Fixing the Economy

Megan McArdle is unhappy with how Obama is running the country:

Having defended Obama's candidacy largely on his economic team, I'm having serious buyer's remorse.  Geithner, who is rapidly starting to look like the weakest link, is rattling around by himself in Treasury.  Meanwhile, the administration is clearly prioritized a stimulus package that will not work without fixing the banks over, um, fixing the banking system. Unlike most fiscal conservatives, I'm not mad at him for trying to increase the size of the government; that's, after all, what he got elected promising to do.  But he also promised to be non-partisan and accountable, and the size and composition stimulus package looks like just one more attempt to ram through his ideological agenda without much scrutiny, with the heaviest focus on programs that will be especially hard to cut.

I picked this at random because it's representative of a groundswell of similar complaints.  And I suppose I should be happy with this groundswell since I think it's pretty important that we fix the banks and fix the banking systems.  Still, what exactly do people expect?

Did Obama prioritize the stimulus first?  Of course he did.  It's something that could be passed fairly quickly, and the faster it was passed the faster the money could work its way into the economy.  Fixing the banks is just the opposite.  Even the most optimistic observers don't think the banking system can be repaired any time soon.

There are two aspects to this.  First, what should we do about weak individual banks?  Second, how should the financial regulatory system be reformed?  Neither of them is something that's amenable to a quick fix.

On the first, Geithner announced a plan a few weeks ago, and Wall Street immediately began whining about how vague it was.  At the time, I sort of agreed, but since then I've begun to wonder just what people expected.  That Geithner would walk up to the podium and announce he was seizing Citigroup?  Some magical plan to turn toxic waste into gold?  A trillion dollars to shower on the bankers of America?

But look: there's just no quick solution here.  At least, not one that's practical.  He can't take over banks without some pretty good justification, and the stress tests he announced are the minimum necessary for that justification.  His plan to value toxic waste probably won't work, but that's because probably nothing would work.  And while lots of free money for bankers would be popular with bankers, it ain't gonna happen.

So, yeah, in public he appears to be dithering.  And the rock jawed titans of Wall Street are doing the same thing they always do when things aren't quite going their way: they weep and moan and panic.  It's quite a spectacle.  But honestly, this is something that's going to take months to address at a minimum.  That's just the way it is.  Going into a panic because we're well into his seventh week and Obama hasn't cured the economy is silly.

As for regulatory reform, well, I'd like to hear more about it too.  But that's something that will be the work of years.  And it won't have much immediate effect on the current financial crisis anyway.

So, yeah, Geithner could stand to be a little more reassuring in public, and it would be nice if he could fill empty Treasury positions a little faster, and I'm holding out hope that his stress tests will lead to some dramatic action by mid-Spring.  But all legends to the contrary, FDR didn't fix the world in a hundred days, and the fact that the internet has made everybody even more impatient than usual doesn't mean Obama can fix it that fast either.  I think it's time to chill a bit.

What has Andrew Cuomo done to deserve this disrespect from Bank of America and Merrill Lynch?

As we've previously noted, Cuomo, New York's attorney general, is on the warpath against Bank of America, which swallowed up Merrill Lynch late last year with the help of billions of taxpayer dollars. Cuomo is peeved that Merrill Lynch doled out $3.6 billion in early bonuses even though it knew it was about to lose $15.31 billion in the fourth quarter of 2008. And now Cuomo seems to have caught Merrill's lawyers in a lie. The Wall Street Journal reports:

In a Nov. 24 letter, a lawyer for Merrill Lynch & Co. assured the head of a House committee that "incentive compensation decisions for 2008 have not yet been made," ... But the firm's compensation committee actually voted two weeks earlier to pay bonuses to Merrill employees in December, according to testimony from a Merrill director.

That sure looks like someone's lying. And that's not all. Depositions Cuomo filed with the New York Supreme Court yesterday indicate that, as Cuomo suspected, Merrill didn't even think about reducing its bonus pool when it became apparent that it was going to suffer a steep loss. If Cuomo can continue to paint Merrill and Bank of America as irresponsible, lying scumbags, he'll probably eventually get what he's really after: the names of the employees that the two financial giants made into millionaires last year. The PR cost to B of A from his continued investigation will eventually become greater than the PR cost of releasing the names. But so far, B of A is still holding out on him.

What's Cheaper: Buying Stock or Buying Beer?

Gawker's John Cook has a fun Recessionomics list today answering the newest age-old question: Should you buy a "Baconator" combo meal? ($8.24) Or stock in Wendy's/Arby's Group? ($4.03)

Go here for Cook's illustrated death match comparisons involving beer, boxer shorts, sea scallops, cigarettes, and more.

