Bank of America: Downsized From Smallness?

Three years after the near-meltdown of Wall Street in September 2008, Bank of America announced that 30,000 jobs would be eliminated. That amounts to nearly 10% of the bank’s total work force. Over all, BOA was planning to cut $5 billion in annual expenses. The reason is transparent: continued losses stemming from the bank’s acquisition of Countrywide in January 2008 in spite of the fall of the U.S. real estate market and the related losses on sub-prime mortgage-backed CDOs. What could Ken Lewis have been thinking? At least in the case of his acquisition of Merrill Lynch, which was agreed to in principle in September 2008, the investment bank had already sold its $30 billion of toxic assets for over $7 billion in July 2008.

While the $29 per share price for Merrill seems excessive given that the investment bank was trading at only $17 at the time of the agreement, Fleming’s negotiating strategy (stressing the long run value over the short term market volitility) on Merrill’s side, Thain’s preference for a 10% stake/$30 billion line of credit from Goldman, and the sheer strategic fit between BOA and Merrill can explain Lewis’s offer-price being at a premium over the market price. Even so, with Lehman poised to file, the Goldman option would have been insufficient (or would likely have dissolved on the Monday of Lehman’s filing as the market tanked) and Thain would have taken $17 (or even down to $10) in the wake of Lehman’s filing.

According to reporter Greg Farrell (p. 183), Bank of America tended to deal with problems “by finding the quickest, near-term solution and lunging in that direction.” BOA “was not an organization that had the patience for deep, strategic thinking. It was an opportunistic company that preferred action of any kind to inaction.” Although much of the bank’s empire-building had taken place under McColl, the preceding “legendary” CEO, Ken Lewis’s acquisitions of LaSalle, Countrywide and perhaps even Merrill Lynch (to some extent) evince the sort of short-sighted and opportunistic lunging-without-thinking that can go with empire-building. Cutting 10% of the work force may be interpreted as a response to the market’s implicit verdict on Lewis’s shopping spree following Fleet. The losses stemming from Countrywide are evident enough; the case of Merrill Lynch is a bit harder to weigh.

Although Merrill proffered great synergy with BOA and could be picked up on the cheap, Lewis’s rushing to a deal over a weekend (with only about 12 hours for due diligence!) can also be considered as excessively risky, especially considering the history of hidden CDOs at Merrill (Semerci hid $30 billion then unfairly blamed them on his predecessor at Fixed Income). Had Merrill unloaded all of its toxic assets back in July? If so, what caused the $15.31 billion loss of Merrill Lynch announced only after the BOA shareholder vote on the acquisition in December 2008? Furthermore, did Lewis knowingly keep the mounting losses at Merrill from his shareholders as they were preparing to vote? At the very least, failing to disclose the mounting losses in real time was risky, even reckless, given what could be expected—namely,  the $50 billion potential liability that would face the bank from a stockholder suit. Even if Lewis decided not to disclose “non-material” losses because they were in line with Merrill’s results in 2007, was the CEO manipulating his stockholders while puffed up in the vainglory of empire-building? Furthermore, the condition of the market in September 2008 was not exactly ripe for making a deal to acquire a major financial institution. Lewis and Thain knew Lehman would go belly up when signed their agreement at 1am on Monday, September 16, 2008. 

As risky and perhaps even foolhardy as the Merrill acquisition may have been for Lewis, his acquisition of Countrywide defies any good sense. That he was being paid millions of dollars at the time suggests that the dysfunction at Bank of America may include corporate governance. Specifically, deferring too much to the CEO at the expense of the shareholder interest evinces a lack of accountability. Although BOA had a history of duality—splitting the chairman and CEO positions between two people—still the CEO may have too much influence.

Finally, a vital matter of public policy should not be ignored. Although it could be argued that Bank of America is being forced by its own history and the market to downsize, the question can legitimately be raised whether the market can or should be relied on to take faulty banks too big to fail down a notch. The very existence of Bank of America may involve more systemic risk than we should be prepared to accept. Relying exclusively on the market for the correction is, I contend, insufficient. The market can be insufficient in downsizing to a suitable size, or irrational exuberance can take hold such that a 10% reduction becomes a free-fall. That a bank such as Bank of America of over $1 trillion in assets is allowed to exist as a concentration of capital is itself a systemic risk. In other words, something is seriously wrong with the market mechanism for a bank such as BOA to have been able to become so big in spite of its modus operendi or corporate culture.

Sources:

Greg Farrell, Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America (New York: Crown Business, 2010).


Steven M. Davidoff, “For Bank of America, a Looming $50 Billion Claim of Havoc,” New York Times, September 28, 2011. 

Is Modern Banking Fundamentally Flawed?

