2009 - %3, September

Alan Grayson Gives GOP an Apology, Of Sorts

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| Wed Sep. 30, 2009 11:17 PM PDT

So yesterday, as you've likely heard, hot-rod Rep. Alan Grayson (D-Fla.) says the Republican health care plan is one that encourages people to "die quickly." The GOP takes offense and demands an apology.

So this afternoon he does, apologize. To the dead.

From Roll Call:

Citing a statistic that 44,789 Americans die each year because they don’t have health insurance, Grayson said, “That is more than ten times the number of Americans who died in the war in Iraq, it’s more than ten times the number of Americans who died on 9/11. …It happens every year.”

Grayson added in another apparent dig at the GOP, “We should care about people even after they are born.”

Of course, Grayson's real target is the Fed, Bernanke et al. He's just getting warmed up.

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Wall Street's Latest Trick

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| Wed Sep. 30, 2009 10:44 PM PDT

As you probably know by now (you have been paying attention, haven't you?), banks are required to retain a certain amount of capital on their books.  The capital is there to keep them solvent even if their assets lose value, so the amount they're required to have depends on how risky their assets are.  If they have, say, a bunch of crummy C-rated securities on their books, they have to maintain a full load of capital to back them up.  But A-rated securities are less likely to lose value, so for those they only have to maintain 50% of the normal capital levels.  And for AAA securities, they can get by with only 20% or less.  After all, AAA securities are pretty unlikely to lose value.  Right?

This was one of the reasons behind the CDO frenzy of the past few years.  If you slice and dice a bundle of securities so that most of them are AAA-rated, then you can reduce the capital you need to back them up, which frees up that capital for other uses.

But then everything came crashing down, the ratings on those bundles tumbled, and suddenly banks had to pony up more capital to back them up.  What to do?  Answer: slice 'em and dice 'em all over again.  Welcome to the re-remic:

The way it works is that insurers and banks that hold battered securities on their books have Wall Street firms separate the good from the bad. The good mortgages are bundled together and create a security designed to get a higher rating. The weaker securities get low ratings.

....A hypothetical example cited in research by Barclays Capital said that a $100 million asset that required $2 million in capital at a triple-A rating may require $35 million if downgraded to double-B-minus. At triple-C, the capital requirement might rise to 100%, or $100 million.

In a re-remic, three-fourths of the same asset may regain a triple-A rating, requiring just $1.5 million in capital, Barclays said. The remaining one-quarter may require 100% capital, but the total capital requirement would fall to $26.5 million.

...."There is $350 billion to $400 billion in market value of securities with no natural buyer due to their rating," Barclays said in a June report. "The re-remic market provides a way out of this gridlock by creating new AAA securities, which are likely to be viewed as attractively priced."

Shiny new AAA securities!  Hooray!  And there's more!  Ratings for re-remics come from the same ratings agencies that bollixed up the original ratings.  And investment banks pocket fat fees for performing the financial alchemy.  What could possibly go wrong?

Revisiting Banker Pay

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| Wed Sep. 30, 2009 9:24 PM PDT

Is banker compensation one of the root causes of last year's financial meltdown?  The Epicurean Dealmaker says no.  A lot of things changed when investment banks evolved from moderate-size partnerships into gigantic public companies, but pay wasn't one of them:

Large public banks did retain much of the partnership compensation model, which deferred ever more of a banker's pay the higher up he got and the more he made. But [...] deferred pay lost its effectiveness as a distributed risk management tool. As investment banks grew ever larger and more complex, each banker had less and less impact on the overall results and health of his bank, almost no matter how much he made.

....Notwithstanding what legions of indignant and self-righteous commentators contend, the incentive system currently in place operates exactly as most of them propose: a large portion of banker pay is deferred for years and is tightly tied to the overall health and success of the firm. Bankers are not incentivized to print huge risky trades and run away as soon as they collect their bonus at the end of the year. In fact, they are more closely tied to the long-term health of the firm and its stock price than any other stakeholder. They just can't do anything about it. Unfortunately for them and for us, such a system does not seem to have prevented anything.

