2014 - %3, July

Feds Say Big Banks Are Still Too Big to Fail

| Thu Jul. 31, 2014 7:06 PM EDT

Six years after the financial crisis, the largest US banks are likely still too-big-to-fail, according to a study released Thursday afternoon by the Government Accountability Office (GAO). That means that these massive financial institutions are still so important to the wider financial system that they can expect the government to bail them out again if they are close to collapse.

Even though the GAO study found that this advantage banks enjoy dropped off significantly in 2013, "this is a continuing issue," Sen. David Vitter (R-La.), who has introduced legislation aimed at ending bank bailouts, told Bloomberg Thursday. "Too-big-to-fail is not dead and gone at all. It exists."

During the financial crisis, the government forked out $700 billion to bail out the nation's biggest banks. The 2010 Dodd-Frank financial reform act imposed new requirements on Wall Street designed to prevent this from happening again. The law gave federal Wall Street regulators more authority to dismantle failing financial institutions, mandated that banks hold more emergency funds on hand, and required banks to submit to yearly stress tests to ensure that they can withstand another crisis.

How effective these measures have been in ending too-big-to-fail is still an open question, and subject to heated debate in the halls of Congress. Other reports have found that even after Dodd-Frank, big banks still enjoy a huge advantage over smaller, community banks in terms of lower borrowing rates, thanks largely to the perception that they can't fail. Many investors believe the government will still bail out large, systemically important banks if they are again faced with collapse, whereas the economy can afford to lose a local bank or two. As a result, the biggest US banks benefited from a $70 billion too-big-to-fail subsidy in 2012, according to a March report by the International Monetary Fund.

Sen. Vitter, as well as Sens. Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio), and John McCain (D-Ariz.) have introduced legislation that attempts to truly end big bank bailouts by forcing banks to hold larger emergency reserves and shrinking the size of massive Wall Street firms.

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John Boehner's Lawsuit Against Obama Is Perfectly Reasonable

| Thu Jul. 31, 2014 6:24 PM EDT

I've made this point before, but I'd like to make it again: Exactly why is John Boehner's lawsuit against President Obama so frivolous? I don't mean this in a strictly legal sense. It may be that the suit fails immediately for lack of standing.1 Or that the merits of this particular case don't hold water. We can let the lawyers battle that out.

Politically, though, what's wrong with asking a court to decide if a federal agency has overstepped the will of Congress in its execution of the law? The answer, of course, is: nothing. People do it all the time, hundreds of times a year. The only difference here is that a house of Congress is doing it. But why does that suddenly make it frivolous?

It could be that you think courts should stick to their traditional practice of staying neutral in "political" disputes between branches of the government. That's fine. But it's not an argument that's gotten much air time. You might also think it sets a bad precedent. But again, I'm not hearing that. Instead, the argument seems to be that this suit is simply absurd on its face, an idiotic piece of grandstanding by the Republican Party.

There's no question that it's a piece of grandstanding. Nor that House Republicans could be making better use of their time. And yes, it's obviously deeply politically motivated. But that doesn't mean it's frivolous. So once again: why is it that suing a federal agency over its interpretation of a law suddenly becomes ridiculous just because Congress does it?

I'm open to good arguments on this score. Go ahead and convince me.

1I hope not, though. I understand why standing is important,2 but I'm unhappy that there seem to be a fair number of colorably important cases in which it's all but impossible to find someone with standing to sue. That's just not right.

2Honest, I really do.

Microsoft Loses Another Round in E-Mail Privacy Case

| Thu Jul. 31, 2014 5:08 PM EDT

The latest in the privacy wars:

A federal court in New York ruled Thursday that Microsoft must comply with a U.S. search warrant to turn over a customer’s e-mails held in a server overseas.

....A number of tech firms and privacy advocates have joined [Microsoft] in arguing that if the government prevails and can reach across borders, it will cause foreign individuals and businesses to flee to their non-U.S. competitors. Microsoft also argued that the United States would not be in a position to complain when foreign governments do the same and insist on access to e-mail content stored in the country.

