Quote of the Day - 5.4.09

From Paul Krugman, ruminating over the recent leaks about the results of the Treasury's stress tests:

Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report's contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. ("Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?")

The source of the stress test leaks is mysterious, but it's the numbers themselves that baffle me more.  Most of the leaks, for example, suggest that Citigroup will be told it needs additional capital of $10 billion, a figure so low it would barely be worth bothering with.  Conversely, most of the numbers I've seen thrown around from independent analysts come to ten times that amount or more.  If it turns out that Citi really is short by only $10 billion, it means we can all breathe a sigh of relief and declare an end to the banking crisis.  I woldn't count on that, though.

Lovely, Lovely Pears

Taylor's Gold pears are back in my local supermarket!  Hooray!

The Bloated Financial Industry

James Surowiecki writes that the reason the financial sector has grown so spectacularly over the past couple of decades is because, compared to the boring 50s and 60s, the demand of modern businesses for capital has also grown spectacularly:

The financial sector’s most important job is channelling money from investors to businesses that need capital for worthwhile investment. But in the postwar era there wasn’t much need for this....Thomas Philippon, an economist at N.Y.U., has shown that most of the increase in the size of the financial sector [during the period 1980-1999] can be accounted for by companies’ need for new capital....Philippon suggests that, given the demands of businesses for capital, a normal financial sector would be about the size it was in 1996.

But this is only part of the story.  The need for capital may well have gone up considerably, but the combination of globalization, automation, and greater competition should also have made the finance industry far more efficient at providing it.  As Felix Salmon says:

One would hope and expect that between sell-side productivity gains and a rise in the sophistication of the buy side, any increase in America's financing needs would be met without any rise in the percentage of the economy taken up by the financial sector. That it wasn't is an indication, on its face, that the financial sector in aggregate signally failed to improve at doing its job over the post-war decades — a failure which was then underlined by the excesses of the current decade and the subsequent global economic meltdown.

Most information technology sectors — and finance is decidedly one of them — have become far more efficient over the past few decades.  They may be bigger in absolute terms, but the price per unit of whatever they're selling — MIPS, bandwidth, gigabytes, etc. — is far lower.  In the case of finance, the units they're selling are dollars of capital.  But has the per-unit cost of providing capital gone down substantially since, say, 1980?  If not, why not?

Asian Mercury Crossing the Ocean

A fascinating new study documents for the first time how mercury gets from smokestacks in Asia to tuna on dinner tables in America. Scientists sampled Pacific Ocean water from 16 sites between Honolulu and Alaska, then constructed a computer model linking atmospheric emissions, transport and deposition of mercury, and ocean circulation.

Their findings published in Global Biogeochemical Cycles show how mercury originating from fossil-fuel-burning plants and waste-burning plants in Asia falls into the Pacific Ocean near the Asian coastline. The mercury-enriched waters are then carried by large ocean currents east towards North America.

The study documents for the first time something of the mysterious process by which mercury becomes methylmercury in the ocean. The simple version: Mercury rained down from the atmosphere is taken up by phytoplankton living in sunlit waters. When these plankton die they rain down into the depths where they're decomposed by bacteria. The process of decomposition turns mercury into methylmercury.

Methylmercury is an environmental neurotoxicant that rapidly bioaccumulates in the foodweb, eventually concentrating in top-tier predators like tunas and humans. Some 40 percent of human exposure to mercury in the US comes from eating tuna hunted in the Pacific Ocean. Pregnant women who consume mercury-laden seafood can pass on life-long developmental effects to their children.

Since the Industrial Revolution anthropogenic mercury levels in the atmosphere have risen threefold, with corresponding increases in terrestrial and aquatic ecosystems. This study found mercury levels in water samples rose an alarming 30 percent between the mid 1990s and 2006. That's hardly the end of it though. The authors predict another 50 percent increase in the Pacific by 2050 if emission rates continue as projected.

Yet another reason to we can't tread water on fossil fuels. Too bad Australia's Kevin Rudd just did a spineless jellyfish backflip on climate change. As if the economy is disconnected from the environment.
 

Shell Won't Have To Pay for Pesticide Mess

Taxpayers, get ready to spend more to clean up hazardous-waste sites. With a precedent-setting decision, the Supreme Court just made it a little easier for companies who are involved in environmental contamination to pass the buck to the government.

Here's what happened: Shell Oil sold millions of dollars worth of pesticides to an agricultural company called Brown & Bryant, which stored the chemicals improperly. Later, the company went out of business, and it was discovered that those cheicals had contaminated the nearby land, which was later designated a Superfund site.

