Neel Kashkari Is The Definition Of “Moral Hazard”

Neel Kashkari Is The Definition Of “Moral Hazard”

Tyler Durden

Mon, 10/19/2020 – 11:02

Authored by Lance Roberts via RealInvestmentAdvice.com,

Neel Kashkari, in a recent CNBC interview, said, “I don’t see any moral hazard here when asked if the Fed’s massive liquidity injections have blown a bubble.

What exactly is the definition of “moral hazard.” 

Noun – ECONOMICS

The lack of incentive to guard against risk where one is protected from its consequences, e.g., by insurance.

Take a look at the following chart.

The Zombie Apocolypse

Zombie companies depend on a speculative investment climate for bond issuance for their survival. As discussed in “Recessions Are A Good Thing:”

“‘Zombies’ are firms whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing. 

Such is a macroeconomic problem. Zombie firms are less productive, and their existence lowers investment in, and employment at, more productive firms. In short, a side effect of central banks keeping rates low for a long time is it keeps unproductive firms alive. Ultimately, that lowers the long-run growth rate of the economy.” – Axios

Such also explains why there are currently record levels of “junk bond” issuance in the market.

“Issuance in 2020 through August was $291.9 billion, up 71% year over year. Credit strategists at BofA Global Research now project a full-year primary volume of $375 billion. Such would shatter the current record total of $344.8 billion in 2012, according to LCD.”

Interestingly, the number of “Zombie” companies in the market has hit decade highs in 2020. The massive Federal Reserve interventions, bailouts, and zero rates provided the life support failing companies needed. From a market perspective, the liquidity flows from the Federal Reserve increased speculative appetites and investors piled into “zombies” with reckless abandon.

Why?  Because of a lack of incentive to guard against risk as investors believe the Fed is protecting them from the consequences of risk.

In other words, the Fed has “insured them” against potential losses.

No-Risk Anywhere

Of course, Neel doesn’t see any moral hazard in the charts above. Nor does he see any “moral hazard” from the distortion of the credit markets either. Currently, yield spreads are trading near historically low levels in the midst of an economic recession.

Nor does he seem to notice the “moral hazard” of both a surge in debt accumulation and inflated asset prices. Such can only exist as long as rates remain near zero and monetary policy remains accommodative.

While Kaskari “doesn’t see any correlation between the Fed’s monetary interventions and the stock market,” even CNBC made the connection.

‘The increase in the Fed’s balance sheet has been in near lockstep with the stock market’s climb. The balance sheet has expanded 10% since October, while the S&P 500 shot up 12%, including notching its best fourth quarter since 2013.’” – CNBC

However, there is no “free lunch.” 

Not The Worst Of It

For the Fed to continue providing monetary support to the markets, they must monetize nearly every dollar of U.S. debt issuance for the foreseeable future.

“Randy Quarles said the Fed might have to remain engaged in asset buying for some time as financial markets are dealing with too many Treasurys to handle on their own. Total public debt now stands at just under $27 trillion, up from $23 trillion in this year’s first quarter. Debt is also $9.4 trillion higher than in the first quarter of 2008 in the midst of the financial crisis and the Government engaged in a long-running surge in borrowing.” – WSJ

Given the amount of debt required to sustain current economic growth, the Fed has no choice but to continue monetization of the Federal debt indefinitely. 

Such leaves only TWO possible outcomes from here, both of them are not good.

  1. Powell & Co. continue to keep rates at zero. As aging demographics strain the pension and social welfare systems, the debt will continue to stifle inflation and economic growth. The cycle that started nearly 40-years ago will continue as the U.S. adopts the “Japan Syndrome.”

  2. The second outcome is far worse, which is an economic decoupling that leads to a massive deleveraging process. Such an event started in 2008 but was cut short by Central Bank interventions. In 2020, the Fed arrested the deleveraging process once again. Both events led to an even more debt-laden system, which increases the risk of a crisis the Fed’s interventions may not stop.

As noted, there is a precedent for a Central Bank becoming nearly the entire holder of the bond market.

Failure To Launch

Since the financial crisis, Japan has been running a massive “quantitative easing” program, which, on a relative basis, is more than 3-times the size of that in the U.S. While stock markets have performed well, economic prosperity is less than before the century’s turn.

Furthermore, despite the BOJ’s balance sheet consuming 80% of the ETF markets, not to mention a sizable chunk of the corporate and government debt market, Japan has been plagued by rolling recessions, low inflation, and low-interest rates. (Japan’s 10-year Treasury rate fell into negative territory for the second time in recent years.)

