Several homes sit in a neighborhood flooded by rivers that lead off of the Mississippi river in north Memphis. The river is expected to reach record levels tonight in the Memphis area as over one thousand across the area have left their homes due to fear of flooding.

The Midwest and the South are once again in the middle of record floods. The mighty Mississippi River is now six times its normal size and police have evacuated parts of Memphis as the river crested overnight just shy of 48 feet.

It neared, but didn't reach, the record of 48.7 feet set there in 1937. The water levels are expected to break records in other parts of the region set in two major floods of the past century, in 1927 and 1937. While Memphis is experiencing the brunt of it right now, the flood crest is expected to "move slowly downstream towards New Orleans during the next three weeks," according to the National Weather Service, and will likely also impact southern tributaries like the White River, the Arkansas River, and Big Black River, among others.

Here are answers to a few common questions about the flood:

What caused the flooding?

The 2,320-mile-long Mississippi drains approximately 41 percent of the continental US. A lot of snow in the upper Midwest this winter and an extremely wet April—where up to four times the normal amount of rain fell in some parts of the region—compounded to overflow the banks of the river.

How many people are affected?

Bloomberg reports that 3,075 buildings, 949 homes and 12 apartment complexes are affected in just Shelby County, Tenn., home to Memphis. As Jeff Master's writes over on WunderBlog, these are the highest water levels on record for the 70-mile stretch between Missouri and Tennessee. As the crest moves south, many more towns may be affected, including New Orleans. Here's what the Mississippi looks like now, as it has expanded to up to 3 miles wide at some points:

Images of the Mississippi River, before and after the flooding.: NASA Earth ObservatoryImages of the Mississippi River, before and after the flooding: NASA Earth Observatory

What are they doing to protect towns and cities?

The Army Corps already breached levees to protect Cairo, Ill. They have also opened floodgates on the Bonnet Carre spillway near New Orleans to try to divert some of the water and may open others. The Army Corps released a map on Monday showing the estimated inundation areas for Louisiana.

Does climate change have anything to do with this?

Most scientists will urge caution in saying that any particular weather event is directly "caused" by climate change. However, increases in both snow and rain are tied to climate change. The melting snow from the winter and torrential downpours this spring have overwhelmed the river. Scientists say that we can expect more floods in the US and around the world as the planet gets warmer. The US Global Change Research Program has warned of more extreme events like heavy downpours in Midwest in the future as the climate changes. Treehugger has more on this subject.

Is this as bad as the Great Mississippi Flood of 1927?

The 1927 flood is often referred to as the worst in US history. It impacted seven states in an area of 27,000 square miles and destroyed 130,000 homes, as a local paper recently recalled. It also killed 246 people and displaced hundreds of thousands more. The damage would have totaled $1.5 billion at today's prices, according to the Corps. Infrastructure and transportation have improved substantially since then, as have the early-warning systems that allow people to evacuate, which makes helps limit the damage for this latest flood. Reuters has more historic floods in the region.

What is a "100-year flood," anyway?

This term is used colloquially to refer to major floods, but most people don't really know what it means. The US Geological Survey explains:

The term "100-year flood" is misleading because it leads people to believe that it happens only once every 100 years. The truth is that an uncommonly big flood can happen any year. The term "100-year flood" is really a statistical designation, and there is a 1-in-100 chance that a flood this size will happen during any year. Perhaps a better term would be the "1-in-100 chance flood."

So that means these floods can happen more than once in a 100-year period—or more than once in a single year, really.

The Republican Party's constellation of deep-pocketed donors, spread throughout the country and capable of raining cash on the party's presidential nominee, are eyeing the current crop of GOP presidential hopefuls a lot like the rest of the party: with a mix of wariness and concern. That's one reason why, as the New York Times reported, the GOP's top rainmakers have so far done little to drum up donations for Republicans angling for the presidential nomination.

The only candidate with a formidable fundraising network in place is former Massachusetts governor Mitt Romney. His backers include some of the party's top bundlers, the well-connected fundraisers who pull in big donations from their own respective networks, such as Washington lobbyist Wayne Berman and shopping mall developer and former US ambassador Mel Sembler, a man famous for raising more than $21 million at a single dinner in 2000. Yet the rest of the GOP field lags badly, especially considering that at this point in the 2008 race, the GOP hopefuls had raised upwards of $50 million each.

Here's more from the Times:

Adding to the challenge this year, the candidates will be competing for money with outside organizations like American Crossroads, a group formed with help from the Republican strategist Karl Rove that has set a fund-raising goal of $120 million for 2012, though it asks donors to help candidates and parties first.

