Quote of the Day

From George Will, demonstrating that he's about nine months behind the curve on state-of-the-art Obama crackpottery:

"I," said the president, who is inordinately fond of the first-person singular pronoun, "want to disabuse people of this notion that somehow we enjoy meddling in the private sector."

Jesus.  This would be an embarrassingly fatuous thing for a supposedly serious columnist to write even if it were true.  But a bare minimum of fact checking shows that it's not.  It's really, really, really not.

The Next Wave of Mortgage Profiteering

If there’s a lesson to be learned from the housing meltdown, it’s likely this: Where there’s a buck to be made, odds are there’s a scam being played.

At the peak of the housing bubble, it was mortgage companies like Countrywide, Wells Fargo, and Ameriquest, among many others, that used predatory lending practices and encouraged falsifiying homeowner information to sell now-toxic sub-prime mortgages. Today, as homeowners struggle to save their homes and search for any kind of lifeline to do so, a new brand of mortgage-industry profiteering is spreading: foreclosure rescue rip-offs.

Obama and Congress

After quoting a Montesquieu line about corrupt legislatures foreshadowing the end of liberty, Matt Yglesias says:

I do think you can see an inkling of what Montesquieu is talking about in the fact that there’s a persistent impulse in the contemporary United States to say that if something is really important, we need to basically cut congress out of the loop. This probably happened first with the steady decline of congress’ war powers. But you also saw it in the way that the Treasury/Fed response to the financial crisis was shaped by an overwhelming desire to avoid the need to go back to congress, by the way that proposals for improving the operations of MedPAC all involve trying to circumvent congress, etc. Tellingly, the judgment that congress can’t handle these issues is a judgment largely shared by congress.

Congress is a schizophrenic body: imperiously protective of its prerogatives some of the time, but, as Matt says, surprisingly eager to avoid responsibility and simply punt to the executive or the courts at other times.  So on the one hand you get blue-ribbon panels, base-closing commissions, the CBO, and statutory language left deliberately vague so that the hard details are left to agency rulemakers and appellate judges, while on the other hand you get temper tantrums about flying on Air Force One, seemingly endless jurisdictional fights, and committee barons rewriting entire legislative programs out of personal pique.  Barack Obama seems to understand this tension better than most, and so far has shown a quite subtle sense of when he can use executive power to lead Congress and when he needs to step back and let the Capitol Hill grandees do their thing.  Here's Matt Bai on how Obama does it:

After winning the office with the same kind of outsider appeal as his predecessors, he has quietly but methodically assembled the most Congress-centric administration in modern history. Obama’s White House is run by Rahm Emanuel, a former House leader who was generally considered to be on a fast track to the speakership before he resigned to become chief of staff, and it is teeming with aides plucked from the senior ranks of both chambers. Obama seems to think that the dysfunction in Washington isn’t only about the heightened enmity between the parties; it’s also about the longstanding mistrust between the two branches of government that stare each other down from twin peaks on either end of Pennsylvania Avenue.

....During a recent conversation in his expansive West Wing office, Emanuel explained that he was well aware, as he and his fellow transition aides set out to fill the various roles in Obama’s White House last fall, that many of the aides they hired had pivotal friendships on the Hill that Obama could exploit. “That was a strategy,” Emanuel said. “We didn’t kind of parallel-park into it. We had a deep bench of people with a lot of relationships that run into both the House and Senate extensively. And so we wanted to use that to our maximum advantage.”

Read the rest to learn about Emanuel's remarkably calculated "tracking system" for doling out little favors to members of Congress — something that's probably a good idea, but also one that perhaps he should have kept to himself.  Ditto for the "spontaneous" drop-bys in the West Wing.  Successful executives should always cultivate at least a little bit of an aura of mystery, shouldn't they?

Healthcare Reboot

I've been sort of quiet on the healthcare front lately.  This is because the news for the past few months has been mainly about committee wrangling, and that's so technical and inside-baseball-ish that even I have a hard time staying interested in it.

But things are starting to heat back up, and one of the key issues that's surfaced has been whether the final bill will include a "public option" of some kind.  I'll have more to say about that in the future, but for now you might want to check out Ezra Klein's quickie primer on the various flavors of public option currently on offer.  It's a good way of getting up to speed on this.

