2009 - %3, December

Leverage and You

| Sat Dec. 19, 2009 4:45 PM EST

The Wall Street Journal reports some evidence that the housing market is starting to loosen:

Some mortgage insurers and lenders are beginning to relax their down-payment requirements, in a sign of increased confidence in the housing market. The changes, which are being done on a market-by-market basis, mean buyers in some parts of the country can now borrow 95% instead of 90% of a property's value. Until recently, mortgage companies had tighter standards for these markets because of falling home prices.

....Under the looser requirements, a borrower with a credit score of 680 or higher in New Orleans, for instance, can finance up to 95% of a home's value.

I'm not thrilled with this.  Financial leverage has gotten a lot of attention lately as the cause of our recent banking woes, and that attention is fully justified.  Asset bubbles are pretty much always credit driven, with leverage climbing relentlessly until suddenly the bubble pops and all the bills come due.  One of the things that I wish Obama's regulatory proposals had focused more strongly on is limiting leverage wherever and however it shows up in the financial system.

But leverage is everywhere, not just on Wall Street.  If you buy a house with 20% down, you're employing leverage of 4:1.  At 10% down it's 9:1.  At 5% down it's 19:1.  At the FHA minimum of 3.5%, it's 27:1.

That's too much.  Just as leverage much above 10:1 is dangerous in the banking system, it's dangerous in the home mortgage market too.  If 10% had been the minimum down payment over the past decade, the housing bubble never would have taken off the way it did.  Crazy loans would have been rare.  Unqualified buyers would have continued to rent.  Mortgage fraud would have been dramatically reduced.  Speculation and flipping would have been dampened.  Foreclosures wouldn't have decimated entire cities. The derivatives market wouldn't have reached such stratospheric heights.  We still might have had a medium-sized housing bubble, but the world probably wouldn't have been on the verge of imploding last year.

We should limit leverage everywhere: in the real banking system, in the shadow banking system, in hedge funds, and where it's baked into derivatives.  But we should also do it at the individual level: mortgage loans, car loans, and credit card loans.  The point is not to cut off credit, but to do what we can to ensure that it grows steadily and sensibly, not catastrophically.  A minimum 10% down payment to buy a house is a place to start.

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Quotes of the Day: Healthcare Edition

| Sat Dec. 19, 2009 3:24 PM EST

Take your pick.  First, here's David Waldman on Ben Nelson's abortion compromise:

The problem with leaving the decision up to the states, he says, is that it doesn't go far enough. "I think states should leave the abortion question up to the counties," he explains. "Then I think counties should leave the abortion question up to municipalities. Then the neighborhoods should leave the abortion question up to each block." And each block, as you might have guessed, should leave the abortion question up to each household.

And here's Stan Collender on Olympia Snowe's claim that after endless months of negotiation she's going to vote against the healthcare bill because she feels "rushed":

Many things in American politics are silly but, assuming it's true, this has to be considered a lifetime achievement award.

And finally, here's Ezra Klein's favorite line from the CBO report that scored the Senate bill:

The 5 percent excise tax on cosmetic surgery was eliminated, and a 10 percent excise tax on indoor tanning services was added.

But the day is still young.  There's bound to be more good stuff later on.  Especially when senators start getting tired and cranky later tonight.

Healthcare Gets to 60

| Sat Dec. 19, 2009 1:42 PM EST

Finally, some good news: Sen. Ben Nelson (D–Neb.) has agreed to support the Senate healthcare bill.  That's 60 votes, and that should be the ball game.

So what got his vote?  Aside from a comically transparent piece of bribery that gives Nebraska a little extra Medicaid money, it was a deal over abortion language. Here's the LA Times explanation of Nelson's "opt-out" provision:

Under the agreement, individual states would be allowed to prohibit insurers from offering abortion services in new regulated insurance marketplaces, or exchanges, where Americans who do not get health benefits through work would shop for coverage. Senate officials said that is consistent with current law, which gives states this authority over their insurance markets.

But if states do not exercise that option, insurers would be free to offer abortion coverage to customers in an exchange, even if they receive federal subsidies. If a woman who receive a subsidy wants to get a policy that covers abortion, she would have to send two payments to the insurer, one of which would be placed in an account reserved for abortion coverage.

Any insurer that offers an plan with an abortion benefit would also have to offer a parallel plan that does not cover abortion services.

This is....not that bad, actually.  Obviously it's not as good as full funding for reproductive services, but that was never even remotely on the table.  But not only does this language mean that probably two-thirds of the population will have access to abortion coverage through the exchange, it also (I think) relieves the fear that the Stupak amendment in the House bill would eliminate abortion coverage from private insurance altogether.  The argument was that insurers would decide it was too much trouble to offer multiple policies and would just default to the version they offered on the exchange, which wouldn't cover abortion services.  But Nelson's compromise makes it clear that there are going to be multiple policies one way or another, so there's little reason to think that current private coverage will change much.

