Blogs

"Palin Syrah" Wine Sales Drop Because of Sarah Palin

| Tue Sep. 23, 2008 9:01 PM EDT

To a Miller Lite-drinking, displaced Ohioan like me, wine is wine. I enjoy it—the redder and drier the better—but I don't care if it's Cabernet, Merlot, or Pinot Noir.

But my fellow San Franciscans take their wine seriously enough that the vintners' label actually means something: The owner of a wine bar in the city says sales of "Palin," a Syrah, have plummeted since John McCain tapped Sarah Palin to be his running mate:

"It was our best selling wine before (the V.P. announcement)," said Chris Tavelli, owner of Yield Wine Bar, which has offered Palin Syrah, a certified organic wine from Chile, by the glass since July. But after Sen. John McCain tagged Sarah Palin as his running mate, sales of the wine with the conservative's inverted name plummeted.

Sure, the wine's name is ironic, but it's just wine; it's not as if naming it "Palin" turns it to moose blood.

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Debt and Equity

| Tue Sep. 23, 2008 8:53 PM EDT

DEBT AND EQUITY....If Uncle Sam is going to bail out America's banks, should taxpayers receive equity in these banks in return for handing over vast piles of cash? Sure. But here's the specific language from the Dodd "discussion draft" of the enabling legislation:

(A) CONTINGENT SHARES.—

(i) IN GENERAL.—The contingent shares to be received by the Secretary under paragraph (1) may, at the determination of the Secretary, include shares of the financial institution, its parent company, its holding company, any of its subsidiaries, or any other entity which is owned, controlled, or managed by such institution. [Details are laid out later in paragraph 2.C.3.]

(ii) DEBT INSTRUMENTS.—In the event that the equity of the financial institution from which such troubled assets were purchased is not publicly traded on a national securities exchange, the Secretary shall acquire a senior contingent debt instrument in lieu of contingent shares, which shall automatically vest to the Secretary on behalf of the United States Treasury in an amount equal to 125 percent of the dollar amount of the difference between the amount the Secretary paid for the troubled assets and the disposition price of such assets. The Secretary may demand payment of such contingent debt instrument under such terms and conditions as determined appropriate by the Secretary.

So: the idea is that the Treasury buys toxic waste from the banks and eventually sells it off. If it sells at a loss, it receives shares equal to 125% of the loss. This is based on the share price at the time it bought the assets, which means that if the bank prospers in the meantime and its share price rises, the taxpayers share in this good fortune.

Fine. But note the second paragraph: if we bail out a private firm, we get senior debt instead of equity. Fair enough: equity in a private firm is hard to value, so why add in the additional complexity of trying to negotiate a fair value?

But here's the thing: Does accepting senior debt do the banks any good or doesn't it? Taking debt instead of equity essentially amounts to restructuring the bank's debt and giving it some breathing space, possibly enough to allow it raise capital privately. It doesn't directly change the bank's capitalization ratio, but if restructuring debt without changing capitalization ratios is useful for private banks, why not for publicly held banks too? After all, they're both faced with borrowing money from the same people with the same concerns over possible insolvency.

Maybe I'm an idiot. It wouldn't be the first time. But I continue to be a little perplexed by the mania for equity. The removal of toxic waste combined with a restructuring of debt either does some good or it doesn't, and if it does, then let's use it for publicly held banks too. If the borrowing firm eventually goes bankrupt, senior debt is better than equity anyway. If it prospers instead, equity will turn out to be the better deal, but I don't really care about that. I don't especially want Uncle Sam playing the market, and I don't especially want Uncle Sam to own potentially large stakes in half the banks on Wall Street. I just want the best chance of getting our money back.

Chart of the Day

| Tue Sep. 23, 2008 6:50 PM EDT

CHART OF THE DAY....Via Propublica, here's a history of government bailouts starting with the Penn Central bailout of 1970. All adjusted for inflation, of course. Click the link for all the gory details.

