Friday, April 30, 2010

The Senate gets into the swing of bankwhacking

Some months ago, as health care reform languished and the Senate ground nearly to a halt, one read frequent laments that the moment for sweeping financial reform was being wasted -- that by the time the Senate got around to full consideration, memories would have faded, rage against the banks cooled, and lobbyists' hooks sunk ever deeper. 

Reasonable worries, perhaps. But those who despaired of strong reform did not reckon on HCR passage changing the dynamic in Congress; or on the pressure that would be generated by bringing the bill to the floor just as election season heated up; or on the fresh spur to rage afforded by an SEC suit (and criminal investigation) against the nation's most lucrative financial institution.

Just nine days ago, Jonathan Chait was marvelling at the strength of the Dodd ill as it came to the floor. Now, the WSJ reports, a tide of amendments is bidding to restrict financial institutions' activity far more radically:
Sens. Ted Kaufman (D., Del.) and Sherrod Brown (D., Ohio) plan an amendment that would prohibit any bank from ever holding more than 10% of the country's deposits and put strict caps on the debt banks issue.

Sens. Maria Cantwell (D., Wash.) and John McCain (R., Ariz.) have worked on an amendment that would force commercial banks to separate from investment banks—revisiting the Glass-Steagall Act of the 1930s.

Sens. Jeff Merkley (D., Ore.) and Carl Levin (D., Mich.) plan a provision to forbid banks with federally insured deposits from certain trading activities.

Don't crow, but savor the moment

Recall the warnings in fall 2008, as the auto industry teetered and  Bush stepped up to the plate with the first lifelines to GM and Chrysler, that their bankruptcy could a) cause the collapse of the U.S. auto industry and vastly accelerate the loss of jobs, then already in freefall; b) destabilize the financial system through losses on loans and credit default swaps; and c) be the death of both companies, since Americans would never buy cars from a manufacturer that went into bankruptcy?

The industry is far from out of the woods. But still -- today, on the front page, the WSJ's Jeff Bennet and Mike Ramsey take stock and finds some really, really good news:
After the Crash, Auto Towns Revive
FLORA, Ill.—A year after the U.S. government swooped in to rescue two crippled auto giants, the car business is showing signs of life again—and so are local economies across the heartland that depend on it.

As soon as General Motors Co. and Chrysler Group LLC finished racing into and out of bankruptcy court last fall, orders for headlamps and other car parts began streaming back to two factories here in this southern Illinois hamlet. The factories quickly re-hired about 400 of their 550 laid-off workers, giving Flora, Pop. 4,772, a big shot in the arm.

Local businesses are perking up. The Best Western just outside town occasionally fills all 41 of its rooms again. And shoppers are less scarce in Joe Etchison's appliance store. "Last year, people were sticking with the basics and skipping the stainless-steel refrigerators," he said, walking his downtown showroom trailed by Taz, his dog. People have "figured out the world has not ended."

Similar scenes are playing out across the Midwest, where the speedy stabilization of GM and Chrysler appears to have helped towns tied to the auto industry to get back on their feet more quickly than they may have otherwise.

Thursday, April 29, 2010

Reverse field opinion writing at the FT

Near the outset of his column today, the FT's David Pilling has this to say about a traditional article of faith in what you might call a mainstream American view of history:
Former US president Bill Clinton proselytised the idea that, in a knowledge economy, only those states that were politically open would prosper. China has proved him spectacularly wrong. Indeed, Beijing is busily creating the biggest middle class in the history of the world, yet the Communist party’s hold on power looks as firm as ever.

To rub it in, economies in countries that do not bother with elections have generally performed better than those that regularly go through the rigmarole of transferring power. Even the late Benigno “Ninoy” Aquino, gunned down in 1983 for his principled opposition to the Marcos dictatorship, said that freedom of speech meant little to those not free from hunger. China’s growth has averaged 10 per cent a year in the past 30 years. The Philippines has not even managed 4 per cent. 

I start scribbling: Clinton wasn't wrong, just early.  I prepare to cite Pilling's colleague Gideon Rachman in rebuttal:

Monday, April 26, 2010

In which I (essentially) win my "quick bet against Brooks"

Three weeks ago, I put up a post based on my inference that David Brooks had misrepresented a statistic cited from Stephen J. Rose's not-yet-published Rebound: Why America Will Emerge Stronger from the Financial Crisis.  Brooks reported that according to Rose, "Over the last 10 years, 60 percent of Americans made more than $100,000 in at least one of those years, and 40 percent had incomes that high for at least three."  My inference, that Rose was referring to household rather than individual income and that "Americans" should be "American households," was based on past Rose writings and a near-identical error that George Will made in citing Rose's income data claims. 

Andrew Sullivan linked to my post. Brooks complained that I was wrong, that Rebound did refer to "adults" as opposed to "households." The Dish posted a direct quote from Rebound: ""Another way to look at incomes over many years is to see how often people experienced high and low incomes. Indeed, fully 60 percent of adults had at least one year in which their incomes were at least $100,000" (p. 119).  I posted a retraction and apology -- conceding that whatever the truth behind the numbers, I was wrong to jump to the conclusion that Brooks had misquoted Rose (though I did originally acknowledge the "highly unlikely" possibility that Rose's numbers or terminology may have changed from 2007 to 2010).

