Blogs

Bonuses

| Thu Dec. 4, 2008 12:48 PM EST

BONUSES....Robert Rubin has apparently told the Citigroup board that all of them should forego their bonuses this year. Ezra Klein asks, what bonuses?

Am I missing the point of bonuses? I always understood them to be tied to performance, either that of the individuals or that of the company. But the company almost went bankrupt this year and the executives demonstrated themselves almost cosmically hapless. If they were going to get bonuses, then what could the term possibly mean? Bonus for what? A working cardiovascular system?

Silly boy. You expect these titans of risk to take an actual risk with their own pay? That's not how it works in corporate America. When the stock market is skyrocketing, everyone gets stock options. When it's tanking, suddenly everyone gets religion and takes their comp in cash and perks. As for bonuses, the range of payout is almost never the theoretical 0-100%. In reality, it's more like 70-95% for the range of reasonably conceivable outcomes. If your company goes completely bankrupt, that might go down to 60%. Welcome to Wall Street.

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No More Science

| Thu Dec. 4, 2008 12:22 PM EST

NO MORE SCIENCE....From CJR:CNN, the Cable News Network, announced yesterday that it will cut its entire science, technology, and environment news staff, including Miles O'Brien, its chief technology and environment correspondent, as well as six executive producers. Mediabistro's TVNewser broke the story.

"We want to integrate environmental, science and technology reporting into the general editorial structure rather than have a stand alone unit," said CNN spokesperson Barbara Levin. "Now that the bulk of our environmental coverage is being offered through the Planet in Peril franchise, which is produced by the Anderson Cooper 360 program, there is no need for a separate unit."I can't say that I'm shocked by this or anything, but it's unfortunate. Environmental reporting, whether produced by Anderson Cooper or not, could use more reporters, not fewer, and science reporting in general is likely to become more important now that we have a president waiting in the wings who doesn't think of it as just another obstacle to be overcome on his way to dismantling the regulation of the moment. Disappointing news.

Ileana Ros-Lehtinen Is Made of Steel

| Thu Dec. 4, 2008 11:50 AM EST

Guess who'll be joining us in the unemployment lines? This South Florida rep who hung up on Obama, not once, but twice. Then she hung up on Rahm Emanuel. Presumably before he could curse her and the horse she rode in on.

Tough chick. She wasn't getting punk'd like Palin and she's got the best Barack anecdote of all to boot. Finally, the Prez had to get one of her homies to call and convince her to stop hurting his ear drums. But of course, our Negro Cary Grant remains too cool for school; he ain't mad at her.

Now, all I want to know is why he was calling her.

Seriously Bad News Week for KBR

| Thu Dec. 4, 2008 11:31 AM EST

Yesterday, we mentioned that a KBR subcontractor is storing 1,000 workers in a warehouse in Baghdad. Today, there's this:

The lawsuit also accuses KBR of shipping ice in mortuary trucks that "still had traces of body fluids and putrefied remains in them when they were loaded with ice. This ice was served to U.S. forces."

If you think that's bad, read the full story at Army Times. There's more, and it's all horrifying.

How Long Will the Recession Last?

| Wed Dec. 3, 2008 10:33 PM EST

HOW LONG WILL THE RECESSION LAST?....I don't know. But I was noodling about this and thinking that since the housing bubble is at the core of all our problems, it's unlikely the economy will turn up before the housing market hits bottom. So when will that be?

Based on historical price-to-income ratios, Calculated Risk suggested a few days ago that it would bottom out by Q3 of next year, or maybe a little later. But extending CR's chart and assuming the market bottoms gradually, rather than sharply, it looks to me like we might have to wait until the middle of 2010.

Like I said, this is just noodling. The housing market might bottom sooner than I think, and the economy might start to recover even while the housing market still has a little more slumping to do. But probably not much before. I don't think I'd be surprised if we're still in recession this time next year.

Pure Libertarianism

| Wed Dec. 3, 2008 9:17 PM EST

PURE LIBERTARIANISM....Should the U.S. government bail out the auto industry? Arnold Kling comments:

This is an example where pure libertarianism gets you quickly to the right answer. Lose the "we," and instead ask, would I undertake this policy myself? That is, would I lend money to the auto makers? If the answer is that I wouldn't, then the implication is that "we" shouldn't.

The same reasoning applies to giving money to financial firms. I wouldn't, therefore we shouldn't.

Picture everyone in Congress who voted for TARP standing on a street corner in a Santa suit, ringing a bell, and asking for donations to pay for the rescues of AIG, Citigroup, and so forth. In a libertarian society, that is what they would have to do in order to fund the bailouts.

If that image doesn't move you in a libertarian direction, then nothing will.

Well, then, I guess nothing will. Because this sure doesn't do anything to persuade me.

As it happens, I'm not entirely convinced that Detroit ought to be bailed out. At the moment, I'm probably more in the "prepackaged bankruptcy" camp. Still, the whole point of government is that it does things for us collectively that we can't (or wouldn't) do individually. After all, if congressmen stood on corners begging for donations to the Pentagon they probably wouldn't raise enough to fund a single F-22, but that doesn't mean Congress shouldn't fund the Pentagon. Ditto for roads, courts, police, Social Security, unemployment insurance, foreign embassies, and national parks. The arch-angelic among us excepted, none of us would contribute much money to these causes unless we knew that everyone else who benefited from them was contributing too.

