Tuesday, December 14, 2010

Last Call

Ezra Klein is pretty sharp, but this particular analogy he finds for the financial crisis is terrible.

The problem has been coming up with a mechanism. In his essay for American Interest, however, Tyler Cowen proposes one: The finance sector.

The story of the current run-up in income among the very rich is, Cowen says, basically a story of people involved in the financial sector making a ton of money. And so many of them are making so much money because so many of them are betting the same way at the same time. The way they're betting is "long on volatility," which put more simply means against unexpected things happening.

Cowen gives the example of the Washington Wizards: If you bet every year that the Wizards wouldn't win the championship, you'd pretty much always make money. If everyone bet that way every year, everyone would pretty much always make money. If everyone borrowed lots of money so they could make bigger bets on the Wizards losing every year, they'd make even more money. But if the Wizards then won, everyone would then go bust, and they'd go bust all at the same time, losing lots of borrowed money, and wreaking untold havoc on the economy.

Well, not "untold." That's pretty much what happened in 2007. In this story, one of the things to watch for when we see very high levels of inequality is whether that money is coming from the financial sector. If it is, it probably means there are a lot of people on the same side of a bet. And if there are a lot of people on the same side of a bet, the prospects for a major financial crash are pretty good. Maybe not this year, or the next year. But eventually, even the Wizards win.

Umm, guys...no.  You're completely missing the point.

If this analogy was true, the bookies would have come looking to collect the money from the people who bet on the Wizards to tank because the bookie would now be the richest guy on the planet.  The bookie would then proceed to get his money any way they can.

In other words, the people betting against the Wizards?  There's risk involved if they lose the bet, mainly an angry bookie and his goons kneecapping you.

In the financial crisis, the people betting that the housing market would never, ever drop and the people who borrowed more and more money to leverage bigger and bigger bets in that direction knew that there was no risk because of the sheer number and size of the bets.  The bookie in this case was Uncle Sam.  When all the banks lost that bet (except for Goldman, who won on their hedge) Uncle Sam paid them off anyway because if they didn't, well gosh the economy would have exploded into little pieces.

The bet was made by the banks.  The bookie, Uncle Sam, assumed the risk.  That's where the analogy breaks down, and that's why the financial crisis can't be compared to a bet gone wrong.  the entire betting system was rigged.  Bets assume risk.  There was no risk if the bets were large and leveraged enough.

That's the problem:  moral hazard.  Forgetting that key component to the equation is a major disservice.  The analogy is valid up to a point, but it's really the moral hazard that defined the financial meltdown.

Stupidinews: General Hospital Edition

This week there have been several breaking advances on the medical front:

Missouri midwife Elaine Diamond has been charged in the death of a newborn.  She allegedly allowed a woman to labor for three days before taking her to a local hospital, and the baby died as a result of these complications.  I actually plan to write about this in more length, because this is becoming a hot topic in Missouri.  There is a great debate about this as a healthcare option, and how to regulate and enforce training and certification requirements.  Any comments on this article will be food for thought in the upcoming article, so please share what's on your mind.

Stem cells have recently successfully grown pancreatic beta cells (which produce insulin), the leading cause of Type I diabetes.  If this is successful, it will allow diabetics a chance to make a full recovery from the disease and eliminate insulin therapy altogether.  It would replace several diabetes management procedures and complications, including liver and pancreas transplants, eye surgeries, insulin pumps, kidney failure and dialysis, and all tissue and organ rejection issues.  Immature sperm cells were able to grow into pancreatic tissue, and replace the cells that the body attacks in Type I diabetes.

In a time when the United States is struggling to keep Medicaid alive,  South Africa's health minister has reduced the cost of HIV drugs by 53 percent, which will allow resources to treat twice as many people in the next two years. The success is chalked up to "encouraging potential suppliers to participate in the bidding process, requesting a breakdown of costs from suppliers and monitoring price changes."  This will bring massive relief to the most concentrated infection of AIDS in the world.

Last but not least, some states are making drastic Medicaid cuts in preparation for the federal stimulus ending.  This link takes you to an article that bemoans the many shortages of the system.  I have a small problem with this, however.  I realize that it's hard to prioritize life, but with some states millions or billions in the red, it's time to make some hard choices.  Those who find it atrocious that teeth are being pulled in lieu of root canals have a point but it's a small one.  

What are your thoughts?

Nobody's Laughing At This Joke Anymore

If the GOP ever gets their crap together, Mitt Romney will be the guy running against Obama.  He's gone from a harmless joke to somewhat dangerous these days as evidenced by what President Romney says he would do in 2012, starting with "reforming" unemployment benefits.

