Kevin Drum

Limiting CEO Pay

| Mon Sep. 29, 2008 2:15 PM EDT

LIMITING CEO PAY....Henry Blodget says the provisions of the bailout plan limiting CEO compensation are "toothless":

The plan ostensibly prohibits golden parachute payments to CEOs and other "C-level" execs at bailed-out companies. However, it really only prevents payments on severance deals that are struck AFTER the bailout (specifically, it prohibits these deals completely). There is nothing about cancelling the severance payments that the executives are ALREADY contractually entitled to. What this means in practice is that bailed-out companies will have trouble hiring the best talent...because why would you work at Bailed Out Company A when you could go across the street and get a fat severance deal? It also doesn't mean the companies can't pay their CEOs $500 million a year. IN ADDITION: There's another absurd section that makes all compensation above $500,000 for the three highest paid employees at the company not tax-deductible for the company. This is LUDICROUS. It means the company can pay the executives anything it wants and that the penalty for this will be exacted on the company and its shareholders. (Unless we're mistaken, Americans are furious that CEOs make $50 million a year for running companies into the ground, not that the $50 million is tax deductible).

Unfortunately, this sounds about right to me. Sometimes symbolic stuff like this can be important, but it's symbolic nonetheless. The plain fact is that there's very little in this bill to genuinely limit executive compensation, and probably very little that could have been in the bill. It's better than nothing, but only barely.

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Owning the Debate

| Mon Sep. 29, 2008 2:00 PM EDT

OWNING THE DEBATE....Ezra Klein on the Paulson rescue package:

One point Paul Krugman makes here is that the terms of the bailout were sharply constrained by the political strategy chosen by the Democrats. When Pelosi and Reid decided that this bill would not go through without Republican votes because Democrats would not be demagogued for cleaning up the mess caused by deregulation, they took more sharply liberal options like nationalization off the table.

That's true, but I think I'd make a different political point. Henry Paulson unveiled his plan on Friday the 19th, and that was when the frame of the debate was set. And that frame was: purchase of troubled assets. At that point, virtually no one had so much as mentioned large scale nationalizations as a potential solution to the banking crisis. It just wasn't on the public radar screen.

Now, maybe that wouldn't have mattered. Maybe our current political coalition wouldn't have been willing to consider it regardless. But virtually everyone agreed that action needed to be taken quickly to prop up the financial markets, and under circumstances like that there's simply no chance of popping up at the last minute with a huge new proposal and thinking it has any chance of passing. If large-scale nationalization was really the preferred solution among liberal activists, the time to start pushing it was before Paulson and Bernanke introduced their bill. Doing it in the middle of last week, and then complaining that it didn't get seriously considered, displays a failure of vision on the left, not from its congressional leadership.

January 21st

| Mon Sep. 29, 2008 1:24 PM EDT

JANUARY 21st....Matt Yglesias isn't happy with the bailout bill:

Under the circumstances, it looks like a bill that'll be good enough to stave off collapse of the financial system, but probably won't wind up addressing the full extent of the problem. This subject is going to have to be revisited after the election. But the unfortunate reality is that the current configuration of power in Washington still leaves the conservatives whose policies and ideology is largely responsible for the collapse in command of too many levers of power to simply implement a solution that's not tainted by their misconception of the problem.

I'm less unhappy than Matt. I think there's a decent chance the bill will provide enough systemic relief to prevent a scattershot government takeover of failed banks, and I'm OK with that. More to the point, though, if the bailout doesn't solve the problem completely, I'm perfectly happy to put off further action until after the election. If widespread nationalizations do turn out to be necessary, there's a way, way better chance of doing it decently on January 21st than there is today. One thing is certain, after all: we're not going to end up with a Swedish-style political solution in which both parties put down their hatchets and sing Kumbaya as they announce a rescue plan. Events of the past week have made that crystal clear. If it happens at all, it will only be because Democrats manage to push it through on sheer muscle.

Biden vs. Palin

| Mon Sep. 29, 2008 12:33 PM EDT

BIDEN vs. PALIN....Nancy Gibbs, like many other people, wonders how Sarah Palin is going to do against Joe Biden on Thursday night:

With Charlie Gibson the waters were smooth if shallow; with Katie Couric she seemed forever at risk of drowning in her own syntax. But if she's growing less surefooted with each passing day of cramming, who can blame her, when the highly experienced Republican pols around her don't seem to trust her to talk past her talking points....All I know is that with each passing day, Palin's road gets harder, the expectations higher, the margin for error smaller.

No kidding. But there's a flip side to this too: it takes a lot of pressure off Biden. When Palin was first nominated, pundits fell all over themselves to advise Biden to watch his tongue when he faced Palin in debate. Don't look like a bully! Don't be sarcastic! Don't talk down to her!

Well, guess what? It turns out he doesn't need to. Attacking Palin — all the while worrying about whether this attack is too much or that attack will turn off women — is completely unnecessary. Biden just needs to show up, talk normally, and wait for her to implode. That's got to be a relief, no?

Hedge Fund Watch

| Mon Sep. 29, 2008 1:30 AM EDT

HEDGE FUND WATCH....The end of the third quarter is nearly upon us, and hedge fund managers are feeling nervous:

Even as Washington reached a tentative agreement on Sunday over what may become the largest financial bailout in American history, new worries were building inside the nearly $2 trillion world of hedge funds. After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits.