Hmmm. How would we feel if, say, an Egyptian court demanded that Microsoft turn over emails stored on a server in California? Hmmm.

Yes, the CIA Spied on the Senate

| Thu Jul. 31, 2014 12:43 PM EDT

Earlier this year, CIA Director John Brennan accused staffers from the Senate Intelligence Committee of removing classified material from the CIA office where they were researching a report on the agency's use of torture during the Bush administration. This turned out to be very poor tradecraft on Brennan's part, since it implicitly revealed the fact that the CIA was spying on Senate staffers even though it wasn't supposed to. Brennan tried to mount a suitably aggressive counterattack to Senate outrage over this, but today it all came crashing down:

CIA employees improperly accessed computers used by the Senate Intelligence Committee to compile a report on the agency’s now defunct detention and interrogation program, an internal CIA investigation has determined.

....The statement represented an admission to charges by the panel’s chairwoman, Dianne Feinstein, D-Calif., that the CIA intruded into the computers her staff used to compile the soon-to-be released report on the agency’s use of harsh interrogation methods on suspected terrorists in secret overseas prisons during the Bush administration.

CIA Director John Brennan briefed Feinstein and the committee’s vice chairman, Saxby Chambliss, R-GA, on the CIA inspector general’s findings and apologized to them during a meeting on Capitol Hill on Tuesday, Boyd said.

I find that my reaction remains one of schadenfreude. Dianne Feinstein and the rest of the Intelligence Committee seem to be mostly unconcerned with the omnipresent surveillance apparatus constructed by the US intelligence community, so it's hard to feel very sorry for them when they learn that this apparatus is also sometimes directed at Senate staffers. If this affair had persuaded a few senators that maybe our intelligence chiefs are less than totally honest about what they do, it might have done some good. But it doesn't seem to have done that. With only a few exceptions, they're outraged when the CIA spies on them, but that's about it.

We're Still at War: Photo of the Day for July 31, 2014

Thu Jul. 31, 2014 11:12 AM EDT

US Soldiers from the 82nd Airborne Division participate in a training mission in Florida. (US Air Force photo by Senior Airman Christopher Callaway.)

Why American Politics Is Broken In One Sentence

| Thu Jul. 31, 2014 11:06 AM EDT

Dave Weigel explains modern politics in a single sentence:

Voters are aware of a border crisis, they are aware that Barack Obama is president—they blame him for nothing getting done.

Yep. Republicans can basically do anything they want and never get blamed for it. Most voters don't even know who's in control of Congress anyway. When something goes wrong, all they know is (a) something went wrong, and (b) Barack Obama is the president and he should have done something about it.

That being the case, what incentive do Republicans have for making things go right? Pretty much none. This is, roughly speaking, a fairly new insight, and it explains most of what you need to know about American politics in the Obama era.

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The Feds Are Demanding That Twitter Turn Over More User Info Than Ever

| Thu Jul. 31, 2014 10:54 AM EDT

US law enforcement and intelligence agencies are hitting Twitter with more information requests about its users than ever before, and in most cases the social network is handing over some data, according to a new report released by the company on Thursday. Twitter notes that many of the government demands, which are typically related to criminal investigations, are originating from California, New York, and Virginia. They're coming from federal, state, and local law enforcement and intelligence officials, a Twitter spokesman says.

Like several other tech companies, Twitter releases transparency reports disclosing information about the government requests for user data it has received. According to the latest report, between January 1 and June 30, Twitter received just over 2,000 requests for information covering about 3,100 Twitter accounts from authorities in 54 countries, with about 1,250 of those requests coming from US agencies. That's a sharp increase from the previous six months, when there were about 1,400 requests, around 830 of those from the US. According to the Twitter spokesman, US authorities have placed more information requests over the last six months than the company has ever received in a similar timeframe.

While Twitter granted zero requests to some countries that requested information recently, such as Turkey, Venezuela, and Pakistan, the social network handed over at least some information in 72 percent of the cases when US authorities requested it.

