Don’t Believe (All) the Hype About the Stimulus Plan

US Capitol

Nancy Pelosi Wants You to Think This Is the Current State of American Unemployment

Last Friday, Speaker Nancy Pelosi released a graph showing the number of unemployed Americans from each of the last three recessions:

“This chart compares the job loss so far in this recession to job losses in the 1990-1991 recession and the 2001 recession – showing how dramatic and unprecedented the job loss over the last 13 months has been. Over the last 13 months, our economy has lost a total of 3.6 million jobs – and continuing job losses in the next few months are predicted.

“By comparison, we lost a total of 1.6 million jobs in the 1990-1991 recession, before the economy began turning around and jobs began increasing; and we lost a total of 2.7 million jobs in the 2001 recession, before the economy began turning around and jobs began increasing. [Emphasis mine].”

The explicit purpose of this graph is to support the Speaker’s view that a stimulus package of some kind — any kind — needs to be passed immediately to do something about this “unprecedented” precipitous fall in employment numbers. From the data presented, this seems quite persuasive. But it’s not the whole story.

A Better Way to Think About American Unemployment — In Context

Jim Manzi at “The American Scene” created this graph in response to the Speaker’s graph, adding two pieces of context:

“Of course there are a couple of odd things about this. First, it shows absolute job numbers, rather than unemployment rate (that is, job losses per capita). This matters, because the U.S. labor force is a lot bigger now than in prior recessions. Second, it ignores the recession of 1981 – 1982, which was by far the most serious of recent recessions.”

He also apologizes in the blog post for using such an ugly Excel spreadsheet to present his new data.

Some Observations on the Stimulus Plan — From the Addition of Context

The American Scene” draws two observations from its additional data:

1. What seems to matter in getting to really bad job losses is the duration of the recession. So, speed in passing a stimulus bill is probably a lot less important than getting our countermeasures right. This is, of course, diametrically opposed to the natural conclusion one would reach in looking at the first chart.

2. The structural work on the economy is at least as important as how we deal with the recession. The stagflation of the 1970s meant that we started the ’81-82 recession at about the unemployment level that we have taken more than a year of recession to reach today. Doing something, anything, to stop the pain of the current recession, no matter what its structural effects on the economy, might seem practical, but it is not.

I think the two graphs also beg a question (which I don’t have the data to answer):

What does this picture look like when given lots of extra data — say all worldwide recessions of the past 100 years? Or even easier: If this job loss is really “unprecedented”, then how does it stack up against even just the 7 U.S. recessions from 1900-1980? If the picture continued to be consistent, or showed some other trending with LOTS of data, then I might feel comfortable drawing conclusions from it about policy solutions.

As it stands, the Speaker does her position a major disservice by withholding the context needed to interpret her data.

5 Ways to Rethink America’s Current Economic Crisis

economic insurance

Nassim Taleb and Daniel Kahneman Explain the Real Roots of the Economic Crisis

Check out this hour-long video of a panel discussion between Nassim Taleb and Daniel Kahneman reflecting on the current economic crisis:

Unfortunately the beginning of the discussion is a little disorganized, but it gets better at around 12 minutes.

Nassim Taleb is a financial trader and scholar and the author of the books “Fooled by Randomness” and “The Black Swan.”

Daniel Kahneman is a psychology professor at Princeton, Nobel Prize winner in economics, and the author of the seminal book on cognitive biases “Judgment Under Uncertainty.”

Five Ways to Think Differently About America’s Financial Crisis

Listening to this discussion, I draw five major points regarding the causes of Wall Street’s economic crisis and the problems with Washington’s response:

1. Banks and Politicians Misunderstand the Risks of Rare Events

Nassim Taleb and Daniel Kahneman argue that the true cause of our current economic crisis was not just the nation’s “housing bubble” or the derivative investments based on it, but Wall Street bankers’ and Washington politicians’ fundamental long-term misunderstanding of the concept of risk.

In Taleb’s book “The Black Swan” he develops the metaphor of the life of a turkey to describe the problem of trying to make future predictions based on the data of past events when faced with rare, but catastrophic, risk:

Taleb’s Turkey Metaphor: “A Turkey is fed for a 1000 days—every day confirms to its statistical department that the human race cares about its welfare ‘with increased statistical significance.’ On the 1001st day, the turkey has a surprise.”

