Quote of the Day

From Alan Greenspan, on the size of U.S. banks:

If they’re too big to fail, they’re too big.

Interesting.  On the one hand, Greenspan is really on the side of the angels here.  "I don’t think merely raising the fees or capital on large institutions or taxing them is enough," he says.  If they're too big, we need to just chop 'em down to size.  On the other hand, he's also using this as an opportunity to slag his successors for creating the moral hazard of too-big-to-fail in the first place: "When push came to shove, they didn’t stand up," he says of the decision last year to rescue Fannie, Freddie, and AIG.  But it's pretty hard to believe that if Greenspan had still been Fed chair at the time, he would have risked allowing the financial system to melt down.  And the "Greenspan put" predates the "Bernanke put" by many years.

Still and all, it's interesting that Greenspan, of all people, is willing to endorse an idea that's apparently too radical for current officeholders to even think about.  It's sort of like all those out-of-office Republicans who say they're in favor of healthcare reform now.  I guess it's a lot easier to buck the tide when you're not the one holding the bag.

Another Ralph Lauren Anorexia Ad

Does Polo Ralph Lauren find its models in a prison camp? Nope, it just alters them to look that way. (See the "before" version here.) Maybe uproar over this practice will prompt the company to express futher regrets. Geez! When supermodel Filippa Hamilton, who was fired in April for being "overweight," said that the clothier owes all women an apology, she wasn't kidding. (For the full story, read the Related Stories posts below, top to bottom.) And a hat tip to Photoshop Disasters for posting the ad.

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Sticky Benefits

As this CBPP chart points out, there was no net inflation in 2009, which means that Social Security recipients won't receive a benefit increase in January.  Sacre bleu!  That can hardly be allowed, so naturally politicians are taking swift action:

President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.

....An increase in benefit checks each January has been a yearly ritual since the mid-1970s, when the government moved to ensure that its subsidies to retirees, pension recipients and others who receive Social Security benefits kept pace with inflation. Thursday's announcement by the Labor Department will mark the first time that the federal formula used since then, which is tied to the consumer price index, will translate into no increase at all.

Now, I don't really have any objection to giving seniors an extra little bonus this year. Their 401(k)s and whatnot are sucking pretty bad, so why not?  A little extra stimulus is a good idea even if this isn't the most defensible use of federal money I can think of.

Still, this does go to show the power that sustained inflation holds on our imaginations.  Technical arguments about CPI calculations aside, the fact is that seniors haven't gotten a benefit increase for decades.  It's just not the way the program works.  But the fact that their checks keep going up makes it seem like they have.  So now, despite the fact that the huge benefit increase of last January combined with the deflation of the past 12 months means seniors really are getting higher benefits for the first time in recent memory, it doesn't seem like it.  So adjustments must be made and appearances kept up.  Sticky wages indeed.

Cracking the Whip

Is it really true that the Democratic leadership acts like a high school social club while the Republican leadership acts more like the mafia?  Step out of line in GOP-land and they'll make you pay dearly: money, committee assignments, and more will be savagely withdrawn if you vote the wrong way.

Maybe.  But Politico reports that Republicans might not be quite the tough guys they were a decade ago:

Mitch McConnell and his deputies in the Senate Republican leadership are responding very cautiously to Olympia Snowe’s decision to become the first GOP vote for a Democratic health care reform bill.

....Senate Minority Whip Jon Kyl (R-Ariz.) [...] said a heavy-handed approach “doesn’t work.” And indeed, it could backfire — not just with Snowe but with other Republicans who’ve indicated that they could cross over to help Democrats pass some of President Barack Obama’s top domestic policy initiatives.

....Republican leaders know that if they crack down hard on Snowe, they risk pushing her and other wavering Republicans into the arms of the Democrats. So, instead, they’ll lobby their own intensely in order to keep the GOP united and force the Democrats to find 60 votes by themselves.

Well, it's tougher to maintain discipline as a minority party than it is when you're in the majority.  And John Boehner is no Tom DeLay.  In any case, maybe they've given up: healthcare reform now seems to have devolved into a furious battle over last-minute goodies, which is probably good news.  That's what usually happens when a bill actually looks likely to pass and everyone wants to make sure they aren't left off the gravy train.  They wouldn't be bothering if they thought the whole thing was never going to see the light of day.

What if Obama won other presumptive awards besides the Nobel? Like a MTV music award for future lyrical speeches, or an Oscar for best future imaginary screenplay adaptation of The Audacity of Hope?

Watch Mark Fiore's vision of these and other preemptive prizes after the jump:

Ralph Lauren Model Fired: Too Fat

Holy haute couture! Ralph Lauren really doesn't get it. First the clothier sicced its lawyers on Boing Boing, one of the Web's most popular blogs, after a Boing Boing writer reproduced an ad photoshopped by the company's graphic artists to make its model look bizarrely skinny. An indignant Boing Boing declared a culture war against the attempted censorship, and the company eventually admitted that it had done a regrettable job on the ad.

