2008 - %3, November

When His Lips Move

| Tue Nov. 25, 2008 11:58 PM PST

WHEN HIS LIPS MOVE....Fred Kaplan warns us not to trust a single word that Donald Rumsfeld writes:

During his six years as defense secretary, Rumsfeld famously wrote hundreds, maybe thousands, of memos to subordinates — they fell so rapidly from on high that his aides called them "snowflakes." According to several officials, many of these snowflakes contradicted one another; he seemed to be staking out several positions on key issues so that he could later claim that he'd taken the right side. In his forthcoming memoirs, he will no doubt quote chapter and verse from just the right snowflakes. Readers, be forewarned — he's blotting out the full storm.

Read the whole thing. He's already got a couple of examples and Rumsfeld's book hasn't even been written yet.

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The Cost of the Bailout

| Tue Nov. 25, 2008 11:52 PM PST

THE COST OF THE BAILOUT....Here's a sentence from the Guardian today:

The glut of government initiatives, which included a $326bn bail-out of Citigroup on Monday....

Can we please stop this? Calling this a "$326 billion" bailout is crazy. It's a $20 billion capital injection plus a bunch of asset guarantees with a maximum cost of $250 billion and a probable cost in the low billions. (Possibly zero, in fact.) The capital will probably be repaid eventually, but even if it isn't it's highly unlikely that Uncle Sam is on the hook for more than $30-40 billion.

This stuff has gotten completely out of hand, with "estimates" of the bailout these days ranging from $3 trillion to $7 trillion even though the vast bulk of this sum comes in the form of loan guarantees, lending facilities, and capital injections. The government will almost certainly end up spending a lot of money rescuing the financial system (I wouldn't be surprised if the final tab comes to $1 trillion over five years, maybe $2 trillion at the outside), but it's not $7 trillion or anything close to it. People really need to stop throwing around these numbers as if the bailout is comparable to World War II or something. That's not reality based, folks.

Throw the Bums Out

| Tue Nov. 25, 2008 11:07 PM PST

THROW THE BUMS OUT....Hilzoy is peeved at the terms of the Citigroup bailout:

The people who either ran Citi into the ground or were asleep at the wheel need to go. That should be the condition of a bailout: if you turn out to need public assistance, you lose your job. No golden parachutes either.

As I've said before: we absolutely need to make sure that the people who run these banks do not conclude from our unwillingness to let them take down the entire financial system that it's OK to run these risks. The best way I can think of to do that is to make sure that they, personally, pay.

Agreed. But how? Sure, the government could insist on resignations in return for a bailout, but what can it do beyond that? We can't take away money these executives have already earned, nor can we take away their pension benefits or anything else they're contractually entitled to. Like it or not, that's how limited liability corporations work.

So, yeah, we could fire a bunch of people, and I suppose we probably should — though that's hardly without some risk too. But let's face it: that's not really much of a lesson to future generations. If we want banks to limit their risk, our only real option is to put rules in place that force them to limit their risk. The threat of being fired has never kept BSDs from taking chances in the past, and I doubt it will do us much good this time around either.

Bus Economy Booming

| Tue Nov. 25, 2008 8:29 PM PST

800px-Leyland_double_decker_bus.JPG Intercity bus service in the US jumped nearly 10 percent in the last year. In fact, the rate of growth was the highest in more than 40 years. Rising fuel prices played a role. But so did the revival of downtown districts and a growing acceptance of bus travel among younger travelers. Because of them, the atmosphere was spared roughly 36,000 tons of CO2 emissions.

Thank you bus riders.

Meanwhile air travel in the same period declined 8 percent. Travel by private vehicle was down 3.3 percent. Train ridership increased about 3.3 percent.

Thank you train riders.

Much of the growth was driven by two companies, Megabus and Boltbus, a joint venture of the Greyhound and Peter Pan bus companies. Both started kerbside pick-up service in northeastern states in spring 2007. The two companies offer high-frequency service between major US cities and wireless Internet service on board.

Thanks to the Chaddick Institute for Metropolitan Development at DePaul University in Chicago for the new study.

Julia Whitty is Mother Jones' environmental correspondent, lecturer, and 2008 winner of the PEN USA Literary Award, the Kiriyama Prize and the John Burroughs Medal.

Smiling Obama

| Tue Nov. 25, 2008 4:03 PM PST

SMILING OBAMA....Fred Davis III, John McCain's advertising guy, tells Time's Michael Scherer that he felt handcuffed in several ways during the campaign:

Davis says that concern about race played a major role in the entire aesthetic of McCain's ads. The photographs of Obama that the ads used, for instance, which often showed Obama elongated and smiling, were carefully selected, he recalls. "We chose them with only one thing in mind, and that is to not make them bad pictures because bad pictures would be seen as racist," Davis says.

