Archive for May, 2011

Be Careful What You Wish For

Back in 2009, the Colorado legislature decided they had had it with citizen oversight.  They passed HB09-1326, which, among other things:

  • People who successfully challenge the validity of signatures in court could sue sponsors of the measure to recover attorney’s fee.
  • Circulators who collect more than 100 signatures are required to go through a government-sponsored training procedure before they are allowed to collect additional signatures legally

Most damagingly, people can sue for attorneys’ fees even if they don’t invalidate enough signatures to get the measure disqualified, and they can hold sponsors of the initiative personally liable for these damages.  Jon Caldara, the victim of such a lawsuit, has argued that these rules, and the risk they entail, constitute such a high bar to participation in the process that they effectively kill it.

Comes “Great Education Colorado Action is the political arm of Great Education Colorado, a group that urges more spending on education,”  (gee, I wonder where their funding comes from?), and a ballot measure to “temporarily” raise state sales and income taxes to pay for education.  (For the moment, let’s skip over the merits of the measure, except to note that money is fungible, and anyone who thinks this money is going to make it to the classroom without taking a detour through teachers unions and pension funds will also probably be surprised by the headlines, immediately upon ratification, that claim that the schools are still short of cash.)

Their innovation here isn’t the proposal, that’s old hat.  Their innovation is in how they propose to gather signatures:

So supporters are trying a strategy that uses social network websites to ask people to sign the petitions. Supporters have set up a website that allows people to download petitions and then volunteer to gather signatures.

The kit includes instructions on how to gather 50 signatures to fill each petition and even how to properly staple the pages. It instructs volunteers to seek out a notary after gathering the signatures and then to return the signed petitions to supporters in Denver.Every petition must bear an individual number, and the website where they can be downloaded assigns each one a unique number.

Some see this as a highly creative way to gather signatures on the cheap.  I see it as a way to limit the teachers unions’ liability, while still exposing them to real risks.  The circulators are under even less control than usual, will be prone to making mistakes, and all the liability for the costs involved in hunting in this target-rich environment will fall to GEC.  Moreover, there’s no way of stopping individuals from collecting more than 100 signatures.  In fact, there will be considerable incentive for person A to gather, say, 150 signatures, and have persons B and C sign for 50 each, which is, of course, fraudulent.

Great Education Colorado may think it’s got a really cool idea here.  I hope someone’s willing to hold them to the same inane standards that the left has tried to foist on the rest of us.

Also, just to add to the schdenfreude, note that suddenly, to the Denver Post, which has spent years agitating against the initiative process, “The hurdle to get an initiative on the ballot isn’t small.”  Keep that in mind the next time they editorialize about how easy the initiative process is.  Apparently, small is in the eye of the petitioner.


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Tornado Alley

Tornadoes.  Twisters.  Somewhere over the rainbow and all that.

Living in Denver, I’m at the far western edge of the tornado zone, but on the way back to Omaha, I got to drive right through the western half of Tornado Alley.  It didn’t disappoint.

It was windy, but mostly sunny, at least where I was, and no rain to speak of.  But the wind gusts were moving the Jeep around, which certainly helped my concentration.

I had picked up the NPR station a few miles into Nebraska, and with good reason, the network manager decided that Terri Gross’s interview of Keith Richards would have to fall short of satisfaction, and Performance Today would pretty much have to be Performance Another Time.  It sounded like War of the Worlds, with the network breaking in every 5 minutes or so with new warnings (not watches, mind you, warnings), and the expiry of old ones.

Some of these areas touched I-80, but they all ended before I got to the affected mile markers, so I just kept driving.  Until right about Mile 255 or so.  There was still sun behind me, but I don’t think I had ever seen clouds that black in front of me.  Ever.  Every quarter-mile or so, when you thought it couldn’t get any darker, darker indeed it did get.

And then, as I came upon Exit 263 (Odessa, for those of you keeping score at home), the all-business and imperturbable NPR lady came on to announce that there was a new warning.  Miles 259-290 on I-80.  Ninety mile-per-hour winds.  A TORNADO HAS TOUCHED DOWN SO GET THE HELL OFF OF THE ROAD, YOU IDIOT!

Thanks goodness for Sapp Bros.  Ah, friendly Sapp Bros., with a parking lot big enough for all the refugees who had heard the same warning, a warm cup of coffee, and wifi.  Ah, and a TV tuned to the Don’t Die , We’re Here to Tell You Where the Tornadoes Are, Channel.  We love you, Sapp Bros.

