Blogs

TARP Moves Forward With Promises, Not Guarantees, of Improvements

| Fri Jan. 16, 2009 2:41 PM EST

So it's confirmed. Chris Dodd, head of the Senate Banking Committee, will do nothing to ensure that there are oversight and executive compensation provisions in the second half of the TARP rollout. He will not legislate in aid for families in foreclosure, either.

The reason? Larry Summers, writing on behalf of the President-elect, wrote him a letter assuring him that the executive branch could and would police itself. Don't worry, Chris, we got this! As I pointed out before, Dodd is an awfully credulous fellow. Hank Paulson convinced him of the exact same thing. How'd that turn out?

Will Obama and company will do a better job than Paulson? Probably. Should Dodd and the Senate Democrats assume that they can take a hands-off approach to things like TARP because the man in the Oval Office is from their party? Absolutely not.

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New U2 Album Cover Art Might Owe the HRC Royalties

| Fri Jan. 16, 2009 2:21 PM EST

mojo-photo-u2horizon.jpgThe new U2 full-length, No Line on the Horizon, isn't out til March 3, but they've just released the cover art, and as Pitchfork put it, it's rather "zen." Even the Fork admits they're intrigued, since U2 are "most interesting when they step out of their comfort zone," although it's getting hard to remember when that last was. In any event, the album cover features a photograph by Hiroshi Sugimoto of a barely-rippling ocean superimposed with a big gray equals sign. No, I didn't just say "big gay equals sign," but the Human Rights Campaign might want to check into doing at least a "cross-promotion" or something. I also see a couple other influences: first up, the haunting video for Joy Division's "Atmosphere" (that features bleak, black & white horizons and the prominent use of "+" and "-" symbols) was directed by Anton Corbijn, who famously took the iconic photographs of U2 for their Joshua Tree album cover. How's that for a connection. The rest of my proposed theory of how the band came up with the cover (in visual form), plus a tracklisting, after the jump.

Small Victory

| Fri Jan. 16, 2009 1:25 PM EST

SMALL VICTORY....Last week Citigroup dropped its opposition to "cramdown" legislation that would allow bankruptcy judges to rewrite mortgage terms for distressed homeowners. Robert Reich thinks they probably did this because they knew they'd need some additional bailout money in the near future:

In other words, the Wall Street bailout has had exactly the same effect for Congress that the proposed bankruptcy provision would have for homeowners — it has increased its bargaining power over those who ordinarily pull the strings. The massive tax-payer financed bailout of Wall Street...seems to be weakening the Street's ability to veto financial legislation it doesn't like. I'm not sure whether this is something we should be celebrating as a small victory for democracy, or condemning as an extortionate price for reducing Wall Street's grip.

I think "small victory" is probably the right way to look at it, with an emphasis on "small." Sure, the price was high, but after all, nationalizing Citi and other big banks would be pretty expensive too. (Sweden's bank nationalization in the early 90s probably resulted in direct costs of around 2% of GDP, equivalent to about $300 billion for the U.S.) Now let's see if we can sqeeze a few somewhat larger victories out of all this.

Quote of the Day - 01.16.09

| Fri Jan. 16, 2009 12:55 PM EST

QUOTE OF THE DAY....From Barack Obama, talking to the Washington Post about entitlement reform:

"Social Security, we can solve," he said, waving his left hand. "The big problem is Medicare, which is unsustainable. . . . We can't solve Medicare in isolation from the broader problems of the health-care system."

This is the right way to look at things. Social Security is no big deal: we can either leave it alone for now or else implement a few fairly modest and conventional fixes. Either way works. Medicare is by far the bigger problem, but this has little to do with the structure of the program itself. Medicare's problems only get solved if we tackle healthcare costs more broadly, and that means getting started on some kind of national healthcare plan.

Obama is a smart guy and obviously gets this. Still, it's good to see him making these points directly, especially to this particular audience. It would be nice to see the Post editorial board finally figure out this stuff too.

Wingnuts: Obama Plans to "Completely Decimate and Destroy our Armed Forces!" by Letting Gays Serve Openly

| Fri Jan. 16, 2009 12:53 PM EST

If you ever feel like the Right is getting a little too friendly towards Obama, Human Events' mailing list (which it rents out to other right-wing groups) will quickly dispel that notion. The latest item to come over that wire is an email from ExposeObama.com that claims Obama will destroy the military by letting gays serve openly. "You can STOP this unholy alliance between Barack Hussein Obama, those who hate America and our men and women in uniform, and the radical homosexual movement," ExposeObama claims, if you are willing to send spam faxes to the Republican and Democratic congressional leadership.

Aside from the homophobia, the most pathetic thing about this email is how ineffective it is likely to be. The country has changed a lot since the early 1990's, when Bill Clinton faced a political firestorm over the issue of gays in the military. Today, a policy that costs the US military 4,000 troops a year just isn't that popular. Three-quarters of Americans, including 64 percent of Republicans and a majority of evangelicals, support allowing gays to serve openly. That's one reason, as Kevin noted last week, Obama press secretary Robert Gibbs could say this:

NY Times Magazine's "Obama People"

| Fri Jan. 16, 2009 12:38 PM EST

Nadav Kander's 52 portraits of "Obama's People" for the New York Times Magazine is exceptional not just for the photography, but the breadth of people covered in the shoot — from Eugene Kang, Obama's personal assistant, up to Joe Biden, Hillary, Pelosi and plenty of politicos in between.

But the real fun of this shoot is the back story.

Rob Haggert at A Photo Editor has the best take, in a laugh riot, comic book style, filled with insidery photo jokes.

