Taking Sides on the Death of Expertise

I've written before about the death of real expertise in Washington -- this nagging sense that if every learned person is pushing an agenda, and if every lawmaker listens exclusively to those learned persons that he or she already agrees with, policy debates will never seek out best solutions but instead necessarily devolve into partisan bickering matches. I'm not saying everyone must embrace bipartisanship and trend to the middle to find solutions that partially satisfy everyone (i.e. High Broderism). I'm saying that every once in a while, conservatives ought to be able to look at hard data and discern that what has typically been considered a Democratic policy solution to a particular problem works best to resolve that problem, and thus accept and vote for it. Liberals ought to do the same. And experts ought to be able to guide lawmakers to these conclusions, instead of always entrenching them further in their beliefs.

Now, all of that said, it is clear that Republicans have done more to bastardize the idea of expertise than Democrats. The most obvious example of this is global warming, where conservatives have spent over a decade not just ignoring a scientific consensus, but manufacturing scientific uncertainty in order to muddle public opinion on the issue. Scientific expertise -- from truly unbiased government institutions like NASA, NOAA, the EPA, etc. -- has long been ignored by a conservative movement that sees science at odds with business.

But it goes further. Conservatives have a built-in ideological reason for opposing expertise on all subjects, not just science and the environment. They fundamentally do not believe government should play an active role in Americans' lives. That has ramifications everywhere. If you believe that, you don't look for a way to manage the financial sector that protects investors, homeowners, and others who have a stake in Wall Street; you promote deregulation. You don't listen to career FDA employees who doubt the efficacy or safety of certain drugs; you push pharmaceuticals to market. And you slash budgets at places where federal employees develop expertise so that they can study the atmosphere, or keep our water clean, or prevent fraud in federal contracts and grants.

David Frum, who is emerging as the conservative movement's most prominent internal critic, understands this. A hands-off approach to government necessarily entails a denigration and depreciation of expertise. From the National Post:

Travel to Cuba

A sliver of good news out of Congress:

A bipartisan group of senators predicted Tuesday that Congress was ready to pass legislation to allow all Americans to travel to Cuba.

....Sponsors said the bill would free Americans to travel to the one place in the world they can't go and encourage Cubans to push for democratic reforms by exposing them to new people and information.

The trade embargo against Cuba has long outlived whatever usefulness it might have had.  It accomplishes nothing and has turned us into an international joke.  Still, it's well within the bounds of normal international relations.  I don't like it, but it's not fundamentally antidemocratic or an assault on basic freedoms.

The travel ban has always been in a separate class.  Autocracies and dictatorships control the movements of their subjects, but free citizens of a liberal democracy should be able to travel wherever they want. So whatever happens with the trade embargo, removing the travel ban should be a no-brainer.  This is America, not North Korea.

On Tueday, three government watchdogs testified about TARP and other government bailout programs before the Senate finance committee. They offered some profoundly troubling observations about the government's inability to monitor and oversee effectively the spending (and lending) of nearly $3 trillion in bailout funds. It's a bit surprising that their testimony received about 1 percent of the media attention given to those AIG bonuses (a paltry $165 million) and sparked about 1 percent (or less) of the public outrage generated by those same bonuses. But I was invited to talk about the testimony with David Shuster on MSNBC:
You can follow David Corn's postings and media appearances via Twitter by clicking here.

More Contracts, More Fraud, Less Scrutiny

The Bush administration presided over explosive growth in defense-related contracting. Part of it was the natural result of the wars in Iraq and Afghanistan; part of it was ideology and a deeply held belief that anything government can do the private sector can do better and cheaper. And maybe so. I won't argue it here. But whatever your views on the role of private companies in military operations, there's little question that the flurry of Pentagon contracts issued since 9/11 has, in numerous instances, led to gross abuse and corruption by companies that took advantage of weak regulation and a Congress that, despite much breathless posturing, has still failed to do much to bring things under control. The numbers speak for themselves. As the Pentagon doubled its contracting budget, the number of criminal investigations for contract fraud declined dramatically. According to a report released today by the Center for Public Integrity:
Defense contracting grew from about $200 billion in fiscal year 1993 at the start of the Clinton presidency to nearly $400 billion in FY 2008 at the end of President George W. Bush’s administration (1993 dollars adjusted for inflation to 2008 dollars). But Defense Department investigators during the Bush administration sent 76 percent fewer contracting fraud and corruption cases to the Justice Department for potential criminal prosecution than were referred under Clinton, according to Justice Department data analyzed by the Center for Public Integrity.
“No one is minding the store,” said William G. Dupree, a former director of the Defense Criminal Investigative Service (DCIS), which investigates contracting fraud. “Someone needs to address that.”
The FBI, which is also involved in such probes, sent 55 percent fewer government-wide contracting fraud and corruption cases to prosecutors for the same time periods reviewed. These cases cut across all agencies, but the Defense Department was responsible for more than 65 percent of federal contracting during the Bush administration. And FBI statistics requested by the Center focusing just on the Pentagon document a similar trend. In 2001, the Bureau referred 213 Defense Department procurement fraud cases to Justice Department prosecutors; by 2008, the total had fallen to 86.

