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Current Values

| Mon Sep. 22, 2008 4:08 PM EDT

CURRENT VALUES....Paul Krugman says the Paulson bailout will only work if it recapitalizes banks by overpaying for the toxic waste that the Treasury takes off their hands. Brad DeLong begs to differ:

Financial institutions will be grossly undercapitalized if bond prices don't recover and will be well capitalized if bond prices do recover. The way to make bond prices recover — and housing prices as well — is to boost the economy's risk tolerance by raising demand for risky assets and reducing the burden of risk that the private sector needs to hold by reducing the supply of risky assets on the private market. You reduce the supply of risky assets by having the government buy them up. You expand the demand for risky assets by restoring confidence and by providing capital injections. You do both of these at fair prices — at current values — and you find that values have changed without the governent having to overpay for anything.

I followed this all the way up to the last sentence. In particular, this part:

at fair prices — at current values —

But isn't that the rub? You can't simply declare that current value and fair value are the same thing and then walk away. That's the whole argument. After all, there are already plenty of vulture funds who are prepared to buy toxic mortgage securities at current prices — which are close to zero — but banks aren't willing to sell it off at those prices because (a) it would make them insolvent and (b) they think that once the panic subsides everyone will realize that this stuff is worth a bit more than we currently think.

Who's right? Nobody knows. But I will say this: many liberals, myself included, think the Fed should be more aggressive about fighting asset bubbles. However, that implicitly suggests that we don't think the market always values assets properly, and that occasionally the government needs to step in to keep everyone on an even keel. But if that's true for bubbles, it's also true for panics. So maybe the banks are right: maybe this stuff is being misvalued by the market, and maybe the government should step in to keep everyone on an even keel. But that means buying toxic waste at higher than current values, right?

Needless to say, the feds ought to get equity stakes or senior debt or something to protect against the possibility that all this toxic waste really is worthless. But given that plenty of people are already willing to buy distressed assets at their current, fire sale values, there's no point in the feds getting involved in a bailout in the first place unless they're planning to buy at higher than market prices. Right?

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The Wages of Egalitarianism

| Mon Sep. 22, 2008 3:14 PM EDT

THE WAGES OF EGALITARIANISM....We all know that men earn more than women. Is this due to sex discrimination? Or is it caused by differences in educational levels? Or different job preferences? Or average experience levels? Or number of hours worked?

Or, just maybe, none of the above. In a new study by Timothy Judge and Beth Livingston, which attempts to control for gender, age, race, marital status, education, hours worked, number of children, initial earnings, job complexity, and occupational segregation (i.e., the possibility that men on average simply choose more lucrative professions), the authors found that men and women actually earned almost exactly the same amount of money — but only if you compared men and women who had egalitarian notions of gender roles. Under the same circumstances, if you compared men and women with traditional views of gender roles, the men earned a stunning $14,404 more.

What's more, the big difference isn't that traditionally minded women, who might be expected to have spent less time in the work force, make all that much less. The big difference is that traditionally minded men make way more money than any of the other three groups — including other men. Shankar Vedantam talks to the authors in the Washington Post today:

Livingston said she was taken aback by the results. "We actually thought maybe men with traditional attitudes work in more complex jobs that pay more or select higher-paying occupations," she said. "Regardless of the jobs people chose, or how long they worked at them, there was still a significant effect of gender role attitudes on income."

....Livingston and Judge said there are two possible explanations: Traditional-minded men might negotiate much harder for better salaries, especially when compared with traditional-minded women. Alternatively, it could also be that employers discriminate against women and men who do not subscribe to traditional gender roles.

"It could be that traditional men are hypercompetitive salary negotiators — the Donald Trump prototype, perhaps," Judge said. "It could be on the employer side that, subconsciously, the men who are egalitarian are seen as effete."

The standard caveat applies here: it's really, really hard to control for everything. The controls in this study might not be perfect, and in addition there might be important factors that weren't included in the controls at all. Livingston and Judge, for example, didn't directly control for number of years in the workforce. It's not clear why traditionally-minded men might have more average years in the workforce than egalitarian men, but who knows? They might.

Still, the effect is monstrously huge. Since it turns some of our usual notions of wage disparity upside down, it's certainly worth some attention.

Mission Creep Dispatch: Douglas Macgregor

| Mon Sep. 22, 2008 2:31 PM EDT

macgregor.jpgAs part of our special investigation "Mission Creep: US Military Presence Worldwide," we asked a host of military thinkers to contribute their two cents on topics relating to global Pentagon strategy. (You can access the archive here.) The following dispatch comes from military strategist Douglas Macgregor, a retired Army colonel and author of Breaking the Phalanx: A New Design for Landpower in the 21st Century.

Lessons from the Terror War, and Wrestling

America's experience since 2001 teaches the strategic lesson that the use of modern military power, even against Arab and Afghan opponents with no armed forces to speak of, can have costly, unintended consequences. In Iraq and Afghanistan, US military action has produced serious problems for America's overall security. It has helped Iran expand its power throughout the Middle East, alienated Turkey—the region's most powerful Muslim military force—and eroded Pakistan's fragile cohesion, all of which have dangerous implications for Central and Southwest Asia, and have created a global backlash and serious economic vulnerability at home.

Obama Bails on North Dakota

| Mon Sep. 22, 2008 2:18 PM EDT

Another state drifts out of reach and Obama pulls the plug. This time it's North Dakota; over 50 Obama staffers stationed there are heading to Minnesota and Wisconsin. Reportedly, the Obama campaign opened 11 offices in North Dakota while McCain opened zero. Yet, Obama finds himself down by double digits. Time to call it quits.

Look, I know Obama is playing effective and aggressive offense in traditionally red states like Colorado, Virginia, Nevada, and Montana. But Georgia, North Dakota, and Alaska were basically money pits that ate up campaign resources that could have been used in states where Obama is down by low single digits. I'm sure that David Plouffe wishes from time to time that he or his candidate had been a little less heady and ambitious when outlining the Obama campaign's fifty-state strategy.

A Surge in Afghanistan?

| Mon Sep. 22, 2008 2:02 PM EDT

A SURGE IN AFGHANISTAN?....Iraq is hardly a finished success story yet, but there's no question that violence is down, security is up, and political reconciliation is at least a distant possibility. Credit for this goes to the Five S's:

  • Surge

  • Sectarian cleansing

  • Separation barriers throughout Baghdad

  • Sadr's ceasefire

  • Sunni awakening movements

So do we need a surge in Afghanistan? A better question is: can a surge succeed without the other four S's? After all, Afghanistan may be full of tribal animosities, but none of those tribes are going anywhere. Furthermore, Afghanistan doesn't have a single key city like Baghdad where separating those tribes with miles of concrete barriers is both feasible and productive; the Taliban hasn't and won't declare a ceasefire; and since the Taliban is fundamentally an ideological movement, not a sectarian one, there's not much hope for any kind of "Awakening" movement that will sap their strength. Bottom line: One S is the most we'll get.

Unfortunately, Fred Kaplan suggests that we can't even count on that. The effectiveness of the Iraqi surge depended on flooding a single city — Baghdad — with troops. But in Afghanistan there's no single city that we can focus all our attention on:

The ultimate military goal — one lesson from Petraeus' strategy in Iraq that is worth learning and might be applicable — is to protect the Afghan population, and that requires putting a lot of troops in the neighborhoods of towns and villages, to provide security and build trust. It might be possible to do this in Afghanistan, just as it was done in many Iraqi neighborhoods with one important difference — it has to be done by the Afghan National Army, not by us.

There are a few reasons for this. First, we simply can't do it. Stephen Biddle — a military analyst at the Council on Foreign Relations, who was an adviser on some aspects of Iraq strategy — estimates that securing the Afghan population would require about 500,000 troops. That's 10 times the combined number of U.S. and NATO troops in Afghanistan now. We don't have anywhere near this level of manpower to spare (the three extra U.S. brigades under consideration would amount to about 12,000 troops), and even if we did, and even if we wanted to send them, we'd have no way to maintain them.