Now, just when you thought this couldn't get worse, it comes out that Polo Ralph Lauren had terminated its contract with the model, Filippa Hamilton, back in April because she was too fat. (Hamilton is 5-foot-10 and weighs 120 pounds.) "They fired me because they said I was overweight and I couldn't fit in their clothes anymore," she told the New York Daily News on Tuesday. (See Hamilton's photo on the Daily News website to see what Ralph Lauren considers "overweight.")

According to the report, the 23-year-old model has worked for Lauren since 2002 and was distraught at being fired by an employer she'd come to see as "a second family." When the altered ad blew up online, she was surprised—and not pleasantly so—to see how her image had been distorted. "I think they owe American women an apology, a big apology," she told the paper. "I'm very proud of what I look like, and I think a role model should look healthy."

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Hearing on Forged Letters to Congress Delayed

The Select Committee for Energy Independence and Global Warming hearing investigating the role of Bonner & Associates and the American Coalition for Clean Coal Electricity in forged anti-climate bill letters sent to members of Congress was postponed on Thursday. The delay came after Ranking Minority Member Jim Sensenbrenner (R-Wisc.) raised concerns that the committee had not been provided with witness testimony 48-hours in advance, as required by House rules.

Sensenbrenner was heard very loudly questioning committee staff about the issue before a full hearing room. Chairman Ed Markey (D-Mass.) called off the hearing shortly thereafter, saying that there had been "a procedural mistake." "In order to be fair to all members in terms of their ability to examine everyone's testimony ... I think the correct decision is that we will postpone this hearing until next week," said Markey.

The delay comes as other media are picking up on some of the more scandalous aspects of the story. I reported back in August that both Bonner & Associates and ACCCE know about the forgeries well before the House vote on the climate bill, but did nothing to inform the members of Congress who had received the fraudulent letters. In a written statement I obtained at the time, ACCCE said it was made aware of the forged letters on June 24, 2009—a full two days before the House narrowly passed the climate bill.

 

Revenge of the Nerds

This is so far over my head that it might as well be written in Martian, but it's still fascinating in its own geeky way.  A new paper by a group of Princeton computer scientists and economists uses Intractability Theory to demonstrate that a smart underwriter can deliberately construct a derivative that will implode and the buyer can never prove it.  Not even in theory:

The paper shows the example of a high-volume seller who builds 1000 CDOs from 1000 asset-classes of home mortages. Suppose the seller knows that a few of those asset classes are "lemons" that won't pay off. The seller is supposed to randomly distribute the asset classes into the CDOs; this minimizes the risk for the buyer, because there's only a small chance that any one CDO has more than a few lemons. But the seller can "tamper" with the CDOs by putting most of the lemons in just a few of the CDOs. This has an enormous effect on the senior tranches of those tampered CDOs.

In principle, an alert buyer can detect tampering even if he doesn't know which asset classes are the lemons: he simply examines all 1000 CDOs and looks for a suspicious overrepresentation of some of the asset classes in some of the CDOs. What Arora et al. show is that is an NP-complete problem ("densest subgraph"). This problem is believed to be computationally intractable; thus, even the most alert buyer can't have enough computational power to do the analysis.

Arora et al. show it's even worse than that: even after the buyer has lost a lot of money (because enough mortgages defaulted to devalue his "senior tranche"), he can't prove that that tampering occurred: he can't prove that the distribution of lemons wasn't random. This makes it hard to get recourse in court; it also makes it hard to regulate CDOs.

This gives caveat emptor a whole new meaning.  As if we didn't already know.

America's Imminent Electrical Gridlock

America's electricial consumption has skyrocked in the past decade, but the country's electrical grid is struggling to keep up with demand. Summertime blackouts are just one sign that the system is being pushed beyond its means. Former Energy Secretary and New Mexico Governor Bill Richardson sums up the crisis this way: "We’re a major superpower with a third-world electricity grid."

In fact, it's even worse than that—Richardson should perhaps have said "three completely unconnected third-world electricity grids." The US has independent systems that seperately charge the West, the East and Midwest. It is not possible for electricity generated in New Mexico to reach East Coast consumers. But on Tuesday, officials in New Mexico finally unveiled plans to build a superconductor in Clovis, New Mexico to allow energy to flow between the three systems. On Wednesday the AP reported on the proposed project, the Tres Amigas SuperStation:

Carville vs. the Teabaggers

Commentator/consultant/celebrity James Carville and Democratic pollster Stan Greenberg are going after the Teabaggers. Tomorrow the two are releasing a report based on focus groups that apparently will show that portions of the GOP base have moved into a conspiratorial, far-right alternative universe. A press release issued by the pair on Thursday morning previewed the findings: "The study explored the relevance of the 'race issue' among these voters and revealed they're not just critical of President Obama, but worried he is deliberately trying to deceive the American public in order to advance a secret socialist agenda." This sounds like a polite way of saying that the conservative Republican base contains a significant number of whacked-out Obama-haters whose views are shaped by racial bias. Cue Glenn Beck.