Why Can't We Get Some Interim Treasury Staff?

| Thu Mar. 12, 2009 1:56 PM EDT

I agree with this point from Times columnist Tom Friedman:

I read that we’re actually holding up dozens of key appointments at the Treasury Department because we are worried whether someone paid Social Security taxes on a nanny hired 20 years ago at $5 an hour. That’s insane. It’s as if our financial house is burning down but we won’t let the Fire Department open the hydrant until it assures us that there isn’t too much chlorine in the water.

But I also get this counterpoint from the Economist's Democracy in America blog:

You can hear the Republican spin if someone in the White House argued this. "Oh, sure. That's convenient. Waive the rules now, after eight years of piling on George Bush."

But do we really have only two options: unduly delay the staffing of the Treasury, or appointing people with ethical transgressions in their past lives? Why can't we appoint interim staff to the Treasury that undergo only a light vetting? They could serve while the full vetting process is going on. I understand there would be hiccups when the interim staff has to transfer their knowledge/files/etc. to the full-time staff, but is that worse that have no staff at all during this critical juncture?

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Chart of the Day - 3.12.2009

| Thu Mar. 12, 2009 1:33 PM EDT
Should healthcare reform include a public option?  That is, even if most people continue to get their healthcare via private insurers, should they have the option of signing up with a public plan if they want to?

The argument in favor is fairly simple: it keeps private insurers honest.  If the free market really does produce efficiencies and lower costs, then private plans ought to be able to provide medical services for less than the bloated government bureaucracy that runs Medicare.  If it turns out they can't, then they'll go out of business.

The argument against, such as it is, is that a public option will....what?  Force doctors to accept lower payment by fiat, I guess.  Or compete unfairly in some way.  I'm not sure.  My own guess is that a public option would be a boon for private insurers.  They really don't want to treat the sickest, costliest patients, after all, and even if they're required to insure all comers they'll still do everything they can to avoid taking them on.  That's a whole lot easier if turning the hardest cases away merely means they sign up for Medicare rather than being left to die in the street.

Anyway, it turns out the American public agrees.  In a recent survey, 71% said they favored "access to affordable, quality health care for all Americans even if it means a major role for the federal government."  This held up even under a barrage of hostile questions.  Ezra Klein summarizes:

The poll was conducted by Lake Research Partners and it tests reactions to the public insurance option seven ways to Sunday. It asks whether the public insurance option "will have an unfair competitive advantage over private insurance because the government will set rules that favor the public plan" and suggests that "a new public health insurance plan will reimburse doctors and hospitals at much lower rates, causing many doctors and hospitals to shift higher costs onto people who buy private health insurance." It dangles that "a public health insurance plan will be another big, government bureaucracy that will increase costs to taxpayers" and warns that it might "force people into lower quality care including long waiting times and rationing of care."

It doesn't matter. In case after case after case, the public insurance option retains majority support.

The bad guys haven't started up their PR blitz yet, of course, so this could all change.  But it's an encouraging sign.

Does Dinner Matter?

| Thu Mar. 12, 2009 12:58 PM EDT
Matt Yglesias is unhappy with Matt Bai's dismissive attitude toward political scientists.  Bai says sniffily, "My dinnertime conversation with three Iowans may not add up to a reliable portrait of the national consensus, but it’s often more illuminating than the dissertations of academics whose idea of seeing America is a trip to the local Bed, Bath & Beyond."  Matt responds:

The events of the day play out against a larger structural backdrop. And it’s just not possible to try to understand them a-theoretically. What journalists unschooled in political science tend to do is to substitute prejudice for understanding. So you notice that in Maryland and Virginia there are a lot of well-to-do Democrats and start writing stories which presuppose that poor people are generally Republicans and rich people are generally Democrats. An alternative approach would be to read Andrew Gelman’s book and you’d see that this is an idiosyncratic feature of a small portion of the country and that, overall, high income is a strong predictor of Republican voting.