I'm disappointed to hear this. I had assumed all along that his use of a smiling Barack Obama was a masterstroke. Instead of the tired old schtick of using awkward or glowering photos in grainy black-and-white, he was instead trying to portray Obama as slick and shallow, a beaming tent preacher trying to sell you a bill of goods. Not only did it play up the stereotype they were trying to sell, but it made them impervious to criticism. How can you complain that your opponents are making you look too good, after all?

But no. That wasn't it at all. They were just trying to avoid charges of racism. How banal.

GSE Debt

| Tue Nov. 25, 2008 3:38 PM PST

GSE DEBT....When I read last night that the Fed planned to buy up $600 billion in Fannie/Freddie debt, I didn't have the nerve to ask the obvious question: aren't Fannie and Freddie government enterprises now? Why is the government buying up government debt? But I guess it wasn't such a stupid question after all, because Paul Krugman is wondering the same thing:

It's true, as the Fed's statement says, that

Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late.

But that's presumably because the Bush administration, weirdly, has refused to declare that GSE debt is backed by the full faith and credit of the US government. Why not just make that declaration, turning GSE debt into Treasury obligations, rather than stuff the obligations onto the balance sheet of the Federal Reserve?

Is this some kind of strange political game? Is there something else going on here? Inquiring minds want to know.

Nobody ever answers my questions, but this time I got lucky. I'll bet Krugman eventually gets an answer.

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Glenn Greenwald, Andrew Sullivan Celebrate "Exceptional News": John Brennan Won't Be CIA Director

| Tue Nov. 25, 2008 1:51 PM PST

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John Brennan, a top adviser to Barack Obama on intelligence issues who had been widely rumored to be the President-elect's top choice for CIA director, has taken himself out of the running. Bloggers, including Salon's Glenn Greenwald and the Atlantic's Andrew Sullivan, had vociferously opposed Brennan on the grounds that he had reportedly supported the torture of terrorist detainees and the governments extraordinary rendition program. In his letter to Obama, Brennan writes that he "was not involved in the decision-making process for any of these controversial policies," but Greenwald emphasizes that being involved with the decision-making process was never the issue. It was the fact that Brennan supported those decisions that was the problem, whether or not he actually had the decision-making power himself. And the evidence is pretty clear that Brennan did not draw a bright line on torture. Brennan was onetime CIA director George Tenet's chief of staff (which is a bad sign on its own), and the estimable Jane Mayer described him in New Yorker as a "supporter" of the Bush administration's "interrogation and detention" program. Brennan told Mayer that drawing the line on how to treat detainees "all comes down to individual moral barometers." No, it doesn't.

It's true that Brennan did oppose some of the most heinous Bush administration techniques—waterboarding, for example. But his past support for parts of the torture program is well-documented. And even if waterboarding didn't pass Brennan's "individual moral barometer" test, other torture techniques apparently did. It's not just waterboarding that is the problem. And if Obama is going to make a clean break from the Bush administration's interrogation policies, it's probably for the best that Brennan will not be along for the ride.

Letters of Credit

| Tue Nov. 25, 2008 1:01 PM PST

LETTERS OF CREDIT....A reader at TPM provides three reasons why allowing Lehman Brothers to collapse was a bad idea, including this one:

Third, global trade is (still) largely conducted via letter of credit. With the possibility of well-known names disappearing, that system has broken down catastrophically. (Pull up the Dry Goods Shipping Index for confirmation.)

Right. I've read about this problem before, so I pulled up the Baltic Dry Index to see what he was talking about. This is a measure of the cost of shipping raw goods (iron ore, grain, coal, etc.), and sure enough, it's cratered: from a peak of nearly 12,000 in May, it's plummeted to a value of 824 this week.

But what's the cause? Partly it was the commodity bubble earlier this year, which was unsustainable. Partly it might be weak demand from China. And partly it's just a reflection of the recession we're entering. It's not easy to mothball ships, so even a small downturn in shipping demand can have an outsized effect on shipping prices. But what about those letters of credit? Are problems with the LoC market shutting down the shipping industry even beyond normal recessionary levels? Here's John Dizard's take in the Financial Times from a couple of weeks ago:

While the BDI has been dropping for months, the real collapse took place from the week after the Lehman bankruptcy....I had followed shipping in past years, but had never seen a rate of change like that. So I called friends of mine in that world to get closer to the car wreck. I had wondered if the BDI was truly representative of real-world values, or if it was oversold in the way some credit default swap indices might be. Nope. Ships really are that cheap. As one broker told me: "I just chartered a Handymax to go to the US Gulf from India for $1,000 a day. So the BDI really is pretty accurate."

A Handymax vessel would typically displace about 40,000 deadweight tonnes. You would notice it if it dropped anchor near your dock. The cash operating costs are at least $1,500 to $2,000 a day. On top of that, figure another couple of thousand dollars a day for the capital costs....Those low charter rates indicate that not much is being shipped, apart from cargoes going from one corporate subsidiary to another, or from one highly creditworthy entity to another. It all goes back to that Lehman bankruptcy. Among the more serious casualties of that colossal failure of leadership was the letter of credit business.