The Fate of Today’s Banks: “The graph above shows the fate of close to 1000 financial institutions…The banking system (betting AGAINST rare events) just lost…trillion[s of] dollars…on a single error, more than was ever earned in the history of banking. Yet bankers kept their previous bonuses and it looks like citizens have to foot the bills. And one Professor Ben Bernanke pronounced right before the blowup that we live in an era of stability and ‘great moderation’ (he is now piloting a plane and we all are passengers on it).”

The problem with this misunderstanding of risk is that the fundamental economic principles underlying America’s banking industry were to make steady profits day after day by placing large, highly-leveraged bets against the possibility that rare, catastrophic events would ever occur.  Our banking and investing infrastructure (including public policies and regulations) supported the idea of consistently making money in the short term, because the risk of long-term collapse was unlikely.

The primary problems with this line of thinking are (1) no one can know when the collapse will come; (2) given enough time, rare events do eventually occur; and (3) big bets against rare events DO WORK day after day after day, until one day they blow up.

Experimental psychology has shown that humans prefer small gains over time to one big payday and conversely prefer one big loss to a series of losses over time.  This psychological inconsistency reinforces people’s beliefs in the theories underlying our current financial system.  Taleb calls this the phenomenon of “bleeds versus blowups.”  Society prefers people who are successful most of the time, even if they occasionally lose big, to people who are consistently losers, but occasionally win big — even if the net gains and losses for each are the same.

The cause of our economic crisis was not the housing bubble or even the complicated derivative instruments, but the fact that their risks were misunderstood by the banks and regulators that created them.

2. Wall Street and Washington Created a Dangerous Financial Monoculture

A second problem is that Wall Street and Washington have created a financial “monoculture” — an entire economic infrastructure built almost entirely on the same sources of risk: more and more money held by fewer, larger banks, all highly-leveraged on the exact same set of derivative investments.  When an entire system is built around a single idea (or single source of risk) — and that idea turns out to be exactly wrong — the system collapses.

The concept of monoculture comes from the idea that a farm planted with all the same variety of crop is at risk of complete collapse if a disease catches that crop.  This same problem of monoculture effects things like software viruses (when a single Windows virus can put almost all computers at risk) and manufacturing (as seen in the current peanut butter recall where products all over the country are sourced from a single facility).

Here the problem was that every major investment bank had taken the exact same risk against a specific rare event.

They did this primarily for two reasons: (1) almost all economic “experts” and investment bankers were schooled in the same theories and models; and (2) the incentive structures consistently in place throughout the market encouraged investment managers to seek high short-term gains, with little incentive toward long-term stability. (For an example of these two issues at play, see Taleb’s favorite case study: Long-Term Capital Management).

Washington regulators — especially Federal Reserve Chairmen Alan Greenspan and Ben Bernanke — helped to make this system more fragile by encouraging major bank consolidations — thus creating this monoculture.

We saw a major turning-point in the last few months when Alan Greenspan confessed that his theory of the world was wrong: “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”  The problem is that financial institutions are simply collections of individual agents all operating with short-term incentives.

3. Financial Systems Need Redundancies

This financial monoculture has created another industry-wide problem.  Because large, publicly-trade banks had to compete with each other for analyst recommendations, every bank had short-term profitability as its primary motivation.  This narrowly-focused incentive structure discouraged investment managers from hedging their long-term risks through the use of insurance or redundancy.

Banks could have used a small percentage of their short-term profits to purchase options or other hedges on the rare possibility of extreme loss, but such a move would have made them comparatively less profitable than competitors.

In this case, the extreme competition among a small number of nearly-identical entities created a “race to the bottom” whereby any insurance or redundancy would have driven away investors – all of whom wanted short-term profit maximization.  This race to the bottom, did create extremely efficient short-term investment vehicles, but at the cost of extreme fragility and risk.

4. Bankers Keep Their Profits, We Pay Their Losses

The existing financial system has created a  “moral hazard” problem.  Moral hazard is the idea that a person tends to behave less carefully if they are insulated from the risks of their decisions than they do if they know they will have to bear the consequences of their actions.

In the current system, bankers were (and are) rewarded with huge bonuses for meeting or exceeding their short-term annual profit goals, but when it turned out that those short-term profits were derived from placing big, risky bets, and the system collapsed, the banks (and bankers) were bailed out by the Federal Government (on behalf of regular taxpayers).

These financial institutions didn’t have to bear the marginal cost of insuring against extreme risk because of this moral hazard — they could act recklessly, knowing full-well that catastrophe would be insured by the general public.