And so now, with all the warnings having expired, and the weather ready to turn in for the night, it’s back on the road.


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Contempt of Constituents

Looking at the events of the last couple of weeks, it’s difficult to escape the conclusion that certain public officials in Colorado hold their constituents in contempt for the sin of not handing over their pocketbooks.

Legislative Democrats, with the cooperation of too many Republicans, have gone along with efforts to water down the state’s initiative process.  And now, for refusing to go along with these plans, the people having spoken, must be punished.

In 2008, they turned down Referendum O, which would have allowed opponents of ballot measures to focus their efforts on any one Congressional district.  And they turned down Amendment 59, which would have lined the teachers unions’ pension plans by gutting TABOR.

This session, the Democrats failed to pass out of the Senate SCR-001, which would have created a hybrid Constitutional amendment-recision process that was clearly too complex for its stated goals.

Now, they have resorted to suing their own constituents in federal court, claiming that the Colorado Constitution is unconstitutional.  The legal precedent here is clear.  The courts have long held that the US Constitutional requirement for a “republican form of government” is non-justiciable, meaning that it’s a matter for the legislature and the people to decide.  The most recent case, in 1912, upheld a state’s citizen initiative process against the very claim they seek to revive.

Remember, for “progressives,” it’s always Three Minutes to Wilson.

This effort is really a matter of politics, not of litigation, and that the plaintiffs are seeking a platform at taxpayers’ expense to make their case against TABOR.

(Let’s be clear: this is a Democrat initiative, and shame to the few officeholding Republicans who’ve given them cover to call it “bipartisan.”  The big names are representatives of the “former” variety, and of the total list of 12, only 6 hold elected office, at the school board or city council level, most of which are nominally non-partisan.)

We’ve also heard that back in 2009-2010, the Colorado Springs City Manager at the time, Penny Culbreth-Graft, had instructed the city’s PR office to intentionally undermine its image, in the national media if need be, to browbeat the citizenry into voting for higher taxes.  I’m sure the folks tasked with luring tourists, students, and businesses to the area were thrilled with this.

So think about this: in the last two weeks, we’ve seen public officials sue their citizens, and undermine the name of their own city.  Why on earth should these people be trusted with more of our money?

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Memorial Day

In honor of those men and women who’ve given their lives in defense of our country, I’d like to call on the Memorial Day remarks of Presidents past:

From Ronald Reagan in 1988:

Once each May, amid the quiet hills and rolling lanes and breeze-brushed trees of Arlington National Cemetery, far above the majestic Potomac and the monuments and memorials of our Nation’s Capital just beyond, the graves of America’s military dead are decorated with the beautiful flag that in life these brave souls followed and loved. This scene is repeated across our land and around the world, wherever our defenders rest. Let us hold it our sacred duty and our inestimable privilege on this day to decorate these graves ourselves — with a fervent prayer and a pledge of true allegiance to the cause of liberty, peace, and country for which America’s own have ever served and sacrificed.

Our pledge and our prayer this day are those of free men and free women who know that all we hold dear must constantly be built up, fostered, revered, and guarded vigilantly from those in every age who seek its destruction. We know, as have our Nation’s defenders down through the years, that there can never be peace without its essential elements of liberty, justice, and independence.

and previous to that, in 1982:

The willingness of some to give their lives so that others might live never fails to evoke in us a sense of wonder and mystery. One gets that feeling here on this hallowed ground, and I have known that same poignant feeling as I looked out across the rows of white crosses and Stars of David in Europe, in the Philippines, and the military cemeteries here in our own land. Each one marks the resting place of an American hero and, in my lifetime, the heroes of World War I, the Doughboys, the GI’s of World War II or Korea or Vietnam. They span several generations of young Americans, all different and yet all alike, like the markers above their resting places, all alike in a truly meaningful way.

Winston Churchill said of those he knew in World War II they seemed to be the only young men who could laugh and fight at the same time. A great general in that war called them our secret weapon, “just the best darn kids in the world.” Each died for a cause he considered more important than his own life. Well, they didn’t volunteer to die; they volunteered to defend values for which men have always been willing to die if need be, the values which make up what we call civilization. And how they must have wished, in all the ugliness that war brings, that no other generation of young men to follow would have to undergo that same experience.