Jamie Dimon, CEO of JP Morgan Chase and board member of the New York Federal Reserve (a banking regulatory body), advocates not only that financial regulation reform is not necessary, but also that deregulation is the best course for the American financial sector. Meanwhile, JP Morgan lost $2 billion in an effort to reduce risk. President Obama quickly pointed out that if one of the smartest bankers in the room can preside over such a massive loss, then a deregulated financial sector would likely present us with an unacceptably high level of risk to the entire financial system (and economy). Elizabeth Warren suggested that relying on bankers to regulate themselves would not reduce the systemic risk. The alternative would seem to be strengthening financial regulation, even though—according to Sen. Dick Durbin—“the banks own Congress.”

Perhaps the problem with systemic risk in modern banking goes deeper—beyond how it can be effectively regulated—meaning made regular in line with the public good—and, moreover, beyond what our reigning modern perspective will permit us to acknowledge, let alone see. In ecclesiastical terms historically, lending was classified as a kind of charity, specifically to the poor, as the rich presumably are not in need of lent funds (by definition). In other words, the leverage assumed by the wealthy and corporations is unnecessary. Starbucks needs the funds to build four hundred more stores in China. Wal-Mart needs additional money to buy land for new stores in major American cities. Capital from stockholders is presumably not good enough. The capped cost of leverage relative to a lack of limit on profit attracts greed to favor borrowing over raising capital through stock. The vested interests of existing stockholders (often including the executives who control their corporate boards) seals the deal on leverage as the drug of choice, even if it is not in the long-term best interests of the respective companies. Such a view of borrowing and paying (and earning) interest is worlds away from the original purpose of lending.

Viewing a loan as alms to the poor, lending with interest was originally thought to be unjust. At the very least, it was viewed as unseemly to profit in the giving of charity (although modern corporations do it all the time and get tax deductions for it, besides good public relations). Furthermore, the property (i.e., the substance of the money) lent was viewed as being inseparable from its use (i.e., as a means of exchange). The substance of money is its use, according to that view, so charging more than the money itself (i.e., the principal) is undeserved surplus. Such profit was historically reckoned as being theft. It is not good form to steal from the poor to whom one is giving alms. It is like biting someone while handing him a $20, which he needs to buy lunch (and will return later).  “Hey, I forgot my wallet today and I didn’t bring my lunch. Can you help me out? I’ll pay you back tomorrow.” If of charitable good-will, the acquaintance would reply, "Sure, here you go." If of ever greater (i.e., self-less) good-will, the lender would add, "and don't worry about paying it back." This is lending at its finest. Demanding that the borrower pay more than simply returning the $20 would represent far less than accepting the principal back. Beyond unfairness, taking interest regardless of the borrower's circumstance evinces self-idolatry.

Specifically, for a lender to receive surplus (above the principal) without labor or uncertainty (having transferred the risk to the borrower by requiring repayment) is not only unjust because it violates the risk/return relationship (i.e., a higher return is justified by assuming more risk), the certainly assumed (artifiically) by refusing to accommodate or share in any losses incurred by the borrower is rightfully only that of God. That is to say, it is self-idolatry to assume a divine quality like certainty. Furthermore, the power that some lenders presume to have over delinquent borrowers can be interpreted as an attempt to claim God's power (omnipotence) for oneself. Altogether, arrogance and the infliction of harm come from making oneself an idol (i.e., as if divine).

That which usury risks in terms of morals and self-idolatry is utterly foreign to us moderns. The original charitable purpose of lending is also lost to us in part because we are so used to our own view of lending being the default and the necessary of commercial lending in our economy. Moreover, we assume our assumptions cannot be wrong, and so we do not question whether merely charging interest is inherently unjust and a sin against God. We assume we know the purpose of lending as if it had no history.

In 1612—exactly 400 years before this writing yet late enough that commercial lending was already well-ensconced in the economy—Roger Fenton, a Puritan divine in England, opined strenuously that the sin of usury is inherently unjust. “Where we finde no iustice, what hope can there be of charitie?” Salomon puts mercy as the opposite of usury. “Wherefore vsurie may well be termed a biting . . . it eateth out the very bowels of compassion.” Usury perverts the act of charity, “turning it into an act of selflove.” Usury is against “the Canon of that Charitie which seeketh not her owne, to respect the good of others; [usury] is turned to his owne proper lucre and gaine.” (Fenton, 1612, p. 106)

Injustice does not admit of mercy manifesting as charity. We moderns are so wrapped up in our self-love that we can scarcely imagine lending as an act of compassion. The Canon of Charity to which Fenton refers is the Golden Rule, whose equity guides the Calvinist view of justice as love and benevolence to all. Such benevolence is fueled by selfless love (agape), rather than higher self-love (caritas) directed to God. We moderns can scarcely recognize this theory of justice, so used are we to strict legal justice which limits one’s duty to paying for one’s crime. That the other theory of justice might be applicable to lending is apt to strike us as odd at best.

