Kevin Drum

Like a Swiss Watch

| Fri Oct. 24, 2008 3:42 PM EDT

LIKE A SWISS WATCH....Let's summarize the past couple of days: (a) Politico reports that La Palin has spent $150,000 on campaign outfits, (b) John McCain's brother calls 911 to complain about a traffic jam and then curses at the operator for telling him to get off the line, (c) the New York Times reports that Palin also spent $30,000 or so on hair and makeup over a period of two weeks, and (d) a white woman who claimed she was attacked by a black Obama supporter admits that the whole thing was a hoax.

But I guess this is no big deal because the McCain campaign was running so smoothly it could afford a few minor glitches like this, right?

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Let the Defenestrations Begin

| Fri Oct. 24, 2008 2:18 PM EDT

LET THE DEFENESTRATIONS BEGIN....Politico reports on what's going on behind the scenes in Republican circles:

With despair rising even among many of John McCain's own advisers, influential Republicans inside and outside his campaign are engaged in an intense round of blame-casting and rear-covering — much of it virtually conceding that an Election Day rout is likely.

...."If you really want to see what 'going negative' is in politics, just watch the back-stabbing and blame game that we're starting to see," said Mark McKinnon, the ad man who left the campaign after McCain wrapped up the GOP primary. "And there's one common theme: Everyone who wasn't part of the campaign could have done better."

"The cake is baked," agreed a former McCain strategist. "We're entering the finger-pointing and positioning-for-history part of the campaign. It's every man for himself now."

I am so looking forward to this. Is this schadenfreude? Or does that require at least a veneer of pretending that you're not really taking pleasure in the misfortunes of others? I'm not sure. But I'm looking forward to it anyway.

And you know the part I'm really looking forward to? Sarah Palin's role in all this. I expect her to rip McCain absolutely to shreds. On background, of course, but it will be no less vicious for that. Her future, such as it is, lies with the wingnut rump of the party, and she knows what her audience wants: John McCain's blood. And lots of it. They never liked him in the first place, and I expect them to be howling for his head on a platter starting at about 8:01 pm EST on November 4th.

You Are What You Drive

| Fri Oct. 24, 2008 1:59 PM EDT

YOU ARE WHAT YOU DRIVE....That latest news from the Kelley Blue Book people:

McCain receives the highest support from full-size truck (66 percent), full-size SUV (61 percent) and luxury SUV (61 percent) owners. Obama leads McCain among luxury station wagon (59 percent), station wagon and sport wagon (55 percent), hatchback (52 percent) and luxury crossover vehicle (52 percent) owners. Among owners of hybrid vehicles, Obama leads with 48 percent of the preferences, nine points more than McCain.

Among brands, McCain is popular with owners of GMC trucks and Chevrolets, clearly part of real America. Obama is popular with owners of Minis, Subarus, and Saabs, obviously denizens of latte-sipping faux America.

Subway Madness

| Fri Oct. 24, 2008 1:40 PM EDT

SUBWAY MADNESS....Apparently AIG, over the years, has guaranteed several elaborate tax avoidance schemes that allowed local transit authorities to make some extra money via sale-leaseback agreements with banks. Now that AIG is kaput, the schemes are falling apart and the transit agencies may suddenly get billed for tens of millions of dollars. Transit fan Matt Yglesias is pissed:

WTF is happening here? Can't we, in exchange for all the money we're giving AIG, force the company to keep guaranteeing deals that are vital to keeping our public services running? Something about the implementation of this bailout is very troubling and it doesn't inspire a ton of confidence in the future of TARP.

Unfortunately, that doesn't seem to be the issue. AIG is still guaranteeing the deals. The problem is that the contracts with the banks terminate automatically if AIG doesn't maintain a high credit rating. Which, needless to say, they haven't. So now the banks are demanding payment.

Which just goes to show how all this stuff trickles down not just to Main Street, but to the subways underneath Main Street too. However, a Treasury Department spokesman says, "Treasury is aware of this situation." That should make us all feel better, right?

Campaign Trail Update

| Fri Oct. 24, 2008 1:14 PM EDT

CAMPAIGN TRAIL UPDATE....Barack Obama and John McCain have finally found something they agree on: George Bush sucks. That's called "reaching across the aisle," boys and girls.

Housing Update

| Fri Oct. 24, 2008 12:49 PM EDT

HOUSING UPDATE....The latest news on the housing market:

Although prices continued to fall, existing-home sales climbed more than expected during September, marking the highest level of home sales activity in more than a year.

Home resales rose to a 5.18 million annual rate, a 5.5% increase from August's unrevised 4.91 million annual pace, the National Association of Realtors said Friday.

....The home sales increase represents "a nice jump," said NAR economist Lawrence Yun. "Hopefully, this trend can continue."

OK, I admit it. I'm just trying to cheer you up. That "nice jump" appears to be about the only good news around today amidst an ocean of gloom. Here in California, the latest news is that home foreclosures, after jumping about a million percent over the last year, are now down. But only because of a new law that makes banks delay proceedings until 30 days after contacting the borrower. Woo hoo!

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Quote of the Day - 10.23.08

| Thu Oct. 23, 2008 10:51 PM EDT

QUOTE OF THE DAY....From Alan Greenspan, testifying before Congress on the derivatives market:

"Credit default swaps, I think, have serious problems associated with them."