So what should we do instead? Kaplan suggests building up the Afghan army, airdropping mountains of money on the region, and paying way more serious attention to Afghanistan's most troubling neighbor: "Pakistan is not a sideshow to Afghanistan. It is the main show, dwarfing every other problem in the region." Read the rest for more.

Checks and Bailouts

| Mon Sep. 22, 2008 1:26 PM EDT

CHECKS AND BAILOUTS....As near as I can tell, conservatives are outraged by the idea of a blank check Wall Street bailout because — hey, Barack Obama might win in November, and God only knows what kind of insane nutball he might appoint as Treasury Secretary. Do we really want to trust $700 billion to whatever quasi-socialist we might end up with on January 20th?

Liberals, meanwhile, are outraged by the idea of a blank check bailout because — hey, even if you trust Henry Paulson, it's possible that John McCain might win in November, and God only knows what kind of insane nutball he might appoint as Treasury Secretary. Do we really want to trust $700 billion to whatever quasi-lunatic we might end up with on January 20th? Phil Gramm, anyone?

This almost restores my faith in the political system.

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More on Hedge Funds

| Mon Sep. 22, 2008 1:11 PM EDT

MORE ON HEDGE FUNDS....Via Atrios, Nouriel Roubini provides a potted history of the Great Financial Crisis of 2007-08. I'll skip right to the good part:

The first stage....The next step....The third stage....The fourth stage....The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.

Hedge fund apologists have been pretty smug about how all our current problems have been caused by investment banks, which are (lightly) regulated, and none at all by the big bad hedge funds, which operate with no regulation at all. And so far they've been right. But does anyone believe this is going to last? And what will Bernanke and Paulson do if and when a systemic rout in the hedge fund market threatens to undo their bailout plan? Will they bail out the hedge funds too?

McCain's New Target: The New York Times

| Mon Sep. 22, 2008 1:00 PM EDT

new-york-times-building-250x200.jpg

On a conference call with reporters on Monday morning, Rick Davis, John McCain's campaign manager, and Steve Schmidt, a top McCain strategist, were asked about a New York Times article reporting that Davis had been paid nearly $2 million for running a Washington outfit set up by Fannie Mae and Freddie Mac to stop stricter regulation of these two entities. Davis said he had never engaged in any lobbying for that group and downplayed Fannie and Freddie's role in the organization. He joked that he appreciated "all the exposure I get" in The New York Times. He added that the newspaper must have "Davis envy."

Schmidt then went bad-cop. "We're First Amendment absolutists," he said, noting journalists are free to "write whatever they want to write." But, he continued, "whatever the New York Times once was," it is no longer a journalistic entity. Schmidt called it a "pro-Obama advocacy organization" and claimed the paper "attacks" McCain every day. Schmidt went on: the Times is "an organization completely, totally 150-percent in the tank for the Democratic candidate" and has "cast aside its journalistic integrity and tradition" to get McCain.

It was a blistering slam. And several times throughout the call, Schmidt chided the media for treating Obama more kindly than McCain. (In recent weeks, many news outlets have scored McCain's ads as being full of falsehoods.) Clearly, the candidate who once was beloved by the national media (and who joked the press was his base) has calculated that the old Republican play of bashing the media, especially The New York Times, will help him get elected. Also, Schmidt might also have been trying to establish a context for judging any future Times investigations that might pose a problem for McCain. ("See? I told you they were out to destroy Senator McCain.")

By the way, neither Davis nor Schmidt pointed out one error in the Times' story about Davis.

Photo by flickr user Joe Shlabotnik used under a Creative Commons license.

Study: Chauvinists Make More Than Other Men

| Mon Sep. 22, 2008 12:48 PM EDT

Are you a jerk? Awesome! Here's a bigger paycheck.

Lehman Brothers

| Mon Sep. 22, 2008 12:29 PM EDT

LEHMAN BROTHERS....I've now read in three different places credible suggestions that last week's financial meltdown was caused not by generic "worsening credit conditions," but by the Fed's ill-advised decision to let Lehman Brothers go into bankruptcy. This led to a wave of defaults that rippled through the industry and eventually froze the credit markets.

Question: has anyone seen anything detailed and plausible that either refutes this or backs it up? I'm just curious. For now, I remain agnostic on the question.