Monthly Archives: September 2015

“As long as we’re making education about the adults and not the children, that’s a problem. There are a lot of agendas being pursued at a cost to our kids, and resources are irrelevant if there’s no accountability…

…as to how they’re used. What I think we really need is a children’s union….So they take ownership (the children). The teachers have annual contracts; there’s no business in the world that could succeed if employees who worked for three years got a job for life. The parents are accountable too. They need to acknowledge, accept, and embrace the objectives set for their children. They come in, they volunteer time, they sign off on homework assignments. You have to cover all the bases.” Andre Agassi, September 21, 2015

Opinion

Notable & Quotable: Educator Andre Agassi

‘Resources are irrelevant if there’s no accountability’

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Andre Agassi attending Nike’s ‘NYC Street Tennis’ event on August 24, 2015 in New York City. PHOTO: DENNIS VAN TINE/GEISLER-FOTOPRES/DPA VIA ZUMA PRESS

From an interview with retired professional tennis player Andre Agassi, who runs a foundation and charter school in Las Vegas, in the October issue of the Harvard Business Review:

HBR: What do you think is wrong with the way kids are educated today, and how are you trying to fix it?

Agassi: As long as we’re making education about the adults and not the children, that’s a problem. There are a lot of agendas being pursued at a cost to our kids, and resources are irrelevant if there’s no accountability as to how they’re used. What I think we really need is a children’s union. My own mission is to focus on impact. I’m not one to sit in a boardroom and talk about something. I’d rather roll up my sleeves and get in the trenches. Clark County in Las Vegas is the fifth largest school district in America, and we’re 50th as measured by the kids we put into college—so what a great testing laboratory.

HBR: What sets your school apart?

Agassi: One difference is time on task. There are no shortcuts. We have longer school days—eight hours versus six. If you add that up, it’s 16 years of education versus 12 for district peers. There’s also an emphasis on accountability, which starts with the kids themselves. They know this is a privilege: There are 1,000 kids on the waiting list. So they take ownership. The teachers have annual contracts; there’s no business in the world that could succeed if employees who worked for three years got a job for life. The parents are accountable too. They need to acknowledge, accept, and embrace the objectives set for their children. They come in, they volunteer time, they sign off on homework assignments. You have to cover all the bases.

“…a close reading of the Yates memo and her remarks at NYU have us wondering if the point of this exercise is not better targeting of prosecutions but simply a desire to take more corporate scalps to appease the progressive left. This crowd has never forgiven former Assistant Attorney General for the Criminal Division Lanny Breuer for not jailing more bankers after the financial crisis…

…The truth is that responding to ill-conceived government incentives to take on mortgage risk is not a crime. But the Elizabeth Warren crowd wants to see the suits in shackles. Ms. Yates also says that the government will demand tougher settlement terms from both individuals and companies, and the result may be “fewer settlements” and “fewer guilty pleas.” That would be good if trials establish what really happened and whether it was illegal. But without a clear statement that Washington is going to stop extracting cash from innocent shareholders, it’s hard to see Justice’s new guidance as anything more than a new phase of banker scapegoating to appease the mob.”, The Wall Street Journal Editorial Board, September 16, 2015

Opinion

More Defendants Wanted

Justice aims to prosecute more people for white-collar crime.

Deputy Attorney General Sally Quillian Yates testifies before the Senate Judiciary Committee hearing on July 8, 2015.

Deputy Attorney General Sally Quillian Yates testifies before the Senate Judiciary Committee hearing on July 8, 2015. Photo: mandel ngan/Agence France-Presse/Getty Images

The Justice Department on Wednesday is hosting a conference in Washington on “individual accountability for corporate wrongdoing.” Deputy Attorney General Sally Quillian Yates will instruct colleagues on how to prosecute human beings—not just organizations—for white-collar crime. But if you prosecute the offenders, why do you need to charge organizations?

In a departmental memo last week and a subsequent speech at New York University’s law school, Ms. Yates laid out new guidance for prosecutors intended to ensure “best efforts” to hold accountable the individuals responsible for corporate and financial malfeasance.

Upon seeing this news, we were initially tempted to cheer. These columns have long urged prosecutors to punish employees who break the law, rather than demanding cash settlements from their employers, which really means punishing shareholders who are often victims unaware of wrongdoing.

But a close reading of the Yates memo and her remarks at NYU have us wondering if the point of this exercise is not better targeting of prosecutions but simply a desire to take more corporate scalps to appease the progressive left. This crowd has never forgiven former Assistant Attorney General for the Criminal Division Lanny Breuer for not jailing more bankers after the financial crisis.

The truth is that responding to ill-conceived government incentives to take on mortgage risk is not a crime. But the Elizabeth Warren crowd wants to see the suits in shackles. And the new guidance from Justice suggests that the goal is not so much to charge alleged criminals instead of the shareholders who had the misfortune to employ them, but in addition to the investors who may have been victimized.

In her NYU speech Ms. Yates said that when wrongdoing occurs, Justice doesn’t want “only the company’s employees and shareholders to pay the price.” She said Justice’s approach “means pursuing not just corporate entities, but also the individuals through which these corporations act.”

But corporate decisions are made by individuals who use the corporate structure to do good or ill. Ms. Yates says that “once a case is underway, the inquiry into individual misconduct can and should proceed in tandem with the broader corporate investigation.” Are the bad acts of individuals merely a subset of corporate wrongdoing? Besides the human employees, we’re wondering who else commits fraud.

Ms. Yates also says that the government will demand tougher settlement terms from both individuals and companies, and the result may be “fewer settlements” and “fewer guilty pleas.” That would be good if trials establish what really happened and whether it was illegal.

But without a clear statement that Washington is going to stop extracting cash from innocent shareholders, it’s hard to see Justice’s new guidance as anything more than a new phase of banker scapegoating to appease the mob.

