2010 - %3, January

Capital City

| Tue Jan. 5, 2010 9:24 AM PST

I've got a big piece in the January issue of Mother Jones about the finance lobby and its near total domination of Congress, the Fed, the SEC, the executive branch, and just about everyone else who matters in and out of Washington DC. And now it's online, so you can read it too! It starts with a bit of background: the collapse of Long Term Capital Management in 1998 thanks to massive overuse of leverage:

But a funny thing happened on the way to the crash: The New York Fed stepped in and arranged a bailout. Almost all of Wall Street's biggest firms participated, and they did so for one reason: The Fed convinced them that LTCM was too big to fail. An uncontrolled bankruptcy might set off a domino effect that could bring down dozens of banks. A few months later, an interagency report concluded, "The near collapse of LTCM illustrates the need for all participants in our financial system, not only hedge funds, to face constraints on the amount of leverage they assume." It was a bipartisan judgment, signed by Fed Chairman Alan Greenspan and by Robert Rubin, Bill Clinton's treasury secretary.

In any sane world, it would have been a call to arms. After all, LTCM was only worth a few billion dollars. If a relative minnow like that could pose a risk to the global economy merely through the use of profligate leverage, what might happen if a money-center bank worth 100 times as much did the same thing?

But we don't live in a sane world. We live in a world where leverage—as well as Wall Street's nearly endless stream of new contrivances for exploiting it—is largely controlled not by regulators or congressional committees, but by the finance lobby. And the last thing the finance lobby wants is constraints of any kind. So Wall Street promised solemnly to take the lessons of LTCM to heart and then got right down to the business of ignoring them. In fact it spent the next decade not merely blocking reform, but making things worse by lobbying relentlessly to expand leverage, complexity, regulatory forbearance, and risk.

If the aerospace lobby had told us after the 1986 Challenger disaster that the key to better performance was to turbocharge the engines and quit performing preflight inspections, everyone would have agreed that they were crazy. Yet that's essentially what the finance lobby has done over the past decade, and in some weird way we were too mesmerized to recognize it. Within months of a near catastrophe caused by one of the industry's brightest stars, the lobbyists were busily making certain that it would happen again — and that when it did happen, it would be bigger and more disastrous than ever.

LTCM was basically a dry run for 2008: too much risk, too much leverage, and then a collapse when a specific piece of the economy took a dive. In 1998, it was Russia that sparked the problem and in 2008 it was the housing market. So we knew the problems perfectly well but chose to do nothing about them. Why?

This article is my best effort to explain the political and cognitive problems that caused us to court disaster for ten years. Read it and tell me what you think. On Friday, David Corn and I will be on Bill Moyers Journal to talk about it. Check your local listings for the air time in your neck of the woods.

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Eco-News Roundup: Tuesday, January 5

| Tue Jan. 5, 2010 5:00 AM PST

Happy 2010! Here are the most recent stories on the environment and health from our other blogs, and elsewhere.

RIP HIV Ban: People with HIV will now be able to enter and leave the US, reversing 1987 ban.

Mammogram Changes, Again: Even newer, more explicit guidelines for mammograms. [LiveScience]

Death, Untaxed: Some are clinging to life, hoping to make Jan. 1, 2010, estate tax suspension.

Green Re-Action: Obama may require all federal departments to research environmental effects before they start major projects. [Los Angeles Times]

Safe Skies: Airports may be safe, but why not secure train depots and shopping malls too?

Keeping Carbon: Carbon can be stored in old lava tubes, but may increase earthquake risk. [National Geographic]

 

 

We're Still at War: Photo of the Day for January 5, 2010

Tue Jan. 5, 2010 4:46 AM PST

A US Army CH-47F Chinook helicopter sling-loads a Humvee over Kandahar Province, Afghanistan, Dec. 25, 2009. (US Army photo by Staff Sgt. Aubree Rundle.)

Need To Read: January 5, 2010

Tue Jan. 5, 2010 4:28 AM PST

Today's must reads:

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Is Whole Foods Bad for the Planet?

| Tue Jan. 5, 2010 4:01 AM PST

Whole Foods CEO John Mackey has probably brought more people to organic foods than anyone else in the United States. And many of the folks shopping at his markets undoubtedly consider themselves to be environmentally aware. They might even believe that by purchasing their groceries at Whole Foods outlets they are doing their part to help the planet. But certainly many of them would probably be startled to learn of of Mackey's position on climate change: he's a global warming denier.

In a recent New Yorker profile of Mackey, the Whole Foods chief argues that there is no scientific consensus regarding the causes of climate change. He lists Heaven and Earth: Global Warming--the Missing Science, a skeptical take on warming, as one of his recent favorite reads. He frets that the "hysteria about global warming" will cause the United States "to raise taxes and increase regulation, and in turn lower our standard of living and lead to an increase in poverty." He adds: "Historically, prosperity tends to correlate to warmer temperatures."

