"Off With His Head!"

| Fri Oct. 10, 2008 2:28 PM EDT

"OFF WITH HIS HEAD!"....Steve Benen describes the ugliness of the Republican Party's recent rallies and campaign events:

The McCain campaign has deliberately been whipping the angry, far-right Republican base into a frenzy. That includes increasing frequency of "Hussein" references, but it also includes looking the other way while campaign supporters exclaim "treason!," "terrorist!," and "kill him!" during official rallies.

On Wednesday, during a McCain harangue against Obama, one man could be heard yelling, "Off with his head!" On Thursday, Republicans erupted when an unhinged McCain supporter ranted about "socialists taking over our country." Instead of calming them down, McCain said the lunatic was "right."....Slate's John Dickerson described the participants' "bloodthirsty" tone.

The danger here is not mobs of violent Republicans marching through the streets. The danger is that John McCain is setting us up for a repeat of the 90s, an era that conservatives to this day have never been willing to come to grips with. If the looney-bin right decides to treat President Obama as not just an opposition leader, but as a virtual enemy of the state, as they did with Bill Clinton, it's going to be a very, very long eight years. Whatever grownups are left in conservative-land really need to step up to the plate soon before their movement goes even further off the rails than it already is.

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Selling War

| Fri Oct. 10, 2008 1:33 PM EDT

SELLING WAR....Want to learn more about Randy Scheunemann, John McCain's crazy top foreign policy advisor? The one responsible for marketing Ahmed Chalabi and the Iraq war to a gullible media? And tutoring Sarah Palin in neocon nutbaggery? Sure you do. Laura Rozen's got you covered here.

Penguins Threatened in Antarctic, Dying in South America

| Fri Oct. 10, 2008 1:16 PM EDT

penguin-lifecycle.JPGYou'd think that with penguins driving a booming Antarctic tourism industry, there'd be some climate change protection for the little guys. Not so, says a new World Wildlife Fund report. If the world's temperature increases 3.6 degrees Fahrenheit, it will threaten half of emperor penguin breeding grounds, and 75 percent of Adelie penguin colonies. The temperature rise would also likely severely impact krill, a key food source for penguins.

If that weren't bad enough, dead, emaciated, and oil-slicked Magellanic penguins have been washing up on Brazilian beaches. Magellanic penguins live in Argentina, regularly visit Brazil, but not in the numbers or conditions seen this summer. Their lack of body fat is a bad sign that something's seriously amiss in their environment. Many animals are imperiled by global warming, but somehow losing the penguins seems extra depressing.

Photo courtesy Wikipedia Commons.

Trading Derivatives

| Fri Oct. 10, 2008 1:09 PM EDT

TRADING DERIVATIVES....Megan McArdle on the banking crisis:

One of the smarter ideas I've heard for trying to prevent this sort of thing next time around is putting derivatives on exchanges. Most derivatives are traded over the counter, in part because US bankruptcy law encourages it: as I understand it, derivative counterparties don't have to get in line with the others, but can seize any collateral they can get their hands on.

Exchange trading enhances transparency, by making it clear what's out there and roughly who owns it. It also moves the clearing risk to the exchange; while exchanges do fail, they do so much less often than financial firms, and if intervention is needed, they provide a centralized locus for any private or public action.

I've been noodling over a list of regulatory changes that ought to be on the table for the next administration, and this is one of them. Credit default swaps, in particular, should be registered like any other security and traded on public exchanges. This wouldn't make them 100% safe (stock markets have bubbles and busts too, after all), but it would certainly make them a lot safer.

On the other hand, I'd like to hear an argument for even allowing CDOs to exist in the first place, whether they're publicly traded or not. It's one thing to chop up securities into different tranches that appeal to different classes of investors — that's just marketing — but with very rare exceptions the overall yield of such an instrument should be nearly the same as the yield of the underlying securities themselves. A little less, in fact, since you have to factor in additional administrative costs. But the fundamental idea behind modern CDOs is exactly the opposite: not merely that they're providing a bit of convenience or regulatory arbitrage, but that if you bundle up a bunch of securities and then chop them up in specific ways, they'll be magically worth much more than the underlying securities themselves. Much more. But this violates a basic law of economics. We'd prosecute for fraud anyone selling a perpetual motion machine, and I'm not sure why CDOs are really any different. Done properly, the market for CDOs ought to be small and sleepy, barely worth anyone's attention. If it gets non-sleepy, that means it's becoming fraudulent. So maybe it's just not worth having at all?

