Previous month:
March 2010
Next month:
May 2010

April 2010

The Modern Republican Wingnut Viewpoint in a Nutshell...

Better not to have publicly-funded roads, bridges, school lunches, and health reesearch than to have them--even if you have them without the taxes needed to fund them doing any damage to the private economy and with the overwhelming approval of the voters:

Clive Crook:

Clive Crook: The superior efficiency of a VAT is a mixed blessing. Increasing a VAT, once you have it, is less damaging to the economy than raising the same amount of revenue from an unreformed income tax. So one result of a VAT might be less political resistance to higher taxes and bigger government. Europe's experience seems to support this view. If blocking the growth of the state is your overriding priority, you might oppose a VAT precisely because, as taxes go, it is a good one. By the same logic, of course, you should strive to make the income tax even worse. The rule would be, collect revenue in the most damaging ways possible. That will raise the price of Big Government and tie the liberals' hands...


Goldman Sachs: I Think Kevin Drum Is Right

Kevin Drum:

Goldman's Big Short: You know, I'm as willing as the next guy to rubbish Goldman Sachs. But 2007 is not 2009, and Goldman's mortgage-related results might very well have been different during those two years. What's more, making lots of money shorting the housing market is entirely consistent with Goldman's statement that it "did not generate enormous net revenues by betting against residential related products." The obvious conclusion from this is that they lost a truckoad of money on mortgage products and made a truckload of money shorting mortgage products. Apparently the second truckload was bigger than the first during certain periods, but that's all.

As far as I can tell, this has been Goldman's story all along. They were long housing up through 2006, got nervous, and then started to short the market. As a result, they came out of the financial meltdown in decent shape. Not great shape, as their conversion to a bank holding company and $1.3 billion "missing month" in late 2008 demonstrate, but not bad.

There are plenty of things to hate about Goldman Sachs, but this one is a real stretch. Maybe I'm missing something, but I don't really see any kind of serious deception here.


Methinks Felix Salmon Confuses Goldman Sachs with J.P. Morgan ca. 1900...

File:1907 Panic.png - Wikipedia, the free encyclopedia It was J.P. Morgan ca. 1900 who said that the most important asset an investment banker could have was "character." It was J.P. Morgan ca. 1900 who wanted to make sure that every single one of his counterparties thought that they had been treated fairly and profited fairly from their dealings with the firm. Of course if you got into J.P Morgan's way--well, he would ruin you and take your business away from you, as he did with George Westinghouse and with the Tennessee Coal, Iron and Railroad Company which had tried to stay out of Morgan's U.S. Steel monopoly, and which Morgan picked up for a song during the Panic of 1907. But the attitude that Morgan tried to cultivate was one in which people could say, as New York, New Haven, and Hartford Railroad President Charles S. Mellen did, that "I wear the Morgan collar, and I am proud of it."

When you hired Goldman Sachs, on the other hand, you were never hiring them for their "character"--for their commitment that you would be treated fairly and get your fair share of surplus out of the deal. From the 1920s on, you were hiring Goldman Sachs for their intelligence, their sophistication, and the depth of their market knowledge--and if you wound up holding the shares of the Goldman Sachs Trading Company or the Shenandoah Corporation or Blue Ridge that Goldman Sachs had sold you in 1929, or the Penn Central Railroad bonds that Goldman sachs had sold you in 1970, well, don't come crying to them.

Felix Salmon thus, I think, mistakes the business of Goldman Sachs. The old House of Morgan was an investment bank interested in building long-term relationships. Goldman Sachs is instead about doing deals and having the knowledge, sophistication, and intelligence so that it can do the deals with greater ease than anybody else--but it won't protect you from itself, and won't protect you from yourself.

Felix:

With SEC charges, Goldman Sachs's reputation is tarnished: On May 4, 1999, Henry Paulson rang the opening bell at the New York Stock Exchange, and Goldman Sachs became a public company for the first time in its 130-year history. Paulson, chief executive and chairman of the board, was suddenly worth more than $260 million. But going public wasn't just about giving Goldman's partners 50 percent ownership of a very valuable public company. It was also about removing from them the unlimited liability for which they had been on the hook up until that point, in the event that Goldman ever lost money.... Goldman Sachs is now worth $83 billion, $50 billion more than 11 years ago. By this yardstick -- the only one Wall Street seems to care about -- Paulson's decision to go public was a great success. But now, with the firm under attack from the Securities and Exchange Commission, which has accused it of fraudulently misleading investors in a 2007 deal, it is finally clear how far Goldman truly has fallen since 1999.... Goldman Sachs is no better than the rest of Wall Street. Bear Stearns, the scrappy bank that had always seemed to be Goldman's polar opposite, actually turned down the deal that the SEC is focusing on, saying it just wasn't right. The complaint paints a picture of sleazy, untrustworthy bankers -- and it's that picture, more than the legal charges themselves, that has toppled Goldman from its pedestal....

Lloyd Blankfein, who took home a record $68 million paycheck in 2007. That's not the kind of money that can be made by giving valuable and impartial advice to clients with whom you have a long and storied relationship. Instead, it's the kind of money that comes from leverage and aggression and trillions of dollars' worth of simple and complex trades in hundreds of markets and dozens of countries around the world. Blankfein is by no means the first trader to run Goldman Sachs.... When Blankfein took over Goldman, he married a born trader's natural pugnacity to the firm's venerable name....

Without its clients' trust, the Goldman franchise crumbles, and the bank becomes just an ordinary trading shop. No longer can it charge a premium for its mergers and acquisitions advisory services, or its stock and bond underwriting, or its customized structured products. To put it in baseball terms, it has lost what another storied franchise, the Yankees, so closely guards -- its mystique and aura. The seeds of all this were sewn on that fateful day in 1999 when Goldman changed from a tight-knit partnership to a public company with quarterly earnings reports and a new appetite for record profits and growth.... A partnership would never, could never, have $1 trillion in assets. The risk is too great.... But when Goldman went public, that changed. The senior executives were now at risk only to the extent that they were also shareholders. What's more, by growing so enormous, Goldman became "too big to fail" and could therefore take on massive risk, safe in the knowledge that if things went spectacularly wrong, the government would step in. And that's exactly what Goldman did. The traditional investment bankers, and anybody else who earned income off client fees, became marginalized; the traders, who leveraged the bank's own funds as aggressively as they could and who made multibillion-dollar bets with other people's money, ended up running the shop....

[S]o far, Goldman's desperate response has only made matters worse. It tried to paint a veteran saleswoman as someone who couldn't understand simple e-mails about corporate structure. It used the word "sophisticated" 18 times in a single document, trying to shift the blame onto the victims of its scheme, because, well, they were sophisticated. And when its general counsel came onto its quarterly earnings call last Tuesday, he refused to answer most questions.... Goldman's clients have known for years that the long-term-greedy investment bankers of the past were being marginalized by the short-term-greedy traders who have taken over the company's upper echelons. But the company's mystique overwhelmed this knowledge...

Remember: back when Goldman Sachs was a partnership it blew its clients up twice--first with GSTC and then with the Penn Central--and both times nearly blew up the whole firm itself. I think the shift from partnership to publicly-held corporation as having a big negative moral hazard effect on other Wall Street investment banks. But I don't think it mattered that much for Goldman Sachs...


Why Oh Why Can't We Have a Better Press Corps? (MIchael Scherer of TIme Should Find a Different Profession Edition)

Michael Scherer, 5:54 pm, April 23, 2010:

Republican Governors Pay Homage To Guy Fawkes.... Guy Fawkes, a Catholic radical who is remembered primarily for his failed attempt, on November 5, 1605, to blow up the Houses of Parliament and kill King James I.... Now, the... Republican Governors Association has embraced the symbolism of Fawkes.... President Obama plays the roll [sic] of King James, the Democratic leadership is Parliament...

Michael Scherer, sometime April 24, 2010:

[T]he tale of Fawkes has been so thoroughly appropriated by so many that it is just not right to associate the latest appropriators with the intent of the original criminal in 1605... To suggest that this is what the RGA is doing now is, it seems to me, overly simplistic and inflammatory...

But:

  • if Obama is King James I, and
  • if Nancy Pelosi and Harry Reid are the lords of Parliament,
  • then the Republicans are associating the latest appropriators with the intent of the original criminal in 1605,
  • aren't they?

To claim otherwise--to say that the Republicans are not saying what they are saying--would be very inflammatory.


Republican Death Spiral: And Then There Were None...

The last moderate, reality-based Republican in California turns his coat. Very sad to see:

The OCR reports that it heard Campbell saying:

The scientific basis for the theory of global warming must be revalidated because "it appears that the data are seriously flawed."


Eight Things Worth Reading, Mostly Economics, for April 24, 2010

  1. KL: "US Launches Secret Robot Space Shuttle. A robotic space plane launched from Cape Canaveral at 7:52 p.m. tonight, and god knows what that even means. The X-37b is a small unmanned orbiter that can stay in space for up nine months at a time and glides down to a runway landing like some eerie 2010 version of, say, a 1970s space shuttle. Nobody will say what it’s doing or why it’s up there. This project isn’t run by NASA, but by the Pentagon. No wonder the NASA people are so ticked off these days. Drone craft kill the brown people our government doesn’t like and mysterious new pilot-free space planes zoom around the Earth, waiting for a signal. The Time of the Robots is here. The recruiting storefronts in the half-empty strip malls should be going the way of Bed Bath ‘n Beyond pretty soon now. Read more at Wonkette: http://wonkette.com/415003/us-launches-secret-robot-space-shuttle#ixzz0lyBMrrwb"

  2. RV&KK: "During the current labor market downturn, unemployment duration has reached levels well above its previous highs. Analysis of unemployment data suggests that extended unemployment insurance benefits have not been important factors in the increase in the duration of unemployment or in the elevated unemployment rate.'

  3. CF: "On the part of The Corner where Kathryn Jean Lopez, Andrew McCarthy, and Jonah Goldberg stand, political discourse operates according to a stark, indefensible double-standard whereby conservative entertainers with large audiences must be handled with kid gloves, if criticism is permitted at all, whereas tough rhetoric aimed at anyone else is perfectly acceptable, and popular conservative entertainers themselves engage in the most outrageous rhetoric imaginable over a period of many years with nary a word of objection.... [T]hey can’t help but appreciate the brazen mendacity of Mark Levin... call[ing] Mr. Manzi “a global warming zealot.” Having seen a colleague attacked in a way that isn’t merely intemperate, but factually wrong in the most obvious and extreme way, do they correct the record, or chide Mr. Levin for spreading an outrageous lie that misleads his audience and disparages National Review’s most knowledgeable writer on the subject of global warming? They do not."

  4. Yes, they have. MA: "Conor Friedersdorf thinks the problem lies with the conservative movement's major spokespeople... "their very existence as popular entertainers hinges on an ability to persuade listeners that they are "'worth taking seriously as political and intellectual actors.'" That is why the constant failures of these men to live up to their billing is so offensive, destructive, and ruinous to conservatives. There are plenty of women, too.... I think this sensibility is pervasive throughout the smart media -- old and new.... I think it's because there's so much misinformation out there -- most of it spread by the conservative echo-chamber. With the advent of Fox News and the power of that echo-chamber, complaints about liberal media bias are quite irrelevant."


Fiscal Stimulus Watch: Senator Conrad Thinks Ahead

Ezra Klein:

Democrats making reconciliation an option for jobs bills in 2011: I've been arguing for a while that the single most important thing Democrats could do on jobs would be to include reconciliation instruction in the 2011 budget so they can pass further jobs bills with 51 votes. Recent legislation has attracted a couple of Republican co-sponsors, of course, but not that many, and Democrats are likely to be well short of 60 senators after the 2010 election and the jobs picture is likely to remain grim. According to The Hill, Democrats are going to do just that:

The budget drafted by Sen. Kent Conrad (D-N.D.) allows the tax-writing Senate Finance Committee to move “jobs legislation” through the reconciliation procedure, meaning with a simple majority rather than 60 votes. Asked whether it would be used to extend expiring tax policies, such as the George W. Bush-era tax breaks for the middle class, Conrad said on Wednesday that it would be up to the Finance Committee to choose which jobs bill to push through using reconciliation.

The specifics of the stimulus instruction appear to say that whatever goes into that vehicle has to reduce the deficit by $2 billion. The question is whether that's over 10 years or five years. It's easy enough to imagine substantial jobs investment that spends out in 2011 and 2012 and is paid for with new revenue or cuts that replenish the fund over the remainder of the decade. It's a bit harder to do if you're dealing with a five-year window.


Republican Governors Endorse Terrorism...

Remember, remember the fifth of November: gunpowder, treason and plot.

Remember: Guy Fawkes's goal was to blow up the legislature of the Kingdom of England--the equivalent of crashing a hijacked jetliner into the Capitol while the House and Senate were in session.

Michael Scherer writes about the Republican Governors Organization:

Republican Governors Pay Homage To Guy Fawkes: The Republican Governors Association has embraced the symbolism of Fawkes, launching a rather striking website, RememberNovember.com, with a video that showcases far more Hollywood savvy than one can usually expect from Republicans.... President Obama plays the roll of King James, the Democratic leadership is Parliament.... The politics and substance aside, this strikes me as a remarkable bit of political messaging, not just for its cinematic quality. The RGA, under the control of Mississippi Gov. Haley Barbour, is clearly stepping out of the stodgy, safe territory it normally inhabits...

We truly do not need to have the Republican Party as currently constituted in our politics. It is not good for the country. It is hurting America.


DeLong Smackdown Watch: Jim Henley's Thoughts on Bryan Caplan

Jim Henley writes:

Second Thoughts on the 2010s § Unqualified Offerings: Brad Delong’s imputation of plain misogyny in Caplan’s enthusiasm for rearing a clone of himself strikes me, on reflection, as wrongheaded. In a hurry this morning, I let his accusation stand without comment because: a) It was good for a joke based on an epigram of Sartre’s. Now that I’m a liberal, such opportunities are irresistible. b) I hadn’t fully articulated to myself quite what was creepy about Caplan’s cloning passage, but knew a creepy pony was in there somewhere. c) I have an Alinskyite mole (don’t ask where), and when it itches I just can’t think straight...

And:

I think DeLong’s argument that it represents sexism rather than a particularly creepy narcissism is weak. But I had to get out the door for the day, so I didn’t have time to find more apposite slams. Now, why creepy? we’re not dealing with just the “defensibility” of cloning as a reproductive strategy. Picador undersells the gains from sexual reproduction, which go some way toward explaining why humans don’t just bud. He also overstates the risks, as they obtain in the present day. But that’s a side issue.

The creepy is Caplan’s confidence that he and his son will share a uniquely “sublime” bond. Yes, the undeniable relative deprecation of the bond he shares with his existing children is part of that. But so is the pressure his avidity puts on someone who would be, if Caplan got his wish, a real person in his own right – and a vulnerable, immature one. I do wonder if Nature has a trick to play yet on clone-clone bonding: incest taboos exist at the chemical level in much of the animal kingdom. Smell plays a major role in it. It may be that Your Clone Baby sends a bunch of wrongness signals in your presence that you might not consciously recognize.

