Blogs

Out of Iraq

| Wed Feb. 25, 2009 2:56 AM EST
AP reports that Barack Obama has settled on a withdrawal schedule for Iraq:

President Barack Obama plans to remove all U.S. combat troops from Iraq by August 2010, administration officials said Tuesday, ending the war three months later than he had promised during his presidential campaign.

The withdrawal plan — an announcement could come as early as this week — calls for leaving a large contingent of troops behind, between 30,000 and 50,000 troops, to advise and train Iraqi security forces and to protect U.S. interests.

Reuters is slightly less positive about this, quoting an official saying only, "That's the way the wind's blowing."  And MSNBC's report adds a caveat from another official: "The 19-month withdrawal is based on assumptions — (on improved security) — and if those assumptions don’t hold up, all bets are off, and we'd have to adjust."

Still, put this together with Obama's flat statement in Tuesday's speech that "I will soon announce a way forward in Iraq that leaves Iraq to its people and responsibly ends this war," and it sounds like we're finally getting out.  Not completely out, but then, Obama never promised otherwise.  For better or worse, we'll probably be living with his "residual force" for quite a while.

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The Gaussian Copula

| Wed Feb. 25, 2009 2:33 AM EST
I've been reading about Wall Street's fabulous Gaussian copula function for some time, but aside from a vague notion that it was a rocket science method of measuring risk, I've never had the slightest idea what it was actually all about.  In this month's Wired, Felix Salmon explains.  Basically, it's a clever way of figuring out whether the odds of two different bonds defaulting are correlated.  If they are, then bundling them together into a single security is risky since there's a good chance they'll both go into the toilet at the same time. If they aren't, bundling them together is fairly safe since even if one of them defaults, at least the other one is still safe.  Its inventor was a math guru named David X. Li:

In 2000, while working at JPMorgan Chase, Li published a paper in The Journal of Fixed Income titled "On Default Correlation: A Copula Function Approach." (In statistics, a copula is used to couple the behavior of two or more variables.) Using some relatively simple math — by Wall Street standards, anyway — Li came up with an ingenious way to model default correlation without even looking at historical default data. Instead, he used market data about the prices of instruments known as credit default swaps.

....When the price of a credit default swap goes up, that indicates that default risk has risen. Li's breakthrough was that instead of waiting to assemble enough historical data about actual defaults, which are rare in the real world, he used historical prices from the CDS market.....Li wrote a model that used price rather than real-world default data as a shortcut (making an implicit assumption that financial markets in general, and CDS markets in particular, can price default risk correctly).

Hmmm.  The implication here is that the fundamental problem with the Gaussian copula — which was the mathematical basis behind the proliferation of CDOs, CLOs, and all the other shiny new investment vehicles that imploded so spectacularly last year — is that it was based on the relatively brief historical record of credit default swaps.  I don't have any doubt that that's true, but a few paragraphs later the real villain turns out to be a familiar one:

"Everyone was pinning their hopes on house prices continuing to rise," says Kai Gilkes of the credit research firm CreditSights, who spent 10 years working at ratings agencies. "When they stopped rising, pretty much everyone was caught on the wrong side, because the sensitivity to house prices was huge. And there was just no getting around it. Why didn't rating agencies build in some cushion for this sensitivity to a house-price-depreciation scenario? Because if they had, they would have never rated a single mortgage-backed CDO."

There's just no getting around it: there might have been technical problems with the Gaussian copula function, but even if it had worked the way people thought it did it wouldn't have mattered.  The rating agencies and the sell-side BSDs were just using it as an excuse to pretend that house prices would rise forever anyway.  That was a far more fundamental problem than the statistical shortcomings of the formulae they used.

Still, it's an intriguing piece that's worth reading.  You can put it alongside Joe Nocera's piece last month on Value at Risk, yet another quant model developed at JPMorgan whose wide misuse contributed mightily to our current economic meltdown.  When common sense takes a holiday, it turns out, all the math in the world can't save you.

Obama's Speech

| Wed Feb. 25, 2009 12:15 AM EST
I don't know how meaningful this is, but listening to Barack Obama's speech tonight it struck me that there were only two places where he specifically asked Congress to send him legislation.  The first was a cap-and-trade plan to address global warming, and the second was the Hatch-Kennedy national service bill. On healthcare, by contrast, he merely said he would be bringing stakeholders together "to begin work on this issue next week."

Maybe that's significant, maybe it's not.  But I was at least a little surprised that his healthcare pitch wasn't a bit punchier.