I basically believe this.  The problem wasn't so much that bankers didn't care about long-term results as it was that they never realized they were taking on so much risk in the first place.  They thought they had safely hedged it all away.  Reining in compensation may still be a good idea, but it's just a backstop.  The real fixes to the system are deeper and more fundamental.

Senate Climate Bill Arrives

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| Wed Sep. 30, 2009 6:17 PM PDT

Brad Plumer has a very good brief roundup of the Senate climate bill that Barbara Boxer and John Kerry introduced today in the Senate.  In one sense the details of the bill don't matter too much: it still has to get reconciled with other Senate bills and then go into conference to get reconciled with the Waxman-Markey bill in the House, and pretty much everything is going to be thoroughly sanded down before that process finishes up.  Still, it's interesting to at least see the general direction they're pushing toward: basically a little more ambitious than Waxman-Markey but with a few technical adjustments that wonks should like.  The full post is here.  Kate Sheppard has more here.

From the Annals of Great Punditry

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| Wed Sep. 30, 2009 4:07 PM PDT

Jim Henley explains counterinsurgency in terms even a U.S. senator can understand:

In a counterinsurgency strategy, America hangs around a foreign country for years and years, occasionally killing people who live there, while pretending it’s for their own good. This takes a lot of people because the military, and the civilian parts of the government that control the military, are very specialized. You need people to do the hanging around, people to do the occasional killing of people that live there, and even more people to do the pretending. As you might imagine, pretending to foreigners that killing them is for their own good is hard! Not just anyone can pull that off with a straight face, and you need a lot of people who can.

This is part of Jim's entry in the Washington Post's "America's Next Great Pundit" contest — a sort of reality-show-in-print where ten promising entrants get chosen and are then kicked off one by one as they compete with each other over the course of three weeks1.  Think Project Runway for the opinionated but poorly dressed.  It's an idea so mind-blowingly dimwitted that it could only have come from the same people who brought us Mouthpiece Theater.

Still, every cloud has its silver lining, and mocking the Posties by writing amusing entries for their contest is one of them.  Get cracking, bloggers.  Jim has set the bar high.  I expect great things.

1To make this gruesome spectacle even worse, the winner gets to write 13 op-ed pieces but isn't even guaranteed that the Post will run them.  In fact, the winner isn't even guaranteed that the columns will be run online.  What the hell kind of contest is this?2

2Though I admit it might have possibilities if the Post made their current writers compete, with the loser getting a final 13 columns before being booted off the op-ed page for good.  I'd certainly pay to watch the championship round, where Richard Cohen and Robert Samuelson battle each other desperately to avoid the title of America's Next Laid Off Journalist.

EPA Seeks to Narrow Scope of Greenhouse Gas Regulations

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| Wed Sep. 30, 2009 3:35 PM PDT

In case there wasn't already enough news on the greenhouse gas regulation front today, the Environmental Protection Agency also released new proposed rules that will move the agency another step closer to regulating emissions.

Under the proposed rule, only sources emitting more than 25,000 tons of greenhouse gases each year would be regulated under the Clean Air Act. That would cover big emitters like coal-fired power plants, large manufacturers, and refineries. The so-called "tailoring rule" would exempt smaller sources like buildings, small farms, hospitals and schools.

The rule is significant, as it brings the EPA another step closer to regulating emissions. Following up on the 2007 Supreme Court ruling that greenhouse gases could be regulated under the Clean Air Act, the EPA determined in April that greenhouse gas emissions do indeed pose a threat to public health and welfare. The agency is expected to finalize that decision any day now, which will trigger regulation under the act.

[Read more]

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Chart of the Day

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| Wed Sep. 30, 2009 3:08 PM PDT

Longtime political analyst Charlie Cook thinks there's a good chance that Democrats could lose control of Congress in next year's midterm elections.  Independent voters, he says, are "viscerally" worried about the deficit and hyperactive government.

I wonder.  The deficit is a pretty abstract thing, and "hyperactive government" doesn't necessarily mean healthcare and the stimulus bill.  When it comes to voter discontent, I think I'd put my money elsewhere.  First, as the chart below, from the Economic Policy Institute, shows, people are pretty strongly convinced that the finance industry has gotten huge amounts of help from Obama and Congress, while ordinary people have gotten squat.  As Ezra Klein says, "The economic logic behind preserving the financial sector was bulletproof. But the electorate is not composed of economists. And all they know is that the banks got a lot of money, and this is the worst recession in memory."  In other words, "hyperactive" might be a lot more acceptable if all that activity were aimed somewhere other than Wall Street.