But William Burns has the same reaction that I do:

You can make a pretty strong argument for sexism, if not misogyny, by pointing out that Caplan is talking as if he will raise the child alone, and that if he’s married this is almost certainly not the case, and if his marriage follows the most common sexual division of roles (and I would bet it does) he won’t even be doing most of the parental work. And he doesn’t suggest that the co-parent might have some input into the decision. Even if Caplan is gay and in a same-sex relationship, the other partner would still have the right to be consulted. The only way what he says isn’t selfish is if he’s single and planning to raise mini-Caplan alone.

And I wish to make a counter-protest:

In context with "the 1880s were a glorious age for wimminfreedom" it seems to me I am on pretty solid ground. Growing a child is, after all, something that women are usually involved in at a much deeper and more personal level that cannot be well-modeled as a piece of work that they do that they then don't care about and are willing to trade you for money. Egg-donation and surrogate-motherhood have always seemed to me to raise issues that are not properly disposed of by treating them as arm's-length market exchanges. (But, indeed, I think market exchanges raise "doux commerce" issues that are not properly disposed of by treating them as arm's-length market exchanges either, albeit to a lesser degree.) And to have women simply vanish from the equation of creating and raising one's clone altogether still seems to me, well, misogynistic...


Henry Louis Gates Gives Me a Quitclaim Deed to Hold onto the Fruits of My Slaveowning and Slave-Trading Ancestors' Crimes

Mightly generous of him, I must say...

But not well-argued at all.

Gates:

How to End the Slavery Blame-Game - NYTimes.com: THANKS to an unlikely confluence of history and genetics — the fact that he is African-American and president — Barack Obama has a unique opportunity to reshape the debate over one of the most contentious issues of America’s racial legacy: reparations, the idea that the descendants of American slaves should receive compensation for their ancestors’ unpaid labor and bondage.... [T]here is very little discussion of the role Africans themselves played. And that role, it turns out, was a considerable one, especially for the slave-trading kingdoms of western and central Africa.... For centuries, Europeans in Africa kept close to their military and trading posts on the coast.... How did slaves make it to these coastal forts?... 90 percent of those shipped to the New World were enslaved by Africans and then sold to European traders... without complex business partnerships between African elites and European traders and commercial agents, the slave trade to the New World would have been impossible, at least on the scale it occurred. Advocates of reparations for the descendants of those slaves generally ignore this untidy problem of the significant role that Africans played in the trade....

For many African-Americans, these facts can be difficult to accept. Excuses run the gamut, from “Africans didn’t know how harsh slavery in America was” and “Slavery in Africa was, by comparison, humane,” or, in a bizarre version of “The devil made me do it,” “Africans were driven to this only by the unprecedented profits offered by greedy European countries.” But the sad truth is that the conquest and capture of Africans and their sale to Europeans was one of the main sources of foreign exchange for several African kingdoms for a very long time. Slaves were the main export of the kingdom of Kongo; the Asante Empire in Ghana exported slaves and used the profits to import gold. Queen Njinga, the brilliant 17th-century monarch of the Mbundu, waged wars of resistance against the Portuguese but also conquered polities as far as 500 miles inland and sold her captives to the Portuguese.... Did these Africans know how harsh slavery was in the New World? Actually, many elite Africans visited Europe in that era, and they did so on slave ships following the prevailing winds through the New World....

So how could President Obama untangle the knot? In David Remnick’s new book “The Bridge: The Life and Rise of Barack Obama,” one of the president’s former students at the University of Chicago comments on Mr. Obama’s mixed feelings about the reparations movement: “He told us what he thought about reparations. He agreed entirely with the theory of reparations. But in practice he didn’t think it was really workable.”... Professor Obama may have been more right than he knew.... [W]e finally have a leader who is uniquely positioned to bridge the great reparations divide. He is uniquely placed to publicly attribute responsibility and culpability where they truly belong, to white people and black people, on both sides of the Atlantic, complicit alike in one of the greatest evils in the history of civilization...

Unfortunately for Gates:

  1. The first generations of African kings who began selling slaves to European traders for guns indeed did not know what slavery was like on the other side of the Middle Passage--they thought it was like slavery in Africa, where if you become a slave you then become part of a single household in which you have roughly the status of the very poor third cousin. But slavery in the Caribbean was a much harsher and more vicious institution--as capitalist slavery driven by production of staple cash crops so often is.

  2. Once the slave trade was started and once the kings of Africa knew what they were doing, no individual African kingdom along the coast can back off and stop. If it does, the guns and ammunition stop coming--and it gets conquered in short order by its coastal neighbors who are still engaged in the slave trade.

  3. Only when European consumer demand for Caribbean staple crops appears--only when the profits from slave agriculture and thus slave-raiding become really large--is it worth African kings' while to start substantial slave-raiding in the interior (and is it worth the Europeans' while to start shipping people across the Middle Passage).

That Henry Louis Gates makes fun of these arguments doesn't make them untrue.

And so I reject the quitclaim deed he offers: just because there were people with skin of another color on another continent who aided and conspired with my ancestors in their crimes does not mean that I am quits of all obligations as I sit here still enjoying the fruits of their crimes.

This is the reason that when--back in 2003--Andrew Sullivan called me a:

classic example of the arrogant liberal. He supports affirmative action and believes that individuals in 2003 bear a direct responsibility for those people who enacted slavery and made life a living hell for many black Americans in decades and centuries past...

I rejected Sullivan's critique. He was simply wrong. I was not and am not an arrogant liberal on these issues. Instead, the arguments that convince me (and that lead me to reject the quitclaim that Henry Louis Gates offers) are not liberal but conservative ones--Burkean ones, to be exact:

A liberal sees society as a result of a social contract implicitly made between all of us alive today: we agree to live by rules and laws that we then have a chance to rethink, remake, and reform. It's important that this social contract be fair to us. From this perspective, the questions "Why should recent Korean immigrants bear any responsibility for repairing the damage left by the marks of slavery and Jim Crow?" and "Why should African-Americans find their own capabilities and potential accomplishments still limited by the marks of slavery and Jim Crow?" are both very good ones. (Somehow Andrew Sullivan only asks the first, and never thinks to ask the second. But thinking about why would take us far afield.)

I begin from a different point, from the observations that we Americans alive today are all the recipients of an extraordinary and unmerited gift, an inheritance of institutions, principles, and organizations that is without peer anywhere on the world today and that is of inestimable value. We aren't independent liberal individuals making a social contract in the rational light of Enlightenment Reason. Instead, we are heirs who have received an enormous inheritance from our predecessors. As Burke wrote, we:

claim and assert our liberties as an entailed inheritance derived to us from our forefathers, and to be transmitted to our posterity--as an estate specially belonging to the people.

It's not a contract, or if it is a contract it is not one just between those alive today. Again, as Burke puts it, if you are to think of a social contract you have to recognize that it is not:

a partnership agreement in a trade of pepper and coffee, calico, or tobacco, or some other such low concern, to be taken up for a little temporary interest, and to be dissolved by the fancy of the parties.... It is a partnership in all science; a partnership in all art; a partnership in every virtue and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.

But estates that are inherited come not only with assets, they also come encumbered with debts. If we are to be Americans--if we are to take up the wonderul unmerited gift, accept the marvelous entailed inheritance that is offered to us--we must take up not just the benefits and advantages, but also the debts that America owes from its past actions as well. To do otherwise--to ignore the debts while grabbing the goodies with both hands--is to show that we are not the true heirs of Benjamin Franklin and company. And chief among the debts that America owes from its past actions is the obligation to erase the marks left by slavery and Jim Crow.

Now Andrew Sullivan wants Americans to welsh on the debts and responsibilities that are attached to our marvelous, unmerited inheritance of institutions, principles, and organizations. He wants us to grab the good parts of the inheritance with both hands, and to say that the bad parts are none of our concern--that the slaveholders are dead, the lynchers are dead, and those who fought hard to protect lynchers from the law are dead (although not all of them, and Strom Thurmond only very recently).

Edmund Burke would disagree. He would say, "Are you crazy? There's a history here!" He would reach back to Montesquieu, and say that if the ruling principle of despotism is fear (it collapses if the subjects no longer fear the despot), and if the ruling principle of monarchy is honor (it collapse if the nobles no longer seek to outdo each other in deeds to win honor, nobility, and the favor of the king), so the ruling principle of a republic must be virtue. What is virtue? Well, linguistically, virtue comes from the Latin "virtus": "vir" = man, "tus" = -liness: "virtue" = "manliness" [in a proper modern and gender-indeterminate way, of course]*. Practically, a republic requires virtuous citizens: citizens who will take up their responsibilities and shoulder their share of the obligations neecessary for the common good. People who won't shirk their responsibilities. "If you wish to be part of this great more than two-century partnership that is America," Burke would say if I had him here right now, "you need to recognize that your inheritance is an entailed inheritance. First, it comes with an obligation not to waste it--an obligation to in your turn pass down to those not yet born a better nation than the one you live in. Second, it comes with debts attached: past deeds of America that were cruel and criminal, the memory of which is still shameful. Just because the particular members of the great partnership who incurred the debts (the three-fifths clause, the legality of the slave trade, the Missouri Compromise, the Fugitive Slave Act, et cetera) are dead doesn't mean that that the debts aren't still owed by the great partnership."

On many issues I am an arrogant liberal. But not this one. On this issue, I'm an arrogant conservative.


Worth Reading, Mostly Economics, for April 23, 2010

  • BDL (2005): "Motivated by public policy debates about bank consolidation and conflicting theoretical predictions about the relationship between bank concentration, bank competition and banking system fragility, this paper studies the impact of national bank concentration, bank regulations, and national institutions on the likelihood of a country suffering a systemic banking crisis. Using data on 69 countries from 1980 to 1997, we find that crises are less likely in economies with more concentrated banking systems even after controlling for differences in commercial bank regulatory policies, national institutions affecting competition, macroeconomic conditions, and shocks to the economy. Furthermore, the data indicate that regulatory policies and institutions that thwart competition are associated with greater banking system fragility."
  • GW: "Allen, and Politico in general, don’t actually seem to care at all about politics -- the real stuff of politics. The publication betrays not a hint of interest in the meanings or effects of policy. It has no grounding whatsoever in the structural realities that shape the daily blathering: economic life outside of Washington, the historical background of current events. Politico seems to wake up every morning with no memory of the day before..."
  • JS: "Closure is the universal tendency toward confirmation bias plus a sufficiently large array of multimedia conservative outlets to constitute a complete media counterculture, plus an overbroad ideological justification for treating mainstream output as intrinsically suspect.... I think many of the responses from the right, even where they disagree on various points, bear out the broad intuition that this is a real phenomenon and a problem. Nobody’s saying: “What on earth could he be talking about?"... Still, just as a brief refresher, recall that over the past two years, the movement’s flagship publications and most prominent pundits have found it urgent to discuss: Bill Ayers’ potential authorship of Obama’s memoir, the looming threat of death panels, the president’s crypto-Islamic background and allegiances, his attempt to create a “private army” via the health care bill, his desire to see America come to ruin, the imagined racism of Sonia Sotomayor…"
  • PK: "From a TIME magazine article in 1933 at introduction of FDIC and deposit insurance: 'Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed by both houses of Congress would rivet upon their institutions what they considered a monstrous system of guaranteeing bank deposits. Such a system, they felt, would not only rob them of their pride of profession but would reduce all U. S. banking to its lowest level. They saw their deposits which they had spent a lifetime to build up and protect with their good names confiscated by the Government to pay for the mistakes and dishonesty of every small town bankster.' Read more: http://www.time.com/time/magazine/article/0,9171,745617,00.html#ixzz0lqeB5Ghm"
  • DeLong: "4. Derivatives should be regulated with a light hand, because they are a small and specialized corner of financial markets and are simply not large enough to pose any systemic threat. 5. The Federal Reserve has adequate powers to stem financial crisis and keep it from becoming a threat to the economy, and is also not worried about derivatives. As I see it, Rubin was correct on (1), (2), and (3). He was correct on (4) when he was in office--when derivatives were too small to pose any systemic threat to financial stability. But that changed in the 2000s. And Rubin was completely, utterly, and totally wrong about (5) (as was I)." van Norden: "The topic is catching on....Leonhart at the NYT notes it, as does James Kwak at The Baseline Scenario. Brad DeLong has his dates wrong. (4) and (5) were not shown to be wrong in the 2000s. They were shown to be wrong on September 23rd, 1998 (and Rubin served until mid-1999.)"
  • JC&SG: "Republicans in the Senate decided to base their opposition to financial reform using a message developed by GOP pollster Frank Luntz, arguing that reform amounts to bailouts for Wall Street banks... the weakest argument available to Republicans... 8 to 11 points weaker than the other messages against reform and 35 to 40 points worse than arguments in favor of it... as framed by Luntz and parroted by Senate Minority Leader Mitch McConnell – that reform provides for an institutionalized taxpayer bailout for Wall Street – falls completely flat... the Luntz message fails to win support even among the Republican base. Republicans would have been better off supporting President Obama’s financial reforms and working with him on economic growth strategies."
  • EoC: "The thing that annoys me most about Republicans' new-found opposition to the $50bn orderly liquidation fund is that they are, without question, doing Wall Street's bidding on this. Killing a "pre-funded" resolution fund — which would be used to help pay for resolutions under the new resolution authority — is the Street's #1 issue in financial reform. That might seem a bit strange at first, until you realize that the majority of the $50 billion would come directly out of the major dealer banks' profits over the next few years. (Never underestimate the Street's ability to be short-sighted.) This issue has been at the top of the Street's wish list since last summer, when Barney Frank started suggesting that the House bill might include a pre-funded resolution fund."
  • HF: "The calendar has once again rolled around to the date on which we commemorate Charles Krauthammer’s pronouncement that: 'Hans Blix had five months to find weapons. He found nothing. We’ve had five weeks. Come back to me in five months. If we haven’t found any, we will have a credibility problem.' You’ve had seven years now, Charlie. How’s it looking? Hoping for a result sometime in year eight?"
  • ASB: "We may now be approaching... financial regulatory reform.... Armies of lobbyists and their politician allies are still fighting to weaken the bill.... So here are two bellwether issues.... The first is the fate of the proposed Consumer Financial Protection Agency.... First, how much independence will the new agency have?... Second... to what extent does the legislation create an agency focused on... protecting consumers?... Last... watch how many institutions and financial products get exempted.... The second bellwether... is... derivatives... the CFMA... placed most derivatives beyond the reach of regulators. What a mistake!... As the debate progresses, watch those exceptions like a hawk. How many derivatives will be allowed to remain customized and traded "over the counter"?... Under heavy pressure, the House bill allowed too many exceptions. But the bill passed yesterday by the Senate Agriculture Committee suggests the Senate may take a much tougher stand."
  • RR: "1. Require that trading of all derivatives be done on open exchanges where parties have to disclose what they’re buying and selling and have enough capital to pay up if their bets go wrong.... 2. Resurrect the Glass-Steagall Act in its entirety so commercial banks are separated from investment banks.... 3. Cap the size of big banks at $100 billion in assets..."
  • AS: "Friedersdorf is right: Conservatives -- and liberals for that matter -- demand "baroque gestures of solidarity" from their candidates regardless of race. The difference... is the nature of such gestures, which is what made Blow so angry in the first place.... What is Friedersdorf's priority? A conservative movement not seen as widely hostile to people of color because it isn't, or a conservative movement that doesn't have to deal with being seen as widely hostile? The above statement suggests the latter.... As for the "Real Americans" conceit, Friedersdorf argues that "the right’s 'real Americans' nonsense isn’t about race" since it's also applied to presumably white liberal academic elites on the coasts, etc. This isn't an either or... the definition has a racial dimension as well as a cultural one -- and that neither are ultimately very inclusive of people who don't happen to be white, Christian, and heterosexual."
  • JC: "Yesterday I commented on the miraculous nature of the sudden revival of financial reform. One other key element in this upsurge is the intellectual disarray on the right. Conservatives do not know what to say or think about this. A few of them are calling for breaking up the big banks. A few more are following the Frank Luntz line that regulation is a big favor to Wall Street. But mostly they're saying... nothing.... [T]he issue... threatens the self-image they've developed over the last year as opponents of the government-business nexus. Second, it's difficult to work out a free market response. If you let Wall Street invest however it likes, it will eventually precipitate a financial crisis, with massive government intervention being the only option.... Or else you can break up the big banks.... Either way, government has to get involved at some step..."