Over at Rolling Stone's National Affairs blog, Tim Dickinson points out that for less than the price of a Big Mac, you can get three patties of AIG. You can also get several squares of Fannie Mae for less than a roll of toilet paper. (Ironically, stock in toilet paper producer Kimberly-Clark is doing just fine.)

Are stock prices finally low enough to usher in more shareholder activism? Buy enough shares in the Bigs and you can make them progressive from the inside out.

What The Cure Taught Me About Courage

One thing Facebook is good for (other than sucking up your time clicking "ignore" on SuperPokes and Lil' Green Patch requests) is reconnecting with old high school friends, who can either confirm or deny your vague, "did that really happen" memories. The other day an old friend recalled an epic adventure we had involving The Cure, a bus, and bad Mexican food; weirdly enough, it reminded me of some corny but important life lessons.

Just a Little Off the Top

Yesterday Citigroup announced that it had been profitable in January and February and the stock market rejoiced.  Citigroup shares jumped 50%.  But how about their bonds, probably a better measure of what the market really thinks of Citi's chances of surviving?  Answer: not so good.

U.S. bank debt has lost 7.8 percent and yields have jumped to record levels compared with benchmark rates in the past month....The concern among debt holders is reflected in Citigroup’s $789 million outstanding in 7.25 percent subordinated notes due in October 2010, which fell 7 cents today to 70 cents on the dollar and have lost 23.7 cents in the past three weeks.

Italics mine.  70 cents on the dollar, eh?  Basically, this means that Vikram Pandit's cheery memos notwithstanding, the market already figures that either (a) Citi will eventually be forced into some kind of debt-for-equity swap that will slash the value of their claims, or (b) the government will nationalize Citigroup and then decide not to pay off bondholders at par.  This is bad for current bondholders, but Felix Salmon thinks low bond prices will eventually attract the bottom feeders:

Increasingly they're going to start representing significant potential gains for people who are buying at today's levels and hoping to be paid off at par — paid off, that is, essentially by taxpayers. Since those people can be broadly characterized as hedge-fund managers, one can foresee a lot of Congressional pushback if a large number of hedgies start pulling in tens of millions of dollars just by playing the moral hazard trade. Or, to put it another way, it's a lot easier to impose a haircut when a haircut is priced in than when it isn't.

Right.  If hedge funds start buying up Citi's bonds at 70 cents on the dollar, hoping that eventually the bank will be nationalized and its obligations guaranteed by the U.S. government, they've probably got another thing coming.  It's one thing to pay off bondholders who invested years ago in good faith, but quite another to pay off speculators hoping to cash in on a taxpayer bailout.

Still, it's tricky.  After all, how do you tell the speculators apart from the other creditors?  You can't.  So either everyone gets a haircut or no one does.  And if everyone does, nobody quite knows what will happen.  Bottom line: buying Citi bonds at current prices might be a good deal, but only if you have nerves of steel.  Their future is murky indeed.

Ross Douthat

Marc Ambinder reports that the New York Times has hired his Atlantic colleague Ross Douthat as an op-ed columnist.  This is basically to take Bill Kristol's place as their #2 conservative columnist (alongside David Brooks) and it seems like a pretty good choice to me for a couple of reasons.  First, Ross has a fluid, intelligent writing style that's well suited to the 800-word op-ed format.  Second, he fits the post-Bush zeitgeist: he is, at core, a conservative Barack Obama.

What I mean is this: like Obama, he's always careful to acknowledge the arguments of his adversaries and to take them seriously.  Like Obama, he does this overtly and deliberately.  And like Obama, this is mostly for rhetorical effect: both of them use this technique to mask the fact that they rarely change their minds.  They might listen respectfully, but after they're done they go on doing whatever they intended to do in the first place.

This isn't a criticism (I don't change my mind very often either, after all).  In fact, it makes him a more than normally worthy dissenter to the Age of Obama.  His column should make for interesting reading.

Bruno: "F***ing Awesome"

From Ain't It Cool News via Towleroad come the first reviews of Bruno, Sacha Baron Cohen's bigger, badder and oh-so-much-gayer followup to Borat. We've covered Bruno's shenanigans as he terrorized Kansas and punked a former Mossad agent, but apparently those are only the tamest of the antics on display. The movie doesn't come out until July 10 (with the first "official" sneak peak taking place at the upcoming SXSW), but a couple lucky ducks got into early test screenings and sent their thoughts to Ain't It Cool. I hope they're legit, as both reviews were filled with gushing, hyperbolic praise: the first called the film "everything I was hoping for—shocking, jaw-dropping and TOTALLY FUCKING HILARIOUS," while the second managed to quantify Bruno as "10 times sharper, wittier and altogether ballsier" than Borat. Not bad. Apparently the plot revolves around the Austrian fashion reporter character we know and love trying to "make it big":

Yet More Ways to Annoy You

Some joyous news for web surfers today:

The Online Publishers Assn. on Tuesday released several new in-your-face advertising formats designed to be both more obtrusive and interactive.