And from President Clinton, in 1994:

Here at Arlington, row after row of headstones, aligned in silent formation, reminds us of the high cost of our freedom. Almost a quarter of a million Americans rest here alone, from every war since the Revolution. Among them are many names we know: General Pershing, Audie Murphy, General Marshall and so many others.

But far more numerous are the Americans whose names are not famous, whose lives were not legend, but whose deeds were the backbone that secured our nation’s liberty. Today we honor them. We honor them all as heroes — those who are buried here and those who are buried all around the nation and the world.

If you look at the headstones, they don’t tell you whether the people buried there are poor or rich. They make no distinction of race, or of age, or of condition. They simply stand, each of them, for one American. Each reminds us that we are descendants, whatever our differences, of a common creed — unbeatable when we are united, one nation under God.


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More Pension Risk

Last week, the Wall Street Journal reported that pensions are moving more money back into hedge funds:

Also, pension officials are using the historically strong returns of hedge funds to justify a rosier future outlook for their investment returns. By generating more gains from their investments, pension funds can avoid the politically unpalatable position of having to raise more money via higher taxes or bigger contributions from employees or reducing benefits for the current or future retirees.

The Fire & Police Pension Association of Colorado, which manages roughly $3.5 billion, now has 11% of its portfolio allocated to hedge funds after having no cash invested in these funds at the start of the year.

While pensions have been investing in private equity and what are called alternative investments for many years, hedge funds have represented a smaller part of their portfolio. The average hedge-fund allocation among public pensions has increased to 6.8% this year, from 6.5% for 2010 and 3.6% in 2007, according to data-tracker Preqin. (Emphasis added.)

PERA’s own investments in hedge funds are unclear from the latest data, but if the “Other of Other” category is representative, it could be about 10% of their holdings.

This may be good in the short run.  There’s no doubt that some of these funds have done well, being able to hedge some of their risk away and focus on capturing industry or sector returns.  But there are some serious dangers here, and they are complicated by the problems already noted with pension accounting.

First, there’s no such thing as risk-free alpha.  Remember, the market tries to match risk with return.  If someone is selling an investment with 10% return and the risk associated with equities, beware.  Because if that were possible over the long run, enough people would pull money from equities and pile it into this mythical investment, so the returns would match.  Either that, or there’s hidden risk in there that justifies the extra return.

Either way, in the long run, the funds are taking on more risk, or will have the additional return arbitraged away as more people invest in these strategies.  Also, if many of the funds are using the same strategy, it may be difficult for them to execute trades that actually allow them to limit risk, as they may all be trying to sell overperformers, or buy hedges, at the same time.

Another threat to pension funds is in the bolded sentence above.  Managers are not only using these returns to justify higher projected returns.  What goes unstated is that they’ll also use them to justify the higher discount rates, that make their pensions look better-funded than they are.  It’s a perfect example of the perverse accounting incentives built into fund management.

Last, these strategies are not necessarily transparent, making it difficult for independent auditors to even assess the risk that these pensions are taking on.

I’m all for finding ways to hedge away risk, and there’s no reason that pension funds can’t participate in some of those techniques.  I’m skeptical that, in the absence of fixing the underlying problems, this approach is going to do any more than paper over problems, yet again.


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Voting Your Interests

So thinks a liberal Democrat friend of mine who told this story to bolster her point.  She has family in Borough Park, Brooklyn, and at a lunch, or a meeting, or something, one of her relatives got into a discussion about the welfare state.  Turns out that virtually every one of the people he was talking to: 1) were voting Republican because they’re against the welfare state, and 2) are on Section 8 assistance.  Her point was that the Republicans were “geniuses” for getting the lower-middle class, virtually all of whom are on some sort of government assistance, to, in her words, “vote against their interests.”

That’s true, if you believe that “their interests” constitute continuing dependence on the government.  If you go with the fixed-size-pie vision of the world, then this might make some sense.  But in reality, it’s yet another reason for the Republicans to focus on growth, at the same time we’re trying to cut spending and deal with entitlements.  The two programs are complementary: cutting the size of government in the right places will boost economic growth, lifting more people out of poverty.


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PERA’s Portfolio Allocations

In yesterday’s Denver Post, PERA’s Chief Investment Officer, Jennifer Paquetteis, responded to an op-ed by investment professional Blaine Rollins (“Hope Is Not An Investment Strategy“) that detailed the risk that PERA has taken on:

PERA has instead relied on solid investment strategies created under the direction of the board of trustees with the help of highly experienced staff and consultants. PERA’s investment strategies match its mission, with an investment horizon of decades and a focus on maintaining the stability of the fund.

These investment returns allow PERA to provide reasonable benefits for public servants without placing an excessive burden on taxpayers.

In a previous post, I noted that as a whole, US government pensions had shifted to taking on more risk over time.  Interestingly, this does not appear to be the case with PERA:

Seeing that stocks, as they appreciated in 2002, were becoming a disproportionately large share of the portfolio, managers shifted those investments to corporate bonds, which tend to have lower yields, but generally assume less risk.  They have also – albeit slowly – grown the proportion of their investment in Treasuries.  While I believe that PERA’s overall investment mix still has entirely too much risk built in, it is hard to argue that they have gone around chasing higher yields, or allowed their asset allocation to get out of whack when one class outperformed the others.

The problem is, Ms. Paquetteis’s conclusions don’t necessarily follow from her premises, especially over the long term.  Paquetteis’s response only addresses whether or not PERA is following reasonable portfolio diversification techniques.  It fails to address the underlying problems with those techniques: the large unfunded liability, the added year-to-year risk associated with needing larger and larger returns, and the faulty accounting standards that not only permit, but actively encourage taking on that extra risk.

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Obama’s Speech Lacks Structural Integrity

I just finished watching President Obama address AIPAC’s 2011 Policy Conference, and I can’t say I was comforted.

The crowd was enthusiastic, as one might expect for a sitting US President who didn’t openly pull the rug out from under Israel.  Obama mouthed all the right key phrases about not delegitimizing Israel, supporting its security, never questioning its existence or right to do so, and holding the Palestinians accountable.  No President will ever say anything different.

But the speech was very much the Tacoma Narrows Bridge: beautiful from a distance, but lacking all structural integrity.

Even as he was saying, “We will hold the Palestinians accountable for their actions and their words,” everything else he said indicated that he won’t.

Obama said that the world is impatient with a peace process, or lack thereof, that produces no results, which is why the Palestinians are pursuing their statehood ambitions through the UN.  In order to forestall this, the Israelis must recognize the need for progress in negotiations.

This formulation completely ignores the fact that this is part of the Palestinians strategy, the whole Menendez-brothers-but-we’re-orphans Act, allowing them to avoid responsibility for their role in the talks’ failures.  It presumes that the Palestinians had any interest in coming to an agreement under the current framework, and makes Israel to blame for Palestinian intransigence.

Moreover, by listing the regions of the world (Latin America, really?) that are frustrated with the lack of an agreement, he highlights his administration’s utter incompetence in defending Israel diplomatically, which is what a large part of his speech claimed that he had done.

Obama said that the PLO-Hamas agreement posed a “huge obstacle,” and that Israel couldn’t be expected to negotiate with people who want to destroy it, therefore, he will continue to press Hamas to fulfill the basic requirements.

Israel is expected to negotiate with a Palestinian government that includes Hamas, without negotiating with Hamas?  Or Hamas is to fundamentally transform itself from the equivalent of the Nazi Party into Social Democrats?  One proposition betrays the conditions the President just set, the other ignores the reality to which he is supposedly so attached.

He focused again on his line concerning the 1967 borders, repeating “mutually agreed swaps,” and adding in that the Palestinians “must” recognize facts on the ground.

And if they don’t?  The basic premise of everything is that there must be an agreement.  After a speech that does little but reward Palestinian intransigence, why should the Palestinians do anything other than dig in their heels?  If the Israelis open with an aggressive map, they’ll be quickly “reined in” by the rest of the world, that has no right to set terms, but every right to, well, set terms.  And if they open with a reasonably map, it will be treated as a good basis for the beginning of negotiations.

He was silent on Jerusalem and the “Right of Return.”

But security and the Jewish character of Israel, two things Obama claims to want, are tied up inextricably with those two issues.  For a President who opened the speech by congratulating himself he was remarkably silent on the two issues on which are the most zero-sum of all.

After months of having the Arab world ignore a President who repeatedly insists that they “must” do this and that they “must not” do that, the standing ovation he got in DC was probably dwarfed by the one he got in Ramallah and Gaza.

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Nothing New? Tell That To Everyone Else

Political apologists for President Obama didn’t waste much time in claiming that his Thursday speech didn’t really say anything new about the Arab-Israeli conflict.

Too bad that none of the principal actors in the region are behaving that way.