Yes, People Like Their iPads--a Lot

Dylan Tweney of Wired:

26 Percent of Wired’s Mobile Traffic Comes From the iPad: Less than three weeks after its launch, Apple’s iPad already accounts for 26 percent of the mobile devices accessing Wired.com. Overall, mobile devices account for between 2.3 percent and 3.5 percent of our traffic. For April 3 to 19, iPad users represented 0.91 percent of total site traffic. For the past year, the vast majority of mobile visitors to Wired have been using the iPhone. Before April, about 10 percent were using the iPod Touch, and 15 percent to 18 percent other devices, led by the Motorola Droid (with 5 percent to 7 percent of mobile traffic). But with the launch of the iPad on April 3, it seems that many iPhone users have picked up iPads — and are finding them a good way to browse this site. The sudden jump in iPad users is matched by a declining share of iPhone and iPod Touch users, which suggests that most iPad customers are people who were already accustomed to mobile browsing with an Apple handheld, and are trading up to a bigger screen — rather than coming from another platform.

It’s too early to say whether the iPad is bringing new mobile users to Wired.com. The overall proportion of mobile users has remained more or less level this month, and because the mobile total varies from month to month, we need more data before we can draw conclusions about the number of new mobile users. One conclusion we can draw: iPad users are using it to browse the web, and they’re doing it a lot.

And yes, we are aware of the irony that the majority of Wired.com’s videos, which use an Adobe Flash-based player, don’t play on the iPad. We’re working on that, starting with our homepage, which became iPad-compatible starting Wednesday evening, thanks to Wired.com managing editor Pam Statz.


Yes, John McCain Is Nuts...

From Media Matters:

McCain: AZ Bill's Racial Profiling Aspect Is Fine Because Immigrants "Are Intentionally Causing Accidents": McCain: "It's not just the murder of Robert Krantz. It's the people whose homes and property are being violated. It's the drive-by that -- the drivers of cars with illegals in it that are intentionally causing accidents on the freeway..."

On the freeway? On the FREEWAY?

If you are going to intentionally cause an accident in which your junker collides with someone's BMW in order to extort some money from them, you don't do it in traffic moving at 70 mph.

That's just self-preservation. Even with modern front- and side-impact airbags, seat belts, reinforced doors, and enhanced crumple zones, pulling that kind of s--- is really dangerous.


Why the Voters of America Need to Vote Against the Republican Party

Trying to keep the government of the United States from working should not be a successful political strategy. Parties will respond to incentives. So voters need to give parties the right incentives. At the moment those of us people who are interested in good public policy and know about public policy can work with the Democratic Party. We can't work with the Republican Party.

And it continues.

Talking Points Memo:

Financial Reform Wire | TPM Live Updates: Reid Introduces Reform Bill; McConnell Objects: MOMENTS AGO: Sen. Harry Reid just now tried to begin debate on the financial reform bill by unanimous consent. Minority Leader Mitch McConnell objected, so Reid filed cloture to begin debate. The cloture vote is expected at 5:15 p.m. Monday...

Victor Zapanta:

Think Progress: VIDEO: The GOP’s Solution To Everything — Let’s ‘Start Over’:

Republicans on the Recovery Act

“The Senate would do us all a great favor if it started again from scratch.” – Sen. Jon Kyl (R-AZ), 2/4/09

“Start over again on this bill and retarget it.” – Sen. Lamar Alexander (R-TN), 2/12/09

Republicans on Health Care Reform

“How much longer do Americans have to wait before Democrat leaders will give up this partisan quest and agree to start over?” – Sen. Mitch McConnell (R-KY), 3/10/10

“We should either scrap this bill completely and throw it away and forget about it. Or scrap it and start over again.” – Rep. John Fleming (R-LA), 3/17/10

On Wall Street Reform

“Look, there’s no rush right now. We need to get it right.” – Sen. Tom Coburn (R-OK), 4/21/10

“Start over please, Mr. President.” – Fox News’ Steve Doocy, Karl Rove, 4/19/10

Rather than engage in substantive debate over reform, Republicans decided early on that they would lie about the legislation and slow down its progress. Instead of trying to fix the mess created by their own Party, Republicans are using a rhetorical ploy to confuse the public and kill reform. Over and over again.


Bloomberg: Destroying Their Reputation DeLong Smackdown Watch

Felix Salmon asks:

Counterparties: What on earth is Bloomberg doing hiring Ben Stein to write for them?

This has been another edition of obvious answers to short questions.

Why oh why can't we have a better press corps?

Guess I'm not going to be reading Bloomberg any more. Against Kevin Hassett paired with Ben Stein the gods themselves contend in vain...

UPDATE: Dan Krueger of Bloomberg tells us to chill the f--- out and sit down:

you/Felix Salmon WRONG on Ben Stein on Bloomberg:

Relax. Stein wrote an op-ed. He's not a columnist. In his op-ed he asks why John Paulson wasn't named by the SEC in the Goldman complaint, why no one in upper management was named if, as the complaint alleges, they were kept apprised of the Abacus trade. That is all.

Why oh why can't we have better webloggers?


Earth Day Special II: More on My Global Warming Panic Attack

And we are live at The Week:

Global Warming Panic Attack - The Week: Media personalities and Freakonomicists claim that the planet has recently experienced global cooling. But according to NASA’s Goddard Institute for Space Studies, we have just experienced the hottest twelve-month period in at least a thousand years.

If global temperatures continue rising at the rate they have risen for the past generation, then the world of 2100 will be 2.3 degrees Celsius – that’s 4.1 degrees Farenheit -- hotter than the world of the 1970s. If global warming accelerates, however, as industrializing China, India and other countries pour more greenhouse gases into the atmosphere, and as Indonesia, Brazil, and others cut and burn their forests, the world in 2100 will be 5 Celsius -- 9 Farenheit -- degrees hotter than the world of the 1970s.

In a more hopeful vein, if we are lucky, we might discover powerful carbon-sink processes that absorb carbon dioxide or reflective-cooling technology that reduces warming. Or we might discover magical new  non-greenhouse-gas emitting technologies that can be deployed more cheaply than current carbon-based technologies. In any of these scenarios, we may wind up with a world in 2100 that is little warmer than the world of the 1970s. At least we can hope.

But hope is not a plan. The world was supposed to plan at Kyoto. It did not. Subsequently, it was supposed to plan at Copenhagen. Again it did not.

So right now I am panicking. And in my panicked state, I become shrill and unrealistic. So I am calling for four actions--at least one of which, in particular, is robustly unappealing.

  1. Beg the rulers of China and India to properly understand their long-term interests;

  2. Nationalize the energy industry in the United States;

  3. Pour money into research on closed-carbon and non-carbon energy technologies in order to maximize the chance that we will get lucky on energy technologies if not on climate sensitivity.

  4. Restrict future climate negotiations to a group of seven -- the U.S., the E.U., Japan, China, India, Indonesia, and Brazil -- and enforce agreement by substantial and painful trade sanctions on countries that do not accept the demands of the resulting negotiated system.

In a later column, I will address points (3) and (4). Meantime, let me just talk about (1) and (2).

First, I want us to beg the rulers of China and India to understand their own situation. Unless the North Atlantic Conveyor shuts down and Europe returns to the climate of the Younger Dryas Era (the big freeze of more than 10,000 years ago), global warming will not be hugely problematic for the North Atlantic economies -- at least not for a century. We’ll mourn the loss of our glaciers and snow packs. We’ll lament the extinction of polar bears, the coral reefs, and the giant sequoias. But we’ll welcome extra sunny days to go to the beach. We’ll move a few miles north, relocate economic activity to get out of the paths of hurricanes and droughts, turn down our heaters, turn up our air conditioners, and live our lives. It would be expensive for us to adapt to warming -- more expensive, I believe, than dealing with the problem -- but we could do so.

But China, India and their neighbors in the great river valleys of Asia will soon be home to three billion farming peasants. These farmers depend on the regular monsoon rains and the river flows of the Indus, the Ganges, the Mekong, the Yangtze, and the Yellow Rivers. Global warming means their climate will change. There will either be much more precipitation in the valleys feeding the rivers, or much less. If there is much less, hundreds of millions will face drought and famine. If there is much more, millions will likely die in floods and the dwelling and working places of hundreds of millions will be washed away. Unlike North Americans, Asia’s peasant-farming populations are not rich enough simply to adapt.

So we need to beg the rulers of China and India to understand their long-term interests. The welfare of their countries over the next four generations depends on gaining rapid control of global warming. Their own personal survival — unless they want mobs descending on their homes, dragging them and their descendants into the streets — depends on it. And because either China or India is going to be the globe’s dominant superpower in a century, even if they are clobbered by climate change, pleasing that future superpower now is in every country’s interest. So we need to beg the rulers of China and India to recognize their own long-term interest, and to help us get this climate-control party started.

Allow me to make the first entreaty. Rulers of China and India: I beg you. Get on board. Please.

Second, I want us to nationalize the open-carbon-cycle energy industry in the United States.

In the 1960s it became clear that the price of oil in the United States should be higher. Because of powerful congestion and pollution externalities, we were over-investing in the automobile civilization. A larger tax on oil would have nudged the economy closer to the social optimum.

In the 1970s it became very clear that the price of oil in the United States needed to be even higher. Because of instability in the Middle East, our dependence on that region as a major source of energy created unacceptable geopolitical risks. A larger tax on oil would have nudged the economy into a new configuration, mitigating the danger.

At the start of the 1990s it became painfully clear that the price of carbon energy needed to be higher: the global warming threat was upon us. Yet the price increase never materialized. It never happened because of what the inner circle around my ex-boss, former Texas Senator and U.S. Treasury Secretary Lloyd Bentsen, used to call the “ullengaz” industry – “oil and gas.” This potent industry has blocked desirable public policy regulation for nearly fifty years now.

In general, I am opposed to state-run, nationalized industries: managing industry is without a doubt the private sector’s role, not the government’s. As a neoclassical economist, I risk having my union card revoked when I advocate government ownership of what otherwise could be a profit-making private enterprise.

But the interaction of rent-seeking industry with a flawed political system has made me willing to make an exception in the case of America’s carbon-based energy industry. True, government ownership will increase inefficiency and the misallocation of resources. But it will also increase political efficiency, since the energy industry will no longer be able to purchase Members of Congress and use them to strangle the policy innovations needed to advance the national interest. So nationalize the carbon energy sector -- not to expropriate wealth or to penalize shareholders, but to remove a selfish and destructive political force that threatens our future.

Radical proposals? Yes.

Indeed, you may think they are shrill, impractical, and utopian proposals. (I, also think they are shrill, impractical, and utopian proposals.) You may think we should instead continue down the energy and environmental policy path we have traveled so many times before, meeting the same legislative roadblocks. You may think that we should simply try again, and hope that this time it turns out differently.


Earth Day Special: The Great River Valleys of Asia

We are live in the Los Angeles Times:

Global warming, new NASA data: It is about time to panic.

According to the NASA data, we have just experienced the hottest 12-month period in more than 100 years, which means that the past 12 months have been the hottest in at least the past 1,000 years.

What does this mean? Well, if global temperatures continue to rise at the rate that they have risen for the past generation, then the world of 2100 will see a world 4.1 degrees Fahrenheit hotter than the world of the 1970s. New York will get the climate of Washington. Los Angeles will get the climate of Tijuana.

But global warming might accelerate, especially if China, India and other industrializing powers continue to increase the amount of carbon dioxide they pour out. Perhaps the world by 2100 will be 9 degrees hotter than the world of the 1970s. That would give Washington the climate of Miami and Los Angeles the climate of Cabo San Lucas.

And we might get lucky. We might learn that the climate is in fact immensely stable on the upside. Even though past ice ages have ended quickly with very rapid warming, perhaps there are factors in the Earth's biosphere that allow it to soak up excess carbon dioxide quickly, like a sponge, and perhaps the world of 2100 will not be much warmer than the world of today. Or perhaps we will discover magical new energy technologies that are actually cheaper than our current technologies and will be rapidly adopted without the governments of the world lifting a finger to take action.

But that is not the prudent way to bet. The prudent thing to do is to plan, and to hedge: to plan for the most likely case, and to hedge by taking precautions — insurance — against the worst case. The world was supposed to plan how to deal with our global warming future at Kyoto. And then the world was supposed to plan for how to deal with our global warming future at Copenhagen. It did not do so.

So what do we do now?

Let us start with our global institutions. It is a fact that global warming is not likely to be a total human catastrophe here in California during the next 100 years. We will mourn the losses of our glaciers and our snowpack. We will lament the extinction of the polar bear, the coral reefs and the giant sequoias. We will be distressed at the transformation of California's Central Valley into the north Mojave Desert. But many San Franciscans really won't mind having the climate of Los Angeles. And many Angelenos will not be greatly distressed to have the climate of Tijuana. We will probably move a few miles north and relocate economic activity to get out of the paths of hurricanes and droughts. We will turn down our heaters and turn up our air conditioners. We will live our lives. It will be expensive for us to simply adapt, and it would be cheaper over the next century to deal with the problem. But here in California, there's little question we will be able to adapt without immediate human catastrophe for the next century.

That's not the case for Asia. China, India and their neighbors will soon have 3 billion peasants farming in the great river valleys of Asia. They depend on regular monsoon rains in the valleys and water flows down the channels of the Indus, the Ganges, the Mekong, the Yangtze and the Yellow rivers. Global climate change means that there will either be more precipitation in the valleys and feeding the rivers — or much less. If there is more, millions will die in floods, and the dwelling and working places of hundreds of millions will simply be washed away. The 3 billion are not rich enough to abandon their land and move away. They are also not rich enough to protect themselves. If there is much less water, hundreds of millions will die in famine and drought. Again, the peasant farming populations of Asia are not rich enough to abandon their land and move away. And they are also not rich enough to bring icebergs up from the Antarctic and pipe the water uphill from the sea to their farms.