The system is also not designed for a flexible economy like ours in which some employees move from job to job for short periods, and are therefore ineligible for unemployment compensation when they are faced with a protracted spell without work.

To remedy such problems we need a very different model, perhaps establishing individual unemployment savings accounts over which employees would exercise direct control when they lose their jobs, or putting in place financial incentives for employers to hire and train the long-term unemployed. One thing is certain: While we cannot rebuild our flawed system overnight, we are surely not required to borrow the funds to pay for it. In spending $56.5 billion to extend benefits, the deal is sacrificing the bedrock Republican principle that new expenditures be paid for with offsetting budget cuts.

President Obama has reason to celebrate. The deal delivers short-term economic stimulus, and it does so at the very time he wants it most, before the 2012 elections. But the long term health of our great engine of prosperity will remain very much in doubt. To the twin inevitabilities of death and taxes, we may now have to add persistent high unemployment.

To recap, President Romney cares about the unemployed, but wants you to set up your own nest egg to cover your own ass in case you get fired, money the banks will be happy to take from you to play Big Casino games.  He also would rather see you out of work and broke than have to add one cent to the deficit, and accepts persistent high unemployment as inevitable and sees Americans going to a series of part-time temporary contractor jobs with no benefits and no eligibility for unemployment insurance.

Translation:  the multi-millionaire businessman says you're on your own, America.  Don't expect a damn thing from anyone.  You want health or unemployment insurance or retirement?  Better scrimp and save now.  You're just a worker bee.  If you worked hard enough to deserve money, you'd have it.

What a charming and altogether way too probable future.

Picking A Fight

Matt Osborne took some major flak yesterday for his observations on Jane Hamsher.  Today he defends those observations under a brutal attack and comes away unbowed.

See, bipartisanship is only for purist, sanctimonious Republicans and Jane Hamsher. It’s not for Democrats who want to reach a consensus on a bill and pass it. Hamsher’s purity demands and sanctimony toward Democrats are not the problem; the problem is that I want Hamsher to stop being a sanctimonious puritan. See how that works?

But wait, there’s more. According to Kevin, Jane Hamsher pushing the public option on her website is a progressive credential. Prior to the passage of health care reform, this blog featured more than seventy posts related to the topic of the public option; so by those lights, I’ve done at least as much as Jane Hamsher. Where is my PAC to milk?

The reality is that eighty-three senators voted for unemployment extension and oligarch tax cuts last night. Eighty-three. Meanwhile, DADT and START sit waiting while the clock runs out. Expiry for the oligarch tax cuts is a winning issue for Democrats in 2012, so the real question is what FireDogLake will do to help. (Answer: shout at Obama some more.)

As for the charge I made yesterday that Hamsher serves another agenda, I would say the net effect of all the bill-killing hoopla is exactly what Republicans just happen to want to do: slow things down and prevent change. Whether by malice or mindlessness, the effect is the same. So I challenge Hamsher not for her style, but her substance — or the lack thereof.

Yeah, some will accuse Matt of circular firing squad tactics.  Hamsher's not the bad guy here we should be worrying about in the end, the Republicans are.  But we don't have the luxury of political purity, either.  If the choice is ideological correctness while Republicans control the political reality, or working with the political reality to affect change towards ideology I'm going with Option B.

And no, as I've said time and time again when the Dems are spineless lumps of putty I call them on it, Obama on down. But this binary worldview of "either we get 100% from Obama or he's worthless, let the Republicans run the country until we get 100% of what we want" is asinine and absurd.  Many it seems have lost sight of who the real problem is.

Good for Matt saying what damn well needed to be said a year ago...oh, and Matt was saying it then too.

And for the record, so was I.

It's A House Afire, Or Don't Ask, Don't Tell, Do Something

House Dems are on the move today to get a stand-alone version of DADT through to the Senate before the end of the lame duck session.

This was uncertain as late as this morning. But just now, in a briefing with reporters, Steny Hoyer confirmed it: House Dems will indeed introduce a stand alone bill this week to repeal don't ask don't tell.

Hoyer said that House Dems will introduce a repeal bill that "reflects the Lieberman-Collins bill verbatim," my Post colleague Paul Kane confirms. That means House Dems are set to introduce their own companion of the stand-alone bill that Joe Lieberman and Susan Collins introduced last week. Both the House and Senate bills mirror the language in the original defense authorization bill, which Republicans blocked in the Senate.