Today my copy of Rebound finally arrived (Update: my full review here). I am happy to report that while the book does indeed (of course) contain the sentence above, Rose's definition of terms earlier in the chapter makes it clear "their incomes" signifies the household income of each "adult" -- adjusted, moreover, for age and household size (see Update 2 and Stephen Rose comment below).

Goldman et al short the Democrats

"It is hard to bite the hands that feed you, especially when you are competing for food."
That's Robert Reich, writing in today's FT.  Context:
Even as Congress debates legislation to tame it, Wall Street is conducting a bidding war between the parties for its continued beneficence. More than 60 per cent of the $34m given by the financial industry to fund the 2010 elections has so far gone to Democrats, but since January it has switched to the Republican camp. In January and February,  Citigroup, Goldman, JP Morgan Chase and Morgan Stanley donated twice as much to Republicans as to Democrats.
If "perfect storms" push in one direction (toward disaster), what's the metaphor when well-matched countervailing forces collide?  Popular rage at Wall Street, fueled (fortuitously or no) by the SEC suit against Goldman, is running smack into a lobbyist orgy as financial reform hits the floor.  So far it looks, remarkably, as if disgust with Wall Street -- and genuine fear of another crash -- may win the day, long enough at least to get a relatively tough bill through Congress (to Jonathan Chait's astonishment).

Nevertheless, the long-term problem of corporate money largely controlling U.S. politics is very much with us, exacerbated, as Reich highlights in conclusion, by the recent Supreme Court decision enabling corporations to spend unlimited cash in issue advertising.  Reich warned in Supercapitalism (2007) that lobbying -- driven more by corporate Darwinianism that conscious policy decisions (since global competition drives corporations to compete as fiercely for legislative advantage as for any other kind) was overwhelming democracy.  Today he continues the warning:
Politicians cannot continue to have it both ways. The close nexus between Washington and Wall Street is eroding trust in government. This has already helped spawn the so-called “Tea Party movement” of disaffected Republicans and many Democrats are no less cynical. 

Sunday, April 25, 2010

Gretchen Morgenson echoes Mitch McConnell

Gretchen Morgenson is a well-informed reporter, but her attack in today's Times on the new resolution authority created in the FinReg bill has me scratching my head.

Without referencing Mitch McConnell, Morgenson echoes his claim that the bill's creation of a resolution authority for the orderly liquidation of systemically important financial institutions would enable bailouts rather than prevent them and grant special privileges to the largest financial institutions. Morgenson writes:
Here’s an example of this special treatment: Both bills would establish a specific process to resolve big-bank failures. Smaller institutions, by contrast, would be allowed to go bankrupt without a new resolution scheme.

This special resolution system is not only unfair; it also sends a pernicious signal to the market about large and intertwined institutions. The message is this: Subject as they will be to a newly codified “resolution authority,” these institutions and their investors and lenders can expect to be rescued if they get into trouble.

This perception delivers lucrative advantages to these institutions. The main perquisite is lower borrowing costs, a result of lenders’ assumptions that the giants are less risky because they will be in line for government assistance if they become imperiled.
My understanding is that the proposed new resolution authority's powers to liquidate systemically important nonbank financial institutions are modeled on the FDIC's powers to liquidate FDIC-insured deposit-taking banks.  So claims a statement on the FDIC website under Sheila Bair's name, last updated 4/7/10:

Friday, April 23, 2010

Does Goldman's "it's perfectly normal" defense hold water?

In a reading of Goldman's September letter of defense against the SEC investigation into the synthetic CDO it created at Paulson's behest, one question stands out: is it really true, as Goldman's claims, that investors in a synthetic CDO would accept as a matter of course that short as well as long participants might have not only an active but a formative role in shaping the portfolio? Paulson initiated the CDO, suggested the initial portfolio to the selection agent ACA, and ultimately approved every bond in the portfolio, more than half of which were in its initial selection. Is that business as usual? Goldman says yes:
There is no industry definition of "Portfolio Selection Agent" that implied that ACA would operate within an ivory tower or refuse to consider suggestions made by interested parties in exercising its independent judgment. In fact, it was a customary feature of the market that participants (including those here) often offered their views on potential securities to be included in referenced portfolios, so no one would have been surprised that Paulson was doing so.
Depending on industry norms, this could either be a particularly brazen bit of sophistry or an effective defense. 

Thursday, April 22, 2010

Ah, soft power: a chorus of nations urges yuan appreciation

On several occasions I have flagged wise voices urging the U.S. to seek allies (Aryind Subramanian) and work through multilateral channels (Jeffrey Garten)  in its effort to convince China to let its currency appreciate. Recently, Larry Summers was singing from the same page:
...we think that countries with large surpluses need to be focused on shifting the pattern of demand towards reliance on domestic demand.

And clearly, exchange rates, which are the relative price of domestic and foreign goods, are one crucial aspect of that, and so I think that’s going to have to be an active area for international consideration going forward because I think all countries have a stake in more balanced growth, and I think where there are large reliance on external growth, that does raise questions about the sustainability of the expansion.