Second, there's jobs.  John Judis tells the story here: if you want to be a popular president, you'd better be able to demonstrate some job growth.  End of story.  Obama still has some time on that front, but probably not very much.  If the economy is starting to recover by next spring, he and the Democratic Party will probably be in decent shape when the midterms roll around.  If not, not.

Boxer and Kerry Eschew Talk of Cap and Trade in Climate Bill Rollout

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| Wed Sep. 30, 2009 2:14 PM PDT

Barbara Boxer (D-Calif.) and John Kerry (D-Mass.) officially rolled out their climate bill on Wednesday, with a large rally on the Capitol lawn. But noticeably missing from both the bill and their rhetoric was any reference to cap and trade. Instead, they're calling it a "Global Warming Pollution Reduction and Investment" program -- and they're promoting the energy and national security benefits rather than the emissions reductions goals.

"This is the beginning of one of the most important battles we will ever face, as legislators and as citizens," said Kerry, who was flanked by military officers and backed by a giant American flag. Climate change, he said, will act as a "lit match on the kindling of an already dangerous world," and energy dependence means American money is going to "jihadists, terrorists in different countries."

"We know clean energy is the ticket to strong, sustainable economic growth," said Boxer.

The senators touted the bill's provisions to expand the use of natural gas and nuclear power, two major changes from the Waxman-Markey legislation passed by the House in June. While the House bill would also likely spur development of those energy sources, the Senate bill includes titles specifying how they would be expanded. The senators also stressed that the bill includes a good deal of support for the development of controversial "clean" coal technology.

"It recognizes that there is is no one silver bullet that is going to solve this problem," said Kerry.

Their full bill, weighing in at 821 pages, closely mirrors the various leaked drafts that were circulating yesterday, and, in most respects, Waxman-Markey. It aims to reduce emissions 20 percent below 2005 levels by 2020 and 83 percent by 2050, and will cover approximately 7,500 major emissions sources around the country.

Notable differences with the House bill include the explicit support for nuclear and natural gas, as well as limits on the price of pollution permits—which Boxer is calling "a soft collar." To reduce price volatility, it puts in place a lower limit of $11 per credit and an initial upper limit of $28, which would trigger the release of additional reserve allowances. The portions of the bill on allocation of permits and use of the revenue that their sale generates remain blank, however, and are expected to be hotly contested as the debate moves forward. The Finance, Agriculture, Commerce, and Foreign Relations committees are expected to play a role in shaping those and other provisions.

 

[Read more]

Catblogging News

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| Wed Sep. 30, 2009 12:27 PM PDT

Attention cat fans: We recently redesigned our thrice-weekly email newsletter into three separate newsletters.  One of those newsletters is based around yours truly, and you know what that means: catblogging.  Or, I guess, catlettering.

Or something.  In any case, we've decided that once a week is plenty of exposure for Inkblot and Domino, so we're soliciting photos of guest cats to appear in the newsletter.  If you want some temporary stardom for your adorable furball, just email a photo to:

cats@motherjones.com

Include a couple of sentences of description (names, ages, what they're up to, favorite tricks, whatever else you feel like) and we'll select one each week.  Dogs are welcome too!  And if you want to sign up to receive the newsletter, you can do it here.  Sign up for one, two, or all three.

Health Reform Rocker: We're Number 37!

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| Wed Sep. 30, 2009 12:20 PM PDT
paulhipp.jpg

It should no longer be any surprise to anyone that our most exceptional nation spends more on health care per capita (by a huge margin) than other countries. And that the quality of US health care, in spite of—or rather, because of—all our sweet gadgetry, ranks embarassingly low. Didn't see this the first time out, but my dad forwarded me this YouTube video of Huffington Post contributor—and Jonathan Mann imitator?—Paul Hipp rocking out on this issue. Which is kinda funny, since my dad never listens to rock 'n' roll, and rarely forwards me stuff. But he is a health policy expert. So anyway, here's "We're Number 37" (woo-hoo!).

 

 

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