Mackey, of course, is wrong about the absence of a scientific consensus, and his theory that warmer temperatures produce prosperity is, to say the least, wacky. But his embrace of climate change denial is not truly a surprise, for Mackey is an unabashed libertarian, opposed to the very idea of "regulation" and "taxes," no matter their purpose. He may be the vegan CEO of the country's largest natural market chain, but he voted for Libertarian Party presidential candidate Bob Barr last year--because Ron Paul wasn't on the ballot. There's long been a debate over whether Mackey is a do-gooder or a simply a profiteer in disguise. (The whole sock-puppeting incident made him seem more of a bizarre egomaniac than anything else).

Though many of his shoppers are concerned about personal and planetary health, his latest revelation so far has gotten scant attention. But when Mackey penned an anti-health care reform op-ed in the Wall Street Journal last August, it spurred a swift call for boycott from progressives. "Whole Foods has built its brand with the dollars of deceived progressives," proclaimed the the "Boycott Whole Foods" Facebook page, which had 33,829 members at last count. "Let them know your money will no longer go to support Whole Foods' anti-union, anti-health insurance reform, right-wing activities." A website promoting the boycott also sprang up. Mackey's anti-labor positions have also triggered considerable ire, after he compared having a union to "having herpes." But there's yet no virtual call to eschew Whole Foods because of Mackey's global warming position.

More Debit Card Madness

| Mon Jan. 4, 2010 11:11 PM PST

Someday I'll finally be able to say that there's nothing left that credit/debit card companies can do that would surprise me. But today is not that day. As I read through Tuesday's front page article on the Visa debit card network in the New York Times, I found myself so gobsmacked that I wasn't even outraged. Instead, I kept laughing at the sheer audacity of the whole thing. It is truly unbelievable.

It's a little complicated to summarize the piece in a few words,1 but it turns out that there's a big difference between using a debit card that you authorize via a PIN and using a debit card that you authorize with a signature. Back in the early days of debit cards, the small networks that operated ATMs used PINs to authorize debit cards and charged merchants no fees for their use. In fact, sometimes merchants even received a small rebate because, after all, it costs banks less to process a debit card transaction than a check.

That changed after Visa entered the debit market. In the 1990s, Visa promoted a debit card that let consumers access their checking account on the same network that processed its credit cards, which required a signature.

To persuade the banks to issue more of its debit cards, Visa charged merchants for these transactions and passed the money to the issuing banks. By 1999, Visa was setting fees of $1.35 on a $100 purchase, while Maestro and other regional PIN networks charged less than a dime, Federal Reserve data shows. Visa says the fee was justified because signature debit was so much more useful than PIN debit; at the time, roughly 15 percent of merchants had keypads for entering a PIN.

Merchants said they had no choice but to continue taking the debit cards, despite the higher fees, because Visa’s rules required them to honor its debit cards if they chose to accept Visa’s credit cards.

Visa's explanation for its high fees is pretty fanciful, but whatever. Everyone has keypads now, and a lawsuit eventually put an end to Visa's "accept all cards" policy. What's more, Visa's transaction volume has gone way up, and electronic payment networks boast the ultimate in economies of scale. So not only is Visa now charging a dime per transaction like the other guys, they're probably only charging a few pennies. Right?

While some merchants said they thought the lawsuit would pave the way to a new era of competition, a curious thing happened instead: while Visa temporarily lowered its fees for signature debit, it raised the price on PIN debit transactions and passed the funds on to card-issuing banks, and its competitors soon followed.

The current class-action lawsuit joined by Mr. Goldstone contends that Visa’s PIN debit network, called Interlink, is offering banks higher fees as an incentive to issue debit cards that are exclusively routed over this network. Interlink, which has raised its PIN debit fees for small merchants to 90 cents for each $100 transaction, from 20 cents in 2002, is often the most expensive, especially for small merchants, Fed data shows.

One large retailer, who requested anonymity to preserve its relationship with Visa, provided data that showed Interlink’s share of PIN purchases rose to 47 percent in 2009, from 20 percent in 2002, even as its fees steadily increased ahead of most other networks — to 49 cents per $100 transaction in 2009, from 38 cents in 2006.

And what is Visa's excuse for its astronomical fees?  They are, says Elizabeth Buse, Visa’s global head of product, “not a cost-based calculation, but a value-based calculation.” Roger that.

1In other words, you should click the link and read the whole thing. Really.

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CO2 Graveyard Off New York

| Mon Jan. 4, 2010 8:53 PM PST

Underground burial of globe-warming CO2 is of more interest than ever following Copenhagen's do-nothing outcome. And buried volcanic rocks along the heavily populated coasts of New York, New Jersey, New England, and points further south may prove the best reservoirs found so far in the US.

Sequestration is one of those scary gambles we may be led to by default in the absence of real leadership reducing greenhouse gas emissions. The problem of course is that any burp into the atmosphere of buried CO2  would prove enormously instantly lethal to people in the area. As happened naturally in Africa.

To be practicable, sequestration needs to happen near dense population centers and industrial emissions sites. Kind of a reverse NIMBY. More like, Only In My Back Yard.

Which means the eastern seaboard, for starters.

Prior east coast sequestration research focused on inland sites: shale under New York and sandstone under New Jersey. But a new study in Proceedings of the National Academy of Sciences suggests basalt has significant advantages, and offshore basalt has even more advantages. Notably large areas off New York, New Jersey, Massachusetts, Georgia, and South Carolina. Plus a small area under Sandy Hook Basin, opposite New York Harbor.

This is because CO2 injected into basalt undergoes natural chemical reactions that eventually transform it into a solid mineral like limestone. Plus basalts at sea are covered not only by water but by hundreds or even thousands of feet of sediment. CO2 pressurized into liquid would have to be placed at least 2,500 feet deep for natural pressure to keep it from reverting to a gas and potentially leaking back to the surface. And the sediments on top would form impermeable caps. In theory.

So if the process works on a large scale, the danger of leaks could be reduced. The scientists from Columbia University's Lamont-Doherty Earth Observatory estimate the small Sandy Hook basin alone may be capable of containing close to a billion tons of CO2… the equivalent of 40-years worth of emissions from four 1-billion-watt coal-fired plants. The largest mass extends from inland to offshore of Georgia and South Carolina.

Sure hope these basalts prove graveyards only for CO2.
 

Quote of the Day: Modern Economics

| Mon Jan. 4, 2010 7:48 PM PST

From Daniel Davies, on the purpose of the economics profession:

The production of more or less mendacious intellectual smokescreens for policies which favour the interests of rich and powerful men isn’t a sort of industrial pollution from the modern economics profession — it’s the product.

Yeah, pretty much. With a few honorable exceptions, of course.

"China Doesn't Want to Lead, and the US Cannot Lead"

| Mon Jan. 4, 2010 2:54 PM PST

In the weeks following the conclusion of the Copenhagen climate talks, three things have become very obvious: the Chinese were the biggest impediment to an international climate deal, the United States couldn't do much to change that, and the Europeans are not very happy about the whole situation.

A lot of these broad points were lost in the final shuffle at the conference, as reporters (myself included) rushed to figure out what exactly the final agreement meant and what the next steps would be. But more important are the international dynamics that became very clear at last month's meeting. Der Spiegel talked to German Environment Minister Norbert Röttgen after Copenhagen, in an interview that really highlighted all three of these concerns:

SPIEGEL: By cutting a deal with the emerging economies and giving the EU the cold shoulder, the US has ushered in the end of the era of the classical West.
Röttgen: The US as leader is part of the political concept of the West. But the US hasn't led -- instead it reached a deal with China that there wouldn't be any leadership. In my perception, they have neither turned away from Europe nor really turned toward China strategically. In that sense I see an erosion of their leadership role. Barack Obama and Wen Jiabao have agreed to the lowest common denominator: China doesn't want to lead, and the US cannot lead. The major blockade at the summit grew out of an unfortunate combination of weak leadership on the part of the Americans and Chinese power to impede progress.
SPIEGEL: But isn't Europe the real loser? It was unable to push through any of its objectives.
Röttgen: No, Europe is not the loser because it presented itself as a unified bloc at the summit, with clear goals and a solid strategy. That was one of the few really positive experiences in Copenhagen and vitally important to our role in this new world order. We have shown what Europe's role could be.
SPIEGEL: Perhaps Europe has a role, but Europe has no power.
Röttgen: We cannot solve the climate problem alone because, in this sense, our emissions are too low. Our share of global emissions is only about 14 percent. We could stop emitting CO2 tomorrow and global warming would still be catastrophic. On this issue those who emit the most have the greatest power -- unfortunately.

Probably the best story to appear in the days following the talks was a piece in The Guardian documenting what actually went down in the the meetings between China, the US, and other major players. The conclusion: "China wrecked the talks, intentionally humiliated Barack Obama, and insisted on an awful 'deal' so western leaders would walk away carrying the blame."

Both are recommended reading in these first week of 2010, the new target year for an international climate accord.

US Lifts HIV Travel Ban

| Mon Jan. 4, 2010 2:50 PM PST

Good news: The US government finally lifted the HIV travel ban today. Established in 1987, the ban had kept HIV-positive visitors and immigrants out of the country.

Under pressure from president Ronald Reagan, the US Public Health Service originally added AIDS to a list of "dangerous and contagious" diseases. Senator Jesse Helms then extended a helping hand with the "Helms amendment," which added HIV to the exclusion list. Reagan and Helms themselves, naturally, were not included on the list of dangerous and contagious diseases.

Believe it or not, repeal of the ban began during the second Bush administration as part of larger legislation for global HIV/AIDS prevention and treatment. Congressional leaders like John Kerry, Barbara Lee, and Gordon Smith saw that the US ought to set a global example by ending a policy based on inaccurate information and stigma surrounding the disease, and pushed for repeal as part of the July 2008 President’s Emergency Plan for AIDS Relief (PEPFAR). The plan ultimately contained a provision that removed the ban from statute, returning regulatory authority to the Secretary of Health and Human Services.

Steve Ralls at the Huffington Post writes more about the lift, and about two travelers from the Netherlands who can finally visit friends and family in the US. Read a more thorough background on the ban and its repeal here.

Any thoughts, MoJo readers? Is the lift, as some people say, a hopeful new sign for US immigration policy in general? Will the GOP find a way to leverage this against Obama, like they did with the attempted bombing of Northwest Flight 253?

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