2011 - %3, November

Herman Cain's Business Plan

| Tue Nov. 1, 2011 4:00 PM EDT

I couldn't rouse myself yesterday to comment on the allegations of "inappropriate behavior" that were lodged against Herman Cain a decade ago and have now come to light thanks to — well, thanks to some enterprising oppo shop, probably. We really don't know. In any case, today Jon Chait digs into my subconscious and explains to me why I didn't care: it's because I know perfectly well that Cain isn't really running for president. His "campaign" is just a put-on:

Cain is executing a business plan. It’s an excellent plan. The plan involves Cain raising his profile as a conservative personality, which he can monetize through motivational speaking, book sales, talk shows, and other media. Cain’s selling point is that he’s a black conservative who can capitalize on the sense of white racial victimization that has mushroomed during the Obama era. Accordingly, Cain assures conservatives that they are not racist, as proven by their support for him. Indeed, it is the liberals who are racist, as evidenced by their opposition to Cain.

If Cain were campaigning to be president, the scandal would hurt him. Since he is instead campaigning to boost his profile, it will help him.

Herman Cain will not be our next president. However, conservatives have already convinced themselves — in defiance of both logic and common sense — that the charges against Cain emanated from some lefty organization terrified of the possibility that Cain might win the GOP nomination and run against President Obama. In fact, I think I can safely speak for the entire liberal community when I say that we'd barely be able to control our collective delight if Cain won the nomination. We love the idea of Cain winning the nomination. And if we had a bombshell like allegations of sexual misconduct? Believe you me, we'd keep said bombshell safely in our pockets until, oh, late August of 2012, let's say, and then drop it on the press just before the Republican convention opens. That would be great!

Anyway, yes: Cain's schtick is to sell books, maybe get himself a gig on Fox News, and raise his lecture fees. Among the true believers he appeals to, charges of misconduct are like manna from heaven, just more proof that white liberals are the real racists while they themselves, by sticking with their main, are the true avatars of racial tolerance in America.

Hell, maybe Cain himself leaked this stuff. Considering how much money it's likely to make him, I wouldn't put it past him. He is a successful businessman, after all.

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Raw Data: NAEP Reading Scores in Grades 4 and 8

| Tue Nov. 1, 2011 2:28 PM EDT

The 2011 NAEP reading and math scores were released today for 4th and 8th graders, and unsurprisingly, they aren't very different from the 2009 scores. It's only been two years, after all. Here's the basic 20-year trend:

Since 1992, average scores have gone up four points in 4th grade and five points in 8th grade. Using the usual rule of thumb, that's an improvement of about half a grade level. Black and Hispanic students have done a bit better, improving their scores by roughly a full grade level since 1992. Here's a breakdown by reading proficiency levels:

This is not spectacular progress, but it's progress. Since 1992, the number of students testing "Below Basic" is down significantly in both grade levels for all ethnic groups, and the number of students testing "Proficient" or above is up a fair amount.

Test scores for 11th graders are usually not as encouraging: most of the gains in 4th and 8th grade seem to wash out in high school. But we'll have to wait a bit to see those scores. For the time being, it appears that we're continuing to make steady but slow progress. Whether that's good enough is a different question, and not one that the NAEP can answer. This is just a bit of raw data for your consideration.

Kentucky Governor's Race Devolves Into Debate Over Hinduism

| Tue Nov. 1, 2011 2:19 PM EDT
Kentucky Gov. Steve Beshear (D) prays to his false horse god.

You would think that securing $43 million in tax credits for a to-scale replica of Noah's Ark would be enough to protect Kentucky Gov. Steve Beshear (D) from allegations that he's secretly some sort of America-hating pagan who takes his policy proposals straight from the malaria-infested mouth of the great swamp god, Mordu. You would be wrong. Beshear, who is heavily favored to win re-election this November, is taking heat from his Republican opponent for participating in a Hindu "ground blessing" ceremony last weekend at a groundbreaking for a new Indian-owned Elizabethtown factory. Here's how Republican Senate president and gubernatorial nominee David Williams put it:

He's there participating with Hindu priests, participating in a religious ceremony. They can say what they want to. He's sitting down there with his legs crossed, participating in Hindu prayers with a dot on his forehead with incense burning around him. I don't know what the man was thinking...

If I'm a Christian, I don't participate in Jewish prayers. I'm glad they do that. I don't participate in Hindu prayers. I don't participate in Muslim prayers. I don't do that. To get down and get involved and participate in prayers to these polytheistic situations, where you have these Hindu gods that they are praying to, doesn't appear to me to be in line with what a governor of the Commonwealth of Kentucky ought to be doing...

Yet between his not being pro-life and his support for gambling and now getting down and doing Hindu prayers to these Hindu gods, I think his grandfathers wouldn't be very pleased with Steve Beshear.

