2009 - %3, March

Regulation Redux

| Thu Mar. 26, 2009 1:12 AM EDT
Slowly but surely, the Obama administration is rolling out its vision for reformed financial regulation:

Treasury Secretary Timothy Geithner will call Thursday for changes in how the government oversees risk-taking in financial markets, pushing for tougher rules on how big companies manage their finances as well as tighter controls on some hedge funds and money-market mutual funds.

....The new rules will likely require financial institutions to hold more capital as a buffer against losses and will bolster risk-management standards. All told, the proposals would mean significant expansions of power for the Treasury, Federal Reserve and other regulators.

This is all well and good, though I'm still a little hazy on what underlying principles are guiding all this stuff.  That aside, though, I wonder how much good this will do all by itself.  After all, the problem during the housing bubble wasn't a lack of regulatory authority, it was a lack of regulatory will.  The Fed could have insisted on stiffer mortgage lending standards, but it didn't.  Alan Greenspan could have pushed for higher interest rates to slow down the rate of credit expansion, but he didn't.  Congress and the president could have raised taxes and run budget surpluses, but they didn't. The SEC could have tightened capital adequacy standards for investment banks, but instead it loosened them.

A more sensible set of financial regulations is long overdue.  But the bigger problem is ensuring that regulations actually get used, even when it means slowing down an economic expansion and spoiling everyone's fun midway through the party.  I'm not quite sure how to deal with that — I'm not quite sure it's even possible to deal with that — but it's something we should be addressing if we're even halfway serious about this stuff.

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Getting to Yes

| Wed Mar. 25, 2009 8:24 PM EDT
I was browsing through The Corner today and came across David Freddoso lauding the House Republicans' new housing plan.  You will be non-shocked to learn that it consists of a bunch of new tax breaks, including — naturally — elimination of the capital gains tax on investment property.  Yawn.

But wait!  It turns out that the House GOP's plan has inspired some surprising comity between right and left: they both hate it.  Jerry Taylor gives the conservative rationale for opposing the plan:

I know that there is plenty of political capital to be gained by providing handouts to middle-class homeowners and little political capital in removing the same. But a political party that ostensibly stands for free markets and limited government should not be in the business of underwriting or subsidizing private investments in anything unless we can find some plausible market failure in need of correction (and perhaps not even then).

Matt Yglesias provides the lefty view of why this plan sucks:

Preferential subsidies for investment in housing lead people to, on average, consume more housing and less stuff-that-isn’t-housing than they otherwise would. In other words, bigger houses instead of fancier clothes. This, in turn, has a substantial negative impact on the economy. Larger houses cost more to heat and cool, and larger houses lead to longer commutes. We shouldn’t stop people from buying big houses if that’s what they want to do, but it’s quite harmful to be specifically encouraging them to invest their resources in this way quite independently from the financial crisis. Reduce the tax-side subsidies to homeownership and we’d have somewhat faster economic growth, somewhat more public revenue, and a somewhat cleaner environment.

So: get rid of housing subsidies and we'd have both a freer market and bigger government.  It's a win-win!  Except for anyone who actually voted for it, of course.  But at least we get this bonus factoidish wonkery from Taylor:

For what it is worth, Switzerland is the only major country I am aware of that does not implicitly or explicitly subsidize housing in any substantial manner. Home ownership rates are somewhere around 35% as a consequence. But no one thinks of Switzerland as poor or deprived somehow because it does not receive the positive externalities allegedly associated with private home ownership.

I suppose not.  Still, it didn't stop the Swiss from buying our crappy mortgage-backed securities, did it?

Come see Rachel Maddow (in SF)--ticket giveaway

| Wed Mar. 25, 2009 4:51 PM EDT
Genius host Rachel Maddow is graciously doing a fundraiser for Mother Jones in San Francisco this Saturday; we thought that as a thank you to all of MoJoBlog readerdom, we'd give away a pair of tickets to one of you. Let us know in the comments if you're interested--we'll pick one commenter at random by Thursday night. Make sure to register so we have a way to contact you. See you there!

UPDATE: And the winner is... commenter No. 2, reyonthehill! We'll email you about how to get a hold of your tickets. (I'm trying to figure out how to embed a picture of the random.org result, but can't seem to get it to work. Sorry!)

The Repeal of Glass-Steagall

| Wed Mar. 25, 2009 3:56 PM EDT
Jason Zengerle points us to this allegedly prescient quote from 1999 in the New York Times:

"I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010," said Senator Byron L. Dorgan, Democrat of North Dakota. "I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness."

I understand the outcry over passage of the Commodity Futures Modernization Act, which happened a year later in 2000.  Aside from opening the infamous "Enron loophole," it also prevented the regulation of credit default swaps, something that might have come in handy over the past few years.