The peasant farming populations are not rich enough to simply adapt. So the first thing we need to do is to beg the rulers of China and India to understand their nations' long-term interest.

But even if China and India understand and join the North Atlantic and the island nations of the Pacific in understanding the immensity of the long-run problem, that will not be enough. In the current international forum, China and India are simply two out of a 150 nations, and consensus is required. That is just too big a body with too many conflicting interests.

So the second thing we need to do is change the forum. We need a climate council made up of the seven governments that have the biggest power to influence the climate and the most at stake: the United States and the European Union, along with Japan, China, India, Indonesia and Brazil. Once the council has agreed to a treaty, it should be enorced by using aggressive and substantial trade sanctions against outsider countries that do not want to come up to the mark.

Utopian? Yes. Impractical? Probably. But what is the practical and realistic alternative that it would be better to push for?


Vladimir Ilyich Ulyanov Nee Lenin Lenin Ne Ulyanov Would Not Wish to Be Wished a Happy Birthday...

.. so let's honor his wishes, and make him happy by not doing so.

Lenin:

I know nothing that is greater than the Appassionata [by Beethoven]; I'd like to listen to it every day [Lenin said]. It is marvelous superhuman music. I always think with pride—perhaps it is naive of me—what marvelous things human beings can do!

But I can’t listen to music too often. It affects your nerves, makes you want to say stupid nice things, and stroke the heads of people who could create such beauty while living in this vile hell. And now you must not stroke anyone's head: you might get your hand bitten off. You have to strike them on the head, without any mercy, although our ideal is not to use force against anyone.

Hm, hm, our duty is infernally hard.


Hilarious One-Paragraph History of Politico’s News-Invention Morning-Win Technique

From Wonkett:

Wonkette : Hilarious One-Paragraph History of Politico’s News-Invention Morning-Win Technique: IN THE CONVO: We’re now about eight nine pages into this very long NYT magazine thing about The Politico, and it’s mostly the stuff you know about — the funny cartoon video somebody made, all the reporters who quit, etc. But there’s one crucial bit of Win the Morning hilarity we must share with you, as it succinctly describes the entire news process at The Politico, which consists of “make up something, let it bounce around Washington a few hours, and then breathlessly report the official denial.”

More recently, Allen asked in his April 10 Playbook: “Good Saturday morning: For brunch convo: Why isn’t Secretary Clinton on the media short lists for the Court?” By Monday, the convo had moved from the brunch table to “Morning Joe” (where the host, Joe Scarborough, advocated for her) and “Today” (where the Republican senator Orrin Hatch mentioned her, too). Later that day, Politico’s Ben Smith quoted a State Department spokesman who “threw some coolish water on the Clinton-for-Scotus buzz in an e-mail.” By then, the cable and blog chatter was fully blown. The White House issued a highly unusual statement that Secretary Clinton would not be nominated. Politico then sent out a “breaking news alert,” and Smith reported that the White House had “hurriedly punctured the trial balloon.” End of convo.

“Convo.”


Worth Reading, Mostly Economics, for April 22, 2010

  • KD: "Based on what I've read and heard, my favorite among the shortlist candidates to replace John Paul Stevens on the Supreme Court has been Diane Wood of the 7th Circuit Court. But I'm not a lawyer and my knowledge of her actual jurisprudence is necessarily limited. Glenn Greenwald, however, is a lawyer, and he's spent the past week reviewing her record and talking to Wood's former clerks to get a better sense of where she stands. His conclusion: she's not a truly left wing candidate (none of those are even on the shortlist), but she does have a "long, clear, inspiring record" on issues of both civil liberties and economics. Glenn goes into some detail about her defense of the rule of law shortly after 9/11 — which you should read — but the thing about Wood that has most impressed me is that she's not just someone with a solid progressive view of the law, but someone with the intellectual heft to make a difference on the court."
  • SRW: "If Bank Y had plainly represented itself as an agent of Trader X... no problem. Bank Y acted very effectively in Trader X’s interest, but in a manner that can fairly be described as adversarial with respect to the Investors.... So was it okay for Bank Y to be a secret agent of Trader X while engaging in its conventional business of marketing a new investment fund? In the story as I’ve told it, the undisclosed information was clearly material — the Investors would have received the Premium or would have preferred not to do the deal had the circumstances of the trade been plainly presented. When an investment bank is acting as an agent, to what degree can it withhold material information from other parties in order to benefit its client? And what is the relationship of an investment bank to those to whom it is marketing a new investment product?... I think I’ll just let these questions dangle. What do you think?"
  • McKinney: "Late in 2009 year we witnessed the largest explosion ever recorded: a super giant star two hundred times bigger than the sun utterly obliterated by... gamma ray-driven antimatter production.... The super-supernova SN2007bi is an example of a "pair-instability" breakdown.... At sizes of around four megayottagrams... giant stars are supported against gravitational collapse by gamma ray pressure... if they get too energetic, these gamma rays... [make] an electron-positron matter-antimatter pair out of pure energy as they pass an atom.... The antimatter annihilates with its opposite, as antimatter is wont to do, but the problem is that the speed of antimatter explosion... is still a critical delay in the gamma-pressure.... The outer layers sag in, compressing the core more, raising the temperature, making more energetic gamma rays even more likely to make antimatter and suddenly the whole star is a runaway nuclear reactor..."
  • Miller: "On October 18, 1991, against long odds and in front of an incredulous press corps, U.S. Secretary of State James A. Baker III and Soviet Foreign Minister Boris Pankin announced that Arabs and Israelis were being invited to attend a peace conference in Madrid.... I marveled at what America had accomplished. In 18 months, roughly the time it took Henry Kissinger to negotiate three Arab-Israeli disengagement agreements and Jimmy Carter to broker an Egypt-Israel peace treaty, the United States had fought a short, successful war -- the best kind -- and pushed Iraq's Saddam Hussein out of Kuwait. And America was now well-positioned to bring Arabs and Israelis across the diplomatic finish line. Baker... was... cautious. "Boys... if you want to get off the train, now might be a good time because it could all be downhill from here." But I wasn't listening. America... could use... power to make peace. I'd become a believer. I'm not anymore."
  • Adobe: "As developers for the iPhone have learned, if you want to develop for the iPhone you have to be prepared for Apple to reject or restrict your development at any time, and for seemingly any reason. The primary goal of Flash has always been to enable cross browser, platform and device development. The cool Web game that you build can easily be targeted and deployed to multiple platforms and devices. However, this is the exact opposite of what Apple wants. They want to tie developers down to their platform, and restrict their options to make it difficult for developers to target other platforms." Apple: "Someone has it backwards--it is HTML5, CSS, JavaScript, and H.264 (all supported by the iPhone and iPad) that are open and standard, while Adobe's Flash is closed and proprietary."

Why Nobody Should Watch Fox. Ever

Why oh why can't we have a better press corps?

Jed Lewison:

Daily Kos: Beck vs. Markos: Well, well, well. Guess which Mullah of the American Taliban has decided to take on Markos [Moulitsas Zuniga]? It's none other than Glenn Beck, who fired back at comments that Markos made Monday evening on Countdown. Beck was angry at Markos for characterizing his rhetoric as "eliminationist." Beck denied the accusation, apparently forgetting the fact that earlier this year he said this:

Progressivism is the cancer in America and it is eating our Constitution. And it was designed to eat the Constitution. To progress past the Constitution... [...] It is big government – it’s a socialist utopia. And we need to address it as if it is a cancer. It must be cut out of the system because they cannot co-exist. And you don’t cure cancer by – well, I’m just going to give you a little bit of cancer. You must eradicate it. It cannot co-exist...

If that's not eliminationist rhetoric, I don't know what is.


Some Backup from Norman Carleton...

Norman Carleton:

OTC Derivatives, Rubin and Born: At the hearing, Rubin said he was concerned about the risks that OTC derivatives posed to the financial system when he was in the Clinton Administration.  Having been in meetings with him when he was both head of the NEC and when he was Secretary, I can attest that this is true.  He also said that he was concerned about legal issues that might threaten the market if the CFTC were to assert jurisdiction over the market.  I was one of the Treasury staffers making this point at the time. Brooksley Born was undoubtedly right about the potential for problems with these instruments... [but] she... insisted that the Commodity Exchange Act be used as the applicable statute for regulating this market... effectively... to change the name of the Commodity Futures Trading Commission to something like the Derivatives Commission.... To some this would appear to be simply a turf fight, and it was partly that. The bank regulators and, to an extent, the SEC did not want the CFTC imposing rules and examining entities that they viewed as under their jurisdiction. But there was also a serious legal issue....

Simply put, the CFTC has exclusive jurisdiction over commodity futures and options contracts.... There is, however, no definition in the CEA of a futures contract.... If some swaps were commodity options, then they fell under the jurisdiction of the CFTC and were not legally permissible unless the CFTC had granted an exemption from the exchange trading requirement.... [I]f other swaps were... futures contracts... they were illegal and unenforceable.... The CFTC did not then have the authority to grant an exemption from the exchange trading requirement for futures contracts.... The CFTC under Wendy Gramm (wife of the Senator) had granted broad exemptions from the CEA... the contracts were legal and enforceable, that is, “legal certainty.” The CFTC... did not make a determination that the contracts fell under its jurisdiction; what it was in effect saying was that if these contracts were subject to the CEA, they were nevertheless legal and enforceable.... [However,] OTC contracts that were futures contracts on equity and other non-exempt securities were illegal and the CFTC did not have the authority to make them legal.... [I]f the CFTC claimed that it had authority over OTC derivatives then a subset of these contracts was in its view illegal....

Rubin had proposed to Born that, instead of the CFTC asking questions about the need for regulation of the OTC derivatives market, the President’s Working Group on Financial Markets issue the questions. Born point blank refused this suggestion, thus pushing Rubin into Greenspan’s camp, much to the relief of ISDA and other Wall Street groups lobbying on this issue.... Brooksley Born... could not compromise in face of the practical and political realities. While, not to make too fine a point about it, she has been proven right and Greenspan wrong about the dangers of the OTC derivatives market, Greenspan was the better politician...

So Rubin's position was:

  1. It would be nice to regulate derivatives.
  2. The benefits to regulating derivatives are not so large that it is worth doing so if that requires that firms find that they have to answer not just to the OCC and the Fed (if they are commercial banks) or to the SEC (if they are investment banks) but also to the CFTC. Thou shalt not multiply regulators beyond necessity.

Can We Shut Down the Gallup Organization, Please?

There is a level of incompetence beyond which organizations should simply quietly die, isn't there?

Eric Boehlert:

Again, does Gallup read its own polling results? | Media Matters for America: From the polling firm's site today....

President Barack Obama's 48.8% job approval average for his fifth quarter in office is down slightly from his prior quarter, and ranks among the lowest for elected presidents' fifth quarters since World War II.

This is just dopey.... Here is a sample of fifth quarter approval ratings for some presidents since World War II. After reading, tell me if you think Obama's current standing is in any way unusual or newsworthy:

Obama: 49%. Clinton: 52%. Reagan: 46%. Carter: 48%. Ford: 47%. Truman: 44%...


The Daily Beast Has a Little Disclosure Problem...

Harvey Pitt:

The SEC's Dangerous Gamble: With rules or policy decisions, some divided votes may be inevitable. But, the agency usually doesn’t split on enforcement actions, and especially not along party lines. Could more time have produced a different result? We won’t know. But, what was the rush? After a year-and-a-half of investigation, eight months after receiving Goldman’s “Wells Submission,” was there a need to file the litigation when it was filed? Why didn’t the five Commissioners take more time to try and find common ground? What was the need that compelled the filing of the action last Friday, instead of, say, this Friday, or next?... Government suits affect the target’s share price, as occurred here, and also adversely affect its reputation and potential business. In those respects, Goldman has already lost. Arthur Andersen ultimately prevailed in the Supreme Court, after losing in the lower courts. But its victory was Pyrrhic, and came long after the real stakes had been decided. Goldman’s a strong firm with an illustrious history. But if the economic collapse of 2007-2008 demonstrated anything, any firm can falter if its credibility is called into question. In this litigation, either the SEC, or Goldman, is betting the proverbial farm, or perhaps, they both are...

The Daily Beast:

An earlier version of this article neglected to note that Harvey Pitt has done work for hedge fund manager John Paulson, who helped Goldman Sachs develop the product at the center of the SEC’s case but has not been sued in the matter.  We regret the error. Mr. Pitt noted: “I had no involvement in these transactions nor with the SEC's decision whether, and whom, to sue. My article doesn't mention Paulson or discuss its role, other than to paraphrase the SEC's allegation.”

Why oh why can't we have a better press corps?


Race and the Tea Party: An Exchange Worth Reading

Charles Blow:

A Mighty Pale Tea: On Thursday, I came here outside Dallas for a Tea Party rally. At first I thought, “Wow! This is much more diverse than the rallies I’ve seen on television.” Then I realized that I was looking at stadium workers. I should have figured as much when I approached the gate. The greeter had asked, “Are you working tonight?” I sat in the front row. But when the emcee asked, “Do we have any infiltrators?” and I almost raised my hand, I realized that sitting there might not be such a good idea.

I had specifically come to this rally because it was supposed to be especially diverse. And, on the stage at least, it was. The speakers included a black doctor who bashed Democrats for crying racism, a Hispanic immigrant who said that she had never received a single government entitlement and a Vietnamese immigrant who said that the Tea Party leader was God. It felt like a bizarre spoof of a 1980s Benetton ad. The juxtaposition was striking: an abundance of diversity on the stage and a dearth of it in the crowd, with the exception of a few minorities like the young black man who carried a sign that read “Quit calling me a racist”...

Conor Freidersdorf:

Race as a Cudgel: In any context except a Tea Party, the vast majority of liberal writers would praise the act of highlighting the voices of “people of color” even if they aren’t particularly representative of a crowd or corporation or university class.... It’s this kind of piece that causes people on the right to think that on matters of race, they’re damned if they do, and they’re damned if they don’t — if they don’t make efforts to include non-whites they’re unenlightened propagators of privilege, and if they do make those efforts they’re the cynical managers of a minstrel show, but either way, race is used as a cudgel to discredit them in a way that would never be applied to a political movement on the left....

Adam Serwer:

There are cultural and historical reasons for that, which Friedersdorf doesn’t seem willing to acknowledge.... More to the point though, Blow’s reaction, which I think was unfair, was a visceral one related to seeing people of color engage in what Bouie refers to as the “elaborate tribal rituals” necessary for them to gain acceptance in a conservative setting.... Think about Republican Congressional Candidate Corey Poitier calling Obama “buckwheat,” or Michael Steele assuring Republicans that Obama only won because he’s black, or Marco Rubio insisting the president is an idiot savant who just knows how to read from a teleprompter. Is it any surprise that black conservatives feel like they have to engage in baroque gestures of solidarity, considering that merely being a black stranger in a conservative crowd puts one at risk of being mistaken for a member of ACORN?...

The disturbing implication of these events is that many conservatives use skin color as a shorthand for identifying those who are “on their team,” and Friedersdorf seems uninterested in addressing this.... If you think the old tribal instincts can’t be rekindled on the left, I would direct you to some of the liberal reactions to Prop 8’s passage in California. No party or ideology has a monopoly on racism, but let’s not pretend that there isn’t anything implicitly racial or problematic about a movement that claims the mantle of being “real Americans” and just happens to be overwhelmingly white....