While financial engineering props up asset prices, I think Japan is a perfect example that financial engineering not only does nothing for an economy over the medium to longer-term, it actually has negative consequences.” – Doug Kass

Forgetting The Lessons Of 2008

The debt problem exposes the Fed’s risk and why they are now forever trapped at the zero-bound.

Given economic growth remained elusive over the last decade, it is unlikely doubling the Fed’s balance sheet will improve future outcomes. While Mr. Kashkari fails to recognize the impact of their policies, we now have a decade of experience showing that surging debt and deficits inhibit organic growth.

The US economy is literally on perpetual life support. Recent events show too clearly that unless fiscal and monetary stimulus continues, the economy, and by extension, the stock market, would fail.

Interestingly, while Mr. Kashkari says he “sees no moral hazard,” he recently stated we are forgetting the lessons of the 2008 financial crisis“:

“The shareholders got bailed out. The boards of directors got bailed out. Management got bailed out. So from their perspective, there was no crisis. We forget the lessons of the 2008 crisis. The bailouts worked too well. Financial crises keep happening ‘because we forget how bad they were.’” – Neel Kashkari

Yes, we bailed out everything, and the consequences of not allowing the system to “clear itself” has led to further distortions in the economy and markets.

The Fed Is The Cause

When the Fed tries to normalize monetary policy, they immediately cause a financial crisis in the market. The resulting destruction of household net worth requires an immediate response by the Fed of zero interest rates and liquidity. Subsequently, they create the next “bubble” to offset the deflation of the last.

A recent Fed study shows the result of their actions is the retardation of economic growth and a massive expansion of the “wealth gap,” where the top-10% controls most of the net worth.

Since a majority of the population does not, or only marginally, participates in the financial markets, the “boost” has remained concentrated to the upper 10%. The Federal Reserve’s study confirms this. So either the Fed willfully chose to ignore the consequences of their actions, or blatantly lied about it.

No Choice

Unfortunately, policy-makers, along with the Federal Reserve, are stuck.

“Since politicians want to get re-elected, sending money to households is a way to ‘buy the vote.’ The average American doesn’t understand their demands on the Government for more support creating their economic inequality.” 

Conversely, the Federal Reserve serves at the mercy of the central Wall Street banks. Such is why their policy focuses on inflating asset prices for the top 10%, hoping it will one day trickle down to the bottom 90%. After a decade, it hasn’t happened.

As noted, Japan is the path we are following.

“Monetary growth (and QE) can mechanically elevate and inflate equity markets. For example, in the U.S. market, a side effect is that via the ‘repo’ market, it turns into leveraged trades into the equity markets. Again, authorities are running out of bullets and have begun to question the efficacy of monetary largess.

The bigger picture takeaway is that financial engineering does not help an economy. It probably hurts it. If it helped, after mega-doses of the stuff in every imaginable form, the Japanese economy would be humming. But the Japanese economy is doing the opposite. Japan tried to substitute monetary policy for sound fiscal and economic policy. And the result is terrible.” – Doug Kass

One thing is for sure, “repeating the same failed actions and expecting a different outcome” has never been a solution for success.

We are reasonably confident it won’t work this time either.

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You Can’t Always Trust What You Hear Online, and Congress Has Some Ideas About Fixing That

rumor

The hearings had been underway for about an hour and 15 minutes when Rep. Raja Krishnamoorthi piped up with an idea. “Are there ways,” the Illinois Democrat asked, “that we might be able to infect…the QAnon conspiracy web with other ideas or stories that could sow confusion and discord and cause it collapse in on itself? In other words, kind of embed other crazy things that might pit groups against each other?”

There was a brief pause. Then Joan Donovan, research director at Harvard’s Shorenstein Center, offered an objection. Algorithmic recommendation systems “respond to that sort of excitement,” she noted, and Krishnamoorthi’s operation might just keep the QAnon conversation alive.

It was October 15, and Donovan was one of four witnesses testifying via video call to the House Intelligence Committee. She was joined by Cindy Otis, a former CIA officer now based at the Alethea Group; by Melanie Smith, who works at the social media analytics firm Graphika; and by Nina Jankowicz, a Wilson Center analyst with the wonderful job title “disinformation fellow.” The hearing was titled “Misinformation, Conspiracy Theories, and ‘Infodemics’: Stopping the Spread Online,” and much of it was given over to discussing what public regulators and private platforms should do about the dubious claims that circulate on social media.

Early in Donovan’s testimony, for example, she quoted a statement Facebook issued in January: “In the absence of regulation, Facebook and other companies are left to design their own policies. We have based ours on the principle that people should be able to hear from those who wish to lead them, warts and all.” Donovan didn’t approve of that approach. “Policies like this push corporate responsibility onto the public and onto other professional sectors,” she complained. As a result, she argued, reporters and others have been left to clean up social media’s messes. “Covering misinformation is a drain on newsrooms’ resources, which could be much better spent on sustaining journalism rather than moderating content on platforms.”