As Taleb describes it, this created a system of “capitalism for gains, socialism for losses” — when bankers MAKE money, they get paid (big), but when they LOSE money, we pay (big).  This incentive system creates perverse incentives related to short-term reward derived from long-term risk.

It is worth noting that — Obama’s temporary limits on executive pay aside — this short-term incentives payment structure continues to exist in America’s financial services industry.  For instance, we have not yet learned the ramifications of the broken hedge fund 2+20  incentives structure.

The main problem with the moral hazard of bank bailouts is that since bankers and investment managers don’t bear personal consequences from placing money at extreme risk, they are actually acting RATIONALLY as individuals when they do so.

For example, check out Taleb’s Facebook Group: “Make Bankers Accountable” accusing Citibank executive (and former Clinton Treasury Secretary) Robert Rubin of making over $100 million by putting the world’s largest bank in extreme risk — and then being bailed out by taxpayers.  It’s hard to say that a guy making $100 million should feel like he did anything wrong — he did what the system encouraged him to do.

5. When a System Breaks, Change It

Taleb concludes his discussion with two pleas: (1) financial services executives and regulators should all be fired — to actually face consequences for their actions, and (2) business schools should reassess their curricula, most of which teach a set of economic theories that created our financial monoculture.

When the people running our financial system have failed and their theories have been proven wrong, the people and their theories must be replaced.

Taleb argues that the American banking system should be nationalized, so that regular people’s savings and retirement accounts aren’t leveraged against risky investments.  He argues that simple savings-and-loan banking should be run by the Federal government, with no profit or competition incentives. He suggests that risky, leveraged investing should be done through private hedge funds — but then NEVER bailed out.  The idea is to separate most people’s desires for long-term stability from the minority of investors seeking riskier short-term gains.

Regardless of a bank nationalization plan, all the regulators and executives (Geithner, Bernanke, Summers, etc.) involved in the recent crisis need to be fired.  We have had a system run by people with a certain set of economic theories.  Their theories have been proven wrong.  Yet they continue to run our economic system.  Worst of all: because their economic theories do indeed result in day after day of short term profits, we are easily lulled into letting them remain in charge.  Their theories WILL look stable for a long time, until one day it again BLOWS UP.

Similarly, Taleb argues that business schools should pause their teaching and reassess their theories before graduating another class of students steeped in the economic theories that created this mess.  Taleb has called for a boycott of any business school that teaches modern portfolio theory. His argument is that no business school is better than a destructive business school – theories only have value if they outperform no theory.

Where Does Our Economy Go From Here?

I am glad to see that some of these ideas are beginning to gain acceptance in mainstream thinking about the American financial crisis.  If ever there was a time to reassess our ways of doing things, now is that time.  When Kahneman and Taleb find themselves at the elite Davos World Economic Forum, arguing their viewpoint before world leaders, it makes me optimistic that maybe we can find our way.

Here’s my recommendation.  As you hear about upcoming bailouts and stimulus packages, assess whether these issues are addressed:

1. Does the plan acknowledge the existence of FUTURE catastrophic risk? Or does it create a system where this same problem could arise again?

2. Does the plan provide for DIVERSITY in (1) recovery methods, (2) financial institution types, and (3) economic theories? Or does it perpetuate a few small institutions driving our economy with a single philosophy and a narrow set of investments?

3. Does the plan call for INSURANCE and redundancy – requiring that future investments are hedged against extreme risk? Or does it put all of our proverbial eggs in a single basket?

4. Does the plan create an appropriate system of rewards and consequences, making decision-makers ACCOUNTABLE for the risks that they take? Or does it create a situation where firms could be bailed-out again if (when) they fail?

5. Does the plan CHANGE the people and theories that have been running the economy? Or does it allow those who crashed our economy to keep driving our economy?

Bernard Madoff Even Scammed Other Scammers

Bernie Madoff Auction

One More Reason Bernard Madoff Succeeded: Investigators Didn’t Investigate

Now that Bernard Madoff is being investigated for allegedly running the biggest ponzi scheme fraud in history, lots of people are trying to figure out how he was able to get away with it for so long.

One clue as to how he got away with it and what little oversight or critical analysis goes in to vetting major investment advisors can be found in the example of hedge fund Access International Advisors (AIA).