But despite a strong preconceived distaste for any legislation sponsored by Phil Gramm, I'm still a little mystified over the impact that repeal of Glass-Steagall is supposed to have had on our current financial meltdown.  Standalone investment banks have suffered every bit as much as the big conglomerates — maybe even more — and it's not clear that combining commercial and investment banking under one roof had any effect one way or the other on the housing and credit bubble that drove the collapse.  AIG would have gotten into the CDS business with or without Glass-Steagall, and crappy lending standards were the order of the day at Countrywide and IndyMac just as much as they were at Citigroup and Bank of America.

On a broad note, I suppose you can argue that repeal of Glass-Steagall encouraged the growth of ever more too-big-to-fail financial institutions, and there might be something to that.  On the other hand, I don't think Travelers Insurance has contributed anything to Citi's troubles, so it's not clear that crude size is really the culprit here.  There are big banks all over the world, not just here in the post-Glass-Steagall United States.

Maybe someone would like to take a crack at making the case for the malign role played by repeal of Glass-Steagall.  Even better, how about the case for reinstating it?  I'd certainly be interested in hearing it.

Just How Bad Will It Get?

| Wed Mar. 25, 2009 1:30 PM EDT
Via Brad DeLong, Menzie Chinn compares the CBO's February and March projections of economic disaster and notes that they've become considerably more disastrous in only a month:

Notice that the no-stimulus counterfactual output gap and unemployment rates are noticeably worse now than only a month ago (see this post). For 2010, the February counterfactual was -6.3% of GDP, now around -10%; the February counterfactual for 2010 was 8.7% unemployment, now it's nearly 11% (I'm eyeballing the current counterfactuals off of Figures 2-1 and 2-2)....My guess is that that "massive" stimulus is going to look a lot less "massive" given the severity and duration of this recession.

A month ago CBO estimated that unemployment would hit 8.7% in the absence of a stimulus package.  Now they think it would have been around 10.5%.  With the stimulus, they think it will top out at a little over 9%.

Healthcare Reform, Insurance Industry Style

| Wed Mar. 25, 2009 12:52 PM EDT
Over at the Wonk Room, Igor Volsky notes that AHIP, a healthcare insurance trade group, has finally announced its position on healthcare reform:

Specifically, by enacting an effective, enforceable requirement that all Americans assume responsibility to obtain and maintain health insurance, we believe that we could guarantee issue coverage with no pre-existing condition exclusions and phase out the practice of varying premiums based on health status in the individual market. While we support transitioning to a reformed system in which health-status-based rating is no longer used, rating flexibility based on age, geography, family size, and benefit design is needed to maintain affordability.

Volsky is pretty unimpressed, but I guess I feel slightly more generous toward this proposal than he does.  If AHIP is serious, this represents a philosophical concession that's worth having.  Unfortunately, the devil is in the details.

AHIP says that in return for making insurance mandatory, the industry is willing to guarantee coverage to everyone, regardless of health status.  But check out that last sentence, which is a loophole big enough to drive an EMT ambulance through.

I'll grant them family size as a reasonable criteria for premium flexibility.  Obviously a big family should be charged more than a single person.  But age?  Health issues rise rapidly with advancing years, so it would be fairly easy to avoid the worst risks by simply making premiums rise dramatically after age 50.  Geography?  Everyone knows that poor people tend to have the worst health, and obviously they cluster in low-income areas.  Benefit design?  Every health insurance company understands where the costs are in the system.  If plans with decent coverage of expensive chronic conditions like diabetes are priced out of reach, then nobody will buy them even if, technically, the premium isn't based on health status.

Now, some of this is simply fodder for regulation.  Maybe you can set minimum standards for plan benefits, or limits on how fast premiums can increase with age. But as Volsky points out, AHIP's position today isn't really very different from its position in 1992, which it abandoned at the first sign of political opportunity.  Liberals, including me, have a fond hope that the political scene is different today than it was in 1992, which might keep AHIP from bolting, but recent events suggest that Republicans are pretty likely to adopt the same "Just Say No" strategy this year that they did during the Clinton administration.  It's possible that the political scene hasn't changed as much as we think.

Bottom line: AHIP's statement is better than no statement.  It's progress of a sort, especially if they're serious about it and willing to accept reasonable regulations on how it gets implemented.  We'll see.

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Abortions Up in Tough Times?

| Wed Mar. 25, 2009 12:46 PM EDT
Apparently that's the case, that people are finding kids too spendy right now. The National Network for Abortion Funds, which helps women in need pay for abortions, says that calls to their helpline have quadrupled in recent months. The AP/Google.com puts it this way:
For many Americans, the recession is affecting their most intimate decisions about sex and family planning. Doctors and clinics are reporting that many women are choosing abortions and men are having vasectomies because they cannot afford a child.
First, this is a siren call for prevention, which legislators, and the courts, are hearing. That you have to resort to an abortion when you could be given access to available, affordable, birth control, is a lousy choice to have to make.

