“If human embryonic stem cell research does not make you at least a little bit uncomfortable, you have not thought about it enough.” — James A. Thompson, the first scientist to isolate human embryonic stem cells, as quoted by Charles Krauthammer.

Krauthammer served as a member of President George W. Bush’s Council on Bioethics and has recently characterized Bush’s widely vilified stem cell policy announced in 2001 as having been thoroughly vindicated.  How so?  First, because he had the courage of his convictions that a moral line had to be drawn; and second, by supporting research that might lead to the production of stem cells of adult origin, thereby bypassing the need for creation of human embryos for research purposes.  The successful result of this research having now been achieved, there is now a plentiful and, according to reliable scientific authorities, an even more productive source of stem cells.  Thus, the complete vindication of Bush’s courage and confidence, which, not so incidentally, was articulated by him at the time in a speech that was delivered with fairness, balance, and due respect for the moral seriousness of the issue.

Now comes President Obama, who delivered on one of his campaign promises by reversing the Bush policy on federal research on embryonic stem cells and, by so doing, returned the issue to the political arena in a way that is disingenuous at best and anti-democratic at worst.  First, he has not only needlessly reversed the policy restricting embryo-destructive research funding, but he has reversed the order that encourages the National Institute of Health to further pursue non-embryo-destructive sources of stem cells.  Of course, this is exactly the kind of ”in your face” rejection of Bush policy that is red meat for Bush-haters and food for Obama’s leftist base.

But second, and at least as important, as Robert George so well described in a recent article, far from “removing politics from science” as he has claimed, Obama’s decision is simply anti-democratic.  The question of whether to allow the destruction of human embryos for research purposes is fundamentally a moral and civic question about the uses and limitations of science, not a scientific question.  On this most basic of considerations on this issue, Obama has nothing to say.  He leaves full discretion to the scientists, a complete abdication to scientism.

So the politics of the issue will continue and, in fact, will escalate; the question now is whether it will play out in an orderly fashion through a deliberative democratic process. (On this last point, I am pleased to note that the Texas Legislature is taking on the issue through healthy debate on legislation now pending.)

Obama’s decision will almost certainly provide new incentives for taxpayer funding of federal stem cell research, which will in turn produce new incentives for destruction of human embryos, a huge supply of which will be the “leftovers” from invitro fertilization (IVF) clinics, an issue which has acquired significant prominence, as highlighted by such extremes as the recent case of  the “octomom”.

Leon Kass, the former Chairman of President Bush’s Council on Bioethics, warned as early as 1972 that IVF would one day pose almost insoluble dilemmas, the most consequential of which is the changing conception of ourselves, what it means to be human, and “the erosion of our idea of man as something splendid or divine, as a creature with freedom and dignity; and clearly, if we come to see ourselves as meat, then meat we shall become.”

As Ramesh Ponnuru has noted in a great essay on the IVF issue, the problem of mass creation and destruction of “excess embryos” illustrates that some slopes are indeed slippery.  And it’s not as though some very thoughtful people haven’t warned us.  As the man said, if this doesn’t bother you, you need to think again and more deeply.

 I am pleased to include in this issue the following guest essay from David Ikenberry, Professor of Finance and Associate Dean for Executive Programs of the College of Business, The University of Illinois at Urbana-Champaign, who brings unique perspective on hedge funds and their particular role in the recent financial meltdown.

It’s funny when you come across phrases where their underlying meaning conflicts with what we know their commonsense interpretation to be.  One such oxymoronic phrase in the financial world is the “Hedge Fund.”  Hedging is normally thought of as reducing or limiting risk.  We hedge our bets all the time when we buy insurance.  The cost of hedging is one we willingly pay to avoid the economic shocks of life. 

It’s striking then that that these two little, innocent words, hedge fund, have recently become the bane of our economic existence.  Embattled leader, Edward Libby, CEO of AIG Corporation, recently conveyed to Congress that the insurance firm had grown into an internal hedge fund overexposed to market risk.    

How did the concept of insurance and risk reduction get twisted into risk acceleration?  In their earliest days, hedge funds were indeed risk reducing investments.  Managers of these funds did what nearly all good investors do, they made what they felt were good investments.  The hedge concept came about as managers used techniques to trim unwanted exposure to the broader markets that was otherwise necessary for holding their good investments.  To accomplish this, these funds needed a legal structure allowing the risk reducing trades to happen, something that normally was not possible.     

When we hear the phrase hedge fund, we should instead think of this rule structure.  Yet the same financial agreements needed to reduce risk also allowed hedge funds to magnify it.  Soon, managers would search for investment opportunities and use leverage to amplify those gains into what was intended to be handsome profit.  After all, if hedging comes at a cost that reduces returns on average, leverage was a way to restore it.  That lens of financial magnification was the distortion needed to transform us off the primrose path.  And of course, if a little is good, a lot must be better.      

Over time, many hedge funds used complex strategies to identify persistent pricing mistakes or anomalies in the marketplace.  Others went on statistical scavenger hunts, looking for small discrepancies in our financial veneer.  As long as those relationships were stable, the strategies worked.  But just as the optical magnifier can bring fire to the printed page, the same could occur for these funds.

If only a few such funds existed, these disturbances would not have affected all of us so broadly.  However, many of our largest endowments, each pursuing good social purposes in their own right, were unknowingly walking around with these magnifying lenses, some with a lens in each hand.  Many of our formerly grand investment institutions held similar positions.  A blip in our economy diverted us from the key statistical assumptions needed in those hedge fund models – this was clearly the case at AIG.  Boom, our economic world erupted in fire. Is it true that if cattle cars haul cattle, surely we must stand back from fire trucks for they haul fire?

