2010 - %3, June

We're Still at War: Photo of the Day for June 30, 2010

Wed Jun. 30, 2010 5:00 AM EDT

 

US soldiers depart Forward Operating Base Baylough, Afghanistan, on June 16, 2010, to conduct a patrol. The Soldiers are from 1st Platoon, Delta Company, 1st Battalion, 4th Infantry Regiment. Photo via the US Army by Staff Sgt. William Tremblay.

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The Fat Lady Starts Warming Up On Financial Reform

| Tue Jun. 29, 2010 11:20 PM EDT

After three Republican senators threatened to vote against the financial reform bill unless its $18 billion bank fee was removed, Democrats briefly reopened conference committee proceedings today and voted to remove it:

Conference negotiators voted to eliminate the proposed tax and, in its place adopted a new plan to pay the projected five-year, $20 billion cost of the legislation. The new plan would bring an early end to the Troubled Asset Relief Program, the mammoth financial system bailout effort enacted in 2008, and redirect about $11 billion toward heightened regulation of the financial industry. The conferees also voted to increase the reserve ratio of the Federal Deposit Insurance Corporation but specified that small depository institutions — those with less than $10 billion in consolidated assets — be exempt from paying any increase.

If Maria Cantwell, who voted against the bill on its first go-around, agrees to support the final conference report, that will give Democrats 57 votes. If the removal of the bank tax buys the support of Republicans Susan Collins, Olympia Snowe, and Scott Brown, that will give them 60 votes and the bill will pass. So cross your fingers and hope this does the trick.

That is, cross your fingers if you think this bill is worth passing in the first place. And since I got into a Twitter argument with Marcy Wheeler last night about that very subject, here's a brief rundown of what we'll get out of it:

  • Companies selling mortage-backed securities will be required to retain a portion of the risk on their own books. The originate-to-distribute model, where dealers bundled up loans and immediately turned around and sold off the whole package, created a system where bundlers had no incentive to make sure the underlying loans were any good. This provision helps rein this in.
  • Commercial banks will face restrictions on the amount of proprietary trading they can do. This is the so-called Volcker Rule, and although it was watered down in conference (banks can still trade up to 3% of their capital for their own accounts) it's still a pretty good safety valve for the banking industry.
  • A Consumer Finance Protection Agency will be set up within the Federal Reserve. I was initially opposed to housing the CFPA at the Fed, but I came around to the idea based on the argument that this will allow the CFPA to offer higher salaries and attract better talent. This is a significant win, and Elizabeth Warren says she's pretty happy with it.
  • Derivatives trading will largely be forced onto public exchanges. Certain standard derivatives will still be offered over-the-counter, which is too bad, but more complex instruments like credit default swaps will be made considerably safer by this rule.
  • Dick Durbin's interchange regulation for debit cards was adopted. This doesn't affect the safety and soundness of the banking system, but it's a good step forward for transparency and consumer protection.
  • Capital requirements for large banks will be increased. Together with the Basel III requirements currently under negotiation, this is a key step toward making the entire financial system safer and less leveraged.
  • Other changes that are good, though watered down from where they ought to be, include ratings agency reform, resolution authority, systemic risk regulation, and SEC authority over hedge funds.

This doesn't go as far as it should. There should be greater constraints on leverage. The prop trading and derivatives trading regs were weakened more than they should have been. Some critics think the big banks should have been forcibly broken up.

Still, even in its weakened state, the bill is stronger than it was a few months ago and it will go a long way toward reducing the size and profitability of the banking sector — which is why the banking industry is fighting it tooth and nail. Here's the Wall Street Journal:

A weekend of number-crunching left no doubt that the changes would hurt the bottom line at thousands of banks, brokerage firms and other financial companies. "This is wrong, and we have one last chance to do something about it," the American Bankers Association wrote in an email to its members, urging them to write opposition letters to members of Congress. Financial-industry lobbyists are aiming at Republicans who voted in favor of the Senate version, hoping to change their position when the final bill comes up for a vote. "You keep playing until the whistle blows," says ABA spokesman Peter Garuccio.

Inside most banks, the mood already has shifted to assessing how much revenue and earnings are likely to evaporate if the bill becomes law — and how to make up for the forgone money. Keith Horowitz, an analyst at Citigroup Inc., estimated the legislation would reduce annual earnings per share for big U.S. banks by 6%, down from his previous estimate of 11%.

This is half a loaf, but at this point the only credible alternative is doing nothing. There's not enough time to draft a new bill this year, and after November there's no chance of passing anything at all. Given the alternatives, anyone who cares about financial reform should support this bill.