“…it is the Fed’s artificially low interest rates that set up the economy for the 2008 crisis, not to mention previous crises. In 2000 the stock market, bloated by earlier Fed rate cuts, started falling when the tech bubble burst. Markets bottomed out in 2002, as the Fed slashed rates. Although people hailed then-chairman Alan Greenspan as “the Maestro” for providing a so-called soft landing, in hindsight he simply replaced the dot-com bubble with a housing bubble…

…When the housing bubble eventually burst, the crisis was much worse than in 2000. When Lehman Brothers failed in September 2008, it seemed as if the whole financial infrastructure was in jeopardy. And Fed Chairman Ben Bernanke followed the same playbook: cut interest rates. When near-zero-percent interest rates did not jump-start the economy, the Fed launched a series of “quantitative easing” (QE) programs, buying unprecedented amounts of Treasurys and mortgage-backed securities. The Fed has roughly quintupled its balance sheet, going from $905 billion in early September 2008 to almost $4.5 trillion today…..The master fallacy underlying so much economic commentary is to imagine that a handful of experts in Washington should be setting the price of borrowing money. Instead, the Fed should set markets free……. At its core, the market economy is a homeostatic mechanism that self-corrects by cleansing mistakes from the system. When policy makers—in the Fed or Congress—try to spare us from all pain, they cripple that mechanism and ironically make the system vulnerable to a major crash. Consider an analogy. When the U.S. Forest Service took a zero-tolerance approach to forest fires 100 years ago, what ultimately happened was a massive wildfire at Yellowstone National Park in 1988 that wiped out more than 30 times the acreage of any previously recorded fire. Paradoxically, by refusing to allow small fires to run their natural course, the forest managers made the entire park vulnerable to a giant inferno. What is true of forests holds for the economy: When governments create a lie, whether it’s a fabricated ecology of no fires or a fabricated economy of no failures, the truth reveals itself even more violently than otherwise. Attempts to stop any dips in the stock market with monetary stimulus postpone the necessary adjustments to how and where resources and workers are deployed. Interest rates are a vital signal in the market; they must be allowed to do their job—that is, they must be allowed to be free. The sooner Fed officials withdraw their artificial monetary injections and let interest rates rise to their natural level set by free markets rather than government decree, the sooner the economy can return to genuine, sustainable growth.”, Rand Paul and Mark Spitznagel, “If Only the Fed Would Get Out of the Way”, The Wall Street Journal, September 16, 2015

Opinion

If Only the Fed Would Get Out of the Way

Monetary policy designed to spare us from pain has instead made the system more vulnerable to a crash.

Federal Reserve Chair Janet Yellen testifying on Capitol Hill, July 16.

Federal Reserve Chair Janet Yellen testifying on Capitol Hill, July 16. Photo: Getty Images

By Rand Paul and Mark Spitznagel

The recent tumult in U.S. equity markets has prompted many analysts to urge the Fed to postpone any increase in interest rates. This advice assumes that rock-bottom interest rates are balm for a weak economy, with the only possible side effect being price inflation. Yet it is the Fed’s artificially low interest rates that set up the economy for the 2008 crisis, not to mention previous crises.

The “doves” are right to point out that higher interest rates will lead to a repricing of many securities, aka a crash. But years of near-zero interest rates have made this inevitable. Continuing on the current course will only allow structural distortions caused by these interest rates to fester and an inevitable reckoning that will be much worse than seven years ago.

The master fallacy underlying so much economic commentary is to imagine that a handful of experts in Washington should be setting the price of borrowing money. Instead, the Fed should set markets free.

In their theory of business cycles, the Austrian economists Ludwig von Mises and Friedrich Hayek explained several decades ago that artificially cheap credit misleads entrepreneurs and investors into doing the wrong things—which in the current financial context includes making unsustainable, levered investments in risky assets, including companies loading up on debt to buy back and boost the price of their stock. Low interest rates may create an illusion of robust markets, but eventually rates spike, assets are suddenly revealed to be too highly priced, and debt unpayable. Many firms have to cut back production or shut down, unemployment rises and the boom goes bust.

The Austrian diagnosis leads to an unorthodox prescription: Rather than provide “stimulus” to boost demand during a slump, the Federal Reserve and Congress should stand aside. Recessions are a painful but necessary corrective process as resources—including labor—are guided toward more sustainable niches, in light of the errors made during the giddy boom period.

In 2000 the stock market, bloated by earlier Fed rate cuts, started falling when the tech bubble burst. Markets bottomed out in 2002, as the Fed slashed rates. Although people hailed then-chairman Alan Greenspan as “the Maestro” for providing a so-called soft landing, in hindsight he simply replaced the dot-com bubble with a housing bubble.

When the housing bubble eventually burst, the crisis was much worse than in 2000. When Lehman Brothers failed in September 2008, it seemed as if the whole financial infrastructure was in jeopardy. And Fed Chairman Ben Bernanke followed the same playbook: cut interest rates.

When near-zero-percent interest rates did not jump-start the economy, the Fed launched a series of “quantitative easing” (QE) programs, buying unprecedented amounts of Treasurys and mortgage-backed securities. The Fed has roughly quintupled its balance sheet, going from $905 billion in early September 2008 to almost $4.5 trillion today.

The U.S. stock market rose with each new wave of QE. Does this wealth represent genuine economic progress? Economic growth is still far below previous recoveries. Unfortunately, the performance of equities, as well as the unprecedented increase in public and private debt, may be another asset bubble in the making, leading to another inevitable crisis likely worse than in 2008.

At its core, the market economy is a homeostatic mechanism that self-corrects by cleansing mistakes from the system. When policy makers—in the Fed or Congress—try to spare us from all pain, they cripple that mechanism and ironically make the system vulnerable to a major crash.

Consider an analogy. When the U.S. Forest Service took a zero-tolerance approach to forest fires 100 years ago, what ultimately happened was a massive wildfire at Yellowstone National Park in 1988 that wiped out more than 30 times the acreage of any previously recorded fire. Paradoxically, by refusing to allow small fires to run their natural course, the forest managers made the entire park vulnerable to a giant inferno.