While the social network can report a tally of law enforcement-related requests, the social network is barred by the US government from publishing the specific number of national security-related requests—such as national security letters and Foreign Intelligence Surveillance Act (FISA) court orders—it has received. Twitter notes that it met with the FBI and the Justice Department earlier this year to push for more transparency.

This Is the Lamest Defense of GMO Foods Ever

| Thu Jul. 31, 2014 10:47 AM EDT

Over on our environment blog, Chris Mooney posts an excerpt from an interview in which Neil deGrasse Tyson defends GMO foods:

"Practically every food you buy in a store for consumption by humans is genetically modified food," asserts Tyson. "There are no wild, seedless watermelons. There's no wild cows...You list all the fruit, and all the vegetables, and ask yourself, is there a wild counterpart to this? If there is, it's not as large, it's not as sweet, it's not as juicy, and it has way more seeds in it. We have systematically genetically modified all the foods, the vegetables and animals that we have eaten ever since we cultivated them. It's called artificial selection."

This is a very common defense of GMO foods, but I've always found it to be the weakest, least compelling argument possible. It's so weak, in fact, that I always wonder if people who make it are even operating in good faith.

It's true that we've been breeding new and better strains of plants and animals forever. But this isn't a defense of GMO. On the contrary, it's precisely the point that GMO critics make. We have about 10,000 years of evidence that traditional breeding methods are basically safe. That's why anyone can do it and it remains virtually unregulated. We have no such guarantee with artificial methods of recombinant DNA. Both the technique itself and its possible risks are completely different, and Tyson surely knows this. If he truly believed what he said, he'd be in favor of removing all regulation of GMO foods and allowing anyone to experiment with it. Why not, after all, if it's really as safe as Gregor Mendel cross-breeding pea plants?

As it happens, I mostly agree with Tyson's main point. Although I have issues surrounding the way GMO seeds are distributed and legally protected, the question of whether GMO foods are safe for human consumption seems reasonably well settled. The technology is new enough, and our testing is still short-term enough, that I would continue to err on the side of caution when it comes to approving GMO foods. Still, GMO breeds created under our current regulatory regime are basically safe to eat, and I think that lefty critics of GMO foods should stop cherry picking the evidence to scare people into thinking otherwise.

(Please send all hate mail to Tom Philpott. He can select just the juiciest ones to send along to me.)

But even with that said, we shouldn't pretend that millennia of creating enhanced and hybrid breeds tells us anything very useful about the safety of cutting-edge laboratory DNA splicing techniques. It really doesn't.

Quote of the Day: Vulture Fund Suing Argentina Is Just a Lonely Defender of the Free Market

| Thu Jul. 31, 2014 9:24 AM EDT

Here is fellow hedge fund manager Daniel Loeb defending Paul Singer, the billionaire owner of the vulture fund that successfully forced Argentina into default because it was insisting on full payment for old Argentine bonds:

He doesn’t get into fights for the sake of fighting. He believes deeply in the rule of law and that free markets and free societies depend on enforcing it.

You betcha. Anytime a Wall Street tycoon is supposedly fighting for deep principles, hold onto your wallet. They don't become billionaires because of their deep commitment to fair play and the unfettered operation of capital markets. However, there's also this:

The big question, however, is whether Argentina will ever pay Elliott what it wants. If the firm fails to collect, that would underscore the limits of its legal strategy. There is no international bankruptcy court for sovereign debt that can help resolve the matter. Argentina may use the next few months to try to devise ways to evade the New York court. Debt market experts, however, do not see how any such schemes could avoid using global firms that would not want to fall afoul of Judge Griesa’s ruling.

This is an interesting point. Normally, Argentina would just continue to pay the holders of its "exchange" bonds and refuse to pay the vulture funds that refused to go along with the terms of its bankruptcy and restructuring a decade ago. Elliott and the other vultures would be out of luck. The problem is that Argentina's payments are funneled through a US bank, and the judge in the case has forced US banks to halt payments.