Good for them.  Here's Hoyer's statement:

"Today Rep. Patrick Murphy is introducing a new standalone bill to to allow for repeal of 'Don't Ask, Don't Tell,' and I am proud to join him as the lead co-sponsor. As Secretary Gates and others have stressed, it is critical that Congress pass this legislation, empowering the Defense Department to implement repeal of 'Don't Ask, Don't Tell' itself, rather than have repeal imposed by the Courts," said Hoyer.
"I look forward to bringing this bill to the House floor soon, and I hope the Senate will swiftly take action as well so that the bill can be signed into law as soon as possible. This discriminatory and harmful policy has weakened America's security by depriving us of the work of tens of thousands of gay and lesbian troops who have served their country honorably. And it has severely compromised our Armed Forces' core value of integrity," concluded Hoyer.

Senate Republicans have already called the Dems bluff on including this measure in the military spending bill.  I don't see why they can't do it again.  Surely we'll be hearing Senators Collins and Brown whine about amendments and how they aren't homophobic bigots....but they won't vote for the stand-alone bill either.  Also, we'll need to spend a week so that Johnny Volcano can be angry, and then we won't have time, of course, to actually consider the bill.

Look for the Senate to murder this one too.

One Hell Of An Endgame Scenario

Via Steve M., Mojo's Nick Baumann spots the endgame of the Republican health care repeal kabuki theater:  wrecking the Commerce Clause and rolling back, oh, the last century or so of social and labor legislation.  If Judge Henry Hudson's interpretation of the Commerce Clause is correct, then every federal regulation in the book is pretty much null and void.

Most legal scholars agree with the Obama administration on this. They believe the commerce clause allows Congress to regulate economic decisions, not just economic activity. Hudson, as you know by now, doesn't buy that argument. Hudson believes the Constitution provides for a federal government far more constrained in its abilities to regulate the economy than any state government. In the state of Virginia (ahem), for example, drivers who refuse to purchase auto insurance have to pay the state $500 a year. In making this claim, Hudson has "rewritten the Commerce Clause," Tim Jost, a professor at Washington and Lee University law school, told reporters on Monday.

Drastically limiting the scope of the Constitution's commerce clause (as Hudson would do) is the slippery slope to the libertarian paradise. Almost every meaningful action the federal government takes with regard to the economy rests on the commerce clause. In the past, the Supreme Court has read that clause to be incredibly constrained. During the Lochner era (1897-1937), the court routinely struck down federal laws regulating working hours, child labor, and minimum wages as inappropriate interventions in individuals' "right of contract."

In that time, individuals' "rights" to do whatever they wanted in the market—even if a 12-year-old "agreeing" to work 80 hour weeks for next-to-nothing made it more likely that other children would have to do the same—were thought to outweigh the state's interest (and, you know, the moral imperative) in not having children being worked to death in textile mills.

Similarly, in Hudson's decision, an individual's "right" to decline to purchase health insurance—even though, by doing so, she is creating a future burden on the state and making it less likely that the state will be able to pay for health care for others—is more important than the state's interest (and the moral interest) in trying to make sure that people don't die because they don't have enough money to pay for health care. The individual's economic rights trump all else—even the right (which, to be fair, many conservatives don't believe exists) of other citizens to life: the right to not die because they don't have health insurance.

There's more to be said about the validity of Hudson's constitutional arguments. Over at the Incidental Economist, Ian Crosby explains why even if you buy Hudson's argument that refusing to purchase insurance is not "activity," the ruling still doesn't hold water. But it's important to remember that there are real people's lives at stake here, and more fundamental things than arguments over constitutional legalese are at stake. Anthony Kennedy and Antonin Scalia are smart legal minds. They can probably make a fairly convincing constitutional argument for anything they decide—and as Bush v. Gore showed, they don't even have to do that.

Ultimately, the nine members of the Supreme Court are going to be making a political decision about how much power they believe the government should have over the economic activities of ordinary Americans. Should the feds be able to require people to buy insurance for health care, a universally used good that society is expected to (and does) provide? Or does the Congress of the United States have less power to regulate health care than the Legislature of the Commonwealth of Virginia has to regulate who pays to fix your Jetta after a fender-bender?

Nice plan, huh?  Nobody of course would dare call what Hudson's done "judicial activism".  But in the end the Supreme Court will decide what it wants to, and it could very well eliminate just about every standing federal regulation on the book governing just about every industry out there:  the ultimate and permanent deregulation of the country's businesses from any and all oversight.