What is true of forests holds for the economy: When governments create a lie, whether it’s a fabricated ecology of no fires or a fabricated economy of no failures, the truth reveals itself even more violently than otherwise. Attempts to stop any dips in the stock market with monetary stimulus postpone the necessary adjustments to how and where resources and workers are deployed. Interest rates are a vital signal in the market; they must be allowed to do their job—that is, they must be allowed to be free.

The sooner Fed officials withdraw their artificial monetary injections and let interest rates rise to their natural level set by free markets rather than government decree, the sooner the economy can return to genuine, sustainable growth.

Mr. Paul is a U.S. senator from Kentucky and a Republican presidential candidate. Mr. Spitznagel is the chief investment officer of Universa Investments and an economic adviser to the Paul campaign.

“Far from a proslavery compact of “racist principles,” the Constitution was based on a repudiation of the idea of a nation dedicated to the proposition of property in humans. Without that antislavery outcome in 1787, slavery would not have reached “ultimate extinction” in 1865…

…THE Civil War began over a simple question: Did the Constitution of the United States recognize slavery — property in humans — in national law? Southern slaveholders, inspired by Senator John C. Calhoun of South Carolina, charged that it did and that the Constitution was proslavery; Northern Republicans, led by Abraham Lincoln, and joined by abolitionists including Frederick Douglass, resolutely denied it. After Lincoln’s election to the presidency, 11 Southern states seceded to protect what the South Carolina secessionists called their constitutional “right of property in slaves.” The war settled this central question on the side of Lincoln and Douglass. Yet the myth that the United States was founded on racial slavery persists, notably among scholars and activists on the left who are rightly angry at America’s racist past……The myth, ironically, has led advocates for social justice to reject Lincoln’s and Douglass’s view of the Constitution in favor of Calhoun’s. And now the myth threatens to poison the current presidential campaign. The United States, Bernie Sanders has charged, “in many ways was created, and I’m sorry to have to say this, from way back, on racist principles, that’s a fact.”

But as far as the nation’s founding is concerned, it is not a fact, as Lincoln and Douglass explained. It is one of the most destructive falsehoods in all of American history.”, Sean Wilentz, “Constitutionally, Slavery Is No National Institution”, The New York Times, September 16, 2015

The Opinion Pages

Constitutionally, Slavery Is No National Institution

By SEAN WILENTZ

Credit Spencer Platt/Getty Images

THE Civil War began over a simple question: Did the Constitution of the United States recognize slavery — property in humans — in national law? Southern slaveholders, inspired by Senator John C. Calhoun of South Carolina, charged that it did and that the Constitution was proslavery; Northern Republicans, led by Abraham Lincoln, and joined by abolitionists including Frederick Douglass, resolutely denied it. After Lincoln’s election to the presidency, 11 Southern states seceded to protect what the South Carolina secessionists called their constitutional “right of property in slaves.”

The war settled this central question on the side of Lincoln and Douglass. Yet the myth that the United States was founded on racial slavery persists, notably among scholars and activists on the left who are rightly angry at America’s racist past. The myth, ironically, has led advocates for social justice to reject Lincoln’s and Douglass’s view of the Constitution in favor of Calhoun’s. And now the myth threatens to poison the current presidential campaign. The United States, Bernie Sanders has charged, “in many ways was created, and I’m sorry to have to say this, from way back, on racist principles, that’s a fact.”

But as far as the nation’s founding is concerned, it is not a fact, as Lincoln and Douglass explained. It is one of the most destructive falsehoods in all of American history.

Yes, slavery was a powerful institution in 1787. Yes, most white Americans presumed African inferiority. And in 1787, proslavery delegates to the Constitutional Convention in Philadelphia fought to inscribe the principle of property in humans in the Constitution. But on this matter the slaveholders were crushed.

James Madison (himself a slaveholder) opposed the ardent proslavery delegates and stated that it would be “wrong to admit in the Constitution the idea that there could be property in men.” The Constitutional Convention not only deliberately excluded the word “slavery,” but it also quashed the proslavery effort to make slavery a national institution, and so prevented enshrining the racism that justified slavery.

The property question was the key controversy. The delegates could never have created a federal union if they had given power to the national government to meddle in the property laws of the slave states. Slavery would have to be tolerated as a local institution. This hard fact, though, did not sanction slavery in national law, as a national institution, as so many critics presume. This sanction was precisely what the proslavery delegates sought with their failed machinations to ensure, as Madison wrote, that “some provision should be included in favor of property in slaves.” Most of the framers expected slavery to gradually wither away. They would do nothing to obstruct slavery’s demise.

The South did win some concessions at the convention, but they were largely consolation prizes. The notorious three-fifths clause tied slaveholding to political power, but proslavery delegates, led by South Carolinians, repeatedly pressed for slaves to be counted as full persons, which Charles Pinckney professed was “nothing more than justice.” They finally conceded to the three-fifths compromise. Over time, the congressional bulwark of the slave power became the Senate, where the three-fifths rule did not apply.

The proslavery delegates desperately wanted the Constitution to bar the national government from regulating the Atlantic slave trade, believing it would be an enormous blow against slavery. The first draft of the Constitution acceded to their bluster. But antislavery Northerners erupted in protest and proposed that the new government have the power not only to regulate the trade but also to abolish it after 1800. The proslavery men, over Madison’s furious objection, got the date extended to 1808, but it was a salvage operation.

In the convention’s waning days, proslavery delegates won a clause for the return of runaway slaves from free states. Yet the clause was a measure of slavery’s defensiveness, prompted by then landmark Northern gradual emancipation laws, and was so passively worded that enforcement was left to nobody, certainly not the federal government. Antislavery Northerners further refined the wording to ensure it did not recognize slaves as property.