Treehugger points out that this case raises some interesting (and potentially troubling) questions about corporate culpability:

...once a company sells hazardous chemicals, is it responsible for ensuring they're kept safe? Or is it out of their hands entirely? Should companies that lease land to businesses that have potentially dangerous environmental practices be responsible for the safeguarding of that land? Or should the government have to pick up the tab in unfortunate situations like this[?]

 

 

More on Religious Freedom and Same Sex Marriage

A la Kevin's earlier post, we really do have lots to think about in terms of the fall out from same-sex marriage. I'm a supporter, but I have to admit, I'm having a hard time thinking through the externalities. Which is exactly what we must all do. From the op-ed at issue:

Make Billionaires Pay Taxes? Say It Ain't So!

Republican members of Congress must enjoy pathetic approval ratings, because they're apparently already raising hell about President Obama’s call for a Congressional crackdown on offshore tax havens. And what could beat the populist appeal of standing up for thieving billionaires! Obama figures his get-tough approach (see below) could bring the Treasury an extra $210 billion over ten years. Obama, of course, is a pragmatist. Last time we touched base with Sen. Carl Levin, the Michigan Democrat, he was blaming the tax cheats for Treasury losses of $100 billion—per year.

As chair of the Permanent Subcommittee on Investigations, Levin was then looking into dubious dealings by international banking conglomerate UBS—where our old pal Phil Gramm served as a vice chairman soon after pushing through legislation that brought down the economy. Another investigative target was IGT, the Liechtenstein bank owned by that principality's royal family. "The IRS doesn't have the money, the time, or the legal tools it needs to stop offshore abuses," Levin told Mojo contributor Peter Stone, who wrote this piece on offshore tax shenanigans for our November/December 2008 issue.

 

Homeland Security Secretary Janet Napolitano has become the woman the right loves to hate--to the point that bloggers, talk show hosts, and right-wing groups are jumping aboard a new "dump Janet" movement.

Anyone old enough to remember the the Clinton administration should have seen this one coming. Bill Clinton’s Attorney General, Janet Reno, was second only to Hillary on the list of conservatives’ most-loathed women–and for the far right, Reno quickly moved into the #1 slot after the Waco debacle, which took place during the first year of her tenure. Waco provided fuel for radical far-right movements for years to come: It aided the growth of the Militia Movement, and was cited by Timothy McVeigh as a reason for the Oklahoma City bombing, which took place on its second anniversary.

Janet Napolitano’s transgressions are hardly in the same league as Waco. But there’s a kind of perverse symmetry in the fact that it is a half-baked, ill-timed report on “right-wing extremism” that's helped cement Napolitano’s status as the most-reviled woman in the new Democratic administration. The April 7 Department of Homeland Security report warned law enforcement officials that the economic crisis, plus the election of a black president, were likely to aid the recruiting efforts of far-right groups. 

As I’ve written before, the report was dangerously vague and speculative, and should make civil libertarians of all stripes nervous. But it was aimed at the violent, radical far-right movement, not at mainstream or even hard-core conservatives. Yet it became a rallying point for right-wing pundits and talk radio hosts, and was brandished at ”tea parties” later that month. And at the center of it all was Janet Napolitano.

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After the story of the DHS report broke, the Drudge Report featured a picture of Napolitano above the line, “SHE IS WATCHING YOU.” Within a week, Newsmax was reporting on Republicans who had “taken to the House floor to criticize Napolitano.” The ever-present Michele Bachmann asked: “Has this homeland security secretary gone absolutely stark raving mad?” and said of Napolitano: ”She needs to come before Congress. She needs to answer a few questions.” Texas’s Michael Burgess said her actions reflected “the tactics of tyrannical governments from Red China to Venezuela.” 

Further to the right, the attacks were even more vicious (and often racist, misogynistic, and homophobic), and more explicit about the Reno parallel. The blog Theodore’s World, which proclaims itself a “PC Free Zone” recently featured side-by-side head shots of the two Janets–Napolitano and Reno–with the caption “Fascist Wench’s” (sic). The whacked-out Plain Truth blog cited Waco (for which it says Reno and Bill Clinton should be hanged) and asked: “Is Janet Napolitano in some danse macabre with Janet Reno to beat her bloody record and up the ante by aiming at veterans and others whose patriotism would never be questioned by sane people?”

