Ideoblog

A public choice theory of Genesis

Geoffrey Miller (NYU) writes about the Origin of Obligation: Genesis 2:4b-3:24:

This paper analyzes the Eden narrative (Genesis 2:4b-3:24) as a philosophical account of the origins and extent of political obligation and the consequences of its breach. The strong (but not unlimited) form of obligation identified in the text would have been congenial to the interests of the leaders under whose auspices the narrative appears to have been compiled and preserved.

Here's more:

[T]he message of the text is straightforward. A citizen's job is to work hard and appreciate the manifold benefits he receives from the king: peace, security, and the opportunity for a fulfilling life. Citizens should not concern themselves with questions of policy, which are properly reserved for the king and his ministers. Moreover, they are not supposed to break the rules imposed on them by their governments. Even if the ruler is absent the citizen's duty is to obey. But merely breaking a rule is far less dangerous than the more fundamental transgression of subversion, an offense deserving of the most severe punishment. Such a doctrine of breach would have been appealing to rulers in Ancient Israel because it encouraged unquestioning disobedience to the laws, and more particularly because it strictly and unequivocally condemned the type of breach that would be most dangerous to a ruler – subversion or rebellion from within.

Post-crisis federalism and insurance

David Zaring says

I'd guess that the crisis makes it more likely that there will be federal chartering of insurers, though I doubt Larry Ribstein will be pleased about it.

No, I wouldn’t, for the reasons Henry Butler and I give in our A Single-License Approach to Regulating Insurance.

Of course people are more worried than ever about financial safety, and are skeptical the states can provide it. But they may be thinking about the current “federalism” in which insurers operate in a chaotic environment of multiple regulators and states provide the only regulatory option. Butler and I argue for true insurance regulation competition via a choice of regulators, with the federal government playing a backstop role.

It seems to me that the current crisis strengthens rather than weakens our argument. After all, has federal regulation of banking has brought us such wonderful results? 

Islamic finance and taxing carry

Thursday’s WSJ ran an interesting article on Islamic finance – a topic I’ve been interested in for awhile, partly because of its connection with partnerships.

The article discusses a company I first heard about around five years ago called Guidance Financial Group, which sells a partnership alternative to mortgages to Shariah observant home buyers. The article focuses on Sheik Yusuf Talal DeLorenzo, who helped Guidance design its product. According to the WSJ:

It took a year and a half to hammer out a solution that they believed could not only comply with Shariah, but also clear the various home-finance regulations of individual states. It also needed to be eligible for financing by mortgage giant Freddie Mac. "We had to essentially reinvent the entire mortgage process -- from the day you talk to the consumer, to the day the mortgage gets sold on Wall Street," says Dr. Hammour. Guidance offers a co-ownership agreement known as a musharaka, a slightly different strategy than that of Devon Bank. The customer and Guidance jointly form a new corporation to own the home. Part of the customer's monthly payment goes toward buying out Guidance's share and part is a "utility fee," which the home buyer pays in exchange for using the asset. Guidance says it keeps the fees roughly competitive with the market in 30-year mortgage interest rates, though there are added fees connected with the co-ownership venture. By the end of the term, the home buyer has completely bought out Guidance's stake and wholly owns the house. Guidance reports the transaction to the IRS as a conventional mortgage, like Devon Bank, and says its customers generally take a regular deduction. Guidance says it reached $1 billion in such financing in June, and is now operating in 21 states and Washington, D.C. The firm contends the market for Shariah-compliant mortgages in the U.S. could top $10 billion a year.

The article also discusses Shariah compliant hedge funds – pretty weird because hedge funds seem to be the essence of the speculation that Shariah shuns. Among other things, the fund avoids companies that have too much debt. Sounds a little like the tax debt-equity distinction.

Which then got me thinking about another hot issue – whether the "carry" earned by private equity fund managers should be taxed as capital gains or ordinary income. As I noted a couple of weeks ago:

[David] Weisbach argues that the labor involved in private equity investments "is the same type of labor that is intrinsic to any investment activity." Like any investors, they decide what to invest in, arrange financing, and decide when to sell. It shouldn't make a difference that he's using the limited partners' funds, because this is essentially no different from borrowing from them -- i.e., buying on margin.

So if a bank can be a partner with a homebuyer instead of a lender for Shariah purposes, can private equity investors be lenders instead of partners for tax purposes? Or is tax law less tolerant of arbitrage than Shariah? 

For some other readings on Islamic finance, there was an interesting issue of the Fordham International Law Journal a few years ago. Mahmoud El-Gamal, who is quoted in the WSJ article, contributed "Interest" and the paradox of contemporary Islamic law and finance, 27 Fordham Int'l L.J. 108  (2003). See also Umar F. Moghul and Arshad A. Ahmed, Contractual forms in Islamic finance law and Islamic Inv. Co. of the Gulf (Bahamas) Ltd. v. Symphony Gems N.V. & Ors.: a first impression of Islamic finance, 27 Fordham Int'l L.J. 150 (2003). And Michael Knoll, Regulatory Arbitrage using Put-Call Parity, does a really good job of critiquing all this from a finance perspective.

Merry Christmas

Because I'm Jewish, I don't celebrate Christmas.  But that doesn't mean that I can't be, can't wish that others are, or resent others wishing me to be, merry on this day.    And if these things did bother me, they wouldn't bother me less because people referred obscurely to a "holiday" that falls around this time of year.  Of course I might hope that they would want me to happy on my holiday too, but I don't regard such a wish as a prerequisite to the other wishes referred to hereinabove, just as I don't require them to wish me happiness on days other than either Christmas or Hanukkah. 

Any questions?

The Internet and the disintermediation of religion

Fred Gedicks and Roger Hendrix have recently posted the abstract (though not the whole article) of Religious Experience in the Age of Digital Reproduction. Here's an excerpt:

We argue that there are no reliable means of distinguishing classic religious experiences, like Moses's encounter with Jehovah in the burning bush, or St. Paul's encounter with Jesus on the road to Damascus, from the religious experiences of ordinary people triggered by vehicles of mass culture. We lack access to the template of "original" religious experience, and thus the means for determining which religious experiences are authentic, and which merely imitations. The combination of vast information about diverse religious experiences made accessible by the digital revolution, and epistemological uncertainty brought on by contemporary postmodern sensibilities, has moved religious experience beyond the control of denominational and institutional religion, to the control of the masses. Marketplace democracy now determines what is real and true, and only religions that adapt themselves to this reality will survive as mass phenomena.

In other words, just as the Internet has given ordinary people direct access to medical and investment advice and a host of other things, so it allows them to bypass established religion. People don't need religious leaders to tell them whether religious experience is genuine, anymore than they need Walter Cronkite to tell what to think about the Swift Boat veterans. This seems to me to be a remarkable message from a Mormon author, as at least Fred is (I know him from the beginning of his teaching career).

I recognize, though, that the real message may be that the "marketplace" is cheapening genuine religion. The article's title, after all, evokes Walter Benjamin's The Work of Art in the Age of Mechanical Reproduction.

I'm looking forward to reading the article to see what it actually says. Or is that beside the point in the age of the Internet?