This seems backward to me. Factchecking politicians and chasing down rumors to confirm or debunk them have always been parts of a journalist’s job. Reporters don’t always do those tasks well, but they’re much more likely to get it right than a Facebook moderator is. In my dream world, communicating on social media would typically be as unhindered as communicating on email, and moderators’ scarce attention would be reserved for genuinely abusive behavior, such as violent threats, organized harassment, and commercial fraud.

But that’s my view. The mood at the hearing was much more enthusiastic about centralized control of information, in part because so many people speaking there seemed convinced that we’re in an unprecedented crisis. Otis claimed that we live in “the biggest period of false information in history.” Jankowicz suggested that “the degradation of our information ecosystem” is “dismantling democracy.” Rep. Adam Schiff (D–Calif.), chairing the meeting, announced his hope that Americans one day will “occupy the same shared reality again.” Note that last word: again. I’m not sure when this Edenic past was supposed to be when Americans all shared the same mental universe, but it definitely wasn’t during my lifetime.

No one unveiled a 10-point plan for regulating mis- and disinformation, and I’m not sure the four people testifying—let alone the nine legislators asking them questions—would agree on every aspect of what should be done. (Smith, to her credit, noted that trying to “contain” a conspiracist community ran the risk of “compromising essential freedoms.”) But we did get some hints about potential policies, and I don’t just mean Krishnamoorthi’s COINTELPRO-on-shrooms plan to subvert QAnon by making it even crazier. Notably, both Donovan and Jankowicz said they’d like officials to create a new government agency. Donovan said this bureau could “evaluate what [misinformation’s] actual impact is on other sectors and on our information economies and then come up with recommendations.” Jankowicz went further, suggesting the agency could either “create a new set of rules or see if the rules that [platforms] created for themselves are being enforced fairly.”

Donovan also offered a comparison to the regulation of tobacco, saying that “legislation about smoking had to move beyond the rationale that it was an individual choice and accept that second-hand smoke had public health effects.” There just might be some constitutional problems with treating conspiracy theories like second-hand smoke.

The afternoon’s one voice of skepticism was Rep. Jim Himes, a Connecticut Democrat. (All the legislators present were Democrats—the committee’s Republicans all opted not to show up.) “We’ve had misinformation and yellow journalism and terrible media and voter suppression forever,” Himes pointed out. Were the witnesses really sure, he asked, that the ill effects they were attributing to the internet “wouldn’t have happened without the social media misinformation?”

Jankowicz insisted that the Facebook era really is different, but neither of the examples she offered was very persuasive. One was the allegation that “the Trump campaign used Cambridge Analytica data to selectively target black voters with voter suppression ads.” That’s an odd story to cite when talking about misinformation’s real-world effects, since more and more evidence suggests that Cambridge Analytica was better at marketing itself than at actually changing elections’ outcomes.

Jankowicz’s other example was the band of militiamen charged with plotting to kidnap Michigan Gov. Gretchen Whitmer. Social media, she said, both “played a huge role in allowing that group to organize” and “seeded the misinformation that led them to organize.” But paramilitary cells were hatching violent plans long before Facebook existed—and the FBI has said that it was through social media that it learned of the Michigan plotters’ discussions in the first place. So did these platforms nurture a conspiracy that wouldn’t otherwise have existed, or did they undermine a conspiracy that otherwise might have gone farther? (And was that alleged plot really “seeded” by “misinformation”? These guys may well have believed some false rumors about COVID-19—there are plenty of those floating around, as there always are during an epidemic—but I suspect their resentment of Whitmer’s corona restrictions are rooted more in a different set of opinions than a different set of facts.)

Himes was also the one member of the committee to raise the subject of civil liberties. “Maybe it was growing up in Latin America in the 1970s,” the congressman said, “but I had a pretty up close and personal experience with governments that fought ‘misinformation.'” This background, he continued, made him “violently allergic” to getting the government involved in the information management business, and it also made him wary of pressuring private companies into doing the government’s dirty work for it. “We understand that we shouldn’t be in the business of fighting misinformation—that’s probably inconsistent with the First Amendment,” he said. “So what do we do? We ask that it be outsourced to people that we otherwise are pretty critical of, like Mark Zuckerberg and Jack Dorsey. We say, ‘You do it.’ Which strikes me as a pretty lame way to address what may or may not be a problem.”

Jankowicz responded by reassuring Himes that she didn’t support anything like the “draconian ‘fake news’ laws” that have been adopted in several authoritarian countries. But she roused his civil libertarian instincts again a little later, when she said that social media allows potentially violent groups to organize “without any oversight.”