As slavery was abolished throughout the North and as Southern slavery became an internal empire, proslavery advocates tried to reverse the framers’ work, claiming that, with the fugitive servant clause, the Constitution actually established slaves as property in national law. “[H]ave we not a right, under the Constitution, to our property in our slaves?” Senator Calhoun declared in 1840. This became the foundation for proslavery arguments about the expansion of slavery into the national territories that divided the nation in the 1850s.

Antislavery leaders answered with chapter and verse that the framers had refused to extend a constitutional right to property in slaves, and that therefore Congress was empowered to halt slavery’s expansion, putting slavery, in Lincoln’s phrase, on “the course of ultimate extinction.” Douglass broke with those abolitionists who, he said, “hold the Constitution to be a slaveholding instrument.” Running for president in 1860, Lincoln asserted that the framers had operated “on purpose to exclude from the Constitution the idea that there could be property in man.” He added that “[t]o show all this is easy and certain.” It was so well understood in 1860 that it provoked the Civil War.

Far from a proslavery compact of “racist principles,” the Constitution was based on a repudiation of the idea of a nation dedicated to the proposition of property in humans. Without that antislavery outcome in 1787, slavery would not have reached “ultimate extinction” in 1865.

Sean Wilentz’s new book, “The Politicians & the Egalitarians: The Hidden History of American Politics,” will be published next spring.

A version of this op-ed appears in print on September 16, 2015, on page A27 of the New York edition with the headline: Lincoln and Douglass Had It Right

“Roughly ten years ago, everyone was gaga over real estate, especially residential. This was underpinned by some bits of “accepted wisdom” that seemed compelling, such as “you can always live in it,” “home prices always go up” and “real estate is a hedge against inflation.” Conservative debt investors…

…(rather than buyers of homes themselves) were persuaded to buy levered and tranched mortgage-backed securities by the fact that “there has never been a nationwide wave of mortgage defaults.” But in 2007 it turned out home prices can go down as well as up, and mortgage loans extended casually based on their flawless record can have flaws. Homes and mortgages, bought when everyone liked them, turned out to be terrible investments. The fact is, painful bubbles can’t come into existence if there isn’t an underlying grain of truth. The Nifty Fifty were generally terrific companies. Home prices do tend to rise over time and offset inflation. Mortgages generally are repaid or carry adequate collateral. The Internet would change the world. Oil at $147/barrel was indispensable and in short supply. But in each case the merits were too obvious; the investment idea became too popular; and asset prices consequently became dangerously high….Following the trends that are popular at a point in time certainly isn’t a formula for investment success, since popularity is likely to lead investors on a path that is comfortable but pointed in the wrong direction……One of the first things I learned at Wharton was that you can’t necessarily tell the quality of a decision from the outcome. Given the unpredictability of future events and, especially, the presence of randomness in the world, a lot of well-reasoned decisions produce losses, and plenty of poor decisions are profitable. Thus one good year or a few big winners may tell us nothing about an investor’s skill. We have to see a lot of outcomes and a long history….and especially a history that includes some tough years….before we can say whether an investor has skill or not.”, Howard Marks in his memo to Oaktree Clients, “It’s Not Easy”, September 9, 2015

“Dean Keep told me when we spoke. If the government had rules about where the line was between an illegal pyramid scheme and a legal multilevel marketing company, there wouldn’t be any such dispute. It’s ridiculous that we have to guess what’s illegal…

…The F.T.C.’s refusal to define a pyramid scheme — and to act aggressively on that definition — is a dereliction of duty.”, Joe Nocera, “The Pyramid Scheme Problem”, The New York Times, September 15, 2015

“Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law. Stripped of all its technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand…..rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge.”, F.A. Hayek, “The Road to Serfdom”

The Opinion Pages

The Pyramid Scheme Problem

Joe Nocera

“I have nothing for you,” said Frank Dorman, a spokesman for the Federal Trade Commission. “Lots of reporters have asked that question. Our final response is, We’re not going to answer it.”

What had I asked that was so sensitive that the F.T.C. wouldn’t respond? I had requested that the agency explain what distinguished an illegal “pyramid scheme” from a legal multilevel marketing company.

What had prompted my question were two recent events. In late August, the F.T.C. had gotten an injunction issued against a multilevel marketing company called Vemma Nutrition, claiming it was in fact a pyramid scheme.

And last week, Fortune magazine published a lengthy story by Roger Parloff about William Ackman’s nearly three-year battle to force the government to make the same declaration about Herbalife. The company, of course, has fought back hard against the hedge fund manager’s allegations, insisting that its business practices are above board.

Indeed, the F.T.C.’s move against Vemma has caused both sides in the Herbalife battle to claim vindication. Although the F.T.C. has been investigating Herbalife for some 17 months, Timothy S. Ramey, a stock analyst and Herbalife bull, raised his price target for the company, saying Vemma’s business model was clearly different from Herbalife’s. Meanwhile, Ackman prepared a 29-slide deck with side-by-side comparisons of all the ways, in his view at least, Herbalife’s business model was exactly like Vemma’s.

So which is it?

As Parloff notes in his article, “The Siege of Herbalife,” there is no law defining a pyramid scheme, nor are there even any regulations on the books. The simple common-sense definition is that a pyramid scheme is a business in which recruits make a payment for the right to recruit others into the network, and whose revenues are more dependent on recruitment than on selling a product.

But it turns out to be so much more complicated. In 1979, the F.T.C., after investigating Amway, a multilevel marketing company with a vast product line, decided that the company’s business model passed muster — even though recruitment was at the heart of it — because it claimed to take certain steps that (among other things) supposedly showed that its recruits were selling the company’s products to real customers, not just to other recruits. Very quickly, other multilevel marketing companies adopted the “Amway rules” to stay on the right side of the F.T.C.

Yet the Amway rules have never been codified into regulation — they’re really more like suggestions — nor have they ever been proved to mitigate the harm pyramid schemes do in taking advantage of recruits or lying to them about the potential to get rich. (A vast majority of those who sign up for pyramid schemes lose money, sometimes lots of money.)