To some extent, this is just the usual battle between the hacks and the wonks, between researchers and reporters, or (from my past life) between sales and marketing.  The obvious and boring answer to all this is that both are important: you need to talk to real people and you need to understand the larger trends and forces that shape their attitudes.  But willy nilly, most of us tilt toward one side or the other.

In the case of journalists, one reason they tilt toward the a-theoretical side is that they're in the business of generating human interest.  Not only is that what their readers want to read (including me, even though I'm firmly on wonk/researcher/marketing side of things), but it's the only way to produce daily stories that are meaningful.

Here's an example that I've struggled with a bit: Why did Barack Obama win last year's election?  My answer — and I genuinely think this is right — is that he won because two fundamentals were overwhelmingly in his favor: (a) a Republican had been in the White House for eight years and (b) the economy was failing.  Put those two factors together and Obama was a shoo-in to win by about 6-8 points in the popular vote.  And guess what?  He won the popular vote by a little more than 6 points.

But there's a corollary here that's hard to ignore.  If you believe this, then it means that Sarah Palin didn't matter.  Jeremiah Wright didn't matter.  McCain's meltdown over the economy didn't matter.  Obama's phenomenal fundraising and state organization didn't matter.  None of that stuff mattered.  McCain just had too big a hurdle to clear.  As long as Obama avoided some kind of epic gaffe, he was going to win.  All the ink spilled on strategy and tactics and debates and campaign finance and dinners with Iowans was just so much hooey.  None of it mattered.

But that's a tough nut to swallow, isn't it?  I'm pretty deeply into this stuff, and even I can't really swallow it.  What's more, it makes for really lousy journalism.  So instead we get the stories.  They may or may not represent reality, but at least they're interesting.

Lessig's Donor Strike Withholds $1 Million from Congress

| Thu Mar. 12, 2009 12:23 PM EDT

In January, Lawrence Lessig and his reform-minded organization, Change Congress, launched a donor strike aimed at members of Congress who do not support a bill designed to greatly reduce the influence of lobbyist and special-interest money in politics.

Thursday, Lessig and fellow Change Congress founder Joe Trippi announced donors have withheld $1 million total, including $365,000 held back from Senators Diane Feinstein (D-Calif.) and Chuck Schumer (D-N.Y.).

Lessig has long railed against the money-powered corruption machine in Congress, and Change Congress's strike was engineered in part to draw attention to Illinois Senator Dick Durbin's Fair Elections Now Act.

Now, you could debate the merits of a donor strike (won't it cause members of Congress to rely more on big-time dollars from special interest groups?), but Durbin's bill, which Arlen Specter (R-Penn.) cosponsored, could transform how politicians finance their campaigns—and how they vote once they arrive in Washington. Basically, it creates an incentive for politicians to raise a large number of small-dollar donations. Once they hit a magic number of those donations, they are eligible for a much larger cash infusion, paid from a public fund. If they accept that chunk of money, they will not be allowed to take big-dollar donations from lobbyists or special interest groups. Instead, every small-dollar donation received after that would be matched by money from the central fund.

Fixing the Economy

| Thu Mar. 12, 2009 12:15 PM EDT
Megan McArdle is unhappy with how Obama is running the country:

Having defended Obama's candidacy largely on his economic team, I'm having serious buyer's remorse.  Geithner, who is rapidly starting to look like the weakest link, is rattling around by himself in Treasury.  Meanwhile, the administration is clearly prioritized a stimulus package that will not work without fixing the banks over, um, fixing the banking system. Unlike most fiscal conservatives, I'm not mad at him for trying to increase the size of the government; that's, after all, what he got elected promising to do.  But he also promised to be non-partisan and accountable, and the size and composition stimulus package looks like just one more attempt to ram through his ideological agenda without much scrutiny, with the heaviest focus on programs that will be especially hard to cut.

I picked this at random because it's representative of a groundswell of similar complaints.  And I suppose I should be happy with this groundswell since I think it's pretty important that we fix the banks and fix the banking systems.  Still, what exactly do people expect?