It would be chaos.  States could simply do what they wanted to, and the federal government would basically have no power over things.  Social Security, Medicare, Medicaid, minimum wage act, fair housing act, equal employment opportunity act, civil rights act, all of those would be toast overnight if there were no state laws on those.  Kiss abortion and education laws goodbye too.

Red states could then be as backward, bigoted, and ignorant as they wanted to be.  Don't like it?  Move to another state where somebody gives a damn about evolution or civil rights or women.

Pretty scary endgame if you ask me.  Too much "end", not enough "game".  But there's a reason why Eric Cantor and the Teabaggers want to get this to the Supreme Court ASAP.  Steve has this cold, I think.

The gutting of those is what Republicans are going to be trying to accomplish once they have the White House as well as complete control of Congress -- but that's not going to be a popular fight once they're actually engaged in it. Much easier to have the Court level the entire 20th-century progressive edifice with one wrecking ball, and let Republicans in Congress be the blameless cleanup crew clearing away what's left of the wreckage.

Wasn't us.  Supreme Court did it.  We're just following the Constitution when we annihilate the federal safety net.  And this is totally not activist judges legislating from the bench.  Nope.

If you can't secede from the Union, neuter the Union instead.

Plans For Next Summers

Who will replace outgoing White House chief economic adviser Larry Summers?  Reuters says the list has been narrowed down to three:

The White House is narrowing its list of possible replacements for outgoing economic adviser Larry Summers to Yale University President Richard Levin, investment banker Roger Altman and U.S. Treasury official Gene Sperling.

Levin has met with President Barack Obama to discuss a job in the administration, a senior U.S. official said on Tuesday.

Altman has also met with the president. Sperling, a former Clinton administration official, has helped spearhead Obama's push for a legislative package to extend tax cuts enacted under Republican former President George W. Bush and unemployment benefits.

Of the three, the one you'd want is Rick Levin, who would convince Obama to do something about job creation.

Yale President Richard Levin, who is reportedly being considered for an economic post in the Obama administration, believes the government should give companies direct incentives to create jobs, according to a prominent colleague at the university.

Speculation about a Levin appointment has been swirling since Bloomberg News reported last week that the Yale economist had discussed "economic positions" with the president. If Levin were to replace outgoing National Economic Council director Larry Summers, his appointment would signal an ideological shift for the administration, a move toward a policy of tight Wall Street regulation, proactive job creation and consumer protection.

Levin would be a great choice, which naturally means the smart money is on the guy behind the Obama tax cut deal:  former Goldman Sachs executive and current Treasury official Gene Sperling.  Tyler Durden:

Of course, our money is on Sperling: after all he is Goldman's guy, and Goldman is in dire need of replacing its agents in the administration. After all, it took Jan Hatzius almost one year to get heard over the din and start dictating US fiscal and monetary policy. We are confident Goldman will want a faster turnaround the next time it determines a change in policy is required.
Sperling has made his share of Wall Street cash. Before becoming adviser to Treasury Secretary Tim Geithner, he did time at Goldman Sachs. The year before taking office, he reportedly earned nearly $900,000 as a Goldman consultant.

I'd want Levin.  We'll get Sperling.  Count on it.

Zandar's Thought Of The Day

Awesome US Navy technology, 2010:  Railguns.

Awesome US Navy technology, 1973:  Animated Syphilis Vampires.

Both can in fact kill you.

You and the Navy!  Full speed ahead!

Pluses And Minuses

Cincinnati is just one city in the country facing a major budget shortfall for 2011 to the point where a number of city employees will soon be losing their jobs.  But some on the city council say that the city's $60 million shortfall is the perfect excuse to cut property taxes and force even larger spending cuts.

Hamilton County commissioners have a message for county agencies that feed the elderly, provide health care to the poor, work with developmentally disabled citizens and care for the zoo animals: Get ready for cuts.

Those organizations have a message back: We will fight.

Commissioner Greg Hartmann, backed by Commissioner David Pepper, passed a resolution this month that orders an unprecedented review next year of all eight county levies paid by property taxes.

That review will be done with an eye toward slashing the $245 million taxpayers voted to shell out every year. The eight levies now cost the owner of a $100,000 home $296.45 a year.

But that means Cincy residents must be horribly overtaxed now, right?

An Enquirer review of 10 years of levy payouts shows the $245.3 million property owners will pay next year is $33.6 million more than they paid a decade ago - or a 15.9 percent increase.

Adjusted for inflation, property owners are actually paying less than they did 10 years ago.

But any increase to the levies comes as the county in the last three years has been forced to slash nearly 23 percent from its operational budget, bringing it to $209 million. And in that time the county has shed 1,214 employees, leaving it with a workforce of 4,656.