Top Republican donors and senior party officials said they were not overly concerned, expressing confidence that when the field did crystallize the money would be there just as it was last fall. Speaking of the 2010 election cycle, Mr. Sembler, a longtime Republican rainmaker, said, "There were a lot of passionate people out there raising money," adding, "It just hasn’t seemed to be cycled up yet."

David A. Norcross, a former general counsel for the Republican National Committee, backed Mr. Romney in the 2008 primaries and had planned to support Mr. Barbour this time. "We're all in the wait-and-see category for now," he said, adding that he would probably take his cues from Mr. Barbour.

Meanwhile, President Obama's 2012 campaign war chest is beginning to fill up, thanks in large part to gay donors. As Politico reports, the Obama campaign is going all-out to court gay donors who, unlike other Obama supporters, are particularly pleased with Obama's achievements, including his demand to repeal "Don't Ask, Don't Tell" and refusal to defend the Defense of Marriage Act.

Obama's campaign fundraising roster says a lot. His campaign's finance director is gay, as is the Democratic National Committee's finance chairman. All in all, Obama's finance committee has 15 gay men on it, compared to a single gay man in 2008. And the wave of support from the gay community couldn't come at a better time for Obama:

Gay support is particularly key this year to Obama, whose 2008 campaign raised huge sums from the very rich, just as it did from smaller donors. Now, key categories of supporters have grown leery. The left-leaning super-rich, including George Soros, see Obama as hopelessly compromised, and have lost their enthusiasm for him. Some Wall Street and hedge fund executives, tired of being criticized and regulated, have switched sides. Some pro-Israel Jewish donors, a mainstay of Bill Clinton’s fundraising, dislike Obama’s pressure on Benjamin Netanyahu. And rich men on both coasts whom Clinton had accustomed to personal flattery, personal visits, and late-night bull sessions have received no such personal attention from the more solitary Obama.


"He's coming back up in the estimation of the gay community pretty rapidly, and I think justifiably," said Ethan Geto, a New York lobbyist and key figure in Dean's gay fundraising, who said many gay supporters had hoped "Don't Ask" would be repealed during the president's first year in office. "When things didn’t happen in (that) time frame and on the track that Obama had held out hope for, people got very disillusioned," said Geto. "This was the time to strike."

There's a moment towards the end of Fleet Foxes' new album Helplessness Blues, during the song "The Shrine/An Argument," where front man Robin Pecknold's voice cracks in desperation. The fissure may be the emotional nadir of the record's narrative, but it sends ripples down my spine—it's probably been the highlight of my listening experience lately. For the first time, Pecknold dares to waver from his flawless vocal prowess, hinting at a darkness his listeners have rarely experienced from the angelic singer.

Helplessness Blues is not a huge departure from Fleet Foxes, the band's first CD, but it possesses more moments of frustration and despair. By allowing these feelings to creep in, Fleet Foxes have created a more complicated and ambitious repertoire, strengthening their overall reach.

Secretary of the Army John McHugh meets with members of the Afghan Local Police in the village of Tabin, Thursday, May 5, in Kandahar, Afghanistan. Photo via US Army

Bad News on Housing

The Wall Street Journal reports on the trajectory of housing prices following the expiration of the first-time homebuyer credit last year:

Home values posted the largest decline in the first quarter since late 2008, prompting many economists to push back their estimates of when the housing market will hit a bottom.

....While most economists expected sales to decline after tax credits expired, the drag on the market has been greater than many anticipated. "We expected December and January to be bad" as the market reeled from the after-effects of the tax credit, said Stan Humphries, Zillow's chief economist. But monthly declines for February and March were "really staggering," he said. They indicate "a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it's being completely overwhelmed by supply."

....Prices are decelerating in large part because the many foreclosed properties that often sell at a discount force other sellers to lower their prices. Mortgage companies Fannie Mae and Freddie Mac have sold more than 94,000 foreclosed homes during the first quarter, a new high that represented a 23% increase from the previous quarter. More could be on the way: They held another 218,000 properties at the end of March, a 33% increase from a year ago.

Most analysts now expect that the housing market won't bottom out until sometime next year. Until that happens, it's unlikely that that the sluggish economic recovery we're seeing right now will improve much.

Cui Bono?

On Saturday, in a post about opposition to European bailouts from the German public, I asked, "Why should thrifty Germans bail out spendthrift euro countries on the periphery?" As it happens, this was bad phrasing: I didn't mean to endorse this view, merely to point out that it was easy to understand why Germans might feel this way. But Matt Yglesias makes a good point in response to my apparent meaning:

I think this conceptual scheme of saver = responsible, borrower = irresponsible needs to be challenged. It’s true that German households were thrifty net savers. But a German household that saves isn’t engaged in a self-sacrificing pursuit, it’s getting paid interest. And the institutions paying the interest are doing it because they’re expecting to make a profit by offering loans. And when they offer the loans, they’re charging interest.