Excuse me, but is Scott Roeder, the man charged with killing Dr. George Tiller outside his church last Sunday, in jail, or on vacation at a Wichita hotel? In a call to the Associated Press over the weekend, the murder suspect complained about his living conditions and then warned of more violence against abortion providers. "I know there are many other similar events planned around the country as long as abortion remains legal," Roeder said. When asked by the AP what he meant and if he was referring to another shooting, he refused to elaborate further.

In an understatement, Nancy Keenan president of NARAL-Pro-Choice America, said Roeder's comments "continue to escalate that kind of activity, that kind of violence." The Justice Department said it was investigating and has ordered increased protection for "appropriate people and facilities last week."

But as yet—and despite Roeder's threats—the crime is apparently being treated as an isolated incident of violence, rather than part of a deadly crusade with political aims—which in this day and age is what usually gets called terrorism.

Blackwater has lost its Iraq contract, but the firm continues to be dogged by scandal stemming from its five-year run protecting diplomats in the country. You might remember the story of how Blackwater operator Andrew Moonen allegedly shot and killed the Iraqi vice president's bodyguard in the Green Zone in December 2006 after drunkenly stumbling away from a Christmas party with a loaded Glock at his side. The incident was just one in a string of questionable shootings that ultimately led the State Department to cancel Blackwater's contracts earlier this year, though that may have done little more than compel Blackwater's shooters to change teams.

But the Moonen shooting, despite Blackwater's alleged attempts to cover it up, is back in the news. The wife and two orphaned children of Raheem Khalaf Sa'adoon, the slain Iraqi guard, have filed suit against Erik Prince and Blackwater/Xe in Alexandria's District Court for the Eastern District of Virginia. The written complaint (PDF) charges Prince and his web of companies with war crimes; assault and battery; wrongful death; intentional infliction of emotional distress; negligent inflication of emotional distress; negligent hiring, training, and supervision; and tortious spoilation of evidence. They demand compensation for the Sa'adoon's death, as well as an unspecified punitive award "in an amount sufficient to strip Defendants of all of the revenue and profits earned from their pattern of constant misconduct and callous disregard for human life."

According to the complaint, Moonen now works as a prison guard at the Monroe Correctional Complex in Monroe, Washington. His attorney, Stewart Riley, told the Seattle Post that Moonen's defense will be that "he was shot at in the Green Zone and he ran for his life."

Roger Federer Update

Thanks to serious time zone issues I was half asleep while I watched the French Open yesterday, and after the exit of all the big names in earlier rounds it was hardly a surprise that Roger Federer won.  After all, he's the second best clay court tennis player in the world.

Unfortunately, that means I don't have a lot to say.  The match was, frankly, sort of routine.  Soderling never really pushed Federer at all, and there weren't many memorable moments — except for the last one, of course, when Federer hoisted #14 over his head.

Still, I can hardly let this go by, can I?  So here's your chance to sound off.  There are only two real questions left, I think.  (1) Who's the all-time best, Federer or Rod Laver? (2) How many slams will Federer win before his career is over?  On the former, I think I might still take Laver by a nose.  On the latter, I'll take a guess at 19 — and at that point I'll take Federer by a nose.  Feel free to disagree on both scores in comments.

Fear of Inflation

Are rising interest rates on Treasury bonds a sign of future inflation?  Paul Krugman says no.  Niall Ferguson says yes.  Daniel Gross surveys their arguments here.

Count me on Krugman's side.  Fear of inflation a few years down the road isn't completely outlandish, but that's probably not what the rise in Treasury rates signals.  Basically, it's just the bursting of a bubble.  Back when Treasury rates were hovering close to zero, a lot us called this a "Treasury bubble" and wondered how long it could last.  Now we have our answer: unless there's another shock to the system it will have lasted about six months.

The long-term chart below shows the bubble pretty clearly.  Six months from now, if rates have continued rising and are in the 8-10% range, then Ferguson will have a stronger point.  If, as seems more likely, rates are merely returning to the long-term trendline as investors come out of their fetal crouch and start buying things other than treasury bonds, then it's basically good news.  It means the financial markets are returning to normal.

The Washington Post this morning ranked the most influential voices in the GOP right now. Of course, Dick Cheney is way up there. But buried in the rankings is more chatter about the influence of Mississippi governor and former tobacco lobbyist Haley Barbour, who may be mulling a presidential run in 2012. Barbour has been making all the right trips around the country; on June 24, he'll pop in for his second recent visit to New Hampshire. And, he's term-limited so Barbour will be in the job market come 2011.