My Obama Schizophrenia

| Tue Jun. 29, 2010 5:56 PM EDT

This is weird. Bob Herbert writes today about his disappointment in Barack Obama:

Mr. Obama and the Democrats have wasted the once-in-a-lifetime opportunity handed to them in the 2008 election. They did not focus on jobs, jobs, jobs as their primary mission, and they did not call on Americans to join in a bold national effort (which would have required a great deal of shared sacrifice) to solve a wide range of very serious problems, from our over-reliance on fossil fuels to the sorry state of public education to the need to rebuild the nation’s rotting infrastructure.

All of that could have been pulled together under the umbrella of job creation — short-term and long-term. In the immediate aftermath of Mr. Obama’s historic victory, and with the trauma of the economic collapse still upon us, it would have been very difficult for Republicans on Capitol Hill to stand in the way of a rebuild-America campaign aimed at putting millions of men and women back to work.

This is so far beyond wrong I hardly know what to call it. All of these things could have been pulled together under the umbrella of job creation? No, they couldn't have. It would have been difficult for Republicans to stand in the way of putting millions of men and women back to work? In what alternate universe? Republicans almost unanimously filibustered Obama's stimulus package four weeks after he took office. They've filibustered the extension of unemployment benefits every time it's come up. They've filibustered jobs bills, public works bills, education bills, and just about every other bill you can name. There's nothing Obama could have done to change that.

But what's weird about this is not that Herbert wrote a column I disagree with. What's weird is that a column so utterly wrong provoked an admiring response so utterly right. Here is M.J. Rosenberg writing about his circle of friends:

They all supported Obama in the primaries and all celebrated his election. They are all left-of-center.

And they all feel let down by the administration right now. They are still Obama supporters but, unless something changes, he will soon move in to the territory both Clinton and Carter inhabited. He will have our support because he's a Democratic President up against utterly unpatriotic and selfish lunatics, bigots, and troglodytes. It will be simply be the "consider the alternative" kind of support.

We had hoped for much more. We wanted to feel what our grandparents and great-grandparents felt for FDR — that he was out there battling for working people, the unemployed, and, frankly, an America strikingly different than the one they were living in....I want FDR style politics and TR style rhetoric ("the bully pulpit"). Right now, I don't see it. Neither does columnist Herbert. And, yes, I recognize the constraints. But Presidents have to transcend them, or at least be seen as fighting like hell. I don't see that happening.

Italics mine. Like Rosenberg, I've been feeling pretty schizophrenic about Obama for quite a while. My brain tells me that, given the realities and constraints of American politics, he's done pretty well: a big stimulus package, the Lilly Ledbetter Act, healthcare reform, withdrawal from Iraq seemingly on schedule, a decent start on rationalizing Pentagon procurement, financial reform (maybe), and progress on DADT (hopefully). Even his Afghanistan policy, which I don't agree with, was deeply considered and responsive to the obvious limitations of military action.

There are, of course, things I don't like about Obama's record too. I wish he hadn't reappointed Ben Bernanke. I wish he'd nominated Diane Wood to the Supreme Court instead of Elena Kagan. His record on civil liberties issues, with a few noticeable exceptions, has been generally lousy. I wish he'd listened to Joe Biden on Afghanistan. I'm not sure that bailing out Chrysler was worth the taxpayer's money.

But this isn't why I'm schizophrenic about Obama. I never expected to like everything he did. The reason I'm schizophrenic is that it's almost impossible to get a handle on what he really wants. Did he want a bigger stimulus bill but compromised down because $800 billion was all he could get? Or did he not really want more than that in the first place? Ditto for the public option. Ditto for DADT repeal, which he had to be pushed into supporting this year. And ditto again on financial reform, which is worth passing only because of numerous amendments to the original bill. On all of these issues and more, I don't feel like I ever knew what Obama's real position was. There's a big difference between compromising because politics is what it is and you have no choice, and compromising because the more centrist position is the one you genuinely hold. But Obama never gives me a good sense of which it is with him.

Now, it's a bad idea to look at FDR through rose colored glasses. Plenty of New Deal legislation passed over his objection, and there was nobody better at playing his cards close to his vest. Still, there was seldom any question about where FDR stood on the big issues, and you either loved him or hated him for it. With Obama, I'm left unsure far too often for comfort. Thus my schizophrenia.

A Supreme Court Nominee Walks Into a Bar…

| Tue Jun. 29, 2010 5:03 PM EDT

So what have we learned thus far about Supreme Court nominee Elena Kagan after a day and a half of congressional hearings? Well, she still thinks her late boss, Justice Thurgood Marshall, is worthy of hero-worship. She doesn't do umpire references. And like most Jews, she probably spent Christmas Day at a Chinese restaurant.