For a while, the courts and the F.T.C. seemed to say that a truer test of a pyramid scheme was how much of its products was bought outside its recruitment network (meaning they had real customers who were not involved in the pyramid) versus how much was bought by those inside the network, who were buying precisely to remain part of the network.

But in a recent court decision involving a pyramid scheme called BurnLounge, the appeals court ruled that it didn’t really matter whether the customer was inside or outside the network, and that the test was actually whether a company’s “primary” purpose involved recruiting rather than “meaningful opportunities for retail sales.”

William Keep, dean of the College of New Jersey’s School of Business, and a pyramid scheme critic, told Bloomberg earlier this year that “in terms of sending clear signals to the industry, the F.T.C. has done worse than nothing since 1979. It sends confusing signals that have in no way helped us understand how to identify a multilevel marketing company that may be a pyramid scheme.”

In the Herbalife dispute, this lack of federal guidelines animates much of the controversy.

Ackman says Herbalife is a pyramid scheme because the only way people can make any money is by recruiting others, not by selling the company’s protein shakes. Herbalife says its business model is on the up and up because it is selling a real product to consumers who sign up more to get product discounts than to become part of a recruiting network. Parloff, after months of investigation, came down more on Herbalife’s side than Ackman’s, though in truth, that’s just his best guess. The F.T.C. wouldn’t talk to him, either.

“Here we are three years into [the Herbalife battle] and it’s no clearer than it was at the beginning,” Keep told me when we spoke. If the government had rules about where the line was between an illegal pyramid scheme and a legal multilevel marketing company, there wouldn’t be any such dispute. It’s ridiculous that we have to guess what’s illegal.

The F.T.C.’s refusal to define a pyramid scheme — and to act aggressively on that definition — is a dereliction of duty.

A version of this op-ed appears in print on September 15, 2015, on page A23 of the New York edition with the headline: The Pyramid Problem.

“My wife and I had a few days with no kids at home (our youngest, the only one at home these days, went on a high school retreat), for the first time ever, and so we went up to Santa Barbara for a few days last week…

…We had a great time. One day we biked all over Santa Barbara and spent some time in many of the retail shops on State Street. At one very pink store, a young lady standing out front convinced my wife to come in and get some quick beauty work done. It was a very hot day, so I came inside and sat next to her and watched and then watched as two more ladies came in to get similar services. One was around my wife’s age and the other appeared to be a college student who mentioned she was getting ready for some (maybe a sorority) event. My initial reaction was to think how silly all this was and what a waste of money this service and other retail shops on State Street were, but I am a 52-year OLD man and more patient and thoughtful and was happy to see my wife enjoying herself…..and then I thought of Pope Francis and his view that we Americans are too materialistic. I thought, what’s so bad Pope Francis (and for that matter Sen. Bernie Sanders) with Americans enjoying themselves with a little materialistic, “retail therapy”? All these “silly” and/or “unnecessary” products and services create a lot of jobs and economic activity and government tax revenues (which support the poor), and makes wives (and therefore their husbands and children) happy. Isn’t that a heck of a lot better than what’s happening in much of the rest of the world?”, Mike Perry

“Whenever a Government assumes the power of discriminating between the different classes of the community, it becomes, in effect, the arbiter of their prosperity, and exercises a power not contemplated by any intelligent people in delegating their sovereignty to their rulers. It then becomes the great regulator of the profits of every species of industry, and reduces men from a dependence on their own exertions, to a dependence on the caprices of their Government…

…Governments possess no delegated right to tamper with individual industry a single hair’s-breadth beyond what is essential to protect the rights of person and property.”, William Leggett, The New York Evening Post, November 21, 1834

Opinion

Notable & Quotable: William Leggett

A Democrat’s warning about government favoritism.

Businessmans hand drawing circle with compass around business people

Businessmans hand drawing circle with compass around business people Photo: Getty Images/Ikon Images

William Leggett, a Jacksonian Democrat and abolitionist, writing in the New York Evening Post, Nov. 21, 1834:

Whenever a Government assumes the power of discriminating between the different classes of the community, it becomes, in effect, the arbiter of their prosperity, and exercises a power not contemplated by any intelligent people in delegating their sovereignty to their rulers. It then becomes the great regulator of the profits of every species of industry, and reduces men from a dependence on their own exertions, to a dependence on the caprices of their Government. Governments possess no delegated right to tamper with individual industry a single hair’s-breadth beyond what is essential to protect the rights of person and property.

In the exercise of this power of intermeddling with the private pursuits and individual occupations of the citizen, a Government may at pleasure elevate one class and depress another; it may one day legislate exclusively for the farmer, the next for the mechanic, and the third for the manufacturer, who all thus become the mere puppets of legislative cobbling and tinkering, instead of independent citizens, relying on their own resources for their prosperity. It assumes the functions which belong alone to an overruling Providence, and affects to become the universal dispenser of good and evil.

“In Africa, a human being is more important than an animal. I don’t know about the Western world,” she added, echoing a complaint in affected parts of Africa that the West seemed more concerned with the welfare of a lion in Zimbabwe than of Africans themselves…