A few miscellaneous observations.  Overall, it was a good, adult speech.  The beginning was like a punch in the gut to Republican fecklessness over the past eight years, but later on Obama somehow got plenty of bipartisan standing Os anyway, even in a few places where I wouldn't have expected it.  There was some fine populist demagoguery aimed at Wall Street ("This time, CEOs won't be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet"), but it was mainly just a cover for an admission that he planned to keep shoveling money into banks.  And he made it pretty clear that he would announce a withdrawal plan from Iraq within a few days.

That's all for now.  Consider this an open speech thread.

Bobby Jindal's Stimulus Lies

| Tue Feb. 24, 2009 11:41 PM EST

Bobby Jindal, the Republican governor of Louisiana, gave the GOP response to President Barack Obama's speech to Congress Tuesday night. I'll leave the analysis of how Jindal did to David Corn, but it's important to note that Jindal repeated two fairly common Republican lies about the stimulus package. Here's the relevant portion:

[The stimulus includes] $8 billion for high-speed rail projects, such as a magnetic levitation line from Las Vegas to Disneyland, and $140 million for something called "volcano monitoring".

The truth is that the stimulus bill does not allocate any high speed rail money for specific projects. In fact, any stimulus money for high speed rail would be allocated by Obama transportation secretary Ray Lahood—a Republican.

The 'volcano monitoring' part is almost as misleading. According to ProPublica, the relevant portion of the stimulus money is for "U.S. Geological Survey facilities and equipment, including stream gages, seismic and volcano monitoring systems and national map activities." It seems obvious that employing geologists, building facilities, buying equipment, and paying people to map the country all have a stimulative effect. But more importantly, why does Bobby Jindal think monitoring volcanoes is a bad thing for the government to be doing? There doesn't seem to be any immediate way for private enterprise to profit from monitoring volcanoes (maybe selling volcano insurance?), but there is obviously a huge public benefit from making sure volcanoes are monitored: warning people if a volcano is going to erupt. Isn't that obvious?

Apparently not to Bobby Jindal. But, of course, Bobby Jindal is the person who just tried to tell the nation that the problem with the government's response to Hurricane Katrina was that bureaucrats demanded that people have proof of insurance and registration. It wasn't.

(There's no money in the stimulus to save the San Francisco salt marsh mouse, either.)

UPDATE: You want a cool video on maglev trains? You got a cool video on maglev trains.

SF Chronicle Could Be Shut Down or Sold

| Tue Feb. 24, 2009 9:05 PM EST

Hearst said today that it may sell, or totally shutter, San Francisco's main daily newspaper. The San Francisco Chronicle lost $50 million in 2008, and has been losing money consistently since 2001. If the paper cannot recoup losses "within weeks" via job cuts and other measures, Hearst officials said via a statement today, "...we will have no choice but to quickly seek a buyer for the Chronicle or, should a buyer not be found, to shut the newspaper down." According to Reuters, the Chronicle employs nearly 300 people on its news staff alone, and is the 12th largest daily in the nation.

So what does it mean for San Francisco to lose the Chronicle? For Bay Area folks, there are a number of newspapers that could possibly step up coverage to fill the gap, like the excellent San Jose Mercury News or the Oakland Tribune. Television news crews could conceivably lengthen their broadcasts. So far, all I've seen is that one of the of the city's smaller dailies, the San Francisco Examiner, is hiring. The Examiner also has only half the Chronicle's circulation, and is given away free instead of sold. While many San Franciscans have pooh-poohed the Chronicle for its heavy slant toward lightweight stories, surely the Examiner is not what they envisioned as a solution.

More disturbing than the Examiner taking over San Francisco is the idea that liberal, literate, San Francisco might not have a newspaper to call its own. Even Cleveland and La Crosse, Wisconsin, have their own papers. Granted, a Sunday morning in San Francisco will show you as many people reading the New York Times as the Sunday Chronicle, but still, the Chronicle has been there and there really isn't another paper in town of similar quality or distribution. As much as I'd like to think a major city can survive without a newspaper, I'm not super-excited to try the experiment personally. San Francisco has some of the nation's most tech-savvy citizens, but are they really ready to get their local news only from virtual sources? If the Chronicle gets shut down within weeks, as seems to be Hearst's intention, they may have no choice but to find out the hard way.