Did Obama prioritize the stimulus first?  Of course he did.  It's something that could be passed fairly quickly, and the faster it was passed the faster the money could work its way into the economy.  Fixing the banks is just the opposite.  Even the most optimistic observers don't think the banking system can be repaired any time soon.

There are two aspects to this.  First, what should we do about weak individual banks?  Second, how should the financial regulatory system be reformed?  Neither of them is something that's amenable to a quick fix.

On the first, Geithner announced a plan a few weeks ago, and Wall Street immediately began whining about how vague it was.  At the time, I sort of agreed, but since then I've begun to wonder just what people expected.  That Geithner would walk up to the podium and announce he was seizing Citigroup?  Some magical plan to turn toxic waste into gold?  A trillion dollars to shower on the bankers of America?

But look: there's just no quick solution here.  At least, not one that's practical.  He can't take over banks without some pretty good justification, and the stress tests he announced are the minimum necessary for that justification.  His plan to value toxic waste probably won't work, but that's because probably nothing would work.  And while lots of free money for bankers would be popular with bankers, it ain't gonna happen.

So, yeah, in public he appears to be dithering.  And the rock jawed titans of Wall Street are doing the same thing they always do when things aren't quite going their way: they weep and moan and panic.  It's quite a spectacle.  But honestly, this is something that's going to take months to address at a minimum.  That's just the way it is.  Going into a panic because we're well into his seventh week and Obama hasn't cured the economy is silly.

As for regulatory reform, well, I'd like to hear more about it too.  But that's something that will be the work of years.  And it won't have much immediate effect on the current financial crisis anyway.

So, yeah, Geithner could stand to be a little more reassuring in public, and it would be nice if he could fill empty Treasury positions a little faster, and I'm holding out hope that his stress tests will lead to some dramatic action by mid-Spring.  But all legends to the contrary, FDR didn't fix the world in a hundred days, and the fact that the internet has made everybody even more impatient than usual doesn't mean Obama can fix it that fast either.  I think it's time to chill a bit.

Cuomo Catches Merrill Lynch Lying in Bonusgate Probe

| Thu Mar. 12, 2009 11:18 AM EDT

What has Andrew Cuomo done to deserve this disrespect from Bank of America and Merrill Lynch?

As we've previously noted, Cuomo, New York's attorney general, is on the warpath against Bank of America, which swallowed up Merrill Lynch late last year with the help of billions of taxpayer dollars. Cuomo is peeved that Merrill Lynch doled out $3.6 billion in early bonuses even though it knew it was about to lose $15.31 billion in the fourth quarter of 2008. And now Cuomo seems to have caught Merrill's lawyers in a lie. The Wall Street Journal reports:

In a Nov. 24 letter, a lawyer for Merrill Lynch & Co. assured the head of a House committee that "incentive compensation decisions for 2008 have not yet been made," ... But the firm's compensation committee actually voted two weeks earlier to pay bonuses to Merrill employees in December, according to testimony from a Merrill director.

That sure looks like someone's lying. And that's not all. Depositions Cuomo filed with the New York Supreme Court yesterday indicate that, as Cuomo suspected, Merrill didn't even think about reducing its bonus pool when it became apparent that it was going to suffer a steep loss. If Cuomo can continue to paint Merrill and Bank of America as irresponsible, lying scumbags, he'll probably eventually get what he's really after: the names of the employees that the two financial giants made into millionaires last year. The PR cost to B of A from his continued investigation will eventually become greater than the PR cost of releasing the names. But so far, B of A is still holding out on him.

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What's Cheaper: Buying Stock or Buying Beer?

| Thu Mar. 12, 2009 2:03 AM EDT
Gawker's John Cook has a fun Recessionomics list today answering the newest age-old question: Should you buy a "Baconator" combo meal? ($8.24) Or stock in Wendy's/Arby's Group? ($4.03)

Go here for Cook's illustrated death match comparisons involving beer, boxer shorts, sea scallops, cigarettes, and more.