“Before, when there was hunting, we wanted to protect those animals because we knew we earned something out of them,” said Jimmy Baitsholedi Ntema, a villager in his 60s. “Now we don’t benefit at all from the animals. The elephants and buffaloes leave after destroying our plowing fields during the day. Then, at night, the lions come into our kraals.”…..In 2010, Sankuyo earned nearly $600,000 from the 120 animals — including 22 elephants, 55 impalas and nine buffaloes — that it was allowed to offer to trophy hunters that year, said Brian Child, an associate professor at the University of Florida, who is leading a study on the impact of the ban. Botswana’s wildlife officials, who set the annual quotas, last allowed a lion to be hunted in Sankuyo in 2006. Among the benefits to the community, 20 households chosen by lottery received outdoor toilets, all painted in pastel colors that stand out in a village turned brown in the dry season. Standpipes were installed in courtyards, connecting 40 families to running water. “That’s what made people appreciate conservation,” said Gokgathang Timex Moalosi, 55, Sankuyo’s chief. “We told them, ‘That lion or elephant has paid for your toilet or your standpipe.’ Where trophy hunting benefits communities, locals are more motivated to protect wild animals as a source of revenue, experts say. But in most places without trophy hunting, they are simply considered a nuisance or danger, and locals are more likely to hunt them for food or to kill them to defend their homes and crops…. Mr. Moalosi, Sankuyo’s chief, said he hoped to bring back some of the benefits after his village made a successful transition to photographic tourism. But experts say that sightseeing tourists gravitate to prime areas with dense concentrations of wildlife, like the Okavango Delta’s Moremi Game Reserve west of here. They rarely venture to peripheral areas like Sankuyo, or even more remote corners, which do, however, draw hunters….“When hunting was introduced, we actually ended up killing less animals,” Dr. Child said. “That’s the irony.”, Norimitsu Onishi, “A Hunting Ban Saps a Village’s Livelihood”, The New York Times, September 13, 2015

Africa

A Hunting Ban Saps a Village’s Livelihood

By NORIMITSU ONISHI

Clockwise from top left, Cecil, a lion whose death at the hands of a hunter in Zimbabwe sparked calls for curbs on trophy hunting across Africa; William Moalosi, a farmer and former hunting guide in Sankuyo, Botswana; an elephant in Botswana; and Othusitse Ndozi in Sankuyo, a village that used to get a steady income from hunting. Credit Top left, Andy Loveridge/Wildlife Conservation Research Unit, via Associated Press; photographs by Joao Silva/The New York Times

SANKUYO, Botswana — Lions have been coming out of the surrounding bush, prowling around homes and a small health clinic, to snatch goats and donkeys from the heart of this village on the edge of one of Africa’s great inland deltas. Elephants, too, are becoming frequent, unwelcome visitors, gobbling up the beans, maize and watermelons that took farmers months to grow.

Since Botswana banned trophy hunting two years ago, remote communities like Sankuyo have been at the mercy of growing numbers of wild animals that are hurting livelihoods and driving terrified villagers into their homes at dusk.

The hunting ban has also meant a precipitous drop in income. Over the years, villagers had used money from trophy hunters, mostly Americans, to install toilets and water pipes, build houses for the poorest, and give scholarships to the young and pensions to the old.

Calls to curb trophy hunting across Africa have risen since a lion in Zimbabwe, named Cecil by researchers tracking it, was killed in July by an American dentist. Several airlines have stopped transporting trophies from hunts, and lawmakers in New Jersey have introduced legislation that would further restrict their import into the United States.

But in Sankuyo and other rural communities living near the wild animals, many are calling for a return to hunting. African governments have also condemned, some with increasing anger, Western moves to ban trophy hunting.

“Before, when there was hunting, we wanted to protect those animals because we knew we earned something out of them,” said Jimmy Baitsholedi Ntema, a villager in his 60s. “Now we don’t benefit at all from the animals. The elephants and buffaloes leave after destroying our plowing fields during the day. Then, at night, the lions come into our kraals.”

In early 2014, this sparsely populated nation became one of a few African countries with abundant wildlife to put an end to trophy hunting, the practice at the core of conservation efforts in southern Africa. President Seretse Khama Ian Khama of Botswana, a staunch defender of animal rights, stated that hunting was no longer compatible with wildlife conservation and urged communities like Sankuyo to switch to photographic tourism. The decision was cheered by animal welfare groups in the West.

But Botswana is an outlier. Government officials and conservationists in most African countries staunchly support trophy hunting, including Zambia, which is going back to hunting after a short-lived suspension.

“Zambia has always hunted from time immemorial,” Jean Kapata, Zambia’s minister of tourism, said in a phone interview. “Zambia is a sovereign nation, and therefore people should respect the rules we have in our country.”

Zambia recently lifted a two-year-old ban on hunting leopards, and lion hunting is likely to resume next year. In 2013, Zambia curbed trophy hunting and imposed a blanket ban on hunting the big cats, also in an effort to replace trophy hunting with photographic tourism.

But that brought little income compared to hunting, Ms. Kapata said, while lions increasingly stalked villages for livestock. During the hunting ban, a local councilor was killed by a lion, she said.

“We had a lot of complaints from local communities,” Ms. Kapata said. “In Africa, a human being is more important than an animal. I don’t know about the Western world,” she added, echoing a complaint in affected parts of Africa that the West seemed more concerned with the welfare of a lion in Zimbabwe than of Africans themselves.

Zambia’s quick reversal points to the central role that trophy hunting has played in managing wildlife in southern Africa, where the industry’s emergence in the 1960s helped restore degraded habitats and revive certain species.

In South Africa, the biggest market, hunting occurs on private game ranches. But in the rest of the region, it takes place mostly on communal lands where villages like Sankuyo are supposed to receive a cut of the fees paid by trophy hunters.

Sankuyo, a village of around 700 people, sits just east of the Okavango Delta in northern Botswana, which has one of the richest concentrations of wildlife in Africa. In 1996, Sankuyo signed on to a community-based natural resources program that focused on hunting and was supported by the United States government.

In 2010, Sankuyo earned nearly $600,000 from the 120 animals — including 22 elephants, 55 impalas and nine buffaloes — that it was allowed to offer to trophy hunters that year, said Brian Child, an associate professor at the University of Florida, who is leading a study on the impact of the ban. Botswana’s wildlife officials, who set the annual quotas, last allowed a lion to be hunted in Sankuyo in 2006.

Among the benefits to the community, 20 households chosen by lottery received outdoor toilets, all painted in pastel colors that stand out in a village turned brown in the dry season. Standpipes were installed in courtyards, connecting 40 families to running water.

