Ok, maybe flop is a bit of an overstatement, but in Al Franken's much awaited debut on the Senate Judiciary Committee, the no-longer-funny comedian gave one of the worst performances of his life yesterday. Looking nervous, Franken delivered opening remarks at the confirmation hearings for Sonia Sotomayor, tripping over his lines in a way he never seemed to on his other live performances. He did manage to pay tribute to the good citizens of Duluth, a sign that he's got the important parts of this senatorial job down. You can judge his performance for yourself here:

Addicted to Debt

The world has become addicted to debt.  Wall Street loves it because you can play far more interesting games with debt than you can with equities.  Consumers love it because it makes up for stagnant wages.  Investors love it because it gooses their returns.

As a result, there's way too much of it.  So how do we cut it down to size?  Felix Salmon suggests that although massive regulatory interventions are probably doomed to failure, we could, at a minimum, stop subsidizing debt by getting rid of its tax advantages:

At the moment, companies pay tax not on earnings before interest but earnings after interest — that gives them an incentive to lever up as much as possible. Last year, Steve Waldman had a great post entitled “Eliminate the business interest tax deduction“; it's well worth (re)reading in light of what has happened since.

In general the multi-trillion-dollar edifice of debt financing is predicated on all manner of artificial tax advantages which are given both to borrowers and to fixed-income investors; tax-free municipal bonds and mortgage-interest tax relief are just two of the most egregious examples here.

Forcibly converting mortgages into some kind of shared-equity arrangement where banks get direct exposure to the house price is fraught with difficulty; abolishing mortgage-interest tax relief, however, is easy. And it raises much-needed money for the government as well.

I wouldn't exactly agree that eliminating the mortgage interest tax deduction is easy, but point taken.  It's at least within the realm of imagination.

In the past, debt has received preferential tax treatment because it was thought to be good for the economy: it lowered hurdle rates for businesses and encouraged capital-intensive expansions; it gave a boost to the housing industry and encouraged home ownership; and it increased purchasing power and encouraged consumer spending. But that was back in the dark ages, when debt was relatively more expensive than it is now.  The financial world has changed a lot in the past 50 years, and debt is now far cheaper, far more easily available, far more efficiently hedged, and far more broadly (and deeply) traded than it was in the immediate postwar era.  Its tax advantage might have been justifiable in the past, but it isn't anymore.  We should get rid of it.

(We won't, of course, any more than we'll get rid of agricultural payments or road-building subsidies.  If you scratch most free market capitalists you'll find a socialist just below the surface.  But we can still dream.)

Sub-prime lender CIT Group is in trouble and asking the Feds for help. Former chief economist for the IMF and current Baseline Scenario blogger Simon Johnson predicts that, on balance, a bailout is probably unlikely. Why?

CIT’s bailout possibilities are now in the realm of political choice... [T]he lack of strong connections between CIT’s CEO and senior Treasury officials looks like a weakness.  CIT seems to sit at the edge of the charmed circle, with regard to meetings, shared social engagements, and intellectual entanglements.  This is a close call, but I think it is just on the outside of the circle – in the sense that with the overall financial market situation more stable, the GM bankruptcy well-managed relative to expectations, and other credit support programs still in place, the balance of official opinion will tilt against CIT.

So then it all comes down to political donations.  At least in terms of what is in the public record, Mr. Peek has not been overly generous, but he did give money to John McCain – and not to any Democrats.  If this is in fact the limit of his recent contributions, I think you know the outcome.

So that's how they make these decisions. I thought it was something like this:

Here's an interesting healthcare tidbit.  AEI's Andrew Biggs presents us with this chart showing increased costs of human healthcare compared to increased costs of veterinary healthcare:

The point here is supposed to be that even in an area of healthcare where there's no insurance and we have to pay everything out of pocket, costs are still skyrocketing.  So maybe having "skin in the game" doesn't really have much effect after all.

Which is interesting — except for one thing: it might not be true.  As John Schwenkler points out, a big part of the increase is accounted for by a large increases in the number of pets.  We aren't necessarily spending a lot more per pet, we just have more pets.  In fact, he points to some market research that suggests cats have actually gotten cheaper over the years: we spent $85 per cat in 2001 but only $81 in 2007.  (Dogs, conversely have gotten a little more expensive, but only by 11%, not the 30-40% the chart suggests.)

So which data is correct?  Beats me.  But considering the high-pressure sales job vets have adopted in recent years, I have a hard time believing that cat expenditures have gone down.  After all, we didn't use to get their teeth cleaned or spend a couple hundred bucks a year on fancy flea/heartworm/hookworm/etc. goop.  Now we do.  Caveat emptor.

Tuesday news of the Blue Marble variety, from around our site:

Trip down memory lane: Or lack thereof. Check out our drug-war timeline.

Is there a computer in the house? Sure, digitizing medical records will make doctors' jobs a lot easier. But is the Obama administration doing it all wrong?