“I’m out of time,” Himes replied with regret. “I would love to continue this conversation and pursue what you mean by groups being formed, quote, ‘without oversight.’ That also is language I’d like to better understand.” You’re not the only one, congressman.

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SCOTUS Takes a Border Wall Case

The Supreme Court granted certiorari in three cases today: Trump v. Sierra Club, Wolf v. Innovation Law Lab, and Lange v. California. The Court took no action (as yet) on a pending petitions challenging election rules in Pennsylvania.

Trump v. Sierra Club is the most prominent of today’s grants, as it concerns the lawfulness of border wall construction. Specifically, the case concerns whether the plaintiffs have a cause of action to challenge the Defense Department’s reallocation of funds to pay for construction of a wall along the border with Mexico and, if so, whether the Defense Department’s actions were lawful. This grant is not particularly surprising. Judge Collins’ dissent on the Ninth Circuit panel below was a de facto cert petition.

Wolf v. Innovation Law Lab concerns a challenge to the Trump Administration’s Migrant Protection Protocols, aka the “remain in Mexico” policy under which asylum seekers can be forced to wait outside the country while their asylum requests are pending. At issue in this case is not only whether the Trump policy is consistent with the relevant statutes, but also whether this policy change was required to go through notice and comment under the Administrative Procedure Act and whether the district court’s order of a nationwide injunction was proper. Whatever the Court decides on the merits, this case presents another opportunity for the Court to resolve the lingering dispute over universal injunctions. (Note: It’s interesting to think that if the Court constrains so-called nationwide or universal injunctions, a Biden Administration may be the primary beneficiary—much like the Obama Administration was the immediate beneficiary of the relaxed approach to agency reversals adopted in Fox v. FCC.]

The final grant, Lange v. Californiahas the feel of a case granted for error-correction purposes. The question presented is:

Whether the pursuit of a person whom a police officer has probable cause to believe has committed a misdemeanor categorically qualifies as an exigent circumstance sufficient to allow the officer to enter a home without a warrant.

It is hard to see how the Court answers this question in the affirmative. Unless I am missing something, it seems like this could be 7-2, 8-1, or even unanimous.

Also today, Justice Thomas dissented from the denial of certiorari in Rogers County Board of Tax Roll Corrections v. Video Gaming Technologies, a case concerning the implications of McGirt v. Oklahoma for state taxation of video gaming equipment owned by non-Indians but located on tribal lands. The Court may not have been ready for this case, but it will have to consider the fallout from McGirt in due course.

Finally, Justice Gorsuch wrote an opinion respecting the denial of certiorari in Bovat v. Vermont, an interesting Fourth Amendment case out of Vermont. Joined by Justices Kagan and Sotomayor, Justice Gorsuch expressed concerns about how “knock and talk” investigations often “test[] the boundaries of consent” and evade Fourth Amendment limits on police searches and made clear his belief that the Vermont Supreme Court had erred below. Why was this only an opinion respecting denial instead of a dissent? One possibility is that the justices were unsure there would be five votes for reversal without Justice Ginsburg, so they did not push too hard for a grant.

[Note: Post edited to add a little more detail on the MPP.]

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You Can’t Always Trust What You Hear Online, and Congress Has Some Ideas About How To Fix That

rumor

The hearings had been underway for about an hour and 15 minutes when Rep. Raja Krishnamoorthi piped up with an idea. “Are there ways,” the Illinois Democrat asked, “that we might be able to infect…the QAnon conspiracy web with other ideas or stories that could sow confusion and discord and cause it collapse in on itself? In other words, kind of embed other crazy things that might pit groups against each other?”

There was a brief pause. Then Joan Donovan, research director at Harvard’s Shorenstein Center, offered an objection. Algorithmic recommendation systems “respond to that sort of excitement,” she noted, and Krishnamoorthi’s operation might just keep the QAnon conversation alive.

It was October 15, and Donovan was one of four witnesses testifying via video call to the House Intelligence Committee. She was joined by Cindy Otis, a former CIA officer now based at the Alethea Group; by Melanie Smith, who works at the social media analytics firm Graphika; and by Nina Jankowicz, a Wilson Center analyst with the wonderful job title “disinformation fellow.” The hearing was titled “Misinformation, Conspiracy Theories, and ‘Infodemics’: Stopping the Spread Online,” and much of it was given over to discussing what public regulators and private platforms should do about the dubious claims that circulate on social media.

