Sunday, March 27, 2016

Why Trump's (or anyone else's) business experience is irrelevant

How the press has treated Donald Trump is not only fascinating but important. If we elect Trump President, is it worthwhile to see the role of the press in making this happen? (Before I start, let me say that my use of the word "businessman" is meant to be a shorthand for business person.)

Nicholas Kristoff, the esteemed columnist for The New York Times, is the latest critic of the press' "empowerment" of Donald Trump. In My Shared Shame: The Media Helped Make Trump (Times, March 26, 2016), Mr. Kristoff's first indictment is that "television in particular handed Trump the microphone without adequately fact-checking him or rigorously examining his background, in a craven symbiosis that boosted audiences for both." The second charge is that the press "wrongly treated Trump as a farce."

Let me digress a bit. The press is guilty of a lot of things this year, not least of which is The New York Times' coronation of Hillary Clinton as far back as 2014 and its ignoring Bernie Sanders until the elections started and, since, treating the possibility of his winning the nomination as a, for want of a better word, and to borrow from Mr. Kristoff, a farce. But the subject is Trump.

Let's forget about the "farce" issue and focus on the first item: failure to fact-check.

Employing rigorous fact-checking is far better than merely quoting candidates or their supporters and never checking the accuracy of their assertions. Perhaps there has not been enough, but even the pathetic Miami Herald has an active fact-check operation. The problem is that while fact-checking has its place, and, yes, it is a necessity, it is not sufficient for political journalism to serve its purpose. Fact-checking is to wisdom as Google is to in-depth analysis.

There's been a woeful lack of analysis of anything that requires a modicum of sophistication.The vapidity of the candidates' understanding of government and finance are matched only by that of the media. 

Take the issue of whether Donald Trump's business successes, such as they are, qualify him to be President. Most "analyses" of this extremely important issue have attempted to dissect his up-and-down business career to see whether he has been the unalloyed success he claims to be.

There have been innumerable articles about Trump business bankruptcies, Trump business frauds, Trump business scams. They miss the point. There are lots of "Trump Towers"--and  no "Cruz Towers"--to make it appear that Trump built those glittering buildings, rather than simply licensed his name, at no great financial risk. So, stories about Trump University or Trump Steaks have had no apparent effect on Trump's popularity, at least among those who are his core supporters. Why would they be? If you are inclined to be supportive of a swaggering self-promoter who has successfully thrown the finger at the media and all business and political elites, what difference does it make that Trump's business career is littered with failures, scams and outright embarrassments?

There have also been many articles about the undeniable fact that leading a business is infinitely less complicated than leading a nation. From The Huffington Post to The Wall Street Journal, writers have stated the obvious: that the skills needed to lead the nation are far more sophisticated than those needed to lead a corporation. The esteemed economist, twenty years ago published an article in the Harvard Business Review, A Country is Not a Company, in which he covered essentially the same ground, albeit in far greater depth and sophistication. Maybe a good businessman does not have the experience or the wisdom to be a great President. But who knows?

Here's what the conservative National Review, a serious journal, had so say in its January 21, 2016 issue, Against Trump, about this issue:
Trump’s record as a businessman is hardly a recommendation for the highest office in the land. For all his success, Trump inherited a real-estate fortune from his father. Few of us will ever have the experience, as Trump did, of having Daddy-O bail out our struggling enterprise with an illegal loan in the form of casino chips. Trump’s primary work long ago became less about building anything than about branding himself and tending to his celebrity through a variety of entertainment ventures, from WWE to his reality-TV show, The Apprentice. His business record reflects the often dubious norms of the milieu: using eminent domain to condemn the property of others; buying the good graces of politicians — including many Democrats — with donations.
But these articles, as incisive as they are, miss the point. Start again with the hypothesis: that being a successful businessman is a valid predictor of a successful economy if that businessman became President. Rather than focusing on the issue of leadership, why not focus on the issue of what Presidents, no matter how successful they have been in business, can do to improve the economy?

The 2005 Economic Report of the President, written by George W. Bush's Council of Economic Advisors, admitted:  "The tools available to policymakers to affect the economy over a short horizon (up to a few years) can be divided into fiscal policy and monetary policy."

It then went on to explain what these tools actually mean.