Cheese, please: Domino's Pizza's new sidewalk ad campaign: Green or grotesque?

Boringest babysitter ever: GOP House reps say never mind a bill that would support new parents, why not just park the kids in front of a Baby Einstein DVD?

Doha drag: Likelihood of progress on agricultural issues in trade talks, given the reluctance of rich countries to reduce subsidies on farmed products? Not great, says Kevin Drum.

 

Death Spiral Watch

A friend emails:

Um, did Sarah Palin just write a whole editorial about cap and trade and not mention global warming once?

Yes!  Yes she did!  And the Washington Post printed it!  The Republican death spiral, the Washington Post death spiral, and the Sarah Palin death spiral continue apace.

A few days ago I described Matt Taibbi's recent Rolling Stone piece about Goldman Sachs as "terrible."  And it was!  He made one outrageous assertion after another without bothering to back any of them up.  He flitted from idea to idea without developing any of them.  The whole piece was disjointed and embarrassing.

Except — it turns out there was a reason for that: the morons at Rolling Stone hadn't actually posted Taibbi's article.  They had only posted a short series of excerpts.  I would have known that if I'd read the introductory material very carefully, but who the hell does that?  I didn't.  I just read what they posted, came away shaking my head, and panned it.

Well, I've now the read the entire piece, and I apologize.  (To Taibbi, that is, not the morons at Rolling Stone, who should have either posted the whole thing or done nothing at all.)  It's a very good takedown of the modern financial industry and well worth reading.  There are some bits here and there that I'm not sure Taibbi gets quite right, and I do think that he made a mistake in casting Goldman Sachs as the "engineer" of every bubble in the past century rather than merely an unusually big and enthusiastic member of a predatory gang that's been ripping us off for a long time.  This gives the piece a conspiratorial air that allows Goldman to laugh it off instead of being forced to engage with it, and that's too bad.  They — and everyone else on Wall Street — should be forced to engage with it.

Beyond that, there are undoubtedly some mistakes in the piece, as well as places where Taibbi goes unnecessarily over the top.  I'm still not sold on carbon permits being the next big bubble, for example.  But those are quibbles.  Overall it's a striking portait of an industry — not just a single company — of almost unbounded greed and recklessness.  Worth reading.

Usually when people complain that the make-up of the Senate gives small, sparsely populated states too much power, they're thinking about Wyoming. But this week, with the Senate Judiciary Committee running the Sotomayor confirmation hearings, that dynamic has changed a bit. The Uptake, an outfit that's been streaming the hearings live through our website, has come up with a nice map to demonstrate the regional powerhouses in the confirmation hearing.

The obvious conclusion: Cheeseheads rule. Both senators from Wisconsin (Feingold and Kohl) are on the committee, as are both senators from Minnesota (Franken and Klobuchar), giving those states a big voice in how the hearings proceed and also, their ultimate outcome. Who knew Al Franken would end up such a player after only five days on the job?

Good news today. NOAA published a final rule that will go into effect 12 August prohibiting the harvesting of the shrimplike invertebrates known as krill off California, Oregon, and Washington.

The states themselves already have regulations prohibiting a krill harvest within three miles of their coasts. But, until now, no federal restriction protected the Exclusive Economic Zone—between three and 200 miles out.

Interestingly, there is no commercial fishery for krill in these waters. Today's rule is a rare instance of foresight in fisheries management, designed to preserve the foundation of a healthy marine foodweb in the California Current ecosystem, including its five National Marine Sanctuaries.

Krill are vitally important as primary consumers in this ecosystem, feeding on the primary producers:the microscopic phytoplankton that use the energy of sunlight to make life from nonlife.

Numerous commercially important fish feed on krill, including salmon, rockfish, squid, sardine, mackerel and flatfish. Many endangered and threatened species forage on krill, including blue whales, humpback whales, and a variety of seabirds, including Sooty Shearwaters, Marbled Murrelets, and Common Murres.

This krill ban was originally proposed by the National Marine Sanctuary Program and grew from there to include all West Coast waters. The plan is to prevent a commercial krill fishery like the ones that have already taken root in Antarctica, Japan, and off Canada's Pacific coast. The idea being that fishing the primary consumers of the foodweb is like eating your seed corn.

Most wild krill fished in foodwebs elsewhere in the world are used to feed aquacultured marine life and terrestrial livestock, as fish bait, and for pet foods.

That's like feeding your seed corn to your milk cow. Or your goldfish.
 

Quote of the Day

From Mike O'Hare, after visiting the Monterey Bay Aquarium over the weekend:

Cannery Row has become at least thirty percent more schlocky and touristy over the last decade, but this is not necessarily a bad thing: I loved Coney Island back in the day and there's a place in the world for penny-squashing machines.

What with inflation and all, shouldn't these now be quarter squashing machines?