Alternatively, in the Editor's Letter section of the Magazine, Gerald Marzorati explains the hows and whys of the shoot in a typically stuffy NY Times way (hey, stuffy can be good).

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Leverage

| Fri Jan. 16, 2009 12:27 PM EST

LEVERAGE....Paul Volcker's Group of 30 has produced a report piled high with recommendations for regulating the banking system, including a suggestion that the size of banks be limited so that there's no longer any such thing as "too big to fail." Matt Yglesias likes that idea, but I'm pretty lukewarm about it myself since it's not clear to me that bailing out a hundred small banks is any better than bailing out a dozen big ones. Systemic failure is systemic failure, after all.

But I'll stay agnostic on that for the time being. Recommendation 8b, however, ought to be getting more attention:

Given the recurring importance of excessive leverage as a contributing factor to financial disruptions, and the increasingly complex ways in which leverage can be employed on and off balance sheets, prudential regulators and central banks should collaborate with international agencies in an effort to define leverage and then collect and report data on the degree of leverage and maturity and liquidity mismatches in various national systems and markets.

The rest of the report provides plenty of grist for conversation, but I honestly think that if regulators could figure out some reasonably robust way of defining and limiting leverage and limiting it everywhere (i.e., in the shadow banking system as well as the regular banking system), I'd trade that for all the rest of the rules combined. Put it together with this one, and you've got the skeleton of a serious regulatory overhaul:

Large, systemically important banking institutions should be restricted in undertaking proprietary activities that present particularly high risks and serious conflicts of interest. Sponsorship and management of commingled private pools of capital (that is, hedge and private equity funds in which the banking institutions own capital is commingled with client funds) should ordinarily be prohibited and large proprietary trading should be limited by strict capital and liquidity requirements. Participation in packaging and sale of collective debt instruments should require the retention of a meaningful part of the credit risk.

Banks should be banks, not casinos. Now all we have to do is figure out how to implement these recommendations and then get Congress and the entire rest of the world to agree to phase them in. Should be a piece of cake.

Resurrecting the Investment Tax Credit

| Fri Jan. 16, 2009 11:39 AM EST

RESURRECTING THE INVESTMENT TAX CREDIT...Bruce Bartlett says Republicans need a stimulus plan of their own, and they need to offer up something more than just the same mindless tax cuts they always do. They need better tax cuts. Cleverly, he recommends an idea already promoted by a couple of Democratic economists in good standing:

In promoting investment, Republicans can even use the theories of economist John Maynard Keynes, which are much in vogue today. In the Keynesian model, investment spending provides just as much stimulus as consumption spending. But investment spending is really better, as common sense tells us.

....To stimulate investment, Republicans might consider resurrecting a Democratic tax idea from the Kennedy Administration — just as Jack Kemp did in 1977. This idea, named the Investment Tax Credit, reduced the cost of machinery and equipment by giving businesses a credit of 7% (later 10%) of the purchase price against their tax liability. In 1981, Kennedy adviser Walter Heller argued that the ITC really marked the beginning of supply-side economics.

Another political virtue of the ITC is that Obama economic adviser Larry Summers and Clinton Administration economist Brad DeLong are the principal advocates of the importance of machinery and equipment to long-run growth....In a 1992 study for the American Council for Capital Formation, DeLong estimated that a 10% ITC would boost economic equipment investment substantially and raise the rate of real economic growth by as much as 0.3 percentage points per year.

The ball's in your court, Brad. What do you say to that?

When Inflation Rips Apart a Country

| Fri Jan. 16, 2009 11:20 AM EST

It's kind of amusing that Zimbabwe is printing a $100 trillion note, but the mind-blowing inflation in that country is destroying what vestiges of a civil society remain there. CNN:

Even vegetable vendors prefer the U.S. dollar, South African rand or Botswanan pula, and most workers now demand their salaries in foreign currency. Doctors and nurses have been on strike since last September, demanding salaries in U.S. dollars. The strike coincided with a cholera epidemic that now has claimed more than 2,000 lives.
Last week, the state media reported that most teachers had left their jobs. As a result, the end-of-year examinations taken in November are yet to be graded after the markers demanded their wages in foreign currency. Schools are yet to re-open this year awaiting the examination results.

The inflation rate in Zimbabwe is currently over 230,000,000%. I really have no idea what that looks like in real terms. I once found an anecdote about what 200,000% inflation looks like; you can find it here.

(H/T Boing Boing)

Obama Counterterrorism Advisor John Brennan Pushing For New Approach to Iran

| Fri Jan. 16, 2009 11:06 AM EST

CIA veteran John Brennan was an early lightning rod for President-elect Obama after word got out that he was being considered for the agency's top job. (Brennan had advised Obama on intelligence and foreign policy during the campaign.) The primary complaint was Brennan's past statements in defense of the CIA's practice of "rendering" terrorism suspects to other countries for interrogation—places where harsh interrogations go far beyond waterboarding. In 2006, he told a reporter that "we do have to take off the gloves in some areas," but went on to say that it must be done in a way doesn't "forever tarnish the image of the United States abroad."

Since 2005 Brennan has been CEO of the Analysis Corporation, which advises the federal government and private companies on counterterrorism. The firm's parent company, London-based Global Strategies, has come under fire for its activities in Iraq and Afghanistan, where it hired Third World private security contractors at cut rates and once shut down Baghdad's airport for several days during a contract dispute with the Iraqi government.

Obama has been critical both of the CIA's practice of rendition and the unregulated use of private security contractors in conflict zones, but seems satisfied that Brennan has not been tarnished by his connection to either one. Dropping him from consideration for CIA director (instead picking Leon Panetta), Obama went on to tap Brennan to be his top advisor on counterterrorism—a position that does not require congressional approval.