There is nothing more vanilla than the l/c for an international shipment. One bank tells another bank that it will accept the credit risk of an individual importer or exporter. They document that, with forms that have been around forever, clerks and computers shuffle the paper around. A fee is charged and goods are released for shipping, inspection, and delivery. The most boring business in the world. Until it stops.

So here's a question I can't find an answer to with my meager Google skills: Is there some direct measure of the availability of letters of credit? Problems in the shipping industry suggest that LoCs are in trouble, but is there some index that actually tracks the total volume of LoCs over time? Is it really true that no one wants to accept anyone else's LoCs anymore, or is this more rumor than fact? Anybody know of any pointers to hard evidence on this score?

POSTSCRIPT: As long as we're at it, how about some measure of total global shipping? Is this a gigantic black hole, the way it is for the oil segment of the shipping market, or do we actually have any decent hard data for the total volume of shipping worldwide?

Conservative Publisher's New Book: "If There Had Been No Civil War, the South Would Have Abolished Slavery Peaceably"

| Tue Nov. 25, 2008 12:40 PM PST

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Regnery Publishing, the home of such conservative stalwarts as Swift Boat Veteran John O'Neill (who wrote Unfit for Command, which contained falsehoods about John Kerry) and author Jerome Corsi (who co-wrote Unfit for Command and wrote The Obama Nation, which contained falsehoods about Barack Obama) just emailed me to promote one of their newest releases. This time, it's The Politically Incorrect Guide to The Civil War, which, you guessed it, reveals how "conventional 'wisdom' about the Civil War, slavery, and states' rights has been hijacked by Northeast liberals." (Update: I just noticed that the book's cover, pictured to the right, advertises an "Afterword by Jefferson Davis.") Among the book's claims: "How the Confederate States of America might have helped the Allies win World War I sooner," and, of course, "How, if there had been no Civil War, the South would have abolished slavery peaceably."

I know it's probably just because I suffer from the "liberal self-hatred that vilifies America's greatest heroes," but I find the idea of the slave states voluntarily giving up their slaves to be really, really dumb. The Southern states seceded largely because they didn't want to be ruled by Lincoln, who had argued against expanding slavery into new territories. The Confederate constitution says, "No bill of attainder, ex post facto law, or law denying or impairing the right of property in negro slaves shall be passed." But in case you don't believe me, I asked retired army Lt. Colonel Robert Mackey, author of The UnCivil War and bona fide Civil War geek. Dr. Mackey, a combat veteran who was Assistant Professor of Military History at the U.S. Military Academy at West Point, says it's "a heaping pile of bulls**t" and offers up a few reasons why:

The Dems' Charlie Rangel Problem

| Tue Nov. 25, 2008 12:19 PM PST

Congressional Democrats have a serious dilemma on their hands. And he goes by the name of Charlie Rangel (D-NY). Since July, the nineteen-term congressman and chairman of the powerful ways and means committee has been fighting for his political life over a series of alleged ethical lapses, ranging from his use of congressional stationary to solicit donations for the Charles B. Rangel Center for Public Service at the City College of New York to his failure to report rental income from his villa in the Dominican Republic. And things just got worse for Rangel. Today, the New York Times reports that he "played a pivotal role" in preserving a tax loophole benefiting an oil drilling company, Nabors Industries, whose chief executive pledged $1 million to the center that was named in Rangel's honor. Rangel and Nabors' CEO Eugene Isenberg have denied that there was any quid pro quo here, but the Times story does not paint a pretty picture. Among other things, it notes, Rangel was at one point firmly against the tax shelter in question before suddenly coming out in favor of leaving the loophole in place—a move that saves "Nabors an estimated tens of millions of dollars annually." And then there's this: "while the issue was before his committee, Mr. Rangel met with Mr. Isenberg and a lobbyist for Nabors and discussed it, on the same morning that the congressman and Mr. Isenberg met to talk about the chief executive's potential support for the Rangel center."

If you're House Speaker Nancy Pelosi (D-Calif.), this news has got to give you pause. Despite the fact that Rangel is already under investigation by the (notoriously timid) House Ethics Committee for his Rangel Center fundraising, among other matters, he recently managed to maintain his grasp on the chairmanship of the ways and means committee. But keeping Rangel in charge of a committee that crafts federal tax policy while he faces serious allegations that he abused his office—and indeed, accusations of his own tax improprieties—doesn't seem like a strategy that's going to bode well for the Democrats, who assumed control of Congress, in part, by promising to crack down on congressional corruption. According to Politico, Rangel's clout has been muted somewhat in recent months, and Pelosi "has shown ample willingness to intervene directly in his committee's affairs." That said, Rangel's ability to weather this current storm should not be underestimated. After all, he didn't maneuver himself into one of the most powerful perches in Congress by being anything less than a shrewd political operator.