the CalPERS-administered pension system AND the power to impose a lien on all city assets to compel payment of whatever CalPERS decides is owed.

At least that's what California law says.

But the city of Stockton is under federal jurisdiction because it filed a Chapter 9 municipal bankruptcy last year and Bankruptcy Judge Christopher Klien has concluded that California law is trumped by the Bankruptcy Code. Read about it in the New York Times DealBook here. CalPERS has the power to set the "exit fee" that Stockton must pay but that's only a claim and like any other claim in bankruptcy must get no more than its ratable share of what the city pays out over the course of the next several decades. In other words, Judge Klein concluded that he had the power under the Bankruptcy Code to knock off ("avoid") CalPERS's lien on city assets. Thus, CalPERS must share in the pot life regular folks.

And in that Judge Klein is correct. For a lengthy explanation of why I think he's right download and read my recently published article, Municipal Bankruptcy: When Doing Less Is Doing Best (here).

But there may be less to this decision--as momentous as it is--than meets the eye because Stockton doesn't want to stop paying CalPERS. I suppose we could replace the "Stockholm Syndrome" with the "Stockton Syndrome" to describe the situation where the captive begins to identify with the captor but that's essentially what's happened here. Stockton was so fearful of challenging the behemoth CalPERS that's it's fallen in with the bully at the expense of other creditors (like bondholders).

Yet hope remains. Judge Klein didn't approve Stockton's plan that treats other creditors less favorably than CalPERS so perhaps between now and the end of October Stockton will work up the fortitude to modify its plan to ensure that it does not "unfairly discriminate" in favor of the Powerful One at the expense of the many.

01 October 2014

Debt Forgiveness Pays

Some time ago I posted a series of comments about the twin virtues of promise-keeping and forgiveness. You can read them here, here, here, and here. While the virtue of promise-keeping regularly receives legal sanction through the the legal system (think contract law), the virtue of forgiveness features less prominently tucked away, as it is, in bankruptcy law. One supposes that the imbalance in the laws's pedagogy of virtue lies in the mundane: creditors have more political power than debtors.

Even though debt forgiveness is more limited than debt collection, it appears that a robust system of bankruptcy law like America's is good for more than the debts it discharges. Go here to read an insightful account of a research study that concludes that bankruptcy is an efficient policy of social insurance:
Getting approved for Chapter 13 bankruptcy protection "increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points."
While not part of the research study, I think it's also important to note is that these benefits accrue not only to the debtors but have positive effects on third parties and not only immediate family members. Reduction in foreclosure rates also benefits neighboring property owners.

The standard economic argument against liberal bankruptcy laws posits that the gains to debtors will be offset by the cost to other consumers of credit. In other words, the rest of us pay marginally more for credit because some don't pay at all. Such a result, even were it true, might nonetheless be warranted as a form of compulsory insurance. In other words, we all pay a small insurance premium in the form of higher interest rates to protect ourselves from the downside risk of the occurrence of certain financial contingencies.

But even the "common sense" observation that reducing access to bankruptcy would save the rest of us money isn't true.

Another study linked in the news account account concluded that the benefits from Congressional tightening of access to consumer bankruptcy in 2005 accrued to the financial services industry, not other consumers. Of course, that provides investors with interests in that industry with unbargained-for upside risk but, as I noted recently, that's simply another example of rent-seeking in the public square.

All in all, the virtue of forgiveness has tangible benefits, which shouldn't surprise anyone who has read the Gospel accounts.

30 September 2014

Detroit Bankruptcy: The Final Deal May Be Struck

Go here to read the latest news account of what appears to be a deal with Detroit's remaining large creditor, Financial Guaranty Insurance Corporation (FGIC). My earlier accounts of FGIC's increasingly isolated position can be found here and here.

All of which is to say that confirmation of Detroit's plan of adjustment seems almost a forgone conclusion. It shouldn't be. Serious questions about the plan's feasibility remain. (Check my Municipal Bankruptcy: When Doing Less Is Doing Best (download here) and Who Bears the Cost? The Necessity of Taxpayer Representation in Chapter 9 (download here) for explanations of feasibility and its requirements.)

Yet with the skids greased and the public looking forward to a quick exit from the straitjacket of bankruptcy court supervision, I expect Judge Rhodes to enter an order confirming the plan before the end of October.

