2009 - %3, September

The Empire Strikes Back

| Mon Sep. 28, 2009 10:46 PM PDT

Apparently the Vatican has finally decided that the best defense is a good offense.  According to a bellicose statement issued Monday, the Catholic Church doesn't have a paedophilia problem, it has an ephebophilia problem, thankyouverymuch.  Plus this:

The statement, read out by Archbishop Silvano Tomasi, the Vatican's permanent observer to the UN, defended its record by claiming that "available research" showed that only 1.5%-5% of Catholic clergy were involved in child sex abuse.

He also quoted statistics from the Christian Scientist Monitor newspaper to show that most US churches being hit by child sex abuse allegations were Protestant and that sexual abuse within Jewish communities was common.

Only 1.5-5%!  Not bad!  And anyway, Protestants and Jews are doing it too.  So there.

Admittedly, I'm not a theological expert, but to my ears this sounds only slightly more sophisticated than something you might hear from a red-faced five-year-old.  Augustine must be spinning in his grave.

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Fixing the Ratings Agencies

| Mon Sep. 28, 2009 7:03 PM PDT

Matt Yglesias comments on the packaging of crappy loans back in the heyday of the credit bubble:

The mysterious thing isn’t that people made bad loans that they were able to package and sell off, the mysterious thing is that they found buyers for the securities.

Ultimately this looks to me to go back to the ratings agencies, an issue [Barney] Frank sort of dodged. But the ratings agencies are private for-profit companies that also enjoy a kind of government-sponsored monopoly status. In theory their behavior should be subject to market discipline, but in practice it’s not. They screwed up badly. But while lots of companies have gone bankrupt and lots of people have lost their jobs, the ratings agencies are all still in business. And no new competitors are coming to the fore and there’s no real way for anyone to break into the industry.

No question about it: over the past decade ratings agencies were, at best, negligent, and at worst, perpetrators of outright fraud.  "It could be structured by cows and we would rate it" is surely one of the all-time great quotes of the bubble era.  And the fact that agencies shared their models with issuers so they'd have an easier time tweaking their products to get high ratings is prima facie evidence of corruption.  Slapping a AAA rating on every cobbled-together junkpile that slithered its way out of a Wall Street structured finance group certainly helped fuel the fantastic expansion of risky investments that all came crashing down in 2008.

Still, I have to admit that over the past year ratings agencies have moved down my personal league table of bad actors.  If you take a look at the list of possible causes for our recent financial meltdown here, I probably would have put the ratings agencies in the top five a year ago, while today I'm not sure I'd even put them in the top ten.

Partly this is because I've become more sympathetic to fundamental macroeconomic explanations for the bubble: easy money, current account imbalances, massive abuse of leverage, and huge increases in both debt and risk that were masked by ever more baroque credit derivatives.  Partly it's because widely accepted1 risk models based on CDS spreads mostly produced the same results as the ratings agencies.  Partly it's because the negligence/fraud involved in producing high ratings was pretty clearly a two-way street: buyers and sellers of structured investments were every bit as anxious to get them as the ratings agencies were to provide them.

Beyond that, I'm also a bit flummoxed about what the answer to the ratings agency problem might be.  There's probably a reasonable regulatory solution for fraud and negligence, but there seems to be wide agreement that the real problem is incentives: since issuers are the ones paying for ratings, it's inevitable that agencies are going to lean into the wind to provide ratings the issuers like.  I've read dozens of proposals for ratings agency reform, but the only one that really gets at this fundamental conflict-of-interest problem is to simply do away with them and turn debt rating into a government function.  I'm a little skeptical of that, though, since it's not at all clear to me that a government agency could hire the kind of talent it takes to keep up with Wall Street's rocket scientists.  What's more, it's not at all clear to me that anyone — Fed regulators included — would have rated SIVs much differently during the boom years than the ratings agencies did.

So....I'm not sure what the answer is.  Tighter regulation would obviously be welcome, but how do we get rid of the underlying conflict-of-interest problem?  How do we align agency incentives in favor of long-term accuracy?  How do we encourage real competition between the agencies, rather than a race to the bottom?  None of the regulatory reforms I've seen really get at this in a fundamental way.  Does that mean that a government takeover is the only real answer?  Or does it mean that there is no real answer and we've collectively decided to shrug our shoulders and allow this to happen all over again in a few years?  Somebody should ask Barney Frank.

1Whether they should have been widely accepted is a different question.  But they were.

Facebook Poll Asks: Kill Obama?

| Mon Sep. 28, 2009 4:34 PM PDT

The Secret Service is investigating a facebook poll (since taken down) that asked if Obama should be assassinated.

The answer choices: "Yes," "No,” "Maybe," and "Yes if he cuts my health care."