Much to the surprise of the Senate Judiciary Committee interrogating her this week, Kagan has turned out to be very funny. She didn't start out so well. On Monday, she delivered a brief, wooden opening statement, and notably failed to introduce a single family member, friend, or beloved mentor. By comparison, last year, Sonia Sotomayor effusively introduced about 40 of her nearest and dearest godchildren, former employers, cousins, and other relatives in a warm display of humanity. But Kagan hit her stride on Tuesday, when by the end of the day, she actually seemed to enjoy jousting with the likes of Sen. Lindsey Graham (R-SC). And once she loosened up, Kagan proved that she may be a focused workaholic but she's no stiff.

Did Kagan "Queer" Harvard?

| Tue Jun. 29, 2010 3:51 PM EDT

As promised, virulently anti-gay activist Peter LaBabera, head of Americans for Truth About Homosexuality, has released his shocking expose of Supreme Court nominee Elena Kagan’s efforts to “queer” the Harvard Law School campus. Among the damning evidence that Kagan is a radical champion of the homosexual agenda:

--Kagan started an LGBT clinic that handled domestic violence cases in same-sex relationships, among other things.

--Kagan somehow got Harvard to change its health insurance to partially cover sex change operations.

--During Kagan’s tenure, there were conversations between students and faculty about letting transsexuals use the bathrooms of their choice (i.e. letting “she-males” in the ladies room.) No policy changes ever ensued on Kagan’s watch. Apparently having the conversations was enough to prove Kagan’s membership in the gay mafia.

--And then there are the various faculty members Kagan hired to teach “queer theory,” and all the other speakers she brought to campus, including lesbian law scholar and EEOC member Chai Feldblum and gay rights pioneer Frank Kameny.

Gordon James Klingenschmitt, the former Navy chaplain turned anti-gay activist who teamed up on the report, thinks that the Obama administation is "deceiving" Americans into thinking that Kagan is not a lesbian. He says of the report,  "This is further proof Elena Kagan cannot be trusted to impartially rule on Obamacare or bathroom bills like ENDA, since she believes sin is a Constitutional right, but rights come from God, who never grants the right to sin."

Helpfully, the report includes a whole bunch of suggested questions the Judiciary Committee should ask Kagan about her involvement in all of this radical transgender and gay activism. So far, on Tuesday afternoon, none of the senators had yet asked the looming questions about whether Kagan thinks cross-dressers have a constitutional right to use the ladies’ room, but there’s still time. Sen. Tom Coburn hasn’t had a turn yet.

Michael Steele's Thurgood Marshall Fail

| Tue Jun. 29, 2010 3:19 PM EDT

During confirmation hearings for Supreme Court nominee Elena Kagan, it almost seemed as if the late and legendary Justice Thurgood Marshall was the one being vetted—rather than Kagan, who once clerked for him. Republicans on the Senate judiciary committee have tried to turn the civil rights icon into ammo for their assault on Kagan, attacking Marshall as a "judicial activist" and suggesting that the same could be expected of Kagan. This wasn't a surprise. Michael Steele, the chairman of the Republican National Committee, kick-started this bash-Marshall campaign last month by pouncing on Kagan for praising a 1987 Marshall speech in which the ex-justice said the Constitution, "as originally drafted and conceived," was "defective." Marshall had been referring to the Constitution's definition of slaves as three-fifths of "free persons." But Steele's oppo gang at the RNC seized on this and zapped out a memo hammering Kagan: "Does Kagan Still View Constitution 'As Originally Drafted And Conceived' As ‘Defective’?"

Choosing to go after the country's first black Supreme Court justice is an iffy strategy for the GOPers. But it's an especially strange line of attack for Steele—formerly Maryland’s first black lieutenant governor—who used to laud Marshall as a hero.

For instance, in July 2004, Steele honored Marshall as a barrier-shattering champion on the 40th anniversary of the 1964 Civil Rights Act. Standing in front of a memorial statue of Marshall near the Governor's Mansion in Annapolis , Steele declared: "Without the '64 act, I do not stand in the shadow of this giant." Also in attendance was Arthur Fletcher, one of the original plaintiffs in Brown v. Board of Education. As the NAACP's chief counsel, Marshall had represented Fletcher in that landmark case, which ended legalized segregation in schools. During the ceremony, Fletcher told then-Maryland Gov. Robert Ehrlich, "Thank you for making that young man [Steele] lieutenant governor."

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Boehner vs. Boehner

| Tue Jun. 29, 2010 1:57 PM EDT

Now that the Republican caucus has apparently decided to unanimously oppose any reform of our financial system, House GOP leader John Boehner explains his party's objections to the final bill reported out of conference last week:

This is killing an ant with a nuclear weapon.

