Man Without Qualities

Saturday, February 09, 2002

E Pluribus Update

Glenn Reynolds makes a point related to the ones presented below in today's InstaPundit .

He points out that Patten has an unfulfilled obligation to disclose whether he is speaking for a unitary (if not fully unified) Europe, or for some set of EU member states individually. I agree.

When it gets to the point where a politician has to make the kind of disclosure Glenn describes, it becomes pretty obvious that the member states are losing their individuality in favor of the EU ubermind.

We are fast reaching the point where Belgium, for example, should be considered a kind of special purpose, off-balance-sheet accounting fiction in the world of international relations.

Can calls to replace the separate EU member state seats at the United Nations in favor of a single EU seat be far behind?

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Friday, February 08, 2002

Neither Pluribus nor Unum - but Loud, Really Loud

In a occurrence of a type now common, European bureaucrat Chris Patten recently asserted in response to the recent State of the Union address that the United States must be stopped before it goes into what Mr. Patten terms "unilateralist overdrive." Mr. Patten explained in an interview with a London newspaper, the Guardian, that "Gulliver can't go it alone, and I don't think it's helpful if we regard ourselves as so Lilliputian that we can't speak up and say it."

But what is striking about this occurrence is that although Mr. Patten is a European bureaucrat speaking about international relations with the United States, he is not speaking as an official of any European country. Rather, he is speaking as an officer of the European Union itself. He is the EU commissioner in charge of Europe's international relations to be exact.

This type of occurrence and the continual European claims of American “unilateralism” raise the question: Is the European Union now one state or many? This is not a question to be answered by verbal alacrity, or by recourse to the dictionary or the encyclopedia, or even by a facile cite to history. Europe is neither one nor many.

It is a question that matters. European accusations of American “unilateralism” depend for their resonance on what is becoming a quaint and misleading characterization of Europe as a “continent” that includes many “nation states.” When Mr. Patten speaks of American “unilateralism” his argument is silently buttressed by the implied claim that the many distinct countries of Europe (what he terms the “Lilliputians”), fall on one side of the political question de jour, and the United States on the other. Suppose, say, twelve European countries fall on one side and the US on the other. Presto! Twelve-to-one. American "unilateralist overdrive."

But if Europe is best considered “one thing”, then such arguments lose much of their appeal because such differences appear more like a disagreement between two essentially equal entities. Suppose Europe says one thing and the US another. In such a case the US can be no more “unilateralist” than is Europe. Imagine the Canadians arguing from the observation that ALL of the Canadian Provinces agreed on one side of an particular issue that the US was being “unilateralist” by differing with them. Ludicrous. And yet, in some key respects the EU is now more “unified” than Canada. For example, while Canada has a single constitution that includes a bill of individual rights, the Canadian Provinces may override those individual rights merely by stating in the override legislation that the law is to take effect “notwithstanding” the bill of rights. In contrast, when the EU courts held that the European bill of rights required that Britain to admit gay soldiers to the British armed forces, the British Parliament had no right under EU treaties to override.

Is Europe “one thing?” The question has no answer. There are many features of unity. Much of Europe now has the same currency. There is an EU parliament, executive and judiciary, none of them subordinate to any member state. The various EU treaties impose considerable uniformity on the legal systems of it member countries – more every day. There are advanced plans afoot to adopt a true unifying constitution in lieu of the treaty network. On a cultural level, even a casual visitor to Europe should notice the vast erosion – but not elimination - of the distinct national characteristics that once so defined the EU member states. Language differences are of decreasing relevance. Religious differences are already almost irrelevant as a divisive force between member states.

In other respects, the EU is not unified – at least formally. Although the EU has Mr. Patten as its commissioner in charge of its international relations, foreign affairs of the member states are not technically subsumed. But there is a huge effort to coordinate. And the EU has shown in recent years a willingness to impose harsh pressure on countries, such as Austria, which allow their supposedly “unsubsumed” governments to get too far out of line.

But while Europe is neither fully pluribus or unum, it is now sufficiently unified so that actions by its members states should no longer be cited as serious evidence that “many” such countries disagree with the US on any given topic. Europeans, such as Mr. Patten with his preposterous "unilateralist overdrive" warning, are exploiting this kind of reasoning. For example, the EU treaties prohibit capital punishment, but US “unilateralism” in this area is routinely evidenced by the argument that “every country in Europe has now eliminated capital punishment.”

Similarly, if the EU wishes to pressure its member states into creating a unified alternative to Mr. Bush’s form of opposition to what he terms the “axis-of-evil,” that is an issue for the EU. But claims such as Mr. Pattens that a multitude of Lilliputians oppose the policies of the American Gulliver should have been left well back in the last century – when they had more meaning.

Besides, given the general European reluctance to act forcefully to advance or protect human rights while inteminably bloviating on that very topic, a Lilliputian does not seem the most appropriate Swiftian creation to liken to a modern European. The Yahoos seem a closer fit.