Williams, per the Lexington Herald-Leader, went on to dismiss charges that he was demeaning Hinduism by referring to it as "idolatry," telling the paper that if anyone had offended Hindus, it was Beshear. Kentucky politicians have a proud—and bipartisan—history of making absurd allegations about their opponents' faith. Last fall, Democratic Attorney General Jack Conway accused Sen. Rand Paul of worshipping the false-God* Aqua Buddha (a nod to a prank Paul had played in college).

(h/t Eric Kleefeld)

*His assertion, not mine.

It Begins: Pro-Perry Group Runs First Super-PAC Ads of 2012

| Tue Nov. 1, 2011 1:26 PM EDT
Mike Toomey (left) and Texas Governor Rick Perry go way back.

Things could be going better for Rick Perry's presidential campaign. He probably wishes he hadn't gone into a total free-fall in the national polls (and in Iowa), for instance. Maybe he regrets giving a speech in New Hampshire on Friday in which he sounded like he'd just shotgunned a bottle of Robitussin. But there's a reason Republicans still believe he has a shot to beat Mitt Romney: The Texas governor has a lot of money in the bank, and just as importantly, he's got a lot of friends with a lot of money in the bank.

Perry has not one but two super-PACs working on his behalf—dark money groups that can accept unlimited donations (including from corporate sources)—the most notable of which is Make Us Great Again, founded by Perry's former chief of staff and long-time friend, Austin mega-lobbyist Mike Toomey. Make Us Great Again has a goal of raising and spending $55 million on Perry's behalf during the primaries alone, which is a lot. And now it's on the air with its first set of television ads—making it the first super PAC to hit airwaves during the Republican primary:

We're betting they won't be the last.

Europe's Problems Start to Wash Ashore

| Tue Nov. 1, 2011 12:20 PM EDT

The details of what happened at Jon Corzine's MF Global seem depressingly familiar. MFG borrowed a ton of money and then bought some European bonds that paid more than the interest on the loan. Profit! Of course, everything was hedged to within an inch of its life, so there was no risk of loss even if, say, Europe's debt crisis spun out of control and their bond yields gapped out. It was, as usual, a riskless moneymaking machine.

But guess what? There's no such thing as riskless. When European bonds began going south, and seemed likely to keep going south, lenders started getting nervous and demanded additional collateral. But MF Global was leveraged to its eyeballs and couldn't come up with any. This led to the usual dispiriting death spiral we've gotten so accustomed to.

Most of the talk about MF Global right now is about whether this is another "Lehman moment." Probably not. In any case, it seems to me more like another "Long Term Capital Management moment." The details of the trades are different, of course, but the overall bets are similar, the leveraging is similar, the collateral calls are similar, and even the proximate causes of collapse are similar (Russia for LTCM, Europe for MF Global). Plus, just to put a cherry on top, there's now a suggestion that MF Global might have been dipping into customer accounts to pay its bills. At least LTCM never did that.

So what are the lessons? All the usual ones that we pretend to learn every time this happens but never do. Extreme leverage is toxic. There are no riskless trades. Hedging is never perfect. Sovereign debt is just another kind of debt. That was the lesson of LTCM in 1998 and it was the lesson of 2008. The financial industry keeps saying that this time they've learned their lesson for sure, but guess what? They never do. They just can't stay away from the Great Casino, and unfortunately, unlike some poor schlub who loses his savings account in Vegas and only has to face the wrath of his wife when he gets home, when Wall Street loses, it loses big enough to cause problems for the entire global financial system. And we all pay the price for that.

Thus the need for regulation. Not because Wall Street is full of evil people, but because it's full of testosterone-fueled optimists who are convinced they can never lose. That's fine as long as they do it with their own money. But when they do it with mountains of debt it's not. The only question then is who's going to collapse next and how much damage they're going to leave in their wake, not whether anyone is going to collapse.

This may not be another Lehman moment. Not yet. But it does suggest that American exposure to Europe's problems is greater than anyone wants to acknowledge. It all depends on how many more MF Globals are hiding in the woodwork.

Coal Ash Spills in Lake Michigan

| Tue Nov. 1, 2011 12:09 PM EDT

Check out this photo that Mark Hoffman of the Milwaukee Journal Sentinal snapped on Monday of a dam collapse at a coal ash pond:

Mark Hoffman/Milwaukee Journal SentinalMark Hoffman/Milwaukee Journal Sentinal

The Journal Sentinel reports that a large section of a bluff used to contain coal ash at the We Energies Oak Creek Power Plant broke on Monday, dumping ash and dirt into Lake Michigan. As you can see in the photo, a truck and some heavy machinery were also pushed into the lake. One of the first responders in the area noted that the debris "stretched 120 yards long and 50 to 80 yards wide at the bottom." A spokesman for the company told the paper that the dam probably did contain coal ash, but said that they'd stopped dumping it there "several decades ago."