But in all the articles I've read about this, I've never really seen an adequate explanation of why it's so impossible to avoid funneling payments through the US. I get that Argentina can no longer use an American US bank. Also, I assume, they can't use a big global bank that does business in the US. But surely there are mid-size banks that do no business in the US that could act as payment agents? If dollars were the issue, they could pay off in euros instead. I don't know what it would take legally for Argentina to switch either payment agents or the denominations of its bonds, but it doesn't sound impossible. And yet apparently it is. Why?

Gaza Conflict Divides Congressional Progressives

| Thu Jul. 31, 2014 8:22 AM EDT
Rep. Keith Ellison (D-Minn.), left, and Rep. Brian Baird (D-Wash.) survey the rubble of the American International School in Gaza in 2009.

With the war in Gaza continuing without an end in sight, congressional leaders are rallying to condemn Hamas rocket attacks and support Israel. But members of the Congressional Progressive Caucus have been divided over the conflict, with some commending Israel's military for its use of precision weapons and others outraged by the conflict’s mounting Palestinian civilian causalities. 

The division was clear on July 29 when caucus co-chair Rep. Keith Ellison (D-Minn.), who has visited Gaza three times since 2009 and previously condemned the Israeli blockade of Gaza, published an op-ed in the Washington Post that highlighted recent Palestinian civilian casualties—including four children who were "blown up on a beach" by an Israeli attack. He noted that most Gaza residents "aren't rocket shooters or combatants. For the past several years they have lived in dreadful isolation. The status quo for ordinary Gazans is a continuation of no jobs and no freedom." Ellison again called for an end to Israel's blockade and urged Hamas to give up its rockets: "There is no military solution to this conflict. The status quo brings only continued pain, suffering and war."  

Yet this is not the consensus view within the 65-member Progressive Caucus that Ellison co-leads. In recent weeks, other caucus members have focused on the rocket attacks launched against Israel and lent their support to its aggressive military reaction.

Toward the start of Israel's air campaign in Gaza, Rep. Jerrold Nadler (D-N.Y.), a stalwart liberal representing Manhattan's Upper West Side, issued a statement condemning Gaza's rocket attacks and calling for the public to support Israel "to take whatever measure she deems necessary to defend the population against the attempted murder by these terrorists." Nadler attended a rally in front of New York's city hall with other prominent New York Democrats to express support for Israel's actions in Gaza. Two days later, on July 16, caucus member Rep. Lois Frankel (D-Fla.) issued a statement with Rep. Ted Deutch (D-Fla.) calling for solidarity with Israel.

"Israel has gone far beyond what we have seen any other country do trying to protect the civilian population of its enemy," Nadler said. Frankel and Deutch similarly praised the Israeli military for using "pinpoint technology to minimize any collateral damage." So far more than 800 Palestinian civilians, including 232 children, have been killed by Israeli strikes in Gaza as of July 30.

Last week, Progressive Caucus member Jim McDermott (D-Wash.), a psychiatrist by training, condemned Israel’s attacks on hospitals. "The proximity of military targets or the suspicion of hidden weapons and militants is an invalid excuse in the targeting of a hospital or ambulance," he said in a statement.

"You should not be put in danger in a medical situation by someone alleging that there's some reason they should attack a hospital or doctor," he tells Mother Jones

On July 18, Ellison and five other representatives—all progressive caucus members—signed a letter to President Obama and Secretary of State Kerry calling for the White House and the State Department to "redouble your efforts" to press for a cease fire in Gaza. Contrast that to 2009, when 54 House Democrats signed a letter drafted by Ellison and McDermott urging the president "to work for tangible improvements to the humanitarian concerns" in Gaza. 

As for Rep. Raul Grijalva (D-Ariz.), who co-chairs the caucus with Ellison, he has not said much publicly about the current war in Gaza. Although he signed the 2009 letter, he did not lend his name to the July 18 call for a cease fire. His office did not respond to requests for comment.