Where Blow is reductive, Friedersdorf is oblivious. Friedersdorf writes that he is certain that the Tea Partiers Blow criticizes are “interesting people with honestly held convictions that are understandable outgrowths of their reason and experience.” Of course. But why is part of their experience having to try so hard to convince their ideological cohorts they’re on the same side? Instead of asking this question, Friedersdorf whines that conservatives are held to a different standard on issues of race than liberals, which is a funny question to ask during Confederate History Month...

Conor Friedersdorf:

There are, in fact, cultural and historical reasons for everything. I am perfectly willing to acknowledge all the culture and history related to race, politics, conservatism, and political opportunism. They don’t change the fact that in this case, race is unfairly used “as a cudgel to discredit them in a way that would never be applied to a political movement on the left.”... Yes, Mr. Blow was writing about his visceral reactions. But did he actually see the minorities at that rally engage in “elaborate tribal rituals”?... [T]today’s populist conservatives basically demand “baroque gestures of solidarity” from white people too. If Mitt Romney and Sarah Palin were black, Mr. Serwer would be pointing to the former’s “let’s double Gitmo” comment and the latter’s whole oeuvre as evidence that movement conservatism rewards only those minorities who offer baroque gestures of solidarity....

[T]he right’s “real Americans” nonsense isn’t about race. Trust me, Sarah Palin is denigrating Ivy League colleges, the richest households in Manhattan, and coastal dwelling white liberals far more than, for example, black folks in Mississippi or Hmong in Wisconsin.... I am hardly blind to Confederate History Month, or the subset of Southern conservatives whose ideas about race in America are quite wrongheaded. I just think its nonsense to invoke those conservatives in order to defend a New York Times column that Mr. Serwer himself calls “unfair” and “reductive,” or to call someone oblivious because they don’t include in every blog post on race a paragraph that says, “To be sure, it is understandable for a writer to pen a wrongheaded, reductive column attacking conservatives as minstrel show managers given the fact that some other conservatives who are completely uninvolved in this particular controversy hold problematic views on the subject of race.”

Ta-Nehisi Coates:

Diversity Is Work: I think what Conor is missing here is a real historical context for the exchange between modern liberalism and black America. Old school liberals will recall exceedingly nasty conversations between blacks and their would-be white allies stretching back to the days of the Scottsboro Boys through the James Baldwin's meeting with Robert F. Kennedy, to the Weathermen and the Panthers, through Hillary's run against Obama. The sense among some white liberals that they were "damned if they do, damned if they don't" was part of the work. The sense among some blacks that white liberals didn't actually get it, and were just rebelling against Daddy, (or some such) was part of the work. In a modern context, many of us who supported Obama thought that Bill Clinton's Jesse Jackson riff was appalling and low. And many of us who supported Hillary thought that, while liberals had an eye out for any whiff of racism, sexism was basically yawned at. And yet through it all, blacks have allied themselves, in the main, with liberals. They haven't done this because they support the entire liberal agenda, or because they think liberalism is an implicit cure-all for racism. They've done it because because reconciling the country to its own diversity is at the core of modern liberalism--it's the foundation to the house, not the paint-job.... Lyndon Johnson didn't simply look for black people to window-dress existing policy, he expanded existing policy in a way that showed a policy commitment--at great political cost--to healing the country's oldest wound, and, in the process, he purged the party of people who had vested interest in jabbing at the wound.

I understand that Conor is talking about something slightly different--the negative effect of what he sees as bad faith criticism of any right-wing efforts to diversify. But the point I'm making is that diversity--for lack of a better word--is a long-term, ongoing process, one that rarely includes merit badges from your friends or foes. I wrote this before, but diversity and tolerance are about attempting to understand people who are radically different from you, and saying to them you want their voice in the process. Tolerance isn't just a value you hold, so much as it's something you do repeatedly. It's uncomfortable. You f--- up. You go to parties where they play music that you don't know how to dance to. You go to restaurants where the food is difference. You go to neighborhoods, where no one speaks English. The whole time people on the outside are laughing at you. The people you're trying to understand get pissed at you, and call you racist, homophobe, bigot, sexist etc. But they ultimately respect you for trying. And you get better....

I think Blow's most strongest point was here:

It was a farce. This Tea Party wanted to project a mainstream image of a group that is anything but. A New York Times/CBS News poll released on Wednesday found that only 1 percent of Tea Party supporters are black and only 1 percent are Hispanic. It's almost all white. And even when compared to other whites, their views are extreme and marginal. For instance, white Tea Party supporters are twice as likely as white independents and eight times as likely as white Democrats to believe that Barack Obama was born in another country. Furthermore, they were more than eight times as likely as white independents and six times as likely as white Democrats to think that the Obama administration favors blacks over whites.

A serious campaign of diversity would have to open itself not simply to blacks who are worried about the deficit, and think that health care reform was a bad idea, but those who also think that birtherism is insane, that the notion that Obama favors blacks says more about the beholder than Obama. And then it would have to actually broaden its policy reach--the Drug War and incarceration rates seem like a natural fit. Or even representation for Chocolate City.

Jonathan Bernstein:

Minstrelsy, Rituals, the Tea Parties, and Conservatives: Liberals attack other liberals all the time for tokenism, or for being insufficiently inclusive, or for other perceived and/or real violations of inclusiveness, respect, and other values of diversity.  Really; there's a whole history of this.... [C]ontext and history matter... conservatives who opposed the Civil Rights and Voting Rights bills are going to get extra scrutiny... conservatives who oppose the policy preferences of the vast majority of African Americans are going to get extra scrutiny... conservatives who hang out with birthers and race-baiters are going to going to get extra scrutiny... conservatives who cover for those who use ugly epithets against John Lewis, American hero (and Barney Frank, and others) are going to get extra scrutiny.... [B]est behavior does not include throwing back accusations of racism at others; it means doubling down on efforts to purge their group of any hint of bigotry.

You know what I think?  We're all grown-ups here; we can speak plainly.  Republicans made a choice to appeal to people who didn't like blacks (and gays, and a variety of other "others"). They have reaped benefits from that; there are also costs. Some people now who weren't even born when Republicans made that choice and who are attracted to conservative ideas -- and are not bigots in any way -- don't like the fact that conservatives including themselves have to suffer that extra scrutiny, because it ain't their fault, so why are they pegged with the it? Well, tough luck. You choose who you hang out with.... Not that Conor Friedersdorf has anything to apologize for.... But not so for the leaders of the Tea Parties, and not so for many of the leaders of the Republican Party. Friedersdorf is wrong to believe that race is unfairly being used as a "cudgel to discredit them."  It's their own acts of commission and omission, their own tolerance of ugly signs and rumors and slogans, their own fealty to Pat Robertson and Rush Limbaugh and the rest of it, that discredits them....

I suppose the thing that really set me off is [Friedersdorf's] analysis of "real Americans" talk:

Look, I do think some conservatives have a problematic tendency... but the right’s “real Americans” nonsense isn’t about race. Trust me, Sarah Palin is denigrating Ivy League colleges, the richest households in Manhattan, and coastal dwelling white liberals far more than, for example, black folks in Mississippi or Hmong in Wisconsin. 

C'mon. First of all, I haven't seen too many Tea Parties or Sarah Palin rallies among border Latino communities, or for that matter among "black folks in Mississippi or Hmong in Wisconsin." I have, however, seen people at Tea Parties and Sarah Palin rallies waving signs that sure looked racist to me.... Palin and Tea Party fans hear ethnicity when conservatives talk about "real Americans" or talk about "taking back America." Second of all, those "coastal dwelling white liberals" in places like Hollywood, San Francisco, and New York... well, it ain't only about race.... Does Friedersdorf really believe that New York is attacked because it's rich, and not because it's... er... um... I think the word I'm looking for is cosmopolitan? Really?...

[A] blog post about Tea Parties and race that never mentions the problematic history of the Tea Party groups and race, and follow-up that treats history and context as if it's only vaguely relevant to that topic, is a stretch.

OK, that's it, but I do highly recommend each of the items cited above...no surprise, but TNC's post is powerful.stuff, and really a must-read.


Department of "Huh?!" Goldman-Sachs vs. SEC Edition

Megan McArdle:

Megan McArdle: So the vote on the SEC to bring charges against Goldman broke down by party lines.  Liberals, understandably, view this as evidence of malfeasance.  But of course, there's an alternative interpretation also consistent with these facts: that Democrats brought a weak charge that won't stand up in court because they thought it would help them push through their bank reform. One piece of evidence in favor of this: none of the people I know who are familiar with securities law think that the government has a strong case; the opinions range from "seriously pushing the envelope" to "give me a break"...

I'm going to blow the whistle and call an intellectual foul here. Nobody I have talked to says "give me a break." Everybody, however, says "pushing the envelope": this isn't a place that the SEC has gone very often. Where there is debate is over whether this is pushing the envelope in a good way or a bad way.

The question is: Is the fact that this security was designed to enable John Paulson to make a large short information-based bet on the subprime housing market a "material fact" that should have been disclosed to buyers?

The argument for "no" is that the SEC has power to demand disclosure of information about cash flows from securities--and who is in the marketplace for what securities is not information about cash flows, and is in any case hard to track down and an undue regulatory burden upon the system.

The argument for "yes" is that when securities are designed to fit the interests of specific traders then the fact of that designing becomes something that a buyer would very much like to know and incorporate into their decision-making process--and hence material. Stocks and bonds are not designed for individual speculators: everybody knows their characteristics, hence no question of the fit between their characteristics and the information set of the person on the other side of the trade arises. This ABACUS security was designed--hence in this case the fit is material information.

It's a question. But it's not a "give me a break" question. And anyone who says it is who is not being handsomely paid by Goldman Sachs to have that opinion is giving it away for free...


Shorter Darryl Issa: LEAVE GOLDMAN SACHS ALOOOONNNNEEEEE!!!!

Mike Allen blows the story. The lead ought to be: "Darryl Issa Embarks on a Fishing Expedition--for Goldman-Sachs Campaign Contributions."

But telling it as it is might reduce his access in the future:

GOP seeks SEC records on Goldman: By: Mike Allen: Rep. Darrell Issa, the top Republican on the House Oversight committee, is demanding a slew of documents from the Securities and Exchange Commission, asserting that the timing of civil charges against Goldman Sachs raises “serious questions about the commission’s independence and impartiality.” Issa’s letter, addressed to SEC Chairwoman Mary Schapiro and signed by eight other House Republicans, asks whether the commission had any contact about the case, prior to its public release, with White House aides, Democratic Party committee officials, or members of Congress or their staff. “[W]e are concerned that politics have unduly influenced the decision and timing of the commission’s controversial enforcement action against Goldman,” Issa writes. Issa implied that the timing was a bit too convenient, saying President Barack Obama’s push on Wall Street reform “neatly coincided with the commission’s announcement of the suit.”

SEC spokesman John Nester said.... "[T]he Commission doesn't coordinate its enforcement actions with the White House, Congress, or political committees. Regulatory reform has been pending for the past year. We have brought many cases..."

White House press secretary Robert Gibbs has dismissed the connection Issa was trying to make. “The SEC doesn’t notify the White House of its enforcement actions and certainly didn’t do so in this case," Gibbs said Monday. "[I]t’s not as if the president began talking about financial reform sometime on Friday afternoon.” And White House chief of staff Rahm Emanuel told Charlie Rose on Monday: “[E]verybody at the White House found out like everybody else, when it hit the news...."

The 1,000-word letter, with 11 footnotes, also demands that the SEC:

identify all known communications by any commission employee or employees with The New York Times or other news outlets.... [T]he events of the past five days have fueled legitimate suspicion on the part of the American people that the commission has attempted to assist the White House, the Democratic Party, and Congressional Democrats by timing the suit to coincide with the Senate’s consideration of financial regulatory legislation, or by providing Democrats with advance notice...

Why oh why can't we have a better press corps?


Dan Froomkin vs. Bob Rubin

I call this one for Rubin on points, narrowly.

Dan Froomkin reports:

Rubin: I Actually Supported Regulating Derivatives: Clinton-era Treasury Secretary Robert Rubin, who will go down in history as one of the men who killed derivatives regulation, insisted today that he has long thought that derivatives should, in fact, be regulated. "I thought we should regulate derivatives; I thought so when I was at Goldman Sachs and I thought so afterwards," he told HuffPost during a break at an event for the Hamilton Project, a think tank he founded to support Wall-Street-friendly Democrats. Rubin was chairman at Goldman Sachs before joining the Clinton administration in 1993; after he left, he went on to head Citigroup, which he nearly bankrupted with his excessive risk-taking.

The financial instruments known as derivatives have become a hot-button issue due to their central role in the financial crisis. Derivatives allow investors to make wild, nontransparent bets without any capital requirements. Combine them with the popping of the housing bubble and you've got a financial meltdown of massive proportions. Democrats are trying to make most derivative contracts transparent and public, and President Obama has said he'll veto any financial reform bill that doesn't do so.

Rubin can in fact point to a long paper trail suggesting that he supported regulating derivatives -- at least in theory.

But in practice, in 1998, Rubin was one of several top Clinton administration officials who quashed an attempt by Brooksley Born, then head of the Commodity Futures Trading Commission, to regulate them...

As I understand things, Rubin's position on derivatives regulation in the late 1990s had five parts:

  1. Derivatives should be regulated, with proper disclosure and capital adequacy and information requirements, especially to protect unsophisticated investors.
  2. Phil Gramm is Chairman of the Senate Banking Committee, and would always rather regulate less rather than more--and the House side is even more so.
  3. Brooksley Born and her organization are the wrong people to regulate derivatives.
  4. Derivatives should be regulated with a light hand, because they are a small and specialized corner of financial markets and are simply not large enough to pose any systemic threat.
  5. The Federal Reserve has adequate powers to stem financial crisis and keep it from becoming a threat to the economy, and is also not worried about derivatives.

As I see it, Rubin was correct on (1), (2), and (3). He was correct on (4) when he was in office--when derivatives were too small to pose any systemic threat to financial stability. But that changed in the 2000s. And Rubin was completely, utterly, and totally wrong about (5) (as was I).

One other place where Rubin was wrong in the late 1990s (and where I was right), was that he was not worried about the opacity of derivatives. He was confident that senior managers at large Wall Street firms could maintain control over their derivatives books, and understand what risks their firms were facing, and what risks their underlings were exposing their firms to.

There he was wrong.


Omani sailors voyage back in time aboard 9th century ship - CNN.com

Anouk Lorie:

The Jewel of Muscat: A group of Omani sailors are setting off on a voyage into the past aboard a faithful replica of a 9th century Arab sailing ship. Using ancient navigation techniques, the "Jewel of Muscat" will navigate a key Indian Ocean trade route once used to transport precious cargo from Arabia to the Far East. It will take five months to travel from Oman to Singapore and the crew plan to live just as their counterparts would have a millennium ago.