And so in our dialogue with China through the strategic economic dialogue, in our participation in the IMF with its enhanced mechanisms for global surveillance, as we move towards the G20 meetings in Canada and Korea this year, I think these are going to be very important issues (my emphasis).
Not to jump at shadows, but it looks like more pieces on Obama's international chess board may be moving into position on this front.  From today's FT:
China is facing growing pressure from developing countries to begin appreciating its currency, providing unexpected allies for the US in the diplomatic tussle over Beijing's exchange rate policy.

Speaking ahead of a meeting of finance ministers and central bank heads from the Group of 20 countries which starts today in Washington, Indian and -Brazilian central bank presidents have made the most forceful statements yet by their countries about the case for a stronger renminbi. [snip]

Unreal city: the Democrats frame a debate

Last week, I noted that Democrats' aggressiveness in pursuit of their FinReg bill was positively affecting news coverage -- specifically, that their rapid pushback against McConnell's claims that the bill enabled future bailouts was shaping the coverage. 

While the Times is hardly representative, the tenor of its coverage of McConnell's "bailout" charge last week  changed dramatically from the online report on Wednesday afternoon last week to the Thursday print story, which took in Obama and Gibbs' response to McConnell.

Today, as the Republicans blocked debate on the bill, the Times again gave the framing to the Democrats:

At the Capitol, Senate Democratic leaders stepped up pressure on Republicans, and at an unusual news conference, they showed video clips of Republican leaders leveling what the Democrats said were false criticisms of the bill.

At the news conference, Mr. Reid suggested that Republicans were stalling and expressed doubt that the negotiations would yield any agreement.

Republicans have said that renewed talks are yielding progress that could lead to an agreement, but neither Democrats nor Republicans have pointed to any concrete changes that had been agreed to in recent days.

“Every indication is that the chairman and the ranking member are making progress in their discussions, and that this bill will have needed improvements,” Mr. McConnell said in a speech on Thursday.

Mr. Reid, however, noted that Democrats had tried for two months to reach a deal with Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, and another month working with Senator Bob Corker, Republican of Tennessee, who is also on the committee. If Republicans are ready to deal, he said, they should agree to begin debate.

“I’m not going to waste any more time of the American people,” Mr. Reid said.

There's a turkey being slaughtered behind Daniel Henninger's column

Correct me if I'm wrong, but this chart accompanying Daniel Henninger's reading of Pew's trust in government poll belies his conclusion that the grim numbers bespeak a wholesale rejection of the stimulus and health care reform bills.

Can a libertarian love "commandments"?

Robert A. Levy, head of the Cato Institute, is of course a libertarian, and so committed to "a government of limited power and maximum freedom for the individual."  He is also, however, a Constitutional originalist, which means that he accords all-but-divine authority on the Constitution's drafters. He believes that the intent of men dead for 200 years, filtered through the imaginations and propensities of living judges serenely confident in their ability to divine that intent, should determine the way we define our liberties today. We are free to do anything except define our own freedom.

That strangely authoritarian approach to freedom is in evidence in Levy's choice of words in a letter published in today's Times, furiously countering "Geoffrey R. Stone's panegyric to liberal Supreme Court justices." My emphasis below:
Thanks to so-called empathetic judges who have ignored the commandments of the Constitution, Congress can regulate anything and everything, redistribute money from anyone to anyone else, delegate its lawmaking authority to unaccountable and unelected bureaucrats, erase private contracts between consenting adults, extend less protection to political speech than to flag burning, seize private property for transfer to politically connected developers, punish blameless but disfavored racial majorities and impose anticompetitive restrictions on would-be entrepreneurs seeking only to earn an honest living.
Are the provisions of the Constitution commandments? In a sense. The OED's first definition of commandment is "an authoritative order or injunction; a precept given by authority."  That is true of the laws and founding documents of a representative democracy. But the term gives implicit short shrift to the converse; that the "authority" is "given" (or rather, lent) by the people (presumably including living ones). The OED's second definition is "a divine command" -- specifically (2b), the Ten Commandments.  Subdefinition (2d) adds, "also used allusively of other sets of rules, implying that they take the place of the Decalogue."  That, I would argue, is the use at play here. (Though others might argue: is that Levy's "original intent?"  And if that question is argued, should Levy be the final arbiter of that question?)

Contrast the OED's definition of "constitution" in the political sense: "The system or body of fundamental principles according to which a nation, state or body politic is constituted and governed.."  "Governed" by "principles" -- that seems more in keeping with American (and modern democratic) understanding of a polity's relationship to its constitution.

A written Constitution conceived as the sole guarantor of liberty becomes a fetish and therefore a fetter. The fetishization can be seen in Levy's simultaneous celebration and lament, in the introduction to his book The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom (Cato, reprint 2010), over the extent to which the Constitution has governed/not governed American development:

Sunday, April 18, 2010

How Chinese households serve the banks

A long post by Michael Pettis's about how China dealt with a banking crisis ten years ago, and how that crisis continues to affect economic policy serves as an interesting primer on the interaction of economic policy, banking, and the production and dissemination of real wealth. More specifically, it's a window into the tradeoffs between wealth production and wealth distribution.  The basic premise is that someone always pays for a banking crisis even when GDP growth is not long interrupted. 