The entire claim of people in this line of work is that they’re good at making decisions about who to lend money to and what interest rate to charge them in light of default risk. When I got my mortgage it involved a phone call with a guy from Bank of America. The premise of the conversation was that of the two people on the call, one of us was a highly trained professional with expertise in mortgage lending and the other one was me. And it’s just the same with Irish borrowers and German banks. In that transaction it’s the Germans who are supposed to be the experts. When the whole thing goes sideways it’s the Germans who failed to be responsible stewards of the Eurozone’s capital.

There's a sense in which this right: lenders can be as reckless as borrowers, and frequently they're more reckless. But there's also a sense in which this confuses the German public with German banks. German banks were unquestionably reckless, but the German public is just....the German public. They acted perfectly prudently given the level of knowledge you'd expect a normal person to have. All they did was put money in the bank, assuming that the banks would then treat their deposits wisely.

Paul Krugman addresses this distinction directly in his column tonight:

What I’ve been hearing with growing frequency from members of the policy elite — self-appointed wise men, officials, and pundits in good standing — is the claim that it’s mostly the public’s fault. The idea is that we got into this mess because voters wanted something for nothing, and weak-minded politicians catered to the electorate’s foolishness.

So this seems like a good time to point out that this blame-the-public view isn’t just self-serving, it’s dead wrong.

The fact is that what we’re experiencing right now is a top-down disaster. The policies that got us into this mess weren’t responses to public demand. They were, with few exceptions, policies championed by small groups of influential people — in many cases, the same people now lecturing the rest of us on the need to get serious. And by trying to shift the blame to the general populace, elites are ducking some much-needed reflection on their own catastrophic mistakes.

There's no question that ordinary borrowers sometimes act irresponsibly. They run up their credit cards too much, they buy more house than they can afford, and they don't always save for rainy days. But Krugman is right: if you look at the fiscal and financial disasters of the past decade, they're emphatically the fault of political and financial elites far more than they're the fault of ordinary citizens. And yet, in the aftermath, it's been ordinary citizens who have borne the lion's share of the pain. For the most part, Wall Street and the wealthy have been asked to pay very little to make up for their mistakes.

Which gets us back to those German savers. It's entirely understandable, I think, that the German public doesn't feel like bailing out Ireland and Portugal and Greece. After all, they did nothing wrong. It was German banks and their creditors who acted irresponsibly, and yet they're being treated with kid gloves at every turn. Instead of nationalizing banks and forcing creditors to take haircuts, European elites are basically asking German taxpayers to bail out the German banks that took their deposits and made irresponsible loans with them. Is it any wonder that the German public is non-thrilled about this?

Krugman's whole column is worth a read. The public in both Europe and America has taken a considerable licking over the past few years. But the elites — well, in a lot of cases they've actually emerged from a disaster of their own making in better shape than before. This is, perhaps more than anything else, the most dispiriting result of the Great Collapse.

Here's a pair of pictures from my trip to the Santa Ana zoo yesterday. On the left is the zoo's bald eagle, looking stern and patriotic.  On the right is one of the zoo's camels with Interstate 5 in the background. Impressive critters, no?

Should private equity shops be regulated by the SEC? Felix Salmon listens to a debate between two Democrats and comes away unimpressed with both of them:

The main reason for PE shops to be regulated, of course, has very little to do with fiduciary responsibility, and everything to do with the fact that leverage is a systemically-dangerous thing, and regulators need to know where it is and how it’s being put to use. But it can be hard to explain systemic tail risk to the kind of people who only really understand the meaning of a pie chart when they bake an actual pie.

Precisely. In fact, I'd go further: even if it were true that private equity funds don't generally operate with abusive levels of leverage today, the fact remains that Wall Street boffins are always on the lookout for new ways to overleverage themselves. If banks and hedge funds are regulated but PE funds aren't, then eventually some bright boy will figure out a way to leverage a PE fund at 50:1 while still making it look like it's an ordinary equity shop with modest leverage. The only way to have even an outside chance of preventing this is to regulate any entity with a substantial amount of money — and that most definitely includes PE funds. If they keep their leverage modest, the regulation will be light and little harm is done. But if they start to go overboard because someone figures out a new angle that no one's ever thought of before — and you know someone will eventually — a regulator who's already familiar with the operation has at least a fighting chance of catching it before it blows up the world.

