Kevin Drum - September 2008

Campaigning in Wonderland

| Wed Sep. 17, 2008 10:02 AM PDT

CAMPAIGNING IN WONDERLAND....Yesterday — or was it the day before? It's getting hard to keep track — Sarah Palin told a fib about the teleprompter breaking down during her acceptance speech. Megan McArdle comments:

What I don't get about this lie is the pointlessness. I expect politicians to lie. But I expect them to tell the standard sort of lies about how they will give us all $5 solar cars by 2010, and never, ever sleep with their staff. This seems like some sort of bizarre compulsive disorder.

There was a period during Bush's first term when his administration acted the same way. I don't mean the big lies, I mean the drumbeat of minor misrepresentations about almost everything. I remember there were times when I'd listen to something one of them said and think, the truth would have actually served them better. But for some reason they made up a less effective lie instead. It was like a reflex with them.

The same thing is starting to happen with the McCain campaign. Most of his lies are easy to understand. But now they've drifted into this kind of pointless stuff that doesn't even seem to provide any real benefit. I guess they're just creating their own reality.

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History of Russia

| Wed Sep. 17, 2008 9:31 AM PDT

HISTORY OF RUSSIA....American conservatives have been complaining for years about the teaching of American history to our impressionable youth. We should make our kids proud of America, not fill their heads with the Trail of Tears and Jim Crow and whatnot.

Apparently Vladimir Putin feels the same way about the teaching of modern Russian history and has endorsed a new textbook that emphasizes Russian greatness. Don't like it? Pavel Danilin, who wrote one of the chapters, has this to say:

"You may ooze bile but you will teach the children by those books that you will be given and in the way that is needed by Russia. And as to the noble nonsense that you carry in your misshapen goateed heads, either it will be ventilated out of them or you yourself will be ventilated out of teaching.... It is impossible to let some Russophobe shit-stinker (govnyuk), or just any amoral type, teach Russian history. It is necessary to clear the filth, and if it does not work, then clear it by force."

Sounds like a man of action. It's nice to know that Russian pedagogy is in such good hands.

The Meltdown

| Tue Sep. 16, 2008 11:33 PM PDT

THE MELTDOWN....OK, this is probably sort of a dumb question, but: Has anyone figured out yet how America's financial giants all managed to misprice the risk of the subprime mortgage market so spectacularly? Yes, I know bankers have been doing this forever. Centuries of experience tell us that they have the impulse control of five-year-olds. And yes, the rating agencies screwed up in a big (and possibly fraudulent) way. That certainly helped things along.

Still: it's not as if the bubbly nature of the U.S. housing market was a secret or something. It's been a hot topic of conversation for years. Everyone knew that there was at least a decent chance that the bubble would burst at some point. Even if you were an optimist, you'd concede the possibility.

So what happened? I don't buy the "black swan" theory. What happened wasn't that unusual or that unlikely. Anyone with access to a Case-Shiller chart and even a vague notion of what was going on in the mortgage market knew that a bursting of the bubble was a distinct possibility. So why did bankers get into a frenzy bidding each other down on the size of that possibility? Were their risk managers all out to lunch? Or did they all get overruled by the suits in mahogany row? What's the deal?

Tough Day at the Office

| Tue Sep. 16, 2008 9:30 PM PDT

TOUGH DAY AT THE OFFICE....First she gets fired from HP, now Carly Fiorina has been fired from the McCain campaign. Maybe the Fed should hire her to run AIG next?

Deer in Headlights

| Tue Sep. 16, 2008 3:15 PM PDT

DEER IN HEADLIGHTS....This is pretty laughable:

At a rally [in Tampa], Mr. McCain vowed to take aim at what he called the "unbridled corruption and greed that caused the crisis on Wall Street."

Mr. McCain — who has said for months that he believes that the fundamentals of the economy are strong — has used the word "crisis" a lot on the last day to describe the financial situation. He did so in a series of television interviews Tuesday morning, where he called for the creation of a commission to study the problem, along the lines of the commission that investigated the Sept. 11 attacks.

McCain has been running ads for weeks saying that he'll "reform Wall Street and battle Big Oil" — claims that usually prompt me to burst out laughing when they pop up on my TV. If there's a person in the entire country less likely than John McCain to reform Wall Street or battle Big Oil, I'm not sure who it is.

Of course, it would be a lot easier for Democrats to scoff at McCain if they hadn't mostly supported all the same financial deregulation that he did. I have my doubts that repealing Glass-Steagall contributed much to our current problems, but in any case the repeal was supported by Robert Rubin and Larry Summer and signed into law by Bill Clinton. Ditto for the Commodity Futures Modernization Act a year later. What's more, Democrats were mostly pretty happy about the rapid growth of subprime loans to low-income house buyers during the boom years, and a bunch of them supported the 2005 bankruptcy bill too. Hell, last year Senate Democrats couldn't even bring to a vote the biggest no-brainer of all time: a bill to close the carried interest loophole that allows billionaire hedge fund owners to avoid paying income tax at normal rates.