....The big worry is that a spate of hurried sales could unleash a vicious circle within the hedge fund industry, with the sales leading to more losses, and those losses leading to more withdrawals, and so on. A big test will come on Tuesday, when many funds are scheduled to accept withdrawal requests for the end of the year.

"Everybody's watching for redemptions," said James McKee, director of hedge fund research at Callan Associates, a consulting firm in San Francisco. "And there could be a cascading effect, where redemptions cause other redemptions."

The article says optimistically that "No one expects a wholesale flight from hedge funds." But no one ever does, do they?

The Rise of the Technocrats

| Sun Sep. 28, 2008 11:51 PM EDT

THE RISE OF THE TECHNOCRATS....The New York Times on the Paulson bailout plan:

The rescue package, if successful, would make the recognition of losses and the inevitable winnowing of the banking system more an orderly retreat than a collapse. Yet that pruning of the banking industry must take place, economists say, and it is the government's role to move it along instead of coddling the banks if the financial system is going to return to health.

...."The lesson from Japan is that tough love for the banks is what's needed," said Kenneth Rogoff, an economist at Harvard. "In the current crisis, you do want to get rid of the bad assets from the banks, to get markets working again. But the key is going to be in the details of how the bailout works. You don't want it to be a subsidy in disguise that keeps insolvent banks alive. That would just prolong the economic pain."

Words to live by. The Treasury technocrats and asset managers who end up running the bailout are going to have a tremendous influence over whether it's successful or not. If they do it right, the plan should shine a bright light on which banks need to fail and which ones can be saved. If they do it wrong, we could be in for a long, gray twilight of economic stagnation.

In other words, we all better cross our fingers and pray that the Treasury department still has good technocrats these days. I wonder what the odds are?

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Global Warming Update

| Sun Sep. 28, 2008 6:20 PM EDT

GLOBAL WARMING UPDATE....What with financial Armageddon crashing down on our heads as we speak, it's hard to believe that the worst news of the week was actually buried on page A2 of the Washington Post. But it was:

In 2007, carbon released from burning fossil fuels and producing cement increased 2.9 percent over that released in 2006, to a total of 8.47 gigatons....This output is at the very high end of scenarios outlined by the Intergovernmental Panel on Climate Change (IPCC) and could translate into a global temperature rise of more than 11 degrees Fahrenheit by the end of the century, according to the panel's estimates.

We are so screwed.

All the Right Enemies

| Sun Sep. 28, 2008 6:06 PM EDT

ALL THE RIGHT ENEMIES....Sure, maybe you don't believe me about whether the Paulson bailout will work. Why should you? But the fact that Mike Pence opposes it surely lends the plan some credibility, doesn't it?

"Utterly Unqualified"

| Sun Sep. 28, 2008 4:35 PM EDT

"UTTERLY UNQUALIFIED"....Fareed Zakaria on Sarah Palin:

Can we now admit the obvious? Sarah Palin is utterly unqualified to be vice president. She is a feisty, charismatic politician who has done some good things in Alaska. But she has never spent a day thinking about any important national or international issue, and this is a hell of a time to start.

....In these times, for John McCain to have chosen this person to be his running mate is fundamentally irresponsible. McCain says that he always puts country first. In this important case, it is simply not true.

I don't want to overstate the importance of this, but it's definitely a sign that Palin's jig may be up. Zakaria frequently writes astutely, but he's something of an establishment weathervane, reluctant to state firm opinions unless he's got plenty of company. So if he's willing to say flatly that Palin is "utterly unqualified," it suggests that the center-right establishment pretty unanimously agrees about this. I don't know for sure that this will have a noticeable effect on the campaign, but when you add it to the growing list of conservatives who have taken similar stands (George Will, David Frum, Rod Dreher, Kathleen Parker, Ross Douthat, David Brooks, Charles Krauthammer), it suggests that dismay over Palin may be reaching critical mass.

Who Won the Debate?

| Sun Sep. 28, 2008 3:53 PM EDT

WHO WON THE DEBATE?....A non-snap poll done on Saturday suggests that Barack Obama really did win Friday's debate:

A new USA TODAY/Gallup Poll shows 46% of people who watched Friday night's presidential debate say Democrat Barack Obama did a better job than Republican John McCain; 34% said McCain did better.

....The poll suggested the debate was to some extent a wash for McCain: 21% of those who watched say it gave them a more favorable view of him, 21% say less favorable and 56% say it didn't change their opinion much.

Three in 10 said their opinion of Obama became more favorable after seeing the debate, compared to 14% who said less favorable and 54% who said it didn't make much difference.

Polls done on weekends are tricky, and "winning" debates doesn't always translate into a tangible advantage. Still, it's notable that a significant number of people who were apparently unsure about Obama before the debate now see him in a favorable light. That's a big deal, since being taken seriously is the biggest hurdle for a younger, less-experienced candidate to get over.

And while we're at it, here's the RealClear Politics poll average, which doesn't yet account for any possible bump Obama might have gotten from the debate. As of this morning, they have him 4.8 points ahead.