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TARP is Dead, Long Live TARP

| Wed Nov. 12, 2008 11:15 AM EST

TARP IS DEAD, LONG LIVE TARP....Henry Paulson has apparently given up completely on buying up troubled assets, the original rationale for the $700 billion bailout fund, and instead wants to inject yet more capital into the banking system and expand the bailout program to other sectors:

U.S. Treasury Secretary Henry M. Paulson Jr. said he wants to expand the government's $700 billion bailout program to include credit card, student loan and car loan companies, part of an effort to ensure that households and businesses have access to a broad array of borrowing options.

...."This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said.

But has this market ground to a halt because of capital losses among the lenders, or has it ground to a halt because there's no demand for new loans among consumers? If it's the latter, all the capital injections in the world won't make any difference.

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Treasury: We Can Haz Do-Over?

| Wed Nov. 12, 2008 9:59 AM EST

The Treasury Department will not buy any troubled assets from banks as part of the bailout, according to the Wall Street Journal, thus negating the central premise behind Secretary Paulson's original rescue plan for Wall Street. It's almost as if Paulson was unprepared for the crisis and that his three-page plan put forward to Congress wasn't particularly well thought out. Who would have expected incompetence from the Bush Administration?

What Color is the Sky in Red Republican World?

| Wed Nov. 12, 2008 8:38 AM EST

Less than a week after Obama's win, the unreconstructed were already out to play in this new, racism-free world of which that victory is undeniable proof. Don't believe me? Well, believe George (there he goes again) Will: "...the election of Barack Obama is an American majority's self-emancipation: We are free at last from the inexpressible tedium of the preoccupation with skin pigmentation."

Tedium?

This from those who were so preoccupied with race as to take the time to "scientifically" coin and enforce categories like mulatto, quadroon, and octaroon? To individually mark a huge nation's water fountains, doorways and, like, entire parts of town 'Colored' and 'Whites Only.' To sail for months to a specific continent for specifically pigmented people to pick their cotton, whip, and rape. Oh well. I guess 'preoccupation' is in the squinted eye of the beholder. Mr. Will: I know it's a waste of both your time and mine to say this, but we're only preoccupied with race because our lives revolve around your preoccupation with it. Being white and decrying non-whites 'preoccupation with pigment' is like thieves decrying non-thieves preoccupation with locking their doors.

Wearily predictable and annoying as this is, the nerd in me finds it best to spend her time wondering about the following minutiae.

Chart of the Day - 11.12.2008

| Wed Nov. 12, 2008 1:27 AM EST

CHART OF THE DAY....According to a new CNN poll, 59% of the public thinks one-party rule by the Democrats is a dandy idea. Furthermore, 62% have a favorable view of the Democratic Party, vs. 38% for the Republican Party. "When has the Republican Party image ever been that bad?" asks CNN political analyst Bill Schneider. "Answer: when the Republican Congress impeached President Clinton at the end of 1998."

Pesticide Cocktails Kill At "Safe" Doses

| Tue Nov. 11, 2008 8:47 PM EST

591px-Rana_sphenocephala.jpg Combinations of ten of the world's most popular pesticides decimate amphibian populations even if the concentrations are within EPA safe limits for each chemical individually. These supposedly safe low-dose cocktails kill 99 percent of leopard frog tadpoles. One pesticide alone—endosulfan, a neurotoxin banned in several nations but still used extensively in US agriculture—killed 84 percent of the leopard frogs all on its own.

Obviously we can't get a new EPA chief fast enough.

Biologist Rick Relyea at the U of Pittsburgh exposed gray tree frog and leopard frog tadpoles to small amounts of the 10 most widely used pesticides on Earth. He chose five insecticides (carbaryl, chlorpyrifos, diazinon, endosulfan, and malathion) and five herbicides (acetochlor, atrazine, glyphosate, metolachlor, and 2,4-D). He then administered: each of the pesticides alone, all the insecticides combined, a mix of the five herbicides, or all 10 of the poisons.

West Coast Offense

| Tue Nov. 11, 2008 5:49 PM EST

WEST COAST OFFENSE....Adam Serwer writes today about the pros and cons of class-based affirmative action (vs. race/gender-based AA), and Atrios offers some advice:

If, say, a left of center magazine or some other Washington institution wanted to engage in a bit of class-based affirmative action, I have a fairly simple suggestion. Just make sure you reach out beyond elite schools. I've attended and taught at a variety of institutions, and some excellent students can be found most places. And while I don't know the hiring practices of random left of center magazines, or for Congressional staffs, or for the Washington Post, it wouldn't surprise me if first round resume weeding is frequently done based on the college the applicants attended.

I'll second that. Sure, the East Coast centrism of opinion magazines is easy to understand, since they're almost all based on the East Coast. But while I can't say for sure that things haven't changed recently, a few years ago I was noodling around on this subject and was astonished at the hegemony of the Ivy League in the mastheads of most progressive magazines. I expected it to be heavy, but my recollection is that my (admittedly unscientific) sample was something like three-quarters Ivy League. Considering the number of top notch universities elsewhere in the country, that's pretty hard to defend.

So yeah: recruit on the West Coast. Lots of smart liberals out here! And at public universities, which might produce a wider range of sensibilities. It's true that East Coast weather sucks and us Californians are more than a little crybabyish about snow and sleet and whatnot, but Ezra Klein managed to make the transition. I'll bet plenty of others can too.

UPDATE: But not just California! Recruit from all the other states too!

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TV on the Radio and Portishead Battle It Out for Album of the Year

| Tue Nov. 11, 2008 5:38 PM EST

Perhaps you aren't aware of it, but deep in the trenches of music criticism, there's a war being fought. With only a month and a half left in 2008, nerds around the world will soon be forced to choose an Album of the Year, and there are two major contenders: Portishead's Third, an utterly bleak comeback album that makes the band's earlier work look like High School Musical, and TV on the Radio's Dear Science, a step forward for a band of Gloomy Gusses who suddenly seem almost optimistic. In the interest of helping music critics and music-critic-wannabes, here's a helpful graph comparing different aspects of the two albums.

Yet More on the CDS Market

| Tue Nov. 11, 2008 5:09 PM EST

YET MORE ON THE CDS MARKET....I've been meaning to link to yet another Felix Salmon post about credit default swaps, since I know what a fascinating subject they are for everyone, but one thing led to another and I haven't done it yet. Basically, "one thing and another" means that I spent several hours yesterday trying to understand the whole CDS issue better, but I failed miserably. So instead of pretending otherwise, I'm just going to link. Salmon conducted an IM conversation with Robert Waldmann about the CDS market, and part of it went like this:

Felix Salmon: So, have I brought you around to the idea that CDS really aren't a major cause of the current crisis?
As you know, Kevin Drum calls me "disturbingly persuasive"

Robert Waldmann: Ah well that is ambitious. You have convinced me that there is a perfectly legitimate reason which can explain why face value is so huge. As to the cause of the crisis, I remain confused. Stupid CDS tricks could have done it. So could stupid CDO tricks and what all.

Felix Salmon: I will concede that there were indeed stupid CDS tricks

Robert Waldmann: I mean the situtation is I don't understand the new financial instruments and it sure looks like the trader types didn't understand them as well as they thought.

Felix Salmon: But the stupidity was in understanding credit risk, not in understanding CDS.

Well....sure, but this seems like a bit of a dodge. After all, pretty much all financial bubbles are based on mispricing risk in some way or another. It seems like we need to dig a little deeper and try to figure out if there were specific aspects of the way modern financial markets are regulated that encouraged even more risk mispricing than usual.

The question, then, isn't whether credit default swaps are useful instruments. They are. The question is whether there's something about the way they're managed in real life that makes them potentially more dangerous than, say, stocks or pork belly futures. And if so, what can we do to limit "stupid CDS tricks"? Here's one possibility:

Robert Waldmann: OK a reform proposal. CDS must come with collateral even if you find a sucker willing to buy one without collateral (this is a regulatory restriction).

Felix Salmon: Yes yes yes.
That's why I'm so astonished Berkshire Hathaway is STILL writing CDS without collateral requirements.
But a move to an exchange would have the same effect.

If I understand this right, the benefit of requiring collateral is twofold. First, it keeps the CDS market from going too crazy, since CDS sellers can only sell protection if they have collateral to back their positions. Second, it reduces counterparty risk, since even if the CDS seller goes bust there's collateral that's been posted to make good on the swap. The big problem with AIG, for example, which has been the most spectacular example of a financial firm losing its shirt due to CDS exposure, is that they were writing CDS willy nilly without having to post collateral (thanks to their AAA rating). When their rating started going south, and they had to post collateral to make up for it, the company went down the toilet. If they'd had to post collateral in the first place, that wouldn't have happened.

So I guess that's a good start: make CDS exchange traded and insist on collateral posting requirements for all writers of CDS.

But what I still don't have a handle on is the scale of the losses in the CDS market. Clearly, AIG and the monoline insurers lost a ton of money. But Salmon suggests that the broader banking industry didn't. Partly this is because only a small segment of the financial industry were net sellers of CDS protection:

Felix Salmon: There's AIG, there's the monolines, and there's the synthetic CDOs bought by institutional investors.
Given the zero-sum nature of any derivatives market, that means that everybody else, on net, was a buyer of credit protection.

So far, this seems to be right: net losses in the broader financial industry on CDS trades seem to be pretty modest. So far. Unfortunately, though, that still leaves the CDOs, which we don't know much about yet, and it also leaves everyone else, who might be choosing not to settle CDS contracts yet that have big losses associated with them. I have a feeling we might need to wait a while longer to know for sure if the broader CDS market is as benign as Salmon thinks.

But it might be. Obviously it's cheating a bit to single out the particular areas where CDS sales caused big problems and then say, "well, aside from those areas everything was fine" — after all, it's always the case in every industry that aside from the problems there are no problems — but still, if it turned out that the big abuses came from noncollateralized CDS sales and synthetic CDOs, that would make me happy. After all, I'm already on record as thinking that CDOs are the devil's spawn. Anything that heaps more abuse in their direction is fine with me.

Bottom line: I'm still confused. For one thing, an awful lot of smart people seem to disagree with Salmon. I'd like to see some of them engage with his arguments. For another, the CDS market is so opaque that we still don't really know how much exposure is out there and who has it. At the very least, that seems unacceptable. And finally, even if there were only three segments of the financial market that were net sellers of CDS protection, just how much is it going to cost us to bail them out?

One way or another, the losses in the financial markets appear to be far wider than just subprime loans. After all, the size of subprime losses in the U.S. seems to be about half a trillion dollars, but in the past year banks have raised something like $300-400 billion in new private capital and another $200 billion so far in government capital. So that means their overall capitalization levels should be OK. But apparently that's not the case. So where are all the rest of the losses coming from? CDS? CDOs? Currency forwards? What? Does anybody actually know? And if not, what will it take to find out?

POSTSCRIPT: And one more thing. It's really annoying that the plural of CDS is CDS. "CDS market" is fine, and CDS when referring to an individual swap is fine, but why not CDSes when referring to multiple swaps? As in, "Sellers of CDSes should be required to post adequate collateral for each CDS they sell"? What does Wall Street have against plural acronyms?

Responding to Obama's Win, Michael (Son of) Reagan Says, Go After Dems on Sex

| Tue Nov. 11, 2008 5:08 PM EST

The Obama win is driving some conservatives crazy. On Tuesday, Michael Reagan, talk show host and son of Ronald, sent out an email announcing a new outfit called Reagan Action, which among other things, will seek to "expose" the sexual "corruption" of leading Democrats. And he was characteristically over the top:

Dear Conservative Friend,
My father wasn't afraid to call evil what it was -- and neither am I. He defeated the "Evil Empire" called the Soviet Union -- but now we face a new "Evil Empire." It's called Socialism, and it's taken over our once-free nation through the victories of Obama, Pelosi and Reid.
We MUST do this. Really -- what choice do we have, except to fight back and WIN? As my father, President Ronald Reagan, once said, "We must act today in order to preserve tomorrow."
It's official: America has its first truly Socialist president... and it's the Republican Party's fault.
No, scratch that -- it's the so-called "leaders" of the GOP who are at fault for this humiliating defeat -- and I say it's time to name names and make heads roll in our party. Because, my fellow conservatives, we have been BETRAYED by the very people who promised that, if we would just elect them, they would get into office and vote OUR conservative values.
THEY LIED... THE GOP DIED.

Michael Reagan, who sure likes bold face and capital letters, notes that he is angry with President Bush and

the so-called "leaders" of our party, who promised us that if we'd just vote for who they put up for election, we'd finally get what we wanted: smaller government, lower taxes, dramatically lower spending, pro-life laws, pro-marriage constitutional amendments, pro-American economics... well, YOU AND I put them in power, and they gave us nothing but BIG GOVERNMENT, BIG DEFICITS, and LIBERAL COMPROMISES.

So what's he going to do about it? Reagan is declaring "the NEW Reagan Revolution to bring Conservatism BACK!" And how will contributing to Reagan Action--yes, this was a solicitation letter--bring back conservatism? This new group, Reagan promises, will

EXPOSE LIBERAL CORRUPTION-- With the Democrats back in power in both Congress and the White House, you KNOW that they'll be falling right back into their habits of taking lobbyists' money under the table, trading votes for campaign contributions, spying on and sabotaging Republican legislative plans, covering up their leaders' sexual "flings," and spending taxpayer money on personal expenses like never before. But this time, YOU AND I will be there every step of the way, making sure that no stone is left unturned, every dark corner is filled with light, and every illegal act is paid for with censure, impeachment, recalls, investigations, and jail time for every criminal we expose in Washington, D.C.