Following the crisis, Pettis recounts, the Chinese government made the banks subsidize distressed lenders (by offering loans at very low rates) and in turn recapitalized the banks.  Pettis' main focus is on a third step -- forcing depositors (i.e., ordinary Chinese households) to subsidize the banks:

Where Obama's "placation" ended

Garry Wills, summing up David Remnick's portrayal of Obama in The Bridge: The Life and Rise of Barack Obama, is close to right, and yet so very wrong, as he segues to his own judgment:
Obama’s strategy everywhere before entering the White House was one of omnidirectional placation. It had always worked. Why should he abandon, at this point, a method of such proved effectiveness? Yet success at winning acceptance may not be what is called for in a leader moving through a time of peril. To disarm fears of change (the first African-­American presidency is, in itself, a big jolt of change), Obama has stressed continuity. Though he first became known as a critic of the war in Iraq, he has kept aspects or offshoots of Bush’s war on terror — possible future “renditions” (kidnappings on foreign soil), trials of suspected terrorists in military tribunals, no investigations of torture, an expanded Afghan commitment, though he promised to avoid “a dumb war.” He appointed as his vice president and secretary of state people who voted for the Iraq war, and as secretary of defense and presiding generals people who conducted or defended that war.

To cope with the financial crisis, he turned to Messrs. Geithner, Summers and Bernanke, who were involved in fomenting the crisis. To launch reform of medical care, he huddled with the American Medical Association, big pharmaceutical companies and insurance firms, and announced that his effort had their backing (the best position to be in for stabbing purposes, which they did month after month). All these things speak to Obama’s concern with continuity and placation. But continuity easily turns into inertia, as we found when Obama wasted the first year of his term, the optimum time for getting things done. He may have drunk his own Kool-Aid — believing that his election could of itself usher in a post-racial, post-partisan, post-red-state and blue-state era. That is a change no one should ever have believed in. The price of winningness can be losing; and that, in this scary time, is enough to break the heart of hope. 
It is true that Obama sets tremendous stock in his ability to win buy-in from potential adversaries, to disarm them by acknowledging what he regards (or presents) as the legitimate points in their argument, to find common ground and therefore assent. Remnick captures this.  Recounting Obama's reaction to Robert Caro's portrayal of the old hard-core segregationist bull of the Senate Richard Russell, Reminick writes:
Much of Obama's self-confidence resided in his belief that he could walk into any room, with any sort of people, and forge a relationship and even persuade those people of the rightness of his positions. Jim Cauley, Obama's Senate campaign manager, said he thought Obama believed that he could win over a room of skinheads. "All of us are a mixture of noble and ignoble impulses, and I guess that's part of what I mean when I say I don't go into meetings with people presuming bad faith," Obama has said. Now he seemed to think that he would have had a fighting chance with Russell: "Had I been around at all in the early sixties and had the opportunity to meet with Richard Russell, it would have been fascinating to talk to somebody like that.  Even if you understood that this enormous talent would prevent me from ever being sworn in to the Senate"(426).

But placation is only weakness if it has no end point. Obama did persist too long in trying to win Republican cooperation. But his faith in his ability to win assent was not weakness but hubris.  According to George Packer, the title of whose long chronicle Obama's Lost Year gave Wills his keynote above:
Obama's quest for bipartisanship, in the face of exceedingly discouraging facts, has been so relentless that it suggests less a strategy than a core conviction: reasonable people can be civil, exchange ideas, and eventually find points of agreement.

Friday, April 16, 2010

What Ailes Democracy in America

Nate Silver, delving into the cross tabs of the NYT/CBS Tea Party poll and noting that 59% of partiers have a positive impression of Glenn Beck (compared with 18% of the population as a whole), draws this conclusion:

Academic studies have found that FOX News in fact has quite a bit of ability to persuade voters and reformulate public opinion. That Beck (whose program debuted one day before Barack Obama's inauguration) has become one of its prominent voices may help to explain why the tea-parties have become so influential, and why public opinion appears to have shifted so dramatically within the past 18 months. FOX may, or may not, have a role in directly promoting the tea-parties. But its opinion programming has become the water-cooler around which the tea-partiers gather.
Perhaps there will always be a Father Coughlin (or a passel of them) to channel the rage of the paranoid and the ignorant, particularly in times of 10% unemployment, but I still find this disturbing.  Fox, like the Palins and Bachmanns it empowers, is a danger to democracy, a relentless amplifier of lies. And while I guess the U.S. had ample capacity to home-grow toxic political media, it still strikes me that Rupert Murdoch has managed to degrade political discourse on three continents (I assume he's done it in Australia as well as the UK and US). 

Broder notes that Obama is patient. But Broder isn't.

Ah, marshalling facts to fit a hypothesis. It's challenging for us all.

David Broder this week advances an unexceptionable hypothesis: that Obama takes a long view of fundamental problems and is willing to work toward solutions with patience and persistence. Obama told us as much early in his presidency: he seeks on several fronts to move the battleship a few degrees

But do Broder's yoked examples of slow-acting initiatives make sense?

