2010 - %3, March

The Wall St. Lobby's Flip-flop

| Tue Mar. 30, 2010 7:01 AM PDT

If you need any more reason to distrust Wall Street's lobbying armada, which has spent millions to undercut a new financial reform bill, then look no further than an op-ed from Elizabeth Warren, the staunch consumer advocate and bailout watchdog, published today. In it, Warren highlights the utter hypocrisy of the banking lobby's aim to neuter, if not outright kill, a new, independent consumer financial protection agency.

Among the banking lobby's top talking points for fighting this consumer agency is that it would separate what's called "safety and soundness" regulation (your run-of-the-mill bank oversight, basically) and consumer protection measures, like cracking down on predatory lenders, usurious interest rates, and unfair credit card penalties. For instance, Scott Talbott, a top lobbyist for the Financial Services Roundtable, a powerful finance trade organization, told the New York Times that his organization "believe[s] that consumer protection and bank supervision should be housed under the same roof."

But as Warren points out, the position of Big Finance's biggest advocacy group, the American Bankers Association, was the exact opposite just a few years ago. In 2006, the FDIC, Federal Reserve, and other government regulators were considering allowing bank regulators to keep an eye on subprime mortgages, those tricky—and toxic—products that would help topple the economy. The ABA, when it caught wind of this potential move, sent a letter to the FDIC arguing against merging bank oversight and consumer protection, saying this "marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines." The association recommended that "the safety and soundness provisions relating to underwriting and portfolio management be separated from the consumer protection provisions." (The ABA, in a sign of true prescience, also said subprime mortgages weren't "inherently riskier" than plain vanilla mortgages and that letting bank regulators oversee subprime loans "overstates the risk" of them.)

This, Warren concludes, shows that Wall Street's "lobbyists’ consistent theme is unmistakable: they oppose meaningful rules in the consumer credit market." She goes to write:

The ABA’s premise that the country can’t have both meaningful consumer protection and safety and soundness is wrong. In fact, its defense against an independent consumer agency boils down to this: if banks can’t trick and trap people with fine print and legalese, they won’t be able to turn a profit.

When other industries have argued that tricking their customers is an essential part of their profit model, they haven’t gotten far. For example, it might be profitable in the short run to substitute baking soda for antibiotics, but basic safety regulations prevent such moves—and the pharmaceutical industry still manages to do just fine. In fact, the industry flourishes, bringing better, cheaper products to customers.

Similarly, the consumer agency now before the Senate is designed to cut out tricks and traps pricing, fine print that no one can read, and sharp practices that strip billions of dollars from consumers...

In the weeks ahead, the Senate does not need to decide between safety and soundness and consumer protection.

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Actually, You Do Need a Weatherman

| Tue Mar. 30, 2010 6:59 AM PDT

Why don’t TV weather forecasters believe in climate change? It's an interesting question, raised recently in a fabulous Columbia Journalism Review piece by Charles Homans. A new study released yesterday by George Mason University’s Center for Climate Change Communication confirms that the portion of skeptical weathermen is sizable -- which is frightening news, considering how many Americans rely on their local weatherman for information about global warming.

The study found that only 54 percent of the 571 television weathercasters surveyed think that global warming is happening, and only 31 percent believe that it is "caused mostly by human activities." More than one quarter--27 percent--agreed with the statement "global warming is a scam." The New York Times has a good summary of why this might be the case. While the American Meteorological Society affirms the scientific consensus on climate change, only about half of TV weathercasters actually have degrees in meteorology. And weathercasters, by profession, focus on short-term weather patterns and use sensitive models that are can't predict weather more than a week in advance. Climatologists, on the other hand, focus on decades and centuries using more complex modeling. Homans' piece evaluates these factors much more in depth.

But here’s the more concerning data from the new poll: the vast majority of the public relies on these men and women for their climate-related information. The poll notes that "the public has identified weathercasters as one of the sources they most trust for information about global warming." Indeed, a separate study from George Mason and Yale found that 56 percent of Americans trust weather forecasters to give them information about global warming more than any other source. And in the latest poll, a full 94 percent of respondents said they "work at stations that do not have anyone else covering science or environmental issues full-time." That means a lot of people are relying on weathercasters as a primary source of information.

But there were also positive results in the survey. Two-thirds of TV weathercasters said they "have an interest in reporting on climate change." Over 90 percent said that they believe that additional resources could help them to a better job covering climate change – including access to climate scientists for on-camera interviews, peer-reviewed journals, and better graphics and animation for television. They also expressed interest in improving their coverage of the local effects of a changing climate, like increased precipitation and flooding, droughts, extreme weather events, and human health impacts of air quality concerns. It seems like there's plenty of room for improvement on that front, and it could significantly improve public understanding as well.

Spousal Abuse Spiking

| Tue Mar. 30, 2010 5:00 AM PDT

I recently arrived in Portland for a talk at Mercy Corps, and though my host tells me that the city’s strongest association is with roses, it feels more like my own personal Domestic Violence Awareness Town.