Then came the swine flu outbreak. Right-wingers, already unhappy with Napolitano for her perceived softness on illegal immigration, now accused her of placing U.S. lives at risk by refusing to close the Mexican border. This offered them an opportunity to simultaneously attack two of their favorite targets: Napolitano and immigrants–as talk radio’s Michael Savage did last week:

Bankers and Congress

The power of the financial lobby, even in the wake of an epic economic collapse fueled largely by its own excesses, never ceases to amaze.  The current front, of course, is a Senate proposal to curb credit card abuses.  Mike Lillis of the Washington Independent reports:

The proposal, sponsored by Senate Banking Committee Chairman Chris Dodd (D-Conn.), would prohibit rate hikes on existing balances, give cardholders longer notice to pay their bills, and prevent card companies from charging fees when customers pay their bills on time.

....A similar credit card reform proposal, sponsored by Rep. Carolyn Maloney (D-N.Y.), passed the House easily last week, but the Senate bill goes even further to protect card users from unexplained fees and surprise rate hikes. The question now on the minds of many anxious consumer and lending advocates is this: How strong can Senate Democrats keep those consumer protections and still have the bill pass the upper chamber?

....For consumers, there’s a great deal hinging on what credit card reform provisions the Senate can pass. The Maloney bill in the House, for example, allows card companies to hike rates on existing balances when the borrower is more than 30 days late on a payment. The Dodd bill, by contrast, prevents retroactive rate increases in all cases. An analysis conducted by The National Consumer Law Center found that roughly 10 million Americans would still be vulnerable to those retroactive hikes if Maloney’s version of the provision were adopted instead of Dodd’s.

Really, this is beyond belief.  Retroactive rate hikes on existing balances are indefensible under any circumstances.  A third grader on a playground would understand why.  Despite this, every single effort to ban the practice has failed.  Over and over and over, they've failed.  And now, even with the finance industry on its knees, hated and despised for its lavish compensation packages financed by trillions in taxpayer bailout cash, there's still some question about whether Congress can pass this no-brainer of a bill.  Instead, we might end up merely banning retroactive rate hikes for 30 days.

This practice (which goes by the charming name of "universal default") should have been banned the first time it ever reared its ugly head.  The fact that there's even a chance of it continuing to survive in any form at all after the events of the past couple of years should dispel any questions about the death grip the finance industry has on American politics.  It's the smoking gun that bankers own the country.

Healthcare in Holland

So what does Russell Shorto think of Dutch healthcare after spending 18 months in Amsterdam?

My nonscientific analysis — culled from my own experience and that of other expats whom I’ve badgered — translates into a clear endorsement. My friend Colin Campbell, an American writer, has been in the Netherlands for four years with his wife and their two children. “Over the course of four years, four human beings end up going to a lot of different doctors,” he said. “The amazing thing is that virtually every experience has been more pleasant than in the U.S. There you have the bureaucracy, the endless forms, the fear of malpractice suits. Here you just go in and see your doctor. It shows that it doesn’t have to be complicated. I wish every single U.S. congressman could come to Amsterdam and live here for a while and see what happens medically.”

Amen to that.  But there's also this:

One downside of a collectivist society, of which the Dutch themselves complain, is that people tend to become slaves to consensus and conformity. I asked a management consultant and a longtime American expat, Buford Alexander, former director of McKinsey & Company in the Netherlands, for his thoughts on this. “If you tell a Dutch person you’re going to raise his taxes by 500 euros and that it will go to help the poor, he’ll say O.K.,” he said. “But if you say he’s going to get a 500-euro tax cut, with the idea that he will give it to the poor, he won’t do it. The Dutch don’t do such things on their own. They believe they should be handled by the system. To an American, that’s a lack of individual initiative.”

I actually ran into that once myself.  Back in my marketing days, I was once in charge of a product launch that, among other things, included a contest for the salesperson who sold the greatest amount of our new gift to the high-tech world.  Pretty standard stuff.  So I went on the road for a couple of weeks presenting the new product to our distributors in the U.S. and Europe, and everything went basically as expected until I got to the Netherlands.  They didn't like the contest.  Why?  Because it singled out a single individual who did especially well, and this was unfair since sales was a team effort.  They wanted a contest that rewarded whichever group sold the most stuff.  And they were pretty serious about this.  They really, really didn't like the idea of a single person being held up as an individual success.

I've always remembered this as a good example of how ingrained our own cultural predilictions are.  At the time this happened I'd been dealing with European distributors and resellers for over a decade, so I was already pretty familiar with the various cultural differences in how sales teams worked.  But this one came out of nowhere.  It never occurred to me for even a second that anyone would object to a sales contest.  Why, it's as American as apple pie!  Which, it turned out, was exactly true.

On the other hand, no one else had a problem with it.  Only the Dutch.  And it still strikes me as an odd attitude.  But they run a pretty nice country over there, so I guess it works pretty well for them.

More here from Steve Aquino.