Arrested Development Movie a Go

| Tue Feb. 24, 2009 8:17 PM EST
"Sources say." Rumors of a film version of cult-favorite TV show Arrested Development have been flying around like badly-imitated chickens for a while now, with everybody from Jeffrey Tambor to David Cross jumping on board. But young Michael Cera, now a big movie star, appeared to be the last holdout, and you couldn't make an Arrested Development movie without George Michael. But now, E Online has it on good authority that Cera has agreed to do the film. "Insiders" are saying production may even get going by the end of the year, with show creator Mitchell Hurwitz as writer/director. Finally, I'll be able to eat frozen bananas again without crying.

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Republicans Do Know How to Use the Internets and Make Videos

| Tue Feb. 24, 2009 8:13 PM EST
The bailout got you down? Does it feel like the members of Congress just aren't listening? Got a video camera and too much spare time? Don't fret, sad little big-government-haters: You can heed the advice of Meghan McCain, get your fifteen micro-seconds of fame, and win your bailout burden back.

Yes, Republicans do know how to use the internets.  Right.org (you got to give them credit for the snazzy URL), launched an online video contest that asks DIY film makers to "Be creative. Make us laugh. Teach us. Above all, make us oppose the bailouts."

The winning entry receives $27,599, or one person's share of the bailouts. Entrants will flood YouTube until a winner is chosen by a "panel of qualified judges" in July. The idea for a video contest follows hard on the heels of the Best Job in the World put on by the Queensland Tourism. Though there are, understandably and sadly, far fewer bikinis in the Right.org contest.

Obama's Mortgage Plan

| Tue Feb. 24, 2009 6:38 PM EST
Is Barack Obama's plan to help out distressed homeowners unpopular?  Rasmussen asked the following question to find out:

Some people say that having the government subsidize mortgage payments for financially troubled homeowners puts the government in the position of rewarding bad behavior. Is the government rewarding bad behavior when it provides subsidies to those who are most at risk of losing their homes?

55% said yes and only 32% said no.  But it's a leading question!  When the Washington Post and New York Times asked a more straightforward version of the question (Post: "Would you support or oppose the federal government using 75 billion dollars to provide refinancing assistance to homeowners to help them avoid foreclosure on their mortgages?") the results were reversed.  Over 60% supported the plan.  Matt Yglesias converted these results into handy chart form, which I've stolen and displayed over on the right.

The basic meme in the leftosphere is that Rasmussen deliberately chose conservative wording here and the results aren't to be trusted.  But I want to push back on that a bit.  There are two points to make here.

First, these poll results aren't necessarily contradictory.  It could well be that some people think Obama's plan is likely to reward bad behavior in some cases but they support the plan anyway.

Second, there's something to be learned here if we don't dismiss Rasmussen's results out of hand.  Here's the problem: liberals often suffer from poll literalism, a disease in which we look at simple poll questions and think they show that everyone supports us.  60% support national healthcare! 70% support more spending on education!  Hooray!

But those numbers are largely meaningless. The real question is, How many people still support national healthcare after conservatives have spent months scaring everyone into thinking it means they'll never be allowed to see their old family doctor again?  Probably not as many.  Likewise, how many people will support Obama's mortgage plan after they've heard all the conservative talking points against it?  Probably less than the Post and the Times say.

Now, my guess is that once everyone's had their say, Obama's plan will still garner considerable support.  But it might not, and understanding how Republican talking points affect public opinion is valuable.  That's what Rasmussen has told us here, and it's worth paying attention to.

DC Will Soon Have Voting Rights; Is Statehood Next?

| Tue Feb. 24, 2009 6:14 PM EST
The District of Columbia is poised to finally obtain voting representation in Congress. Is statehood next? Little known fact: Obama supports it.

Dear Everyone, Please Care Less About the Dow

| Tue Feb. 24, 2009 5:53 PM EST

Ned Hodgman at the very underrated Understanding Government blog has had it with the media's unrelenting need to put the stock market at the center of the American economic recovery.

Today's Wall Street Journal front page headline, scanned this morning over coffee by the Journal's 1.7 million subscribers, is "Stocks Drop to 50% of Peak." I’d say we're better off with 50% of the nonsense we had when the Dow Jones Industrial Average was the default indicator of the country’s economic health.

It’s not just the numbing predictability of the news every day — again with the Nikkei average, again with the S&P 500, and now every morning we're supposed to care about the stock futures too.

That's force of habit (and a lack of imagination) from the nation's news outlets. The real problem is that the Dow Jones Industrial Average is only one measure of prosperity in this country, and certainly not the most reliable. Let's look back a year or so and see if the Dow's "peak" was a reliable indicator of anything except the coming crash.

Ned has some suggestions on what might make better indicators of the recovery. Might I suggest Bhutan's Gross National Happiness?