Take health care. More than a year ago, Obama outlined a vision of a redesigned system, covering far more people at substantially lower per capita cost. He was notably sparing in how to get there, and for many months it was not clear that Congress would take up the challenge. In the end, a law was enacted that addressed exactly that goal. But it will be four years at least before its key components are in place and another four beyond that until its financing mechanism will really be tested.

Take the economy. The "emergency" measures designed to deal with the manufacturing calamities and the overall housing and economic crises Obama inherited were quickly passed in 2009. But none was expected to show results at that moment. For month after month, there was no sign that the downward spiral had been slowed, and only now, more than a year later, are there enough positive signs -- in employment, in sales and in profits -- that many economists are willing to talk about recovery.
For month after month there was no sign that the downward spiral had slowed?  How fast exactly does Broder think that emergency measures might have arrested a near-depression?  Remember all those charts showing that world trade had fallen off a steeper cliff than in the Great Depression? In fact, stabilization came remarkably swiftly. 

The banks underwent their stress tests in May 2009, raised the required $75 billion swiftly, and rushed to pay back TARP funds. Chrysler and GM emerged from bankruptcy at breakneck speed, in June and July respectively. The stock market bottomed out in March 2009 - two months after Obama took office - and has been on a straight upward trajectory ever since. Real GDP grew at a 2.2% clip in the third quarter of 2009 and by over 5% in the fourth.  Unemployment has lagged, and the prospect of a jobless recovery is a major worry.  But by consensus estimates, the stimulus saved 1.5 million to 2 million jobs in 2009 and is on course to create more jobs this year.

What kind of financial crisis legislation would have shown results "at that moment" of passage?  Broder is a bit old to raise retrospective specters of instantaneous results -- even as he praises "a president who is not driven by a compulsion to provide instant gratification."

Byzantium in Brazil? The Pope looks south and east

Philip Stephens, wondering why the arrogant and unrepentant Pope seems content to let the Church in Europe and North America implode, comes up with a hypothesis:

Now, I think I understand. The pontiff is a globaliser. He can feel the world’s geopolitical plates shifting. He grasps as well as any politician or business leader that the west has had its day. The opportunities to spread the gospel lie elsewhere – in societies more respectful of authority and less questioning of past crimes.

Deja vu all over again.  The Roman Empire lingered for a thousand years in Byzantium after the serial sackings of Rome (in sync with that first fruit of schism, the Orthodox Church); its center of gravity had shifted in the century preceding. Perhaps that's what John Allen, Benedict's biographer, has in mind when touts the Pope's long view:
[Allen] recently told the FT’s Rome correspondent that the Holy Father was untroubled by crises of the moment because he had the “great gift of thinking in terms of centuries”.

Mr Allen, as it happens, has also charted the shift in the church’s demographic centre of gravity. Catholicism is booming in Asia, Africa and Latin America. Europeans and North Americans, Mr Allen calculates, now number only 350m in a church of some 1.2bn. About two-thirds of Catholics live in what is the emerging world – about 400m of them in Latin America. Brazil boasts twice as many communicants as Italy. Mexico and the Philippines have larger congregations than Germany or France.

This perhaps is where Pope Benedict’s gaze is fixed. Catholics in the emerging nations, after all, have been largely untroubled by the scandal that has rocked his authority in the west. They are less inclined to challenge the pontiff’s moral absolutism and his demand for unquestioning obedience to Rome.

This long view isn't long enough. Though it doesn't happen overnight, globalization erodes authoritarianism.  As societies get wealthier, they chafe under the old oligarchs --of the intellect and spirit as well as of the purse and police.  The Church will exhaust its new markets quickly if it doesn't change as they change. If the Pope believes that his flock in the developing world will continue to swallow palpable absurdities like Papal infallibility and, more generally, the notion that the word of God can be nailed down definitively, he's thinking in decades, not centuries. The moral arc of the universe is long, but it bends not only toward justice but toward freedom and reason as well.

The Church's long lens is facing backwards.

Thursday, April 15, 2010

The Administration gets game on FinReg

Do I sense a wee change in tone in the administration's approach to "bipartisanship" as it pursues a financial reform bill?  From the Times' coverage of yesterday's meeting of Obama with Congressional leadership:
I am absolutely confident that the bill that emerges is going to be a bill that prevents bailouts. That’s the goal,” Mr. Obama said before the start of the meeting, directly answering assertions by the Senate Republican leader, Mitch McConnell of Kentucky, that the bill would encourage, rather than prevent, future taxpayer bailouts of financial companies. As Mr. Obama spoke, Mr. McConnell sat impassively nearby in the Cabinet Room.

Later, in a particularly pointed statement, the White House press secretary, Robert Gibbs, said Mr. Obama would not let the bill be thrown off course. 

