2009 - %3, June

5 Troubling SCOTUS Rulings

| Tue Jun. 30, 2009 6:42 PM EDT

The Supreme Court finished its 2008 term on Monday with a flurry of decisions that continue to highlight the Court's rigid ideological rift. Below, five rulings that could have a lasting negative impact on prisoners rights, the environment, and employee discrimination practices:

The Upshot: In a 5-4 decision, the Court ruled that Javaid Iqbal, one of the hundreds of Muslims rounded up after 9/11 and allegedly subjected to harsh treatment, could not challenge his detention in Court because he could not prove he was mistreated. In effect, the ruling increased the pleading requirements for prisoners, which could make it more difficult for prisoners to bring civil rights complaints to court.

See no evil: In the majority opinion, Justice Kennedy wrote that a prison supervisor is not required to challenge discriminatory practices based on the "mere knowledge of his subordinate's discriminatory" actions.

The Upshot: In a 5-4 decision, the Court ruled that death row inmate William Osborne could not challenge his conviction with DNA technology invented after he was jailed. Senate Judiciary Committee Chairman Patrick Leahy (D-VT) said he was disappointed that the "narrow Supreme Court ruling denied access to post-conviction DNA testing for a defendant who wanted to prove his innocence."

Prove no evil: In his dissent, Justice Stevens criticized Roberts' ruling: "for reasons the State has been unable or unwilling to articulate, it refuses to allow Osborne to test the evidence at his own expense and to thereby ascertain the truth once and for all."

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Healthcare or Health Harm?

| Tue Jun. 30, 2009 6:37 PM EDT

A commentary by two doctors in the current Journal of the American Medical Association suggests that it's time to differentiate between healthcare and health harm. Although the data are imprecise, the authors suggest the benefits delivered by US healthcare may not outweigh the aggregate harm imparted.

In other words, you can never have too much health. Yet your health can be harmed by the overuse of medicine or by the costs of funding healthcare.

How does that work? First there's direct harm from healthcare, including adverse physical and emotional effects from all the usual stuff associated with everything from excessive use to misdiagnoses to conflicting treatments.

Second, the authors suggest, there's indirect harm. This comes from the fact that healthcare costs increasingly divert resources from education, jobs, and environmental quality—all important determinants of your health.

Healthcare's objective should be to improve health, they say. Yet its primary emphasis has been on producing services. And fee-for-service payments tend to encourage the use of more treatments, new technologies, and extra testing. These additional services and their costs can actually harm health.

The fix? To begin with, study health harm to improve healthcare. Specifically, we need to understand the tradeoffs involved in healthcare interventions and expenditures in order to guide healthcare reform efforts. While more people need access to healthcare, that's not enough. Healthcare reform needs to improve how medicine is practiced: centering it on patients, organizing it around primary care, and curbing health harm, including excessive healthcare use and spending.

How about this Rx: Fewer drugs, cleaner water, better air, healthful food, more exercise, education, jobs… 
 

Chart of the Day

| Tue Jun. 30, 2009 6:16 PM EDT

Today's economic green shoot is the latest Case-Shiller report, which shows that although house prices are still declining, they're declining at a slower rate than before.  Hooray!

But Henry Blodget is right about this:

We're still talking about an astonishing rate of collapse....So the folks who use this slight moderation in the rate of decline to spin tales of a "bottom" or, worse, a "recovery" are smoking something.  Prices have at least another 10%-15% to fall, and they'll likely be falling for at least another year or two.

To show this graphically, I've helpfully extended the S&P chart Blodget includes in his post.  It's this simple: as long as the line is below zero, house prices are dropping.  And if price declines slow down at about the same rate they accelerated, it means we won't get back to zero until sometime in 2011.  Put even more simply: the price decline between 2007-2009 — which started slowly and then picked up steam — will probably be mirrored by the price decline between 2009-2011 — which started with a head of steam and will end up dropping ever more slowly until it finally flattens out.  And that price drop was about 25%.