That's my first take, anyway, and since Barbara Boxer and Patty Murray support Nelson's language, I assume they see it the same way.  Curious to hear from others on this, though.

Onward, then.  I always figured that Nelson would eventually compromise, since I think he's driven largely by genuine, longstanding concerns, not by personal pique.  But he sure had me thinking otherwise for the past couple of days.  In the end, though, he hasn't gutted any major provisions, he's agreed to a constructive compromise on abortion, and his only price was a ridiculous but tiny deal for Nebraska on Medicaid reimbursement.  Not bad.  Now all we have to do is rein in Bart Stupak, who's busily trying to scuttle the whole thing.

Copenhagen Finale

| Sat Dec. 19, 2009 12:41 PM EST

David Corn and Kate Sheppard have a pretty good first-draft-of-history tick-tock on the final round of negotiations at Copenhagen, and you should read their whole piece.  But just to get a flavor of the thing, here's how the final few minutes of the dealmaking went down according to Brazilian Ambassador Sergio Serra:

As the discussion continued, Obama dropped a term on the table: "examination and assessment." This suggested direct monitoring of Chinese emission curbs by outsiders. Chinese officials in the room pronounced it unacceptable."We weren't that happy with it, either," Serra noted. So a new description—"international consultations and analysis" — was worked out. A "consultation" is obviously less intrusive than an "examination." But what does "international consultations and analysis" — soon to be referred to as ICA — mean? Asked this, Serra shrugged and said, "Ehhhh." He added, "The definition will be negotiated by a panel of people. They will decide what it means, like everything else." Obama promised to sell this not-well-defined ICA phrase to the Europeans. He also told Wen and the others that he had been asked by the Europeans to push for the below-2 degrees level.

The resolution of that six-word dispute eased the US-China deadlock that had paralyzed the summit, creating space for an agreement that may not be an agreement — christened the "Copenhagen Accord."

This is worse than an arms control negotiation.  Yuck.  And of course, the final agreement is almost comically vague, providing no numerical targets at all except for those in Appendix I, which is entirely blank.  Each individual country will fill it in later.  In other words, there's virtually nothing here except for a vague agreement that, yes, global warming is real and we probably ought to do something about it someday.

On the other hand, this post from Bill McKibben about how Barack Obama has "gutted progressive values" seems pretty over the top.  Copenhagen obviously didn't produce much of an agreement, but it's hard to see how Obama is the big villain in all this.  He's hemmed in domestically by Congress and internationally by China and other countries that flatly aren't willing to accept tough limits, and it's a little hard to see how he could have waved a magic wand and changed this.

Still, there's no two ways about it: by last September it was already obvious that Copenhagen wasn't going to produce much, and it managed to fail even those low expectations.  The only minuscule bright spot is that what we got was slightly better than what seemed likely Friday morning: total chaos and a complete breakdown.  By that low bar, producing a piece of paper of any kind counts as a success.

Protesting with Doughnuts

| Sat Dec. 19, 2009 12:10 PM EST

If you're ever curious about why so many people hate teachers unions, check out this little story in the LA Times today about the Centinela Valley Union High School District.  Long story short, on the last day of school before break, a minimum day, the district planned to feed their mostly low-income kids the usual mid-morning snack.  The union was pissed about this because it would extend the day by 15 minutes, so teachers all kept the kids in class and fed them Krispy Kreme doughnuts instead.  Result: the district had to throw away the unused snack food, they lost $10,000 in federal funds, and teachers got to leave 15 minutes earlier.

"A lot of teachers are very protective of their time," said the union rep.  No kidding.

Obama's Copenhagen Deal: Real Or Not?

| Fri Dec. 18, 2009 9:21 PM EST

David Corn and Kate Sheppard explain how Obama's eleventh-hour climate deal was stitched together—and why it may not even be a deal at all.

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Anywhere But Earth Today, Please

| Fri Dec. 18, 2009 7:59 PM EST

Trolling the science news today, as Copenhagen devolves into a shambles of squandered opportunities and the wasted hopes and dreams of most of the people on the planet, I can't help but notice how the big push is over. For the last couple of months, there's been a monstrously huge collective effort in the scientific world to present findings that might persuade the politicians to actually act on climate change.

You know, a Really Meaningful Deal. Not the meaningful deal we got.

Today, in the midst of frustration, anger, sadness, a lot of people seemed to need to leave the Earth behind. Evan Lerner at Seed articulated it well:

"It was hard to tell which was more depressing this week: stories detailing the seemingly inevitable collapse of our planet’s ecosystem, or stories detailing the seemingly inevitable collapse of our political efforts to save it. With the woefully underwhelming Copenhagen summit wrapping up today, there’s not much positive to say about the prospects for the Earth. So let’s turn our attention to another planet."

I enjoyed his word portrait of the astounding discovery of a water-rich world "only" 42 light years away. Until I remembered that one explanation for why we've never had contact with other intelligent beings in the universe is because no society has survived the ecological suicide we're currently committing.

New Scientist chose to amuse us with 10 oddities from London's Wellcome Library that made even the staff scratch their heads in puzzlement. I found myself engaged with their series of photographs of peculiar objects, like weird amputated paws and [spoiler alert] nipple protectors. I took their multiple-choice quiz reminding me of our limitless ignorance.

The BBC distracted us momentarily with the possibly momentous announcement of the detection of signals that could indicate the presence of dark matter. The irony is infinite. Just as we start to figure out the universe, we deprogram our own life support.

I managed to get really lost in Science Now's The Origins of Tidiness, detailing at an 800,000-year-old hominin site in Israel where Homo heidelbergensis practised super housekeeping:

"The team found that hominin activities were concentrated in two main areas at opposite ends of the strip. Knapping of stone tools made from flint was concentrated in the northwest area, while production of tools made from basalt and limestone was concentrated around a hearth in the southeast. There was also a clear pattern of animal and plant remains. For example, remains of crabs consumed by the hominins were clustered around the hearth, as were the remains of nuts and stone tools, such as anvils and choppers, suitable for cracking them open. On the other hand, fish bones were found in two clusters, one at each end of the excavated area. The team concludes, in its report on the findings in the 18 December issue of Science, that the hominins' division of their living space into designated activity areas is a sign of "sophisticated cognition" once thought to be the special preserve of modern humans."

That's pretty exciting. But then I realized that 800,000 years later, we still can't put our planetary house in order.
 

Copenhagen: What Happened, and What Didn't

| Fri Dec. 18, 2009 7:43 PM EST

As Copenhagen sputtered to a stop, Hillary Clinton made a surprise announcement that the US would give $100 billion annually to help poorer nations cope with climate change, but only if China and other nations would make their voluntary emissions limits binding. The "get China on board" meme continued with President Obama's speech. His speech was longer than those of other countries, and Bill McKibben thinks he positioned super-polluting nations against poorer, would-be super-polluters. David Corn noted that Obama seemed frustrated, and said that despite America's good intentions, if China isn't on board, they won't really matter. Henry Waxman agreed, saying that although he though Obama's speech was more unifying, China's willingness to make compromises was very key. For a while, it looked like Copenhagen would end without any resolution. But since Obama's speech, China and the US met in one-on-one sessions, and other nations rallied round to at least put together some non-binding resolutions. The result: the Copenhagen Accords.

As the final text of the Copenhagen Accords gets hammered out, Kate Sheppard gave a detailed analysis of what meaning it could have if Congress isn't on board. Six of Congress's finest GOP members made a splash in Denmark, espousing "unorthodox" positions on CO2 and warming, such as the IPCC is not interested in science and that global warming is a money-making scam. Unfortunately, these six aren't the only Americans who don't believe in climate change.

Update: At 3 am, leaving them just enough time to get to the airport, David and Kate filed a must read piece on how Obama's deal with the big emitters happened and whether it is something to cheer or jeer.

Who Really Pays for Copenhagen

| Fri Dec. 18, 2009 6:31 PM EST

It's been a long week at Copenhagen, resulting in a non-binding resolution with parameters which Obama says "will not be by themselves sufficient to get to where we need to get by 2050." 2050 sounds like a long way off: a baby born today would be 41 then. But if we don't get emissions on track, fast, it'll be today's babies and kids who'll have to do it twice as quickly in 2050. You can see the faces of our future climate negotiators here, in a gallery of pictures our readers uploaded to our climate cover module.

 

Copenhagen: Obama Guts Progressive Values

| Fri Dec. 18, 2009 5:50 PM EST

The President of the United States did several things in his agreement today with China, India, Brazil, and South Africa:

  • He blew up the United Nations. The idea that theres a world community that means something has disappeared tonight. The clear point is, you poor nations can spout off all you want on questions like human rights or the role of women or fighting polio or handling refugees, but when you get too close to the things that count —the fossil fuel that's at the center of our economy— you can forget about it. We're not interested. You're a bother, and when you sink beneath the waves we don't want to hear much about it. The dearest hope of the American right for fifty years was essentially realized because in the end coal is at the center of America's economy. We'd already done this with war and peace, and now we've done it with global warming. What exactly is the point of the UN now?

  • He formed a league of super-polluters, and would-be super polluters. China, the US, and India dont want anyone controlling their use of coal in any meaningful way. It is a coalition of foxes who will together govern the henhouse. It is no accident that the targets are weak to nonexistent. We don't want to get too far ahead of ourselves with targets, he said. Indeed. And now imagine what this agreement will look like with the next Republican president.

  • He demonstrated the kind of firmness and resolve that Americans like to see. It will play well politically at home and that will be the worst part of the deal. Having spurned Europe and the poor countries of the world, he will reap domestic political benefit. George Bush couldn't have done this because the reaction would have been too great. Obama has taken the mandate that progressives worked their hearts out to give him, and used it to gut the ideas that progressives have held most dear. The ice caps won't be the only things we lose with this deal.