“That’s what made people appreciate conservation,” said Gokgathang Timex Moalosi, 55, Sankuyo’s chief. “We told them, ‘That lion or elephant has paid for your toilet or your standpipe.’ ”

Where trophy hunting benefits communities, locals are more motivated to protect wild animals as a source of revenue, experts say. But in most places without trophy hunting, they are simply considered a nuisance or danger, and locals are more likely to hunt them for food or to kill them to defend their homes and crops.

Dr. Child, an expert on wildlife management in Africa, said trophy hunting had failed to benefit many communities because of mismanagement and corruption. But in the countries where trophy hunting had worked well — Botswana, until the ban; Namibia; and Zimbabwe, until its economy collapsed in the past decade — it had accomplished the twin goals of generating income and protecting wild animals.

“When hunting was introduced, we actually ended up killing less animals,” Dr. Child said. “That’s the irony.”

With hunting now banned, there are growing signs that more wild animals could be killed, experts say. Lions, which used to feast on the meat of elephants left behind by hunters, are increasingly entering villages looking for livestock. In the past two years here in Sankuyo, villagers have killed two lions that wandered into residential areas.

Botswana’s swelling population of elephants, accounting for a third of the total in Africa, is clashing increasingly with a growing human population. Poaching rings trafficking in ivory to East Asia have targeted elephants elsewhere on the continent. According to the International Union for Conservation of Nature’s Red List of Threatened Species, African elephants are classified as “vulnerable,” below “endangered” and “critically endangered,” and their population is increasing.

“We’re experiencing an exponential increase in conflicts between animals and human beings,” said Israel Khura Nato, the head of the Botswana Department of Wildlife’s problem animal control unit in Maun, a town two hours from here.

According to the department, such conflicts recorded nationwide rose to 6,770 in 2014 from 4,361 in 2012. Poaching incidents increased to 323 in 2014 from 309 in 2012.

More poisoned vultures have been found in this area, possibly killed by poachers seeking to conceal their hunts, said Lucas Rutina, an ecologist at the University of Botswana’s Okavango Research Institute near Maun. Residents of communities that used to derive an income from trophy hunting no longer attend conservation workshops at the institute, he said.

“Now they are going back to hating animals,” Dr. Rutina said.

Galeyo Kobamelo, 37, said he had lost all 30 goats in the kraal just outside his family compound to lions and hyenas since the hunting ban. Elephants had destroyed his fields of sorghum and maize.

With the hunting ban, his family no longer receives the free meat that hunters left behind. His mother, Gomolemo Semalomba, 58, no longer receives a pension, about $100 twice a year.

“Now we don’t eat meat anymore,” she said, pointing to a table with plates of cabbage, beans and maize meal.

Mr. Moalosi, Sankuyo’s chief, said he hoped to bring back some of the benefits after his village made a successful transition to photographic tourism.

But experts say that sightseeing tourists gravitate to prime areas with dense concentrations of wildlife, like the Okavango Delta’s Moremi Game Reserve west of here. They rarely venture to peripheral areas like Sankuyo, or even more remote corners, which do, however, draw hunters.

“Photographic tourism is not that viable in those areas,” said Joseph Mbaiwa, the Okavango Research Institute’s acting director.

In Sankuyo, William Moalosi is one of dozens of people that the hunting ban has left jobless. Many have left Sankuyo to seek work in Maun.

Mr. Moalosi, 40, worked for eight years as a tracker and driver, earning about $100 a month. He used some of the money to replace his old house, made of branches and the mud from a termite mound, with a modern structure. He lost his crops of maize and watermelons to marauding elephants a few months ago.

Villagers, including the chief, identified Mr. Moalosi as the man who had shot and killed a lioness last month. The animal had climbed a tree to jump down into a kraal with goats; unable to get out of the enclosure, the lioness posed a danger to the village, which gave the community the right to kill the animal.

But sitting outside his house, flanked by neighbors, Mr. Moalosi denied he was the shooter. He said he knew nothing about the circumstances of the animal’s death, a statement that drew knowing smiles from his neighbors.

“We are living in fear since lions and leopards now come into our village,” he said. “Elephants cross the village to go to the other side of the bush. The dogs bark at them. We just run into our houses and hide.”

A version of this article appears in print on September 13, 2015, on page A6 of the New York edition with the headline: A Hunting Ban Saps a Village’s Livelihood.

“Remember, this war against us did not start that September day in 2001. It had been going on for a long time. The plane hijackings and killing of innocent people by Islamist terrorists, and their murderous attack on the Israeli Olympic team in Munich, occurred in the late 1960s and early 1970s. In the late 1970s, Iran’s theocratic rulers began killing hundreds of thousands of their own people and took American hostages that the regime held for 444 days…

…In 1985, Leon Klinghoffer, an American citizen in a wheelchair, was shot and thrown into the Mediterranean from a cruise ship by Islamist terrorist hijackers merely because he was Jewish. They were acting on the orders of Palestine Liberation Organization leader Yasser Arafat, later a Nobel Peace Prize recipient (so much for the Nobel organization’s legitimacy). The same World Trade Center in New York was attacked by Islamist terrorists in 1993. The bombings of U.S. embassies in Kenya and Tanzania, and the attack on the naval vessel the USS Cole, which in prior administrations would have been considered an act of war, all happened in the late 1990s. All of this should have suggested to America’s leadership that war was being waged against us. In case there was any uncertainty about the intentions of these people, Osama bin Laden clarified it by declaring war on us in the late 1990s. Instead of treating these incidents as part of a war, we treated them as discrete, individual crimes. All of these horrendous terrorist acts, and bin Laden’s declaration of war, shared one objective: destruction of the infidel. They were all undertaken in the name of an extremist interpretation of Muhammad’s call to jihad. But America was in denial. Now, once again, the terrorist attacks under the banner of jihad are increasing and diversifying. With so many such attacks and thwarted attacks over the past five or six years, we must recognize that “they”—those who want to destroy civilization—are continuing the war against us.”, Rudolph W. Giuliani, former Mayor of New York, “The Islamist Menace Shadowing This Sept. 11”, The Wall Street Journal, September 11, 2015

Opinion

The Islamist Menace Shadowing This Sept. 11

The terror threat is growing, but our nation’s leaders are even deeper in denial than they were 14 years ago.

