| Wed Nov. 19, 2008 12:39 PM EST

REGULATION....Apparently there was a panel discussion on the financial crisis last night, and both Matt and Ezra report that the main takeaway was not to worry too much about trying to cure the precise causes of our current catastrophe. See, we've learned our lessons and the next catastrophe will almost certainly be caused by something different. Better instead to focus on broader regulations aimed at things like limiting leverage and taming asset bubbles slightly.

(That "slightly" is an important qualifier. There's plenty of legitimate controversy over whether the Fed can identify asset bubbles at all, and even if they can, whether the cure is worse than the disease. My own take is that I'll bet we can identify the worst asset bubbles if we make it a priority, and can probably do it early enough to provide mild corrections. That might not sound like much, but if the housing bubble had peaked out even 20% lower than it did in real life, I'll bet that would have made a noticeable difference in the severity of the ensuing financial meltdown. We still would have had a bubble, and its bursting still would have caused huge problems, but huge problems are still easier to deal with than catastrophic problems.)

In any case, I think Ezra is properly skeptical of this advice, since bankers will in fact make the exact same mistakes they made this time around if we allow them to. It'll take 20 years, but they'll do it. Here in Southern California, just to provide an example close to home, the fact that we had a disastrous housing bubble in the late 80s didn't put any brakes on the housing bubble in the early 2000s. In fact, the housing bubble was worse here than just about any other place in the country. It took us a grand total of 15 years to go from the peak of one housing bubble to the next.

Still, broad regulation is probably better. Leverage is obviously a common factor in lots of financial meltdowns and pretty clearly needs to be addressed seriously this time around — and that includes hedge funds, which have collectively grown big enough that they really can't be left to their own devices any longer. The CDS market allows risk to be laid off and spread around, which is good, but we probably ought to give a little more thought to whether it's really such a good thing when it happens on a gigantic scale. Perhaps forcing loan originators and bond underwriters, who (supposedly) understand their customers better than anyone, to retain more of their own risk acts as a natural brake on irrational exuberance. Transparency in financial transactions is another obvious target for regulators: more is almost always better. Finally, the obvious conflict of interest in rating agency behavior might or might not have been a major contributor to our current problems, but it was certainly part of the problem, and some modest regulations on that score couldn't hurt. David Zetland suggests that setting standard fees for rating financial instruments and then adjusting those fees over time based on their accuracy would be a good place to start.

What else? I wonder if anyone is seriously suggesting any macro solutions to what happened? If, for example, the global savings glut (or investment drought, depending on your view of the matter) really did produce such a tidal wave of idle cash that it was going to find stupid places to go no matter what regulations we had in place, then what's the answer to that? Is there one? Or should that simply be considered a specialized example of an asset bubble itself?

Too many questions, not enough answers. I'd sure like to hear more about this stuff from the econosphere, though. It would be nice for us laymen to start hearing about the issues and taking part in the debate before the conventional wisdom gets set too far in stone and there's nothing much we can do about it.

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| Wed Nov. 19, 2008 11:17 AM EST

DEFLATION....Economists have been warning about the possibility of deflation for the past several months, and it looks like we might finally be getting it:

The Consumer Price Index, a key measure of how much Americans spend on groceries, clothing, entertainment and other goods and services, fell by 1 percent in October....Energy prices led the decline, falling 8.6 percent in October as the price of gasoline continued its steady slide from highs of more than $4 a gallon.

....In Wednesday's report, even excluding volatile food and energy prices, prices dropped 0.1 percent in October. It was the first such decline in more than two decades and raises the specter of deflation as the economy contracts and demand for goods and services across the board plunges.

"This month it's more than slowing, it's outright contraction," [James] O'Sullivan said. "And yes, if you extrapolate that, it's deflation."

It's only 0.1% and it's only for one month — so far. But that's the biggest drop since 1982, and the drop in the primary CPI number is the biggest since 1947, yet another indication that our current recession is on track to be the worst we've suffered since World War II. More stimulus, please.

Obama's First Drama: Hillary Clinton

| Wed Nov. 19, 2008 10:33 AM EST

obama_clinton_faces250x200.jpg I was agnostic on the matter of Hillary Clinton's possible appointment as secretary of state--until last night.

