How do you know when a law is unreasonable and unjust? When an additional fine is added on to whatever punishment a judge determines in a court; when the law is made for the purposes of short-term revenue collection; when the fine is so hefty that it has to be repaid in installments; and when the initial enforcement of the infringement is arbitrary and situational.

From the WaPo, Hefty Fees In Store for Misbehaving Va. Drivers:

Say you are driving 78 mph on the Capital Beltway and a state trooper tickets you for "reckless driving -- speeding 20 mph over." You will probably be fined $200 by the judge. But then you will receive a new, additional $1,050 fine from the Old Dominion, payable in three convenient installments. So convenient that you must pay the first one immediately, at the courthouse.

and:

As part of the plan to fund the annual $1 billion transportation package approved this year, state legislators endorsed a new set of "civil remedial fees" for all misdemeanor and felony traffic violations, such as speeding 20 mph above the limit, reckless driving and, in some cases, driving with faulty brakes.

Drivers with points on their licenses -- a speeding ticket usually earns four points -- will be hit for $75 for every point above eight and $100 for having that many points in the first place.

Australia has a problem with fines for speeding being absurd and unreasonable. It looks like America, and in particular, Virginia, is keen to replicate that same form of bad governance.

John Barrdear in exploring the self-affirmation stereotypes of left and right produces a quote from Karl Rove where Rove argues he enjoyed policy more than politics. Count me in amongst the skeptics, especially after reading an article like this on the politicisation of the justice department.

Governance at the national executive level has been exceptionally bad and the reason is politics. All the money printing going on is political. One of the few policies that has been successful is the US AIDs policy. This is because it is a non-political policy and has not been used by the Administration for political purposes. As a result policy wonks have put into place an effective policy.

Rove may argue that he prefers policy over politics, his record in bad governance and politics over policy shows otherwise. The United States will be fine, it has had bad government before and recovered. Its republican system of separated powers and constitutional restrictions is more powerful than any administration, but Bush and Rove have pushed the US closer to executive tyranny than other administration has been able to do.

Barry Ritholtz has an impassioned plea; give us capitalism or give us socialism, but not the half arsed mess of both that the US Federal Reserve is serving up in the name of politics, bad policy, poor governance and crony capitalism. The result will be to prolong the current mess of bad lending, keep the recession going and increase inflation. None of which are palatable in the long run.

Ritholtz points back to the governance of Greenspan at the US Fed who actively promoted bubbles and then bailed out losers of the bubbles by making credit cheaper so that there were no losers and speculation could continue. Capitalism works best when those that over speculate are punished for it by bankrupcy.

Without the correct signals and punishments for failure then risk simply does not exist. We saw this in the subprime markets where risk was assumed to be absent. As a consequence bad loans were made that can never be recovered. The bad governance aspect is that now the US Fed is asking for 300 billion of tax payer money to bail out private institutions - include Fannie Mae - to cover their risks made on the private markets. This is not how capitalism works. Ritholtz writes:

There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God's sake, do not give us the worst of both worlds -- do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.

That's not capitalism, its not socialism, its not regulation, and its sure as hell isn't what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

Ritholtz makes the statement that our institutions have failed us and that this is misgovernance on a grand scale leading back twenty years. Economic policy has not been grounded in the principles of capitalism; but instead 'feelgood' politics and outright criminal behaviour. American capitalism is losing its foothold as the world's leaders in economic activity. This is being shown in the US dollar dropping in value. It is bad policy and criminal behaviour that has led to this. It is recoverable - and the US will recover - it is not dead in the water yet. But it will take a strong hand of governance and the democratic will to govern with economically sound policies.

Joshua Gans has argued for an Aussie Mac. Australia has not needed one this far, and as a country Australia has more regulation into capital markets than the US does. Australia has not been impacted greatly by the subprime mess - only Macquarie Bank and a couple of others IIRC were up to their necks in it - and while global capital will become more expensive with the turmoil from US markets, it is no excuse to subsidise home lending with taxpayer guarantees. Otherwise politics will trump economics and Aussie Mac will be used for all manner of bailouts and social engineering.

The idea of specialism takes into account that there will be information asymmetry. The specialist will be able to understand more in their field than a generalist, plus the specialist will be able to make sense of more information relating to that speciality that a generalist may miss, or not understand.

That is all fine but it breaks down in democratic politics as the generalists get a say - even if indirectly - and since the majority determines who is in government, not to mention what constitutes social stability, specialism needs to walk a fine line in explaining actions to the general population. So when you see legislation that contains language like this:

Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency

It is not good. Not only is it a blank check, and not only does it make no attempt to explain the treasuries actions or put it under scrutiny, it is also classic state of exception stuff; where the legislative aids the executive in subverting the doctrine of judicial review. This means law becomes politics and the judicial has to fight to maintain its relevancy. It is not good.

We are seeing subsidy after subsidy of taxpayer money being thrown to the financial sector in what is a trillion dollar wealth transfer from the American public to those that have poor business acumen. This is the worst of all worlds. The failed businesses are being propped up, the US government is buying junk at market price without equity and when everyone knows it is worth pennies ... what a failure of government.

It is like New Orleans and Katrina all over again; just this time in the financial sector and not the emergency response arm of the Administration.

We are seeing arguments that it is the end of neo-liberalism, but really it should be an argument for the end of bad governance. Apparently there were regulatory mechanisms in place to stop the over the top leveraging of the firms like Lehmann Brothers, but that was foregone - due to bad governance.

Governance matters, and bad governance has a habit of sticking around despite the best efforts to remove its effects. Paul Fritjers writes:

The structures now being built in the US or Europe (direct interference) to regulate the financial markets may be with us much longer than we would like.

State of exception governance or crisis governance is not easily eradicated. Australia is stuck with the legislation form the exception governance of the latter Howard years such as the Northern Territory intervention and the Migration Act Amendment. The linger as tools future national governments can use to act arbitrarily.

The same with the Bush Administration's approach to this financial crisis, the entirety of it is being handled in the US Treasury as an executive issue. As Paul Fritjers noted the policy from the US Executive is direct interference and the redistribution of wealth from taxpayers to the financial and banking industries.

That legislation and policy will linger long beyond this crisis and we will see future economic bumps dealt with in socialistic manners rather than letting the weak banks fail and the strong ones snap them up and take them over for pennies on the dollar. A close relationaship with the executive has now become an essential part of the financial industry's wealth and ongoing health. They now have a political face as well as an economic one.