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So Soft. So Smooth. So Rubinesque!

After so many years on top, does Bob Rubin today feel a bit like some of it might be slipping away?

It would be understandable. First the New York Times runs that nasty article described below. The Times does try to soften the blow by employing language of the most anodyne variety possible considering the seriousness of the Citigroup malfeasance suggested by the article. No doubt Enron wishes the Times would use more of that kind of language, and less of the breathless, quasi-tabloid variety that has characterized much of the Times’ coverage of Enron matters.

Now New York Magazine runs its own musings about Mr. Rubin’s efforts to stave off a threat by those pesky debt rating agencies that wanted to downgrade Enron’s credit rating to “junk” status. The New York Magazine article includes the following priceless description of Mr. Rubin’s efforts to pressure the rating agencies by the clever tact of squeezing them through his federal government contacts:

"So Bob Rubin did what Bob Rubin does. On his own, without consulting [Citigroup chief] Weill or anyone else, he picked up the phone and made what he thought would be the most discreet of calls to Treasury Undersecretary Peter Fisher. Rubin and Fisher weren't strangers -- Rubin knew him from his Treasury days, when Fisher worked at the New York Fed."

"''Hey, Peter,' Rubin proposed, 'this is probably not such a good idea, but what do you think about putting a call in to the ratings agencies? Maybe they could work with Enron's bankers to see if there might be an alternative to an immediate downgrade.'"

"It was a cheeky proposal: Rubin was asking the federal government to meddle in the private business of the independent ratings agencies, Moody's and Standard and Poor's, on behalf of a company with manifold financial and spiritual links to the current administration. Not to mention the fact that he was a major shareholder and executive of one of the two banks that stood to lose the most if Enron went under. 'Gee, Bob,' Fisher smartly demurred, 'I'm not sure if that's advisable at this point.'"

Gee, Bob, do you think Mr. Fisher was on to something there? And tossing in that calculated "this is probably not such a good idea" just made matters worse.

But then, it’s so hard to resist a long ingrained habit, presumably even for Mr. Rubin.

One must wonder what the sources of the New York Magazine article could be. What to make of that line: "On his own, without consulting [Citigroup chief] Weill or anyone else?" How could the reporter know that? Is the ultra-cagey Weill distancing himself from Mr. Rubin in his hour of greatest need?

Who is Mr. Rubin calling today? Maybe a Senator from New Jersey?

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Enron-Citibank Update

As predicted here yesterday, Mr. Rubin does have some hefty explaining to do, first before Congress and later, perhaps, to a federal grand jury, if this New York Times article (link requires registration) is on point.

In addition, it is worth considering questions of character and custom. Mr. Rubin is not some kid fresh from the farm who took a wrong turn in the big city. He is the former joint chief of the investment bank Goldman, Sachs, a position he held for years together with now-Senator Corzine of New Jersey before moving to the Clinton administration and now Citigroup.

If Mr. Rubin presided over Citibank's knowing divestiture of Enron risk to ignorant investors, and if indeed he knew more about Enron's problems than he told the government officials he contacted for help, then he was almost certainly following a long established personal custom. Such acts are not normally something that one does late in one's career without a pre-existing habit. It's a question of character.

And if that is the case, it is difficult to imagine how someone as cagey as Mr. Corzine could not have been aware of his co-chief's way of doing business after working intimately with him for many years as heads of Goldman. So, down the road, Goldman and Mr. Corzine may also need all the caginess they can muster. But that is for another day.

In the early days of Mr. Rubin's Washington tenure he at one point engaged in light hearted banter about the federal deficit with his fellow officials. Mr. Rubin is reported to have quipped, "I don't know about the rest of you, but I tend to run a surplus!"

It appears that he has run a surplus. Indeed he has.

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Thursday, February 07, 2002

Tess of the Baskervilles! (or, the Creditors That Didn't Bark or Bite!)

It is a federal felony to use deliberate misrepresentations to obtain funds as credit from a national bank. Yet we hear no news that either Citibank or JP Morgan/Chase is calling for the head of anyone at Enron, even though both of these banks claim to have big exposure in that bankruptcy.

The reason neither of those banks is outraged is most likely because they received no misrepresentation from Enron. Virtually all bank credit agreements include provisions allowing the bank to review, even audit, a borrower at almost any time. So both Citibank and JP Morgan/Chase had the authority to obtain whatever information they felt they needed from Enron. The banks had more than enough muscle to enforce these disclosure provisions simply by threatening to pull these large loans. No financial statements or devices sanctioned by Arthur Andersen could have stopped these banks. Further, each of these banks has a large department of clever employees who do nothing all day but create complicated "off balance sheet" financial products that the banks sell to their clients - financial products which employ all of the considerations used by Enron in its alleged irregularities. So there was no lack of expertise on the banks' parts.

Means, motive and muscle. The simple conclusion is that both Citibank and JP Morgan/Chase probably knew all about Enron's accounting and alleged off balance sheet chicanery.

The even more disturbing likelihood is that Robert Rubin (a top official at Citigroup, which owns Citibank) probably personally knew all about Enron's problems at the very time he called his contact in the Bush administration to request Federal intervention to shore up Enron. It does not appear that Mr. Rubin shared any of his information with the federal government at the time he asked for its help. Mr. Rubin appears to have some hefty explaining to do here.

But the curious connections between Enron and Citibank don't end there. Enron won waivers from provisions of the both Investment Company Act and the Public Utilities Holding Company Act that would have prevented Enron from shifting debt off its books and would have barred executives from investing in partnerships affiliated with Enron. Those exemptions reportedly enabled Enron to engage in the very devices that Enron's critics now say contributed to Enron's rise and startling collapse.

Those waivers were granted by the Securities and Exchage Commission in 1997 during the Clinton administration.

The very SEC officials responsible for granting those waivers are now both partners at Shearman & Sterling - which for decades just happens to be Citibank's principle law firm.

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Wednesday, February 06, 2002


In November, 2001 former Vice President Al Gore joined Metropolitan West Financial, a Los Angeles financial services company. Mr. Gore came on board as Vice Chairman, despite his complete lack of credentials as a financial services executive. Mr. Gore has spent his entire adult life in national politics. So it is reasonable to expect that Metropolitan West was needful of important services from someone having Mr. Gore's particular field of expertise. Why would a financial services company need someone with no financial services experience but lots of national political connections? Metropolitan West's public justifications were not all that convincing.

Could Global Crossing help provide the bridge?

Metropolitan West includes in its ranks many people formerly associated with the bond department at Drexel, the now vanished investment bank at which Gary Winnick once enjoyed a high position. More recently, Mr. Winnick has in recent years been one of the Democratic Party's largest contributors, and reportedly a big friend of Messrs. Clinton and Gore. Metropolitan West has reportedly been a major investor in bonds of the type issued in large quantities by Global Crossing, the now bankrupt Los Angeles based telecommunications company controlled by Mr. Winnick. Further, it would not be surprising for portfolios of the nature Metropolitan West holds itself out as maintaining to include significant quanties of Global Crossing bonds or other securities.

Is it possible that trouble at Global Crossing played a role in Metropolitan West's need for Mr. Gore's political connections?

Recent reports are that Mr. Winnick induced Terry MacAuliffe, now Chairman of the Democratic National Committee, to purchase $100,000 in Global Crossing stock which he later sold for over $15 Million - at a time when he still enjoyed the friendship and advice of both Messrs. Winnick and Gore. Indeed, Messrs. Winnick and MacAuliffe, and other insiders (or those with benefit of insider connections, in the case of Mr. MacAuliffe) collectively sold billions of dollars of Global Crossing stock over the past few years - stock which is now all but worthless. This would all seem to create some rather large incentives to investigate Global Crossing's connections with the Democratic Party - and Metropolitan West's connections with Messrs. Winnick, MacAuliffe and Gore in relation to Global Crossing.

None of this is intended to suggest any necessary impropriety, or any unpleasant "smell" from Mr. Gore's engagement by Metropolitan West. Indeed, it is possible that Metropolitan West was never involved with Global Crossing securities, notwithstanding the former business relationships of their executives and the close geographical proximity of their offices. But the above circumstances do raise questions worth asking. For now, just worth asking.

Perhaps a first step would be to review the creditor claims and equity holder interests filed in the Global Crossing bankruptcy to see if Metropolitan West or any of its funds are named.

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Monday, February 04, 2002

Is Democrat and Media Harping on the Enron Scandal Damaging the Economy?

When Bush first signaled his awareness of the recession, the Democrats and some in the media were quick to accuse him of causing a recession by stirring up market anxiety. There was no recession, the Democrats argued, because Clinton left the economy in great shape. This particular criticsm abated once the economic statistics showed that the recession had actually already started far earlier than almost anyone had previously believed. But the Democrat and media critics never acknowledged that their argument was bogus.

By their own argument, don't the Democrats and their media sympathizers now risk suppressing the economic recovery by stirring up the very market anxiety reported in today's papers? Is their excessive harping on the Enron scandal for political advantage damaging the economy?

The papers today are full of reports that the stock market has - as one report put it - "crumbled" because of Enron-related anxiety over the reliability of financial statements in general. At the same time, the Democrats and their sympathizers in the media are attempting to use the Enron disaster for politicl gain. The New York Times, for example, has been running a preposterous number of stories and editorials on the subject, as hilariously described by Mickey Kaus in his "Enrotica Overdose" passage on Kaufiles.

Is there a link?

Is the nation paying for Democrat and liberal media excess?

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