The first thing I thought of when I touched down was this stupefying stat I’d read: A few months ago, 18 people died in domestic violence incidences in less than 30 days here. That would be just one piece of an alarming trend in rising domestic violence rates—not that domestic violence statistics haven’t always been consistently alarming.

Then I was doing some unrelated Internet research, and somehow landed on this page for an "assault and family violence attorney" containing such offensive and flip copy—

A domestic violence assault charge could be the result of a single violent outburst, one high-stress incident, or the retaliation of a malicious spouse. Whatever the reasons for you being so accused, we can help you favorably resolve your criminal case and move forward after a domestic violence or assault charge.

—that I was left torn between my certainty that we put way too many people in prison for way too long and an intense visceral desire to not let wife-beaters out of jail to walk around in the world, ever.

Then, also totally unrelatedly, someone posted on my Facebook page the United Nations Foundation stat that "One of every three women in the world faces violence, coercion, or abuse as part of her everyday life—and more than 70% of women will experience violence in their lifetime." And my host also reminds me that it’s naïve for me to find it hard to believe that, for example, there were 59 DV deaths in Wisconsin last year. And the Facebook post comes with a link pleading that people should "Tell your representatives in Washington today that ending violence against women needs to be a real priority."

Jesus. And how.

Do We Test Geoengineering? (Asilomar Dispatch 3)

| Tue Mar. 30, 2010 4:30 AM PDT

For years, climate scientists have used computer modeling rather than field tests to predict the likely effects of certain geoengineering methods—like whitening clouds or dispersing sulfur particles into the upper atmosphere to reflect the sun's rays back into space. But at last week's Asilomar International Conference on Climate Intervention Technologies, researchers were divided over whether models are enough.

In one corner was Alan Robock, a professor at Rutgers University who has spent most of his career modeling the climate-cooling effects of volcanic eruptions—which spew sulfur dioxide into the upper atmosphere. Indeed, it was knowledge gained from the 1991 eruption of Mount Pinatubu in the Philippines (here's a pdf of one of Robock's papers) that inspired one of the more controversial geoengineering schemes. Robock says that one recent Russian eruption he is studying put more sulfur in the atmosphere than any scientific team would likely deliver. "So why do we have to actually do tests?" he asks.

Delaware and Tennessee Win the 'Race to Consensus'

| Tue Mar. 30, 2010 3:21 AM PDT

Delaware and Tennessee will receive the first slice of the Obama administration's $4 billion "Race to the Top" education innovation fund, the administration announced Monday. The winning states edged out presumed front-runners like Florida and Louisiana—states that submitted equally reform-minded applications that were not as popular with teachers' unions.

The Department of Education gave Delaware's proposals the highest overall rating in the competition, and the tiny state will take home the $107 million it asked for. Second-place finisher Tennessee will receive about $500 million, leaving $3.4 billion available to states who participate in the competition's second round. Independent reviewers gave the winners' applications high marks for promoting accountability standards, implementing data systems to track student achievement, and pushing for charter school growth. 

Georgia placed third in the competition, followed by Florida.  Louisiana came in 11th place out of the 16 finalists announced earlier this month.

On Monday, Secretary of Education Arne Duncan played down the importance of broad "stakeholder support," calling it one of many factors that contributed to the finalists' total scores. But while Delaware and Tennessee boast nearly complete teachers union approval of their proposals, Florida's largest teachers union urged members to rebuke its application, and fewer than half of Louisiana's districts supported the state's plan.

We're Still at War: Photo of the Day for March 30, 2010

Tue Mar. 30, 2010 2:00 AM PDT

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US Army Staff Sgt. Gerald Frushon, right, and Pvt. Samuel Lima, provide security during a school assessment in Wesh, Afghanistan, on March 16, 2010. Photo via the US Air Force photo by Tech. Sgt. Francisco V. Govea II.

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What's Our Real Trade Deficit With China?

| Mon Mar. 29, 2010 8:53 PM PDT

Is our trade deficit with China exaggerated? The Wall Street Journal reports on the difference between accounting for the entire value of finished goods that are imported from China vs. only the value-added of the goods imported from China:

A study by the Sloan Foundation in 2007, for example, found that only $4 of an iPod that costs $150 to produce is made in China, even though the final assembly and export occurs in China. The remaining $146 represents parts imported to China. If only the value added by manufacturers in China were counted, the real U.S.-China trade deficit would be as much as 30% lower than last year's gap of at $226.8 billion, according to a number of economists.

At the same time, the U.S. trade deficit with Japan would have been 25% higher than the $44.8 billion reported last year, because many goods that China and others export to the U.S. contain parts purchased in Japan.

....But it is a tough nut to crack. Economists can look up, for example, that China exported 52,176 metric tons of screws, bolts and nuts to South Korea in 2009, according to Global Trade Information Services, a consultancy based in Geneva. But they can't trace those pieces to figure out if they wound up in exported products.

Experts also don't agree on what should be considered an intermediate good. Should the imported fuel used to power the factory be counted? What about the consultant flown in from London?

More at the link.