Leverage is like a termite infestation: it swarms anywhere there's food, but you hardly even notice it's there until things get out of hand and your house starts to fall down. Substitute "money" for "food" and "the entire global economy" for "your house," and that's leverage. Constant vigilance is the only defense.

Having said that, though, I'd like to defend the practice of baking pies to understand the meaning of pie charts. It sounds like a delicious alternative to reading New York Times op-eds.

From Karl Taro Greenfeld, writing in Bloomberg Businessweek:

It's as if the great advances of human civilization, in everything from animal husbandry to mathematics to architecture to manufacturing to information technology, have all crescendoed with the Crunchwrap Supreme, delivered via the pick-up window.

The rest of the story is all about how Taco Bell — which is headquartered just down the road from me — has revolutionized its drive-through business over the past ten years or so. Still, this part is a little dispiriting:

The program was so successful that in 2009 the brand was the first to finish in the top five in QSR magazine's Drive-Thru Performance Study in both speed and accuracy, averaging 164 seconds per vehicle with an accuracy rate of 93.1 percent...."They [i.e., the entire fast-food industry] have gotten to a place where it is probably as fast and accurate as it is going to be," says Blair Chauncey, of QSR magazine. "We got to the point where they were separated by a few seconds and everyone's accuracy was above 90 percent. Everyone has gotten so good." We are all of us, right now, living in the golden age of drive-thru.

So that's that. The pinnacle of Western achievement is an accuracy rate of about 90%, and it's not getting any better. That means that your order is going to be screwed up one time in ten when you go through a drive-through lane. I guess we'll have to wait for Star Trek-style food replicators in order to see further improvements.

Germany's Revenge

Tyler Cowen points us to a long but, typically for Morgan Kelly, worthwhile and entertainingly written column about Ireland's banking woes. You should read the whole thing, but here's a big chunk to get you started:

Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. [Irish Finance Minister Brian] Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.

....Given the political paralysis in the EU, and a European Central Bank that sees its main task as placating the editors of German tabloids, the most likely outcome of the European debt crisis is that, after two years or so to allow French and German banks to build up loss reserves, the insolvent economies will be forced into some sort of bankruptcy.

....Make no mistake: while government defaults are almost the normal state of affairs in places like Greece and Argentina, for a country like Ireland that trades on its reputation as a safe place to do business, a bankruptcy would be catastrophic....Worse still, a bankruptcy can do nothing to repair Ireland’s finances.

....National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately.

First the banks....The original bailout plan was that the loan portfolios of Irish banks would be sold off to repay these borrowings. However, foreign banks know that many of these loans, mortgages especially, will eventually default, and were not interested. As a result, the ECB finds itself with the Irish banks wedged uncomfortably far up its fundament, and no way of dislodging them.

This allows Ireland to walk away from the banking system by returning the Nama1 assets to the banks, and withdrawing its promissory notes in the banks. The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner. At some stage the ECB can take out an eraser and, where “Emergency Loan” is written in the accounts of Irish banks, write “Capital” instead. When it chooses to do so is its problem, not ours.

I suppose this analogy is wrong in a hundred different ways, but I can't help thinking that this is a lot like the aftermath of World War I, except in reverse. This time it's Germany acting as the imperious victor, demanding that the citizens of Ireland (and Greece and Portugal) immiserate themselves for years to pay back loans that they will never be able to pay back. It's easy to see why this is happening — thrifty Germans rather predictably don't feel like they should have to bail out spendthrift euro countries on the periphery — but it's also easy to see that there's no way it can end well.2 Likewise, it's easy to see why Geithner and others don't want to force still-fragile French and German banks to eat huge losses that could destabilize the global banking system in hard-to-predict ways. But again, it's also easy to see that there's really no choice. One way or another, neither Ireland nor Greece will ever be able to make good on their debts, and that means that either creditors or taxpayers in the rest of Europe — or both — are going to take a bath.

Would it be better to take that bath now, or better to wait a couple of years for the economy to recover before doing what has to be done? I don't know. But if I had to guess, I'd say that another two or three years of uncertainty (at best) or disaster (at worst) isn't worth the risk. Like it or not, Europe's banks and its taxpayers are probably better off dealing with this problem now. And it's not as if Ireland or Greece would be getting off without any pain, after all. Part 2 of Morgan's plan is to bring the Irish budget into balance, which would cause even more wrenching austerity than they're going through now. There's plenty of pain to go around.

1NAMA is a "bad bank" set up a couple of years ago to hold the worst toxic waste of the Irish banking system.

2Edited to make clear that I'm not especially defending the German attitude, just noting that it's perfectly understandable.