So if anything, Blodget might be too optimistic.  We might still have 25% to go.

Leverage

| Tue Jun. 30, 2009 5:16 PM EDT

In last week's column, Martin Wolf warned that bushels of new regulations won't save us from another banking crisis.  The problem, he said, is that in a highly leveraged business it makes perfect sense for shareholders (and therefore management) to take enormous risks, and nibbling around the regulatory edges won't change that.  But what will?  He didn't really say, prompting me to comment, "Perhaps this column was a season finale cliffhanger and we have to wait until next week for the mind blowing conclusion?"

I guess it really was, after all, because this week we get Wolf's answer:

If institutions are too big and interconnected to fail, and no neat structural solution can be identified, alternatives must be found: much higher capital requirements and greater attention to liquidity are the obvious ones. At present, big financial institutions operate with next to no capital: in the US, the median leverage ratio of commercial banks was 35 to 1 in 2007; in Europe, it was 45 to 1 (see chart). As I noted last week, this makes it rational for shareholders to “go for broke”, with the results we have seen. Allowing institutions to be operated in the interests of shareholders, who supply just 3 per cent of their loanable funds, is insane. Trying to align the interests of management with those of shareholders is then even crazier. With their current capital structure, big financial institutions are a licence to gamble taxpayers’ money.

So how much capital makes sense for systemically significant institutions? “Much more than today” is the answer. Moreover, the required capital must also not be risk-weighted on the basis of banks’ models, which are not to be trusted. Shareholders’ funds should make up a minimum of 10 per cent of capital. In the US, it used to be far higher.

....Within a far better capitalised financial system, it would also be relatively easy to operate a “macroprudential” regime, with the required capital rising during booms and falling during busts. Again, the bigger the stake of shareholders, the less one would worry if the rewards of managers were aligned with them.

Well, that turned out to be distinctly non-mind blowing, didn't it?  Regulate leverage wherever, whenever, and in whatever form it appears.  But though Wolf's answer may have been a bit anticlimactic, at least it has the virtue of being right.

The big remaining question, though, is: how?  How do you mandate higher capital requirements in a way that's likely to be robust?  As Wolf says earlier in the column, "'Never again' might be too much to ask. But 'not for a generation' is essential."  So how do we build a system of stronger capital requirements likely to persist around the globe for at least a generation?  I haven't yet heard a really persuasive answer to this, and unfortunately, at this point it's not clear that anyone is even trying very hard to figure it out.  There are just too many people who want to believe that the crisis is over and we can go back to business as usual with just a bit of minor deck chair rearranging.  Ten years from now we'll pay the price for this.

Senator Al Franken (D–Minn.)

| Tue Jun. 30, 2009 4:36 PM EDT

Norm Coleman has finally conceded the 2008 Minnesota Senate race.  Al Franken will be sworn in soon (probably next week) and Democrats will finally have a majority of 60 in the Senate.

Which will, of course, make approximately no difference at all.  The corruption of the filibuster into a routine requirement for 60 votes in the Senate (an arguably unconstitutional evolution, IMHO) combined with the continuing presence of half a dozen non-liberals in the Democratic caucus combined with an almost iron self-discipline within the Republican caucus — well, all that combined means that liberals now have the illusion of control of Congress but not the reality.  In a way, it's almost the worst of all possible worlds.  Dem vs. Dem is now practically the only narrative that anyone will pay attention to, and since unanimous agreement is the only way for that narrative to play out well, this means it's almost always going to play out badly.

Still, that's a glass-half-empty point of view.  So let's be more positive: one more vote is one more vote.  And unless events are massively unfavorable, the ground still looks favorable to pick up two or three more seats in 2010.  And Franken will probably be a pretty good senator, someone who knows how to talk in plain language and get himself on the talk shows.  As long as he keeps his sense of humor and shows it to us once in a while, I'm looking forward to seeing more of him.