AIA’s founder lost $1.4 billion in client money through his investments with Bernard Madoff before commiting suicide in December.

How does a major hedge fund get tricked into losing $1.4 billion? By having an already-useless investigation and due diligence process – and then not even using it.

The AIA hedge fund had a due diligence process for vetting potential investments. This due diligence process included handwriting analysis, also known as “graphology,” to investigate whether investment advisors were skilled and trustworthy enough to handle large investments. However, because of Madoff’s strong reputation on Wall Street, AIA decided it didn’t need to perform its standard investigation before investing with him.

As Risk Magazine reports: “[I]t’s not even that they used graphology… in order to assess investment prospects… It’s that they didn’t even bother to use graphology when they thought someone was an nice guy. Their due diligence process was, essentially, ‘are you a decent chap? If not, do you at least write with the letters all sort of wiggly?’”

But what if they had followed their standard practice of performing handwriting analysis on Bernard Madoff?

Handwriting Analysis Is Not an Investigative Technique or a Science – It’s Pseudoscience and Fraud

Let’s be clear here: in common language there are two types of “handwriting analysis.”

The first, otherwise known as “forensic handwriting analysis,” or “questioned document examination” is a scientific discipline, used regularly in courts of law, whereby experts examine documents to detect forgeries or to try to match handwriting examples to identify people. This is a valid – though still occasionally inaccurate – profession.

Expert forgery analysis should not be confused with its insidious step-child, otherwise known as “graphology,” which is a form of pseudoscience (a practice that claims to have scientific merit, but fails to demonstrate scientific verifiability).

Graphologists claim to be able to draw conclusions about a person’s personality based on characteristics of that person’s handwriting. Based on the size, shape, slant, loops, and compactness of one’s handwriting, “handwriting analysts” claim to know whether someone is confident, introverted, risk-taking, injured, mean, or hard-working. Peer-reviewed studies of graphology have concluded that it lacks validity.

Yet major corporations continue to use “handwriting analysis” as part of their HR hiring practices and, as in the Bernard Madoff example, to determine whether someone can be trusted to invest billions of dollars for them. Think of what’s happening here: a job applicant (or hedge fund manager) could be selected or rejected because her sloppy handwriting convinced a “handwriting expert” that she was an “extreme extrovert”, or a very “risk-averse” person.

Don’t believe me yet?

“Michael Shermer Explores Graphology” Videos

Watch this series of two short videos as Michael Shermer, the editor of Skeptic Magazine and author of “Why People Believe Weird Things“, tests the abilities of a professional graphologist:

The Michael Shermer handwriting analysis investigation continues in this second short video:

Graphologists Exist Because Graphology Triggers Our Confirmation Bias

After watching these videos, I think it’s reasonable to say that you could be left unconvinced that Shermer had done a thorough job of debunking graphology. Every test subject seemed somewhat pleased with their readings, and at least one thought the reading was quite accurate.

So doesn’t that mean that graphology might actually work?

Remember the example at the beginning of the first video of the employee who was going to “blow up” because of a medical condition, and it turned out to be true? That’s seems pretty convincing that graphology can work.

Here’s the problem with that line of thinking: The graphologists makes broad, generalized statements (”likes to do things sequentially”, “embarrassed if other people see her get emotional”, “man of action”, “learns best by reading and studying”, “not sure of his place in the world”) that could apply to just about anybody – which is why people saw accuracy even in readings about other people. An “analysis” that tends to draw broad conclusions that are accurate for most people, isn’t really a useful analysis.

But there’s a bigger problem: The graphologist also always makes a large number of predictions, some of which were accurate, some of which were not. The first woman in the video is told that her handwriting indicated that she grew up with an absent parent and that her mother had died. It turned out that her father had been “absent” while she was growing up – in that he worked a lot – but that it was her father – not her mother – who was dead. The woman interpreted the “absent parent” comment to fit the facts, and decided the other prediction was close, even though the identity of the parent wrong. [Note: A prediction of an “absent parent” is one that is vague enough to fit almost any person’s childhood and a large percentage of middle-aged people will have at least one parent who has died].

Graphology “works” because of what’s called a “confirmation bias” – the tendency of people to focus on facts that confirm their predictions, and discount facts that contradict their beliefs.

This is the same method psychics use in their readings.

First, we are told to believe that the “expert” has a special skill. Then the “expert” provides a large number of “cold” statements, which could be generally applicable to most people. The “expert” follows with “warm” statements – specific predictions – which are altered to fit the facts (”Your mother died?” “No, it was my father.” “I knew I was seeing that a parent had died.”) The “expert” always makes sure we direct our focus on the statements that we accurate, but doesn’t mention – or changes – the predictions that were false.

My conclusions:

1. No wonder people can commit fraud for billions of dollars when prospective investors choose to skip their due diligence if someone just seems trustworthy.

2. No wonder our economy is in crisis when major American corporate hiring and investment decisions are based on the “predictive” whims of charlatans.

Your Finger Length Determines Your Ability to Make Money?

finger length

When (Not Very) Good Reporting Goes (Extra) Bad

So there’s this news story zooming around the world right now.

Maybe you’ve seen it or heard about it.

First, some high-profile researchers from Cambridge University in the UK last week published an article, “Second-to-fourth digit ratio predicts success among high-frequency financial traders” in the journal Proceedings of the National Academy of Sciences (”PNAS”).

Two days later, the story was reprinted in The Economist as, “Digitally Enhanced – Successful financial traders are born as well as made.”

Then, this morning, the Economist story was reprinted in the Star Tribune as, “Looking for a winner? Check the ring finger – Cambridge study shows: successful financial traders are born as well as made.”

The study found that men working as “high-frequency” stock traders often had longer ring fingers than middle fingers – a trait that is known to be a sign of high levels of testosterone. The articles then drew the conclusion that a useful way to find out if someone is good at making money is to measure their fingers.

Here’s my beef with all of this.

I’ve read the Economist and Star Tribune articles and the abstract from PNAS, but full text PNAS articles require a password, so I haven’t read the full version of the original study

The Problem of Sample Size and Source

The study that claims to have drawn scientific conclusions regarding all “high-frequency” traders sampled a recruited group of 44 people from a single trading floor with 200 people total. That is, there is no indication that this group was at all randomized, or representative of the makeup of any other trading floor in the world. Also, even if it were 44 random people, that doesn’t seem to me like enough people to draw useful medical or statistical correlations.

The study makes it very clear that trader “experience, counted for a lot.”  I can’t figure out how a study can use such a tiny sample size, which finds one strong correlative factor (experience),  and still draw any conclusive findings related to the correlation of another far-weirder factor.

The Problem of Specialty Generalization

Next, though the original study makes clear that they were only analyzing the limited sub-group of “high-frequency” traders, the news reports made the much broader claims that “successful financial traders are born as well as made” and that “making money comes naturally to some people — specifically to men exposed to high levels of testosterone before they were born.” It should be totally obvious to anyone that even a valid study of “high-frequency” traders doesn’t by logical extension make any claims about “successful traders” generally or even worse, people good at “making money.”

The Problem of Survivorship Bias

Survivorship Bias is the logical error of drawing conclusions about an activity based only on data related to those successful at the activity, while ignoring data related to anyone who attempted the same activity, but failed.  Here, the researchers only studied current traders’ fingers, not the fingers of anyone who had failed in the same role.  If they were to do the additional research and find that failing “high-frequency” traders also have long ring fingers, then maybe finger length/testosterone predicts for an interest in that kind of work more than predicting for success in that work, as both the study and articles claim.

The Problem of Hindsight Bias

Hindsight Bias is the logical error of drawing conclusions about future success based on past success. This concept has tremendous application in the field of finance.  In this case, the study and the article drew the conclusion that because these traders had been successful in the past, that they were, therefore, going to be successful at the work in the future.  That is, they explicitly made the claim that 44 people who have been successful at this kind of trading were therefore talented at it.  Is it possible that “high-frequency” trading takes a tremendous amount of skill?  Certainly.  Is it also possible that “high-frequency” trading just takes a lot of luck and the “survivors” that were sampled happened to be the lucky few? Seems possible.  The big problem is, this question is not addressed.  We are just told, as fact, that “success” at this kind of work is a game of skill, not chance.

The Problem of Drawing Practical Recommendations from Scientific Research

Journalists know that most people who read their articles (especially in science reporting) will assume that the whole article is based on valid scientific study. These journalists know that very few readers will ever bother trying to find and read the original study. Yet, here these articles try to convince people that maybe they need to start worrying about the finger length of their family’s financial advisor or banker. This crazy-generalized claim is never made in the original study, but it certainly helps a newspaper editor get excited about publishing the article. Shame on them.

This is all to say that (1) I’m highly skeptical of the original Cambridge study; (2) I’m disappointed in the mainstream media who report on these findings and draw their own conclusions from it, without showing any skepticism themselves; and (3) it’s made worse when media outlets republish other’s flawed reporting without any original analysis on their part.

Am I being too harsh? Probably.

But if you’re interested in learning more about cognitive biases, logical errors, and financial trading, I highly recommend Nassim Nicholas Taleb’s book “Fooled by Randomness.”

For an overview of Taleb’s theories, check out Malcolm Gladwell’s New Yorker article, “Blowing Up.”

Jesse “The Senator” Ventura?

Jesse VenturaIn multiple interviews today, former Minnesota Governor Jesse Ventura hinted that he is considering joining the state’s 2008 U.S. Senate race.

NPR, the AP, the Politico, the New York Times all have reports on his possible candidacy against Norm Coleman and Al Franken.

A recent poll shows Ventura would draw support from Franken, Coleman, and undecideds. Without Ventura, Coleman leads Franken 52-40. With Ventura, Coleman polls at 41%, Franken at 31%, and Ventura at 23%.

Then again, when Ventura was elected Governor in 1998, he was also polling in third.

What do you think? Should he do it? Can he win?

Shake-ups Continue in Minnesota Attorney General’s Office

Minnesota Attorney GeneralAfter nearly a year and a half in office, Minnesota Attorney General Lori Swanson’s office continues to be plagued by staff dissension.

The Star Tribune reports that an independent investigation of the office by St. Thomas Law Dean Thomas Mengler cleared the Attorney General of wrongdoing related to her handling of cases in the office. In response to the investigation report, Attorney General Swanson fired the attorney who brought the original complaint.

“Mengler said Swanson did not ask him to address broader concerns raised by [the fired attorney] on office morale and attempts by staff attorneys in the attorney general’s office to form a union…

Mengler’s 19-page report comes as the legislative auditor is conducting a separate probe into the attorney general’s office.”

At the same time, local online newspaper, MinnPost, has published a critique of the Attorney General’s Office and lays the blame for any mismanagement there at the feet of former Attorney General Mike Hatch.

“The recent agonies of the Minnesota attorney general’s office under Lori Swanson (an alarming turnover rate in the office, a futile unionization effort blocked by Swanson, a series of allegations that lawyers in the office felt pressured to do things they considered unethical and a preliminary investigation by the legislative auditor, which may be released any day now) are really the latest symptoms of trauma that goes back nine years and starts with two words:

Mike Hatch.

One former assistant attorney general said that when people ask him what he thinks about the turmoil of Swanson’s first year, he replies: ‘Are you kidding me? None of this is new. All of this has been happening since Hatch took over…’

[Hatch] defends his management of the office and blames the current controversies on a ‘small cabal of attorneys’ who are trying to unionize the office. He said they hide behind anonymity to throw mud at their bosses and look ‘for any scribner to serve as their hand maiden.'”

To what degree do internal staff frustrations impact the operations of the Attorney General’s Office and its service to the State of Minnesota?

US Supreme Court Upholds Voter ID Requirement

Voter IDThis morning the United States Supreme Court released its decision in Crawford v. Marion County Election Board (pdf). This case sought to determine whether the State of Indiana’s voter identification requirement violated the constitutional rights of voters.

In its plurality-decision today, the Court upheld the voter identification requirement in Indiana, ruling that states only need a rational justification for implementing new voting requirements.

Institute for Law and Politics Advisory Board Member Rick Hasen has a more detailed analysis on his Election Law Blog.

Do you think today’s Court ruling will encourage additional states to pass stricter voting requirements?

What Could Go Wrong in Florida?

Florida MapInstitute for Law and Politics Advisory Board Member Rick Hasen predicts in his Election Law Blog three potential problems if Florida goes forward with a June Mail-Vote Primary:

1. An Election Meltdown
As I have noted,”there’s something especially worrisome about rolling out a new system for counting votes for the first time in a presidential contest. It is like debuting your new play straight on Broadway.” Dan Tokaji has raised similar and additional administrability concerns. A meltdown could well backfire on the Democrats, making Floridians less likely to vote for a Democrat in the fall, and tarnishing even further the reputation of Florida.