“The president reiterated his belief that we are open to ideas and eager to work with anyone who is willing to work with us regardless of party,” Mr. Gibbs said. “He also made clear that bipartisanship should not be equated with an openness to lobbyists, loopholes and special interest carve outs and that he would be unwilling to negotiate on some key issues, and that he could not accept bad policy in pursuit of bipartisanship.”
Not only is there swift, strong pushback on Mitch McConnell's outrageous claim that giving regulators resolution authority to liquidate failing banks would encourage bailouts.  Note also the signal that the administration (contra Andrew Leonard) will not be content with claiming victory on the headline issues (here, the resolution authority; previously, the consumer protection agency) while letting banking interests have their way on more arcane matters, like regulation of securitizations or derivatives. On the latter, there's this from Geithner:

Wednesday, April 14, 2010

Data in the chatter: life in the Nate Silver era

The Democrats' loss of the House in 1994, like most high-stakes contests, was treated like a morality play, and widely ascribed to the ignominious dissolution of the party's healthcare reform efforts.

This year, determined not to repeat the past, Democrats screwed their courage to the sticking post and passed a comprehensive HCR bill.

What if this brave and purposeful action is followed by, say, an 80-seat loss, as Sean Trende (that's a stage name, right?) provisionally forecasts and Jonathan Chait acknowledges as a not-unlikely scenario?

Personally, I'm fine with it. I think a Republican takeover of either chamber would be bad for the country.  But the 111th Congress has done what it set out to do, and what it had to do to save the country's short-term (via the stimulus) and long-term (via HCR) economic prospects. My hat is off, and my wallet is open.  If the party loses big-time in November, I will chalk it up to a) natural tidal movement following large gains in the past two elections, b) being caught holding the bag following the financial meltdown, and c) the power of relentless Republican demagoguery, feeding on the anger of a country enduring near-10% unemployment, and amplified in ever-new ways by Fox, Limbaugh etc.

Two directions on tax reform

Demolishing AEI president Arthur Brooks's claim in today's WSJ that Americans do not favor progressive taxation, Jonathan Chait cites a public opinion snippet that raises a fundamental question about tax reform (my emphasis):

The Quinnipiac University poll found that 60 percent of Americans among both major political parties think raising income taxes on households making more than $250,000 should be a main tenet of the government's efforts to tame the deficit. More than 70 percent, including a majority of Republicans, say those making more than $1 million should pay more.

The question is: leaving aside the precise optimal level for the top marginal income tax rate, why is the highest bracket fixed at a mere $250k in family income?  Matt Yglesias and Nate Silver batted this question around in March '09. Silver:
 What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent -- but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today's dollars.

Tuesday, April 13, 2010

Mitch McConnell, bank-shrinker?

Ezra Klein has beat me to it again.  Today Mitch McConnell came out against Dodd's bank reform bill,  claiming that by setting up and funding a resolution authority that enables regulators to liquidate the largest financial institutions in an orderly fashion if they become insolvent, it is enabling and in fact guaranteeing future "bailouts." "“This bill not only allows for taxpayer-funded bailouts of Wall Street banks;  it institutionalizes them,” McConnell pronounced.

Klein points out that McDonnell is equating a liquidation that wipes out shareholders and management with a bailout -- and further notes that McDonnell is following to the letter a political strategy laid out by GOP pollster Frank Luntz in February: to equate any Democratic bank reform bill with the hated bailouts of 2008-09.

Cynical indeed. As Klein suggests, if you don't want to give regulators resolution authority over banks currently considered too big too fail, it would seem you would have to be in favor of not allowing banks to grow, or stay, too big to fail.   I would add that the only intellectually consistent, if insane, alternative to  breaking up, shrinking, or reining in today's behemoths or making provisions for their orderly liquidation is to take the position taken by many of the most ignorant and extremist Republicans in fall 2008: let 'em all fail and let the chips fall where they may. Pull down the whole temple of global finance around our ears.

But McConnell is not that crazy. He acknowledged last October that TARP “succeeded in stabilizing the banking system.” It seems fair to assume that he believes that the Federal government can't simply step back and let too-big-to-fail banks enter bankruptcy. That brings us back to Klein's question:  what steps would McConnell favor to make the behemoths smaller, or otherwise enable them to fail without systemic risk?

Monday, April 12, 2010

Cllive Crook's disconnect

I do not understand Clive Crook. What seems to me a persistent disconnect in his thinking about U.S. politics and policy is in full evidence in his column today:
A moderate and intelligent opposition to the Democrats’ policies is badly needed. Apparently, nobody in the Republican party aims to provide it. Republican leaders seem intent on presenting the party’s angriest, most stupid and least tolerant face. Some leading Republicans who are moderate by temperament and conviction – John McCain, for instance – are being pushed to the right in primary election contests with more conservative opponents. Others, such as Mitt Romney and Tim Pawlenty, are disowning their previously expressed views or just keeping their heads down.

Republicans are right to say that the Obama administration has over-reached. Democrats failed to convince the country that their healthcare reform was the right solution to an obvious and pressing problem, yet passed their law anyway. Many voters are angry about this, and entitled to be. Also, despite the administration’s denials, the reform will most likely add to public borrowing, which was on a dangerously high trajectory to begin with. Again, they are right to be concerned.
The disconnect seems to be between Crook's recognition that the Republican party has given itself over entirely to fantasist extremism and his insistence that Obama and the Democratic Congress have governed from the far left and have in some fundamental sense violated the will of the electorate.