Pretty scary stuff. But what’s scarier is how unsurprising it is.

Really, what's the difference between this and a gun-toting Obama-hater holding a sign that says "It's Time to Water the Tree of Liberty"—a nod to a Jefferson quote about neccessary bloodshed? (The health care angle is particularly predictable, considering the feverish odium it’s evoked).

But gimmicks like these tend to serve as an easy access point for greater social ills. And there’s something about a poll like this—its hatred so distilled and its medium so pedestrian—that forces you to confront the question: Just how bad have things become?

800 Years of Financial Folly

| Mon Sep. 28, 2009 4:00 PM PDT

Carmen Reinhart and Kenneth Rogoff have done something that, apparently, no one has done before: rigorously collect data on debt and risk management (or lack thereof) over the past 800 years, rather than only since 1980.  Their conclusion: excessive debt accumulation is always and everywhere a very, very bad thing.

Also: credit booms and busts happen over and over throughout history, with only the details changing; public sector debt crises are common and devastating; banking crises hit every country, rich and poor alike; and when credit bubble pop, everything pops along with it.  And finally, a fifth lesson, as summarized by Martin Wolf:

The final lesson is that financial liberalisation and financial crises go together like a horse and carriage. It is no surprise, therefore, that the last 30 years have seen waves of financial crises, of which the latest one is merely the biggest. The current crisis is the worst since the Great Depression. Yet, argue the authors, no one should have been surprised by this outcome. The US showed all the classic symptoms of a country heading for crisis: a huge current account deficit; soaring house prices; headlong credit growth; and, let us not forget, excessively complacent regulators.

It always comes back to debt and leverage, doesn't it?  There are lots of other things to watch out for too, but the bottom line is that if you keep leverage at reasonable levels, your financial crises are likely to be manageable.  If not, not.  Tim Geithner, please take note.

EPA vs. Corn Huggers

| Mon Sep. 28, 2009 3:49 PM PDT

To the casual observer, it might seem like corn-state representatives got a big win over the Environmental Protection Agency last week, as administrator Lisa Jackson vowed that pending biofuels rules will reflect "uncertainty" around the indirect emissions that come from land-use change related to biofuel production. But upon closer inspection, it sure looks like Jackson played Sen. Tom Harkin (D-Iowa) and other corn-state Democrats on this issue, offering them a pittance so they'd back off attempts to thwart EPA rulemaking.

The EPA is currently considering working on a updates to the renewable fuel standard. Harkin and other ethanol supporters have sought to block the EPA from considering the greenhouse gas emissions resulting from land use change in their final rule.

Harkin had planned to introduce an amendment to the EPA and Interior appropriations bill that would block the EPA from spending funds to study and include international indirect land use change emissions in their rulemaking on the Renewable Fuels Standards for one year. But last Wednesday, Jackson sent Harkin a letter informing him that their analysis would attempt to account for uncertainty involved in indirect land-use emissions. "This analysis will allow us to quantify the impact of uncertainty on the lifecycle emissions," the letter states. "We will present these estimates in the final rule, and I plan to incorporate those estimates of uncertainty in my regulatory decisions." Yet the letter made it clear that studies thus far "indicate that it is important to take into account indirect emissions from biofuels when looking at the lifecycle emissions."

Apparently, that was enough to fend off Harkin's onslaught. "In light of the EPA letter, and because EPA had said it would delay issuing regulations to establish renewable fuel volume biofuel requirements for 2010, Harkin decided not to press the amendment today," said Harkin spokesperson Grant Gustafson in a statement. "Harkin considers setting those fuel requirements in a timely manner as critically important to our national strategy for reducing our dangerous dependence on imported oil."

But that's not to say that Harkin and other corn-huggers won't pull out a win in the end, when the EPA finalizes its rules. They also scored a win last week when the final EPA rule on reporting greenhouse gas emissions excluded ethanol producers, after listing them in the initial proposed rule.

Security Tapes of Oklahoma City Bombing Raise More Questions

| Mon Sep. 28, 2009 3:22 PM PDT

At the heart of the Oklahoma City bombing case lies a lingering question: How did just two men—Terry Nichols and Timothy McVeigh—manage to mix up a large bomb overnight at a Kansas lake, drive it into Oklahoma City and set it off at the Murrah Building on April 19, 1995?

For a time, the FBI believed there was a third accessory to the crime, referred to as John Doe No. 2 and depicted in a police composite sketch as a muscular man with dark hair. Investigators initially pursued the possibility that John Doe No. 2 was in the cab of the truck, jumped out before the bomb blew up, and made a clean getaway.

But then the government dropped all references to John Doe No. 2. Early on in the case it maintained that there was no evidence supporting the existence of a third participant, and insisted its extensive investigation proved that the bombing had been carried out by two main players: McVeigh and Nichols.