Fiscal policy involves decisions about taxes, transfers (such as unemployment insurance, Social Security, or Medicare payments), and government purchases of goods and services. Changes in all of these affect aggregate demand. In the short run, lower taxes or higher transfer payments can lead to higher disposable incomes and thereby boost consumption spending. Government purchases directly affect spending and support aggregate demand. 
Monetary policy in the United States is conducted by the Federal Reserve Board’s Federal Open Market Committee (FOMC). The FOMC targets a
 short-term interest rate, the Federal Funds rate, the rate at which banks make
 overnight loans to one another. This interest rate in turn influences other
 short-term and long-term nominal and real (inflation-adjusted) interest rates 
in the economy. In turn, these interest rates affect interest-sensitive components
 of aggregate demand, such as investment and consumption of durable
 goods (goods used for long periods, such as refrigerators and cars). 

As far as monetary policy is concerned, a President can use the bully pulpit, and his Treasury Department can seek to influence the Fed behind the scenes, but, basically, the Fed was designed to be independent of political influence. In reality, the only certain power the President has is to name the members of the 7-member Federal Reserve Board, if he can get the Senate to confirm them. And a position opens up, absent reservation or death, only every even-numbered year. 

And, in formulating fiscal policy (such as tax policy or the federal budget), the President or his advisors will be faced with hundreds of thousands of choices, each of which will have not only "policy" but also "political" dimensions.

And, sometimes the choice will be between two bad options. When a business has nowhere to go with a product, it can cease making it. See the Oldsmobile. 

The '55 Olds 88--at the height of GM's power

But what about the decline of the coal industry?  Market forces are making coal too expensive, but the question for a President is what to do about the side effects: what to do about the communities and the employees that will be devastated by closing coal mines, or the railroads that will lose the money they make moving coal around? 

What will Trump's ability to negotiate a higher price for lending his name to a real estate project have to do with figuring out how to solve that problem, particularly if he needs Coal States' electoral votes next election?

It is clear that it is virtually impossible to show a connection between what a businessman does and what a President does with respect to influencing the economy. Therefore, even if Trump flunks the true-or-false test, there is a much simpler reason that his business successes are not a valid predictor of whether he could improve the economy if he ever gets to reside at 1600 Pennsylvania Avenue, NW: what he is supposedly good at will not prepare him for the decisions he'd have to make and influence.

Wednesday, March 23, 2016

My Journey to Zionism

I was born in Providence, Rhode Island in 1946. My mother was the Cincinnati, Ohio-born daughter of Jewish immigrants from Germany. She never learned Yiddish. German Jews spoke German. In the U.S. they spoke English. She used to proudly regale me with stories of her grandfather reading to her from an English-language encyclopedia. My father was the Rhode Island-born son of immigrants from Russia. He spoke only Yiddish until he was four. He lay teffillin until college. My mother graduated from Pembroke College and my father graduated Phi Beta Kappa from Brown University and then from Harvard Law School. His older brother had been a Brown and Tufts Medical School graduate — in the 1920s! 

My father was active in the community--President of our conservative synagogue (long since turned into an AME church), President of Jewish Family and Children's Services, President of the Bureau of Jewish Education. The BJE accredited temples' after-regular-school "Hebrew Schools." My father was dead set against the local Jewish Day School. Assimilation was it.

I went to Hebrew School and Sunday School. I was Bar Mitzvahed. I was confirmed. I learned to read (but never quite understand) Hebrew. I was thrilled about the State of Israel and the little blue metal Tzedaka box in which we put our nickels and dimes. My aunt bought lots of Jaffa oranges. We sang Hatikvah. We said "next year in Jerusalem" at Pesach seders. All was well. (Well, almost all was well. I was always pissed that on the afternoon of October 8, 1956, I had to go to Hebrew School and therefore missed Don Larsen's perfect game against the Dodgers.)

And then, just after my junior year in college came the June 1967 Six Day War, and I learned about the Palestinians. Needless to say, I would be overwhelmingly sad if disaster befell the State of Israel, but, at the same time, I was nagged by the fact that there were other people who claimed the same land that Israel claimed. I have always been actuated by a strong sense of right and wrong; maybe that's why I so easily and naturally became a lawyer, and a securities litigator at that. So I could never get over the fact that two different peoples were claiming the same land. How could both be right? If both were right, how could Israel be right? For a long time I just let that question sit there. I didn't need to answer it. 