2. The Specter of Vote Fraud
Any time voting takes place outside the voting booth, there is the chance of a vote buying arrangement. As I have explained, absentee ballot fraud was rampant enough for a court to void the Miami mayor’s race of 1997. We can also expect that the loser of the contest will have an incentive to claim fraud as a way of trying to undermine the results, much like what may be happening with the Texas caucus right now.

3. Undermining the Ability of the DNC to Insure Order on the Primary Process
It would be quite ironic if Florida, despite having broken the rules, would get to hold a final primary that the media (and perhaps the candidates) will bill as the decisive contest to sway the superdelegates (as in, whoever can win in Florida deserves to take on John McCain in November). What incentive will this create for states in 2012 asked to abide by the Democratic party rules for the timing of primaries and caucuses?

What do you think the odds are of one or more of these problems arising if Florida Democrats go forward with their plan?

Florida Democratic Party Proposes June 3 Mail Vote Primary

EnvelopePolitico reports that the Florida Democratic Party has developed a plan to redo its Primary election through a June 3 Mail Ballot.

No word yet from either Clinton or Obama on their reactions to the proposal. The re-vote election is estimated to cost between $10-$12 million, though right now, no one has volunteered to pay for it.

The plan reads in part:

” With the oversight of the commission, the primary will be managed by reputable election management companies who are experienced in special elections. A recognized accounting firm will provide further assurance that the process is conducted fairly and accurately. Civil rights and election law attorneys will monitor all legal aspects of the primary.

The primary will be organized at a Florida Democratic Primary Headquarters (HQ) office in Central Florida. The 50 REOs will handle local outreach and educational activity, with specific consideration given to disadvantaged communities.

Vote-by-mail (VBM) packets will be mailed to all registered Democratic voters at least two weeks prior to Election Day (likely earlier). This will be handled by a firm experienced in special elections conducted by mail. VBM packets will contain a prepaid, addressed return envelope and one ballot. The instructions will be simple and clearly printed on the ballot and envelope. All ballots and instructions will be printed in English, Spanish and Creole to comply with Section 2 of the Voting Rights Act. The plan can be submitted to the Justice Department for approval under Section 5.

Although VBM packets will not be forwarded, when a ballot is returned as undeliverable, a notification card will be sent to the voter’s forwarding address offering the voter the opportunity to correct their registration record and receive a new VBM packet in time for the election. The undeliverable ballots also will be recorded and stored until 21 days after the voting deadline.

If a voter does not receive a ballot or whose ballot has been damaged/lost, he or she may contact HQ or an REO to request a replacement. A voter may cast an in-person provisional ballot at a regional office if their voting eligibility cannot be confirmed.

REOs will be open every day for the two weeks leading up to the voting deadline for informational purposes, distribution of replacement ballots, in-person voting, and collection of completed ballots. REOs will have a locked ballot box and will be staffed, but votes will only be counted at HQ. Every evening, the day’s ballot box will be picked up from the REOs and transported to HQ. All ballots must be received by 7:00 PM on Election Day to count.”

Obama v. Clinton: Could Delegate Counts Spark a Lawsuit?

Clinton Obama 2008Former U.S. Solicitor General and Bush v. Gore counsel, Ted Olson, writes in today’s Wall Street Journal of the possibility of contentious litigation should there be a contest in seating delegates to the Democratic National Convention:

“Imagine that as the convention approaches, Sen. Clinton is leading in the popular vote, but Sen. Obama has the delegate lead. Surely no one familiar with her history would doubt that her take-no-prisoners campaign team would do whatever it took to capture the nomination, including all manner of challenges to Obama delegates and tidal waves of litigation.

“Indeed, it has already been reported that Sen. Clinton will demand that the convention seat delegates from Michigan and Florida, two states whose delegates have been disqualified by the party for holding January primaries in defiance of party rules. The candidates agreed not to campaign in those states. But Sen. Clinton opted to keep her name on the Michigan primary ballot, and staged a primary-day victory visit to Florida, winning both of those unsanctioned primaries. Her campaign is arguing that the delegates she won in each state be recognized despite party rules and notwithstanding her commitment not to compete in those primaries. Of course. ‘Count every vote.’

“As the convention nears, with Sen. Clinton trailing slightly in the delegate count, the next step might well be a suit in the Florida courts challenging her party’s refusal to seat Florida’s delegation at the convention. And the Florida courts, as they did twice in 2000, might find some ostensible legal basis for overturning the pre-election rules and order the party to recognize the Clinton Florida delegates. That might tip the balance to Sen. Clinton…”