If Barack Obama, the president-elect, wanted to pull a Team of Rivals play, that had seemed fine to me. And placing Clinton in Foggy Bottom would remove her from the dicey business of passing health care reform. Would it unite the party? Well, judging from the election results, the party is pretty darn united already. Despite the griping of a few Hillaryites at the Democratic convention, her voters certainly swung behind Obama in the general election (see Pennsylvania), after HRC and WJC campaigned for BHO in the fall. Unless an explicit deal was made between Obama and Hillary Clinton, it did not seem that Obama, after bypassing her for veep, had to appoint her anything for the party's sake. Still, if Obama and his savvy band of advisers thought that handing her one of the best jobs in the Cabinet would generate political benefits they could use to advance their agenda, I, as a non-fan of Hillary Clinton, was willing to say, okay--for what that was worth.

But then this happened: the presidential transition of no-drama Obama became infected by the never-ending soap opera of the Clintons. And it really is time to turn that program off. There are plenty of policy and political reasons for a progressive not to fancy Hillary. She served on the Wal-Mart board when the mega-firm was fighting unions; she screwed up health care reform for almost a generation; she voted wrong on the Iraq war and then refused to acknowledge she had erred. But, worst of all, as the cliché goes, with the Clintons, it always does seem to be about the Clintons.

So we've had a week of will-she-or-won't-she and what-about-him. Couldn't this have been handled with a little more grace? Maybe not, since it involves the Clintons.

I don't know how the Obama camp approached the issue. But before Obama met last week with Hillary to talk about this, his team should have done a pre-vetting of Bill. And then Obama, at this meeting, ought to have said something like this to her:

Dick Cheney Is Not Going to Prison

| Wed Nov. 19, 2008 10:32 AM EST

Dick Cheney and Alberto Gonzales have been indicted by a grand jury for illegal detention practices! Time for some celebratory terrorist fist jabs!

Not so fast, champ. Cheney and Gonzales have been indicted in a South Texas county, and it has nothing to do with Gitmo, Abu Ghraib, or black sites. Cheney was indicted because he invests in the Vanguard Group, which holds financial interests in private prison companies that run holding pens for illegal immigrants in South Texas. (This is a booming business in the Lone Star state; we've written about it before.) Gonzales was indicted because he allegedly used his position while in office to stop a 2006 investigation into abuses at one of these privately-run prisons.

Conditions at these places are pretty awful, but that doesn't mean Cheney and Gonzales should somehow end up in jail. The always-delightful Will Bunch gives us all the reasons:

Dick Cheney is not going to jail, not any time soon, at least, and not because of the bizarre report that the vice president of the United States has been indicted in a small, obscure county deep in the heart of South Texas in a scandal over federal prison and detention abuses there. Aside from the obvious fact that a Willacy County, Texas, grand jury lacks authority over federal actions, the indictment of Cheney, former Attorney General Alberto Gonzales and other is not even signed by a judge, and the result of a wacky -- controversial wouldn't do the man justice -- renegade lame duck DA. It's almost not even worth noting that Cheney's alleged tie -- investing his millions in Vanguard mutual funds that are major owners of publicly traded federal prison contractors -- is weak beyond belief; by the grand jury's reasoning, one could surmise that others with Vanguard 401K plans (example: journalists at the Philadelphia Daily News and Inquirer!) could be charged as well.

The lesson? You shouldn't give a law degree to just anybody. This prosecutor and Alberto Gonzales both prove that.

Pioneering Stem Cell Surgery Replaces Woman's Windpipe

| Wed Nov. 19, 2008 10:07 AM EST

Ah, the wonders of science. Check out this story from the NY Times.

A Spanish woman was hospitalized in March with a windpipe so badly damaged by tuberculosis that she was unable to breathe after walking more than a few steps at a time. The only conventional treatment that doctors saw was the removal of her left lung, a dangerous procedure with a high mortality rate.

Instead, a coalition of doctors and scientists from three European countries decided to try a ground-breaking stem cell procedure. They took a three-inch segment of trachea from an organ donor who had died of a cerebral hemorrhage. Over a six-week period, the trachea was stripped of donor cells, which were replaced by stem cells taken from the Spanish woman's bone marrow. After just four days of "seeding" the trachea with these cells, the trachea was used to replace the woman's damaged wind pipe.

Two months after the surgery, tests shows that the woman's lungs and wind pipe are functioning like normal. Her body has not rejected the new organ or reacted negatively in any way.