Events almost overwhelm.  As I write, President Obama is in Europe winding up the G-20 meeting and the rest of his tour, the Financial Accounting Standards Board (FASB) is revisiting “mark to market” accounting rules as they apply to financial institution asset write-downs, the stock market is showing signs of a bear market rally, the Obama administration is taking complete control of what is left of the U. S. auto industry, and the loyal opposition is finally offering a somewhat coherent response to the majority-proposed federal budget.  Meanwhile, it seems to serve the transformative agenda of the left to put all of this in the context of the latest and most egregious “failure of capitalism”.

Where to start?  First, the G-20 is unlikely to produce anything of any real import in terms of a resolution of the financial crisis.  As with all government activity, the best to be hoped for is that no harm will be done.  However, I am worried about what I am hearing of a proposed international “financial stability board” that would almost certainly attempt to challenge national sovereignty in financial institution regulation, a horrible idea.  But, given the facts on the ground, the world economic ball game right now is in the hands of the U. S. and the Chinese–no one else has the capacity to make a significant difference.  This may be an oversimplification, but it’s my take.  Maybe one of these days a “new Bretton Woods” would be a good idea, but not under present management.

The FASB is doing the work that should be handled by the bank regulators.  Mark to market accounting is sound accounting theory, but should be adjusted by regulators in times of severe market aberrations and disruption so that forbearance can be granted in regulatory capital computations so as not to force insolvency on institutions whose cash flow is otherwise sufficient to maintain viability.  Hopefully, this forbearance can be achieved so that the banking industry can regain stability.  

I will defer judgment on the stock market, except to say that there will not be stability in the markets until government develops a much more consistent approach to the resolution of the banking crisis and the auto industry and tones down its constant anti-Wall Street rhetoric and its policy attacks on capital and wealth.

As for the auto industry, George Bush should have forced both GM and Chrysler into bankruptcy before he left office.  Having said that, every day that passes before that happens adds to the uncertainty of the timing of this almost certainly inevitable event and the ultimate cost to the country.  The bankruptcy courts were created in the late 19th century for just such circumstances.  The fact that we can’t bring ourselves to do the necessary thing is a tribute to the unseriousness of this administration, which is interested only in pursuing its notion of a highly politicized “green” industrial policy and “surgical bankruptcy” for the protection of the United Auto Workers, both of which will be counter-productive to the measures that must be taken to restore the industry to any semblance of viability.  But remember, Obama’s ultimate objective is to completely rewrite the American social contract and the relationship between the citizen and government–the crisis of the automobile industry just happens to be one great opportunity to advance this objective.

Finally, at last, we are seeing some response to the irresponsibility of the administration’s reckless fiscal policies.  The Republican alternative budget laid out this week is coherent and representative of the best principles for which we should stand.  Chief among these that have been articulated by Congressman Paul Ryan of Wisconsin is the notion that, for all our mistakes, America is an exceptional nation and we want to keep it so.  This means, among other things, that we have no interest in what Ryan appropriately calls the “third and final great wave of progressivism” that will mark the moment that America turned European.

The differences in the two plans and the difference they make are dramatic, not simply in financial terms, which are striking enough, but in terms of basic morality.  A fundamental philosophical tenet is that societal rights and obligations must be in balance–for each “right” that is claimed, someone must be obligated to provide it and defend it.  And, as for the future of capitalism, what we need is more of it, not less, because not only is it the only way out of all this, but it is the most moral of systems known to man, and the only one that offers any hope of properly balancing rights and obligations within a moral order.

The Texas Legislature is now in full swing and, of course, the Texas Institute for Education Reform (TIER) is at every table on every significant public education issue at stake, hopefully providing meaningful policy advocacy leadership.  We have a comprehensive agenda for the session, but I am often asked–if I could get only one major thing accomplished in this session ,what would it be.

That is not an easy question to answer, but I think it goes something like this.  Texas has been at this thing called standards and accountability based education reform for about 25 years, with substantial results in terms of student achievement and national leadership.  This has been an all-hands effort on the part of elected officials, educators, business leaders, and parents.  It has also been incremental in nature in the sense that, as we have progressed in our standards, we have ratcheted up the expectations for our kids and our educators.  This has produced fairly consistent incremental gains, but also some frustration about where we are and where we are going.  So now we are at the point, after all these years, that we owe it to the kids, their parents, our educators, and the taxpayers to define the “end game”–what should be our expectations for our children and what should be the value of a Texas high school diploma?

In response, as state policy makers began about a year ago to consider significant revisions to the state education accountability system, our organization and its allies established what we believe should be the organizing principle of the new system, a hybrid between college readiness and workplace readiness we call postsecondary readiness.  This is defined as follows:

“The range of academic, workforce, and social proficiency that high school students should acquire to successfully transition to skilled employment, advanced military training, an associate’s degree, a bachelor’s degree, or technical or industry certification, without the need for remediation.”

A proxy for this definition is community college readiness without remediation.  This we believe is the minimally acceptable standard of expectation for all Texas students who pursue the recommended curriculum to a high school diploma, regardless of the postsecondary path they choose.

From this organizing principle flows grade level benchmarked standards along a K-12 “ramp” leading to the postsecondary readiness exit; vertically scaled assessments with value-added capability measuring growth along the way; criteria holding schools accountable for student progress; and interventions to help those educators and students in need.

So this is my answer to the question “if I had only one wish”–that the Legislature would embed in law this organizing principle, for which the motto would be “one standard, multiple pathways, equal rigor”.  Frankly, to do so would greatly simplify filling out the remainder of the system and its execution and would provide all the players in the chain the necessary clarity of mission and expectations.

With any luck, we will get this accomplished, maybe sooner than later.  Meanwhile, visit our web site at www.texaseducationreform.org for updates on our progress.  And remember, we need all the help we can get.