Early in Donovan’s testimony, for example, she quoted a statement Facebook issued in January: “In the absence of regulation, Facebook and other companies are left to design their own policies. We have based ours on the principle that people should be able to hear from those who wish to lead them, warts and all.” Donovan didn’t approve of that approach. “Policies like this push corporate responsibility onto the public and onto other professional sectors,” she complained. As a result, she argued, reporters and others have been left to clean up social media’s messes. “Covering misinformation is a drain on newsrooms’ resources, which could be much better spent on sustaining journalism rather than moderating content on platforms.”

This seems backward to me. Factchecking politicians and chasing down rumors to confirm or debunk them have always been parts of a journalist’s job. Reporters don’t always do those tasks well, but they’re much more likely to get it right than a Facebook moderator is. In my dream world, communicating on social media would typically be as unhindered as communicating on email, and moderators’ scarce attention would be reserved for genuinely abusive behavior, such as violent threats, organized harassment, and commercial fraud.

But that’s my view. The mood at the hearing was much more enthusiastic about centralized control of information, in part because so many people speaking there seemed convinced that we’re in an unprecedented crisis. Otis claimed that we live in “the biggest period of false information in history.” Jankowicz suggested that “the degradation of our information ecosystem” is “dismantling democracy.” Rep. Adam Schiff (D–Calif.), chairing the meeting, announced his hope that Americans one day will “occupy the same shared reality again.” Note that last word: again. I’m not sure when this Edenic past was supposed to be when Americans all shared the same mental universe, but it definitely wasn’t during my lifetime.

No one unveiled a 10-point plan for regulating mis- and disinformation, and I’m not sure the four people testifying—let alone the nine legislators asking them questions—would agree on every aspect of what should be done. (Smith, to her credit, noted that trying to “contain” a conspiracist community ran the risk of “compromising essential freedoms.”) But we did get some hints about potential policies, and I don’t just mean Krishnamoorthi’s COINTELPRO-on-shrooms plan to subvert QAnon by making it even crazier. Notably, both Donovan and Jankowicz said they’d like officials to create a new government agency. Donovan said this bureau could “evaluate what [misinformation’s] actual impact is on other sectors and on our information economies and then come up with recommendations.” Jankowicz went further, suggesting the agency could either “create a new set of rules or see if the rules that [platforms] created for themselves are being enforced fairly.”

Donovan also offered a comparison to the regulation of tobacco, saying that “legislation about smoking had to move beyond the rationale that it was an individual choice and accept that second-hand smoke had public health effects.” There just might be some constitutional problems with treating conspiracy theories like second-hand smoke.

The afternoon’s one voice of skepticism was Rep. Jim Himes, a Connecticut Democrat. (All the legislators present were Democrats—the committee’s Republicans all opted not to show up.) “We’ve had misinformation and yellow journalism and terrible media and voter suppression forever,” Himes pointed out. Were the witnesses really sure, he asked, that the ill effects they were attributing to the internet “wouldn’t have happened without the social media misinformation?”

Jankowicz insisted that the Facebook era really is different, but neither of the examples she offered was very persuasive. One was the allegation that “the Trump campaign used Cambridge Analytica data to selectively target black voters with voter suppression ads.” That’s an odd story to cite when talking about misinformation’s real-world effects, since more and more evidence suggests that Cambridge Analytica was better at marketing itself than at actually changing elections’ outcomes.

Jankowicz’s other example was the band of militiamen charged with plotting to kidnap Michigan Gov. Gretchen Whitmer. Social media, she said, both “played a huge role in allowing that group to organize” and “seeded the misinformation that led them to organize.” But paramilitary cells were hatching violent plans long before Facebook existed—and the FBI has said that it was through social media that it learned of the Michigan plotters’ discussions in the first place. So did these platforms nurture a conspiracy that wouldn’t otherwise have existed, or did they undermine a conspiracy that otherwise might have gone farther? (And was that alleged plot really “seeded” by “misinformation”? These guys may well have believed some false rumors about COVID-19—there are plenty of those floating around, as there always are during an epidemic—but I suspect their resentment of Whitmer’s corona restrictions are rooted more in a different set of opinions than a different set of facts.)

Himes was also the one member of the committee to raise the subject of civil liberties. “Maybe it was growing up in Latin America in the 1970s,” the congressman said, “but I had a pretty up close and personal experience with governments that fought ‘misinformation.'” This background, he continued, made him “violently allergic” to getting the government involved in the information management business, and it also made him wary of pressuring private companies into doing the government’s dirty work for it. “We understand that we shouldn’t be in the business of fighting misinformation—that’s probably inconsistent with the First Amendment,” he said. “So what do we do? We ask that it be outsourced to people that we otherwise are pretty critical of, like Mark Zuckerberg and Jack Dorsey. We say, ‘You do it.’ Which strikes me as a pretty lame way to address what may or may not be a problem.”

Jankowicz responded by reassuring Himes that she didn’t support anything like the “draconian ‘fake news’ laws” that have been adopted in several authoritarian countries. But she roused his civil libertarian instincts again a little later, when she said that social media allows potentially violent groups to organize “without any oversight.”

“I’m out of time,” Himes replied with regret. “I would love to continue this conversation and pursue what you mean by groups being formed, quote, ‘without oversight.’ That also is language I’d like to better understand.” You’re not the only one, congressman.

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SCOTUS Takes a Border Wall Case

The Supreme Court granted certiorari in three cases today: Trump v. Sierra Club, Wolf v. Innovation Law Lab, and Lange v. California. The Court took no action (as yet) on a pending petitions challenging election rules in Pennsylvania.

Trump v. Sierra Club is the most prominent of today’s grants, as it concerns the lawfulness of border wall construction. Specifically, the case concerns whether the plaintiffs have a cause of action to challenge the Defense Department’s reallocation of funds to pay for construction of a wall along the border with Mexico and, if so, whether the Defense Department’s actions were lawful. This grant is not particularly surprising. Judge Collins’ dissent on the Ninth Circuit panel below was a de facto cert petition.

Wolf v. Innovation Law Lab concerns a challenge to the Trump Administration’s Migrant Protection Protocols, aka the “remain in Mexico” policy under which asylum seekers can be forced to wait outside the country while their asylum requests are pending. At issue in this case is not only whether the Trump policy is consistent with the relevant statutes, but also whether this policy change was required to go through notice and comment under the Administrative Procedure Act and whether the district court’s order of a nationwide injunction was proper. Whatever the Court decides on the merits, this case presents another opportunity for the Court to resolve the lingering dispute over universal injunctions. (Note: It’s interesting to think that if the Court constrains so-called nationwide or universal injunctions, a Biden Administration may be the primary beneficiary—much like the Obama Administration was the immediate beneficiary of the relaxed approach to agency reversals adopted in Fox v. FCC.]

The final grant, Lange v. Californiahas the feel of a case granted for error-correction purposes. The question presented is:

Whether the pursuit of a person whom a police officer has probable cause to believe has committed a misdemeanor categorically qualifies as an exigent circumstance sufficient to allow the officer to enter a home without a warrant.

It is hard to see how the Court answers this question in the affirmative. Unless I am missing something, it seems like this could be 7-2, 8-1, or even unanimous.

Also today, Justice Thomas dissented from the denial of certiorari in Rogers County Board of Tax Roll Corrections v. Video Gaming Technologies, a case concerning the implications of McGirt v. Oklahoma for state taxation of video gaming equipment owned by non-Indians but located on tribal lands. The Court may not have been ready for this case, but it will have to consider the fallout from McGirt in due course.

Finally, Justice Gorsuch wrote an opinion respecting the denial of certiorari in Bovat v. Vermont, an interesting Fourth Amendment case out of Vermont. Joined by Justices Kagan and Sotomayor, Justice Gorsuch expressed concerns about how “knock and talk” investigations often “test[] the boundaries of consent” and evade Fourth Amendment limits on police searches and made clear his belief that the Vermont Supreme Court had erred below. Why was this only an opinion respecting denial instead of a dissent? One possibility is that the justices were unsure there would be five votes for reversal without Justice Ginsburg, so they did not push too hard for a grant.

[Note: Post edited to add a little more detail on the MPP.]

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San Diego Public Schools Will Overhaul Its Grading System To Achieve ‘Anti-Racism’

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San Diego’s public schools want to be anti-racist, so they’re…abolishing the traditional grading system?

“This is part of our honest reckoning as a school district,” San Diego Unified School District Vice President Richard Barrera told a local NBC affiliate. “If we’re actually going to be an anti-racist school district, we have to confront practices like this that have gone on for years and years.”

District officials evidently believe that the practice of grading students based on their average score is racist, and that an active effort to dismantle racism necessitates a learning environment free of the pressure to turn in assignments on time. As evidence for the urgency of these changes, the district released data showing that minority students received more Ds and Fs than white students: Just 7 percent of whites received failing grades, as opposed to 23 percent of Native Americans, 23 percent of Hispanics, and 20 percent of black students.

Under the new system, students will not be penalized for failing to complete assignments, and teachers will give them extra opportunities to demonstrate mastery of subjects. The grades they receive upon completion of a course will no longer reflect their average test and assignment scores. “Common grading practices such as averaging a student’s grade over time can disadvantage students who started the year behind grade level and can discredit the progress a student has made, experts have said,” noted The San Diego Union Tribune.

