Author Archive | Kenneth Anderson

Bond Markets and Republics:

The Duc de Saint-Simon, in his famous Memoirs, wrote of his opposition to Louis’ embrace of John Law’s “System” of a French state bank issuing paper money, back when Law proposed the scheme in 1715. The estimable Saint-Simon noted, with extraordinary shrewdness, that such a “System,” a state bank with the ability to issue fiat money and float bonds, could only work

in a republic or in a monarchy like England, whose finances are controlled by those alone who furnish them, and who only furnish as much as they please. But in a State which is weak, changeable, and absolute, like France, stability must necessarily be wanting to it; since the King, or in his name a mistress, a minister or favorites … may overthrow the Bank — the temptation to which would be too great, and at the same time too easy.

The comparison (emphasis added) is arresting – the republic of merchants, self-controlling from self-interest alone the issuance of debt and paper money by the sovereign, as against absolutist France, “absolute” and therefore “weak.” And later the Duc goes on to remark that absolutist France must lose wars to parliamentary England, because the absolute Louis must borrow for his wars at interest rates far exceeding those of England, whose war bonds are sufficiently largely purchased voluntarily by its own population as to be trusted by foreign investors as well. The English can conduct many more campaigns over many more years than the French.

I draw this from the marvelous book by James Macdonald, A Free Nation Deep in Debt: The Financial Roots of Democracy (FSG 2003), which is even better on these topics of financial-political history than Niall Ferguson’s early, then-still academic work on the bond markets and war.

But the lesson is not precisely [...]

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Is John Deutch the Right Person to Comment

on screw-ups by the US government mishandling secret material and posting information it shouldn’t be posting online?

I can’t possibly be the only person who finds it weird that the New York Times’s story about the mistake the US government made in posting a confidential report on nukes in the US quotes former CIA director John Deutch to the effect that “screwups happen” with confidential information? Yet makes no mention at all of Deutch’s own phenomenol screw-ups in keeping CIA files on an unprotected computer at his home, among numerous other security breaches — breaches noteworthy mostly for the attitude of genial contempt with which Deutch held the secrets of his own agency? Says the Times:

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What New Bond Covenants Would You Demand

as protection against political risk following the government’s pressures on senior and secured creditors of Chrysler?

In my development finance work in the developing world, I have undertaken a lot of negotiations with businesses (mostly media companies) in places ranging from South Africa to Guatemala to Serbia looking to borrow money. The nonprofit private equity fund I work with has standard loan documents, of course, and over the years has looked to tailor them to fit risky investment in these environments with less than perfect adherence to the rule of (contract) law.

As I watch the Detroit restructurings unfold, particularly the strong-arming of senior and secured creditors, I wonder what new covenants creditors might want to put into new bond issuances by US businesses that might eventually become entangled with government. I’ve been reflecting on this looking back over the standard documents that I have used over the past twenty years. Interestingly, the contract forms I’ve used do not have very many special political risk terms.

Why not? Because the general assumption is that no political risk covenant can really protect you in a place where contracts are not enforced — political risk of that kind involves yanking the floor out from under the investor altogether. If a contract term that provides for secured creditor status will not be enforced, why think that a covenant requiring repayment in case of political risk such as expropriation will be enforced either? The nature of political risk is that it is a risk running to the very rules of the game.

Of course that is not completely true. There are political risks and there are political risks, if you are investing in the developing world or, alas, today the United States. The United States seems, in these contract matters, not to resemble the [...]

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Ken Anderson Signing In:

My thanks to the Senior Conspirator for the invitation to join the Merry Band – I have long been a fan and admirer of the Volokh Conspiracy and I am honored to take part.

Some of the band I have known – Eric Posner, Ilya Somin, several others, but I was delighted to meet Eugene and Orin for the first time at a lunch in DC two weeks ago. I’m sure many of you have had the pleasure of meeting someone in person for the first time whose work you have enjoyed on a blog, and are pleased to discover that they are as charming in person as on the screen. I look forward to meeting the other Conspirators in real life, as too many VC’s readers. It is a genuine honor to join this group.

As Eugene said in his introduction, I also post over at the international law professor blog Opinio Juris, and I will continue to do so. But my interests run more broadly than international law – my day job is international business and finance professor, and in my pro bono and other work I do nonprofit law, international philanthropy, and development finance. So VC, being so broad church in its interests, is a great place for me. I also blog on quite specialized academic topics related to warfare, terrorism, and such things from a theoretical, political science, social science perspective at the Complex Terrain Lab (CTLab), but that is on quite specialized things.

I won’t ordinarily be so biographical, but perhaps a little bit about me in an inaugural post might be helpful.

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Public Service Announcement:

We interrupt our regularly scheduled blogging for this important public service announcement, brought to you by BBC news:

  Men who use laptop computers could be unwittingly damaging their fertility, experts believe.
  Balancing it on the lap increases the temperature of the scrotum which is known to have a negative effect on sperm production, researchers found.

Here is the key information from Dr. Yefim Sheynki of SUNY Stony Brook:

  “[Laptops] are frequently positioned close to the scrotum, and as well as being capable of producing direct local heat, they require the user to sit with his thighs close together to balance the machine, which traps the scrotum between the thighs.”
  The researchers asked 29 healthy male volunteers aged between 21 and 35 to take part in an experiment.
  They then recorded the temperature changes to the scrotum caused by laptop use and different seating positions over one hour time periods.
  Just sitting with the thighs together, a posture needed to balance a laptop, caused scrotal temperatures to rise by 2.1C.
  When the men used a laptop in this position the average temperatures increased by 2.6C on the left of the scrotum and 2.8C on the right.
  . . .
  He said any changes might be reversible, but that repetitive use of a laptop in this way might cause permanent damage.
  “Until further studies provide more information on this type of thermal exposure, teenage boys and young men may consider limiting their use of laptop computers on their laps,” he said.

We now return to our regularly scheduled blogging. Hat tip: Michael Froomkin. [...]

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