26 September 2014

Crystal Cathedral Metamorphosis

I seem to remember promising that my post here would be the final one on the bankruptcy of the Crystal Cathedral in Southern California. (For some earlier ones go here, here, and here).

But as I have before, I must again repent before posting a link here to an article about the design of the building for its new purpose, as seat of the Diocese of Orange (California). Given the building materials, the appearance of the repurposed building will not change greatly, to the disappointment of the traditionally minded. Nonetheless, there's no way the Diocese could have built anything better anywhere else for less than the cost of this project

25 September 2014

Answers To Some of (My) Life's Persistent Questions

Those who read my article, Municipal Bankruptcy: When Doing Less Is Doing Best (download here) may have joined in my wonderment at why the pensioners of the small Rhode Island city of Central Falls didn't balk at the state-enable grab of the city's future income by bondholders. Now we know the answer. But first, some background.

Central Falls was a clearly insolvent city and was permitted to file for a Chapter 9 municipal bankruptcy under Rhode Island law. Based on the the analysis of the Bankruptcy Code that I describe in the article, both the city's retired workers and bondholders should have received payment of an equal percentage of their claims. Both were unsecured in the sense that neither retirees nor bondholders had a lien on any of the city's assets. But that's not what happened.

Shortly before Central Falls filed bankruptcy, the Rhode Island legislature passed a law providing that all previously unsecured bond payments were immediately secured by all of a city's general revenue. In other words, the bondholders would be paid in full and the retirees--and other general creditors--would be left to share in the leftovers. A sweet deal to say the least.

Download and read Professor David Skeel's latest piece, What's A Lien? Lessons From Municipal Bankruptcy (download here). Among many interesting conclusions, David explains why the shafted retirees voted in favor of the city's plan that implemented the last-minute grab by the bondholders. The retirees may not have had any legal grounds to object to the plan of Central Falls but that doesn't mean they had to roll over and vote for it. Voting against the plan would have forced the city to resort to "cramdown," which is a tougher row to hoe on the way to confirmation, and might have been a way to squeeze at least some concessions from the bondholders.

So why didn't the retirees vote no? As David asks and answers,
Why did the pension recipients, many of whose pensions were cut by 55%, not object to this special protection for [the] bonds? The acquiescence appears to be explained by a key feature of Central Falls’ general obligation bonds. Nearly all of the money used for the bond payments comes from Rhode Island itself, rather than from Central Falls. As a result, restructuring the bonds would not have freed up any additional value to pay pension recipients and other Central Falls creditors. (Emphasis added.)
One of life's little mysteries solved. Of course, one might now wonder how it came to be that Rhode Island pays the bond debt of its cities but the answer to that question must wait to another day.

David's paper addresses a number of other interesting questions including why the repo safe harbors should be repealed (for a short explanation of repos read my A Fable of Financial Contracts: A Guide for the Perplexed (download here)) and how Detroit (and likely Stockton as well) can legitimately restructure pension obligations in the face of state law and state constitutional protections. Well worth the time to get a handle on issues currently roiling municipal bankruptcy law.

24 September 2014

Rent Seeking in Action. Or, A Reason Markets Fail

Go here (behind paywall) to read an article in the Wall Street Journal about how Senator Chuck Schumer (D-NY) is putting pressure on the Federal Reserve to change a rule designed to reduce bank collapses like those faced in 2008.

To its credit, the Fed is requiring banks to maintain a larger portion of their investments in highly liquid assets so they will be able to withstand a run by depositors. Given the bankruptcies of cities like Stockton and Detroit, and the underfunded pensions of many cities and states, one might think a rule eliminating bonds issued by municipalities from the category of such liquid assets was a good idea. Unless you're Senator Schumer. He's pressing for the Fed to permit bonds issued by municipalities, no matter how risky they may be, to count as "gold" for banks. I'm sure this has nothing to do with the gargantuan need of New York City for access to the credit markets.

I addressed a number of political (mis)calculations that have lead to the financial straits of many American cities in Municipal Bankruptcy: When Doing Less Is Doing Best (download here) but those machinations were at the state and local levels, not the Congressional. But I should have known better: Leave it to our elected leaders to create risk at the expense of others.