Friday, April 09, 2010

The Ann Dunham Presidency

Ann Dunham, Barack Obama's mother, emerges pretty clearly in David Remnick's The Bridge: The Life and Rise of Barack Obama as a secular saint. I say that without cyncism, knowing that such people exist because I've been married to one for 27 years -- a person of deep empathy, zero malice, all benevolence, naturally cheerful and optimistic. At least that is how Dunham's daughter Maya sees her:
Ann started to roam the markets of Jakarta and make trips around the country, learning more about Indonesian culture and handicrafts. "She loved batik and Indonesian art and music and all of the human creation that in her estimation elevated the spirit," Maya said. "She saw the beauty of community and kinship, the power of cultural collision and connection. She thought that all of her encounters were delightful--in Indonesia and elsewhere. She was just happy. She enjoyed herself immensely. Although she was aware of struggle and grappled with it, she did so cheerfully and with great optimism and belief that things could get better. Why mourn reality? (70)

Along with that great endowment of temperament came people skills that her not-quite-so-sunny son seems to have inherited:

Wednesday, April 07, 2010

Ode to an old lesson

The wisest erotic dictum I know of was attributed, if I remember right (can't find it...), to a friend of the notable 20th century courtesan Pamela Churchill Harriman, onetime wife of Winston Churchill's son Randolph, who subsequently worked her way through Leland Hayward, Averell Harriman and a long train of  lovers. Asked what kind of tricks Harriman deployed to attract so many famous and powerful men, the friend reportedly replied, "The only trick is enthusiasm."

Last night I tripped over the same insight in a different context: reading the thirteenth century Sufi mystic poet Rumi -- who like many mystics, joyfully extended the tradition of the Song of Songs to cast the relationship between the human soul and God as an erotic one. Behold:

The Only Teaching

For lovers, the only teaching is the beauty of the Beloved;
their only book and lecture is the Face.
Outwardly they are silent,
but their penetrating remembrance rises
to the high throne of their Friend.
Their only lesson is enthusiasm, whirling, and trembling,
not the minor details of law.

Mathnawi III, 3847-3819
translated by Kahir Helminski and Camille Helminski

Enthusiasm literally means to be possessed by a god, though I don't know whether the etymology holds in the original Persian.  "Whirling" is the ecstatic dancing of the "whirling dervishes," which Rumi pioneered. 

Tuesday, April 06, 2010

A quick bet against Brooks

UBER UPDATE 4/26/10:  My copy of Rebound finally arrived, and I was essentially right (as were many commenters): Rose's figures do refer to household income. They're also limited to "prime age" adults. Brooks did not literally misquote, and I shouldn't have inferred that he did without the book in hand. But he missed some key definitions early in the chapter. More here; full review of Rebound here. I have moved prior updates to the bottom, so that everything appears in sequence. 

Arguing today that America's future is bright, David Brooks retails a stat from Stephen J. Rose: 60 percent of US adults have earned over 100k in at least one of the last ten years..I am willing to bet that "adults' should be 'households.' George Will made a similar error in a Jan. '08 column arguing that all was rosy with the American middle class. I will check this out later today.

UPDATE:  Bingo. Post above was from a Blackberry.  The book by Stephen J. Rose that Brooks references, Rebound: Why Americans Will Emerge Stronger from the Financial Crisis, is not out yet. But in a June 4, 2007 Huffington Post column, Rose wrote (my emphasis): 
Because income swings up tend to be larger than income swings down, the median of multi-year income is higher than median in each of the separate years. Consequently, the median income over ten years ending in 2002 was nearly $75,000 (in 2005 dollars) for prime-age adults and only 20 percent had ten-year average incomes below $40,000.

In addition, half of adults had at least one year in which their total household incomes were greater than $100,000.

Monday, April 05, 2010

How not to attack the Administration

Andrew Leonard cites analyses of pending financial reform legislation by Paul Krugman and Noam Scheiber to suggest that the Administration will be happy to pass a weak bill and declare victory -- and that more generally, "the public's perception of how the administration is addressing the nation's problems may be more important to the White House than whether or not those problems will actually be solved." 

To my eye, Leonard's article is a cautionary example of how easy it is to misrepresent others' writings in support of one's own thesis. I made the case in a comment, here. The Summers interview to which Leonard refers is here (and is also the subject of my prior two posts, here and here).

Saturday, April 03, 2010

A second White House Seder? Larry Summers sings Dayenu to Martin Wolf over health care reform

100-odd years ago, early in 2009, Obama and Peter Orzag were heavy on the mantra that "healthcare reform is entitlement reform"-- i.e. that "bending the cost curve"on healthcare would be the single most important step to erasing the country's structural deficit.  Here's how Peter Orzag put it in Obama's fiscal summit on Feb. 23, 2009:
Health care is the key to our fiscal future.

So to my fellow budget hawks in this room and in the rest of the country, let me be very clear: health care reform is entitlement reform.

The path of fiscal responsibility must run directly through health care.