The new approach—which is rather confusingly written—still includes letter grades, but these will reflect student’s “mastery” of the subject rather than their completion of homework, quizzes, and tests. What constitutes mastery is left unexplained. Grades “shall not be influenced by behavior or factors that directly measure students’ knowledge and skills in the content area,” which sounds like a recipe for highly subjective grading. And a great deal of leniency will now be given to students who don’t do the work for a course, including those who don’t show up at all: Attendance can no longer be a factor in grading.

In any case, ending these kinds of grades doesn’t actually eliminate the underlying inequities that produced the disparate Fs. It may actually cover those inequities up: Given that grades are a tool for evaluating students’ progress, the district is essentially announcing that it will no longer gather as much evidence about the negative social phenomena it would probably like to address. Better grades do not mean students will suddenly have a better grasp of the material. They certainly won’t be better prepared for college (where traditional grades are very much still a thing).

Indeed, this comes perilously close to addressing poverty by no longer tallying the number of homeless people—or, to use a timely example, President Donald Trump’s frustration that increasing COVID-19 testing will make the epidemic look worse. Coronavirus cases exist even if they go undetected; similarly, minority students who are falling behind their classmates will be falling behind even if their teachers aren’t giving them Fs.

Eliminating grades and standardized testing has become something of a crusade for California progressives. California’s public universities, for instance, announced earlier this year that they would no longer require applicants to take either the SAT, a measure on which white students have historically outperformed others. But this elides a serious problem for minority students: Other admissions criteria—such as legacy considerations and extracurricular activities—favor privileged applicants even more dramatically than grades and tests do. The wealthiest (and usually whitest) students have better access to résumé-padding activities; yes, they can also hire tutors and take test prep courses, but there’s only so much extra value to be extracted from these things.

At present, San Diego schools are only open for a handful of special-needs students. What district kids need most of all is probably a return to normalcy, as soon as possible. An experimental system that eliminates year-end letter grades seems like an especially bad idea for the current moment.

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Supreme Court Agrees To Review Two Trump Immigration Cases

Supreme Court Agrees To Review Two Trump Immigration Cases

Tyler Durden

Mon, 10/19/2020 – 10:41

The Supreme Court agreed on Monday to review two controversial immigration policies from the Trump administration – the construction of a southern US border wall using diverted funds from the Pentagon, and a requirement that those seeking asylum at the border wait in Mexico while their cases are considered.

The justices will hear an appeal from the Department of Justice regarding a 2019 lower court ruling which found that the latter policy likely violated federal immigration law, according to Reuters.

The program, called Migrant Protection Protocols, remains in effect because the Supreme Court in March put the lower court’s decision to block the policy on hold while the legal battle continues. –Reuters

The cases should be heard sometime after the likely confirmation of Judge Amy Coney Barrett, and will likely mark the first major legal issue before the 6-3 conservative majority court.

 

 

via ZeroHedge News https://ift.tt/2T6EAU3 Tyler Durden

San Diego Public Schools Will Overhaul Its Grading System To Achieve ‘Anti-Racism’

San Diego’s public schools want to be anti-racist, so they’re…abolishing the traditional grading system?

“This is part of our honest reckoning as a school district,” San Diego Unified School District Vice President Richard Barrera told a local NBC affiliate. “If we’re actually going to be an anti-racist school district, we have to confront practices like this that have gone on for years and years.”

District officials evidently believe that the practice of grading students based on their average score is racist, and that an active effort to dismantle racism necessitates a learning environment free of the pressure to turn in assignments on time. As evidence for the urgency of these changes, the district released data showing that minority students received more Ds and Fs than white students: Just 7 percent of whites received failing grades, as opposed to 23 percent of Native Americans, 23 percent of Hispanics, and 20 percent of black students.

Under the new system, students will not be penalized for failing to complete assignments, and teachers will give them extra opportunities to demonstrate mastery of subjects. The grades they receive upon completion of a course will no longer reflect their average test and assignment scores. “Common grading practices such as averaging a student’s grade over time can disadvantage students who started the year behind grade level and can discredit the progress a student has made, experts have said,” noted The San Diego Union Tribune.

The new approach—which is rather confusingly written—still includes letter grades, but these will reflect student’s “mastery” of the subject rather than their completion of homework, quizzes, and tests. What constitutes mastery is left unexplained. Grades “shall not be influenced by behavior or factors that directly measure students’ knowledge and skills in the content area,” which sounds like a recipe for highly subjective grading. And a great deal of leniency will now be given to students who don’t do the work for a course, including those who don’t show up at all: Attendance can no longer be a factor in grading.