Quote of the Day: Sarkozy on Healthcare

| Mon Mar. 29, 2010 4:58 PM PDT

From French President Nicolas Sarkozy, speaking today at Columbia University:

Welcome to the club of states who don't turn their back on the sick and the poor....The very fact that there should have been such a violent debate simply on the fact that the poorest of Americans should not be left out in the streets without a cent to look after them ... is something astonishing to us.

Sarkozy was something of a darling of the right when he was first elected, thanks to his support of laissez-faire economics and general embrace of American values. But the financial collapse of 2008 turned him into something of a regulatory hawk, and now there's this. I'll bet the American right doesn't think much of him anymore.

Where the Real Action Is

| Mon Mar. 29, 2010 4:45 PM PDT

Our story so far: on Friday I was chatting with Felix Salmon about leverage and capital requirements in the financial system, and we agreed that most of the action on this was taking place on the international stage. But because it's largely done behind closed doors, there's very little reporting on what progress is being made. Today, though, Bloomberg's Yalman Onaran sneaks in a bit about international standardmaking in a long story that's mostly about U.S. financial reform:

Looming over discussions about liquidity are rules proposed in December by the Basel Committee on Banking Supervision, a 35-year-old panel that sets international capital guidelines. The new framework would require banks worldwide to hold enough unencumbered assets to meet all of their liabilities coming due within 30 days. That amount, called the liquidity coverage ratio, could be used to offset cash outflows during a panic. Banks would also have to maintain a “net stable funding ratio” of 100 percent, meaning they would need an amount of longer-term loans or deposits equal to their financing needs for 12 months, including off-balance-sheet commitments and anticipated securitizations.

The Basel committee, which is collecting comments on the proposed rules through April 16, would establish clear definitions of liquid assets and funding needs, rather than leave those determinations to the banks. It would also set new capital requirements. The committee expects to complete its work by the end of the year and implement the regulations by the end of 2012.

The liquidity rules would reduce the annual profit of Bank of America Corp. by $1.5 billion and of Citigroup by $1.2 billion, JPMorgan estimated in a Feb. 17 report.

Bank analysts and executives say the proposals won’t be implemented in their current form. The rules are “too restrictive and we believe they could ultimately be watered down,” Barclays Plc said in a Feb. 8 report. Societe Generale SA’s Severin Cabannes has been telling investors the Basel regulations will likely be weakened, according to investors who have met with him.

As background, the original Basel standards were adopted in 1988 after more than a decade of work. They set capital standards for the banking industry and were only so-so from the start. The followup Basel II standards, which allowed banks a lot of leeway to use their own internal measures of risk, were a disaster — mainly because they allowed banks a lot of leeway to use their own internal measures of risk. So now we're on to Basel III. In English (sort of), the new standards would require banks to maintain adequate liquidity even assuming they lost all their overnight repo financing and had their balance sheet degraded via ratings downgrades. They'd also require banks to rely less on repo financing in the first place by increasing the portion of their asset base that has to be funded either by retail funds or by loans of greater than one-year maturity. Beyond that, Basel III would set new capital standards and (presumably) tighten up the requirements so that banks don't get to use their own models for estimating the risk of various asset classes. Felix comments:

The Basel rules are important, and they take a long time to coalesce into something acceptable to all the main players — especially the US, whose abundance of small banks makes it wary of rules which are generally designed for much bigger institutions. It's entirely foreseeable that the Basel committee's self-imposed 2012 deadline is going to come and go. But if and when the rules go into effect, they're going to have much more force than anything coming out of Congress or Treasury. So keep an eye on them: if they get diluted significantly from their present form, that's a bad sign.

Well, if Onaran is correct and "bank analysts and executives" are already saying the new rules are DOA and need to be watered down, then we have a bad sign right from the get-go. What's more, a lot still depends on just who these rules apply to — regulating the shadow banking system is crucial here — exactly how the rules are worded, and how quickly they get taken up by the major financial players around the world — none of which is clear yet. The big fight, I think, will be between those who want fairly blunt and primitive rules and those who want complicated, nuanced rules. The former helps keep the system stable. The latter helps banks figure out ways to outwit the rules and make more money.

So stay tuned. Given that Congress appears very unlikely to establish blunt rules of its own, this is where the action is.

Is Iraq's Allawi a Murderer?

| Mon Mar. 29, 2010 1:54 PM PDT

As Mother Jones reported last week, the political future of Iraq didn't get any clearer with the results of its early-March parliamentary elections. One surprise, though, was the strong showing of ex-prime minister Ayad Allawi, a former strongman for Saddam Hussein's Ba'ath Party who had forged an alliance of secular Sunnis and Shiites. Allawi's Iraqi National Accord gained 91 seats, a "thin plurality" that was two seats better than the current prime minister, Nuri al-Maliki, and his Shiite coalition. As regional expert Juan Cole noted today, it's unlikely Allawi has an easy path to resuming his old position, but he's clearly become—once again—a heavy player in Iraqi politics.

All of which makes it worth asking: Is Ayad Allawi a stone cold killer?