"We have tried to think back a thousand years," captain Saleh Al Jabri, a former captain in Oman's Royal Navy told CNN. "We all understand life must have been very difficult and very hard then and we will try to do almost the same," he said. This means Jabri and his 16-man crew will live in cramped, austere conditions and eat the same food as their predecessors -- dried fish and dates, Jabri told CNN. He and his crew will use very simple navigation tools to keep the 18 meter-long ship on course: observing the sky, sea color, marine and bird life. The closest any of them will get to technology is the "kamal" -- a small block of wood connected to a piece of string -- used to calculate latitude.

"Jewel of Muscat" is a copy of an Omani trading vessel discovered wrecked off the coast of Indonesia in 1998. Using ancient techniques, "Jewel" was hand-stitched using coconut fibres, instead of using nails. Layers of goat fat mixed with lime will protect the ship's wood from leaks. "Jewel's" timber planks come from Ghana; the sails were constructed from palm leaves in Zanzibar; and the teak masts were made from Poona trees found in Southern India. Ninth-century ships would have carried everything from frankincense and myrrh to porcelain and food stuffs like dried fish and dates across the Indian Ocean -- and so will "Jewel." Jabri hopes to reach Singapore by June 2010, with short stops in India and Malaysia: "The boat, like those at the time, is very slow," he explained. The boat is likely to sail at an average of 2 knots (3 miles) per hour...

BBC News - In pictures: Journey of ancient Arab trading ship


Hoisted from the Archives: Eric Boehlert on Mike Allen in November 2006

Boehlert:

Media Matters for America: October 9... Mike Allen and James Carney wrote a detailed piece about why Republicans were not worried about the upcoming elections. "The G.O.P.'s Secret Weapon," read the bold headline. "You think the Republicans are sure to lose big in November? They aren't. Here's why things don't look so bad to them," read the subhead. The article went on and on about how an "eerie, Zen-like calm" had fallen over GOP operatives who, despite a mountain of public polling data, did not fear big election losses. In fact, they coolly insisted their own prospects were "getting better by the day." Why the tranquility? Lots of reasons, according to Time, including the party's "sophisticated, expensive and largely unnoticed" campaign to identify likely voters. Time also gave the GOP points for playing the expectations game better than Democrats and for having more resources. Time ended on this chipper note: "As long as they [Republicans] end up keeping control of both houses, they still come out the winner on Election Day."... The article produced real-time cringes... the context... void of skepticism... the tone... was startling considering the circumstances.... Bush at the time stood as the most unpopular second-term president in modern history... yet Time eagerly passed along the transparent spin about how Republican chances were "getting better by the day." Those kinds of simplistic campaign talking points worked wonders with right-wing bloggers and radio talk show hosts who excitedly repeated them as a way to calm their nerves during the campaign homestretch. But Time?

Sure enough, its 1,500-word article did not quote a single Democratic or independent source. It was, in the most literal sense, transparent RNC spin (i.e., "House Republican officials contend that many of their Democratic challengers are so little known that they could be buried in an ad blitz")....

[T]he GOP's-sitting-pretty angle became something of an obsession for Time's Allen, who came back to the storyline again and again with October efforts such as "Why The Democratic Wave Could Be A Washout" and "Why Some Top Republicans Think They May Still Have the Last Laugh." And then there was Allen's November 2 blog entry, "Upset in Michigan?" which hyped the Republican-friendly theory that its candidate there had a chance of knocking off incumbent Democratic Sen. Debbie Stabenow.... The dispatch included no polling data... no quotes from any Democratic or independent observers. The entire Michigan item consisted of quotes from Republicans insisting their guy really, really had a shot....

[Karl] Rove gave his first, exclusive post-election interview to Time's Allen...

Why oh why can't we have a better press corps?


Ann Marie Marciarille: Whose Death Is It Anyway? Medical-Legal Conflict in the Implementation of End-of-Life Decision Making

At Boalt Hall, April 19. Sponsored by CHEFS:

Ann Marie Marciarille: Whose Death Is It Anyway? Medical-Legal Conflict in the Implementation of End-of-Life Decision Making: This event is being Co-Sponsored with the Boalt Healthcare & Biotech Law Society. .The debate over the 2010 health care reform legislation sharpened public discussion on end-of-life decision making for many Americans. Attorneys—practitioners and academics alike—emphasize the values of autonomy and independence in end-of-life decision making and the role of attorneys and courts. But the private implementation of legal documents designed to foster these values can be highly problematic for health care practitioners, family members, and even patients themselves. Why is this? Why is there such a powerful disconnect between rhetoric and implementation on end-of-life decision making? What role does the law play in fostering this disconnect? What role might health care payment systems play?

Join us for a thought-provoking conversation on these topics.

Professor Marciarille will be teaching Health Care Law at Berkeley Law School in the fall of 2010.

Ann Marie Marciarille: Whose Death Is It Anyway? Medical-Legal Conflict in the Implementation of End-of-Life Decision Making from Ann Marie Marciarille on Vimeo.


Worth Reading, Mostly Economics, for April 21, 2010

  • Owens: "Last week Greenwald posted the “case against Elena Kagan”... why the potential Supreme Court nominee would be a bad choice... because of her views on executive power and her lack of record. A few days later, the Huffington Post’s Sam Stein reported that “former White House Communications Director Anita Dunn, who is leading outreach efforts around the upcoming court vacancy, reached out to progressive allies to dismiss [Greenwald's] article written about Kagan.” Though he didn’t name who these progressive allies were, Greenwald noted in a follow-up post that there were three notable pieces — “this piece at Slate by former Clinton Solicitor General Walter Dellinger; this Huffington Post argument by legal analyst and author Linda Monk; and this cliché-filled, ad hominem, substance-free rant from Akin, Gump partner Tom Goldstein of SCOTUSblog” — that criticized his post on Kagan..."
  • Maggie Koerth-Baker: "The 1947 Radarange was a whopping six feet tall, weighed nearly 750 pounds, and required its own 220 volt electrical line and a dedicated water line for the cooling tube. It sold for $2000, or nearly $22,000 today." Eat Me Daily looks at the natural history of microwave ovens, from radar technology, to recipes for gourmet steamed pudding, to Joan Collins in her Dynasty finest. (Via Nicola Twilley.)'
  • Salmon: "I think it’s a bit much to say that everybody on the other side of that trade was making a speculative bet, when in fact they were buy-and-hold investors buying triple-A-rated securities paying 85bp or 110bp over Libor. As far as the bond investors were concerned, the risk and speculation was carefully and deliberately consigned to the equity tranche of the Abacus deal."
  • Salmon: "The first line of Goldman’s own slighly-sarcastic [proposed] disclosure statement reveals: 'The Portfolio Selection Agent has received recommendations as to the content of the Reference portfolio from third parties, including a third party that intends to take a short position with respect to the Reference Portfolio.' Upon reading that disclosure, the Portfolio Selection Agent (ACA) would immediately have learned something about which Fab Fabrice had assiduously kept them in the dark — that Paulson intended to go short the CDO. At that point, the whole history of meetings with Paulson would start being replayed in ACA’s mind a bit like that shoe-dropping moment at the end of a David Mamet film, where the structure of the con is revealed. Only in this case, it wouldn’t have been too late, and ACA would have run very far and very fast in the opposite direction, vowing never to deal with Paulson, Tourre, or Goldman ever again."
  • Crittendon: "Dinner speeches by politicians normally adhere to a few simple rules. The politician begins by thanking her hosts and any person in the room who might be insulted if overlooked. She follows with a couple of tested jokes. Then she speaks for approximately 20 minutes... making no more than three key points. It’s not rocket-science. But Palin couldn’t manage it. Her 45-minute speech rambled all over the place.... It was hard to figure out whether she was working up some Christian motivational routine, or just kvetching about her poor treatment by the media, or trying to demonstrate her political cred by hitting the right “facts” about Canada-U.S. relations. If you tried to parse it, you couldn’t. There was not a single memorable line, not a single new political idea, not a single proffered solution beyond the cliché of “needing new solutions.”"
  • Krugman: "So how did he do all that? By being incredibly smart, of course. But that wasn’t the whole story.... He was informal and, always, intellectually playful – eager to try out new ideas and try out other people’s point of view.... The moral, I believe, is that only someone who doesn’t take himself too seriously is really fit to produce ideas that make the world a much better place. Paul Samuelson didn’t, and he did."
  • Gapper: "Magnetar insists it “did not control asset selection in CDOs in which it participated”, although though it told collateral managers... what sort of yield it needed to invest.... It also asserts that it “did not participate in the marketing or distribution of CDO transactions” and “did not make representations to qualified investors who purchased CDO tranches.” Magnetar argues that it was not shorting the subprime market but was arbitraging between different layers of CDOs, taking advantage of the fact that it could get a yield of 20 per cent on the equity and then hedge that by shorting the mezzanine layers. The chart... suggests that it would have made money as long as the CDO market held up with no or few losses, and also make money if there was a high percentage of losses. Its risk was that subprime losses ate through only the equity tranches. As it turned out, almost all of the Magnetar deals defaulted, bringing it very high returns in 2007."
  • Salmon: "the Goldman defense... sophisticated and well-argued as you’d expect... seems to be that ACA was an enormous asset manager which neither knew nor cared about a small fund manager like John Paulson. If they thought about his positioning at all, they would probably have come to the conclusion that he was short, and if they came to that conclusion it wouldn’t have stopped them.... It’s a reasonably strong argument, but it fails utterly to answer the question of why on earth, in that case, Paulson’s role wasn’t disclosed much more transparently. The whole deal came out of a reverse enquiry from Paulson to Goldman: why couldn’t Goldman, bringing ACA into the loop, explain the whole concept in the space of a couple of minutes? Why all the studied ambiguity about equity tranches and sponsorships? Why not just come out and say that Paulson wasn’t taking an equity slice, and was going to be short the entire structure?"
  • RLG: "John McCain recently told Newsweek "I never considered myself a maverick." This was belied, of course, by approximately one million campaign advertisements and speeches.... When Chris Wallace asked Mr McCain this morning about this... I expected a little straight talk. I, like so many other journalists, once fell in love with a John McCain who used to talk like a normal person, who wouldn't take an embarrassing question about something he had said and pull that stupid politician trick of saying "but the really important question is why our middle class is suffering..." No, I expected something like "yeah, that was obviously a misstatement, but let me tell you what I was thinking..." Instead, Mr McCain simply re-branded himself, calling himself a "fighter" about 15 times... as if some unnamed "they" had been responsible for the "maverick" label. It was embarrassing.... Mr McCain didn't used to be like this... a distinguished senatorial career is already over.

Methinks FL Senate Candidate Mario Rubio Is Toast

Methinks Mario Rubio is toast. Beating Sarah Palin at shopping is not something you want to do.

Jay Weaver, Beth Reinhard and Lucy Morgan:

The IRS is also looking at the tax records of... former Florida House Speaker Marco Rubio... determine whether they misused their party credit cards for personal expenses, according to a source familiar with the preliminary inquiry. Political parties, which are tax exempt, are allowed to spend money only on political activities, such as fundraising, running campaigns and registering voters. While it's commonplace for party officials and politicians to wine and dine donors, the Florida party allowed credit card holders to rack up hundreds of thousands of dollars in charges with little oversight. The IRS opened the so-called "primary'' investigation into Rubio, the leading Republican candidate for Florida's open U.S. Senate seat... to see if there's enough evidence to support a full-fledged criminal inquiry.... Rubio billed the party for more than $100,000 during the two years he served as House speaker, according to credit card statements obtained by the St. Petersburg Times and Miami Herald. The charges included repairs to the family minivan, grocery bills, plane tickets for his wife and purchases from retailers ranging from a wine store near his home to Apple's online store. Rubio also charged the party for dozens of meals during the annual lawmaking session in Tallahassee, even though he received taxpayer subsidies for his meals...

http://www.tampabay.com/news/politics/national/us-attorney-irs-and-fbi-investigating-florida-gop-credit-card-use/1088979


Bryan Caplan Misogyny Watch

Before, all he wanted was to claim that women in the 1880s were "more free" than women today--than, for example, the character Carrie Bradshaw played by Sarah Jessica Parker in "Sex and the City."

Now--well, read for yourself:

Marginal Revolution: Bryan Caplan's cloning confession: I confess that I take anti-cloning arguments personally.  Not only do they insult the identical twin sons I already have; they insult a son I hope I live to meet.  Yes, I wish to clone myself and raise the baby as my son.  Seriously.  I want to experience the sublime bond I'm sure we'd share.  I'm confident that he'd be delighted, too, because I would love to be raised by me.  I'm not pushing others to clone themselves.  I'm not asking anyone else to pay for my dream.  I just want government to leave me and the cloning business alone.  Is that too much to ask?...

He wants to take the genes of the mother of his children out of the baby she is carrying and substitute his own genes in their place.

Wow. Just wow.


"But for Wales?" Stuart Butler and the Heritage Foundation Health Care Proposal of 1990

Reading Stuart Butler today and contrasting him with the Stuart Butler of a decade or so reminds me of this scene:

Of course, Stuart Butler doesn't even get a cool chain of office with the dragon of Wales on it...


As explained by Heritage Foundation Vice President Stuart Butler, the Official Heritage Foundation Health Care Proposal had not only a required benefit package, an individual mandate, exclusion of pre-existing conditions, but also a public plan!

Stuart Butler:

Using Tax Credits to Create an Affordable Health System | The Heritage Foundation: Why the Current System Does Not Reach These Goals: The current health care system does not achieve these or many other goals. Most of the uninsured, and even many of those with basic insurance, find they cannot afford certain necessary heal th services. Few would contend, moreover, that the current system promotes efficient use of medical services.... And there is growing anxiety that basic medical decisions are being made by distant government or insurance company officials....

Under the Heritage proposal, the unlimited tax exclusion for company-provided health benefits would be phased out over several years....

Offsetting this change in the tax code, a new system of personal tax credits for family health spending would be introduced... a family could claim a credit when filing its 1040 tax form... an above-the-line credit, so the family would not have to itemize its re turn to claim the credit. It would be refundable, meaning that if the credit exceeded the family's total tax liability, the taxpayer would receive a check for the difference from the IRS.... The second central element in the Heritage proposal is a two-way commitment between government and citizen. Under this social contract, the federal government would agree to make it financially possible, through refundable tax benefits or in some cases by providing access to public-sector health programs, for every American family to purchase at least a basic package.... In return, government would require, by law, every head of household to acquire at least a basic health plan for his or her family. Thus there would be mandated coverage under the Heritage proposal, but the mandate would apply to the family head, who is the appropriate person to shoulder the primary responsibility....

The Heritage proposal also would allow complete portability of a workers health coverage, since it would no longer be tied to the place of employment If a worker changes jobs, or has a spell of unemployment, he or she wo uld not lose the insurance or have to change coverage, nor would his or her family face the possibility of exclusions for pre-existing conditions and similar insurance restrictions common today when a worker changes jobs an health benefits....

Under the Heritage proposal, the government would give generous refundable tax credits to families facing high premiums or out-of-pocket expenses. And since the higher-risk family thus would be able to afford the higher premiums needed to provide extra services, that part of the insurance market would be... attractive to insurers... insurers and hospitals under the Heritage proposal would develop special health plans, including insurance and specialized medical services, for Americans with chronic medical problems.... These plans would be far better products for these special-needs Ameri cans than the typical one-size-fits-all-employees company plans...

