Stress Test

STRESS TEST....Matt Yglesias comments on today's Nick Kristof column on the economic meltdown:

As he says “the larger conundrum is that a bailout is both: A) urgent and essential; and B) unfair and unpopular.” Thus far, officials have attempted to resolve that conundrum with timidity, but ultimately that results in measures that fail on both counts. What’s needed is more boldness — really decisive action to clean up the financial sector combined with measures that are tough enough on CEOs and shareholders to give the effort political legitimacy.
OK, but here's the problem: you also have to do this in a way that's at least nominally fair.  And the process has to be fairly transparent.  If you ask Vikram Pandit right now if Citigroup is solvent, he'll tell you it is — and he'll then haul out a detailed PowerPoint presentation to prove it.  Citigroup's internal numbers suggest that they're well capitalized and in no need of being taken over.

Now, those numbers are almost certainly hooey.  Certainly investors don't believe them, and to register their disbelief they've driven Citigroup stock down to almost nothing.  Nonetheless, the numbers are there, and the government can't be in the business of taking over banks that swear on a stack of Bibles that they're perfectly healthy.  This, I assume, is the point of Tim Geithner's stress test.  In the same way that the Swedes set up a transparent process to evaluate their banking sector in the early 90s and ended up nationalizing two banks but not the others, Geithner needs to set up a process that does the same here.  If the process is seen as fair, there will be way less political blowback when some of the big banks are taken over and others aren't.

This, anyway, is the optimistic point of view: that Geithner and Obama, far from being unwilling to nationalize insolvent banks, are merely setting up the political and financial process to make it tolerable in the near future.  The pessimistic view is that they're just screwing around and don't really have any plan at all.  For the moment, then, I plan to take the optimistic point of view just for the sake of my own mental health.  Your mileage may vary, of course.

The Economy Up North

THE ECONOMY UP NORTH....The economy in Canada is doing pretty well.  Fareed Zakaria explains why:

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.
Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north.
So there you have it.  Keep your housing bubble to merely huge but not gargantuan size, and keep the gearing in your banking sector to merely huge but not gargantuan levels, and you'll do OK.  Boring, isn't it?
I was encouraged to see this, kind of:
...the Federal Election Commission has closed the books on 17 more campaign finance investigations... Among those fined were Sen. Mel Martinez and former House Minority Leader Richard A. Gephardt.
Martinez, R-Fla., was fined $99,000 for exceeding contribution limits in his 2004 campaign by some $313,000, and for not properly filing required forms.
Gephardt, D-Mo., was fined $42,000 for accepting $211,000 in donations beyond the limit in his 2004 presidential bid and for spending $163,000 more on the Iowa caucuses than allowed.

These fines are hefty, and I'm happy to see the FEC extract them. But this highlights a major shortcoming in the way the FEC does business -- fining politicians five years after they violate elections law does not provide them with a serious disincentive for doing it again. If you're a special interest group and you desperately want to see a proposition defeated or a candidate booted from office, you are far more likely to circumvent the law in order to do so if you know you can tie the FEC up in legal knots for years and only pay a fine way down the road.

And let's say you do get hit with a serious fine five years on. Half a decade's worth of beneficial policy that you got by cheating the electoral system is almost certainly worth a couple hundred thousand bucks, right? For more on how/why the FEC doesn't work like it should, see here and here.

Good News

GOOD NEWS....Some modestly good news today:
U.S. retail sales jumped 1% in January, reversing a six-month declining trend and defying economists' expectations by posting the biggest increase in 14 months.
What else?  For my local readers, a solar firm has signed yet another deal to provide Southern California with 1,300 megawatts of solar electricity.  The first plant should be operational in four years.

And the California legislature has supposedly reached a deal to "balance" the state budget.  It includes $15 billion in spending cuts, $15 billion in tax increases, and $12 billion in smoke and mirrors — which isn't a bad ratio considering how prevalent accounting tricks usually are.  Now all we have to do is round up two or three non-insane Republicans to vote for it.  Stay tuned.
As the economy collapses around our heads, the federal government is preparing financial bailout packages totaling an estimated $2 trillion--and that, perhaps, just to start. There's a lot of money going out the door, but one potential loser could be the Pentagon, reports UPI. A notoriously profligate spender (read this), the Defense Department, according to the Congressional Budget Office, accounts for more than half of all federal discretionary spending and about 4.5 percent of GDP. And despite what you may think, the Pentagon's budget has not declined since the end of the Cold War; it's now 20 percent greater, adjusted for inflation, than it was in 1985 when President Reagan was spending the Soviets into the ground.

In short, the Pentagon is flush with cash, but could the glory days of almost limitless spending be winding down? Defense Secretary Robert Gates seems to think so. "The spigot of defense spending that opened on Sept. 11 is closing," he said at a Senate hearing last month. But the reality of a leaner fiscal climate comes at a bad time for the military services, which are straining to maintain readiness while fighting a two-front war. There's equipment to refurbish or replace, soaring personnel costs, and next-generation weapons to develop.

Senate and House negotiators cut a $50 billion provision from the stimulus package Wednesday that would have allocated funds for federal loans to the nuclear and coal industries.