Twenty-seven top Internet publishers — including the New York Times, CNN, CBS Interactive, ESPN and the Wall Street Journal — say they'll try the supersize ads in an attempt to get the attention of Web surfers who have learned to ignore banners.

....The three new types of ads are the "fixed panel," which looks like part of the page but scrolls up and down as a user does; the "XXL box," in which users can turn pages within the ad; and the "pushdown," which opens to display a larger ad.

In its press release, the OPA optimistically suggests that these stupendous new ads will "help stimulate a renaissance of creative advertising on the Internet."  Maybe so, but I suspect a renaissance of people throwing things at their computer screens is more likely.

But hell, I guess I can't blame them.  I mean, I work for a magazine that relies on web ads for part of its revenue, but I don't care.  I still do everything in my power to block the ads I can and ignore the ones I can't.  I used to unblock ads at motherjones.com, just so I'd know what was going on on my own site, but when our ad server started delivering GE ads that played a soundtrack every time they loaded, I couldn't take it anymore and finally blocked even that.

So I'm part of the problem.  But here's the real question this provokes: does general purpose advertising even work?  It's pretty clear that targeted ads do well: Google ads that are keyed to search queries, for example, or ads in specialty magazines with an audience that's genuinely eager to see what likeminded merchants have to offer.  But how about non-targeted stuff?

In the web world, we have strong evidence that it works poorly: the clickthrough rate on web banner ads is famously anemic.  So what makes us think that nontargeted TV or newspaper ads work?  There are ways to measure this stuff — the old reader response cards in magazines, post-purchase product surveys ("Where did you hear about Cranberry Pepsi Lite?"), and so forth — but they don't work all that well.  For the most part, marketeers do their best to target and then just pray that the rest of their advertising budget is doing some good too.

But in the web we finally have a medium where we can actually quantify the impact of nontargeted ads, and it turns out to be pretty low.  Everyone takes this to be a sign that the web is unusually hostile territory for general purpose advertising, but what if that's the wrong lesson?  Maybe the web is actually typical, and these ads don't really work very well anywhere else either.  Maybe.

A Brief Interview with Ray LaHood

Walking to Wednesday's (mostly uneventful) White House press briefing, I spotted Transportation Secretary Ray LaHood heading from the East Wing toward the Old Executive Office Building. He was by himself. I asked if he had a moment to talk, and he graciously said yes.

I started with substance: light rail. There's money in the stimulus bill for light rail projects, and Prsident Barack Obama has referred to this when pitching the stimulus package. But the White House has not placed much emphasis on this initiative. In general, Obama has (so far) not fully designed or promoted his economic recovery initiative as a bold move to revitalize (and even re-imagine) America's infrastructure. So I asked LaHood how his department would be spending the light-rail money in the stimulus legislation: would it disseminate it widely or use it to move ahead with a few high-profile projects that could draw plenty of public attention? "We will spread it around," he said, noting the stimulus contains about $1 billion for light rail. His department, he said, has a list of about a dozen projects that it will soon send to the White House. Presumably, the White House will weigh in on which project gets what money.

"There's always a fixation on building roads at the Transportation Department," I said, asking "Does the current crisis give you a chance to change that somewhat?"

"Now is the time to change direction," said LaHood, who was a Republican member of the House of Representatives before joining Obama's Cabinet. But, then, he didn't say how fast or--more important--how much.

Next, I turned to politics. "Are you disappointed by your fellow Republicans on the Hill who have been trying to block the president's programs?" He paused for a moment. It looked as if he would say something. He opened his mouth. Then he shut it. A look of reconsideration crossed his face. "I shouldn't comment," he said. "I'm part of the Obama team now. I'm out of the political game."

"But aren't you just a little bit disappointed?" I asked, as coaxingly as possible. "Just a little?" Another pause. "I shouldn't say," he replied. He said goodbye and walked off. And I thought: should I have asked him about Rush Limbaugh?

Chart of the Day - 3.11.2009

According to Gallup, Congress's approval rating went up 12 points last month and another 8 points this month.  At this rate, they might even hit 50% sometime this spring!  Apparently the American public likes the idea of better healthcare for kids, fighting discrimination against women, and stimulus spending to slow the course of the financial meltdown.

It's also worth noting that although most of the increase is due to Democrats being happier with Congress than in the past (no surprise), approval among independents has doubled.  Republicans are still unhappy, of course, but no more so than in the past.  Apparently all that talk radio bloviating about incipient socialism hasn't had much effect even on conservatives.