Mark To Movement

| Wed Oct. 1, 2008 6:13 PM EDT

MARK TO MOVEMENT....Yesterday the SEC modified mark-to-market accounting rules. I have a question about this, but it's not the one you might think it is. First, though, here's the background.

M2M itself is a simple concept: it means that banks have to value the securities they hold at their actual market price. If those prices plunge, as they have recently, it means the bank's asset base also plunges. This is obviously bad for banks, so it's understandable that bankers don't like M2M.

The alternative is to allow banks to value securities at their face value until they're sold, or to use sophisticated models to project their value upon maturity. The problem is that this allows banks (and corporations like Enron) huge leeway to cook their books and paper over real losses. Eventually, when the check comes due, everything collapses.

Now, there are legitimate arguments about M2M on both sides. In a panic, for example, the market for some securities can become very thin. How can you mark to a market that barely exists? This is especially a problem with complex modern instruments like CDOs, which are all custom built and might end up with a market price of zero if no one wants your particular CDO at this particular instant of time. (Yesterday's SEC action was in response to just this situation.)

In the end, I come down on the side of M2M. Yes, it can cause balance sheet volatility in a turbulent market, but overall it's the most accurate and least exploitable way of truly valuing assets. Allowing model-based games just puts us where Japan was in the 90s, where accounting gimmicks allowed firms to continue to exist like zombies for years even though everyone knew they were really bankrupt. It's better to write down losses honestly and then deal with the fallout than it is to keep desperately hoping that maybe values will return when things turn up.

That said, here's my question: why have movement conservatives suddenly made a fetish out of suspending M2M? I know this isn't unusual: movement wingnuts frequently find obscure topics that they're convinced hold the key to economic salvation. But of all things, why M2M? Even if you think mandating M2M was a mistake in the first place, you can't possibly think that suspending it now, after prices have collapsed, would help anything — can you? Sure, it would technically take some pressure off banks to recapitalize, but it would be such an obvious accounting game that it would simply make investors even more paranoid. Any bank that took advantage of a suspension of M2M to pretty up its balance sheet would surely end up instantly on every investor's permanent shitlist, wouldn't it?

One of my readers suggested that maybe there was a tax angle to M2M that explained this. In other words, the movement folks didn't really care about suspending M2M itself, it was just a stealth method to cut taxes. That doesn't sound right to me (M2M has tax consequences for individuals, but not banks, as far as I know), but maybe I'm missing something. Anyone know?

UPDATE: Just for the record, I should add something. In an email to a friend a few minutes ago I said this: "Despite what I just wrote, I'm hardly dead set against modifying M2M on a temporary basis. If it helps in an emergency, maybe we swallow hard and do it. Just like we're swallowing the bailout. But the idea that this is somehow a positive good, not a temporary and desperate band aid, seems crazy."

I'd need to be talked into suspending M2M, of course, and there are other temporary emergency measures that I could be talked into too. But in any case, let's not fool ourselves into thinking they're anything other than what they are.

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The Duhks: Green Music You Can Dance To

| Wed Oct. 1, 2008 5:00 PM EDT
The Duhks (pronounced "ducks") have a style that's hard to classify: They describe it as a blend of "Gospel, Celtic, Old time, Zydeco, Country, Latin, French-Canadian and sheer Rock & Roll." Sure, the band was nominated for a Grammy in a country music category, but as anyone who has heard them knows, they're hardly boot-in-your-ass CMT stars.

Country or not, one label that applies is "green." As claw-hammer banjo adept Leonard Podolak explained to me after one recent show, even musicians need to pull their environmental weight if we're going to solve our society's sustainability problems.

To that end, the band—which spends 75 percent of their time on the road—has invested in a biodiesel van to reduce their environmental footprint. (Podolak acknowledges that biofuels are not a perfect solution, just the best they can do for now.) The band is also spreading their message through Green Duhks, their sustainability project. Environmentally-minded fans can join the "Flock" and support The Duhks Sustainability Project by purchasing a "very limited edition original art poster" printed with recovered ink on 100% recycled paper.

"We've forgotten what is sacred in this fast paced world," sings Sarah Dugas. "We take, and keep taking, without thinking of what we're given." It's true, and it's not just her sirenic voice that's got me convinced. Here's "Fast Paced World," the title track of The Duhks' latest album:

My New Favorite Streaming Radio Station: Montreal's CISM

| Wed Oct. 1, 2008 4:04 PM EDT

mojo-photo-cism.jpgAllo, le Riff. I just got back from a quick little DJ tour of Canada, eh, and on this jaunt I had the opportunity to play in Montreal for the first time. Turns out Montreal isn't unlike San Francisco, strangely at odds with North America but not quite European, culturally vibrant but chock full of homeless, except there they ask for change in French. In addition to Paul's Boutique and tasty Portuguese grills, one of my happiest Montreal discoveries was CISM/89.3 FM, the radio station of l'Université de Montréal. I'm not sure why it was so good, exactly; perhaps its focus on musique en français works as a kind of limiting factor allowing a wider creative freedom within that zone, or maybe French music in general is just really awesome right now. But there was something uniquely Quebecois about CISM's playlist--with Paris obsessed with the latest fashions in dance music, CISM is a happily grungy alternative, shifting between soaring indie rock, wobbly dancehall, avant-garde electro and bouncy hip-hop. My French is terrible, but the DJs' Quebec accents are strong enough to be amusing even to the uninitiated, which is a little bonus bit of entertainment. Thankfully, the station is actually kind of professional, with some solid production and a good compressed sound. Moreover, if you don't catch the name of that last song, they include archived playlists on their website for your convenience. Of course I wouldn't be telling you this if they didn't have a high-quality online stream: go to their website and click "écouter en direct." Alternately, after the jump, check out some of the Quebecois artists I heard over the course of a couple days' listening.

McCain Campaign Takes the Hard Questions

| Wed Oct. 1, 2008 3:17 PM EDT

Moments ago, Rudy Giuliani took three questions on a McCain campaign conference call for the national press corps.

The first question was about the bailout. It was from a staffer from, a conservative website, but the question itself was not glaringly pro-McCain. Nothing notable.

The second question was from someone named Chuck Pardee. Pardee asserted that Tina Fey and many reporters make their living "embellishing the facts." After criticizing the press for treating Sarah Palin unfairly, Pardee concluded*:

"Do you think embellishing the facts is actually what the concerned voter is after? And specifically, Joe Biden seems to embellish and forget facts just to kind of impress people but when you take Sarah Palin she seems to impress others with her quick study without embellishing the facts. In other words do you think people want a straight shooter or do they want the stuff and fluff?"

Surprisingly, Giuliani said that the American people preferred the straight-shooter and John McCain just so happens to be one. Pardee, by the way, is the "founder and president" of He has donated the maximum $2,300 to McCain. It's a shock he didn't ask a tougher question. (And if you're wondering, yes, the McCain campaign knows the affiliations of reporters before they are permitted to ask a question on these conference calls.)

The third and final question came from a woman named Sherry Riggs (sp?). Her affiliation was not announced. She took exception to Giuliani's claim from earlier in the call that Obama had never managed a budget. A hard-hitting question? Not really. Riggs insisted that Obama had indeed managed a budget "with [William] Ayers" when they sat on a board together years ago. According to Riggs, Obama "always spent the money on educational programs that were socialistic in their agenda or their genre."* And, in a real shock, Obama apparently had a $450 billion treasure chest to work with. That seemed a bit high to me, but I'm sure the McCain campaign would only allow legitimate professionals to ask questions on these calls.

Oh, and by the way, Giuliani agreed that more scrutiny ought to be applied to Obama's "hidden" history with Ayers. And with that, the call ended.

* Questions updated with help from the Huffington Post.

Hugh Hewitt and the Department of Caricatures

| Wed Oct. 1, 2008 2:44 PM EDT

hugh_hewitt.jpg Folks on the interwebs are making fun of the questions right wing blogger and talk show host Hugh Hewitt recently put to Sarah Palin. They are the softest of softballs — they make Sean Hannity look like Edward R. Murrow. You can check them out here.

I want to highlight this one in particular:

"You're pro-life, and how much of the virulent opposition to you on the left do you attribute to your pro-life position, and maybe even to the birth of, your decision, your and Todd's decision to have Trig?"

That's right. Hugh Hewitt think the left opposes Sarah Palin because she decided to give birth to a child with Down Syndrome. Not because she knows nothing about foreign affairs while we're engaged in two wars. Not because she has nothing coherent to say about the government bailout of Wall Street as we face a dire economic crisis. Not because of her retrograde views on science and books. Not because she undermines every feminist accomplishment Hillary Clinton fought for earlier this election season.

The left opposes Sarah Palin because she gave birth to a baby with Down Syndrome. Just think about the misconceptions about the left that need to be in place for someone to make that claim. The left either hates infants with disabilities, or it hates women who refuse to abort unborn children with disabilities. Or it wants to jack up some kind of karmic abortion counter as high as possible and is disappointed when it misses an opportunity.

Has Hugh Hewitt ever met a Democrat?

Debate Fundraising

| Wed Oct. 1, 2008 1:59 PM EDT

DEBATE FUNDRAISING....Tomorrow is another debate, and you know what that means. Fundraising! We can make do with a lot less than $700 billion, but good journalism still costs a lot of money and we could use your help.