And Reagan will also be directing "Reagan Activists to "fill the news media with letters to the editor, guest editorials, and news articles detailing the socialistic and corrupt policies of the new liberal regime."

This is some effort he has planned--mounting an army of Reagan-loving volunteers to go up against the "evil" Obama administration and take the country back from the socialists. And Reagan is even willing to probe the sexual "flings" of Democrats.

Reality check: is the United States now a socialist state about to be headed by a socialist leader? (Let's leave aside the Wall Street bailout.) There are two explanations for Reagan's letter. (A) He's become totally unhinged by the Obama victory, and (B), he's crassly trying to squeeze whatever cash he can out of conservative donors by exploiting their ideological paranoia. Maybe the correct answer is all of the above.

How One Vet Spent Her First Veterans' Day After "The World Changed"

| Tue Nov. 11, 2008 4:31 PM EST

First, I spent it wishing to (all your) gods that my kids were in school. Groundhog Day! Let it be Groundhog Day, a Monday with them in school for all eternity! Is that so much to ask?

Help me Jesus/Vishnu/Yahweh/Buddha/Satan/the Goddess etc.—they were just home for the fricking weekend. One day of freedom and they're my responsibility again? Why am I so heavily taxed? On top of it all, it is cold and rainy here in the tundra we live in, so no ignoring them while they tumble headfirst off unsafe playground equipment, swearing that the more they bleed the tougher they are. Damn.

In desperation, after hours of them trying to dismember each other, and me them, I took them to the home of the anti-Christ and prayed to the god/goddess of the playroom that my son wouldn't headbutt more than three kids per minute and that my daughter would release her death grip on our invisible umbilical cord and let me read in peace for three minutes at a time. In a perfect world, those three minutes would overlap with my son's warfare lulls and visits from irate parents, clutching their wounded progeny.

No such luck.

What was I trying, in vain, to read? Guns, Germs, and Steel:

Explaining what William McNeill called The Rise of the West has become the central problem in the study of global history. In Guns, Germs, and Steel Jared Diamond presents the biologist's answer: Geography, demography, and ecological happenstance. Diamond evenhandedly reviews human history on every continent since the Ice Age at a rate that emphasizes only the broadest movements of peoples and ideas. Yet his survey is binocular: One eye has the rather distant vision of the evolutionary biologist, while the other eye—and his heart—belongs to the people of New Guinea, where he has done field work for more than 30 years.

Guess what he thinks explains Europe's domination of the planet? A) Aryan superiority. B) Nothing but real estate and good luck. C) God's will. D) Yo mama.

What else could follow such a paradigm-shifting book but the pinko A People's History of the United States. To quote Amazon again, this book:

...turns traditional textbook history on its head. Howard Zinn infuses the often-submerged voices of blacks, women, American Indians, war resisters, and poor laborers of all nationalities into this thorough narrative that spans American history from Christopher Columbus's arrival to an afterword on the Clinton presidency.

Addressing his trademark reversals of perspective, Zinn—a teacher, historian, and social activist for more than 20 years—explains, "My point is not that we must, in telling history, accuse, judge, condemn Columbus in absentia. It is too late for that; it would be a useless scholarly exercise in morality. But the easy acceptance of atrocities as a deplorable but necessary price to pay for progress (Hiroshima and Vietnam, to save Western civilization; Kronstadt and Hungary, to save socialism; nuclear proliferation, to save us all)—that is still with us."

Let's just say it's a tad subversive and more than met my "blame America first" quotient for the day.

Second, I took them to a toy store.

I know, I know.

But I was hoping that the mounds of useless, expensive things ALL OF WHICH THEY MUST HAVE OR DIE, on top of their vacation-induced hysteria, would render them unconscious so I could cart them back home, comatose, and chuck them abed. That, or that some childless a-hole would call CPS while I bellowed bloody murder at them and we'd all be put out of my misery.

Again, no such luck.

As we pulled into the toy store parking lot, my freely chosen Little Big Horn, Lee Greenwood's "I'm Proud to be an American" played, reminding me, with its fulsome intro, that it was indeed Veterans' Day and not just a day designed to drive me insane. I did what I always have to do when I hear it: Pull over lest the chills running through me made me an unsafe driver. What can I say? That lowest-common-denominator, knee-jerk, ugly American song 'unmans' me every goddamn time. Does it reduce me, every time, to a quivering mass of patriotic jelly simply because it appeared when I was enlisted? (1980-1985. Commissioned USAF officer 1985-1992.) Or is it because it just pushes so many simplistic American buttons? I'll never know.

All I know for sure? I'm an American. How do I know that? Because I thrill to criticism of my country that is so dead-on it makes me want to cry in the frustration of making it right.