The last constructive contribution Stuart Butler made to the health care reform debate appears to have some last... June 26... when he wrote that:

Senate Finance "MedPAC" Health Proposal Needs Savings Guarantee

But by July 1, 2009 we findStuart Butler was denying the "refundable above the line tax credit" part of his own previous proposal:

How to Design a Tax Cap in Health Care Reform: The Obama Administration and congressional Democrats have recently opened the door to a change in the tax treatment of employer-sponsored health benefits as part of health care reform.... A threshold principle in designing a cap on the tax exclusion... is that... revenue raised from a tax cap from some workers should go to other taxpaying workers to help pay for coverage. The revenue should not go toward... subsidies to families below the federal tax threshold...

And by July 31, 2009 Butler looks to have gone into full hack mode:

Big Bang Approach All Wrong for Health Reform: We must and can get health reform. But it will never be achieved if Americans are pressured to agree to Big Bang change on a ridiculously short timetable--and based on central planning, rather than on better incentives for American creativity and federalism.

He still does not seem to have come out. Too bad. He's a smart guy and could make a real contribution to implementing ObamaCare: a plan that, after all, he was backing on behalf of the Heritage Foundation within the memory of man...


Even Mark Halperin Won't Defend the Republicans Anymore

I confess I did not think this day would ever come. I thought nothing would ever be too much for Mark Halperin:

Steve Beneen: White House economic adviser Austan Goolsbee... explained why GOP talking points about "bailouts" aren't just wrong, but are in fact the opposite of reality. Goolsbee also did a nice job highlighting the GOP's motivations for repeating obvious nonsense: "Everybody knows a consultant just handed them that line and they're just reading it. It doesn't matter what's in the bill. It could be a bill about breakfast cereal and they're going to say this is a bailout bill."

But what was especially interesting this morning was the moment when host Joe Scarborough turned to Time's Mark Halperin, and urged him to "defend the Republican position" on the legislation. Halperin... couldn't.... "I cannot defend what they're doing," Halperin said. "They are willfully misreading the bill or they are engaged in a cynical attempt to keep the president from achieving something."...

Mark Halperin is calling [Republicans] out for lying...

When even Mark Halperin is calling Republicas out for lying, it is long past time to shut the Republican Party down.


What Goldman Sachs Was Doing with Abacus: A Possibility

A Wall Street participant who wishes to remain anonymous says:

Perhaps the reason that Goldman Sachs is so outraged at being accused of playing the investors in Abacus by concealing from them material information--that John Paulson played a big role in selecting the portfolio--is that they are totally innocent. Perhaps they were not trying to play the investors in Abacus by handing them a sub-standard produc. Perhaps, instead, they were trying to play John Paulson--a man who showed up with irrational expectations, eager to make bad bets, and who would have lost heavily had not he struck it freakishly lucky.

Consider the view from Goldman Sachs. Paulson shows up, says he thinks the subprime market is going to crash and is going to crash hard and is going to crash soon and wants to start laying big bets to that effect. GS goes out, runs the numbers, tests the market, and decides that yes, they can create a great deal of AAA securities plus an equity tranche out of the long side.

The AAA securities will really be AAA securities: minimal risk. Thus they can be sold off at a healthy price to those who want AAA securities. This will burnish the reputation of the firm--look! we made some more AAA securities for you!--in a market that really likes AAA securities and is short of them. And the buyers will be happy because they will get Treasury+5 or Treasury+10 basis points on their cash without risk.

The equity tranche--well, there is a healthy carry trade associated with it in the short run. The short-term earnings from that carry trade will mount up over time, and will more than offset the losses even if the subprime market crashes. Only if the market crashes and not only crashes but crashes hard and crashes soon and moreover crashes freakishly hard and freakishly soon will the equity tranche be a loser.

The overwhelming probability, GS thought, is that Paulson will be the loser--but because his expectations are irrational he's willing to take the short side. So the important thing is to keep this big fish who promises to give us lots of money on the hook. Let him pick the underlying securities--it really doesn't matter, and it gives him the illusion of an edge. Don't bother telling Paulson's role to IBX and company--it really doesn't matter, and it might spook them off and then we might lose the real pigeon while we hunt for more counterparties to take the long side.

And, the GS people probably still think: It should have worked. Only a truly freakishly freakish mischance produced not only a crash but a freakishly hard and fast crash so that Paulson looks like a genius. But he isn't--he's a gambler who got lucky. And the idea that we weren't doing our duty to our long-side clients while we tried to land this particular fish--well, perhaps the people at GS think, that's simply insulting. We were injured when bad luck not only let this fish get away but get away with some of the money that is rightfully ours. And now we are being insulted by the SEC to boot. This is intolerable...

An interesting possibility that might explain why Goldman Sachs appears to have forgotten the lesson of Shaft: "when The Man wants you down, you go down," and that in this arena the government is The Man...


Three Things Worth Reading, Mostly Economics, for April 19, 2010

  • and did that beak, in eldritch times,/crunch upon shapeless forms unclean?/and was the holy ceph'lopod/in r'lyeh's dark abysses seen? and did that wrathful visage frown/down on its hapless mortal prey?/and was cthulhusalem builded here/where miskatonic freshmen play? bring me my nameless ones of old!/bring me my suckers of desire!/bring me my ink! o, clouds, enfold!/bring me my tentacles of fire! they will not cease from undead life,/nor shall their aeon's sleep be spanned,/till we have built cthulhusalem/on arkham's drowned and lifeless land.

  • I think Summers and Rubin would agree. This was a systemic vulnerability that they did not see: "Former President Bill Clinton blamed everyone from his advisers to Republicans to himself for the country’s financial mess in an interview today on ABC’s “This Week.” Clinton claims in the interview that his Treasury Secretaries, Robert Rubin and Larry Summers, gave him bad advice on derivatives that overlooked the propensity of rich people to make “stupid decisions.” Clinton admitted his share of responsibility for taking that advice, but he also lashed out against the Bush administration, saying his successor abandoned “the whole regulatory apparatus” that would have headed off the financial meltdown."


Advice for IKB, from Sky Masterson's Father

Damon Runyon:

Sky Masterson: "Let me tell you a story. When I was a young man about to go out into the world, my father says to me a very valuable thing. 'Son,' the old guy says, 'I'm sorry that I am not able to bankroll you a very large start. But not having any potatoes to give you, I am going to give you some very valuable advice. One of these days in your travels, you are going to come across a guy with a nice brand new deck of cards, and this guy is going to offer to bet you that he can make the Jack of Spades jump out of the deck and squirt cider in your ear. But, son, do not take this bet, for if you do, as sure as you are standing there, you are going to end up with an ear full of cider.'"


Mitt Romney on Health Care Reform

Igor Volsky documents that:

  • Mitt Romney believes that the individual mandate in the PPACA is unconstitutional.
  • Mitt Romney would not push to repeal the individual mandate in the PPACA.
  • Mitt Romney is opposed to the PPACA now.
  • Mitt Romney says he will be in favor of the PPACA as soon as he locks up the Republican presidential nomination.

Interesting guy, Mitt Romney...


in Re John Yoo: In Which Brad DeLong Demonstrates That He Is an Ineffectual Procedural Liberal...

WHEREAS, the U.S. Department of Justice Office of Professional Responsibility Report on the Investigation into the Office of Legal Counsel's Memoranda Concerning Issues Related to the Central Intelligence Agency's Use of "Enhanced Interrogation Techniques" on Suspected Terrorists states that Berkeley School of Law Professor John Yoo's writings and conduct rise to the level of "intentional professional misconduct" through violations of his duties to "exercise independent legal judgment" and "render thorough, objective, and candid legal advice";

WHEREAS, such intentional professional misconduct, if true, would appear to be the kind of misconduct contemplated in APM015(B)--Scholarship;

WHEREAS, such intentional professional misconduct, if true, would appear to lend material support to violations of "compelling law" principles of domestic and international law, which would appear to be the kind of misconduct contemplated in APM015(E)--Community;

WHEREAS, this finding raises important, sobering, and complex issues of both academic freedom, of intellectual honor, of moral responsibility, and of our accreditation to train future lawyers to properly serve as officers of the court at this university;

RESOLVED, that the Berkeley Division Academic Senate appoint a committee consisting of [5?] members of the Berkeley Division, with knowledge of the demands of professional practice, international law, constitutional law, and moral philosophy, to investigate and publicly report on the question whether the Berkeley Division should recommend to the Chancellor any form of disciplinary investigation, with the report to issue no later than August 30, 2010.


Should I petition Professor Chris Kutz, President of the Berkeley Division of the Academic Senate of the University of California, to call a special meeting of the Senate in order to consider the above resolution?

If I had Berkeley Law School Dean Chris Edley here on this weblog, I believe that he would say that I should not. And I believe that he would give the following reasons:

  • Academic freedom is a very important part of our society. There needs to be a place where people can think and then say what they think without fear of consequences--without fear that they will lose their life, their liberty, their wealth, or their livelihood--and in our society our universities are that place.

  • The right place to exercise quality control over the university--to ascertain whether someone thinks well and hard enough and presents their ideas truthfully enough to be a full member of a university, and thus to be protected by aademic freedom--is at the point of hiring and retention, not afterwards.

  • To impose any kind of sanction on John Yoo for what he said, for the fact that his failure to render thorough, candid, and objective legal advice amounts to intentional professional misconduct, would be a gross breach of academic freedom, doing much more damage to the university than could be counterbalanced by any possible good.

  • To impose any kind of sanction on John Yoo for how he said it, for the fact that the quality of his arguments was so low and his failure to exercise independent legal judgment so glaring as to amount to intentional professional misconduct, would be a gross breach of academic freedom, doing much more damage to the university than could be counterbalanced by any possible good.

  • To even inquire into the question of whether John Yoo's intentional professional misconduct might all for some form of sanction on the part of the university would exercise a chilling effect on academic freedom and in and of itself do damage to that principle, doing much more damage to the university than could be counterbalanced by any possible good.

The argument for petitioning Chris Kutz is: Look, John Yoo's conduct at the Office of Legal Counsel caused substantial damage to the national security of the United States. Look, John Yoo's conduct at the Office of Legal Counsel caused substantial damage to the rule of law in the United States. Look, John Yoo is a clown--a guy who in 2000 can argue with a straight face that President Clinton's powers as commander-in-chief do not extend to ordering American troops to obey British NATO generals, and in 2002 can argue with a straight face that President Bush's powers as commander-in-chief extend to making it unlawful to resist his orders to commit deeds that we have in the past classified as crimes against humanity and hanged people for. Whatever his political masters call for, he delivers--whether it requires (as in 2000) that the president's powers as commander-in-chief of the armed forces be so narrow that they could be covered by a nose hair or (as in 2002) that they be as wide as the ocean itself.

Keeping such a clown--a clown who commmits such egregious and transparently obsequious subservient intentional professional misconduct--as a member of the University of California does harm to the university as an academic instition. It gives every member of the faculty a black eye. And we owe it to ourselves to inquire how we think about balancing the damage done to the university by our turning a blind eye to his actions against the harm to academic freedom that would be done by imnposing some kind of sanction for his intentional professional misconduct, for his violations of his duties to exercise independent legal judgment and render thorough, objective, and candid legal advice.

Those are the two arguments.

I genuinely do not know how I come down on the substance of the case of John Yoo. On the one hand, the examples of Bruce Bartlett at the and of David Frum at the American Enterprise Institute have convinced me that academic freedom in America today is under more pressure and is more precious than I had thought. Most of the time, however, I come down on the side of some kind of sanction. But I do think that I want the advice of wiser heads on the substance. And all of the time I think that a Berkeley faculty committee to report on the issues would be a useful and healthy exercise to undertake.

But I could be wrong.

That is the threshold question right now: Am I right in thinking that a Berkeley faculty committee to report on the issues would be a useful and healthy exercise to undertake? Or is Berkeley Law School Dean Chris Edley right in thinking that even an inquiry into the question of whether John Yoo's intentional professional misconduct might all for some form of sanction on the part of the university would exercise a chilling effect on academic freedom and in and of itself do damage to that principle, doing much more damage to the university than could be counterbalanced by any possible good?

What do you think, guys?


Yet Another Reason the Country Would Be Better if We Shut the Republican Party Down Today...

Jon Ward:

Details, hope in short supply as Obama fiscal commission readies for eight-month sprin: Sen. Tom Coburn, Oklahoma Republican, said he is going to make “waste, abuse, fraud and inefficiencies” in Medicaid a priority issue and will make sure it gets attention in commission meetings. “Nobody else is going to focus on that,” Coburn said. “Nobody else thinks the $300 billion that we waste every year is important. Over 10 years that’s $3 trillion. So we’re going to look at that aspect of it.”

Total Medicaid spending this year is currently pegged at $280 billion. How Coburn can think that all $280 billion that will be spent this yearon Medicaid is waste--plus an extra $20 billion in waste even though we do not spend it--is beyond me.

I don't have a good feeling about this fiscal commission--not at all.