Nevertheless, the problem behind even the best bankers of today being reckless even as they advocate for deregulation may extend beyond the antiquated debate on regulation to include the making of something borne of something natural (compassion) into something artificial. That lending was designed to be a species of charity may mean that problems are necessarily entailed in using banking for leverage.

By analogy, a person might have been brought up one way and therefore have considerable trouble in adjusting to a way of life that is at odds with that upbringing. The problem facing the person would go beyond simply regulating the new life because a basic inconsistency is in such a drastic change. Were the person to know only the new life, having forgotten one’s upbringing, she would have no clue as to why she feels fundamentally ill at ease. She would look for things in her new life to assuage the difficulties, which nonetheless transcend that environment and therefore require a more basic solution.

Besides relying too much on debt for personal and business use, we as a society are cut off from the original (i.e., designed) use of lending as a means of mercy rather than to profit. Perhaps our perspective is more limited than we think, and the problem much deeper than we realize. Given that “cloudie conceits do hang in the braines of men, which cast a dye and tincture vpon the vnderstanding,” seeing usury “so much practiced of all sorts . . . men are euen thereby without further examination much moued to thinke it lawfull.” (Fenton, pp. 108-9). Yet further examination demonstrates just how limited our tiny window in modernity is—even in spite of our lauded technological development. Our “advancement,” in other words, may blind us to being so wrong about lending even as it is ubiquitous in our world.

By 2012, for example, $1 trillion in student loan debt had accumulated in the United States. Rather than the mercy of charity in waiving interest and even the principal in particular cases of dire need, such a load on poor students represented the hubris of a society run amuck on its own conceit and greed. Such a disparity exists between such selfishness and charity that the notion of debt forgiveness even for the poor is thought of as an unforgivable unfairness rather than as charitable equity that is essentially agape seu benevolentia universalis.

Source:

Fenton, Roger, A Treatise of Usurie (London, 1612). In The Usury Debate in the Seventeenth Century: Three Arguments (New York: Arno, 1972).

Toronto Police as Aggressors at G-20 Summit

Police employees “ignored basic rights,” jailed people illegally, used excessive force and escalated violence at protests surrounding the G-20 meeting in Toronto in 2010, according to the Office of the Independent Police Review Director. The report could lead to charges against police employees and strengthen the hand of civil lawsuits filed against the police department. Because the police employees acted with an attitude of impunity, anything less than stiff prison sentences would be insufficient as a deterrent.

After a small group of violent protesters went on a “looting rampage” through Toronto’s shopping district without being confronted by police, the department’s deputy chief ordered his subordinates on the force to “take back the streets.” The incident commander in charge at the time told investigators that the deputy chief “wanted the streets that had been made unsafe by the terrorists that were attacking our city to be made safe again by restoring order.” This statement itself evinces a problematic attitude.

Specifically, looters are not terrorists. To claim otherwise demonstrates distorted perspective, which in turn points to an underlying psychological bias. Although not against the looters, the police nonetheless sprung into action, arresting peaceful protesters and even passers-by.  Other people were arrested in homes and other residences without proper warrants.

According to the report, the deputy’s orders were followed in ways that not only broke the law but often involved excessive force. The attitude of the police employees includes a presumption of impunity with regard to using excessive force. This is the most damning aspect of the report, for such an attitude is extremely difficult to change.  That the people arrested were held for hours in cells without toilets, food, or even water attests to possible sadism in the department.

Given the underlying attitude, the culprits on the police force must be severely punished for their aggression or they will be enabled to commit further abuses as though with the impunity they assume is the case. That decent police employees put their lives on the line to protect even citizens they don’t like does not mean that the sort of attitude described here should be tolerated and enabled rather than firmly thwarted by firings and stiff prison sentences. With the privilege of using force legally comes great responsibility. The penalties for acting at odds with it should be severe, given the significant possibility of undetectable abuse (given the huge differential in power). In other words, police employees are well aware of this differential, and given human nature, even this awareness can be dangerous.

Source:

Ian Austen, “CanadianPolice Violated Laws in G-20 Sweep, Inquiry Finds,” The New York Times, May 16, 2012. 

Eleven Time Zones in Russia: A Problem of Consolidated Empire

As of 2011, Russia had 11 time zones, from the Polish border to near Alaska, a system so vast that a traveller could get a walloping case of jet lag from a domestic flight.  In 2009, Russia was considering shedding some of its time zones.  People running businesses in the far east were complaining because the regulators were typically in Moscow, which could be several hours behind.    The issue blossomed at the end of 2009 into an intense debate across the Russian Federation about how Russians saw themselves, about how the regions should relate to the center, and about how to address the age-old problem of creating a sense of unity in a diverse federation that had been consolidated politically.  In short, the issue concerned the challenges involved in a consolidated empire. 