TARP is no different. We aren't rescuing banks because we feel sorry for bankers (though I'll concede that sometimes I kind of wonder about that), we're rescuing them because we think their failure would bring the economy down around our ears and we'd just as soon avoid that. A bit of collective action on this front will help keep all of us out of a repeat of the 1930s.

Now, that might be wrong. Go ahead and make the case for inaction on its merits if that's how you feel. But a generic claim that federal intervention is a bad idea because none of us would intervene as individuals just doesn't hold water for anyone who isn't already a hardcore libertarian. This is the kind of argument that hurts their cause, not the kind that helps it.

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Brazil Changes on Climate Change

| Wed Dec. 3, 2008 8:01 PM EST

The Brazilian government announced this week that it will curb Amazon deforestation by 70 percent over the next decade—an ambitious plan that will be formally presented at the UN climate change conference in Poland this week.

Home to the world's largest area of tropical woodlands, Brazil lost nearly 4,633 square miles of forest between 2007 and 2008. That's roughly the area of Connecticut. Previous efforts to limit deforestation include a recent crackdown on soy production.

Brazil's Environment Minister Carlos Minc said the plan should prevent 4.8 billion tons of carbon dioxide from being emitted through 2018.

America, take note.

—Nikki Gloudeman

Prop 8, The Musical: Maybe They Could Have Thought Of This Two Months Ago?

| Wed Dec. 3, 2008 6:22 PM EST

Via HuffPo, it's this star-studded musical "tribute" to Proposition 8, featuring the comedic and vocal talents of Margaret Cho, John C. Reilly, Maya Rudolph, Jack Black as Jesus, and a special appearance by Neil Patrick Harris. It's cute, but what does it say that the only celebrity Funny or Die was able to score before the election was Molly Ringwold? [Edit: okay, commenter, and Margaret Cho too.] Now that it's passed, everybody wants to come to the party. Feeling a little guilty for ignoring the queers, anyone? Urgh. Well, maybe one of the California Supreme Court justices will click on it.

The Trade Deficit

| Wed Dec. 3, 2008 4:20 PM EST

THE TRADE DEFICIT....Conventional wisdom says we need to run a big federal deficit in order to stimulate our way out of the current recession. Fine. But if we stimulate demand, that means we're going to be buying ever more stuff from overseas, which in turn means that our trade deficit will continue to remain large and growing, financed by the willingness of China and other trade surplus nations to stockpile U.S. treasury bills in return for shipping their stuff to us. Martin Wolf isn't impressed:

This is not a durable solution to the challenge of sustaining global demand. Sooner or later — sooner in the case of the UK, later in the case of the US — willingness to absorb government paper and the liabilities of central banks will reach a limit. At that point crisis will come. To avoid that dire outcome the private sector of these economies must be able and willing to borrow; or the economy must be rebalanced, with stronger external balances as the counterpart of smaller domestic deficits. Given the overhang of private debt, the first outcome looks not so much unlikely as lethal. So it must be the latter.

....In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries [i.e., countries like China –ed] must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.

Some argue that an attempt by countries with external deficits [i.e., countries like the United States –ed] to promote export-led growth, via exchange-rate depreciation, is a beggar-my-neighbour policy. This is the reverse of the truth. It is a policy aimed at returning to balance. The beggar-my-neighbour policy is for countries with huge external surpluses to allow a collapse in domestic demand.

I don't know what the answer to this is. U.S. consumption of goods and services is about 5% higher than U.S. production, and this can't keep up forever. Eventually our consumption has to go down and China's has to go up.

But not yet. Because we're in the middle of a financial panic and we need to keep domestic consumption high in order to keep from collapsing. And this isn't hard to do, because in one of the great ironies of a crisis that was brought on by the United States, nervous investors worldwide now believe that U.S. treasuries are the safest place to park their money in a troubled world. So for the time being, there are lots of buyers for treasuries, yields are nearly zero, and we're having no trouble at all financing a big federal deficit.

This won't last forever, of course. Panic will subside soon enough, the treasury bubble will burst, and foreign investors are going to start demanding higher returns. The dollar will have to depreciate, America will have to produce more and consume less, and the domestic economy will trundle along dismally for years until we manage to rebalance things.

Economists have been warning about this for years, of course. But over time, as nothing bad ever came of it, their warnings began to sound like crankery. After all, plenty of them warned us about the housing bubble for years too, and for the most part we didn't listen to them. In a few years, though, when the trade deficit bubble finally goes pear shaped, we're going to be asking once again why no one saw it coming. Even though lots of people did.

Like I said, I don't know what to do about it. The trade deficit bubble helped finance the housing bubble, and now that the housing bubble has burst it's the worst possible time to think about bursting another bubble as well. Eventually, though, the rest of the world will do it for us. Expect a bumpy ride.

British Police to Ask Music Venues for Ethnic Background of Audiences

| Wed Dec. 3, 2008 3:54 PM EST

mojo-photo-feargal.jpgOh those Brits. We just established that they really seem to like Kings of Leon, but it turns out some of their own most exciting musical subcultures give the police the willies. The UK Independent reports that music venues are to be subjected to a "new piece of bureaucracy" called Form 696, an eight-page questionnaire asking for private information about performers as well as the "ethnic background" of the likely audience. Eh, on what grounds, constable?