Yes, Joe Biden's Helicopter Really Was "Forced Down" in Afghanistan

| Tue Sep. 23, 2008 5:31 PM EDT

One of the narratives the blogs are talking about this week is that Joe Biden is—gasp!—"gaffe-prone." Nevermind the fact that this has been the story about Biden for 30 years: now journalists are even finding gaffes where none exist. In a post on The Stump exploring Biden's unfortunate attack on his own campaign's ad, Michael Crowley claims that this Joe Biden anecdote is a "gaffe":

"If you want to know where Al Qaeda lives, you want to know where Bin Laden is, come back to Afghanistan with me. Come back to the area where my helicopter was forced down, with a three-star general and three senators at 10,500 feet in the middle of those mountains. I can tell you where they are.

In an unsigned follow-up post on The Plank (accompanied by an awful Slate-style "gaffe meter"), someone claims that this quote "could teeter into Hillary-in-Bosnia territory." But what exactly is wrong or misleading or inaccurate about Biden's story? The Jake Tapper post Crowley links to is an admirably straightforward fact-check of the story—it turns out Biden's helicopter was forced down by a snowstorm. But did Biden say the helicopter was "forced down under fire" or even "shot at"? No. And Tapper points out that Biden went on, saying this:

[John McCain] says he'll follow [Al Qaeda] to the gates of hell. You don't have to go to hell. Just go to Pakistan. Just go to that area. That superhighway of terror that exists between Afghanistan and Pakistan.

Biden's right on in the rest of the quote, too: As far as we know Al Qaeda and bin Laden are in what Biden calls, "That superhighway of terror that exists between Afghanistan and Pakistan."

So Sarah Palin is Meeting With World Leaders...

| Tue Sep. 23, 2008 5:25 PM EDT

You'd think this is something the McCain campaign would be excited to broadcast to the world, right? You tell me. They let the press observe a meeting between Palin and Afghan President Hamid Karzai for 29 seconds. The press then got 15-20 seconds of a meeting between Palin and Colombian President Alvaro Uribe. Hmm.

Oh, hey, just FYI? This person might be elected vice president of the United States in less than six weeks.

Asheville, NC is Out of Gas

| Tue Sep. 23, 2008 4:45 PM EDT

gas.jpg The city of Asheville, North Carolina and surrounding towns are so short on gas that residents must wait over an hour to fill their tanks, reports the Asheville Citizen-Times.

Many gas stations have closed altogether. Those which remain open have police stationed at the pumps to prevent fights from breaking out—one driver threatened another with a baseball bat. Asheville officials have canceled all nighttime events, and the county is asking that nonessential employees work from home or switch to a four-day week.

The gas crunch began after Hurricanes Gustav and Ike swept through the Gulf Coast, shutting down the oil refineries that supply western North Carolina. Because of its relatively remote location high in the Blue Ridge mountains, county officials estimate that shortages in the Asheville area will continue at least through the end of the month.

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Obama's Lame New "Bermuda" Ad

| Tue Sep. 23, 2008 3:30 PM EDT

The Obama campaign released this ad today and held a press conference outside the RNC to gin up news coverage of it.

I don't understand why the Obama campaign is running this ad.

I can't wrap my brain around the fact that they are airing an ad this frivolous, low-budget, and general crappy. But that's not my point. I don't understand why they are running this ad now, with all the other news that ought to be focused on. Does anyone care about offshore tax shelters and John McCain's vacation to Bermuda right now? With the Congress debating how to use a sum of money the size of the annual federal budget to keep the American economy from collapsing?

Is the Obama campaign trying to dilute a news cycle that it is benefiting from?

Montgomery McFate Speaks (Sorta)

| Tue Sep. 23, 2008 3:11 PM EDT

The latest issue of Wired carries a piece on Montgomery McFate, the Harvard and Yale educated anthropologist—and onetime go-go dancer—who is one of the primary forces behind the army's controversial Human Terrain Program. The $130 million program, which has been sharply criticized [PDF] by the American Anthropological Association, among others, on ethical grounds, aims to bring cultural understanding to military units operating in Afghanistan and Iraq by embedding social scientists with combat detachments. The article largely focuses on McFate's Human Terrain work, though there was one paragraph that jumped out for me, as it relates to the story we ran in late July, disclosing that for more than a decade a freelance spy named Mary Lou Sapone (also known as Mary McFate) had infiltrated the inner sanctum of the gun control movement. Montgomery McFate is Sapone's daughter-in-law—she once went by Montgomery Sapone—and, according records we obtained, she and her husband Sean McFate (a/k/a Sean Sapone) for some time worked for his mother's private intelligence business.

Wired reports:

McFate herself has drawn fire from others in her field who say she's more spy than scholar. Revelations that nearly a decade ago she worked for her mother-in-law, who allegedly infiltrated left-wing groups on behalf of their opponents, have fed the outrage. (McFate says she researched broad policy topics and that her mother-in-law — from whom she has been estranged for many years—never disclosed her clientele.)

Financial Innovation

| Tue Sep. 23, 2008 3:10 PM EDT

FINANCIAL INNOVATION....Via Ezra, Dani Rodrik asks a pointed question about the rapidly innovating financial markets of the past couple of decades. Would increased regulation really sap innovation and cost the world trillions of dollars in real wealth?

[Financial boffins] owe us a bit more detail about the demonstrable benefits of financial innovation. What I would love to hear are some examples such financial innovation — not of any kind, but of the kind that has left a large enough footprint over some kind of economic outcomes we really care about. What are some of the ways in which financial innovation has made our lives measurably and unambiguously better?

If I had asked this question a little over a year ago, I suppose I would have been hearing a lot about how collateralized debt obligations and structured finance have allowed millions of people to purchase homes that they would not have been able to afford otherwise. Sorry, but you will have to come up with some other examples now.

It's an interesting question. One of Rodrik's commenters offers this: "Interest rate, currency and credit swaps have been extremely beneficial to corporate risk management. OTC Derivatives on fuel futures have been very useful to manage fuel price risk faced by airlines (which is now over 40% of their operational cost)." And that's true enough.

But it's the scale of the growth that gets me. The size of the market for credit default swaps, for example, grew from about $1 trillion in 2001 to $62 trillion in 2007. Has anything in the real world grown enough to justify that kind of increase in the CDS market? Or has it mainly been a way for purveyors of mid-rated bonds to turn their dross into something that pension funds are legally allowed to buy? Is that really useful to the economy in any real kind of way?

I should say at the outset that I'm inclined to believe that recent financial innovations have, in fact, been highly useful, and that the root problems lie elsewhere (too much leverage, stupid mortgage practices, too little oversight, etc.). Still, it would be interesting to read an in-depth defense of how financial innovation has helped the global economy, wouldn't it?

Paulson Faces Skepticism From Senate Banking Committee

| Tue Sep. 23, 2008 3:10 PM EDT

Treasury Secretary Hank Paulson faced a tough crowd Monday in the Senate. Appearing before the Senate Banking Committee with Federal Reserve Chairman Ben Bernanke, Paulson withstood criticism from Senators on both sides of the aisle who were almost universally skeptical of his bailout plan and the short timeframe in which he wants to see it passed.

Senator Elizabeth Dole (R-N.C.) said that Paulson's three-page plan, which asks for $700 billion to buy distressed assets from failed banks but contains no provisions for oversight and demands little in return from financial institutions receiving aid, was "hastily concocted." Senator Daniel Akaka (D-Hawaii) said Congress "must not give Treasury a blank check." Echoing senators from both parties, he said, "we must do more to keep people in their homes."

The suspicion surrounding Paulson's plan was bipartisan. While everyone agreed that a bailout was necessary, senators from both parties asked Paulson and Bernanke why Congress was being asked to "rush into" a bailout. Senator Jon Tester (D-Mont.) demanded to know why Congress had just a week to allocate $700 billion dollars or face financial Armageddon. Who was supposed to see this coming? he asked. And why didn't they?