The spill calls to mind the catastrophic dam break at the Tennessee Valley Authority's Kingston Fossil Plant in Harriman, Tennessee, back in December 2008. That spill dumped 1.1 billion gallons of coal slurry, and prompted the Environmental Protection Agency to reconsider how coal waste is handled. Although the EPA was on course to reclassify coal leavings as "hazardous waste" that needed special handling, that rule has been stuck in bureaucratic wrangling for more than two years. So for now, it's still perfectly legal to store coal ash waste in retention ponds that are likely not lined or particularly well maintained.

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Good News of the Day

| Tue Nov. 1, 2011 11:43 AM EDT

Bank of America has caved in:

Bowing to a national flood of protests, Bank of America Corp. is calling off its plan to charge customers $5 a month for using its debit cards to make purchases — a strategy that proved a public relations disaster for what once was America's biggest bank.

As I said the other day, there's no telling how this is going to work out in the end. Banks are going to keep dreaming up new fees to make up for their lost interchange revenue, and only time will tell how those fees shake out. However, I'm tentatively pleased to see what happens when fees are out in the open instead of being hidden: the market speaks, and it speaks loudly. Banks are going to have to actually compete on fees now, and in the end that should benefit consumers by producing lower overall banking costs. Keep your fingers crossed.

California HSR Drops Another Bombshell

| Tue Nov. 1, 2011 11:01 AM EDT

Me, writing three months ago about California's LA-San Francisco bullet train project:

I'm no engineer, but I'm willing to risk a few C-notes that this project ends up at $100 billion or more in 2011 dollars. Any takers? This is a very long-term bet, of course, since the line isn't scheduled to be finished until 2020—and I'm willing to put up a few more C-notes that it'll be more like 2025 or 2030.

The LA Times, today:

California's bullet train will cost an estimated $98.5 billion to build over the next 22 years, a price nearly double any previous projection and one likely to trigger political sticker shock, according to a business plan scheduled to be unveiled Tuesday. In a key change, the state has decided to stretch out the construction schedule by 13 years, completing the Southern California-to-Bay Area high speed rail in 2033 rather than 2020.

In fairness, this $98 billion estimate is still only $65 billion in 2011 dollars, so I haven't won the first half of my bet yet. But it's sure looking like I won't actually have to wait until 2020 to do so. At the rate that new, "more realistic" estimates are being shoveled out the door, we'll hit the $100 billion mark in another few months.

The Elizabeth Warren–Scott Brown Proxy War

| Tue Nov. 1, 2011 10:29 AM EDT
Harvard Professor Elizabeth Warren is expected to win the Democratic nomination to challenge Sen. Scott Brown (R-Mass.)

Next year's Massachusetts Senate race, between Republican Sen. Scott Brown and Democratic Harvard professor Elizabeth Warren, is shaping up to be one of the most-expensive, most-watched races of the cycle. As we've noted previously, at least one recent poll gave Warren, the architect of the Consumer Financial Protection Bureau, a slight lead over Brown, who helped to gut some of the key provisions of last year's financial reform bill. Brown has $10 million in the bank; Warren raised $3 million in just her first six weeks as a candidate.

But for now, the race is something of a proxy war. Warren doesn't mention Scott Brown by name during her stump speech, choosing instead to cast her candidacy as a campaign against Washington inaction in the face of income inequality and crumbling infrastructure. Brown, for his part, has said he won't start campaigning until after New Year's. But in their absence, their surrogates are gearing up for a fight.

Greece Finally Rebels

| Tue Nov. 1, 2011 10:21 AM EDT

Did anyone expect that the latest deal to rescue the eurozone would collapse quite so quickly and quite so spectacularly? Greek Prime Minister George Papandreou, in a surprise both to the world and to his own party (and his own finance minister), announced last night that instead of simply accepting the recently concluded deal, he would allow the public to vote on it in a referendum. Since the public is distinctly unlikely to approve the agreement, pandemonium immediately broke out. Papandreou commands only a slim majority in parliament, and already two members of his party have resigned and several more are threatening to do the same, which would bring down the government. Stock markets have tanked all over the world, and emergency meetings are now the order of the day. Papandreou is holding one as I write this, and Nicolas Sarkozy and Angela Merkel will be meeting tomorrow in Cannes.

What happens next is anyone's guess. "It's all over. The government is about to collapse," one anonymous Greek official told the Guardian. This in turn would mean that Greece has simply reached the end of its austerity rope, unwilling to cut any further in order to appease the French and Germans. Britain's shadow chancellor seems to have poured a bit of fuel on the fire, suggesting that Greece's referendum was a good idea, a notion that isn't likely to make the (non-euro using) UK any more popular than it already isn't in the hallways of Paris and Berlin.

If the Greek government falls, and a new government demands a better deal, it's unclear what will happen next. It could be a prelude to Greece exiting the euro in a decidedly non-orderly way, and if that happens there's no telling if the euro will survive. Stay tuned.