In the July/August 2007 issue of Mother Jones, I wrote about a strange twist in the investigation: the case of a laborer called Kenney Trentadue. His brother Jesse, a Salt Lake City attorney, has accused federal agents of wrongly suspecting Kenney of being John Doe No. 2. When Kenney did not confess to aiding the bombing, Jesse Trentadue alleges, the agents beat him to death in a prison outside Oklahoma City and tried to cover it up by claiming he had killed himself. Kenney's death was indeed ruled as a suicide, but Jesse said his body bore numerous injuries that could not have been entirely self-inflicted. (The government later awarded the Trentadue family a $1.1 million settlement for its handling of the death.)
 
Ever since the bombing, Trentadue has been fighting the Bureau and Justice Department in one lawsuit after another to try and figure out what happened to his brother. In the process he has delved deep into the bomb case itself. He has sought to interview Nichols, a move opposed by the FBI and denied by a federal appeals court. He has submitted FOIA requests to obtain CIA files on the bombing, with scant success.

Now his search has at last borne some fruit. As the Associated Press reported Sunday, the government has released a set of surveillance tapes filmed moments before the bomb went off—tapes which have, until now, been withheld from the public. When Trentadue looked at footage from the various cameras around the site, he said the tapes had a blank spot in the minutes before the blast—eliminating imagery of the truck carrying the bomb and  people in the vehicle. Trentadue concludes that key parts of the tapes have been edited out—an accusation certain to fuel suspicions that the government may have withheld relevant evidence in the case. You can see the newly disclosed footage here.

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Death Declines During Depressions

| Mon Sep. 28, 2009 2:19 PM PDT

People live longer during depressions. A new analysis in PNAS finds that life expectancy of Americans during the Great Depression increased by a whopping 6.2 years—from 57.1 in 1929 to 63.3 years in 1932. This was true for men and women of all races, all age groups, and all causes of death—except suicide.

The researchers analyzed mortality rates from the six most prevalent causes of death in the 1930s: cardiovascular and renal diseases; cancer; influenza and pneumonia; tuberculosis; motor vehicle traffic injuries, and suicide.

Health overall improved during the four years of the Great Depression, as well as during recessions in 1921 and 1938. Conversely, death rates rose during periods of strong economic expansion, such as 1923, 1926, 1929, and 1936-1937.

Why the counterintuitive results?

Well, the study didn't tackle this question. Though the researchers have a few hunches. All related to the fact that working conditions are different during economic expansions and recessions:

  • In expansions, firms are busy and typically demand a lot from employees, including overtime and a faster work pace. This creates stress, which is associated with more drinking and smoking. [Translation: They work you to death.]
  • In expansions, inexperienced workers are hired more likely to injure or kill themselves on the job.
  • People working a lot tend to sleep less, reducing overall health.
  • People working a lot eat more poorly. Either richer, fattier foods. And/or overworking crap food. [Might I add: more meat?]
  • In recessions, because there's less work, everyone works at a more relaxed pace. People sleep more.
  • In recessions, people feel, or are, poorer and spend less on alcohol and tobacco. [ Hmm. Not sure I agree with that one. The researchers are not bar-goers, is my guess.]
  • Economic upturns are associated with increases in atmospheric pollution, with its well-documented short-term effects on cardiovascular and respiratory mortality.
  • Economic expansion may increase social isolation and decrease social support because everyone's working so hard.

So, extreme ambition, cut-throat rivalry, pointless materialism, workalholicism, and general slavery to the almighty boss and his henchman the dollar is deadly to human life?
 

Making the Imaginative Case for Health Care Reform

| Mon Sep. 28, 2009 1:28 PM PDT

With so much ink already spilled in the political war over health care reform, it is the rare piece that can successfully redraw the battle lines in amusing and insightful ways. But two such examples have recently fought through the cacophony of the blogosphere to aid the ailing debate.

On Saturday Jonathan Rauch used a hilarious extended metaphor to expose the unconvincing arguments often offered in defense of the existing health care system. In a fictional dialogue with the booking agent for Air Health Care, Rauch imagines what the US travel system would be like if it was run like the health insurance industry. Exasperated, he explains to the agent that, "in a sane, modern system…I would be able to arrange a whole trip with a single phone call!"

The Air Health Care employee responds using some very familiar excuses:

Sir. Please. Calm down and be realistic. I'm sure the system can be frustrating, but consumers don't understand flight plans and landing slots. Even if they did, there are thousands of separate providers involved in moving travelers around, and hundreds of airports, and millions of trips. Getting everyone to coordinate services and exchange information just isn't realistic in a business as complicated as travel.