Fast forward to the fall of 2015, when my wife and I were approached by J Street and asked to become active and help establish a beachhead in Miami. Long story short--we agreed, we agreed to contribute enough to become members of the National Finance Committee, and I hosted a luncheon to raise money for Congressman Patrick Murphy's U.S. Senate campaign. Then I was asked to help strategize about building up J Street in Miami. 

I recognized at once that the jig was up. I could not take an active role in J Street until I finally decided whether I truly believed in not just the two-state solution, but also in a much more fundamental tenet of J Street's philosophy-- Israel's legal right to exist. I needed to go beyond simply the fact that I would feel mortally wounded if Israel ceased to exist as a democratic Jewish state. I needed to conclude, once and for all, whether I believed that Israel was a legitimate state. 

I didn't exactly start with a blank slate. I knew about the 1917 Balfour Declaration and the U.N. General Assembly Resolution in 1947. I had read many books and articles about Zionism and Israel. I read Herzl's The Jewish State (and noted that he paid little attention to the native Arabs.) I had visited Israel twice. I knew that the Arabs and the immigrant Jews in Palestine had been fighting each other since the 1850s. I also knew that some Arabs, at least, were forcibly removed from their homes in the late 1940s. And I knew the recent history. These facts were the source of my doubts and indecision.  But, as I learned as a lawyer, the job of a fact-finder is, ultimately, to come down on one side or the other on the key issues in the case. What did I actually believe? In deciding whether I could, ethically, become substantively involved in J Street, I needed to come down on one side of this vital issue. If I came to the other conclusion, so be it. J Street would have to go on without me.

I needed to go back to basics. I hit the Internet in search of reliable source material, not polemics. I found two such sources:

First, Israel’s Rights as a Nation-State in International Diplomacy, available at , which is a series of essays published jointly by the Jerusalem Center for Public Affairs and the World Jewish Congress in 2011.

Second, the 1937 Peel Commission Report, written by the Royal Commission on Palestine. It was formed after the 1936 “disturbances” in Palestine. 

The first is clear-headed and rational. It was persuasive, but it did not light any fires in my belly.

The second, although, in its own way, dry as dust, did. It is untruly an amazing book. It traces the history of the Jewish people and of the land called Palestine since antiquity. It meticulously analyzes the facts, concentrating heavily on the period of the British Mandate starting in 1922. I have found at least one scholar of Israel who has spoken positively, or at least realistically, about the Report:
Issued in July 1937, the 400-page Peel (Royal Commission) Report was an incisive and balanced review of the British Mandate. It gave sympathetic accountings of both Jewish and Arab aspirations. It ascertained that the underlying causes of the recent disturbances were the same as those in 1920, 1921, 1929, and 1933: the Arab desire for independence, the Arab hatred and fear of the Jewish national home and the determination of the Jewish national movement to realize its goals. It concluded that the two communities’ aspirations were irreconcilable, that the Mandate in its existing form was unworkable, and that Palestine should be partitioned into distinct Jewish and Arab entities. The Report attached a map of the proposed Arab and Jewish states and a neutral enclave for British control of the Holy Places in Jerusalem and Bethlehem.
Center for Israel Education (Atlanta, Ga.), Peel Commission Report.

Two significant “findings” in the Peel Commission Report are repeated over and again. 

First, it recognized the right of the Jewish people to a "National Home,” and, if the situation later permitted, a national state, in Palestine.  This right first received international recognition in the Balfour Declaration, but, as I have now finally learned, the Balfour Declaration was not an isolated, single act, as it is often portrayed. It represented the considered position of the British Government. It was immediately endorsed by the French and the Italians, and then became accepted in international law by the actions of the victors of WW I in what can be loosely described as “Versailles.” This led to the creation of a British “mandatory” over Palestine by the League of Nations, based on the “moral assumption” that, eventually, Jews and Arabs could learn to live together in a new state. 

Second, it made clear the recognition of a right to a Jewish National Home was in total conflict with the uniform consensus within Palestine and the Arab world that an Arab national state be established in Palestine, just as in Egypt, Syria, and Iraq. 

Underlying the felt existence of these dual rights was the fact that, during World War I, two different voices of the British Government had “promised” Palestine both to the Jews and to the Arabs! The facts about the November 2, 1917 Balfour Declaration are well-known, including that “the establishment in Palestine of a national home for the Jewish people” was subject to an important proviso—"it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country.” Less well known was the exchange of letters in 1915 between Henry McMahon, the British High Commissioner in Egypt, and Sherif Hussein of Mecca, in one of which the former told the latter that "Great Britain is prepared to recognize and support the independence of the Arabs in all the regions within the limits demanded by the Sherif of Mecca.” By the terms of the letters, these “limits” included Palestine, even though it is not specifically mentioned. Whether or not the Arabs would ever have been receptive to Jewish immigration and a Jewish State, they certainly were less inclined to do so when they realized that McMahon had promised them something he could not deliver.

The main significance of the Peel Commission Report is that it proposed a two-state solution as the only practical solution to this intractable mess. It expressly abandoned the idealistic goal, set forth in the 1922 Mandate, that Jews and Arabs could live peaceably in one state. It saw that as plainly unachievable. The events of 1947-1949—the U.N. General Assembly resolution in favor of two separate states in Palestine, the declaration of Israeli independence, the War of Independence, and the armistice lines—merely put into effect what was presaged in the Peel Commission Report. While the details may have differed, the essential truths outlined in the Peel Commission Report remain salient and, in my understanding, unassailable.

Therefore, it is my conclusion that the State of Israel, as such, has a plain right under law to exist. The first book I referred to above strongly led to this conclusion, but, perhaps because I was a history major in college, the Peel Commission Report was also extremely persuasive. 

But there is an important corollary to my conclusion:  the survival, as opposed to the mere existenceof the State of Israel is dependent on Jews' acceptance and endorsement of an Arab state in former Palestine. The fact that few, if any, of the historical documents refer to “the Palestinians” is not dispositive of whether there has been a strong nationalistic feeling among Palestinian Arabs since, at the very latest, 1915. Any suggestion that this is not an essential element of the initial and continued existence of the State of Israel is wrong-headed, anti-historical, and, in the strictest sense, immoral. 

Sadly, reading the Peel Commission report's detailed, painstaking analysis of the state of the Arabs in Palestine is not just reminiscent of the "facts on the ground" in Israel and the Occupied Territories today; it describes practically identical present-day conditions. The world has wasted 80 years and will continue to do so until reason and realism prevail. It is not the J Streeters who support a two-state solution who are starry-eyed and unrealistic. The truly fantastical--or worse--are those who ignore the need to prevent further damage to the two-state solution by encouraging more and more "settlements" in the Occupied Territories. They are the ones who are truly playing with matches.

Thursday, March 3, 2016

H.R. 3798: The Latest GOP Attack on the SEC

On March 2, 2016, the House Financial Services Committee, in a straight-line party vote, 32-25, passed H.R. 3798, the ‘‘Due Process Restoration Act of 2015." Like most names of bills these days, this is a deceptive description of the bill. It would better be described as the "Clip the SEC's Wings Act of 2015."

First, the bill would permit respondents in one type of SEC administrative proceeding--a proceeding with the potential remedies of a cease and desist order and a penalty--to "terminate" the proceeding. The SEC would then be free to bring the case in federal court. 

Second, the bill would also radically change all SEC administrative proceedings by raising the burden of proof to "clear and convincing evidence." 

This is a clear attempt to weaken the SEC's enforcement program without any benefit to the investing public. Anyone who has read this blog or knows its author--a former SEC enforcement lawyer known as a "tiger" when on the Staff--knows that there is, at least in this author's view, plenty to criticize the SEC about insofar as its enforcement and regulatory efforts are concerned. First and foremost is the fact that the SEC repeatedly brings enforcement cases where, unbeknownst to senior SEC Staff and Commissioners, the evidence gathered in the investigation does not support the allegations that are made. And, it is evident that, to one extent or another, the playing field in an SEC administrative proceeding could be made more level.

But the solution is not to make the SEC fight with one hand tied behind its back. Rather, it is to make the SEC more accountable by requiring more due process in administrative proceedings and careful review of the factual predicate for authorized enforcement actions. 