In any case, ending these kinds of grades doesn’t actually eliminate the underlying inequities that produced the disparate Fs. It may actually cover those inequities up: Given that grades are a tool for evaluating students’ progress, the district is essentially announcing that it will no longer gather as much evidence about the negative social phenomena it would probably like to address. Better grades do not mean students will suddenly have a better grasp of the material. They certainly won’t be better prepared for college (where traditional grades are very much still a thing).

Indeed, this comes perilously close to addressing poverty by no longer tallying the number of homeless people—or, to use a timely example, President Donald Trump’s frustration that increasing COVID-19 testing will make the epidemic look worse. Coronavirus cases exist even if they go undetected; similarly, minority students who are falling behind their classmates will be falling behind even if their teachers aren’t giving them Fs.

Eliminating grades and standardized testing has become something of a crusade for California progressives. California’s public universities, for instance, announced earlier this year that they would no longer require applicants to take either the SAT, a measure on which white students have historically outperformed others. But this elides a serious problem for minority students: Other admissions criteria—such as legacy considerations and extracurricular activities—favor privileged applicants even more dramatically than grades and tests do. The wealthiest (and usually whitest) students have better access to résumé-padding activities; yes, they can also hire tutors and take test prep courses, but there’s only so much extra value to be extracted from these things.

At present, San Diego schools are only open for a handful of special-needs students. What district kids need most of all is probably a return to normalcy, as soon as possible. An experimental system that eliminates year-end letter grades seems like an especially bad idea for the current moment.

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Stocks Suddenly Plunge Into Red

Stocks Suddenly Plunge Into Red

Tyler Durden

Mon, 10/19/2020 – 10:20

US equity markets have very quickly erased their overnight gains on no obvious news-driven catalyst this morning.

It looks like the ramp was to erase the late-day plunge on Friday, run stops…

The Small-Caps/Big-Tech unwind continues…

Our suspicion, as we warned on Friday, is this is gamma-related.

Futures have retraced the late Friday swoon and are trading near 3490. Our gamma index does not pick up that much of a change from Fridays close and is anticipating at a 1% range today. 3500 is still registering as the largest gamma strike, with very little in the way of call positions below. This chart shows the size of call closures after the October OPEX wherein every strike <=3500 saw call OI closed.

The resulting setup seems to indicate that any move under 3475 could spark sharp selling. To the upside we think the 3500-3525 range is fairly sticky in the short term. However, if there is some further election or stimulus consensus we note 3600SPX/360SPY as a large area of call concentration and overhead target into November OPEX.

So what happens next?

 

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National Injunction Case Added to the Court’s Docket

This morning, for the fourth time in the last two decades, the Supreme Court of the United States has granted certiorari to address the legality of the national injunction. The case is Wolf v. Innovation Law Lab (SCOTUSBlog’s case page is here). The injunction question–”whether the district court’s universal preliminary injunction is impermissibly overbroad”–is the fourth of the four questions presented.

The panel decision below was by Judge Fletcher. After noting that “nationwide injunctions have become increasingly controversial” and arguing that the district court’s injunction in the case was not truly national (just the southern border), Judge Fletcher gave two reasons for affirming it: the APA and immigration exceptionality.

The immigration exceptionality argument is very weak as a matter of constitutional text and history–”an uniform rule of naturalization” is not a synecdoche for uniform immigration law, much less uniformity in judicial remedies in cases related to immigration. I suspect that reason only shows up as much as it does because of its invocation by the Fifth Circuit in the waning days of the Obama administration, which has made it a convenient citation over the last four years. (This is not to fault Judge Fletcher’s use of it; that the case occurs in an immigration context has now been repeatedly cited by the Ninth Circuit as a rationale for national injunctions, as can be seen in this review of the Ninth Circuit’s recent national injunction cases by William Yeatman.)

By contrast, the APA argument given by Judge Fletcher is the serious one, with serious points to be made on both sides. The leading pieces are by John Harrison (short version here) and Mila Sohoni. My own view is that the APA text and context cut strongly against national injunctions, and that the best support that can be mustered for them is more recent lower court precedent and practice. The brief filed by Nick Bagley and me in the last national injunction case at the Court, which also arose under the APA, is here. (Goes without saying, but the position Nick and I take on the national injunction has nothing to do with who is president.)

If you’ve followed the recent national injunction cases in which the Court granted cert, or the one from over a decade ago (Summers v. Earth Island Institute), you probably know why the Court grants these cases but then doesn’t resolve the national injunction question: the remedies question comes last, and in each case the Court has resolved the merits in a way that means it doesn’t reach the question of remedy. Whether that will happen again is a question I leave to those with more expertise in the substantive law implicated by Wolf v. Innovation Law Lab.

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