What's great about the procedure is that it was done using the patient's own stem cells, not embryonic stem cells. Thus, it skirts the controversies about life that commonly surround stem cell work in the United States. With President-elect Obama poised to eliminate many Bush Administration restrictions on stem cell research, pioneering procedures like this one may soon happen in America, and we will all live to be 150.

No Recount in Alaska Senate Race (Probably)

| Wed Nov. 19, 2008 9:45 AM EST

You probably know by now that Anchorage mayor Mark Begich, a Democrat, will be the next senator from Alaska. Ted Stevens (R-Felonies), the longest-serving Republican in the Senate, will now spend his time mulling over legal options.

What you may not know is that a recount is not in the offing. According to Alaska law, if the difference in the vote is less than 0.5 percent, the defeated candidate can request a state-funded recount. With just a couple thousand votes left to count, Begich has 150,728 votes and Stevens has 147,004 votes. That's 47.76 percent to 46.58 percent, a 1.18 percent difference.

Alaska law does allow a recount if the margin is larger than 0.5 percent, but the candidate requesting the recount must cover the expense. No word yet if Stevens is considering it. The AP and the Anchorage Daily News are calling the race over, and the state of Alaska will follow suit this week or the next.

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New Site Update

| Wed Nov. 19, 2008 12:59 AM EST

NEW SITE UPDATE....I think I've mentioned before that we're working on a major redesign of the site (hooray!). We're still a few weeks away from rolling it out, but we're looking for beta testers willing to test drive the new site before the final unveiling. If you'd like to help out, go here and enter your email address. We'll notify you a week or so before the rollout date and provide a URL to poke around on the test site and give us your feedback. All help is much appreciated, since it will help us work out the bugs before we go live. Thanks!

Eric Holder

| Tue Nov. 18, 2008 8:40 PM EST

ERIC HOLDER....I've been scanning a bunch of stuff about Eric Holder, Obama's apparent pick for attorney general, and the conventional wisdom appears to be pretty simple:

  1. He's basically a decent guy: sound views, hard worker, smart, honest, and generally well thought of.

  2. Conservatives are going to try their damnedest to work everyone into a lather over his rather modest involvement in the Marc Rich pardon eight years ago.

From what I can tell, though, conservatives would be smarter to lay off. Holder really does appear to be honest, well briefed, straight shooting, and temperamentally moderate. They're going to get a liberal AG whether they like it or not, and they could do a lot worse than Holder if they somehow manage to torpedo his nomination.

Pizza on Demand

| Tue Nov. 18, 2008 5:44 PM EST

PIZZA ON DEMAND....Via Hit & Run, my cat's pizza company, in partnership with TiVo, engages in some hyperbole:

"This is the first time in history that the 'on-demand' generation will be able to fully experience couch commerce by ordering pizza directly through their television set. You'll see a television ad for Domino's and you'll click 'I want it' through your remote. In about 30 minutes, your pizza will show up at your door."

Oh please. I worked for a video-on-demand company back in 2002, and even then "pizza on demand" was a cliche. It turns out that just about the first thing every shiny new broadband offering offers delivery via your TV. I think the first time was 1994. It never went anywhere, though, because it turned out that ordering pizza by phone isn't really much of a hassle.

But hey — everything old is new again. Maybe this is finally PoD's time. After dozens of tries, it's bound to catch on sometime.

Green Collar Jobs Coming To A State Near You

| Tue Nov. 18, 2008 5:07 PM EST

400px-Sweet_Chestnut_Forest.jpg Climate problems are spawning climate solutions. And each climate solution will ripple throughout the economy in the form of new jobs and new materials. This according to a report that says the US economy is poised to grow big-time in a low-carbon world. Manufacturing Climate Solutions names where the jobs are—a first.

The report comes from Duke University's Center on Globalization, Governance & Competitiveness and assesses five carbon-reducing technologies: LED lighting, high-performance windows, auxiliary power units for long-haul trucks, concentrating solar power, and Super Soil Systems (a new method for treating hog wastes).

The conclusion: Many hidden economic opportunities exist within the supply chains providing parts and labor for all five industries. States that stand to benefit most include Pennsylvania, Ohio, Indiana, North Carolina, New Mexico, Arizona, Nevada and California. The report also includes detailed breakdown of supply chains, with maps highlighting the location of companies best positioned to support green jobs.