The most serious problem with H.R. 3798 is its imposition of the "clear and convincing evidence" burden of proof on the SEC in all administrative proceedings. This is a highly problematic requirement. The clear and convincing evidence standard is usually reserved for such issues as proof of actual malice in a libel action, i.e., where there is a need for protection of a constitutional interest or value. And, 33 years ago, the Supreme Court held that the evidentiary burden in an SEC civil action is preponderance of the evidence, rejecting the clear and convincing standard:

Where Congress has not prescribed the appropriate standard of proof and the Constitution does not dictate a particular standard, we must prescribe one. See Steadman v. SEC, 450 U.S. 91, 95, 101 S.Ct. 999, 1004, 67 L.Ed.2d 69 (1981). See generally Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S., at 749, 95 S.Ct., at 1931 (private cause of action under Section 10(b) and Rule 10b-5 must be judicially delimited until Congress acts). In doing so, we are mindful that a standard of proof “serves to allocate the risk of error between the litigants and to indicate the relative importance attached to the ultimate decision.” Addington v. Texas, 441 U.S. 418, 423, 99 S.Ct. 1804, 1808, 60 L.Ed.2d 323 (1979). See also In re Winship, 397 U.S. 358, 370-371, 90 S.Ct. 1068, 1075, 25 L.Ed.2d 368 (1970) (Harlan, J., concurring). Thus, we have required proof by clear and convincing evidence where particularly important individual interests or rights are at stake. See, e.g., Santosky v. Kramer, 455 U.S. 745, 102 S.Ct. 1388, 71 L.Ed.2d 599 (1982) (proceeding to terminate parental rights); Addington v. Texas, supra (involuntary commitment proceeding); Woodby v. INS, 385 U.S. 276, 285-286, 87 S.Ct. 483, 487, 17 L.Ed.2d 362 (1966) (deportation). By contrast, imposition of even severe civil sanctions that do not implicate such interests has been permitted after proof by a preponderance of the evidence. See, e.g., United States v. Regan, 232 U.S. 37, 48-49, 34 S.Ct. 213, 217, 58 L.Ed. 494 (1914) (proof by a preponderance of the evidence suffices in civil suits involving proof of acts that expose a party to a criminal prosecution). Thus, in interpreting a statutory provision in Steadman v. SEC, supra, we upheld use of the preponderance standard in SEC administrative proceedings concerning alleged violations of the antifraud provisions. The sanctions imposed in the proceedings included an order permanently barring an individual from practicing his profession. And in SEC v. C.M. Joiner Leasing Corp., 320 U.S., at 355, 64 S.Ct., at 125, we held that a preponderance of the evidence suffices to establish fraud under Section 17(a) of the 1933 Act. 
A preponderance-of-the-evidence standard allows both parties to “share the risk of error in roughly equal fashion.” Addington v. Texas, 421 U.S., at 423, 99 S.Ct., at 1808. Any other standard expresses a preference for one side's interests. The balance of interests in this case warrants use of the preponderance standard. On the one hand, the defendants face the risk of opprobrium that may result from a finding of fraudulent conduct, but this risk is identical to that in an action under Section 17(a), which is governed by the preponderance-of-the-evidence standard. The interests of defendants in a securities case do not differ qualitatively from the interests of defendants sued for violations of other federal statutes such as the antitrust or civil rights laws, for which proof by a preponderance of the evidence suffices. On the other hand, the interests of plaintiffs in such suits are significant. Defrauded investors are among the very individuals Congress sought to protect in the securities laws. If they prove that it is more likely than not that they were defrauded, they should recover.

Herman & MacLean v. Huddleston, 459 U.S. 375, 389-90 (1983).

There is no legitimate reason to believe that respondents in SEC administrative actions need the level of protection of afforded by application of the clear and convincing standard. 

Moreover, the bill does not define "clear and convincing evidence," and there is no accepted definition in the law. The Fourth Circuit defines it as "“evidence of such weight that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established,” or “evidence that proves the facts at issue to be highly probable.” United States v. Watson, 793 F.3d 416, 420 (4th Cir. 2015). The Seventh Circuit's definition is evidence that “leave[s] no reasonable doubt in the mind of the trier of fact as to the truth of the proposition in question." In re Meyers, 616 F.3d 626, 631 (7th Cir. 2010). In the Tenth Circuit, it means "evidence ... so direct and weighty as to leave the factfinder with a firm belief in the truth of the facts of the case." Crowe v. Smith, 261 F.3d 558, 563 (5th Cir. 2001). 

H.R. 3798 is a radical solution in quest of a problem. May it die a natural death.