The sheer amount of territory in an empire that is made up of republics that are on the scale of independent states or countries makes “one size fits all” from the center extremely difficult.  It might have been different when kingdoms and empires were smaller—such as the medieval sort (e.g. the Swiss confederation and the Netherlands—both empires on a medieval scale but states in modern terms).  For China, the US, the EU and Russia, the extent of geography is a limitation on how much centralized authority is possible.  The Chinese government maintains one time zone for China, when there could easily be four or five.  In the case of Russia, such consolidation would mean that people in some places would be getting up and having breakfast in the middle of the night!   Even reducing the number of zones could make it more difficult on some, given the short duration of daylight in the winter.   Consider, for example, the trouble of going to and from daylight savings time in the US and EU.  Eliminating a few time zones in Russia would be to act as though a few hours difference doesn’t matter much.  The far east may already be two hours off of the correct biological time—meaning the most fitting with the human biological clock. 

In the end, the problem is one of consolidating an empire-scale polity.  Given the inherent heterogenuity involved in such an expanse, there are limitations in what can be done centrally.  Moscow can’t simply issue an order and expect that every Russian city will be awake and thus able to reply immediately.  Resentment toward central control in such cases (i.e., empires) is quite natural.  Indeed, proposals to modify the time zones have stirred deep suspicions, especially in the Far East and Siberia, where people have long resented Moscow, much the way people in places like Idaho distrust the goings-on in Washington.  So the issue is not simply one of whether time zones should be adjusted.  The tensions come when an empire seeks an inordinate amount of centralized control—more than that which is consistent with natural differences.  A consolidated empire on the modern scale (i.e., early-modern kingdoms being the scale of the units) is an artificial construction.   The time zones, I submit, should be oriented to biological clocks, while the federal system is given greater weight (i.e., more autonomy for the republics and regions).  “We have to look at this from a biological standpoint, how it is going to affect health,” said Yekaterina Degtyareva, 27, a personnel manager who lives in Novosibirsk, the most populous city in Siberia, and often travels to the Far East and Moscow. “If it is going to be a centralized, so-called totalitarian decision, then nothing good will come of it.”

Source: http://www.nytimes.com/2009/12/07/world/europe/07zones.html?_r=1&scp=1&sq=russia%20time&st=cse

Upside-Down Corporate Governance at AIG

I contend that Robert Benmosche, CEO of AIG, had an incorrect understanding of corporate governance when he told Harvey Golub, then-chairman of the board, on July 14, 2010, “One of us should stay and one of us should go.” He should have, “Please let me know if the board would like me to go.” Put bluntly, the CEO works for the board, not vice versa. The previous May, Benmosche told Golub, “We can’t work together. I need a partner who I can bounce ideas off and give me advice.” However,a CEO and a chairman do not work together as partners. Rather, the chairman—and the board more generally—act on behalf of the stockholders to oversee the management, which the board has hired. In other words, a CEO is an employee whereas a chairman is not. Benmosche’s comment is actually rather presumptuous.

Benmosche’s upside-down approach to corporate governance is evident from the way he went about trying to sell AIG’s biggest overseas life insurer, AIA, to Prudential. Rather than being surprised that Golub did not support the sale, he should have taken note of Golub’s surprise that he had not informed the board earlier. As another example, rather than being annoyed that the board didn’t push Treasury’s pay czar harder to sign off on his $10 million pay package, Benmosche might have asked the board if they supported the proposed compensation.

One of the principal jobs of a corporate board is to assess the CEO (and hence the management) and to fire him or her if the board decides it would be in the stockholders’ interest. The CEO works for the board, not vice versa. It is not a partnership arrangement. It is the CEO’s responsibility to act within the support of the board, rather than to threaten its chair for not playing ball. Benmosche illustrates the arrogance that come occur when an employee is over-compensated and spoiled.  Benmosche should have been grateful to the AIG board for having agreed to a compensation package of $10 million rather than critizicing them for not essentially working for him in pressuring the Treasury.

From this case, we can extract the following lesson. A CEO should not chair the board whose task it is to assess him or her. Such duality is a contradiction in terms—effectively attempting to interiorize within the CEO accountability that is external (i.e., interpersonal). As Benmosche had already turned to Robert Miller, who replaced Golub, for advice and found him to be supportive, AIG may have essentially installed a puppet—hence compromising the board’s role in overseeing the CEO.