It's true that Barack Obama has some good ideas about re-regulation of Wall Street, and it's noteworthy that he's had these ideas for a while. McCain, conversely, is like a deer in headlights: he has no clue what's going on, so all he can do is keep repeating the word "crisis" like a windup doll and then call for a commission to dig up some answers for him. Not exactly inspiring leadership.

Still, Obama's job would be a lot easier if Democrats had spent the past eight years acting like Democrats. Think they'll learn a lesson from this?

All Downhill Now

| Tue Sep. 16, 2008 11:54 AM PDT

ALL DOWNHILL NOW....Did Sarah Palin peak 10 days ago and we just didn't know it? Maybe! John Sides has the chart.

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Stamp Tax

| Tue Sep. 16, 2008 11:23 AM PDT

STAMP TAX....Dean Baker proposes a simple way to put a modest damper on Wall Street — just enough of a damper, he suggests, to keep irrational exuberance from becoming too irrational:

The basic point is very simple. We impose a modest transactions tax on all financial transactions, for example a tax of 0.02 percent on the purchase or sale of a future contract or a tax of 0.25 percent on the purchase or sale of a share of stock. (The United Kingdom has had a tax of 0.25 percent on stock sales and purchases for many decades.) Such a tax could easily raise a $150 billion a year, enough to pay for a national health care program or a major clean energy initiative.

A tax of this magnitude will have almost no impact on someone who intends to buy and hold a financial asset. No airline is going to be discouraged from hedging on jet fuel futures because of a 0.02 percent tax, nor will any farmer be dissuaded from hedging on her corn crop.

....The only people who will really be hit by the tax are speculators; people who buy futures at 2:00, with the intentions of selling at 3:00. Even a modest tax can put a serious dent in the profits of those whose business is short-term speculation. We will therefore see less of this speculation, but it is hard to see why we should care.

This is sort of like the idea of charging a tiny fee for sending email: normal people wouldn't even notice it, but it's more than enough to make spamming a losing proposition. The difference is that an email tax is technologically impossible, while financial transaction taxes are generally quite simple and reasonably enforceable.

I only have two brief comments. First, I don't know if this is a good idea on the merits. However, I've always had a temperamental aversion to ultra-short-term speculation, so it seemed worth passing along just to spark some discussion. Second, unless I'm mistaken, this wouldn't have had any effect on our ongoing credit crisis, which was fundamentally caused by systemic mispricing of risk and the assumption of insane amounts of leverage, not too much speculation. (Also, perhaps, a bit of fraud here and there, but that's a little less clear.) So this shouldn't be taken as a proposal directly aimed at the current mess.

It still might be worth thinking about, though. Dean has more details in an old paper here.

Viral McCain

| Tue Sep. 16, 2008 10:16 AM PDT

VIRAL McCAIN....It's true that David Ignatius, Richard Cohen, and the Washington Post editorial board have become members of the Enough Club recently, all of them penning sad notes about the decline and fall of John McCain ("He has become the sort of politician he once despised," says former McCain groupie Cohen). But a friend emails to say that what's important isn't whether they say it, but whether anyone reads it. And judging from this morning's "Most Viewed Articles" list on the Post home page, people are reading it. And emailing it too. The McCain campaign has evidently decided that it's going to pretend not to care what anyone else thinks, but it looks like there's a chance that this won't work after all. Perhaps my faith in human nature will shortly be restored.

Engaging Iran

| Tue Sep. 16, 2008 9:36 AM PDT

ENGAGING IRAN....Should we engage directly with Iran, as Barack Obama suggests? The experts speak:

Five former U.S. secretaries of state said on Monday the next American administration should talk to Iran, a foe President George W. Bush has generally shunned as part of an "axis of evil."

....The five — Colin Powell, Madeleine Albright, Warren Christopher, James Baker and Henry Kissinger — all said they favored talking to Iran as part of a strategy to stop Tehran's development of a nuclear weapons program.

Sure, that's nearly every living former secretary of state in the last 30 years, but who listens to experts these days? Not John McCain! Listening to experts is for wimps.

Vote McCain, Lose Your Health Insurance

| Mon Sep. 15, 2008 11:47 PM PDT

VOTE McCAIN, LOSE YOUR HEALTH INSURANCE....Bob Herbert provides a preview of a new paper that analyzes the effects of John McCain's healthcare proposals:

A study coming out Tuesday from scholars at Columbia, Harvard, Purdue and Michigan projects that 20 million Americans who have employment-based health insurance would lose it under the McCain plan.

....According to the study: "The McCain plan will force millions of Americans into the weakest segment of the private insurance system — the nongroup market — where cost-sharing is high, covered services are limited and people will lose access to benefits they have now."

The net effect of the plan, the study said, "almost certainly will be to increase family costs for medical care."

Remember: this is a feature, not a bug. Republicans think Americans use too much healthcare, and they figure that the best way to fix this is to make it more expensive. So that's what McCain's plan does. It's a pretty typical specimen of the "more skin in the game" plan beloved of conservative think tanks.