The so-called "nuclear pork" authorized loans under the Energy Policy Act of 2005, which was intended to help fund alternative energy sources, but diverts the bulk of subsidies and tax breaks to nuclear reactors and "clean" coal plants.

Christians have Christmas. Atheists have Charles Darwin's birthday--a date that has inspired months of zealous non-worship in the lead-up to today’s fete of his 200th. Before midnight the world will have witnessed some 600 Darwin Day events, from the Darwin Day Barbecue in Melbourne, Australia, to the Darwin Day Rally in Dhaka, Bangladesh, to the Darwin Day Evolutionpalooza, a gathering last Sunday in the basement conference room of the San Francisco Public Library, where 100 guests of the local atheist club ate birthday cake and heard the Charles Darwin Backup Singers belt out “The Twelve Ages of Evolution,” a Christmas-inspired ditty that ended with the Pleistocene era’s shopping list of "bisons and humans, hawks and higher primates, horses and whales, conifers and mammals, bipedal dinosaurs, reptiles, trees, and insects, spiders, mites and sharks, land plants and fish!" And the list went on.

Other than taking place in America's most Godless major city, San Francisco’s D-Day was notable for the presence of the mutton-chopped Darwin himself, who took to a podium in a chiffon scarf tied like a cravat and thanked the crowd for "all your great efforts in channeling me into the 21st Century." Forthwith began the kind of autobiography that could only come from a scientist--a mostly dry, rambling affair occasionally enlivened by Far Side jokes. "I have a friend who was Unitarian," Darwin said at one point, without mentioning that he was raised as one, "and the Klu Klux Klan burned a question mark in front of his house."

Evolutionpalooza, which was advertised on Facebook with a drawing of hominids evolving into a man carrying a birthday cake, is the brainchild of atheist author David Fitzgerald, who’d shown up wearing the classic walking fish shirt. "I hesitate to venerate Darwin too highly, to make him sound like he's our prophet," he told me. "There's already so much baggage attached to that kind of thing." But, he added, Darwin was a convenient rallying point in the effort of group’s 1,000 members to counteract the Religious Right. And they certainly had cause to party: President Barack Obama had proclaimed during his inauguration speech that “we are a nation of Christians and Muslims, Jews and Hindus — and non-believers.” This followed by Darwin’s bicentennial hinted at sunrise over a decade of darkness: “I have never been more optimistic about seeing Atheism being accepted in America,” Fitzgerald said. “The more we learn, the less plausible any one of those religions out there seems.” 

Joaquin Phoenix went on Letterman Wednesday night, ostensibly to promote his new movie Two Lovers, but it was his combative, monosyllabic appearance that made news. The Walk the Line actor seemed to get perturbed that the audience didn't take his hip-hop career seriously, just about got in a fight with Paul Shaffer, and stuck his gum to Dave's desk, in addition to being all shades-and-beardy. Honestly, I try to reserve my Riff postings for actual, somewhat serious arts and culture news (and French techno tunes I think are awesome), but this really must be seen to be believed. Is he doing a shoot-the-moon, Andy Kaufman bit, or is he just trying to burn up his feathers and nest so he can emerge anew? Only time, and the new J-Pho album, will tell.

Site Update

NEW SITE....This is it: our new site is now up and running.  Hooray!  However, there are almost certainly still some bugs in the system, so please be patient for the next couple of days as we work out the kinks and improve the performance.  If you find a bug, or have any kind of complaint, email it to:
web-feedback@motherjones.com
A note on comments: in order to reduce comment spam, we've installed a captcha app that asks you to type in a word in order to verify that you're actually a human being.  If you register a username, however, you don't need to do this.  If you don't want to register, you should feel free to comment regardless, but if you're a regular it's probably worth your while to register.

Welcome to the new site!

The Textbook Ripoff

THE TEXTBOOK RIPOFF....Andrew Gelman:

I received a free copy in the mail of an introductory statistics textbook; I guess the publisher wants me to adopt it for my courses....I showed the book to Yu-Sung and he said: Wow, it's pretty fancy. I bet it costs $150. I didn't believe him, but we checked on Amazon and lo! it really does retail for that much. What the....? I asked around and, indeed, it's commonplace for students to pay well over $100 for introductory textbooks.

Andrew wants to know why textbooks are so expensive. Henry Farrell too. Add me to the list. I've heard various explanations for the skyrocketing cost of textbooks. They're bigger these days. They use more color. They include CDs and multimedia bells and whistles. Etc. But here's a data point. I only have one of my college textbooks still in my possession, but I just got it off the shelf to see if it had a price in it. It did: $17.25. That was in 1976, and adjusted for inflation it comes to $64 in today's dollars. So what does it currently cost on Amazon? Answer: $132. It is, as near as I can tell, the exact same book. Same binding, same number of pages, same charming lack of color. In fact, browsing through it, it looks as if it's being printed from the same plates as it was in 1976. This, then, is obviously a book that ought to be cheaper today than it was three decades ago. The costs of production have long since been paid back, there's a ton of competition from the used book market since the book hasn't changed in 30 years, and I imagine that author royalties are the same as ever. For reference, a similar size commercial hardback would run about $40 these days. So what is the deal? Why are textbooks such a ripoff?