Second, how much do abortions cost anyway? Since many states restrict coverage [pdf] of the procedure by insurers, and since the Hyde amendment still prohibits federal funds (such as Medicaid) from covering most abortions, women often have to pay out-of-pocket. First trimester abortions cost in the neighborhood of $300-$500, second trimester ones can run upwards of $5000. And since the price for an abortion goes up pretty much each week once you get into the second trimester the issue of access takes on renewed significance. Waiting periods, parental notification, restrictions that send women across borders, these all take an emotional toll, and a financial one. I wonder if the recession could also be having an opposite effect, women wanting to have the procedure but not doing so because money is tight.

RIP Archie Green

| Wed Mar. 25, 2009 12:40 PM EDT






Over the weekend, Archie Green, grandfather of labor history, passed away in his San Francisco home at the age of 91. Over at Daily Yonder, Julie Ardery has written Green a great eulogy chronicling his many and varied accomplishments:

Archie, as he was universally known, was a scholar of what he called “laborlore” – the expressive culture of working people. For five decades he studied hillbilly music and pile-drivers’ tales. He made inventories of  “tin men” – the showpieces of sheet metal workers -- and analyzed sailors’ slang.  He recorded songs by millworkers and miners’ wives. Working on until just months before his death, he wrote countless articles, both academic and popular, and five books, including Only a Miner, his landmark study of coal-mining music.

Born in Winnipeg to Russian Jewish parents in 1917, Green spent most of his childhood in LA. He attended UCLA and UC Berkeley for college, and spent the first part of his adult life building ships on the waterfront. But in 1959, he went back to school, and over the next few years earned degrees in both library science and folklore. He spent the better part of the '60s and '70s digging up and dusting off forgotten bits of what he called "laborlore"—legends, folksongs, and stories of individual workers. In 1976, he convinced Congress to pass the American Folklife Preservation Act and create the American Folklife Center at the Library of Congress. In recent years, he worked with the San Francisco based Fund for Labor Culture and History and helped organize  Laborlore Conversations, a series of conferences on workers' culture past and present that drew a crowd of historians, activists, union members, and many others.

Mother Jones is especially indebted to Green, since without him, our namesake, Mary "Mother Jones" Harris might have been forgotten—he recovered her legacy in 1960. Check out the folksong "The Death of Mother Jones" here. Sure wish I could hear it. If anyone knows where an MP3 lives, do tell.

Frank Pushes Gates to Cut Deeper

| Wed Mar. 25, 2009 12:30 PM EDT

Last week, news leaked that Bob Gates, President Obama's Republican Secretary of Defense, is planning to cut several major weapons programs, including the F-22 and the Zumwalt-class destroyer. At last night's press conference, Obama acknowledged that he had "been working with Secretary Gates on this and will be detailing it more in the weeks to come," but warned that "the politics of changing procurement is tough." Rep. Barney Frank (D-Mass.) is a longtime crusader against wasteful military spending. Frank, the powerful chair of the House financial services committee, was dealt a setback in his battle against Pentagon waste when Obama increased the military budget. With the news that several of the programs he and others have criticized may be killed, Frank and other Pentagon spending critics have some reason to be hopeful.

But while he was "very encouraged" to hear that Gates plans cuts, Frank tells Mother Jones that making those cuts will be "very hard." The recession and the fact that defense contractors have "gone and spent money in everybody's district" will make members of Congress reluctant to slash procurement dollars, Frank explained. Even his own dark-blue Massachusetts district has jobs that depend on defense spending. "When I came out publicly wanting military spending cuts, shortly thereafter I was visited by someone who works at a company in my district that makes parts that go into one of the weapons systems I was talking about cutting," Frank said. "It was very polite, and there's nothing coercive about it, but it was clear that they wanted to remind me that I have people in my district that do that, and that's true."

Weapons programs have always been tough to cut. When he was Secretary of Defense, Dick Cheney tried four times to kill the V-22 Osprey, a kind of combined helicopter-airplane troop transport that had several fatal accidents during testing, killing a combined 30 people. Each time Congress resurrected the project, and the Osprey is now operational—albeit over budget and way behind schedule. (The Osprey, at least, is used in Iraq and—starting this year—Afghanistan. The Air Force's F-22 fighter has not been used in either conflict.)

Texas Justice

| Wed Mar. 25, 2009 12:12 PM EDT

Wow, Texas:

The charges focus on [Texas] Judge [Sharon] Keller's refusal to keep court offices open past 5 p.m. on Sept. 25, 2007, to receive an appeal in the case of Michael Richard, a convicted rapist and murderer.

Judge Keller, who was first elected to the court in 1994 and campaigned as being tough on crime, left her office that afternoon to meet a repairman at her home. Mr. Richard was put to death that evening by lethal injection.

This is the same judge who once refused to grant a new trial to a mentally retarded man convicted of rape and murder after DNA evidence established it was not his semen in the victim. "We can't give new trials to everyone who establishes, after conviction, that they might be innocent," she said of the case.