Needless to say, I have no idea how you'd go about banning a particular class of security. And I suppose it's possible that the underlying problem is with the rating agencies, not the CDO packagers — though real life being what it is, I suspect that's a distinction without a difference.

In any case, I'd like to hear the argument. Why should we allow the sale and marketing of CDOs at all?

George W. Bush: Helping Candidates Lose Election in Other Countries, Too

| Fri Oct. 10, 2008 12:53 PM EDT

Canada's parliamentary elections are coming up shortly, and the majority Conservative party is having a tough time maintaining its lead over the opposition Liberals.

How is the Liberal party making its gains? In part, by tying the prime minister to George W. Bush. Look familiar?

(Via Yglesias)

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Paying the Piper

| Fri Oct. 10, 2008 12:36 PM EDT

PAYING THE PIPER....Matt Yglesias says, sure, people were using their homes as ATM machines during the housing bubble, but it's not as if our political leaders were raising any red flags about it at the time. In fact, just the opposite:

Meanwhile, the broad conservative movement spent a lot of time trying to shout down anyone who worried about rising inequality or stagnant wages by pointing out that the trends looked better if you only examined consumption. In other words, if you ignored the fact that people were maintaining consumption growth by piling on more debt, things looked great! And yet, now somehow things don't look so great....

Obviously, the mere fact that conservative politicians, hacks, and operatives were egging this trend on didn't force anyone to accumulate enormous debts. Plenty of people didn't do so. But the underlying ill here is economic policies that sought to substitute an asset price bubble and innovative credit products for real, broadly-based prosperity.

This deserves a much longer treatment, which I'm not going to attempt right now either. But someone ought to. We usually argue about rising income inequality in moral terms, but there's a practical side to it too: when all the economic growth a country produces goes to a very small class of rich people, stupid things happen. The rich can't possibly consume enough to spend all this money, so they start casting around for something, anything, to do with all the cash they have sloshing around. And since, in an ever more unequal economy that nonetheless preaches ever rising living standards, the poor need payday loans to keep up and the stagnating middle class needs HELOCs, that's where their money goes. It still gets spent, eventually, on things like cars and food and new furniture, because that's what middle class people mostly spend their money on, but instead of being spent directly by people who are earning it, it gets funneled downward to them via increased debt and financial legerdemain that extracts more and more money upward from poor to rich with each cycle.

That's not sustainable. Median income growth produces not just growth, but stable growth for everyone, the rich included. Top end growth, almost by definition, produces unstable, unsustainable growth. Modern economies are driven by consumer spending, and if you want consumer spending to increase consistently you have to increase consumer income. All the financial wizardry in the world will never change that.

Social justice aside, that's why the single most important financial statistic for any modern economy is real median income growth. If you have it, you're in pretty good shape no matter what else is going on. If you don't, you're a banana republic. Guess which one we've become?

A Friday Distraction From Finance Doom

| Fri Oct. 10, 2008 12:07 PM EDT

At The Atlantic:

Casanova's first orgasm, Hitler's famous mustache, Bob Hope's last jokes: for every thing, there is a season. Herewith a compilation of great moments in precocity, endurance, and procrastination, organized instructively by age.

You're welcome.

Old McCain Aides Regret New McCain

| Fri Oct. 10, 2008 12:02 PM EDT

John McCain has had a coterie of advisers that has worked with him, off and on, for his entire political career. John Weaver and Mike Murphy are two such men. Despite the fact that they are not working for McCain's current presidential campaign, they are devoted McCainiacs. And both have become disheartened with the direction the McCain campaign has taken these past few weeks.

Weaver, a man the Washington Post once called McCain's Karl Rove, is quoted in the Politico:

Joe Sixpack

| Fri Oct. 10, 2008 11:38 AM EDT

JOE SIXPACK....David Brooks has a good column today:

Over the past few decades, the Republican Party has driven away people who live in cities, in highly educated regions and on the coasts. This expulsion has had many causes. But the big one is this: Republican political tacticians decided to mobilize their coalition with a form of social class warfare....What had been a disdain for liberal intellectuals slipped into a disdain for the educated class as a whole.

....[Sarah] Palin is smart, politically skilled, courageous and likable. Her convention and debate performances were impressive. But no American politician plays the class-warfare card as constantly as Palin. Nobody so relentlessly divides the world between the "normal Joe Sixpack American" and the coastal elite.

Sure, it would have been nice if Brooks had noticed this a little earlier. And it's not the hardest hitting column on the subject of culture war politics we've ever seen. Still, this stuff isn't easy to write about your own side. It's a pretty decent piece.