Over at Rolling Stone's National Affairs blog, Tim Dickinson points out that for less than the price of a Big Mac, you can get three patties of AIG. You can also get several squares of Fannie Mae for less than a roll of toilet paper. (Ironically, stock in toilet paper producer Kimberly-Clark is doing just fine.)

Are stock prices finally low enough to usher in more shareholder activism? Buy enough shares in the Bigs and you can make them progressive from the inside out.

What The Cure Taught Me About Courage

| Wed Mar. 11, 2009 7:41 PM EDT
One thing Facebook is good for (other than sucking up your time clicking "ignore" on SuperPokes and Lil' Green Patch requests) is reconnecting with old high school friends, who can either confirm or deny your vague, "did that really happen" memories. The other day an old friend recalled an epic adventure we had involving The Cure, a bus, and bad Mexican food; weirdly enough, it reminded me of some corny but important life lessons.

Just a Little Off the Top

| Wed Mar. 11, 2009 6:45 PM EDT
Yesterday Citigroup announced that it had been profitable in January and February and the stock market rejoiced.  Citigroup shares jumped 50%.  But how about their bonds, probably a better measure of what the market really thinks of Citi's chances of surviving?  Answer: not so good.

U.S. bank debt has lost 7.8 percent and yields have jumped to record levels compared with benchmark rates in the past month....The concern among debt holders is reflected in Citigroup’s $789 million outstanding in 7.25 percent subordinated notes due in October 2010, which fell 7 cents today to 70 cents on the dollar and have lost 23.7 cents in the past three weeks.

Italics mine.  70 cents on the dollar, eh?  Basically, this means that Vikram Pandit's cheery memos notwithstanding, the market already figures that either (a) Citi will eventually be forced into some kind of debt-for-equity swap that will slash the value of their claims, or (b) the government will nationalize Citigroup and then decide not to pay off bondholders at par.  This is bad for current bondholders, but Felix Salmon thinks low bond prices will eventually attract the bottom feeders:

Increasingly they're going to start representing significant potential gains for people who are buying at today's levels and hoping to be paid off at par — paid off, that is, essentially by taxpayers. Since those people can be broadly characterized as hedge-fund managers, one can foresee a lot of Congressional pushback if a large number of hedgies start pulling in tens of millions of dollars just by playing the moral hazard trade. Or, to put it another way, it's a lot easier to impose a haircut when a haircut is priced in than when it isn't.

Right.  If hedge funds start buying up Citi's bonds at 70 cents on the dollar, hoping that eventually the bank will be nationalized and its obligations guaranteed by the U.S. government, they've probably got another thing coming.  It's one thing to pay off bondholders who invested years ago in good faith, but quite another to pay off speculators hoping to cash in on a taxpayer bailout.

Still, it's tricky.  After all, how do you tell the speculators apart from the other creditors?  You can't.  So either everyone gets a haircut or no one does.  And if everyone does, nobody quite knows what will happen.  Bottom line: buying Citi bonds at current prices might be a good deal, but only if you have nerves of steel.  Their future is murky indeed.

Ross Douthat

| Wed Mar. 11, 2009 5:46 PM EDT

Marc Ambinder reports that the New York Times has hired his Atlantic colleague Ross Douthat as an op-ed columnist.  This is basically to take Bill Kristol's place as their #2 conservative columnist (alongside David Brooks) and it seems like a pretty good choice to me for a couple of reasons.  First, Ross has a fluid, intelligent writing style that's well suited to the 800-word op-ed format.  Second, he fits the post-Bush zeitgeist: he is, at core, a conservative Barack Obama.

What I mean is this: like Obama, he's always careful to acknowledge the arguments of his adversaries and to take them seriously.  Like Obama, he does this overtly and deliberately.  And like Obama, this is mostly for rhetorical effect: both of them use this technique to mask the fact that they rarely change their minds.  They might listen respectfully, but after they're done they go on doing whatever they intended to do in the first place.

This isn't a criticism (I don't change my mind very often either, after all).  In fact, it makes him a more than normally worthy dissenter to the Age of Obama.  His column should make for interesting reading.