And more cuts to city and county employees are coming.  Cincy's latest plan is to lay off hundreds of cops and firefighters, too.

And Cincy is far from the only city facing a serious revenue problem.

-90% of all cities have cut backs in spending scheduled for 2011.

-Approximately 14 million people are employed by local munis (not state workers). That is 11% of the entire work force. Do the math. A 15% drop in employment translates to 2.2mm jobs. That would come to 175,000 per month. By itself this would add 1.7% to the unemployment rate. We would be pushing 12% UE as a result.

-Muni spending is 9% of total GDP. A 10% cutback translates into a drag on top line GDP by 1%. The estimates for growth range from 2-3%. If local governments are forced into cuts (they will) a better estimate for GDP is 1-2%. 

So yeah, let's cut some 2 million more jobs from local government in 2011.  They're not real people anyway, right?   Then we can afford to cut property taxes more, because that magically balances things.

Sigh.  And this is going on all over the country.

Can The House Stop The Tax Deal?

Greg Sargent says more feel-good kabuki is on the way, but the deal will pass.

By all indications, the anger and opposition to the deal among House Democrats shows no sign of abating. At the same time, however, House Dem leaders have sent very clear signs that despite their own unhappiness with the deal, they believe it would be irresponsible to sink the compromise and have no intention of thwarting the President's will. What to do?

Here's the challenge for House Dem leaders right now, as I understand it: Come up with a way for Dem members to vent their disapproval of the deal, so they don't feel too stiffarmed and marginalized by the process, without it resulting in changes significant enough to cause Republicans to walk away. The deal is expected to clear the House with a combination of strong GOP support and some backing among moderate Dems. Tweaking the bill in a way that drives away Republicans could imperil its survival.

The result could be a situation in which Dems hold a vote on amendments to the bill that are likely to fail. House Dems are particularly angry about the deal's estate tax provision; Dem leaders could hold a vote amending that provision, allowing Dem members to register disapproval. But the amendment would likely be opposed by almost all Republicans and some moderate Dems. So it would likely lose.

But rank and file Dems would have had a chance to make their voices heard before the final vote passing the deal through the House. 

The 83-15 vote to beat Bernie Sanders' filibuster showed the writing on the wall.   I'm not wild about the deal but it was better than what I expected the Dems to get.  The real issue is that the Tea Party just got thrown under the bus on this one, a mere month after the elections, and that all the Republican carping about the deficit is complete garbage (and always was).

The even larger issue is that they are going to get away with it.  Republicans will vote for this and turn around and attack Obama for the deficit over the next two years, because nobody in the Village will remember that the Republicans had any part in this deal.  They'll simply say "This was passed during the lame duck session when the Democrats were still in charge.  If we were in charge then we would have killed the deal."

And they'll walk away without a scratch.  I wonder if anyone will remember that the deal had broad bipartisan support among Americans too.

And by "broad bipartisan support" I mean a majority of Americans want the super-rich to pay less taxes, but think ordinary Americans shouldn't get a payroll tax break.

We are good little sheep, it seems.

[UPDATE]  And Steny Hoyer signals the el foldo.  Looks like this is a done deal.

The Mask Slips Again

...and Republicans accidentally tell the truth.

Alabama Republican Spencer Bachus, the incoming chairman of the House banking committee, suggested Congress and federal regulators should play a subservient role with banks.

"In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks," Bachus told The Birmingham News in an interview.

The Republican leadership last week designated Bachus the next chairman of the powerful House Financial Services Committee, which is tasked with overseeing banks, financial markets, housing and consumer credit.

Democrats characterized the remark as a Freudian slip, nicknaming the Alabaman "Big Bank Bachus" and claiming the new Republican-controlled House will put the interests of financial institutions ahead of the American public.

"Congressman Spencer 'Big Bank' Bachus has given Americans a startlingly honest answer about the House Republican agenda – do whatever is good for the big banks and Wall Street special interests, rather than what’s good for hardworking Americans,” said Jesse Ferguson, a spokesman for the Democratic Congressional Campaign Committee.

I don't think it was a slip at all.   He only went back and tried to clear up his position after Democrats pointed out what he said and that it sounded like he was admitting that Republicans existed to serve the nation's big banks.  Somebody else had to point out to him that actually admitting that might be a problem.

But that's how Republicans roll.  I maintain that Bachus felt there was nothing wrong with what he said at the time he said it, because, after all, it was the truth.

Republicans get in trouble when they tell the truth, you see.


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