And here is Boehner's spokesman "explaining" what he meant:

It's clear Boehner is not minimizing the crisis America faced — he is pointing out that Washington Democrats have produced a bill that will actually kill more jobs and make the situation worse.

So here's a question: do the standards of journalism require us to take this explanation at face value? I mean, it's obvious to a fourth grader what Boehner meant: he thinks there were only minor problems with the financial system before the crash, and we just don't need anything more than a few tweaks here and there to fix things up. He decidedly was minimizing the problems on Wall Street during the years that led up to the crisis.

But do we now have to pretend that's not what he meant simply because his press flack says that's not what he meant? Or can we act like adults and interpret his remark in the obvious way? Stay tuned for media reaction later today to find out.

The Gulf of Oil from Space on Day 68

| Tue Jun. 29, 2010 1:52 PM EDT

Here's the shot from Earth orbit of the oil catastrophe off the Mississippi barrier islands on 27 June 2010. You can see a bigger image here. From the Earth Observatory explanation:

"As of June 27, 2010, the entire gulf-facing beachfront of several barrier islands in eastern Mississippi (offshore of Pascagoula) had received a designation of at least “lightly oiled” by the interagency Shoreline Cleanup Assessment Team that is responding to the disaster in the Gulf of Mexico. A few small stretches of Petit Bois Island had been labeled heavily or moderately oiled.

"This high-resolution image shows Petit Bois Island (top right) and the eastern end of Horn Island (top left) on June 26. In general, oil-covered waters are silvery and cleaner waters are blue-gray. This pattern is especially consistent farther from the islands. The intensely bright patches of water directly offshore of the barrier islands, however, may be from a combination of factors, including sediment and organic material, coastal currents and surf, and oil.

"The islands provide a sense of scale for the ribbons of oil swirling into the area from the south. Petit Bois Island is about 10 kilometers (6 miles) long. It is one of seven barrier islands that, along with some mainland areas of Mississippi and Florida, make up the Gulf Islands National Seashore. According to the National Park Service Gulf Islands National Seashore Website, all the islands remained open to the public as of June 28, 2010, and clean-up crews were on hand to respond to any oil coming ashore."

How Cocaine Works in the Addict's Brain

| Tue Jun. 29, 2010 1:00 PM EDT

For a long time scientists thought that drug addiction was distinctly human behavior. Then researchers discovered that rats can form addictions, too. Aside from being just one more reminder of how frighteningly similar we are to our lab companions, this finding offered scientists a chance to study how addiction actually works. Why is it that only some drug users spiral into addictive behavior? Is the addict's brain actually different? There was really only one way to find out: Give a bunch of rats some coke and see what happens.

In a study published in the June 25th edition of Science, a team of researchers attached laboratory rats to a device that allowed the rodents to self-administer doses of cocaine—a coke IV of sorts. After a month, the researchers began identifying which rats had become hooked on the drug by looking for the hallmark signs of addiction: difficulty stopping or limiting drug use; high motivation to continue use; and continued use despite negative consequences. Only 20 percent of the rats exhibited all three signs of addiction, while 40 percent exhibited none. The researchers were left to figure out what it was that made addiction-prone rats—and presumably people—different from the rest. Here's what they found.

Still No Deficit Hawks in the GOP

| Tue Jun. 29, 2010 12:07 PM EDT

On the scale of the federal budget, $18 billion is a rounding error. Literally. It's about one-half of one percent of the budget, which rounds down to zero. But a small group of moderate Republicans are threatening to vote no on financial reform because an $18 billion fee is included in the final bill.1 It's not there to punish banks or to create a slush fund for new spending. It's there solely to make the bill deficit neutral. Ryan Avent:

And yet the most moderate Republicans in the Senate are balking at the charge. Not because they disagree in any real sense with the economics of the fee. They simply won't vote for anything that looks like a tax.

This is why it's so difficult to imagine a solution to America's long-run budget crisis. It's a political impossibility to move to primary surplus on the back of spending cuts alone. Democrats are highly unlikely to win a Senate majority comfortably over 60 seats any time in the near future. And the most moderate Republicans won't vote for tax increases, even when the increase in question is a relatively small, one-off charge on big banks.

There's no room for compromise on the deficit there. Zero. The Journal story is trouble for the fate of the financial reform bill, but it should worry deficit hawks even more.

And I suppose it would worry them if there were any actual deficit hawks in the Republican Party. But there aren't, are there? There are plenty of tax-on-rich-people-and-corporations hawks, but no deficit hawks. Let's stop pretending otherwise, OK?

1Actually, I got this wrong: it's $18 billion over ten years, which works out to about .05% of the federal budget. In other words, it's really a rounding error.