This Just In: Bush Justice Department Incompetent

The withdrawal of charges against former Alaska Sen. Ted Stevens serves as more proof of what we already knew: the Bush DOJ couldn't do anything right. Attorney General Eric Holder has decided that "it is in the interest of justice to dismiss the indictment and not proceed with a new trial," according to a statement he released this morning. Why drop the charges? Because the Bush Justice Department, which handled the prosecution, couldn't, well, handle the prosecution. DOJ lawyers were accused (rightly, according to Holder) of withholding crucial information from the defense, and the trial subsequently degenerated into a series of embarrassments for an already-demoralized department. At one point, the DOJ lawyers were even held in contempt of court. Holder has asked the DOJ's Office of Professional Responsibility to look into the matter. Thankfully, the one thing the DOJ has been good at recently is releasing damning OPR reports (PDF, PDF, PDF) about how corrupt, incompetent, and politicized it became during the Bush years.

Should We Really Be Marking to Market?

Kevin still likes the idea in general, but Joseph Stiglitz doesn't like it when it's applied to Timothy Geithner's public-private investment plan:

Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.

I get the sense Geithner knows this, too. Last week I was speaking with a Congressional staffer who said quite bluntly that the big problem with marking these assets to market was that there was no market for them. So Geithner had to create that market, and the only way to make it worthwhile for the banks and investors is to allow banks to overvalue those assets, even if the banks are unloading their worst, most risky ones. If the asset tanks, the bank—and perhaps the economy in the long run—still wins, the private investor loses a little, and the taxpayer loses big.

Tweet Tweet Tweet

From the Guardian:

Consolidating its position at the cutting edge of new media technology, the Guardian today announces that it will become the first newspaper in the world to be published exclusively via Twitter, the sensationally popular social networking service that has transformed online communication.

....A mammoth project is also under way to rewrite the whole of the newspaper's archive, stretching back to 1821, in the form of tweets. Major stories already completed include "1832 Reform Act gives voting rights to one in five adult males yay!!!"; "OMG Hitler invades Poland, allies declare war see tinyurl.com/b5x6e for more"; and "JFK assassin8d @ Dallas, def. heard second gunshot from grassy knoll WTF?"

Alternatively, the Guardian, along with every other website on the planet, might be destroyed today by the Conficker worm. In which case you won't be reading this post anyway. They don't make April Fools day like they used to, do they?

Mark to Market

The Wall Street Journal reports that FASB will vote soon on a proposal to loosen rules that force banks to value toxic assets at market prices:

The Financial Accounting Standards Board is proposing significant changes to its mark-to-market rules, allowing banks to set their own values for certain hard-to-value troubled mortgages, corporate loans and consumer loans. The new proposal, called FAS 157-e, is scheduled for a vote this Thursday.

The change was meant to assist U.S. banks after bankers complained current mark-to-market accounting rules forced them to undervalue their assets, by setting prices at deeply discounted, fire-sale values.

This is a complex issue, and it's true that mark-to-market can cause problems during financial panics as firms all start selling assets at once to cover losses, which in turn produces a spiral of plummeting prices, leading to losses, leading to more selling, leading to lower prices.  Rinse and repeat.  Unfortunately, the alternatives are generally worse, allowing banks to value assets using models that can be tweaked so egregiously that they bear only the vaguest relation to reality.  That's how IndyMac could claim it was "well capitalized" right up until the day it was taken over and shown to be a shell of its claimed self.

My tentative preference is to keep mark-to-market but soften its impact with a system of countercyclical regulatory forbearance.  The whole point of bank capital is to act as a cushion against losses, and in good times a bank might reasonably hold capital equal to, say, 8% of assets.  During a recession, as loans and other assets lose value, that capital is going to get eaten way, but then, that's the whole point of having it in the first place.  So why force asset sales in order to maintain arbitrary capital ratios when capital erosion is entirely predictable during recessions?  Why not instead require higher capital ratios in good times (which would reduce leverage and slow down credit expansion) and lower capital ratios in bad times (which would reduce fire sales and encourage banks to expand credit)?

Because banks are so good at lying about the quality and value of their assets, we're better off with a system that gives them as little leeway as possible when it comes to recognizing losses.  We're should force them to face the music honestly, but then allow a certain amount of capital forbearance during economic downturns.  Mark-to-market isn't appropriate for every asset, but it's appropriate for most.  It should be watered down as little as possible.

If Drum Can Cat Blog, I Can Kid Blog

Out of nowhere, my 5-year-old daughter looks up from her crayons and asks, oh so seriously: "Mom. If I become a mermaid, you'll tell me, right?"

What could I say but, "I promise, honey"?

Update: My 7-year-old is wrestling with my 5-year-old. As I head over to pull the abnormally tall second grader off the average height kindergartener, I hear her say: "Get OFF me! My bootie is soooo important to me!"

Seems he was pushing her down into the couch cushions under which was hidden a huge cache of pointy Legos. 

One Pathetic Tip for Surviving the Recession

Salon has a piece up about the world of hard core scavengers. It's not as gross as it sounds, once you know what you're doing. And get over your pre-Bush/recession heebie jeebies. It put me in mind of a kinder-gentler dumpster diving con I just discovered.

I stumbled on this scam last week when I scraped up the bucks to take the kids to their favorite restaurant (where they scarf down the bread which I've tried, and miserably failed, to recreate Chez Dickerson). They of course call it, "The Bread Restaurant." When I realized I'd left my reading glasses at home and was playing trombone with the menu, the waitress said "I'll be right back."

Turns out they keep a jar full of left-behind reading glasses. Now I pull this sad fake out at every Chili's and above restaurant. It's only fair: I've lost three pair so far this year and it's not quite April. Someone scored mine, right?