So if you can spare a few dollars, hop on over to our fundraising page, leave a donation, and then download our debate drinking game. Believe me, if you thought you needed it for McCain-Obama, you're really going to need it for Palin-Biden. I predict many alcoholic stupors in houses around the country tomorrow night.

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On NPR, McCain Exaggerates Past Relationship with Palin

| Wed Oct. 1, 2008 1:30 PM EDT

Is John McCain exaggerating his past relationship with Sarah Palin?

On Wednesday, NPR's Steve Inskeep interviewed McCain, and he started the session with questions about McCain's running mate, Governor Sarah Palin. Noting that Palin had repeatedly pointed to Alaska's proximity to Russia, Inskeep asked what that adds to her foreign policy qualifications. McCain referred to "the fact that they have had certain relationships." Presumably, by "they" he meant Alaska and Russia, but he did not specify what these "relationships" entailed. And Inskeep did not ask him to. (In her interview with Katie Couric, Palin referred to trade missions between her state and Russia--activity which apparently did not involve her.) McCain then changed the subject and maintained that Palin has great expertise on energy issues, inelegantly remarking, "She has oversighted the natural gas and oil and natural resources of the state of Alaska."

Then came a dramatic statement. Inskeep asked, "Is there an occasion when you can imagine turning to Gov. Palin for advice on a foreign policy crisis." McCain replied,

I've turned to her advice many times in the past.

Many times in the past? According to the McCain campaign, McCain first met Palin in February at a Washington meeting of the National Governors Association. Here's how McCain's own campaign on August 29 described the interactions between the two:

Quote of the Day - 10.01.08

| Wed Oct. 1, 2008 1:27 PM EDT

QUOTE OF THE DAY....From Brad DeLong, making the same point about Henry Paulson that I did yesterday, but much more colorfully:

My belief is that if Paulson were to stay on he would treat undercapitalized banks like a Goldman-Sachs honcho treats counterparties in trouble: strip them of everything and send them naked into the blizzard to live or die on their own — that's what he and Bernanke have done to the preferred and common shareholders of Freddie, Fannie, AIG, WaMu, Wachovia, Bear-Stearns, Lehman, and to the bondholders and counterparties of Lehman...

It's worth noting that when Paulson submitted the initial 3-page bailout bill that gave him czarlike authority to do anything he wanted with his $700 billion, it was a huge tactical mistake. He was treating Congress the way he'd treat a Wall Street adversary, and that was a very bad move. But it doesn't mean that he wanted unfettered authority to make sweetheart deals. It's actually more likely that he wanted unfettered authority to rape and pillage. Nor does it mean he wouldn't have demanded equity stakes in the companies he bailed out. He demanded 80% of AIG, after all, and no one forced him to do that.

But it was still a very, very bad misjudgment. Hopefully he's learned from his mistake.

Palin Knows How To Debate

| Wed Oct. 1, 2008 1:22 PM EDT

Sarah Palin's Katie Couric interviews have made her look like a goofball, but maybe that was the idea. Noodling around with the media certainly has depressed expectations for her performance tomorrow night in the debate with Joe Biden, but perhaps the campaign was hoping to downplay the fact that the former TV sportscaster, according to the Wall Street Journal, is a damn good debater. During the Alaska gubernatorial debates in 2006, Palin trounced her opponents with her folksy nature, which trumped her utter lack of specific policy knowledge. The Journal says:

"her métier was projecting winsomeness -- making a virtue of not knowing as much about the minutiae of state government because, for most of her adulthood, she was immersed in small-town life and raising a family. The candidates she squared off against, and the reporters who posed questions in several debates, recall that she related high gas prices to the difficulties her family had buying a car. She explained that she was in tune with environmentalists because she named a daughter, Bristol, for Alaska's Bristol Bay. She demonstrated her affinity for Native American culture by citing the teachings of her husband's Yu'pik Eskimo grandparent. "

The old guys at the table didn't have a chance. You can watch the video clips here and decide whether Biden is in big trouble.

Debate Impressions

| Wed Oct. 1, 2008 1:13 PM EDT

DEBATE IMPRESSIONS....From the latest Pew poll, John McCain doesn't seem to have done well in the first debate. The good news for both candidates is that the top impression they left was a positive one: 50 respondees thought Obama was "confident" and 61 thought McCain was "experienced." The bad news for McCain is that noticeable minorities also thought he was old, condescending, aggressive, and angry. Obama, by contrast, left audiences with only two negative impressions.

Easy come, easy go. That's the price you pay for acting like a jerk, I guess. In other Pew news, Obama's stock has gone up almost across the board. Not only does he lead McCain in their general election polling by seven points, but he's improved his standing in the areas of crisis judgment, personal qualifications, and handling the economy. McCain has dropped in all three areas.

UPDATE: The "Impressions" part of the Pew survey measured raw numbers, not percentages. I've corrected the text to reflect this.