We also must recognize that reforms to Medicare and Medicaid will only succeed in the context of slowing the spiraling growth of overall health care costs.
In an interview published in the online Financial Times today, Larry Summers, asked by Martin Wolf how other nations could have confidence that the U.S. will put its long-term fiscal house in order,  suggested that the Administration has already laid the most important cornerstone  -- again, that healthcare reform is entitlement reform, and that the cost controls in the Patient Protection Act have teeth.

Perhaps Summers was fresh from a Seder: his litany of the virtues of the Medicare Individual Payments Advisory Board (boldfaced below) swings with the repetitive glee of the Passover song  "Dayenu," which marvels at the extent of God's mercies in making the Exodus happen:

Larry Summers takes a long and multilateral view of China and trade rebalancing

As China signals that it is ready to start letting yuan appreciate again, Larry Summers, in an interview with the FT's Martin Wolf, gives some important hints as to the Administration's long-term approach  toward China.

With regard to exchange rates and a more general rebalancing of trade, both between the U.S. and China and more generally between high-export and high-consumption economies, two of Summers' emphases in particular are noteworthy: 1) a global rebalancing of supply and demand should be pursued through multilateral channels and institutions -- the U.S. should seek allies and so diffuse the expectation (and possibility) of gladiatorial combat between the U.S. and China over exchange rates; and  2) it's going to take time -- rebalancing the world economy is a project of years and probably decades, and yuan appreciation is only one piece in a complex (re)balancing act.

On the first point, Summers is very careful to build the multilateral context:
MW Okay, just tell me about where you are on the exchange rate question vis-a-vis China and the adjustment process vis-a-vis China.

LS The G20 made a common commitment last year in London, reiterated in Pittsburgh, to seeking more stable and balanced global growth. And I think we’ve made more progress in laying a foundation for restored global growth than has yet been made in assuring more balanced global growth - to be sure that growth, the pattern of growth over the last year, has been more balanced, with trade deficits and trade surpluses both coming down. But as the global economy recovers, it will be very important not to see a major resumption and a major widening of imbalances.

Friday, April 02, 2010

Morning in America

Okay, this is a foolish exercise -- capturing some fleeting, flickering hints of good news in the wake of the great health care catharsis.  But on a bright sunny April morning, why not savor a composite screenshot of a world in some senses on the mend:


A1 Factories Revive Economy
The manufacturing sector geared up production across the globe in March, fueling optimism that the economic recovery has legs.

China Visit Suggests Thaw Over Iran, Yuan
China announced that President Hu Jintao will visit the U.S. to discuss nuclear security, pointing to a potential thaw in one of the worst stretches of U.S.-China relations in recent memory.
Factory Data Put Dow Run At 5 Weeks
Stocks began the second quarter on a high note, helped by new data showing that the economies of the U.S., Europe, and China are improving.

  • Instant view: March job growth strongest in 3 years

  • Obama, Medvedev to sign landmark nuclear arms pact

  • Index futures rise after March jobs data

  • Obama urges China's Hu to get behind Iran push

  •  As for some of those state wards (WSJ):

    Citigroup's Primerica IPO Soars 31% 

    GM's March Sales in China Cement Top Status

    Benmosche Upbeat on AIG Prospects

    It's doubtless extending the selection bias sin to see an Obama effect in this momentary alignment. And meanwhile, Karzai is going rogue, Iraq is in parlous post-election stasis, sanctions will probably have no effect on Iran's nuclear program, the administration remains in a standoff with Netanyahu. But it's fair to say that presidential patience -- and last year's swift action to stave off a Depression -- are paying off on several fronts.

    Thursday, April 01, 2010

    Happiness Indices: Post-industrial and Pre-Modern

    Richard Florida, diving into Gallup research on people's self-reported levels of happiness in different countries, brought to the surface of my mind two contradictory -- or seemingly contradictory -- ideas I have long harbored (sometimes musing fitfully on their apparent contradictoriness) regarding the relative happiness of different societies. 

    Here, first (via Sullivan), is Florida's idea, which tracks with one general assumption of mine:

    It is not just the level of economic development that matters, but its nature and type. The past several decades have seen a shift from older industrial-style economies and societies to newer post-industrial ones characterized by higher levels of knowledge-based, professional, and creative jobs, more highly educated populations, and a shift toward what Ronald Inglehart has dubbed "post-materialist values" -- a diminished commitment to traditional authority and institutions and a shift toward self-expression, openness, and tolerance. My recent research with Charlotta Mellander and Jason Rentfrow finds evidence that post-industrial socioeconomic structures and post-materialist values matter to the happiness of nations, especially of the most advanced nations...

    Five noun run spurs brain freeze

    In January, we noted a verbal noun mashup in a WSJ headline that triggered all kinds of mental processing errors:
    New Breast Screening Limits Face Reversal
    Today, the same source delivers a new find-the-verb challenge:
    New Russia Blast Fans Terror Fears
    Blast fans? Terror fears? We've got a run of five apparent nouns, three of which could function as verbs (blast, fans, fears) two of which actually function as adjectives (Russia, terror) and one of which is a verb (fans).

    Someone at the Journal is messing with our heads. Or just very pressed for space.