Bibbidy-Bobbidy-Lifetime-Insecurity

| Tue Jun. 30, 2009 4:31 PM EDT

On a recent trip to Disneyland, I came across a pink brochure for the Bibbidi Bobbidi Boutique, where little girls are transformed into princesses.

Now, I get the royal makeover thing—but must young girls be taught that specialness entails gobs of "shimmering makeup," fake hair pieces, body jewels, and nail polish?

And the taglines are pure insecurity-bait:

"Helllloooooo? If anyone isn't noticing, it's because you've blinded them with your looks!" (Side lesson: Valley Girl speak is totally awesome!)

And:

"With the colorful hair piece and Mickey shaped clips, you're bound to get noticed!"

Yes, girls, it's hard to feel loved. But with Disney's help, you too can get attention—and Prince Charming! Just don't forget the eyeliner.

 

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Lobbyists Get $1.5 Million For Make Benefit Glorious Nation of Kazakhstan

| Tue Jun. 30, 2009 3:08 PM EDT

British comedian Sacha Baron Cohen pretty much single-handedly ruined Kazakhstan's international image with his movie Borat: Cultural Learnings of America For Make Benefit Glorious Nation of Kazakhstan. In an early sequence the title character takes the viewer around his home village of Kuzcek and in short order smooches his sister ("Number 4 prostitute in whole of Kazakhstan!"), introduces his "retard" brother Bilo, who lives in a cage, drinks horse urine, and cheerfully points out the "town rapist," Urkin. After departing the village in a car drawn by a horse, Borat travels to the United States, where, among other things, he serenades drinkers in an Arizona bar with a song titled "In My Country, We Have Problem (Throw the Jew Down the Well!)" He also displays truly atrocious taste in swimwear.

Now, the government of Kazakhstan has signed on with Washington lobbying outfit Policy Impact Communications to, among other things, counter the "unsophisticated" image created by the Borat movie, the firm's CEO told The Hill. (The dozen lobbyists on the Kazakhstan account will also try to get the country into the World Trade Organization, cozy up to think tanks, reach out to bloggers and place positive op-eds in "prestige media.")

Maybe Austria should be beefing up its DC presence too?

Taliban Consolidating Its Grip on Afghanistan?

| Tue Jun. 30, 2009 2:48 PM EDT

The Taliban's resurgence in Afghanistan has so far been concentrated in the south and east of the country, but according to a new report, they could emerge as a national insurgency within two years. Gilles Dorronsoro, an analyst at the Carnegie Endowment for International Peace, writes that the Taliban's rapid expansion is the result of its own operational strengths, both in terms of strong leadership and effective propaganda, combined with the West's continued underestimation of its powers. With increasing numbers of US troops bound for Afghanistan, Dorronsoro recommends that they be posted to areas in which the Taliban have yet to concentrate in order to prevent these regions from falling victim to insurgents. "If the Coalition reinforced the Afghan police and military in the North," he says, "the insurgents could be stopped relatively easily."

From a press release describing Dorronsoro's report:

Quote of the Day

| Tue Jun. 30, 2009 2:14 PM EDT

From Malcolm Gladwell, responding to yet another book length treatise from one of the information-wants-to-be-free (Free, I tell you, Free!) diehards:

So how does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free—pirated material, cat videos, and other forms of user-generated content—are not the sort of thing that advertisers want to be associated with. In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars. For [Chris] Anderson, YouTube illustrates the principle that Free removes the necessity of aesthetic judgment. (As he puts it, YouTube proves that “crap is in the eye of the beholder.”) But, in order to make money, YouTube has been obliged to pay for programs that aren’t crap. To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.

That might not make much sense to you.  Read the whole thing and it will.

Don't Call Him Senator Franken

| Tue Jun. 30, 2009 1:51 PM EDT

The Minnesota Supreme Court just unanimously confirmed Al Franken's win in November's election. He'll likely be the new Senator from Minnesota very soon, but you can call him Al: