GSE Debt

| Tue Nov. 25, 2008 5:38 PM EST

GSE DEBT....When I read last night that the Fed planned to buy up $600 billion in Fannie/Freddie debt, I didn't have the nerve to ask the obvious question: aren't Fannie and Freddie government enterprises now? Why is the government buying up government debt? But I guess it wasn't such a stupid question after all, because Paul Krugman is wondering the same thing:

It's true, as the Fed's statement says, that

Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late.

But that's presumably because the Bush administration, weirdly, has refused to declare that GSE debt is backed by the full faith and credit of the US government. Why not just make that declaration, turning GSE debt into Treasury obligations, rather than stuff the obligations onto the balance sheet of the Federal Reserve?

Is this some kind of strange political game? Is there something else going on here? Inquiring minds want to know.

Nobody ever answers my questions, but this time I got lucky. I'll bet Krugman eventually gets an answer.

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Glenn Greenwald, Andrew Sullivan Celebrate "Exceptional News": John Brennan Won't Be CIA Director

| Tue Nov. 25, 2008 3:51 PM EST


John Brennan, a top adviser to Barack Obama on intelligence issues who had been widely rumored to be the President-elect's top choice for CIA director, has taken himself out of the running. Bloggers, including Salon's Glenn Greenwald and the Atlantic's Andrew Sullivan, had vociferously opposed Brennan on the grounds that he had reportedly supported the torture of terrorist detainees and the governments extraordinary rendition program. In his letter to Obama, Brennan writes that he "was not involved in the decision-making process for any of these controversial policies," but Greenwald emphasizes that being involved with the decision-making process was never the issue. It was the fact that Brennan supported those decisions that was the problem, whether or not he actually had the decision-making power himself. And the evidence is pretty clear that Brennan did not draw a bright line on torture. Brennan was onetime CIA director George Tenet's chief of staff (which is a bad sign on its own), and the estimable Jane Mayer described him in New Yorker as a "supporter" of the Bush administration's "interrogation and detention" program. Brennan told Mayer that drawing the line on how to treat detainees "all comes down to individual moral barometers." No, it doesn't.

It's true that Brennan did oppose some of the most heinous Bush administration techniques—waterboarding, for example. But his past support for parts of the torture program is well-documented. And even if waterboarding didn't pass Brennan's "individual moral barometer" test, other torture techniques apparently did. It's not just waterboarding that is the problem. And if Obama is going to make a clean break from the Bush administration's interrogation policies, it's probably for the best that Brennan will not be along for the ride.

Letters of Credit

| Tue Nov. 25, 2008 3:01 PM EST

LETTERS OF CREDIT....A reader at TPM provides three reasons why allowing Lehman Brothers to collapse was a bad idea, including this one:

Third, global trade is (still) largely conducted via letter of credit. With the possibility of well-known names disappearing, that system has broken down catastrophically. (Pull up the Dry Goods Shipping Index for confirmation.)

Right. I've read about this problem before, so I pulled up the Baltic Dry Index to see what he was talking about. This is a measure of the cost of shipping raw goods (iron ore, grain, coal, etc.), and sure enough, it's cratered: from a peak of nearly 12,000 in May, it's plummeted to a value of 824 this week.

But what's the cause? Partly it was the commodity bubble earlier this year, which was unsustainable. Partly it might be weak demand from China. And partly it's just a reflection of the recession we're entering. It's not easy to mothball ships, so even a small downturn in shipping demand can have an outsized effect on shipping prices. But what about those letters of credit? Are problems with the LoC market shutting down the shipping industry even beyond normal recessionary levels? Here's John Dizard's take in the Financial Times from a couple of weeks ago:

While the BDI has been dropping for months, the real collapse took place from the week after the Lehman bankruptcy....I had followed shipping in past years, but had never seen a rate of change like that. So I called friends of mine in that world to get closer to the car wreck. I had wondered if the BDI was truly representative of real-world values, or if it was oversold in the way some credit default swap indices might be. Nope. Ships really are that cheap. As one broker told me: "I just chartered a Handymax to go to the US Gulf from India for $1,000 a day. So the BDI really is pretty accurate."

A Handymax vessel would typically displace about 40,000 deadweight tonnes. You would notice it if it dropped anchor near your dock. The cash operating costs are at least $1,500 to $2,000 a day. On top of that, figure another couple of thousand dollars a day for the capital costs....Those low charter rates indicate that not much is being shipped, apart from cargoes going from one corporate subsidiary to another, or from one highly creditworthy entity to another. It all goes back to that Lehman bankruptcy. Among the more serious casualties of that colossal failure of leadership was the letter of credit business.

There is nothing more vanilla than the l/c for an international shipment. One bank tells another bank that it will accept the credit risk of an individual importer or exporter. They document that, with forms that have been around forever, clerks and computers shuffle the paper around. A fee is charged and goods are released for shipping, inspection, and delivery. The most boring business in the world. Until it stops.

So here's a question I can't find an answer to with my meager Google skills: Is there some direct measure of the availability of letters of credit? Problems in the shipping industry suggest that LoCs are in trouble, but is there some index that actually tracks the total volume of LoCs over time? Is it really true that no one wants to accept anyone else's LoCs anymore, or is this more rumor than fact? Anybody know of any pointers to hard evidence on this score?

POSTSCRIPT: As long as we're at it, how about some measure of total global shipping? Is this a gigantic black hole, the way it is for the oil segment of the shipping market, or do we actually have any decent hard data for the total volume of shipping worldwide?

Conservative Publisher's New Book: "If There Had Been No Civil War, the South Would Have Abolished Slavery Peaceably"

| Tue Nov. 25, 2008 2:40 PM EST


Regnery Publishing, the home of such conservative stalwarts as Swift Boat Veteran John O'Neill (who wrote Unfit for Command, which contained falsehoods about John Kerry) and author Jerome Corsi (who co-wrote Unfit for Command and wrote The Obama Nation, which contained falsehoods about Barack Obama) just emailed me to promote one of their newest releases. This time, it's The Politically Incorrect Guide to The Civil War, which, you guessed it, reveals how "conventional 'wisdom' about the Civil War, slavery, and states' rights has been hijacked by Northeast liberals." (Update: I just noticed that the book's cover, pictured to the right, advertises an "Afterword by Jefferson Davis.") Among the book's claims: "How the Confederate States of America might have helped the Allies win World War I sooner," and, of course, "How, if there had been no Civil War, the South would have abolished slavery peaceably."

I know it's probably just because I suffer from the "liberal self-hatred that vilifies America's greatest heroes," but I find the idea of the slave states voluntarily giving up their slaves to be really, really dumb. The Southern states seceded largely because they didn't want to be ruled by Lincoln, who had argued against expanding slavery into new territories. The Confederate constitution says, "No bill of attainder, ex post facto law, or law denying or impairing the right of property in negro slaves shall be passed." But in case you don't believe me, I asked retired army Lt. Colonel Robert Mackey, author of The UnCivil War and bona fide Civil War geek. Dr. Mackey, a combat veteran who was Assistant Professor of Military History at the U.S. Military Academy at West Point, says it's "a heaping pile of bulls**t" and offers up a few reasons why:

The Dems' Charlie Rangel Problem

| Tue Nov. 25, 2008 2:19 PM EST

Congressional Democrats have a serious dilemma on their hands. And he goes by the name of Charlie Rangel (D-NY). Since July, the nineteen-term congressman and chairman of the powerful ways and means committee has been fighting for his political life over a series of alleged ethical lapses, ranging from his use of congressional stationary to solicit donations for the Charles B. Rangel Center for Public Service at the City College of New York to his failure to report rental income from his villa in the Dominican Republic. And things just got worse for Rangel. Today, the New York Times reports that he "played a pivotal role" in preserving a tax loophole benefiting an oil drilling company, Nabors Industries, whose chief executive pledged $1 million to the center that was named in Rangel's honor. Rangel and Nabors' CEO Eugene Isenberg have denied that there was any quid pro quo here, but the Times story does not paint a pretty picture. Among other things, it notes, Rangel was at one point firmly against the tax shelter in question before suddenly coming out in favor of leaving the loophole in place—a move that saves "Nabors an estimated tens of millions of dollars annually." And then there's this: "while the issue was before his committee, Mr. Rangel met with Mr. Isenberg and a lobbyist for Nabors and discussed it, on the same morning that the congressman and Mr. Isenberg met to talk about the chief executive's potential support for the Rangel center."

If you're House Speaker Nancy Pelosi (D-Calif.), this news has got to give you pause. Despite the fact that Rangel is already under investigation by the (notoriously timid) House Ethics Committee for his Rangel Center fundraising, among other matters, he recently managed to maintain his grasp on the chairmanship of the ways and means committee. But keeping Rangel in charge of a committee that crafts federal tax policy while he faces serious allegations that he abused his office—and indeed, accusations of his own tax improprieties—doesn't seem like a strategy that's going to bode well for the Democrats, who assumed control of Congress, in part, by promising to crack down on congressional corruption. According to Politico, Rangel's clout has been muted somewhat in recent months, and Pelosi "has shown ample willingness to intervene directly in his committee's affairs." That said, Rangel's ability to weather this current storm should not be underestimated. After all, he didn't maneuver himself into one of the most powerful perches in Congress by being anything less than a shrewd political operator.

More Geithner

| Tue Nov. 25, 2008 2:03 PM EST

MORE GEITHNER....Dan Drezner reinflates the Tim Geithner bubble:

If Tim Geithner weren't so nice, he would probably be insufferable right now....This is a good thing too, because one could forgive Geithner right now if his head swelled just a little bit. The Dow Jones Industrial Average shot up five hundred points on Friday as word of his appointment leaked. The Dow jumped close to another four hundred points yesterday after Obama officially introduced him. One has to wonder if, sometime this week, when Geithner's wife asks him to do the dishes, he will be tempted to respond, "Have you caused the Dow to jump by more than ten percent? I didn't think so!"

But the real question is: who will Geithner bail out for Thanksgiving? Yet another turkey?

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Public Service

| Tue Nov. 25, 2008 1:52 PM EST

PUBLIC SERVICE....In the New York Times today, David Kocieniewski tells us the story of the Charles B. Rangel School of Public Service at City College of New York. The school was having trouble raising money, so in the summer of 2006 a friend of Rangel's, Manhattan district attorney Robert Morgenthau, suggested that he hit up Eugene Isenberg, CEO of Nabors Industries.

Isenberg, unsurprisingly, was open to the idea of helping out the future chairman of the House Ways and Means Committee. Nabors Industries, you see, was one of the companies that had rushed to reincorporate offshore in 2002 even though they knew legislation was in progress that would retroactively prevent them from doing so. Rangel, who loudly blasted the companies who were moving offshore, favored the anti-Nabors legislation, but Republicans eventually killed it and Nabors retained its tax haven.

Fast forward to 2007, and the same legislation was introduced again. This time, though, Rangel opposed it:

On Feb. 12, the day the bill was being marked up by the committee he leads, Mr. Rangel held two discussions at the Carlyle Hotel in Manhattan. First, the congressman sat down for breakfast with Mr. Isenberg and Mr. Morgenthau to further talk about Mr. Isenberg's support for the Rangel center, Mr. Morgenthau said. Mr. Isenberg said that after breakfast, he escorted Mr. Rangel across the room, where the lobbyist for Nabors, Kenneth J. Kies, was waiting.

Over sweet rolls and coffee, Mr. Kies asked Mr. Rangel if he would maintain his opposition to the efforts to take away the company's loophole. Mr. Rangel said he would, Mr. Kies and Mr. Isenberg said in interviews.

.... Eleven days later, a check for $100,000 from Mr. Isenberg was cashed by City College....The next month, Mr. Rangel presided over Ways and Means hearings during which he presented four witnesses who testified that the effort to eliminate the loopholes was bad policy because it was a retroactive tax increase. No testimony was taken from those on the other side, and nothing was offered to explain why Mr. Rangel was now defending Nabors and the other companies.

In their defense, Isenberg committed the money to CCNY before the breakfast with Rangel, and Rangel says that he's philosophically opposed to retroactive tax increases. But this still doesn't look good, does it? As Michael Kinsely likes to say, the real scandal is what's legal.

Job Creation

| Tue Nov. 25, 2008 12:30 PM EST

JOB CREATION....As word of Barack Obama's stimulus package starts making the rounds, conservatives are reviving one of their favorite tropes: that's sure an expensive way to put people to work! Basically, they divide $700 billion by 2.5 million jobs and announce that the cost of the plan is $280,000 per job, a whopping figure in anyone's book. But Mark Thoma does the actual math, and it turns out that the numbers at hand are actually $490 billion and 5.4 million jobs:

If we actually get the 5 million jobs the estimates say we will get, what is the cost per job? It is $490 billion divided by 5,425,000, or $90,323. (Note that by targeting spending to places that have a high employment rate per dollar spent, we may be able to do even better than this.)

But this is GDP per job, it includes wages, rent, interest, and profit, it's not the amount labor takes home. About 70 percent of income goes to labor....If we take 70% of $90,323, we get about $63,000 (actually, $63,226). That's less than a quarter of the $280,000 figure.

Read the whole thing for more. I'm just presenting this as a public service, since this talking point is almost certain to get extensive play on Fox News and elsewhere. Forewarned is forearmed.


| Tue Nov. 25, 2008 12:08 PM EST

FEMA....Via Steve Benen, Al Kamen reports that FEMA may be getting a facelift under Barack Obama:

First off, the likely plan is to break off the agency from the Department of Homeland Security, a move that by itself would help restore the pride that folks at FEMA felt when it was an independent agency.

Second, there's increasing talk that former director James Lee Witt, who took over the then-troubled agency at the start of the Clinton administration and left it eight years later with a much-enhanced reputation, is coming back from retirement to run FEMA for six months to a year, to whip it into shape.

I assume this is one Clinton "retread" that no one will complain too much about?

Dishing on Geithner

| Tue Nov. 25, 2008 11:35 AM EST

DISHING ON GEITHNER....Andrew Ross Sorkin punctures the Tim Geithner bubble today, asking if he's really the financial star he's been portrayed as:

Perhaps what has most people on Wall Street stirring is Mr. Geithner's role in the fall of Lehman. At the time of its bankruptcy, he, along with Mr. Paulson, appeared to be the most vocal in supporting the government's refusal to bail out the firm, according to people involved in various meetings. With hindsight, many in the financial industry blame a deepening of the global financial crisis on the government's decision to let Lehman crumble.

Bloomberg tries to restore some of his luster:

Timothy Geithner was among the first policy makers to shine a light on the unregulated $47 trillion credit-default swap market back in 2005. The New York Federal Reserve president has struggled since then to get dealers to carry out reforms.

...."In classic Tim and New York Fed style, the work has been done behind the scenes, among technocrats, largely by consensus," said Adam Posen, a former Fed official who is now at the Peterson Institute for International Economics in Washington. "The downside is that it takes awhile to get consensus."

Of course, the problem here is that virtually everyone who's qualified to deal with the financial meltdown had at least some role in it while it was happening. And given the speed and ferocity of the meltdown, there probably isn't a person in the country who got every call right during the past year, including Geithner. (And that rather pointedly goes for the kibitzers, too, none of whom got every call right either.)

Anyway, Geithner seems like a pretty good pick, but it never hurts to remember that these guys are human. I don't think Obama could have done much better, but that doesn't mean the guy is a superman.