And this morning, the normally libertarian-leaning Economist posted a similarly spirited critique of the protests against centralizing health care—via a discussion of the merits of Macs vs. Microsoft. Building on a Talking Points Memo discussion, the Democracy in America blog likens the convenient, streamlined, interoperable "iFascism" of the Mac product line to the supposedly "Orwellian" attempts by Obama administration to overhaul health care and provide robust financial product regulation. In contrast, DiA posits, the existing health care system is more like Microsoft—it theoretically offers more choices, but is also "incoherent, hard to understand, often dysfunctional and bloated by obsolete legacy systems." The Economist's unexpected conclusion?

Opposition to quality centralised design doesn't make you freer. It just leaves you confused and helpless, and forces you to spend much of your time figuring out how to accomplish basic tasks, rather than doing the great things you wanted to do with your computer/life.

 

Report Predicts 7.3 Degree Temperature Rise by 2060

| Mon Sep. 28, 2009 12:02 PM PDT

Average global temperatures could rise by 7.2 degrees Fahrenheit by 2060, according to a new report from the United Kingdom's Met Hadley Centre for Climate Prediction and Research. The startling new predictions come after a major letdown on climate progress at last week's G20 meeting, and as hopes fade that world leaders will make significant headway on a new international agreement this year.

Their report, conducted on behalf of the UK Department of Energy and Climate Change, found that they could see a 10 degree or greater rise in temperatures in some regions, which would cause droughts in some areas, flooding in others, sea level rises, and ecosystem system collapse. The Arctic could be up to 15.2 degrees warmer if we continue on our current high-emissions path, which would be "enhanced by melting of snow and ice causing more of the Sun’s radiation to be absorbed."

Land areas could warm by 7 degrees or more, with the highest in western and souther Africa, where average temperatures could increase by 10 degrees. Rainfall is expected to decrease by 20 percent or more in some regions, with the largest decreases expected in western and southern Africa, Central America, the Mediterranean and parts of coastal Australia. It is expected to increase by 20 percent or more in other areas, like India, which would increase flood risks.


One Torture Document That's Not Missing

| Mon Sep. 28, 2009 11:20 AM PDT

As I reported this morning, and Marcy Wheeler first noticed, the Obama administration has been unable to find at least ten documents relating to the Bush administration's torture, detention, and extraordinary rendition programs. From my story today:

In 2007, the Bush administration was fighting a Freedom of Information Act lawsuit filed by the American Civil Liberties Union (ACLU), which was seeking records related to the deaths of detainees, their treatment, and the administration's rendition policies. CIA lawyers drew up a list [PDF] of 181 documents that they considered exempt from release. Some of these records, which were stored in a secure facility, were so sensitive that Justice Department lawyers lacked the clearances to handle them.

After President Obama took office, he issued a new FOIA policy, instructing executive branch agencies to "adopt a presumption in favor" of releasing information. The Obama Justice Department reprocessed the ACLU's earlier request under the new guidelines. But when they did so, department officials discovered that 10 documents listed on the index compiled by the Bush administration were nowhere to be found. The Justice Department noted this in a filing [PDF] by David Barron, an acting assistant attorney general, which was submitted last week as part of the ongoing ACLU case and first highlighted by Firedoglake blogger Marcy Wheeler. Barron acknowledged in the filing that even more documents could be missing, because "many" of the documents the Obama team did find were "not certain matches" to the ones on the Bush administration's list.

In her initial blog post on the subject, Marcy brought up the case of the sixth document on
both the Obama and Bush administration lists:

The 2007 Index refers to the document as a 46-page document, dated July 25, 2002, providing legal advice. Yesterday's Index refers to the document as a 59-page document, from and to the DOD, dated July 25, 2002, providing legal advice.

The page discrepancy, by itself is interesting (that is, if they don't have the document, then how do they know that the original index listed the page numbers wrong?).

And then there's the fact that this document is missing. Some of these documents discussed SERE techniques as torture. In the SASC report, both Jim Haynes and John Rizzo were very squirmy about discussing how DOD advice to to OLC for CIA's torture memos; if we had the document itself, we might be able to explain that definitively. And then there's the possibility that someone took notes on this document.

While I was reporting this story, I got an answer about the discrepancy between the two administrations' description of the same document. Tracy Schmaler, a Justice Department spokeswoman, told me that the Obama administration made a filing error. They found a document with the same date as "Document 6" and, although it had 59 pages instead of 46, added its information to their list. Once they realized it wasn't a match, they forgot to remove that information from the index. So, to be clear: a 59-page Department of Defense top-secret memo from July 25, 2002 does exist, and the DOJ has sent it to the Pentagon for processing. It will appear on a future index if the administration decides to withhold it. What the Obama DOJ didn't find was the 46-page memo "providing legal advice" that's described on the Bush administration's list. That's still missing.