We all know about the…tepid…joint appearance by Prime Minister Netanyahu and President Obama Friday.  It came after a scheduled 30 minute meeting went for over two hours, leaving lunch and aides steaming outside the room.

Then, today, the Palestinians:

Following Obama’s Middle East speech on Thursday, in which he said that a future Palestinian State should be based on the 1967 lines with mutually agreed upon land swaps, PA President Mahmoud Abbas called an emergency meeting of the PA leadership to discuss the new developments. Erekat said that the meeting could take place on Tuesday or Wednesday after Abbas, who is currently in Jordan meeting with King Abdullah, completes consultations with Arab leaders and the Arab League.

PLO Executive Committee member Hana Amira was quoted by Israel Radio on Sunday as saying that the Palestinians would cancel plans to go to the UN with a unilateral declaration of statehood in September if Israel would agree to negotiations based on the 1967 lines and freeze all building in West Bank settlements and east Jerusalem for a period of three months.

Right.  The Palestinians decided to call an emergency meeting over “nothing new.”  Evidently, the simultaneous translation into Democrat missed a few things.

Note also the timing and the demand.  The three month building halt in Jerusalem – remember, that’s something the Palestinians had never called for before Obama did – is timed to end in September, when the UN vote could happen, anyway.  The Palestinians can seize the opportunity to look amenable, continue to both obstruct and purse the UN option, and still call for a vote in September.  If you argue that, well, that’s nothing new, you’re right.  Except that that diplomatic angle relies on the rest of the world believing differently.

The Palestinians may be about to find out what Israelis and Jews should have discovered in 2008 – there’s an expiration date on everything Barack Obama says, everything – and on the Middle East, it can be as little as 24 hours.  In the meantime, Netanyahu is already saying that the tiff was exaggerated, and Obama is already hedging and filling, at least a little, in his interview with the BBC, and I strongly suspect there will be more of the same in about 15 minutes (unless the President is late to his own speech again) to AIPAC.

Either the President really thought he was being pro-Israel, and had to have it explained to him why he wasn’t, or else he knew exactly what he was saying, and was surprised by the political blowback, especially among Jewish Democrat donors and fundraisers, who can probably still bring in more early money than Ramallah phone banks.  In either case, it’s a continuation of the amateur hour that characterizes this administration’s foreign policy, 3AM or not.

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Kagan on Greece

To help keep myself focused, basically by staying tethered to the computer when I’m working, I’ve been listening to podcasts.  First of all, it’s more comfortable than getting up and going outside.  With the humidity running well over 100%, I feel as though I’m being waterboarded much of the time.  Sure, I grew up outside of DC, but I’m acclimated to Denver now.  Really, you want the Gitmo guys to break?  Send ’em here and just have ’em walk around for a few minutes.  They’ll be singing like Maria Callas.

Which podcasts?  There’s a wealth of stuff.  Radio Lab.  This American Life.  The Stanford Business School Entrepreneurship Corner.  The Hoover Institution has a bunch of stuff.  The nice thing is that when miss some of the lecture because I’m concentrating too much on work, I can back the thing up and hear it again.  Try that with an actual professor.

A friend of mine turned me on to the Open Yale Courses, though, and for the last week, I’ve been sitting in the classroom of Donald Kagan’s survey course on ancient Greek civiliation.  Kagan’s a real researcher, has written a great history of the Peloponnesian War.

He’s can also be hugely entertaining.  He understands that teaching stadiums-full of undergraduates a survey course is almost as much showmanship as scholarship.  His description of hoplite warfare is worth the price of admission (although not necessarily the price of tuition, which I guess is why it’s online).  Fortunately, this doesn’t translate into misguded attempts to be “cool.”  Kagan’s disdain for the state of core liberal arts education is, I think, quite real.  I have no idea what his politics are, but he wears his small-c academic conservatism well.

On second thought, I do know, at least a little, what his politics are.  He can’t be a raging leftist because he’s a fan of Victor Davis Hanson’s scholarship.  He credits Hanson, as a farmer, with the key insight into how the Greeks developed oligarchic and then democratic institutions, that being the invention of the family farm.  The connection to the land gave the farmers  a literal stake in the society, and a desire to participate in the polis‘s decision-making.  The steady virtues required to be a farmer also benefitted one who wanted to be a citizen, rather than a subject.  It’s a story that’s also part of America, something we still consider to be true today.

Productive work itself is virtuous.  But it’s nice to be able to combine it with learning something about how the world.

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