I once asked Armstrong when he was both CEO and chairman of ATT whether he saw any conflict of interest in his chairing of the body tasked with assessing him. He replied that the buck stopped with him—that he needed the authority to integrate cable, computer and telephone technologies into broad-band. However, in hiring him, the board should have signed off on his strategy, hence giving him all the authority he needed to implement it. In effect, Armstrong was over-reaching in claiming that such authority was not sufficient. When his strategy failed, the external accountability function of the board was compromised.

In general terms, CEOs are too powerful with respect to “their” boards.  In being an enabling partner rather than a parent, too many boards are unwittingly undercutting their raison d’etre. To the extent that the managements of banks contributed to the crisis in September, 2008, corporate governance with real accountability can be seen as critical not only to our financial system, but to the economy itself. We can ill-afford too many spoiled adult-children.

Source: Joann S. Lubin and Serena Ng, “Battle at AIG Board: You Go, or I Do.” The Wall Street Journal (July 16, 2010), pp. C1, C4.

U.S. Senators: Falling Short in Representing their States

Like the European Council of the E.U., the U.S. Senate has polities rather than citizens as represented members. That is to say, in both cases, the states are represented. In the case of the E.U., the chief executives of the respective states represent them. In the U.S. case, the citizens of the states elect senators directly, who in turn are tasked with representing their respective states. From the standpoint of representing the polities, the E.U. case is tighter, for a U.S. senator is susceptible to the temptation to vote in the interests of the state’s citizens who voted rather than of the state itself. The two interests may overlap, but they are not identical, for citizens of a member-state may or may not be interested in protecting the prerogatives of the state (government). The Republican legislative responses to the Affordable Care Act (i.e., “Obamacare”) are a case in point.

Under the Act, state governments could expand their Medicaid programs to cover anyone with incomes less than 138% of the federal poverty level, with the federal government picking up the tab through 2018 and 90% thereafter. Even Republican-controlled state governments saw that the deal was in their fiscal interests even if it meant giving up some sovereignty in the domain of health-care to the federal government. Nevertheless, a Republican electorate could vote for one of its U.S. Senators based on the sentiment that poor people should not get “free money.” Behind this is a sort of “survival of the fittest” philosophy wherein the weak should not be propped up. Additionally, prejudice or even animosity towards the drudge of society could be in the mix. From a European standpoint, such a sentiment must seem rather odious, and foreign. In any case, the majority of a state’s voters may at some point vote contrary to their state government’s interests. Being selected by the voters rather than the government, who do you think a U.S. senator is going to pay attention to, other than institutional campaign-contributors, in deciding how to vote on whether to retain Obamacare?

On July 17, 2017, Sen. Mitch McConnell, the Republican majority leader in the U.S. Senate, announced that his second attempt to repeal and replace Obamacare had failed for lack of votes. Back in March, the Kansas legislature had voted to expand Medicaid. Nevertheless, Sen. Moran of that state said in July, “There are serious problems with Obamacare, and my goal remains what it has been for a long time: to repeal and replace it.”[1] In coming out against the proposed replacement, he said it “fails to repeal the Affordable Care Act or address health care’s rising costs.”[2] By omission, we can discern from his statement that he was not opposed to rescinding the expansion of Medicaid even though his own state’s government had approved it.

Because the states as polities are members of the U.S. Senate, I submit that a senator’s discretion should not extend to such a point that it goes against the will of his or her state’s government. Accordingly, a state government should be able to direct the state’s U.S. Senators to take particular positions. A senator’s discretion would come into play when a government is of mixed opinion. For instance, the legislative chambers may disagree, or the legislature and governor may differ on the state’s interest on a proposed piece of federal legislation. State governments could of course legislate which offices (e.g., governor) and legislative chambers would have a voice in directing the senators on particular legislative measures before the U.S. Senate. Without such a tie to a state’s government, a U.S. senator could undercut the state’s representation in the U.S. Senate with impunity. This may in part be why the states have lost so much governmental sovereignty to the federal institutions, thus unbalancing American federalism at the expense of its checks and balances in defense of liberty and justice for all.

For more on the U.S. Senate and the E.U. Council, see the book: Essays on Two Federal Empires

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[1] Thomas Kaplan, “Health Care Overhaul Collapses as Two Republican Senators Defect,” The New York Times, July 17, 2017.

[2] Ibid.

Does the Affordable Care Act: Healthcare as a Human Right?

Did the Americans who were in favor of passage of the Affordable Care Act in 2010 believe that access to healthcare is a human right? Did the Americans who opposed “Obamacare” reject that assumption and thus favor treating health insurance as a commodity? We can look at political and economic indications to reach an answer.

According to a report by the U.S. Department of Health and Human Services, based in turn on Gallup survey data from early March 2015, 16.4 million people had gained health-insurance coverage since the Affordable Care Act went into effect. The figure includes people who signed up for Medicaid under the law. “When it comes to the key metrics of affordability, access and quality, the evidence shows that the Affordable Care Act is working, and families, businesses and taxpayers are better off as a result,” said Sylvia Mathews, the Health and Human Services Secretary at the time of the report.[1]  That the uninsured rate had fallen to 13% from 20% at the beginning of open-enrollment in October 2013 supports the secretary’s conclusion. 

The strongest gains were from the states whose governments expanded Medicaid. “Those states had an average baseline uninsured rate of 18% in early March, compared with 23% for those that didn’t.”[2] This suggests that an upturn in the economy did not account for all of the change. The overall increase is large enough that the upswing in the economy is not likely to be the sole cause, according to Rachel Garfield, a researcher at the Kaiser Family Foundation.[3]

Furthermore, the difference between the two zones of states (to borrow a catchy term from Europe) points to an ideological condition wherein Americans as a whole were not convinced that access to medical care is a human right, and thus a responsibility of government. Modern federalism, wherein the member-states and federal institutions both have a share of governmental sovereignty, accommodates “being on the fence” concerning whether a benefit is properly a commodity or human right.  To the extent that the benefit is available regardless of state, that extent of being insured from the federal government can be treated as a human right, whereas the amount of benefit left up to the states indicates the extent to which Americans do not consider health-care to be a human right.

Admittedly, a federal base-level combined with various amounts of contribution from member-states does not necessarily mean that “We the People” are on the fence on whether a benefit is a human right. A person could be in favor of more state authority because of an excess at the federal level, for instance, while firmly believing that the benefit at hand is a human right. Clearly, other measures are needed in the assessment.

Another indication of the extent to which Americans as a whole consider health-care to be a human right is how close the percentage of uninsured is to zero. The uninsured rate of 13% for adult Americans and illegal immigrants in March 2015 tells us that health-care was not viewed as a full or established human right. Were access to medical care definitively regarded by “We the People” as a human right and the elected representatives representative of their constituents as a whole, the Federal Government would see to it that every American or even every resident of the U.S. has access to healthcare. This does not necessarily imply a single-payer system, though reliance on private insurance companies without subsidies for every poor person would be insufficient.

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[1] Stephanie Armour, “Rate of Uninsured Falls Sharply Under Health Law, Report Says,” The Wall Street Journal, March 17, 2015.

[2] Ibid.

[3] Ibid.

An Ebola Vaccine: A Lesson for Obamacare

With the Ebola virus confined to impoverished states in Africa until 2014, drug companies had little financial incentive to develop a vaccine. “A profit-driven industry does not invest in products for markets that cannot pay,” Margaret Chan, the director general of the World Health Organization, said in late 2014.[1] At the time, at least 13,567 people were known to have contracted the virus in the outbreak, with nearly 5,000 people dead. It cannot be said that the profit-motive in a market economy is efficient in this case.

As a few cases made their way to the U.S. and E.U. in the Fall of 2014, elected officials quickly felt the fear among their respective constituents. As a result, the U.S. sent troops to West Africa to help contain the illness. In short, money began entering the equation in significant amounts as soon as the people in developed countries perceived themselves as being at risk. Doubtless public funds went to drug companies for expedited research toward a viable vaccine. The arrow here goes from governments to private companies in the marketplace, rather than coming out of the “efficient market hypothesis.” In other words, relying on private companies and the market mechanism, moreover, may be suboptimal in the field of medicine.

The implication for the Affordable Care Act, or “Obamacare,” is that the president erred in caving into the health-insurers lobbyist on including a public option. Relying on private insurance companies may be suboptimal, though admittedly they are not drug companies. Even so, if the market mechanism itself is deficient in the case of a vaccine, then perhaps the healthcare industry, including health insurance, ought to rely chiefly on government rather than the private sector.

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1.Rick Gladstone, “Ebola Cure Delayed by Drug Industry’s Drive for Profit, W.H.O. Leader Says,” The New York Times, November 3, 2014.

Hobby Lobby: On the Significance of the Case

For all the controversy stirred up by the case of Hobby Lobby v. Sibelius(2014) on whether an employer must comply with the mandate for contraceptives coverage in the Affordable Care Act, the significance of the decision handed down in a 5-4 majority opinion by the U.S. Supreme Court may be less than some commentators were predicting. 

As evangelical Christians of the Southern Baptist section, the Greens did not object to 16 of the 20 contraceptives mandated for employer coverage in the Affordable Care Act. Indeed, fundamentalist Christians “largely support the use of birth control by married couples.”[1] The Greens considered Plan B, Ella, and two intrauterine devices as tantamount to abortion, in that the means prevent a fertilized embryo from implanting in the womb.[2] Blocking implantation would “terminate life,” Green argued. “We won’t pay for any abortive products. We believe life begins at conception.”[3] Ending human life after that time, Green wrote in an open letter, is "something that is contrary to our most important beliefs."[4]

Arguably, a Hobby Lobby check to the company’s insurance company for the employee health plan pays for the plan itself, rather than for particular items that the insurance company pays for when a medical practitioner prescribes them for employees. In other words, it is the insurance company’s business, literally and figuratively. Even so, Steve Green would undoubtedly have felt blameworthy morally and religiously had he not explicitly excluded the offensive medical products from the plan for his company's account, for without his decision abortions would occur. Yet here too are several problems, which effectively mean that the significance of the case has been blown out of proportion.

Firstly, killing a few human cells may be immoral to some people, yet is the practice irreligious in nature? Theologically, the Creation is not the same as the biological process by which a human being begins. Furthermore, Jesus is not represented in the New Testament as prohibiting abortion, even though he did include other moral teachings in his preaching. Steve Green may have been conflating a theological doctrine with a moral principle and a biological process.  Put another way, abortion can be reclassified as a moral issue, in which I suspect it would be easier to come to a compromise, societally.

Secondly, Steve Green's labeling some contraceptive devices as means of abortion is a subjective call. Is preventing a fertilized egg of a few cells from implanting on the wall really like killing a fetus? Relatedly, as Green points out, even those abortive instruments are just a subset of contraceptives. The notion that the company’s health insurance plan for employees excluded or would exclude the pill (as distinguished from the “morning-after pill) is thus a popular misconception. That is to say, the claim that the ruling means that women working at Hobby Lobby would not have contraceptives covered is incorrect, so the importance of the court’s decision likely escalated beyond merit in this respect too.

So too, the breadth of the closely-held corporation limitation in the ruling was immediately debated, with Ginsberg predicting in her dissent that the door would eventually be open for virtually any company with any sort of religious conviction to use the ruling to obviate a law that the executives or majority stockholder do not like. “Although the court attempts to cabin its language to closely held corporations,” she wrote, “its logic extends to corporations of any size, public or private.” She added that corporations could object to “health coverage of vaccines, or paying the minimum wage, or according women equal pay for substantially similar work.”[5] However, Alito wrote that the Religious-Freedom Act applies only to closely-held for-profit corporations run on religious principles. To be sure, wriggle-room exists even within this delimitation, for Alito wrote that those corporations would be unlikely to prevail if they object even on religious grounds to complying with other laws than the Obamacare mandate.[6] What is unlikely to Alito is not necessarily so to other justices, as it is a judgment call. Even so, Ginsberg's leap to any for-profit corporation seems to be untenable given the explicit delimiting stipulation in the majority opinion. 

So it is vital that the controlling small group or family of owners apply principles from their religion to their commercial enterprise. Without the separation of ownership and control that is typical of a large corporation, a closely-knit group or family of owners can indeed orient their company to religious as well as commercial purposes. Hence the Greens referred to their business as a matter of stewardship.[7] This situates their commercial objectives within a bubble of religious aims. Adam Smith situates his Wealth of Nations within his theory of moral sentiments; religious sentiments can also serve as a buffer.

On opening Hobby Lobby, Steve Green's father declared its Christian principles. Like Chick-A-Flick, the stores would be closed on Sundays “to allow employees time for family & worship”—according to a sign on the front doors.[8] The Green family’s foundation, whose funds presumably have their source in Hobby Lobby, extends charitable gifts to gospel outreach efforts as well as social services in Oklahoma.[9] A court would presumably want to find such evidence of religious claims in action, as well as assess the salience of the aims relative to attention paid to commercial objectives. To the extent that those agendas contravene the cited religion or religious principles, the case for religious exemption is undercut. 

It follows that the ruling hangs on the manager-owners' religious objectives, with strong control element rendering the company as an instrument. So I think the nexus being situated at corporate legal personhood is misplaced, even if Alito does make use of the doctrine. In her dissent, Ginsberg makes the point that human beings are religious. The "exercise of religion is characteristic of natural persons, not artificial legal entities."[10]

Alito comes closer to this point than many people realize, for he links Green's religious objectives to the doctrine, writing that a "corporation is simply a form of organization used by human beings to achieve [their] desired ends. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people."[11] In the case of a closely-held corporation, the corporation is an extension of the will of the few who both own and control. Similarly, my (limited) bank account does not itself enjoy religious rights, but I can use it (because I control it) to fund religious causes by writing checks. Put another way, the sum as more than the parts applies to corporations that have many stockholders because none of them controls their respective corporation as an extension. 