Ya think? The subprime lending market may have been the trigger for our late financial collapse, but the truth is that the trigger could just as easily been mispriced risk (i.e., irrational exuberance) in a variety of other markets. If subprimes had been regulated better, maybe there would have been a bubble in commercial real estate instead. Or arctic oil drilling. Or online pet food companies. Who knows? Regardless of the trigger, however, it was only when the resulting bubble got multiplied tenfold by opaque global chains of credit default swaps that the bursting of an asset bubble went from routine disaster to worldwide financial meltdown. So yeah: there are serious problems there. Here's more from Greenspan:

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Mr. Greenspan said.

....Mr. Waxman pressed the former Fed chair to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Mr. Waxman said.

"Absolutely, precisely," Mr. Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Hmmm. Maybe not quite so well as he thought.

Yummy, Yummy Kool-Aid

| Thu Oct. 23, 2008 9:08 PM EDT

YUMMY, YUMMY KOOL-AID....From Mark Krikorian, commenting on Sarah Palin's views on immigration reform:

"What Palin's response shows is that [] she's completely open to whatever kool-aid they want her to drink."

He's quite right, of course. Note, however, that this is coming from neither a liberal nor from a moderate conservative complaining that Palin is too right-wing. It's coming from an immigration hardliner complaining that Palin is too accomodating.

Normally the hardliners don't talk about this because Palin's lack of interest in policy of any kind, along with her resulting willingness to drink Kool-Aid of whatever flavor is put in front of her, is a feature, not a bug. Every once in a while, though, it comes back to bite them.

But don't worry, Mark. I'm sure she'll learn the proper responses before long.

Wanted: Finance Industry A Team

| Thu Oct. 23, 2008 3:17 PM EDT

WANTED: FINANCE INDUSTRY A TEAM....One of the things that makes our current financial crisis even scarier than it might otherwise be (at least to me) is that no one really, truly, seems to be entirely sure of what's going on. Even genuine experts appear to be sort of baffled by the whole thing — though that hasn't stopped them from producing hundreds of different theories. Ezra Klein points out one of the causes of this problem, which has been at the back of my mind as well:

One sidenote of the past few months is that folks turned to economists when what they needed were finance experts. But there are relatively few finance experts who aren't affiliated with financial institutions, and so much of their commentary is tainted.

....Asking folks who have a general education in matters of macroeconomy to evince a complete knowledge of opaque financial instruments developed in the past few years is a bit odd. But asking the folks who developed and traded those instruments to give unbiased commentary on them is little better. It's a weird situation, and it's why, I'd argue, you've had a lot more commentary on things like the bailout bill, which are fairly general in nature and can be understood using tools from traditional economics, than the specifics of the financial crisis.

I second that motion. More finance experts, please. And mortgage and securitization experts. And ratings agency experts. And central banking experts. All stirred together with a bunch of top notch macroeconomists. Unfortunately, I suppose we'd probably all have to chip in and guarantee these guys $10 million bonuses to do real analysis for us, wouldn't we? Maybe George Soros could bankroll them.

UPDATE: Speaking of finance analysis, I wrote yesterday about a Fed paper suggesting that there was, in reality, no credit crisis at all. In fact, banks are lending like crazy! I was skeptical, but said, "Even if it turns out to be wrong, reading the explanation of why it's wrong should be instructive."

Mark Thoma and friends oblige with an explanation here. It's not conclusive, I think, but it certainly suggests that the original paper I linked to was woefully simplistic.

Complicated Problems

| Thu Oct. 23, 2008 2:34 PM EDT

COMPLICATED PROBLEMS....Douglas Holtz-Eakin, John McCain's primary economic advisor, says that income inequality has gone up everywhere, not just in the U.S., and opines that "The source of that is education." Matt Yglesias has a bunch to say about that, including this:

While there does seem to be an education-related component to the growth in inequality (specifically, the number of college graduates has not kept up with the growing labor market demand for college educated workers) there are also other factors, including the declining real value of the minimum wage and declining rates of unionization. In both cases, and all others I'm aware of, McCain takes the pro-inequality side.

I just want to quickly endorse the broader point Matt is making here. The growth of income inequality is a complex problem with multiple causes. In fact, virtually every social problem interesting enough to remain unsolved has multiple causes, and that makes them hard to address. The answer to this is not to pretend otherwise ("education" by itself certainly doesn't explain the astronomical income growth of the top 0.1% compared to the top 1%, for example), nor is it to give up because there are lots and lots of causes and it's hard to fix them all.

There are multiple kinds of income inequality, and assuming you care about this in the first place (and you should, both for reasons of basic fairness and because an egalitarian economy works better than a vastly unequal one) you have to address them all. You need things like minimum wage laws and the EITC to help the poor keep up. Unionization can help the working class and educational and training policies can help the middle class. Tax policies, at a minimum, should be designed to be at least modestly progressive at the high end. (Our current tax system, which features regressive state, local, and payroll taxes, and which taxes capital gains and dividends at low rates, has produced overall tax rates that are only slightly progressive. Most billionaires don't pay an awful lot more than grocery checkers.) Things like universal healthcare can ameliorate some of the ill effects of whatever income inequality is left even after you've addressed the other stuff.

One way or another, though, any solution has to focus like a laser on increasing median wages to keep up with GDP growth. In the same way that TV revenue has produced an immense ocean of money for top athletes, keeping median wages flat has produced an immense ocean of extra money that sloshes around for the benefit of the tippy top executive class. Treat the middle class more fairly, and income inequality will decrease naturally. That should be Job 1 for Barack Obama's economic team.