Eleven Items Worth Raeading, Mostly Economics, for April 18, 2010

  1. Krugman: "So: what’s the problem? Here are the views I see out there: Size: Our largest financial institutions have just gotten too big. Shadows: The rise of shadow banking, institutions that fulfill banking functions but evade the regulatory regime, has undermined stability. Opacity: We’ve come to rely on complex financial instruments that neither regulators nor the private sector. Predation: Financial firms deliberately misled consumers and investors. Government intervention: Public policy pushed lenders into making bad loans, especially to the poor. Monetary mismanagement: The Fed did it by keeping interest rates too low for too long, and/or policymakers panicked in 2008 and spooked the markets." Put me down as believing that "shadows" and "opacity" are our big problems, with predation behind them, and the remaining three--size, mismanagement, and government intervention--not really on the track at all.
  2. Yglesias: "Every time there’s a downturn a certain swathe of the elite starts to label it unfixable and structural. And the worse the downturn, the louder come the calls. Look at the history of the Great Depression... chorus of voices from the right arguing that nothing could be done and people would just have to suffer through it. They were countered by a chorus of voices from the left arguing that nothing could be done and people would just have to stage a revolution. It wasn’t true then and it wasn’t true now... key people responsible for running the global economy... are screwing up. In the developed world, those countries who’ve been able to respond aggressively to the crisis with aggressive expansion-via-devaluation are all doing pretty well. The bigger developed economies can’t do that exact thing, but they can mount more aggressive expansionary responses—they just aren’t."
  3. Alan and Yuri: "Our starting point is... Blanchard and Perotti (2002).... Alternative identification approaches, notably the narrative approach.... Our paper extends the existing literature in three ways: (1) Using regime-switching models, we estimate effects of tax and spending policies that can vary of the business cycle. We find large differences in the size of fiscal multipliers in recessions and expansions.... (2)... we estimate multipliers for more disaggregate spending and tax variables... (3) We provide a more precise measure of unanticipated shocks to fiscal policy... Survey of Professional Forecasters.... This correction generally increases estimated multipliers and also increases the gap between multipliers estimated for expansions and recessions.
  4. Clinton: "Most of the people killed that day were employees of the federal government. They were men and women who had devoted their careers to helping the elderly and disabled, supporting our veterans and enforcing our laws. They were good neighbors and good friends. One of them, a Secret Service agent named Al Whicher, a husband and father of three, had been on my presidential security detail. Nineteen children also lost their lives. Those who survived endured terrible pain and loss. Thankfully, many of them took the advice of a woman who knew how they felt. A mother of three children whose husband had been killed on Pan Am Flight 103 in 1988 told them, “The loss you feel must not paralyze your own lives. Instead... pay tribute... by continuing to do all the things they left undone...." We are all grateful that so many of the attack’s survivors have done exactly that. We must also never forget the courageous and loving response of the people and leaders of Oklahoma City..."
  5. Waldmann: "The idea that an investor should earn perfectly safe, above-risk-free yields via blind diversification... is offensive to me and... was false.... According to the story, the... “shorts” were not hoping... that their bonds would fail. They were hedging, protecting themselves against the possibility of failure.... The... investors may have believed that they were overpaying... we... happily overpay for insurance.... Shedding great risk is worth... a small negative expected return.... Derivatives are... positive sum games in an economic sense... hedgers are... better off when they shed risk, even when they overpay... in expected value terms to do so.... Investors in Goldman’s deal reasonably thought that they were buying a portfolio... selected by a reputable manager... optimizing the performance of the CDO..... In violation of these reasonable expectations... a party whose interests were diametrically opposed... [had] significant influence over the selection of the portfolio."
  6. GS: "ABACUS 2007-AC1: $2 Billion Synthetic CDO Referencing a static RMBS Portfolio Selected by ACA Management, LLC"
  7. Tog: "For those of us around Apple for the launch of the 1984 Mac, things are awfully familiar. In bringing that original Mac to market, Steve hit on a formula that worked for him. He keeps repeating it, and it seems to get better every time. It worked for the iPhone, and it worked for the iPad, too. Here are the necessary elements." -Atrios 16:59"
  8. Black: "Hysteresis: The important point is that while it isn't structural now, the longer high unemployment persists the more the amount of structural unemployment will increase. There are a couple of mechanisms for this, the most obvious one being that over time, the skills of unemployed workers deteriorate as technology/practices change. This mismatch between skills of the unemployed and the needs of employers grows."
  9. Black: "Earlier I heard Dana Milbank on NPR whining about the fact that Obama went to his kid's soccer game without bringing the press. These are very silly people."

Department of "Huh?!" (Shut Down the Washington Post Today Department)

Why oh why can't we have a better press corps?

The headline: "Obama's health reform isn't modeled after Heritage Foundation ideas"

Underneath, Robert Moffitt of Heritage, April 19, 2010, on ObamaCare:

Obama's health reform isn't modeled after Heritage Foundation ideas: [W]hen President Obama tries to sell his health-care law as a moderate approach that borrows ideas developed by the Heritage Foundation, we get incensed.... [L]et me answer the charges.... First, Heritage did not originate the concept of the health insurance exchange... the version of the exchange we did develop....

The other charge... is that the federal individual mandate... came from us.... Yes, in the early 1990s, we, along with other prominent conservative economists, supported the idea of such a mandate...

Robert Moffitt of Heritage, April 4, 2007, on RomneyCare:

The Massachusetts Health Plan: An Update and Lessons for Other States | The Heritage Foundation: Massachusetts's experiment in health market reform is already showing progress. The average Massachusetts resident without health insurance will soon be able to obtain coverage for $175 per month through the state's Connector, a health insurance exchange for individuals and small businesses.... Massachusetts's latest premium estimates are dramatically lower than projected in a widely reported January 2007 memorandum that foresaw $380 per month individual premiums.[4] The current estimates are in line with the original projection of approximately $200 per month targeted by former Massachusetts Governor Mitt Romney in 2006, when he first advanced his health care reform proposal.... Seven insurance carriers thus far are set to compete for consumers' dollars in the new Connector.... Governor Romney was able to secure greater flexibility for the state's market...

Edmund Haislmaier of Heritage, April 11, 2006, on RomneyCare:

The Significance of Massachusetts Health Reform: Last week the Massachusetts legislature passed comprehensive health care reform legislation almost a year after Governor Romney first proposed the key elements of a reform strategy.... The first major element of the Massachusetts legislation is the creation of a new, statewide health insurance 'Connector.'... The basic insight behind a state-sponsored health-insurance clearinghouse or exchange (like the Connector) is that markets sometimes work more efficiently and effectively when there is a single place to facilitate diverse economic activity... the health insurance Connector.... The second major element of the Massachusetts legislation builds on the Connector concept to reform the state's current system for subsidizing uncompensated care costs.... Having a one-stop-shop in the form of the new Connector in place makes for an administratively simpler and cheaper way... enroll the uninsured patients they serve into their own health insurance plans, with the funding they now receive converted into premium subsidies....

Personal Responsibility: Finally, the element of the Massachusetts bill that has attracted the most attention and dispute is the "personal responsibility" provision, also known as the "individual mandate."... [Romney] argued that if the market could be reorganized to make coverage universally available and portable, deregulated at least enough to make it affordable for the middle class, and subsidized enough to make it affordable for the low-income, then there would be no reasonable excuse for anyone to forgo health insurance. Romney also pointed out that to allow people to go without health insurance when they can expect someone else to pay the tab for their treatment is a de facto mandate on providers and taxpayers. Romney's plan was to take that option off the table....

Politics is the art of the possible.... But that should not overshadow the significance of Massachusetts' achievement.... The Governor and legislature have provided their citizens with the tools to achieve what the public really wants: a health system with all the familiar comforts of existing employer group coverage but with the added benefits of portability, choice, and control. Other governors and legislators would be well advised to consider this basic model as a framework for health care reform in their own states.


Throat-Clearing on the SEC's Goldman Sachs Case

The economist's presumption is that freely-chosen acts of market exchange are good things: win-win. This presumption can be overturned:

  • Perhaps those buying do not understand what they are really buying.
  • Perhaps the seller is misleading the buyers.
  • Perhaps the active exchange itself the motive for other bad actions outside the narrowly economic sphere (when the existence of British demand for tobacco, sugar, and cotton triggers the growth of plantations in and around the Caribbean and makes it worth people's while to wage war in Africa to steal slaves, then that market for cotton, sugar and tobacco is a bad thing, even though both the sellers and the buyers of cotton, sugar and tobacco like it).

But in general acts of market exchange are win-win, for people trade off things they don't value very much for the things they value a great deal. I give the barista behind the coffee machine money--generalized purchasing power. She gives me coffee. Beforehand, she had too much coffee and not enough money. Beforehand, I had too much money and not enough coffee. Afterwards we are both happier and both better off.

Now let's move to finance. The problem with finance is that we are not treating coffee for food, or CD players for clothes, but that we are instead trading money for money. The win-win benefits from exchanges of goods for goods are obviously there. The win-win benefits of trading money for money--where are they? It turns out that they are there. There are, actually, four:

  1. Trading money now for money later: people who want to save now and spend later can make win-win trades with people who want to spend now and save later.
  2. Risk: people who are unusually averse to risk in general can make win-win trades by trading off some of the risks that they are bearing to people who are unusually tolerant of risk in general.
  3. Insurance: people who are holding a lot of one big risk can reduce the risk of catastrophic loss by paying a great many others to each take a small piece of that risk.
  4. Information: people who have information that prices are going to rise can make win-win deals with people who have information that prices are going to fall--although here the win-win is not for the participants in the trade: for them it is zero-sum, and the winners are those others who observe the market price at which the trades occur.

And here we come to the crux of the SEC's Goldman Sachs case. The SEC alleges that Goldman Sachs claimed to the buyers of the ABACUS 2007-AC1: $2 Billion Synthetic CDO Referencing a static RMBS Portfolio security that it was a deal of type (3) constructed primarily by ACA Management, LLC when it was in fact a deal of type (4) constructed primarily by investor John Paulson, and that this claim by Goldman Sachs was a misstatement of a material fact--an active attempt by sellers to mislead buyers, and thus to erase the win-win character of the deal.

As one correspondent writes:

People... writing CDS protection thought that they were writing insurance... that the overall price of insurance on US mortgages were too high and they wanted to write some, pushing the price down... writing risk on a "generic mortgage exposure", similar to an index of mortgages... pretty notmal insurance business.... They would think that on the other side was a load of little investors not unlike themselves, picked by a CDO manager with roughly the same incentives as they had. If you had told them that they were taking the other side of a proprietary bet they would have run a mile--just like anyone in the insurance business does when they pick up a whiff of potential moral hazard...

I am sure that the Goldman-Sachs investment bankers convinced themselves that the origin of the security was not "material information"--it did not bear on the characteristics of the cash flows from the security, after all: they were what they were, and they were fully disclosed. What the origin of the security carried information about was about the character of the market--that it had people like John Paulson in it actively trading. But it wasn't "material information" about that particular security, the Goldman-Sachs investment bankers must have told themselves. Hence there was no duty to disclose Paulson's role. And disclosing the role would muddy the waters and make the CDO harder to sell...

Whether the SEC or Goldman-Sachs is correct will be for the jury to decide. But why file the case in New York? Surely a jury somewhere else would be more likely to find for the SEC...


Felix Salmon's Henry Blodgett Smackdown

Salmon:

Siwoti Sunday: Blodget’s bizarre Goldman apologia: Now Blodget... the SEC case against Goldman Sachs... his case for the defense is so weak that one suspects it was written more as a pageview magnet.... Blodget kicks off with what he calls “some important background to keep in mind”. The problem is that Bloget’s “important background” seems to have been lifted from a fictional planet: it certainly doesn’t reflect reality. For starters, in BlodgetWorld, this CDO was structured in the wake of numerous failed attempts to bet against the housing market. He talks about the “huge losses” which were suffered by “dozens of other investors who bet against the housing market from 2003-2007”, and goes on to reiterate:

Plenty of firms had been betting on the collapse of the housing market for years, and they’d all been wrong. In 2007, the housing market had not yet collapsed, and everyone who had bet on it collapsing had lost huge amounts of money, gone bankrupt, and/or otherwise been rendered fools.

I have no idea what Blodget is talking about here, and I don’t think he has much of a clue either, because he names no names and provides no links.... The fact is that for most of recorded history it has been pretty much impossible to short houses. At the end of the housing bubble, Robert Shiller tried to create a market in housing futures, but it failed, plagued by low volumes and illiquidity. And until John Paulson came along, it was pretty much impossible to short mortgages, too. In general, it’s extremely difficult to short any bonds other than Treasuries. That’s one of the reasons that credit default swaps became so popular so quickly: they allowed people to go short credit instruments.... As the housing bubble grew and the quality of subprime mortgages sank, various fund managers, including Paulson, started asking the likes of Goldman Sachs to sell them credit protection on subprime loans.... But there was no such thing as subprime CDS in 2003, or even in 2005, which means that no one was shorting those bonds back then. Let alone going bankrupt doing so.... [And] he’s laughably, spectacularly wrong about the institutions which went long.

So much money had been made betting on further appreciation of the housing market, meanwhile, that investors were DESPERATE for vehicles that allowed them to make these bets in a more efficient fashion. That’s why the buyers of Goldman’s CDO bought the CDO: They thought housing prices were headed higher, and they wanted to make a killing on it.

This is one of the silliest things I’ve seen in a very long time. The decision to buy into Abacus was not an attempt “to make a killing” by “betting on further appreciation of the housing market”. To the contrary, it was an attempt to lock in a modest yield pick-up over Treasury bonds, in return for accepting a very high degree of illiquidity. That’s why Abacus was carefully structured to get a triple-A credit rating: the buyers of the instrument wanted no risk at all with regards to their payment stream. Buying triple-A mortgage-backed securities and collecting coupon payments on them is not making money by betting on house prices going up, any more than buying Treasury bonds and collecting coupon payments is making money by betting on tax revenues going up. The whole reason for the overcollateralization and the waterfall structures and the equity tranche and the built-in diversification and all the other bells and whistles which so impressed the ratings agencies was to try to make it impossible that investors in the triple-A part of the structure could lose money.... Blodget then continues:

As Goldman has observed, with CDOs like the one in question, there is ALWAYS a short side and a long side: The buyers of the CDO knew that someone was going to be betting against them.

This is true, but also misleading, because the central point of the SEC’s suit is that Paulson was represented to ACA as ACA’s friend and coinvestor in the deal, while in fact they were ACA’s enemy.... [T]he CDO was designed, in the eyes of ACA and IKB, to confine speculative activity to the equity tranche. Equity investors can lose money — or make a lot. And if they lose, then some unknown short will have gained. The bond investors, by contrast, were the boring ones, clipping coupons and sleeping well at night because they didn’t need to worry about losing their principal. Finally, there was the super-senior tranche... “quadruple-A”.... In reality, however, something very different was going on. It’s a little unclear, but it looks very much as though the equity tranche here was unfunded: Paulson certainly didn’t want it, and Goldman never even tried to find someone so bullish on the subprime housing sector that they would buy it.... Goldman was leading ACA to believe that Paulson was speculating on house prices going up, in fact Paulson was betting that they would go down so much that the entire CDO would be wiped out.... Goldman knew full well what Paulson was seeing, and deliberately kept its client ACA in the dark as to what Paulson’s motivations were, and what the risks were in the structure. While Goldman was trying to persuade the ratings agencies that the bond part of the structure was perfectly safe, it was also listening to Paulson explain why in fact the structure could blow up spectacularly. Neither ACA nor the ratings agencies ever suspected the true reason for the structure’s existence — because Goldman never told them what it was.

Which brings us to the meat of Blodget’s argument:

If Paulson had had control over which securities were selected for the CDO, this would OBVIOUSLY be fraud: Paulson wanted BAD bonds in the CDO, not good ones. The buyers of the CDO, meanwhile, wanted GOOD bonds. That would be a direct conflict of interest that should obviously have been disclosed. But… Paulson did NOT have control over which securities were selected for the CDO.

This seems to me to be tantamount to an admission of defeat.... Blodget then goes on to explain why he thinks that Paulson did not have such control, but he’s pathetically unconvincing... in the end there were 90 securities in the CDO. Of those 90, it seems that 55 were chosen by Paulson.... Paulson had come up with his longlist of 123 securities precisely because all of them were particularly toxic. That’s a material fact which, if ACA had known it, would surely have sufficed to get them to exit the deal entirely. But it’s actually worse than that: the fact is that Paulson not only proposed 55 of the 90 securities, but also had veto power over the other 35, and signed off on all of them.... Given all that, it makes no sense to say that ACA had full control over which securities were included.... At this point, Blodget starts just making stuff up.... Blodget concludes with a conditional statement: “the SEC may criminalize this lack of disclosure in hindsight,” he writes, “but if it was a standard industry practice at the time, Goldman likely has a solid defense.”... [I]t’s going to be very hard indeed for Goldman to make the case that it was standard industry practice for a speculative short to be given veto power over a CDO manager’s picks, without the CDO manager knowing of the speculator’s position or motives. Henry might be rooting for his Goldman Sachs home team here, but if this is their best defense, it’s looking decidedly rocky.