Therefore, even though Alito’s majority opinion is based in part on his interpretation of a corporation as a legal person, the exercise of religious freedom goes through the corporation as an extension rather than being based in the artificial person itself; that is, the closely-held caveat implies that the operative right was being exercised by Steve Green and any other close owners. Their specifically religious imprint on the for-profit company—that is, using it for religious as well as commercial purposes—means that they, rather than the company itself, are the source or basis of the religious agency that extends itself through the corporate structure extending beyond their fingertips. 

It follows that the hiring process should include explaining to the prospective employees that they too would be part of that extension. Hence, Green has stressed that the “greatest misconception” about the case “is that we are trying to impose our religion on these workers or others. Not at all! That would violate our religion to do that.”[12] As he saw it, anyone agreeing to work for Hobby Lobby knows of, and agrees to, the dual purposes of the closely-held corporation. Perhaps part of the problem is that Green’s hiring subordinates did not make this point clear (without discriminating, of course).

It could also be argued, however, that the anti-abortion stance is not a fundamental or important Christian belief. After all, Jesus does not even mention the issue in the New Testament. Recall Green's statement that he applies Christian principles to his business; the implication is that those principles are important theologically. In fact, the Greens' stance may actually be moral in nature, rather than theological, as Creation can be distinguished from the biological process by which an egg is fertilized its cells multiply.  

Therefore, the stance may not actually find adequate cover under Christian auspices understood theologically. Traditionally, the Court has required that accommodations on account of the freedom of religion passage in the First Amendment be based in an established religion; claiming that your own religion or your own version of an institutional religion requires you to enact a pot-smoking ritual every night is not going to cut it. Clearly, opposition to abortion on religious or moral grounds is not frivolous or made up by individuals, but neither is the stance a central tenet theologically in Christianity. This could open the door to other claims of other religious issues whose importance in religious terms may be overblown, and thus without meriting accommodation.

Moreover, basis of Green’s case may not even be religious freedom; rather, property rights could be the underlying issue, for Steve would also have the right to orient the business to serving social causes, for example, as in the case of Ben & Jerry’s (ice-cream), even at the expense of profit maximizing. Generally speaking, the profit-maximization principle is merely the default, with stockholders of a corporation having the right to alter the aim of their combined, incorporated wealth even at the expense of profitability.

As a personal aside, I have been inside a Hobby Lobby store only two times; the first was to buy a mother’s day gift, and the second constituted my attempt to buy a candle, the melted wax I would use to make up for a deficit in a half-burnt candle at home. So I was not picky about the candle, just that I needed only one. When I saw two long, thin candles connected as if Siamese twins joined by a wick-like umbilical cord at the tip of their tiny heads, I asked the front-area manager if I could buy just one of them, as both candles were broken.

“They come as a pair!” the stern woman crowed as if blissfully unaware that they were broken.

“But they are broken,” I sheepishly replied as I held them up to give her a good look.

“Makes no difference,” she said as she walked away. Her attitude resonated with the dysfunctional culture infecting businesses and other sectors back in my hometown.

From this curt exchange, I had the impression that the Greens should attend to more pressing “bread and butter” concerns than whether the insurance company used for employee health insurance pays for a few morally objectionable medical items. All the attention and energy that the Greens devoted to what in business terms is a minor issue, and perhaps even their dual-purpose approach itself may suggest that Steve Green really is not that good at management, at least in regard to hiring and training. 

At a deeper level, I see a pattern in that both the “contraceptives issue” and the “candle issue” may both involve “making a molehill into a mountain”—that is, overdoing relatively small things and thus missing the big picture. In my case, Hobby Lobby lost not only revenue on the candle, as I left the store in disgust, but also a future customer. 

Sometimes I suspect that human nature itself contains a short-circuit when it comes us being able to calibrate the importance of matters we take to be important. Perhaps this is a matter of conceit, being all puffed up with our own determinations, as if we could not possibly be wrong. Sadly, other people can suffer needlessly as a result, and this may be a cost that is all too invisible even to the well-meaning religious among us.

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1. Daniel Burke, “Hobby Lobby: The Bible Versus Behind the Battle,” CNN, June 29, 2014.

2. Ibid.

3. Cathy Grossman, “Hobby Lobby’s Steve Green Stands on Faith Against Obamacare Mandate,” Religion News Service, March 17, 2014.

4. Patricia Walston, "Letter from Hobby Lobby Founder and CEO," Examiner.com, March 27, 2013.
5. Adam Liptak, "Justices Rule in Favor of Hobby Lobby," The New York Times, June 30, 2014.
6. Ibid.

7. Grossman, "Hobby Lobby's Steve Green."

8. Ibid.

9. Ibid.
10. Richard Wolf, "Birth Control Ruling Deals a Blow to Obamacare," USA Today, July 1, 2014.
11.Grossman, "Hobby Lobby's Steve Green."
12. Burke, "Hobby Lobby: The Bible"