The Post posits that Barbour will ultimately decide that trying to run against a reformer as a former uber-lobbyist probably is a lost cause, but I'm still rooting for him to run. What could be more fun that a bubba like Barbour facing off with Obama on the stump, where he could brag about his record of say, dumping thousands of poor pregnant women off Medicaid and other such feats? As campaign fodder goes, Barbour has at least as much color to offer as Mitt Romney, one of the presumed front-runners, though he might be hard pressed to compete with the dog-on-top-of-the-car vacation stories and all that Mormon stuff. Still, Barbour's entry into the race would liven things up in the press pool considerably.

Rachel Morris has on online piece today suggesting that the same Wall Street rocket scientists who destroyed the global economy via derivatives trading may be getting ready to do the same thing with carbon permits from a cap-and-trade system.  After all, if they can slice and dice subprime mortgages, why can't they do the same for packages of carbon permits?

I've got a few problems with this, though.  First, there's this:

Cap and trade would create what Commodity Futures Trading commissioner Bart Chilton anticipates as a $2 trillion market, "the biggest of any [commodities] derivatives product in the next five years."

I'm not entirely sure what this means, but my best guess is that Chilton is forecasting a market with a notional value of $400 billion per year.  This is not as large as it sounds.  The notional value of the CDS market in 2007, for example, was over $50 trillion.  Chilton's estimate for the carbon market is less than 1% that size.  Likewise, the underlying value of the actual carbon permits is likely to be on the order of $50-100 billion a year, which is less than 1% of the underlying value of, say, the U.S. stock market.  Even if Wall Street went nuts with this stuff, it couldn't do too much damage.

Then there's this:

In addition to trading the allowances and offsets themselves, participants in carbon markets can also deal in their derivatives — such as futures contracts to deliver a certain number of allowances at an agreed price and time.

This is true, but carbon permits are essentially commodities, and the kinds of derivatives traded on commodity exchanges are generally forwards, futures, and options.  But while these may be derivatives, they're mostly not the rocket science kind.  They've been around forever, they're well understood, and they weren't responsible for any of the problems that caused our current meltdown.

Beyond that, these kinds of derivatives can actually be pretty helpful.  They're generally used for two purposes: (a) managing volatility and (b) speculation.  The first is an unalloyed good thing, since one of the main complaints about a cap-and-trade system is that it doesn't provide investors with a fixed carbon price they can plan around.  Futures contracts help with that.  And speculation, though it often gets a bad rap (sometimes deservedly), can be helpful too if it provides a price signal today for possible permit scarcity tomorrow.  Driving up the price sooner rather than later can actually motivate higher levels of investment in green technology.  (The downside: if Congress bollixes the law and speculators decide that there are going to be loads of permits in the future, they'll drive the price down.  But if Congress screws up that badly, the whole system isn't going to work worth a damn anyway.)

Finally, there's this:

Perhaps the biggest uncertainty hinges on how offset derivatives—such as a contract to buy offset credits at a future date for a determined price — will be monitored. This too would be left to the White House task force to figure out. It will be a tough task because the quality of offset projects is notoriously difficult to verify. Sen. Jeff Bingaman (D-N.M.) has described them as "fraught with opportunity for game playing, which will be fully exploited, I'm sure."

Offsets are a big problem, but their problems have nothing to do with derivatives.  They're a problem because it's really, really hard to insure that an offset (say, planting a million acres of trees in Brazil in order to make up for emitting a million tons of carbon) is real, that it's something that wouldn't have been done anyway, and that it's effectively monitored to make sure it's permanent.  Those are genuinely big issues, but they're issues that are inherent in the whole concept of offsets.  Making derivatives out of them doesn't change things much.

With all that said, the piece is worth a read.  I have my doubts that derivatives are really that big a problem in the carbon market, and in any case I'd just as soon see them regulated by the same mechanisms we come up with to regulate all the other derivative markets, rather than being treated as a one-off special.  Still, it's worth knowing about this stuff, and worth taking some time to address in the Waxman-Markey markup process.  For example, Bart Stupak's provisions for making sure carbon derivatives are exchange traded, which Rachel mentions in her article, are well worth trying to protect through the end of the legislative process.  After all, if Wall Street objects, it almost has to be a good thing, doesn't it?