The 9/11 Memorial, with the ‘Tribute in Light’ nearby, in New York City, Sept. 11, 2014.

The 9/11 Memorial, with the ‘Tribute in Light’ nearby, in New York City, Sept. 11, 2014. Photo: Getty Images

By Rudolph W. Giuliani

The anniversaries and other reminders of the Islamic extremist attacks of Sept. 11, 2001, stir a torrent of thoughts and emotions. But we should try to focus on those most relevant today.

A sensitive and appropriate 9/11 museum has now been built. A new tower has emerged as a great work of architecture adding to the world’s most-iconic skyline. Lower Manhattan, specifically the immediate vicinity of the World Trade Center, which many of us feared might be abandoned in the wake of these attacks and constant threats of future attacks, has more than doubled in population.

It has gone far beyond the goals we set in 1994 when we secured passage of a law allowing the use of many of the older buildings and sites in the area for residential as well as office and commercial uses. All of this is a good sign that New Yorkers have not only met but exceeded the challenge I gave on the evening of Sept. 11, 2001: that New Yorkers should become stronger as a result of the attack.

It would be a mistake, however, to conclude that 9/11 is now simply a part of the nation’s history, like Pearl Harbor. Because there is one big difference. The causes and hatreds that created 9/11 are still with us, and the terrorists have enlisted members who are even more diverse, cunning and determined. The Islamist terrorist war against us continues. This is not a matter of history but of current and future threats.

Remember, this war against us did not start that September day in 2001. It had been going on for a long time. The plane hijackings and killing of innocent people by Islamist terrorists, and their murderous attack on the Israeli Olympic team in Munich, occurred in the late 1960s and early 1970s. In the late 1970s, Iran’s theocratic rulers began killing hundreds of thousands of their own people and took American hostages that the regime held for 444 days. In 1985, Leon Klinghoffer, an American citizen in a wheelchair, was shot and thrown into the Mediterranean from a cruise ship by Islamist terrorist hijackers merely because he was Jewish. They were acting on the orders of Palestine Liberation Organization leader Yasser Arafat, later a Nobel Peace Prize recipient (so much for the Nobel organization’s legitimacy).

The same World Trade Center in New York was attacked by Islamist terrorists in 1993. The bombings of U.S. embassies in Kenya and Tanzania, and the attack on the naval vessel the USS Cole, which in prior administrations would have been considered an act of war, all happened in the late 1990s.

All of this should have suggested to America’s leadership that war was being waged against us. In case there was any uncertainty about the intentions of these people, Osama bin Laden clarified it by declaring war on us in the late 1990s. Instead of treating these incidents as part of a war, we treated them as discrete, individual crimes. All of these horrendous terrorist acts, and bin Laden’s declaration of war, shared one objective: destruction of the infidel. They were all undertaken in the name of an extremist interpretation of Muhammad’s call to jihad.

But America was in denial.

Now, once again, the terrorist attacks under the banner of jihad are increasing and diversifying. With so many such attacks and thwarted attacks over the past five or six years, we must recognize that “they”—those who want to destroy civilization—are continuing the war against us.

Yet those running our government seem to be in an even greater state of denial than the nation was in during the period before Sept. 11. Now, instead of bin Laden, Iran’s supreme ayatollah has declared that he wants to destroy Israel, to continue to kill Americans and to establish an Islamic empire including Iraq, Syria and Yemen—and the terrorist groups Iran supports. At the same time, the group known as Islamic State, or ISIS, has declared a caliphate seeking the destruction of Christianity and other infidels, and now occupies key areas of Iraq and Syria.

As we reflect on the attacks of Sept. 11, 2001, we must remind ourselves that all the wickedness underlying those attacks still exists and has expanded. We may very well be in more jeopardy now than before 9/11. Attacks such as those at Fort Hood, the Boston Marathon and similar incidents in Europe and around the world reveal that many enemies, not just one, are united in purpose: the destruction of our way of life. Each of these attacks may be more limited than the coordinated terrorist assault on Sept. 11, but they are frequent and hard to anticipate, causing widespread fear, the ultimate goal of terrorism.

We must acknowledge this war being waged against us, increase the military’s capacity to deal with it and, most important, train police to recognize the precursors of terrorist acts. U.S. military and intelligence capacity must not be drastically cut as proposed by this administration. It should be quantitatively increased and strategically improved.

The Obama administration appears likely to get its nuclear deal with Iran—even though it gives the ayatollahs access to hundreds of millions of dollars that will be used to sponsor terrorist acts against us and our allies, and puts the regime on the road to becoming a nuclear power. The deal makes war, either conventional or nuclear, more likely.

But there are alternatives to war. The Iranian regime to this very day maintains a two-dimensional approach to us: negotiate with us while maintaining policies on the destruction of Israel, death to Americans and supporting Islamist terrorism. The American leadership should be at least as shrewd, using a two-pronged counter approach: While attempting to reach an agreement assuring a nonnuclear Iran, we should also recognize and support the Iranian resistance movement. It is absurd that we supported regime change in Egypt, a U.S. friend, and regime change in Libya, a neutered country that had abandoned its weapons of mass destruction, and yet have done nothing to support it in Iran.

On this 14th anniversary of the worst foreign attack on U.S. soil, let us honor our fallen on Sept. 11 and in Iraq and Afghanistan by pursuing a policy reflecting America’s true purpose—to offer hope for the future of mankind and, in particular, for the freedom and dignity of people who have lived under deadly intimidation for decades.

Mr. Giuliani is the former mayor of New York.